A startup tech company that recently won a $740-million jury verdict in Texas state court against a Detroit-based title company affiliated with Quicken Loans is now going after a bigger target — Quicken Loans itself — claiming in a federal suitthat the mortgage-lending giant also is responsible for the trade secrets theft and must pay up.

The title company is Amrock, formerly known as Title Source, and a sister company of Quicken Loans.

“These companies are operated together as alter egos, and so it ultimately is not only going to be (Amrock) that will be liable to pay the $700 million to $800 million, it will also be Quicken Loans," Max Tribble, a Texas-based lawyer for the startup, said in a phone interview last week. "We are confident that both companies have the money to satisfy the judgement in full."

Amrock says it is appealing the verdict and nine-figure jury award, one of the largest in the country last year.

To be sure, legal experts say that jury awards of this size are almost always whittled down to smaller sums during appeals or in settlements. And the startup faces high legal hurdles in its argument that Quicken Loans has any liability in the case.

Experts also said that Amrock and Quicken Loans most likely have insurance policies in place that would provide some protection against large jury awards.

"Merely the fact that you get a big verdict is certainly cause for concern, but it isn’t the final story," said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.

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For its part, Quicken Loans says its employees and officers had nothing to do with the fraud outlined in the jury's verdict against the title company and emphasizes that the two companies' operations are completely separate.

“Quite simply, Quicken Loans and Amrock are related companies ... they are sister companies and they are owned by the same parent, but they are not one and the same," said Quicken's lawyer Jeff Morganroth of Morganroth & Morganroth.

Rock Holdings is the parent company of Quicken Loans and Amrock.

The claim

The startup tech company, San Francisco-based HouseCanary, made automated home-appraisal technology that is at the center of the Texas state court lawsuit involving Amrock that resulted in the $740-million jury award.

In a separate but related lawsuit, this one filed in May 2018 in U.S. district court in Texas, HouseCanary has set its sights on Quicken Loans. That suit claims the mortgage giant was deeply entwined in the trade secrets theft for, among other reasons, having rolled out a new home appraisal tool for Quicken customers that was created by staff at Amrock using trade secrets stolen from HouseCanary.

Quicken Loans last September stopped using the appraisal application, called MyAVM, amid HouseCanary's ongoing federal lawsuit against the mortgage lender.

Automated home-appraisal tools "are a dime a dozen. And why have any litigation risk when it was not important to (Quicken's) business," Morganroth said. The tool "was not derived from HouseCanary’s products or trade secrets," he said.

Stolen secrets

But according to HouseCanary, Amrock stole the trade secrets — and stealthily began reverse-engineering its home-appraisal software — after signing a $5 million-per-year contract with HouseCanary in 2015 to try out the appraisal technology.

Amrock terminated that contact in April 2016, claiming HouseCanary failed to deliver operable software and other data. The title company went on to sue HouseCanary in state district court in Bexar County, Texas, alleging that HouseCanary misrepresented what its appraisal technology could do.

But HouseCanary countersued, contending that its technology worked so well that Amrock set out to steal and secretly replicate it.

Jury sides with startup

Last March, a 12-person Texas jury sided with HouseCanary, finding that Amrock defrauded and stole data and trade secrets from HouseCanary.

Of the $740-million amount, the jury awarded $235 million for fraud and misappropriating the startup's trade secrets and $471 million in punitive damages; the rest was later added for interest and attorneys' fees.

The award could grow by $32 million each year during the appeals process, according to Tribble, HouseCanary's lawyer.

A jury award of this size — if it stands – would be enough to wipe out many companies.

"This is a very substantial amount," said Adam Scales, a law professor at Rutgers University's law school. “I’d be really surprised if they had $1 billion worth of (insurance) coverage for a claim like this. It is possible, but the way you get there is by having several layers of coverage.”

Some firms do carry some financial protection against trade secrets lawsuits with intellectual property insurance, said James Lynch, chief actuary at the New York-based Insurance Information Institute.

“They will cover the defense costs and the judgments against the company for infringing on the intellectual property of (another) company. Usually that policy has a limit on it, and you can buy excess liability," he said. "Of course, I don’t know whether Quicken has that or not.”

Amrock's lawyer, Randy Mastro of Gibson, Dunn and Crutcher, said he couldn't discuss the title company's insurance policies, "but I can speak to the fact that we are very confident in the appeal."

Morganroth, Quicken's lawyer, said the notion that Quicken Loans may have to pay a jury award is so farfetched that the insurance question hasn't come up.

“This isn’t even something we would have to spend 10 seconds on considering," he said.

Piercing the veil

If it can succeed in drawing Quicken Loans into the trade secrets case, HouseCanary could gain access to deeper corporate pockets and perhaps higher insurance coverage. Such an outcome also could make it harder for Amrock to shake off the jury's big verdict award by declaring bankruptcy.

But legal experts say it is difficult to link related companies to one corporation's wrongdoing. This situation, known as "piercing the corporate veil," requires in Michigan that a company had behaved as the mere instrument of another company to commit fraud.

“It is hard to pierce the corporate veil," said Peter Henning, a Wayne State University law professor and former prosecutor. "You need to show one company dominated and controlled the other. And I would suspect that Quicken was careful not to fall into that trap."

PowerPoint discovery

HouseCanary went from defense to offense in the state court lawsuit after one of its lawyers discovered a PowerPoint presentation on an obscure Amrock webpage that allegedly showed Amrock had developed its own home-appraisal technology similar to HouseCanary's, known as an "automated valuation model."

An Amrock official gave the presentation during the 2016 Quicken Loans Technology Conference, according to HouseCanary. Amrock was still known as Title Source at the time.

That discovery contradicted testimony at the Texas trial by several Amrock officials, who stated under oath that the title company wasn't creating its own automated valuation model, said Tribble, HouseCanary's lawyer.

"We were searching the web on Goggle and we just happened to punch in the right words and somebody at (Amrock) had probably inadvertently posted online a PowerPoint titled 'Title Source Automated Valuation Model,' " Tribble said. "That blew the case wide open."

Judge denies new trial

On Jan. 9, a Texas judge denied Amrock's request for a new trial in state court, tossing aside the title company's claims that new evidence and testimony from four alleged whistleblowers — former HouseCanary employees — who said the tech company never developed workable technology for Amrock and engaged in various misconduct to obscure that fact.

The four individuals came forward following news reports in March of the jury's $700 million-plus verdict, testifying in a December hearing for a possible new trial that HouseCanary in actuality struggled to produce automated appraisal technology for Amrock.

They also claimed there was collusion involving an Amrock executive who wanted a job at HouseCanary and covered up that HouseCanary never had a working product.

"They came forward as an act of conscience to tell what was really going on at House Canary," Mastro said.

For the hearing, one whistleblower recalled in a sworn declaration how he suggested that HouseCanary license appraisal technology from another tech company because its own wasn't working. HouseCanary then tried to pass off the outside technology as its own in the contract with Amrock, the individual said.

Another whistleblower at the hearing described HouseCanary's business as a "house of cards" with few working products to sell.

Farner gets involved for Amrock

However, HouseCanary's lawyers then contended that testimony from the purported whistleblowers couldn't be trusted because all four of them had various conflicts of interest, such as being a HouseCanary competitor or having a current employer — Equifax — that does significant business with Quicken Loans.

“They were all discredited and it turns out they were all pressured by and beholden to Amrock and Quicken Loans," Tribble said last week, explaining why he thinks the judge denied a new trial.

In recent filings in its federal case against Quicken Loans, HouseCanary makes much of how Quicken Loans CEO Jay Farner personally intervened last year to attempt to get one of the whistleblowers to testify at the December hearing for a new trial in the Amrock case.

The whistleblower's testimony revealed that Farner reached out to a manager at his current employer, credit reporting agency Equifax, to set up a phone call between him and an Amrock-hired private investigator. Quicken Loans does significant business with Equifax.

Yet the whistleblower wouldn't chat with the PI, who had recently showed up at his Massachusetts home wanting to talk, according to court testimony. Farner then tried once more, the whistleblower testified, calling the former HouseCanary employee directly, but the whistleblower recalled that he quickly ended that phone conversation with Quicken's chief executive.

Nevertheless, the Massachusetts man eventually joined the other three whistleblowers in testifying at the December hearing against HouseCanary and its allegedly nonfunctioning technology. He also told the court that his current employer's business with Quicken Loans had no bearing on the honesty of his testimony.

Contact JC Reindl: 313-222-6631 or jcreindl@freepress.com. Follow him on Twitter @JCReindl.