Overview
First Tuesday Update is our monthly take on current issues in commercial disputes, international arbitration, and judgment enforcement. This month, we review Matter of UBS Securities LLC v. Dondero, 2026 NY Slip Op 05460 (1st Dep't Sept. 24, 2026), an important new decision on veil-piercing and alter ego liability from New York's Appellate Division in long-running litigation involving Highland Capital Management, L.P., and its founder and former CEO, James Dondero. The decision serves as confirmation that—even where an underlying debt was incurred in an arm's-length transaction—New York courts can consider later efforts to prevent the company from paying the debt as a potential basis to pierce the corporate veil. It also addresses a number of other points of interest to judgment creditors, as well as owners of distressed companies who are concerned about alter ego claims.
Credit Suisse (now UBS) had other long-running disputes with Highland entities, including a matter in New York in which Steptoe defended Credit Suisse. That matter is now resolved. Steptoe was not counsel in the proceeding discussed here.
A Billion-Dollar Liability and Claims of Asset-Stripping
Highland filed for bankruptcy in October 2019 after what a bankruptcy court dubbed "a myriad of massive, unrelated, business litigation claims that it faced . . . after a decade or more of contentious litigation in multiple forums all over the world." True to that history, the bankruptcy court docket has involved findings of contempt and more than 50 appeals from the Bankruptcy Court to the District Court or Fifth Circuit.
The latest litigation in New York springs from a much older case—billion-dollar liabilities on a complex securitization transaction between UBS and Highland in 2007-2008. While that case took more than a decade to reach judgment, UBS alleges that Dondero and Highland's Chief Legal Officer, Scott Ellington, engaged in several transactions that transferred in assets to themselves or entities they controlled and beyond the reach of UBS. By the time judgments were entered in 2020, Highland was unable to satisfy them.
UBS brought a number of claims arising from these alleged transfers, including a veil piercing or alter ego claim alleging that were liable on the underlying debt and a fraudulent conveyance claim. Rather than bring a plenary action, UBS brought these claims through a turnover proceeding under New York's CPLR 5225, a summary procedure in which discovery is only available for good cause. After Dondero and Ellington's motion to dismiss was denied, they appealed to the Appellate Division. On September 24, 2026, the Appellate Division issued a detailed opinion that addresses several important points under New York alter ego and fraudulent conveyance law.
The "Transaction Attacked" Can Be the Asset-Stripping Transaction
To start, Dondero and Ellington argued that UBS's alter ego allegations improperly focused on their control of Highland not at the time of the original securitization transaction but the later challenged transfers. As the First Department explained, for those later transactions, UBS's pleadings "identify numerous badges of domination, including disregard of corporate formalities; overlap of ownership, officers and directors; common office space; limited discretion demonstrated by the corporations; and that the corporations were not treated as independent profit centers." (Slip Op. at *5.)
The First Department rejected Dondero and Ellington's arguments, and held that, while New York law requires that the domination be "in respect to the transaction attacked," that "need not be the underlying transaction itself, but can be a subsequent transaction designed to frustrate a party's ability to recover for obligations stemming from the underlying transaction, such as a judgment." (Id.) That was "consistent with the fundamental purposes of veil piercing, which are preventing fraud and achieving equity," it held, and any other rule "would perversely encourage abuse of the corporate form to avoid judgment debts." (Id.)
The ruling is thus a clear statement of New York's approach to veil-piercing, holding that even where the underlying transaction giving rise to the debt is unimpeachable, later efforts to evade a prospective judgment can expose company owners to personal liability for the judgment debt. That is in addition to other forms of potential liability for asset-stripping, such as tortious interference with contract or tortious interference with money judgment claims.
The "Consequent Wrong" Element Does Not Require Pleading That the Judgment Would Otherwise Have Been Paid
The First Department also rejected Dondero's argument that UBS should have been "required to plead that the judgment debtors would have been able to satisfy the judgments in the absence of his conduct." (Id.) Nor did the Court find a requirement to plead that the domination itself caused the insolvency, rejecting an argument that UBS had to show "that, but for his domination, the judgment debtors would have had the means to pay judgments." (Id.) Instead, the First Department held that, at the pleading stage, UBS satisfied this element by particularized allegations of "wrongs"—"the transfers of the judgment debtors' assets,"—and "injury," in the form of "the deprivation of recovery on the judgments." (Id. at *6.) Contrary to Dondero's contention, the pleading burden did not require anything further, such as particularized allegations that the judgments would have been paid otherwise.
The Appellate Division's opinion does, however, leave some room for causation arguments down the line. It noted that "UBS will eventually have to establish that Dondero's domination of the judgment debtors was used to commit wrongs that were the proximate cause of UBS's losses, in whole or in part." (Id.)
Aiding and Abetting by a Non-"Equitable Owner" Is Not Enough
The First Department's decision did, however, reverse and grant dismissal of the alter-ego claim as to Ellington, Highland's Chief Legal Officer. While he was an "important deputy," the Court found, "the allegations directed at Ellington do not suggest that Ellington exercised complete domination of the judgment debtors." (Id. at *7) (emphasis original). Citing prior cases characterizing domination as involving someone who is not a legal owner acting as an "equitable owner," the Court held that Ellington could not be held liable because Dondero, and not Ellington, was the real owner of Highland. "That Ellington was an influential corporate officer who served as the right-hand of the individual who allegedly dominated the corporate entities does not expose Ellington to alter ego liability." (Id.)
Limited Partnerships and Corporations Are Not Interchangeable
The First Department also dismissed without prejudice and with leave to replead, the claims to pierce the veils of two limited partnerships. The Court found that the parties had insufficiently briefed issues around the distinctions between limited partnerships and corporations and had also failed to address complicated choice of law issues regarding whether the law of the place of the wrong or the law of the state of formation governed some of these issues. (Id.) It thus dismissed these claims without prejudice and granted leave to replead so that the parties could develop these arguments in greater detail in the first instance below. (Id.)
Choice of Law for Fraudulent Conveyance
Finally, the Court decided the choice-of-law question for the fraudulent conveyance claims. That issue was significant because under the Texas statute of limitations the claims would have been time-barred, but not under New York law. (Id.) The Court, applying New York's conflict-of-laws principles, held that "the relevant inquiry is which forum has the greatest policy interest in the outcome of the dispute in light of the parties' contacts with each forum." (Id. at *8.) The Court found multiple reasons why—despite Dondero living in Texas and Highland being headquartered there—New York law should apply. (Id.) The residence of the creditors, it found, was significant to the reasonable expectations of the parties, and New York had a strong interest in protecting a UBS entity headquartered in New York from fraud and in protecting a New York judgment from being defeated by fraud. (Id.)
