Pilot Appeals Ruling in Rebate Case

By Walter F. Roche Jr.

Pilot Flying J and its chief executive are moving on two fronts to block a suit in Alabama state courts which charges the company with cheating an Alabama trucking firm out of promised rebates.
Lawyers for Pilot and James Haslam, the truck stop chain's top executive and Cleveland Browns' owner, filed an appeal of a federal court ruling and asked a Mobile County court to either dismiss or stay action on the suit filed by Wright Transportation.
The Wright case is one of a handful remaining following disclosure of a federal probe of allegations that Pilot secretly and systematically reduced rebates promised to purchasers of the chain's diesel fuel.
In the appeal filed with the 11th Circuit Court of appeals, Pilot asked that the Oct. 25, 2015 decision of U.S. District Judge William H. Steele be reversed. Steele dismissed the Wright suit, leaving the trucker free to pursue the same claims in state courts.
The appeal filed jointly in behalf of Pilot, Haslam and former Pilot sales executive John Freeman, contends that under the Class Action Fairness Act, Steele was required to maintain jurisdiction over the case.
"Once original jurisdiction was conferred, it could not be divested by subsequent events," the 42-page brief states.
Freeman was featured prominently in secretly recorded Pilot sales meetings in which the rebate skimming scheme was detailed. Transcripts of those meetings were filed in U.S. District Court in Tennessee. Ten former Pilot executives have entered guilty pleas to charges stemming from the rebate probe. Freeman has not been charged.
Wright had concluded that he did have the discretion to dismiss the case. He noted that the case no longer had class action status and that several of Wright's claims, including racketeering charges, had already been dismissed.
Pilot, however, argued that Wright should not be allowed to re-litigate the case in state court after it had proceeded in federal court for some two years.
Citing multiple depositions and discovery requests, the motion states that Pilot had also provided Wright more than 27 gigabytes of data in the federal litigation.
"The district court erred because original jurisdiction under CAFA extended to the entire law suit - including each of the asserted claims - at the time Wright filed the suit, "the appeal states.
Wright, the filing concludes, "should not be allowed to force defendants/appellants to litigate this case for two years in federal court and then, near the end of substantial discovery, start over in state court."
In the filing in Mobile County court, Pilot asked that the state suit be dismissed under the provisions of a state law that protects parties from facing litigation on the same issues in state and federal courts.
Meanwhile, court records in Ohio show that one of four remaining suits against Pilot has been settled. A notice of voluntary dismissal with prejudice was filed by attorneys for Dick Lavy Trucking. Also settled was a suit filed in Illinois against Pilot by JF Freight
Still alive are suits against Pilot in Franklin County Ohio court by FST Express and HB Logistics. HB's claims include claims by a third firm, McGriff Transportation, which assigned its rights to HB.
The rebate allegations have cost Pilot some $176 million. The company paid $84 million to settle a class action suit in Arkansas and paid $92 million to settle civil charges with the federal government.
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Pilot Now Facing 5 Claims in 2 States

By Walter F. Roche Jr

Pilot Flying J and its top executives including CEO James Haslam are now facing claims from four trucking firms alleging they were cheated out of promised rebates.
The suits, in state courts in Alabama and Ohio, follow the procedural dismissal of federal suits that contained similar allegations.
In Alabama, Wright Transportation of Mobile has filed a 43-page complaint charging the truck stop firm with unjust enrichment, fraudulent misrepresentation and breach of contract.
In Ohio, a third trucking firm has joined with two others that already had filed suit in Franklin County Common Pleas Court.
HB Logistics, an Alabama firm, joined Dick Lavy Trucking and FST Express in a suit that charges that Pilot sales staff deliberately misled truckers, including HB Logistics President Clay Halla about its pricing schemes.
The suit charges Halla was told he was being charged Pilot's actual cost, when in fact the cost figure was based on a little known industry standard, not what the truck stop firm actually paid.
The complaint states that Pilot sales executive John Freeman, whom Halla trusted, intentionally misled him.
The 42 page complaint charges that the scheme was known by Haslam and his top executives Mark Hazelwood and Mitchell Steenrod.
Haslam has repeatedly denied any knowledge of the pricing and rebate schemes.
HB's suit include claims by yet another firm, McGriff Transportation, which ceded its rights of recovery to HB.
The Ohio and Alabama complaints both recount in detail a 120- page affidavit filed in U.S. District Court in Knoxville, Tenn. which describes secretly recorded Pilot sales meetings at which the rebate scheme was discussed.
They also recount the fact that top Pilot sales executives already have entered guilty pleas to mail and wire fraud charges and that the company paid $92 million to settle a civil case with the federal government. Another $84 million was paid to settle a class action suit filed by other trucking firms.
Wright, FST Express, Dicky Lavy Trucking and HB Logistics opted out of that settlement.
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Two Ohio Truckers File New Suit vs Pilot Travel

By Walter F. Roche Jr.

With federal suits dismissed on jurisdictional grounds, two Ohio trucking firms are suing Pilot Flying J in Franklin County Ohio court charging that CEO James A. Haslam knew of and approved a scheme to defraud them of promised rebates.
In a 34-page complaint, attorneys for FST Express and Dick Lavy Trucking have charged that the truck stop firm and its top executives engaged in "massive fraudulent conduct" and purposefully misled their "thousands of trusting customers."
"The scheme was conducted with the knowledge and approval of Pilot CEO James A. 'Jimmy' Haslam," the complaint states.
Haslam, the owner of the Cleveland Browns, has repeatedly denied any knowledge of the scheme.
Aubrey Harwell, a Nashville attorney representing Pilot, said that any suggestion Haslam knew of or approved a rebate scheme was "ludicrous and there is absolutely no evidence to support it."
The two firms charged that while Pilot repeatedly told them the diesel fuel charges were based on Pilot's actual costs, the truck stop firm was actually using an industry benchmark provided by a third party.
According to the complaint when FST raised questions about promised rebates in 2011, Pilot blamed it on a change in personnel.
"This explanation was false and Pilot's representative knew it was false when she made it," the suit states.
The complaint cites an affidavit by an FBI agent filed in U.S. District Court in Knoxville, Tenn. following an April 15, 2013 raid on Pilot's headquarters. The affidavit includes partial transcripts of secretly recorded Pilot sales meetings in which the scheme was discussed.
"At Pilot there was enormous pressure from the top down to defraud customers like FST and DLT (Dick Lavy Trucking)," the suit filed by attorney Shawn Organ states.
The suit details the fact that 10 top Pilot executives already have entered guilty pleas stemming from the federal probe. In addition, Pilot reached a $92 million settlement with the federal government.
The suit charges violations of Tennessee and Ohio consumer protection statutes, breach of contract and unjust enrichment.
In a related development a federal judge in Alabama has dismissed without prejudice a parallel suit filed by Wright Transportation.
U.S. Judge William H. Wright declined to retain jurisdiction in the case noting that the remaining claims involved state laws.
"The court discerns no appreciable  negative impact on judicial economy by dismissing this action for refiling in state court," Steele wrote.
Lawyers for Pilot, who opposed the dismissal, have filed notice of appeal.
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Remaining Federal Pilot Rebate Suit Back In Alabama

By Walter F. Roche Jr.

The one remaining federal civil suit stemming from diesel fuel fraud rebate charges has been sent back to a federal judge in Alabama who is now considering a motion to dismiss the remaining charges.
The suit filed by Wright Transportation, an Alabama trucking firm, includes charges of breach of contract and unjust enrichment.
U.S. District Judge William H. Steele is considering a motion by lawyers for Wright to dismiss the charges without prejudice so they can be refiled in Alabama state courts.
Lawyers for Pilot, meanwhile, have argued that the case should remain before Steele and they contend claims that sanctions should be imposed against Pilot are "frivolous and devoid of any supporting evidence."
The Wright case stems from charges that Pilot executives secretly reduced promised rebates to trucking firms across the country. The charges were detailed in a filing in U.S. District Court in Knoxville, Tenn. by an FBI agent.
Dozens of other civil suits stemming from the allegations have been settled but three, which were once coupled with the Wright case, are expected to be refiled in state courts in the near future.
U.S. District Judge Amul Thapar sitting in Kentucky dismissed the three cases and sent the Wright case back to Alabama.
"Because Wright is the only remaining case in the multi-district litigation, there are no longer benefits from centralized or coordinated proceedings," Thapar wrote.
In recent filings in the Wright case, Pilot's attorneys argued that the federal court retains jurisdiction
for the remaining claims despite the fact that they are based on state law. Jurisdiction, they argued, was established at the time the case was first filed.
Pilot also has denied charges that it deliberately withheld information about its corporate structure that would have ended the litigation in Kentucky.
Stephen Tunstall, Wright's attorney, however, accused Pilot of using "smoke and mirrors" to conceal details of its corporate structure.
"Pilot's position is neither legal or ethical," the Wright brief states.

Remaining Pilot Suits Headed to State Courts?

By Walter F. Roche Jr.

An Alabama trucking firm is asking a federal judge to impose sanctions on Pilot Travel Centers for its failure to disclose critical details about its corporate structure.
In a motion filed late last week in U.S. District Court in Kentucky, lawyers for Wright Travel also asked the federal judge to dismiss the remaining claims in a pending suit over diesel fuel rebates so the transportation firm can pursue the same claims in state court.
Meanwhile three other suits filed against Pilot are headed back to state courts while another already is being pursued in Illinois courts.
The five suits are the only ones remaining in the aftermath of a diesel fuel rebate skimming scheme in which already has cost Pilot, the national truck stop firm, nearly $100 million. Dozens of civil suits were filed following an FBI raid on Pilot's Knoxville headquarters on April 15, 2013.
An affidavit subsequently filed in U.S. District Court in Knoxville, Tenn. described a widespread scheme by Pilot sales executives to cheat truckers out of promised rebates.
In the motion and an accompanying brief filed Thursday in the Kentucky case, Stephen Tunstall, Wright's attorney, said the federal suit should be dismissed without prejudice so that it can be pursued in state court.
In asking that sanctions be imposed, Wright charged that Pilot "intentionally hid the fact that this court does not have diversity jurisdiction."
It was only in early July, the memo continues, that Pilot disclosed for the first time "that it has certain sub-members who were citizens of Alabama and Ohio."
"Pilot wasted Wright's valuable time and resources," the brief states.
As the brief noted, Pilot, despite the July disclosure, has asked the U.S. District Judge Amul R. Thapur to retain jurisdiction and keep the case in his Kentucky courtroom.
The three other trucking firms who will be pursuing claims against Pilot in state courts are FST Express, HB Logistics and Dick Lavy Trucking. A suit filed by JF Freight against Pilot is pending in Illinois courts.
Pilot has filed a civil settlement on related charges with the federal government under a $92 million agreement. The travel center giant paid some $84 million to settle a class action suit in federal court in Arkansas by still other trucking firms based on the rebate skimming charges.
Ten former Pilot executives have entered guilty pleas to mail and wire fraud charges stemming from the rebate probe. They await sentencing while the probe continues.
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Feds Seek in Secret Filings to Block Pilot Flying J Depositions

By Walter F. Roche Jr.

In a series of secret filings, federal prosecutors have asked a federal judge to block scheduled depositions of key figures in the investigation of rebate fraud allegations against Pilot Flying J, the national truck stop firm.
The request to block the depositions of five former Pilot employees was filed under seal in U.S. District Court in Kentucky and the presiding judge has threatened to initiate contempt charges against anyone who disseminates it and related materials to unauthorized persons.
The only public reference to the sealed filings came in a recent five-page ruling by U.S. District Judge Amul R. Thapar in which he also stated that responses to the government's request must also be filed under seal.
"If it (the sealed document) is disseminated in any portion, the court will initiate an investigation into who disseminated it and begin contempt proceedings."
The five former Pilot employees who have been subpoenaed for depositions include four who already have entered guilty pleas to mail or wire fraud charges.
They are Christopher Andrews, Brian Mosher, Arnold Ralenkotter and Janet Welch. They are all awaiting sentencing. The fifth former employee named in Thapar's order, Cathy Giesick, has not been charged but she is believed to be one of two informants whose disclosures to federal officials played a key role in the investigation.
The subpoenas were issued as part of a handful of remaining civil cases against Pilot filed by truckers who refused to share in an $82 million settlement from Pilot in a class action suit filed in Arkansas.
The two attorneys who filed the secret motions, Francis M. Hamilton 3rd and David P. Lewen Jr, are  the lead prosecutors in the criminal investigation of Pilot.
According to Thapar's ruling all of the depositions, including one which was scheduled for July 8, have been stayed temporarily while he considers whether to grant the government's overall request. He added that if he decides to deny the government's overall request, he will then order the five former employees to make themselves available "within the next few weeks."
Thapar's ruling and the secret filings are but the latest development in a lengthy federal probe into allegations that Pilot sales executives routinely and systematically cut the rebates promised to truckers.
The probe first became public on April 15, 2013 when FBI agents raided the trucking firm's Knoxville headquarters. The string of guilty pleas began shortly afterwards.
Pilot's top executive, James A. Haslam, has consistently denied any knowledge of the rebate scheme but he has been subpoenaed for a deposition later this month.
Haslam's lawyers have asked Thapar to overturn an order from a magistrate judge forcing the Cleveland Brown's owner to undergo questioning.

Haslam Ordered to Testify in Pilot Suit

By Walter F. Roche Jr.

A federal magistrate has ruled that Pilot Flying J's top executive, James A. Haslam, must appear for a deposition later this month and answer questions about his knowledge of a scheme to cheat truckers out of millions of dollars in promised rebates.
The order by U.S. Magistrate J. Gregory Wehrman is but one of several major developments in a handful of remaining lawsuits stemming from the rebate fraud charges that followed an FBI raid on the truck stop firm's Knoxville headquarters over two years ago.
In related action three of the four remaining cases against Pilot have been dismissed from federal court due to a lack of jurisdiction. The dismissals came only after Pilot's lawyers filed papers contending they had just discovered that Pilot "has had a member who is a citizens of Ohio and Alabama at all relevant times."
That discovery triggered a provision in federal law that barred federal courts from hearing suits brought by FST Express, HB Logistics and Dick Lavy Trucking, firms located in Alabama and Ohio.
Those three suits will now be pursued in state courts, according to attorneys familiar with the cases.
One suit against Pilot filed by Wright Transportation remains in federal court in Kentucky, but it too could be shifted to state court or to another federal court.
The civil action comes as 10 former Pilot executives are waiting sentencing after entering guilty pleas to mail and wire fraud charges stemming from the rebate fraud investigation. U.S. Justice Department officials have indicated the probe is continuing.
The deposition order against Haslam calls for the Cleveland Browns owner to appear for questioning on July 29 by Wright Transportation attorney Stephen Tunstall.
Lawyers for Haslam already have filed a motion to overturn Wehrman's order or to have any questioning limited.
Haslam had asked for a protective order to block the deposition charging that he had no personal knowledge of the rebate shaving scheme.
"Though Haslam disclaims having knowledge of the allegations made by Wright Transportation, a witness ordinarily cannot escape examination by denying knowledge of any relevant facts, since the party seeking to take the deposition is entitled to test the witness's lack of knowledge," Wehrman ruled.
He also concluded that Haslam had failed to show what specific harm he would suffer if subjected to questioning.
Haslam's lawyers have filed an appeal seeking to overturn the order stating the deposition "will impose siginificant costs and undue burden."
The motion repeats the claim that Haslam has no personal knowledge of Wright's agreement with Pilot and that he had never even heard of the company until the suit was filed.
"Mr. Haslam had nothing to do with plaintiff's contract with Pilot, in fact he had nothing to do with plaintiff at all," the 24-page appeal states. "The magistrate's order was clearly erroneous," the motion states.
The ruling to dismiss the cases filed by FST Express, HB Logistics and Dick Lavy Trucking followed the disclosure by Pilot's attorneys of the belated discovery that the firm had ties to both Alabama and Ohio.
At several earlier points in the litigation, Pilot's attorneys had insisted the opposite was the case.
The disclosure triggered a demand by plaintiffs in the case that sanctions be imposed against Pilot.
"Pilot likely knew long ago that the court lacked diversity jurisdiction," they charged.
"Pilot, however," the truck stop firm's lawyers replied," did not have complete information until last week when "one of Pilot's minority members revealed for the first time that one of its sub sub members was a Ohio citizen."
U.S. District Judge Amul Thapar, the judge who has been presiding over the cases, is expected to rule later this summer on whether sanctions should be imposed on Pilot and whether the Wright suit will remain in his court or be sent to another federal court or a state court.
Aubrey Harwell, a Nashville attorney representing Pilot, said Thursday his client would prefer that the case remain where it is, before Thapar. Wright's attorneys have sought its dismissal.
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