TIG-FusionStorm Case Could Set Precedent On Hiring, Business Secrets Practices5:14 PM EST Thu. Aug. 19, 2010
Solution providers TIG and FusionStorm have settled a lawsuit over methods FusionStorm used to allegedly take TIG employees and business secrets in setting up a branch office in a case which could set legal precedents over such practices among VARs.
The legal dispute between San Diego-based TIG and San Francisco-based FusionStorm closed on Wednesday with the official filing of a stipulated judgment that lays out the monetary awards TIG will receive from FusionStorm and six individuals.
In the settlement, the two solution providers agreed FusionStorm and the six individuals will pay TIG $8,515,000. In addition, FusionStorm will by itself pay TIG an additional sum of $2,260,000, while the six individuals will pay TIG a separate $290,000.
FusionStorm declined to respond to questions about the settlement. However, the company in a statement thanked TIG for its cooperation in the case, and said both companies can now focus on business.
The lawsuit stems TIG's accusations in early 2007 that FusionStorm, several of its top executives, and some of TIG's own former employees, engaged in unethical business practices related to FusionStorm's decision to set up a Tampa, Fla. branch office.
Included in the list of FusionStorm executives who were found individually liable were CEO and Chairman John Varel; Tim Tonges, the company's former COO; and Brad Thompson, its former vice president of sales.
Former TIG employees found liable include Michael Dragoni, Randy Barber, and Charles King, according to the final stipulation document, a copy of which was examined by CRN.
The drama between the two solution providers started with a decision by FusionStorm to hire Dragoni in 2006 to set up a Tampa branch office to compete with TIG. Dragoni, while remaining on the TIG payroll, allegedly went on to hire a number of his TIG colleagues.
During the process, TIG employees hired by FusionStorm allegedly passed TIG confidential information, including details about customers and deals, and spread misinformation about TIG to customers and vendors, the lawsuit alleged.
TIG President and CEO Bruce Geier said he is happy to get the case over, and that it is one that is important for the entire industry.
"Now there's a stake in the sand," Geier said. "We have put some ethics in this business."
Geier compared the solution provider business to the automobile dealer industry.
"(The solution provider industry) is not that old," he said. "Auto dealers have territorial rights, and they are limited as to what lines they can sell. We don't have any protections. Someone can set up next door to you. In questioning, Varel said some things were unethical. But he did it anyway. Maybe 15 years from now, we can look back on this as a turning point."
Next: Setting A Legal Precedent
The case will be a legal precedent, said Arturo Gonzalez, partner at Morrison & Foerster and the lead attorney for TIG.
Gonzalez said that this case showed there are questions about what is and is not allowed when it comes to hiring and business secret practices.
"A lot of people out there don't know what's allowed," he said. "FusionStorm argues that everybody does it, and even claimed that TIG does the same thing. But, number one, it's not the same thing, and, number two, it's now clear that it's not allowed."
The lesson to be learned is to take care when hiring employees, especially from a competitor, Gonzalez said.
"It's important, when talking to a potential employee, and that employee helps you in any way while employed by a competitor, you know that it's wrong," he said.
Geier said it is important that solution providers understand the legal issues involved in hiring from competitors.
"Most guys don't have $8 million they can put out in a case like this," he said. "Some VARs have sent us congratulations, and thanks for starting this case. A lot of guys, and women, could never afford to make this battle. Now they have a court case they can cite. People will maybe start thinking about what's transpired."
Any individual has the right to go to work wherever they want, Geier said. "What they don't have the right to do is plot to steal the business of others," he said.
For TIG, the end of the case means a return to normalcy.
FusionStorm will make payments to TIG for about 90 days, including interest, at which time it will have a balloon payment due for the balance, Geier said.
TIG, which spend about $8 million on the lawsuit, will use the bulk of the money to recapitalize its business, giving it a net of about $3 million.
"It's all new money for us," Geier said. "TIG is looking to grow. So we will invest to grow."
FusionStorm declined to comment on this story. However, Daniel Serpico, president of FusionStorm, said in a statement that the settlement gives both companies a chance to move forward.
"This settlement closes the case, caps ours costs, gives us a predictable financial plan that meets TIG and FusionStorm's needs and ensures that we will continue to grow our business," Serpico said.
In addition to thanking TIG for its responsiveness and cooperation in the settlement, Serpico also said in the statement that FusionStorm was not aware of all the issues related to the case back when it first started. "Many of the unusual facts regarding our Tampa office's opening were unfortunate and unknown to us at the time," he said.