U1IT4less, Inc. v. FedEx Corp.

• Decision Date: 27 January 2016
• Docket Number: 11–cv–1713 (KBF)
• Citation: 157 F.Supp.3d 341
• Parties: U1IT4less, Inc., d/b/a/ Nybikergear, 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

157 F.Supp.3d 341

U1IT4less, Inc., d/b/a/ Nybikergear, Plaintiff,

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

11–cv–1713 (KBF)

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

Signed January 27, 2016

Ilze Caroline Thielmann, Joe R. Whatley, Jr., Whatley Kallas LLP, Brian Michael Rudner, Michael John Paleudis, Rudner & Paleudis, LLC, New York, NY, S. Scott Garrett, Russell Jackson Drake, Whatley Kallas, LLC, Birmingham, AL, Alan McQuarrie Mansfield, Whatley Kallas, LLP, San Diego, CA, Elliott Tubbs, Peter James Cambs, Parker Waichman LLP, Bonita Springs, FL, Henry Kenneth Kudon, Kudon Law, Potomac, MD, for Plaintiff.

Aaron T. Cassat, Colby Shannon Morgan, Jr., Graham Weston Askew, Michael E. Gabel, Michael W. Higginbotham, Federal Express Corporation, Justin M. Ross, P. Daniel Riederer, Fedex Legal Department, Memphis, TN, John J. Walsh, II, Hodges Walsh & Messemer, LLP, White Plains, NY, Jeremy O. Harwood, Inbal Paz, Blank Rome LLP, New York, NY, Jason W. Norris, Joseph P. McHugh, Fedex Group Package System, Inc., Coraoplis, PA, for Defendants.

OPINION & ORDER

KATHERINE B. FORREST, District Judge:

Plaintiff U1IT4less, Inc. filed this suit against defendants FedEx Corporation (“FedEx Corp.”), FedEx Corporate Services, Inc. (“FedEx Services”), and FedEx Ground Package System, Inc. (“FedEx Ground”) on March 11, 2011. (ECF No. 1.) The gravamen of plaintiff's complaint and its subsequent amendments (ECF Nos. 27, 41, & 134) is that defendants improperly calculated the weight of certain packages and improperly collected certain Canadian customs charges from shippers rather than recipients. (TAC ¹ ¶¶ 1–3.) Plaintiff alleges that these actions constitute various violations of the Racketeer Influenced and Corrupt Organizations (“RICO”) Act, 18 U.S.C. § 1962(c) -(d), a federal statute regarding motor carriers' billing and collecting practices, 49 U.S.C. § 13708(b), and New York General Business Law § 349, which prohibits deceptive acts in commerce. (TAC ¶¶ 4, 43-159.)

Plaintiff's claims under state law and 49 U.S.C. § 13708 have been dismissed for failure to state a claim, as has its claim that defendants engaged in a RICO conspiracy. See U1IT4less, Inc. v. FedEx Corp. , 896 F.Supp.2d 275 (S.D.N.Y.2012). (ECF No. 55.) The Court also previously granted defendants' motion for partial summary judgment as to plaintiff's contractual class action waiver. (ECF No. 169.) Now before the Court is defendants' motion for summary judgment on the two remaining RICO counts. (ECF No. 181.)

The RICO statute imposes liability on persons that improperly use a distinct entity as a vehicle for misdeeds. It is not a statute that attaches federal criminal and civil liability to routine claims of fraud involving a parent and its subsidiary, or two sister corporations. The undisputed facts of this case demonstrate that the defendant corporations, a holding company and one of its subsidiaries, are not “distinct” from the alleged enterprise, another wholly owned subsidiary, for RICO purposes. If plaintiff's theory of RICO distinctness were accepted, it would transform every routine allegation of fraud involving a company that uses the routine holding company/subsidiary structure at issue here into a RICO claim. That is not and should not be the law.

For these and the reasons stated below, the motion is GRANTED.

I. FACTUAL BACKGROUND

A. The Events

Plaintiff is an internet retailer of motorcycle-related clothing and accessories. (Def.'s 56.1² ¶ 1.) Between July 2008 and August 2010, FedEx Ground determined a price for approximately 5,490 packages which it billed to plaintiff's FedEx account. (Id. ¶ 6.) Plaintiff alleges that approximately 150 of those packages were rated at a weight higher than their true weight, resulting in higher shipping prices. (Id. ¶ 7.) Between May 2009 and May 2010, Plaintiff shipped 395 packages to Canada using FedEx Ground. (Id. ¶¶ 40-41.) Plaintiff further alleges that, although it indicated on FedEx's software that recipients were responsible for Canadian customs, defendants nonetheless improperly charged plaintiff for such charges at least 150 times. (TAC ¶¶ 106, 112.)

B. FedEx Corporate Structure

Plaintiff's remaining claims allege, inter alia , a RICO enterprise stemming from the actions of three related corporations, FedEx Corp., FedEx Services, and FedEx Ground. Defendant FedEx Corp. is a publicly traded holding company for various subsidiaries engaged in shipping-related businesses. (Def.'s 56.1 ¶ 2.) Defendant FedEx Services is a wholly-owned subsidiary of FedEx Corp., and provides sales, marketing, and information technology support to its sister subsidiaries, including FedEx Ground. (Id. ¶ 3.) FedEx Ground is also a wholly-owned subsidiary of FedEx Corp., and it offers small package delivery throughout the United States and Canada. (Id. ¶ 4.)

FedEx Corp. has its principal place of business in Memphis, Tennessee. (Pl.'s 56.1³ ¶ 46.) Memphis is also FedEx Services' principal place of business. (Id. ) FedEx Ground's principal place of business is located outside Pittsburgh, in Moon Township, Pennsylvania. (Id. ¶ 45.) FedEx Ground was previously known as Roadway Package System (“RPS”) and was a subsidiary of Caliber Systems, Inc. (TAC ¶ 30; ECF No. 140 ¶ 30.) FedEx Corp. acquired Caliber Systems, Inc. in 1998 and subsequently rebranded RPS as FedEx Ground. (TAC ¶ 30; ECF No. 140 ¶ 30.)

FedEx Corp. does not exercise day-to-day control over the operations of its subsidiaries, including FedEx Services and FedEx Ground. (Def.'s 56.1 ¶ 2.) Each corporation has its own officers and board of directors; there is little overlap between these officers and directors. (Pl.'s 56.1 ¶ 50.) Plaintiff has identified numerous instances of court proceedings in which FedEx and its representatives represented and testified to the legal separation between the holding company and all of its subsidiaries. (Id. ¶ 44.) In one characteristic instance, a FedEx representative testified as follows when asked “[W]hat is the difference between the separate corporations and, say, looking at them as just separate divisions of one company?”

Well, legally because they're a separate corporate entity, they're their own legal entity. They have their own management and they have their own Board of Directors so it is different than operating as a division within the same company.

(Id. )

C. Litigation History

As stated above, plaintiff initiated this case on March 11, 2011. (ECF No. 1.) Defendants moved to dismiss the complaint for failure to state a claim in September 2011. (ECF No. 42.) In September 2012, Judge Seibel, to whom the case was originally assigned, dismissed counts II, IV, and V. U1IT4less, Inc. v. FedEx Corp. , 896 F.Supp.2d 275, 291–95 (S.D.N.Y.2012). (ECF No. 55, at 21-28.)

Judge Seibel denied defendants' motion as to counts I and III against FedEx Corp. and FedEx Services, both of which allege RICO violations. Id. at 287–91. (ECF No. 55, at 13-21.) These counts assert the existence of a RICO enterprise, defined as “the FedEx Ground Enterprise consisting solely of FedEx Ground.” (Id. ¶¶ 65, 117.) Plaintiff alleges that defendants “conduct[ed] and participate[d] in the affairs of the Enterprise through a pattern of racketeering activity.” (Id. ¶¶ 67, 118.)

In their original motion to dismiss these counts, which Judge Seibel denied, defendants “argue[d] that Plaintiff's Section 1962(c) RICO claim fails as a matter of law because Plaintiff fails to allege (1) an adequately distinct enterprise ...; (2) the required ‘pattern of racketeering activity,’ ...; (3) plausible or particularly-pleaded predicate acts of mail and/or wire fraud ...; and (4) the required operation or control.” U1IT4less , 896 F.Supp.2d at 287 . (ECF No. 55, at 13.) The Court rejected each of these arguments at that stage. The first of those alleged shortcomings, the asserted failure to plead distinctness, is most relevant to the instant motion.

Judge Seibel wrote that “[d]efendants, relying principally on Discon, Inc. v. NYNEX Corp. , 93 F.3d 1055 (2d Cir.1996), argue that the FedEx Ground Enterprise (consisting solely of FedEx Ground) is not distinct from its parent FedEx [Corp.] or from its sister FedEx Services because all are ‘businesses operating in a unified corporate structure.’ ” Id. (ECF No. 55, at 14 (quoting ECF No. 43, at 24.).) Judge Seibel rejected this argument in light of Cedric Kushner Promotions, Ltd. v. King , 533 U.S. 158, 121 S.Ct. 2087, 150 L.Ed.2d 198 (2001). Judge Seibel quoted that case in noting that FedEx Corp., FedEx Services, and FedEx Ground “are each ‘distinct legal entit[ies], with legal rights, obligations, powers, and privileges different from’ each other.” U1IT4less , 896 F.Supp.2d at 288 (quoting Cedric Kushner , 533 U.S. at 163, 121 S.Ct. 2087) (ECF No. 55, at 15.) She concluded from this that “[t]he logic of Cedric Kushner ... renders plausible the conclusion that the FedEx Ground Enterprise is distinct from FedEx [Corp.] and FedEx Services.” Id. (ECF No. 55, at 15.) In a footnote, Judge Seibel remarked that plaintiff's complaint “alleges that FedEx Ground, originating as a separate company and with separate corporate headquarters, may not merely be part of FedEx's ‘unified corporate structure,’ and may not be the equivalent of a division operating within FedEx,” which might provide an alternative basis for rejecting defendant's motion to dismiss. Id. at 288 n. 10 (citations omitted) (quoting Discon , 93 F.3d at 1064). (ECF No. 55, at 15 n.10.) In another footnote, Judge Seibel questioned whether “Discon is still good law despite the logic of Cedric Kushner .” Id. at 288 n. 11, 121 S.Ct. 2087. (ECF No. 55, at 15 n.11.)

In February 2015 the case was reassigned to the undersigned. In May 2015 defendants moved for partial summary judgment dismissing plaintiff's class claims on the ground that plaintiff had contractually waived its ability to participate in a class action against defendants. (ECF No....