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DoubleLine Disputes Trade-Secret Royalties Owed to TCW

DoubleLine Capital LP shouldn’t have to pay TCW Group Inc. $81.7 million in “reasonable royalties” for trade secrets that a jury had found Jeffrey Gundlach misappropriated before TCW fired him in December 2009, a witness said.

An expert witness for DoubleLine, the asset-management firm Gundlach started weeks after he was fired, testified today at a hearing in Los Angeles that TCW’s expert used faulty assumptions in arriving at the amount. California Superior Court Judge Carl J. West said he hoped to rule by the end of January on what royalties TCW is owed.

DoubleLine’s damages expert, Michael Wallace, said TCW’s expert, Brad Cornell, who testified at an Oct. 25 hearing, incorrectly based his calculations on a projection that assumed Gundlach would take the $48 billion in assets his group managed at TCW to his new company. DoubleLine is a business that was started from scratch, Wallace said.

“TCW would not have allowed the transfer of the $48 billion in assets under management,” Wallace testified. “It’s not a proper assumption for a hypothetical negotiation.”

TCW, a Los Angeles-based unit of Societe Generale SA, sued Gundlach, its former chief investment officer, and three other former TCW executives in January 2010, after more than half of its fixed-income professionals joined DoubleLine. Gundlach countersued, saying TCW pushed him out to avoid paying him hundreds of millions of dollars in fees for the funds his group managed.

Six-Week Trial

After a six-week trial, the jury awarded Gundlach and the three other defendants $66.7 million for unpaid wages. The jury also found that Gundlach breached his fiduciary duty and misappropriated TCW trade secrets. The jury awarded TCW no damages on the breach claim. The judge will determine what TCW is owed on the trade-secret claim.

Cornell, TCW’s expert, testified last month that the use of TCW’s trade secrets, including client data and portfolio-management systems, would have allowed DoubleLine to avoid risks and delays getting its business operating.

Without specifying an amount he thought would be appropriate to award, Wallace today testified about alternative calculations that showed the value of TCW’s trade secrets to be as low as $2.3 million to DoubleLine.

“Today’s witnesses in no way undermined TCW’s right to be compensated for the trade secrets the jury found were misappropriated by Jeffrey Gundlach and the other defendants,” TCW spokesman Peter Viles said in an e-mailed statement after the hearing. “The proprietary analytical systems at issue were tremendously valuable to TCW, and in Gundlach’s own words were “unsurpassed” in the industry.”

DoubleLine spokesman Loren Fleckenstein declined to comment after the hearing.

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

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