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NetSpend Corp., a prepaid card provider, has filed a lawsuit against two of its founders for allegedly taking proprietary information developed at the company to their new firms, MPowerVentures LP and MPower Labs Inc. The suit also names other MPower employees and the MPower subsidiaries as defendants.
NetSpend filed the lawsuit Aug. 4 in the District Court of Travis County, Texas. NetSpend and MPower both are based in Austin, Texas.
In the lawsuit, NetSpend alleges that Rogelio Sosa, one of the founders of NetSpend and a former CEO and director of the company, "used knowledge and confidential information he obtained in his roles at NetSpend to create the MPower Entities, which now are competing with NetSpend's business," which NetSpend says is a breach of fiduciary duty.
NetSpend alleges that MPower encouraged and benefited from those actions.
Rogelio Sosa served as NetSpend CEO from November 1999 to November 2001, and he was president from November 2001 to December 2005.
He also served on the company's board from November 1999 to May 2008, NetSpend says in its lawsuit.
Sosa's actions violate his agreement not to compete with the company or solicit customers and suppliers, NetSpend says.
NetSpend also names Richard Child and John Mitchell as defendants. Child was a NetSpend director from June 2004 to November 2007 and served as chairman of the audit committee, NetSpend says in the lawsuit. Child now serves on the board of MPower Mobile Inc., a company affiliated with MPower, NetSpend says.
Mitchell served as a NetSpend senior sales executive from 1999 until May 2007, and he was an independent contractor for NetSpend until August 2007, NetSpend says. Mitchell currently works in sales and business development for MPower, NetSpend says in the lawsuit.
NetSpend alleges that Bertrand Sosa, also a former director of NetSpend, Child, Mitchell and Rogelio Sosa are likely to disclose confidential information from NetSpend's business and try to hire NetSpend employees for MPower. Bertrand Sosa resigned from NetSpend Oct. 7, 2006, according to NetSpend.
NetSpend is requesting injunctions against the former employees and founders to prevent them from violating confidentiality agreements in their employment contracts; disclosing information about NetSpend to MPower entities; using confidential NetSpend information; possessing confidential NetSpend information or NetSpend issued- materials, such as a computer; engaging in any business that competes directly with NetSpend; and soliciting NetSpend employees.
NetSpend also is asking the court to extend the terms of Rogelio Sosa's agreement not to compete or solicit NetSpend customers and employees.
In addition, NetSpend is requesting actual and punitive damages and court costs.
"The real issue is the duties which they owe the other stockholders of NetSpend not to misappropriate the trade secrets and confidential information of NetSpend to set up their own competitive independent business," Chris Brown, NetSpend corporate counsel, tells Prepaid Trends.
In a response filed Aug. 22, the defendants deny the accusations and maintain NetSpend knew Rogelio Sosa would try to create a financial-services company and that his agreement not to compete expired May 7.
The defendants also ask in the response that NetSpend pay their attorney fees and court costs.
Bertrand Sosa tells Prepaid Trends he and his brother Rogelio remain the largest individual shareholders in NetSpend and have a strong personal attachment to the company, so they would not harm the business. "We want to see it grow and succeed to its fullest extent," he says.
"As the largest individual shareholders in the company to date we have a strong equity position to protect," Bertrand Sosa says.
The lawsuit against the Sosas and MPower is the second NetSpend has filed against former employees working for MPower.
In March, the company filed a lawsuit against Futeh Kao, the company's former director of system architecture, in the District Court of Travis County. NetSpend alleges in that previous lawsuit that Kao took the company's software code and program files with plans to use them to create products for MPower.
The same month NetSpend filed the earlier lawsuit, Kao and NetSpend agreed Kao would not violate his confidentiality agreement with NetSpend, would not possess NetSpend software and would not perform work for MPower that relies upon NetSpend's software.
Brown tells Prepaid Trends the two suits are separate. "We obtained an injunction, and a stipulation was entered into" in the Kao case, Brown says.
"So in connection with that, there is an ongoing forensic investigation of all the computer systems of this individual. All of that is ongoing," Brown says. "We'll probably be taking a fresh look at that in the context of some of the issues in the MPower case."
Bertrand Sosa says he is confident the trial will clear the defendants. He says MPower does not have any prepaid cards that compete with NetSpend's cards.
"We don't see the need for us to compete with a company that we founded and want to see succeed," Sosa says.
