Capital Dynamics

Ex-HRJ managers prevail in court

November 26, 2012: 11:34 AM ET

HRJ Capital may be gone, but its legal troubles persist.

FORTUNE -- When Capital Dynamics acquired the assets of HRJ Capital in 2009, it also seems to have acquired HRJ's problems.

A California Superior Court judge this month issued summary judgment in favor of three former HRJ employees – Lane Auten, Duran Curis and Darren Wong – who accused Capital Dynamics of improperly withholding more than $17 million in compensation. Other defendants include HRJ co-founders Harris Barton and Ronnie Lott, plus HRJ creditor Silicon Valley Bank.

For the uninitiated, HRJ Capital was a fund-of-funds manager originally formed by a trio of ex-NFL players (Barton, Lott and Joe Montana) to invest in top-tier VC funds on behalf of other pro athletes. It later expanded its product offerings, but also began accepting warehouse loans from SVB so that it could make new commitments before raising all of its own capital.

When fundraising efforts eventually fell short – including for a new buyout fund-of-funds program – HRJ found itself in hot water with both SVB and its own LPs (who were unaware that Barton and Lott apparently transferred the over-commitments from their own holding companies to the actual funds-of-funds). Capital Dynamics would later strike a deal with SVB – largely to get access to HRJ's clients – but allegedly refused to pay the plaintiffs fees and past/future carry related to the funds that they had helped to raise.

A jury trial begins next Monday, primarily for the purpose of determining damages. You can read the judge's ruling below:

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