Just weeks after returning to the New York Stock Exchange, a local food distribution company is facing allegations that it facilitated the theft of trade secrets from one of its largest competitors.
Performance Food Group was sued earlier this month by US Foods, which alleges that PFG induced two employees to share proprietary information after they jumped from US Foods to the Goochland-based company.
The suit was filed in federal court on Oct. 1, the same day PFG resumed public trading on the NYSE after eight years under private ownership by two private equity groups.
In addition to PFG, the suit names as defendants Don Harris and Ira Fenton, the two employees who, according to the suit, took jobs with PFG in late 2014 and orchestrated a scheme, with assistance from a PFG manager, to share information that US Foods says has put it at a competitive disadvantage.
Filed in a federal court in Illinois, where US Foods principally operates and where PFG maintains an office, the suit alleges five counts, two of which are against PFG and one or both of the other defendants: tortious interference with contract and misappropriation of trade secrets in violation of the Illinois Trade Secrets Act.
Other counts against Harris and Fenton include: breach of customer non-solicit and non-disclosure agreement; breach of employee non-solicitation agreement; and violation of the Computer Fraud and Abuse Act.
According to the suit, Harris and Fenton were employees of US Foods until late 2014, when they resigned to take jobs with PFG. The suit alleges that before doing so, they copied proprietary information from US Foods computers to USB drives and personal email accounts.
They then allegedly embarked on a scheme to give some of their previous US Foods accounts to a “shill employee” at PFG – identified as Josh Bernicchi, who, the suit notes, has since left PFG for US Foods.
The suit states the arrangement was facilitated by a PFG regional sales manager, Matt Tonozzi, who allegedly met with Harris, Fenton and Bernicchi at a hotel to discuss the details. Also present at the meeting, according to the suit, was Bernicchi’s district manager at PFG, Dave Jenkins.
The suit says Harris and Fenton told Bernicchi they would give him numerous accounts that they handled at US Foods, yielding approximately $150,000 per week. Fenton then allegedly visited more than 10 US Foods customers with Bernicchi and “repeatedly told Bernicchi to keep this arrangement confidential,” the suit states.
“This scheme has severely damaged US Foods, causing it to lose some customers entirely, and to lose substantial sales from others.”
The suit does not specify an amount of monetary losses, leaving a determination of damages up to the court. But the suit does note that Harris oversaw about $40 million in business for US Foods each year as a district manager in the Chicago area, and that Fenton, one of nine territory managers under Harris, oversaw about $8 million in annual sales for the company.
US Foods is seeking judgments against Harris and Fenton on some of the counts and is asking the court to put a stop to their actions and to turn over USB drives that have yet to be returned.
Attorneys Steven Pearlman, Nigel Telman and Amanda Wiley of Chicago law firm Proskauer Rose are representing US Foods. Reached Tuesday, Telman said the firm had no additional comment.
A response to the lawsuit from PFG had not been filed as of Tuesday. A company spokesman said PFG had no comment at this time.
The suit alleges Harris and Fenton violated non-solicitation and non-disclosure agreements that they both signed on the same day in October 2013. In addition to requiring that proprietary information remain confidential, the agreements also prohibited direct or indirect solicitation of US Foods customers for one year after their resignation, the suit says.
Proprietary information described in the suit includes product pricing, price margins, business strategy regarding current and prospective customers, specific orders and needs of customers, customer order guides and customer pricing history.
The suit says forensic analysis of Harris’ and Fenton’s US Foods computers and Harris’ USB devices showed that he removed such information shortly before his departure in late November 2014. It also says Harris took purchasing information called “Descending Dollar Reports,” which include all purchases made by every customer in his district.
“In short, the sales, invoicing and routing data that Harris downloaded enabled him and PFG to undercut US Foods prices by slim margins,” the suit states.
According to the suit, US Foods contacted all three defendants in December 2014 to state its concern that Fenton and Harris were breaching their agreements. “PFG responded to the letters by indicating that no contractual violations or improper conduct had occurred,” the suit states.
The suit also states US Foods reiterated its concerns to PFG in February, March, April, May and August of this year, and that each time PFG responded that no improper solicitations had occurred.
The suit comes just months after the Federal Trade Commission blocked a proposed merger of US Foods and a third competitor, Sysco Corp. As part of that proposal, PFG had agreed to purchase 11 US Foods distribution centers from Sysco after the merger – a deal aimed at appeasing federal regulators’ concerns that the merger would violate antitrust laws.
The failed merger proved an eight-figure windfall for PFG, which was awarded a $25 million termination fee. Half of that fee was covered by Sysco; the other half by US Foods.