U1IT4LESS, Inc. v. FedEx Corp.

• Decision Date: 25 September 2012
• Docket Number: No. 11–CV–7163 (CS).,11–CV–7163 (CS).
• Parties: U1IT4LESS, INC. d/b/a Nybikegear, Plaintiff, v. FEDEX CORPORATION, FedEx Corporate Services, Inc., and FedEx Ground Package System, Inc., Defendants.
• Court: U.S. District Court — Southern District of New York

896 F.Supp.2d 275

U1IT4LESS, INC. d/b/a Nybikegear, Plaintiff,

v.FEDEX CORPORATION, FedEx Corporate Services, Inc., and FedEx Ground Package System, Inc., Defendants.

No. 11–CV–7163 (CS).

United States District Court, S.D. New York.

Sept. 25, 2012.

Michael J. Paleudis, The Paleudis Law Firm, Putnam Valley, NY, H. Kenneth Kudon, Kudon Law, Potomac, MD, Joe R. Whatley, R. Jackson Drake, Edith M. Kallas, Ilze C. Thielmann, Whatley Drake & Kallas, LLC, New York, NY, for Plaintiff.

P. Daniel Riederer, FedEx Legal Department, Memphis, TN, for Defendants FedEx Corporation and FedEx Corporate Services, Inc.

Joeseph P. McHugh, FedEx Ground Package System, Inc. Moon Township, PA, for Defendant FedEx Ground Package System, Inc.

OPINION AND ORDER

SEIBEL, District Judge.

Before the Court is Defendants' Motion to Dismiss Plaintiff's Second Amended Complaint pursuant to Rules 9(b) and 12(b)(6), (Doc. 42). For the following reasons, Defendants' Motion is GRANTED IN PART and DENIED IN PART.

I. Background

For purposes of Defendants' Motion, I accept as true the facts (but not the conclusions) as stated in the Second Amended Complaint (“SAC”). Plaintiff is an internet retailer that sells motorcycle gear such as helmets, boots, goggles, chaps, jackets, and vests, shipping within the United States and internationally. (SAC ¶ 21.) Defendant FedEx Ground Package System, Inc. (“FedEx Ground”), a Delaware corporation with its principal place of business in Moon Township, Pennsylvania, ships and delivers small packages by motor carrier in the United States and Canada. ( Id. ¶ 28.) Defendant FedEx Corporation (“FedEx”), a Delaware Corporation with its principal place of business in Memphis, Tennessee, is the parent corporation of FedEx Ground. ( Id. ¶ 26.) Until FedEx acquired and rebranded it, FedEx Ground was Roadway Package System, a subsidiary of Caliber Systems, Inc. with its principal place of business in Pittsburgh, Pennsylvania. ( Id. ¶ 31.) FedEx Ground is one of only two companies that provide fast and reliable small package delivery services both nationwide and internationally. ( Id. ¶ 32.) FedEx funds, controls, and oversees FedEx automation software and the information technology involved in weighing, measuring, rating, pricing, billing, and paying for FedEx Ground's services. ( Id. ¶ 26.) FedEx is also the parent company of Defendant FedEx Corporate Services, Inc. (“FedEx Services”), a Delaware corporation with its principal place of business in Memphis, Tennessee. ( Id. ¶¶ 26–27.) FedEx Services manages, supports, and provides customer service for the information technology used in connection with scanning, data collection, sorting, weighing, measuring, rating, and billing for FedEx Ground. ( Id. ¶ 27.)

FedEx Ground neither handles its own billing nor provides online or software driven shipping solutions; these functions are performed by FedEx Services and overseen by FedEx. ( Id. ¶ 34.) FedEx automation software and website access to fedex.com are licensed to customers of FedEx Ground so that they can both electronically transmit shipment details (such as package weight and dimensions) to Defendants and receive shipment information (such as status, history, and account summaries) from Defendants. ( Id. ¶¶ 34–35.) Following a pick-up by a FedEx Ground truck, packages are forwarded to FedEx Ground's nearest hub or automated satellite for sorting and processing. ( Id. ¶ 36.) As a package works its way through the hub or satellite, information technology managed and supported by FedEx Services automatically calculates the package's weight and physical dimensions and routes it based on information encoded on the shipping label. ( Id. ¶ 38.) ¹ Charges, surcharges, and fees for packages shipped by FedEx Ground are computed based on a number of factors, including package weight. ( Id. ¶ 42.) For packages smaller than three cubic feet, the package weight is the actual weight; for larger packages, it is the greater of the actual weight or dimensional weight (length times width times height). ( Id. ¶ 43.)

A. The “Upweighting” Scheme Allegations

Plaintiff was a customer of FedEx Ground from about July 2008 until August 2010. ( Id. ¶ 22.) Plaintiff licensed FedEx automation software so that Plaintiff could transmit details of each of its shipments to Defendants, print shipping labels, and schedule pick-ups with FedEx Ground. ( Id. ¶ 23.) Plaintiff also purchased a scale (to weigh packages) from a FedEx authorized vendor. ( Id. ¶ 24.) Nearly all of the packages Plaintiff shipped via FedEx Ground were smaller than three cubic feet and therefore were rated based upon their actual weight. ( Id.;see id. ¶ 60.)

Plaintiff shipped hundreds of packages weekly via FedEx Ground. ( Id. ¶ 51.) Over the period from March 2009 to May 2010, Plaintiff was charged for a shipment weight that was greater than the actual package weight at least 150 times. ( See id. ¶¶ 57–58, 74; see also Plaintiff's First Amended RICO Statement (“RICO Stmt.”), (Doc. 31), Ex, A.) ² Internet postings dating from 2007 onward indicate that others experienced the same pattern of upweighting. ( Id. ¶¶ 49, 78.) According to the SAC, such upweighting is the result of “a continuing scheme or artifice to defraud” Plaintiff and others, ( id. ¶ 46), in furtherance of which Defendants FedEx and FedEx Services perpetrated, among other things, the following: “commandeering, designing or altering the design of, [or] managing and supporting information technology that can cause package weight ... to be fixed at a fictive higher weight than its actual weight,” ( id. ¶ 47.A); “seeking and receiving payment ... for artificially inflated charges attributable to upweighting,” ( id. ¶ 47.D); and “perpetuating, facilitating and concealing upweighting ... and attempting to unfairly shield themselves from liability by creating and implementing a labyrinthine and corrupt BRE [billing and revenue enhancement] Model ... which incorporates a ‘caveat emptor’ billing process with little or no quality control, a byzantine online and email-based invoicing system ... that obscures billing discrepancies, and ... includes draconian billing adjustment terms and conditions, and other unfair and deceptive structures, terms and tools designed to disadvantage customers in their transactions with defendants,” ( id. ¶ 47.E). For example, Defendants' billing system disaggregates charges for a single shipment into many different statements, “with no single invoice itemizing and totaling all the charges included in each transaction,” making it difficult for shippers to piece together the total charge for a single shipment. ( Id. ¶ 47.E.i.) Plaintiff alleges that the upweighting it experienced cannot be unintentional because its upweighted packages were not confined to a specific facility or zone, and others experienced the same upweighting. ( Id. ¶ 49.)

Plaintiff first became aware of an upweighted shipment when two employees of FedEx Services visited Plaintiff on September 15, 2010. ( Id. ¶ 55.) Plaintiff later identified 150 specific examples of upweighting. ( Id. ¶ 57.) Plaintiff apparently informed a representative of FedEx Services of these upweighted transactions. ( See id. ¶ 61.) In response, FedEx Services, in correspondence dated November 15, 2010, acknowledged that such upweighting occurred in hundreds of instances, and agreed to re-rate roughly 200 shipments. ( Id. ¶ 62.) ³ On January 7, 2011, Plaintiff received a check for $134.45 issued by FedEx referencing a single invoice number. ( Id. ¶ 64.)

Plaintiff alleges that FedEx and FedEx Services have conducted and participated in the affairs of the FedEx Ground Enterprise (consisting solely of FedEx Ground, ( id. ¶ 66)) through a pattern of racketeering activity in violation of Section 1962(c) of the Racketeer Influenced and Corrupt Organizations (“RICO”) Act. ( Id. ¶ 68.) According to the SAC: FedEx heads a hierarchical decision-making structure led by its information technology management team—headed by Robert B, Carter, an officer of both FedEx and FedEx Services—which oversees the relevant activitiesof FedEx Services, ( id. ¶ 68.A); FedEx has commandeered control of and funded and overseen the alteration and operation of certain information technology—managed and supported by FedEx Services—in connection with weighing, computing, and transmitting charges, and collecting payment for packages transported by FedEx Ground, ( id. ¶ 68.B); FedEx and FedEx Services have used electronic transmissions to exchange data relating to customer charges, ( id. ¶ 68.D); and FedEx Services has used the United States mails and electronic transmissions to assess charges and obtain payment for packages transported by FedEx Ground, ( id. ¶ 68.E). Plaintiff alleges that FedEx and FedEx Services have violated 18 U.S.C. §§ 1341 and 1343 “in what likely involved millions of separate instances, [by making] use of U.S., mails and interstate wire facilities in the form of, among others, emails, credit card transmissions and electronic funds transfers.” ( Id ¶ 71.) Plaintiff further alleges that FedEx, FedEx Services, and FedEx Ground violated 49 U.S.C. § 13708(b) ( “Section 13708(b)”) by communicating documents containing inflated charges attributable to upweighting. ( Id. ¶ 146.) Plaintiff also alleges that FedEx and FedEx Services have violated Section 349 of New York General Business Law (“Section 349”) by perpetrating the upweighting in New York. ( Id. ¶¶ 150, 154.)

B. Conspiracy Allegations

United Parcel Service, Inc. (“UPS”) is not a party to this litigation. UPS and FedEx Ground are the two leading small package ground delivery companies. ( Id. ¶ 32.) Plaintiff alleges that UPS has implemented a billing revenue enhancement model similar to FedEx's, ( id. ¶ 87), and that UPS has changed the dimensions of packages qualifying for dimensional weighting in an upward direction, ( id. ¶ 88). UPS and FedEx announced a mutual corporate policy to prevent customers...