MARY E. BIVINS FOUNDATION, Appellant v. HIGHLAND CAPITAL MANAGEMENT L.P., James Dondero, and Mark Okada, Appellees
2014 Tex. App. LEXIS 12043
| Tex. App. | 2014Background
- Highland Credit Strategies Fund Ltd. (Bermuda hedge fund) used Highland Capital Management L.P. (HCM) as its investment manager; HCM’s president (Dondero) and CIO (Okada) were named defendants. The Mary E. Bivins Foundation invested about $2 million in the Fund in March 2006 and requested redemption in March 2008.
- The Fund valued the Foundation’s redemption at $1,904,053 and settlement was to occur within nine months per governing documents. Before full payment, HCM decided in October 2008 to wind down the Fund and involuntarily redeemed remaining investors.
- Fund creditors/investors approved a Bermuda court ‘‘Scheme of Arrangement’’ that prioritized distributions: prior redeemers (like the Foundation) received initial distributions and then 85% of remaining amounts; HCM agreed to fund a trust and the Officers guaranteed part of it in exchange for releases.
- The Foundation sued in Texas state court claiming negligence, gross negligence, unjust enrichment, money had and received, civil conspiracy, breach of fiduciary duty, and violation of the Texas Theft Liability Act, alleging HCM/Officers delayed payment and reinvested funds to protect their own positions.
- Defendants sought recognition of the Bermuda Scheme and moved for no-evidence and traditional summary judgment; the trial court granted summary judgment on all grounds. The court of appeals reviewed the no-evidence grounds and affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Duty for negligence / gross negligence | HCM and Officers controlled fund investments and thus owed duty to prudently manage and honor redemption requests | HCM’s duty was to the Fund (contract), Officers’ duties were to HCM; no legal duty to individual investors | No duty existed to Foundation under these facts; no-evidence summary judgment affirmed |
| Unjust enrichment / money had and received | HCM admitted Foundation’s redemption request and reinvested assets; HCM will or did receive assets otherwise due to Foundation | No evidence HCM received any Fund distributions; future receipt is insufficient | No evidence that HCM holds money that belongs to Foundation; claim fails |
| Civil conspiracy | HCM and Officers conspired to protect own investments by not liquidating assets to pay redemptions | Conspiracy requires an underlying tort; no evidence of underlying torts | Fails because underlying tort claims lack evidence; claim fails |
| Breach of fiduciary duty / TTLA (theft) | HCM’s management control and alleged self-dealing created fiduciary duties; redemption made Foundation a creditor whose funds were unlawfully appropriated | No Texas authority that investment manager owes fiduciary duty to fund investors; creditors do not own corporate assets; no evidence of unlawful appropriation | No fiduciary duty; no evidence of theft or misappropriation; claims fail and summary judgment affirmed |
Key Cases Cited
- Travelers Ins. Co. v. Joachim, 315 S.W.3d 860 (Tex. 2010) (standard of review for summary judgment)
- City of Waco v. Kirwan, 298 S.W.3d 618 (Tex. 2009) (factors for imposing negligence duty)
- Goldstein v. SEC, 451 F.3d 873 (D.C. Cir. 2006) (investment adviser–hedge fund analysis; investors not necessarily clients/fiduciaries)
- SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180 (U.S. 1963) (disclosure duties under Investment Advisers Act discussed)
- Sutton v. Reagan & Gee, 405 S.W.2d 828 (Tex. Civ. App.—San Antonio 1966) (creditor does not own corporate assets; limited ability to sue for corporate mismanagement)