Updated Oct. 25, 2011
A damages expert hired by TCW Group testified on Tuesday that the firm should get $81.7 million in royalties from its former chief investment officer, Jeffrey Gundlach.
Bradford Cornell, an independent damages consultant, told California Superior Court Judge Carl West in a hearing in Los Angeles to determine the amount of the royalties that the $81.7 million figure would be a reasonable calculation of what Mr. Gundlach and his new firm, DoubleLine Capital, would have had to pay in royalties if they had negotiated for them instead of taking them.
Attorneys for Mr. Gundlach, his key associates and DoubleLine are insisting that they don't owe anything, but were unable to call witnesses because of time constraints at Tuesday's hearing. A second hearing has been scheduled for Nov. 21 to hear the testimony of two damages experts hired by Mr. Gundlach and associates.
A jury on Sept. 16 found that Mr. Gundlach had stolen trade secrets as part of a plan to start DoubleLine. The jury also found that Mr. Gundlach violated his fiduciary duty and had interfered with TCW's contractual relationships in urging investors to leave TCW funds, but awarded no damages on those counts. The jury also awarded Mr. Gundlach $66.7 million in back wages, a claim that TCW is appealing.
Mr. Cornell said he made his calculations based on a pro forma financial statement that Mr. Gundlach's associates had developed for a new hypothetical asset management company. The statement, which TCW officials had discovered during searches of computers used by Mr. Gundlach's securities team in fall 2009, showed that Mr. Gundlach and associates had estimated that they would take $48 billion in assets away from TCW and would bring in $197 million in revenue in their first 10 months of operations from March 1, 2010, through Dec. 31, 2010.
Mr. Cornell's $81.7 million calculation was based on a hypothetical negotiation that would have occurred in the fall of 2009 if Mr. Gundlach had tried to buy the information contained in the trade secrets.
Under cross-examination by Mark Helm, an attorney for Mr. Gundlach, Mr. Cornell said none of the $48 billion ever went to DoubleLine and that the pro forma statement was only a calculation for a potential company that had no direct relationship to any actual money management firm that Mr. Gundlach formed.
Separately, Mr. West said he may have to hold a separate hearing on TCW's intent to challenge the $66.7 million award in back wages the jury awarded to Mr. Gundlach. TCW said the award should be thrown out because Mr. Gundlach was found to have violated his fiduciary duty.