Supreme Court Pauses Order Permitting Ex-CEO Bankruptcy Suit (1)

Highland Capital Management LP was granted a pause by the US Supreme Court of an appeals court decision allowing the investment firm’s former CEO to pursue bankruptcy-related litigation against it.

The firm, via an emergency request, sought to halt the ruling from the US Court of Appeals for the Fifth Circuit while it challenges the decision over whether a bankruptcy court has the gatekeeping authority to screen certain lawsuits. The mandate was scheduled to go into effect Friday.

With the Thursday order from Justice Samuel Alito, the pause will remain pending a further order while Highland prepares to ask the justices to review the Fifth Circuit’s March decision.

The Dallas-based firm, a manager of billion-dollar investment portfolios, filed for bankruptcy in 2019 and won approval of its reorganization plan in 2021. The plan contained elements that shielded it from several lawsuits launched by James Dondero, Highland’s former CEO and co-founder, who resigned in 2020 under pressure from independent directors.

NexPoint Advisors LP, an investment firm founded by Dondero, has until June 5 to respond to Highland’s stay request, according to Thursday’s order.

Highland’s bankruptcy plan exculpation and injunction provisions protected the firm and its officers and employees from litigation related to their actions while it restructured. The gatekeeper provision that the Fifth Circuit focused on allowed the bankruptcy court to screen all future litigation against Highland.

A three-judge panel of the appeals court found that the US Bankruptcy Court for the Northern District of Texas overreached by improperly providing broad legal protections to people who weren’t bankrupt.

While bankruptcy injunctions aren’t outright releases, the appellate court said in March that they similarly shield individuals and entities from liability and can’t be used to protect nonbankrupt people and entities that aren’t legally entitled to releases.

Highland has previously sought review from the Supreme Court on elements related to its Chapter 11. Last year, the high court declined to review the case to examine how much a bankrupt company can grant legal liability releases to board directors and others involved in a reorganization.

Highland is represented by Pachulski Stang Ziehl & Jones LLP and Kramer Levin Naftalis & Frankel LLP.

The case is Highland Capital Management LP v. NexPoint Advisors LP, U.S., No. 24A1154, 5/29/25.