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In re Daugherty

Court of Appeals of Texas, Fifth District, Dallas

June 19, 2018


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

          Before Justices Lang-Miers, Fillmore, and Stoddart



         Following litigation between Patrick Daugherty and his former employer, Highland Capital Management, L.P. (Highland), the trial court signed a permanent injunction prohibiting Daugherty from disclosing Highland's confidential information. Three years later, Highland requested the trial court hold Daugherty in contempt for violating the permanent injunction on three different occasions. The trial court held Daugherty in contempt for three violations of the permanent injunction, sentenced Daugherty to a total of thirty-eight days in jail, and assessed a fine of $500 per violation. Highland subsequently filed a motion for sanctions, requesting that the trial court award Highland the attorneys' fees it incurred due to Daugherty's three violations of the permanent injunction. The trial court granted the motion for sanctions and ordered Daugherty to pay Highland's attorneys' fees in the amount of $221, 348.85.

         In this consolidated original proceeding and appeal, we must decide whether the trial court abused its discretion by granting Highland's motion for sanctions.[1] We conclude the attorneys' fees awarded to Highland constitute punishment for criminal contempt that is not authorized by section 21.002 of the government code. See Tex. Gov't Code Ann. § 21.002(b) (West 2004). Accordingly, we conditionally grant Daugherty's petition for writ of mandamus and direct the trial court to vacate its order granting Highland's motion for sanctions. We dismiss Daugherty's appeal as moot.


         While employed by Highland, Daugherty signed at least three agreements that prohibited him from disclosing certain information belonging to Highland and its affiliates. After the employment relationship ended, Highland sued Daugherty, alleging Daugherty used or disclosed information covered by the agreements. A jury found in favor of Highland and, on July 14, 2014, the trial court signed a judgment ordering Daugherty to cease and desist from:

[R]etaining, using, disclosing, publishing or disseminating Highland's (or its affiliates') confidential, proprietary, and/or privileged information, including but not limited to 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. Notwithstanding the foregoing, Daugherty may use or disclose the information described in this paragraph only as (i) required by law; or (ii) directed and authorized in writing by Highland.

         Since the entry of the permanent injunction, there has been ongoing litigation between Highland and Daugherty based on Highland's claims that Daugherty repeatedly violated the injunction.

         As relevant to this appeal, on June 22, 2016, Daugherty left a handwritten letter at the home of Joshua Terry, whose employment with Highland had recently been terminated. In the letter, Daugherty offered to be a "potential witness - willing to tell the truth about how things really operated at Highland under the leadership of Dondero and Okada." Daugherty subsequently had conversations with Terry in July 2016, December 2016, and February or March 2017, in which Daugherty mentioned Highland.

         On June 29, 2017, Highland deposed Terry in an arbitration proceeding between Terry and a Highland-affiliated fund, Acis Capital Management, L.P., and questioned him about his conversations with Daugherty. On July 20, 2017, Highland filed a supplemental motion to show cause, [2] alleging Daugherty violated the permanent injunction as a result of his communications with Terry. Highland requested the trial court (1) hold Daugherty in violation of the permanent injunction, (2) enter an order requiring Daugherty to appear before the trial court and show cause why he should not be held in contempt, and to provide "any and all emails, documents, and text messages exchanged by and between Daugherty and Mr. Terry, either directly or indirectly (including through counsel), and any telephone records, since June 22, 2016, " (3) award Highland its reasonable and necessary attorneys' fees incurred in connection with the motion, and (4) enter any further sanctions against Daugherty that the trial court deemed appropriate.

         The trial court heard Highland's supplemental motion to show cause on August 28, 2017. Highland argued the trial court could enforce its orders through criminal and civil contempt as well as through sanctions. At the close of evidence, Highland indicated it would put on evidence of the "attorney[s'] fees we've incurred in dealing with this" at a later time. The trial court questioned whether attorneys' fees were "recoverable in a show cause" and stated it would delay any consideration of Highland's request for attorneys' fees. The trial court found Daugherty in contempt for violating the permanent injunction as a result of his three conversations with Terry.

         On September 18, 2017, the trial court held a hearing to determine the appropriate punishment for Daugherty's contempt. The trial court indicated it would not consider the attorneys' fees issue without a further motion from Highland. On September 25, 2017, the trial court signed a Judgment of Contempt and Order of Commitment, finding Daugherty violated the injunction as a result of his three conversations with Terry and assessing punishment of three days' confinement for the July 2016 violation, fourteen days' confinement for the December 2016 violation, twenty-one days' confinement for the February or March 2017 violation, and a $500 fine for each violation.

         Highland filed a motion for sanctions on October 24, 2017. Highland requested that "sanctions be imposed to penalize Daugherty for his abuse of the judicial process and failure to comply" with the trial court's orders and that it "be awarded its reasonable attorneys' fee and costs incurred in connection with Daugherty's most recent violations" of the permanent injunction. Highland noted that, in its supplemental motion to show cause, it requested the trial court impose ...

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