A lawsuit launched by AGF Management Ltd. in the Ontario Superior Court of Justice seeks $10 million in punitive and aggravated damages against a Dallas-based investment company, Westwood Holdings Group Inc., its executive-recruiting firm and three former AGF employees, including a high-profile fund portfolio manager.

In a strongly worded press release in August announcing the claim, AGF says the defendants had “orchestrated an attempted unlawful ‘lift-out’ of an entire team of experienced, professional investment managers in breach of their legal obligations.”

AGF chairman and CEO Blake Goldring said in the press release that the action is about “a breach of legal obligations involving ethically wrong behaviour by this U.S. investment company with full participation by individuals including Patricia Perez-Coutts, our ex fund manager.”

Perez-Coutts fired back five days later in a Westwood press release: “My many years of service at AGF were entirely professional and honourable. The entire team found AGF’s claims not only surprising but also very offensive.”

Perez-Coutts had been a senior vice president and the portfolio manager of AGF’s emerging markets equity mutual funds from 2007 until her departure in April 2012.

Meetings

The 35-page statement of claim (SOC) from AGF details an “unlawful conspiracy” to “poach” the AGF emerging markets team. The SOC describes a meeting between Westwood Holdings CEO Brian Casey, Perez-Coutts and another potential hire, “which took place in Toronto in early March 2011.”

The SOC also says that “Casey stated at this meeting that Westwood wanted to do a complete ‘lift-out’ of the AGF team, was willing to open up a dedicated office in Toronto for the team and was looking to facilitate the poaching of the AGF team and gain access to investment managers with experience in emerging markets and global equities.”

On April 9, 2012, AGF announced that Perez-Coutts would leave the company effective May 2, along with portfolio manager Thomas Pinto-Basto and associate portfolio manager Alice Popescu.

On April 12, Westwood announced that Perez-Coutts would lead a newly established Westwood affiliate based in Toronto, along with former AGF global equities analysts Richard Dolhun and Martin Pradier.

According to AGF’s SOC: “As was designed by the defendants, following the mass resignation and as the direct result of the defendants’ wrongdoing, AGF has lost millions of dollars of assets under management [AUM], lost prospective clients and prospects in the ‘pipeline,’ and sustained damages to its global and emerging market equity investment business, goodwill and reputation.”

The SOC continues: “The poaching of the AGF team was intended to and has caused damage to AGF and to give Westwood an unfair and improper competitive advantage. Although the harm has been mitigated by the retention of three AGF team members, in comparison to the scenario of a total AGF team lift-out [that] was the original objective of the conspiracy, the harm to AGF and the incentives given to Perez-Coutts and Pinto-Basto to solicit business will continue to cause damage.”

None of the allegations in AGF’s SOC have been proven.

Gerald Ranking of Toronto-based law firm Fasken Martineau DuMoulin LLP, who represents Westwood and Perez-Coutts, has told Investment Executive: “The statement of claim contains allegations [that], in my view, are regrettable in the extreme. The allegation that I consider most outrageous is that there were fraudulent and dishonest breaches of fiduciary duty. And I just think that’s beyond the pale, to be blunt.”

Contracts

Ranking adds that as long as executives fulfil their obligations, both in their employment agreements and in common law, they are free to transfer between firms. “In the instance of our clients,” he says, “they did not solicit one another and they fulfilled their obligations.”

From the standpoint of employment law, in situations in which an employer sues an ex-employee, the most important document is the employment contract, says employment lawyer Daniel Lublin of Whitten & Lublin LLP in Toronto, who is not involved in the AGF case.

As Lublin explains: “Is there a contract? What do its terms say? Does it discuss non-solicitation or non-competition? And, if so, are those terms enforceable? You then have to look at whether there are actually any damages that are suffered. We have a principle in Canadian law – simply put: ‘No harm no foul.’

“So, you can take steps contrary to an employment contract,” Lublin continues, “but our courts are relatively reluctant to award punitive damages simply for the act alone. So, what AGF would have to establish is that [it has] lost sales opportunities or sales that were in the pipeline and [it has] lost clients or compensation.”

Whether AGF can prove that remains to be seen. “At the end of July,” says Rudy Luukko, editor, investment funds and personal finance, with Morningstar Canada in Toronto, “the company reported $20.6 billion in total retail fund assets, down [by] $1.9 billion – or 8.4% – since March 31, [which was] before the announcement of the [portfolio] manager departures.”

AGF currently has more than $41 billion in total AUM, but that’s down from $49.6 billion as of July 2011, says Luukko, so “they can’t pin it all on Westwood that they’re losing business. This slide precedes the departure of the bulk of the global and emerging markets equities team.”

AGF spokesman Peter Block says the company has no comment to make beyond what has been said in the news release and the SOC. IE

© 2012 Investment Executive. All rights reserved.