XPO Logistics says YRC Freight, a top rival in the less-than-truckload space, improperly lured two key executives who brought with them confidential information and other key employees that would help blunt XPO’s market strategy.
XPO Logistics is charging less-than-truckload (LTL) rival YRC Freight, in a suit filed last week in Delaware, with improperly stealing two top executives along with corporate trade secrets related to information technology, customer pricing and strategy.
On Jan. 26, YRC Freight announced the hiring of Robert “Chet” Richardson as vice president of transportation and Paul Lorensen as vice president of its central division. Richardson previously was vice president of linehaul at Con-way Freight, which was acquired by XPO on Oct. 30 for more than $3 billion. XPO Freight is now the second largest LTL operator in the nation after FedEx Freight. Lorensen was Con-way/XPO’s vice president of operations for the central area.
XPO has asked the court to order YRC from directly or indirectly retaining Richardson and Lorensen for at least one year, and to award XPO Freight still-to-be determined damages as well as legal costs.
According to a copy of the complaint, YRC engaged in a “scheme to target en masse and then raid key executive, operations and sales employees of XPO Freight. In doing so, YRC has misappropriated XPO Freights’ most valuable trade secrets, induced, aided and abetted current XPO Freight employees in breaching their fiduciary duties, intentionally interfered with the same employees’ contractual non-disclosure and non-solicitation obligations and engaged generally in unfair competition. YRC’s efforts in this regard began with two of XPO Freight’s highest ranking corporate officers and, with the assistance of those former officers, have now expanded to other employees across the United States,” XPO said in the complaint. It also accused both men of taking confidential documents with them to YRC.”
XPO says Lorensen informally accepted an employment offer from YRC on Sept. 19, 10 days after XPO announced its intent to acquire Con-way. A formal offer was not made until his abrupt resignation on Nov. 9 to disguise his intentions while gathering confidential intelligence about XPO’s LTL strategy. During that time YRC used Lorensen to recruit Richardson, who decided on Oct. 6 to join YRC, but did not resign until Nov. 9.
Both executives immediately went to work for YRC, XPO stated in court documents.
Richardson was a valuable capture for YRC because he was the brains behind three software optimization tools that gave Con-way/XPO Freight a big advantage in streamlining operations and reducing cost. The software uses sophisticated algorithms to crunch data and select the most efficient routing instructions for a customer’s freight across XPO’s network. He also had open access to XPO Freight’s customer data, financial information, and strategic information – including acquisition plans.
Lorensen and Richardson were bound by their contracts from disclosing proprietary information to competitors and soliciting other employees of XPO Freight while still employed, said XPO.
They were also privy to a comprehensive strategic review, dubbed the “XPO LTL Transformation Project,” launched shortly after the Con-way takeover designed to better position XPO in the LTL market.
XPO spent several million dollars on outside consultants, such as McKinsey & Co., to essentially help develop a new strategic playbook. The McKinsey report identified 15 initial strategic initiatives across the entire enterprise and specified the business opportunities in dollar terms, the resources and actions required to accomplish them, and the risks involved. Richardson was selected to implement XPO’s network optimization initiative.
XPO officials also considered offering a deferred LTL service to complement its premium service and specifically compete against YRC’s deferred service.
The suit states that Lorensen and Richardson attended a Nov. 2 “town hall” in Ann Arbor, Mich., where XPO CEO Brad Jacobs and other leaders explained to incoming Con-way employees the future direction of the company. It accuses them of delaying their departure until the McKinsey Report was disseminated to cover their tracks.
Both former employees reset the dates on their company-issued iPhones and iPads to destroy data on them that could be used in any investigation, XPO said.
Lorensen and Richardson also helped four other key sales and operational managers at XPO find jobs at YRC. Those former employees also have non-disclosure agreements with XPO, according to the suit.
XPO claimed it has suffered “irreparable harm” because of the trade secrets loss. “XPO Freight has no adequate remedy at law because the monetary value of such harm cannot be reasonably ascertained,” it said, adding that the harm outweighs any potential injunctive relief.
“There simply is no way to put a monetary value on the competitive advantage XPO Freight would have enjoyed through its continuing, exclusive use of the trade secrets, nor is there any way for XPO Freight to determine how many customers or how much revenue or goodwill it will lose over time because of YRC’s use of the trade secrets,” the suit says.
YRC Freight also named Don Hinkle as vice president of equipment services. He left FedEx Freight at the end of June after holding several executive positions over 13 years, including vice president of fleet maintenance, safety and transportation.
The XPO suit was first reported by the online news outlet Law360.
XPO in the past two weeks axed 190 employees at its LTL division as part of its previously announced plan to eliminate redundancy and reduce cost as part of the Con-way acquisition. Also let go were former Menlo Logistics President Robert Bianco and Chief Operating Officer Gary Kowalski. The Con-way Inc. acquisition included three subsidiaries: Con-way Freight, Menlo Logistics and Con-way Truckload.
XPO sues YRC for alleged theft of trade secrets
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