Case No. 3:22-cv-02170-S 

IN THE UNITED STATES DISTRICT COURT 

FOR THE NOTHERN DISTRICT OF TEXAS 

In the Matter of: Highland Capital Management, L.P., 

 

Debtor. 

NexPoint Advisors, L.P. and Highland Capital Management Fund Advisors, L.P., 

Appellants, 

v. 

Highland Capital Management, L.P., 

 

Appellee. 

APPELLANTS’ REPLY BRIEF 

Appeal from the United States Bankruptcy Court for 

the Northern District of Texas, the Honorable Stacey G.C. Jernigan 

Davor Rukavina, Esq. 

Julian P. Vasek, Esq. 

MUNSCH HARDT KOPF & HARR, P.C. 

500 North Akard St., Ste. 3800 

Dallas, Texas 75201-6659 

Telephone: (214) 855-7500 

Facsimile: (214) 855-7584 

ATTORNEYS FOR NEXPOINT 

ADVISORS, L.P. AND HIGHLAND 

CAPITAL MANAGEMENT FUND ADVISORS, L.P.

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TABLE OF CONTENTS 

TABLE OF AUTHORITIES .................................................................................... ii 

I. SUMMARY OF REPLY ................................................................................. 1 

II. REPLY ............................................................................................................. 2 

 A. BANKRUPTCY COURT ERRED IN AWARDING MONEY JUDGMENT ............ 

 AGAINST THE ADVISORS ........................................................................ 2 

 B. THE ADVISORS OUTSOURCED THE RECALCULATION PROCESS TO THE .... 

 DEBTOR .................................................................................................. 4 

 C. ADVISORS DID NOT WAIVE PAROL EVIDENCE OBJECTIONS .................. 6 

 

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TABLE OF AUTHORITIES 

Cases 

Hubacek v. Ennis State Bank, 317 S.W.2d 30, 31 (Tex. 1958) ................................. 7 

In re Arlington Hospitality Inc., 368 B.R. 702, 715 n.12 (Bankr. N.D. Ill. 2007) .... 7 

In the Matter of Penn-Dixie Indus. Inc.. 22 B.R. 794, 797 

(Bankr. S.D.N.Y. 1982) ............................................................................................. 7 

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APPELLANTS’ REPLY BRIEF

 NexPoint Advisors, L.P. (“NexPoint”) and Highland Capital Management 

Fund Advisors, L.P. (“HCMFA”, and with NexPoint, the “Advisors”) hereby submit 

this their Appellants’ Reply Brief, replying to the Answering Brief of Appellee (the 

“Appellee Brief”), filed by Highland Capital Management, L.P. (the “Debtor”), in 

support of which they would respectfully state as follows: 

I. SUMMARY OF REPLY 

 The Bankruptcy Court is a court of equity. The Bankruptcy Code is a model 

of fairness. A Chapter 11 debtor is a fiduciary, held to a higher standard. Yet here, 

there is no doubt that the Advisors overpaid by the Debtor millions of dollars, 

postpetition, for employees and services that the Debtor was no longer providing. 

There is no doubt that the Debtor knew this, having calculated in its internal 

documents the millions of dollars in profits it was now making. There is no doubt 

that the Debtor hid these facts from the Advisors even as the Advisors had retained 

the Debtor to handle the Advisors’ accounts payable and accounting functions, and 

were paying the Debtor large sums to do so. Greed got the better of the Debtor, and 

the rest is simply an after-the-fact rationalization. 

 What is harder to understand is why the Bankruptcy Court did not appear to 

be troubled by its debtor engaging in such practices, and why it did not seek to 

fashion some equitable remedy in light of the obvious millions of dollars of 

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overpayments. Instead, the Bankruptcy Court focused on inadmissible parol 

evidence and hyper-technicalities to provide the Debtor with a windfall. First, the 

Bankruptcy Court converted what is clearly an agreement to reimburse, into a fixedfee agreement, by looking to inadmissible parol evidence. Second, the Bankruptcy 

Court relieved the Debtor of any burden or obligation, contractual or otherwise, of 

informing the Advisors that they were paying large monthly amounts for employees 

who were no longer there. Third, the Bankruptcy Court awarded the Debtor a money 

judgment for the Advisors failing to pay the Debtor for employees who no longer 

existed, and even after the Advisors triggered the process of recalculating 

reimbursable amounts under the agreements. 

 The PRAs were agreements to reimburse the Debtor for the use of its 

employees. If the Advisors did not use those employees, because the employees 

were no longer there, then there was nothing to reimburse. The Court should reverse 

the judgment below and remand to the Bankruptcy Court for further proceedings in 

light of the reimbursable nature of the agreements, as opposed to fixed-fee 

agreements. 

II. REPLY 

A. BANKRUPTCY COURT ERRED IN AWARDING MONEY JUDGMENT AGAINST 

THE ADVISORS

 It is important to remember that the issue of whether the Advisors gave notice 

to the Debtor of the overpayments under the PRAs consists of two separate periods 

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of time—which distinction the Bankruptcy Court failed to properly take into 

account. First is the period of time for which the Advisors actually paid the Debtor 

and sought a refund. Here, the Debtor is correct that the Bankruptcy Court was free 

to disbelief Waterhouse’s testimony that he raised the issue of the overpayments in 

2019. However, the facts are different for the period of time during which the 

Advisors did not pay the Debtor under the PRAs and for which the Bankruptcy Court 

awarded the Debtor money damages under the PRAs. Here, there can be no question 

of fact that the Advisors did raise the issue of the overpayments sufficient to trigger 

the adjustment process under the PRAs. 

 The Advisors raised the issue both in a December 1, 2020 e-mail and 

December 11, 2020 letter, which communications were in the record and which 

communications the Bankruptcy Court could not disregard. See ROA.002447-49; 

ROA.003133-34 (74:6 – 75:18). Seery admitted that the Debtor received this letter. 

See id. These communications were sufficient to trigger the mandatory requirement 

that the parties negotiate in good faith different rates under the PRAs, which Seery 

admitted the Debtor never did, instead ignoring the communications. See 

ROA.003133 (74:18-21). Thus, the Debtor breached the PRAs by refusing to 

negotiate different reimbursable rates in good faith as the contracts required, and the 

Debtor could not thereafter seek the benefit of those contracts—certainly not in the 

inflated amounts claimed. 

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 Even if the Court otherwise affirms the Bankruptcy Court on the issue of the 

overpayments, therefore, the Court should reverse and render judgment that the 

Debtor take nothing by it claims for unpaid amounts under these contracts because: 

(i) the Advisors unquestionably raised the issue of adjusting the amounts being paid; 

and (ii) the Debtor admittedly refused to engage in any good faith negotiation 

regarding the same. 

B. THE ADVISORS OUTSOURCED THE RECALCULATION PROCESS TO THE 

DEBTOR

 Perhaps the most inequitable and unfair result of the Debtor’s actions in 

overbilling the Advisors is that the Advisors were paying the Debtor to monitor their 

contracts to ensure that they were paying only amounts that were properly payable. 

There is no question that the SSAs were in effect at all relevant times and that those 

agreements obligated the Debtor to provide the Advisors with accounting, payments, 

book keeping, vendor management, accounts payable, and various other services. 

See ROA.000374; ROA.000379-80. There is no question that the Debtor, through 

its employees, did provide the Advisors with accounts payable services, including 

reviewing contracts and invoices for whether the Advisors were being billed proper 

amounts. The Advisors’ argument is simple: to the extent that the PRAs required 

the Advisors to trigger a process to recalculate amounts payable under the PRAs 

based on the actual headcount of employees, that was a service that the Advisors 

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farmed out to the Debtor to do through its employees in exchange for handsome 

contractual fees. 

 The Debtor argues that “[t]he Advisors knew of each employee’s departure 

and continued to knowingly pay fixed monthly amounts under the PRAs in the same 

fashion for 36 months straight,” and that the “overwhelming evidence in the record 

contradicts any notion that the Advisors ever sought modification of the PRAs 

during the 36-month relevant period.” Appellee Brief at p. 46. But who were the 

“Advisors” in the foregoing statements? They were the employees and officers of 

the Debtor. An artificial entity can only act through its agents and, here, the 

Advisors’ agents were the Debtor’s employees and officers under the SSAs. When 

the Debtor argues that the Advisors knew “x,” “y,” or “z,” or failed to take any 

action, it was the Debtor which knew these things and failed to take the action since 

it was the Debtor’s employees and agents. How the Debtor could then argue that 

these same employees and agents had zero obligation to do something about the 

overpayments in light of the clear language of the SSAs is illogical and paradoxical. 

 Just as with third-party bills and invoices that the Debtor would process on 

behalf of the Advisors and then cause the Advisors to pay, the Debtor was 

contractually obligated to perform these same services with respect to the Advisors’ 

PRAs with the Debtor. Just as the Debtor could be liable to the Advisors for failing 

to properly discharge these duties, such as by not catching the fact that a third party 

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was overbilling the Advisors or not complying with contractual rates, the Debtor 

could and should be held accountable with respect to the PRAs by not being 

permitted take advantage of a situation of its own making. Had the Debtor’s 

employees and agents properly performed their obligations under the SSAs to ensure 

that the Advisors were only paying for the services they were receiving, then the 

Debtor’s employees would have caused the PRAs to be modified to take into account 

the greatly reduced level of employees—the same as the annual reconciliation and 

adjustment process undertaken prior to bankruptcy (and under which the Debtor 

benefited by an upwards adjustment). 

C. ADVISORS DID NOT WAIVE PAROL EVIDENCE OBJECTIONS

 As the Advisors have briefed, the PRAs were contracts of reimbursement and 

not, as the Debtor argued, fixed-fee contracts. It is in this respect that the Advisors 

submit the Bankruptcy Court erred as a matter of law by considering and relying on 

extrinsic evidence to contradict the plain and unambiguous terms of the PRAs. That 

converting the “reimbursement” contracts into fixed-fee contracts would require 

parol evidence is obvious, as there is no other way to get there without reading 

“reimbursement” out of the contracts—even though the term appears in the very 

name of the contracts. 

 In response to the Advisors’ argument that the Bankruptcy Court improperly 

considered parol evidence, the Debtor argues that the Advisors waived this argument 

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by not objecting to certain testimony at trial. It is odd to argue waiver when the 

Advisors expressly raised and preserved this issue in their trial brief and in their 

opening arguments, but even so the Debtor is flat wrong: one does not have to make 

an evidentiary objection at trial to preserve a parol evidence issue. The law is clear 

that the parol evidence rule is a substantive rule of contract law and not merely a 

procedural rule of evidence. See, e.g., Hubacek v. Ennis State Bank, 317 S.W.2d 30, 

31 (Tex. 1958). Thus, “[f]ailure to object to the admission of parol evidence at trial 

[] does not waive the rule’s applicability.” In re Arlington Hospitality Inc., 368 B.R. 

702, 715 n.12 (Bankr. N.D. Ill. 2007). Accord In the Matter of Penn-Dixie Indus. 

Inc.. 22 B.R. 794, 797 (Bankr. S.D.N.Y. 1982). 

 The Bankruptcy Court found the PRAs unambiguous, yet construed them as 

fixed-fee contracts, which nowhere appears in the contracts. The Bankruptcy Court 

did so only by considering parol evidence to contradict the express language of the 

unambiguous contracts. The Court should reverse the Bankruptcy Court’s decision 

and remand with instructions to reconsider the issues in light of the express language 

of the PRAs addressing reimbursement and not fixed fees. 

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RESPECTFULLY SUBMITTED this 3d day of April, 2023. 

MUNSCH HARDT KOPF & HARR, P.C. 

By: /s/ Davor Rukavina 

Davor Rukavina, Esq. 

Texas Bar No. 24030781 

Julian P. Vasek, Esq. 

Texas Bar No. 24070790 

500 N. Akard St., Ste. 3800 

Dallas, Texas 75201-6659 

Telephone: (214) 855-7500 

Facsimile: (214) 855-7584 

Email: drukavina@munsch.com

Email: jvasek@munsch.com 

ATTORNEYS FOR APPELLANTS 

NEXPOINT ADVISORS, L.P. AND 

HIGHLAND CAPITAL MANAGEMENT FUND ADVISORS, L.P. 

CERTIFICATE OF SERVICE 

 The undersigned hereby certifies that, on this the 3d day of April, 2023, a true 

and a correct copy of the foregoing document was served by the Court’s ECF system 

on the appellee by and through its counsel of record. 

By: /s/ Davor Rukavina 

Davor Rukavina, Esq. 

4860-3980-1691v.1 019717.00001 

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