EFiled: Mar 21 2019 04:43PM EDT

Transaction ID 63088338
Case No. 12533-VCZ
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

REDEEMER COMMITTEE OF THE )

HIGHLAND CRUSADER FUND, )
)
Plaintiff, Counterclaim )
Defendant, )
)
v. )
)
HIGHLAND CAPITAL )
MANAGEMENT, L.P., )
) C.A. No. 12533-VCZ
Defendant, Counterclaim )
and Third-Party Plaintiff, ) PUBLIC VERSION EFILED
) MARCH 21, 2019
v. )
)
HOUSE HANOVER, LLC, and )
ALVAREZ & MARSAL CRF )
MANAGEMENT, LLC, )

Third-Party Defendants.

PLAINTIFF’S BRIEF IN SUPPORT OF ITS

MOTION FOR ENTRY OF A STATUS QUO ORDER
OF COUNSEL
Terri L. Mascherin
Andrew W. Vail
Shaun M. Van Horn
Matthew S. Hellman
JENNER & BLOCK, LLP
353 North Clark Street
Chicago, IL 60654-3456
(312) 222-9350
William M. Lafferty (#2755)
Kevin M. Coen (#4775)
Jarrett W. Horowitz (#6421)
MORRIS, NICHOLS, ARSHT &
TUNNELL LLP
1201 North Market Street
Wilmington, DE 19801
(302) 658-9200
Attorneys for Plaintiff Redeemer Committee
of the Highland Crusader Fund

March 14, 2019

 i.

TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES .................................................................................... ii

INTRODUCTION ..................................................................................................... 1

FACTUAL BACKGROUND .................................................................................... 5

I. THE CRUSADER FUND LIQUIDATION.......................................... 5

II. MARCH 2019 PARTIAL FINAL ARBITRAL AWARD ................... 6

III. HIGHLAND’S HISTORY OF DEFRAUDING

JUDGMENT CREDITORS .................................................................. 8

ARGUMENT ........................................................................................................... 13

I. THE AWARD WILL BE CONFIRMED INTO A

JUDGMENT. ...................................................................................... 14

II. THE COMMITTEE AND THE INVESTORS WILL BE

IRREPARABLY HARMED IF HIGHLAND IS NOT
REQUIRED TO MAINTAIN THE STATUS QUO
PENDING CONFIRMATION............................................................ 17

III. THE BALANCE OF HARMS STRONGLY FAVORS

ISSUANCE OF A STATUS QUO ORDER. ...................................... 21

CONCLUSION ........................................................................................................ 25
 ii.

TABLE OF AUTHORITIES

Page(s)

Cases
Audio Jam, Inc. v. Fazelli,
1997 WL 153814 (Del.Ch. Mar. 20, 1997) ........................................................ 16

Bajaj v. Fisher Asset Mgmt., LLC,

2012 WL 1293169 (D. Del. Apr. 10, 2012) ....................................................... 14

Brinati v. TeleSTAR Inc.,

C.A. No. 8118, 1985 WL 44688 (Del. Ch. Sept. 3, 1985) ................................. 18

Cabot Corp. v. Thai Tantalum Inc.,

No. 12580, 1992 WL 172678 (Del. Ch. Jul. 22, 1992) ...................................... 23

Chartis Warrantyguard Inc. v. Nat’l Elecs. Warranty LLC,

No. 5764-VCP, 2011 WL 336385 (Del. Ch. Jan. 28, 2011) .............................. 13

Daugherty v. Highland Capital Mgmt., L.P., et al.,

No. 2017-0488-SG (Del. Ch. Aug. 14, 2018) ....................................3, 11, 12, 19

Del. State Coll. v. Del. State Coll. Chapter of the Am. Ass’n of Univ.
Professors,
1987 WL 16509 (Del. Ch. Aug. 31, 1987) ......................................................... 14

Destra Targeted Income Unit Inv. Tr. v. Parmar,

2017 WL 373207 (Del. Ch. Jan. 25, 2017).............................................18, 22, 23

Flight Options Int’l., Inc. v. Flight Options, LLC,

2005 WL 5756537 (Del. Ch. July 11, 2005) ...................................................... 21

Garden City Irr., Inc. v. Salamanca,

2005 WL 927001 (N.Y. Sup. Ct. Apr. 18, 2005) ............................................... 18

Highland Capital Mgmt., L.P. v. Daugherty,

12-04005 (Tex. Dist. Ct. Dec. 1, 2016) .............................................................. 11

Holland v. Frank V. Carlow Irrevocable Trust,

176 F.R.D. 416 (D.D.C. 1997) ........................................................................... 19
 iii.
TABLE OF AUTHORITIES (Continued)

Page(s)

Hoxworth v. Blinder, Robinson & Co., Inc.,

903 F.2d 186 (3d Cir. 1990) ............................................................................... 19

In re Acis Capital Mgmt., L.P.,

584 B.R. 115 (Bankr. N.D. Tex. 2018)................................................................. 9

In re Acis Capital Mgmt., L.P.,

No. 18-30264-SGJ-11, 2019 WL 417149 (Bankr. N.D. Tex. Jan.
31, 2019) ......................................................................................................passim

In re Desai,
2012 WL 6737483 (Bankr. D. Mass. Dec. 28, 2012) ......................................... 21

In re Estate of Ferdinand Marcos, Human Rights Lit.,

25 F.3d 1467 (9th Cir. 1994) .............................................................................. 18

In re Feit & Drexler, Inc.,

760 F.2d 406 (2d Cir. 1985) ............................................................................... 19

Kansas City S. v. Grupo TMM, S.A.,

2003 WL 22659332 (Del. Ch. Nov. 4, 2003) ..................................................... 21

KL Golf, LLC v. Frog Hollow, LLC,

2004 WL 828377 (Del. Ch. Apr. 8, 2004) ....................................................14, 21

Mitsubishi Power Sys. Ams., Inc. v. Babcock & Brown Infrastructure

Grp. US, LLC,
2009 WL 1199588 (Del. Ch. Apr. 24, 2009) ................................................18, 22

Perelman v. Champion Parts Rebuilders, Inc.,

No. 88 C 4231, 1988 WL 67409 (N.D. Ill. June 17, 1988) ................................ 23

Raptor Sys., Inc. v. Shepard,

No. CIV. A. 13614, 1994 WL 512526 (Del. Ch. Sept. 12, 1994) ...................... 13

Ruggerio v. State Farm Mut. Auto. Ins. Co.,

1999 WL 499459 (Del. Ch. June 23, 1999)........................................................ 15

SPX Corp. v. Garda USA, Inc.,

94 A.3d 745 (Del. 2014) .........................................................................14, 16, 17
 iv.
TABLE OF AUTHORITIES (Continued)

Page(s)

St. Paul Travelers v. Hoffman,

2007 WL 1662630 (Del. Ch. May 30, 2007)................................................14, 15

TD Ameritrade, Inc. v. McLaughlin, Piven, Vogel Sec., Inc.,

953 A.2d 726 (Del. Ch. 2008) ......................................................................14, 16

UBS Sec. LLC et al. v. Highland Capital Mgmt., L.P. et al.,

No. 650097/2009 (N.Y. Sup. Ct.) .............................................................4, 12, 13

United Paperworkers Int'l Union, AFL–CIO v. Misco, Inc.,

484 U.S. 29 (1987) .............................................................................................. 17

United Steelworkers of Am. v. Enter. Wheel & Car Corp.,

363 U.S. 593 (1960) ............................................................................................ 17

Westerbeke Corp. v. Daihatsu Motor Co.,

304 F.3d 200 (2d Cir. 2002) ............................................................................... 16

Rules and Statutes

10 Del. C. § 5714(a) ................................................................................................. 16

Delaware Uniform Arbitration Act .......................................................................... 15

 1.

INTRODUCTION

Plaintiff Redeemer Committee of the Highland Crusader Fund (the

“Committee”) respectfully submits this brief in support of its motion for a status

quo order. The Committee seeks the entry of its proposed status quo order pending

the Court’s confirmation of a partial final arbitration award (“Award”) issued

against Defendant Highland Capital Management, L.P. (“Highland”). The

Committee has filed a separate motion seeking expedited summary judgment to

confirm the Award.

Following more than two years of arbitration and a three-week hearing

conducted last fall, on March 6, 2019, a panel of the American Arbitration

Association (“AAA”) issued its Award, which resolves liability on all claims

brought by the Parties and damages or other relief for most of the claims. The

Panel found in favor of

 3.

The Committee seeks a status quo order pending expedited confirmation of

the Award because there is serious risk that Highland will take actions outside the

ordinary course of business to alienate assets, change contracts or corporate

documents or otherwise act to thwart

The Committee’s concerns in this regard are substantiated by at least three

different examples—two very recent—in which Highland has engaged in

fraudulent transfers or wrongful conduct to prevent successful arbitrants and

judgment creditors from enforcing judgments against Highland and its affiliates.

Two months ago, the United States Bankruptcy Court for the Northern
District of Texas enjoined Highland and its officers from transferring
assets held by one of its bankrupt affiliates, Acis Capital Management
(“Acis”), finding “substantial evidence of both intentional and
constructive fraudulent transfers” with the “actual intent to hinder,
delay or defraud the Debtors’ creditors.” In re Acis Capital Mgmt.,
L.P., No. 18-30264-SGJ-11, 2019 WL 417149, at *11 (Bankr. N.D. Tex.
Jan. 31, 2019) (emphasis added) (“Acis Order”). The bankruptcy
originated because, as the court found, Highland caused Acis to transfer
assets and contract rights after a former employee had obtained a
sizeable arbitration award against the affiliate, but before that award was
confirmed in a judgment. Id.

In a Delaware Court of Chancery action in 2018, a judgment creditor of

another Highland entity, Highland Employee Retention Assets, LLC
(“HERA”), filed suit to unwind alleged fraudulent transfers Highland
executed to render HERA insolvent to avoid paying a judgment arising
from a jury verdict in Texas State court. (Ex. B, First Am. Verified
Compl. Daugherty v. Highland Capital Mgmt., L.P., et al., No. 2017-
0488-SG (Del. Ch. Aug. 14, 2018) (“Daugherty Complaint”).) Among
other things, that judgment creditor claims that Highland wrongfully
directed its Delaware counsel to distribute to Highland all of the contents
of an escrow account that the firm was holding for the benefit of the
creditor. (Id. at 20.)
 5.

The Committee’s proposed Status Quo Order is

similar to the Agreed Standstill Order agreed to by the parties and adopted by Vice

Chancellor Glasscock in the July 11, 2016. (Ex. C, Emergency Interim Order, at 3

(AAA, Aug. 2, 2016).) The Court issued that order to ensure that Highland would

not interfere with the transition of management of the Crusader Fund to the new

investment manager after the Committee terminated Highland. The Committee

requests that the status quo order remain in place at least until the Award is

confirmed.3

FACTUAL BACKGROUND

I. THE CRUSADER FUND LIQUIDATION

The history of the disputes between the parties is discussed in detail in the

Award and summarized below for context. Highland is the former manager of the

Crusader Fund. (Award at 1-2.) The Committee consists of nine representatives of

investors, elected from among the Crusader investors to oversee Highland’s

liquidation of the Fund pursuant to a Plan of Distribution and a Scheme of

Arrangement which were put in place after the Fund suffered massive losses under

Highland’s management at the outset of the 2008 financial crisis. (Id. at 1, 3.) The

Committee terminated Highland as manager in July 2016 after discovering that

3
The Committee requests the Court permit it the opportunity to seek to
continue the status quo order, or other appropriate relief, following
confirmation of the Award because the concerns expressed in this motion
may persist pending confirmation of the final damages award.
 6.

Highland wrongfully and secretly took from the

Fund. (Id at 4.) Simultaneous with the termination, the Committee initiated

arbitration against Highland before the AAA and filed this action, seeking, among

other relief, a status quo order in aid of the orderly transition of management of the

Fund to a new manager selected by the Committee. (Id.)

II. MARCH 2019 PARTIAL FINAL ARBITRAL AWARD

The AAA Panel held a three-week hearing in September 2018 pursuant to

the AAA Commercial Arbitration Rules. (Id. at 7.) On March 6, 2019, the Panel

issued its Award,

(Id. at 53-

56.)

but the Award did fully resolve liability on all claims and

the appropriate remedy on several claims.

(Id. at 55-56.). In

addition,
 7.

The Panel held that Highland

(Id.)
 8.

45.)

(Id. at 46-47.)

III. HIGHLAND’S HISTORY OF DEFRAUDING

JUDGMENT CREDITORS

In cases like this, Highland’s modus operandi appears to be to render its

debtor entity or entities “judgement proof” by engaging in fraudulent transfers and

other actions to prevent collection by the judgment creditor. At least three such

circumstances are evident from public court records.

Acis Bankruptcy Fraudulent Transfers. A federal bankruptcy court

recently held that a judgment creditor of one Highland’s affiliates, Acis, which

managed Highland’s portfolios of collateralized debt obligations (“CLOs”),

presented “substantial evidence” that Highland and its executives engaged in both

“intentional and constructive fraudulent transfers” to thwart the creditor from

executing on his judgment against Acis. In re Acis Capital Mgmt., L.P., No. 18-

30264-SGJ-11, 2019 WL 417149, at *11 (Bankr. N.D. Tex. Jan. 31, 2019). The

court continued, “[t]he numerous prepetition transfers that occurred around the
 9.

time of and after the [arbitration award] appear more likely than not to have been

made to deprive the Debtor-Acis of value and with actual intent to hinder, delay or

defraud the Debtors’ creditors.” Id.

The Acis dispute arose when Joshua Terry, a former Highland employee

who managed Acis, obtained an arbitration award against Acis for approximately

$8 million in unpaid deferred compensation. Id. at *4 & *11. The award was

confirmed. In re Acis Capital Mgmt., L.P., 584 B.R. 115, 120, 139 (Bankr. N.D.

Tex. 2018). Terry then filed a petition to place Acis into involuntary bankruptcy

because he “became concerned that the Debtor-Acis was being rendered insolvent

and unable to pay creditors including himself, due to actions undertaken by

Highland and its agents immediately after entry of the Arbitration Award.” In re

Acis Capital Mgmt., L.P., 2019 WL 417149, at *11.

The bankruptcy court entered a preliminary injunction against Highland to

stop it from further undermining the value of Acis, finding that the evidence of

Highland’s efforts to make Acis “judgment proof” were “rather startling.” Id. at

*8. Those efforts included, for example, causing Acis to overpay fees to Highland,

transferring the management of certain CLO assets to newly-created affiliates to

deprive Acis of future fees, transferring a major account receivable out of Acis,

and “[n]umerous other transactions.” Id. The court also concluded that Highland’s

decision to use a Cayman Islands entity as the recipient of the assets transferred
 10.

from Acis was a ploy to put the assets in an “international forum” outside of

Terry’s reach. Id. at *8 n.37. Significantly, Highland took most of these steps in

the days following the issuance of the arbitration award to Mr. Terry, before he

could have the award confirmed. Id. at *6& *8. Highland’s conduct had little or

no benefit to Acis, and the conduct was executed at the direction of Highland’s

senior officers. Id. at *5-9.

The bankruptcy court enjoined Highland from effecting a redemption or

liquidating any of its remaining interests in Acis, or any related actions, until such

time as the trustee of the estate can prosecute an adversary proceeding against

Highland based upon the alleged fraudulent transfers. Id. at *13.4 The court

concluded that Terry established a high likelihood of prevailing on the fraudulent

transfer claims, and the reorganized debtor would be irreparably harmed if

Highland were not enjoined. (Id. at *9-11.)

Patrick Daugherty Fraudulent Transfers. In a dispute with another former

Highland fund manager, the manager claims that Highland took similar actions to

thwart collection on a judgment. Patrick Daugherty, who was the portfolio

manager of the Crusader Fund prior to his resignation from Highland in early

4
The court also found that the testimony of Highland’s General Counsel,
Scott Ellington, who attempted to justify some of the post-arbitration award
transfers and actions, was not credible and was “seemingly manufactured.”
(Id. at *16.) Mr. Ellington is the same executive whose testimony the Panel
in this case found to be contrary to “indisputable evidence.” (Award at 11.)
 11.

2012, obtained a judgment against a Highland affiliate, Highland Employee

Retention Assets, LLC (“HERA”). The Texas court’s judgment stated that

Daugherty was entitled to “recover $2,600,000 from HERA,” plus interest. First

Am. Verified Compl., Daugherty v. Highland Capital Mgmt., et al., No. 2017-

0488-SG, at 2-3 (Del. Ch. Aug. 14, 2018) (“Daugherty Complaint”) (citing

Highland Capital Mgmt., L.P. v. Daugherty, 12-04005 (Tex. Dist. Ct. Dec. 1,

2016)).

In December 2013, while the Texas litigation was pending, Highland placed

Daugherty’s HERA assets into escrow, with Delaware counsel acting as escrow

agent. (Daugherty Compl. at 15.) Under the escrow, if Daugherty prevailed in the

lawsuit, escrowed funds in the amount of the judgment, or the entire amount if the

judgment exceeded the amount in escrow, were to be transferred to Daugherty.

(Id.) Highland’s CEO, James Dondero, testified to this at trial. (Id.) But in the

days following the Texas appellate court’s affirmance of Mr. Daugherty’s trial

court judgment, Highland’s Delaware counsel resigned as the escrow agent and

delivered the contents of the escrow to Highland. (Ex. D, Letter Ruling,

Daugherty v. Highland Capital Mgmt., No. 2017-0488-SG at 2-3 (Del. Ch. January

16, 2018) (denying motion to dismiss fraudulent transfer claim against Highland);

Daugherty Compl. at 17-18.) The law firm later informed Mr. Daugherty by letter

that the firm had returned the assets in the escrow to Highland at Highland’s
 13.

650097/2009 (N.Y. Sup. Ct.).) UBS contends it had a right to the assets held by

the counterparty due to the counterparty’s default on a CLO Warehouse

transaction. (Id. at 2-8.) Despite numerous motions by Highland seeking to derail

UBS’s claims, the New York court conducted a trial on the underlying CLO

Warehouse dispute last year, and the fraudulent transfer claims are awaiting trial.

(Ex. F, July 27, 2018 Trial Tr., at 1995, UBS Sec. LLC et al. v. Highland Capital

Mgmt., L.P. et al., No. 650097/2009 (N.Y. Sup. Ct.) (concluding closing

arguments for first trial phase).

ARGUMENT

A status quo order is appropriate where “plaintiffs have demonstrated a

reasonable likelihood of success on the merits, that the order will avoid imminent

irreparable harm, and that the threatened harm to plaintiffs outweighs the harm to

the defendants.” Raptor Sys., Inc. v. Shepard, No. CIV. A. 13614, 1994 WL

512526, at *2 (Del. Ch. Sept. 12, 1994); Chartis Warrantyguard Inc. v. Nat’l

Elecs. Warranty LLC, No. 5764-VCP, 2011 WL 336385, at *6 (Del. Ch. Jan. 28,

2011) (preliminary injunction requires likelihood of success on the merits,

irreparably injury, and balancing of equities). This Court has previously enjoined

parties to preserve the status quo pending confirmation of an arbitration award.

See KL Golf, LLC v. Frog Hollow, LLC, 2004 WL 828377 (Del. Ch. Apr. 8, 2004);

Del. State Coll. v. Del. State Coll. Chapter of the Am. Ass’n of Univ. Professors,
 14.

1987 WL 16509 (Del. Ch. Aug. 31, 1987). Here, the Court should grant the

Committee’s motion for a status quo order because the Committee has a strong

likelihood of confirming the Award into a judgment, the Committee and the

investors who it represents will be irreparably harmed if Highland is permitted to

take actions to render itself judgment proof prior to enforcement of the judgment,

and the balance of harms favor this limited form of relief.

I. THE AWARD WILL BE CONFIRMED INTO A

JUDGMENT.

There is a very strong likelihood that the Award will be confirmed into a

judgment. The “review of an arbitration award is one of the narrowest standards of

judicial review in all of American Jurisprudence.” SPX Corp. v. Garda USA, Inc.,

94 A.3d 745, 750 (Del. 2014) (quoting TD Ameritrade, Inc. v. McLaughlin, Piven,

Vogel Sec., Inc., 953 A.2d 726, 732 (Del. Ch. 2008)). “[T]he court’s function in

confirming or vacating a commercial arbitration award is severely limited.” Bajaj

v. Fisher Asset Mgmt., LLC, 2012 WL 1293169, *3 (D. Del. Apr. 10, 2012). “It is

not for the Court to substitute its judgment . . . for that of the arbitrators.” St. Paul

Travelers v. Hoffman, 2007 WL 1662630, at *1 (Del. Ch. May 30, 2007). “The

Court of Chancery does not sit as an appellate court reviewing the arbitrators’ legal

findings and procedural actions.” Ruggerio v. State Farm Mut. Auto. Ins. Co.,

1999 WL 499459, at *4 (Del. Ch. June 23, 1999). The court has “no power to

review the merits of the arbitrators’ substantive decision.” Id.

 15.

In Delaware, “[a]n arbitration award will regularly be confirmed unless one

of the statutory grounds for setting aside an award is present.” St. Paul Travelers

Prop. Cas. Corp. v. Hoffman, 2007 WL 1662630, at *1 (Del. Ch. May 30, 2007).

Under the Delaware Uniform Arbitration Act, the only grounds for vacating an

arbitration award are when:

(1) The award was procured by corruption, fraud or other undue

means;

(2) There was evident partiality by an arbitrator appointed as a neutral

except where the award was by confession, or corruption in any of the
arbitrators or misconduct prejudicing the rights of any party;

(3) The arbitrators exceeded their powers, or so imperfectly executed

them that a final and definite award upon the subject matter submitted
was not made;

(4) The arbitrators refused to postpone the hearing upon sufficient

cause being shown therefor, or refused to hear evidence material to
the controversy, or otherwise so conducted the hearing, contrary to the
provisions of § 5706 of this title, or failed to follow the procedures set
forth in this chapter, so as to prejudice substantially the rights of a
party, unless the party applying to vacate the award continued with the
arbitration with notice of the defect and without objection; or

(5) There was no valid arbitration agreement, or the agreement to

arbitrate had not been complied with, or the arbitrated claim was
barred by limitation and the party applying to vacate the award did not
participate in the arbitration hearing without raising the objection;

10 Del. C. § 5714(a); see SPX Corp., 94 A.3d at 750. “To successfully convince

the Court to vacate the award of an arbitration panel, the movant must show

“something beyond and different from a mere error in the law or a failure on the

part of the arbitrators to understand or apply the law.’” TD Ameritrade, Inc., 953
 16.

A.2d at 732-33 (quoting Westerbeke Corp. v. Daihatsu Motor Co., 304 F.3d 200,

208 (2d Cir. 2002)).

It is undisputed here that the issues submitted to the Panel were all arbitrable

and within the Panel’s jurisdiction to resolve. In the arbitration, Highland did not

challenge the arbitrability of any of its own or the Committee’s claims. In any

event, “there is a presumption that the arbitration panel acted within the scope of

its authority, and this presumption may not be rebutted by an ambiguity in a

written opinion.” Id. at 732. “‘[T]he Court is not to pass an independent

judgement on the evidence or applicable law,’ and ‘[i]f any grounds for the award

can be inferred from the record, the Court must presume that the arbitrator did not

exceed his [or her] authority and the award must be upheld.’” Id. at 733 (quoting

Audio Jam, Inc. v. Fazelli, 1997 WL 153814, at *1 (Del.Ch. Mar. 20, 1997)).

Notably, the arbitration panel’s interpretation of a contract is not sufficient

grounds for vacating the award. “[A]s long as the arbitrator is even arguably

construing or applying the contract and acting within the scope of his [or her]

authority, that a court is convinced that he [or she] committed serious error does

not suffice to overturn his [or her] decision.” SPX Corp., 94 A.3d at 751 (quoting

United Paperworkers Int'l Union, AFL–CIO v. Misco, Inc., 484 U.S. 29, 38,

(1987)); see also United Steelworkers of Am. v. Enter. Wheel & Car Corp., 363

U.S. 593, 599 (1960) (“[S]o far as the arbitrator’s decision concerns construction
 17.

of the contract, the courts have no business overruling him [or her] because their

interpretation of the contract is different from his [or hers].”).

Here, the Committee has a strong likelihood of confirming the Award into a

judgment because there is no ground on which to vacate the Award.

(Award at 53.) There are no

grounds for vacatur here.

II. THE COMMITTEE AND THE INVESTORS WILL BE

IRREPARABLY HARMED IF HIGHLAND IS NOT
REQUIRED TO MAINTAIN THE STATUS QUO
PENDING CONFIRMATION.

The Committee and the Crusader investors who it represents will be

irreparably harmed if Highland is not required to maintain the status quo pending

the Court’s confirmation of the Award.

“The threat of a fraudulent transfer . . . constitute[s] irreparable harm

warranting injunctive relief.” Mitsubishi Power Sys. Ams., Inc. v. Babcock &

Brown Infrastructure Grp. US, LLC, 2009 WL 1199588, at *4 (Del. Ch. Apr. 24,

2009). Moreover, “a [party’s] history of evading judgments and failing to pay

legal obligations” establishes a “meaningful threat that a defendant may render

relief meaningless” and also provides grounds for a finding of irreparable injury to
 18.

support injunctive relief. Destra Targeted Income Unit Inv. Tr. v. Parmar, 2017

WL 373207, at *2 (Del. Ch. Jan. 25, 2017); Brinati v. TeleSTAR Inc., C.A. No.

8118, 1985 WL 44688, at *4 (Del. Ch. Sept. 3, 1985) (“Injunctive relief is

appropriate where the evidence, as here, raises serious questions about defendants’

ability to pay a damage award.”); Garden City Irr., Inc. v. Salamanca, 2005 WL

927001, at *2 (N.Y. Sup. Ct. Apr. 18, 2005) (“[Plaintiff] will also sustain

irreparable harm if a preliminary injunction is not issued. [Plaintiff] asserts that

[defendant] engaged in a course of systematic dishonesty. If the Court does not

restrain her from transferring, gifting, disposing of, wasting, destroying or

encumbering her assets, there is a likelihood that [plaintiff] will be unable to

enforce a judgment it obtains in this action.”).6

Highland has a long history of engaging in fraudulent transfers and other

wrongful actions to enable itself and its affiliates to evade judgments and arbitral

awards. As detailed above, Highland has not only been accused of, but found to

have orchestrated fraudulent transfers between and among its affiliate entities to

6
See also In re Estate of Ferdinand Marcos, Human Rights Lit., 25 F.3d
1467, 1480 (9th Cir. 1994) (joining the “majority of circuits in concluding
that a district court has authority to issue a preliminary injunction where the
plaintiffs can establish that . . . defendant has engaged in a pattern of
secreting or dissipating assets to avoid judgment”); In re Feit & Drexler,
Inc., 760 F.2d 406, 416 (2d Cir. 1985); Hoxworth v. Blinder, Robinson &
Co., Inc., 903 F.2d 186, 206 (3d Cir. 1990); Holland v. Frank V. Carlow
Irrevocable Trust, 176 F.R.D. 416, 418-19 (D.D.C. 1997).
 19.

render debtor affiliates judgment proof. To accomplish that, not only has Highland

stripped affiliates of assets, but it has altered the corporate structure or control of

affiliates, transferred affiliate contracts and assets to newly-created affiliates to

make proceeds unreachable, and moved assets off-shore to attempt to avoid the

reach of U.S. courts. And Highland has engaged in this fraudulent conduct—in

both the Acis and Daugherty lawsuits—in the days and weeks immediately

following the adverse award or ruling. In re Acis Capital Mgmt., L.P., 2019 WL

417149, at *6, *8 (Bankr. N.D. Tex. Jan. 31, 2019); (Daugherty Compl. at 17-18).

These facts establish a pattern of conduct sufficient to create a meaningful threat

that Highland will engage in similar conduct to avoid the Award entered in favor

of the Committee in this case.

Moreover,

(Award at 11),
 20.

(Id. at 53.)

provide

ample reason to fear that Highland will go to extraordinary lengths to avoid

satisfying the

This kind of “pattern of evasive behavior” provides grounds

to find a “likelihood that further asset transfers will take place.” In re Desai, 2012

WL 6737483, at *5 (Bankr. D. Mass. Dec. 28, 2012).

Given Highland’s pattern of deceit, and Highland’s

demonstrated propensity for engaging in fraudulent transfers and other transactions

to attempt to escape judgment, there is a meaningful threat that Highland will soon

take actions to prevent Such actions

would cause irreparable harm to the Committee and to the investors who it

represents.
 21.

III. THE BALANCE OF HARMS STRONGLY FAVORS

ISSUANCE OF A STATUS QUO ORDER.

Finally, the Court should grant the Committee’s motion for a status quo

order because the balance of harms strongly favors one. This Court has

consistently found that where a motion for an injunction seeks to preserve the

status quo, the balance of harms weighs in favor of granting the injunction. See,

e.g., Flight Options Int’l., Inc. v. Flight Options, LLC, 2005 WL 5756537, at *12

(Del. Ch. July 11, 2005) (issuing a preliminary injunction “to maintain the status

quo”); KL Golf, LLC, 2004 WL 828377, at *4 (Del. Ch. Apr. 8, 2004) (finding that

granting the preliminary injunction would “preserve the status quo” and thus that

“the balance of the hardships tip[ped] in favor of granting [the] motion for a

preliminary injunction”); Kansas City S. v. Grupo TMM, S.A., 2003 WL 22659332,

at *5 (Del. Ch. Nov. 4, 2003) (finding that denying “the preliminary injunction to

preserve the status quo pending arbitration” would cause greater harm than would

granting it).

An injunction preserving the status quo poses no threat of harm to Highland.

Such an injunction, as proposed by the Committee, would require only that

Highland refrain from taking actions outside the ordinary course of business, or

actions which would frustrate or impair the Committee’s ability to

For example, Highland should not dispose of or encumber

its assets so as to preclude collection; change the control, management, or structure

 22.

of its assets to limit Highland’s ability to liquidate or realize the economic benefits

of those assets; nor make distributions or dividend payments to its partners.

Highland should not take any action,

This Court has

previously found that requiring a party to refrain from any transactions “outside of

the normal course of business” does not result in harm to the enjoined party, and

tips the balance of hardships in the moving party’s favor. Mitsubishi, 2009 WL

1199588, at *3, *5 (noting such a restriction posed no risk of harm to the defendant

because it could still “engag[e] in asset sales to third parties for fair value” so long

as “the proceeds of such sales [were] placed in escrow”); see also Destra, 2017

WL 373207, at *3 (noting the “near-term inconvenience from being constrained in

their use of assets” that defendants might experience was not a significant harm).

Here, given Highland’s past conduct, the balance of hardships strongly favors the

Committee.

Conversely, not issuing a status quo order poses a massive risk of harm to

the Committee and the other Crusader Fund investors. Without a status quo order,

there is a serious risk that Highland will affirmatively act to destroy the

Committee’s ability to such as by changing the governance of

or
 23.

as Highland did in the Acis

case. This risk of harm is significant. See Destra, 2017 WL 373207, at *3

(“Absent equitable relief, the plaintiffs face the prospect of litigating seemingly

strong claims, only to have their ability to obtain relief rendered a nullity.”).

Without an injunction, Highland will be free to transfer or encumber its assets or

take other actions to make itself judgment proof, leaving the Committee with little

to no legal recourse. Perelman v. Champion Parts Rebuilders, Inc., No. 88 C

4231, 1988 WL 67409, at *4 (N.D. Ill. June 17, 1988) (finding plaintiffs would

suffer irreparable harm if an injunction did not issue because “[d]uring the

pendency of the trial, the [defendants] could alter the structure of the corporation

or authorize corporate transactions which the court cannot unscramble in granting

final relief”); cf. Cabot Corp. v. Thai Tantalum Inc., No. 12580, 1992 WL 172678,

at *3 (Del. Ch. Jul. 22, 1992) (denying plaintiff’s motion for a preliminary

injunction because, absent any argument that the court could pierce the corporate

veil, “the purported irreparable harm which would result from failing to enjoin

defendants from [shifting their assets] already . . . occurred and cannot be

redressed by an injunction”). The Acis lawsuit demonstrates the years of additional

litigation—there, including involuntary bankruptcy—required merely to gain a

chance at recovery from Highland after it has the opportunity to fraudulently

transfer its assets or render its affiliates unable to comply with the awarded relief.
 24.

Here, the balance of hardships favors granting the status quo order. Denying

the status quo order would allow Highland to continue its practice of engaging in

fraudulent transfers and rendering itself judgment proof—causing far greater harm

than if the status quo is preserved.

 25.

CONCLUSION

For all of the foregoing reasons, the Committee respectfully requests that the

Court grant its motion for the entry of a status quo order.

MORRIS, NICHOLS, ARSHT &

TUNNELL LLP

/s/ Kevin M. Coen

William M. Lafferty (#2755)
OF COUNSEL Kevin M. Coen (#4775)
Terri L. Mascherin Jarrett W. Horowitz (#6421)
Andrew W. Vail 1201 N. Market Street
Shaun M. Van Horn Wilmington, DE 19801
Matthew S. Hellman (302) 658-9200
JENNER & BLOCK, LLP Attorneys for Plaintiff Redeemer
353 North Clark Street Committee of the Highland Crusader
Chicago, IL 60654-3456 Fund
(312) 222-9350
Words: 6,873

March 14, 2019

 CERTIFICATE OF SERVICE

I hereby certify that on March 21, 2019, the foregoing was caused to

be served upon the following counsel of record via File & ServeXpress:

Michael F. Bonkowski
Nicholas J. Brannick
Bradley P. Lehman
COLE SCHOTZ P.C.
500 Delaware Avenue, Suite 1410
Wilmington, DE 19801

Timothy R. Dudderar
POTTER ANDERSON & CORROON LLP
Hercules Plaza
1313 North Market Street, 6th Floor
Wilmington, DE 19801

Bruce L. Silverstein
Elena C. Norman
YOUNG CONAWAY STARGATT & TAYLOR, LLP
1000 North King Street
Wilmington, DE 19801

/s/ Jarrett W. Horowitz

Jarrett W. Horowitz (#6421)