Highland Capital Management LP won a $40 million jury award after successfully arguing Credit Suisse AG duped the Dallas-based debt manager into refinancing a shaky real-estate development.
The Dallas jury, which began its deliberations Dec. 17, found Credit Suisse 65% at fault on Friday, limiting the judgment. A lawyer for the Swiss bank said the award will be offset.
“The court has not yet applied other settlement credits to this and when those amounts are applied, this is a take-nothing judgment,” the lawyer, Jeffrey Tillotson, said in an interview after the verdict.
Highland’s Claymore Holdings LLC said Credit Suisse knowingly used a flawed appraisal to prod investment in Lake Las Vegas, a 3,592-acre residential and resort community that filed for bankruptcy in 2008. Zurich-based Credit Suisse said the investment soured because of the recession and Highland wasn’t misled.
The 2013 lawsuit mirrors one brought by two other Highland entities against Credit Suisse in New York state court that claimed the bank marketed loans for the Yellowstone Club in Montana and other developments based on fraudulent appraisals. That lawsuit, which was seeking more than $350 million, was rejected by the New York court.
Tillotson said lawsuits traded between Credit Suisse and Highland over the Lake Las Vegas project “have Highland in the hole in terms of his battle.”
Highland said the bank used a flawed appraisal that inflated the value of collateral backing $540 million in loans for a refinancing of Lake Las Vegas in 2007. The deceit was motivated by the fees the bank earned to underwrite the transaction, Highland claimed.
“They had $7 million reasons to do this deal,” William Reid, Highland’s attorney, said in closing arguments Dec. 17, referring to the fees. “They were not doing it to help Highland Capital.”
Credit Suisse worked with the appraiser to raise the value of the collateral, Reid said. Mistakes known to Credit Suisse were deliberately left in the appraisal given to Highland, Reid said.
“We were tricked. We were duped. We were misled,” he told the jury.
Highland went into the 2007 refinancing with “eyes wide open,” David Lender, the bank’s lawyer, said in his closing argument. “What caused the losses here is that Highland Capital made a bet before one of the worst economic downturns ever seen and now they’re asking you to guarantee its losses.”
Highland pushed ahead with its investment even though sales at Lake Las Vegas had already stalled, with none expected over the next two years, Lender said. Highland was attempting to get a controlling position on the loan and didn’t care about the appraisal, Lender said. “Highland was aggressively increasing its position before there ever was an appraisal.”
Credit Suisse believed in the project and took a $40 million position in the loan, Lender said. It eventually lost $18 million. Lake Las Vegas, in Henderson, Nevada, is 17 miles (27 kilometers) east of the Las Vegas Strip, and centered on a 320- acre man-made lake, according to its website.
The resort includes hotels, golf courses, a shopping village and luxury home developments. Among recent investors in the area is Paulson Co., the hedge fund run by billionaire John Paulson, which bought 875 acres in the resort in 2012.
“We pursued this litigation only after repeated attempts to reach a settlement and get Credit Suisse to take responsibility for contriving to manipulate the appraisal process,” Scott Ellington, Highland’s general counsel, said in a statement. “We are pleased the jury held Credit Suisse accountable for its actions.”
The case is Claymore Holdings LLC v. Credit Suisse AG, 13-07858, District Court, Dallas County, Texas.