Credit Suisse AG v. Claymore Holdings, LLC
| Decision Date | 24 April 2020 |
| Docket Number | No. 18-0403,18-0403 |
| Citation | 610 S.W.3d 808 |
| Parties | CREDIT SUISSE AG, Cayman Islands Branch and Credit Suisse Securities (USA) LLC, Petitioners, v. CLAYMORE HOLDINGS, LLC, Respondent |
| Court | Texas Supreme Court |
Thomas R. Phillips, Evan A. Young, Baker Botts L.L.P., Austin, Claudia Wilson Frost, Orrick, Herrington & Sutcliffe LLP, Houston, Jeffrey M. Tillotson, Tillotson Law, T. Ray Guy, Weil Gotshal & Manges LLP, Dallas, Benjamin F. Aiken, Elizabeth Cruikshank, Robert M. Loeb, Orrick, Herrington & Sutcliffe LLP, Washington, DC, David Lender, Gregory Silbert, Kevin Meade, Weil Gotshal & Manges LLP, E. Joshua Rosenkranz, Kevin Arlyck, Matthew R. Shahabian, Orrick, Herrington & Sutcliffe LLP, New York, NY, for Petitioners.
William T. Reid IV, Jeremy Wells, Keith Cohan, Lisa S. Tsai, Scott D. Saldaña, Reid Collins & Tsai LLP, Jane M. N. Webre, Scott Douglass & McConnico LLP, Nathan K. Palmer, Thompson & Knight LLP, Austin, Joseph Michael Stanton, Stanton LLP, Addison, Jeffrey S. Levinger, Levinger PC, Dallas, Nathaniel J. Palmer, Reid Collins & Tsai LLP, West Lake Hills, Elizabeth Cruikshank, Orrick, Herrington & Sutcliffe LLP, H. Christopher Bartolomucci, Kirkland & Ellis LLP, Washington, DC, for Respondent.
Rory M. Ryan, pro se.
George S. Christian, Texas Civil Justice League, Austin, for Amicus Curiae Texas Civil Justice League.
Jason P. Steed, Kilpatrick Townsend & Stockton LLP, Dallas, for Amicus Curiae The Loan Syndications and Trading Association.
This case arises from the inflated appraisal of a residential real estate project near Las Vegas in 2007, shortly before the notorious housing bubble popped. Highland Capital Management1 loaned the project $250 million. Together with other lenders, Highland took the real estate as collateral. The lenders ended up losing nearly all their investment after the borrower defaulted and the collateral's value plummeted. Highland, aka Claymore Holdings, sued Credit Suisse, which helped arrange the transaction and participated in it as an intermediary. The suit sought recovery of Claymore's investment losses under various legal theories. The suit alleged Credit Suisse fraudulently inflated the appraisal of the real estate, inducing Claymore to make a loan it would not otherwise have made. It also alleged the faulty appraisal amounted to a breach of contract by Credit Suisse, among other claims. By the parties' agreement, the case is governed by New York law.
The fraudulent inducement claim was tried to a Texas jury. The jury found for Claymore. It was asked to award, as damages for Claymore's injury, "[t]he difference, if any, between what Plaintiff paid and the value of what Plaintiff received in the 2007 Lake Las Vegas Refinancing." Claymore argued this number was $172 million. The jury awarded $40 million. The contract claim was tried to the court. The court found Credit Suisse liable for breach of contract and liable under several other theories. The court concluded that Claymore's damages on these claims and on the fraudulent inducement claim already tried to the jury could not be calculated with reasonable certainty. On that basis, it awarded Claymore $211 million in equitable relief, effectively a recoupment of its investment losses. On appeal to this Court, Credit Suisse contests its liability on all claims and challenges the trial court's award of equitable relief.
For the reasons explained below, the jury's $40 million fraud verdict must stand, but the trial court's award of $211 million in equitable relief must not. One principle linking those two conclusions is the primacy of a jury verdict. Under New York law, the jury's verdict adequately supports Credit Suisse's liability for fraud, despite the contractual disclaimers of reliance urged by Credit Suisse. On the other hand, the jury's award of $40 million in damages for Claymore's injury—after Claymore put on an extensive damages case for the jury—undermines the trial court's conclusion that there was no way to reasonably calculate the damages the faulty appraisal inflicted on Claymore. Equitable relief on any of Claymore's claims was available only if conventional legal damages for its injury could not be calculated. We hardly need ask whether Claymore's damages attributable to the faulty appraisal could be calculated, because they were calculated by Claymore itself, which asked the jury for $172 million in damages based on the testimony of multiple industry experts. The jury disagreed with that number. It awarded $40 million, and Claymore does not challenge that amount. The trial court then awarded over five times the jury's award, under the banner of equitable relief, for essentially the same injury to Claymore that the jury had already valued at $40 million.
Claymore unquestionably got something of substantial value in exchange for the money it loaned. Because of the faulty appraisal, what Claymore got for its money was not as valuable as what it thought it was getting. But it got something of value nonetheless. The borrower's default and the collapse of the real estate market later reduced the value of what Claymore held. But those events were driven by forces beyond either party's control, not by the faulty appraisal. The trial court's award, however, inequitably treated Claymore as though it received nothing at all in the transaction. Rather than approximate the portion of Claymore's losses attributable to the faulty appraisal, the award charged all Claymore's investment losses to Credit Suisse. We find no valid basis in New York law for this large award of equitable monetary relief, particularly given the jury's prior finding that a much smaller sum "fairly and reasonably compensated" Claymore for losses attributable to the faulty appraisal.
The court of appeals' judgment is affirmed in part and reversed in part, and the case is remanded to the trial court for entry of judgment consistent with this opinion.
Highland Capital Management, L.P. (aka "Claymore") loaned $250 million to a Henderson, Nevada residential real estate development in 2007. Claymore and other lenders provided a total of $540 million in loans to refinance the struggling development. Claymore often invested in distressed, high-risk projects. It packaged those investments into funds sold to investors.
The multi-party refinancing was covered by several agreements, including a lengthy Credit Agreement. Credit Suisse AG, Cayman Islands Branch,2 was involved in the loan in several capacities. It invested some of its own funds in the development. It also served as "Administrative Agent" of the refinancing under the Credit Agreement, for which it received a fee of $150,000. Credit Suisse Securities also received a $10.8 million fee for "arranging" the loan.
Events leading up to the execution of the Credit Agreement include the following, most of which are set out in the trial court's findings of fact, which Credit Suisse does not challenge.3 In 2004, Credit Suisse arranged a $560 million recapitalization loan to borrowers developing the Lake Las Vegas (LLV) project, a residential neighborhood that included a golf course. Certain Highland-managed institutional funds invested in the 2004 loan. By 2006, the borrowers had defaulted on financial covenants associated with the 2004 loan. The LLV borrowers engaged Credit Suisse to arrange a refinancing of the 2004 loan.
Pursuant to an engagement letter, Credit Suisse marketed the refinancing to lenders, including Claymore. In 2007, John Morgan of Claymore and David Miller of Credit Suisse communicated regarding Claymore's potential participation in the loan. Morgan stated that Claymore would only participate if Credit Suisse obtained an independent, as-is appraisal of the development that complied with the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA). According to the trial court's findings of fact, a FIRREA-compliant appraisal is considered the "gold standard" for appraisals of this sort. Among other requirements, FIRREA demands that an appraisal adhere to the Uniform Standards of Professional Appraisal Practice (USPAP). Credit Suisse agreed to provide such an appraisal and understood that Claymore's participation in the new loan was contingent on such an appraisal.
The Credit Agreement provided $540 million to the LLV borrowers, of which $250 million came from Claymore, the largest participant in the refinancing. The Credit Agreement required the borrowers to provide a "Qualified Appraisal" (Appraisal) to Credit Suisse. Credit Suisse participated heavily in the procurement of the Appraisal. Credit Suisse hired William Acton of CBRE, Inc. to prepare the Appraisal. CBRE initially sent a draft appraisal to Credit Suisse valuing the property at $748 million. The appraisal was based on several assumptions, including the "absorption period"—the period during which LLV would fully sell the whole development to homeowners—and view premiums, an assumption that properties with better views would sell for higher prices. Credit Suisse bankers knew the Appraisal was supposed to comply with FIRREA, which required an independent and impartial appraisal that valued the property in its as-is condition, applying appropriate market-based deductions and discounts.
In April 2007, Acton sent Credit Suisse a new analysis that valued the property at $513.4 million. This estimate caused great concern at Credit Suisse because the value was below the amount of the anticipated loan. Credit Suisse would not have been able to market the loan unless the appraised value was higher, because a loan-to-value ratio of greater than 100% was not marketable. At the behest of Credit Suisse and the LLV borrowers, Acton increased the appraised value of the property through various methods that, according to Claymore, falsely inflated the true market value of the real estate....
To continue reading
Request your trial
-
Pike v. Tex. EMC Mgmt., LLC
...remedy at law for the misappropriation of its trade secrets. See Dresser-Rand Co. , 361 F.3d at 848 ; cf. Credit Suisse AG v. Claymore Holdings, LLC , 610 S.W.3d 808, 817 (Tex. 2020) (holding under New York law that "[a]n adequate remedy at law existed, as evidenced most vividly by the dama......
-
Hrdy v. Second St. Props. LLC
...[14th Dist.] 1996, writ denied) (attorney-client contract). We review questions of law de novo. See Credit Suisse v. Claymore Holdings , 610 S.W.3d 808, 819 (Tex. 2020) (questions of law and questions applying facts to law are reviewed de novo).B. Applicable Law We construe partnership agre......
-
Medic Pharm. v. AVK Props.
...and reconstructing an asset's hypothetical value at a particular point in the past." Credit Suisse AG v. Claymore Holdings, LLC, 610 S.W.3d 808, 821 (Tex. 2020). "[T]he general rule in cases involving injury to real property is that the proper measure of damages is the cost to restore or re......
-
Picard v. Badgett
...for the Purchase Agreement failed only in part because it awarded damages to Badgett. See, e.g., Credit Suisse AG v. Claymore Holdings, LLC, 610 S.W.3d 808, 823 (Tex. 2020) (considering award in the context of "the findings and conclusions as a whole" and concluding the trial court awarded ......