Highland Financial hits Orrick with $95m claim as RBS case continues

A US investment management company has launched a $95m lawsuit against Orrick Herrington & Sutcliffe in Dallas as it continues to defend UK litigation brought against it by RBS.

Highland Financial Partners filed its complaint against Orrick in the Dallas District Court last week (25 January), alleging that the firm was negligent in the advice it provided over a multimillion-dollar collateralised debt obligation (CDO) transaction between Highland as borrower and RBS as lender.

The complaint alleges that Highland’s longstanding adviser Orrick, which was hired in 2007 and 2008 to review two extensions to the transaction, failed to advise Highland that the amendments did not remove a provision in the original agreement that allowed RBS to terminate the CDO transaction “at will”. 

RBS terminated the CDO in October 2008. Highland claims that due to this it lost $65m that it paid to RBS for the extensions.

The investment company is also claiming that Orrick’s negligence led to it losing a 2010 action in the High Court. RBS had sued Highland for approximately £36m, a shortfall between the realised value of the portfolio of loans acquired for the CDO and the outstanding amount of the financing made by RBS on the acquisition of the loans.

In a summary judgment in February 2010 Mr Justice Burton found in favour of RBS, a decision upheld by the Court of Appeal later that year. However, in a quantum hearing in December 2010 Burton J halved RBS’s award from £36m to £18m. 

The latest stage in the litigation between RBS and Highland is being heard in the High Court this week. RBS is seeking to block Highland from suing it in Texas.

The bank has racked up fees of £4m (13 January 2012) in the course of the battle, which also saw RBS dump regular adviser Herbert Smith for Linklaters (24 October 2011).

In an email Orrick’s counsel in the US case, Baker Botts partner Rod Phelan, said: “Highland is trying to blame its lawyers for its own failed bets. Orrick was not Highland’s first target. In London litigation, Highland tried to blame these losses on RBS. Now that the London court has sided with RBS, Highland is looking for someone else to blame. Orrick’s lawyers did their jobs, and we’ll defend this case vigorously.”

Highland has instructed Austin-based partner William Reid of litigation firm Reid Collins & Tsai for the Orrick case. Reid confirmed the instruction but declined to comment.

Highland declined to comment. Orrick did not return a request for comment.