TCW v. Gundlach (Los Angeles, California)

Trust Company of the West (TCW) sued Jeffrey Gundlach and three other defendants for allegedly stealing the company’s trade secrets and using them to open a rival asset management company, DoubleLine Capital. Gundlach counterclaimed for hundreds of millions of dollars for breach of his employment contract.

Jonathan Quinn (Quinn Emmanuel Urquhart Oliver & Sullivan), counsel for TCW, stated, “Gundlach stole so many trade secrets and confidential information that, if you printed it out, it would be 2½ times the height of the Empire State building.” According to Mr. Quinn, TCW “owed Mr. Gundlach nothing” because he and the other defendants “plotted the destruction of TCW.”

DoubleLine’s attorney, Brad Brian (Munger Tolles & Olson), told the jury about TCW’s alleged plot to force Mr. Gundlach out of the company as early as June 2009. According to Mr. Brian, TCW wanted to avoid having to pay Mr. Gundlach “hundreds of millions in dollars in performance fees for asset funds that had gone through the roof.” Mr. Brian told the jury, “They knew they were going to owe him a lot of money.”

Mr. Brian emphasized that Mr. Gundlach and the other defendants did not use any of TCW’s confidential information when they formed DoubleLine Capital LP. He also told the jury that Mr. Gundlach and the other defendants were entitled to unpaid wages from TCW.

The jury sided with Mr. Gundlach on his breach of contract claim, and awarded Mr. Gundlach $66.7M in unpaid wages.  However, the jury also found that Mr. Gundlach stole TCW’s trade secrets.  Judge Carl West may award damages for the trade secrets violation at a future hearing.

John Quinn (Quinn Emmanuel Urquhart Oliver & Sullivan), Steve Madison (Quinn Emmanuel Urquhart Oliver & Sullivan), and Dominic Suprenant (Quinn Emmanuel Urquhart Oliver & Sullivan) appeared on behalf of the plaintiff, TCW. Mark Helm (Munger Tolles & Olson) and Brad Brian (Munger Tolles & Olson) appeared on behalf of the defendants, Jeffrey Gundlach, Jeffrey Mayberry, Chris Santa Ana, and Barbara Van Every.

Gavel-to-gavel coverage is available from Courtroom View Network.

CVN webcast Trust Company of the West, Inc. v. Jeffrey Gundlach live. 

CBC Framing v. National Union Fire Insurance (Los Angeles, California)

One of California’s largest residential framing companies, CBC Framing, and AIG’s National Union Fire Insurance, which was CBC’s workers compensation carrier, sued each other after their eight-year business relationship ended.

According to Mark Palin (Atkinson Andelson) on behalf of CBC, National Union attempted to extort $14M by raising CBC’s annual rate from $6.1M to $14M on the date of renewal, without notice and without providing enough time to find an alternative insurer.

Palin explained that CBC nonetheless quickly found another workers compensation carrier for just $7.5M. Palin said that National Union responded to CBC’s policy cancellation with “unbridled vengeance” by immediately launching a fraud investigation against CBC, and by inducing the new insurer to cancel its coverage of CBC. Although CBC had misclassified many of its workers as receiving union-level wages, which qualified CBC for a lower insurance rate, Palin said that National Union knew about the misclassifications through its annual audits, and never objected, and even directed some of the misclassifications. Instead, according to CBC, the real fraud was National Union’s mishandling claims, and granting claims that should have been denied, which raised CBC’s costs and National Union’s profits. CBC sought damages of $9M+ for bad claims handling.

“I think the evidence is overwhelming,” said Mr. Palin, “that they tried to set up CBC with a $14M quote on the last day, and then when CBC went somewhere else, they tried to torch that relationship…And it’s simply staggering that you have an insured that you’re trying to get back while you’re investigating them for fraud. The timing on this is absolutely incredible.”

For National Union, Ed Oster (Barger & Wolen) told the jury that CBC’s misclassification of the employees was a deliberate, active fraud designed to improperly decrease its expenses and expose National Union to risk that CBC was not paying for. In addition, Oster told the jury that the insurance agreement required that CBC keep accurate payroll records, and that CBC knew or should have known that the failure to do so would have consequences. Oster characterized CBC as having sales of $167M, and therefore was not small or unsophisticated. National Union requested damages in excess of $30M.

On behalf of CBC’s owner and president John Vojtech, Jon Mower (Mower Carreon & Desai) told the jury that his client did not and could not concoct and execute a scheme to defraud the world’s largest insurance company for eight years. Why, asked Mower, would AIG’s underwriters have renewed CBC’s policy for eight years if they were being defrauded of millions and millions of dollars? National Union almost certainly knew about the misrepresentations in the early years, and there was no evidence that they relied on the class codes to price the contract, said Mower. Instead, the insurance contract was intended to be sold as a market-driven policy based on what they expected their losses to be, and nothing else.

On CBC’s breach of contract claim against National Union, the jury found that CBC’s non-performance under the contract was excused, and National Union breached the contract. The jury awarded CBC damages of $604,002.

On CBC’s covenant of good faith and fair dealing claim against National Union, the jury found that National Union breached the implied covenant and awarded CBC additional contract damages of $798,173. However, the jury did not find oppression, fraud, or malice, which would have justified a punitive damages award against National Union.

On National Union’s breach of contract claim against CBC, the jury found that CBC breached the contract, and National Union was harmed by CBC’s breach, and awarded damages of $5,183,931.

For each of the various remaining causes of action by National Union against CBC and John Vojtech (Intentional Misrepresentation, Negligent Misrepresentation, and Concealment), the jury found either that no false statement was made or important fact concealed, or the error was not reasonably relied upon by National Union.

CVN webcast openings and closings, plus the reading of the verdict, for CBC v. National Union.

Jones v. Wells Fargo (Los Angeles, California).

A Los Angeles jury today awarded damages of $3.5M in a lender liability class action against Wells Fargo.

The claim in Jones v. Wells Fargo was that Wells Fargo branches in Los Angeles selectively used software called “Loan Economics” to intentionally and systematically offer lower home mortgage loan rates to borrowers in non-minority neighborhoods than in predominantly minority neighborhoods because Wells Fargo believed that minority borrowers were less likely to shop for competitive rates.

In his closing argument for the plaintiff class, Barry Capello reviewed testimony indicating that Wells Fargo specifically discussed the fact that minorities were willing to pay more for home loans.

“Some people have 30, 40 percent of their income or more, every month goes to pay the mortage,” said Mr. Capello. “Are you telling me that her clientele didn’t mind paying a higher price? I’m telling you her clientele didn’t mind paying a higher price because they didn’t know they were paying a higher price…When Larry Garcia says it’s not about giving them the lowest price, it’s about service, etc., that’s just lip service, because this is all about getting the best price. That’s the harm in this case. You’re discriminated against. That’s bad enough. But add to it the economic harm. The lowest price is what we all want. Particularly on the most expensive thing we’ve got to spend. And when loan officers say my clients didn’t mind paying a higher price, you’ve got to stand up and say, ‘This has got to stop!’ Now Wells Fargo asks for its customers’ trust, and we say they then exploit it.”

On the class action claim, Mr. Capello told the jury there were 7,348 loans at issue, and the damages suffered by the class should be calculated at $4,000 per loan, totaling $29,392,000. In addition, Mr. Capello requested a finding of malice that would support a punitive damages award.

For Wells Fargo, Skadden Arps’ Tom Nolan told the jury, “If you find as a jury that Wells Fargo discriminated against borrowers, for God’s sake, hit us, with a big fine. But do so only on the evidence. Because a careful review of the evidence, not the incendiary language that’s used about the race issues in this country, should drive this verdict.“

Mr. Nolan told the jury that Loan Economics tool was not a national pricing program for the benefit of its customers that had to be offered indiscriminately, and therefore the Unruh civil rights law might not even apply to Wells Fargo’s use of the program. Moreover, the purpose of the tool was to increase loan volume and profitability, not to offer the lowest price on every loan. Finally, the implementation of the Loan Economics tool was expected to vary across branches; therefore, the inconsistent implementation was not a sign of discriminatory intent.

In any case, said Mr. Nolan, there was no way to determine whether any of the thousands of individuals loans was affected positively or negatively by loan economics, or the amount of the impact, without making assumptions for which there was no supporting evidence.

The jury deliberated nearly four weeks before determining that Wells Fargo did discriminate based on race, but only with respect to 880 loans. Damages of $4,000 were awarded for each of the 880 loans, for a total award to the class of $3.52M. The jury also found racial discrimination and breach of contract with respect to some of the named class members, and awarded additional damages. The jury did not find that Wells Fargo acted with malice.

CVN webcast live the opening and closing statements, as well as the verdict, in this Wells Fargo lender liability trial.

South Carolina v. Janssen Pharmaceutica, scheduled to begin February 14 in Spartanburg, South Carolina, will be the third jury trial involving claims that Johnson & Johnson overcharged for its antipsychotic drug Risperdal (generically known as “Risperdone”). South Carolina’s alleged Medicaid overcharge damages are said to run into the billions.

Pennslyvania asserted a simlar claim, but the case was dismissed in June, 2010, after the state had presented its evidence to a jury. But in Louisiana a jury awarded $257M against Johnson & Johnson last October, and in 2009 a West Virginia judge awarded $4.4M in damages. Several other states’ Risperdal claims are still pending, including Arkansas, Montana, New Mexico, Texas, and Utah.

In its complaint, South Carolina conceded that it had no practical means of ensuring that every Risperdal prescription was medically necessary, and “thus relies on persons receiving payment and benefits to turn square corners in their dealings with Medicaid” and state reimbursement programs. However, Janssen Pharmaceutica had “aggressively exploited this loophole” (1) by promoting Risperdal for non-medically acceptable and non-medically necessary uses, and (2) by falsely representing to the State that Risperdal was safer and more effective than less expensive first-generation antipsychotics. In addition, South Carolina sought to recover the cost of treating South Carolina citizens who were injured by inadequately disclosed Risperdal risks.

Risperdal was introduced by Janssen in 1994, and by 2005 generated annual revenues in excess of $3.5B. “Crucial to this blockbuster success,” said South Carolina, was Janssen’s “aggressive marketing of Risperdal, which consisted chiefly of overstating the drug’s efficacy, while concealing its life-threatening effects.“

CVN will webcast the South Carolina Risperdal Overcharge Trial live.

The jury in Florida Gas Transmission v. Florida Department of Transportation today awarded over $82M in damages against the Florida DOT for breaching an agreement to reimburse for the costs of relocating a gas pipeline.

The jury rejected most of the claims asserted by both parties, including trespass, breach of easements, and promissory estoppel. However, on Florida Gas’s reimbursement claim, the jury awarded the precise amount requested by the plaintiff: $82,697,567.

In his closing rebuttal, Daniel Bishop, of Bishop London & Dodds, reminded the jury that a DOT witness had testified by video deposition: “I guess we would have to provide a place for [Florida Gas] to relocate…because they have a compensable interest in our right of way.“

“That was their own person’s testimony,” said Mr. Bishop. “Not ours, not taken from any of the documents.”

Florida Gas Transmission Co. is a subsidiary of Citris Corp, which is 50% owned by Southern Union Company (NYSE:SUG) and 50% owned by El Paso Corporation (NYSE:EP).

CVN webcast Florida Gas v. DOT live.

Former Siga CFO Tom Konatich testified today that Siga originally contacted PharmAthene and offered to license Siga’s smallpox drug, ST-246, because Siga needed to improve its cash flow quickly.  But in response, according to Mr. Konatich, PharmAthene told him that they were not interested in a license arrangement, and that “it was a merger or nothing.”

Mr. Konatich also testified that later a licensing agreement was considered as a quick first step towards an eventual merger.

CVN is webcasting PharmAthene v. Siga live.

Florida Gas v. Florida DOT opening statements were heard today in Fort Lauderdale, Florida.

Representing Gas Transmission Company of Florida, attorney Daniel W. Bishop, II, of Bishop London & Dodds, told the jury that the dispute between Florida Gas and the Department of Transportation involved rights going back more than 50 years.

“In a nutshell,” said Mr. Bishop, “The turnpike built a toll road in the 50′s and 60′s, and during that same period of time Florida Gas bought the rights to exist along side it. And over the years the turnpike has moved closer and closer to the pipelines as it was widened and expanded…” In the 2002-2003 timeframe the road was widened again, which required Florida Gas to move the pipelines, which cost millions of dollars, and DOT refused to pay for it.

Mr. Bishop recounted for the jury the 1958 easement agreement that allowed the a predecessor to Florida Gas to locate an 18″ pipeline alongside the Sunshine State Parkway — SR 91 — in southeast Florida. 

1967, another easement was purchased for $700K to add a 24″ pipeline alongside the 18″ pipeline.  

A 1992 turnpike expansion resulted in two more agreements, one of which allegedly provided for reimbursement in the case of some utility relocations.  

Mr. Bishop said that a subsequent 2002 expansion would have required that the Florida Gas pipeline be paved over for 11 miles, which the utility did not want. “We literally can prove almost our entire case through their documents,” said Mr. Bishop.

According to Mr. Bishop, the DOT forced Florida Gas to relocate, thereby causing Florida Gas to incur significant costs in abandoning the two older old pipes and relocating a new 36″ pipeline.

Mr. Bishop concluded that the DOT should have replaced the easement, reimbursed for the moving expenses, and provided adequate space for future maintenance and operations. Florida Gas sought damages in excess of $127M.

For the Florida DOT, Gunster’s Michael Marcil challenged the plaintiff’s version of the facts and told a very different story.  According to Mr. Marcil tthe Turnpike was there before the pipeline, and the pipeline could have been sited in many locations. Florida Gas chose the right of way because it was easy and cheap, but there was plenty of other land available.

Florida Gas allegedly accepted three additional obligations in the 1967 agreement: that Florida Gas would use the highest grade of pipeline, that Florida Gas would avoid interfering with the turnpike to the extent possible, and that Florida Gas would relocate the pipeline at their own expense.

Mr. Marcil showed that guardrails, signposts, and pavement, had repeatedly been placed adjacent or over the pipeline, with no complaint.  If anything, said Mr. Marcil, Florida Gas wanted to stay under pavement. 

Moreover, explained Mr. Marcil, a pipeline inspection by “smart pig” had revealed significant metal loss — up to 60-69% wall-loss — due to 50-year old welding techniques and obsolete coatings.

According to Mr. Marcil, Florida Gas knew they had to repair or replace the pipeline at a cost of $41.7M to $51.6M, but then decided to both upgrade to a state-of-the-art 36″ pipe and relocate. The plan to relocate the pipeline and blame it on the DOT, said Mr. Marcil, emerged as a “legal strategy” in response to the prospect of major repair costs. The DOT issued no order for Florida Gas to relocate, but only offered Florida Gas an opportunity to relocate before the next phase of construction began.

Florida Gas’ independent obligation to upgrade its pipe was confirmed, said Mr. Marcil, by a major 2009 pipeline explosion that showed that Florida Gas was not in compliance with the requirement that it use the highest quality pipe.

Because the DOT did not require Florida Gas to relocate its pipeline, and because Florida Gas decided on its own to upgrade and relocate, Mr. Marcil concluded, the DOT had no obligation to Florida Gas.

Watch CVN’s live webcast of Gas Transmission v. Florida DOT.

In Sterling Payment Technologies v. Hudec, a Tampa credit card merchant services provider accused a former executive and board member of taking confidential information and trade secrets to start a competing business, Platinum Merchant Services.

Shutts & Bowen’s John “Sean” Johnson told the jury that Ellen Hudec, Sterling’s EVP of Sales and a member of the board of directors, decided near the end of 2007 to leave Sterling in the the following spring. She then set in motion her plans to compete.

Among other things, said Mr. Johnson, Ms. Hudec secretly shipped information offsite to herself, including Sterling’s entire merchant database, which included detailed information about 18,000 Sterling customers. Ms. Hudec also allegedly improperly modified the contract of one of Sterling’s agents, with whom she was romantically involved and with whom she planned to co-found the competing company, to allow him to compete with Sterling.

Sivyer Barlow & Watson’s Ed Kuchinski told the jury that although Ms. Hudec was in possession of Sterling’s information, she did not use the information in a competing business. She was sending herself the information, said Mr. Kuchinski, because there were plans for her to continue working with the company in another capacity after she resigned.

The sales agent whose contract she modified never had an exclusive relationship with Sterling, according to Mr. Kuchinski, but only a right of first refusal, which would not have been renewed. And the other changes to the agent’s contract reasonably traded a higher commission for a lower bonus.

According to Mr. Kuchinkski, Ms. Hudec left Sterling because she was being scape-goated for recent business difficulties. After two years of discovery, including a review of Ms. Hudec’s electronic records, the defense allegedly had found no evidence that Ms. Hudec had shared trade secrets, nor could they name a single merchant who had left Sterling because of Ms. Hudec’s efforts.

Ms. Hudec would not have attempted to compete with Sterling, Mr. Kuchinski claimed, because her “golden handcuffs” provided that competitive activity would terminate her right to 500,000 shares of Sterling stock. In fact, Mr. Kuchinski concluded, the jury should award Ms. Hudec damages based on Sterling’s mishandling of her stock and non-compete agreement.

The jury found that Ms. Hudec did not breach her duty of loyalty and did not cause damages, and did not breach her contract. Instead, the jury awarded Ms. Hudec $300K in lost wages, plus additional shares of stock, based on Sterling’s breach of contract.

Watch CVN’s webcast of Sterling v. Hudec.

In Frantz v. Joe’s Stone Crab, plaintiff attorney Eric Isicoff explained to the jury that Steve Sawitz and Jeff Frantz had known each other since second grade, and had been friends for decades, when they decided to go into business together by forming Cache Foods.

Steve’s great grandfather had founded the famous restaurant Joe’s Stone Crabs nearly a hundred years earlier, and the family still owned it. Steve’s mother, Joanne Bass, was majority shareholder, and Steve was the Chief Operating Officer.

Cache Foods was granted a 25-year exclusive nation-wide license, Mr. Isicoff said, to develop supermarket versions of Joe’s Stone Crabs menu items for sale to Publix, Costco, and other large-scale retailers. 

Cache’s long-term, exclusive, national license to develop and distribute signature products of one of the most famous restaurants in America, one of the highest-grossing multi-million dollar operations in this country, provided Jeff with the opportunity to earn a great deal of money, said Mr. Isicoff.

However, instead of taking signature dishes to market, Cache started with soup. According to Mr. Isicoff, Steve prevented Cache from ever selling a signature Joe’s Stone Crab’s item.

Said Mr. Isicoff: “At no point in time did either Steve Sawitz or Joe’s Stone Crabs ever put forth any legitimate business reasons for pulling the plug on the various products that had been developed, taste-tested, approved, and ready for sale into the market place. Never did they offer a single justifiable reason for withholding that approval…After the key signature products were developed and ready for launch, Joe’s and Steve in each and every occasion unreasonably prevented them from seeing the light of day. 

“Joe’s simply did not want to share any of the profits, any of the riches of the Joe’s brand with anybody — even with Jeff Frantz, a person whom Steve had grown up with and known for many years — a person who had invested over $300,000 of his own money in, and also who’d worked in this business for three solid years. 

“Steve’s and Joe’s refusal to let any signature products come to market led to the death of Cache foods at the end of 2006…Mr. Sawitz and Joe’s Stone Crab could keep it all in the family by simply cutting Mr. Frantz out of the picture, which is exactly what they did.”

On behalf of Mr. Sawitz and Joe’s Stone Crab’s, Weiss Serota Helfman’s Joe Serota told the jury that the story recounted by Mr. Isicoff:

“…just didn’t happen. It’s not the truth, and it’s not what the evidence will show…What happened is not complicated…Two old friends go into a business together — a business that neither of them knew virtually anything about. They made some bad choices, together. They ran out of money…and neither of them wanted to put in any more money, and they couldn’t find anyone else to invest in the business. That’s it, ladies and gentlemen. That’s the story.

“…But Jeff Frantz refuses to accept that the business did not succeed…The fact is, while both of them were successful guys, and are successful guys, neither of them knew anything about developing food products and selling them in supermarkets. This lack of experience, the evidence will show, was a major factor in the failure…you will see,” Mr. Serota concluded, “that they will not be able to present any logical reason why Steve would put all this money in, into a business that he intentionally tried to ruin.”  

Watch CVN’s webcast of Frantz v. Joe’s Stone Crab.

CVN webcast the opening statements in Field Motorcars v. Prime Wholesalers.

According to Greenberg Traurig’s Ron Schirtzer, star BMW salesperson Carlos Kirrigin ran a 12-year ponzi scheme that cost Field Motorcars over $5M. The ponzi scheme allegedly involved sales of BMWs to brokers and dealers in Puerto Rico that were made to appear as sales to end-users at prices higher by $1K-$3K than the actual sale price. Prime Wholesalers, for example, allegedly opened a fictitious account to conceal the true purchaser. With the help of fraudulent invoices, fictitious names, and transfers from bank to bank, said Schirtzer, Kirrigan was able to sustain the scheme.

The scheme was allegedly financed partly by outside investors. In addition, said Schirtzer, Kirrigin was buying and selling cars from sources other than from Fields, with Fields partly subsidizing this outside operation. Kirrigin also allegedly borrowed money from the next sale to pay for the prior sale, and eventually the scheme imploded.

Representing himself, Carlos Kirrigan argued that he was not greedy in a bad way, because that is what this capitalism is about. Kirrigan said he was the hardest working salesperson, but was no greedier than anyone else.  In fact, his efforts were an important part of the dealership’s ability to grow rapidly.

Over 16+ years, Kirrigan said, there were thousands and thousands of transactions, and nothing had changed throughout the years. Why would they only notice red flags after more than a decade? 

Kirrigan said that every car dealership is a “ponzi scheme” in the sense that there’s money coming in and money going out, and there’s a float. If there was a conspiracy, said Kirrigan, it must have started at the top of the organization, where the benefits of his efforts allowed them to transform the dealership from a small store to a “Taj Majal.”

From 1991 until he was dismissed in 2008, Kirrigan said, he was advancing the cause of Fields BMW, serving Fields BMW’s market, working enormous hours, bringing in astronomical numbers, which significant benefitted Fields, and no one ever complained. ”It’s not like they only had a meeting once every nine years,” said Kirrigan.

Kirrigan said he also did deals elsewhere, but he gave Fields as much business as he could, and possibly as much as they could handle.

Watch CVN’s webcast of Fields BMW v. Kirrigan.