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ASSOCIATES FIN. SERVS. CO. v. MERCANTILE MORTG. CO

June 30, 1989

ASSOCIATES FINANCIAL SERVICES COMPANY, INC., a Delaware corporation, Plaintiff,
v.
MERCANTILE MORTGAGE COMPANY, an Illinois corporation, MID-AMERICA MORTGAGE CORPORATION, an Illinois corporation, RONALD B. NOBLE, RICHARD M. FORCONE, CHARLES LOGSDON, WILL A. ROLOSON, STEVE RUTHIG, BRADLEY SMITH, JAMES A. BENIGNI, NICKIE KERLEY, BRAN SILVEOUS, and ERIC OWENS, Defendants


James B. Moran, United States District Judge.


The opinion of the court was delivered by: MORAN

JAMES B. MORAN, UNITED STATES DISTRICT JUDGE

 Since this case was filed in early December 1988, it has generated a mound of legal effort and a mountain of paper. Ten matters are pending before this court, eight of them fully briefed. In the meantime, the magistrate has conducted a lengthy preliminary injunction hearing and will, in all probability, be making a report and recommendation shortly. The result of all that is that the parties and the magistrate have, through discovery and hearing, been exposed to a searching examination of the actual facts and this court's knowledge of the case comes only from those mountains of paper.

 In one respect that eases the court's task. In addressing the latest motion to dismiss the last complaint, defendants' supplemental motion to dismiss plaintiff's first amended complaint, the lack of prior involvement permits this court to focus upon the allegations rather than the evidentiary contentions. Stripped to their essentials, those allegations claim that the individual defendants previously worked for plaintiff, that certain of them formed a potential competitor while they were employed by plaintiff and then recruited others, that the defendants knew that plaintiff had a system whereby it could flag customers who were considering refinancing and thereafter seek to persuade those customers to refinance with plaintiff, that the system included the release of payout information only upon written or properly verified oral request of the customer, and that the defendants, through internal contacts within plaintiff's organization, have deliberately bypassed that system so as to obtain plaintiff's payout information without plaintiff being alerted to the fact that the customer was considering refinancing or that defendants were obtaining that information.

 Plaintiff complains of other things as well, and the claims are variously described in fifteen counts, including three RICO counts. Some of those counts may not properly pertain to all defendants and some may be improper in any event, but we think it is premature to sort them out now since plaintiff's core claim, if true, entitles it to relief, and it is solely to plaintiff's allegations that we look in deciding a Rule 12(b)(6) motion. Plaintiff has alleged that it has confidential information which it discloses only in certain circumstances and that defendants have used various unfair and improper means to avoid those restrictions and to obtain that information for their competitive advantage and to plaintiff's competitive disadvantage. That states an unfair competition claim, if nothing else. It is not enough, at this juncture, to say that the names of mortgagors can be obtained from public records or that plaintiff will provide the information upon customer request, so that defendants can use whatever means they wish to get payout information. The motion to dismiss is denied, but without prejudice to its renewal when the time comes to determine the scope of the claims and the specific legal theories which will have to be decided by a trier of fact.

 This case started out badly. Defendants' counsel initially, on December 9, 1988, agreed to expedited discovery and a preliminary injunction hearing on January 10, 1989, with substantial document production by December 16. Plaintiff was unable to proceed, however, in any kind of rational fashion because defendants' counsel ceased communicating, even to the point of refusing to accept delivery of mail and documents. It was far more egregious than a "failure to communicate." Plaintiff went back to the magistrate on December 15, 1988, to seek help, and the magistrate recommended on December 16, 1988, that a preliminary injunction issue as a sanction. This court, recognizing that defendants had a right to object, issued on December 22, 1988, a temporary restraining order instead, so as to give defendants that opportunity. Defendants did object -- but they waited until March 24, 1989, to even seek more time to object to all orders and plaintiff did not then waive its right to point out that the time to object to the December 16 and 22 orders had long expired. It points that out now, and we agree. The objections to those orders are overruled.

 We note, moreover, that the report conclusions were based on what the record then disclosed and were not final findings or conclusions, and the December 22, 1988 order expired by its own terms on January 1, 1989. We will discuss hereafter the order that is in place.

 Next, chronologically, is the magistrate's order dated January 6, 1989, granting a motion to compel and imposing sanctions. Defendants' objections were again untimely. Moreover, the magistrate had ample reason for concluding that defendants' failure to comply was not substantially justified -- indeed, the objections describe delays in production extending weeks past the order of which defendants complain. We defer until later any discussion of the extended temporary restraining order and we otherwise conclude that the magistrate's rulings were far from clearly erroneous. The objections are overruled.

 Defendants object to the magistrate's order of January 25, 1989, in which he quashed certain subpoenas addressed by defendants to various telephone companies for the production of documents and imposed sanctions. Defendants concede that the subpoenas were issued for discovery purposes without notice to plaintiff and were therefore improper. They argue that the subpoenas were not, however, overreaching. Again, the objections come too late. In any event, the magistrate was not clearly erroneous in concluding at that stage of the proceedings that the defendants had not established sufficient reason for seeking the information, particularly in view of the restrictions upon access to plaintiff's customer lists. The objections are overruled.

 By March 16, 1989, the defendants were represented by different counsel and the litigation climate and adherence to customary discovery norms and the rule significantly improved. On that date the magistrate awarded plaintiff $ 7,933.32 in attorneys' fees and costs as the sanction imposed in the January 6, 1989 order. Defendants promptly moved to enlarge the time within which to file objections and those objections were, apparently, filed during the extended period. Unfortunately for defendants, however, the objections founder upon what was not done during the prior representation. The January 6 order directed plaintiff to file its petition by January 17 and defendants to file any challenge by January 26. Plaintiff filed its petition, which appears reasonable on its face; defendant did not file any challenges; and in due course on March 16, 1989, the magistrate entered his order. Only after that order was entered did defendants object. But that objection was not a motion for reconsideration addressed to the magistrate but an objection to this court on grounds never considered by the magistrate. We look to the record upon which the magistrate's order was based, and his order is not clearly erroneous. The objections are overruled. Here, as in the previous objections, defendants are belatedly seeking to establish that things were not as bad as they earlier seemed, but again the effort can be characterized as too little and too late. The magistrate had the responsibility to decide, on the basis of the record then before him, those issues which impacted the expedited discovery necessitated by the claims for preliminary relief. His rulings relate to the progress of the litigation, a moving and changing process, and not to the ultimate substantive decisions. This court, necessarily and by statutory mandate, has a limited review role. Defendants would be well advised to recognize that their litigation process wounds were self-induced, to accept the consequences, and to move on.

 The defendants have on file a jury demand. That issue has been deferred, and we leave it for another day.

 Finally, we turn to the scope of any judicially-imposed restrictions upon the defendants, and we confess both to being somewhat confused and, as is evident from the transcripts of proceedings before the magistrate, to have contributed to the confusion. The parties describe, from their differing perspectives, what happened, and they make a number of flat statements of what the law is, but without meaningful discussion. We will do our best to sort it out.

 On December 27, 1988, this court entered a ten-day temporary restraining order rather than the preliminary injunction recommended by the magistrate. The recommendation was based not upon traditional standards governing the granting of preliminary injunctions but upon the magistrate's conclusion that it was an appropriate sanction for obstruction of the court-ordered expedited discovery. On January 3, 1989, that order was extended until January 13, 1989. On January 6, 1989, however, the magistrate had himself continued the restraining order until the preliminary injunction hearing. After further discovery, the parties commenced a several day preliminary injunction hearing on February 27, 1989. Shortly before that hearing ...


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