RE/MAX, LLC v. Quicken Loans Inc.
Filing
153
ORDER by Judge Philip A. Brimmer on 03/20/2018, re: 61 RE/MAX, LLC's and Motto Franchising, LLC's Motion to Dismiss Counterclaims is GRANTED in part and DENIED in part. ORDERED that Quicken Loans' sixth, seven th, eighth, and ninth counterclaims are DISMISSED pursuant to Fed. R. Civ. P. 12(b)(6). ORDERED that Quicken Loans' second counterclaim is dismissed pursuant to Fed. R. Civ. P. 12(b)(6) as barred by the economic loss rule insofar as it is based on representations made by RE/MAX that it could modify its websites. (sphil, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Philip A. Brimmer
Civil Action No. 16-cv-02357-PAB-MJW
RE/MAX, LLC,
Plaintiff,
v.
QUICKEN LOANS INC.,
Defendant,
v.
MOTTO FRANCHISING, LLC,
Third-party Defendant.
ORDER
This matter is before the Court on RE/MAX, LLC’S and Motto Franchising, LLC’s
Motion to Dismiss Counterclaims [Docket No. 61]. The Court has jurisdiction under 28
U.S.C. § 1332.
I. BACKGROUND1
Plaintiff RE/MAX, LLC (“RE/MAX”) is a real estate franchise company that has a
network of franchisee real estate agents. Docket No. 56 at 16, ¶ 11. Defendant
Quicken Loans Inc. (“Quicken Loans”) is a mortgage lender. Id. at 16-17, ¶ 12. In early
2014, RE/MAX and Quicken Loans entered into negotiations for a potential marketing
1
The following facts are taken from the answer and counterclaims and
presumed to be true for the purposes of this motion.
alliance. Id. at 17, ¶ 13. At that time, plaintiff and defendant executed a NonDisclosure Agreement (the “NDA”). Id. After further negotiations, on July 9, 2015,
RE/MAX and Quicken Loans executed a Strategic Marketing Alliance Agreement (the
“Agreement”), which took effect on October 15, 2015. Id., ¶ 15. The Agreement
required RE/MAX to provide marketing services to Quicken Loans in exchange for fees.
Id., ¶ 16 and at 19, ¶ 22; see also Docket No. 56-1 .
In September 2015, after Quicken Loans had a third party perform a valuation
analysis of the Agreement, Quicken Loans told RE/MAX that the Agreement was
overvalued. Docket No. 56 at 18, ¶¶ 18-19. 2 RE/MAX responded by making various
representations about the extent of marketing services it would provide under the
Agreement, such as statements about the number of unique monthly visitors to
RE/MAX’s website, and offered to provide additional services. Id. On November 10,
2015, the parties executed the First Amendment to Strategic Marketing Alliance
Agreement (the “Amendment”). Id. at 19, ¶ 23. The Amendment requires RE/MAX to
provide some of the additional marketing services it offered to provide, such as placing
Quicken Loans’ logos on RE/MAX’s websites. Docket No. 56-3 at 2, ¶¶ (j)-(k). Quicken
Loans claims that the representations that RE/MAX made before the parties signed the
Amendment were knowingly false and that RE/MAX knew that it could not provide the
additional services it offered. Docket No. 56 at 18-19, ¶¶ 20-21. Quicken Loans also
claims that, during the course of performance under the Agreement, it disclosed
2
Although not challenged by the motion to dismiss, one of Quicken Loans’
claims is that changes in the interpretation of the Real Estate Settlement Practices Act
meant that the valuation of the Agreement rendered the Agreement void. See Docket
No. 56 at 27, ¶¶ 53-56.
2
confidential information and trade secrets to RE/MAX, but that RE/MAX failed to
provide the marketing services required by the Agreement. Docket No. 56 at 20-21,
¶¶ 26, 30. RE/MAX sent invoices to Quicken Loans for services provided under the
Agreement and Quicken Loans paid these invoices through the April 2016 invoice. Id.
at 6-7, ¶ 15. On September 2, 2016, RE/MAX sent a letter to Quicken Loans stating
that it was in default under the Agreement for failing to pay invoices. Id. at 7, ¶ 16.
Two parallel lawsuits followed. On September 7, 2016, Quicken Loans filed a
complaint against RE/MAX in the United States District Court for the Eastern District of
Michigan. Quicken Loans Inc. v. RE/MAX, LLC, No. 2:16-cv-13233-DML-RSW, Docket
No. 1 (E.D. Mich. Sept. 7, 2016). Twelve days later, RE/MAX filed this case. Docket
No. 1. Both parties accuse the other of breaching the Agreement. RE/MAX alleges
that Quicken Loans failed to pay amounts due under the Agreement. Docket No. 45 at
9, ¶ 29. Quicken Loans alleges that RE/MAX failed to provide services as required
under the Agreement. Docket No. 56 at 29, ¶ 75.
On October 25, 2016, RE/MAX launched Motto Mortgage, LLC (“Motto”) as a
new venture; Motto is a wholly-owned subsidiary of RE/MAX. Docket No. 56 at 15, ¶ 7
and at 24, ¶ 41. Motto is a mortgage provider that provides services similar to those
provided by Quicken Loans. See id. at 24-26, ¶¶ 42, 45. Quicken Loans nam ed Motto
as a third-party defendant in its counterclaims. Id. at 14-15, ¶ 3. Quicken Loans
alleges that individuals who received Quicken Loans’ confidential information and trade
secrets while working at RE/MAX became executives at Motto and that RE/MAX used
Quicken Loans’ trade secrets in starting up Motto’s operations. Id. at 25-27, ¶¶ 43, 49.
3
On October 31, 2016, the Eastern District of Michigan transferred its case to this
district pursuant to a mandatary forum selection clause in the Agreement. Quicken
Loans Inc. v. RE/MAX, LLC, No. 16-cv-02696-PAB-NYW, Docket Nos. 1, 17 (the
“transferred case”). On February 2, 2017, Quicken Loans filed a motion to amend its
complaint in the transferred case, seeking to add claims for breach of the NDA against
RE/MAX, misappropriation of trade secrets against RE/MAX, tortious interference with a
contract against Motto, and misappropriation of trade secrets against Motto. Id., Docket
No. 37. On April 10, 2017, Magistrate Judge Nina Y. Wang recommended that the
motion to amend be granted in part and denied in part. Id., Docket No. 44 at 17-18.
Specifically, she recommended that Quicken Loans be permitted to add a claim for
breach of the NDA, but that the motion to amend be denied with respect to the other
claims. Id.
On May 2, 2017, the Court entered an order denying a motion to dismiss this
case filed by Quicken Loans and denying a motion for consolidation filed by RE/MAX.
Docket No. 53. Instead, the Court administratively closed the transferred case.
Quicken Loans Inc. v. RE/MAX, LLC, No. 16-cv-02696-PAB-NYW, Docket No. 47. The
Court acknowledged Judge Wang’s recommendation on Quicken Loans’ motion to
amend in the transferred case, but did not rule on the motion to amend. Docket No. 53
at 2 n.1.
On May 16, 2017, Quicken Loans filed its answer and counterclaims. Docket
No. 56. Quicken Loans’ counterclaims consist of the same nine claims that it sought to
bring in the transferred case through its motion to amend, but with some added
4
allegations about its trade secrets. Compare Docket No. 56 at 14-33 with Quicken
Loans Inc. v. RE/MAX, LLC, No. 16-cv-02696-PAB-NYW, Docket No. 37-1 at 2-18. On
June 6, 2017, RE/MAX and Motto (collectively, “movants”) filed the present motion to
dismiss. Docket No. 61. They seek to dismiss Quicken Loans’ second counterclaim,
for fraudulent inducement of the Amendment, as well as Quicken Loans’ sixth, seventh,
eighth, and ninth counterclaims, which are the same as the four claims that Quicken
Loans sought to add in the transferred case through its motion to amend. Id. at 3.
II. STANDARD OF REVIEW
Movants challenge the above-mentioned counterclaims for failure to state a
claim under Fed. R. Civ. P. 12(b)(6). “The court’s function on a Rule 12(b)(6) motion is
not to weigh potential evidence that the parties might present at trial, but to assess
whether the plaintiff’s complaint alone is legally sufficient to state a claim for which relief
may be granted.” Dubbs v. Head Start, Inc., 336 F.3d 1194, 1201 (10th Cir. 2003)
(quoting Sutton v. Utah St. Sch. for the Deaf & Blind, 173 F.3d 1226, 1236 (10th Cir.
1999)). In doing so, the Court “must accept all the well-pleaded allegations of the
complaint as true and must construe them in the light most favorable to the plaintiff.”
Alvarado v. KOB-TV, LLC, 493 F.3d 1210, 1215 (10th Cir. 2007). At the sam e time,
however, a court need not accept conclusory allegations. Moffett v. Halliburton Energy
Servs., Inc., 291 F.3d 1227, 1232 (10th Cir. 2002).
Generally, “[s]pecific facts are not necessary; the statement need only ‘give the
defendant fair notice of what the claim is and the grounds upon which it rests.’”
Erickson v. Pardus, 551 U.S. 89, 93 (2007) (per curiam) (quoting Bell Atlantic Corp. v.
5
Twombly, 550 U.S. 544, 555 (2007)) (omission marks omitted). “A claim has facial
plausibility when the plaintiff pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft
v. Iqbal, 556 U.S. 662, 678 (2009). The “plausibility” standard requires that relief must
plausibly follow from the facts alleged, not that the facts themselves be plausible.
Bryson v. Gonzales, 534 F.3d 1282, 1286 (10th Cir. 2008). Nonetheless, “w here the
well-pleaded facts do not permit the court to infer more than the mere possibility of
misconduct, the complaint has alleged – but it has not shown – that the pleader is
entitled to relief.” Iqbal, 556 U.S. at 679 (internal quotation marks and alteration marks
omitted). Thus, even though modern rules of pleading are somewhat forgiving, “a
complaint still must contain either direct or inferential allegations respecting all the
material elements necessary to sustain a recovery under some viable legal theory.”
Bryson, 534 F.3d at 1286 (alteration marks omitted).
III. ANALYSIS
A. Fraudulent Inducement Against RE/MAX
Movants argue that Quicken Loans’ fraudulent inducement claim must be
dismissed for three reasons: (1) due to the economic loss doctrine, (2) because
Quicken Loans does not allege damages resulting from the alleged misrepresentations
inducing the Amendment, and (3) because of the integration clause in the Agreement.
Docket No. 61 at 4-7.
6
1. Economic Loss Doctrine
“Under the economic loss doctrine, ‘a party suffering only economic loss from
the breach of an express or implied contractual duty may not assert a tort claim for such
a breach absent an independent duty of care under tort law.’” Spring Creek Expl. &
Prod. Co., LLC v. Hess Bakken Investments II, LLC, --- F.3d ----, No. 17-1010, 2018
WL 989586, at *10 (10th Cir. Feb. 21, 2018) (quoting Town of Alma v. AZCO Constr.,
Inc., 10 P.3d 1256, 1264 (Colo. 2000)). 3 Courts must initially identify “the source of the
duties of the parties.” Town of Alma, 10 P.3d at 1262. “Tort obligations generally arise
from duties imposed by law,” while “[i]n contrast, contract obligations arise from
promises made between parties.” Id. (“‘A breach of a duty which arises under the
provisions of a contract between the parties must be redressed under contract, and a
tort action will not lie.’” (quoting Tommy L. Griffin Plumbing & Heating Co. v. Jordan,
Jones & Goulding, Inc., 463 S.E.2d 85, 88 (S.C. 1995))). 4 As the Colorado Supreme
Court made clear, the focus should not be on the nature of the loss, i.e., whether it is
economic, but rather on the source of the duty. Id. at 1262 n.8 (“[W]e believe that a
more accurate designation of what is commonly termed the ‘economic loss rule’ would
3
The Colorado Supreme Court has identified “three main policy reasons” that
support the application of the rule “between and among commercial parties . . .: (1) to
maintain a distinction between contract and tort law; (2) to enforce expectancy interests
of the parties so that they can reliably allocate risks and costs during their bargaining;
and (3) to encourage the parties to build the cost considerations into the contract
because they will not be able to recover economic damages in tort.” BRW, Inc. v.
Dufficy & Sons, Inc., 99 P.3d 66, 72 (Colo. 2004).
4
See Hamon Contractors, Inc. v. Carter & Burgess, Inc., 229 P.3d 282, 291
(Colo. App. 2009) (“The court in [Town of Alma] did not draw any bright lines among
types of torts (e.g., fraud, negligence) that are always barred by the economic loss rule,
those that may be barred, and those that are never barred.”).
7
be the ‘independent duty rule.’”). In order to avoid the application of the economic loss
rule, one must not only identify an independent duty, but must also assert a tort claim
based on that independent duty.
Quicken Loans claims that its fraudulent inducement claim is not barred by the
economic loss rule because the “fraudulent representations that RE/MAX made to
Quicken Loans were separate from the Agreement and Amendment [and] were not
memorialized in the Amendment.” Docket No. 71 at 12. 5 The Court agrees in part.
Under Colorado law “[i]t is well established that in some circumstances a claim of
negligent misrepresentation based on principles of tort law, independent of any
principle of contract law, may be available to a party to a contract.” Keller v. A.O. Smith
Harvestore Prod., Inc., 819 P.2d 69, 72 (Colo. 1991) (citations omitted). This same
principle applies to fraudulent misrepresentations. See id. (citing Formento v. Encanto
Bus. Park, 744 P.2d 22, 26 (Ariz. App. 1987)). Accordingly, a party’s
“misrepresentation of material facts prior to the execution of an agreement may provide
the basis for an independent tort claim.” Id.6 Movants note similarities in language
5
Quicken Loans also argues that it “incurred non-economic damages as a result
of the misrepresentations.” Docket No. 71 at 12. Quicken Loans does not identif y any
non-economic loss it suffered as a result of RE/MAX’s alleged fraud. Instead, Quicken
Loans claims it suffered “‘damages stemming from the lost time, energy, and effort
expended by its team members.’” Docket No. 71 at 14 (quoting Docket No. 56 at 28,
¶ 64). Such damages are economic damages. See Coverstar, Inc. v. Cooley, Inc.,
2006 WL 1579620, at *6 (D. Utah June 1, 2006) (f inding a claim for labor costs sought
“purely economic losses”); Town of Alma, 10 P.3d at 1264 (“Economic loss is defined
generally as damages other than physical harm to persons or property.”).
6
While movants argue that the alleged misrepresentations all occurred after the
Agreement was signed, and are therefore barred by the economic loss rule, Docket No.
61 at 4, Quicken Loans’ claim is premised, instead, on fraudulent inducement of the
Amendment. Docket No. 56 at 28, ¶ 62.
8
between Quicken Loans’ breach of contract claim and its fraudulent inducement claim,
but these similarities do not necessarily show that the two claims arise from the same
duty. See Docket No. 61 at 5-6. As the Colorado Supreme Court noted,
misrepresentation claims are “based not on principles of contractual obligation but on
principles of duty and reasonable conduct.” Keller, 819 P.2d at 73 (citing Cosmopolitan
Homes, Inc. v. Weller, 663 P.2d 1041, 1043 (Colo. 1983)). T hus, a party’s obligations
not to use misrepresentations to induce a contract are independent of the party’s
obligations under the resulting contract. Id.; Van Rees v. Unleaded Software, Inc., 373
P.3d 603, 605 (Colo. 2016) (“[P]re-contractual misrepresentations are distinct from the
contract itself, and may form the basis of an independent tort claim.” (citing Keller, 819
P.2d at 72)). However, “the purpose of the economic loss rule is to, among other
things, allow the parties to ‘reliably allocate risks and costs during their bargaining [and]
encourage the parties to build the cost considerations into the contract because they
will not be able to recover economic damages in tort.’” Pernick v. Computershare Tr.
Co., Inc., 136 F. Supp. 3d 1247, 1270 (D. Colo. 2015) (q uoting BRW, Inc., 99 P.3d at
72). Thus, to the extent that Quicken Loans alleges misrepresentations by RE/MAX
that are memorialized in the Agreement or Amendment, the parties allocated risk with
respect to those obligations by contract, and tort claims based on those obligations are
barred by the economic loss rule. See BRW, Inc., 99 P.3d at 72 (discussing Rissler &
McMurry Co. v. Sheridan Area Water Supply Joint Powers Bd., 929 P.2d 1228 (Wyo.
1996)).
9
Quicken Loans alleges four misrepresentations by RE/MAX:
(1) misrepresenting to Mr. Latka, on September 22, 2015, that there would
be 4.25 million unique visitors per month to the remax.com homepage,
which would display Quicken Loans’ logo; (2) Mike Ryan (Executive Vice
President of RE/MAX) intentionally concealing RE/MAX’s inability to
provide its marketing services in certain independently-owned and
operated regions when describing web presence and internet traffic with
Mr. Latka, on September 22, 2015 and again during early October 2015,
making those representations regarding value, activity levels, and scope
of its services false; (3) Mr. Ryan falsely representing to Mr. Latka, several
times, including on September 22, 2015, that Quicken Loans’ links or
logos would be embedded on each property listing webpage (both
desktop and mobile-accessed websites) while concealing the fact that
RE/MAX did not have the authority or access to provide such marketing
services; and (4) Mr. Ryan misrepresenting to Mr. Latka on or about
September 22, 2015 that the remax.com site generated over one million
direct customer leads to RE/MAX agents (which would include a checkbox for more information regarding a loan with Quicken Loans); yet Mr.
Ryan knew, when making these false representations, that the sites
generated only a fraction of that number of leads (no more than 360,000
leads), and that many of those dramatically reduced leads are actually
bogus, automated inquiries (collectively, the “Representations”).
Docket No. 56 at 18-19, ¶ 21. 7
RE/MAX does not identify any obligation under the Agreement or Amendment
that reflects the first, second, and fourth representations, which concern the number of
unique visitors to RE/MAX’s websites per month and the number of leads generated.
See Docket No. 56 at 18-19, ¶¶ 19, 21. These representations, to the extent they were
false, would have misled Quicken Loans regarding the value of the services RE/MAX
was obligated to provide under the Agreement and Amendment, but not about
RE/MAX’s duties under the contracts. Thus, the source of the duty with respect to
7
Although the counterclaims state that the representations are alleged “[b]y way
of example,” Docket No. 56 at 18-19, ¶ 21, Quicken Loans’ brief ing does not indicate
that it intends to rely on any other representations. See Docket No. 71 at 13.
10
these representations is RE/MAX’s independent duty not to make misrepresentations to
induce the signing of a contract. Keller, 819 P.2d at 73. Accordingly, the Court finds
that Quicken Loans’ claim is not barred by the economic loss rule insofar as it is based
on those alleged misrepresentations. See id. at 72.
On the other hand, the third representation, which concerns RE/MAX’s ability to
provide certain marketing services through its websites, has parallel obligations in the
parties’ contracts. In particular, the Amendment obligates RE/MAX to modify its mobile
site in ways that it had previously agreed to modify its desktop site in the Agreement,
Docket No. 56-3 at 2, ¶ j, and to make a “[g]ood faith effort” to modify the remax.com
website and RE/MAX mobile app in four specified ways. Docket No. 56-3 at 2, ¶ m.912. Thus, after the third alleged representation was made, the parties negotiated and
memorialized obligations related to the third representation as part of the Amendment;
in particular, RE/MAX obligated itself to provide certain additional marketing services.
Docket No. 56-3 at 2. The Agreement and Amendment are thereby the source of any
“duty to act to avoid injury” that RE/MAX has to provide such services. See Town of
Alma, 10 P.3d at 1264 (internal quotation marks omitted). To the extent that RE/MAX
failed its obligations under the Amendment, whether because it was unable to perform
them or otherwise, it may be liable for breach of contract for failing to meet its
contractual obligations. But Quicken Loans’ fraudulent inducement claim goes beyond
the services RE/MAX ultimately contracted to provide. It seeks to hold RE/MAX liable
for being incapable of providing services that RE/MAX allegedly knew it could not
provide when the third representation was made. Docket No. 56 at 28, ¶ 59-60. To the
extent that, through the Amendment, RE/MAX did not obligate itself to provide such
11
services, the economic loss rule bars Quicken Loans’ claim. This application of the
economic loss doctrine “holds the parties to the terms of their bargain, enforces their
expectancy interests, and maintains the boundary between contract and tort law.”
BRW, Inc., 99 P.3d at 72. Accordingly, the Court finds that Quicken Loans’ second
counterclaim is barred by the economic loss rule insofar as it is predicated on the third
representation.
2. Damages
Movants argue that the Amendment imposed no new obligations on Quicken
Loans and therefore it cannot support a fraud claim. Docket No. 61 at 6 (citing J.A.
Walker Co. v. Cambria Corp., 159 P.3d 126, 132 (Colo. 2007) (Hobbs, J., dissenting )).
This argument ignores Quicken Loans’ allegation that the Amendment, and the process
leading up to it, led Quicken Loans to continue incurring costs that it would have
otherwise avoided, thereby resulting in damages. Docket No. 56 at 28, ¶ 64. Movants
do not argue that this damages theory is not viable. See Docket No. 77 at 3.
3. Integration Clause
Movants argue that the fraud claim must be dismissed because of the integration
clause in the Agreement. Docket No. 61 at 7. Under Colorado law, general integration
clauses do not bar claims based on misrepresentations related to contracts. Keller, 819
P.2d at 73. The integration clause in the Agreement is generic and does not
specifically preclude misrepresentation claims. Docket No. 56-1 at 16-17, ¶ 12.7.
Movants cite Student Mktg. Grp., Inc. v. Coll. P’ship, Inc., 247 F. App’x 90, 100 (10th
Cir. 2007) (unpublished), but that case is inapposite because the contract in that case
12
contained a refund provision that could be exercised in the event the performance
representations were not met, which has no analogue in this case. The Court finds that
the general integration clause in the Agreement does not bar Quicken Loans’ fraud
claims and will allow Quicken Loans’ second claim to proceed.
B. Breach of the NDA Against RE/MAX
Under Colorado law, a breach of contract claim has four elements: “(1) the
existence of a contract; (2) performance by the plaintiff or some justification for
nonperformance; (3) failure to perform the contract by the defendant; and (4) resulting
damages to the plaintiff.” Western Distributing Co. v. Diodosio, 841 P.2d 1053, 1058
(Colo. 1992) (citations omitted). Quicken Loans alleges that RE/MAX breached the
NDA by disclosing information obtained pursuant to the NDA to Motto to “facilitate the
development and launch of its competing mortgage origination business.” Docket No.
56 at 30, ¶ 80.
In the transferred case, Judge Wang found that Quicken Loans stated a claim for
breach of the NDA, but acknowledged that Quicken Loans’ allegations were limited:
To be certain, Quicken Loans’s proposed claim for breach of the NDA
would benefit from additional factual allegations. But at this juncture, the
Plaintiff need only meet the pleading requirements of Rule 8(a); there is
no heightened pleading standard that applies to a breach of a NDA.
Plaintiff identifies the NDA, see [#37-1 at 36], identifies certain categories
of confidential information accessed by RE/MAX, [id. at ¶ 28], identifies
the manner in which RE/MAX breached the NDA, i.e., RE/MAX failed to
comply with the terms of the Agreement by using the information for a
purpose that was not permitted by the Agreement, see [#37-1 at ¶¶ 35,
66], and states a plausible way in which it was damaged, including that it
lost proprietary information to a potential competitor. [#37-1 at ¶¶ 33-34,
68]. See Viesti Associates, Inc., 2013 WL 1229534, at *4 (finding that
plaintiff “has identified works allegedly infringed, the manners in which the
licenses were allegedly breached, and the plausible ways in which it was
damaged,” and thus plaintiff’s “complaint meets the threshold required
13
under notice pleading.”). See also Iqbal, 556 U.S. at 678 (“A claim has
facial plausibility when the plaintiff pleads factual content that allows the
court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.”). Drawing all inferences in favor of Quicken Loans,
the limited facts pled are sufficient to nudge the claim for breach of the
NDA against RE/MAX . . . over the line from speculative to plausible.
Quicken Loans Inc. v. RE/MAX, LLC, No. 16-cv-02696-PAB-NYW, Docket No. 44 at 1011.
Movants argue that Quicken Loans’ allegations are deficient because Quicken
Loans “does not provide any allegations indicating that Motto has used Quicken Loans’
confidential information, or even suggesting how Quicken Loans believes Motto is using
its confidential information.” Docket No. 61 at 8-9. The Court agrees. Quicken Loans’
allegations of harm from the alleged improper disclosure of its confidential information
are conclusory. See Bestop, Inc. v. Tuffy Sec. Prod., Inc., 2014 WL 172299, at *8 (E.D.
Mich. Jan. 15, 2014) (dismissing a claim for breach of a confidentiality agreement
based on finding that allegations that confidential information was used to create a new
product were conclusory). Quicken Loans simply states that, “[u]pon information and
belief, RE/MAX used and shared confidential information it obtained about Quicken
Loans’ confidential, proprietary, and trade secret processes and marketing strategies
through the negotiation and implementation of the Agreement to develop, launch, and
operate Motto Mortgage.” Docket No. 56 at 26-27, ¶ 49. W hile Quicken Loans alleges
various reasons to suspect RE/MAX was economically motivated to use Quicken
Loans’ confidential information for such a purpose, see, e.g., id. at 26, ¶ 47, Quicken
Loans does not allege any facts tending to show that it actually did use such
information. See Fuentes-Fernandez & Co., PSC v. The Corvus Grp., Inc., 174 F.
14
Supp. 3d 378, 390 (D.D.C. 2016) (dismissing claim for a breach of a confidentiality
agreement where the complaint contain allegations as to why the defendant would have
been motivated to use the confidential information, but did “not offer any facts from
which one could draw the inference that it was used”). In particular, Quicken Loans
does not allege anything about Motto’s operations that suggest it uses Quicken Loans’
confidential business process information. The only similarities that Quicken Loans
alleges between its operations and Motto’s are the superf icial similarity that Motto is in
the same industry and the irrelevant claim that Motto “copied Quicken Loans’ slogan,”
which is not confidential. Docket No. 56 at 25, ¶ 44. Because Quicken Loans does not
allege facts leading to a plausible inference that it was harmed through use of its
confidential information, the Court finds that Quicken Loans’ sixth counterclaim fails to
state a claim and will dismiss it.
C. Misappropriation of Trade Secrets
In order to state a claim for misappropriation of trade secrets, Quicken Loans
must allege facts supporting the following elements: (1) Quicken Loans possessed a
valid trade secret; (2) the trade secret was disclosed or used without consent; and (3)
the counterclaim defendant knew, or should have known, that the trade secret was
acquired by improper means. Gates Rubber Co. v. Bando Chemical Industries, Ltd., 9
F.3d 823, 847 (10th Cir. 1993) (citing Colorado Uniform Trade Secrets Act, Colo. Rev.
Stat. § 7-74-101 et seq.). The Colorado Uniform Trade Secrets Act defines a “trade
secret” as:
any scientific or technical information, design, process, procedure,
formula, improvement, confidential business or financial information,
listing of names, addresses, or telephone numbers, or other information
15
relating to any business or profession which is secret and of value. To be
a “trade secret” the owner thereof must have taken measures to prevent
the secret from becoming available to persons other than those selected
by the owner to have access thereto for limited purposes.
Colo. Rev. Stat. § 7-74-102(4).
Quicken Loans brings counterclaims for trade secret misappropriation against
both RE/MAX and Motto. Docket No. 56 at 30-33. Based on Quicken Loans’
allegations in the transferred case, Judge Wang found that Quicken Loans did not state
a claim for trade secret misappropriation:
Quicken Loans alleges that it disclosed to RE/MAX, “confidential,
proprietary, and trade secret” information regarding its marketing
strategies, compliance policies, and loan origination practices. [#37-1 at
¶ 28]. But it alleges no facts, taken as true, that allow the court to provide
sufficient notice to Defendant as to what subset of “confidential”
information constitutes the “trade secrets,” or whether all the information is
both “confidential” and “trade secret.” Nor does Plaintiff aver facts to allow
the court to conclude that the alleged “trade secrets” meet the statutory
definition. For instance, Quicken Loans generally avers that it “took
measures to prevent [the information] from becoming available to persons
other than those [whom Plaintiff] selected,” [#37-1 at ¶¶ 71-72], but that
allegation merely mirrors the statutory language. Quicken Loans does not
allege facts that lead the court to that conclusion. See generally [#37-1].
Plaintiff does not allege that it required its own employees with access to
the trade secrets to enter non-disclosure agreements. Id. It does not
allege that it separated its trade secrets from other confidential
information. Id. And Plaintiff does not allege that it subjected the
separated trade secrets to heightened protection. Id. Finally, Quicken
Loans fails to aver facts to support the conclusion that it allowed
authorized individuals to access its “trade secrets” only for “a limited
purpose.” Id.
Quicken Loans Inc. v. RE/MAX, LLC, No. 16-cv-02696-PAB-NYW, Docket No. 44 at 1213.
In this case, Quicken Loans added allegations regarding its trade secrets that did
not appear in the transferred case. These additional allegations address some of
16
Judge Wang’s findings by describing two alleged trade secrets with more particularity.
First, Quicken Loans has alleged that it disclosed its “unique technology that could
identify any lead generated by a RE/MAX agent or the remax.com website[,] how that
lead could be directed from the RE/MAX agent or the remax.com website to Quicken
Loans[,] and how to secure customized information about that homebuyer’s location
and needs.” Docket No. 56 at 21-22, ¶ 31. Second, Quicken Loans has alleg ed that it
disclosed “how its automation and business processes could enable Quicken Loans to
resurrect ‘cold’ leads from RE/MAX agents and return potential homebuyers to RE/MAX
agents while also prequalifying them for mortgage loans, thus making their home
buying process quicker and more efficient.” Id. at 22, ¶ 33. Quicken Loans also added
allegations related to the security precautions it uses to protect its alleged trade secrets.
Id. at 23-24, ¶ 38.
Movants argue that Quicken Loans’ allegations are insufficient because “Quicken
Loans failed to even identify what information it believes RE/MAX misappropriated, as
opposed to simply describing all the allegedly trade secret information to which
RE/MAX had access.” Docket No. 61 at 11. The Court rejects this argument. The
Court finds that Quicken Loans’ allegations plausibly allege that trade secret
information was passed to RE/MAX. Moreover, Quicken Loans’ additional allegations
are sufficient to identify the nature of the trade secrets allegedly misappropriated. See
SBM Site Servs., LLC v. Garrett, No. 10-cv-00385-WJM-BNB, 2012 WL 628619, at *10
(D. Colo. Feb. 27, 2012) (explaining that there is no heightened pleading standard for
trade secret claims).
17
Movants argue that Quicken Loans fails to plausibly allege that RE/MAX and
Motto obtained trade secrets by improper means through misrepresentations. Docket
No. 61 at 11-12. In particular, movants argue the counterclaims contain no allegations
about when Quicken Loans disclosed trade secrets and theref ore there is no basis to
infer that trade secrets were disclosed as a result of misrepresentations. Id. Quicken
Loans does not respond to this argument. See Docket No. 71 at 8-10. The Court
agrees with movants that Quicken Loans’ failure to allege that it disclosed trade secrets
after RE/MAX made misrepresentations is fatal to its claim with respect to RE/MAX.
Given that the NDA and Agreement provide a valid basis for RE/MAX to possess
Quicken Loans’ trade secrets, unless the trade secrets were disclosed after the alleged
misrepresentations were made, RE/MAX would have had no reason to know that the
trade secrets were acquired by improper means, an essential element of the claim.
See Gates Rubber Co., 9 F.3d at 847. Accordingly, the Court will dismiss Quicken
Loans’ seventh counterclaim against RE/MAX for failing to state a claim.
With respect to Motto, movants argue that Motto’s employment of individuals
who had access to Quicken Loans’ trade secret inf ormation is not enough to state a
claim. Docket No. 61 at 12 (citing Ciena Commc’ns, Inc. v. Nachazel, No. 09-cv-02845MSK-MJW, 2010 WL 3489915, at *4 (D. Colo. Aug. 31, 2010) (“Ciena”)). Further, as
with the breach of NDA claim discussed above, movants argue that Quicken Loans’
allegations that its trade secrets were misappropriated and used are conclusory.
Docket No. 61 at 10-11. Quicken Loans argues that this case is distinguishable from
Ciena because the “same employees who were working with Quicken Loans’ trade
18
secret information. . . were set up as the senior executives in a brand new competitor,
with timing so close that they would have had to be working on the two projects
simultaneously.” Docket No. 71 at 10. 8 Quicken Loans further argues that it has
alleged the difficulties that movants would have faced starting a mortgage business
without using its trade secret information. Id.
In Ciena, a defendant hired the plaintiff’s former employee who had access to
trade secrets related to the plaintiff’s business strategies. 2010 WL 3489915, at *4.
The Court found that the defendant’s employment of plaintiff’s former employee was
not enough to show misappropriation because it did not show that the employer
misappropriated the trade secrets. Id. The court rejected the proposition that
Colorado’s Uniform Trade Secrets Act “impos[es] strict liability on a corporation that
hires a person possessing others’ trade secrets” and found that, without “specific
factual averments” of disclosure or use, the Court could not impute the employee’s
acquisition of trade secrets to his new employer. Id. As movants argue, Quicken
Loans’ counterclaims lack any specific factual allegations of disclosure of trade secrets
to Motto by RE/MAX’s former employees and also lack any specific factual allegations
of how such employees used Quicken Loans’ trade secrets at Motto. 9 Quicken Loans
8
Quicken Loans does not specifically allege that any of the individuals were
working on implementing the Agreement and starting Motto at the same time. See,
e.g., Docket No. 56 at 24, ¶ 39. As discussed below, Quicken Loans does not dispute
that the Agreement was terminated before Motto was formed. See id. at 24, ¶ 41 n.1
(“Motto Mortgage had registered as a limited liability company in the state of Delaware
on August 26, 2016, just weeks after Quicken Loans sent its notice of default to
RE/MAX and days before Quicken Loans filed its lawsuit.”).
9
Quicken Loans does not argue so-called “inevitable disclosure” and, in any
event, does not allege sufficient facts to support an inference that Motto’s employees
19
simply alleges in conclusory fashion that Motto “used Quicken Loans’ conf idential
information (including its trade secrets) to launch its operations.” Docket No. 56 at 27,
¶ 50. Moreover, as the Court found in the context of Quicken Loans’ breach of NDA
claim, Quicken Loans’ allegations that Motto would have had a reason to use its trade
secret information is insufficient to state a claim that it actually did so. See Ciena, 2010
WL 3489915, at *4 (finding that allegations that the defendant would benefit from “using
and exploiting” trade secrets were conclusory and insufficient). Therefore, the Court will
also dismiss Quicken Loans’ ninth counterclaim for misappropriation of trade secrets
against Motto.
D. Tortious Interference with a Contract Against Motto
In order to state a claim against Motto for tortious interference with a contract,
Quicken must allege facts showing: (1) a contract existed, (2) Motto knew of the
contract, (3) Motto induced RE/MAX to breach the contract, and (4) Quicken Loans was
injured as a result of the breach. Nobody in Particular Presents, Inc. v. Clear Channel
Commc’ns, Inc., 311 F. Supp. 2d 1048, 1115 (D. Colo. 2004).
In the transferred case, Judge Wang found that Quicken failed to allege
facts showing that
Motto, as the creation of RE/MAX, independently and intentionally
interfered with third-party RE/MAX’s performance under the Agreement.
Plaintiff alleges only that Mr. Morrison and Mr. Scoville, who are not
named Defendants to this litigation, had the opportunity to misappropriate
and/or interfere. See [#37-1 at ¶¶ 31-32]. This is insufficient to state a
inevitably disclosed trade secrets that they possessed. See, e.g., PepsiCo, Inc. v.
Redmond, 54 F.3d 1262, 1271 (7th Cir. 1995) (finding that it was inevitable that a
former employee would rely on trade secret information in carrying out his duties for his
new employer).
20
claim for Motto’s tortious interference with contractual relations between
RE/MAX and Quicken Loans.
Quicken Loans Inc. v. RE/MAX, LLC, No. 16-cv-02696-PAB-NYW, Docket No. 44 at 15
(footnote omitted).
Quicken Loans argues that its tortious interference claim should be allowed to
proceed because it has satisfied the notice pleading requirement of Fed. R. Civ. P. 8.
Docket No. 71 at 8. The Court disagrees. As Judge Wang found, plaintiff does not
allege any facts from which a factfinder could infer that Motto itself knew of the
Agreement before it was breached or intentionally interfered with the Agreement, both
of which are required elements of a claim for tortious interference with a contract.
Nobody in Particular Presents, Inc., 311 F. Supp. 2d at 1115. Indeed, Quicken Loans
does not dispute that Motto did not exist prior to RE/MAX’s alleged breach of the
Agreement. See Docket No. 71 at 10; Docket No. 56 at 24, ¶ 41 n.1. According ly, the
Court will dismiss Quicken Loans’ eighth counterclaim.
IV. CONCLUSION
For the foregoing reasons, it is
ORDERED that RE/MAX, LLC’S and Motto Franchising, LLC’s Motion to Dismiss
Counterclaims [Docket No. 61] is GRANTED in part and DENIED in part. It is further
ORDERED that Quicken Loans’ sixth, seventh, eighth, and ninth counterclaims
are DISMISSED pursuant to Fed. R. Civ. P. 12(b)(6). It is further
ORDERED that Quicken Loans’ second counterclaim is dismissed pursuant to
Fed. R. Civ. P. 12(b)(6) as barred by the economic loss rule insofar as it is based on
representations made by RE/MAX that it could modify its websites.
21
DATED March 20, 2018.
BY THE COURT:
s/Philip A. Brimmer
PHILIP A. BRIMMER
United States District Judge
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