loanDepot.com, LLC v. CrossCountry Mortgage, LLC

Background

loanDepot sued CrossCountry Mortgage, LLC, several former loanDepot employees, and other defendants. It alleged misappropriation of trade secrets under the federal Defend Trade Secrets Act, breach of contract, interference with contracts and prospective economic advantage, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, and unfair competition.

loanDepot initially sought expedited discovery to support a possible request for a preliminary injunction. That request became moot after the parties conferred under Federal Rule of Civil Procedure 26(f) and began discovery. The parties also unsuccessfully tried to negotiate narrower interim protections. Their disputes included whether any injunction should cover solicitation of loanDepot employees and how it should address “basic customer contact information,” such as names, addresses, telephone numbers, and email addresses.

Legal standard

The court stated that a temporary restraining order and a preliminary injunction use the same standard. The party seeking relief must show irreparable harm, either a likelihood of success on the merits or serious questions on the merits combined with a balance of hardships strongly favoring that party, and that an injunction would serve the public interest.

Employee solicitation

The court did not enjoin solicitation of loanDepot’s employees. It found that loanDepot had not shown irreparable harm because there was no reason to think the conduct would happen again. LoanDepot’s counsel acknowledged that months had passed since any loanDepot employee had left for CrossCountry, and CrossCountry said it had instructed the Individual Defendants not to violate applicable nonsolicitation agreements. Because loanDepot failed to establish irreparable harm, the court did not address the other requirements for an injunction concerning employee solicitation.

Trade secrets and customer information

The court found that loanDepot had established irreparable harm from the possible use or disclosure of its trade secrets, including confidential customer information. It reasoned that use of such information could impair its value, harm customer and employee relationships, and make monetary damages difficult to calculate.

The court also found that loanDepot had shown a likelihood of success based on significant forensic evidence concerning the volume of confidential customer information and other information taken by the Individual Defendants and potentially placed in CrossCountry’s possession. The defendants did not dispute that at least some of the thousands of allegedly misappropriated documents might be trade secrets. The court noted that internal directories containing current and prospective customer contact information may, in some circumstances, qualify as trade secrets.

The court tailored the relief because the defendants argued that the injunction might improperly cover ordinary contact information. The order did not, at that time, prevent the Individual Defendants from using contact information for their own customers with whom they had relationships or for their own cultivated leads. It prohibited use of confidential customer information to supplement the customer bases the Individual Defendants took with them or to take customers of loanDepot’s remaining employees. The order also did not eliminate any independent contractual duties owed to loanDepot.

Order

Under Federal Rule of Civil Procedure 65(b), the defendants were restrained and enjoined during the case from using or disclosing any document or information that remained in an Individual Defendant’s possession after leaving loanDepot, was obtained through that employment, and contained nonpublic customer information downloaded or obtained from loanDepot’s files, systems, or databases.

The order excluded information, including basic customer contact information, that an Individual Defendant developed, learned, or obtained independently rather than from a covered loanDepot document. The court clarified that defendants could not use documents or confidential customer information taken from or derived from loanDepot’s databases and systems, even if those materials contained basic contact information. They could use independently possessed contact information, such as information about their own clients and leads, even if similar information also appeared in a loanDepot document that they allegedly should not possess.

Judge Lorna G. Schofield therefore imposed the specified information-use restrictions while the action was pending, but did not impose an injunction against employee solicitation.