What Bill Gross's Pimco lawsuit is really about

When legendary bond investor Bill Gross resigned from Pimco, the firm he co-founded 43 years earlier, to join the much smaller investment firm Janus, he said he was "uniquely exuberant" to be freed of management responsibilities.

Perhaps Mr. Gross has found the professional satisfaction he was seeking at Janus. But according to the complaint his lawyers filed Thursday against Pimco, Mr. Gross now wants satisfaction of a different sort.

While Bill Gross still primarily is allocated to the U.S. bond market, he warned investors at year-end that he views "the current environment with caution."
Jim Young | Reuters
While Bill Gross still primarily is allocated to the U.S. bond market, he warned investors at year-end that he views "the current environment with caution."

He wants the satisfaction of a judgment that he was forced from Pimco illegally, forced out in a way that denied him hundreds of millions of dollars he feels he deserved.And he wants to expose the behavior of the members of the "cabal" at Pimco he claims were "driven by a lust for power, greed, and a desire to improve their own financial position and reputation at the expense of investors and decency" in orchestrating his ouster.

The gist of Mr. Gross's legal claims is that he was effectively fired so that company officials could deny him, "for their own benefit," a nine-figure payout from a bonus pool he was five days away from getting and had essentially earned. Mr. Gross also says he was forced out even though Pimco was legally obligated to keep him for many more months or years.

Although the sums Mr. Gross is seeking in damages are staggering, it is clear from the tautly written complaint that this lawsuit is not at its core about money. This is the story of a man who feels that he and the values on which he founded his firm were deeply betrayed. That betrayal, he claims, hit him personally in the form of the loss of position and the denial of millions in compensation. The deeper betrayal that emerges from the complaint is of the "bonds and burgers" values on which Mr. Gross says he built the firm by those who wanted to engage in investment strategies riskier and costlier to the firm's clients.

It will not be enough for Mr. Gross to show that his resignation was not voluntary. Judging from the reports published in the financial press, including The Wall Street Journal, that part of Mr. Gross's case should be easy. Being forced out of a job without more, however, is not illegal. Mr. Gross also will have to show that Pimco breached an implied or express contractual duty or some basic public policy by forcing him out as the company did. Motive will matter in this analysis, as will the legitimacy of any expectations Mr. Gross had that Pimco lacked the ability to force him out without consequences.

Mr. Gross's claim of bad faith will depend on his being able to show that Pimco had no clear right to force his resignation just before the end of the third quarter, when he would have been entitled to his quarterly bonus. Mr.Gross will have to prove his allegation that the firm did so "for the sole purpose of evading that payment." Given what has been written about why company officials wanted Mr. Gross out, Mr. Gross may find proving that aspect of his claim especially challenging.

But this lawsuit does not appear to be about proving a particular claim or extracting a particular payoff, which his lawyer has said will go to charity anyway. This lawsuit appears to be about Mr. Gross having the opportunity to tell his story and compelling those he feels wronged him to justify their behavior. Regardless of how this case ultimately turns out, that's going to happen.

Michael Lipper of Lipper Advisory Services was quoted in a story published in USA Today the day after Mr. Gross left Pimco that he'd "like to have a lot more information" about Mr. Gross's departure from Pimco "than has come out." That's about to happen, too.

Commentary by Dan Eaton, a partner with the San Diego law firm of Seltzer Caplan McMahon Vitek where his practice focuses on defending and advising employers. He also is a professor at the San Diego State University College of Business Administration where he teaches classes in business ethics and employment law. Follow him on Twitter @DanEatonlaw.