TIG Awarded $10.9 Million From Rival FusionStorm After Court Battle

A $10.9 million jury award for solution provider Technology Integration Group (TIG) in a court battle with rival VAR 500 power FusionStorm could have far reaching implications for the channel.

The jury award on July 15 came after a six-week California Superior Court trial in San Francisco in which FusionStorm and former TIG executives were found liable for among other things misappropriation of trade secrets, breach of fiduciary duty and breach of loyalty.

The jury awarded TIG a total of $9.36 million in compensatory damages and $1.525 million in punitive damages from FusionStorm and six individuals at the center of the case.

The final judgment in the case is expected to come next week. The judge in the case signed a judgment but agreed not to enter that judgment for two weeks, said Arturo Gonzalez, partner at Morrison & Foerster and the lead attorney for TIG.

The trial pitted two VAR 500 behemoths against one another. TIG ranked 155 on the VAR 500 with $267 million in sales, while FusionStorm ranked 115 at $436.8 million.

The ruling stems from San Diego-based TIG's accusations in early 2007 that San Francisco-based FusionStorm, several of its top executives, and some of its own former employees, engaged in unethical business practices related to FusionStorm's move to set up a Tampa, Fla. branch office.

FusionStorm declined to comment for this story.

However, Michael Souza, vice president of sales at FusionStorm, wrote in a statement, "We disagree with the outcome, but it will have no effect on our business. We continue to be one of the best IT solutions providers across the country. The breadth and depth of our technology solutions, IT consulting, management and support solutions are best in breed.’

Included in the list of FusionStorm executives who were found liable in at least some of the charges 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 TIG and to a copy of the Special Verdict Form which was examined by CRN.

Varel, Dragoni, Barber, and Thompson all declined to comment for this story. Varel remains CEO and chairman of FusionStorm. Dragoni left FusionStorm in November, and is currently CEO of Fortis Data Systems, a Clearwater, Fla.-based solution provider. Barber, a former senior account executive at both TIG and FusionStorm, is now an enterprise account executive at Fortis. Thompson is currently the executive vice president of sales and marketing at Bear Data Systems, a San Francisco-based solution provider. Neither Tonges nor King could be reached for this story.

Next: TIG's Allegations Against FusionStorm

Punitive damages awarded by the jury include $1 million from FusionStorm, $175,000 from Dragoni, $150,000 from Thompson, and $100,000 each from Varel and Tonges, according to the jury's Special Verdict, a copy of which was examined by CRN.

The lawsuit stems from a decision by FusionStorm to hire Dragoni in 2006 to set up a Tampa branch office to compete with TIG. Dragoni then went on to hire a number of his TIG colleagues, according to TIG.

TIG President and CEO Bruce Geier said he believes this is the first major case that lays ground rules on what in the VAR industry is acceptable in terms of recruiting from competitors.

"In our industry, people are always getting raided," he said. "You can raid, but you can't move accounts while on someone else's payroll, or falsely say a company is going bankrupt. So this is a major, major step to making the rules clear. The more this is publicized, the better it is for all VARs."

In one specific instance, a TIG employee got EMC to move a registered deal from TIG to FusionStorm by telling the vendor that TIG was going bankrupt, according to Geier.

In other instances, Dragoni got customers to request their registered deals moved to FusionStorm for the same reason, Geier alleged. "That was dirty, unethical stuff," Geier said.

Dragoni, who worked for TIG for two and a half years, allegedly steered a TIG employee to work for FusionStorm while he was still working for TIG, said Geier.

Several other employees including a couple of engineers started secretly working in late 2006 for FusionStorm while remaining on the TIG payroll, according to Geier. Some of those employees sent e-mails to TIG customers saying that TIG was going to go bankrupt, Geier alleged.

Next: The Trial

The trial, which started in early June, was brutal, Geier said. FusionStorm and its executives at one time engaged three teams of lawyers, and both Thompson and Tonges denied many of the accusations against them, according to Geier.

In addition to the compensatory and punitive damages, FusionStorm could be forced to pay a portion of TIG's $6 million in legal fees, in addition to its own legal fees, Geier said.

FusionStorm has 30 days, starting July 26, in order to come up with a plan for paying the damages, Geier said. If FusionStorm wants to appeal the verdict, it will have to post a bond equal to 150 percent of the judgment, he said.

FusionStorm's lead attorney, I. Neel Chatterjee, partner at Orrick, Herrington & Sutcliffe LLP, declined to comment, saying that his general practice is not to comment on litigation involving his clients.

Gonzalez, the lead attorney for TIG, said FusionStorm told TIG it is making a good-faith effort to sell assets in order to be ready to make payments, but did not say which assets.

"We're cautiously optimistic they're interested in making the sale, and not in continuing the litigation," Gonzalez said. "We feel that we've made our point. We want a resolution to the case. But resolution means FusionStorm pays the judgment."

When asked if two weeks is enough time for a company like FusionStorm to sell an asset, Gonzalez said it depends on what is being sold.

"And people with cash to buy can make deals pretty quickly," he said. "We've been litigating this for three-and-a-half years. So at some point, we hope this litigation comes to an end.

In speaking with jurors after the trial, Gonzalez said the consensus among them was that if someone is being paid by an employer, that person should do everything to advance the interest of his or her employer. "They all felt that working for one employer while helping another was not right," he said.

Next: Ramifications For The Solution Provider Industry

For the jurors, there was no question that TIG was harmed, Gonzalez said. "When they went into deliberations, it was easy for them to decide," he said. "Most decisions were 12-to-0 for TIG. Just a few were 11-to-1. No one inside the jury was putting up a fight for FusionStorm."

While former TIG personnel were working for FusionStorm while on the TIG payroll, none of them were paid by FusionStorm prior to making the final jump to FusionStorm, Gonzalez said. "What the jury found offensive was, we were paying (those employees while they were working for FusionStorm)," he said.

In the end, Gonzalez said, TIG was able to make it clear to the jury that it was important to send a message to the industry.

"The punitive damages were very important," he said. "The jury voted 12-to-0. It's really, really unusual to return a 12-to-0 verdict on every single defendant. The jury usually finds one or two people to blame, and then often splits over the results."

For Geier, the end of the trial means a chance to get back to a normal schedule. He spent six weeks in San Francisco attending the trial as his company's primary representative. "It became personal," he said. "I became a platinum-level member of Westin Hotel, and got in a lot of Southwest miles."