loanDepot.com, LLC v. CrossCountry Mortgage, LLC

Background

loanDepot sued CrossCountry Mortgage and several former loanDepot employees who joined CrossCountry. The complaint alleges violations of the federal Defend Trade Secrets Act and related state-law claims. loanDepot alleged that the former employees retained confidential information, including compilations of customer addresses, telephone numbers, and email addresses, and that they and CrossCountry used that information to divert customers and business. loanDepot also alleged that some former employees recruited other loanDepot employees to leave and join CrossCountry.

The former employees had signed earlier agreements that allowed them to retain and use customer contact information they developed while working for loanDepot. They later signed agreements that loanDepot argued replaced those permissions with stricter confidentiality requirements. Those later agreements also required the return of confidential information and included restrictions on soliciting loanDepot employees.

The court had previously entered a temporary restraining order barring defendants from using or disclosing loanDepot documents and information retained by the former employees. The temporary order did not bar the use or disclosure of basic customer contact information possessed independently of loanDepot documents and did not prohibit employee solicitation. After expedited discovery, loanDepot moved for a preliminary injunction extending the restrictions, prohibiting employee solicitation, prohibiting use or disclosure of basic customer contact information, and requiring forensic examination of devices and return of the information at defendants’ expense.

Legal standard

To obtain a preliminary injunction, loanDepot had to show irreparable harm, either a likelihood of success on the merits or serious questions on the merits combined with a hardship balance strongly favoring loanDepot, and that the injunction would serve the public interest. The court determined that the higher standard for an injunction changing the existing situation did not apply.

Employee solicitation

The court denied the request to prohibit defendants from soliciting loanDepot employees. Although the employment agreements contained non-solicitation provisions, loanDepot did not provide evidence showing that solicitation was actual and imminent. Its assertion that current employees were potential targets was speculative. The court also found that a contract provision acknowledging the availability of injunctive relief did not itself establish the required harm. Evidence about an alleged CrossCountry “raid” on a loanDepot branch in Georgia did not show an imminent threat to the New York locations involved in this case.

Customer contact information

The court found that loanDepot established irreparable harm from defendants’ use of the basic customer contact information. The court reasoned that improper use could reduce the information’s value and harm loanDepot’s customer relationships and goodwill, losses that would be difficult to measure with money damages.

The court also found serious questions about loanDepot’s Defend Trade Secrets Act claim. A trade secret under that statute must be subject to reasonable secrecy measures and must have economic value because it is not generally known or readily obtainable through proper means. The court found that loanDepot likely could show reasonable secrecy measures through confidentiality agreements, its employee handbook, password protection, restricted access, and encryption. The later agreements appeared to supersede the earlier agreements and imposed stricter confidentiality requirements.

The court also found serious questions about the information’s independent economic value. Although the information could potentially be recreated using public databases, doing so would require substantial time and resources. The former employees’ downloading and taking of the information supported the conclusion that the compiled information had value.

The court further found sufficient evidence of misappropriation for preliminary-injunction purposes. The former employees did not dispute taking client information from loanDepot’s servers when they left. The court also rejected CrossCountry’s argument that it had no reason to know the information was retained or used. Evidence included communications in which former employees discussed their loanDepot agreements and obtained indemnification arrangements from CrossCountry concerning possible litigation.

The court found that restricting use of the information would not prevent the former employees from working for CrossCountry or prevent CrossCountry from competing for business. Consumers remained free to contact the former employees or choose their preferred lender. The court also rejected CrossCountry’s unclean-hands defense because the alleged conduct by loanDepot was not shown to be directly related to the claims being litigated.

Other requested relief

The court granted relief requiring defendants to return copies of documents containing the customer contact information, consistent with the return provisions in the later agreements. It denied the request for forensic inspection of defendants’ devices and accounts and for a forensic procedure to accomplish return and remediation. The court described forensic examinations of computers and phones as an intrusive and generally drastic discovery measure and found that the additional relief was not warranted.

The court also declined to require loanDepot to post a bond under Federal Rule of Civil Procedure 65(c). CrossCountry had not convincingly shown a likelihood of harm from the preliminary injunction.

Disposition

Judge Lorna G. Schofield’s order states that loanDepot’s motion was GRANTED in part and DENIED in part. The court denied the employee-solicitation request and the forensic-inspection request, while granting restrictions on use of the basic customer contact information and requiring its return. A separate preliminary injunction order was to be entered.