Graystone Funding Co. v. Network Funding L.P.
| Decision Date | 29 September 2021 |
| Docket Number | 2:19-cv-00383-JNP-CMR |
| Parties | GRAYSTONE FUNDING COMPANY, LLC, Plaintiff, v. NETWORK FUNDING, L.P.; JASON GAUTREAU; and CRISTIE NORTH, Defendants, NETWORK FUNDING, L.P.; JASON GAUTREAU; and CRISTIE NORTH, Third-Party Plaintiffs, v. KIPP V. MYERS, Third-Party Defendant. |
| Court | U.S. District Court — District of Utah |
Jason Gautreau (“Gautreau”) and Cristie North (“North”) were high-level employees at Graystone Funding Company, LLC (“Graystone”), a mortgage lending company. Gautreau and North subsequently left Graystone to join a different mortgage lending company Network Funding, L.P. (“NFLP”), and many of Gautreau and North's subordinates at Graystone followed them to NFLP. Graystone sued Gautreau, North, and NFLP (collectively, “Defendants”), alleging that Defendants misappropriated trade secrets, that Gautreau and North breached their fiduciary duty and duty of loyalty to Graystone, that NFLP induced such breaches, that Defendants engaged in a civil conspiracy, and that Gautreau and North tortiously interfered with business relationships. Graystone also brought a claim for “Injunction.”
Before the court is Defendants' motion for summary judgment. [ECF No. 78]. Defendants argue that they are entitled to summary judgment on all of Graystone's claims.
The court GRANTS IN PART and DENIES IN PART the motion for summary judgment. The court grants summary judgment in favor of Defendants on Graystone's tortious inference with business relationships and injunction claims. The court grants in part and denies in part summary judgment on Graystone's misappropriation of trade secrets and breach of fiduciary duties claims. Finally, the court denies summary judgment on Graystone's claims that NFLP induced Gautreau and North to breach their fiduciary duties to Graystone and that Defendants engaged in a civil conspiracy.
BACKGROUND[1]
In December 2018, Gautreau was Graystone's Executive Vice President of Production and, along with North, Co-Branch Manager of Graystone's Cottonwood branch, which was Graystone's flagship office, accounting for 47% of Graystone's revenue in 2018. As employees of Graystone Gautreau and North had signed an Employee Handbook, in which they agreed to ensure the protection of Graystone's confidential information and trade secrets and to not use or disclose any proprietary information except for the benefit of Graystone. Additionally, as high-level employees, Gautreau and North had access to confidential company information such as branch financials and employee compensation information, which was maintained in password-protected systems.
During December 2018, Gautreau and North began secret discussions with NFLP about potentially bringing Graystone's Cottonwood branch to NFLP. During these discussions, Gautreau shared Graystone financial information with NFLP, which he did not have permission to share. On January 14, 2019, Gautreau and North traveled to NFLP's headquarters in Houston, Texas, and met with NFLP executives, including its owner, president, and executive vice president.
In mid- to late-January 2019, Gautreau and North asked Kipp Myers (“Myers”), Graystone's President, CEO, and 90% owner, whether he was still interested in selling Graystone or merging Graystone with another company. Myers had then recently negotiated the sale of Graystone to Evergreen Home Loans (“Evergreen”), but Evergreen had called off the deal on November 21, 2018. Gautreau and North suggested that Myers speak with NFLP and, on February 3-4, 2019, Gautreau, North, and Myers traveled to NFLP's Houston office to meet with NFLP executives and discuss NFLP's potential acquisition of Graystone or a potential merger between Graystone and NFLP.
Following this meeting, Myers told Gautreau and North that neither he nor Graystone had any interest in NFLP. Accordingly, Myers's subsequent contact with NFLP was essentially limited to a pro forma that NFLP sent to Myers on March 10, 2019. The pro forma contained the proposed terms of Myers's employment with NFLP, and Myers ignored it. Gautreau and North, on the other hand, continued communicating with NFLP. Neither Myers nor Graystone was aware of these discussions, and neither Gautreau nor North had permission to share Graystone information with N F L P.
During these communications, Gautreau, North, and NFLP discussed offering employment at NFLP to current Graystone employees. In one email thread between North and NFLP on February 26, 2019, North-while on a Graystone-funded trip intended to reward the company's top producers-negotiated employment terms at NFLP for the top producer at Graystone's Cottonwood branch, who closed 26.5% of the branch's total loan volume in 2018. For other Graystone employees, Gautreau, North, and NFLP developed a system whereby Gautreau and North would send NFLP the employees' personal email addresses and compensation information so that NFLP could send the employees either applications for employment or offers of employment at NFLP. In at least some instances, NFLP emailed the offer letters directly to North, who subsequently forwarded them to the employees' personal email addresses. On March 29, 2019, North wrote to NFLP, “6 down 19 to go HA, ” and NFLP responded, North and NFLP also coordinated renting a space so that Graystone employees could be introduced to and trained by NFLP.
In other communications, some of which predated when Myers met with NFLP in Houston, Gautreau, North, and NFLP discussed establishing various loan products and programs at NFLP, such as the Utah Housing program. On February 22, 2019, Gautreau contacted a loan product provider on behalf of NFLP and asked the provider to send product information to NFLP. It was important for NFLP to have these products and programs in place since loan officers at the Cottonwood branch relied on them to conduct business, and, without such products and programs in place, Cottonwood employees may have been discouraged from following Gautreau and North to NFLP.
On April 8, 2019, Gautreau and North announced that they were resigning from Graystone and joining NFLP. North also informed Myers that she anticipated that most of the loan officers and staff within the Cottonwood branch would be leaving as well. Given the implications of potentially losing Graystone's flagship branch, Myers asked Gautreau and North whether the payment terms in the pro forma that he received from NFLP in March would still be available if Graystone merged or joined with NFLP. When Gautreau informed Myers that NFLP agreed to this, Graystone agreed to merge with NFLP.
On April 10, 2019, Myers held a company-wide meeting in which he announced that Graystone was merging with NFLP. Even though NFLP had not yet given Graystone an official merger offer-or even a letter of intent or memorandum of understanding-Graystone instructed its employees to work to make the merger “as seamless and as painless as possible for everyone, ” and Graystone shared with NFLP its employee payroll and benefits information, as well as information regarding its office leases and information technology. Graystone did not negotiate or require a confidentiality or non-disclosure agreement from NFLP, and none of the information that Graystone shared with NFLP was marked as confidential or subject to other means to protect its secrecy. In addition, although Graystone never shared any customer data with NFLP or affirmatively authorized loan officers to download customer data and take it to NFLP, Wendee Carter, Graystone's Vice President and 10% owner, authorized John Parker, a marketing assistant, to download and distribute customer data to at least one loan officer who was transitioning from Graystone to NFLP.
Then, on April 19, 2019, Myers called off the merger with NFLP. Myers was disappointed with the payment terms in the offer that he received from NFLP the previous day, and he did not believe that he could trust NFLP. But it was not until a month later, on May 20, 2019, that Graystone demanded that NFLP and former Graystone employees who joined NFLP return and destroy any Graystone information in their possession. During the period between the announced merger and May 20, 2019, approximately 50 former Graystone employees joined NFLP.
Based on the foregoing, Graystone sued Defendants, asserting seven causes of action: 1) that Defendants misappropriated trade secrets under both the federal Defend Trade Secrets Act (DTSA), 18 U.S.C. § 1836(b), and Utah Uniform Trade Secrets Act (UTSA), Utah Code § 13-24-1 et seq.; 2) that Gautreau and North breached their fiduciary duty to Graystone; 3) that Gautreau and North breached their duty of loyalty to Graystone; 4) that NFLP induced Gautreau and North to breach their fiduciary duty and duty of loyalty to Graystone; 5) that Defendants engaged in a civil conspiracy; 6) that Gautreau and North tortiously interfered with business relationships; and 7) a claim for injunction.
Defendants moved for summary judgment on all of Graystone's claims.
Summary judgment is appropriate when “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). The movant bears the initial burden of demonstrating the absence of a genuine dispute of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the movant has met this burden, the burden then shifts to the nonmoving party to “set forth specific facts showing that there is a genuine issue for trial.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986) (citation omitted). “A...
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