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$21.5M Verdict for Employee Raid

Even though Conseco Finance Servicing Corp. can't proceed with a major part of its case under the Federal Trade Secrets Act, the St. Paul, Minn.-based finance company still succeeded in winning a $21.5 million judgment against a competitor which raided its offices. The suit claimed that North American Mortgage Co. hired away some 15 branch managers from Conseco, and that some employees wrongly took business leads.

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Even though the trial judge and the appellate court would not allow a finance company to proceed with a major part of its case under the Federal Trade Secrets Act, the company still succeeded in winning a $21.5 million judgment against a competitor which raided its offices. The judgment, which included $3.5 million in compensatory and $18 million in punitive damages, was returned on April 9 for Conseco Finance Servicing Corp. against North American Mortgage Co. in U.S. District Court in St. Louis. Conseco Finance Servicing Corp. v. North American Mortgage Co., No. 4:00cv1776. The suit claimed that North American hired away some 15 branch managers from Conseco finance offices in Missouri, Illinois, Iowa, Kansas and Colorado, and that some employees wrongly took business leads. Defense attorney Steven Schoenbeck, with the St. Louis office of Lathrop & Gage, referred all questions to spokeswoman Libby Hutchinson at the Seattle headquarters of Washington Mutual Inc., which has acquired North American. “It’s a runaway verdict,” Hutchinson said, “and we will appeal.” She declined to answer other questions, but stressed that the alleged improprieties occurred before Washington Mutual acquired North American, which was previously part of Dime Savings Bank of New York. Washington Mutual bought Dime Bancorp, the parent company of Dime Savings, in January. David Wasinger of the St. Louis law firm Murphy Wasinger, with his brother Mark Wasinger of Hannibal, Mo., as co-counsel, represented Conseco. The plaintiff, headquartered in St. Paul, Minn., is a diversified finance company specializing in home and other loans. It has some 7,000 employees in 150 offices nationwide. A ‘SYSTEMATIC’ PROCESS David Wasinger said North American began expanding its Midwest presence in 2000 and 2001 by systematically “hiring away Conseco’s branch managers. They [branch managers] would then get their more productive workers to join them, and they would all resign at the same time.” Conseco was particularly vulnerable to employee raiding at the time because its parent company, Conseco Inc., a Carmel, Ind.-based provider of health and life insurance, was reported on the brink of bankruptcy in August 2000. Conseco Inc. then restructured its debt but has been struggling financially since. In an earlier hearing in which Conseco sought injunctive relief, District Judge E. Richard Webber of the Eastern District of Missourigranted a limited permanent injunction requiring one former Conseco employee to return 14 customer files he had at his home. But Webber denied Conseco’s request to find that the customer lists were trade secrets, that the soliciting of employees was illegal and that trade secrets were misappropriated. Conseco appealed, but the 8th U.S. Circuit Court of Appeals upheld the rulings. Despite that setback, Conseco proceeded to trial and submitted its evidence to the jury on the two main counts left standing: unfair competition and unlawful interference with Conseco’s business expectancies. The jury found for Conseco on both counts. “We started out shaky at first with that injunction hearing,” Wasinger said. But Wasinger said he later found that some of the raided employees had been “less than candid” in depositions in saying they had not taken any Conseco documents from the loan files. “When we obtained their files, we found the documents there,” Wasinger said. “Webber denied our motion for sanctions then, but later ruled to let us move ahead with the punitive damages part of the trial. I think that [lack of candidness] rubbed the judge and the jury the wrong way,” leading to the large punitive award. Robin Luce, an attorney at Detroit’s Butzel Long and co-chair of the American Bar Association’s Committee on Labor and Employment Law, said there is some case law to suggest the amount of the award was excessive. While unable to comment on the merits of the Conseco case, Luce said, “There are some U.S. Supreme Court cases that suggest anything more than four times the compensatory damages is excessive. Four to one is often the outside limit.” In the Conseco case, that would mean $14 million instead of $18 million in punitives. However, Luce said the four-to-one ratio is not a hard-and-fast rule, and some courts have allowed higher punitive damages to punish truly egregious conduct. Saying the jury awarded “every nickel we asked for,” Wasinger said he expects North American to appeal. The Conseco trial was one of the first fully computerized ones in the new Thomas F. Eagleton federal courthouse, Wasinger said. Wasinger explained that the technology includes “smart tables” — counsel tables where the attorneys can plug in their laptops and automatically connect to the courtroom’s prewired projection systems. Hundreds of trial exhibits were presented at trial via the bevy of flat-screen monitors throughout the courtroom and the big-screen television in front of the jury box. Wasinger said the trial lasted only one week, but would have lasted three without the technology to easily present and explain exhibits to the jury.

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