Conseco Fin. Serv. V. North American Mort.

• Decision Date: 27 August 2004
• Docket Number: No. 03-1443.,03-1443.
• Citation: 381 F.3d 811
• Parties: CONSECO FINANCE SERVICING CORP., formerly known as Green Tree Financial Servicing Corporation, Appellee, v. NORTH AMERICAN MORTGAGE COMPANY, successor Washington Mutual Bank, F.A., Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

381 F.3d 811

CONSECO FINANCE SERVICING CORP., formerly known as Green Tree Financial Servicing Corporation, Appellee, v. NORTH AMERICAN MORTGAGE COMPANY, successor Washington Mutual Bank, F.A., Appellant.

No. 03-1443.

United States Court of Appeals, Eighth Circuit.

Submitted: January 12, 2004.

Filed: August 27, 2004.

Rehearing and Rehearing En Banc Denied October 13, 2004.^*

Appeal from the United States District Court for the Eastern District of Missouri, E. Richard Webber, J.

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Counsel who presented argument on behalf of the appellant was Thomas C. Walsh of St. Louis, MO. Terrence J. O'Toole of St. Louis appeared on the brief.

Counsel who presented argument on behalf of the appellee was David G. Wasinger of St. Louis, MO. James S. Cole of St. Louis appeared on the brief. Mark S. Wasinger and John B. Morthland of Hannibal, MO appeared on the brief.

Before MORRIS SHEPPARD ARNOLD, RICHARD S. ARNOLD, and SMITH, Circuit Judges.

SMITH, Circuit Judge.

After considering Conseco Finance Servicing Corporation's (Conseco's)¹ unfair competition and tortious interference claims against North American Mortgage Company (North American), a jury returned a verdict against North American on each of the claims and awarded Conseco $3.5 million in actual damages and $18 million in punitive damages. On appeal, North American argues that the district court erred when it 1) submitted the unfair competition claim to the jury, 2) failed to grant judgment as a matter of law, 3) found that the compensatory award was supported by the evidence, and 4) allowed the punitive damage award to stand. We affirm in part and reverse in part.

I. Background

A. Facts

Conseco is a Delaware financial services company with its principal place of business in Minnesota. Conseco's mortgage service division originates residential loans for individuals in the "subprime" lending market, e.g. individuals with low credit scores. North American competes for individuals in the same market. The facts and issues in this case arise from actions taken by North American to acquire information about individuals that is contained in Conseco's confidential files. North American sought this information in an attempt to pursue Conseco's loan customers and business leads.

Conseco generates potential customer leads through a computerized database, which Conseco developed, that analyzes financial information from over forty million individuals.² Conseco's computer program identifies individuals who might "benefit" from its debt-consolidation services and compiles a list of the potential customers, which is sent to Conseco's branch offices throughout the country in the form of "customer lead sheets."

Conseco organizes these lead sheets according to color-the most promising are colored red, leads that are considered good are colored white, and merely decent leads are colored blue. Once a lead sheet is received in a branch office, the office manager then forwards it to a loan originator, who calls these potential customers to offer Conseco's financial services. To insure the confidentiality of these lead sheets, Conseco requires all employees to sign a form that acknowledges their receipt and understanding of the contents of Conseco's Employee Handbook. This handbook states that "non-public information about customers, dealers, and others is strictly confidential."

In 2000, over the course of several months, a substantial number of Conseco's office managers and loan originators resigned, and many of Conseco's former employees took jobs working for North American. Several of these former Conseco employees resigned after receiving solicitations from North American. In some instances, the former Conseco office managers also took their staffs of loan originators with them to North American.

During this same period, Conseco's mortgage service division downsized. Most notably, Conseco's management decided to discontinue loan services in the subprime lending market. A number of these now former employees testified (at the preliminary injunction hearing) that because Conseco was leaving the subprime lending market, they worried about their future, especially considering the fact that they worked on commission. Some of these former employees also expressed concern about Conseco's overall future financial performance. Indeed, Conseco had closed thirty of its 150 branch offices within the previous year. Also, some employees noted that Conseco had recently placed significant restraints on its area managers' loan authority.

Shortly after this employee exodus began, Conseco received a letter from one of its St. Louis branch customers, Michael Mambretti, complaining that his confidential loan information had been taken by a Conseco loan originator, from Conseco to North American. Mambretti learned this fact through a phone call from a North American loan originator. The caller informed Mambretti that all of his personal financial information-which he had entrusted to Conseco-had moved with the loan originator to North American's St. Louis office.

In response, Conseco sent a copy of Mambretti's letter to North American with a request that North American "cease and desist" from taking and using information contained in Conseco's loan files. Conseco also asked that North American return all of the information that it had acquired from Conseco's former employees. However, North American neither returned the stolen information nor discouraged its employees' use of Conseco's loan files and lead sheets. Quite the contrary, North American encouraged others in its offices to replicate the St. Louis scheme, and designated its St. Louis office as a "model" to expand into other cities.

B. Pre-Trial

Conseco filed a three-count complaint alleging 1) misappropriation of trade secrets, 2) unfair competition, and 3) tortious interference with business relations. Conseco also filed a motion for a temporary restraining order prohibiting certain North American employees from taking, using, or disclosing documents from Conseco's loan files, and to return any information taken from Conseco's files. The district court granted a temporary restraining order ("TRO") prohibiting these named North American employees from taking, using, or disclosing documents from Conseco's loan files, and requiring the return of any information taken from Conseco's files.

Conseco also filed a motion seeking a preliminary injunction and a permanent injunction to prevent the "raiding" of its employees. In support of this motion, Conseco identified three former employees that it alleged had misappropriated its trade secrets. The first, Kevin Kattleman, a former area manager in its O'Fallon, Illinois, office, testified that fourteen customer loan files from Conseco were in his possession after he began to work for North American. These loan files included personal financial statements of Conseco customers, loan applications, appraisals, income calculation worksheets, W-2 forms, payroll information of Conseco customers, income calculation worksheets, tax returns, and bank statements of Conseco customers. These files were located in Kattleman's office at North American until he returned them to Conseco, as ordered by the district court in its TRO. Kattleman testified that he was uncertain as to exactly how the customer loan files came to be located in his office at North American.

The second, Kevin Podner, a former area manager from Conseco's office in Springfield, Illinois, testified that shortly before his resignation from Conseco, he made a copy of a substantial number of loan applications on which he had worked during his time with Conseco. Podner did not specify the exact number of loan applications copied. Podner said he copied the files in order to aid an employee who wished to make the transition to loan originator. Podner further testified that in his line of work, it was very common to help new loan originators in this manner, as it is much easier to generate new business with customers who have previously conducted business with Conseco.

Finally, Scott Bristol, a former area manager at Conseco's St. Charles, Missouri, office, testified that although he did not have personal knowledge that any loan originators working under him in St. Charles made copies of customer loan applications, it was possible that such copying did occur. Bristol also stated that he encouraged three of the loan originators working under him at Conseco to resign and come to work with him at North American. Bristol also testified that before leaving Conseco, he compiled a list of 100 to 200 customers who had previously engaged in business with Conseco. This list included the names and phone numbers of these customers. Upon arriving at North American, Bristol gave these names and numbers to loan originators as leads, who contacted these former Conseco customers. Bristol testified that he believed between one to six of these leads resulted in new business for North American. However, he speculated that as many as ten of these former Conseco customers could have switched their business to North American.

Bristol also returned a number of documents at his deposition, in accordance with the district court's TRO. These documents contained information concerning Conseco's internal operations, including monthly retail point income reports generated by each Conseco office, reports ranking the retail volume by branch, reports of retail loans funded by region, financial summaries of each branch, expense ratio reports, expense analysis reports, expense analysis retail volume variance reports, and reports on credit insurance protection.

Bristol also testified that he began his employment with North American on June 30, 2000, but did not resign his position with Conseco until July 12, 2000. Consequently, he was employed by both companies during this two week period. At the preliminary hearing,...