FedEx Corp. and a class of about 200,000 plaintiffs have reached a tentative $21.5 million settlement to resolve allegations that FedEx overcharged commercial customers by misclassifying their shipments as residential deliveries to extract higher surcharges from the shippers.
According to Steven J. Rosenwasser, an Atlanta attorney representing two of the FedEx customers, the company will pay about $16.5 million in monetary claims to the class. In addition, the proposed settlement would bar the company from continuing practices that allegedly led to the misclassifications and subsequent overcharges. The value of that relief (the ban against past practices) is pegged at about $5 million, Rosenwasser said in an interview today.
A hearing is scheduled for Aug. 1 before a federal district court in Memphis, Tenn., to approve the settlement on a preliminary basis. Notice would then given to members of the class who can accept the terms or opt out of the settlement. Rosenwasser expects the court to grant preliminary approval at the Aug. 1 hearing. The court will then issue a final ruling later this year.
Shea Leordeanu, a FedEx spokeswoman, confirmed that a settlement was reached but declined to comment on the details.
According to Rosenwasser, FedEx will issue nearly full refunds, before deductions for attorneys' fees, to customers that, according to the company's data, had requested and were denied refunds for improper residential delivery charges within 60 days of the shipping date. For those that did not file a refund request within the 60-day window, FedEx will refund about 20 percent of the shipment charges, prior to fees, even if the shipping occurred as far back as August 2008, Rosenwasser said.
All class members who "opt in" to the settlement will receive no less than $5 even if the alleged overcharge involved just one shipment, he said.
Last December, attorneys filed a 170-page complaint charging Memphis-based FedEx and its corporate support division, FedEx Services, with misrating tens of millions of commercial transactions as residential deliveries so it could collect millions of dollars in illicit overcharges. The behavior went on for years despite repeated warnings from inside the company that it had become a systemic practice encouraged by executives, according to the allegations.
The complaint was filed under the federal Racketeer Influenced and Corrupt Organizations Act, commonly known as RICO. If a civil action under RICO is successful, a plaintiff or plaintiffs can collect "treble damages," which are damages tripling the amount of actual and compensatory damages.
The legal dispute began in February 2011, when an immigration law firm in the Atlanta suburb of Alpharetta, Ga., filed a breach of contract suit against FedEx and FedEx Services.
Residential surcharges are generally higher than commercial surcharges because residential deliveries are deemed more costly for the carrier to make because the locations are often harder to reach and there is a lack of delivery density. Delivery surcharges are one of many "accessorial fees" levied by parcel carriers to offset the cost of services beyond the basic pickups and deliveries.
Rosenwasser said today the proposed agreement provides "substantial benefits to the class" not only by providing monetary relief but also by putting an end to many of the practices that the plaintiffs said had caused the overcharges.