Re/Max, LLC v. Quicken Loans Inc.

Citation: 295 F. Supp. 3d 1163Docket: Civil Action No. 16–cv–02357–PAB–MJW

Court: District Court, D. Colorado; March 20, 2018; Federal District Court

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The Court is addressing a Motion to Dismiss Counterclaims filed by RE/MAX, LLC and Motto Franchising, LLC. Jurisdiction is established under 28 U.S.C. § 1332. RE/MAX, a real estate franchise company, engaged in negotiations with Quicken Loans, a mortgage lender, commencing in early 2014, which included signing a Non-Disclosure Agreement (NDA). On July 9, 2015, they executed a Strategic Marketing Alliance Agreement effective October 15, 2015, mandating RE/MAX to provide marketing services in exchange for fees. 

In September 2015, following a valuation analysis, Quicken Loans asserted the Agreement was overvalued, prompting RE/MAX to make representations regarding its marketing capabilities and to propose additional services. This led to the execution of a First Amendment on November 10, 2015, requiring RE/MAX to deliver these additional services, including logo placement on its websites. Quicken Loans contends that RE/MAX made knowingly false representations and failed to fulfill its obligations under the Agreement, despite having been provided with confidential information.

RE/MAX invoiced Quicken Loans for services rendered, which were paid until April 2016. On September 2, 2016, RE/MAX claimed Quicken Loans defaulted on payments. Two lawsuits arose concurrently: Quicken Loans filed a complaint against RE/MAX on September 7, 2016, in Michigan, while RE/MAX initiated this case twelve days later. Both parties accuse each other of breach of contract, with RE/MAX alleging non-payment by Quicken Loans and Quicken Loans alleging inadequate service provision by RE/MAX. Additionally, RE/MAX launched Motto Mortgage, LLC, a subsidiary providing similar services to Quicken Loans, which Quicken Loans has named as a third-party defendant, claiming that confidential information was misappropriated to assist in Motto's establishment.

On October 31, 2016, the Eastern District of Michigan transferred a case involving Quicken Loans Inc. and RE/MAX to a new district under a mandatory forum selection clause in their Agreement. Quicken Loans filed a motion on February 2, 2017, to amend its complaint to add claims against RE/MAX and Motto, including breach of a non-disclosure agreement (NDA) and misappropriation of trade secrets. On April 10, 2017, Magistrate Judge Nina Y. Wang recommended granting the motion in part, allowing the NDA breach claim but denying the others. The Court subsequently denied Quicken Loans' motion to dismiss and RE/MAX's motion for consolidation, opting to administratively close the case without ruling on the amendment motion. On May 16, 2017, Quicken Loans filed its answer and counterclaims, which mirrored the claims from the earlier motion to amend but with additional trade secret allegations. On June 6, 2017, RE/MAX and Motto moved to dismiss specific counterclaims from Quicken Loans, challenging them for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). This standard requires courts to evaluate only the sufficiency of the complaint, accepting well-pleaded allegations as true while disregarding conclusory statements. The complaint must provide fair notice of the claims and grounds, and a claim is considered plausible if it allows the court to reasonably infer the defendant's liability based on the alleged facts.

A complaint must contain sufficient factual allegations to support a legal claim; mere possibilities of misconduct are insufficient for relief. Modern pleading rules require that all material elements necessary for recovery under a viable legal theory be included. In the case of Quicken Loans' fraudulent inducement claim against RE/MAX, the movants argue for dismissal based on three points: the economic loss doctrine, lack of alleged damages from misrepresentations, and the integration clause in the Agreement.

The economic loss doctrine prohibits tort claims for purely economic losses resulting from a breach of contract unless there is an independent duty of care under tort law. The source of the duty must be identified, distinguishing tort obligations arising from law from contractual obligations stemming from mutual promises. A breach of a contractual duty must be addressed through contract law, not tort law.

Quicken Loans contends that its claim is not barred by the economic loss rule since the fraudulent representations made by RE/MAX were separate from the Agreement and not included in the Amendment. The court partially agrees, noting that under Colorado law, a claim for negligent or fraudulent misrepresentation may exist independently of contract law if based on pre-contractual misrepresentations. Although there are similarities between the breach of contract and fraudulent inducement claims, these do not necessarily indicate they arise from the same duty. Misrepresentation claims are based on principles of duty and reasonable conduct, distinct from contractual obligations. Thus, pre-contractual misrepresentations can support an independent tort claim.

The economic loss rule aims to facilitate reliable risk allocation and cost consideration in contracts, preventing recovery of economic damages through tort claims when parties have defined their obligations in a contract. Quicken Loans has alleged four misrepresentations by RE/MAX, specifically: 

1. A false claim about 4.25 million unique monthly visitors to the remax.com homepage.
2. Concealment of RE/MAX's inability to provide marketing services in certain regions.
3. Misrepresentation regarding the embedding of Quicken Loans' links on property listings.
4. A claim that the remax.com site generated over one million customer leads, when it actually generated significantly fewer.

RE/MAX did not identify any contractual obligation corresponding to the first, second, and fourth misrepresentations, indicating they misled Quicken Loans about the service value but not about contractual duties. The source of the duty regarding these representations stems from RE/MAX's independent obligation to avoid inducing the contract through misrepresentation, allowing Quicken Loans' claims to proceed despite the economic loss rule. In contrast, the third misrepresentation is tied to contractual obligations in the Agreement and Amendment, where RE/MAX committed to modifying its marketing services. This obligation constitutes the source of RE/MAX's duty to act, as outlined in the parties' contracts.

RE/MAX may face liability for breach of contract if it failed to fulfill its obligations under the Amendment, whether due to inability to perform or other reasons. Quicken Loans' claim of fraudulent inducement extends beyond the contracted services, alleging that RE/MAX knowingly misrepresented its capability to provide those services during the third representation. However, if RE/MAX was not contractually obligated to provide those services through the Amendment, the economic loss rule prevents Quicken Loans' claim, as this doctrine maintains the distinction between contract and tort claims by holding parties to their agreed terms. 

Movants argue that the Amendment did not create new obligations for Quicken Loans, thus undermining the fraud claim; however, Quicken Loans contends that the Amendment led to unnecessary costs and damages. The Movants did not dispute the viability of this damages theory. Additionally, the presence of an integration clause in the Agreement does not dismiss the fraud claim, as Colorado law allows for misrepresentation claims even with general integration clauses. The cited case by Movants is not applicable, as it involved a contract with a specific refund provision absent in this case. The Court permits Quicken Loans' fraud claims to proceed based on these considerations.

Regarding the breach of the NDA, to establish such a claim under Colorado law, Quicken Loans must demonstrate the existence of a contract, its performance or justification for nonperformance, RE/MAX's failure to perform, and resulting damages. Quicken Loans alleges that RE/MAX breached the NDA by disclosing confidential information to Motto for competitive purposes. Judge Wang previously acknowledged that while Quicken Loans' allegations were limited, they met the basic pleading requirements without needing heightened standards. Quicken Loans identified the NDA, the confidential information accessed, the nature of the breach, and a plausible claim for damages, including the loss of proprietary information to a competitor.

In Viesti Associates, Inc. v. Pearson Education Inc., the court determined that the plaintiff adequately identified the allegedly infringed works, the supposed breaches of licenses, and potential damages, thus meeting the notice pleading standard. The concept of facial plausibility requires that factual content is presented, allowing a reasonable inference of the defendant's liability. In Quicken Loans Inc. v. RE/MAX, although the court initially found some allegations sufficient to progress the claim of breach of a Non-Disclosure Agreement (NDA), it ultimately determined that Quicken Loans' claims were insufficient. The court noted that Quicken Loans failed to provide specific allegations indicating how RE/MAX or Motto used its confidential information, rendering its harm claims conclusory. The court referenced other cases indicating that mere suspicion or motivation is insufficient without factual support showing actual use of the confidential information. Additionally, Quicken Loans did not demonstrate that Motto's operations involved its proprietary information, as the only alleged similarities were superficial and not confidential in nature. Consequently, Quicken Loans' sixth counterclaim was dismissed for failing to establish a plausible claim. For a claim of misappropriation of trade secrets, Quicken Loans needed to allege that it possessed a valid trade secret, that it was disclosed or used without consent, and that the defendant knew or should have known the trade secret was improperly acquired, according to the Colorado Uniform Trade Secrets Act.

The Colorado Uniform Trade Secrets Act defines a "trade secret" as any confidential scientific or technical information, design, process, or business-related information that holds value and is kept secret. For information to qualify as a trade secret, the owner must implement measures to restrict access to it. Quicken Loans has filed counterclaims for trade secret misappropriation against RE/MAX and Motto, but the court previously determined that Quicken Loans failed to adequately state a claim. The allegations asserted that Quicken Loans disclosed "confidential, proprietary, and trade secret" information about its marketing strategies and loan practices but did not specify which information constituted trade secrets or demonstrate that it met the statutory definition. Quicken Loans' claims lacked specific details regarding the protection of its trade secrets, such as non-disclosure agreements for employees, separation from other confidential information, or limited access for authorized individuals.

In a subsequent case, Quicken Loans bolstered its allegations by identifying two specific trade secrets: a unique technology for identifying leads generated by RE/MAX agents and methods for reviving cold leads while prequalifying homebuyers for mortgage loans. Additionally, Quicken Loans included details about the security measures it employs to protect its trade secrets. Despite arguments from the movants that Quicken Loans failed to pinpoint the misappropriated information, the court found that the added allegations sufficiently identified the nature of the claimed trade secrets and rejected the assertion of a heightened pleading standard for such claims.

Movants contend that Quicken Loans inadequately alleges that RE/MAX and Motto acquired trade secrets through improper means involving misrepresentations. They argue that the counterclaims lack specific allegations regarding when Quicken Loans disclosed its trade secrets, making it impossible to infer that such disclosures resulted from any misrepresentations. The Court concurs, stating that Quicken Loans' failure to assert that it disclosed trade secrets after the alleged misrepresentations undermines its claim against RE/MAX, as the existing Non-Disclosure Agreement (NDA) and Agreement provide a legitimate basis for RE/MAX's possession of the trade secrets. Without evidence of disclosure following the misrepresentations, RE/MAX could not have known the trade secrets were obtained improperly, which is essential for the claim. Consequently, the Court dismisses Quicken Loans' seventh counterclaim against RE/MAX.

Regarding Motto, movants argue that merely employing individuals with access to Quicken Loans' trade secrets is insufficient to establish a claim. They cite precedent indicating that allegations must include specific factual assertions of disclosure or use of the trade secrets to hold Motto liable. Quicken Loans attempts to differentiate its case by asserting that the same employees who accessed its trade secrets became senior executives at Motto, suggesting simultaneous involvement in both ventures. However, the Court finds that Quicken Loans' claims lack concrete factual allegations of actual use or disclosure of trade secrets by Motto, relying instead on vague assertions that Motto "used Quicken Loans' confidential information." Consequently, the Court dismisses Quicken Loans' ninth counterclaim for misappropriation of trade secrets against Motto, aligning with established legal standards that require more than conclusory allegations.

To establish a claim for tortious interference with a contract against Motto, Quicken Loans must demonstrate: 1) the existence of a contract; 2) Motto's knowledge of the contract; 3) Motto's inducement of RE/MAX to breach the contract; and 4) injury to Quicken Loans as a result of the breach. However, the court found that Quicken Loans failed to allege sufficient facts indicating that Motto intentionally interfered with RE/MAX's performance of the Agreement. The allegations focused on Mr. Morrison and Mr. Scoville, who are not defendants, and are inadequate to support a claim against Motto. Quicken Loans contended that it met the notice pleading standard under Fed. R. Civ. P. 8, but the court disagreed, emphasizing that Quicken Loans did not provide facts showing Motto's prior knowledge of the Agreement or intentional interference. Additionally, it was noted that Motto did not exist before RE/MAX's alleged breach. Consequently, the court dismissed Quicken Loans' eighth counterclaim. 

The court also granted in part and denied in part the motion to dismiss from RE/MAX and Motto, dismissing Quicken Loans' sixth, seventh, eighth, and ninth counterclaims under Fed. R. Civ. P. 12(b)(6). Furthermore, the second counterclaim was dismissed based on the economic loss rule regarding representations by RE/MAX about modifying websites. The Colorado Supreme Court's economic loss rule aims to maintain the distinction between contract and tort law, enforce expectancy interests, and encourage risk allocation within contracts. Quicken Loans claimed non-economic damages due to misrepresentations but failed to specify any such losses, instead citing lost time and effort as damages.

Economic damages are classified as losses that do not involve physical harm to individuals or property. Quicken Loans contends that its claims stem from fraudulent inducement related to an amendment to an agreement, despite movants arguing that the alleged misrepresentations occurred post-agreement and are thus barred by the economic loss rule. Quicken Loans has not substantiated that any individuals were involved in implementing the agreement while simultaneously starting Motto Mortgage, which registered shortly after Quicken Loans issued a notice of default to RE/MAX. The court found that Quicken Loans failed to present adequate factual allegations regarding the disclosure of trade secrets by former RE/MAX employees to Motto or how these employees utilized such information at Motto. Conclusory statements about Motto using Quicken Loans' confidential information were deemed insufficient. Consequently, the court dismissed Quicken Loans' counterclaim for misappropriation of trade secrets against Motto.

For the tortious interference claim against Motto, Quicken Loans must demonstrate that a contract existed, Motto was aware of it, Motto induced RE/MAX to breach it, and Quicken Loans suffered injury as a result. The court observed that Quicken Loans did not adequately allege that Motto intentionally interfered with RE/MAX's performance of the Agreement, as the allegations primarily concerned individuals not named as defendants. Although Quicken Loans argued that it met the notice pleading standard, the court disagreed and found the claim inadequate for proceeding.

Plaintiff Quicken Loans failed to provide sufficient facts to establish that Motto was aware of or intentionally interfered with the breached Agreement, which is essential for a tortious interference claim. Notably, Motto did not exist before the alleged breach by RE/MAX, leading to the dismissal of Quicken Loans' eighth counterclaim. The court granted in part and denied in part the motion to dismiss by RE/MAX and Motto, dismissing Quicken Loans' sixth, seventh, eighth, and ninth counterclaims under Federal Rule of Civil Procedure 12(b)(6). Additionally, the second counterclaim was dismissed as it was barred by the economic loss rule when based on claims that RE/MAX could modify its websites. The Colorado Supreme Court recognizes three main rationales for applying this rule among commercial parties: maintaining a distinction between contract and tort law, enforcing the parties' expectancy interests, and encouraging parties to incorporate cost considerations into contracts. Although Quicken Loans asserted that changes in the Real Estate Settlement Practices Act made the Agreement void, the court noted that it did not identify any specific non-economic damages resulting from RE/MAX's alleged fraud, only claiming losses related to time and resources expended by its team.

Economic damages are defined as losses excluding physical harm to persons or property, as established in Coverstar, Inc. v. Cooley, Inc. and Town of Alma. Movants contend that misrepresentations occurred post-Agreement, invoking the economic loss rule. However, Quicken Loans claims fraudulent inducement related to the Amendment. Although counterclaims reference alleged representations, Quicken Loans does not indicate reliance on additional representations. There is no assertion that individuals were simultaneously working on implementing the Agreement and establishing Motto Mortgage, which was registered shortly after Quicken Loans' notice of default to RE/MAX and before the lawsuit was filed. Quicken Loans does not assert "inevitable disclosure" and lacks sufficient facts to suggest that Motto's employees inevitably disclosed any trade secrets. The precedent set by PepsiCo, Inc. v. Redmond supports the notion that mere possession of trade secrets does not imply their inevitable disclosure in a new role.