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

United States District Court, E.D. Pennsylvania

August 15, 2014

OZBURN-HESSEY LOGISTICS, LLC
v.
721 LOGISTICS, LLC, et al

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[Copyrighted Material Omitted]

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For OZBURN-HESSEY LOGISTICS, LLC, Plaintiff, Counter Defendant: BRIAN A. CASAL, LEAD ATTORNEY, ANDREW J. SHAPREN, MATTHEW FONTANA, BUCHANAN INGERSOLL & ROONEY PC, PHILADELPHIA, PA.

For 721 LOGISTICS, LLC, doing business as J & K FRESH EAST, LAWRENCE ANTONUCCI, EVAN MOSS, Defendants, Counter Claimants: STEVEN K. LUDWIG, LEAD ATTORNEY, ERIN FITZGERALD BENDER, FOX ROTHSCHILD LLP, PHILADELPHIA, PA.

For J & K FRESH, LLC, Defendant: BARBARA K. GOTTHELF, JOSHUA H. ROBERTS, MCCARTER & ENGLISH, PHILADELPHIA, PA.

For JOHN ANTONUCCI, JOHN ERCOLANI, WILLIAM FAGAN, HELENA MARTINS, MICHAEL MCLAUGHLIN, ANTOINETTE PANNEL, BARBARA ZIMMERMAN, MAURA MICELI, LAWRENCE ANTONUCCI, 721 LOGISTICS, LLC, EVAN MOSS, Defendants, Counter Claimants: STEVEN K. LUDWIG, LEAD ATTORNEY, ERIN FITZGERALD BENDER, FOX ROTHSCHILD LLP, PHILADELPHIA, PA.

For LYNNETTE KEFFER, RAYMOND KEFFER, Defendant, Counter Claimant: JOSHUA H. ROBERTS, MCCARTER & ENGLISH, PHILADELPHIA, PA.

For OZBURN-HESSEY LOGISTICS, LLC, Counter Defendant: BRIAN A. CASAL, LEAD ATTORNEY, BUCHANAN INGERSOLL & ROONEY PC, PHILADELPHIA, PA.

For J & K FRESH, LLC, Counter Claimant: JOSHUA H. ROBERTS, MCCARTER & ENGLISH, PHILADELPHIA, PA.

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MEMORANDUM

L. FELIPE RESTREPO, UNITED STATES 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.

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This case concerns " broker wars" in the Port of Philadelphia -- specifically, the lift-out of a team of employees from Ozburn-Hessey Logistics, LLC (" OHL" ) to launch a new customs brokerage firm, 721 Logistics, LLC (" 721" ). OHL claims that former employee Lawrence (" Larry" ) Antonucci 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, 13 F.Supp.3d 465, __ F.Supp.2d __, 2014 WL 1364506 (E.D. Pa. 2014). Four claims survived: (1) misappropriation of trade secrets, against 721, Larry Antonucci and John Ercolani; (2) unfair competition, against 721 and Larry Antonucci; (3) conspiracy to commit unfair competition, against 721, Larry Antonucci, John Ercolani, J& K, Lynette Keffer and Raymond Keffer; and (4) breach of contract, against John Ercolani. 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 Antonucci 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.

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Id. 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 Antonucci 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 123-47.

The last individual defendant, John Ercolani, 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 customs

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brokerage firms for mutual business referral. Id. J& K customers, meanwhile, were urging Lynette to develop an East Coast presence. Id. at 343. She was intrigued by Larry's call, and the two of them arranged to meet in person at Lynette's office on February 4, 2011. Id. at 356-57; Tr. 2 at 112.

Larry's cousin, John Ercolani, heard that he was traveling to California to meet with Lynette and asked to come along. Tr. 1 at 43-44; Tr. 2 at 117-18. Ercolani was then employed by OHL. I credit Ercolani's testimony that he asked to go because Lynette was an icon in the field and he wanted to meet her. Tr. 1 at 46, 49. Larry did not ask him to attend or to participate in the potential partnership. Tr. 2 at 122-23, 133. Lynette testified that the presence of a competitor's employee at this meeting did not concern her because it was a very general meeting. Tr. 1 at 357-58; Tr. 2 at 76. I credit this testimony as well. Ercolani did know ahead of the meeting that Larry intended to pitch Lynette to embark on a joint business venture. Tr. 1 at 66.

In advance of the meeting, Larry and Lynette corresponded by email. Among other things, they agreed to keep the purpose of their meeting secret. Tr. 1 at 44, 358; Tr. 2 at 120-26. They had sound business reasons for doing so. Neither wished to provide grist for the rumor mill of the insular customs brokerage industry, and Larry did not want OHL to imagine that either he or Ercolani might be violating any covenant with OHL. Tr. 2 at 120-22. Lynette, whose staff was already unsettled by the departure of Ross Jones, did not want to foment speculation about the future of J& K. Tr. 1 at 358-59. Lynette therefore told Larry, by email, that if anyone at J& K asked about Larry and John she would say they were client prospects. Tr. 123-25. When they arrived, Larry and John signed in as affiliates of " Antonucci Ventures." Tr. 2 at 126.

The only substantive business discussion at the February 4 meeting was between Lynette and Larry. They explained their respective backgrounds and business aspirations, and they talked in general terms about the possibility of a future partnership on the East Coast. Tr. 1 at 66, 359. Lynette felt that she was " stretched too thin" financially for an eastward expansion because she was in the process of buying out Jones' share of J& K. Id. at 360-61. Larry suggested that he might be able to loan her money. Id.; Tr. 2 at 130. He also told Lynette that he " had covenants" and " couldn't open a business" until January 2012, which Lynette took to mean that he could not conduct any type of business until that date. Tr. 1 at 360; Tr. 2 at 29-30, 93, 103. At the close of the meeting, Larry agreed to investigate the possibility of a loan, and Lynnette agreed to discuss the idea with Raymond and Robert Lee Hoy. Tr. 1 at 362; Tr. 2 at 130. Lynette and Larry did not discuss or agree to any further details, except that they would keep talking. Tr. 1 at 362-63; Tr. 2 at 8-9, 129-30.

John Ercolani sat through the meeting and heard, but did not participate in, the substantive business discussion. Tr. 1 at 65-66, 357; Tr. 2 at 117. At one point Raymond came in to introduce himself and say hello, but did not stay more than a few minutes. Tr. 1 at 64, 357. Later that evening, Lynette and Raymond hosted John, Larry and Robert Lee Hoy for dinner and margaritas at the Keffers' house, but the event was purely social; no one discussed the potential partnership at all. Tr. 1 at 64; Tr. 2 at 8, 127.

C. Negotiations

The primary goal of the February 4 meeting was for Larry and Lynette to see whether they liked each other, shared

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common values, and could envision working together. They did, and could. Tr. 1 at 66, 364; Tr. 2 at 7, 9, 112. After the meeting, Lynette enlisted her business advisor, Mark Burton, to assist her in ongoing discussions with Larry. Tr. 2 at 9-10. Throughout the spring of 2011, Larry, Lynette and Burton corresponded about the possibility of opening an East Coast branch of J& K. Tr. 2 at 11. In April, at Burton's request, Lynette sent him an email explaining her goals and motivations for the project, which I credit in its entirety. Ex. 7; Tr. 2 at 15-17. The email explained: " My primary reason for wanting to go forward is to take the first step in establishing us on the east coast to help protect us against the larger companies." Ex. 7. In her own terminology, Lynette hoped to " close the back door" -- that is, to eliminate the opportunity for larger competitors like OHL to convert J& K clients by offering them bi-coastal customs clearance. Tr. 1 at 340-41; Tr. 2 at 68; Exs. 7, 41.

Around May, negotiations faltered. Tr. 2 at 11. Burton was concerned that there was no formal business plan and that Larry had not disclosed his potential partners in the venture. Tr. 1 at 12. Lynette did not want the responsibility of hiring or managing the employees in an East Coast office, but nor was she willing to delegate the pivotal role in a J& K expansion to another person. Tr. 2 at 10-13, 94-96. Larry, for his part, wanted a business of his own. Tr. 1 at 12. The J& K-expansion plan was therefore tabled. Tr. 2 at 13. Burton suggested that, instead, J& K could license its brand to a separate company on the East Coast that Larry would run. Tr. 2 at 13, 17-18. The negotiations shifted to this concept. Id.

Also in May of 2011, Larry held a meeting at Hathaway's Restaurant with Ercolani, John Antonucci, and Leo Garonski, a lawyer and Antonucci family friend who had periodically provided legal counsel for all three men. At that time both John Antonucci and Ercolani remained employed by OHL. The group sought legal counsel from Garonski on an issue that concerned them all -- presumably the ...


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