A long-running and closely watched lawsuit over a tech investment firm launched by three former San Francisco 49ers has reached a $9 million out-of-court settlement, according to two people involved in the case.
HRJ Capital was founded by Joe Montana, Harris Barton and Ronnie Lott during the dot-com boom. At its height, the firm managed more than $2 billion from pension funds, college endowments and superstar athletes such as Barry Bonds and Peyton Manning.
But when the global credit crunch hit in 2008, HRJ found itself unable to meet its financial commitments. Creditor Silicon Valley Bank seized the investment funds and sold them to a Swiss firm called Capital Dynamics.
What Capital Dynamics didn't count on was that it was also acquiring HRJ's legal liabilities, including a lawsuit filed by three former HRJ managers who were let go as the firm was imploding. They claimed in court filings that they were due tens of millions of dollars.
Two Santa Clara County Superior Court judges ruled that Capital Dynamics, as controller of the HRJ investment funds, was liable for promises made on behalf of those funds. The decision drew howls of protest not just from the Swiss firm but also from the California Public Employees Retirement System, one of the country's biggest investors in venture capital firms. In a friend-of-the-court brief, CalPERS warned that holding Capital Dynamics responsible for the actions of the previous management team threatened the very definition of limited liability partnerships, which underpin venture capital investing.
But last March, a San Jose jury awarded two of the plaintiffs in the lawsuit $10 million, including punitive damages that legal experts called highly unusual. Thomas Kubr, the former aerospace engineer who founded and runs Capital Dynamics, vowed to appeal the ruling but in the end called the $9 million settlement "the sensible thing to do."
People familiar with the case had speculated that the final tally for damages and legal fees could have topped $13 million, and perhaps far more, had Capital Dynamics waged and lost an appeal. (A third plaintiff settled out of court for a reported $4 million; the former 49ers reached separate legal settlements with the men.)
Kubr said via email that he was "satisfied with the terms of the settlement," which will be paid out of the HRJ investment funds. Capital Dynamics will then reimburse the funds some $5 million in attorney fees, according to two people with knowledge of the situation.
Because the settlement resulted in the lawsuit being withdrawn, Capital Dynamics will no longer have the specter of punitive damages hanging over its reputation.
Attorney Michael Baumann, who represented plaintiffs Darren Wong and Duran Curis in the suit, said Monday his clients were "pleased with the verdict" and "glad it's behind them. Any settlement involves a compromise."