By JAMES FINK
jfink@bizjournals.com | 716-541-1611

Marcone Supply Co. won a major legal battle against a competitor that it alleges attempted to siphon long-standing customers, but 1st Source Servall officials said they expect to prevail when the two sides go back to court.

The Supreme Court of the State of New York, Appellate Division, 4th Department, unanimously backed an earlier ruling by state Supreme Court Justice John Michalek that barred 1st Source Servall from soliciting or making sales calls to customers across New York and elsewhere in the Northeast. It's a major national competitor of Marcone Supply.

At issue is whether employees of 1st Source Servall who worked for Marcone or AP Wagner Co., which Marcone acquired, can call on their former customers and attempt to shift their business to 1st Source Servall. Marcone alleged that the company set up a regional distribution network by hiring away key Marcone employees who left the St. Louis-based company after it acquired Buffalo-headquartered AP Wagner in January 2010. It alleges the employees left with customer information and other data that belonged to Marcone.

1st Source Servall has repeatedly denied accusations made in the lawsuit.

AP Wagner was started in Buffalo in 1928 as Buffalo Washing Machine Repair Co. It maintains an office on Cayuga Drive in Cheektowaga.

The Appellate Court, in a June 17 ruling, said Michalek was correct in ruling that employees of 1st Source Servall cannot make calls on customers they had while working for Marcone or AP Wagner.

"The record is replete with evidence that the individual defendants stole and/or improperly retained thousands of documents belonging to the plaintiff (Marcone) and thereafter used that information to compete against their former employer," noted the court documents.

B. Kevin Burke Jr., a partner in Jaeckle Fleischmann & Mugel LLP, is 1st Source Servall's local attorney. He said his clients were disappointed by the ruling.

"We look forward to proving our case at trial," Burke said. "In the meantime, Servall will honor the court's decision and will continue to serve its customers in the Northeast."

The case is scheduled for a jury trial before Michalek next June, although the discovery process is under way and the trial date may be moved forward.

"We want to take this to a jury so they can sift through the facts," Burke said.

James Donathen, a partner in Phillips Lytle LLP and Marcone's attorney, alleged that the actions may have resulted in Marcone losing as much as $12 million in sales last year. This spring, Burke denied such actions.

"The unanimous ruling by the Appellate Court panel once again supports Marcone's contention that it was the victim of a classic corporate espionage scheme," Donathen said.

The Appelate Court rulings bar Servall and its employees from email, mail, fax, phone or in-person solicitation of Marcone's core group of 640 customers in New York state and the Northeast.

The ruling also issued an outright bar on any sales attempts by 1st Source Servall employees to 200 customers unless the company can prove that the accounts were opened without the benefit of preparatory Marcone information.

Those are key rulings, Burke said, because it allows 1st Source Servall to maintain its local operations. The company has a call-center operation on George Urban Boulevard in Depew.

"The court did give us some very important carve-outs," Burke said.

The information in question included a list of more than 3,300 AP Wagner customers, but also various forms of confidential and proprietary records concerning sales history, pricing, credit limits, account numbers and margin/profit documentation.

Servall, in its own court documents, said the ruling "creates uncertainty for its business."

In an affidavit filed earlier this year, Servall said it would face major financial consequences if it lost the appeal. By complying with the injunction, the Michigan-based 1st Source Servall warned it may have to close down its Northeast operations and "almost certainly" force the company to close its doors nationwide.

"They (Servall) are hoping to expand in Buffalo," Burke said.

Both  Marcone and 1st Source Servall distribute appliance parts and accessories, including heating and air conditioning units used in the commercial sector.

"The core of (Marcone's) business is comprised of sales to small businesses such as appliance installers and repair persons, and these loyal customers take a great deal of time to develop," the Appellate Division noted in its ruling. "Indeed, (Servall's) own expert opined that the 'real value' to the business is the relationship of a distributor with its customer, not a list of names."

Marcone, founded in 1932, has 60 locations in the United States and Canada and nearly 800 employees.