Lawyers for TCW and its former chief investment officer, Jeffrey Gundlach, offered differing views in closing arguments Tuesday on whether Mr. Gundlach had stolen trade secrets from TCW to form DoubleLine Capital.
TCW attorney John Quinn told the jury that Mr. Gundlach schemed to obtain the trade secrets over a matter of months while he was still at TCW. “They secretly stole, they secretly set up a Delaware company,” Mr. Quinn said. “They were preparing to eliminate TCW as a competitor.”
Mr. Quinn said Mr. Gundlach and key associates were engaged in a plot to destroy TCW as part of a plan to form a rival asset management company.
“They essentially stopped working for TCW, and worked against TCW,” Mr. Quinn said.
However, Mr. Gundlach's attorney, Brad Brian, said that TCW had made its “secret plan” to replace Mr. Gundlach in June 2009 because the company's owner, Societe Generale, felt that Mr. Gundlach's presence would block a sale of TCW. He said Societe Generale officials were concerned that since Mr. Gundlach controlled 60% of TCW's assets under management, potential buyers would be scared away because one person was so essential to the company.
In earlier testimony, TCW Chairman Marc Stern said that preliminary discussions about replacing Mr. Gundlach were started in June 2009 but that actual plans to replace him did not begin until September 2009.
TCW replaced Mr. Gundlach through its acquisition of bond manager Metropolitan West Asset Management in December 2009.
Mr. Quinn said Mr. Gundlach and his mortgage-backed securities team had planned to announce they were leaving TCW without notice, which would leave TCW with no time to find a replacement.
TCW fired Mr. Gundlach in early December 2009, saying that Mr. Gundlach had plotted to download millions of pages of confidential client data to help him start DoubleLine. He started DoubleLine within days of his departure from TCW,
Mr. Brian didn't dispute that material was downloaded from TCW computers and said, “That was not the right thing to do,” but he argued that TCW did not establish that the material was actually used at DoubleLine.
Messrs. Brian and Quinn disagreed on whether downloading the data itself could constitute harm. Mr. Quinn told the jury that the simple downloading of the material is cause for monetary damages to be awarded to TCW. But Mr. Brian insisted they would have to prove that actual harm resulted from the downloads.
The two sides also disagreed on other key allegations in the trial in California Superior Court in Los Angeles. Mr. Quinn said Mr. Gundlach, after being fired from TCW, had urged investors in TCW's closed-end mortgage securities funds to demand early withdrawals from the funds, causing TCW $344 million in losses. Mr. Brian didn't deny that Mr. Gundlach had urged investors to pull their money, but added that under California law, even if any harm would have occurred, Mr. Gundlach would not be liable. Mr. Brian said investors were “angry” that Mr. Gundlach had been fired and were “flooding TCW with complaints.”
The two sides also clashed over whether Mr. Gundlach had a valid contract with TCW. Mr. Quinn said Mr. Gundlach did not have a contract with TCW because he failed to sign it in 2007, while Mr. Brian said a handshake agreement between Mr. Gundlach and TCW officials along with e-mails from TCW executives congratulating Mr. Gundlach proved he had a valid contract when he was fired.
Mr. Gundlach is seeking $500 million in performance fees he said was owed under the terms of the contract.