When The Financial Information Group sued a competitor in federal court last year for allegedly stealing trade secrets, it did it with a bang. The Shrewsbury company sent copies of the complaint to customers and contacted the media.
But 14 months later, the tables have been turned, and the defendant, Labworks LLC, has walked away with a $2.5 million settlement after showing that TFIG fabricated evidence.
On June 17, U.S. District Judge Anne Thompson in Trenton signed a stipulation voluntarily dismissing the claims in
The Financial Information Group v. Labworks, 07-1927.
TFIG and Labworks, of Charlotte, N.C., both operate online databases of registered investment advisers. TFIG started its Discovery Database in 2002. Four years later, Labworks began its competing Web site, RIA Database, which could be accessed for about $5,000 a year, roughly one-third the cost of TFIG's subscription.
On April 23, 2007, TFIG sued Labworks and its owner, Julie Cooling, alleging breach of contract, fraud, tortious interference with business relationships and a violation of copyright and trade dress rights. The suit was reported in at least two industry publications,
Investment News and
BD Insider and was broadly disseminated.
TFIG claimed that Cooling, posing as a prospective customer, contacted the company in December 2005 and arranged for a demonstration of TFIG’s database in January 2006 to obtain confidential information and trade secrets.
Cooling then allegedly used that information to set up her own competing database similar to TFIG’s in content, look and feel, confusing TFIG customers and wooing them with cut-rate pricing.
TFIG asked for a preliminary injunction against Cooling and an accounting of any profits, as well as enhanced and punitive damages and attorneys’ fees.
The defendants’ lawyer,
Adam Derman of
Wolff & Samson in West Orange, sent a letter demanding the suit be withdrawn as frivolous under Rule 11. He says he did not move for sanctions because he felt he did not have enough facts at the time. Instead, he resolved to pursue them through discovery.
Derman filed a counterclaim against TFIG and asserted a thirdparty complaint against its president, Nicholas Stuller, for defamation, trade libel, unfair competition and computer-related offenses.
Cooling’s version of the story was that she communicated with TFIG sales associate Robert McAlonie about conducting a demonstration of the Discovery database in December 2005, when she was employed by Redbrick Partners, a real estate private equity firm. Part of her job there was to identify registered investment advisers for the company to solicit, she contends.
She alleges she was never able to do the demonstration because TFIG’s database was incompatible with her Macintosh computer and TFIG and McAlonie were aware of the problem and tried unsuccessfully to rectify it.
Subsequently, McAlonie began calling and visiting her to solicit Redbrick’s business, she claims.
Soon after, she started her own competing database. She allegedly hired software help and drew on her dozen years of experience in the area and public sources of information like the Securities and Exchange Commission.
Around the same time TFIG filed suit, before she was aware of the litigation, it sent a mass e-mail to thousands of its customers, attaching a copy of the complaint, alleges Cooling.
TFIG kept sending the complaint to prospective RIA customers through the end of 2007, and contacted Cooling’s business colleagues about it in an attempt to destroy her reputation, states the complaint. As
Derman puts it, “they tried to bury her.”
Derman embarked on what he calls “very aggressive” and hard-fought discovery that yielded thousands of pages, including computer and telephone records and McAlonie’s notes, which, he says, failed to support TFIG’s claims.
For example, TFIG produced a computer log showing a demo run on a particular day and claimed it was done by Cooling, but “there was nothing to tie it to her,” except McAlonie’s testimony and what he claimed were contemporaneous handwritten notes, says
Derman.
The notes, scrawled at the bottom of the page in different ink, “looked phony,” so
Derman says he retained an ink-dating expert and scheduled an inspection of McAlonie’s notebook. But the inspection never took place. TFIG’s lawyer, Eamon Wall of Patterson and Sheridan in Shrewsbury, admitted in a Nov. 9, 2007, letter to U.S. Magistrate Judge Tonianne Bongiovanni that the sentence about a demo by Cooling “was added sometime after the litigation began.”
The computer records also showed post-hoc modification, says
Derman.
He subpoenaed telephone records for TFIG and Cooling, showing no calls between them on the day of the alleged demo, even though TGIF would have had to walk Cooling through it, he says.
Derman says that in response to TFIG’s assertion that Cooling used her husband’s PC for the demo, he rounded up evidence showing that the husband and his laptop were out of town on the day in question.
As
Derman and associate
David Dugan dismantled the case against their client, Wall asked to be let out of the case and was replaced by Arthur Grossman and David Ward of Mandelbaum Salsburg Gold Lazris & Discenza in West Orange.
Grossman wrote to
Derman on Jan. 17, saying TFIG would amend its complaint and discovery responses because “we are unable to locate or produce to you any documentary evidence which would show that Julie Cooling had access to plaintiff’s database by way of a demo on Jan. 12, 2006,” or on other dates mentioned in the letter. Grossman added that TFIG had numerous additional claims it intended to prosecute.
In the meantime,
Derman had filed an amended counterclaim, adding claims for abuse of process and conspiracy and naming McAlonie as a third-party defendant.
He followed up with a Jan. 29 motion asking the court to dismiss TFIG’s claims as a sanction for its fabrication of evidence and fraud on the court.
During a telephone conference with Bongiovanni two days later, TFIG proposed mediation. After giving the parties time to work out the terms, Bongiovanni ordered them into mediation on March 11 and stayed the motion to dismiss.
They reached agreement on April 30, with the help of mediator Douglas Wolfson, a former director of the Division of Law in the Department of Law and Public Safety, now with Greenbaum, Rowe, Smith & Davis in Woodbridge.
Derman insisted that the deal not be confidential so that news of the settlement could counteract the harm done by the wide knowledge of the suit.
The agreement called for TFIG to pay $200,000 on signing, with its carrier, Hartford Insurance, to pay $1 million within 15 days. The remaining $1.3 million was to be paid in monthly installments of about $39,000 starting on June 1.
Still pending is Cooling’s thirdparty claim against McAlonie, who was fired by TFIG in April.
Derman and McAlonie’s lawyer, Lambertville solo William Flahive, say they, too, are negotiating a settlement. “My hope is that it’s pretty close to being over,” says Flahive.
TFIG’s current lawyers, Grossman and Ward, did not return calls seeking comment. Wall, the company’s former attorney, declines to comment.
TFIG never filed a response to the motion to dismiss. But in its Jan.30 answer to the counterclaim and third-party complaint, it admitted to an incompatibility problem with Cooling’s access to its database while denying that she never actually accessed it.
The company also denied that it set out to destroy RIA or Cooling’s reputation, that it knowingly made a false accusation about the Jan. 12, 2006, demo or that other accusations were false or known to be so. It also denied fabricating evidence that would support its claims against Cooling or destroying evidence that would have undermined them, among other denials.
TFIG did admit that McAlonie’s notation about a Jan. 12, 2006, demo by Cooling was added after the suit was filed, but says once the company and its lawyers discovered that, they notified the court and opposing counsel.
Reprinted with permission from the June 30, 2008, edition of the New Jersey Law Journal. © 2008 ALM Properties, Inc. All rights reserved. Further duplication without permission is prohibited. For information, call 973-854-2923 or Elissa.Peterson@incisivemedia.com. ALM is now Incisive Media, www.incisivemedia.com
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