DocMagic Gets New Lawyers, Amends Antitrust Complaint Against Ellie Mae
Armed with new lawyers and data from a Securities and Exchange Commission (SEC) filing, loan document compliance software developer DocMagic submitted an amended complaint in its antitrust and unfair trade practices lawsuit against mortgage software developer Ellie Mae. The 67-page complaint, filed May 10 in US District Court for the Northern District of California in San Francisco, alleges 14 various claims against Ellie Mae ranging from violations of an antitrust law known as the Sherman Act to copyright infringement. The new complaint comes as both parties agreed to dismiss a state-level lawsuit related to this case. Those claims, including a contract dispute between DocMagic and Ellie Mae, are now wrapped into the federal court case. DocMagic also brought on a new law firm to represent it in the case. The new firm, Morrison Foerster, is a San Francisco-based global firm that specializes in technology-related legal matters. A DocMagic spokesperson said as the case progressed, the company decided to hire a law firm that specializes in technology-related law. DocMagic’s previous attorney, Matthew Hinks, did not immediately respond to HousingWire’s request for comment. The amended complaint comes on the heels of news in early May that Ellie Mae is planning an initial public offering (IPO) it hopes will raise $86.25m. “Ellie Mae’s goal was, and is, the complete elimination of DocMagic and other competitors from the online document preparation services market,” the DocMagic complaint said. “Ellie Mae’s motive was to bolster its sagging balance sheet to position itself to go public,” the complaint continues. “Ellie Mae candidly admitted that its $4.1m revenue increase from 2008 to 2009 — the only bright spot in Ellie Mae’s financial disclosures — was ‘primarily related to our document preparation services.’” Indeed, in its SEC filing, Ellie Mae acknowledges the revenue increase in its document preparation services, but credits the profit to the surge in mortgage refinancing in the first half of 2009, a shift in our customer base from mortgage brokerages to mortgage lenders, and its acquisition of Online Documents Inc. (ODI) in Q408. ODI is a mortgage document preparation software Ellie Mae acquired from Stewart Lender Services and rebranded as Ellie Mae Docs. The federal judge presiding on the case set a May 10 deadline for the amended complaints. In addition to DocMagic’s filing, Ellie Mae filed an answer to complaint and an amendment to its original counterclaim on April 26. That filing adds allegations regarding a reseller contract between Ellie Mae and DocMagic and additional claims that DocMagic improperly solicited Ellie Mae’s customers by promoting direct access to DocMagic. The timing of DocMagic’s latest complaint prevents Ellie Mae from addressing the allegations. Ellie Mae is in what’s known as a “quiet period” following its IPO filing and a spokesperson for Ellie Mae declined HousingWire’s request for comment. Federal securities laws limit what information a company and related parties can release to the public during the period, typically 40 days. While not outright prohibited from speaking to the media, it is a common practice for companies to decline media inquiries during quiet periods to avoid any inadvertent violations. DocMagic president Dominic Iannitti said Ellie Mae’s IPO further proves his company’s allegations. “Now that we have had the opportunity to review Ellie Mae’s financial performance in its IPO prospectus filed with the Securities Exchange Commission, it appears that the only financial success Ellie Mae can claim in the last two years is tied directly to the document preparation business, much of which is based on business and intellectual property stolen from DocMagic and others in violation of federal and state laws.” The lawsuit revolves around the relationship between DocMagic’s online document service and three Ellie Mae products, Ellie Mae Docs, ePass and Encompass. Ellie Mae Docs is essentially a private-label document service that was a hybrid of DocMagic’s service and another similar product, DocuTech. Launched in 2006, Ellie Mae entered into reseller agreements with both companies for their software for use in the system. Later, after Ellie Mae acquired ODI, it was integrated into Ellie Mae Docs. DocMagic alleges Ellie Mae had access to its proprietary information and used it in developing the latest incarnation of Ellie Mae Docs, a claim Ellie Mae officials denied to HousingWire when the suit was originally filed in August 2009. “I’m not sure how we would do it, as far as reverse engineering their back-end system when we don’t really see how it works,” Ellie Mae chief strategy officer Jonathan Corr told HousingWire in September 2009. “It’s just a black box to us and we don’t have access to their systems.” The new complaint alleges that in Ellie Mae Docs, the use of the words “WARNING” and “FATAL” along with using red, yellow and black color scheme on these alerts are in violation of DocMagic copyrights. “Although it could have chosen any style for the audit reports that it developed for its new document preparation service, Ellie Mae chose to copy the DocMagic trademarks and trade dress so that use of Ellie Mae’s document preparation service would replicate as closely as possible the DocMagic experience,” the complaint alleges. Portions of DocMagic’s amended complaint are redacted from public viewing. A spokesperson for DocMagic said the redacted portions of the complaint include details revealed during the discovery phase that are prohibited from public disclosure to protect certain private trade information of both companies. The next development in the case will come in June, when the judge presiding on the case set a deadline for filing motions to dismiss. Write to Austin Kilgore.