The new kid on the freight broker block is in a legal smackdown with the big kid on the freight broker block. Depending on how the scales of justice tip, the outcome could spell trouble for the newbie.
On Jan. 17, a state court judge in Hennepin County, Minn., ruled that several employees of XPO Logistics Inc., a nearly two-year-old company that has rapidly grown through acquisitions and internal expansion, wrongfully procured customer lists and solicited personnel from their former employer, C.H. Robinson Worldwide Inc. Eden Prairie, Minn.-based Robinson has been in business since 1905 and is the nation's largest freight broker.
Judge Ronald L. Abrams ordered XPO to return to Robinson its customer and carrier worksheets that were in possession of former Robinson employees that jumped ship. Judge Abrams also barred XPO employees who had worked for Robinson and who are governed by a two-year nonsolicitation agreement from soliciting or contacting current Robinson employees about joining XPO.
Judge Abrams didn't hit XPO with any direct legal sanctions, refusing Robinson's motions both for a temporary restraining order and a temporary injunction against its rival. Judge Abrams said the breadth of sanctions sought by Robinson could have a devastating impact on XPO's nascent enterprise. The judge added that as the country's largest and most visible freight broker, Robinson is, and perhaps should be, a natural target for competitors looking to lawfully recruit its talent.
But Judge Abrams' 31-page ruling meted out its fair share of pain to XPO. He barred XPO from doing business with any of the Robinson customers identified on one of the worksheets that also tendered shipments that generated more than $100,000 in "gross revenue," or revenue paid by the customer to the provider, for Robinson in 2011. The prohibition was to extend until July 1, 2014, or until a further order by the court, the judge ruled.
The worksheet contained the names of hundreds, if not thousands, of companies that did business with Robinson, according to a source close to the matter. It is unclear how many customers listed on the spreadsheet meet or exceed the 2011 gross revenue threshold set by the court.
The day after the ruling, Greenwich, Conn.-based XPO went before Judge Abrams to request a stay on that part of his order. The judge agreed to grant the stay pending further court action. At this time, no additional hearings are scheduled.
XPO has complied with all other aspects of Judge Abrams' ruling, according to the source.
Robinson had more than 37,000 customers worldwide in 2011 according to company information. The accounts ranged in size from Fortune 100 companies to small businesses. Robinson's gross revenue hit $10.3 billion that year. Its largest customer represented less than 3 percent of its total net revenue—revenue after factoring out the costs of purchased transportation—of more than $1.6 billion, the company said. It would not identify the customer.
XPO reported 2012 operating revenue of $278.5 million, compared to $147.3 million in 2011. XPO posted an operating loss of $27.9 million, compared with an operating profit of $1.7 in 2011, as the company made substantial investments to keep up with the rapid growth. Bradley S. Jacobs, the company's founder, chairman and CEO, has estimated XPO's 2013 revenue will range between $650 million to $750 million, which includes about $300 million in revenue booked as of the end of 2012 by companies it plans to acquire during 2013.
For now, it is business as usual at both companies. However, there is no guarantee Judge Abrams' stay will remain in place. Both companies declined to discuss the case, saying the judge's ruling speaks for itself and no further comment was warranted.
The skirmish began on August 1, 2012, when Robinson sued XPO as well as William F. Kratt IV and Roman Pankiv, two former Robinson employees who had since joined XPO, for breach of contract, interference with contracts, and misappropriation of trade secrets, among other allegations. In late August, Judge Abrams issued a temporary restraining order against the XPO employees, barring them from contacting any of their former co-workers and directing them to return any of Robinson 's confidential materials still in their possession.
During the evidence-gathering process that fall, XPO identified 71 documents that appeared to contain Robinson's business information and was given to XPO from someone who worked at Robinson during the prior two years, according to the ruling. A court-ordered forensic examination found that Kratt kept worksheets that he had access to at Robinson containing lists of customers, carriers, contact person information, and notations specific to carriers and customers, the judge said.
Another former Robinson employee who joined XPO, Brad Bell, had worksheets of Robinson's top customers that showed such information as the total number of loads Robinson covered for each customer and a customer's revenue contribution to Robinson, according to court documents. Bell also had a spreadsheet showing the total number of loads, gross revenue, and net revenue for every carrier from Robinson's Phoenix office, court documents said.
In their roles as brokers, Robinson and XPO match loads tendered by their shipper customers to available motor carrier capacity. Neither company owns trucks, but each maintains relationships with a network of carriers.
Some of the data in Bell's spreadsheets were disclosed to high-level XPO management, such as Greg Ritter, the company's senior vice president of brokerage operations, and Lou Amo, its vice president of carrier procurement and operations, according to court documents. In one case, Bell shared information about business that Robinson did with Conair, its fourth-highest grossing customer, to Amo and other executives, according to court documents.
Bell repeatedly disclosed to high-level executives the rates Robinson paid certain carriers on particular routes, the judge said. In addition, several XPO employees would contact current Robinson employees to obtain information about carrier pricing, according to the ruling. Jacob Schnell, XPO's carrier procurement and operations manager, asked Robinson employees to access Robinson's proprietary computer systems to find information on carrier rates to determine if XPO's pricing was competitive, according to the ruling.
Kratt and Bell are no longer employed by XPO, but Pankiv continues to work there.
A BALANCED APPROACH
Judge Abrams tailored the scope of his decision so as not to push XPO against the wall but to still send a strong message about its alleged practices. The judge said the evidence showed XPO would inflict "irreparable harm" on Robinson if it continued to misuse Robinson's confidential information. He added that XPO didn't just threaten to disclose Robinson's information but actually did so by sharing and openly discussing the intelligence among high-level executives.
Judge Abrams dismissed XPO's contention that because market decisions in the brokerage field are driven by pricing considerations rather than customer relationships, it is inappropriate to claim that Robinson's goodwill with customers was compromised to the point of producing irreparable harm. He found that "there is direct testimony from multiple actors...that employees build relationships with customers through persistent and sustained contact with those customers."