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LoanCity Hit With $3.4 Million Judgment

LoanCity Hit With $3.4 Million JudgmentCompany accused of stealing trade secrets, employees

March 30, 2004

By MICHAEL PATRICK CARNEY

American Mortgage Network, a subsidiary of American Residential Investment Trust, won a $3.4 million judgment in San Diego after jurors found LoanCity.com guilty earlier this month of unfair competition, breach of contract and stealing trade secrets.

The case arose after four AmNet executives left the company and brought 35 other employees with them to LoanCity.com despite a section in the AmNet employee handbook that prohibited such activities, according to lawyers in the case.

“When this took place, we had been in business about 11 months and we had a whole new branch system out there, and the initial game plan was to take the entire western division,” Fletcher Paddison, a lawyer for AmNet, told MortgageDaily.com. “They only got two branches, but it was a serious blow…In all the other ones, we stemmed the raid.”

The recruitment drive decimated AmNet’s Lake Oswego, Oregon, and Sacramento, California, offices and forced the company to send its senior executive team into the field for two months, Paddison said.

LoanCity.com, an online mortgage wholesaler, denied any wrongdoing during the 16-day trial, but jurors eventually held the privately held company responsible for five months of losses at competitor AmNet.

“This is just a speed bump of the way to the next level,” Michael Farbstein, a San Mateo lawyer representing LoanCity.com, told MortgageDaily.com. “We really believe that once the appellate court has a look at this case we feel that we’re going to be vindicated.

Lawyers said they expected the appeals process to take about 18 months.

All AmNet employees were required to sign a document acknowledging that they had received the employee handbook, which contained a non-solicitation clause, Paddison said, noting that the four executives had additional fiduciary responsibilities to AmNet because of their positions.

“Part of it was sending a message and part of it was against a company that we had asked to stop and they didn’t stop, they kept going,” Paddison said of the case, which included some 50 witnesses. “If they hadn’t of pushed it so far, we would’ve dropped it.


Michael Patrick Carney is a Washington, D.C.-based freelance journalist who has worked from Reuters in Jerusalem and North America. He holds a master’s degree from University of Missouri’s School of Journalism and teaches reporting at a Virginia college.email: MichaelPatrickCarney-MortgageDaily@yahoo.com

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