- HouseCanary v. Title Source Inc. (TSI Appraisal) and Quicken Loans. In this battle, appraisal management company TSI — now named Amrock — had been a customer for HouseCanary’s developing AVM technologies. The fight began in 2016 with TSI first suing HouseCanary in Texas state court (Bexar County) for breach of contract. TSI sought to get out of its contract with HouseCanary; its president recently explained in a public statement that TSI wanted out because “Amrock never received any working software from HouseCanary, instead receiving wireframes and half-developed apps that were completely unusable by the company.” HouseCanary, however, sued back contending that TSI actually had stolen HouseCanary’s AVM technologies. After a seven-week trial, a jury sided with HouseCanary and awarded the company $706 million in compensatory and punitive damages; the result was widely publicized because of the sizable sum. What has been less reported is that on March 16, 2018 — two days after the Texas verdict was entered — HouseCanary expanded the fight by suing TSI’s affiliated company Quicken Loans in a new lawsuit filed in the U.S. District Court for the Northern District of California, alleging basically the same story of trade secrets theft. That’s probably a good legal strategy because the $706 million verdict in the Texas case may eclipse TSI/Amrock’s net worth several times over. A rough measure of the defendant company’s value might be drawn from the fact that CoreLogic paid $122 million to purchase Bank of America’s AMC subsidiary Landsafe Appraisal. The Texas verdict may thus be difficult to collect against TSI/Amrock. Considering the $706 million number itself, I do think it’s way over the top of any rational amount based on the actual revenue that I observe at this time for residential AVM products; based on what I see, AMCs in general don’t make any real money selling residential AVMs. The “tools” simply aren’t worth that much right now as revenue producers or in the market place, and a damages demand based on hoped for future value should be viewed as speculative. HouseCanary plainly had great lawyers (Susman Godfrey LLP) and clever experts. TSI/Amrock is seeking to “nullify” the jury’s verdict and also has vowed to appeal.
- Collateral Analytics v. Xome, Nationstar and Quantarium. On January 2, 2018, and after an out-of-court mediation had failed, an AVM technology company Collateral Analytics filed suit in the U.S. District Court for the Northern District of California against three related companies: Nationstar Mortgage, its subsidiary appraisal management company Xome Settlement Services, and an affiliated technology company named Quantarium. In a story pretty similar to HouseCanary’s, Collateral Analytics alleges that Xome had obtained detailed proprietary information about Collateral Analytics’ AVM products as a customer and contends that the three affiliated companies misappropriated the trade secrets to develop their own AVM business. Here’s the basic story as alleged by Collateral Analytics in its complaint: “while Collateral Analytics was working to delight its customer, Nationstar and Xome were secretly plotting to use what they learned from Collateral Analytics’ industry-leading tools — all while deceiving Collateral Analytics both about that copying and the fact that they intended to replace Collateral Analytics with copied products.” If Nationstar and Xome think they are at potential risk for a verdict against them resembling HouseCanary’s, the expedient solution may be for them to buy Collateral Analytics itself. In a recent case management statement to the Court, Nationstar and Xome posited that they’d like to engage in further private mediation because “it allows for creative solutions.” Perhaps a buyout is what they have in mind.
- Clearcapital.com (Clear Capital) v. ComputerShare. On April 6, 2018, Clear Capital sued Computershare Inc. in the U.S. District Court for the District of Colorado. Clear Capital alleges that one of its own former senior vice presidents took an array of proprietary material with him when he left Clear Capital for a new position at an upstart AMC created by Computershare called Property Solutions. The alleged trade secrets range from vendor panel data and customer information to specific product information. There is some interesting storytelling in this complaint too. For one thing, Clear Capital says it was partly tipped off to the alleged theft by an anonymous informant. Another way that Clear Capital says it was tipped off was that it had created email address “honeypots” — monitored email addresses set up and secretly planted in Clear Capital email lists to detect whether someone might be misusing the email list. Clear Capital alleges that one of these honeypots started receiving solicitations from Property Solutions, suggesting to Clear Capital that the email list had been taken over to the upstart AMC. The full complaint can be read here: https://valuationlawgroup.com/trade-secrets. (If we learn one thing from this trio of cases, it might be that every business with customer/vendor email or mailing lists should imbed some secret honeypots in the lists.)
Clear Capital’s case isn’t the first AMC case, and certainly won’t be the last, to allege that stolen trade secrets included the AMC’s vendor data (i.e., databases of the agents/brokers, appraisers or other service providers signed up with the AMC to provide services as a independent contractor). It’s a situation that usually results when a lender decides to cut out the AMC by misappropriating the AMC’s information. In a 2001 case, for example, a company managing BPOs and appraisals named Cartel Asset Management sued its former customer Ocwen Federal Bank alleging that Ocwen had systematically copied the names and contact information for vendors performing BPOs and then started using that re-created list directly. Ocwen allegedly had a contest among its employees giving a prize to the employee who copied the most vendor data. A jury returned a verdict of $4.9 million in compensatory damages plus $3.9 million in punitive damages for the trade secret theft – though this result was later modified following appeal. (The Tenth Circuit’s Order is also here: https://valuationlawgroup.com/trade-secrets.) While not stating a specific monetary demand in its complaint, Clear Capital points to a much larger number, alleging generally about its trade secrets that “misappropriation of Clear Capital’s portfolio and proprietary network . . . could be a loss worth hundreds of millions of dollars.”