LoanDepot notches early victory in second CrossCountry poaching suit

A federal judge gave an early victory to loanDepot this month in a poaching case against CrossCountry Mortgage, in the latest legal battle between the industry giants.

LoanDepot sued its rival last July for raiding staff responsible for 81% of its annual New York-area production, and taking with it confidential company and client data. U.S. District Judge Lorna G. Schofield last week ordered a preliminary injunction barring CrossCountry and two dozen of its employees, who are named defendants, from using the loanDepot data they obtained.

"LoanDepot will suffer immediate, substantial, and irreparable harm should the following preliminary injunction order not be entered," she wrote in an order last week. "... LoanDepot is likely to succeed on the merits of its Defend Trade Secrets Act claim against all Defendants."

Schofield, however, didn't approve loanDepot's request to bar CrossCountry from soliciting its employees, writing that loanDepot didn't show a "threat of irreparable harm" to support an injunction. The companies will participate in a mediation and must update the court by July 14, a separate order said. 

Both companies declined to comment this week. The case in the U.S. District Court for the Southern District of New York remains pending. It mirrors loanDepot's poaching suit against CrossCountry in Illinois, where a similar injunction was ordered last December.

The Cleveland, Ohio-based lender has fended off numerous poaching suits from other firms, including a dismissal of a raiding complaint from Guild Mortgage. A spate of poaching lawsuits between mortgage competitors has subsided this year following mass layoffs and a market slowdown.

LoanDepot initially accused CrossCountry of poaching 32 employees from branches in Brooklyn, Manhattan and Fishkill, New York. The Irvine, California-based lender and servicer claims departed employees had since closed at least 60 loans at CrossCountry using confidential information they took with them. 

The amount of loanDepot data covered in the injunction is unknown, and a filing detailing the information is under seal. An amended complaint cites at least 10,000 documents copied by two employees alone, and describes files such as mortgage applications, pre-approvals and company compensation and sales data. 

Schofield ordered CrossCountry to not contact any customer in the loanDepot information, although the ruling doesn't apply to CrossCountry's applicants and borrowers who closed a loan between December 2021 and September 15, 2022. 

CrossCountry is also under fire from a former loan salesperson, who accuses the company of failing to pay employees when origination volume fell. That lawsuit remains pending in an Ohio federal court.

The publicly traded LoanDepot has undertaken a massive downsizing effort in the past year, including letting thousands of employees go. The industry's third-largest originator recorded a $91.7 million net loss in the first quarter, and earlier this month announced an executive shakeup.