Eight More Pilot Employees Indicted in Rebate Fraud

By Walter F. Roche Jr.

A federal grand jury has indicted eight former Pilot Travel employees, including the former president and the top sales executive, on mail and wire fraud charges stemming from rebate fraud allegations.
The indictments bring to 18 the number of one time Pilot employees to be charged in a scheme to cheat truckers out of millions of dollars in promised rebates.
The indictment dated Feb. 3, but not released till Tuesday, follows a three year probe of the largest truck stop firm in the country.
Not indicted was company president James A. Haslam, also the owner of the Cleveland Browns. Haslam, brother of Tennessee Gov. William Haslam, has repeatedly denied any knowledge of the scheme.
The probe became public on April 15, 2013 when FBI agents raided Pilot's Knoxville headquarters.
Those indicted were former President Mark Hazelwood, Vice President John Freeman, Vicki Borden, John Spiewak, Katy Bibbe, Heather Jones and Karen Mann.
Hazelwood was charged with conspiracy to commit mail and wire fraud and witness tampering. All were charged with mail  and wire fraud. Hazelwood was arraigned today in U.S. District Court in Knoxville, TN. and entered a not guilty plea.
The remaining defendants were expected to appear and enter not guilty pleas later in the day.
In an affidavit filed in 2013 in U.S. District Court in Knoxville, an FBI agent provided a detailed description of the rebate fraud scheme, including secretly taped sales meetings in which Freeman and Hazelwood played prominent roles.
The affidavit, including transcripts of the sales meetings, was filed just days after the April 15 raid.
Ten other former Pilot employees have been charged and entered guilty pleas to similar charges and they await sentencing.
The rebate charges have already proven costly to Pilot. The company paid $84 million to settle a class action filed in Arkansas and $92 million to settle with the federal government.
Civil suits against the chain are still pending in Alabama and Ohio.
Pilot issued a statement stating they were "disappointed and saddened by today's events," but added that policies had been put in place to ensure it won't be repeated.
"The company has cooperated with the investigation since it's beginning and will continue to do do," the company said in its statement.

Judge Denies Move to Block Pilot Travel's Lawyers

By Walter F. Roche Jr.

An Ohio judge has rejected an attempt by trucking firms to bar Pilot Travel from utilizing a New York law firm to defend itself against rebate fraud charges.
In a two-page order issued Thursday Franklin County Common Pleas Court Judge David C. Young ruled that the White and Case law firm can represent Pilot in the ongoing litigation.
The ruling comes in a suit filed in behalf of FST Express and HB Logistics, two firms that charge that Pilot cheated them out of promised fuel rebates.
The suit is one of only two still pending against Pilot following an FBI raid on its headquarters on April 15, 2013.
FST and HB had argued that White and Case lawyers should not be allowed to represent Pilot because the firm only disclosed information at the last minute on corporate details which made it impossible for the truckers to continue to pursue their claims in federal court.
Pilot, however, insisted that it disclosed the new information as soon as company lawyers became aware of it. The company also noted that White and Case had extensive knowledge of the issues in the suit.
Without repeating the details of the opposing positions, Young said he found the Pilot arguments "persuasive," adding that he did not see the need for a hearing on the matter.
In the other remaining rebate suit Wright Transportation is suing Pilot in an Alabama court.
The rebate fraud allegations already have proven costly for Pilot, the nation's largest truck stop firm.
The company paid $84 million to settle a class action suit in Arkansas and it paid $92 million to settle a case with the federal government.
An affidavit filed in federal court in Tennessee shortly after the 2013 raid, detailed a longstanding scheme in which Pilot sales executives secretly reduced rebates promised to truckers. The filing included transcripts of Pilot sales meetings which were secretly recorded by an informant.
Ten former Pilot officials have entered guilty pleas to mail and wire fraud charges in connection with the rebate fraud charges. They have not yet been sentenced.
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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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