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Trade secrets lawsuit names ex-Ehrlich chief of staff, St. Mary’s County judge, prosecutor

James “Chip DiPaula, who served as chief of staff to Gov. Robert Ehrlich from 2005 to 2007, was named in a lawsuit alleging embezzlement and theft of trade secrets from an Annapolis-based eCommerce company. (The Daily Record file photo)

A wide-ranging lawsuit alleging embezzlement and theft of trade secrets from an Annapolis-based eCommerce company makes claims against several prominent Marylanders, including the chief judge of St. Mary’s County Orphans’ Court, a deputy state’s attorney in the county, and a former chief of staff to Gov. Robert Ehrlich.

The lawsuit, brought by a company called Compass Marketing, describes a years-long campaign by former employees to steal proprietary information and divert clients to a new business called Flywheel Digital.

It also accuses two brothers of Compass Marketing’s executive chairman, John White, of embezzling hundreds of thousands of dollars through a series of secretive financial maneuvers.

The complaint names several members of White’s family including his brothers, Michael White and Daniel White. Michael White is the chief judge of the St. Mary’s County Orphans’ Court. Daniel White is a deputy state’s attorney in the Office of the State’s Attorney for St. Mary’s County. It also names Michael White’s son, George White, who is a Maryland State Police trooper.

Efforts to reach the Whites, who do not have a lawyer listed in court documents, were unsuccessful.

Also named are James “Chip” DiPaula, who formerly served as chief of staff to Ehrlich from 2005 to 2007, and Patrick Miller, an Anne Arundel County resident who founded Flywheel with DiPaula in 2014. Both men held prominent roles at Compass Marketing before they created Flywheel, the complaint claims.

The 80-page complaint raises a host of accusations against the defendants, whose alleged actions largely fall into two categories: DiPaula and Miller are accused of stealing trade secrets from Compass Marketing and using the information they gleaned while working at the eCommerce company to form Flywheel.

Michael and Daniel White are accused, separately, of embezzling and laundering money from Compass Marketing “to finance a life of luxury for themselves and their immediate family members,” according to the complaint.

The complaint seeks to link the Whites with DiPaula and Miller through a series of checks that Michael and Daniel White issued to DiPaula and Miller in 2015, after the latter two men had moved on to their new company.

The lawsuit was first reported by The BayNet, an online news website.

According to the complaint, Compass Marketing was founded in 1998 to help large companies sell “consumer-packaged goods,” or items that customers use and replenish regularly. As the internet gained popularity, Compass added online services and began helping clients sell their goods on Amazon.

The company built proprietary tools to help its clients maximize sales on Amazon’s shopping platform. Compass worked with massive businesses, including Proctor & Gamble, Colgate and McCormick, according to the complaint.

Compass hired DiPaula in 2010 and Miller in 2011. Both men resigned in 2014, one day after they had formed their new company, the complaint claims.

The lawsuit accuses DiPaula and Miller of misusing trade secrets they learned while at Compass in order to form Flywheel, a company that competes directly with Compass and offers the same services. It also alleges that the two men poached a number of Compass employees and pursued Compass’s clients.

In November 2018, Flywheel was sold to Ascential, a British company, for $400 million, according to the complaint. Ascential proceeded with the purchase after Compass representatives notified the company of their claims against DiPaula and Miller, the lawsuit alleges.

In an emailed statement, Ascential said: “The allegations have no merit and will be vigorously defended. There will be no further comment on pending litigation.”

After the sale to Ascential, Compass Marketing fired Michael and Daniel White and launched an investigation into their conduct, the complaint states.

That investigation “uncovered 14 years of substantial mail and wire fraud, money laundering, embezzlement, and attempted extortion perpetrated by Daniel and Michael,” lawyers for Compass wrote in the complaint.

The complaint alleges that Michael and Daniel White opened secret bank accounts into which they deposited Compass client checks and used the money for personal gain; that they added family members to the company’s payroll but hid them as “ghost employees” by falsifying records; that they embezzled millions of dollars by paying large “tax checks” to the IRS, knowing that those checks would result in substantial refunds; and that they repaid themselves with company money for personal loans that were never actually made.

The lawsuit also accuses George White, who was Compass’s IT administrator, of locking the company out of its email accounts and business records after his resignation in 2019. White, according to the complaint, had first tried to leverage his control of the company’s computer systems by demanding a promotion with a base salary of $225,000.

The suit brings claims under state and federal trade secrets laws and alleges a civil RICO conspiracy, breach of contract, unfair competition and unjust enrichment. It seeks damages, an injunction blocking the use of Compass trade secrets, and a court order requiring the return of Compass’s networks to the company’s control.

The complaint was filed Feb. 14 in U.S. District Court in Baltimore, where the case is docketed at Compass Marketing, Inc. v. Flywheel Digital LLC, 1:22-cv-00379.