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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.
MOTION FOR DIRECTION FROM DISTRICT JUDGE RESPECTING PLAINTIFF'S REQUEST TO CONDUCT ADDITIONAL DISCOVERY RELATING TO THE PERIOD FOLLOWING THE INITIAL TRIAL
Plaintiff, Cartel Asset Management ("Cartel"), through its undersigned counsel, G.W. MERRICK & ASSOCIATES, LLC, respectfully seeks an Order of the District Judge providing direction respecting Cartel's request to conduct additional discovery relating to the period following the initial trial. At the most recent hearing before Magistrate Judge Craig Shaffer respecting discovery following remand, conducted on May 16, 2008, the Magistrate Judge denied Cartel's request, without prejudice, and encouraged Cartel to seek direction from the District Judge respecting the appropriateness of conducting additional discovery relating to the period at and following the initial trial. In particular, Cartel seeks information in discovery respecting the "illgotten gain," "unjust enrichment" or "benefit" that was realized by Ocwen Federal Bank,
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FSB (the "Bank") from the wholesale and illicit theft of Cartel's valuable trade secret. The discovery is to be limited to the period from and after the original trial in the captioned case, and the purpose of the proposed additional discovery is to allow the full and fair presentation of evidence on unjust enrichment damages at the retrial. In support of this Motion, Cartel advises the Court as follows:
The Current Procedural Posture of the Case Following the initial trial in this matter, the jury returned a verdict,
in the aggregate amount of nearly $9 million (aggregate actual and punitive damages), in favor of Cartel on account of the Bank's theft of Cartel's highly valuable trade secret. 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. 2. In September of 2007, the United States Court of Appeals for the
Tenth Circuit issued its Order and Judgment (the "Opinion"), Cartel Asset Management v. Ocwen Financial Corp., 2007 U.S.App. LEXIS 22346 (10th Cir. Sept. 18, 2007). In the Opinion, the Tenth Circuit: (a) affirmed the entry of judgment against the Bank on the issue of liability, id. at **65, (b) affirmed the determination that an award of punitive damages against the Bank is fully justified, Tenth Circuit Order of November 21, 2007, and (c) remanded for this Court to conduct a new trial on damages. Cartel Asset Management, 2007 U.S.App. LEXIS 22346 at **50-51, 65. 3. While the appeal was pending in the Tenth Circuit, the Bank: (a)
sold its Fort Lee, New Jersey branch, (b) assigned the balance of its assets and properties to a newly-formed acquisition vehicle, Ocwen Loan Servicing, LLC ("OLS"), and (c) began a process of voluntary dissolution. Thereafter, the Bank's parent company, Ocwen
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Financial Corp., received a "going private" purchase offer from its principal shareholder and others.
The Damage Issue on Retrial
In its Opinion, 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; see also id. at **38. The Tenth Circuit also determined that Colorado law permits plaintiffs to recover -- as a measure of damages for misappropriation of trade secrets -- the "unjust enrichment," "illgotten gains" or "benefit" derived by wrongdoers as a result of misappropriation. Id. at ** 23, 25 and 29. 5 In addressing the proof of "unjust enrichment," "ill-gotten gains,"
or "benefit" derived by the Bank from its extensive misappropriation 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. at **37. Thus, the Tenth Circuit ruled 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. 6. Ultimately, the Tenth Circuit determined that a new trial on
damages is necessary because in the first trial there was not sufficient evidence for
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Cartel's expert witness to assume four years as the time it would take the Bank to develop a national network of realtors providing BPOs absent the Bank's brazen theft of Cartel's network (its valuable trade secret). Id. at **42-51. Of course, evidence available to the Bank is likely highly relevant to the appropriate period to be used in the damages calculation on retrial. Cf. id. at ** 42 (testimony of former Bank employee Ann Gilbert).
The Limited Additional Discovery Sought by Cartel is Appropriate 7. Upon remand from the Tenth Circuit, this Court has discretion to
reopen and to permit additional discovery. Weahkee v. Norton, 621 P.2d 1080, 1083-84 (10th Cir. 1980). Indeed, in the case at bar the Tenth Circuit's opinion affords specific instructions on this point: Our remand does not, however, disturb the discretion of the district court to determine the extent it would be appropriate to re-open the record ... See Cleveland v. Piper Aircraft Corp., 985 F.2d 1438, 1450 (10th Cir. 1993) ("The trial court is much more familiar with the conduct of the original trial, the needs for judicial management and the requirements of basic fairness to the parties in a new trial. ... [I]f a party makes a timely motion to produce new and material evidence which was not otherwise readily accessible or known, the court should, within the exercise of discretion, consider whether denial of the new evidence would create a manifest injustice. ... [C]ommon sense should control."). Cartel Asset Management, 2007 U.S.App. LEXIS 22346 at **50-51 (emphasis supplied). 8. The factors that should be weighed by this Court in the exercise of
its discretion were alluded to in Cleveland v. Piper Aircraft Corp., 985 F.2d 1438, 1450 (10th Cir. 1993): The trial court is much more familiar with the conduct of the original trial, the needs for judicial management and the requirements of basic fairness to the parties in a new trial. We do
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not feel, however, that the trial court's ruling should be inflexible. Clearly, if the trial court perceives in limiting evidentiary proof in a new trial, a manifest injustice, to one side or the other, the court must retain broad latitude and may with proper notice allow additional witnesses and relevant proof. In this regard, if a party makes a timely motion to produce new and material evidence which was not otherwise readily accessible or known, the court should, within the exercise of discretion, consider whether denial of the new evidence would create a manifest injustice. ... This does not mean the court should allow cumulative evidence, but it does mean that the court should allow sufficient leeway for the parties to produce new evidence, without undue prejudice to their interest. Technical rulings should never preclude new and material proofs; common sense should control. Id. at 1450 (emphasis supplied). 9. The specific information that Cartel seeks is "new and material
evidence which was not otherwise readily accessible or known." To decline to permit the additional discovery would conflict with the Tenth Circuit's instructions on remand because it "would create a manifest injustice." Cartel Asset Management, 2007 U.S.App. LEXIS 22346 at **50-51; see also, Cleveland, 985 F.2d at 1450. A. The information sought relates directly to the "unjust enrichment,"
"ill-gotten gains," and/or "benefit" derived by Ocwen Federal Bank and its successors from the misappropriation of Cartel's trade secret. These ill-gotten gains can be realized both: (i) in the period immediately following the theft, and (ii) over a longer period of time that extends beyond the date of the original trial in the captioned case. 1 Thus it is "material" to the damage theory that is being pursued in this Court.
Of course, the "benefit" arising from the theft of Cartel's network of real estate professionals includes benefits that accrued to the Bank at and after the initial trial. Some of the components of that benefit include: (i) acceleration in the building of a database of real estate professionals who are willing to provide BPOs for the Bank that is national (or larger) in scope (ii) increased profitability of the Bank's valuation product lines, (iii) increase in value of the Bank's various valuation product lines, and (iv) increased value of the Bank and/or the Bank's business. The discovery proposed by Cartel is targeted at discovering and valuing these benefits accruing to or for the benefit of the Bank.
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The information sought is limited to the period 2004 to the present
(at and following the initial trial). It was information that is "new" and "was not otherwise readily accessible or known" at the time of the initial trial. 10. In light of the passage of time since the original trial (for which
Cartel is not responsible) there is no cogent reason to bar Cartel from discovering any additional, relevant information that has materialized since trial that bears upon the "illgotten gains," "unjust enrichment" and "benefit" realized by the Bank from and after the initial trial as a result of its theft of Cartel's trade secret. Such additional information will provide a more comprehensive and accurate account for the jury at the upcoming trial. 11. The proposed written discovery that Cartel seeks to serve upon the
Defendants (which has been modified to address concerns expressed by the Magistrate Judge at the most recent hearing before him) is attached at Attachment A. In addition, Cartel proposes to conduct a Fed.R.Civ.P. 30(b)(6) examination of the Defendants in respect of the same subject matter (ill-gotten gains accruing at and following the initial trial in this case). WHEREFORE, consistent with the recommendation of the Magistrate Judge at the May 16, 2008 hearing, Cartel respectfully moves this Court for an Order: (i) directing that Cartel is entitled to conduct discovery relating to the ill-gotten gains, unjust enrichment and benefit realized by the Bank from its theft of Cartel's trade secret during the period at and following the trial, and (ii) approving service of the attached written discovery, and (iii) approving the conduct of a Rule 30(b)(6) examination of the Defendants to address the same subject matter. Respectfully submitted this 27th day of March, 2008.
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/s/ Glenn W. Merrick Glenn W. Merrick Brian S. Emeson G.W. MERRICK & ASSOCIATES, LLC 5445 DTC Parkway, Suite 912 Greenwood Village, Colorado 80111 Telephone: (303) 831-9400 Facsimile: (303) 771-5803 ATTORNEYS FOR PLAINTIFF
CERTIFICATE OF SERVICE I hereby certify that on the 27th day of March, 2008, a true and correct copy of the foregoing MOTION FOR DIRECTION FROM DISTRICT JUDGE RESPECTING PLAINTIFF'S REQUEST TO CONDUCT ADDITIONAL DISCOVERY RELATING TO THE PERIOD FOLLOWING THE INITIAL 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/ Dyanna M. Spicher