Titanic Texas Trade Secrets Verdict Contested as Colossal Collusion

Orrick - Trade Secrets Group

A $700 million jury award for trade secrets misappropriation and fraud is the product of a collusive scheme to deceive the jury, claims title insurance and valuations provider Amrock, formerly known as Title Source, in its recent bid for a new trial.

The blockbuster award to technology start-up HouseCanary arose out of its 2015 contract to provide Amrock with access to its proprietary app designed to generate real estate valuations for house appraisers based on a proprietary automated valuation model. Several months later, Amrock accused HouseCanary of breaching the contract by failing to provide any usable products. Amrock terminated the agreement and sought a declaratory judgment in Texas state court that it need not pay HouseCanary the contracted $5 million in annual access fees.  HouseCanary countersued, claiming that Amrock used HouseCanary’s products and offerings without paying for them, collected a “critical mass” of HouseCanary’s proprietary data, and ultimately used that information to “secretly replicate” HouseCanary’s protected technology and intellectual property. HouseCanary ultimately convinced the San Antonio jury that Amrock lied about its intended purpose in entering the contract and that Amrock misappropriated HouseCanary’s data and technology to develop competing property analytics and software. In March 2018, the jury awarded HouseCanary $200 million for trade secrets misappropriation, $400 million in punitive damages for the misappropriation, $34 million for fraud relating to the contract, and $68 million in punitive damages for the fraud. In October 2018, the judge upheld the award and ordered Amrock to also pay $29 million in prejudgment interest and $4.5 million in attorneys’ fees.

According to Amrock in its motion for a new trial, HouseCanary’s entire case was a sham. The day after the jury returned its verdict, Amrock’s CEO received an email from an anonymous whistleblower, later identified as a former HouseCanary executive, asserting that HouseCanary never actually had “any proprietary anything” and that HouseCanary had colluded with Amrock’s main witness, the former Amrock executive who had managed the relationship with HouseCanary, to win the trial through “fallacies and spin.” Amrock claims that it discovered in its subsequent investigation that HouseCanary had corrupted the Amrock exec from the early days of the relationship between the companies with promises of a senior position and an equity stake in HouseCanary. Amrock further claims that, in fact, the Amrock exec secretly gave HouseCanary the idea for its purportedly proprietary app. According to Amrock, HouseCanary was able to misrepresent to Amrock, through its secret dealings with the Amrock exec, that the app would be functional by the timeline set in the contract and that HouseCanary had the necessary data to power the app. HouseCanary also allegedly concealed from Amrock third-party test results showing that its automated valuation model—the engine behind HouseCanary’s app—was not accurate.

Amrock claims that HouseCanary also deceived the jury and the court. Amrock contends that HouseCanary elicited false testimony at trial from both its and Amrock’s witnesses. Amrock also accuses HouseCanary of bribing potential witnesses into silence to conceal its schemes by offering them bogus “consulting agreements.” The purported whistleblower and two other former HouseCanary executives submitted sworn declarations regarding HouseCanary’s alleged fraudulent conduct in support of Amrock’s motion for a new trial.

This case, one of the largest trade secrets awards this year, is one to watch. The court is holding an evidentiary hearing later this month on Amrock’s allegations of misconduct. Time will tell whether HouseCanary obtained its $740 million judgment through a web of deceit, as alleged, or whether Amrock’s lurid story is no more than a quixotic delay tactic.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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Orrick - Trade Secrets Group

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