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“Cat Out Of the Bag” (Trade Secrets) in CAPITAL ONE, NA v. Forbes, Fla: Dist. Court of Appeal, 2nd Dist. 2010

“Cat Out Of the Bag” (Trade Secrets) in CAPITAL ONE, NA v. Forbes, Fla: Dist. Court of Appeal, 2nd Dist. 2010


CAPITAL ONE, N.A., as successor by merger to Chevy Chase Bank, F.S.B., Petitioner,
v.
DOUGLAS R. FORBES, Respondent.

Case No. 2D09-4735.

District Court of Appeal of Florida, Second District.

Opinion filed May 12, 2010.

Carrie Ann Wozniak of Akerman Senterfitt, Orlando, for Petitioner.

Nicole E. Durkin of Deeb & Durkin, P.A., St. Petersburg, for Respondent.

LaROSE, Judge.

Capital One, N.A. (the Bank), seeks a writ of certiorari to quash a protective order that allows the disclosure of trade secrets to Mr. Forbes’s consultants and experts. The Bank also asks us to quash the trial court’s order because it did not sufficiently limit the scope of discovery.

Factual Background

The Bank filed a mortgage foreclosure action against Mr. Forbes. Allegedly, Mr. Forbes breached a construction loan agreement. Mr. Forbes filed a counterclaim alleging breach of contract, anticipatory breach of contract, and fraud in the inducement.

Mr. Forbes requested documents from the Bank. It produced responsive documents except, as relevant here, for requests ten and thirteen:

10. All technical and administrative manuals used in the internal communications system of Lender, or through which Lender policies, practices and procedures were communicated to its bank officers, employees, agents, partners, managers and/or “staff,” effective during the period from January 1, 2006 through the present, including, but not limited to, those manuals relating to construction or developer financing.

. . . .

13. All complaints, claims or protests brought in any judicial forum, arbitration proceeding, or industry dispute resolution forum by Lender clients or third parties against Lender alleging any breach of obligations, terms, conditions, or responsibilities by Lender in the conduct or exercise of its responsibilities and obligations with respect to or arising from engaging in the business of banking within the preceding five (5) years.

The Bank sought a protective order. The Bank argued that its construction-lending manual is a trade secret requiring adequate measures to protect against improper dissemination. There appears to be no dispute that the manual is a trade secret. The Bank also argued that other complaints, claims, or protests made against the Bank in any forum in the past five years were irrelevant, not reasonably calculated to lead to the discovery of any admissible evidence, and intended solely to harass the Bank. See generally, Allstate Ins. Co. v. Boecher, 733 So. 2d 993, 995 (Fla. 1999) (holding that there is an exception to the rule of complete discovery where it may be harassing or embarrassing).

After a hearing, the trial court denied the Bank’s motion as to request 13, except it narrowed the time frame to three years. The trial court concluded that the requested documents “may potentially lead to admissible evidence just based upon the counter plaintiff’s theory of policy written or potentially otherwise as to the lender’s motive to pull out of the project.”

As for the manual, the Bank’s counsel brought the document to the hearing for an in-camera inspection. The trial court did not inspect the materials but accepted counsel’s explanation that the materials contained the Bank’s lending guidelines and practices. The Bank’s counsel argued that the Bank would produce the materials if the trial court entered an adequate confidentiality order. The trial court denied the motion for a protective order, but agreed to grant a “confidentiality agreement between the parties for the protection of [the Bank].”

The trial court asked Mr. Forbes’s counsel to take the Bank’s proposed confidentiality order from the hearing and draft an order satisfactory to both sides. The Bank and Mr. Forbes could not agree. Each submitted a proposed order to the trial court. To center the dispute, we note that Mr. Forbes’s proposed order had no provision requiring consultants, experts, or their employees retained for the litigation to consent to the confidentiality provisions before viewing the manual.

The trial court adopted Mr. Forbes’s proposed order. The order provided that documents marked “Confidential” shall not be disclosed to any persons, except for counsel actively engaged in the litigation along with their employees and staff, parties and employees of the parties, persons with prior knowledge of the documents or the confidential information contained therein, and court officials involved in the litigation. Other relevant portions of the order provide as follows:

3. Plaintiff shall produce the documents requested, however the time period shall be limited to three (3) years prior to the date of this Order.

4. That the documents being produced pursuant to Paragraph 10 of Defendant’s First Request for Production of Documents which are marked “Confidential” by Plaintiff’s counsel shall not be disclosed to any persons, except that such documents may be disclosed or otherwise utilized as follows:

. . . .

(B) Such documents may also be disclosed to persons noticed for depositions during the course of such depositions, including retained outside consultants or experts and their employees retained for the purpose of assisting counsel in the litigation;

. . . .

5. Within 30 days after final conclusion of all aspects of this litigation, stamped confidential documents and all copies of same . . . shall be returned to the party or person which produced such documents or, at the option of the producer, destroyed.

(Emphasis added.)

Certiorari Jurisdiction

We may grant a petition for certiorari “only when the petitioner establishes (1) a departure from the essential requirements of the law, (2) resulting in material injury for the remainder of the trial (3) that cannot be corrected on postjudgment appeal. We examine prongs two and three first to determine our certiorari jurisdiction.” DeLoach v. Aird, 989 So. 2d 652, 654 (Fla. 2d DCA 2007)(citing Parkway Bank v. Ft. Myers Armature Works, Inc., 658 So. 2d 646, 648-49 (Fla. 2d DCA 1995)). If jurisdictional prongs two and three are not fulfilled, then we dismiss the petition rather than deny it. Id.

Analysis

Other Claims Specified in Request 13

The trial court denied, in part, and granted, in part, the Bank’s motion for a protective order as to these materials. The trial court narrowed Mr. Forbes’s request from five years to three years but did not otherwise narrow its breadth.

Discovery allows the parties to find potentially relevant evidence. The conduct of discovery is left to the trial court’s sound discretion. Fla. R. Civ. P. 1.280(b)(1); Friedman v. Heart Inst. of Port St. Lucie, Inc., 863 So. 2d 189, 193 (Fla. 2003). The order on review does not necessarily cause irreparable harm by allowing discovery of what the Bank claims to be irrelevant materials. See Am. Home Assurance Co. v. Vreeland, 973 So. 2d 668, 671 (Fla. 2d DCA 2008) (citingFirst Paradee, Ltd. v. Jones, 828 So. 2d 483, 485 (Fla. 2d DCA 2002)). Thus, certiorari jurisdiction is improper. We dismiss this portion of the Bank’s petition.

Manuals Specified in Request 10

The Bank argues that the trial court departed from the essential requirements of law by requiring the disclosure of trade secrets without providing adequate protective measures. An order requiring disclosure of trade secrets may cause irreparable injury that cannot be corrected on appeal; the disclosure lets the “cat out of the bag.” Id. Here, the trial court did not err. Its order sufficiently protects the Bank. See Allstate Ins. Co. v. Langston, 655 So. 2d 91, 94 (Fla. 1995). The Bank is concerned that experts or consultants retained by Mr. Forbes will misuse the materials. The order does not ignore that concern; only specified individuals may have access to the materials for the stated and limited purposes of assisting counsel in the litigation. No other use is contemplated. Further, the order requires that designated confidential materials, and any copies, be returned or destroyed at the end of the litigation.

Perhaps the order could have been clearer. However, we understand it to limit experts’ and consultants’ access to confidential information. Paragraph 4 of the order provides a blanket protection that documents may not be disclosed to “any person,” with enumerated exceptions. Importantly, the identification of people to whom access is granted is drawn narrowly to include only the parties and their employees, court employees, and outside consultants and experts. As for the consultants and experts, the order allows access only for a limited time and for the limited purposes of assisting counsel in this litigation.[1] The trial court did not depart from the essential requirements of law by entering the order proposed by Mr. Forbes’s counsel. As to this issue, the petition for certiorari is denied.

Dismissed in part; denied in part.

SILBERMAN and CRENSHAW, JJ., Concur.

NOT FINAL UNTIL TIME EXPIRES TO FILE REHEARING MOTION AND, IF FILED, DETERMINED.

[1] We do not decide who would be liable should a consultant or expert violate the protective order. See, e.g.,Quinter v. Volkswagen of Am., 676 F.2d 969, 973 (3d Cir. 1982) (holding a nonparty liable for civil contempt where the nonparty had knowledge of the protective order.)

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Posted in capital one, concealment, insider, investigation, trade secretsComments (3)

*REVERSED* Patricia A. Arango of the Law Offices of Marshall C. Watson, P.A., Fort Lauderdale, for Appellee-Aurora Loan Services, LLC., MERS "FINAL JUDGMENT REVERSED"!!

*REVERSED* Patricia A. Arango of the Law Offices of Marshall C. Watson, P.A., Fort Lauderdale, for Appellee-Aurora Loan Services, LLC., MERS "FINAL JUDGMENT REVERSED"!!


PIERRE ELLIOTT and LISA ELLIOTT, Appellants,
v.
AURORA LOAN SERVICES, LLC, MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., as nominee and STONEBROOK ESTATES COMMUNITY ASSOCIATION, INC., Appellees.

No. 4D08-4362.

District Court of Appeal of Florida, Fourth District.

April 7, 2010.

Nathaniel E. Green of Nathaniel E. Green, P.A., Fort Lauderdale, for appellants.

Patricia A. Arango of the Law Offices of Marshall C. Watson, P.A., Fort Lauderdale, for Appellee-Aurora Loan Services, LLC.

TAYLOR, J.

Pierre and Lisa Elliott appeal a final judgment of foreclosure entered for Aurora Loan Services, LLC (Aurora). Because the trial court erred in denying the Elliotts’ verified motion to vacate default and, consequently, erred in entering the final judgment of foreclosure, we reverse.

On March 7, 2008, Aurora filed a complaint against the Elliotts to foreclose on their mortgage. The Elliotts received the summons and complaint on March 11, 2008. According to their verified motion, on March 11, 2008, Lisa Elliott contacted Aurora’s attorney, as directed in a letter attached to the complaint. The attorney instructed they call Aurora directly. The Elliotts did so and they then began a workout agreement. Lisa Elliott, in the verified motion, stated that they reached a proposed “Special Forbearance Agreement” with Aurora, dated June 27, 2008.

Due to the Elliotts’ failure to file any papers, Aurora moved for an entry of default against the Elliotts, which was entered on May 21, 2008. Further, on May 21, 2008, Aurora filed a Motion for Summary Judgment and Motion for Attorneys Fee’s and Memorandum (along with supporting affidavits).

Lisa Elliott stated in the verified motion that they discovered the entry of default for the first time on August 27, 2008. They filed their Verified Motion to Vacate Default with Proposed Answer and Affirmative Defenses on September 3, 2008.

At the hearing on September 24, 2008, the trial court denied the Elliotts’ verified motion to vacate default and granted Aurora’s motion for summary judgment. The court then entered the final judgment of foreclosure.[1]

The Elliotts argue the court erred by denying their verified motion to vacate default. “`An order denying a motion to vacate a default is reviewed under an abuse of discretion standard.'” Jeyanandarajan v. Freedman, 863 So. 2d 432, 433 (Fla. 4th DCA 2003) (quoting Lloyd’s Underwriter’s at London v. Ruby, Inc., 801 So. 2d 138, 139 (Fla. 4th DCA 2001)).

Florida Rule of Civil Procedure 1.500(a) (2008) provides that a clerk may enter a default against a party who fails to file any papers or pleadings. The court may set aside this default, however, under Rule 1.540(b). Fla. R. Civ. P. 1.500(d). “`Florida public policy favors the setting aside of defaults so that controversies may be decided on the merits.'” Jeyanandarajan, 863 So. 2d at 433 (quoting Lloyd’s Underwriter’s, 801 So. 2d at 139).

Rule 1.540(b) provides that if the terms are just, the court may relieve a party from a final order for mistake, inadvertence, surprise, or excusable neglect. To set aside the default pursuant to this rule, the court must determine: “(1) whether the defendant has demonstrated excusable neglect in failing to respond[;] (2) whether the defendant has demonstrated a meritorious defense; and (3) whether the defendant, subsequent to learning of the default, had demonstrated due diligence in seeking relief.” Halpern v. Houser, 949 So. 2d 1155, 1157 (Fla. 4th DCA 2007) (citing Schwartz v. Bus. Cards Tomorrow, Inc., 644 So. 2d 611, 611 (Fla. 4th DCA 1994)). Because the Elliotts demonstrated these elements, the court abused its discretion in denying their motion to vacate the default.

Excusable neglect is found “where inaction results from clerical or secretarial error, reasonable misunderstanding, a system gone awry or any other of the foibles to which human nature is heir.” Somero v. Hendry Gen. Hosp., 467 So. 2d 1103, 1106 (Fla. 4th DCA 1985). Although ignorance of the law and failure to understand consequences are not viable excuses, “a reasonable misunderstanding between attorneys regarding settlement negotiations does constitute excusable neglect sufficient to vacate a default.” Gables Club Marina, LLC v. Gables Condo. & Club Ass’n, Inc., 948 So. 2d 21, 23-24 (Fla. 3d DCA 2006). In Gables Club, the parties’ attorneys were engaged in settlement talks, and the court found it reasonable that the defendant believed it need not file an answer to the plaintiff’s complaint. Id. at 24.

“`Excusable neglect must be proven by sworn statements or affidavits.'” Geer v. Jacobsen, 880 So. 2d 717, 720 (Fla. 2d DCA 2004) (quoting DiSarrio v. Mills, 711 So. 2d 1355, 1356 (Fla. 2d DCA 1998)). Here, the Elliotts filed a verified motion containing properly sworn statements, as follows:

2. Defendants were served with summons and complaint on or about March 11, 2008.

3. On or about March 11, 2008 I, Lisa Elliott, contacted the attorney for AURORA at XXX-XXX-XXXX to discuss resolution of the complaint. I was instructed to contact the lender.

4. I contacted AURORA and began a workout agreement which lead to a proposed “Special Forbearance Agreement” dated June 27, 2008. See attached letter from Aurora Loan Services marked Exhibit “A”.

Aurora filed no refuting affidavits or other evidence to rebut the Elliotts’ claims that the parties were engaged in settlement negotiations.[2]

In Gibson Trust, Inc. v. Office of the Attorney General, 883 So. 2d 379, 382 (Fla. 4th DCA 2004), we vacated the default entered by the trial court, stating that “[b]ecause the defendants’ affidavits were uncontradicted and established that there was a `misunderstanding’ regarding whether an extension had been agreed upon, we conclude that excusable neglect was shown.” Similarly, here, the Elliotts’ verified motion indicates they began a workout agreement with Aurora, which led to a proposed “Special Forbearance Agreement.” Aurora failed to file any affidavits refuting this. Therefore, the Elliotts’ uncontradicted verified motion established excusable neglect.

A meritorious defense is established where a “proposed answer [is] attached to its motion to vacate, which answer sets out in detail a number of affirmative defenses.” Fortune Ins. Co. v. Sanchez, 490 So. 2d 249, 249 (Fla. 3d DCA 1986). We similarly held that where a party “immediately filed a proposed answer with affirmative defenses upon receipt of the plaintiffs’ motion to set the cause for trial on damages,” the meritorious-defense and due-diligence elements were met. Broward County v. Perdue, 432 So. 2d 742, 743 (Fla. 4th DCA 1983). The Elliotts’ verified motion to vacate default contained a proposed answer and affirmative defenses, which met the meritorious-defense element.

Finally, due diligence, which is a test of reasonableness, must be evaluated based on the facts of the particular case. Franklin v. Franklin, 573 So. 2d 401, 403 (Fla. 3d DCA 1991). Due diligence must be established with evidence, which includes a sworn affidavit. Cedar Mountain Estates, LLC v. Loan One, LLC, 4 So. 3d 15, 17 (Fla. 5th DCA 2009).

Here, although the default was entered on May 21, 2008, Lisa Elliott, in the verified motion, stated that they discovered the default for the first time on August 27, 2008. Again, this sworn allegation was not refuted by Aurora. Upon discovering the default, the Elliotts filed the verified motion to vacate the default, along with the proposed answer and affirmative defenses; it was dated August 28, 2008, but not rendered with the clerk of court until September 3, 2008. Only six days elapsed between the time the default was discovered and the time the motion to vacate was filed. It has been held that six-day, sevenday, and fifteen-day time lapses between the discovery of a default and the filing of a motion to vacate that default showed due diligence. See Allstate Floridian Ins. Co. v. Ronco Inventions, LLC, 890 So. 2d 300, 303 (Fla. 2d DCA 2004) (citing Goodwin v. Goodwin, 559 So. 2d 109 (Fla. 2d DCA 1990) (six-day delay)); Coquina Beach Club Condo. Ass’n v. Wagner, 813 So. 2d 1061 (Fla. 2d DCA 2002) (seven-day delay); Marshall Davis, Inc. v. Incapco, Inc., 558 So. 2d 206 (Fla. 2d DCA 1990) (fifteen-day delay)). Thus, the Elliotts exercised due diligence by filing the motion to vacate the default within six days of discovery of the default.

Because the Elliotts demonstrated the elements necessary to set aside the default, the trial court abused its discretion in denying their motion and subsequently entering the final judgment of foreclosure.

Accordingly, we reverse the final judgment of foreclosure and order denying the Elliotts’ motion to vacate the default.

Reversed and Remanded.

FARMER and MAY, JJ., concur.

Not final until disposition of timely filed motion for rehearing.

[1] The foreclosure sale was set for November 26, 2008, but the parties agreed to stay the case and cancel the sale pending this appeal.

[2] Although the Gables Club court states that there must have been a “reasonable misunderstanding between attorneys,” this is met because the Elliotts were proceeding pro se.

Posted in case, foreclosure fraud, foreclosure mills, law offices of Marshall C. Watson pa, marshall watson, MERS, mortgage electronic registration system, MORTGAGE ELECTRONIC REGISTRATION SYSTEMS INC., reversed court decisionComments (0)


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