Wednesday, April 21, 2021

San Antonio Appeals court overturns $706m fraud conviction against home appraisal firm Amrock


A state appeals court Wednesday overturned a record $706 million verdict rendered by a San Antonio jury more than two years ago.

The 4th Court of Appeals in San Antonio reversed a trial court’s judgment on real estate analytic firm HouseCanary Inc.’s fraud and misappropriation of trade secret claims against Amrock Inc., a Detroit home appraisal company affiliated with Quicken Loans Inc. Amrock formerly was known as Title Source Inc.

The two claims were sent back to a state District Court in San Antonio for a new trial.

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Max Tribble, a Houston attorney representing HouseCanary, predicted the company will file an appeal with the Texas Supreme Court.

“The folks at Amrock are thrilled with the result,” said San Antonio attorney David Prichard, who represents the company. “We were satisfied the Court of Appeals unanimously saw it our way.”

The court didn’t deliver a complete victory for Amrock, though. The three-judge panel affirmed the trial court’s judgment that Amrock should receive nothing on its breach of contract claim against HouseCanary.

Following a seven-week trial in 2018, a 12-person jury found in favor of HouseCanary. Amrock was ordered to pay $235.4 million in compensatory damages and $470.8 million in punitive damages.

HouseCanary also was awarded about $29 million in prejudgment interest and $4.5 million in attorneys’ fees.

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The case gained national attention because of the size of the verdict, the largest ever awarded in Bexar County.

In 2015, Amrock entered into an agreement to license HouseCanary’s proprietary appraisal software. The agreement called for any disputes to be litigated in Bexar County, where HouseCanary has maintained a small office.

A year later, Amrock filed a lawsuit alleging HouseCanary failed to deliver functioning software for valuing residential properties.

HouseCanary claimed it was a “game-changing app” that would allow appraisers to submit appraisals in the field, Amrock stated in its appeal.

HouseCanary fired back with its own lawsuit, accusing Amrock of fraudulently misappropriating technology “even after purporting to terminate” their agreement.

During an hourlong appeals court hearing in February, Amrock attorney Catherine Stone argued there was no evidence presented during the trial that her client misappropriated trade secrets. Stone previously served as a chief justice of the appeals court.

HouseCanary alleged there was “abundant evidence” Amrock acquired the trade secrets by “improper means” through misrepresentation.

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“Even if we assume these assertions our true, however, the jury was also instructed that ‘improper means’ includes bribery (and) espionage,” the appeals court said in its ruling. “But HouseCanary conceded at oral argument that there is no evidence that (Amrock) acquired the trade secrets through bribery.”

Nor was any there any evidence presented to show Amrock acquired the trade secrets through espionage.

“Because those theories are not supported by the evidence, they should have been omitted from the ‘improper means’ definition that was submitted to the jury” when they were given instructions by state District Judge David Canales, the appeals court added.

Tribble, the Houston attorney, sounded puzzled by that part of the court’s ruling.

“This theory that you need embezzlement or bribery in order to have theft of trade secrets, it’s contrary to the law in every other state,” he said. “For that reason, I predict that HouseCanary will appeal and seek clarification from the Texas Supreme Court.”

Tribble, though, said the appeals court found HouseCanary had “valid and valuable trade secrets” that were used by Amrock in developing its own valuation models.

HouseCanary also alleged it was fraudulently induced by Amrock to enter into a contract so that Amrock could “obtain HouseCanary’s data and analytics, gain insight into HouseCanary’s intellectual property, and use the data, analytics, and insight for its own software models” and products.

The appeals court, though, ruled the allegations duplicate HouseCanary’s trade secret claims and “are therefore preempted.”

HouseCanary also argued Amrock never intended to pay for HouseCanary’s services, which the court said were not related to the misappropriation claims.

The appeals court said it couldn’t “definitively resolve this issue,” so it directed a new trial on the claim.

The court did not address the size of the jury verdict.

Parties not connected to the case had weighed in against the jury’s verdict.

The National Association of Manufacturers, Texas Association of Manufacturers and the Texas Association of Businesses said if the damages award stood it would adversely affect the willingness of established companies to contract with startups.

“That in turn means fewer opportunities for new ventures, higher costs for established businesses, and slower innovation in a competitive economy for American businesses,” the groups said in a court filing.

The appeal was heard by Chief Justice Sandee Bryan Marion and Justices Patricia O. Alvarez and Beth Watkins. Watkins authored the court’s 26-page opinion.

HouseCanary, meanwhile, has a pending lawsuit against Quicken Loans in San Antonio federal court. The allegations are similar to those made against Amrock.


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