Talent War Flares As OnX Sues Technologent For Poaching Customers, Employees

Two data center solution providers are squaring off in court in what will be another attempt to draw clearer legal boundaries in the ever-intensifying battle for talent in the channel.

OnX Enterprise Solutions, a $750 million VAR that ranked No. 84 on CRN's 2012 Solution Provider 500, is suing Technologent, a $47 million VAR that placed No. 303 on the list, for allegedly poaching employees and customers and violating non-disclosure agreements.

The plaintiff in the case is OnX USA, a subsidiary formed in 2011 when OnX Enterprise Solutions acquired the Technology Solutions Group (TSG) of Agilysys.

OnX USA filed suit against Technologent Nov. 27 in the Superior Court of the State of California, Orange County, naming former account executive James C. Escudero, who is currently a senior account executive at Technologent, as a defendant.

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The conflict began in August when Escudero, while still employed by OnX USA, allegedly began recommending Technologent services to his customers and making plans to eventually join Technologent himself. OnX USA is also alleging that Escudero used his OnX expense account to entertain clients at the same time he was trying to get them to switch to Technologent.

According to the lawsuit filing, Escudero also "divulged confidential and proprietary trade secret information" to Technologent before and after leaving OnX, including detailed knowledge of deals OnX USA was working on.

Escudero's expense reports started to grow "noticeably higher" in June of this year and also showed increased spending on EMC, according to the lawsuit filing. OnX USA is alleging that the increased spending occurred while Escudero was petitioning EMC to switch deals to Technologent that had previously been registered to OnX USA.

Technologent and Escudero "obtained a substantial amount of business" from OnX USA customers, including Demand Media, the largest account he worked while at OnX, according to the filing. This included one deal worth more than $1 million; a deal involving a Brocade DCX 8510 Backbone; a Cisco Las Vegas data center deal; a mail hosting license opportunity; and a deal involving an EMC Celerra NS-120 unified storage array.

OnX USA terminated Escudero for cause on Oct. 10, it said in the lawsuit filing.

"OnX USA is informed and believes and thereon alleges that [Escudero] conspired with Technologent to divert OnX USA's business to Technologent," according to the court filing. "Defendants' scheme was simple, yet it had -- and continues to have -- a devastating effect on OnX USA."

The OnX USA-Technologent case bears many similarities to the legal and ethical issues raised in TIG's lawsuit against FusionStorm, which was resolved in 2010 when FusionStorm agreed to pay TIG nearly $11 million to resolve the case out of court.

Bruce Geier, CEO of TIG, a $341 million national solution provider ranked at No. 69 on CRN's 2012 Solution Provider 500, believes that unethical and illegal business practices are part of the growing pains the IT industry will face as it climbs out of its infancy.

"As the IT industry grows, there are a lot of incentives to drive and increase sales, and this leads people with questionable ethics to do things that they know are wrong. They just don't think they will get caught -- it's all about greed," Geier told CRN.

NEXT: Impact Of The Alleged Poaching

Since OnX closed its $64 million acquisition of the Technology Solutions Group (TSG) of Agilysys in 2011, Technologent has "improperly solicited, effectively recruited, and hired" at least 18 former OnX USA employees, including senior solutions architects, account executives and managers, according to the lawsuit filing.

OnX USA claims Technologent lured the talent by promising higher compensation and telling them Technologent was poised to outperform OnX in the marketplace, according to the filing.

"OnX USA lost numerous valuable employees, including substantial employee losses in its Irvine office," according to the lawsuit filing.

Neither Technologent nor OnX USA responded to a request for comment on the case. Joseph Chairez, a partner with BakerHostetler and lead attorney in the case, declined to comment when contacted by CRN.

Despite the near-constant legal wrangling over talent recruitment, Geier says the IT industry benefits from these sorts of cases because each court ruling draws a clearer picture of the legalities involved in talent recruitment.

"Over time, as more of these court rulings get handed down, the greedy behavior will happen less frequently," Geier said.

OnX USA, in its lawsuit filing, said it is seeking "actual damages and royalties," punitive damages and a permanent injunction preventing Technologent from hiring OnX employees and soliciting its customers, among other penalties.

"As a direct and proximate result of Defendants' unlawful conduct, OnX USA has been and will continue to be damaged in an amount to be proven at trial," according to the filing.