Tuesday, July 26, 2011, 7/26/2011 11:00:00 AM

Racy Gundlach/TCW Trade Secrets Case Commences - Pre-Trial Rulings Exclude Some Evidence

By Todd

You may recall that the lawsuit alleges Gundlach, ousted as investment chief of $110-billion-asset TCW on Dec. 4, schemed for months with top lieutenants to exit the firm with vast amounts of proprietary data.

TCW also seeks to portray the 50-year-old Gundlach as unfit to remain a company officer. The firm said it found marijuana, pornographic DVDs and magazines and "sexual devices" in his TCW offices on the day he was terminated. Gundlach's new firm, DoubleLine Capital, quickly fired back, asserting that TCW's suit had no merit and accusing the company of resorting to "gutter" tactics. DoubleLine said it planned to file a counterclaim against TCW.

Well, they've picked a jury and now the trial will begin. According to Fortune, http://finance.fortune.cnn.com/2011/07/23/tcw-fights-to-keep-damning-evidence-from-view/, TCW is fighting hard to keep away from the jury a memo and deposition suggesting that executives at TCW, a division of Societe Generale, were thinking about firing Gundlach as early as August 2009. If this is the case, it contradicts the firm's allegations that it fired Gundlach only after discovering that he stole company information to start his own firm in December of that year. Why does that matter? Well, Gundlach has counter-sued, alleging that the firm actually fired him so it wouldn't have to pay he and his team between $600 million and $1.25 billion fees. Gundlach is accusing TCW of breach of contract and is seeking $1.25 billion.

The information that TCW is fighting so hard to protect is the deposition of Michael Conn, TCW's head of corporate strategy, along with notes that Conn took during an August 27, 2009 meeting. Court documents show that TCW top officers – including Conn, TCW president Marc Stern and three senior executives – discussed at the meeting what would happen if they fired Gundlach.
TCW says that during the meeting legal advice was sought from TCW general counsel Michael Cahill (who attended by phone), which would protect the discussion under attorney-client privilege.

But the judge in the case disagreed. "The subject of the comments that TCW seeks to redact, and that TCW claims are privileged, do not reflect legal advice of counsel, but rather an apparent justification or explanation of a future act, i.e., the termination of Mr. Gundlach," he wrote in a Motion for Reconsideration, dated Feb 10, 2011.

When TCW asked the court to reconsider its decision to allow the Conn notes as evidence, it seemed to admit that firing Gundlach was discussed in that August 2009 meeting. In fact, TCW may have even been drafting some sort of press release announcing Gundlach's termination.
"The [Conn] notes reflect Mr. Cahill's comments and suggestions how a press release on that topic, or, more generally, how TCW would communicate publicly were it the cause that it later determined to terminate Gundlach's employment," TCW wrote in its motion for consideration dated February 15, 2011. "A lawyer's comment about how to describe an employment action likely to lead to future litigation to his clients is both attorney-client privileged communication and work product."

We'll keep an eye on this one as the evidence is introduced and the witnesses examined. This might be one of those cases where the tail ends up wagging the dog. Currently it sounds like both sides are engaged in virtual hand-to-hand combat.


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