Bloomberg News

TCW Group Asks Judge to Throw Out Gundlach’s Contract Claims

June 20, 2011

(Updates with comment from DoubleLine lawyer beginning in 13th paragraph.)

June 20 (Bloomberg) -- TCW Group Inc. asked a judge to throw out breach-of-contract claims by its former investment chief Jeffrey Gundlach, who said he was fired in 2009 so the company wouldn’t have pay him as much as $1.25 billion in fees.

Los Angeles Superior Court Judge Carl West said at a hearing today that summary judgment wasn’t the appropriate way to resolve Gundlach’s claims. West had issued a tentative decision ahead of the hearing denying TCW’s request for a ruling that Gundlach has no claim because he had no contract, and took the matter under submission without issuing a final order.

“There was an agreement here and what this agreement was isn’t entirely clear,” West said at the hearing. “A jury is going to have to determine what the terms were.”

TCW, the Los Angeles-based unit of Societe Generale, sued Gundlach and three other ex-employees in January 2010 after more than half of its fixed-income professionals joined Gundlach’s new firm, DoubleLine Capital Inc. TCW seeks more than $200 million in damages, claiming Gundlach stole its trade secrets as he plotted to start his own business.

Gundlach filed counterclaims a month later, saying he was dismissed so that TCW wouldn’t have to pay $600 million to $1.25 billion in future management and performance fees from the funds his group managed.

‘Gross Oversimplification’

John Quinn, a lawyer for TCW, said at the hearing that Gundlach was never promised any specific amount or percentage of the fees and that he received what was left from his group’s share of the fees after he had paid all the expenses of his group. It was “gross oversimplification” to say that Gundlach was entitled to a percentage of TCW’s fees, Quinn said.

Gundlach didn’t have a written contract and there was no evidence of an oral agreement that he couldn’t be terminated without good cause, Quinn said at the hearing.

Mark Helm, a lawyer for DoubleLine, said TCW had been paying Gundlach and Gundlach had been working under an agreement and that the only dispute was what the terms of the contract were. It was a question for the jury to decide whether there was a contract in the absence of a written agreement, Helm said.

West, also tentatively, ruled that some of TCW’s claims against Gundlach, breach of duty of confidence and violations of California’s penal code, were preempted by California’s Uniform Trade Secrets Act. The judge didn’t issue a final order and his tentative ruling would allow TCW to restate the claims.

Triple Damages

Brad Brian, a lawyer for DoubleLine, said at the hearing that the California penal law claim, which allows civil damages for receiving stolen property, would entitle TCW to seek triple damages at trial.

The evidence of Gundlach’s alleged wrongdoing will go before the jury with or without the two claims, Susan Estrich, a lawyer for TCW, said in a statement after the hearing.

“The tentative ruling on summary judgment motions changes absolutely nothing in this trial,” Estrich said. “The evidence of his gross misconduct, violation of his fiduciary duties as an officer and director of TCW, and his blatant theft of trade secrets and confidential information is overwhelming.”

Helm said after the hearing that if the judge’s tentative rulings hold, it would be big victory for DoubleLine and it would not be a surprise.

“The ruling will clear the way for the jury to hear Gundlach’s compensation claims in their entirety,” Helm said. “We look forward to proving that his firing had nothing to do with copying information and everything with stealing his compensation.”

The jury trial is scheduled to start July 25.

The case is Trust Co. of the West v. Jeffrey Gundlach, BC429385, Los Angeles County Superior Court.

--Editors: Glenn Holdcraft, Stephen Farr

To contact the reporter on this story: Edvard Pettersson in Los Angeles at epettersson@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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