Free Response to Motion - District Court of Colorado - Colorado

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

Civil Action No. 01-cv-1644-REB-CBS CARTEL ASSET MANAGEMENT, a Colorado corporation, Plaintiff, vs. OCWEN FINANCIAL CORPORATION, a Florida corporation; and OCWEN FEDERAL BANK FSB, a subsidiary of OCWEN FINANCIAL CORPORATION, Defendants.

RESPONSE IN OPPOSITION TO "DEFENDANTS' MOTION FOR RULING LIMITING SCOPE OF SECOND TRIAL"

Plaintiff, Cartel Asset Management ("Cartel"), through its undersigned counsel, G.W. MERRICK & ASSOCIATES, LLC, respectfully Responds in Opposition to "Defendants' Motion for Ruling Limiting Scope of Second Trial" (the "Motion to Limit Scope") filed on June 16, 2008.

I.

Introduction

Defendants' Motion to Limit Scope is the follow on to "Defendants' Response in Opposition to Cartel's Motion for Direction from District Judge Respecting Plaintiff's Request to Conduct Additional Discovery Relating to the Period Following the Initial Trial." In the earlier Response in Opposition to Cartel's Motion, Defendants urge that Cartel be barred from conducting discovery respecting the ill-gotten gains/unjust

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enrichment derived in the period following the initial trial from the theft of Cartel's valuable trade secret. 1 In their follow on Motion to Limit Scope, the Defendants seek an Order of this Court "limiting the evidentiary scope" of the retrial. Defendants' Motion to Limit Scope effectively seeks an Order of this Court immunizing a thief from liability for the ill-gotten gains/unjust enrichment accruing in the period following the initial trial.

II.

The "Procedural History" in the Motion to Limit Scope is Misleading Defendants Motion to Limit Scope contains a putative "Procedural

History" that is materially incomplete -- and misleading. More particularly: Following the initial trial in this matter, the jury returned a verdict, in the aggregate amount of nearly $9 million (actual and punitive damages) in favor of Cartel respecting the theft of its highly valuable trade secret by Ocwen Federal Bank. Following entry of the original judgment on the jury verdict, the trial court vacated that judgment, and thereafter entered a judgment n.o.v. An appeal followed. On September 18, 2007, the United States Court of Appeals for the Tenth Circuit ruled. Cartel Asset Management v. Ocwen Financial Corp., 2007 U.S.App. LEXIS 22346 (10th Cir. Sept. 18, 2007). The Tenth Circuit: (a) affirmed the entry of judgment against the Bank on the issue of liability for theft of Cartel's highly valuable trade secret, id. at **65, (b) affirmed the determination that an award of punitive damages against the Bank is fully justified, Order of November 21, 2007, and (c)

The trade secret was a listing of real estate professionals who were ready, willing and able to provide specialized valuations of residential real property on a highly expedited basis at a very low cost ("BPOs"). The listing was national in scope and sorted by residential zip codes. The BPOs are sold at substantial profit to residential lenders and institutions that purchase mortgage chattel paper in the secondary market.

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remanded for this Court to conduct a new trial on damages against the Bank. Cartel Asset Management 2007 US.App. LEXIS 22346 at **50-51, 65. The Tenth Circuit concluded that the jury did "have sufficient evidence to reasonably infer the Bank used the [Cartel's trade secrets] to purchase BPOs and resell them for a profit." Id. at **30-31, 38. The Tenth Circuit also determined that Colorado law permits plaintiffs to recover -- as an appropriate measure of damages for theft of trade secrets -- the "unjust enrichment," "ill-gotten gains" or "benefit" derived by thief as a result of the theft. Id. at **23, 25 and 29. In addressing the proof of "unjust enrichment," "ill-gotten gains," or "benefit" derived by the Bank from its theft of Cartel's valuable trade secret, the Tenth Circuit observed that Cartel would generally be required to prove the net profit realized by the Bank in respect of the Bank's BPO product line. Id. at **37-41. However, Ocwen Realty Advisors, the division of the Bank in which the Bank's valuation business (including BPO business) was housed, id. at **7, "asserted it did not retain records allocating the profits within its product lines." Id. **37. Thus, the Tenth Circuit opined that "[b]ecause the absence of evidence is directly attributable to [Ocwen Realty Advisors'] failure to provide the data, it was not unreasonable for [Cartel's expert witness] to apply the same profit ratio for all product lines to [the BPO product line]." Id. at **41. Ultimately, the Tenth Circuit determined that a new trial on damages is necessary because in the first trial there was not sufficient evidence for Cartel's expert witness in estimating the amount of the ill-gotten gains to assume four-years as the time it would take the Bank to develop a national network of realtors providing BPOs absent the

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Bank's theft of Cartel's network (its valuable trade secret). Id. at **42-51. It should be noted, however, that notwithstanding the assertion by the Ocwen Defendants that Mr. Tenbrook relied exclusively upon Mr. Coats' testimony respecting the period required to build a national network of BPO providers, Motion to Limit Scope at pp. 3-7, the Tenth Circuit's opinion refutes this assertion. Cartel Asset Management 2007 US.App. LEXIS 22346 at **42 ("Tenbrook stated he based this [4 year] assumption on his discussions with Coats, which was further substantiated by Gilbert's testimony ...").

III.

The Tenth Circuit Has Already Set the "Scope" of the Retrial The Ocwen Defendants argue that at a hearing on June 16, 2008,

Magistrate Judge Shaffer suggested that the Ocwen Defendants file a motion with this Court to entreat the District Judge to set the "evidentiary scope" of the retrial. Motion to Limit Scope at pp. 8-11. The Ocwen Defendants urge that the District Judge now declare that the parties be bound by "the witnesses, exhibits and legal theories identified in the Final Pretrial Order." Id. at p. 14. There are at least two obvious -- and fatal -deficiencies in the Motion to Limit Scope. A. Scope" of the Retrial. The Tenth Circuit Has Already Determined the "Evidentiary First, regardless of the aspiration of the Ocwen Defendants' to

narrow the "evidentiary scope" of the retrial, the evidentiary scope on retrial has already been established by the Tenth Circuit's ruling/opinion remanding this case for a new trial on damages. The Tenth Circuit instructs that all of the ill-gotten gains/unjust enrichment are to be disgorged by the thief (there is no immunity for gains/enrichment accruing in the period following the original trial). More particularly, the Tenth Circuit instructed that "[t]he Colorado Uniform Trade Secrets Act permits plaintiff to recover for both

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compensatory damages and [all of] the defendant's profits from the misappropriation." Cartel Asset Management, 2007 U.S.App. LEXIS 22346 at **23, quoting Sonoco Prods. Co. v. Johnson, 23 P.3d 1287, 1289 (Colo.App. 2001). Accord, Mineral Deposits, Ltd. v. Zigan, 773 P.2d 606, 608 (Colo.App. 1988). Thus, the "evidentiary scope" of the retrial is all evidence germane to the amount of ill-gotten gain/unjust enrichment benefit derived as a result of the theft of Cartel's trade secret (regardless of whether that gain/enrichment accrued before or after the original trial). B. Cartel is not Modifying the "Damage Theory" for Retrial. In an

effort to avoid the Tenth Circuit's directions for retrial, the Motion to Limit Scope introduces the second error. The Ocwen Defendants profess that Cartel is "altering" or "modifying" its damage theory from that set forth in the original Pretrial Order. Motion to Limit Scope at pp. 11-14. In a word -- poppycock. The damage theory remains identical to that tried in the first case ­ measurement and recovery of all of the ill-gotten gains/unjust enrichment that resulted from the theft of Cartel's valuable trade secret. However, measurement of the ill-gotten gains/unjust enrichment is not a mathematically precise exercise. As this Court has observed, "[d]amages in trade secret appropriation cases are often difficult to ascertain with certainty." NxGen, LLC v. DeJonge, 2007 U.S. Dist. LEXIS 70170 at p. *8 (Sept. 20, 2007). But "[t]he fact that such damages may be difficult to pin down should not militate in favor of the wrongdoer." Telex Corp. v. Intern'l Bus. Machines Corp., 510 F.2d 894, 932 (10th Cir. 1975). At the first trial, Cartel's expert witness, James Tenbrook, estimated the ill-gotten gains/unjust enrichment by calculating an estimate profit from the sale of BPOs realized by Ocwen Federal Bank during a four year period ending in 2004 (this assumes

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that without the theft of Cartel's valuable trade secret it would have taken the Bank four years to develop a national network of real estate professionals who are ready, willing and able to produce BPOs). It must be obvious, however, that if there were ill-gotten gains that accrued in the period following the trial (such as increases in the value of the Bank's valuation business line of products) these could not have been known or shared with Mr. Tenbrook for him to include in his calculations for the first trial. Conversely, if there were no such gains/enrichment in the period following the trial that fact tends to support Mr. Tenbrook's use of a four-year period as part of his calculations. Either way, ill-gotten gains/unjust enrichment benefits accruing in the period following the initial trial is a valid component of Cartel's damages. excluded at the retrial.. WHEREFORE, Cartel respectfully prays that this Court: (i) deny the relief requested in the Motion to Limit Scope, and (ii) enter an Order directing that Cartel is entitled to offer evidence and proof at the retrial of the full range of ill-gotten gains/unjust enrichment benefit derived from the theft of its valuable trade secret (including evidence and proof of such gains/benefits accruing in the period following the original trial). Respectfully submitted this 27th day of June, 2008. Evidence of that should not be

/s/ Glenn W. Merrick Glenn W. Merrick G.W. MERRICK & ASSOCIATES, LLC 5445 DTC Parkway, Suite 912 Greenwood Village, Colorado 80111 Telephone: (303) 831-9400 Facsimile: (303) 771-5803 E-mail: [email protected] ATTORNEYS FOR PLAINTIFF

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CERTIFICATE OF SERVICE I hereby certify that on the 27th day of June, 2008, a true and correct copy of the foregoing RESPONSE IN OPPOSITION TO "DEFENDANTS' MOTION FOR RULING LIMITING SCOPE OF SECOND TRIAL" was electronically filed with the clerk of court using the CM/ECF System: Lino S. Lipinsky de Orlov, Esq. Sandra Wick Mulvany, Esq. McKENNA LONG & ALDERIDGE LLP 1875 Lawrence Street, Suite 200 Denver, Colorado 80202

/s/ Sabrina Marymee___________________

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