a key factor in determining whether information has economic value under the UTSA is the effort and expense that was expended to develop the information
How later courts described this case
- a key factor in determining whether information has economic value under the UTSA is the effort and expense that was expended to develop the information
- "Generally, taking an employer's confidential customer list without permission is a trade secret misappropriation."
- applying Arizona's UTSA, which employs the same definition of "trade secret"
Written by the judges who cited it.
The opinion
FAY
Cr.UT OF
VCE OF
:j I i • 11-J
I
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
GUIDANCE RESIDENTIAL, LLC , )
) No. 75507-2-1
Appellant/Cross Respondent, )
) DIVISION ONE
v. )
) UNPUBLISHED OPINION
ANWER MANGRIO and JANE DOE )
MANG RIO, husband and wife, and their )
marital community; MOHAMED AIJAZ )
HUSSAIN and JANE DOE HUSSAIN, )
husband and wife, and their marital )
community; UNIVERSITY ISLAMIC )
FINANCIAL CORPORATION; and )
UNIVERSITY BANK, )
)
s Respondents/Cross Appellants. ) FILED: December 18, 2017
)
APPELWICK, J. — Thejury found that use by former employees of client lists
compiled while employed by Guidance was a willful and malicious
misappropriation of trade secrets. But, the trial court declined to award exemplary
damages to Guidance. The trial court sealed trial exhibits related to client lists
posttrial. Mangrio challenges the determinations that the client lists were trade
secrets, that they were misappropriated, the determination of damages, the award
of attorney fees, and the sealing of the trial exhibits. Mangrio successfully
defended against Guidance's breach of contract claims under a contract providing
for recovery of fees actually incurred. The trial court awarded Mangrio fees using
the lodestar method. Guidance challenges the use of the lodestar method and the
failure to award exemplary damages.
No. 75507-2-1/2
We affirm that the client lists were trade secrets, the jury verdict for
misappropriation, and the sealing of the trial exhibits. We vacate the award of
attorney fees to Mangrio on the contract claims using the lodestar method and
remand for award of fees actually incurred consistent with the contract. We vacate
the trial court's denial of exemplary damages to Guidance, and remand for
reconsideration.
FACTS
Guidance Residential LLC and competitor University Islamic Financial
Corporation (U IF), provide Sharia-compliant mortgages to the Muslim community.
The Sharia-compliant mortgage industry is extremely competitive, as there is a
limited pool of customers from which to draw. In 2011, Guidance employees,
Anwer Mangrio and Mohamed Hussain, along with others, left Guidance to work
for competitor, UIF.
At Guidance, the former employees collected information about potential
customers and compiled potential and current customer lists. The former
employees testified that they kept personal lists of contacts that included names,
phone numbers, and e-mail addresses. After the customer showed interest in
prequalification or refinancing, the employee entered the potential customer's full
name, phone number, e-mail address, and information about their property into
Guidance's loan operating system. Guidance contended that, in part, what makes
2
No. 75507-2-1/3
its lists distinctive is that a person's presence in their database indicates that the
person has at least sought to be prequalified for a Sharia-compliant mortgage.
After the information was entered into Guidance's system, each employee
could access a "Book of Business," an Excel spreadsheet created by the operating
system. The Book of Business contains the information the employee entered into
the Guidance system, as well as information the disbursed contracts automatically
updated. The Book of Business includes customer name, contract share, contact
information, such as address, telephone number and e-mail, address and type of
property for which services were sought, credit score, total income, and total
liability. Guidance required its employees to protect customer information and
keep this information confidential.
Before the former employees left Guidance, they downloaded and e-mailed
the Books of Business they could access to their personal accounts. Former
employee, Hussain, directed other former employees to download the Books of
Business. At U1F, Hussain assisted Guidance's former employees in contacting
"closed customers" from Guidance, to generate business for U1F. Hussain also
assisted Guidance's former employees target other categories of Guidance
customers, such as those listed as "withdrawn," "declined," and "pipeline."2
1 The Books of Business files organize Guidance potential and current
customers into categories. "Closed" indicates that the application resulted in a
closed mortgage, or funded loan.
2 "Withdrawn" customers are those that did not continue with the application
process after being prequalified. "Declined" customers are those whose
3
No. 75507-2-1/4
Guidance filed suit against former employees, Mangrio and Hussain, their
new employer, (UIF), and UIF's parent company, University Bank. Among other
claims, Guidance alleged that Mangrio and Hussain breached noncompete
clauses in employee contracts and duties of loyalty. The trial court, finding the
noncompete clauses void, dismissed Guidance's breach of contract claims on
summary judgment. That decision is not appealed. Guidance also alleged that all
four respondents misappropriated Guidance's trade secrets, namely its customer
and prospect lists.
After a lengthy trial, the jury returned a verdict in favor of Guidance's claim
of misappropriation of trade secrets, but rejecting Guidance's breach of duty
claims. The jury found that Mangrio, Hussain, UIF, and University Bank (hereafter
collectively referred to as "Mangrio" unless otherwise indicated) had engaged in
actions that were "willful and malicious" under the Uniform Trade Secrets Act
(UTSA). RCW 19.108.030. The jury awarded $848,000 in damages to Guidance
for the financial harm caused from the misappropriation of trade secrets. The jury
did not find that there had been unjust enrichment. Subsequently, the trial court
denied the defendants' motions for a directed verdict and for judgment as a matter
of law on Guidance's trade secret claim.
applications did not result in closed mortgages. "Pipeline" customers are those
who have open applications with Guidance.
4
No. 75507-2-1/5
After the verdicts, Guidance moved for an award of exemplary damages,
prejudgment interest, and reasonable costs and attorney fees for prevailing on the
UTSA claims. The trial court declined to award exemplary damages to Guidance.
The trial court awarded the corrected amount of $582,378.37 in attorney fees to
Guidance, after considering the amount of time counsel spent on successful
versus unsuccessful claims, the hours reported to the court, and the
reasonableness of counsel's hourly rates. The court also awarded $11,271.85 in
costs to Guidance.
After trial, the court issued an order partially granting Guidance's motion to
seal trial exhibits, sealing exhibits containing customers' restricted personal
identifiers, such as Social Security numbers and telephone numbers, until
presentation of copies with that information redacted. The trial court subsequently
granted Guidance's order for reconsideration of the scope of order sealing
confidential trial exhibits. It further sealed exhibits containing consumer e-mail
addresses, credit scores, and household incomes and liabilities where the
information is tied to an individual in a document, until presentation of copies with
that information redacted.
Mangrio moved for attorney fees for prevailing on the noncompete contract
claims. The court awarded Mangrio $182,135.25 in attorney fees and $5,878.20
in costs. The trial court calculated defense counsel attorney fees using reasonable
5
No. 75507-2-1/6
hourly rates from Guidance's declarations, and not fees charged by Magrio's
counsel.
DISCUSSION
I. Mangrio's Cross Appeal Claims
The linchpin of this case is whether Mangrio misappropriated Guidance's
trade secrets under the UTSA. Therefore, we first address Mangrio's claim on
cross appeal that the trial court erred in denying his motions for judgment as a
matter of law on the trade secret claims. Second, we address Mangrio's claim that
the trial court erred in awarding attorney fees to Guidance. Third, we address
Mangrio's argument that the court erred in granting Guidance's motion to seal
confidential exhibits after trial.
A. Judgment as a Matter of Law
Mangrio argues that the trial court erred in denying his motions for judgment
as a matter of law as to Guidance's trade secret claims. First, he argues that, as
a matter of law, Guidance's claim as stated was not a violation of the UTSA,
because the personal contact lists and Books of Business the former employees
retained when they went to UIF were not trade secrets. He contends that the
personal contact lists were not trade secrets, because Guidance never had
possession of them. And, the Books of Business were not trade secrets, because
all the valuable information they contained was available elsewhere. Second, he
argues there was no substantial evidence that Guidance suffered lost profits, and
6
No. 75507-2-1/7
that Guidance failed to provide a reasonable method to calculate lost profit
damages.
This court reviews de novo a trial court's order denying a motion for
judgment as a matter of law. Estate of Bordon v. Dep't of Corr., 122 Wn.App. 227,
240,95 P.3d 764(2004). In reviewing the ruling on the motion, this court interprets
the evidence against the original moving party and in a light most favorable to the
opponent. Faust v. Albertson, 167 Wn.2d 531, 537-38, 222 P.3d 1208(2009). A
judgment as a matter of law requires the court to conclude that, as a matter of law,
there is no substantial evidence or reasonable inferences to sustain a verdict for
the nonmoving party. Id. at 538. The court must defer to the trier of fact on issues
involving conflicting testimony, credibility of the witnesses, and the persuasiveness
of the evidence. State v. Hernandez, 85 Wn. App. 672,675, 935 P.2d 623(1997).
Overturning a jury verdict is appropriate only when the verdict is clearly
unsupported by substantial evidence. Faust, 167 Wn.2d at 538. Judgment as a
matter of law is appropriate only when there is no substantial evidence to support
a verdict. Id. at 537.
1. The Book of Business Client Lists Were Trade Secrets
To establish a trade secret misappropriation claim, a plaintiff must show that
a legally protected trade secret exists. Ed Nowoproski Ins., Inc. v. Rucker, 88 Wn.
App. 350, 356-57, 944 P.2d 1093 (1997), affd, 137 Wn.2d 427, 971 P.2d 936
(1999). Under the UTSA
7
No. 75507-2-1/8
"Trade secret" means information, including a formula, pattern,
compilation, program, device, method, technique, or process that:
(a) Derives independent economic value, actual or
potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain
economic value from its disclosure or use; and
(b) Is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy.
RCW 19.108.010(4). Whether a customer list is protected as a trade secret
depends on three factual inquiries: (1) whether the list is a compilation of
information;(2) whether it is valuable because unknown to others; and (3) whether
the owner has made reasonable attempts to keep the information secret. Rucker,
137 Wn.2d at 442.
In Washington, generally customer lists belonging to the employer are trade
secrets. See Thola v. Henschell, 140 Wn. App. 70, 78, 164 P.3d 524 (2007)
("Generally, taking an employer's confidential customer list without permission is a
trade secret misappropriation."). However, there is a distinction between customer
lists of names or information that is readily ascertainable and lists that contain
information that the employer expended substantial efforts to identify, cultivate,
and keep confidential. See Robbins, Geller, Rudman & Dowd, LLP v. Office of
Att'v Gen., 179 Wn. App. 711, 722, 328 P.3d 905(2014); see also Calisi v. Unified
Fin. Servs., LLC, 232 Ariz. 103, 106-07, 302 P.3d 628 (2013)(applying Arizona's
UTSA, which employs the same definition of "trade secret").3; see also McCallum
3 Almost all states have enacted the UTSA (or some version thereof) to
make uniform traditional common law trade secret protections. Thola, 140 Wn.
App. at 78. "This chapter shall be applied and construed to effectuate its general
8
No. 75507-2-1/9
v. Allstate Prop. & Cas. Ins. Co., 149 Wn. App. 412, 424, 204 P.3d 944 (2000)(a
key factor in determining whether information has economic value under the UTSA
is the effort and expense that was expended to develop the information).
Mangrio asserts that, because the former employees maintained personal
contact lists which Guidance never possessed, Guidance did not have a
protectable trade secret in the Books of Business. The former employees kept
lists of their own with names and contact information.4 For instance, in former
employee Mangrio's testimony about making initial contact with potential
customers, he states,
Q. . . . Let's say you go to a mosque, you put down your card, you
meet people, and somebody is now interested in -- in getting an
Islamic mortgage, okay? So they contact you. Now, will you --
will you take us through the steps now of what happens?
A. So, initially, when they contact me -- first time usually people call
they ask questions. So I take their number -- phone number,
email [sic] address, and name and enter it in my Outlook Express
immediately. That's how I get my database.
purpose to make uniform the law with respect to the subject of this chapter among
states enacting it" RCW 19.108.910.
4 The Washington Supreme Court has held that trade secrets include copied
lists of customers or information about them, that the former employer is still in
possession of such information, even when the former employees added to such
lists. See J.L. Cooper & Co. v. Anchor Sec. Co., 9 Wn.2d 45, 64-65, 113 P.2d 845
(1941). While J.L. Cooper predates the UTSA, our Supreme Court has held that
the common law rule prohibiting the solicitation of a former employer's customers
with confidential information remains intact under the UTSA. Nowoqroski, 88 Wn.
App. at 357. In J.L. Cooper, the court noted that lists of customers, even when
partly prepared by the defendant, are the absolute property of the employer. 9
Wn.2d at 65. Further, the court noted that employers are entitled to relief when
former employees, for their own interests or for a new employer's, use lists of
customers that were acquired because of their former employment and regarded
as confidential. Id.
9
No. 75507-2-1/10
The evidence clearly established that the former employees compiled lists
of customer information for Guidance while employed by Guidance. In testimony
from witness Suha Zehl, the former chief information officer with Guidance, she
explained that employees enter customer data initially into Guidance's CRM (point
of sales system) system:
Q. . . . And so could you maybe walk me through to how data gets
into these various systems if we started with point of contact with
an account executive and a potential customer?. . .
A. ...[Account executivels are trained and have been told that any
customer information needs to be entered into the CRM even if
the customer was not ready to move forward because we have
to track that information. . . .
Q. ... What use do you make of the data in the CRM system? What
are you doing with that data?
A. The first thing is you need to understand what's -- you know,
what's the required information. To get a prospect, we need their
name, we need their e-mail [sic], we need their phone number
so that we have a prospect or a lead to- -- to move forward with.
The contact information undisputedly became part of the information which
was maintained in the Guidance system in the Book of Business to which the agent
had access. The fact that the agent kept a duplicate, personal copy of contact
information did not change the fact that the information was collected in the course
of employment, not from public sources but from potential clients, and was entered
into Guidance system. Guidance had possession of the information in the Book of
Business.
10
No. 75507-2-1/11
Zehl testified that once customers express interest in prequalification,
employees obtain more of the customer's information for Guidance's LOS
(alternatively loan origination system or loan operating system). Former employee
Mangrio also testified about when he entered information into Guidance's system:
A. . .. If the customer interested [sic], then ask -- then ask them full
information, their other-- like, you know, if they want to prequalify,
then we need how much property — purchase price they want for
the property, how much down payment can there be, and then
there's also good number all [sic] of the information
Q. And then where does that go?
A. That information goes in an LOS system -- where the [sic]
Guidance has an LOS system. . . .
Q. Loan operation—or operating system?
A. Loan operating system, yes.
The evidence showed that the information in the customer lists included items not
available in public records. In testimony about information in Guidance records in
exhibit 44, UIF Chief Operating Officer, Julie Burzynski, states,
Q. . . . So is there anywhere in the public records you can find
individuals who have prequalified?
A. Likely no.
11
No. 75507-2-1/12
And in testimony from former employee Hussain,
Q. Okay. If you have a universe, say, of 5,000 (inaudible). . .
Q. . . . And that universe of contacts, absent information from the
LOS, you would have no way of knowing these individuals'
interests or whether they had been prequalified for a Shariah-
compliant [sic] mortgage?
A. That's correct, yes.
Mangrio contends that the valuable information that the Books of Business
contained was available elsewhere. He asserts that Guidance waived any
protectable trade secret, because information about customers who successfully
obtain a loan or mortgage would be available in the recorded deed or mortgage.
He relies on testimony from Burzynski, in which she states,
Q: . . . But I want to go back to the public record part of your
testimony and the deeds.. . .
Q: -- and the mortgages. Is that something new?
A. No. They've been doing that for -- actually I don't know --
years and years and years and years these have been part of
the public record. We see deeds from 50 years ago.
There are all kinds of different things that would come up
where we would get a copy of the things on public record. ...
Q. . . . UIF could obtain records of all Guidance Residential
transactions from the beginning of Guidance Residential's
existence?
No. 75507-2-1/13
A. If we wanted to, we could -- we could go out and get a copy
of everything that was publicly recorded, yes.
He further argue that third-party companies could provide the customer information
for a fee.
But, even if Mangrio could have compiled a list of former Guidance
borrowers from public records, Mangrio has not demonstrated that all of the other
information in the Book of Business files was publicly available. Nothing in a
recorded deed would indicate that the mortgage was Sharia-compliant, a factor
that distinguishes Guidance and UIF's customer base from mortgage customers
in general. The deed information would not have identified Guidance's customers
in the process of obtaining a mortgage or loan. Nor has he established that the
compilation of data—the linking of individual interest in Sharia lending, their
income, assets, liabilities, prequalification, credit scores, Social Security numbers,
prior history with Guidance and the like—was publicly available. Moreover, the
compilation of this information in the Book of Business gave the information
enhanced value. See Nowogroski, 137 Wn.2d at 449-50.
There was also evidence that Guidance took reasonable steps to protect its
trade secrets. At trial, Guidance presented evidence of its policies requiring
employees to keep information about clients confidential, such as the transaction
code of ethics in the employee handbook. The code instructs employees to
"[m]aintain absolute confidentiality of all consumers, as well as other 'inside
information" and to "[m]aintain the confidentiality of the underwriting process and
13
No. 75507-2-1/14
system." The former employees signed forms acknowledging their receipt of the
employee handbook. There was testimony from former employee Hussain that he
acknowledged Guidance's privacy and confidentiality policies while employed:
Q. Okay. If we look at Exhibit 11, one of the things that it discusses
is an employee code of conduct, correct?
A. Correct.
Q. And if you look on page 34, which is page 37 of the document,
there's actually a specific policy section dedicated to
confidential information and nondisclosure, correct?
A.-Yes; correct.
Q. And this policy indicates that it applies both during employment
and after you leave your employment, correct?
A. Correct.
Q. And that you must promptly return confidential documents and
other materials you may have, correct?
A. Correct.
Q. And that you're not permitted to retain copies of any material,
right?
A. Correct.
Q. It even tells you if you have questions, you should consult with
the legal department. Maybe a little small there. Section 7
there, right?
A. (No audible response.)
14
No. 75507-2-1/15
Q. Did you ever have any questions about this? Do [sic] you ever
consult the legal department about what was or wasn't
considered protected under this policy?
A. No, I didn't.
Q. And then if we look in this same section, it appears this
document goes on to explain a couple of particular types of
information[5] that Guidance considers confidential, correct?
A. Sure.
Q: Was that a "yes," correct?
A. Guidance considering it confidential, yes.
Q. Okay. And you had acknowledged that you were going to abide
by this policy, right?
A. Correct.
Q. And one of the items is customer lists that we see?
A. Correct.
5 The employee handbook in this section states:
The protection of confidential business information and trade secrets
is vital to the interests and the success of Guidance Residential.
Such confidential information includes, but is not limited to, the
following examples:
• Compensation data
• Computer processes
• Computer programs and codes
• Customer lists
• Customer preferences
• Financial information of any type, including Guidance
Residential and customer information
This indicates that Guidance clearly considered the Books of Business,
customer lists and customer information, confidential.
No. 75507-2-1/16
In addition to its written policies, Guidance notified its customers of its
confidentiality policy and its training of employees regarding its policies. Heidi
Partida, vice president of human resources employee at Guidance, testified,
Q. ... And, Ms. Partida, I think you had already started explaining
this, but this is something that you provide to your customers,
correct?
A. Yes, it is.
Q. And what -- you can read this or summarize for me -- do you
tell your customers about what you will or won't do with their
information?
A. We are committed to protecting our customers' privacy.
Protecting their trust in us. They -- this document lets them
know that during the course of our transaction with them, we
are going to be collecting personal information -- Social
Security number,financial status, pay information, all of these
things -- that would not be available anywhere else. And we
are committed to protecting their privacy and that information,
so this is what we tell them. We are very highly regulated.
We -- we need to let them know their information is safe with
us.
Q. And it also appears to indicate on this document that you
regularly conduct training sessions.
Is that something that's (inaudible)?
A. Yes, we do.
It's not my area of responsibility. There is a compliance
department that does that. But also the training -- all account
executives and regional managers and national managers
who are required to be licensed have to go through additional
training and continuing education training by the states every
year to let them know what this is about and the importance
of customer privacy.
16
No. 75507-2-1/17
Q. You mentioned licensing.
Do field sales employees of Guidance have to be
licensed?
A. Yes, they do.
Q. And how about unlicensed people? Do you ever have
situations where there were unlicensed people who were
working in the field for Guidance?
A. Not for Guidance, no.
And, in terms of the licensing requirement, Hussain testified,
Q. And what did that licensing entail?
A. After the real estate crisis that we went through, the laws now
require every loan originator to have a federal license, and
you have to get this license first. You have to take 20 hours
of classroom courses, and then you have to do some
fingerprints and some other requirements. And once you fulfill
them and you pass an exam, then you become NMLS
[nationwide mortgage licensing system] federally licensed,
and then there are some states that require their own specific
licenses as well.
Q. And as part of that licensing or to maintain your license, do
you have to take continuing education?
A. Yes, you do.
Q.
What subject maters are covered in these (sic)
licensing-required education?
A You know, I don't remember. I took the 20-hour course back
in 2008, 2009. They cover various things, including, as you're
leaning towards, ethics and so forth.
So, yeah. It's -- it covers -- it covers a gamut of subject
matter the government wants you to learn and understand.
No. 75507-2-1/18
Mostly it has to do with fraud prevention and how you treat
customers and -- and so forth. That's what the gist of the
training is.
Q. And do they talk about customer privacy?
A. I'm sure they do, yeah, because customer privacy must be
part -- I don't remember exactly, but I'm -- I'm sure customer
privacy is part of it. You have to protect customers' personal
information, and you have to shred it as soon as it will -- the
loan is done.
So you can't hang on to people's paychecks and W-2s and so
forth, so all of that has to be shredded immediately. There are
some very specific rules. You can't do certain things and so
forth, yes.
Therefore, there was substantial evidence before the jury that the'Books of
Business were compilations of information, that they contained valuable customer
information that was not readily ascertainable (even if a portion of the information
was publicly available), and that Guidance took reasonable steps to ensure the
confidentiality of its customer lists. These are the three elements of a trade secret.
See Nowoqroski, 137 Wn.2d at 442.
We conclude that the Books of Business were trade secrets.
2. The Trade Secrets were Misappropriated
The portion of the UTSA's definition of "misappropriation" that applies here
proscribes the disclosure or use of a trade secret of another without express or
implied consent by a person who, at the time of disclosure or use, knew or had
reason to know his or her knowledge of the trade secret was acquired under
circumstances giving rise to a duty to maintain its secrecy or limit its use. RCW
19.108.110(2)(b)(ii)(B). A former employee misappropriates an employer's trade
18
No. 75507-2-1/19
secrets by soliciting customers from a confidential customer list that has
independent value, because its contents are unknown and subject to reasonable
efforts to keep secret. See Nowoqroski, 137 Wn.2d at 449-50. The UTSA makes
no distinction about the form of trade secrets; whether the information is on a
compact disk, a hard paper copy, or memorize by the employee, the inquiry is
whether it meets the definition of a trade secret and whether it was
misappropriated. Id.
The evidence before the jury clearly established that before the former
employees left Guidance, they downloaded and e-mailed the Books of Business
they could access to their personal accounts. Former employee Mangrio testified,
Q. . . . Mr. Mangrio . . . you left Guidance on March 31, 2011,
correct?
A. That's correct.
Q. And do you recall the last time that you downloaded your book
of business file. . . .
A. I don't remember the exact date, probably March. Because
we used to update every month, every two weeks. When our
-- anything change [sic], happen, I used to refresh it.
Q. And after you updated your book of business file in the March
time frame, you emailed [sic] that to yourself, correct?
A. That's correct.
There was also evidence that former employee Hussain directed other former
employees to download the Book of Business before leaving Guidance. Junaid
19
No. 75507-2-1/20
lqbal, an employee who left Guidance, joined UIF, and at the time of trial had
returned to Guidance testified,
Q. When you left, did you download your book of business?
A. Yes.
Q. Why did you do that?
A. In a recent conference call prior to departure, it was asked of
us by Aijaz [Hussain].
At UIF, Hussain directed Guidance's former employees to contact "closed
customers" from Guidance, to generate business for UlF.6 Hussain testified,
Q. And that's your second day at UIF, correct?
A. Sure . . . .
Q. And on that second day of work, you're telling them to—that
you've created a letter for their closed customers, right?
A. Correct.
Q. And that's the customers that they worked with when they
were at Guidance, correct?
A. Yes. Their customers they brought to Guidance by—through
their marketing efforts, so, yes.
6 Former employee Hussain sent an e-mail to the other former employees
who had joined UIF, Mangrio, lqbal, Zeeshan Ali, and Omer Mahmood,with a letter
for the team to send to the list of closed customers from Guidance. The letter
Hussain directed the other employees to send went beyond a professional
announcement announcing a change of affiliation and actively solicited business
for UIF. See Nowogroski, 137 Wn.2d 427, 440 fn.4 (distinguishing former
employees active solicitation of customers and professional announcement of a
change of employment). It stated, in part,"UIFC offers financing under two Islamic
models . . . in most cases more competitively priced than Guidance's Musharaka
model."
20
No. 75507-2-1/21
Hussain also assisted Guidance's former employees solicit other categories of
Guidance customers, such as those listed as withdrawn, declined, and pipeline.
Hussain testified,
Q. . . . In looking at Exhibit 34, is this your recollection? Mr.
Mangrio reported back to you that he had send his emails [sic]
to his closed customers, right?
A. Correct.
Q. And then he asks you to start drafting an email [sic] so he can
start emailing [sic] pipeline and different groups, right?
A. Correct.
Q. And these pipeline and different groups, we're talking about
the groups that are in the book of business file, right?
A. Yeah. Anwer [Mangrio] has in his -- whatever list he has. . . .
Like I said, I mean everybody did their own marketing.
I'm just helping him draft a general letter about the company,
and he has moved from Guidance to UIF.
Q. Okay. But here, at least, he's asking you to create an email
[sic]for pipeline, and you tell him you'll work on it today, right?
A. Correct.
Q. And then later still, your group asks you or you create for them
another type of email [sic] to go out to withdrawn and declined
customers, right?
A. Correct.
Q. And, again, you tell them that these letters have to go out
ASAP [(as soon as possible)], right?
A. Correct.
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No. 75507-2-1/22
The evidence also clearly established that the former employees used
Guidance's customer information at UIF to generate business for UlF.7 For
instance, former employee Mangrio testified,
Q. And so you would agree with me, then, that you're providing
Ms. Ahmad with your book of business from Guidance to use
to contact customers to generate business for UIF?
A. Yes . . . .
Q. And, Mr. Mangrio, you closed a number of mortgages at UIF
relating to the individuals whose contact information you sent
to Ms. Ahmad, correct?
A. Yes.
Substantial evidence allowed the jury to find that Guidance's former
employees misappropriated Guidance's trade secrets and used them to solicit
customers while at UIF.
3. Substantial Evidence of Damages
Mangrio argues that Guidance failed to provide substantial evidence of lost
profits caused by misuse of trade secrets, and failed to provide a reasonable
method to calculate the amount of such damages. A plaintiff may recover lost
profits if the evidence establishes the damages with reasonable certainty. Eagle
Group, Inc. v. Pullen, 114 Wn. App. 409, 418, 58 P.3d 292(2002). The reliability
of such evidence is for the trier of fact to determine. Id. at 419.
7 Former employee Hussain testified that he had an intern at UIF, Smayyah
Baig, make lists of the contacts he retained from Guidance lists, so that he could
send out blast e-mails with special offers from UIF.
22
No. 75507-2-1/23
Both parties presented testimony as to their theories of proper damages.
Guidance presented lost profits and unjust enrichment8 theories of damages. The
lost profit calculation was the number of client transactions lost times the average
profit per transaction. Guidance provided testimony that between 170 (Zehl) and
174(Viswanadhan Kumar) of Guidance's customers listed in the misappropriated
Books of Business completed transactions with UIF in 2011-2013. Mangrio's
expert, Todd Menenberg, testified that lost profits for Guidance could be attributed
to as few as 18 or 22 transactions. Kumar testified for Guidance that, on average,
each contract for Guidance produces $10,477. Harold Martin, for Guidance,
testified that lost profits for Guidance on each lost contract was $11,147. On the
other hand, Mangrio testified that Guidance made approximately $10,000 per
transaction. Menenberg provided expert testimony that lost profits per customer
transaction was $10,600. Kumar asserted that retention rates were historically 68
percent. This is the number of customers who would be expected to refinance with
Guidance within five years. Menenberg testified that number was inflated by 56 to
64 percent (making it roughly only 24-31 percent). Guidance's former chief
financial officer and chief credit officer, Nicholson Minardi, testified that by 2013
the retention rate was at 47.24 percent.
8 The jury did not award unjust enrichment damages, and this is not
appealed.
23
No. 75507-2-1/24
The method of determining damages was reasonable. The evidence
presented allowed the jury to apply that method. The jury is free to accept or reject
the evidence provided, so long as the verdict is within the range of the evidence.
See Nowociroski, 88 Wn. App. at 359. It appears the jury awarded lost profits to
Guidance for 80 customer transactions, accepting Mangrio's expert's testimony of
$10,600 per lost transaction.9 The jury award of $848,000 is within the range of
evidence provided.
4. Conclusion
While Mangrio refutes Guidance's trade secret claims, the Books of
Business retained by the former employees when they left Guidance were trade
secrets. The former employees misappropriated this information to solicit
Guidance's customers. There was substantial evidence before the jury that this
misappropriation caused Guidance to suffer lost profits, and the jury appropriately
awarded damages within the range of evidence provided. We conclude that the
trial court properly denied Mangrio's motion for judgment as a matter of law as to
Guidance's trade secret claims.
B. Attorney Fees on Trade Secret Claims
Mangrio claims that the trial court erred when it awarded Guidance attorney
fees for prevailing on its claims under the UTSA.
9 The record does not reveal the jury's computation. Whether coincidence
or not, 170 clients times 47.24 percent retention rate rounds to 80 customers.
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No. 75507-2-1/25
Since Guidance prevailed on its trade secret claims, the trial court is entitled
to award attorney fees under the UTSA. RCW 19.108.040. The trial court awarded
Guidance attorney fees using the lodestar methodology. It determined the hours
Guidance's counsel claimed and the hourly rates charged by Guidance's counsel
were reasonable. The trial court excluded work on unsuccessful claims.
The trial court did not abuse its discretion in making this award of fees.
C. Order Granting Motion to Seal Trial Exhibits
Mangrio argues that the trial court erred in granting Guidance's motions to
seal trial exhibits. He argues that Guidance waived any right to request to seal the
information after it displayed the information in open court. Additionally, he argues
that the court did not find that the unsealed information represented a serious and
imminent threat to an important interest.
A court record may be sealed if a court enters written findings that the
specific sealing or redaction is justified by identified compelling privacy or safety
concerns that outweigh the public interest in access to the court record. GR
15(c)(2). A trial court's decision to a seal a court record is reviewed for abuse of
discretion. Hundtofte v. Encarnacion, 181 Wn.2d 1, 6, 330 P.3d 168 (2014). A
trial court abuses its discretion when its decision is manifestly unreasonable or
exercised on untenable grounds. Id.
A court must analyze a motion to seal using the five-step approach outlined
in Seattle Times Co. v. lshikawa, 97 Wn.2d 30, 37-39, 640 P.2d 716 (1982).
25
No. 75507-2-1/26
Hundofte, 181 Wn.2d at 7. First, the party seeking to seal court records must show
a serious and imminent threat to some important interest, if not to protect a right to
a fair trial. Id. at 8. Second, anyone present when the motion is made must be
given an opportunity to object. Id. Third, the court must determine whether the
requested method is the least restrictive means available and effective in
protecting the interests threatened. Id. Fourth, the court must weigh the
competing interests of the party and the public, and it must consider alternative
methods to protect the interest. Id. Fifth, the order must not be broader than
necessary to protect the interest. Id.
Mangrio challenges only one Ishikawa factor in this case, that the party
requesting to seal records must show a serious and imminent threat to some
important interest. The court granted sealingl° of trial exhibits that contained
nonparty consumer e-mail addresses, credit scores, and/or household incomes
and liabilities in circumstances where the information was tied to an identifiable
10 Initially, the court sealed exhibits that contained restricted personal
identifiers, i.e., Social Security numbers and telephone numbers. Upon
reconsideration, the trial court expanded its initial sealing order, sealing exhibits
containing e-mail addresses, credit scores, and/or household incomes and
liabilities, until presentation of documents with the specific information redacted.
When asked for clarification at the first hearing regarding sealing, the court stated,
"The unredacted documents will remain in the court record sealed... so the public
can't look at them. The redacted documents will remain in the court record ... to
be seen . . . with references to the ones that they can't see." The record does not
indicate whether any party presented copies with redactions. The record that
reached this court did not have redactions. Mangrio's brief regards the court's
action as sealing. Guidance's brief refers to redaction and sealing
interchangeably. We treat this issue as if the exhibits remain sealed.
26
No. 75507-2-1/27
individual within a document. The trial court found that this was appropriate and
warranted because
important public policy reasons support keeping the requested
materials out of the public view, including an interest in protecting
consumer privacy and an interest in maintaining public trust in the
safety and security of information provided to financial institutions in
connection with contemplated transactions.
The court's written findings satisfy the first Ishikawa factor, a serious and imminent
threat to some important interest.
Citing Woo v. Fireman's Fund Insurance Co., 137 Wn. App. 480, 154 P.3d
236(2007), Mangrio argues that Guidance waived its right to restrict the future use
of information when it displayed it in open court. In Woo, this court found that the
information the party wanted to seal, insurance company manuals that had been
used as exhibits at trial, did not qualify as trade secrets. Id. at 492. It also noted
that Fireman's Fund did not make reasonable efforts to maintain their secrecy, as
it did not move to seal the exhibits until two years after they had been used at trial.
Id. at 491. Because the manuals were not trade secrets, and Fireman's Fund did
not present a compelling interest to seal the information, the court found that the
trial court abused its discretion in granting the request to seal them. Id. at 493.
Woo is distinguishable because the records in that case were not trade
secrets, whereas here there was a finding that the customer lists were trade
secrets. The UTSA specifically provides for sealing trade secrets used in the
action. RCW 19.108.050. Moreover, the trial court sealed the trial exhibits with
27
No. 75507-2-1/28
private consumer information because it found a compelling interest in protecting
consumer privacy and maintaining public trust in the safety and security of
information provided to financial institutions. Further, in Woo, this court found that
Fireman's Fund did not make reasonable efforts to maintain the exhibits' secrecy,
as it waited two years after trial to move the court to seal. Here, there was a
hearing on the sealing of exhibits within a month and a half of the trial verdict. This
delay was not unreasonable. Thus, the reasoning in Woo does not require the trial
court to find that a party waived confidentiality, either from using the information in
open court or from making a motion posttrial to redact or seal.
The court did not abuse its discretion in redacting and sealing consumers'
private information in trial exhibits after the trial.
II. Guidance's claims
Guidance argues the trial court abused its discretion in declining to award
exemplary damages. Second, Guidance argues the trial court erred in its method
of calculating attorney fees awarded to Mangrio for prevailing on breach of contract
claims. Third, Guidance argues that it is entitled to attorney fees for prevailing on
appeal.
A. Exemplary Damapes
Guidance appeals the trial court's decision not to award exemplary
damages under the UTSA. Under the Act, if willful and malicious misappropriation
28
No. 75507-2-1/29
exists, a trial court may award exemplary damages in an amount not exceeding
twice any award of damages recovered for actual loss. RCW 19.108.030(2).
A trial court's decision to award exemplary damages and fees under the
UTSA is discretionary and we will not reverse the amount unless the trial court
decision is clearly erroneous. Boeing Co. v. Sierracin Corp., 108 Wn.2d 38, 61-
62, 738 P.2d 665 (1987). Guidance argues that because the jury found Mangrio's
actions willful and malicious, the trial court abused its discretion in failing to award
exemplary damages.
Guidance first points to Boeing. In Boeing, the court affirmed the award of
exemplary damages because the record showed that Boeing knew its actions were
of "dubious legality," and it engaged in an effort to disguise its misappropriation.
Id. at 62. Guidance also cites to Eagle Group. In Eagle Group, the court affirmed
the award of exemplary damages after the jury found the defendants acted willfully
in their misappropriation. 114 Wn. App. at 423-24. There, a former employee of
Eagle Group took employees, clients, and files to another general contracting firm.
Id. at 412.
Mangrio relies on Nowogroski, in which this court affirmed the denial of
exemplary damages on successful trade secret claims under the UTSA. 88 Wn.
App. at 360. However, Nowogroski contains no discussion of the record on which
the trial court made its determination to deny exemplary damages. Id. It merely
29
No. 75507-2-1/30
indicates that Nowogroski had not shown the decision was clearly erroneous. Id.
It does not direct a result in this case.
The trial court's findings, as well as the record, indicate that Guidance is
entitled to seek exemplary damages under the UTSA. RCW 19.108.030(2). The
jury found that Mangrio acted willfully and maliciously. The court noted that the
actions were "calculated and deliberate" in misappropriating Guidance's trade
secrets. This language can be found in a case to which the Boeing court cites,
Sperry Rand Corp. v. A-T-0, Inc., 447 F.2d 1387 (4th Cir. 1971). Boeing, 108
Wn.2d at 62. In Sperry Rand, the court upheld exemplary damages because the
record showed the defendants' actions were " 'calculated,' deliberate,' and
'reprehensible.'" Id. at 1394-95. Given the jury's finding, here, that the
misappropriation was "willful and malicious," as well as the court's finding that the
actions were "calculated and deliberate," exemplary damages are proper.
In its judgment denying exemplary damages, the trial court made the
following findings:
1. The jury found that the defendants each acted willfully and
maliciously in misappropriating the plaintiff's trade secrets;
2. The defendants' actions in misappropriating the plaintiff's trade
secrets was calculated and deliberate.
3. Considering all the facts and circumstances, including the
plaintiff's modest success, exemplary damages are not
warranted.
The trial court's third finding is apparently the basis for denial of exemplary
damages: "Considering all the facts and circumstances, including the plaintiff's
30
No. 75507-2-1/31
modest success, exemplary damages are not warranted." It is unclear from the
record whether the trial court limited its consideration of facts and circumstance to
those of the trade secrets claim, rather than the totality of the litigation, in finding
that Guidance had "modest success." For instance, the fact that Guidance did not
prevail on its contract claims is not a proper consideration as to exemplary
damages.11 Nor is the fact that Guidance's recovery for lost profits was not
accompanied by an additional award for unjust enrichment. It is not the amount of
recovery that triggers the eligibility for exemplary damages, it is the finding of willful
and malicious conduct that triggers it, regardless of the size of the recovery for
actual or enrichment damages. Excluding consideration of the contract claims and
alternative damages theory, it is not clear factually why the trial court regarded the
award for $848,000 in actual damages as "modest success".
An award of exemplary damages12 is not mandatory under the UTSA when
a finding of willful and malicious conduct is made. RCW 19.108.030(2). The
purposes of awarding punitive, or exemplary, damages are to punish the person
doing the wrongful act and to deter him and others like him from similar conduct in
the future. RESTATEMENT (SECOND) OF TORTS § 908(1) & comment a (Am. LAW
INSTITUTE 1979). Here, the trial court's order contains no discussion of deterrence
11 RCW 19.108.030 makes no mention of contract claims, but ties exemplary
damages to willful and malicious misappropriation. If willful and malicious
misappropriation exists, the court may award exemplary damages in an amount
not exceeding twice any award for actual loss caused by the misappropriation. Id.
12 The term, "exemplary damages," is interchangeable with "punitive
damages." Black's Law Dictionary 472, 474, 692(10th ed. 2014).
31
No. 75507-2-1/32
or punishment. On this record, we cannot determine that the trial court's decision
was not clearly erroneous.
We vacate the trial court's decision declining to award exemplary damages
and remand for reconsideration of this issue.
B. Attorney Fees under Breach of Contract Claims
Guidance argues that the trial court erred in calculating the award of
attorney fees to Mangrio for prevailing on Guidance's breach of contract claims.
First, it argues that, under the Guidance employee contracts, Virginia law must
govern the court's method of determining attorney fees.13 Second, it argues that
the trial court should have limited its award to the amounts actually incurred by the
defendants on the breach of contract claims, pursuant to the contracts.14 Guidance
asserts that the trial court erroneously calculated defendants' attorney fees using
the reasonable hourly rate put forth by Guidance, instead of the actual fees
incurred. Mangrio asserts that Washington law governs the correct method of
determining attorney fees on the breach of noncompete contract claims.
13 The agreement between Guidance and its former employees states, in
pertinent part, "This Agreement shall be construed in accordance with, and all
actions arising under or in connection therewith shall be governed by, the internal
laws of the Commonwealth of Virginia (without reference to conflict of law
principles)."
14 Under "Attorneys' Fees," the contract states, "Should either 1 or the
company.. . resort to legal proceedings to enforce this Agreement, the prevailing
party in such legal proceeding shall be awarded, in addition to such other relief as
may be granted, attorneys' fees and costs incurred in connection with such
proceeding."
32
No. 75507-2-1/33
This court reviews a trial court's determination of the amount of fees
awarded to a party legally entitled to such fees for abuse of discretion. Tradewell
Grp., Inc. v. Mavis, 71 Wn. App. 120, 127, 857 P.2d 1053(1993). There must be
an actual conflict between the laws of Washington and the laws of another state
before Washington courts will engage in a conflict of laws analysis. Freestone
Capital Partners LP v. MKA Real Estate Opportunity Fund I, LLC, 155 Wn. APP.
643, 664, 230 P.3d 625 (2010).
Guidance and Mangrio agreed at the trial court level that Virginia law
governed the breach of contract claims. The trial court granted the defendants'
motion for summary judgment, finding that the noncompete clauses were void as
a matter of controlling Virginia law.
In Virginia law, there is a distinction between contracts that provide for
reasonable attorney fees and attorney fees incurred. The use of the term
"incurred" in the contract is a clear expression of the parties' intent to limit attorney
fees to those actually incurred by the prevailing party. Safrin v, Travaini Pumps
USA Inc., 269 Va. 412, 419, 611 S.E.2d 352 (2005). Federal district courts have
also interpreted Virginia law in this manner. See Airlines Reporting Corp. v.
Sarrion Travel, Inc., 846 F. Supp. 2d 533, 539 (E.D. Va. 2012). There, the court
found that when a contract states that a party is liable for attorney fees and costs
actually incurred, it ensures that the fees subject to recovery are limited to those
fees actually incurred, or will be incurred for that specific purpose. Id. In that case,
33
No. 75507-2-1/34
the court awarded attorney fees using the rate for the time actually expended. Id.
at 540. And, because judgment had not been collected, it doubled the award in
expectation of necessary future legal services. Id. at 540-41.
In Washington, when a contract includes an attorney fee provision, it is the
terms of the contract to which the trial court should look to determine if such an
award is warranted. Kaintz v. PLG, Inc., 147 Wn. App. 782, 790, 197 P.3d 710
(2008). Washington also heeds the method set forth in the contract to determine
the award of attorney fees, only turning to the lodestar method in its absence.
Crest Inc. v. Costco Wholesale Corp, 128 Wn. App 760,773, 115 P.3d 349(2005).
Thus, we are not faced with an actual conflict of law. We look to the plain language
of the terms in the attorney fees provision in the contract.
Here, the court awarded Mangrio attorney fees for actual hours spent on
the breach of contract claims on which they prevailed. Instead of using the hourly
rates customarily charged by Mangrio's counsel, the court used the hourly rates
charged by Guidance's counsel. Therefore, the amount awarded, $182,135.25,
does not reflect the fees actually incurred by Mangrio.
We reverse the award of fees, and remand to the trial court to determine an
award of attorney fees for Mangrio that reflects the fees actually incurred in
litigating the breach of contract claims.
34
No. 75507-2-1/35
C. Attorney Fees on Appeal
All parties request attorney fees associated with this appeal. Pursuant to
RAP 18.1, this court may award attorney fees requested by the party prevailing on
an issue. This court awards attorney fees to the prevailing party on the basis of a
private agreement, a statute, or a recognized ground of equity. Buck Mountain
Owner's Ass'n v. Prestwich, 174 Wn. App. 702, 731, 308 P.3d 644 (2013).
Guidance has prevailed on appeal and is entitle to reasonable attorney fees and
costs, subject to compliance with RAP 18.1.
WE CONCUR:
35