A bitter two-and-a-half-year battle between former pals and hedge fund colleagues ended this week with both men’s reputations sullied — and neither able to claim a clear victory.
The Texas-sized legal tussle between James Dondero, the controlling founder of Highland Capital Management, and his former longtime manager, Pat Daugherty, could stand as a lesson to all Wall Street executives on how not to end professional relationships.
A Dallas jury on Feb. 6 awarded Highland $2.8 million in lawyers’ fees after finding Daugherty broke his employment contract by taking company documents.
At the same time, the jury ordered the $19 billion hedge fund to pay Daugherty $2.6 million it owed him from executive compensation plans and was holding in escrow.
But the nearly off-setting cash payouts could pale next to the collateral damages both sides suffered.
For example, after Daugherty left Highland in September 2011 over a pay dispute, Dondero defamed him by telling investors the former executive, the hedge fund’s distressed assets expert for 13 years, left for “lifestyle reasons” and was burned out, the jury ruled.
Despite the jury finding, and Daugherty’s $160 million damage claim, the jury awarded him nothing.
Highland had also claimed that Daugherty slimed the firm’s reputation.
The professional meltdown, in court since the hedge fund sued its former executive in April 2012, played out alongside the very public blow-up of Dondero’s marriage to Becky Dondero.
In fact, Highland sued Daugherty two weeks after the executive testified in the Dondero divorce proceeding — for Becky Dondero.
James Dondero in 2012 allegedly accused Daugherty of having an affair with his wife — and then asked Daugherty to testify for him in his divorce trial.
Daugherty would not, and days later resigned from Highland to start his own firm.
He said he was trying to compete against the likes of Carl Icahn and David Tepper as a distressed investor and objected to Dondero’s statements about him because “that makes it look like I ran out of gas.”
Daugherty claimed the statement turned off investors and potential employers — but admitted under questioning by Highland lawyers that he couldn’t name a single investor or employer who turned him down.
After the verdict, Daugherty, 47, told The Post, “I’m disappointed but not defeated,” saying he wanted to move on with his career and go back to investing.
Highland, in a statement, said, “We’re pleased Highland has been vindicated, and our investors can be assured the firm will always do whatever it takes to protect them from frivolous lawsuits and attempts at extortion.”
For Dondero, the legal battles aren’t over. His divorce trial is scheduled to resume in June.