Image of a gavel and cash

I’m not a lawyer, nor do I play one on TV. So when writing about a complicated legal case like the multi-million dollar lawsuit brought by two former fund managers at Woodside-based HRJ Capital, I go looking for an expert witness. And I found one in Tony Tanke, a senior fellow at Santa Clara University’s law school.

A quick recap: Darren Wong and Duran Curis

Duran Curis

Curis

were hired by ex-San Francisco 49ers Harris Barton and Ronnie Lott to invest hundreds of millions raised from pension funds, college endowments and fellow star athletes. Things were going great until the global credit meltdown of 2008, when HRJ found itself in a cash crunch; Silicon Valley Bank ended up seizing the firm’s funds and selling them to a Swiss investment house called Capital Dynamics.

Wong and Curis, who’d been forced out of HRJ during the transition, filed suit, claiming they were due millions in management fees and future profits. And earlier this month, a San Jose jury largely agreed, awarding them more than $10 million. Capital Dynamics, which now manages the HRJ funds, has promised to appeal, but there are some interesting legal wrinkles in the meantime.

Darren Wong

Wong

Most notably, jurors slapped Capital Dynamics with punitive damages, concluding the firm had shown “malice, oppression or fraud” in refusing to honor the contracts the plaintiffs had signed with Lott and Barton. The Swiss firm argued that those contracts became void when HRJ Capital ceased to exist and that it would have been irresponsible to hand out its investors’ money for a bogus claim.

But Tanke, who has 30 years litigation experience under his belt, said it’s going to be tough for Capital Dynamics to convince an appeals court that it acquired only HRJ’s assets, not its liabilities.

“I agree with the judge and jury,” he said. “If you could go around handing out your assets without your liabilities, you could defeat any claim.”

As for the punitive damages, which aroused the most shock from lawyers and venture capitalists I polled, Tanke thinks there’s a good chance they’ll be tossed on appeal. “‘Malice’ has to be some kind of despicable conduct,” he said. “This is typically the kind of case you see against a cigarette company — not these kinds of financial transactions.”

Peter Delevett Peter Delevett (184 Posts)

Peter Delevett covers startups and venture capital for the San Jose Mercury News. He's been a journalist in Silicon Valley since the dot-com daze.