Mortgage technology vendor DocMagic is claiming early victory in its lawsuit against origination system provider Ellie Mae, as both sides await a federal judge's written ruling from a pretrial hearing held Monday.
While choosing to issue a written opinion rather than rule immediately after the proceeding in the U.S. District Court for the Northern District of California in San Francisco, Senior District Judge Marilyn Hall Patel lifted a stay of discovery that limited the amount of information either side has been able to obtain since DocMagic filed its initial lawsuit in August 2009. The ban prevented either side from requesting documents, issuing subpoenas or scheduling depositions of parties involved in the case.
At the hearing, Patel heard oral arguments in support of written claims from both sides on a motion for summary judgement that Ellie Mae filed to remove DocMagic's antitrust claims from the case. Stuart Plunkett, a litigation partner at the San Francisco office of law firm Morrison and Foerster and a member of DocMagic's legal team, told Mortgage Technology the court "strongly indicated" it would deny Ellie Mae’s motion.
"As one indication that the court intends to deny the motion and allow the case to go forward, she lifted the stay of discovery and told the parties they could proceed with discovery on all claims," Plunkett said.
"It is a very significant victory because it means DocMagic is open to full and open discovery of Ellie Mae's business practices with respect to our claims," he continued.
A spokesperson for Ellie Mae declined repeated requests for comment, citing the company's ongoing "quiet period" as it pursues an initial public stock offering.
The judge also heard arguments on DocMagic's motion to issue a temporary restraining order against Ellie Mae. While the judge also will issue a written ruling on the action, Plunkett said the judge indicated the motion would not be granted.
"We were seeking preliminary relief to prevent Ellie Mae from taking technological steps to block our clients' ability to use DocMagic," he said. "The denial of a request for preliminary injunctive relief has little or no impact on DocMagic's claims; it just means DocMagic will seek to obtain the same relief later in the case."
If the judge grants the motion for summary judgment, DocMagic's antitrust claims would be dismissed from the case, potentially impacting additional claims tied to those allegations. Additionally, if the judge grants the temporary restraining order, the court would dictate guidelines Ellie Mae would have to abide by in how it manages its technology.
With the case continuing on to the discovery phase, "We are well on the way to be able to present our claims to a jury," Plunkett said. And while many civil lawsuits are resolved before they reach trial, "We believe these claims will be heard by a jury," he added.
The court's decision to open up the discovery period lays out a timeline for the rest of the case, which could take a year or more before it goes to trial. Plunkett estimated the discovery period could take anywhere from six to nine months, or longer. After that, both sides will have the opportunity to conduct a second discovery phase of expert witnesses. Additional summary judgments could be filed based on the information obtained during the discovery period, followed by any pre-trial motions and if the case is still not resolved out of court, the actual trial.
Some legal experts in the mortgage industry have speculated that each side could be spending more than six figures each month in legal costs related to the case.
The 2009 lawsuit and two subsequent amended complaints allege 14 claims against Ellie Mae. DocMagic, which provides technology for mortgage document preparation, claims Ellie Mae used intellectual property it obtained from a technology sharing agreement with DocMagic to build its own competing document software, called Ellie Mae Docs. Ellie Mae claims that since it ended its relationship with DocMagic, its document software is not based on the DocMagic technology, but rather that of Online Docs Inc., a subsidiary of Stewart Lender Services that Ellie Mae acquired in October 2008.
DocMagic also claims unfair competition practices in the way its software interacts with Ellie Mae's Encompass360 LOS and the Ellie Mae Network, formerly called the ePass Network. The network allows third party settlement services software, like document preparation and credit reporting vendors, to integrate with the LOS.
Ellie Mae has its own set of claims, including allegations that DocMagic reverse-engineered technology to gain access to Ellie Mae's software, servers, and network resources.
