The U.S. Supreme Court on Monday denied Highland Capital Management’s request to maintain legal protections shielding key parties involved in its Chapter 11 bankruptcy case. This decision upholds a prior ruling by the Fifth Circuit Court that limits the bankruptcy court’s authority to act as a “gatekeeper” determining who may be sued in the matter.
Justice Samuel Alito Jr., issuing a brief one-page order without explanation, rejected Highland’s appeal and vacated a stay that had temporarily blocked potential lawsuits while the Supreme Court reviewed the case.
Highland Capital Management, a Dallas-based hedge fund, filed for Chapter 11 bankruptcy protection in October 2019 amid significant financial challenges. The fund’s former CEO, James Dondero, along with affiliates including NexPoint Asset Management LP, contested the restructuring plan, sparking extensive litigation.
The bankruptcy plan originally included a broad provision requiring court approval before lawsuits could proceed against various parties involved in the bankruptcy. Although initially approved by a Texas bankruptcy judge, the Fifth Circuit partially reversed this, holding that only the debtor, independent directors, and creditors’ committee were entitled to such protections.
Highland sought Supreme Court review, arguing that bankruptcy courts must have broad powers to shield individuals and entities working to reorganize failing companies from harassment. The fund also emphasized that ongoing litigation driven by Dondero threatened to undermine nearly six years of reorganization efforts.
NexPoint opposed Highland’s emergency application, stating that the fund failed to demonstrate irreparable harm or a likelihood of success on appeal. NexPoint described the gatekeeping provision as “perhaps the broadest gatekeeper injunction ever written into a bankruptcy confirmation plan” and welcomed the Supreme Court’s denial of Highland’s request.
The Supreme Court’s decision affirms the Fifth Circuit’s limitation on bankruptcy court powers and allows litigation against nondebtors associated with Highland’s Chapter 11 case to proceed.
