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PennyMac pays $158M to Black Knight in servicing platform dispute

The payment relates to a five-year legal battle involving accusations of trade secret theft

PennyMac Financial Services has paid $158.4 million to Black Knight Servicing Technologies, concluding a five-year legal battle over allegations of trade secret theft involving two of the biggest companies in the housing industry. 

An arbitrator issued the final award on Jan. 12, reducing Black Knight’s monetary damages from $155.2 million plus interest, granted as an interim award in November 2023, to $150.2 million plus interest, per filings with the Securities and Exchange Commission (SEC). 

PennyMac, which had accrued $158.4 million in its financial results for the fourth quarter of 2023, paid the amount in full on Feb. 14. The company said the Florida State Court confirmed the final award on March 15.  

A spokesperson for Black Knight did not immediately respond to a request for comments.

The dispute between the companies started in 2019 when Black Knight accused PennyMac of copying its mortgage servicing platform, MSP, to create its Servicing Systems Environment (SSE) technology. 

In the lawsuit filed in the Fourth Judicial Circuit Court of Duval County, Florida, the plaintiff sought $340 million in damages and injunctive relief under the Florida Uniform Trade Secrets Act, along with declaratory judgment of ownership of all intellectual property and software developed by or on behalf of PennyMac. 

In March 2020, the companies entered arbitration.  

More than three years later, in November 2023, an arbitrator issued an interim award granting, in part, Black Knight‘s breach of contract claim while denying the allegations of trade secrets misappropriation and injunctive and declaratory relief.

Black Knight (now a wholly owned subsidiary of Intercontinental Exchange) was awarded six years of avoided license fees, which resulted in $155.2 million in damages related to a breach of contract claim, plus interest and attorneys fees. 

PennyMac, however, kept all of its intellectual property and software, including SSE, clear of any restrictions on use. Black Knight is also “enjoined from enforcing any of its contract clauses requiring that its clients process their loans exclusively on the MSP platform,” per the SEC filing.

PennyMac recently made changes to its tech leadership. It promoted Jim Follette to chief digital officer, a new role to pursue opportunities in digital innovations, commercial markets and solutions for homeowners. Meanwhile, Mike Hogan is PennyMac’s new chief information officer, replacing Lior Ofir, who departed the company to pursue new opportunities.

California-based PennyMac delivered $144.7 million in net income in 2023, down from $475.5 million in 2022. When announcing earnings in early February, company executives commented on the legal battle. 

“While we disagree with the ruling, we’re very pleased with the arbitrator’s affirmation that SSE remains our own proprietary technology,” said David Spector, PennyMac chairman and CEO.

“Since we launched the system in 2019, it has performed extremely well, meaningfully enhancing capabilities while helping to drive down costs. With this technology now free and clear of any restrictions on use or development, we believe there’s potential for additional opportunities for the company and stakeholders over time.”

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