Federal District Judge in Texas Dismisses Former Executives’ Employment Contract Dispute Against Hedge Fund Firm D.B. Zwirn & Co. Over Unpaid Bonuses

Representing a new trend in hedge fund litigation created by the recent financial crisis, various former hedge funds executives have been suing their former employers or partners for unpaid or allegedly unpaid bonuses or other compensation.  See, e.g., “Co-Founder of Hedge Fund Manager Camulos Partners Sues Other Co-Founder for $67 Million in 'Unlawfully Seized' Bonuses and Investments,” Hedge Fund Law Report, Vol. 3, No. 3 (Jan. 20, 2010); “New York Appellate Division, First Department, Affirms Dismissal of Breach of Employment Contract Claim Against Hedge Fund Manager Stanfield Capital Partners,” Hedge Fund Law Report, Vol. 3, No. 3 (Jan. 20, 2010); “Minnesota Appeals Court Affirms that Repeated Oral Representations Preclude Limitations Defense in Hedge Fund Manager’s Claim for Unpaid Bonuses,” Hedge Fund Law Report, Vol. 3, No. 2 (Jan. 13, 2010); “Touradji Capital Management Countersues Ex-Hedge Fund Portfolio Managers,” Hedge Fund Law Report, Vol. 2, No. 46 (Nov. 19, 2009); “New York State Supreme Court Upholds Former Portfolio Managers’ Claims Against Hedge Fund Manager Touradji Capital for Breach of Contract and Intentional Infliction of Emotional Distress; Dismisses Remaining Causes of Action,” Hedge Fund Law Report, Vol. 2, No. 39 (Oct. 1, 2009).  In this instance, on February 8, 2010, the United States District Court for the Southern District of Texas summarily dismissed a lawsuit over unpaid bonuses brought by plaintiffs Todd A. Dittmann and Susan Chen against their former employer, defendant hedge fund firm D.B. Zwirn & Co., L.P. (DBZ).  The litigation began in February 2009, when Dittmann, and later Chen, filed complaints against DBZ claiming it had breached their respective contracts for employment compensation, and adding causes of action including, among other things, fraud, quasi-contract and violations of the New York State Labor Law.  In rejecting the lawsuit, the District Court concluded that plaintiffs “worked in a high risk industry with the potential for high rewards[,]” received suitable compensation for several years, and that, in 2007, when “DBZ’s business declined through no apparent fault of the Plaintiffs, DBZ reduced their bonuses and ultimately failed to pay, “all in compliance with the terms of the[ir] employment agreement[s].”  We detail the background of the lawsuit and the court’s legal analysis. 

To read the full article

Continue reading your article with a HFLR subscription.