Gundlach Says TCW Contracts Protected Him Against Firing

Jeffrey Gundlach testified in a trial against TCW Group Inc. over his 2009 firing that he had negotiated in contracts going back to 1992 specific conditions under which the firm could terminate him “for cause.”

“I wanted to make sure I couldn’t be fired out of the blue,” Gundlach told jurors today in state court in Los Angeles. He also said that his contracts allowed him to take care of an alleged breach of his employment agreement within a fixed time period and that, since 1989, he’s been entitled to accrued compensation if he was fired by TCW.

Gundlach, who last month testified for four days during TCW’s case against him, was a witness today in support of his counterclaims. He said he wouldn’t have set up TCW’s distressed- asset funds in 2007 and 2008 if he hadn’t thought he was protected against getting terminated before the funds started generating performance fees in 2010 and 2011.

“You don’t want to create a lot of forward value and not be there to earn it,” he said.

Gundlach, 51, who worked at TCW for 25 years and was named Morningstar’s Fixed Income Manager of the Year in 2006, claims the Los Angeles-based unit of Societe Generale (GLE) SA fired him to avoid having to pay management and performance fees for the distressed-asset funds his group managed and that went “through the roof.” Gundlach seeks about $500 million.

Damages, Breach

Ten days after he was fired, Gundlach started his own money management firm, DoubleLine Capital LP. TCW sued in January 2010 alleging that Gundlach and three other former employees stole TCW’s trade secrets to start DoubleLine.

TCW’s damages expert testified that the company suffered $344 million in damages from Gundlach’s alleged interference with contracts and $222 million from a claimed breach of fiduciary duty.

Gundlach said under questioning from DoubleLine’s lawyer, Mark Helm, that the distressed-asset funds were set up to take advantage of the collapsing market for mortgage-backed securities. A profit-sharing agreement with TCW entitled Gundlach and his fixed-income group to 60 percent of the performance fees.

In December 2009, when TCW fired him, Gundlach expected the funds to double in value and generate about $1 billion in fees for TCW, he said. Gundlach said Bob Beyer, a former TCW chief executive officer, told him in 2007 that the $64 million that he could make yearly from the funds under an “ultra dream” scenario “could be a problem with Paris.”

At-Will Employee

TCW has said that Gundlach was an at-will employee because he never signed the five-year contract that was negotiated in 2007. Gundlach testified he “absolutely” thought he had a valid agreement about how much he got paid, the term for which he would be paid, and the reasons TCW could stop paying him.

TCW’s lawyer, Steve Madison, asked Gundlach about an August 2009 e-mail he had sent to a consultant for a prospective client in one of the distressed-asset funds. In response to the consultant’s inquiries about his contractual obligations, Gundlach replied in the e-mail, “Jeffrey Gundlach is not under contract with TCW.”

Gundlach said today in court that the response was intended to repel the consultant. Gundlach said he had sufficient investors for the fund and that the consultant worked for an undesirable client.

The case is Trust Co. of the West v. Gundlach, BC429385, California Superior Court (Los Angeles).

To contact the reporter on this story: Edvard Pettersson in Los Angeles at epettersson@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net