UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

In re:

HIGHLAND CAPITAL

MANAGEMENT, L.P.,

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§

§

§

 Debtor, §

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CLO HOLDCO, LTD., §

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 Appellant, §

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v. § CIVIL ACTION NO. 3:22-CV-2051-B

§

MARC KIRSCHNER §

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 Appellee. §

MEMORANDUM OPINION AND ORDER

Before the Court is Appellant CLO Holdco, Ltd.’s appeal from the bankruptcy court’s

Order Denying Motion to Ratify Second Amended Proof of Claim and Expunging Claim. R.

249.

1 Because the Court finds the bankruptcy court did not abuse its discretion in denying the

amendment, the decision is AFFIRMED, and the appeal is DISMISSED WITH PREJUDICE.

I.

BACKGROUND

This appeal concerns the propriety of amending a proof of claim. In a motion to the

bankruptcy court, CLO Holdco sought to amend its proof of claim following the confirmation of

the debtor’s reorganization plan. Following a hearing, the bankruptcy court denied the motion.

1

For brevity, the Court will cite to the record singularly, since the appellant and appellee’s submitted

records are consecutively paginated. See Doc. 11, Appellant R., 1–2677; Doc. 12, Appellee R., 2678–3629.

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The key question before the Court is whether the bankruptcy court abused its discretion in not

permitting CLO Holdco’s amendment. 

A. The Crusader Funds Wind Down and Arbitration Is Initiated Against Highland Capital 

In the early 2000s, Debtor Highland Capital Management, L.P. (“Highland Capital”)

served as the investment manager for the Highland Crusader Funds (“Crusader Funds”), which

were formed by pooling together various sources of capital. R. 2462. The capital was primarily

invested in “undervalued senior secured loans and other securities of financially troubled firms.”

R. 2463. During the 2008 financial crisis, however, the Crusader Funds became overwhelmed by

redemption requests from investors as the Crusader Funds’ assets simultaneously lost value. Id.

Thus, in October 2008, Highland Capital placed the Crusader Funds in wind-down to liquidate

assets and distribute the proceeds. Id. 

Litigation soon commenced, however, following allegations of misconduct against

Highland Capital and disputes over investor redemptions. See id. After several years of litigation,

in 2011 the Supreme Court of Bermuda ultimately approved a “Joint Plan of Distribution of the

Crusader Funds” and “Scheme of Arrangement” (together, the “Joint Plan and Scheme”), which

was aimed at the “orderly management, sale, and distribution of the assets” of the Crusader

Funds. R. 2462–63. Under the Joint Plan and Scheme, Highland Capital continued to serve as

the investment manager, but a committee of Crusader Funds investors who had redeemed their

interests in the Crusader Funds (the “Redeemer Committee”) was elected to oversee Highland

Capital’s management of the fund’s liquidation and distribution. See R. 2464. 

Eventually, disputes arose between the Redeemer Committee and Highland Capital,

which, in 2016, culminated in the Redeemer Committee terminating Highland Capital as

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investment manager and initiating arbitration proceedings against it. R. 2465. The Redeemer

Committee alleged, among other things, that Highland Capital had breached its fiduciary duty

and the Joint Plan and Scheme by purchasing the redemption claims of former Crusader Funds

investors (the “Redemption Interests”). Doc. 13, Appellant Br., 8; see R. 2469.

In 2019, following a multi-day evidentiary hearing, the arbitration panel issued a final

award, which found that Highland Capital had breached its fiduciary duty and the Joint Plan and

Scheme by purchasing the Redemption Interests. R. 2491. The arbitration panel ordered

“rescission,” which required Highland Capital to transfer the Redemption Interests back to the

Redeemer Committee and pay the committee “whatever financial benefits Highland [Capital]

received from the . . . transactions, less what Highland [Capital] paid for the [Redemption

Interests], plus interest at the rate of 9%.” R. 2492. 

In October 2019, a hearing was set in Delaware Chancery Court to confirm the

arbitration award. See R. 2686. But on the morning of the hearing, Highland Capital filed a

voluntary petition for relief under chapter 11 of the Bankruptcy Code, which halted the

Delaware proceeding. See R. 326, 3621. Bankruptcy proceedings followed.

B. Various Entities File Proofs of Claim Against Highland Capital, Including CLO Holdco

In early March 2020, the bankruptcy court issued an order setting April 8, 2020, as the

general bar date for filing proofs of claim against Highland Capital. R. 2723. Relevant here, the

Redeemer Committee filed a general unsecured claim for roughly $191 million, and the Crusader

Funds filed a general unsecured claim for roughly $23.48 million. R. 921–43. Those entities’

claims were based on the arbitration award or, alternatively, the disgorgement of all

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management, distribution, and deferred fees paid to Highland Capital based on the “faithless

servant” doctrine. R. 928–30, 939–40. 

Most importantly for purposes of this appeal, CLO Holdco also filed a general unsecured

claim for roughly $11.34 million based on “participation interests and tracking interests” it had

acquired in “shares of certain funds.” R. 2142, 2149. Specifically, CLO Holdco had acquired

participation and tracking interests in the Redemption Interests held by Highland Capital (the

“Participation and Tracking Interests”). See R. 2141; Doc. 13, Appellant Br., 6–7; Doc. 15,

Appellee Br., 4. These Participation and Tracking Interests derived value from the underlying

Redemption Interests. See R. 2176–77.

2

C. Highland Capital Reaches a Settlement Agreement, CLO Holdco Amends Its Proof of Claim to

Zero, and the Plan Is Confirmed 

In September 2020, Highland Capital, the Redeemer Committee, and the Crusader

Funds reached a settlement agreement. R. 853–72. The settlement agreement provided that the

Redeemer Committee’s proof of claim would be allowed in the amount of $137.69 million, and

the Crusaders Funds’ proof of claim would be allowed in the amount of $50,000, both as general

unsecured claims. R. 856–57. The settlement agreement further provided for the “cancelling or

extinguishing” of the Redemption Interests held by Highland Capital. R. 857. The cancellation of

these interests was intended to implement the arbitration panel’s final award. See id.

Highland Capital filed a motion seeking the bankruptcy court’s approval of the settlement

agreement, and CLO Holdco was served with notice of the motion and agreement. See R.

2

 Specifically, Highland Capital had agreed to “promptly pay to the holder of the Participation

Interest an amount equal to such holder’s share of each amount received and applied by [Highland

Capital] . . . . in payment of distributions, Plan Claims . . . and proceeds of any sale, assignment, or other

disposition of any interest . . . with respect to . . . the Participating Shares.” R. 2176–77.

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486–87 (showing certificate of service). The bankruptcy court held a hearing on the motion and,

on October 23, 2020, entered an order approving the settlement agreement. R. 1200–01. 

Following the settlement agreement, CLO Holdco amended its claim against Highland

Capital from $11.34 million to zero. R. 2220. In its filing, CLO Holdco indicated that,

“[a]ccording to [Highland Capital], the termination of [Highland Capital]’s interests in [the

Redemption Interests] served to cancel CLO [Holdco]’s participation interests in . . . those

funds. Accordingly, CLO [Holdco]’s Claim Amount is reduced to $0.00.” Id. (emphasis omitted). 

On February 22, 2021, the bankruptcy court entered an order confirming Highland

Capital’s reorganization plan, and the plan took effect on August 11, 2021. R. 1541–42. When

the plan went into effect, a Litigation Trustee took over investigating and monetizing causes of

action on behalf of Highland Capital. See R. 3574. Part of those efforts included an adversary

proceeding that was pending against CLO Holdco. See R. 3572, 3574. Later that August, in a

hearing on the adversary proceeding, the bankruptcy court asked the parties if the defendants

had any proofs of claim. R. 3579–80. Counsel for the Litigation Trustee indicated that one claim

remained from CLO Holdco, but counsel for CLO Holdco quickly indicated that was “not

correct.” R. 3580. He stated that CLO Holdco had “no pending proofs of claim” because the

underlying interests had been “canceled,” and CLO Holdco’s proof of claim had thus been

“amended . . . to reflect a zero amount.” Id. When the bankruptcy court asked why CLO

Holdco’s counsel did not simply withdraw the claim, he indicated he could “certainly withdraw it

because it is a zero amount.” R. 3580–81. 

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D. CLO Holdco Seeks to File Second Amended Proof of Claim

In November 2021, the Litigation Trustee filed an objection to certain claims, including

CLO Holdco’s amended proof of claim for zero dollars. R. 1202. But on January 11, 2022, CLO

Holdco filed a second amended proof of claim, which amended the previous zero-dollar claim to

between $3.7 and $5.7 million. R. 2284, 2297. The second amended claim was based on a “new

theory of recovery” relating to the same Tracking and Participation Interests previously in

dispute. Doc. 13, Appellant Br., 16. That theory contended that Highland Capital had “received

a credit against the damage award for the purchase price of the cancelled [Redemption

Interests],” which constituted “proceeds of a disposition of the [Redemption Interests].” R. 2296.

In other words, CLO Holdco contended this “credit” Highland Capital received from the

Redemption Interests implicated the Tracking and Participation Interests and entitled CLO

Holdco to payment in that amount. Id.

E. The Bankruptcy Court Denies the Motion 

CLO Holdco filed a Motion to Ratify the Second Amendment to Proof of Claim,

3 R.

1220–36, to which the Litigation Trustee objected, R. 1237–85. The bankruptcy court held a

hearing on the motion on August 4, 2022. R. 12. After considering the parties’ arguments, the

bankruptcy court denied the motion. Ruling from the bench, the court first held that it had

discretion to allow an amendment to the proof of claim based on the Fifth Circuit’s In re Kolstad

opinion. R. 74; see In re Kolstad, 928 F.2d 171, 172 (5th Cir. 1991). 

3

 Despite the title of the motion, the parties seemingly agree—as indicated in the bankruptcy

court’s hearing and subsequent briefs on appeal—that the question is ultimately the permissibility of the

amendment. See R. 22–23; see also Doc. 13, Appellant Br., 20 (basing argument on the Fifth Circuit’s

standard regarding “whether to allow an amendment”). 

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But, exercising that discretion, the bankruptcy court found several circumstances

weighed against such an amendment. The bankruptcy court first noted the timing of the

amendment, emphasizing not only that it was post plan confirmation, but also that it came “one

year and nine months after the bar date” and “ten months after confirmation.” R. 75. The

bankruptcy court further discussed what it termed the “whipsaw” of CLO Holdco’s shifting

amendments—from over $11 million, down to zero, and back to $3 million or more. R. 76. The

court also noted the representations of CLO Holdco’s counsel, who had stated previously that

CLO Holdco did not have a proof of claim. Id. To the bankruptcy court, these representations

suggested CLO Holdco had “stepped at least almost in the lane of waiver and estoppel.” Id. The

court similarly raised concerns of “gamesmanship” in not withdrawing the claim. R. 76–77. And

finally, the court concluded that the amendment was ultimately premised on a frivolous theory

that would cause Highland Capital prejudice to litigate. R. 77. 

F. CLO Holdco Files the Present Appeal

CLO Holdco filed the present appeal contesting the bankruptcy court’s ruling. CLO

Holdco argues, in short, that the bankruptcy court failed to apply In re Kolstad and instead

imposed an improperly rigorous standard in determining whether to allow the amendment. See

Doc. 13, Appellant Br., 2–3. Because the Court finds that the bankruptcy court properly

considered and applied In re Kolstad and otherwise appropriately exercised its discretion, the

bankruptcy court’s decision is AFFIRMED.

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II.

LEGAL STANDARD

Final judgments, orders, and decrees of a bankruptcy court may be appealed to a federal

district court. 28 U.S.C. § 158(a). Because the district court functions as an appellate court in

this scenario, it applies the same standards of review that federal appellate courts use when

reviewing district court decisions. In re Webb, 954 F.2d 1102, 1103–04 (5th Cir. 1992). A

bankruptcy court’s decision to permit an amended proof of claim is reviewed for an abuse of

discretion. See In re Kolstad, 928 F.2d at 173. A court abuses its discretion if its decision is based

on an erroneous view of the law or a clearly erroneous assessment of the evidence. Certain

Underwriters at Lloyd’s, London v. Axon Pressure Prod. Inc., 951 F.3d 248, 256 (5th Cir. 2020). 

III.

ANALYSIS

The parties do not dispute that the bankruptcy court had the discretion to permit an

amendment. See Doc. 13, Appellant Br., 2; Doc. 15, Appellee Br., 23 n.11. Rather, the primary

issue on appeal is whether the bankruptcy court’s decision was based on an erroneous legal

standard or a clearly erroneous assessment of the evidence. See Certain Underwriters, 951 F.3d at

256. 

A. The Bankruptcy Court Applied the Proper Legal Standard 

CLO Holdco contends the bankruptcy court “eschewed” In re Kolstad. Doc. 13, Appellant

Br., 20. The Court disagrees. Rather, the bankruptcy court correctly considered In re Kolstad

while also understanding its limitations. 

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In In re Kolstad, the debtor himself filed a claim on behalf of the Internal Revenue Service

(“IRS”) to bring his potential tax liability within the ambit of bankruptcy relief. 928 F.2d at 174.

Otherwise, the debtor’s tax liability was nondischargeable and could hinder a plan of

reorganization with other creditors. Id. The question on appeal was whether the IRS could

amend the proof of claim to a higher amount after the bar date had passed. Id. at 172. The Fifth

Circuit held it could. Id. at 175. Placing a heavy emphasis on the purpose underlying each stage

of bankruptcy, the court reasoned that “[a]mendments do not vitiate the role of bar dates.” Id.

Rather, 

while bar dates establish the universe of participants in the debtor’s case, they

have little correlation to the final relative amounts in which creditors will share

any distribution. The goal of claims adjudication, on the other hand, is to assure

that each creditor which is part of that universe ultimately participates in the

voting and distribution from the estate in the proper amount determined by the

priority and nature of its claim and bankruptcy’s bargaining process.

Id. at 174 (emphasis omitted). 

Consistent with bar dates’ purpose of “establish[ing] the universe of participants in the

debtor’s case,” the Fifth Circuit required that courts authorizing amendments “ensure that

corrections or adjustments do not set forth wholly new grounds of liability.” Id. at 175. And the

court set out two considerations to guide that discretion: (1) whether the amending party “is

attempting to stray beyond the perimeters of the original proof of claim and effectively file a ‘new’

claim” and (2) “the degree and incidence of prejudice” caused by the delay in amending. Id. at

175 & n.7. In re Kolstad therefore suggests that when a district court has discretion to permit an

amendment to a proof of claim, the court should nonetheless exercise that discretion with due

consideration for the current stage of the bankruptcy and any resulting prejudice to the other

parties. See id. 

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The confirmation of a bankruptcy reorganization plan marks a significant stage in

bankruptcy proceedings and is fundamentally different than the bar date. As the Seventh Circuit

recognized, “One milestone of particular significance in bankruptcy is the bar date. . . .

Confirmation of the plan of reorganization is a second milestone, equivalent to a final judgment

in ordinary civil litigation.” Holstein v. Brill, 987 F.2d 1268, 1270 (7th Cir. 1993); see also

Eubanks v. F.D.I.C., 977 F.2d 166, 170 (5th Cir. 1992) (“[A] plan of reorganization is given the

same effect as a district court’s judgment on the merits for claim preclusion purposes.”).

Accordingly, the Seventh Circuit noted that “passing milestones in the litigation make

amendment less appropriate,” and once the plan is confirmed, further amendments “should be

allowed only for compelling reasons.” Holstein, 987 F.2d at 1270.

CLO Holdco contends that the bankruptcy court erred by disregarding In re Kolstad in

favor of Holstein’s “compelling reasons” standard. Doc. 13, Appellant Br., 18. First, CLO Holdco

overstates the bankruptcy court’s reliance on Holstein, as the bankruptcy court also considered

factors beyond the post-confirmation posture in determining whether an amendment was

appropriate. See R. 75–77 (discussing the overall delay, prior representations of counsel, concerns

of gamesmanship, and futility of amendment). 

In any event, the Court does not find Holstein and In re Kolstad incompatible. Instead,

Holstein and In re Kolstad dovetail by recognizing that the stages of the bankruptcy proceeding

must guide courts’ discretion in permitting amendments. See Holstein, 987 F.2d at 1270; In re

Kolstad, 928 F.2d at 175. Holstein applies this principle in the context of post-confirmation

proceedings: Because plan confirmation functions much like a final judgment, courts should

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exercise their discretion with that intended finality in mind. See Holstein, 987 F.2d at 1270–71;

see also Eubanks, 977 F.2d at 170.

In re Kolstad, by contrast, provides two factors to guide courts’ discretion in amendments

after the bar date. Those factors are largely rooted in the purpose of that stage of the bankruptcy

proceeding. See, e.g., In re Kolstad, 928 F.2d at 174–75 & n.7 (providing the first factor, which

seeks to prohibit a “new” claim from being filed, after discussing bar dates’ purpose of establishing

the universe of claims). CLO Holdco’s argument that In re Kolstad’s factors must be rigidly

applied regardless of the underlying stage in the bankruptcy therefore proves too much.

Accordingly, the bankruptcy court duly considered In re Kolstad but properly recognized that it is

“factually somewhat different.” R. 157. 

Because the Court finds the proper legal standard was applied, it now considers whether

the bankruptcy court’s ruling was based on a clearly erroneous assessment of the evidence. The

Court finds it was not. 

B. The Bankruptcy Court’s Assessment of the Circumstances Was Not Clearly Erroneous

In denying the amendment, the bankruptcy court expressed concerns regarding the

timing of the amendment, potential waiver or estoppel, gamesmanship, and the futility of

amendment. The bankruptcy court’s conclusions were well within its discretion.

In discussing the timing, the bankruptcy court recognized the significance of a postconfirmation amendment and agreed with other cases that the “circumstances ought to be

compelling.” R. 158. But it also noted more generally that “one year and nine months” had

passed since the bar date and “ten months” since the confirmation, which constituted a

significant delay. Id. 

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The bankruptcy court also noted that CLO Holdco’s statements indicating it had no

pending proof of claim and could withdraw its zero-dollar claim “stepped at least almost in the

lane of waiver and estoppel . . . . if not . . . precisely there.” R. 159. In its appeal, CLO Holdco

contends that waiver and estoppel were not implicated because, among other things, the

statements in the bankruptcy proceeding were not legal positions or made knowingly. Doc. 13,

Appellant Br., 30–32. The Court need not address these arguments head-on, however, because

the bankruptcy court expressly did not rely on those doctrines in its ruling. See R. 159. Rather,

the bankruptcy court seemingly referenced the doctrines as shorthand for the prejudicial effect of

CLO Holdco’s shifting representations regarding its proof of claim. See also R. 124 (describing

CLO Holdco’s repeated amendments as a “whipsaw”). Put differently, the bankruptcy court did

not need to find waiver or estoppel to properly recognize and consider the effects of CLO

Holdco’s changing statements. Similarly, the bankruptcy court expressed a concern of

“gamesmanship” by CLO Holdco in amending the proof of claim versus simply withdrawing it. R.

159–60. Nothing in the record suggests that the bankruptcy court abused its discretion in coming

to this conclusion. 

And finally, the bankruptcy court noted that, based on various exhibits and documents, it

“seem[ed] pretty clear . . . that [Highland Capital]’s interest in the Crusader Funds was canceled

as part of the . . . settlement, and that mean[t] CLO Holdco’s participation and tracking interests

were canceled.” R. 160. Thus, the bankruptcy court found, the debtor would be prejudiced if it

had to litigate this “frivolous theory so late in the case.” Id.

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The record supports the bankruptcy court’s finding.4 CLO Holdco’s “new theory” of

recovery for the Tracking and Participation Interests, which is based on a “credit” received by

Highland Capital, contradicts damages principles and the underlying arbitration award. Indeed,

the settlement agreement between Highland Capital, the Crusader Funds, and the Redeemer

Committee was intended to implement the final arbitration award. See R. 857 (“[Highland

Capital] . . . consent[s] to the Crusader Funds . . . cancelling or extinguishing all of the limited

partnership interests and shares in the Crusader Funds . . . as provided for in the Arbitration

Award.”). And the final arbitration award recognized, because the final award was “rescission,”

that the Redemption Interests could either be transferred back to the Redeemer Committee or

extinguished. See R. 2548, 2550. In addition to the transfer or cancellation of these interests, the

arbitration panel ordered the payment of any financial benefits Highland received from the

transactions, “less what Highland [Capital] paid for the [Redemption Interests], plus interest at

the rate of 9%.” R. 2492. 

CLO Holdco interprets the arbitration award—and in turn, the settlement

agreement—as providing Highland Capital with a “credit” because the payment of damages

subtracted “what Highland [Capital] paid for the [Redemption Interests].” See id. Accordingly,

the argument goes, the credit Highland Capital received was an “other disposition of any

interest,” triggering the Tracking and Participation Interests. See R. 2296. 

4

 CLO Holdco contends that the Court must apply a de novo standard of review when the

bankruptcy court’s denial of leave to amend was based on futility. Doc. 13, Appellant Br., 4. The Court

disagrees. The case CLO Holdco cites in support indicates that the de novo standard of review applies only

in cases where the “denial of leave to amend was based solely on futility.” See City of Clinton v. Pilgrim’s

Pride Corp., 632 F.3d 148, 152 (5th Cir. 2010) (emphasis added). Accordingly, the Court reviews the

bankruptcy court’s conclusion regarding futility for an abuse of discretion. See id. 

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The bankruptcy court did not abuse its discretion in deeming this theory frivolous. The

settlement agreement expressly provided for the cancellation of the Redemption Interests, from

which the Tracking and Participation Interests derived value. See R. 857, 2176–77. And, even

assuming the settlement agreement incorporated the damages methodology from the arbitration

agreement, Highland Capital received no actual value or “proceeds” from the Redemption

Interests. Rather, the purported “credit” was instead a way of calculating Highland Capital’s illgotten gains, a common damages remedy. 

To borrow from the Litigation Trustee’s example in argument to the bankruptcy court, if

a director usurps a corporate opportunity, buying an asset for $1 million and later selling it for $5

million, his ill-gotten gains are $4 million. See R. 232–33. To say the director received $1 million

in proceeds is incorrect. The director paid the $1 million, and the corporation is made whole by

the profits it would have received from the corporate opportunity. See id. If the director had to

pay $5 million to the corporation, the corporation would receive a $1 million windfall because it

never paid for the initial opportunity. 

Or take, for example, an individual that has wrongfully obtained $100 of stock in a

corporation. A proper damages remedy for the corporation might be the transfer of the stock

back to the corporation or the cancellation of the individual’s interest. The individual may

likewise have to pay back the dividends he received while he held that stock. But in no case has

the individual received a $100 “credit.” Indeed, requiring an additional payment of $100 would

doubly punish the individual and doubly reward the corporation. Accordingly, the Court finds

that the bankruptcy court did not abuse its discretion in determining Highland Capital would be

prejudiced by having to litigate this frivolous theory “so late in the case.” R. 160.

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IV. 

CONCLUSION

In sum, the Court finds that the bankruptcy court did not abuse its discretion in denying

CLO Holdco’s amendment to its proof of claim. Accordingly, the bankruptcy court’s denial of

CLO Holdco’s Motion to Ratify is AFFIRMED. The appeal is DISMISSED WITH

PREJUDICE.

SO ORDERED.

SIGNED: May 18, 2023.

______________________________

JANE J. BOYLE

UNITED STATES DISTRICT JUDGE

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