May 26, 2021

Milbank Obtains Directed Verdict Dismissing Billion Dollar Claim by Highland Capital Management Against Stephen Evans-Freke and Auven Therapeutics Management, LLLP


On May 25, the New York Supreme Court (Commercial Division) entered a directed verdict dismissing an alleged billion dollar claim against Milbank’s clients Stephen Evans-Freke and Auven Therapeutics Management, LLLP (“ATM”). On Defendants’ motion, the Court dismissed the action after Plaintiffs rested their case, finding that no reasonable factfinder could rule in favor of Plaintiffs based on the evidence presented.

The action was brought by five hedge funds managed now or previously associated with Texas-based hedge fund manager Highland Capital Management. The Plaintiffs had invested in notes that were secured by pharmaceutical products being developed by a private equity fund previously co-founded by Mr. Evans-Freke and John C. Mayo, Celtic Pharmaceutical Holdings, L.P. (“CPH”). Plaintiffs’ investment was risky because the drugs were at relatively early stages of development, and the investment depended on the development of the drugs to the point where they could be sold. That risk was reflected in the 17% payment-in-kind interest rate on the notes. As the Court explained, Plaintiffs’ investment was “essentially a gamble” on the success of the drugs. The drugs that secured the notes ultimately were unsuccessful and Plaintiffs lost their investment.

Plaintiffs filed a series of complaints asserting claims against individuals and entities that were not parties to or contractually liable on the notes, including Mr. Evans-Freke and ATM, the management company of a successful new private equity fund, Auven Therapeutics Holdings, L.P., which Mr. Evans-Freke co-founded with a different Managing General Partner, Dr. Peter B. Corr, who had no affiliation with CPH.

After hearing the evidence Plaintiffs presented, and Milbank’s cross-examination of Plaintiffs’ witnesses, the Court dismissed the case, finding that “the concrete evidence presented is a far cry from [Plaintiffs’] description of this as a broad international sham or a bleed out.” For this and other reasons, the Court found that there was no basis for holding ATM accountable for the notes issued by a subsidiary of CPH, a completely separate private equity fund, or for the alter ego theory asserted against Mr. Evans-Freke. The Court dismissed Plaintiffs’ claims in their entirety.

The team was led by Lead Trial Counsel and Milbank Chairman Scott A. Edelman with special counsel Andrew B. Lichtenberg and associates Tess M. McLaughlin, Joseph M. DaSilva, Lyndsey R. Pere and Mike Frieda.