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Judge: Mortgage company’s claims against former employees should go to jury

A Charlotte-based mortgage company alleging that one of its officers and several employees stole trade secrets and workers to begin their own venture will be allowed to move forward with most of its claims, North Carolina Business Court Chief Judge James Gale ruled last month.
According to the 2013 lawsuit, German “Nick” Florez, former president and director of RoundPoint Mortgage Co., and his wife, Erica Price, while still employed by RMC, recruited the company’s employees, took confidential materials, copied its software and breached confidentiality and nondisclosure agreements.
In 2014, RMC, a subsidiary of Florida’s RoundPoint Financial Group Inc. with its principal place of business in Charlotte, suspended its direct-to-consumer mortgage-lending operations.
According to a brief opposing the defendants’ motion for summary judgment, RMC attorney Charles Johnson of Robinson, Bradshaw & Hinson in Charlotte wrote that Florez “surreptitiously” recruited about a quarter of RMC’s workforce and claimed that he was “entitled to plunder,” not bound by nonsolicitation agreements.
“By misappropriating RMC’s confidential and proprietary information and unlawfully raiding its employees, Defendants dealt RMC a blow from which it never recovered,” Johnson wrote. “RMC’s sudden loss of much of its workforce – including many top performers – caused delays and drops in RMC’s loan production, resulting in losses of millions of dollars.”
After resigning from RMC in February of 2013, Florez became president of Sebonic Financial, a division of defendant Cardinal Financial. His new employer launched its direct-to-consumer mortgage division shortly after Florez’s arrival and became a direct competitor of RMC.
Florez now serves as Cardinal’s president and CEO.
In 2012, all RMC employees were required to sign a “Confidentiality and Proprietary Agreement,” the basis for the breach of contract claim against Price and three Nevada-based defendants. Florez did not sign the agreement, which contains a two-year nonsolicitation clause. RMC did not contend that the agreement was supported by consideration other than the “promise of continued at-will employment.”
According to the court’s opinion, and by his own admission, Florez asked another RMC employee in late 2012 and early 2013 to compile company loan officer training materials so that he could use them for his new endeavor.
Florez also downloaded more than 250 pages of RMC employment performance documents; asked RMC workers to document the company’s process and lending workflow; emailed software settings and processes to his personal email account and, before resigning, created a Cardinal website and email addresses, and interviewed potential employees.
According to the court, there was no dispute that Florez owed RMC a fiduciary duty while he was an officer there, but Florez asserted that his actions were permissible efforts to prepare for competition after his fiduciary relationship ended.
In analyzing this issue, the court noted that “merely making plans” to compete with an employer before leaving does not necessarily constitute a breach of duty. But citing 2002’s Sunbelt Rentals, Inc. v. Head & Engquist Equip., LLC, the court held that its focus must be “on actions taken in furtherance of such a plan to compete while defendants were employed … rather than preparations to compete.”
“The Court concludes that the evidence, viewed most favorably to RMC, would allow a finding that actions Florez took while he was subject to a fiduciary duty transcended mere preparation, and that the competing positions must be resolved by a jury,” Gale wrote.
This finding came partly, according to Gale, because RMC’s fiduciary duty claim is “intertwined with the disputed issue of whether information taken either by Florez or at his direction qualifies as protectable trade secrets.”
Gale also found that the plaintiff should be allowed to move forward on its trade secrets claims despite a “strong defense” that few, if any, true secrets exist in the “competitive direct-to-consumer” world of mortgage lending. The defendants also argued that RMC doesn’t deserve trade secret protection because RMC initially took advantage of “materials and systems” Florez developed at another company he started and ran, Meridias Capital, prior to joining RMC.
“Although this defense may ultimately prevail,” Gale wrote, “the Court’s proper inquiry is limited to whether RMC forecasts sufficient evidence to support a jury finding in its favor.”
William Rikard Jr., a partner with Parker, Poe, Adams & Bernstein in Charlotte, was not involved in this case but represented the plaintiffs in Sunbelt. He believes this decision will be “helpful to the North Carolina jurisprudence” regarding what the oft-cited Sunbelt ruling does and doesn’t mean.
“I think it gives the bar excellent guidance about trade secrets regarding the kind of information at issue in this case, and I think it is helpful in regard to helping further define departing employees’ fiduciary responsibilities.”
Rikard said that on one hand, customer information may not appear to be confidential, but that this opinion “shows how it can be protectable, confidential information and give some guidance both in terms of pleading it and attempting to prove it.”
RMC, for instance, showed evidence that its customer information could be useful for future prospects, that it developed “valuable and unique” internal metrics and reports to analyze its performance and other business aspects, and pointed out variations among lender’s approaches regarding the types of loans they originate, the size of their operation and types of software and electronic resources they use.
“That, I think, advances our law about what is and what isn’t a trade secret,” Rikard added.
The court did dismiss an RMC claim of common-law misappropriation, noting that no North Carolina court has “acknowledged the existence of such a claim.” It also dismissed breach of contract claims against Price and the Nevada defendants because the agreement they signed in 2012 was not supported by consideration.
Under North Carolina law, Gale wrote, a contract modified after employment has begun must be supported by consideration other than continued employment.
Despite the defendants’ claims that RMC doesn’t own the software or documents that “RMC appropriated after Meridias shut down” or “forms created by or merely copied from government entities,” Gale found that RMC forecasted sufficient evidence to survive summary judgment on its conversion claims.
“At this time, the court is unable to parse through the record to determine RMC’s ownership on a document-by-document or category-by-category basis to evaluate whether RMCs conversion claims to any particular document fails for lack of ownership,” Gale wrote.
What the court was able to do, however, was conclude that even if RMC owned the information, that ownership continued after it was allegedly copied and, thus, the conversion claim fails.
“Here, RMC does not allege that defendants copied and then deleted the information so as to deprive RMC from its continued use of the information,” Gale wrote. “Even if Defendants’ acts were wrongful, they are not independently actionable through the tort of conversion.”
RMC will also be allowed to move forward with its claims for civil conspiracy, vicarious liability against Cardinal, and unfair and deceptive trade practices against Cardinal, Florez and Price.
Johnson said he is happy with the ruling overall but declined to discuss the pending litigation in detail.
“We are going to trial on most of our claims in the case,” Johnson said. “We are looking forward to trying the case.”
An attorney for Florez and Price, K. Alan Parry of Parry Tyndall White in Chapel Hill, did not return messages seeking comment.

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