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RIGGS INV. MGMT. CORP. v. COLUMBIA PTNRS.

May 12, 1997

RIGGS INVESTMENT MANAGEMENT CORPORATION, et al., Plaintiffs,
v.
COLUMBIA PARTNERS, L.L.C., INVESTMENT MANAGEMENT, et al., Defendants.



The opinion of the court was delivered by: LAMBERTH

 The court conducted a bench trial of this case from January 13, 1997 through January 17, 1997, and hereby makes the following findings of fact and conclusions of law pursuant to Rule 52 of the Federal Rules of Civil Procedure.

 FINDINGS OF FACT

 Plaintiff Riggs Investment Management Corporation ("RIMCO") manages investment funds for individuals, pension funds, and other corporate and institutional investors. RIMCO is a wholly-owned subsidiary of Plaintiff Riggs Bank, N.A. ("Riggs"). Tr. 43-44 (Dudley).

 In June 1989, defendant Robert von Pentz left a competitor, American Securities Bank Capital Management ("ASB"), to become RIMCO's Managing Director of Equity Strategy and Management. When von Pentz became CEO of RIMCO in January 1990, he hired Philip Tasho, a former ASB colleague, as von Pentz's replacement as the head of equities at RIMCO. Tr. 347-48, 353-56 (von Pentz). Von Pentz served as Chief Executive Officer, Chief Investment Officer and Chairman of the Board of RIMCO from late 1989 until his resignation on September 28, 1995. Tr. 322, 347 (von Pentz); DX 1 at T109, DX 5, 122-127; PX 116.

 In June 1994, Tasho went to Tim Coughlin, the president of Riggs National Corporation, and told him he had an offer of employment from Shawmut Investment Advisors in Boston. He said he would stay at RIMCO, however, if Riggs fired von Pentz and put Tasho in charge of RIMCO. Tr. 529, 657, 665-66 (Tasho). Riggs declined and Tasho was ordered to submit his resignation. Tr. 362 (von Pentz), 665-66 (Tasho). Tasho left RIMCO for Shawmut in June 1994, and another RIMCO employee, Clifford Dyhouse, followed Tasho there in September. Tr. 360, 364-65 (von Pentz).

 Following Tasho's departure from RIMCO, von Pentz resumed day-to-day responsibility of selecting the stocks for all of RIMCO's equity portfolios. Tr. 350, 362 (von Pentz). He recruited Gary Dickinson from Riggs' Trust Department in early 1995 to assist him, and hired Dan Goldstein to take over Dyhouse's responsibilities. Tr. 362-65 (von Pentz). In a memo to Riggs executives on July 21, 1994, written shortly after Tasho's departure, Coughlin wrote, "Bob [von Pentz] has displayed continuing loyalty to Riggs ... and has shown real leadership in rallying the remaining RIMCO employees in the aftermath of resignations by Messrs. Marshall and Tasho." DX 30.

 Von Pentz renewed his employment contract with RIMCO that very month. The contract, which extended through December 31, 1995, entitled von Pentz to an annual salary of $ 175,000, as well as additional incentive compensation based on RIMCO's profits and performance. (PX 7). In July 1995, Tim Coughlin and Henry Dudley -- successor to George Grosz, head of Financial Services at Riggs Bank -- met with von Pentz to discuss a possible extension of his employment contract, which was set to expire December 31, 1995. Tr. 41-42, 50-51 (Dudley), 383 (von Pentz); PX 7. Von Pentz was not eager to enter into a new contract, but was willing to listen to Riggs' proposal. He wanted an equity interest in RIMCO as an inducement to enter into any new contract Tr. 65-66 (Dudley), 383-85 (von Pentz), but when Dudley and Coughlin finally presented von Pentz with a draft employment agreement in late September, it contained no provision for an equity interest in RIMCO, and the changes in terms from the existing contract were not particularly favorable to von Pentz. DX 3, 39; Tr. 387-89 (von Pentz). Von Pentz found the terms in the draft contract to be unacceptable, and told them he would not sign it given the other opportunities he had available to him. Tr. 66 (Dudley), 387-90 (von Pentz).

 On September 28, 1995, more than three months before his contract was to expire, von Pentz resigned without advance notice. He immediately went to work for defendant Columbia Partners, an investment company in which he holds a ten percent interest. Tr. 286, 322 (von Pentz). Within two days, von Pentz hired eight RIMCO employees to join him at Columbia Partners, including everyone involved in marketing, client service, and equity investment. Tr. 84-86 (Addison).

 On Monday, October 2, 1995, Columbia Partners officially opened for business at fully appointed offices on Pennsylvania Avenue, and Columbia Partners was actively soliciting investment clients, including RIMCO clients. Tr. 230-31 (Collins). As a result of defendant von Pentz's actions in starting up his new business and hiring away RIMCO employees, plaintiffs have alleged breaches of fiduciary duty by von Pentz. As a result of the alleged actions of Columbia Partners, plaintiffs charge Lanham Act and unfair competition violations.

 Formation of Columbia Partners

 Beginning no later than February or March 1994, von Pentz had begun discussions with Terry Collins, then the President of ASB Capital Management, a RIMCO competitor, about establishing their own investment management firm. Tr. 311-12 (von Pentz); Tr. 129 (Collins). Their plan was to join RIMCO's equity side with ASB's fixed income side. Tr. 126 (Collins).

 By the summer of 1994, Collins and von Pentz were seeking investors for their prospective firm. They had a number of meetings with Putnam Lovell, a New York investment banking firm. Tr. 125-26, 273-74 (Collins); Tr. 312-13 (von Pentz). Although von Pentz claimed at trial that Putnam Lovell had not been "involved in any serious way with developing financial projections," Tr. 313, the evidence reveals that von Pentz did provide Putnam Lovell with information to assist it in creating projections for Columbia Partners. Von Pentz Dep. 193-96; Tr. 274 (Collins); PX 21. *fn1"

 In the fall of 1994, Collins began discussions with Ruff Fant of Galway Partners, a D.C.- based merchant bank, about the prospect of Galway backing the new venture. Tr. 1011 (Fant); Tr. 126-27 (Collins). By early November 1994, Collins disclosed to Galway von Pentz's interest in the project. See PX 12. Galway was keenly interested in establishing an investment management firm. Id. Von Pentz and Collins understood that if they did not go forward with Galway, Galway would proceed with someone else. Tr. 135 (Collins).

 In the first half of 1995, von Pentz was extensively involved in negotiations about the new venture. Tr. 1026 (Fant); PX 16, 22, 28, 29, 82. A final "Term Sheet" was signed on July 12, 1995, see PX 33-34A, and in August, Galway informed some prospective investors that Collins and von Pentz were committed to the project. PX 39, 120-21.

 Well before the Term Sheet was signed, and at least since the beginning of 1995, von Pentz worked closely with both Collins and Fant to establish Columbia Partners as a "full blown company." Tr. 208-10 (Collins). With Galway, they agreed to establish a "turn-key" operation -- one that would be ready to begin full operations immediately after von Pentz and Collins resigned their current positions.

 The evidence establishes that from at least February of 1995, von Pentz participated in developing projections for Columbia Partners, and from at least April of 1995, shared information about RIMCO's employees and customers for inclusion in those projections. Tr. 313 (von Pentz); von Pentz Dep. 193-96; Tr. 127-28, 134-35, 273-74 (Collins); see, e.g., PX 23, 28, 83-88. Galway needed the projections to ensure the feasibility of the project and to recruit investors. Tr. 1012-15 (Fant); Tr. 127-28, 135 (Collins); PX 26-27, 120-21.

 In order to create a budget for the new firm so that he would know how much start-up capital was needed, Fant asked Collins and von Pentz to provide estimates of certain expenses such as employee salaries and the revenues from potential clients for the new firm. Tr. 1012-15 (Fant). Beginning in April, 1995, von Pentz sent spreadsheets to Collins and later, Fant, which contained his estimates of potential revenues and expenses for the new firm. Tr. 378-79 (von Pentz); PX 24, 25. These spreadsheets contained the names of several RIMCO clients and information concerning the size of the client's account, the fees that client paid, and von Pentz's estimate of the probability that the client would transfer its account to the new firm. Tr. 378-79 (von Pentz); PX 24, 25. Von Pentz's spreadsheets also listed the names and salaries of the RIMCO employees whom he hoped to recruit for the new venture. Tr. 378-79 (von Pentz); PX 24, 25.

 The projections von Pentz and Collins provided to Galway listed RIMCO employees and RIMCO clients that von Pentz intended to recruit for the new company, identified which RIMCO marketing employees had relationships with which targeted RIMCO clients, and estimated the probability that each client could be switched to the new venture. Tr. 128, 131-34 (Collins); Tr. 1012-13 (Fant); see, e.g., PX 24, 36, 68, 85, 87. Von Pentz also shared information about salaries and bonuses that would be needed to recruit RIMCO employees. Tr. 134-35 (Collins); see, e.g., PX 25, 36, 84-85.

 Galway originally hoped to open Columbia Partners in April of 1995. PX 16 (GP 5499). Over the ensuing months, that timeline slipped several times. Tr. 137-38 (Collins). By the summer of 1995, however, all those involved were aiming to start Columbia Partners by what ultimately became its starting date, October 2, 1995. Id. at 138; PX 33, 120-21.

 Throughout the summer of 1995, von Pentz and Collins provided input and approval concerning "pretty much every detail" of establishing Columbia Partners. Tr. 140-43 (Collins); PX 44, 48-49, 56, 58, 61-63. Von Pentz's input was sought on everything from finding office space and furniture, purchasing computer software, and designating the office layout, to placing phone outlets, and even selecting coffee for the office. PX 44, 49, 53, 66; Tr. 320 (von Pentz). Von Pentz also worked on setting salary and commission structures. PX 31, 40, 43, 62, 64.

 RIMCO Employees

 Von Pentz acknowledged that in the summer of 1994, when he and Collins were seeking investors, he disclosed to RIMCO employees that he planned to start his own business, and that he hoped to take them with him. This, he said, was a result of the fact that two of von Pentz's superiors had previously left and taken others, then, when Tasho left he took Dyhouse, and when Marshall moved on, others were left "out in the cold." Von Pentz testified that he made it known that if he ever left, he would "try to find a home for everybody." Tr. 395-96 (von Pentz).

 In July 1995, von Pentz told Curt Winsor of his "dream" to run his own company. That conversation prompted Winsor to discuss the subject with Tom O'Neill. Tr. 851-52 (Winsor). At approximately the same time, von Pentz had similar conversations with Louise Toler and Colleen Kelly. Tr. 969 (Kelly).

 Throughout September 1995, von Pentz informed RIMCO employees of his imminent departure from RIMCO. On September 6, 1995, von Pentz told Lane that he would soon be leaving to start his own company, and asked Lane to join him. Tr. 887-88 (Lane); Tr. 398-99 (von Pentz). This conversation occurred as the two were flying to meet with Texas Scottish Rite Hospital, a client von Pentz had identified as one that Lane might bring over to Columbia Partners. PX 36. On September 19, 1995, von Pentz took Lane for a tour of Columbia Partners' future offices and informed Lane that he would be resigning on September 28. Lane acknowledged that even though he was a RIMCO officer, he did not disclose to Riggs' management von Pentz's imminent departure out of personal loyalty to von Pentz. Tr. 887-88, 900 (Lane).

 On September 14, 1995, von Pentz discussed his imminent departure with O'Neill on a flight back from Kentucky, where they had attended a meeting with Modern Welding and had entertained a trustee of the UIU Pension Trust ("UIU"). Tr. 763-64 (O'Neill). Von Pentz had identified Modern Welding and UIU as RIMCO clients that would likely follow O'Neill and von Pentz, respectively, to the new firm. Tr. 432-33 (von Pentz); PX 36. Von Pentz told O'Neill that he would be leaving RIMCO in the next several weeks; that he would be joining resources with another well-known entity; and that he would be running the equity side of the new venture.

 On September 26, 1995, von Pentz and Winsor discussed Columbia Partners over lunch. Von Pentz told Winsor that he would be leaving at the end of the week and discussed Winsor's joining the new firm with responsibilities in marketing. Winsor's understanding was that he had a job offer, and that he had accepted it, though not explicitly. Tr. 853-55 (Winsor).

 On September 27, 1995, von Pentz gave Louise Toler a tour of Columbia Partners' future offices, told her he was joining forces with Collins, and showed her a letter specifying the terms of her offer of employment at Columbia Partners. Tr. 401 (von Pentz).

 Each of these RIMCO employees resigned on September 28, 1995. Tr. 898 (Lane); Tr. 766-68 (O'Neill); Tr. 856 (Winsor). Even though Winsor and O'Neill typically met with 10 to 20 prospective clients a month, as of their resignations from RIMCO on September 28, 1995 Winsor had only one scheduled RIMCO appointment and O'Neill had none. Tr. 860 (Winsor); Tr. 767-68 (O'Neill). Before von Pentz resigned, business cards for O'Neill, Winsor, and Lane had already been printed and were available at Columbia Partners. PX 71. Four other employees targeted by von Pentz resigned within days of von Pentz's resignation. Tr. 85 (Addison). Several offered to stay on at RIMCO while RIMCO made arrangements for their replacement, but RIMCO generally declined.

 RIMCO Clients

 RIMCO reacted quickly to von Pentz's departure. RIMCO or Riggs executives contacted all of RIMCO's clients and informed them that von Pentz had resigned to join a new firm, and said his departure would not affect RIMCO's investment performance or its ability to provide investment management services, since the investment process von Pentz had been using was still in place at RIMCO. Tr. 104-115 (Addison); DX 42, 44-45. RIMCO also recruited Tasho and Dyhouse to return from Shawmut, and began telling clients and consultants of their imminent return almost immediately after von Pentz's departure. Tr. 114-15 (Addison), 842-43 (Hoffman). Tasho and Dyhouse rejoined RIMCO in November 1995. (DX 54). RIMCO's equity investment performance continued to out-perform the relevant indices over the fourth quarter of 1995. Tr. 115 (Addison).

 In September 1995, von Pentz and Lane or O'Neill met with representatives of RIMCO clients targeted for Columbia Partners: Texas Scottish Rite, Modern Welding and UIU. Von Pentz had identified each client as a prospect to be brought to Columbia Partners by either himself, Lane, or O'Neill. PX 36. Lane first denied that it was unusual for him to travel so frequently and to travel with both O'Neill and von Pentz, as they had on the trip to see Modern Welding and the UIU trustee, but was impeached on this very point. Tr. 889 (Lane). Von Pentz admitted that he had never previously visited the UIU trustee at his home in Kentucky. Tr. 433 (von Pentz).

 Von Pentz told two RIMCO clients that he would be resigning before he told Riggs management: UIU, one of RIMCO's largest accounts, and National Electrical Contractors Association (NECA). However, with respect to NECA, this notification preceded Riggs' notification by merely a few hours, and in the case of UIU this prior "notice" came during the course of a cocktail conversation with Howard Kluttz, a long-time friend of von Pentz and an informal advisor to UIU. Tr. 406-09 (von Pentz); Tr. 57 (Dudley). Furthermore, Richard Hoffman, a UIU executive most importantly connected to the transfer of funds from RIMCO to Columbia Partners, testified that he first learned that von Pentz was leaving RIMCO after he had resigned. Tr. 835-37, 840-41 (Hoffman); DX 110. This news was a surprise to Mr. Hoffman. Tr. 840 (Hoffman). UIU and NECA both transferred their accounts to Columbia Partners in the first few days of the company's existence. Tr. 117-18 (Addison); DX 110.

 Riggs also presented testimony from Fred Bollerer about his plans to expand RIMCO, and how he asked von Pentz to begin looking into this. It does not appear, however, that Bollerer actively pursued this avenue, and von Pentz indicated that he did not take Bollerer very seriously because Riggs was in the process of downsizing.

 Negotiations with Riggs' Management

 At no time before September 28 did von Pentz tell Riggs' management of his intention to resign before the expiration of his contract. Tr. 322-23 (von Pentz); Tr. 59 (Dudley). Nor did von Pentz ensure that RIMCO would continue to operate after his resignation. Answer P 34. But dark clouds were clearly on the horizon. In fact, Dudley testified that he sought new contract negotiations with von Pentz in the summer of 1995 because he feared von Pentz would leave.

 Von Pentz testified that he told Dudley a week before his departure that he saw no reason to sign a new contract given that RIMCO provided him with nothing new or beneficial. He did say, however, that he would look over the contract again. Tr. 387 (von Pentz). Von Pentz did not officially tell Dudley of his intention to resign until the evening of September 27., 1997. At the time, Dudley was visiting a RIMCO client north of Pittsburgh, Pennsylvania. Though plaintiffs desire to show just how devastating von Pentz's resignation was to the organization, it is worth noting that Dudley did not fly back to Washington to perform even some modicum of damage control even though von Pentz called him the night before he quit to give warning. Von Pentz even offered to fly Dudley down to Washington on a private plane, but Dudley instead remained in Pennsylvania to play golf. The next day, von Pentz tendered his resignation to Tim Coughlin and Fred Bollerer. He declined a request to serve out his contract. DX 41; Tr. 411-12 (von Pentz).

 The day after Columbia Partners opened for business, UIU, one of RIMCO's largest clients, transferred its account to von Pentz's new operation. Richard Hoffman, counsel to UIU, was concerned that a "disaster" could occur in the time it would take RIMCO to hire von Pentz's successor. But, Hoffman also stated, "we liked the performance that Mr. von Pentz had given us. And he knew our portfolio. He knew -- he knew us. And weighing all these factors, we decided to move the money." Hoffman recommended that UIU move its funds immediately. Tr. 846-48 (Hoffman); PX 81.

 Riggs responded to its organizational breakdown by swiftly replacing von Pentz with his old colleague and former RIMCO employee, Philip Tasho as CEO.

 Columbia Partners' Promotional Activities

 Within days of opening, Columbia Partners began a promotional campaign using RIMCO's successful five-year equity performance record. See PX 133-36. Columbia Partners disseminated RIMCO's five-year record with cover letters that described it as von Pentz's equity performance at RIMCO. Tr. 166-67 (Collins); PX 135, 136. Many such letters further stated that "all of the individuals that helped Bob produce those results are now with us at Columbia Partners." PX 134, 136; Tr. 167 (Collins). And in October 1995, Columbia Partners developed a document for promotional use ("Talking Points") that described RIMCO's five-year record as "our" (i.e. Columbia Partners') record and claimed that "our" record outperformed the various indices. PX 104; Tr. 281 (Collins).

 Columbia Partners also used a set of performance "exhibits" comparing a five-year quarterly performance record with the relevant indices. Tr. 776-78 (O'Neill). These quarterly exhibits listed the performance as that of Columbia Partners and at no time gave credit to RIMCO. O'Neill testified, however, that he had no knowledge of giving out one of these documents without disclosing in some manner that these were RIMCO numbers.

 Columbia Partners also used a set of annual performance exhibits (PX 101A & B), that initially designated the yearly performance as that of "Columbia Partners." A footnote, in smaller typeface, stated:

 
*Investment results were achieved by the RIMCO equity research group. The group was led by Robert A. von Pentz and used an Investment process developed by him and implemented at RIMCO in 1989. The entire RIMCO equity research and trading group has joined Columbia Partners on October 1, 1995. . . .

 Although "Columbia Partners" was later changed to "Equity Performance" (PX 101B & 101D), the footnote remained unchanged. Tr. 154, 935 (Kelly).

 Columbia Partners cannot determine with any certainty which performance exhibit materials were used at which times. Tr. 236 (Collins); Tr. 288-89 (von Pentz); Tr. 776-77 (O'Neill). Although defendants claim that the quarterly performance sheets (PX 101C&D) were used only with the annual performance exhibits (which carry the footnote), the only evidence supporting that testimony is from O'Neill. Tr. 778 (O'Neill). His testimony is contradicted by PX 166, an updated database information booklet for Columbia Partners which O'Neill prepared on October 23, 1995 and sent to Scott Olson, an investment consultant in Savannah, Georgia. RIMCO data is clearly presented as though it belonged to Columbia Partners, and ...


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