Put trade secret accusations, a $740 million verdict and the highly competitive real estate loan industry together, and you’re bound to get some fireworks.
That’s happening now in a San Antonio courtroom where Gibson, Dunn & Crutcher and five other law firms are accusing appraisal startup HouseCanary Inc. of colluding with a key witness from rival Title Source Inc. to perpetrate an alleged fraud on the court.
“This is one of the most egregious frauds that I have ever seen in my 35-year career as a litigator and former federal prosecutor,” Randy Mastro, a Gibson Dunn attorney representing Title Source, now known as Amrock Inc., said in a written statement.
Mastro said the “shocking” jury verdict won by HouseCanary in March has now been undermined by former HouseCanary executives “who have come forward for the first time, as a matter of conscience, to blow the whistle on this fraud.”
Title Source formally asked Bexar County Judge David Canales to order a new trial based on newly discovered evidence on Tuesday. “Title Source was effectively litigating the case with one hand tied behind its back, blind to the fact that its key witness was part of a secret, self-serving arrangement with HouseCanary,” Title Source states in a motion for new trial signed by Catherine Stone of San Antonio’s Langley & Banack. Joining in the motion are lawyers from Gibson Dunn; Greenberg Traurig; Prichard Young; Morganroth & Morganroth; and Flores & Pelaez-Prada.
The key allegation is that Title Source’s vice president and chief appraiser, Jordan Petkovski, had discussed joining HouseCanary and receiving an equity stake in the VC-backed company in 2014. HouseCanary CEO Jeremy Sicklick acknowledged the discussions in testimony last month in a related federal court case.
“He was interested in potentially Joining HouseCanary to roll out our HouseCanary Appraiser,” Sicklick said. “We never got very far” in the discussions.
But three former executives of HouseCanary have filed declarations stating that it sounded like a done deal to them, with Sicklick having made comments around the company like “When Jordan comes over …” and “When Jordan arrives …”
Two of the executives further testified that HouseCanary offered them consulting contracts after the jury trial, in what they interpreted as an attempt to buy their silence.
“The agreement offered me $250 an hour, with no specifically-defined scope of work, nor any minimum or maximum number of hours per month,” HouseCanary’s former managing director for analytics and data, Robert Walker, stated in a declaration.
Susman Godfrey partner Max Tribble, one of HouseCanary’s lead counsel, dismissed the claims from Title Source, or TSI, as “outlandish and preposterous theories” designed to “create a sideshow to divert attention from its fraud and theft of HouseCanary’s trade secrets.”
“Every substantive issue TSI is attempting to raise was heavily vetted before a jury for weeks, which sided with HouseCanary on every single issue,” Tribble said. “These so-called declarations are from people who were all on TSI’s witness list but which [TSI] chose not to call as witnesses, presumably because, as disgruntled former employees … they were not credible.”
HouseCanary was formed after the 2007-09 housing crisis to automate a system of precise residential real estate appraisals. Consumers may be more familiar with the Zillow estimate of home prices, but HouseCanary claims the model embodied in its Appraiser App is far more accurate.
Title Source, which was the appraisal affiliate of Quicken Loans, made a deal in 2015 to license HouseCanary’s appraiser software, plus gain access to Title Source’s appraisal data, for $5 million a year. Both sides signed Title Source’s standard nondisclosure agreement, which forbade either party from reverse-engineering the other’s models, algorithms or confidential information.
HouseCanary contends Title Source repeatedly asked for more and more information about the inputs and how its model worked while falsely reassuring HouseCanary that it was not developing its own competing model.
At first, Title Source sued HouseCanary for fraud, prompting HouseCanary to counterclaim for fraud, breach of contract and for theft of its trade secrets. The jury found for HouseCanary on all of its claims, awarding $706 million. With prejudgment interest and attorney fees the total came to $740 million.
The day after the verdict, HouseCanary’s former director of appraiser experience, Anthony Roveda, anonymously emailed Title Source CEO Jeff Eisenshtadt, saying, “You need to be aware that there was collusion among some of your people and HouseCanary—like Sicklick and Petkovsk[i].”
Eventually Roveda and two other executives gave declarations saying that HouseCanary’s technology was a sham—a slick user interface laid over a non-functional back end, with data licensed from third parties. Petkovski, who was in charge of Title Source’s relationship with HouseCanary, downplayed those shortcomings with Title Source and before the jury, Roveda suggested.
In its motion for new trial, Title Source says its investigation has “blown this case wide open.”
At trial the company was “effectively litigating the case with one hand tied behind its back, blind to the fact that its key witness was part of a secret, self-serving arrangement with HouseCanary,” Title Source states in its 100-page motion. It is signed by Stone and joined by lawyers from Gibson Dunn; Greenberg Traurig; Prichard Young; Morganroth & Morganroth; and Flores & Pelaez-Prada.
Susman Godfrey’s Tribble didn’t sound worried. “As TSI was well aware before and during the case, various employees at TSI wanted to come to work for HouseCanary,” he said. “There was no issue raised with that until suddenly in this post-judgment motion.”
Following the March verdict, HouseCanary and Susman Godfrey expanded the litigation to include a trade secrets suit against Quicken Loans and two additional affiliates in San Antonio federal court.
U.S. District Judge Fred Biery of the Western District of Texas made news last summer when he told all the lawyers to chill. “There will be no Rambo tactics or other forms of elementary school behavior,” the judge said. “Simply put: Do not play games.”