Highland Capital, Daugherty Split Verdict at Dallas Trial

Highland Capital Management LP and its former executive, Patrick Daugherty, won almost-offsetting sums from a Dallas jury, ending a four-week trial over his departure from the investment firm.

After two days of deliberations, jurors at the state court trial yesterday gave Highland $2.8 million in attorney fees it said the firm was due for having to sue Daugherty for failing to return proprietary papers and data after he left in September 2011.

Dallas-based Highland manages $18.7 billion in assets according to its website. Jurors also said Daugherty, who led its stressed situations and private equity investing unit, was owed $2.6 million from an executive compensation program.

While jurors found in the 10-2 verdict that the firm and co-founder James Dondero defamed Daugherty by making false statements about why he left, they gave him nothing for that injury.

Daugherty said in an interview after the verdict that he was disappointed the jury awarded him damages related to only one of the two investment vehicles involved. “I also don’t know how they find I was defamed and there were no damages,” he said.

Original Claim

His attorneys argued false statements made about their client could cost him $2.5 million a year in compensation and as much as $11 million in the aggregate. They also sought almost $10 million in allegedly unpaid incentive plan money. Before trial, they claimed $160 million in damages.

Highland sued Daugherty in April 2012, six months after he left amid a dispute over his compensation and two weeks after the former executive testified against Dondero and in favor of Dondero’s estranged wife, Becky, in a divorce proceeding.

The firm accused Daugherty of breaching the terms of his employment agreement and of besmirching its reputation. Daugherty countersued, claiming defamation and the non-payment of money due.

Marc Katz, a lawyer for Highland, asked jurors in his Feb. 4 closing arguments to hold the former executive accountable for his actions. Katz didn’t request a specific sum in damages.

Ruth Ann Daniels, a lawyer for Daugherty, said it wasn’t as if the information retained by her client was the formula for Coca-Cola or a secret sauce. The firm waited four months before asking for its return, proving it wasn’t “the keys to the kingdom,” she said.

Dondero, in a statement issued after the verdict, said his firm had been vindicated.

“The verdict is further proof that Pat Daugherty lied extensively and the facts only got in the way of his stories,” Dondero said yesterday in the statement. “Highland never wanted this litigation but was forced to act when Mr. Daugherty refused repeated requests that he comply with his employment agreement.”

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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