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McCall, Pilgrim Baxter Continue Standoff

BOSTON - Harold Baxter and James D. McCall surely would have preferred to spend the Friday afternoon before Memorial Day weekend just about anywhere else. Baxter, CEO of Pilgrim Baxter & Associates of Wayne, Pa., and McCall, up until that day one of Pilgrim Baxter's star portfolio managers, spent roughly 90 minutes sitting within four feet of one another in a worn courtroom here on May 28 as they waited for their lawyers to emerge from closed-door meetings with a Massachusetts Superior Court judge. Judge Patrick J. King, who was scheduled to hear arguments on whether McCall should be released from an employment agreement he signed with Pilgrim Baxter, appeared to be engaged in an effort to broker a settlement in lawsuits between McCall and the firm.

King's apparent efforts, however, did not succeed, at least for now. Lawyers for McCall and Pilgrim Baxter said after the meetings that they expected to again appear in court, perhaps later this month, to resolve the fight in which McCall sued Pilgrim Baxter May 14 in an effort to quit his job running four of Pilgrim Baxter's PBHG Funds and join Merrill Lynch of New York as a portfolio manager. Pilgrim Baxter and its parent company, United Asset Management of Boston, counter-sued the same day to enforce the employment agreement and its non-compete clause between McCall and Pilgrim Baxter.

The court fight entails allegations by McCall that Pilgrim Baxter showed nepotism in how it compensated two of Baxter's daughters, one of whom, Christine Baxter, manages the firm's Emerging Growth Fund. Pilgrim Baxter said in its court filings that the allegations are false. After the May 28 session, neither Baxter nor McCall would comment.

Last Tuesday, Pilgrim Baxter said in an SEC filing that as of May 28, it had appointed new managers to run McCall's funds. A spokesperson for Pilgrim Baxter and UAM declined to comment, citing the litigation. Maria R. McGarry, McCall's lawyer, declined to comment. McCall did not return a call seeking comment. Merrill Lynch said in a statement that once McCall was free of his commitment to Pilgrim Baxter, it intended to pursue McCall "vigorously."

McCall sued Pilgrim Baxter for fraud, arguing that his employment agreement was no longer binding. Although a public hearing on the case was scheduled for May 28, King instead ordered lawyers into his chambers on that date.

After two private meetings with King, the lawyers emerged and spoke with their respective clients who were waiting in the courtroom. The session ended abruptly after about 90 minutes.

Other than to say that King did not rule and that the parties expected to appear in court soon, the lawyers declined to comment. McGarry said that McCall and Pilgrim Baxter had agreed to the judge's admonition not to discuss the case publicly.

Last week's SEC filing said that as of May 28, Pilgrim Baxter had named Gary L. Pilgrim, Pilgrim Baxter's chief investment officer, to lead a team to manage the PBHG Large Cap Growth, Large Cap 20 and Select Equity funds. The firm named Jeffrey A. Wrona to run the Core Growth Fund. McCall previously managed the four funds.

McCall joined Pilgrim Baxter in 1994 after working as a portfolio manager for the First National Bank of Maryland.