Highland Capital Management, the $20 billion hedge fund and private equity firm based in Dallas, has launched a lawsuit that calls its former private equity investing chief a “megalomaniacal” manager who engaged in “abusive tirades” that “dehumanized employees.”
Patrick Daugherty is the former head of stressed special situations and private equity at Highland Capital Management, where he was responsible for $8 billion of assets until he resigned in September 2011. Known as a blunt-speaking Texan, Daugherty has served on the board of Metro-Goldwyn-Mayer and as chairman of companies like Cornerstone Health Group.
According to a 14-page complaint Highland filed in Texas state court in Dallas earlier in April, Daugherty has been paid in excess of $26 million while at the firm, but voluntarily resigned after “Highland refused to accede to his unacceptable ultimatums and megalomaniacal demands regarding compensation.” The lawsuit claims that Daugherty was “belligerent to peers” and that Highland employees complained and even quit after Daugherty publicly berated them as “‘f---ing idiots’” and disparaged them using other vulgarities.
Highland has sued Daugherty for breach of contract and defamation, and the alternative-asset management firm has asked a Texas state judge for a permanent injunction that would prohibit Daugherty from disclosing confidential information about the highly-secretive Highland to the media or to investors.
Highland was co-founded by Jim Dondero and Mark Okada, growing to $38 billion in assets at its peak before suffering losses amid the financial crisis. At the time, the firm had some high-profile embarrassments; most notably the collapse of its $2.3 billion distressed assets hedge fund, the Highland Crusader Fund, but the firm has stabilized in the last two years.
Daugherty’s lawyer did not respond to request for comment. Highland declined to comment.
Highland, which has a reputation in the investment community for using hard-hitting tactics, pulls no punches in a lawsuit that at times can appear cruel. It claims that Daugherty’s tenure at Highland was characterized by extreme behavior and his performance diminished over the years as he “became increasingly unmanageable, erratic, and insubordinate.” The lawsuit says that Daugherty recently admitted to Highland that “two strokes he suffered years earlier had left him with dead spots in his brain that impacted his mental competence and conduct.”
Trained as a lawyer, Daugherty joined Highland in 1998 after a stint in Bank of America’s corporate finance group.
Highland claims in its complaint that it's being forced to defend its reputation after Daugherty made disparaging and defamatory remarks about Highland to current investors, executives at Highland’s portfolio companies, and the media. Highland says that Daugherty has made damaging statements about Highland to unspecified media outlets and “spread lies” about his former investment firm. The firm claims the conduct violates Daugherty’s employment agreements with the firm.
UPDATE: Bess Levin at Dealbreaker points out that Dondero may have had another motivation to lash out at Daugherty. During a March divorce proceeding in which Dondero tried to convince a judge he was insolvent under Texas family law, Daugherty testified that Dondero's plan was to bring his net worth down as much as possible so he would have to pay his wife as little as possible.
