Former TCW President William Sonneborn testified Friday that he never completed a new employment contract in 2007 with TCW's star money manager, Jeffrey Gundlach, making Mr. Gundlach an employee who could be terminated.
“It was obvious he (Mr. Gundlach) was an at-will employee,” said Mr. Sonneborn, testifying in a trial between TCW and Mr. Gundlach in California Superior Court in Los Angeles.
Mr. Gundlach, who was fired from TCW in December 2009, is seeking about $500 million in incentive fees he said he is owed by the money management firm. At issue in Mr. Gundlach's case against TCW is whether a contract is valid if it was never signed.
Messrs. Gundlach and Sonneborn and former TCW Chairman Robert Beyer agreed verbally to a new five-year contract for Mr. Gundlach in May 2007, and the agreement was also approved by the company's compensation committee in June 2007, according to earlier testimony. But neither Mr. Gundlach nor executives at TCW ever signed that agreement.
Mr. Sonneborn said Friday that Mr. Gundlach “absolutely needed to sign the contract” for it to take effect. He said it was TCW's policy to countersign such an agreement once the employee's signature was given. Mr. Sonneborn said while general contract terms had been agreed to, including Mr. Gundlach's compensation and its five-year duration, there were still unresolved issues, including whether Mr. Gundlach had absolute power over determining salaries of the members of his fixed income mortgage-backed securities team.
Mr. Sonneborn testified he wasn't concerned that Mr. Gundlach hadn't signed the contract.
“Jeffrey had been loyal to TCW since the day he started,” he said. “I wasn't particularly concerned.”
He said Mr. Gundlach was thankful for TCW giving him his start. Mr. Gundlach, over a period of more than two decades, had worked himself up from a $30,000-a-year entry level job to TCW's chief investment officer in 2009, making $40 million.
Mr. Gundlach has contended that since TCW paid him under the terms of the new contract starting in May 2007 and had agreed to it verbally, the contract was valid. His lawyers have also produced e-mails from Messrs. Sonneborn and Beyer that showed theywere happy with the new agreement with Mr. Gundlach.
The agreement increased fee sharing for Mr. Gundlach and his team, but also required Mr. Gundlach to pay administrative costs for his team members.
Mr. Gundlach's claim for back and future incentive fees is part of a countersuit he filed after TCW sued him, claiming he and his team stole trade secrets to start a rival money management firm, DoubleLine Capital. Mr. Gundlach opened DoubleLine just days after being terminated by TCW.
The trial, which has lasted over a month, is expected to wrap up early next week.