SAN FRANCISCO - Partners of the former Spare, Tengler, Kaplan & Bischel could end up having to play out an internal management struggle in open court.
Nancy Tengler, former president and a founder of the money management firm - since renamed Spare, Kaplan, Bischel & Associates Inc. - filed a $10 million suit claiming she was forced out of the firm and was refused fair payment for her shares.
In the action filed last month in Superior Court for the City and County of San Francisco, Ms. Tengler claims Chief Executive Anthony Spare sought to force her out of the firm and had undermined her authority. According to the suit, she was forced to resign when conditions in the firm became intolerable.
Sources close to the firm say relations between the two executives had deteriorated since last year, to the point they mainly communicated in writing.
Ms. Tengler's supporters say Mr. Spare resented her close ties with clients and had been irritated when clients seemed more appreciative of her than of him at last fall's client conference.
Mr. Spare could not be reached for comment. Barbara de Oddone, an attorney with Littler, Mendelson, Fastiff, Tichy & Mathiason, the firm representing Spare, Kaplan, said the partners were puzzled by the action.
"We can't read her mind, but I would venture a guess that the lawsuit stems from events flowing from her failed attempt to take over Tony Spare's job in late 1993," Ms. de Oddone said. She did not elaborate.
According to the suit, a personnel consultant hired to study the firm in late 1993 had suggested Ms. Tengler head the firm, but Mr. Spare rejected that conclusion.
Although the suit claims her gender was a factor in her ouster, Ms. Tengler said in an interview that the action is not about gender discrimination but about breach of contract.
The suit charges Ms. Tengler, who left the firm in June, was offered $100,000 for her shares, which her complaint values at $4 million. The shares make up about a fourth of the firm's equity.
Ms. de Oddone disputed the allegation, saying the price of the stock was derived from a formula in the stockholders' agreement, providing for recalling stock in the event of a partner's resignation. She added Ms. Tengler was offered the option of third-party mediation to resolve the dispute, but the offer was refused.
Ms. Tengler said she did not resign voluntarily, and she felt she had not been treated fairly after her departure. As for the mediation offer, she said she had not refused mediation, but she didn't believe an agreement could be reached in non-binding arbitration.
She said she regretted having to sue but had tried unsuccessfully for three months to reach agreement with the partners. She added she still hoped to settle the case and had put forth additional proposals.
Spare Kaplan has many good investment professionals on staff and should be able to continue its business, said Ms. Tengler. She added she had not wanted to hurt the firm she helped build, but the inability to reach agreement forced her to seek legal action as a last resort.
"I just want to be paid for my stock and get on with my career," said Ms. Tengler. "I'm embarrassed to be talking about it." She has not announced her plans yet, but is expected to seek another partnership.
Late last week, Spare Kaplan filed a countersuit. Ms. de Oddone would not detail the charges in the filing, but said Spare Kaplan partners were "concerned about statements made that will interfere with the clients," and felt they had to protect the firm's reputation.
"The firm feels that its first responsibility is to its clients and it wants to provide the best investment advice that it can. ... We have to protect our reputation. We feel that this cross-complaint will further that," she said.
She added the firm is still willing to go through third-party mediation to solve the dispute.
Ms. Tengler and Mr. Spare were among a group of investment managers from Bank of California who left in 1989 to start their own firm. She has been recognized as a driving force in business generation for the firm, which saw its assets quickly top the $1 billion mark in early 1993.
Spare Kaplan now manages $2.1 billion in equities; its clients include the State of Connecticut Trust Funds, which recently promoted the firm from its emerging managers team to the regular manager roster; the California Public Employees' Retirement System; The Common Fund; the North Dakota State Investment Board; and the pension funds of J.C. Penney Co. and Polaroid Corp.
For Spare Kaplan's clients, the suit clearly is unwelcome.
Only a few money managers have been sued by former partners - such as Brignoli, Curley & Roberts Associates, Disciplined Investment Advisors and Torray, Clark & Co. - and in those cases, client generation and retention proved to be a struggle.
A lawsuit is a negative for clients, who usually want to stay out of any kind of controversy or public scrutiny, said James Angelone, principal at Buck Consultants, New York.
"Even though the lawsuit may be without merit and even though they (Spare Kaplan) may win, every time you get involved in that kind of situation, it's controversial," he said.
"Most of the time, when something comes up like this, you have a settlement out of court, and both parties realize it's to their interest to stay out of the glare. ... Private firms do not want their books opened to the courts, regulators or anyone else."
As for the plaintiffs, it also is in their best interest to settle quickly, in order to go on with their careers, Mr. Angelone said.
"You don't want to be considered litigious," he said. "It hurts your own reputation as well."
Stephen L. Nesbitt, senior vice president and principal of Wilshire Associates Inc., Santa Monica, Calif., said it's not unusual to have disagreements in stock valuation when a partner seeks to exit a firm. Wilshire had studied the firm and reported to clients when Ms. Tengler's departure was announced, and clients "are not rushing to move assets right now," said Mr. Nesbitt.
