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Highland Capital Lawyer Says Daugherty Leaked Secrets

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Patrick Daugherty
Patrick Daugherty, Highland Capital Management LP's former chief of private equity investing. Photographer: Andrew Harrer/Bloomberg

Jan. 16 (Bloomberg) -- A lawyer for Highland Capital Management LP told jurors at the start of a trial that Patrick Daugherty, the firm’s former chief of private equity investing, quit in anger and then disclosed internal secrets.

Highland, which according to its website manages $17.7 billion, sued Daugherty after he quit in September 2011, accusing him of disparaging the firm and improperly disclosing information. Daugherty countersued, saying the firm and co-founder James Dondero hurt his reputation and owe him money.

“Mr. Daugherty quit his job with Highland Capital and he did not get what he wanted,” lawyer Marc Katz told jurors today in state court in Dallas. “He disclosed information about Highland and Highland’s investors that he was not permitted to disclose because he was mad and because Highland didn’t pay him the money he demanded.”

Highland filed the lawsuit in April 2012, about two weeks after Daugherty testified against Dondero and on behalf of Dondero’s wife, Becky, in a divorce proceeding. Daugherty had been Highland’s chief of Stressed Special Situations and Private Equity Investing before quitting.

“I’ve been waiting for this for two years,” Daugherty said today as he entered the courtroom.

Pay Package

In his opening statement, Katz said Daugherty had been paid $26 million from 1998 to 2011. As he was negotiating his exit pay, Daugherty took 59,000 company documents, which he copied or e-mailed to himself, and recorded phone calls with company employees, Katz said.

Daugherty’s lawyer, Ruth Ann Daniels, told jurors that Daugherty is owed millions of dollars. Daugherty’s relationship with Dondero soured after he demanded in 2011 that his compensation terms be put into writing, and the tension grew after he quit and testified in Dondero’s divorce, she said.

Dondero then used his control over the firm’s incentive compensation plans “to exact revenge on Pat Daugherty,” Daniels said.

“Pat Daugherty chose not to trust Jim Dondero,” Daniels said.

First Witness

Highland’s first witness was its co-founder, Mark Okada, who testified about the firm’s 1993 start. Dondero holds a 75 percent stake, he said.

Okada told jurors that one of the incentive plans at issue, called Sierra Verde, was unwound because of “compliance problems.” Earlier in the day, Daugherty’s lawyer had argued that the vehicle was dissolved to insure that Daugherty did not collect what he was due.

Under cross-examination, Okada testified that he discussed with Dondero the need for the vehicle to be unwound. Okada spent less than an hour on the witness stand.

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

To contact the reporter on this story: Andrew Harris in federal court in Chicago at aharris16@bloomberg.net; and Tom Korosec in state court in Dallas.

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

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