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Highland Capital Spat With Ex-Partner Turns to Lawyers

Highland Capital Spat With Ex-Partner Daugherty Turns to Lawyers
Patrick Daugherty, head of distressed and private equity groups with Highland Capital Management, in New York. Photographer: Andrew Harrer/Bloomberg

Highland Capital Management LP’s courthouse feud with former executive Patrick Daugherty over his statements and the investment advisory firm’s money has veered into the conduct of Daugherty’s legal counsel.

Judge Martin Hoffman in Dallas today heard an argument from lawyers for Highland and Chief Executive Officer James Dondero seeking sanctions against Daugherty and his attorneys at Houston-based Looper Reed & McGraw PC.

Highland lawyer James Stanton told Hoffman that Daugherty and his attorneys misled the judge about talking with the media when they filed a counterclaim in May that included privileged and confidential information about Highland.

“This is not how it’s supposed to be under the Texas lawyers’ creed,” Stanton told the judge.

Ruth Ann Daniels, Daugherty’s lawyer, responded, “The question is, ‘What is confidential and privileged about anything in our lawsuit?’”

Hoffman, who didn’t rule on the matter, said he would address the issue of what information might be confidential and privileged at a future hearing. He said he would issue sanctions if he believes the material in Daugherty’s counterclaim is confidential.

Divorce Case

Dallas-based Highland sued Daugherty for allegedly making defamatory comments about the business to investors and for breach of contract on April 11. Two weeks earlier Daugherty, who left the firm in September 2011, had testified against James Dondero as a witness for Rebecca Dondero at a hearing in the couple’s divorce case.

“He told me his plan was to get his net worth down and pay her as little as possible,” Daugherty said James Dondero had told him when they’d met for drinks in February.

Daugherty denied the Highland allegations and in May countersued, claiming he is owed an unspecified amount of money from a joint venture and firm employee retention and incentive plans.

Daugherty and his lawyers also filed a request for the imposition of sanctions against Highland and its lawyers, Andrews Kurth LLP, accusing them of waging “a vicious smear campaign,” after which the case was briefly sealed at plaintiffs’ request.

In an Aug. 20 filing, Daugherty and Looper Reed also responded to the sanctions request by calling it “baseless” and “devoid of merit.”

“Highland initiated this litigation to defame Daugherty, to avoid paying him the compensation and ownership interests in Highland affiliated entities that he is owed and to punish Daugherty for his truthful testimony in Dondero’s divorce proceedings,” according to the defense filing.

The case is Highland Capital Management LP v. Daugherty, 12-04005, District Court of Dallas County, Texas, 68th Judicial District.

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