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In re Daugherty

Court of Appeals of Texas, Fifth District, Dallas

June 19, 2018

IN RE PATRICK DAUGHERTY, Relator

          Original Proceeding from the 68th Judicial District Court Dallas County, Texas Trial Court Cause No. 12-04005

          Before Justices Francis, Brown, and Whitehill

          MEMORANDUM OPINION

          ADA BROWN JUSTICE

         The underlying proceeding involves a contentious business dispute between relator Patrick Daugherty and his former employer, Highland Capital. Daugherty seeks a writ of habeas corpus vacating a criminal contempt order. This Court stayed the contempt order and requested a response to the petition. After reviewing the petition, Highland Capital's response, Daugherty's reply, and the record, we conclude Daugherty is entitled to the relief requested and we grant the writ of habeas corpus.

         Background

         A permanent injunction was entered in 2014 that prohibits Daugherty from:

[R]etaining, using, disclosing, publishing or disseminating Highland's (or its affiliates') confidential, proprietary, and/or privileged information concerning Highland's customers, clients, marketing, business and operational methods, contracts, financial data, technical data, e-mail, pricing, management methods, finances, strategies, systems, research, plans, reports, recommendations and conclusions, tear sheets, industry comparative analysis, Collateralized Loan Obligation (CLO) and other structured products, and names, arrangements with, or other information relating to Highland's (or its affiliates') customers, clients, suppliers, financiers, owners, and business prospects.[1]

         On July 20, 2017, Highland filed a "Supplemental Motion to Show Cause" in which Highland sought to hold Daugherty in contempt for violating the permanent injunction. The allegations focused on Daugherty's engaging in three conversations with another former Highland Capital employee, Joshua Terry, about Highland Capital. In addition to being a former employee, Terry is a party to an ongoing arbitration proceeding involving the management of a Highland-affiliated fund, Acis Capital Management, L.P.

         The trial court "found, beyond a reasonable doubt, that Daugherty violated the Permanent Injunction" on the following three occasions "during conversations with" Terry (1) "on July 4, 2016, " (2) "during December 2016, " and (3) "in February or March 2017." The trial court found that Daugherty had violated the permanent injunction during each of those conversations by doing the following:

Daugherty used and/or disclosed information regarding Highland and/or its affiliates (including Highland Employee Retention Assets, LLC, NexBank Capital, Inc., and Acis Capital Management, L.P.), and the operational and tax strategies employed by such entities.

         The trial court sentenced Daugherty to 38 days' confinement and a $1, 500 fine "for using, disclosing, and disseminating Highland's and its affiliates' confidential, proprietary, and/or privileged information, as defined in the Permanent Injunction." The punishment was broken down as follows:

• $500 for each violation.
• Three days' confinement in the Dallas County jail for the July 4, 2016 communication with Terry.
• Two weeks' confinement (14 days) for the communications with Terry in December 2016.
• Three weeks' confinement (21 days) for the communications with Terry in February or March 2017.

         The Three Conversations with Terry

         Highland conceded at the August 28, 2017 contempt hearing that Highland sought the contempt order solely on the three conversations between Terry and Daugherty:

While we do think that Mr. Daugherty violated the injunction with respect to the Wall Street Journal, that was not the basis of the supplemental show cause motion and that's not the basis we're here today. Actually I'll point out that Mr. York in his objection to the show cause order said, although factually incorrectly, that there was no notice of the communications between Daugherty and Terry, shows exactly that he knows what we're here for today. That is exactly what we're here for ...

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