Fifth Circuit Rejects Appeal Over Texas Judge’s Legal Novels

A Dallas bankruptcy judge’s novel depicting a hedge fund manager involved with a Mexican drug cartel didn’t bear enough resemblance to a real-life investment fund’s case so as to require her to recuse, an appeals court ruled.

Parallels between the fictional legal thriller “Hedging Death,” self-published by Chief Judge Stacey Jernigan of the US Bankruptcy Court for the Northern District of Texas, and the former chief executive of investment firm Highland Capital Management LP, James Dondero, aren’t sufficient to show she lacked impartiality, a three-judge panel of US Court of Appeals for the Fifth Circuit said in an opinion Tuesday.

Dondero had accused the judge of using him as inspiration for a villain in her novel while overseeing his former firm’s Chapter 11 case. But the examples he cited from “Hedging Death” and her other novel, “He Watches All My Paths” to support his argument of bias were “minor,” the appeals court found.

The Fifth Circuit affirmed a district court order denying a request from Dondero and his affiliated entities for Jernigan to be recused from the case.

“It seems that a reasonable reader and observer of these proceedings would not necessarily question Chief Judge Jernigan’s impartiality in this case,” the appeals court said. “While some similarities between the books and the cases before Chief Judge Jernigan may raise cause for concern, the similarities are not close enough to find that the district court abused its discretion denying the petition.”

Highland, which managed a billion-dollar publicly traded investment portfolio, filed for Chapter 11 in 2019 after facing a $180 million arbitration judgment. Dondero agreed to give up his control of the company to an independent board in January 2020, and stepped down as an employee later that year. Jernigan in a 2021 plan confirmation order called Dondero a “serial litigator,” after he pitched several reorganization plans that were rejected by the independent board.

The Highland case has since led to several Fifth Circuit rulings.

“It’s astounding that despite the Court’s acknowledgment that Judge Jernigan’s novels ‘may raise cause for concern’, coupled with multiple examples of arguably biased comments, still do not reach the threshold that ‘her impartiality might be reasonably questioned requiring recusal’ from overseeing a five-year-old bankruptcy case where she consistently and overwhelmingly rules against Mr. Dondero,” a Dondero spokesperson told Bloomberg Law.

Jernigan’s novels include negative depictions of a character based on Dondero and the financial industry in which he operates, Dondero and his affiliated entities alleged in their appeal. Those affiliates include Highland Capital Management Fund Advisors LP, The Dugaboy Investment Trust, and NexPoint Real Estate Partners LLC.

But Jernigan’s actions and comments didn’t show favoritism or antagonism, and it’s not clear she has a personal bias against Dondero and his affiliated entities, the Fifth Circuit said.

“Hedging Death,” published in 2022, involved a Dallas-based investment fund “that manages the same mix of investments as Highland,” Dondero argued. Jernigan described the international tax activities and structures Dondero and Highland used as “byzantine,” the same word she used in her novel, Dondero said.

Additionally, her book called the life settlement industry—which Highland and Dondero invested in—"creepy,” they said.

“Hedging Death” stars protagonist Judge Avery Lassiter, and involves a wealthy Texas hedge fund manager who is suspected of insurance fraud and mysteriously goes missing in Mexico, according to the book’s online description.

The appeals court also rejected Dondero’s argument that Jernigan showed bias through “negative” opinions he said she expressed related to the bankruptcy cases of Acis Capital Management LP and Acis Captial Management GP LLC—where Dondero had previously been an executive.

Jernigan’s comments about Dondero being “transparently vexatious” and litigious were also based on “ample evidence” in the record, the Fifth Circuit said.

Dondero and his affiliates were represented by Crawford, Wishnew & Lang PLLC. Highland Capital Management LP was represented by Pachulski Stang Ziehl & Jones LLP and Hayward PLLC.

The case is Dondero v. Jernigan, 5th Cir., No 24-10287, opinion 11/5/24.