In a lawsuit filed last week in a California federal court, DocMagic Inc. claims Ellie Mae Inc. dumped the online document preparation firm from its transaction platform and used its monopoly to steal DocMagic customers.
The lawsuit was filed Friday in U.S. District Court for the Northern District of California, according to a copy of the complaint published by Courthouse News Service.
Ellie — the developer of the Encompass, Genesis 2000 and Contour loan origination systems — operates the ePASS Network. The Pleasanton, Calif.-based firm claims “one third of the nation’s $3 trillion loans pass through the ePASS Network,” while mortgage brokers use the platform to transmit 4,000 loan files per hour to wholesale lenders, Fannie Mae and Freddie Mac and credit bureaus — among other vendors.
The lawsuit by Carson, Calif.-based DocMagic supports Ellie’s claim, noting that ePASS has been widely adopted in the industry. Participating vendors reportedly include 88,000 appraisers and 2,200 service providers, while transaction volume for the 150,000 ePASS users was cited at $5 billion monthly.
DocMagic, which claims it “revolutionized the mortgage document industry,” said it first entered an ePASS agreement in November 2003. Its fees to Ellie were based on transaction volume.
But Ellie recently terminated DocMagic from the network, according to the complaint. And that wasn’t all.
“Ellie Mae took drastic steps to prevent hundreds of current DocMagic/Encompass users from accessing DocMagic products through unfair and anticompetitive behaviors, including sabotaging its clients by preventing access to DocMagic through alternative (non-ePASS) Web service calls,” the complaint states.
In addition to encouraging DocMagic to use its own competing loan documentation system, Ellie is allegedly blocking DocMagic customers from bypassing ePASS for a direct connection to DocMagic.
The market for Internet loan documentation services was estimated in the lawsuit at between $100 million and $200 million.
Ellie is accused of monopolizing the market and abusing its monopoly to squeeze out DocMagic. It allegedly violated Section 2 of the Sherman Act, 15 U.S.C. 2. and the Cartwright Act, Cal. Bus. Bus. & Prof. Cod 16700 et seq.
DocMagic claims damages exceed $5 million and seeks punitive and exemplary damages under California civil Code 3294. It seeks a permanent injunction against Ellie
Officials from Ellie weren’t immediately available to comment.
DocMagic Inc., a California Corporation, Plaintiff, v. Ellie Mae Inc., a California corporation; and Does 1 through 10, inclusive, Defendants.
Case No. CV 09 4017, Aug. 28, 2009 (U.S. District Court for the Northern District of California).
