Jeffrey Gundlach vs. TCW Group case goes to jury

After a six-week court case of often head-spinning complexity, the bitter legal battle between star L.A. bond fund manager Jeffrey Gundlach and his former employer, TCW Group Inc., is in the hands of the jury.

Their mission: Try to decide which of two very well-heeled combatants deserves potentially hundreds of millions of dollars in damages from the other after TCW ousted Gundlach nearly two years ago.

Mindful that the jurors most likely can’t personally relate to the huge sums of money involved, TCW attorneys tried to reduce the case to issues of simple right and wrong in their closing arguments Tuesday.

There are “very rich people on both sides,” John Quinn, TCW’s lead attorney on the case, told jurors in Los Angeles County Superior Court. But “what is at stake are basic principles that apply to everyone. You don’t lie, you don’t cheat and you don’t steal.”


Brad Brian, an attorney for Gundlach, asked jurors to apply “common sense” in what he called a case of corporate divorce.

Investment giant TCW, which manages about $120 billion in assets, fired Gundlach in December 2009 in a shake-up that rocked the mutual fund world. One month later the company sued Gundlach, alleging that he and key aides conspired against the firm and stole TCW proprietary information to set up a rival fund management business, DoubleLine Capital, almost overnight.

Gundlach, 51, then countersued and accused TCW of ousting him after 24 years at the firm to cheat him out of a huge chunk of promised income.

The root of TCW’s case — the allegation that Gundlach and three co-defendants took massive amounts of TCW data and client information on their way out — isn’t in dispute. But Gundlach says the data were returned or purged, and weren’t used to launch DoubleLine, which has grown quickly to manage $15 billion for institutional and individual clients.


The court battle has centered on other issues now before the jury of five women and seven men:

• Who was conspiring to jilt whom? TCW alleges that Gundlach, a bond-market genius who managed more than 60% of TCW’s total assets, was secretly planning all through 2009 to abandon TCW. He allegedly wanted to take his entire bond team with him to another firm, or one that he created.

If he had succeeded, he “likely would have destroyed TCW,” Quinn said Tuesday. Instead, TCW said, the company used the element of surprise to strike first, firing Gundlach and acquiring another bond firm on the same day to take over the assets Gundlach had managed.

Gundlach denies that he sought to leave TCW, and alleges that Chief Executive Marc Stern and the company’s French parent, banking firm Societe Generale, were plotting in 2009 to oust him. Gundlach’s attorneys have pointed repeatedly to notes taken at a meeting of TCW executives in August 2009 referring to the idea of firing him.


In testimony, Stern, 66, and other TCW executives said they couldn’t recall what was discussed at the meeting. “They don’t want to admit that they had decided to get rid of Mr. Gundlach,” Brian told jurors.

• Did Gundlach have a contract with TCW? The basis for Gundlach’s counterclaim against TCW, alleging that he is owed hundreds of millions of dollars, is that he had a contract that ran through the end of this year. TCW admits that a new contract was drawn up in 2007, but said that Gundlach never signed it, preferring to remain an “at-will” employee.

As one of Wall Street’s most acclaimed investors in mortgage bonds, Gundlach had attracted tens of billions of client dollars to TCW over the last two decades, and had been paid handsomely for his skills. He asserts that, based on the performance of bonds he had purchased prior to his ouster, he is owed $496 million more under his contract.

Gundlach’s attorneys say that his contract with TCW was legally viable because both sides agreed to the terms, even though Gundlach never signed it. TCW, in turn, argues that Gundlach isn’t owed any additional compensation because he had breached his fiduciary duty to the firm by actively working to set up a rival operation while still employed at TCW.


• Was TCW harmed financially? The firm wants the jury to force Gundlach to pay $344 million in damages for allegedly interfering with TCW’s client contracts. TCW says Gundlach sought to encourage clients to shun TCW after his ouster. The company also wants $222 million for fees it might have earned if some clients hadn’t left after the split-up.

But Gundlach’s attorneys say TCW’s wounds were self-inflicted, and therefore that no damages are owed. Although TCW cut fees on some of its bond accounts in 2010 in an attempt to hold on to clients, that was the firm’s own decision, Brian said. What’s more, he said, TCW expected a cost savings by firing Gundlach because his pay deal would be eliminated.