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IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON GUIDANCE RESIDENTIAL, LLC , ) ) No. 75507-2-1 Appellant/Cross Respondent, ) ) DIVISION ONE v. ) ) UNPUBLISHED OPINION ANWER MANGRIO and JANE DOE ) MANG RIO, husband and wife, and their ) marital community; MOHAMED AIJAZ ) HUSSAIN and JANE DOE HUSSAIN, ) husband and wife, and their marital ) community; UNIVERSITY ISLAMIC ) FINANCIAL CORPORATION; and ) UNIVERSITY BANK, ) ) s Respondents/Cross Appellants. ) FILED: December 18, 2017 ) APPELWICK, J. — Thejury found that use by former employees of client lists compiled while employed by Guidance was a willful and malicious misappropriation of trade secrets. But, the trial court declined to award exemplary damages to Guidance. The trial court sealed trial exhibits related to client lists posttrial. Mangrio challenges the determinations that the client lists were trade secrets, that they were misappropriated, the determination of damages, the award of attorney fees, and the sealing of the trial exhibits. Mangrio successfully defended against Guidance's breach of contract claims under a contract providing for recovery of fees actually incurred. The trial court awarded Mangrio fees using the lodestar method. Guidance challenges the use of the lodestar method and the failure to award exemplary damages. No. 75507-2-1/2 We affirm that the client lists were trade secrets, the jury verdict for misappropriation, and the sealing of the trial exhibits. We vacate the award of attorney fees to Mangrio on the contract claims using the lodestar method and remand for award of fees actually incurred consistent with the contract. We vacate the trial court's denial of exemplary damages to Guidance, and remand for reconsideration. FACTS Guidance Residential LLC and competitor University Islamic Financial Corporation (U IF), provide Sharia-compliant mortgages to the Muslim community. The Sharia-compliant mortgage industry is extremely competitive, as there is a limited pool of customers from which to draw. In 2011, Guidance employees, Anwer Mangrio and Mohamed Hussain, along with others, left Guidance to work for competitor, UIF. At Guidance, the former employees collected information about potential customers and compiled potential and current customer lists. The former employees testified that they kept personal lists of contacts that included names, phone numbers, and e-mail addresses. After the customer showed interest in prequalification or refinancing, the employee entered the potential customer's full name, phone number, e-mail address, and information about their property into Guidance's loan operating system. Guidance contended that, in part, what makes No. 75507-2-1/3

its lists distinctive is that a person's presence in their database indicates that the person has at least sought to be prequalified for a Sharia-compliant mortgage. After the information was entered into Guidance's system, each employee could access a "Book of Business," an Excel spreadsheet created by the operating system. The Book of Business contains the information the employee entered into the Guidance system, as well as information the disbursed contracts automatically updated. The Book of Business includes customer name, contract share, contact information, such as address, telephone number and e-mail, address and type of property for which services were sought, credit score, total income, and total liability. Guidance required its employees to protect customer information and keep this information confidential. Before the former employees left Guidance, they downloaded and e-mailed the Books of Business they could access to their personal accounts. Former employee, Hussain, directed other former employees to download the Books of Business. At U1F, Hussain assisted Guidance's former employees in contacting "closed customers" from Guidance, to generate business for U1F. Hussain also assisted Guidance's former employees target other categories of Guidance customers, such as those listed as "withdrawn," "declined," and "pipeline."2 No. 75507-2-1/4 No. 75507-2-1/5 No. 75507-2-1/6 No. 75507-2-1/7 No. 75507-2-1/8 No. 75507-2-1/9 No. 75507-2-1/10

The evidence clearly established that the former employees compiled lists of customer information for Guidance while employed by Guidance. In testimony from witness Suha Zehl, the former chief information officer with Guidance, she explained that employees enter customer data initially into Guidance's CRM (point of sales system) system: Q. . . . And so could you maybe walk me through to how data gets into these various systems if we started with point of contact with an account executive and a potential customer?. . . A. ...[Account executivels are trained and have been told that any customer information needs to be entered into the CRM even if the customer was not ready to move forward because we have to track that information. . . . Q. ... What use do you make of the data in the CRM system? What are you doing with that data? A. The first thing is you need to understand what's -- you know, what's the required information. To get a prospect, we need their name, we need their e-mail [sic], we need their phone number so that we have a prospect or a lead to- -- to move forward with. The contact information undisputedly became part of the information which was maintained in the Guidance system in the Book of Business to which the agent had access. The fact that the agent kept a duplicate, personal copy of contact information did not change the fact that the information was collected in the course of employment, not from public sources but from potential clients, and was entered into Guidance system. Guidance had possession of the information in the Book of Business.

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Zehl testified that once customers express interest in prequalification, employees obtain more of the customer's information for Guidance's LOS (alternatively loan origination system or loan operating system). Former employee Mangrio also testified about when he entered information into Guidance's system: A. . .. If the customer interested [sic], then ask -- then ask them full information, their other-- like, you know, if they want to prequalify, then we need how much property — purchase price they want for the property, how much down payment can there be, and then there's also good number all [sic] of the information Q. And then where does that go? A. That information goes in an LOS system -- where the [sic] Guidance has an LOS system. . . . Q. Loan operation—or operating system? A. Loan operating system, yes. The evidence showed that the information in the customer lists included items not available in public records. In testimony about information in Guidance records in exhibit 44, UIF Chief Operating Officer, Julie Burzynski, states, Q. . . . So is there anywhere in the public records you can find individuals who have prequalified? A. Likely no.

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And in testimony from former employee Hussain, Q. Okay. If you have a universe, say, of 5,000 (inaudible). . . Q. . . . And that universe of contacts, absent information from the LOS, you would have no way of knowing these individuals' interests or whether they had been prequalified for a Shariah- compliant [sic] mortgage? A. That's correct, yes. Mangrio contends that the valuable information that the Books of Business contained was available elsewhere. He asserts that Guidance waived any protectable trade secret, because information about customers who successfully obtain a loan or mortgage would be available in the recorded deed or mortgage. He relies on testimony from Burzynski, in which she states, Q: . . . But I want to go back to the public record part of your testimony and the deeds.. . . Q: -- and the mortgages. Is that something new? A. No. They've been doing that for -- actually I don't know -- years and years and years and years these have been part of the public record. We see deeds from 50 years ago. There are all kinds of different things that would come up where we would get a copy of the things on public record. ... Q. . . . UIF could obtain records of all Guidance Residential transactions from the beginning of Guidance Residential's existence? No. 75507-2-1/13 A. If we wanted to, we could -- we could go out and get a copy of everything that was publicly recorded, yes. He further argue that third-party companies could provide the customer information for a fee. But, even if Mangrio could have compiled a list of former Guidance borrowers from public records, Mangrio has not demonstrated that all of the other information in the Book of Business files was publicly available. Nothing in a recorded deed would indicate that the mortgage was Sharia-compliant, a factor that distinguishes Guidance and UIF's customer base from mortgage customers in general. The deed information would not have identified Guidance's customers in the process of obtaining a mortgage or loan. Nor has he established that the compilation of data—the linking of individual interest in Sharia lending, their income, assets, liabilities, prequalification, credit scores, Social Security numbers, prior history with Guidance and the like—was publicly available. Moreover, the compilation of this information in the Book of Business gave the information enhanced value. See Nowogroski, 137 Wn.2d at 449-50. There was also evidence that Guidance took reasonable steps to protect its trade secrets. At trial, Guidance presented evidence of its policies requiring employees to keep information about clients confidential, such as the transaction code of ethics in the employee handbook. The code instructs employees to "[m]aintain absolute confidentiality of all consumers, as well as other 'inside information" and to "[m]aintain the confidentiality of the underwriting process and No. 75507-2-1/14

system." The former employees signed forms acknowledging their receipt of the employee handbook. There was testimony from former employee Hussain that he acknowledged Guidance's privacy and confidentiality policies while employed: Q. Okay. If we look at Exhibit 11, one of the things that it discusses is an employee code of conduct, correct? A. Correct. Q. And if you look on page 34, which is page 37 of the document, there's actually a specific policy section dedicated to confidential information and nondisclosure, correct? A.-Yes; correct. Q. And this policy indicates that it applies both during employment and after you leave your employment, correct? A. Correct. Q. And that you must promptly return confidential documents and other materials you may have, correct? A. Correct. Q. And that you're not permitted to retain copies of any material, right? A. Correct. Q. It even tells you if you have questions, you should consult with the legal department. Maybe a little small there. Section 7 there, right? A. (No audible response.)

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Q. Did you ever have any questions about this? Do [sic] you ever consult the legal department about what was or wasn't considered protected under this policy? A. No, I didn't. Q. And then if we look in this same section, it appears this document goes on to explain a couple of particular types of information[5] that Guidance considers confidential, correct? A. Sure. Q: Was that a "yes," correct? A. Guidance considering it confidential, yes. Q. Okay. And you had acknowledged that you were going to abide by this policy, right? A. Correct. Q. And one of the items is customer lists that we see? A. Correct.

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Q. You mentioned licensing. Do field sales employees of Guidance have to be licensed? A. Yes, they do. Q. And how about unlicensed people? Do you ever have situations where there were unlicensed people who were working in the field for Guidance? A. Not for Guidance, no. And, in terms of the licensing requirement, Hussain testified, Q. And what did that licensing entail? A. After the real estate crisis that we went through, the laws now require every loan originator to have a federal license, and you have to get this license first. You have to take 20 hours of classroom courses, and then you have to do some fingerprints and some other requirements. And once you fulfill them and you pass an exam, then you become NMLS [nationwide mortgage licensing system] federally licensed, and then there are some states that require their own specific licenses as well. Q. And as part of that licensing or to maintain your license, do you have to take continuing education? A. Yes, you do. Q. What subject maters are covered in these (sic) licensing-required education? A You know, I don't remember. I took the 20-hour course back in 2008, 2009. They cover various things, including, as you're leaning towards, ethics and so forth. So, yeah. It's -- it covers -- it covers a gamut of subject matter the government wants you to learn and understand. No. 75507-2-1/18 Mostly it has to do with fraud prevention and how you treat customers and -- and so forth. That's what the gist of the training is. Q. And do they talk about customer privacy? A. I'm sure they do, yeah, because customer privacy must be part -- I don't remember exactly, but I'm -- I'm sure customer privacy is part of it. You have to protect customers' personal information, and you have to shred it as soon as it will -- the loan is done. So you can't hang on to people's paychecks and W-2s and so forth, so all of that has to be shredded immediately. There are some very specific rules. You can't do certain things and so forth, yes. Therefore, there was substantial evidence before the jury that the'Books of Business were compilations of information, that they contained valuable customer information that was not readily ascertainable (even if a portion of the information was publicly available), and that Guidance took reasonable steps to ensure the confidentiality of its customer lists. These are the three elements of a trade secret. See Nowoqroski, 137 Wn.2d at 442. We conclude that the Books of Business were trade secrets. ^[2]. The Trade Secrets were Misappropriated The portion of the UTSA's definition of "misappropriation" that applies here proscribes the disclosure or use of a trade secret of another without express or implied consent by a person who, at the time of disclosure or use, knew or had reason to know his or her knowledge of the trade secret was acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use. RCW 19.108.110(2)(b)(ii)(B). A former employee misappropriates an employer's trade No. 75507-2-1/19

secrets by soliciting customers from a confidential customer list that has independent value, because its contents are unknown and subject to reasonable efforts to keep secret. See Nowoqroski, 137 Wn.2d at 449-50. The UTSA makes no distinction about the form of trade secrets; whether the information is on a compact disk, a hard paper copy, or memorize by the employee, the inquiry is whether it meets the definition of a trade secret and whether it was misappropriated. Id. The evidence before the jury clearly established that before the former employees left Guidance, they downloaded and e-mailed the Books of Business they could access to their personal accounts. Former employee Mangrio testified, Q. . . . Mr. Mangrio . . . you left Guidance on March 31, 2011, correct? A. That's correct. Q. And do you recall the last time that you downloaded your book of business file. . . . A. I don't remember the exact date, probably March. Because we used to update every month, every two weeks. When our -- anything change [sic], happen, I used to refresh it. Q. And after you updated your book of business file in the March time frame, you emailed [sic] that to yourself, correct? A. That's correct. There was also evidence that former employee Hussain directed other former employees to download the Book of Business before leaving Guidance. Junaid No. 75507-2-1/20

lqbal, an employee who left Guidance, joined UIF, and at the time of trial had returned to Guidance testified, Q. When you left, did you download your book of business? A. Yes. Q. Why did you do that? A. In a recent conference call prior to departure, it was asked of us by Aijaz [Hussain]. At UIF, Hussain directed Guidance's former employees to contact "closed customers" from Guidance, to generate business for UlF.^[6] Hussain testified, Q. And that's your second day at UIF, correct? A. Sure . . . . Q. And on that second day of work, you're telling them to—that you've created a letter for their closed customers, right? A. Correct. Q. And that's the customers that they worked with when they were at Guidance, correct? A. Yes. Their customers they brought to Guidance by—through their marketing efforts, so, yes.

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Both parties presented testimony as to their theories of proper damages. Guidance presented lost profits and unjust enrichment8 theories of damages. The lost profit calculation was the number of client transactions lost times the average profit per transaction. Guidance provided testimony that between 170 (Zehl) and 174(Viswanadhan Kumar) of Guidance's customers listed in the misappropriated Books of Business completed transactions with UIF in 2011-2013. Mangrio's expert, Todd Menenberg, testified that lost profits for Guidance could be attributed to as few as 18 or 22 transactions. Kumar testified for Guidance that, on average, each contract for Guidance produces $10,477. Harold Martin, for Guidance, testified that lost profits for Guidance on each lost contract was $11,147. On the other hand, Mangrio testified that Guidance made approximately $10,000 per transaction. Menenberg provided expert testimony that lost profits per customer transaction was $10,600. Kumar asserted that retention rates were historically 68 percent. This is the number of customers who would be expected to refinance with Guidance within five years. Menenberg testified that number was inflated by 56 to 64 percent (making it roughly only 24-31 percent). Guidance's former chief financial officer and chief credit officer, Nicholson Minardi, testified that by 2013 the retention rate was at 47.24 percent.

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The method of determining damages was reasonable. The evidence presented allowed the jury to apply that method. The jury is free to accept or reject the evidence provided, so long as the verdict is within the range of the evidence. See Nowociroski, 88 Wn. App. at 359. It appears the jury awarded lost profits to Guidance for 80 customer transactions, accepting Mangrio's expert's testimony of $10,600 per lost transaction.^[9] The jury award of $848,000 is within the range of evidence provided. ^[4]. Conclusion While Mangrio refutes Guidance's trade secret claims, the Books of Business retained by the former employees when they left Guidance were trade secrets. The former employees misappropriated this information to solicit Guidance's customers. There was substantial evidence before the jury that this misappropriation caused Guidance to suffer lost profits, and the jury appropriately awarded damages within the range of evidence provided. We conclude that the trial court properly denied Mangrio's motion for judgment as a matter of law as to Guidance's trade secret claims. B. Attorney Fees on Trade Secret Claims Mangrio claims that the trial court erred when it awarded Guidance attorney fees for prevailing on its claims under the UTSA.

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Since Guidance prevailed on its trade secret claims, the trial court is entitled to award attorney fees under the UTSA. RCW 19.108.040. The trial court awarded Guidance attorney fees using the lodestar methodology. It determined the hours Guidance's counsel claimed and the hourly rates charged by Guidance's counsel were reasonable. The trial court excluded work on unsuccessful claims. The trial court did not abuse its discretion in making this award of fees. C. Order Granting Motion to Seal Trial Exhibits Mangrio argues that the trial court erred in granting Guidance's motions to seal trial exhibits. He argues that Guidance waived any right to request to seal the information after it displayed the information in open court. Additionally, he argues that the court did not find that the unsealed information represented a serious and imminent threat to an important interest. A court record may be sealed if a court enters written findings that the specific sealing or redaction is justified by identified compelling privacy or safety concerns that outweigh the public interest in access to the court record. GR 15(c)(2). A trial court's decision to a seal a court record is reviewed for abuse of discretion. Hundtofte v. Encarnacion, 181 Wn.2d 1, 6, 330 P.3d 168 (2014). A trial court abuses its discretion when its decision is manifestly unreasonable or exercised on untenable grounds. Id. A court must analyze a motion to seal using the five-step approach outlined in Seattle Times Co. v. lshikawa, 97 Wn.2d 30, 37-39, 640 P.2d 716 (1982).

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Hundofte, 181 Wn.2d at 7. First, the party seeking to seal court records must show a serious and imminent threat to some important interest, if not to protect a right to a fair trial. Id. at 8. Second, anyone present when the motion is made must be given an opportunity to object. Id. Third, the court must determine whether the requested method is the least restrictive means available and effective in protecting the interests threatened. Id. Fourth, the court must weigh the competing interests of the party and the public, and it must consider alternative methods to protect the interest. Id. Fifth, the order must not be broader than necessary to protect the interest. Id. Mangrio challenges only one Ishikawa factor in this case, that the party requesting to seal records must show a serious and imminent threat to some important interest. The court granted sealingl° of trial exhibits that contained nonparty consumer e-mail addresses, credit scores, and/or household incomes and liabilities in circumstances where the information was tied to an identifiable No. 75507-2-1/27

individual within a document. The trial court found that this was appropriate and warranted because important public policy reasons support keeping the requested materials out of the public view, including an interest in protecting consumer privacy and an interest in maintaining public trust in the safety and security of information provided to financial institutions in connection with contemplated transactions. The court's written findings satisfy the first Ishikawa factor, a serious and imminent threat to some important interest. Citing Woo v. Fireman's Fund Insurance Co., 137 Wn. App. 480, 154 P.3d 236(2007), Mangrio argues that Guidance waived its right to restrict the future use of information when it displayed it in open court. In Woo, this court found that the information the party wanted to seal, insurance company manuals that had been used as exhibits at trial, did not qualify as trade secrets. Id. at 492. It also noted that Fireman's Fund did not make reasonable efforts to maintain their secrecy, as it did not move to seal the exhibits until two years after they had been used at trial. Id. at 491. Because the manuals were not trade secrets, and Fireman's Fund did not present a compelling interest to seal the information, the court found that the trial court abused its discretion in granting the request to seal them. Id. at 493. Woo is distinguishable because the records in that case were not trade secrets, whereas here there was a finding that the customer lists were trade secrets. The UTSA specifically provides for sealing trade secrets used in the action. RCW 19.108.050. Moreover, the trial court sealed the trial exhibits with No. 75507-2-1/28

private consumer information because it found a compelling interest in protecting consumer privacy and maintaining public trust in the safety and security of information provided to financial institutions. Further, in Woo, this court found that Fireman's Fund did not make reasonable efforts to maintain the exhibits' secrecy, as it waited two years after trial to move the court to seal. Here, there was a hearing on the sealing of exhibits within a month and a half of the trial verdict. This delay was not unreasonable. Thus, the reasoning in Woo does not require the trial court to find that a party waived confidentiality, either from using the information in open court or from making a motion posttrial to redact or seal. The court did not abuse its discretion in redacting and sealing consumers' private information in trial exhibits after the trial. II. Guidance's claims Guidance argues the trial court abused its discretion in declining to award exemplary damages. Second, Guidance argues the trial court erred in its method of calculating attorney fees awarded to Mangrio for prevailing on breach of contract claims. Third, Guidance argues that it is entitled to attorney fees for prevailing on appeal. A. Exemplary Damapes Guidance appeals the trial court's decision not to award exemplary damages under the UTSA. Under the Act, if willful and malicious misappropriation No. 75507-2-1/29

exists, a trial court may award exemplary damages in an amount not exceeding twice any award of damages recovered for actual loss. RCW 19.108.030(2). A trial court's decision to award exemplary damages and fees under the UTSA is discretionary and we will not reverse the amount unless the trial court decision is clearly erroneous. Boeing Co. v. Sierracin Corp., 108 Wn.2d 38, 61- 62, 738 P.2d 665 (1987). Guidance argues that because the jury found Mangrio's actions willful and malicious, the trial court abused its discretion in failing to award exemplary damages. Guidance first points to Boeing. In Boeing, the court affirmed the award of exemplary damages because the record showed that Boeing knew its actions were of "dubious legality," and it engaged in an effort to disguise its misappropriation. Id. at 62. Guidance also cites to Eagle Group. In Eagle Group, the court affirmed the award of exemplary damages after the jury found the defendants acted willfully in their misappropriation. 114 Wn. App. at 423-24. There, a former employee of Eagle Group took employees, clients, and files to another general contracting firm. Id. at 412. Mangrio relies on Nowogroski, in which this court affirmed the denial of exemplary damages on successful trade secret claims under the UTSA. 88 Wn. App. at 360. However, Nowogroski contains no discussion of the record on which the trial court made its determination to deny exemplary damages. Id. It merely No. 75507-2-1/30

indicates that Nowogroski had not shown the decision was clearly erroneous. Id. It does not direct a result in this case. The trial court's findings, as well as the record, indicate that Guidance is entitled to seek exemplary damages under the UTSA. RCW 19.108.030(2). The jury found that Mangrio acted willfully and maliciously. The court noted that the actions were "calculated and deliberate" in misappropriating Guidance's trade secrets. This language can be found in a case to which the Boeing court cites, Sperry Rand Corp. v. A-T-0, Inc., 447 F.2d 1387 (4th Cir. 1971). Boeing, 108 Wn.2d at 62. In Sperry Rand, the court upheld exemplary damages because the record showed the defendants' actions were " 'calculated,' deliberate,' and 'reprehensible.'" Id. at 1394-95. Given the jury's finding, here, that the misappropriation was "willful and malicious," as well as the court's finding that the actions were "calculated and deliberate," exemplary damages are proper. In its judgment denying exemplary damages, the trial court made the following findings: 1. The jury found that the defendants each acted willfully and maliciously in misappropriating the plaintiff's trade secrets; 2. The defendants' actions in misappropriating the plaintiff's trade secrets was calculated and deliberate. ^[3]. Considering all the facts and circumstances, including the plaintiff's modest success, exemplary damages are not warranted. The trial court's third finding is apparently the basis for denial of exemplary damages: "Considering all the facts and circumstances, including the plaintiff's No. 75507-2-1/31

modest success, exemplary damages are not warranted." It is unclear from the record whether the trial court limited its consideration of facts and circumstance to those of the trade secrets claim, rather than the totality of the litigation, in finding that Guidance had "modest success." For instance, the fact that Guidance did not prevail on its contract claims is not a proper consideration as to exemplary damages.^[11] Nor is the fact that Guidance's recovery for lost profits was not accompanied by an additional award for unjust enrichment. It is not the amount of recovery that triggers the eligibility for exemplary damages, it is the finding of willful and malicious conduct that triggers it, regardless of the size of the recovery for actual or enrichment damages. Excluding consideration of the contract claims and alternative damages theory, it is not clear factually why the trial court regarded the award for $848,000 in actual damages as "modest success". An award of exemplary damages12 is not mandatory under the UTSA when a finding of willful and malicious conduct is made. RCW 19.108.030(2). The purposes of awarding punitive, or exemplary, damages are to punish the person doing the wrongful act and to deter him and others like him from similar conduct in the future. RESTATEMENT (SECOND) OF TORTS § 908(1) & comment a (Am. LAW INSTITUTE 1979). Here, the trial court's order contains no discussion of deterrence No. 75507-2-1/32

or punishment. On this record, we cannot determine that the trial court's decision was not clearly erroneous. We vacate the trial court's decision declining to award exemplary damages and remand for reconsideration of this issue. B. Attorney Fees under Breach of Contract Claims Guidance argues that the trial court erred in calculating the award of attorney fees to Mangrio for prevailing on Guidance's breach of contract claims. First, it argues that, under the Guidance employee contracts, Virginia law must govern the court's method of determining attorney fees.^[13] Second, it argues that the trial court should have limited its award to the amounts actually incurred by the defendants on the breach of contract claims, pursuant to the contracts.^[14] Guidance asserts that the trial court erroneously calculated defendants' attorney fees using the reasonable hourly rate put forth by Guidance, instead of the actual fees incurred. Mangrio asserts that Washington law governs the correct method of determining attorney fees on the breach of noncompete contract claims.

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