For Businesses

Federal Judge OKs Multiple Cases Against Pilot Flying J for Fraud

Posted on Wed, Mar 25, 2015 @ 9:56 PM

Columbus, Ohio – Trucking companies represented by Cooper & Elliott in cases against Pilot Flying J for alleged fraud, breach of contract, and negligent misrepresentation will be allowed to continue their lawsuits. U.S. District Judge Amul Thapar rejected Pilot Flying J’s request to dismiss these claims. Requests by Jimmy Haslam (CEO of Pilot Flying J) and other executives to dismiss RICO conspiracy claims asserted against them in companion cases were also denied.

Pilot Flying J has already paid out nearly $85 million to settle an initial class action suit and another $92 million to the federal government that spared the company from criminal charges. However, not all trucking companies damaged by Pilot Flying J were part of this initial settlement.

These additional cases now move to the discovery phase, where the trucking companies can obtain emails and company documents from Pilot Flying J and require current and former employees and executives to give sworn testimony.

In April 2013, Pilot Flying J’s headquarters were raided by the FBI, which had investigated claims that the company deliberately withheld rebate payments from trucking companies and lied to the companies about how much they were owed.  To date, ten Pilot employees have pleaded guilty to mail and wire fraud charges arising from the long-running scheme, including Pilot’s former national sales director.

Pilot Flying J’s illegal rebate scheme – referred to within its sales force as “jacking the discount” – is yet another example of large-scale corporate greed.  Pilot Flying J is the largest seller of over-the-road diesel fuel in the United States, and its size and market share gave the company the chance to commit massive fraud.

According to court documents, in a recording made by an undercover informant, Pilot Flying J’s former vice president of sales indicated that CEO Jimmy Haslam knew of the scheme.

Trucking companies trusted that a company with Pilot Flying J’s size and reputation would deal honestly and fairly with them. Their trust was violated in the worst way. In an excerpt from undercover recordings made by the FBI, Pilot’s director of national sales was caught on tape explaining and teaching the fraud to other salespeople, including how to target less savvy trucking companies:

“Some of ‘em, some of ‘em don’t know what a spreadsheet is.  I’m not kiddin’.  So, again, my point is this: Know your customer… If the guy’s sophisticated and he truly has gone out and gotten deals from the other competitors and he’s gettin’ daily prices from us, don’t jack with his discounts, ’cause he’s gonna know, okay?… There’s guys that I move a penny, there’s guys that I move 15 cents.  I mean, it’s an art, it’s a feel, it’d do what you do.  It’s not do more, don’t, you know, don’t ever expose yourself…

I ask myself, is this a customer that I send a daily price fetch to?  Does he buy from anybody else?  Does he have any idea what cost-plus-4 means to his business?  Nope.  Has no clue.  Absolutely know [sic] idea.  Well, do I want to pay him $25,000?  Maybe… I look at my P&L, and my P&L says, ‘Huh.  I’m payin’ him $25,000 and we made $25,000 on it.  That’s not a very good deal for me.’  I’ll probably cut this one down to like 21.  This customer is not a very sophisticated buyer and he doesn’t know what we’ve done here, right?”

“The financial consequences to a small business dealing with a corrupt partner can be devastating,” said Chip Cooper of Ohio business litigation law firm Cooper & Elliott. “Standing up to big corporations like Pilot Flying J sends a strong message that they can’t get away with fraud just because they’re an industry leader or think their customers are too naïve to detect the fraud or too intimidated to cry foul.”

Cooper & Elliott has a long history of successfully representing small businesses against much bigger opponents. “The contingency fee-based representation we offer has allowed many small companies to take action, even though they may lack the resources to pursue behemoths like Pilot Flying J,” said Cooper.

The outcome of any client’s case will depend on the particular legal and factual circumstances of the case.

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Thinking Out of the Box: How Complex Civil Litigation Helped a Diamond Merchant

Posted on Tue, Jan 27, 2015 @ 1:12 PM

Clients come to Cooper & Elliott because complex civil litigation is one of the areas where we excel. And because we want to help, there is nothing we dislike more than delivering bad news. And the initial news we had to give Henry Jackson* was devastating. 

Henry was a diamond merchant from New York who had come to Columbus for a jewelry show carrying a briefcase containing $1,000,000 in stones. He checked into a hotel and stored his precious inventory in the hotel’s safe-deposit boxes. It was standard operating procedure in his business, and he’d done it dozens of times over the years. He took the keys to the needed three safe deposit boxes, put them in his pocket, and then went up to bed.

Henry didn’t know it, but he—and everyone else in the hotel—was about to sleep through the kind of thing that’s supposed to happen only in the movies. A group of jewel thieves was about to pull off a heist months in the making.

The Hotel’s Insurance Liability

During the chaos of a hotel remodeling project, the thieves managed to obtain the hotel’s master key to the safe-deposit boxes and then alter the locks on the boxes so that the second key—like the ones that Henry kept with him in his room—weren’t needed to open them. And on the very night Henry checked in, the thieves made their play and walked away with millions in precious stones, which included Henry’s entire inventory and the inventory of several other diamond merchants.

The FBI eventually caught the thieves but didn’t recover the loot. Henry felt the hotel was at fault for the whole thing, so he wanted to sue.

After our first look at the case, we had to give him the bad news. The hotel’s liability for the theft was covered under Ohio’s innkeeper’s statute, which was unchanged from the 1800s. As long as a hotel had locks on the windows and a “metal safe or vault in good order,” by law the hotel’s liability for theft was limited to $500, no matter how big the loss or how careless the hotel was.

Henry was devastated. He had lost $1,000,000 in diamonds, but because of the way the law was written, $500 was the extent of the hotel’s liability.

Henry’s company wasn’t a big one, and the jewels that had been stolen made up much of his inventory.  A $500 settlement or verdict wasn’t just unfair, it was financially crippling. So we went to work trying to find a way to correct this injustice.

Why Civil Litigation Can Be Complex

Complex civil litigation is called “complex” for very good reasons. It takes a lot of work to get a good result, especially when the odds seem stacked against you. We researched the law. We read every case that had ever applied Ohio’s innkeeper statute and dug through old cases in other states to see how courts had analyzed similar laws. We made sure we uncovered every possible angle that might make a difference in the case.

Finally, we hit upon an approach that seemed promising. It revolved around the simple phrase “in good order.”

On the day we took depositions from the hotel employees, we asked a few preliminary questions before we got down to what we really wanted to know. We got them to agree that safe-deposit boxes are the modern-day equivalent of the “metal safes and vaults” hotels provided a century ago (when Ohio’s innkeeper statute was enacted). Then we asked the manager to tell us precisely how a safe-deposit box is supposed to work.

The manager explained that it took two keys to open the box. One was the master key, and the other was the key given to the owner of whatever was going in the box. When it came time to open the box, both keys were required. We asked if the box could ever be opened with one key—either with the master alone or the guest’s key alone. The manager told us it always took two.

If you could open the safe-deposit box with only the master key—which is what the jewel thieves had done—the box would not be “in good order.” And that meant the hotel wouldn’t be protected by the innkeeper’s statute and its $500 liability limit.

Henry was going to win his case.

The Insurance Company Settles the Case

In court, we argued that the hotel had not provided a vault or safe in good order because it could be opened with one key. As you might expect, the hotel and its insurance company objected strongly to our argument.  They pointed out that other diamond brokers who had jewels stolen in the same heist had filed lawsuits, and the courts in those cases had limited the damages to $500.    

But those other victims hadn’t come up with the argument we made. In the end, the judge in Henry’s case was persuaded. He issued a ruling in Henry’s favor and scheduled the case for trial where the only issue would be the amount of damages.  It was only then that the hotel’s insurance company decided to make a settlement offer to Henry. Henry ended up with an offer that covered his lost diamonds.  

In the course of our research on the Jackson case, we found that the antiquated innkeeper’s statute had been upheld time and again over the years. Surely some of those plaintiffs might have been entitled to more than $500, but for whatever reason, they didn’t get it. We’re just glad we were able to come through for Henry, and for anybody who might be in the same boat in the future and might be able to take advantage of the approach we developed to get around an unfair law.

With complex civil litigation, the winning solution isn’t always obvious. It takes research and consultation, along with creative thinking and tenacity. But it’s like any other line of work in that if you really want to help people, you’ve got to make the commitment and put in the time it takes to get the best possible result.

*Names in this article have been changed to protect our client’s privacy. 

The outcome of any client’s case will depend on the particular legal and factual circumstances of the case.


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