The U.S. Supreme Court has called on the Solicitor General to weigh in on a contentious dispute arising from the Highland Capital bankruptcy suit, a case that could redefine how far bankruptcy courts can go in protecting restructuring professionals from a flood of retaliatory lawsuits.
In a Tuesday order list, the justices invited the Office of the Solicitor General to submit briefs outlining the federal government’s position on Highland Capital Management’s petition challenging a Fifth Circuit ruling that significantly narrowed a key gatekeeping mechanism in its Chapter 11 reorganization plan.
The Fight Over Highland’s Gatekeeper Provision
At the heart of the case lies a legal firewall designed to block unnecessary or malicious litigation against parties involved in the hedge fund’s restructuring. The Fifth Circuit Court of Appeals, in a March decision, determined that Highland’s injunction went too far — requiring certain parties, including the fund’s controversial co-founder James Dondero, to obtain bankruptcy court approval before suing individuals connected to the case.
The court said the plan’s gatekeeping clause needed to be narrowed further, even after Highland had already scaled back its third-party releases following a previous appellate ruling.
Highland, once a Dallas-based hedge fund powerhouse, argues that removing or weakening this safeguard would expose its restructuring advisers to frivolous and harassing lawsuits, jeopardizing the smooth execution of future bankruptcy proceedings nationwide.
