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A lawsuit was filed on Wednesday in the state of Texas by Highland Financial Partners LP that alleges that its former counsel, Orrick Herrington & Sutcliffe LLP, cost the firm $95 million because it failed to tell them about a provision in a collateralized debt obligation transaction that allowed Royal Bank of Scotland Group PLC to cancel it whenever it wanted to do so.
Orrick is accused of costing the investment firm and its affiliates, Highland CDO Opportunity Master Fund LP and HFP CDO Construction Corp., close to $100 million in damages after Orrick failed to tell the company that its CDO with RBS could be canceled by RBS at any time without explanation.
Orrick is alleged to have committed legal malpractice when advising Highland in the CDO transaction that took place in 2007 and in 2008. During this time period, the firm reviewed two amendments that were supposed to extend the deadline time to finish the transaction and close it.
According to the lawsuit, Orrick knew that Highland paid RBS over $65 million for extensions but Orrick did not tell the firm that the amendments did not cancel a provision from the original agreements that allowed the bank to cancel the agreement whenever it pleased. The suit then says that the firm paid tens of millions of dollars for â€meaningless extensions.’
The lawsuit then claims that RBS prematurely ended the agreement in October of 2008 because of Orrick’s negligence and the fact that RBS wanted to take advantage of international accounting standards that would allow RBS to report a profit of $30 million when it foreclosed on the assets in November of 2008.
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According to the lawsuit, Highland lost $65 million that it had to pay to RBS and also faces approximately $30 million in deficiency.
“It was well understood that Highland paid more than $65 million in exchange for an extension of the transaction that would allow the parties sufficient time to close the deal,” the suit said. “Yet, despite Highland’s express directives, Orrick’s extensive experience with Highland, and Orrick’s industry-leading knowledge of these transactions, Orrick negligently failed to advise Highland that the amendments permitted RBS to unilaterally terminate the deal at any time.”
In each of Highland’s CDO transactions dating back to the middle of the 1990s, Orrick has represented Highland from its London and Los Angeles offices. During that period, 25 CDO transactions took place in the United States and four CDO transactions took place in Europe from 1996 to 2008. William T. Reid IV, Lisa S. Tsai, Joshua J. Bruckerhoff and Craig A. Boneau from Reid Collins & Tsai LLP represent Highland in the case. The counsel for Orrick has not been announced yet. The case is titled as Highland CDO Opportunity Master Fund LP et al v. Orrick Herrington & Sutcliffe LLP et al. The lawsuit was filed in the District Court of Dallas County, Texas, the 68th Judicial District.
