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Equity Prime Mortgage, LLC v. 1st Financial, Inc.

United States District Court, D. Maryland

February 22, 2019

1ST FINANCIAL, INC., et al., Defendants.



         THIS MATTER is before the Court on three Motions: Defendant 1st Financial, Inc.'s (“1st Financial”) Motion to Dismiss Plaintiff's Complaint (ECF No. 10); Defendants/Counter-Plaintiffs[1] Donna L. Case, Tiffany Coffman, Brandon Flohr, James Prince, Jared Vogt, and Tia Watkins' Motion for Leave to File Amended Answers and Assert Counterclaim (“Motion for Leave to Amend”) (ECF No. 17); and Movants Joseph Cammauf, Armen Manokian, and Ryan Terpay's (“Intervenors”) Motion to Intervene and Amend Counterclaim to Join Intervenor/Counter-Plaintiffs (“Motion to Intervene”) (ECF No. 18). This action arises from the departure of several of Plaintiff Equity Prime Mortgage, LLC's (“Equity”) employees to 1st Financial, a competing mortgage lender, in the summer of 2017. The Motions are ripe for disposition, and no hearing is necessary. See Local Rule 105.6 (D.Md. 2018). For the reasons outlined below, the Court will grant in part and deny in part 1st Financial's Motion to Dismiss, grant the Motion for Leave to Amend, and grant the Motion to Intervene.

         I. BACKGROUND[2]

         Equity is a Georgia-based mortgage lender. (Pl.'s Compl. [“Compl.”] ¶ 4, ECF No. 1). In May 2015, Equity hired Coffman as branch manager of its Baltimore, Maryland location. (Id. ¶ 16). In July 2016, Equity hired Prince as branch manager of its Crofton, Maryland location. (Id. ¶ 17). Coffman and Prince (collectively, the “Branch Managers”) hired Case, Brianna Fischer, Flohr, Kirsten Owens, Vogt, and Watkins as staff for their branch offices. (Id. ¶ 18).

         Coffman, Prince, Case, Fischer, Flohr, Owens, Vogt, and Watkins (collectively, the “Ex-Employees”) all signed an employment agreement (“Employment Agreement”) with Equity. (Id. ¶ 19; Compl. Ex. A [“Emp't Agmt.”], ECF No. 1-2).[3] The Employment Agreement provides that the Ex-Employees owe a duty of loyalty to Equity, specifically, that they “shall assist and work for only [Equity] and no other employer, lender, broker, or other entity.” (Compl. ¶ 20; Emp't Agmt. at 2). The Ex-Employees owed Equity a duty not to “[c]lose or arrange for the closing of any loan in the name of any person or entity other than [Equity], unless authorized in advance by [Equity].” (Emp't Agmt. at 3). By signing the Employment Agreement, the Ex-Employees also agreed that all loans they handled, and materials related to those loans, were the sole property of Equity. (Compl. ¶ 22; Emp't Agmt. at 5).

         Furthermore, the Employment Agreement prohibited the Ex-Employees from “attempt[ing] to move any pipeline loan[s] to any other person or entity following the end of employment.” (Compl. ¶ 23; Emp't Agmt. at 5). The Ex-Employees agreed to maintain the secrecy of confidential information, which includes Equity's internal personnel and financial information, as well as proprietary information provided to Equity by any actual customer, potential customer, or third party. (Compl. ¶ 24; Emp't Agmt. at 6). Upon termination, the Ex-Employees agreed to promptly deliver to Equity all of their work product, including confidential material. (Compl. ¶ 25; Emp't Agmt. 6-7). The Ex-Employees also agreed not to compete pursuant to the Employment Agreement's “No-Solicitation, ” “No-Hire, ” and “Re-Solicitation of Borrowers” clauses. (Compl. ¶ 28; Emp't Agmt. 7-8).

         In 2017, the Branch Managers began communicating with 1st Financial employees, agents, or officers. (Compl. ¶ 29). 1st Financial knew the Branch Managers and the other Ex-Employees owed Equity certain duties and obligations outlined in the Employment Agreement. (Id. ¶ 30). Nevertheless, the Branch Managers agreed with 1st Financial to subvert their contractual obligations and betray Equity, secretly working for 1st Financial while still acting as loyal Equity employees. (Id. ¶¶ 31-32). Specifically, the Branch Managers slowed the origination of residential mortgage loans at their branches, (id. ¶ 33); they “sat” on leads, developed them slowly, or refused to develop them at all, (id. ¶ 34); and they delayed, or “slow-rolled, ” the processing of mortgage loans so that the loans would not close and fund until after the Ex-Employees quit Equity and joined 1st Financial, (id. ¶ 35). This scheme impacted the branches' business results in September 2017: the Crofton branch processed a lower volume of loans than it had in any month since it opened, (id. ¶ 38), and the Baltimore branch similarly experienced a drastic decline in origination volumes, (id. ¶ 40).

         During the summer of 2017, Coffman, Prince, and Flohr met with other Equity employees, including Case, Fischer, Owens, Vogt, and Watkins, regarding the conspiracy. (Id. ¶ 53). Coffman, Prince, and Flohr presented the situation as a done deal, implying the branch office would be closing and the employees would lose their jobs. (Id. ¶ 54). Coffman, Prince and Flohr invited the employees to join them in their move to 1st Financial, so long as they also joined in the conspiracy against Equity. (Id.). The Ex-Employees all joined the conspiracy, agreeing to take Equity's leads, loans, and other property to 1st Financial. (Id. ¶ 55).

         The Ex-Employees all resigned from Equity between July 2017 and August 2017: Fischer resigned on July 31, 2017 and began working for 1st Financial “shortly thereafter, ” (id. ¶ 41-42); Owens and Watkins resigned on August 15, 2017 and began working for 1st Financial “shortly thereafter, ” (id. ¶¶ 43-46); and on August 31, 2017, Coffman, Prince, Case, Flohr, Vogt, and others resigned, (id. ¶ 47). The staggered resignations allowed some Ex-Employees to assist 1st Financial while the other Ex-Employees still had access to Equity's confidential materials and loan files. (Id.). The day before Coffman resigned, she scheduled internal company meetings for the days after she knew she was going to resign and join 1st Financial. (Id. ¶ 50). In the run-up to her resignation, Coffman and other Ex- Employees also bound Equity to “ruinously expensive, long-term real estate and other contracts.” (Id. ¶ 51). Meanwhile, 1st Financial, including its President, supported the Ex-Employees' steps to conceal their activities from Equity and prepared to accept the Ex-Employees and Equity property at 1st Financial. (Id. ¶¶ 58-60).

         Equity discovered it was missing loans and leads, laptops, and other confidential materials after the Ex-Employees resigned and contacted them as part of its investigation. (Id. ¶¶ 63-64). Coffman, Prince, and Flohr directed the other Ex-Employees not to cooperate with Equity's investigation. (Id. ¶ 65). The Ex-Employees realized Equity was aware of their activities and, therefore, knew that Equity was no longer obliged to pay them wages or commissions they would otherwise be owed. (Id. ¶ 66). Instead, 1st Financial made “hush money” payments to the Ex-Employees in those amounts. (Id. ¶¶ 67-68).

         Following a month of inquiries from Equity, Flohr, through his attorney, admitted that the Ex-Employees kept Equity laptops after leaving the company. (Id. ¶¶ 70-71; Compl. Ex. B [“Flohr Ltr.”], ECF No. 1-2). Flohr explained that Ex-Employees gave him their Equity laptops after Equity locked them out of the Equity offices. (Compl. ¶ 72; Flohr Ltr.). Flohr, through counsel, returned five missing laptops to Equity on October 25, 2017. (Compl. ¶¶ 72-75). Flohr stated that he never attempted to review the contents of the laptops, (Compl. ¶ 72; Flohr Ltr.), but Equity's examination of the laptops revealed someone used them after August 31, 2017 to access Equity's network, (Compl. ¶ 76). The Ex-Employees still have other confidential Equity materials, (id. ¶ 77), and Defendants continue to solicit Equity's current and prospective borrowers, (id. ¶ 78).

         On December 19, 2017, Equity filed suit against 1st Financial and the Ex-Employees. (ECF No. 1). In its six-Count Complaint, Equity alleges against all Defendants: fraud (Count I); violation of the Maryland Uniform Trade Secrets Act (“MUTSA”), Md. Code Ann., Com. Law [“CL”] §§ 11-1201, et seq. (West 2018) (Count II); breach of contract (Count III); tortious interference with a contract (Count IV); conversion (Count V); and unjust enrichment (Count VI). (Id. ¶¶ 80-108). Equity seeks compensatory, statutory, and punitive damages, as well as attorney's fees. (Id. at 25-26).

         On April 6, 2018, 1st Financial filed its Motion to Dismiss Plaintiff's Complaint.[4](ECF No. 10). On April 20, 2018, Equity filed an Opposition. (ECF No. 13). On May 4, 2018, 1st Financial filed a Reply. (ECF No. 16).

         On October 19, 2018, Defendants/Counter-Plaintiffs filed their Motion for Leave to Amend Answers and Assert Counterclaim, (ECF No. 17), and Intervenors filed their Motion to Intervene and Amend Counterclaim to Join Intervenor/Counter-Plaintiffs, (ECF No. 18). On November 2, 2018, Equity filed Oppositions. (ECF Nos. 19, 20). On November 16, 2018, Defendants/Counter-Plaintiffs and Intervenors filed a combined Reply. (ECF No. 21).


         A. Motion to Dismiss

         1. Standard of Review

         The purpose of a Rule 12(b)(6) motion is to “test[ ] the sufficiency of a complaint, ” not to “resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses.” King v. Rubenstein, 825 F.3d 206, 214 (4th Cir. 2016) (quoting Edwards v. City of Goldsboro, 178 F.3d 231, 243 (4th Cir. 1999)). A complaint fails to state a claim if it does not contain “a short and plain statement of the claim showing that the pleader is entitled to relief, ” Fed.R.Civ.P. 8(a)(2), or does not “state a claim to relief that is plausible on its face, ” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556). “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. (citing Twombly, 550 U.S. at 555). Though the plaintiff is not required to forecast evidence to prove the elements of the claim, the complaint must allege sufficient facts to establish each element. Goss v. Bank of America, N.A., 917 F.Supp.2d 445, 449 (D.Md. 2013) (quoting Walters v. McMahen, 684 F.3d 435, 439 (4th Cir. 2012)), aff'd sub nom., Goss v. Bank of America, NA, 546 Fed.Appx. 165 (4th Cir. 2013).

         In considering a Rule 12(b)(6) motion, a court must examine the complaint as a whole, consider the factual allegations in the complaint as true, and construe the factual allegations in the light most favorable to the plaintiff. Albright v. Oliver, 510 U.S. 266, 268 (1994); Lambeth v. Bd. of Comm'rs, 407 F.3d 266, 268 (4th Cir. 2005) (citing Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)). But, the court need not accept unsupported or conclusory factual allegations devoid of any reference to actual events, United Black Firefighters v. Hirst, 604 F.2d 844, 847 (4th Cir. 1979), or legal conclusions couched as factual allegations, Iqbal, 556 U.S. at 678.

         2. Analysis

         1st Financial argues that each Count of the Complaint against it should be dismissed for failure to state a claim.[5] The Court considers each Count in turn.

         a. Fraud

         1st Financial argues Equity does not plead its fraud claim with the particularity Rule 9(b) requires. The Court agrees.

         To plead a claim for deceit, also known as fraud, [6] a plaintiff must allege:

(1) “that the defendant made a false representation to plaintiff”;
(2) “that its falsity was either known to the defendant or that the misrepresentation was made with reckless indifference to its truth”;
(3) “that the misrepresentation was made for the purpose of defrauding the plaintiff”;
(4) “that the plaintiff relied on the misrepresentation and had the right to rely on it”; and
(5) “that the plaintiff suffered compensable injury resulting from the misrepresentation.”

Kantsevoy v. LumenR LLC, 301 F.Supp.3d 577, 601 (D.Md. 2018) (quoting Nails v. S & R, Inc., 639 A.2d 660, 668 (Md. 1994)).

         Rule 9(b) requires that “the circumstances constituting fraud” be stated “with particularity.” Those “circumstances” include the “time, place, and contents of the false representations, as well as the identity of the person making the misrepresentation and what was obtained thereby.” Ward v. Branch Banking & Tr. Co., No. ELH-13-01968, 2014 WL 2707768, at *6 (D.Md. June 13, 2014) (quoting United States ex rel. Owens v. First Kuwaiti Gen. Trading & Contracting Co., 612 F.3d 724, 731 (4th Cir. 2010)). Rule 9(b) permits “[m]alice, intent, knowledge, and other conditions of a person's mind [to] be alleged generally, ” however. A court should “hesitate” to dismiss a complaint under Rule 9(b) if the court is satisfied: (1) “that the defendant has been made aware of the particular circumstances for ...

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