Goldwater Bank NA v. Caliber Home Loans Incorporated

Opinion

1 WO 2 3 4 5

9 Goldwater Bank NA, No. CV-21-01190-PHX-MTM

10 Plaintiff, ORDER

11 v.

12 Caliber Home Loans Incorporated, et al.,

13 Defendants. 14 15 Before the Court is Plaintiff Goldwater Bank NA’s (“Goldwater”) Motion for a 16 Temporary Restraining Order (“TRO”) and Preliminary Injunction (doc. 9). The Court 17 considers the Motion (id.); Defendants’ Responses (docs. 21, 24); Goldwater’s Replies 18 (docs. 30, 31); arguments, testimony, and evidence presented at the September 24, 2021 19 hearing (doc. 63); and the parties’ post-hearing briefs (docs. 62, 71). For the following 20 reasons, Goldwater’s Motion will be denied. 22 Goldwater is a financial institution that deals in consumer loan origination. (Doc. 9- 23 2 ¶ 3). Defendant Julia Magler was a loan originator at Refined Lending, a division of 24 Goldwater, in Blaine, Minnesota from March 29, 2018 until her voluntary departure on 25 June 11, 2021. (Id. ¶¶ 11, 14; Doc. 21-1 ¶ 4). Magler then became a mortgage loan officer 26 at Defendant Caliber Home Loans Inc. (“Caliber”) at a Caliber branch in Blaine, 27 Minnesota. (Doc. 21-1 ¶¶ 8, 16; Doc. 1 ¶ 25). Defendants Shelly Farris and Amy Waller 28 work at the same Caliber branch as a sales manager and production assistant, respectively. 1 (Doc. 21-1 ¶ 16; Doc. 22-1 ¶ 4; Doc. 22-2 ¶ 4). 2 Upon hire, Goldwater and Magler executed an Employment Agreement (doc. 1-2 at 3 10). (Doc. 9-2 ¶ 13; Doc. 21-1 ¶ 5). In it, Magler acknowledged that “customer 4 information” was “Confidential Information” to be used solely for Goldwater’s benefit, 5 maintained as secret, and returned upon termination of employment. (Doc. 1-2 at 7, Art. 5, 6 §§ 1–2). Magler further acknowledged that all “leads” and “loans in process” were property 7 of Goldwater and that she would not “take any action to divert such loans to a competitor 8 or away from [Goldwater].” (Id. at 7–8, Art. 5, § 3). Magler agreed to show the 9 Employment Agreement to any subsequent employer she worked with within twelve 10 months of terminating employment with Goldwater. (Id. at 8, Art. 5, § 6). 11 Goldwater alleges in the weeks preceding her departure from Goldwater, Magler 12 committed the following breaches of the Employment Agreement. (Doc. 9-2 ¶ 15). 13 Between May 25, 2021 and June 11, 2021, Magler allegedly sent confidential customer 14 information to her personal email account. (Doc. 9-3, Ex. C, at 20–26). On May 26, 2021, 15 Magler allegedly sent Farris and Waller a list of five Goldwater applicant files she would 16 be submitting to Caliber and stated she would be sending “full packages on all 17 submissions.” (Doc. 9-3, Ex. D, at 27–31). A full “loan package” contains financial 18 information necessary for closing the loan, which includes an applicant’s purchase 19 agreement, bank statements, tax returns, pay stubs, W-2s, and closing worksheets. (See 20 Doc. 63 at 23; Doc. 9-2 ¶ 15). Between May 26, 2021 and June 11, 2021, Magler allegedly 21 sent loan purchase agreements, bank statements, pay stubs, tax returns, W-2s, and closing 22 worksheets for “several” Goldwater customers to Farris and Waller; the actual number of 23 customers, however, is unclear. 1 (Doc. 9-3, Ex. E, at 32–50). Between May 26, 2021 and 24 1 At the hearing, Goldwater alleged there are an “additional two loans that are found 25 in the emails in [doc. 9-3] that are unaccounted for.” (Doc. 63 at 38). Upon review of the 26 emails in Doc. 9-3, the Court cannot conclude the truth of this allegation. The emails contain extensive redactions that make it impossible to connect a particular email to a 27 particular application/applicant. (See Doc. 9-3 at 27–68). The subject lines and names of 28 files attached to those emails are equally unenlightening. The only reasonable number of applications that can be discerned from the emails as presented is six. In a May 26, 2021 1 June 11, 2021, Magler allegedly submitted at least five applications using Goldwater 2 customer information to Caliber’s online portal. (Doc. 9-3, Ex. F, at 51–62). On at least 3 two occasions, Farris and Waller allegedly requested specific confidential customer 4 information from Magler. (Id. at 35 [5/26/2021: Farris requested an applicant’s “full name, 5 address they are buying, loan type, purchase price and loan amount”], 48 [6/8/2021: Waller 6 requested an applicant’s tax returns]). 7 On July 8, 2021, Goldwater sued Caliber, Magler, Farris, and Waller, claiming: (1) 8 tortious interference with contract, (2) tortious interference with prospective economic 9 advantage, (3) misappropriation of trade secrets, (4) breach of employment agreement, (5) 10 breach of good faith and fair dealing, (6) breach of fiduciary duty, and (7) aiding and 11 abetting breach of fiduciary duty. (Doc. 1 ¶¶ 33–84). 13 On July 16, 2021, Goldwater moved for a TRO and preliminary injunction under 14 Fed. R. Civ. P. 65 to enjoin Defendants and their agents from: 15 a. Using any of Goldwater’s confidential and proprietary information, including customer information; 16

17 b. Using any materials provided by Magler to Caliber, Farris or Waller prior to her resignation from Goldwater; 18

19 c. Retaining any of Goldwater’s confidential and proprietary information, including customer information; 20

21 d. Retaining any materials provided by Magler to Caliber, Farris or Waller prior to her resignation from Goldwater; 22

23 email to Waller, Magler provided a list of the “files” that she would be submitting. (Doc. 24 9-3 at 28). In that email, there are six lines of redacted text, which presumably correspond to six distinct loans. (Id.). There are six confirmation emails indicating that an application 25 was successfully submitted. (Id. at 51–62). Magler, Farris, and Waller submitted 26 declarations from seven individuals that left Goldwater to work with Magler. (Docs. 21-3 through 21-9). However, one of those individuals stated that they ultimately decided to 27 pursue a loan elsewhere. (Doc. 21-8 ¶ 5). Thus, the record currently before the Court 28 suggests that there were six loans allegedly diverted away from Goldwater. Of course, that number may change pending further investigation and discovery. 1 e. Soliciting or rendering services to any of Goldwater’s current or past customers for a period of twelve (12) months; and 2

3 f. Engaging in any activity constituting unfair competition against Goldwater. 4 (Doc. 9 [Motion]; Doc. 9-1 [Proposed Order]). According to Goldwater, “[u]nless 5 Defendants are immediately enjoined, [it] will continue to suffer irreparable harm for 6 which it has no adequate remedy at law.” (Doc. 9 at 2). 8 “A preliminary injunction is an extraordinary remedy never awarded as of right.” 9 Winter v. Nat. Res. Def, Council, Inc., 555 U.S. 7, 24 (2008). Rather, it “may only be 10 awarded upon a clear showing that the plaintiff is entitled to such relief.” Id. at 22. The 11 plaintiff must show: “(1) it is likely to succeed on the merits, (2) it is likely to suffer 12 irreparable harm without an injunction, (3) the balance of equities tips in its favor, and (4) 13 an injunction is in the public interest.” Poder in Action v. City of Phoenix, 481 F.Supp.3d 14 962, 969 (D. Ariz. 2020) (citing Winter, 555 U.S. at 20). In the Ninth Circuit, a court may 15 consider these factors under a “sliding scale approach” where a showing of “serious 16 questions going to the merits” and a balance of hardships tipping “sharply” in the movant’s 17 favor may offset weaker showings on the other two factors. All. for the Wild Rockies v. 18 Cottrell, 632 F.3d 1127, 1131–32 (9th Cir. 2011). A showing on all four factors is required 19 under either standard. Id. at 1132. TROs and preliminary injunctions are governed by the 20 same standards. Stuhlbarg Int'l Sales Co. v. John D. Brush & Co., Inc., 240 F.3d 832, 839 21 n.7 (9th Cir. 2001); V’Guara Inc. v. Dec, 925 F.Supp.2d 1120, 1123 (D. Nev. 2013). 23 A. Irreparable Harm 24 Goldwater has not shown that it is likely to suffer “irreparable” harm in the absence 25 of the requested injunctive relief. “Irreparable harm is harm for which there is no adequate 26 remedy at law, such as money damages.” E*Trade Fin. Corp. v. Eaton, 305 F.Supp.3d 27 1029, 1036 (D. Ariz. 2018) (citing Ariz. Dream Act Coal. v. Brewer, 757 F.3d 1053, 1068 28 (9th Cir. 2014)). “A plaintiff seeking a preliminary injunction must demonstrate that 1 irreparable injury is likely in the absence of preliminary relief.” Enyart v. Nat’l Conference 2 of Bar Exam’rs, 630 F.3d 1153, 1165 (9th Cir. 2011) (emphasis added). “Mere possibility 3 of [irreparable] harm is not enough.” Id. (emphasis added). The plaintiff “must proffer 4 evidence sufficient to establish a likelihood of irreparable harm.” Herb Reed Enters., LLC 5 v. Florida Entm’t Mgmt., Inc., 736 F.3d 1239, 1251 (9th Cir. 2013). 6 In its Motion, Goldwater argued that “[i]njunctive relief is needed and warranted to 7 preserve the status quo and prevent Defendants from profiting on Goldwater’s confidential 8 customer information.” (Doc. 9 at 2.) However, Goldwater has not shown that it has 9 suffered or likely will suffer any harm “for which there is no adequate remedy at law,” i.e., 10 harm incapable of being reduced to monetary damages. The loans that Defendants 11 allegedly misappropriated have a specific dollar amount attached to them that can be 12 readily quantified. Nathan Raich, a Goldwater regional manager and Magler’s former 13 supervisor, testified at the September 24, 2021 hearing that Goldwater’s “average” loan 14 value is between $235,000 and $285,000. (Doc. 63 at 30). Thus, the alleged harm resulting 15 from the alleged misappropriation of the loans is not one that is “irreparable” because it 16 can be reduced to a specific dollar amount based on the value of the loan. 17 Nonetheless, Goldwater argued at the hearing that the alleged harm from the alleged 18 misappropriation of the loans is not limited to just the value of the loans. Goldwater argued 19 and proffered testimony that it will also likely suffer damage to its reputation, lose 20 prospective customers, and lose protection in its purported trade secrets. As explained 21 below, Goldwater’s arguments and proffered testimony to such are largely speculative. 22 Moreover, Goldwater has not shown the misappropriation of anything that constitutes a 23 “trade secret.” 24 1. Loss of Prospective Customers and Referrals 25 At the hearing, Raich characterized the harm to Goldwater, in part, as a loss of 26 “future opportunities” by way of lost referrals from potential customers and referral 27 partners, explaining that by losing a customer, Goldwater also loses an “opportunity” for 28 “growth and building [its] brand in the neighborhood.” (Id. at 28–29). According to Raich, 1 “if you do a good job, [customers] refer you to their friends or family, their coworkers, and 2 it just keeps going.” (Id. at 30). These allegations, however, are speculative as they rest on 3 the unfounded assumptions that: (1) the allegedly diverted customers would have closed 4 their loans at Goldwater; (2) the allegedly diverted customers would have subsequently 5 referred other individuals to Goldwater; and (3) the individuals referred to Goldwater 6 would have closed their loans at Goldwater. 7 Additionally, Raich testified to potentially “endless” harms resulting from the loss 8 of a referral source, but stated, “I can’t identify [harms] I don’t know.” (Id. at 29). Raich 9 testified that Magler was provided with numerous referrals and referral sources while 10 employed at Goldwater, including: 123 “live transfer phone calls” from Realtor.com leads 11 Goldwater had purchased; Raich’s own referral sources of David Wills, Blaine Brothers 12 Home Furniture, and Adam Price Custom Homes; and “many, many more from 13 [Goldwater’s] billboards and websites and radio ads.” (Id. at 16). When asked if he was 14 aware of Magler attempting to use any of these referral sources, Raich testified all he knew 15 was that Magler was “in communication” with Wills but did not know if they were working 16 to close any loans together. (Id. at 31). According to Raich, Wills does not have any 17 agreement with Goldwater requiring exclusivity of his referrals but, nonetheless, still sends 18 referrals to Goldwater. (Id. at 32–33). 19 Raich also testified that there were “20 or 23” leads he referred to Magler that she 20 “never entered” into Goldwater’s system. (Id. at 17). When asked what ultimately 21 happened to those leads, Raich testified, “I don’t know. All I know is they didn’t get entered 22 into our system.” (Id. at 18). When asked by the Court if he had any evidence that Magler 23 was currently using those leads, Raich testified, “I do not.” (Id. at 30). Raich testified 24 Magler no longer receives the live transfer calls or emails from web-based referrals because 25 she is no longer employed at Goldwater. (Id. at 33–34). 26 Goldwater’s allegations and Raich’s testimony as to likely irreparable harm through 27 the loss of prospective customers and referral sources are speculative, and, to some extent, 28 belied by Raich’s own testimony where he testified that Wills still remains a referral source 1 for Goldwater. Goldwater, therefore, fails to show likely irreparable harm here. Herb Reed, 2 736 F.3d at 1250 (“speculation on future harm” is insufficient); Enyart, 630 F.3d at 1165 3 (“Mere possibility of harm is not enough.”). 4 2. Damage to Reputation 5 Goldwater argues it will likely suffer “reputational harm” from Magler’s 6 “mismanagement” of the customers’ information when she sent it outside of Goldwater’s 7 servers to her personal email account and to Farris, Waller, and Caliber. (Doc. 63 at 29– 8 30, 43–45; see Doc. 9-3, Ex. C, at 20–26 [emails]; Doc. 63 at 20–23). Raich testified that 9 the potential reputational harm from these actions “could be devastating.” (Id. at 29, 10 emphasis added). As evident by Raich’s own statements, such assertions are speculative 11 and unsupported by any evidence in the record. Goldwater, therefore, fails to show likely 12 irreparable harm here. Herb Reed, 736 F.3d at 1250; Enyart, 630 F.3d at 1165. Moreover, 13 notwithstanding that Magler may have breached her Employment Agreement by 14 transmitting the customers’ information outside of Goldwater’s servers, the record shows 15 that in several instances she had the applicant’s consent to do so. (Docs. 21-3 through 21- 16 9).2 17 3. Destruction of Trade Secrets 18 Goldwater argues that the allegedly misappropriated “loan packages” are “trade 19 secrets” and that injunctive relief is necessary to preserve their secrecy. (Doc. 9 at 7–8, 11; 20 Doc. 63 at 41–43). 21 The Arizona Uniform Trade Secrets Act (“AUTSA”) defines a “trade secret” as 22 “information” that: (1) “[d]erives independent economic value, actual or potential, from 23 not being generally known to, and not being readily ascertainable by proper means by, 24 other persons who can obtain economic value from its disclosure or use;” and (2) “[i]s the 25 subject of efforts that are reasonable under the circumstances to maintain its secrecy.” 26 A.R.S. § 44-401.A; see Enter. Leasing Co. of Phx. v. Ehmke, 197 Ariz. 144, 148 (App.

27 2 Two of these declarations are not signed and properly executed. (See Docs. 21-3, 28 21-7). However, this does not change the Court’s analysis because Goldwater’s allegations regarding reputational harm remain speculative. 1 1999). A party alleging ownership of trade secrets “must identify the trade secrets and carry 2 the burden of showing they exist.” InteliClear, LLC v. ETC Global Holdings, Inc., 978 3 F.3d 653, 658 (9th Cir. 2020)”); see Calisi v. Unified Fin. Servs., 232 Ariz. 103, 106 (App. 4 2013). 5 In arguing that the loan packages are trade secrets within the meaning of AUTSA, 6 Goldwater cites––and relies solely on––HTS, Inc. v. Boley, 954 F.Supp.2d 927, 944 (D. 7 Ariz. 2013), in which the district court held that a plaintiff’s “customer lists, contact 8 information, financial information, and metrics” constituted “trade secrets” under AUTSA. 9 (Doc. 9 at 8; Doc. 63 at 41–42). HTS, however, is distinguishable from the present case. 10 First, HTS involved more than just customer lists and contact information; it also involved 11 the plaintiff’s financial information and metrics. Second, at issue in HTS was a customer 12 list. Here, there is no allegation that Magler misappropriated a customer list from 13 Goldwater, merely information pertaining to a few, discrete Goldwater applicants. Third, 14 the district court in HTS noted the plaintiff had “developed this information over many 15 years.” Id. Here, in contrast, Goldwater has not shown it has spent substantial time and 16 effort to compile the loan packages at issue or that the information contained in the loan 17 packages would be difficult for a competitor to obtain. See Calisi, 232 Ariz. at 108 (finding 18 no trade secret protection in “customer lists and personal information” where the owner 19 failed to show either “it had made substantial efforts to develop its customers and their 20 personal information” or “this information would be difficult for a competitor to duplicate 21 or acquire”); Barton & Assocs. Inc. v. Trainor, 507 F.Supp.3d 1163, 1167 (D. Ariz. 2020) 22 (“[I]nformation about a third party is not confidential if competitors could obtain the same 23 information directly from the third party”); V’Guara, 925 F.Supp.2d at 1126 (finding a 24 protectable trade secret where the plaintiff “invested several years and hundreds of 25 thousands of dollars in the development, manufacturing, marketing and distribution” of its 26 product). The mere fact the loan packages contained confidential information does not 27 render them “trade secrets.” See Calisi, 232 Ariz. at 109 (“Although there may be 28 substantial overlap between confidential information and trade secrets, they are not 1 synonymous.”); Ehmke, 197 Ariz. at 150 (“[N]ot every commercial secret qualifies as a 2 trade secret. Only those secrets affording a demonstrable competitive advantage may 3 properly be considered a trade secret.”). 4 Under these facts, Goldwater fails to show ownership of any “trade secrets” 5 warranting protection through injunctive relief. 6 B. Balance of Equities & Public Interest 7 To qualify for injunctive relief, Goldwater must also establish that the balance of 8 equities tips in its favor and that issuing the injunction is in the public interest. Winter, 555 9 at 20. “[T]he balance of equities and consideration of the public interest [] are pertinent in 10 assessing the propriety of any injunctive relief, preliminary or permanent.” Id. at 32. In 11 considering the former, the Court must “balance the interests of all parties and weigh the 12 damage to each.” Stormans, Inc. v. Selecky, 586 F.3d 1109, 1138 (9th Cir. 2009) (quotes 13 and citation omitted). In considering the latter, the Court “should pay particular regard for 14 the public consequences in employing the extraordinary remedy of injunction.” Winter, 15 555 U.S. at 24 (quotes and citation omitted). 16 Goldwater argues the requested relief “would cause little (if any) hardship on 17 Defendants, as it would simply prevent Defendants from using Goldwater’s confidential 18 customer information and trade secrets.” (Doc. 9 at 11). It further argues the requested 19 relief is in the public interest because “public policy mandates the protection of trade 20 secrets and confidential information through injunction.” (Id. at 12, quotes and citation 21 omitted). Goldwater asserts granting the requested relief will therefore “further the public 22 interest, and will have no impact on the public at large.” (Id.). 23 Goldwater’s assertions downplay the potential and reasonably foreseeable effects 24 of granting the relief requested, specifically, the potential hardships it could impose on 25 Defendants, and more significantly, the borrowers whose loans Defendants have closed on 26 and who are blameless in the present dispute. The relief requested by Goldwater would 27 prohibit Defendants from, inter alia, “retaining” or “using” any of the customer 28 information Magler provided to them. (See Doc. 9-1 at 4). Given that many––if not all–– 1 of the allegedly diverted loans have since closed, implementing and enforcing Goldwater’s 2 proposed order would undoubtedly pose some risk of potential hardship on Defendants and 3 the borrowers, e.g., invalidating or nullifying the closed loans, forcing the borrowers to 4 expend time and resources seeking alternative financing options, and, at worst, displacing 5 the borrowers from their home––a result that would certainly not be in the public interest. 6 Granting the relief requested would also prohibit Defendants from “retaining” the 7 customer information (id.) in violation of 12 C.F.R. § 1026.25(c)(1)(ii)(A), which requires 8 lenders to maintain application materials submitted by borrowers for up to five years. (See 9 Doc. 62). In arguing the contrary, Goldwater argues that “[u]nder the injunction, Caliber 10 would be free to retain all documents required under 12 C.F.R. § 1026.25” and required 11 only to “return to Goldwater copies of all confidential information and trade secrets it 12 received from Magler and certify the same.” (Doc. 71 at 4, emphasis added). However, that 13 is not what is stated or implied in the proposed order and, in any event, would not change 14 the Court’s analysis on these issues. 15 By contrast, the hardships imposed on Goldwater in the absence of the relief would 16 be little to none, particularly where, as discussed above, Goldwater is unlikely to suffer any 17 harm that cannot be adequately compensated through monetary damages. Goldwater 18 therefore fails to show that the requested TRO and preliminary injunction is in the public 19 interest and that the balance of equities tips in its favor. 20 C. Likelihood of Success on the Merits 21 Because Goldwater has failed to show likely irreparable harm, the Court need not 22 address whether it is likely to succeed on the merits. See Oakland Trib., Inc. v. Chronicle 23 Publ’g. Co., Inc., 762 F.2d 1374, 1376 (9th Cir. 1985) (“Because the [plaintiff] has not 24 [shown irreparable harm] we need not decide whether it is likely to succeed on the 25 merits.”); see also L.A. Unified Sch. Dist. v. S&W Atlas Iron & Metal Co., Inc., 506 26 F.Supp.3d 1018, 1035 n.8 (C.D. Cal. 2020) (“A court need not analyze all four factors 27 when denying a motion for a preliminary injunction.”). 1 Goldwater has not made a showing on all four Winter elements and, therefore, is || not entitled to a TRO or preliminary injunction. Accordingly, 3 IT IS ORDERED that Goldwater’s Motion for a Preliminary Injunction (doc. 9) is DENIED. 5 IT IS FURTHER ORDERED that Goldwater’s Motion for a Temporary || Restraining Order (doc. 9) is DENIED as moot. 7 Dated this 6th day of October, 2021. 8 Wiha Ve Woreis □□□

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