Quicken Loan v. Beale

NOTICE: NOT FOR PUBLICATION.
UNDER ARIZ. R. SUP. CT. 111(c), THIS DECISION DOES NOT CREATE LEGAL PRECEDENT
AND MAY NOT BE CITED EXCEPT AS AUTHORIZED.

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE

QUICKEN LOAN, INC., a foreign corporation,
Plaintiff/Appellant,

v.

WENDY BEALE; LYDIA GARZA; DUSTIN ANDERSEN; COLIN
KOROLSKY; AYRULA AYRULA; BARON TYLER COX; and WYMAN
JACOBS, Defendants/Appellees,

LOANDEPOT, Intervenor/Appellee.

No. 1 CA-CV 13-0053
FILED 5-13-2014

Appeal from the Superior Court in Maricopa County
CV2011-019793
The Honorable Katherine M. Cooper, Judge

AFFIRMED

COUNSEL

Littler Mendelson, PC, Phoenix
By Peter C. Prynkiewicz

Honigman Miller Schwartz & Cohn, LLP, Detroit, MI
By Robert J. Muchnick, William D. Sargent
Co-Counsel for Plaintiff/Appellant
Schneider & Onofry, PC, Phoenix
By Luane Rosen, Michelle Swann
Counsel for Defendants/Appellees

Sherman & Howard, LLC, Phoenix
By John Alan Doran
Counsel for Intervenor/Appellee

MEMORANDUM DECISION

Presiding Judge Patricia A. Orozco delivered the decision of the Court, in
which Judge Lawrence F. Winthrop and Judge Kenton D. Jones joined.

O R O Z C O, Judge:

¶1 Appellant Quicken Loans, Inc. (Quicken Loans) appeals
from the trial court judgment granting summary judgment in favor of
Appellees Wendy Beal, Lydia Garza, Dustin Andersen, Colin Korolsky,
Ayrula Ayrula, Baron Tyler Cox, and Wyman Jacobs (collectively
Employees), and Intervenor loanDepot (collectively Defendants). Quicken
Loans also appeals from the trial court’s orders denying Quicken Loans’
motion for an evidentiary hearing regarding Defendants’ application for
attorney fees, and awarding Defendants’ attorney fees and costs. For the
reasons that follow, we affirm.

FACTS AND PROCEDURAL HISTORY

¶2 Employees are former employees of Quicken Loans, who
subsequently worked for loanDepot. Quicken Loans and loanDepot are
competitors in the online mortgage industry. As a condition of
employment at Quicken Loans, all Employees signed an Employment
Agreement (Agreement), which contained a covenant not to compete1 and
a covenant not to raid Quicken Loans’ employees, also known as the

1 Quicken Loans has not raised the covenant not to compete clause as
an issue in this appeal. Therefore, we do not address it. See, e.g., Dawson
v. Withycombe, 216 Ariz. 84, 100 n.11, ¶ 40, 163 P.3d 1034, 1050 n.11 (App.
2007) (“By not raising the issue in their opening briefs, Appellants have
waived [the issue] on appeal.”).

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“Non-Contact Provision” (the Provision). Employees were given the
Agreement to sign with their new hire paperwork, which included
documentation such as federal and state tax forms and other forms of that
nature.

¶3 The Provision prohibited Employees from communicating
with current Quicken Loans employees, as well as current employees of
any of Quicken Loans’ forty associated entities, for two years. The
Provision also prohibited Employees from communicating with any
former employees of those forty entities for twelve months after the
former employees’ employment terminated. Finally, the Agreement
contained a provision stating, “This Agreement shall be construed in
accordance with the laws of the State of Michigan.”

¶4 Quicken Loans, a Michigan corporation, is a national
company that provides mortgage loans to customers in all fifty states.
Quicken Loans is a “full-service mortgage banking/personal finance
company engaged in originating, closing, funding, servicing and
marketing residential mortgage loans and consumer loans through
various business channels.”

¶5 Quicken Loans trains newly hired mortgage bankers to
ensure their bankers have the proper knowledge and licensing
requirements to sell mortgages. The training program includes both on-
the-job training phases that employees must complete as well as an initial
eight weeks of classroom training.2 Quicken Loans constantly has new
employees starting the training program. Therefore, it does not replace
individual employees as they leave, but always has a pipeline of new
mortgage bankers entering the various phases of training. Although
Quicken Loans has stated that it takes approximately nine months for a
new hire to become productive, that time frame varies depending on
experience. Quicken Loans paid the costs and fees associated with
preparing Employees to take both federal and state licensing exams while
employed at Quicken. Moreover, Quicken Loans paid an additional
incentive of $1000 per license, up to $10,000, for each state license its
employees acquired.

¶6 In its underlying complaint, Quicken Loans alleged, among
other things, that Employees violated the Provision by communicating

2 The eight-week classroom training program has since been reduced
to six weeks.

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employment opportunities at loanDepot with other Quicken Loans
employees. Quicken Loans sought injunctive relief and monetary
damages for the alleged breaches of the Provision.

¶7 Employees filed a motion to dismiss, arguing that the
Provision was unreasonable and unenforceable as a matter of law.
Subsequently, loanDepot filed a motion to intervene, and Quicken Loans
requested that the trial court grant the motion. After the trial court
granted the motion to intervene, loanDepot joined Employees’ motion to
dismiss. The trial court denied the joint motion to dismiss.

¶8 After conducting discovery, Employees joined loanDepot’s
motion for summary judgment and individually filed separate statements
of facts supporting the motion as the allegations related to each
employee’s involvement. The trial court granted Defendants’ motions for
summary judgment. The trial court found that the restrictive covenants at
issue were “overbroad and unreasonably restrictive on the employee.”
The trial court further noted that Quicken Loans failed to meet its burden
of proof “establishing a legitimate business interest in these provisions as
written.” The trial court also declined to amend the Provision as written
to create enforceable ones, holding that the Provision was not severable
and was intertwined “with an integral part of overbroad covenants that
are unenforceable as a matter of law.”

¶9 As the prevailing parties, the Employees and loanDepot
applied to recover their costs and attorney fees. Although Quicken Loans
argued that various individual defendants and loanDepot were not
entitled to attorney fees, the trial court awarded Employees and
loanDepot what it determined to be reasonable attorney fees and costs.
Finally, the trial court found that “[w]hile loanDepot neither asserted nor
defended a direct claim, [Quicken Loans] – which initiated the lawsuit
that prompted loanDepot’s intervention – was obligated to pay
loanDepot’s costs as a successful party under [Arizona Revised Statutes
(A.R.S.) section 12-341.]”

¶10 Quicken Loans timely appealed. We have jurisdiction to
decide this appeal pursuant to Article 6, Section 9, of the Arizona
Constitution, A.R.S. §§ 12-120.21.A.1 (2003), and -2101.A.1 (Supp. 2013).3

3 We cite to the current version of the applicable statutes when no
material revisions have since occurred.

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DISCUSSION

I. Non-Contact Provision

A. Applicable Law

¶11 The Agreement contained a choice-of-law provision
selecting Michigan law as the applicable law. Assuming without deciding
that Michigan law applies, we hold that the Provision is overbroad and
unenforceable.4

B. Standard of Review

¶12 We review the trial court’s grant of a summary judgment
motion de novo. Kosman v. State, 199 Ariz. 184, 185, ¶ 5, 16 P.3d 211, 212
(App. 2000). In our review, we determine “whether genuine issues of
material fact preclude summary judgment and whether the trial court
properly applied the law.” Id.

¶13 In granting summary judgment in favor of Defendants, the
trial court found that the Agreement was unenforceable as a matter of law
because the Provision “[was] overbroad with respect to who can be
contacted, the subject matter of the communications, and the [two-]year
length of time.” We agree.

C. The Provision is Unreasonable and Therefore Unenforceable
as a Matter of Law

¶14 In its reply brief, Quicken Loans argues that the Agreement
is reasonable and enforceable under Michigan law when blue-penciled to

4 Arizona has a long-standing policy precluding courts from
rewriting unenforceable, overbroad restrictive covenants to create new,
enforceable restrictive covenants. See Orca Commc’ns Unlimited, LLC v.
Noder, 233 Ariz. 411, 418, ¶ 23, 314 P.3d 89, 96 (App. 2013); see also Valley
Med. Specialists v. Farber, 194 Ariz. 363, 372, ¶ 31, 982 P.2d 1277, 1286 (1999)
(“the court cannot create a new agreement for the parties to uphold the
contract”); Olliver/Pilcher Ins., Inc. v. Daniels, 148 Ariz. 530, 533 P.2d 1218,
1221 (1986) (“Generally, courts do not rewrite contracts for parties.”).
Because of this policy, under Arizona law, the Provision would be
unenforceable.

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remove various grammatically severable clauses, resulting in the
following restrictive covenant:

2. You agree that for a period of 2 years after your
termination, resignation, or separation of the employment
relationship for any reason, you shall not, directly or
indirectly (whether on your own behalf, working with
others, or on behalf of any other person, business or entity):

(a) “Communicate” (as defined in Attachment A) or
attempt to Communicate with any person employed by or
under contract with [Quicken Loans] to in any way
terminate or change his or her employment relationship
with [Quicken Loans]; and/or

(b) hire, attempt to hire, employ, offer employment to,
assist in offering employment to or solicit for purposes of
employing or obtaining the services of (through any IRS-W2,
IRS-1099, staffing company, employee leasing, partnership,
company affiliation or other arrangement) any person
employed by or under contract with [Quicken Loans].

F. “Communicate” -- For purposes of this Agreement,
“Communicate” includes, but is not limited to, any contact,
written or oral communication, statements or dialogue with
a person through any form of communication (whether
initiated by you or by any other person) in which any part of
the contact, communication, statement or dialogue, directly
or indirectly: (c) suggests, asks or induces a person to: (iii)
conduct business related to Mortgage-Related Products or
Services with another person, business or enterprise; or (v)
change or end their employment or business relationship
with [Quicken Loans]. To “communicate” includes assisting
or working with others, directly and indirectly, in
conducting the foregoing activities.

¶15 Under Michigan law, restrictive covenants are enforceable as
long as they are reasonable. See Coates v. Bastian Bros., Inc., 276 Mich. App.
498, 506, 741 N.W.2d 539, 545 (2007). Reasonableness, however, is a fact-
intensive inquiry which requires our evaluation of the totality of the
circumstances surrounding the agreement. See Cuddington v. United Health
Servs., Inc., 298 Mich. App. 264, 274, 826 N.W.2d 519, 524 (2012). As the
party seeking enforcement, Quicken Loans bears the burden of

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demonstrating the validity, and thus enforceability, of the Provision. See
Coates, 276 Mich. App. at 508, 741 N.W.2d at 545.

¶16 A restrictive covenant must (1) be reasonable as far as the
restrictive covenant’s temporal duration, geographical scope, and the type
of employment or line of business limited by the agreement; (2) be limited
to protecting an employer’s reasonable competitive business interest; and
(3) be reasonable as between the parties, and “it must not be . . . injurious
to the public.” See St. Clair Med., P.C. v. Borgiel, 270 Mich. App. 260, 266,
269-70, 715 N.W.2d 914, 919, 920-21 (2006); see also Coates, 276 Mich. App.
at 506-07, 826 N.W.2d at 545. “To the extent any such agreement or
covenant is found to be unreasonable in any respect, a court may limit the
agreement in order to render it reasonable in light of the circumstances in
which it was made and specifically enforce the agreement as limited.” St.
Clair Med., P.C., 270 Mich. App. at 265, 715 N.W.2d at 918 (quoting Mich.
Comp. Laws § 445.774a (West 2013)). However, “courts are not to rewrite
the express terms of contracts.” McDonald v. Farm Bureau Ins. Co., 480
Mich. 191, 199-200, 747 N.W.2d 811, 817 (2008).

¶17 “With respect to duration, Michigan courts have not
provided any bright line rules. Rather they have upheld [restrictive
covenants] covering time periods of six months to three years.” Certified
Restoration Dry Cleaning Network, L.L.C. v. Tenke Corp., 511 F.3d 535, 547
(6th Cir. 2007) (collecting cases) (internal quotation marks omitted).
Nonetheless, we find the Provision’s two-year time period is unreasonable
because it is not an attempt to protect Quicken Loans’ proprietary
information, it is an attempt, rather, to preclude Employees from using the
skills and knowledge learned at Quicken Loans about the mortgage
industry. Although longer provisions have been approved, these longer
periods are generally limited to situations where the restrictive covenant
was designed to protect proprietary or confidential information the
employee learned in the course of employment about the employer or its
customers but it cannot “prohibit the employee from using general
knowledge or skill.” See Rooyakker & Sitz, P.L.L.C. v. Plante & Moran,
P.L.L.C., 276 Mich. App. 146, 158, 742 N.W.2d 409, 418 (2007). When an
employee’s knowledge of proprietary information is not at issue, courts
are more likely to enforce a restriction twelve months or less in duration.
See, e.g., Coates, 276 Mich. App. at 508, 741 N.W.2d at 546 (enforcing a
noncompetition clause that applied for one year and applied to
competitors within 100 miles).

¶18 Furthermore, the Provision’s two-year preclusion from
communication between employees and former employees of Quicken

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Loans is unreasonable because it exceeds that which is necessary to
protect Quicken Loans’ reasonable competitive business interests. See id.
(holding that a competitive business interest sufficient to justify imposing
a restrictive covenant must be “greater than merely preventing
competition.”). Quicken Loans proffers that a two-year requirement
forbidding communication between employees is reasonable to protect its
investment in the time it took to train new employees. Although Quicken
Loans does invest time and money to ensure that its bankers have the
proper knowledge and licenses to sell mortgages, the classroom training
program that Employees went through was only eight (now six) weeks
long. Moreover, most Quicken Loans employees become profitable
within months of completing this training and beginning to solicit clients.

¶19 With regards to competitive business interests, a reasonable
restrictive covenant will protect “against the employee’s gaining some
unfair advantage in competition with the employer but not prohibit the
employee from using general knowledge or skill.” Id. at 508, 741 N.W.2d
at 545. An employer cannot prevent an employee from using his
knowledge and skills gained from employer training – even if the on-the-
job training was “extensive and costly” – by enforcing a restrictive
covenant. See Follmer, Rudzewicz & Co., P.C. v. Kosco, 420 Mich. 394, 402
n.4, 362 N.W.2d 676, 680 n.4 (1984). The Provision’s two-year duration is
unreasonable because training is not a reasonable competitive business
interest that justifies enforcement of a restrictive covenant, especially a
covenant that exceeds the time it took Quicken Loans to train the
Employees. See id. Therefore, Quicken Loans failed to articulate a
reasonable competitive business interest that would justify imposition of a
restrictive covenant that precludes former employees from
communicating with current employees for two years.

¶20 Quicken Loans also contends that the Provision protects the
confidential and proprietary information it shares with its employees
through training materials and client information from leaving Quicken
Loans. Quicken Loans asserts that the Provision protects the employees’
future use of the benefits from its marketing efforts and client
relationships that employees received while at Quicken Loans. We are not
persuaded. The Provision is not aimed solely at limiting employees from
communicating with former employees about new opportunities within
the mortgage industry. It also forbids current and former employees from
speaking about any job opportunities -- even if those opportunities have
nothing to do with the mortgage-related industry and even if those
employees worked in another Quicken Loans entity unrelated to
mortgages. Accordingly, the Provision restricts employee communication

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regarding issues that are not merely proprietary customer or company
information. See id. at 407-08, 362 N.W.2d at 682-83 (“To the extent such
an agreement provides reasonable protection for the confidential
information of the employer, it does not violate the statute and is
enforceable. To the extent it goes beyond what is reasonably necessary for
the protection of confidential information, it is unenforceable. The courts
thus must scrutinize such agreements and enforce them only to the extent
they are reasonable. . . . An agreement that unduly limits a former
employee’s freedom to go into business for himself or another . . . is
unreasonable and hence unenforceable.”).

¶21 Although Mich. Comp. Laws § 445.774a(1) permits a court to
limit an unreasonable restrictive covenant to render it reasonable in light
of the circumstances, Michigan law does not permit courts to rewrite the
express terms of a contract. See McDonald, 480 Mich. at 199-200, 747
N.W.2d at 817. To make this two-year duration term reasonable, we
would have to rewrite this term of the Provision. Therefore, the Provision
is unreasonable and unenforceable as a matter of law, because: (1) its
temporal duration term exceeds that which is necessary to protect a
legitimate competitive business interest; (2) it precludes employees from
using their basic knowledge or skills in the mortgage-related industry;
and (3) it attempts to limit current and former employees from discussing
employment that is not mortgage related. Accordingly, we need not
address whether the geographical scope is reasonable or whether the
Provision is “injurious to the public.” See id.; see also St. Clair Med., P.C.,
270 Mich. App. at 266, 715 N.W.2d at 919.

II. Attorney Fees

¶22 The trial court awarded attorney fees and costs Defendants
as the prevailing parties pursuant to A.R.S. § 12-341.01. On appeal,
Quicken Loans objects to this award. The award of attorney fees is within
the sound discretion of the trial court. See, e.g., Spector v. Spector, 17 Ariz.
App. 221, 230, 496 P.2d 864, 873 (App. 1972). “We view the facts in a light
most favorable to upholding the trial court’s ruling.” See Hammoudea v.
Jada, 222 Ariz. 570, ¶ 2, 218 P.3d 1027, 1028 (App. 2009). We will not
reverse such an award absent an abuse of that discretion. Orfaly v. Tucson
Symphony Soc’y, 209 Ariz. 260, 265, ¶ 18, 99 P.3d 1030, 1035 (App. 2004).

A. Evidentiary Hearing

¶23 As a preliminary matter, Quicken Loans appeals the trial
court’s order denying its motion for an evidentiary hearing regarding

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Employees’ application for attorney fees. Under Arizona Rule of Civil
Procedure 54(g)(3), a trial court, in its discretion, may conduct a hearing to
determine the contested issues when an application for attorney fees is
contested. See Ariz. R. Civ. P. 54(g)(3) (2014).

¶24 Quicken Loans has not indicated what information it would
have presented at a hearing that was not presented in its objection to the
award of attorney fees. Also, to the extent that Quicken Loans wanted to
present evidence of who was paying Employees’ attorney fees, the
Employees do not contest that loanDepot is paying their fees. For these
reasons, the trial court did not abuse its discretion by declining to hold an
evidentiary hearing.

B. Employees’ Attorney Fees

¶25 Quicken Loans challenges the trial court’s award of attorney
fees to various individual employees based on the theory that Employees’
fees were paid by loanDepot. In Arizona, a successful party in a contract
action may recover reasonable attorney fees pursuant to A.R.S. § 12-341.01
provided the successful party can demonstrate a genuine obligation to pay
fees. See Alano Club 12, Inc. v. Hibbs, 150 Ariz. 428, 434, 724 P.2d 47, 53
(App. 1986) (holding that the trial court should have made the successful
parties enter facts into the record that they were obligated to pay fees
before attorney fees were awarded). Here, Employees entered affidavits
into the record demonstrating that they agreed to pay the legal fees
associated with the cost of their defense. Therefore, Employees
appropriately demonstrated to the trial court, a genuine obligation for
their legal fees to be paid, regardless of who subsequently paid the fees.
See, e.g., Orfaly, 209 Ariz. at 267, ¶ 27, 99 P.3d at 1037 (noting “that some
portions of appellees’ attorney fee expense was covered by insurance does
not preclude the fees awards to appellees”). Thus, the trial court did not
err in ordering Quicken Loans to pay Employees’ legal fees and costs
related to this action.

C. loanDepot’s Attorney Fees

¶26 Quicken Loans also argues that the trial court’s award of
attorney fees to loanDepot, as Intervenor, was error because (1) loanDepot
failed to assert a claim for attorney fees in a pleading and was thus
precluded from pursuing fees and (2) loanDepot was not a “successful
party.” Quicken Loans argues that pursuant to King v. Titsworth, 221 Ariz.
597, 212 P.3d 935 (App. 2009), the trial court could not award attorney fees
because the request for attorney fees was not made in the pleadings listed

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in Rule 7(a). However, in King, the request for attorney fees was made in
a motion, after a decision on the merits. Id. at ¶ 12. In this case, however,
loanDepot never filed an answer; instead the request for attorney fees was
made in both the motion to dismiss and the motion for summary
judgment.

¶27 Furthermore, loanDepot was a “successful party” in this
action. To illustrate, loanDepot had a vested interest in the outcome of
this action because Quicken Loans initiated the action in order to remove a
number of loanDepot’s employees from its employ. When Employees
prevailed on their claims and were able to remain at loanDepot,
loanDepot’s interests were protected and loanDepot was a successful
party. Therefore, the trial court did not abuse its discretion in awarding
attorney fees to loanDepot.

¶28 Finding no abuse of discretion here, we affirm the trial
court’s award of attorney fees to the Defendants.

III. Request for Attorney Fees on Appeal

¶29 Defendants request attorney fees incurred on appeal
pursuant to ARCAP 21 and A.R.S. § 12-3410.01. In our discretion, we
decline to award attorney fees. However, as the prevailing parties, we
award the costs of this appeal to Defendants upon compliance with
ARCAP 21.

CONCLUSION

¶30 We affirm the orders and judgments of the trial court.

:MJT

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