UBS Sec. LLC v. Highland Capital Mgmt., L.P.

• Decision Date: 15 March 2018
• Docket Number: 4834,Index 650097/09,4835
• Citation: 72 N.Y.S.3d 72,159 A.D.3d 512
• Parties: UBS SECURITIES LLC, et al., Plaintiffs–Respondents–Appellants, v. HIGHLAND CAPITAL MANAGEMENT, L.P., et al., Defendants–Appellants–Respondents, Highland Security Opportunities Holding Company, et al., Defendants–Appellants.
• Court: New York Supreme Court — Appellate Division

159 A.D.3d 512

72 N.Y.S.3d 72

UBS SECURITIES LLC, et al., Plaintiffs–Respondents–Appellants,

v. HIGHLAND CAPITAL MANAGEMENT, L.P., et al., Defendants–Appellants–Respondents,Highland Security Opportunities Holding Company, et al., Defendants–Appellants.

4834

4835

Index 650097/09

Supreme Court, Appellate Division, First Department, New York.

ENTERED: MARCH 15, 2018

Lackey Hershman, L.L.P., New York (Kieran M. Corcoran of counsel), for appellants

Kirkland & Ellis LLP, New York (Andrew B. Clubok of counsel), for respondents-appellants.

Richter, J.P., Webber, Kern, Moulton, JJ.

Order, Supreme Court, New York County (Marcy S. Friedman, J.), entered on or about March 27, 2017, which granted the motions for summary judgment of defendants Highland CDO Opportunity Master Fund, L.P., Highland Special Opportunities Holding Company, Highland Capital Management, L.P., Highland Financial Partners, L.P., Highland Credit Opportunities CDO, L.P., and Strand Advisors, Inc. to the extent of dismissing the claim for breach of implied covenant against defendant Highland Capital, and otherwise denied the motions, unanimously affirmed, without costs.

In a prior order in this case, we dismissed, on res judicata grounds, the fraudulent conveyance and breach of implied covenant causes of action, as against one defendant, solely to the extent that they relied on conduct pre-dating the February 24, 2009 commencement of the prior action ( 86 A.D.3d 469, 469, 927 N.Y.S.2d 59 [1st Dept. 2011]. However, we also held that "to the extent that [those] causes of action ... rely on conduct alleged to have occurred after the commencement of the prior action, such claims should be allowed" ( id. at 476, 927 N.Y.S.2d 59 [emphasis added] ). We reiterated this point in a subsequent order, wherein we dismissed the fraudulent conveyance claim, as against several other defendants, only "with respect to claims arising before February 2009" ( 93 A.D.3d 489, 490, 940 N.Y.S.2d 74 [1st Dept. 2012] ).

In this appeal, the conduct underlying the fraudulent conveyance and breach of implied covenant claims took place after the February 24, 2009 commencement of the prior action. In view of this Court's prior decisions, which explicitly contemplated the survival of such post-February 24, 2009 claims, there is no merit to defendants' contention that res judicata applies. This result is consistent with the legal principles underlying res judicata. "Under the doctrine of res judicata, a party may not litigate a claim where a judgment on the merits exists from a prior action between the same parties involving the same subject matter. The rule applies not only to claims actually litigated but also to claims that could have been raised in the prior litigation" ( Matter of Hunter, 4 N.Y.3d 260, 269, 794 N.Y.S.2d 286, 827 N.E.2d 269 [2005] [emphasis added] ).

In contrast, where a claim could not have been raised in the prior litigation because it had not yet matured, res judicata does not apply ( 1050 Tenants Corp. v. Lapidus, 118 A.D.3d 560, 560–561, 987 N.Y.S.2d 159 [1st Dept. 2014] ; Sannon–Stamm Assoc., Inc. v Keefe, Bruyette & Woods, Inc., 68 A.D.3d 678, 890 N.Y.S.2d 828 [1st Dept. 2009] ; Indosuez Intl. Fin. v. National Reserve Bank, 304 A.D.2d 429, 758 N.Y.S.2d 308 [1st Dept. 2003] ; see Lawlor v National Screen Serv. Corp., 349 U.S. 322, 328, 75 S.Ct. 865, 99 L.Ed. 1122 [1955] ). Because the conduct at issue here took place after the commencement of the prior action, there is no res judicata bar to the fraudulent conveyance and breach of implied...