Damages Expert: California Trust Company Owed $81M for Trade Secrets

By Sue Zeidler | October 26, 2011

A damages expert asserted Trust Company of the West (TCW) is owed $81.7 million in royalties due to trade secret theft as the high-profile civil case pitting the asset management firm against its former chief investment officer Jeffrey Gundlach resumed on Tuesday.

Both sides sued each other in one of the most contentious battles ever to grip the multitrillion-dollar bond fund world, after Gundlach was fired from TCW in December 2009 and set up a rival firm, DoubleLine Capital.

In September a Los Angeles jury ordered TCW to pay Gundlach $66.7 million in wages, to be divided by Gundlach between himself and his co-defendants. Gundlach and his associates sought hundreds of millions of dollars.

TCW prevailed in its claim that the fund manager took trade secrets. It is now up to the judge in the case to decide damages.

Bradford Cornell, a damages witness for TCW, a unit of French bank Societe Generale, said that without the use of proprietary information obtained from his former employer, Gundlach would not have been able to build up his new rival business, DoubleLine Capital, so quickly and effectively.

DoubleLine is less than two years old but is already managing $18 billion in assets, according to the most recent data given by DoubleLine.

“Without trade secrets, Gundlach’s business wouldn’t have been ready,” Cornell told California Superior Court Judge Carl West on Tuesday.

The $81.7 million figure was based on a hypothetical negotiation that would have occurred in the fall of 2009 if Gundlach had tried to buy the information contained in the trade secrets, Cornell said.

Lawyers for Gundlach and DoubleLine insist they do not owe anything.

“TCW is living in an alternative universe. They are seeking royalties based on a draft that envisioned TCW negotiating with Jeffrey Gundlach to continue to manage $48 billion in assets as part of an amicable separation. Instead, TCW fired Jeffrey, and he built DoubleLine from scratch, without a penny from TCW.” said DoubleLine spokesman Lew Phelps.

DoubleLine was unable to call witnesses Tuesday because of time constraints, and a second hearing on the trade secrets damages portion of the case was scheduled for Nov 21.


The damages hearing brought both sides back to court for the first time since the six-week trial ended in mid-September. During the trial jurors got a glimpse of the huge personalities involved in the dispute. Jurors heard testimony about tirades against TCW by Gundlach in the company cafeteria and other sometimes salacious details.

Meanwhile, against the backdrop of the bruising courtroom drama, Gundlach continues to score high in the market.

His DoubleLine Core Fixed Income Fund, rose 9.5 percent for the nine months ended Sept. 30, putting it in the top percentile of its category, according to financial research firm Morningstar.

TCW sued its former star a month after it fired him. Gundlach fired back with a counter-lawsuit.

In the weeks following his termination, Gundlach and three of his co-defendants at the trial formed DoubleLine. Roughly 45 TCW employees followed him.

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

(Editing by Steve Orlofsky)

Topics California

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