Highland Sues Ex-Partner's Law Firm For Alleged Extortion Attempt

Nov 20 2013 | 12:48pm ET

The ugly battle between Highland Capital Management and its former private-equity chief has taken another bizarre turn.

The Dallas hedge fund has sued the law firm representing Patrick Daugherty, alleging that it sought to extort $2 million from it. Highland said in a lawsuit that Daugherty sought the money in exchange for his silence, and that Looper Reed & McGraw moved to get it for him.

"Both Looper Reed and Daugherty made it clear to Highland that Daugherty would continue his efforts to slander and disparage Highland unless Highland agreed to pay Daugherty more than $20 million and that if Highland failed to do so Looper Reed intended to make it 'bad' for Highland," the hedge fund alleges.

"Flush with over 60,000 containing more than 100,000 pages of confidential and privileged information stolen from Highland, Looper Reed refused to return the materials when instructed by Highland," the complaint continues. "Instead, Looper Reed lawyers, in conjunction with their client, threatened to use the materials to publicly slander and disparage Highland unless Highland agreed to pay their client more than a million dollars."

The hedge fund adds that Looper Reed knew that the documents turned over to it by Daugherty were stolen—and used them anyway.

Ruth Ann Daniels, lead attorney at Looper Reed refuted the allegations.

"This new lawsuit is baseless and contains allegations and arguments which have already been advanced and rejected in the case styled Highland et al v Pat Daugherty,” said Daniels. “This is yet another transparent trial tactic employed by Highland to further delay and complicate the underlying litigation, which is specially set for trial on January 14, 2014. We will not be distracted from vigorously advocating for Mr. Daugherty in that litigation."

The lawsuit is only the latest legal skirmish between Highland and Daugherty. The hedge fund last year sued Daugherty for breach of contract and defamation, while also accusing him of having "dead spots in his brain" from two strokes that "impacted his mental competence and conduct," including abusive and "belligerent" behavior. Daugherty unsurprisingly fired back with a countersuit for defamation of his own, and also testified on behalf of Highland founder James Dondero's ex-wife in their divorce proceedings, alleging that Dondero had asked him to lie.

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