April 2 (Bloomberg) -- FedEx Corp. lost a bid to shield some corporate documents from public disclosure by lawyers suing two units of the package delivery company for knowingly overbilling customers for commercial deliveries.
The ruling today by U.S. Magistrate Judge Charmiane Claxton in Memphis, Tennessee, came in a 2011 lawsuit filed by two law firms -- one in California, the other in Georgia -- claiming the company has been intentionally charging higher residential rates for deliveries made to unmistakably commercial recipients. The suit could be worth tens of millions of dollars to the plaintiffs.
The effect of the ruling will be delayed to give Memphis-based FedEx the opportunity to object to it, Claxton said at today’s hearing. FedEx has 10 days after Claxton signs a written order to lodge an objection with U.S. District Judge John T. Fowlkes, who is overseeing the lawsuit.
“I don’t believe that the items that are highlighted are confidential,” Claxton said, adding that she didn’t think they met criteria set by Fowlkes in prior orders concerning sealed material. He said the company couldn’t seal material that was damaging to its reputation, as opposed to being confidential.
FedEx has denied the overcharging allegations and said customers can avail themselves of a procedure for challenging the charges. Company attorney Justin Ross opposed the lawyers’ request, telling the judge that with only one major U.S. competitor, United Parcel Service Inc., any disclosures can potentially harm FedEx.
“Every little thing that you can get on us is a competitive advantage,” Ross said.
“If you get to trial, at some point evidence must come out,” the judge replied.
The plaintiffs claim FedEx units levied residential surcharges of as much as $3 a package for tens of thousands of deliveries to destinations including the U.S. Citizenship and Immigration Office in Chicago, a Bank of America Corp. facility in Tampa, Florida, and the Safariland Group body armor company in Jacksonville, Florida, according to an amended complaint filed in December.
“Defendants’ own internal documents prove that defendants have known for years that they are unlawfully charging residential delivery surcharges when they do not apply,” according to a revised complaint filed by the firms in December.
FedEx has let these practices continue “because they generate substantial illicit profits,” the law firms alleged, accusing the carrier of racketeering and breach of contract.
Internal company e-mails unsealed in December revealed that some FedEx officials were aware of the situation and chose not to remedy it.
The plaintiffs are seeking to proceed on behalf of all customers of the company’s FedEx Express unit since 2010 who paid the alleged overcharges and those who were overcharged by its FedEx Services unit after August 2008.
An award of damages could be tripled under U.S. racketeering laws. The plaintiffs are also seeking a court order blocking the practice.
FedEx in December asked the court to throw out the racketeering claim.
“If the plaintiffs believed that a residential surcharge was inappropriately applied to their shipments, then the contract provides a procedure for challenging that surcharge,” the shipper said, referring to its customer service guide.
Claxton today heard almost two hours of oral argument over the confidentiality of documents that plaintiffs’ lawyer Steven Rosenwasser seeks to include in papers opposing the motion to dismiss the racketeering claim and over the lawyer’s demand that FedEx concede the commercial nature of some delivery destinations he contends are beyond dispute.
While Rosenwasser argued that FedEx’s responses to his demands for those admissions were improper, Claxton countered that the company had made concessions and that if they weren’t in the form he demanded the fault may lie in the formulation of his questions, not their answers.
“You’re not guaranteed to get the smoking gun,” the judge said.
Rosenwasser said the defendants were limiting their admissions of commercial status to present day, citing a federal Department of Homeland Security facility, something he said shouldn’t have to be proven at a trial.
“Everybody knows that,” he said.
FedEx attorney Colleen Hitch Wilson told Claxton that some of the company’s responses were dictated by judgment calls concerning large office buildings.
“It’s not as simple as counsel suggests,” she said, adding later, “The determination is ultimately going to need to be made by a jury.”
“Really?” Claxton responded. “That’s going to make it hard to do business in the future, don’t you think?”
While the judge struck several objections lodged against the admission demands by FedEx, she told Rosenwasser that the company’s use of “currently” in response to his questions was reasonable.
“I cannot rewrite the request or response,” she said.
The case is Gokare PC v. Federal Express Corp., 11-cv-02131, U.S. District Court, Western District of Tennessee (Memphis).
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