DoubleLine Capital CEO Jeffrey Gundlach and Others File Cross-Complaint Against TCW, Charging Breach of Contract, Claiming Approximately $1.25 Billion in Past and Future Fees

LOS ANGELES, Feb. 10 /PRNewswire/ -- DoubleLine Capital LP (DoubleLine) CEO Jeffrey Gundlach and others today filed a Cross-Complaint against Trust Company of the West (TCW), claiming up to $1.25 billion on grounds of breach of contract and related misconduct by TCW arising from its firing of Mr. Gundlach. DoubleLine, Mr. Gundlach and the other DoubleLine parties to the Cross-Complaint also filed an Answer to TCW's earlier lawsuit, asserting that TCW "seeks to interfere unfairly with [DoubleLine's] new business by filing, and trumpeting, claims that it knows have no merit."

The Cross-Complaint states that "TCW agreed with Gundlach to share with him and his team a predetermined percentage of the management fees and performance fees generated on the TCW funds his group managed. As time went on, these funds performed so well that the anticipated future fees that would be owed under this agreement became enormous, reaching at least $600 million and easily approaching $1.25 billion and beyond." The Cross-Complaint states that TCW "hatched a scheme to deprive Gundlach and his group of this lucrative compensation package and to confiscate the huge future fees that would be generated as the result of the skill and hard work of Gundlach and his group."

Statement from Jeffrey Gundlach

"DoubleLine is fully engaged in its foremost mission, indeed its only mission: managing the precious capital of our clients," Mr. Gundlach said today. "The support we have received from our clients since the founding of DoubleLine has been extremely gratifying. While I am disappointed by TCW's transparent attempt to use litigation as a means to slow our company's momentum, I have instructed my legal team to vigorously defend DoubleLine's interests while my team and I focus on what we do best: protecting and building our clients' capital. I believe the facts stack up overwhelmingly on our side. I would be delighted to see this case go to trial tomorrow, if that were feasible."

DoubleLine's Success and TCW's Litigation

On December 4, 2009, TCW terminated the employment of Mr. Gundlach. At the time, he was Chief Investment Officer of TCW, a member of its Board of Directors, Group Managing Director of the TCW Mortgage-Backed Securities Group and lead portfolio manager for many successful fixed income strategies and funds. Mr. Gundlach subsequently formed a new company, DoubleLine Capital, which in rapid succession announced a strategic partnership with Oaktree Capital Management, L.P., and obtained approval from the Securities and Exchange Commission for registration under the Investment Advisors of 1940. By early January 2010, more than 40 former TCW portfolio managers, traders, analysts and other professionals had joined DoubleLine. At the same time, TCW experienced asset outflows of roughly $6 billion, or approximately 50%, from a public mutual fund previously managed by Mr. Gundlach and Philip Barach, who is now President of DoubleLine. TCW also faced account freezes by institutional clients, among them, the U.S. Treasury, which froze TCW's active management of a $2.0 billion public-private investment fund focused on the distressed mortgage market. On January 7, 2010, TCW filed its lawsuit against DoubleLine, Mr. Gundlach, and three other former TCW employees.

The Answer to TCW's lawsuit states that TCW "seeks to put a cloud over DoubleLine's efforts to bring in capital by filing a lawsuit, a month after Gundlach's termination, claiming that DoubleLine is built upon TCW's proprietary information. TCW knows perfectly well that this is not true. As TCW was well aware when it filed this lawsuit, DoubleLine has adopted significant remediation measures designed to avoid DoubleLine's use of any proprietary or confidential information that might have been in the custody of former TCW employees and to return any such materials to TCW." The Answer sets forth some of the steps taken to ensure that no TCW proprietary information is being used by DoubleLine.

Further Details of Cross-Complaint

The Cross-Complaint by Mr. Gundlach and the other individual parties named in TCW's original lawsuit states that in early 2007, Mr. Gundlach and TCW "negotiated and entered into a new agreement governing his employment and compensation," which superseded a signed  2003 employment contract. "Although the Oral Agreement was never reduced to a writing executed by the parties, its essential terms were fully negotiated and agreed to by the parties," the Cross-Complaint states. "At the time of his termination in December 2009, Gundlach's employment, including his compensation and certain compensation owed to members of his team, were governed by the Oral Agreement."

Mr. Gundlach worked at TCW for 24 years. As in his earlier agreements with TCW, the parties understood that Mr. Gundlach could be terminated only for certain specified misconduct and that he must be given 30 days to cure any alleged breach of the Agreement's terms, the Cross-Complaint states. Regarding those terms, the Cross-Complaint states "TCW has not established, and cannot establish, that Gundlach engaged in gross misconduct, material breaches of his material job responsibilities, or any other permitted basis for termination under the Oral Agreement. Nor did TCW provide him with any period of time, let alone thirty days, in which to cure any alleged breaches before it terminated him."

Because Mr. Gundlach was wrongfully dismissed in violation of the terms the parties agreed to, TCW owes him as much as $1.25 billion, counting future fees that he would have earned if not dismissed, the Cross-Complaint says.

Details of Answer to TCW Lawsuit

"The claim that DoubleLine's business is based on TCW's proprietary information is flatly untrue, and TCW knows it is untrue. This lawsuit is simply an effort to create a cloud of controversy to deter investors – who have shown in huge numbers that they recognize the enormous skill of Gundlach and his team and who do not appreciate TCW's self-serving bait-and-switch efforts – from entrusting their money to a talented new competitor," the Answer says.

Providing supporting details, the Answer states, "DoubleLine has retained a highly-reputed third-party computer expert to gather computer devices in order to remediate any TCW information that might have been in the possession of any of the dozens of former TCW employees now at DoubleLine. Under this program, the computer firm has collected and returned to TCW any computers and devices identified as belonging to TCW; it has obtained the computers and devices of former TCW employees potentially containing TCW information (including individuals' personal computers) and is removing all such information (in a manner entirely subject to independent review); and further, extensive prophylactic/remediation efforts have been undertaken."

"TCW's understanding that significant remediation efforts were adopted is most readily demonstrated by the fact that, despite its professed belief that DoubleLine is using proprietary or confidential information, TCW waited a month before filing its lawsuit and even now has not sought any form of immediate injunctive relief whatsoever. This is not the conduct of a company that genuinely fears imminent or ongoing misappropriation of its trade secrets," the Answer states.

DoubleLine was able to launch its new business very rapidly "because it entered into a publicly announced strategic partnership with Oaktree Capital Management, which dedicated its own vast expertise and resources to helping DoubleLine get up and running in a very short period of time," the Answer states. "These efforts included the work of dozens of dedicated Information Technology and other professionals who have helped DoubleLine deploy a loan analytics system, in conjunction with third-party vendors who have licensed those vendors' loan and securities data and systems for analyzing such data (with no need for, or use of, any TCW proprietary materials)."

Court Document Information for Editors

The Cross-Complaint and Answer were filed February 10, 2010 in the Superior Court of the State of California, County of Los Angeles, Central District. The case number for both filings is BC429385. Electronic copies of the filings are available from DoubleLine's media representatives, listed below. In addition to Mr. Gundlach, the other Cross-Complainants include Barbara VanEvery, Cris Santa Ana, and Jeffrey Mayberry, all individuals who were dismissed by TCW in December 2009, are now DoubleLine employees and were named as defendants in the TCW lawsuit.

About DoubleLine Capital LP

DoubleLine Capital LP is a fixed income investment management firm and registered investment adviser under Investment Advisers Act of 1940. The firm is majority employee-owned with CEO Jeffrey Gundlach and President Philip Barach holding a combined controlling interest in the firm. DoubleLine's headquarters is in Los Angeles, CA. Its offices can be reached by telephone at (213) 633-8200 or by e-mail at [email protected].

SOURCE DoubleLine Capital LP

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