Payment Firm Says Workers Stole Its Code

RICHMOND, Va. (CN) - Six former employees of a company that processes online payments stole proprietary information before quitting to form a competing business, the aggrieved firm claims.

Knox Payments provides digital payments services to a network of merchants nationwide, and in advances its business by virtue of the confidentiality of its source code, and private relationships with investors and customers.

In a lawsuit filed in the Richmond City circuit court, Knox, formerly known as PaidEZ LLC, says all of its administrative employees are required to sign both a five-year, noncompetition agreement, and a document promising to protect the company's intellectual property.

Despite these promises, however, Knox claims the former company president Thomas Nicholas and other employees conspired to form a competing company while still working for it, and made off with its information for the basis of their new enterprise.

"Since leaving Knox, Nicholas has been directly involved with the development of Project Phoenix, which, on information and belief, is intended to provide a product -- namely, a method for processing online, cross-platform payments from customers to merchants -- that is directly competitive with Knox," the complaint states.

Nicholas also developed a separate entity called Painless1099, according to the complaint, which describes the business as "directly competitive for Knox with investors."

Since leaving Knox, "Nicholas breached the confidentiality clause when he appropriated Knox's source code and downloaded to his personal computer Knox's Google Drive and Knox's RelateIQ and Slack accounts, each of which were password-protected, and contained confidential information regarding investors, customers, vendors, and partners," the complaint alleges.

Knox also alleges Nicholas poached several of its employees - five of whom are also named as defendants. To add insult to injury, Nicholas allegedly told clients and banking partners that his former employer's systems were unsecure, and had been the object of a rumors about a potential shareholder's lawsuit, Knox claims.

These assertions are both unsubstantiated and expressly prohibited by contract, according tothe complaint.

Knox says Nicholas and two other employees also closed important Wells Fargo accounts for the purpose of substantiating their false statements that "Knox's back end software was insecure."

Among the other claims in the suit is an allegation that, before leaving Knox for Project Phoenix, software developer Charles Hearn maliciously deleted the company's source code, and that the new company's online dashboard appears to have been built using that code.

Knox Payments seeks $12 million in damages and injunctive relief on multiple claims of breach of contract, conversion, tortious interference with contracts, common law conspiracy, statutory conspiracy, and violations of the Virginia Uniform Trade Secrets Act.

The company is represented by James Bacon of Allred, Bacon, Halfhill & Young in Fairfax, Va.

CORRECTION: An earlier version of this article incorrectly stated that Project Phoenix is now known as Painless1099. The complaint and other materials describe Project Phoenix and Painless1099 as separate entities. Courthouse News regrets the error.

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