IP Law Daily, TRADE SECRETS—N.D. Ala.: Mortgage company’s misappropriation claims against former employee, competitor survive summary judgment, (Apr 24, 2023)

By Kevin M. Finson, J.D.

A jury will have to decide whether the information contained in a loan officer training manual constitutes protectable trade secrets.

A mortgage company’s state and federal trade secrets claims against a former executive and a competitor relating to misappropriation of a training manual for loan officers survived summary judgment because the question of whether the manual contained confidential information was a matter of fact that needed to be decided by a jury, in Jasper, Alabama, has determined. The claims presented genuine questions of material fact about the nature of the allegedly appropriated materials. State law claims for conspiracy and tortious interference also survived, but a claim for violation of the Computer Fraud and Abuse Act was dismissed (Movement Mortgage, LLC v. CIS Financial Services, Inc., April 20, 2023, Coogler, L.).

Movement Mortgage, LLC (Movement) was a mortgage lender, and CIS Financial Services, Inc. (CIS) was a competitor. CIS employed Paula Reeves as an executive. Reeves engaged in a social or romantic relationship with Tony Joyce, once employed by CIS, and later employed by Movement. CIS continued to pay Joyce while he worked at Movement. Movement alleged that Joyce shared a copy of Movement’s training manual, including its confidential process for expeditious loan underwriting, processing, and closing, with Reeves, who then shared it with CIS. Movement brought suit against CIS and Reeves for violation of state and federal trade secrets statutes Alabama Trade Secrets Act (ATSA), the federal Defend Trades Secrets Act (DTSA), and violation of the Computer Fraud and Abuse Act (CFAA), as well as related state law claims for conspiracy to misappropriate trade secrets, and tortious interference with contractual relations. CIS moved for summary judgment on all claims.

Trade secrets. CIS argued that Movement did not identify trade secrets within its training manual, that some or all of the information was publicly available, that Movement did not take reasonable steps to protect the secrecy of the manual, and that Movement did not suffer any damages.

The court, noting that it was basing its decision in part on sealed deposition testimony, found that whether the information in the manual constituted a trade secret was a question of fact that needed to be determined by a jury. The fact that the manual contained publicly available information did not doom Movement’s trade secrets claims. The critical issue—which is for the jury to decide— is whether the manual contains a unique combination of that information, which adds value to the information. The court also found that Movement’s allegations that it required all employees to sign a confidentiality agreement before granting access to the manual, and its damages arising from the loss of exclusivity of the training materials, were sufficient to avoid summary judgment. Movement’s related conspiracy claim also survived.

Tortious interference. Movement conceded that the ATSA preempts a tortious interference claim to the extent such a claim is premised on the misappropriation of trade secrets. However, in this case, the court found that the claim was not entirely preempted to the extent it was based on allegations of defendants’ actions “to induce Joyce into breaching a valid contract with Movement,” such as encouraging Joyce to share non-trade secret information.

Computer Fraud and Abuse Act. The court found that there was no evidence in the record to show unauthorized access to Movement’s computer system or damages in excess of $5,000, both of which were required for a CFAA violation. Summary judgment was granted in favor of CIS on this claim.

The Case is No. 6:22-cv-00671-LSC.

Attorneys: Brodie D. Erwin (Kilpatrick Townsend & Stockton, LLP) for Movement Mortgage LLC. Carson S. Phillips (Bradley, Arant, Boult & Cummings, LLP) for CIS Financial Services Inc. and Paula Reeves.

Companies: Movement Mortgage LLC; CIS Financial Services Inc.

Cases: TradeSecrets TechnologyInternet AlabamaNews