Kramer Levin Secures Significant Victory for Highland Capital as Fifth Circuit Upholds Key Aspects of Reorganization Plan

On Aug. 19, 2022, Kramer Levin won a significant victory for client Highland Capital Management when the Fifth Circuit upheld all the key aspects of a bankruptcy court’s order confirming Highland Capital’s plan of reorganization. The court turned aside a panoply of challenges based on the absolute priority rule, noncompliance with a reporting rule, and alleged errors in factual findings about ousted Highland founder James Dondero’s control of various litigious entities.

Most importantly, the court rejected various attacks on plan provisions — an exculpation provision, a gatekeeping provision, and an injunction — that were crafted to protect those who had steered Highland through bankruptcy against likely litigation by Dondero and his entities. In particular, the Fifth Circuit held that a debtor’s independent directors, appointed to shepherd the company through bankruptcy, are appropriately exculpated from liability for performing that role. The court did narrow the exculpation clause in other respects, but it upheld the heart of the plan’s exculpation clause.