What is believed to be the ninth federal lawsuit filed against Pilot Flying J alleging that it defrauded customers out of fuel-purchase rebates charges that the truckstop operator’s activities in that regard amount to violations of the federal Racketeer Influenced and Corrupt Organizations (RICO) Act.
The suit was filed this week in the U.S. District Court for the Middle District of Alabama in Montgomery by Greenville, AL-based Shoreline Transportation of Alabama LLC, according to a report by John Caniglia posted online by Cleveland’s The Plain Dealer newspaper.
The suit by Shoreline, which runs some 160 power units and employs about the same number of drivers, accuses Pilot Flying J of breaching its contract and committing fraud in its dealings with the motor carrier. The suit “alleges Pilot Flying J's handling of the rebate program involved a conspiracy in which the company's employees committed mail and wire frauds,” Caniglia’s report stated. The reporter added that per federal law, “if a jury finds in favor of Shoreline, the company would be entitled to triple the damages and costs, including attorney fees.”
"Based on the facts we all now know, this is one of the most egregious cases of intentional fraud we have ever seen," said J. Michael Bowling, an attorney for Shoreline, according to The Plain Dealer report. "What makes it particularly troubling is that Pilot admits to targeting what it considered 'less sophisticated' companies with the hopes [it] would never get caught." Bowling added that while the law firm is still determining how much the trucking firm lost to the alleged fraud, he can say “without fear of contradiction that Shoreline Transportation has what we consider to be a substantial claim."
What’s more, according to an Associated Press news report filed by Sheila Burke, experts contend that the “sudden” guilty pleas entered this week by two mid-level Pilot Flying J executives indicate that the investigation into the truckstop chain is “picking up steam, with prosecutors likely setting their sights on higher-ups at the company.”
On Wednesday, two Pilot Flying J sales executives pleaded guilty to taking part in a scheme to curtail promised fuel rebates to trucking customers across the country-- and they agreed to cooperate in a continuing investigation of their employer..
Arnold Ralenkotter, head of direct sales for Pilot Flying J in the northeast region, and Ashley Judd, an account representative since 2009, each pleaded guilty to one count of conspiracy to commit mail fraud. In addition, Ralonkotter pleaded guilty to conspiracy to commit wire fraud.
While those crimes could bring sentences of up to 20 years, pointed out a news report posted by The Tennessean written by Walter F, Roche, Jr., “experts say that the agreement to cooperate and other factors are likely to lead to much shorter sentences.”
The Tennesseanstory reported that former Assistant U.S. Attorney William H. Farmer said the plea deal indicated that the two defendants” may have been cooperating for some time and are likely to be called on to testify against their colleagues.” Also, per the same report, Ed Yarbrough, Ralenkotter’s attorney and the former U.S. Attorney for the Middle District of Tennessee, said that his client was “very candid with federal investigators about his involvement. He knew it was wrong and indefensible, and we felt it was in his best interest to enter a guilty plea early.”
As derived from Ralenkotter’s plea agreement, this is how federal prosecutors alleged he was involved in the rebate fraud: Ralenkotter, based in Hebron, KY, would receive a spreadsheet by email from an account rep at Knoxville headquarters on how much customers were owed along with a recommendation on reducing those amounts. He would then approve the rebate reduction and, sometimes, further reduce the rebate.
Reacting to the news about the guilty pleas, Pilot Flying J spokesman Tom Ingram released this statement: “The statements released by the federal court [Wednesday] do not come as a surprise given what we’ve been learning in our own internal investigations, but are nonetheless disappointing. We want to assure our customers that we are taking every step to correct any wrongdoing that has occurred and to make certain that it does not happen again.”
Indeed, thus far, Pilot Flying J CEO Jimmy Haslam has continued to maintain that he was personally unaware of any fraudulent rebate scheme ahead of the raid of the firm’s headquarters conducted on April 15th by FBI and IRS agents.
“It still appears to us, based on all we know at this time,” Haslam said in an statement released April 22nd, “that this federal investigation is focused on a narrow slice of our business in which rebates on diesel fuel purchases are manually calculated and paid to a relatively small number of our 3,300 trucking company customers.
“We are continuing to cooperate appropriately with investigators, but we are determined to understand on our own the questions they are asking and to do everything we can to make sure we are never in this position again,” he continued.
In the statement, Haslam also outlined five steps the company was “taking to address the issues” raised by the federal investigation:
1. “…bringing our field audit team to Knoxville to review all 3,300 contracts with our trucking company customers, not just the relative few implied in the federal affidavit, and to proactively address any miscalculations that we may find.”
2. “….placed on administrative leave several members of our diesel fuel sales team and, on an interim basis, we are restructuring that team pending further investigation to get control of that operation and restore confidence to our customers.”
3. “…directed that all of our diesel fuel customers be converted to electronic calculation and payment eliminating future risks of any abuse that might be enabled by manual calculation and payment.”
4. “…asked our outside counsel to help us create and staff a position of Chief Compliance Officer to report to the company's general counsel to deal with any similar questions or issues that might come up in the future.”
5. “….our board, in a special meeting yesterday, voted to hire an Independent Special Investigator to oversee and validate all of our internal inquiries related to the federal investigation.”
Haslam added that: “We know this process is going to be difficult and probably will last for a while, but we are not going to sit by idly in the meantime. We are going to diligently and aggressively figure out for ourselves what's going on, and if we find anything amiss, we are going to make it straight right away.”
Pilot Flying J, according to Forbes, is the nation’s sixth largest privately held company and had revenue (as of November 2012) of $29.23 billion.