Dondero v. Highland Captl Mgmt
- Case Type:
- Business
- Case Status:
- Affirmed
- Citation:
- 22-10889 (5th Circuit, Jul 01,2024) Published
- Tag(s):
-
- Ruling:
- In its second opinion of the year arising from contempt orders and sanctions awards against the former CEO of debtor Highland Capital Management, the Fifth Circuit affirmed the Bankruptcy Court's civil contempt award of $450,000 against the former CEO. The award, based largely on detailed invoices and partially on the bankruptcy judge's estimate of other expenses incurred, provides a "rough justice" approximation of legal fees and related costs incurred by the debtor's estate in bringing a successful motion for contempt based on the CEO's violation of a temporary restraining order.
- Procedural context:
- Highland Capital Management, L.P. filed a chapter 11 petition in October 2019. To avoid appointment of a chapter 11 trustee, Highland's CEO (Dondero), Highland, and its Official Committee of Unsecured Creditors agreed to restructure Highland's board, to appoint a new CEO/CRO, and to allow Dondero to continue working as an unpaid portfolio manager for non-Highland entities whose funds were managed by Highland. By October 2020, relationships had soured to the point that Dondero resigned his unpaid position at the demand of the board. In December 2020, Highland moved for a temporary restraining order and preliminary injunction against Dondero in response to his alleged interference in Highland's business. The Bankruptcy Court granted the TRO on December 10. On January 7, 2021, Highland moved for an order requiring Dondero to show cause why he should not be held in civil contempt for violating the TRO.
- Facts:
- In the Bankruptcy Court, Highland established that Dondero violated two separate provisions of the TRO: (1) communicating with Highland's employees for purposes not allowed by the TRO, and (2) interfering with Highland's trading activities. The evidence included emails from Dondero to Highland's in-house counsel asking for evidence of the new CEO's ineptitute and directions to other Highland employees to not execute trades that Highland wanted executed. The Bankruptcy Court found Dondero in civil contempt of court due to these violations. The Bankruptcy Court imposed a $450,000 compensatory sanction award against Dondero, to be paid to Highland, and a $100,000 sanction "for each level of rehearing, appeal, or petition for certiorari" unsuccessfully pursued. The District Court affirmed all aspects of the contempt order except for the prospective $100,000 sanction for unsuccessful appeals, which Highland did not contest. Dondero appealed to the Fifth Circuit. (NOTE: The Fifth Circuit's opinion in this appeal is distinct from its opinion issued earlier this year arising from a separate finding of criminal contempt against Dondero and related award of attorneys' fees. See In re Highland Cap. Mgmt., L.P., 98 F.4th 170, 176 (5th Cir. 2024).)
- Judge(s):
- Southwick, Smith, and Higginson
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