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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New Charges Fuel Remaining Pilot Rebate Cases

By Walter F. Roche Jr.


With a key mediation session approaching new charges and counter-charges are being exchanged in the remaining handful of civil court cases stemming from allegations of massive fuel rebate fraud by the nation's largest truck stop firm.
The new allegations before a federal judge in Kentucky include a claim that Pilot Flying J not only manipulated promised rebates but also defrauded truckers by manipulating the underlying price being paid for diesel fuel.
Pilot's lawyers have countered charging that four of the trucking firms are making new unfounded last minute charges after learning they were only owed $60,000 under the rebate claims.
The court filings come as all the parties have been called to a Friday mandatory mediation session by U.S. Judge Amul Thapar.
In a filing this week, attorneys for FST Express, Wright Transportation, HB Logistics and Dick Lavy Trucking charged that "there was far more to Pilot's fraud than meets the eye."
They charged that the fraud over the underlying cost of the fuel "dwarfs the rebate/discount fraud."
The cases are the only ones remaining after Pilot settled a class action suit in U.S. District Court in Arkansas last year. Pilot paid some $84 million to dozens of transportation firms in response to charges that the Knoxville firm secretly reduced promised rebates to trucker not sophisticated enough to notice.
In the brief filed by four firms that opted out of the settlement, they charged that the settlement enabled Pilot "to buy its way out of a multi-billion dollar fraud for pennies on the dollar."
The suits settled in Arkansas last November followed an FBI raid on Pilot's Knoxville headquarters and the filing of a 120-page affidavit by an FBI agent detailing the rebate shaving scheme.
Pilot also paid $92 million to the federal government in a civil settlement of the allegations.
In a ruling this week, Thapur denied a motion by Wright Transportation to amend its original complaint to include the cost fraud charges. The charges, however, remain for other plaintiffs.
Thapur also ruled that Pilot had not properly responded to some of the charges and gave the fuel firm only till Friday to respond.
Thapur wrote that Pilot's response "is not an acceptable response to the factual allegations."
Pilot, meanwhile, has denied allegations that it failed to respond to requests for documents and records and asked Thapur to deny a motion to extend the deadline for discovery.
"Any claim that Pilot's document production has been delayed and inadequate is simply not supported by the facts," the company brief states.
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Pilot Faces Yet Another Suit on Rebates

By Walter F. Roche Jr.

A motion to quash a subpoena on a key former official of Pilot Flying J has been denied even as the travel center firm is facing yet another law suit two years after a highly publicized federal raid on its headquarters.
U.S. Magistrate Judge Bruce Guyton has rejected a motion to quash a subpoena for the deposition of Lori McFarland, who once played a key role in the diesel fuel rebate program that is the subject of an ongoing federal investigation.
McFarland had asked the court to quash the subpoena contending that her testimony would jeopardize her constitutional rights against self incrimination.
In a two-page order Guyton said McFarland could not make "a blanket assertion of her fifth amendment privilege before questioning in order to avoid questioning altogether."
McFarland was mentioned prominently in a 120-page affidavit filed by an FBI agent in federal court in Knoxville. According to transcripts of secretly recorded Pilot sales meetings, McFarland oversaw the rebate program and could manipulate the rebates to boost both company profits and sales commissions.
She was subpoenaed in two of about a half dozen remaining civil suits against Pilot stemming from allegations that top company officials systematically reduced promised rebates to trucking firms who they thought would never notice.
Meanwhile in federal court in Ohio, a suit has been filed by the Dick Lavy Trucking Company of Bradford charging that it had been cheated on promised rebates for a decade by Pilot.
The 24-page complaint accuses Pilot of engaging in "massive fraudulent conduct." Two of the Pilot employees named in the suit, Janet Welch and  Arnold Ralenkotter, already have entered guilty pleas to mail and wire fraud charges.
The suit charges the truck-stop firm with breach of contract, civil theft and violations of consumer protection statutes in Tennessee and Ohio.
According to the complaint when a trucking company official at one point challenged the accuracy of rebates, Pilot officials blamed it on "problems with the billing system." The statement was false and Pilot knew it was false, the suit charges.
The suit repeatedly cites the 120-page FBI affidavit filed to justify the search warrants and the April 15, 2013 raid on Pilot's offices.
 Pilot attorney Aubrey Harwell said Monday he had just learned of the suit and had not had a chance to read the complaint.
Pilot settled dozens of lawsuits in a class action case in Arkansas, but a handful of firms opted out of that $84 million deal.
The remaining suits have now been consolidated before a federal judge in Kentucky. The Lavy suit may also be merged into those cases.
Pilot also reached a $92 million settlement with the federal government over fuel rebate charges.
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