Caliber argues pre-merger non-solicit contract still enforceable

A poaching suit lodged by Caliber Home Loans against a former veteran executive in 2022 continues to unfold, with a most recent filing arguing a previous merger in 2013 did not negate outstanding contracts, such as non-solicitation agreements.

The suit, filed in a Texas federal court against Lee Cove, a former divisional vice president, centers around him jumping to competitor Cardinal Financial in October 2022 and allegedly prompting others to join him at his new place of employment. A few months prior, Caliber was acquired by Newrez.

Caliber has accused Cove of soliciting employees to transition to Cardinal en masse (at least 150 employees), thereby breaking a non-solicitation agreement the former executive signed on July 18, 2013, prior to Caliber merging with Caliber Funding LLC. The agreement put a one-year stipulation on Cove, preventing him from urging any Caliber employees to discontinue their employment for 12 months after his own departure from the company.

Cove in turn has argued that since Caliber Funding LLC, a retail operation, was merged with Caliber Home Loans, Inc., a servicing shop, a decade ago, the non-solicitation agreement he signed with the former company was dissolved. He also requested for Caliber to cough up alleged outstanding compensation owed.

Cove and Cardinal have attempted to dismiss the case a handful of times, but have failed to do so. 

Cardinal declined to comment. Attorneys representing Caliber and Cove did not immediately respond to a request for comment.

In February 2023, Cove, who as of late was vice president of retail at Academy Mortgage, filed a motion for partial summary judgment, arguing that the court should dismiss the allegation that he breached a contract because it is no longer valid.

A response from Caliber, filed March 6, states the executive "unabashedly breached his duty to not solicit employees of Caliber" and that the obligations set forth "remain valid and effective." The filing was first reported by Law360.

Cove remained obligated "not to solicit employees hired after the merger or information obtained after Caliber Funding LLC merged into Caliber because Caliber stepped into the shoes of Caliber Funding LLC for all purposes," the lender argues.

Poaching suits are incredibly cash intensive and can take a long time to play out, with most settling out of court, industry stakeholders say.

Caliber's acquirer, Newrez, has also recently filed a suit accusing a former executive of departing to a competitor and orchestrating a ruse to move others. James Hecht, former head of its retail operations, allegedly staged a plan in which he abruptly left to a direct competitor and brought his colleagues, a handful of divisional managers, along with him.

According to the suit, prior to departing to OneTrust Home Loans on Feb. 1, where Hecht is now CEO, he fired the Newrez managers and later rehired them at his new place of employment. It is alleged that the scheme took place shortly after Newrez announced a recommitment to its retail business when plans to sell didn't materialize.