Highland Capital Loses Bid to Remove Daugherty Referee

Highland Capital Management LP lost its bid to remove the court-appointed referee in charge of resolving disputes over evidence production in a lawsuit against former executive Patrick Daugherty.

Dallas County District Court Judge Martin Hoffman denied the investment firm’s request today at the continuation of a hearing that began March 18.

“You guys consented to this,” the judge said. The referee, former U.S. Magistrate Judge Jeff Kaplan, was appointed in October. The firm asked Hoffman to rescind the appointment last month after Kaplan issued three adverse rulings. Highland claimed the process was no longer cost-effective.

Highland last year sued Daugherty, who formerly led its distressed-situations and private-equity investments unit, accusing him of making derogatory comments to investors about the firm he left in 2011 and of breaching a contract.

Daugherty counter-claimed that Highland owes him money from a joint venture and from retention and incentive plans. He also accused the firm and Chief Executive Officer James Dondero of defamation.

Marc Katz, a lawyer for Highland, told Hoffman today that Kaplan was delaying progress in the case. A trial is scheduled to begin Nov. 12.

‘Bogged Down’

“We’re in a situation where discovery is getting bogged down by the process,” he said.

An attorney for Daugherty, Rachel Crockett, said that both sides had agreed to the referee’s appointment and that they had submitted 14 disputes to him for resolution.

“We think they are forum-shopping,” she said. “They’ve appealed three of his orders.”

After hearing arguments on March 18, Hoffman asked lawyers for both sides to brief him on the legal standards governing removal of the appointee.

“This is a significant ruling for our client,” Daugherty attorney Ruth Ann Daniels said in an e-mailed statement. “Continuing with the discovery master in place will ensure that we can obtain the depositions and documents we need to go forward with the November trial.”

Tom Becker of Sitrick & Co., a spokesman for Highland, said his client disagreed.

“The special master is an added cost and inefficiency,” Becker said in an e-mailed statement. “We are pleased with the progress of our case.”

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

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