Mortg. Specialists, Inc. v. Davey

• Decision Date: 26 July 2006
• Docket Number: No. 2005–067.,2005–067.
• Court: New Hampshire Supreme Court
• Parties: MORTGAGE SPECIALISTS, INC. v. Joseph C. DAVEY, IV and another.

153 N.H. 764

904 A.2d 652

MORTGAGE SPECIALISTS, INC.

v.Joseph C. DAVEY, IV and another.

No. 2005–067.

Supreme Court of New Hampshire.

Argued: March 9, 2006.

Opinion Issued: July 26, 2006.

Rehearing Denied Aug. 28, 2006.

Devine, Millimet & Branch, P.A., of Manchester (Alexander J. Walker, Jr. and Danielle L. Pacik on the brief, and Mr. Walker orally), and Shaheen & Gordon, P.A., of Concord (Arpiar G. Saunders, Jr. on the brief), for the plaintiff.

Sheehan Phinney Bass + Green, P.A., of Manchester (Christopher Cole and Robert R. Lucic on the brief, and Mr. Cole orally), for the defendants.

DALIANIS, J.

The plaintiff, Mortgage Specialists, Inc., appeals: (1) an order of the Superior Court (Morrill, J.) denying its motion to set aside the jury verdict on its claim for misappropriation of trade secrets, see RSA ch. 350–B (1995); and (2) a pretrial order of the Superior Court (Coffey, J.) dismissing its other claims. The defendants, Joseph C. Davey, IV, Team Mortgage, LLC, Steven Michael Carbone, and Signature Mortgage Group, LLC, cross-appeal a post-trial order of the Superior Court (Morrill, J.) assessing sanctions against them. We affirm in part, vacate in part, and remand.

I. Background

Mortgage Specialists is a mortgage brokerage and lending company with offices in Massachusetts and New Hampshire. Defendants Davey and Carbone worked as loan originators for Mortgage Specialists. In July 2002, both left Mortgage Specialists to work for a competitor, Mortgage Partners. When they left, each took with him copies of customer information retained in the course of his work. The most important piece of information was the customer's current interest rate, from which a competitor could learn whether refinancing would benefit the customer.

Davey and Carbone subsequently started their own mortgage businesses. Davey, who worked at Carteret Mortgage for a short time after leaving Mortgage Partners, is the owner of defendant Team Mortgage, LLC. Carbone is the owner of defendant Signature Mortgage Group, LLC. Since leaving Mortgage Specialists, Davey and Carbone have both closed loans, with their subsequent employers and with their own businesses, for customers with whom they had previously worked at Mortgage Specialists.

When Mortgage Specialists learned that Mortgage Partners had contacted its former customers, it initiated suit against Mortgage Partners for misappropriation of trade secrets. Davey and Carbone were both deposed in November 2002 in connection with that litigation, and both acknowledged that they had taken copies of customer information with them when they left Mortgage Specialists. Mortgage Specialists brought this suit in 2003, alleging a variety of claims and seeking injunctive relief and damages.

The trial court dismissed all of Mortgage Specialists' claims except for its claim that the defendants misappropriated its trade secrets. It also issued a preliminary injunction prohibiting the defendants from misappropriating or disclosing Mortgage Specialists' customer information and prohibiting them from contacting or communicating with any of Mortgage Specialists' current or former customers, with some limited exceptions.

A jury trial was held in September 2004 on the trade secrets claim. The jury returned a verdict in favor of the defendants. The trial court subsequently imposed sanctions upon the defendants for their conduct prior to and during trial.

II. The Trade Secrets Claim

Mortgage Specialists filed a motion to set aside the jury's verdict. It asserted that the jury's verdict was "against the great weight of the evidence presented at trial" and "[n]o reasonable jury could have reached the verdict it did in this case in the face of such overwhelming evidence." The trial court denied Mortgage Specialists' motion, finding that a reasonable jury could have concluded that the alleged confidential information underlying its claims was not a trade secret because "Mortgage Specialists' customer information was not subject to reasonable efforts to maintain its secrecy under the circumstances." See RSA 350–B:1, IV(b). We agree.

A reasonable jury could have found the following facts: Davey and Carbone began working as loan originators for Mortgage Specialists in 1999. Both were hired as independent contractors. Upon hiring, they were neither asked to sign a non-disclosure or confidentiality agreement, nor told that Mortgage Specialists' documents or customer information was confidential or constituted trade secrets. Despite a relatively high turnover among its loan originators and the tendency of loan originators to stay in the mortgage business after leaving Mortgage Specialists, throughout the time during which Davey and Carbone worked for Mortgage Specialists, the company had no written policy regarding confidentiality or document destruction and no employee handbook. Although Mortgage Specialists created a confidentiality and non-disclosure agreement by 1999, only some of its loan originators actually signed it between 1999 and 2001. Davey and Carbone deny having seen or heard about the agreement before July 2002, when Mortgage Specialists asked all of its loan originators to sign it. Neither Davey nor Carbone signed the agreement, and each terminated his relationship with Mortgage Specialists shortly thereafter. Prior to being presented with the agreement, neither Davey nor Carbone had been told that customer information belonged to Mortgage Specialists or that they were prohibited from copying or maintaining copies of customer information. Mortgage Specialists did not ask either Davey or Carbone to return or destroy customer information before leaving the company.

While Davey and Carbone were working at Mortgage Specialists, it collected and stored customer information and disseminated it to its employees and independent contractors in various formats. Lists of potential new customers and lists of potential repeat customers were distributed regularly to Mortgage Specialists' telemarketers. The lists of potential repeat customers were not marked as trade secrets or as confidential. Nevertheless, access to the lists of potential repeat customers, which contained information about each customer's loan amount, loan type, and interest rate, was restricted. Supervisors gave telemarketers only a limited number of pages from these lists during a given shift. The telemarketers were not permitted to photocopy the pages, and were required to return all pages of the list to the supervisor at the end of the shift. Davey and Carbone did not have access to these lists, and Mortgage Specialists has not alleged that they took copies of these lists when they left.

As telemarketers contacted individuals interested in doing business with Mortgage Specialists, including both new and repeat customers, the telemarketers created "lead sheets" to be passed on to loan originators such as Davey and Carbone. The lead sheets often included the name and phone number of the individual, and sometimes included the individual's current interest rate. The lead sheets were not marked as trade secrets or as confidential. Neither Davey nor Carbone was ever instructed to destroy the lead sheets or to return them to a particular individual or department.

As loan originators met with customers, the loan originators gathered all of the information needed to complete a standard residential loan application. Known as a Form 1003, the application consisted of several pages and required the applicant to disclose a great deal of personal information, including a social security number, detailed information regarding income, bank accounts, and credit history, and the interest rate on the existing mortgage. When meeting with a customer, Davey and Carbone both typically took notes on the back of the lead sheet and filled out the application by hand. The loan application was accompanied by a privacy policy disclosure, indicating that the customer's information would not be disclosed to third parties.

After the loan application was completed, the application package was returned to Mortgage Specialists for processing. Davey and Carbone often retained copies of the lead sheet or the first page of the application. Carbone testified that some loan originators retained this information so that they could keep in touch with the customer throughout the loan application process.

After the completed application was given to the loan processors at Mortgage Specialists, all application information was entered into Mortgage Specialists' computerized database, which could be accessed by the processors. While loans were in process, lists of all open loan applications were regularly generated from this database and distributed to all of Mortgage Specialists' loan originators. These lists, referred to as "pipeline reports," contained basic information about each customer's loan, including the customer's last name, the type of loan, and the interest rate.

The pipeline reports were not marked as trade secrets or as confidential. Loan originators were not instructed to destroy the pipeline reports or to return them to a particular individual or department.

After the loan was closed, the electronically-stored customer information was transferred into a password-protected database, accessible only by one of the owners and the office manager. If a loan originator needed access to an application after the loan was closed, he could obtain a computer printout of the application information from the individuals who had access to the database. The printout was not marked as a trade secret or as confidential, and loan originators were not instructed to return it or to refrain from copying it.

While Davey and Carbone were working at Mortgage Specialists, the hard copies of customers' closed loan files were stored in the attic of Mortgage Specialists' Plaistow office. Access to the attic was through an unlocked door and was not restricted. Davey and Carbone sometimes entered the attic and...