Ozburn-Hessey Logistics, LLC v. 721 Logistics, LLC

40 F. Supp. 3d 437, 2014 WL 4055826, 2014 U.S. Dist. LEXIS 113405
District Court, E.D. Pennsylvania·Decided August 15, 2014·No. Civil Action No. 12-0864·Published·Cited by 22 cases

Opinion

MEMORANDUM

RESTREPO, District Judge.

Moroccan clementines, Peruvian grapes and New Zealand kiwis travel an Odyssean journey to arrive on United States grocery-store shelves. Among other obstacles, there is customs clearance: When imported perishable goods reach U.S. shores, they must be inspected, documented and approved by U.S. Customs and Border Protection before they are shipped to their final destinations. The business of assisting import companies with this process is known as customs-brokerage; the process itself, perishables clearance.

[441]*441This case concerns “broker wars” in the Port of Philadelphia—specifically, the lift-out of a team of employees from Oz-burn-Hessey Logistics, LLC (“OHL”) to launch a new customs brokerage firm, 721 Logistics, LLC (“721”). OHL claims that former employee Lawrence (“Larry”) An-tonueci conspired with a West Coast competitor, J & K Fresh, LLC (“J & K”), to lift out the core members of OHL’s perishables division at the peak of the perishables import season in order to inflict catastrophe on OHL and convert its customers. OHL brought suit against 721, J & K, and the individuals involved in launching 721, alleging misappropriation of trade secrets, unfair competition, breach of contract, tortious interference with contracts, civil conspiracy, and breach of the duty of loyalty.

On April 7, 2014 I granted summary judgment in favor of the defendants on the majority of OHL’s claims. See Ozburn-Hessey Logistics, LLC v. 721 Logistics, LLC, No. 12-0864, 13 F.Supp.3d 465, 2014 WL 1364506 (E.D.Pa. Apr. 7, 2014). Four claims survived: (1) misappropriation of trade secrets, against 721, Larry Antonucci and John Ereolani; (2) unfair competition, against 721 and Larry Antonueci; (3) conspiracy to commit unfair competition, against 721, Larry Antonueci, John Ercolani, J & K, Lynette Keffer and Raymond Keffer; and (4) breach of contract, against John Ereolani. A bench trial was held from June 30 to July 2, 2014.

This decision follows.

I. Findings of Fact 1

A. The Parties

OHL is one of the largest third-party logistics companies in the world. Tr. 1 at 164, 306-07. It provides “integrated global supply chain management solutions including transportation, warehousing, customs brokerage, freight forwarding and import or export consulting services.” Id. at 164. Of OHL’s 7,000 employees worldwide, approximately 750 work in customs brokerage. Id. In the United States, OHL clears imported perishable goods through customs in Los Angeles, Miami, «New York and Seattle, as well as Philadelphia. Id. at 158-59, 179, 256-60. Philadelphia is a major perishables port; roughly 150 companies import perishables through it. Tr. 1 at 319; Tr. 2 at 54, 111. Before the launch of 721, OHL served as customs broker for most of them. Tr. 1 at 123,147.

The protagonists of this lawsuit are Defendants Larry Antonueci and Lynette Keffer. Both are licensed customs brokers who have built their careers in the logistics industry. Ex. 67; Tr. 1 at 340, 347. Lynette Keffer began as a secretary for United States Customs in 1966. Tr. 1 at 344-45. She subsequently worked for a series of customs brokerage firms on the West Coast, including one that she bought and ran before merging it with another company, Jones & Klink. Id. at 345-47. In 2000, Lynette and her former partner Ross Jones decided to spin off a new customs brokerage firm from Jones & Klink. [442]*442Id. They founded J & K Fresh, LLC (“J & K”) with the intention of filling a “niche” in the perishables clearance business by providing better customer service than larger competitors. Id. Jones later retired, and Lynette bought his share of the business. Tr. 1 at 354. She now owns ninety-nine percent of the firm; her husband owns one percent. Id.

J & K operates on the West Coast exclusively, clearing perishables through customs in California and, remotely, through ports in Houston and Seattle. Tr. 1 at 341. The company employs twenty-four people. Id. at 350-51. Lynette is Chief Executive Officer; her son, Defendant Raymond Keffer, is Vice President of Operations; the third in command is Executive Vice President Robert Lee Hoy. Id. at 340, 347-50, 362-63; Tr. 2 at 8-9. Under Lynette’s stewardship, J & K has built a powerful brand. Tr. 2 at 80, 82, 110, 222. It has no sales force, but has nonetheless doubled its business since 2001 on the strength of its reputation. Tr. 1 at 351.

Larry began working for Barthco International, Inc. (“Barthco”), a Philadelphia-based logistics firm, in 1981, ultimately serving as its president. Tr. 1 at 25; Tr. 2 at 85, 109, 203. In 2006, Barthco became part of OHL, and Larry became President of OHL’s Global Freight Management and Logistics Division for the Americas. Pl.’s Second Am. Compl. & Ans. ¶ 4; Ex. 62 at 59; Tr. 2 at 109. He left OHL in 2009 by “mutual termination.” Tr. 2 at 109. He had signed two covenants with OHL: a non-compete covenant that expired on December 31, 2010, and a non-solicitation covenant that expired on December 31, 2011. Ex. 103; Tr. 1 at 28-29.

In January of 2012, Larry launched 721 Logistics, LLC (“721”), of which he is now Chief Executive Officer. 721 is a customs brokerage firm that primarily clears produce through the Port of Philadelphia. It is owned by Larry, his brother John Anto-nucci and his cousin John Ercolani. Exs. 4, 9, 50; Tr. 1 at 52; Tr. 2 at 188. At present, 721 is staffed exclusively by former Barthco/OHL employees. Tr. 2 at 188. By virtue of a Licensing Agreement with J & K, 721’s produce division does business as J & K Fresh East. Ex. 4. 721 d/b/a J & K Fresh East now serves as customs broker for a significant percentage of OHL’s former Philadelphia clients. Tr. 1 at 123^7.

The last individual defendant, John Er-colani, is Larry’s cousin and a former OHL employee. In January of 2012 he left his position as an import supervisor at OHL to join 721, of which he is now Vice President of Operations and a part owner. Tr. 1 at 18, 52, 77.

B. First Steps Toward J & K Fresh East: The February 4, 2011 Meeting

Larry and Lynette first spoke in January of 2011. After a year of unemployment, Larry had decided to get back into the customs brokerage business. Tr. 2 at' 109-10, 117. He respected J & K, and in January of 2011 called Lynette “to see if she would be interested in bringing her brand to the east coast.” Tr. 2 at 110.

. Lynette had dismissed similar calls in the past, but listened to Larry because she respected his Barthco pedigree and because his call came at the right time. Id. at 355. Lynette had become acutely aware of her globalizing competition: The national trend was that “smaller companies were being taken over by bigger companies,” some of which offered “door-to-door” logistics services on a national or global scale. Id. at 341, 355-56. The consolidation of its competitors put J & K at a competitive disadvantage. It also meant that Lynette could no longer trust “handshake agreements” with other small cus[443]*443toms brokerage firms for mutual business referral. Id. J & K customers, meanwhile, were urging Lynette to develop an East Coast presence. Id. at 343.

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Ozburn-Hessey Logistics, LLC v. 721 Logistics, LLC, 40 F. Supp. 3d 437, 2014 WL 4055826, 2014 U.S. Dist. LEXIS 113405 (E.D. Pa. 2014).

40 F. Supp. 3d 437 (Ozburn-Hessey Logistics, LLC v. 721 Logistics, LLC) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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