Dondero v. Jernigan

CourtCourt of Appeals for the Fifth Circuit
DecidedNovember 5, 2024
Docket24-10287
StatusUnpublished

This text of Dondero v. Jernigan (Dondero v. Jernigan) is published on Counsel Stack Legal Research, covering Court of Appeals for the Fifth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Dondero v. Jernigan, (5th Cir. 2024).

Opinion

Case: 24-10287 Document: 79-1 Page: 1 Date Filed: 11/05/2024

United States Court of Appeals for the Fifth Circuit United States Court of Appeals Fifth Circuit

____________ FILED November 5, 2024 No. 24-10287 Lyle W. Cayce ____________ Clerk

James Dondero; Highland Capital Management Fund Advisors, L.P.; The Dugaboy Investment Trust; NexPoint Real Estate Partners, L.L.C.; Get Good Trust,

Plaintiffs—Appellants,

versus

Stacey G. Jernigan; Highland Capital Management, L.P.,

Defendants—Appellees. ______________________________

Appeal from the United States District Court for the Northern District of Texas USDC No. 3:23-CV-726 ______________________________

Before Wiener, Willett, and Duncan, Circuit Judges. Per Curiam: * Appellants James Dondero and affiliated entities Highland Capital Management Fund Advisors, L.P., The Dugaboy Investment Trust, NexPoint Real Estate Parnters, L.L.C., and Get Good Trust (“the Dondero Parties”) are parties to a bankruptcy proceeding in the Northern District of

_____________________ * This opinion is not designated for publication. See 5th Cir. R. 47.5. Case: 24-10287 Document: 79-1 Page: 2 Date Filed: 11/05/2024

No. 24-10287

Texas. They appeal a district court order denying their petition for mandamus that sought the recusal of the presiding bankruptcy judge. The order of the district court is AFFIRMED. 1 I Highland Capital Management, L.P. was a Dallas-based investment firm that managed billion-dollar, publicly traded investment portfolios for nearly three decades. Matter of Highland Capital Mgmt., L.P. (Highland I), 48 F.4th 419, 424 (5th Cir. 2022). James Dondero was Highland’s CEO. In 2019, after facing a $180 million adverse judgment in an arbitration, Highland voluntarily filed for Chapter 11 bankruptcy in the United States Bankruptcy Court for the District of Delaware. Shortly after, the Creditors Committee for Highland moved to transfer the bankruptcy case to the United States Bankruptcy Court for the Northern District of Texas on the basis that Chief Judge Jernigan was “already intimately familiar with the Debtor’s principals and complex organizational structure,” having presided over involuntary bankruptcy cases commenced against Acis Capital Management, L.P. and Acis Captial Management GP, L.L.C.—entities where Dondero had also served as an executive. The motion was granted, and the case was assigned to Chief Judge Jernigan. In January 2020, Chief Judge Jernigan held the first hearing in the Highland case, regarding approval of a settlement between Highland and the Creditors Committee under which Dondero would surrender his control positions at Highland and be replaced by an Independent Board. Highland I, 48 F.4th at 425. Chief Judge Jernigan approved the agreed order, and

_____________________ 1 Also before us is a motion by the Dondero Parties requesting we take judicial notice of certain documents. We affirm the order of the district court without referring to these documents. Accordingly, the motion is DENIED AS MOOT.

2 Case: 24-10287 Document: 79-1 Page: 3 Date Filed: 11/05/2024

Dondero stepped down as officer and director of Highland. Id. He remained an employee of Highland as a portfolio manager until October 2020, when the Independent Board demanded he step down. Throughout 2020, Dondero proposed several reorganization plans, which the Committee and Independent Board opposed. Id. at 426. The Committee and Board instead formed their own plan. Id. Meanwhile, Dondero made various filings objecting to settlements, appealing orders, and seeking writs of mandamus. Id. He and other creditors filed over a dozen objections to the Independent Board’s plan. Id. Chief Judge Jernigan confirmed the plan over objections at a hearing in February 2021, and it took effect on August 11, 2021. Id. The confirmation order included findings that Dondero was a “serial litigator,” that he did not have a “good faith basis to lob objections to the Plan,” and that the other board members were “marching pursuant to the orders of Mr. Dondero.” Id. at 428. Dondero appealed the confirmation order directly to this court, “objecting to the Plan’s legality and some of the bankruptcy court’s factual findings.” Id. We affirmed the reorganization plan and confirmation order in full, with the exception of finding that the bankruptcy court exceeded its statutory authority in exculpating non-debtors in anticipation of “Dondero’s continued litigiousness.” Id. at 427, 432, 439. Though we vacated the exculpatory order as to non-debtors, we clarified that “[n]othing in [our] opinion should be construed to hinder the bankruptcy court’s power to enjoin and impose sanctions on Dondero and other entities by following the procedures to designate them vexatious litigants.” Id. at 439 n.19. Since then, we have dealt with multiple appeals in this matter. See, e.g., Matter of Highland Capital Mgmt., L.P., 57 F.4th 494 (5th Cir. 2023); Matter of Highland Capital Mgmt., L.P., 98 F.4th 170 (5th Cir. 2024); Matter of Highland Capital Mgmt., L.P., 105 F.4th 830 (5th Cir. 2024).

3 Case: 24-10287 Document: 79-1 Page: 4 Date Filed: 11/05/2024

The instant appeal focuses on a series of recusal motions filed by the Dondero Parties beginning in March 2021—after the reorganization plan had been confirmed but before it took effect. The motions argued that Chief Judge Jernigan had developed an animus against the Dondero Parties that caused her impartiality to be reasonably questioned and thus required recusal under 28 U.S.C. § 455. The Dondero Parties filed the first recusal motion on March 18, 2021. Chief Judge Jernigan denied the motion and reasoned that it was untimely, having been filed 15 months after the case was transferred to the Northern District of Texas and on the eve of Dondero’s contempt hearing. She nevertheless analyzed the recusal motion on the merits and determined that recusal wasn’t warranted. She reasoned that her presiding over the prior Acis case did not create bias because during that proceeding she only learned generalities about the industry and Highland’s business structure, and it is appropriate for a bankruptcy court to preside over cases of affiliated business entities of a party. She also stated, citing Lieb v. Tillman, 112 B.R. 830, 835– 36 (Bankr. W.D. Tex. 1990), that she did not believe that “she harbors, or has shown, any personal bias or prejudice” against Dondero and that the Dondero Parties’ assertions did not “rise to ‘the threshold standard of raising a doubt in the mind of a reasonable observer’ as to the judge’s impartiality.” The Dondero Parties appealed to the district court, which concluded that the order was interlocutory and not immediately appealable. Five months later, the Dondero Parties filed a second recusal motion asking Chief Judge Jernigan to issue a final appealable order and supplementing the first recusal motion with additional evidence of alleged bias. Chief Judge Jernigan denied the motion without prejudice on procedural grounds. She noted that the Dondero Parties could file another “simple motion” asking the court to revise the first recusal order to make it final and

4 Case: 24-10287 Document: 79-1 Page: 5 Date Filed: 11/05/2024

appealable but without including the supplemental evidence. Alternatively, they could file a new recusal motion based on any alleged new evidence. The Dondero parties chose to file a third, renewed recusal motion. Chief Judge Jernigan again denied the motion, determining that it was untimely and failed on the merits for the same reasons as the previous recusal motions.

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Bluebook (online)
Dondero v. Jernigan, Counsel Stack Legal Research, https://law.counselstack.com/opinion/dondero-v-jernigan-ca5-2024.