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Alternative investment company NexPoint Advisors LP faced intense scrutiny Wednesday before the Fifth Circuit, where it attempted to justify paying $7.7 million for services it alleged were undelivered by affiliate Highland Capital Management. This appeal concerns a $2.6 million bill NexPoint received after terminating a contract prematurely with Highland.

The dispute arose from shared services agreements made in 2018 between the two companies for 25 employees and services. After Highland filed for bankruptcy in October 2019, some employees left or were terminated, yet Highland continued billing NexPoint for all 25 employees. NexPoint argues it should not be liable for paying for services it did not receive. However, the case became more complicated when U.S. Circuit Judge Jerry Smith questioned NexPoint’s attorney on why the payments continued despite the knowledge that many employees had already been let go.

Judge Smith expressed disbelief, asking, "Your client knew that many of these employees had been terminated, but you continued to pay for about 35 months?" NexPoint’s attorney, Davor Rukavina, explained that, due to federal law and the bankruptcy freeze, NexPoint could not terminate the agreements without violating legal obligations. He further stated that negotiations with Highland were unfruitful as the company refused to engage in any meaningful discussions.

Highland’s attorney, John Morris, countered, asserting that Highland's management was in charge of both companies, including CFO Frank Waterhouse, who signed all the reimbursement agreements. Waterhouse, who is still involved with NexPoint, approved payments despite knowing the status of the employees. Morris emphasized that NexPoint received the services they paid for and that Highland was not in breach of contract.

The legal battle escalated when Highland filed for Chapter 11 protection just ahead of a Delaware court hearing on a significant arbitration award. Highland argued that it continued providing services under the terms of the agreements, and NexPoint's claim for reimbursement was unjust.

The bankruptcy court ruled that Highland had not breached its contract and found that NexPoint owed Highland $2.6 million for the services rendered. As the case proceeds, NexPoint’s attorneys will continue their appeal, attempting to overturn this ruling in the Fifth Circuit.

The panel reviewing the case included Judges Jerry E. Smith, Carl E. Stewart, and Stuart Kyle Duncan.