The legal dispute between Mortgage.com of Sunrise, Fla., and Credit.com of Alameda, Calif., heated up this week as the latter moved to block a co-branding agreement that its adversary signed with Wells Fargo & Co.
A motion for preliminary injunction - filed by Credit.com late last Friday - came in response to Mortgage.com's announcement last Thursday that it would make Wells "the premiere provider of home equity products through the Mortgage.com Web site."
Mortgage.com is a consumer and business mortgage lending site. Credit.com is a financial services site that specializes in credit information.
At the heart of the dispute is a contract the two dot-coms signed when Credit.com sold the domain name "www.mortgage.com" to First Mortgage Network of Plantation, Fla., in January 1999. First Mortgage Network changed its name to Mortgage.com at that time and moved to Sunrise in November.
Though the parties dispute the price of the sale, interviews with both indicated that First Mortgage Network paid heavily. Credit.com got an initial payment of $200,000 in cash plus 20,000 shares of Mortgage.com stock and eventually got an additional $1.5 million, in the form of 140,000 shares, after the deal's original terms were renegotiated.
The companies are now feuding over a 10-year marketing agreement included in the contract, which requires Mortgage.com to pay an $80 fee for each application that Credit.com sends to it, up to $2.5 million a year. In addition to various marketing and advertising efforts each agreed to provide the other, Mortgage.com also agreed to be "the exclusive Web site for direct to consumer loan activity," according to Michael J. Weber, Credit.com's attorney.
Todd A. Meagher, president and chief executive officer of Credit.com, acknowledged that the price Mortgage.com agreed to pay for the domain name is "unbelievable." But he said he would not have agreed to the deal had the heavy back end not been included. If exercised to its limits, the sale could yield almost $30 million to Credit.com.
"That marketing deal is not a separate deal; it is part of the compensation for the domain name," he said. "I believe what they are doing is trying to get out of the back-end deal because it is such a heavy back end." Mr. Meagher said he would have talked to Mortgage.com officials if they had approached him and said they could not make money on the deal, "but instead, they filed a lawsuit."
Mortgage.com sued Credit.com on May 18 for declaratory relief from the contract. Credit.com countersued May 31, charging that Mortgage.com had breached the contract, both by changing its business model and refusing to pay the application fees.
In its latest motion Credit.com is seeking to block the Wells agreement, charging that it violates the exclusivity portion of the contract, which states that Mortgage.com would be the "exclusive owned, operated, or branded Web site for direct-to-consumer mortgage lending." Mr. Weber said borrowers seeking home equity loans at the Mortgage.com Web site are sent off that site to a co-branded site operated by Wells Fargo. "Mortgage.com is proud to partner with Wells Fargo in offering the Home Equity Center," a sentence reads at the top of the site.
Wells Fargo and Mortgage.com agreed to the deal May 8, but did not announce it until July 6.
Though the Wells agreement does not deprive Credit.com of any fees, Mr. Weber said, sending borrowers off the Mortgage.com site costs Credit.com valuable advertising. "You can't replicate the kind of advertising exposure, and you can't replicate the dollar amount," he said. "The borrowers are being whisked away, that's not good for us and not consistent with the contract."
Mr. Weber said Credit.com got a court order recently that lets officials go into Mortgage.com's headquarters with technology experts, auditors, and attorneys to examine its operation.
A spokeswoman for Mortgage.com said, "We do not make any comment on litigation."
A Wells Fargo spokesman said the company is not in a position to comment on the situation now.