According to the Superior Court lawsuit of Southwest Traders, software giant Oracle expressed interest in a contract with Southwest Traders, but said Southwest Traders would need to hire DAZ to implement the software. Southwest Traders agreed in late 2009 to pay DAZ $1.3 million for the installation of a new system by November 2010.
But the new system was a disaster, Southwest alleges. It crashed several times in its first month of operation, nearly bringing the company’s distribution system to a complete stop. In the following months, orders were late, incomplete, mislabeled and sometimes could only be made over the phone; warehouse inventory levels were not maintained; and customers were unable to monitor their inventories.
In court filings, Southwest Traders said it sustained six straight months of losses from November 2010 through April 2011.
The company said it lost contracts with several of its biggest clients, including Starbucks, Popeye’s, Cinnabon and Red Mango. The value of those lost contracts totaled $13 million in 2011 and an additional $116 million last year. The unreliable computer system, the company argues, has caused it to lose out on contracts it might otherwise have secured. As a result, it expects to not get contracts worth $233 million this year and has been forced to lay off about one-quarter of its workforce, according to O’Callahan.
“The whole delivery system was key to their progress and survival,” he said.
Southwest Traders further claims in court documents that it paid an additional $1 million to DAZ and $500,000 to outside vendors to fix the problems. But the problems were so widespread that it ultimately switched back to its old computer system, which it is still using today.
An added wrinkle to the case is the involvement of Girardi Keese, a firm known for its representation of individuals in tort claims against businesses. Plaintiff’s firms like Girardi Keese are becoming increasingly involved in business litigation.
O’Callahan said he was representing Southwest Traders on a contingency basis, but declined to say what his percentage of any winnings would be. According to him, as cases become more costly to litigate, more businesses are looking to his firm to handle their legal battles to avoid fronting the cost.
His firm isn’t alone. L.A. plaintiff’s attorney Michael Alder, known for handling personal injury cases, won a $33 million verdict in 2011 against Pentel of America Ltd. for intellectual property theft on behalf of an El Segundo ad agency.
Gregory said the fact that the lawsuit is being filed by a plaintiff’s firm like Girardi Keese changes the dynamics for DAZ.
“If I was representing the defendants in this case and I saw the firm that filed this lawsuit, I would tell the client that the plaintiffs aren’t afraid to go to trial,” he said. “It could cause the defendants to know they’re going to be looking at spending a lot of money in defending themselves in this case.”