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BEFORE THE AMERICAN ARBITRATION ASSOCIATION
Assured Transportation Services, Inc. ) ) ) Claimant ) ) vs. ) Case No. 11 199 00084 2 ) Airborne Freight Corporation, ABX ) Air, Inc., ) ) Respondents )
CLAIMANT=S AMENDED STATEMENT OF CLAIM
In accordance with the terms and provisions of the Commercial Dispute Resolution Procedures of the American Arbitration Association, Assured Transportation Services, Inc. (AClaimant@), files its Amended Statement of Claim. Respectfully submitted,
Vial, Hamilton, Koch & Knox, L.L.P.
By: Eric V. Moyé Texas State Bar No. 14611300 James A. McCorquodale Texas State Bar Bo. 13464900 Mark W. Romney Texas State Bar No. 17225750 1717 Main St., Suite 4400 Dallas, TX 75201 (214) 712-4400 (214) 712-4402 Fax
ATTORNEYS FOR ASSURED TRANSPORTATION SERVICES, INC.
CERTIFICATE OF SERVICE
Counsel for Claimant certifies that a true copy of its Amended Statement of Claim has been forwarded to all known counsel of recordby certified mail, return receipt requested on this 21st day of August, 2002.
Mark W. Romney I. PARTIES
A. ASSURED TRANSPORTATION SERVICES INC.
The Claimant is Assured Transportation Services Inc. (AAssured@ or AClaimant@) an Illinois corporation. It has been an independent contractor for Airborne Freight Corporation (AAirborne@) since 1991. In the fall of 2000 Assured had contracts for six cities: Champaign, Kankakee, Springfield, Rockford, Bloomington and Decatur, IL. Assured also had Aircraft Service/Cartage Agreements for Rockford, and Bloomington, IL, to provide services for the Airborne aircraft in those cities. Assured, over its years as an independent contractor for Airborne, designed an organization that was efficient and innovative, and which could beat the price of the many potential contractors that sought its locations over the years. At its peak the number of employees reached over 150. Assured had building leases signed in 2 cities, Decatur and Kankakee, IL. Over the years Assured worked with Airborne=s efficiency engineers, during annual visits, to refine Assured=s operations to a high state of efficiency. Assured sent personnel, at Airborne's insistence, to training seminars and conferences to maintain training levels demanded by Airborne for contractors. Assured received compliments on its service from a long list of Airborne station, district, and regional managers as well as AContractor of the Year@ awards for both 1998 and 1999. B. AIRBORNE FREIGHT CORPORATION Respondent Airborne Freight Corporation d/b/a Airborne Express is in the business of transportation of over-night and deferred deliveries of packages. Airborne has separate delivery contracts involving approximately 300 local independent contractors. Although the contracts contain a provision for termination by either party on 60 days notice, Assured had a history of long-term contracts. Assured had the contract for Champaign and Kankakee for eleven (11) years; for Springfield and Decatur for eight (8) years; Rockford for fourteen (14) months and Bloomington for one (1) year. C. ABX AIR, INC. In addition to the contracts which Assured had with Airborne, Assured also had four (4) contracts with a separate subsidiary corporation Respondent ABX Air, Incorporated (AABX@) to haul freight from one city to another (between distribution points). These contracts are called line haul contracts. The Assured line haul contracts were renegotiated prior to the October 2000 Bloomington station opening. When the representatives of Airborne terminated Assured's contracts with Airborne, they also terminated without the benefit of notice, Assured's line haul contracts as well thereby cutting off all of Assured's revenue from ABX. II. FACTUAL ALLEGATIONS COMMON TO ALL COUNTS A. Assured's Contracts with Airborne The written contractual basis of the relationship between Claimant and Airborne for each of the Assured stations consists in part, of a Cartage Agreement (an example of which is attached hereto as Exhibit AA@ and by reference incorporated herein). Accompanying each Cartage Agreement was a document entitled ASchedule A@ which contained further terms and conditions to the contractual relationship between the parties. (A copy of a Schedule A is attached hereto as Exhibit AB@ and by reference incorporated herein). The terms of the Cartage Agreement and accompanying ASchedule A@'s for each of the Assured stations were, for the most part, identical. The provisions of a typical Cartage Agreement provide in part as follows: 2. Airborne shall pay for Contractor's services in accordance with the rates set forth in Schedule A. . . . 3. All transactions handled hereunder shall be at Contractor's sole discretion and control as to the manner and means of performance, including but not limited to the hours and days of work by Contractor and its employees, and the selection and supervision of its employees. Contractor agrees to maintain staffing at levels sufficient to provide the services required hereunder in an efficient, expeditious, safe and secure manner. Contractor shall be solely responsible for the interviewing, hiring, training, disciplining and termination of its employees. . . . 7. The rates negotiated by the parties are based upon the area to be serviced by Contractor, as defined by zip codes identified by Airborne to Contractor. Contractor shall use its best efforts to promote the maximum efficiency and utility to the public in its service area. In the event there is a material increase in the volume of shipments within the service arena, the parties agree to negotiate in good faith regarding a modification of the rate; provided, however, that if agreement is not reached, Airborne shall have the right to seek bids for the increased business. Nothing herein shall be construed as granting to Contractor an exclusive area or territory. Contractor shall have the sole right to determine the routing of its vehicles in its service area. . . 8. If Airborne agrees to provide dispatch facilities for Contractor's use in determining the existence of requested pickups and deliveries, the use of such dispatch facilities by Contractor is designed to facilitate Contractor's operations in making pickups and deliveries and is not intended to control the manner and means by which Contractor conducts its business. 18. It is the express intent of both Airborne and Contractor to establish an independent contractor relationship. This Agreement is not intended to create a joint venture, a joint venture enterprise, partnership, or principal/agent relationship between Contractor and Airborne. Airborne expressly agrees that it is the sole responsibility of Contractor to control the manner and means of performance of all services which it has contracted to provide hereunder. B. History of renegotiation of Assured Contracts: Pursuant to the terms of the Cartage Agreement, Assured and Airborne periodically negotiated the rates that Assured was to receive for its services. The last contract adjustment for Assured=s contracts in Springfield and Decatur, was signed in April of 2001 and had back-dated payments to February 11, 2001. Airborne changed the date effective to February 18, 2001, resulting in a difference of one week=s payments. The contract negotiations for those contracts lasted over ten (10) months during which Airborne sought replacements for all of the Assured contracts; not just the contracts for Springfield and Decatur. During the negotiation period Airborne also conducted an extensive review of all of Assured operations by its own efficiency experts. Despite these and other delays in the negotiating process, Assured contracts for Springfield and Decatur were renewed. Assured and Airborne entered into a contract for the station in Rockford, IL on November 28, 1999. This contract was terminated by Assured on January 29, 2001 because of the negligent and/or intentionally fraudulent representations of Airborne. After Assured began its operations it learned that specific customer needs were found to be in excess of the information provided in the bid process by Airborne. Additionally, the hours and routes needed to service the customers exceeded the needs stated by Airborne in the contract negotiations and thereafter Airborne refused to make corresponding adjustments. Increasing demand services and start up Postal customers of Airborne caused increasing losses that were not addressed. Assured=s prior experience in negotiating with Airborne on the Springfield/Decatur contracts indicated that excessive delay would be encountered in the negotiations. With indications from Airborne personnel that any discussion of price increases would be fruitless, Assured decided that it could not continue the contract during the time needed to negotiate changes. Assured=s contract for Kankakee began in 1995 and had only one price increase in that time. Because of the increase in demand service and postal customers during the winter of 2000/2001. Assured=s losses increased dramatically. Airborne refused to renegotiate the contract in the face of increases in Assured's fuel costs and other operational expenses. Prior experience with Airborne indicated that the only way to even broach the subject of a price increase was for Assured to give Airborne a 60 day notice to terminate the contract. Assured was told by Airborne personnel that no raises were authorized. Continued negotiations during the 60 day period lead to Assured=s replacement in Kankakee. Assured was told that its continued insistence to negotiate deserved increases would lead to all of Assured=s contracts being placed out for bid. Assured was pressured into continuing its losses with the threat that if it did not it would lose all of its contracts. Assured held the contract in Bloomington, IL from October 1, 2000 until October 13, 2001. The actual labor requirements for this station greatly exceeded the requirements stated by Airborne in the bid documents. Airborne also misrepresented the revenue expectations for Bloomington in the bid information. Negotiations for Springfield/Decatur/Rockford/Kankakee did not allow adjustments to be discussed. The Assured contract in Champaign, IL had been in effect since 1991. In June 1999 Assured was given a 2 2% increase despite a larger request. Another increase was given in September of 2000, this also was below Assured=s rate request. The Champaign, Bloomington and Springfield contracts were terminated October 13, 2001 after 60 days notice from Airborne without competitive bidding or negotiations with Assured. The Assured contract in Decatur was terminated by Airborne without notice. C. Airborne Increased Assured=s Costs In bidding new and renewed contracts with Airborne, Assured had to project and anticipate normal fluctuations in costs that might occur over approximately one year. This was done at Airborne's direction in the bid process, but Airborne did not provide for any scheduled review of basic changes at the contract anniversary dates. This projection of future costs occurred in the Assured contracts which were renegotiated from time to time. Despite the attempted projection of future cost increases, Airborne took several actions which could not have been anticipated by Assured and which had the effect of greatly increasing Assured=s costs thereby decreasing Assured=s profits due to Airborne=s refusal to increase rates under the contracts. These actions include, but are not limited to, the following: 1. Without the consent of or consultation with Assured, Airborne started a program for delivery of residential shipments to post offices. Assured was given no prior indication as to the volume of shipments that each station would be receiving. With no semblance of negotiation, Airborne paid Assured the contract base rate on the first shipment, $0.25 for shipments two through ten and $0.10 per shipment above ten shipments. The rates paid amounted to between $0.15 and $0.16 per piece which was far less than Assured=s cost to sort and deliver these packages which was around $0.93 per piece. Assured made several requests to increase this rate but was categorically told by Airborne that this would not be done. 2. There were increases from some of Airborne=s other customers in the type of shipments that were costly for Assured to deliver such as residential shipments with a signature required, which often required more than one attempt on a package per day thereby adding additional service requirements and costs on Assured. 3. Airborne increased the service level it demanded of Assured in 1998. When the contracts were negotiated they called for service levels of 95% of all express deliveries to be completed by noon. This was raised to 97% in 1998. To meet this accelerated service level Assured was required to add additional costly resources of vehicles and drivers without a corresponding increase in rates from Airborne. 4. Airborne took on several major new accounts which necessitated special delivery requirements. Airborne exploited and greatly increased on-demand services from Assured without a corresponding increase in rates. 5. Due to the central Illinois economy, drivers were leaving for better paying jobs and qualified replacement drivers were difficult to attract. Although productivity and service did not suffer while Assured attempted to fill routes and train drivers, Assured=s costs escalated to maintain expected service levels. Airborne was well aware of the low unemployment in central Illinois. However, instead of accepting lower contractually agreed to service levels to hold down costs, Airborne not only insisted on keeping levels up to the 95% contract level, but actually increased the contract service level first to 96% and later to 97% at the request of Dale Carpenter. These regional requirements exceeded the contractual requirements in an arbitrary manner with no adjustment by Airborne. Airborne knew that increasing the service level would mean more and higher quality personnel and the resulting increase in costs to Assured. After increasing the percentages required while Assured was struggling to find suitable new employees, Airborne gave Assured no time to adjust to new conditions. Assured poured significant amounts of personnel time and pay into the situation, in addition to increasing its starting and upper wage levels. D. Assured Had No Margin To Absorb Major Cost Increases Caused By Airborne Because of the tight margins allowed by Airborne in its existing contracts and because of its operations that Airborne and Assured had already tightened up to the maximum, when Assured=s costs began to increase substantially, Assured immediately was thrown into an increasing loss position, starting in Spring of 2000. E. Airborne Knew The Assured Contracts Had To Be Adjusted Airborne was fully aware of the narrow margin in its existing contracts, of the substantial increases in the costs of Assured caused by the actions of Airborne, as described above, and that those increases would immediately put Assured into a loss position. Airborne knew that a delay in making the necessary contract adjustments would aggravate the situation in the Summer of 2000. F. Airborne=s Duty to Notify Airborne had a duty to immediately notify Assured if Airborne did not intend to recognize its changes in the contract conditions and adjust the Assured contracts retroactively. Airborne gave no such notice to Assured. G. Airborne=s False Billing 1. Manipulation of the FCI System In the Airborne system the majority of the compensation paid to contractors is through Airborne=s automated accounts payable system called FCI. This accounts payable program tracks pickups and deliveries through information initially transmitted to the Airborne computers by drivers making the pickups and deliveries. This pickup and delivery information comes from an Aairbill@ which is a tracking label attached to each package and a Amanifest@ which is a list of all airbills handled by one driver on one day. The Airborne contract with contractors states that a contractor is compensated on the basis of each shipment (or airbill) handled. If a shipment is not properly credited to the contractor, the contractor is not compensated for handling it. The information transmitted by drivers to the Airborne computers is used to prepare various reports, some of which are given to contractors, that are used to compute the compensation paid to the contractor. In the Airborne system, the individual station manager=s responsibility includes assigning approved route numbers that determine whether the route is one that is automatically included by the computer in calculating payments to the contractor. If the Airborne manager does not set up the route for payment to the contractor, all revenue for shipments by that customer always goes to Airborne. Underpayment of the contractor has the effect of increasing the profitability of both the individual station and of Airborne corporate. In the Airborne bonus system developed and managed by the individual respondents for officers and managers, the profitability of the area of responsibility for the officer or manager is a significant factor in determining the amount of quarterly bonus for that individual. It affects the annual review for that individual and possible promotion, as well as affecting the salary increase for the following year. This major financial consequence of profitability on individuals in the corporation applies to both station managers and to upper management officials. Contractors are not given all of the five pieces of Airborne documentation that are required in order to understand the payments to contractors and to reconcile the payments made to the work performed. Airborne does not provide contractors, including Assured, daily pickup manifest lists and the daily printouts for pickups and deliveries. As a consequence, contractors are prevented from detecting underpayments and have to trust that Airborne is fully compensating them for the work done. Thus, the Airborne system for compensating contractors, as developed and maintained by the individual respondents, provides an opportunity and an incentive for individual Airborne officers and employees to underpay contractors by manipulating the computer system. Assured was subject to these manipulations. As an example, Assured was underpaid for work done for the Rockford station for one week in March 2000 for almost 7,500 shipments. Multiplied by $0.93 per shipment, Assured was underpaid $6,800 in that one week on only that station. Preliminary analysis of earlier periods show larger amounts of shipment were not set up to be paid to Assured. In the case of the Rockford station, analysis shows that in March 2000, 24.98% of the automated accounts that should have been set up to pay Assured were instead fraudulently set up to pay Airborne. This particular form of manipulation was employed against Assured at each of its stations by Airborne and certain of the individual respondents for years. Assured became aware in March of 2001 that it was not being paid for each shipment that it was handling. After this discovery, Assured presented specific airbill numbers for which it had not been paid to Station Manager Debbie Anthony and Craig Ames. These individuals advised Assured that they would look into the situation. Both Anthony and Ames continued to delay any other action by Assured by insisting that Airborne was investigating Assured=s claims and that appropriate adjustments would be made. These false representations by Airborne=s station managers were nothing more than a smoke screen to attempt to placate Assured. In fact, Airborne did nothing to investigate the claims of Assured and chose rather to terminate all of Assured=s contracts. Thereafter, Assured began a systematic review of its Airborne receivables. The results showed that numerous shipments on which Assured was entitled to payment were being deliberately reported as non-payment manifests. In other cases, Airborne was not paying Assured for shipments that by the contract Airborne should have been paying. It became evident that Airborne, by various methods, had been cheating Assured in every contract for years. 2. Flight Readys' Flight Readys' are a form of prepaid shipments marketed by Airborne. Each Flight Ready has its own airbill and therefore it is a Ashipment@ pursuant to the contracts between Airborne and Assured. Airborne intentionally mislead Assured, as well as other contractors, into believing that they were being paid for each shipment, when in fact Airborne consolidated them and paid Assured less that what Assured was entitled to under the contract. 3. COMAT The definition of a COMAT shipment is Airborne inter-company mail, supplies - i.e. pace kits, shipping supplies, airbill orders, etc. Airborne uses the COMAT system, however, to ship return shipments to customers for which Airborne is paid by the customer, as well as other shipments. These shipments are intentionally mischaracterized as COMAT's in order that there be no payment to Assured or any other contractor. Assured did not agree to move these shipments at no cost. 4. Suspense Files The Airborne computer system has what is known as a suspense file. This file contains any shipment that has, for any number of reasons, not gone into the correct pay status. It is the responsibility of the Airborne station manager to make the corrections and assure that each shipment gets paid correctly. The manager has the control to either pay the contractor or Adump@ the file B which allows Airborne to keep all the revenue. Throughout the contracts of Assured, various Airborne station managers either intentionally or negligently failed to record payments which were rightfully due to Assured. 5. ABlack Hole@ Shipments Each shipment is to be accounted for in and out of the station. ABlack Hole@ shipments are ones that Airborne does not account for on either the FCI paid or the FCI unpaid. Airborne failed to record these shipments for which Assured should have been paid. 6. Code 94's B No Payment Disposition Certain shipments marked Code 94 are present on the FCI unpaid manifest. Airborne contends that it has either: paid these items previously; the items were Atracking updated@ which means that they have not been paid to Assured (i.e., for some reason a person has updated information on the particular airbill); or the item was not delivered by Assured. Previously manifested: If these shipments were in fact paid (or not paid) on another manifest, there is no cross reference to the other manifest B making it impossible for Assured or any other contractor to verify that they received correct payment. Tracking Update: There is no reason that these shipments should show up on the unpaid FCI other then to cause confusion to the contractor. ND's (Not Delivered/No Disposition): Airborne contends that these shipments went out for delivery, but for whatever reason did not get delivered. Local management did not allow ND's. If a driver returned with a non-delivered package local management made the contractor send the packages back out that night. Therefore ND's should rarely appear on the FCI unpaid. 7. Libra Shipments The Libra system is used by Airborne's largest customers. These customers are provided a Libra machine as well as labels to process their shipments. When the customer has finished processing their shipment they transmit the information processed via telephone lines. The contractor then goes in and pickup scans each piece with the scanner. The scanner is downloaded into Airborne's ORION system. Airborne has total control of this system. This puts Assured as well as other contractors totally at Airborne's mercy. This system was manipulated by Airborne to deprive Assured of payments it should have received under the contracts. 8. Other Methods There may be other methods used by Airborne in the manipulation of its computer systems by which Claimant has been paid less than it should have been. Should Claimant uncover evidence of these methods in the discovery of this arbitration, Claimant will seek leave to further amend its Statement of Claim. H. Airborne's Bad Faith During 2000, when Assured was losing money and asking Airborne for adjustments to its contracts, Airborne could have given Assured substantial assistance. If it had just stopped the false billing practices and started paying Assured the full compensation that Assured was earning that alone would have been substantial relief to Assured. Instead, Airborne continued its fraudulent underpayments of Assured while Assured was losing more and more money. I. False Bid Packages A part of Airborne=s strategy for the negotiating Assured=s contracts was to provide fraudulent bid packages to potential bidders, including Assured. These fraudulent bid packages were sent to bidders, including Assured, by the use of the U.S. mail. The fraudulent bid packages understated the actual volume of deliveries and pickup shipments causing bidders, including Assured, to submit unrealistically low bids. The bid package for Springfield that was distributed to Assured greatly understated the total shipments. This bid package also contained misrepresentations of delivery miles per week, hours, delivery stops, required manpower, the number of paid shipments, dispatch hours, aircraft handling, billing procedures, special handling levels and anticipated delivery volumes that the Springfield station required. When Assured was awarded the Springfield Station, it ordered and became financially obligated to pay for sixteen (16) trucks to fulfill its delivery obligations. This providing of fraudulent bid packages to bidders has been a widespread practice of Airborne, going beyond the bids on the Assured contracts. Only after Assured was awarded the bid on the Springfield station did it become aware of the misrepresentations made by Airborne. When the misrepresentations were brought to the attention of Debbie Anthony and Pat Blankfard, they refused to negotiate the contract and pay Assured sufficient to cover its expenses. By the time Assured learned of the misrepresentation and was told by Airborne that Airborne would not negotiate the contract, Assured, by reason of its contracts to obtain the sixteen (16) trucks was not in a financial situation that would permit it to cancel the contract without bankrupting the company. In 1999, Airborne requested Assured to bid on the Rockford Station. As was the case with the Springfield bid package, the Rockford bid package sent to Assured by Airborne via the U.S. mail contained fraudulent and/or negligent misrepresentations. The Rockford bid package under-represented the number of vehicles needed to comply with delivery demands, under-counted the number of volume of delivery to special customers and understated the manpower requirements for expected levels of service. As a result of these misrepresentations Assured incurred losses on the Rockford contract which Airborne refused to remedy. This time, however, once the misrepresentations made by Airborne were discovered by Assured, Assured cancelled the contract rather than incur additional losses. In 2000, Airborne requested Assured to bid on the Bloomington Station. The Airborne bid package on this station, which was sent to Assured through the U.S. mail, contained fraudulent and/or negligent misrepresentation similar to those made in connection to the Springfield and Rockford stations. J. Non-Negotiable Demands of Airborne In the Fall of 2000, Airborne announced to contractors that it had instituted a new service called Airborne @ Home, which involved sorting packages and delivering the packages to US Post Offices within the contract territory. It was mandatory that Assured agree to this additional service without the benefit of negotiation regarding pricing, volume or the operational impact on Assured. Although this was a major change in volume for contractors, Airborne did not negotiate in good faith for adjustments in the contracts of its contractors. Assured was informed that it would do this new service for a pre-set non-negotiable rate which only compensated Assured for a fraction of the cost of the new service. If Assured refused, its contracts would be taken away. As a result of this arbitrary and wrongful violation of the contract Assured has sustained damages. K. Airborne's Direction and Control Over Assured's Daily Operations Airborne managers at terminal locations directed daily operations in various ways that were harmful to Assured. Instructions directed to dispatch on route structure and driver usage led to excessive inefficiency without regard to cost. Mandatory discipline on perceived driver problems was requested as well as direct communication to drivers regarding procedure and service times different from the contract requirements. Route selection by Assured dispatch was compromised by Airborne personnel who stipulated that certain drivers could not be on the dock or deliver freight for failure to comply with Airborne's direction. Pressure to add routes caused by excessive use of on- demand requirements was consistent and created continuous development of erratic routes that greatly added to hours and miles far in excess of the contract specifications. On some occasions, demands on dispatch to notify police to investigate missing freight despite lack of tracking research led to false police reports and direct questioning and accusation of theft by personnel without proof and their inability to work without recourse. Claims of Assured 1. First Claim. Breach of Contract by Airborne The actions of Airborne as set forth above constituted a breach of the contracts between Airborne and Assured. 2. Second Claim. Fraud of Airborne Airborne provided statements to Assured which represented that Airborne was making all payments owed to Assured for deliveries made by Assured. These statements and representations were false and fraudulent and were made with the intention of deceiving Assured into believing that it was being fully compensated for the deliveries made by Assured and supposedly properly recorded by Airborne computers. These reports and representations involved material facts that were false and fraudulent and were known by Airborne to be false. The representations were made to deceive Assured to accept full payment amounts less than the full amounts owed by Airborne to Assured. Airborne representatives did deceive Assured and caused it to rely on the representations of Airborne and to accept as payment less than the amounts actually owed to it by Airborne. As a result Assured has been damaged in a presently undetermined amount. 3. Third Claim. Negligent Misrepresentations of Airborne Alternatively, Airborne made representations in the course of its business, which representations supplied false information for the guidance of Assured in its business. Airborne did not exercise reasonable care or competence in obtaining or communicating the representations to Assured. As a result of the negligent misrepresentations made by Airborne, Assured has been damaged as set forth above. 4. Fourth Claim. Breach of Contract by ABX The action of ABX in cancelling the Assured contracts without notice to Assured constitutes a breach of those contracts by ABX. 5. Fifth Claim. Attorneys' Fees Pursuant to the terms of the contract with Airborne, Assured is entitled to its attorneys' fees and costs incurred herein. Damages of Assured 1. The loss of the business of Assured Assured had a successful business. Assured had done contract work for Airborne for over 11 years. The business had steadily grown. Its size and operation management expertise allowed it to outperform others on service and its efficient system had enabled it to outbid other bidders for contracts. 2. Loss on Vehicles Airborne=s fraud forced Assured to make a Afire-sale@ disposition of its fleet of vehicles. 3. Loss of Assured Contracts Reliance on the fraudulent actions of Airborne caused Assured to sustain losses on these six contracts which was caused by the actions of Airborne and/or ABX and/or the Individual Respondents. 4. Fraudulent Underpayment for Deliveries and Pickups Airborne=s deliberate underpayment of contractors, including Assured for deliveries and pickups made, has caused a loss to Assured. Since Airborne did not give contractors all of the records that are necessary to an exact calculation of this item of damages; production of accurate Airborne documents will be necessary in order to compute this item of damages. Exemplary Damages As a result of the deliberate, intentional and wanton conduct as set forth above, Airborne is liable for exemplary damages.
BEFORE THE AMERICAN ARBITRATION ASSOCIATION
Assured Transportation Services, Inc. ) ) ) Claimant ) ) vs. ) Case No. 11 199 00084 2 ) Airborne Freight Corporation, ABX ) Air, Inc., ) ) Respondents )
CLAIMANT=S AMENDED STATEMENT OF CLAIM
In accordance with the terms and provisions of the Commercial Dispute Resolution Procedures of the American Arbitration Association, Assured Transportation Services, Inc. (AClaimant@), files its Amended Statement of Claim. Respectfully submitted,
Vial, Hamilton, Koch & Knox, L.L.P.
By: Eric V. Moyé Texas State Bar No. 14611300 James A. McCorquodale Texas State Bar Bo. 13464900 Mark W. Romney Texas State Bar No. 17225750 1717 Main St., Suite 4400 Dallas, TX 75201 (214) 712-4400 (214) 712-4402 Fax
ATTORNEYS FOR ASSURED TRANSPORTATION SERVICES, INC.
CERTIFICATE OF SERVICE
Counsel for Claimant certifies that a true copy of its Amended Statement of Claim has been forwarded to all known counsel of recordby certified mail, return receipt requested on this 21st day of August, 2002.
Mark W. Romney
A. ASSURED TRANSPORTATION SERVICES INC.
The Claimant is Assured Transportation Services Inc. (AAssured@ or AClaimant@) an Illinois corporation. It has been an independent contractor for Airborne Freight Corporation (AAirborne@) since 1991. In the fall of 2000 Assured had contracts for six cities: Champaign, Kankakee, Springfield, Rockford, Bloomington and Decatur, IL. Assured also had Aircraft Service/Cartage Agreements for Rockford, and Bloomington, IL, to provide services for the Airborne aircraft in those cities. Assured, over its years as an independent contractor for Airborne, designed an organization that was efficient and innovative, and which could beat the price of the many potential contractors that sought its locations over the years. At its peak the number of employees reached over 150. Assured had building leases signed in 2 cities, Decatur and Kankakee, IL. Over the years Assured worked with Airborne=s efficiency engineers, during annual visits, to refine Assured=s operations to a high state of efficiency. Assured sent personnel, at Airborne's insistence, to training seminars and conferences to maintain training levels demanded by Airborne for contractors. Assured received compliments on its service from a long list of Airborne station, district, and regional managers as well as AContractor of the Year@ awards for both 1998 and 1999. B. AIRBORNE FREIGHT CORPORATION Respondent Airborne Freight Corporation d/b/a Airborne Express is in the business of transportation of over-night and deferred deliveries of packages. Airborne has separate delivery contracts involving approximately 300 local independent contractors.
C. ABX AIR, INC. In addition to the contracts which Assured had with Airborne, Assured also had four (4) contracts with a separate subsidiary corporation Respondent ABX Air, Incorporated (AABX@) to haul freight from one city to another (between distribution points). These contracts are called line haul contracts. The Assured line haul contracts were renegotiated prior to the October 2000 Bloomington station opening. When the representatives of Airborne terminated Assured's contracts with Airborne, they also terminated without the benefit of notice, Assured's line haul contracts as well thereby cutting off all of Assured's revenue from ABX. II. FACTUAL ALLEGATIONS COMMON TO ALL COUNTS A. Assured's Contracts with Airborne The written contractual basis of the relationship between Claimant and Airborne for each of the Assured stations consists in part, of a Cartage Agreement (an example of which is attached hereto as Exhibit AA@ and by reference incorporated herein). Accompanying each Cartage Agreement was a document entitled ASchedule A@ which contained further terms and conditions to the contractual relationship between the parties. (A copy of a Schedule A is attached hereto as Exhibit AB@ and by reference incorporated herein). The terms of the Cartage Agreement and accompanying ASchedule A@'s for each of the Assured stations were, for the most part, identical. The provisions of a typical Cartage Agreement provide in part as follows: 2. Airborne shall pay for Contractor's services in accordance with the rates set forth in Schedule A. . . .
7. The rates negotiated by the parties are based upon the area to be serviced by Contractor, as defined by zip codes identified by Airborne to Contractor. Contractor shall use its best efforts to promote the maximum efficiency and utility to the public in its service area. In the event there is a material increase in the volume of shipments within the service arena, the parties agree to negotiate in good faith regarding a modification of the rate; provided, however, that if agreement is not reached, Airborne shall have the right to seek bids for the increased business. Nothing herein shall be construed as granting to Contractor an exclusive area or territory. Contractor shall have the sole right to determine the routing of its vehicles in its service area. . . 8. If Airborne agrees to provide dispatch facilities for Contractor's use in determining the existence of requested pickups and deliveries, the use of such dispatch facilities by Contractor is designed to facilitate Contractor's operations in making pickups and deliveries and is not intended to control the manner and means by which Contractor conducts its business.
B. History of renegotiation of Assured Contracts: Pursuant to the terms of the Cartage Agreement, Assured and Airborne periodically negotiated the rates that Assured was to receive for its services. The last contract adjustment for Assured=s contracts in Springfield and Decatur, was signed in April of 2001 and had back-dated payments to February 11, 2001. Airborne changed the date effective to February 18, 2001, resulting in a difference of one week=s payments. The contract negotiations for those contracts lasted over ten (10) months during which Airborne sought replacements for all of the Assured contracts; not just the contracts for Springfield and Decatur. During the negotiation period Airborne also conducted an extensive review of all of Assured operations by its own efficiency experts. Despite these and other delays in the negotiating process, Assured contracts for Springfield and Decatur were renewed.
Assured=s contract for Kankakee began in 1995 and had only one price increase in that time. Because of the increase in demand service and postal customers during the winter of 2000/2001. Assured=s losses increased dramatically. Airborne refused to renegotiate the contract in the face of increases in Assured's fuel costs and other operational expenses. Prior experience with Airborne indicated that the only way to even broach the subject of a price increase was for Assured to give Airborne a 60 day notice to terminate the contract. Assured was told by Airborne personnel that no raises were authorized. Continued negotiations during the 60 day period lead to Assured=s replacement in Kankakee. Assured was told that its continued insistence to negotiate deserved increases would lead to all of Assured=s contracts being placed out for bid. Assured was pressured into continuing its losses with the threat that if it did not it would lose all of its contracts. Assured held the contract in Bloomington, IL from October 1, 2000 until October 13, 2001. The actual labor requirements for this station greatly exceeded the requirements stated by Airborne in the bid documents. Airborne also misrepresented the revenue expectations for Bloomington in the bid information. Negotiations for Springfield/Decatur/Rockford/Kankakee did not allow adjustments to be discussed. The Assured contract in Champaign, IL had been in effect since 1991. In June 1999 Assured was given a 2 2% increase despite a larger request. Another increase was given in September of 2000, this also was below Assured=s rate request.
C. Airborne Increased Assured=s Costs In bidding new and renewed contracts with Airborne, Assured had to project and anticipate normal fluctuations in costs that might occur over approximately one year. This was done at Airborne's direction in the bid process, but Airborne did not provide for any scheduled review of basic changes at the contract anniversary dates. This projection of future costs occurred in the Assured contracts which were renegotiated from time to time. Despite the attempted projection of future cost increases, Airborne took several actions which could not have been anticipated by Assured and which had the effect of greatly increasing Assured=s costs thereby decreasing Assured=s profits due to Airborne=s refusal to increase rates under the contracts. These actions include, but are not limited to, the following: 1. Without the consent of or consultation with Assured, Airborne started a program for delivery of residential shipments to post offices. Assured was given no prior indication as to the volume of shipments that each station would be receiving. With no semblance of negotiation, Airborne paid Assured the contract base rate on the first shipment, $0.25 for shipments two through ten and $0.10 per shipment above ten shipments. The rates paid amounted to between $0.15 and $0.16 per piece which was far less than Assured=s cost to sort and deliver these packages which was around $0.93 per piece. Assured made several requests to increase this rate but was categorically told by Airborne that this would not be done.
that were costly for Assured to deliver such as residential shipments with a signature required, which often required more than one attempt on a package per day thereby adding additional service requirements and costs on Assured. 3. Airborne increased the service level it demanded of Assured in 1998. When the contracts were negotiated they called for service levels of 95% of all express deliveries to be completed by noon. This was raised to 97% in 1998. To meet this accelerated service level Assured was required to add additional costly resources of vehicles and drivers without a corresponding increase in rates from Airborne. 4. Airborne took on several major new accounts which necessitated special delivery requirements. Airborne exploited and greatly increased on-demand services from Assured without a corresponding increase in rates.
qualified replacement drivers were difficult to attract. Although productivity and service did not suffer while Assured attempted to fill routes and train drivers, Assured=s costs escalated to maintain expected service levels. Airborne was well aware of the low unemployment in central Illinois. However, instead of accepting lower contractually agreed to service levels to hold down costs, Airborne not only insisted on keeping levels up to the 95% contract level, but actually increased the contract service level first to 96% and later to 97% at the request of Dale Carpenter. These regional requirements exceeded the contractual requirements in an arbitrary manner with no adjustment by Airborne. Airborne knew that increasing the service level would mean more and higher quality personnel and the resulting increase in costs to Assured. After increasing the percentages required while Assured was struggling to find suitable new employees, Airborne gave Assured no time to adjust to new conditions. Assured poured significant amounts of personnel time and pay into the situation, in addition to increasing its starting and upper wage levels. D. Assured Had No Margin To Absorb Major Cost Increases Caused By Airborne Because of the tight margins allowed by Airborne in its existing contracts and because of its operations that Airborne and Assured had already tightened up to the maximum, when Assured=s costs began to increase substantially, Assured immediately was thrown into an increasing loss position, starting in Spring of 2000. E. Airborne Knew The Assured Contracts Had To Be Adjusted Airborne was fully aware of the narrow margin in its existing contracts, of the substantial increases in the costs of Assured caused by the actions of Airborne, as described above, and that those increases would immediately put Assured into a loss position. Airborne knew that a delay in making the necessary contract adjustments would aggravate the situation in the Summer of 2000. F. Airborne=s Duty to Notify Airborne had a duty to immediately notify Assured if Airborne did not intend to recognize its changes in the contract conditions and adjust the Assured contracts retroactively. Airborne gave no such notice to Assured. G. Airborne=s False Billing 1. Manipulation of the FCI System
This pickup and delivery information comes from an Aairbill@ which is a tracking label attached to each package and a Amanifest@ which is a list of all airbills handled by one driver on one day. The Airborne contract with contractors states that a contractor is compensated on the basis of each shipment (or airbill) handled. If a shipment is not properly credited to the contractor, the contractor is not compensated for handling it. The information transmitted by drivers to the Airborne computers is used to prepare various reports, some of which are given to contractors, that are used to compute the compensation paid to the contractor. In the Airborne system, the individual station manager=s responsibility includes assigning approved route numbers that determine whether the route is one that is automatically included by the computer in calculating payments to the contractor. If the Airborne manager does not set up the route for payment to the contractor, all revenue for shipments by that customer always goes to Airborne. Underpayment of the contractor has the effect of increasing the profitability of both the individual station and of Airborne corporate. In the Airborne bonus system developed and managed by the individual respondents for officers and managers, the profitability of the area of responsibility for the officer or manager is a significant factor in determining the amount of quarterly bonus for that individual. It affects the annual review for that individual and possible promotion, as well as affecting the salary increase for the following year. This major financial consequence of profitability on individuals in the corporation applies to both station managers and to upper management officials.
Thus, the Airborne system for compensating contractors, as developed and maintained by the individual respondents, provides an opportunity and an incentive for individual Airborne officers and employees to underpay contractors by manipulating the computer system. Assured was subject to these manipulations. As an example, Assured was underpaid for work done for the Rockford station for one week in March 2000 for almost 7,500 shipments. Multiplied by $0.93 per shipment, Assured was underpaid $6,800 in that one week on only that station. Preliminary analysis of earlier periods show larger amounts of shipment were not set up to be paid to Assured. In the case of the Rockford station, analysis shows that in March 2000, 24.98% of the automated accounts that should have been set up to pay Assured were instead fraudulently set up to pay Airborne. This particular form of manipulation was employed against Assured at each of its stations by Airborne and certain of the individual respondents for years.
Thereafter, Assured began a systematic review of its Airborne receivables. The results showed that numerous shipments on which Assured was entitled to payment were being deliberately reported as non-payment manifests. In other cases, Airborne was not paying Assured for shipments that by the contract Airborne should have been paying. It became evident that Airborne, by various methods, had been cheating Assured in every contract for years. 2. Flight Readys' Flight Readys' are a form of prepaid shipments marketed by Airborne. Each Flight Ready has its own airbill and therefore it is a Ashipment@ pursuant to the contracts between Airborne and Assured. Airborne intentionally mislead Assured, as well as other contractors, into believing that they were being paid for each shipment, when in fact Airborne consolidated them and paid Assured less that what Assured was entitled to under the contract. 3. COMAT The definition of a COMAT shipment is Airborne inter-company mail, supplies - i.e. pace kits, shipping supplies, airbill orders, etc. Airborne uses the COMAT system, however, to ship return shipments to customers for which Airborne is paid by the customer, as well as other shipments. These shipments are intentionally mischaracterized as COMAT's in order that there be no payment to Assured or any other contractor. Assured did not agree to move these shipments at no cost. 4. Suspense Files
5. ABlack Hole@ Shipments Each shipment is to be accounted for in and out of the station. ABlack Hole@ shipments are ones that Airborne does not account for on either the FCI paid or the FCI unpaid. Airborne failed to record these shipments for which Assured should have been paid. 6. Code 94's B No Payment Disposition Certain shipments marked Code 94 are present on the FCI unpaid manifest. Airborne contends that it has either: paid these items previously; the items were Atracking updated@ which means that they have not been paid to Assured (i.e., for some reason a person has updated information on the particular airbill); or the item was not delivered by Assured. Previously manifested: If these shipments were in fact paid (or not paid) on another manifest, there is no cross reference to the other manifest B making it impossible for Assured or any other contractor to verify that they received correct payment. Tracking Update: There is no reason that these shipments should show up on the unpaid FCI other then to cause confusion to the contractor. ND's (Not Delivered/No Disposition): Airborne contends that these shipments went out for delivery, but for whatever reason did not get delivered. Local management did not allow ND's. If a driver returned with a non-delivered package local management made the contractor send the packages back out that night. Therefore ND's should rarely appear on the FCI unpaid.
The Libra system is used by Airborne's largest customers. These customers are provided a Libra machine as well as labels to process their shipments. When the customer has finished processing their shipment they transmit the information processed via telephone lines. The contractor then goes in and pickup scans each piece with the scanner. The scanner is downloaded into Airborne's ORION system. Airborne has total control of this system. This puts Assured as well as other contractors totally at Airborne's mercy. This system was manipulated by Airborne to deprive Assured of payments it should have received under the contracts. 8. Other Methods There may be other methods used by Airborne in the manipulation of its computer systems by which Claimant has been paid less than it should have been. Should Claimant uncover evidence of these methods in the discovery of this arbitration, Claimant will seek leave to further amend its Statement of Claim. H. Airborne's Bad Faith During 2000, when Assured was losing money and asking Airborne for adjustments to its contracts, Airborne could have given Assured substantial assistance. If it had just stopped the false billing practices and started paying Assured the full compensation that Assured was earning that alone would have been substantial relief to Assured. Instead, Airborne continued its fraudulent underpayments of Assured while Assured was losing more and more money. I. False Bid Packages
Only after Assured was awarded the bid on the Springfield station did it become aware of the misrepresentations made by Airborne. When the misrepresentations were brought to the attention of Debbie Anthony and Pat Blankfard, they refused to negotiate the contract and pay Assured sufficient to cover its expenses. By the time Assured learned of the misrepresentation and was told by Airborne that Airborne would not negotiate the contract, Assured, by reason of its contracts to obtain the sixteen (16) trucks was not in a financial situation that would permit it to cancel the contract without bankrupting the company.
In 2000, Airborne requested Assured to bid on the Bloomington Station. The Airborne bid package on this station, which was sent to Assured through the U.S. mail, contained fraudulent and/or negligent misrepresentation similar to those made in connection to the Springfield and Rockford stations. J. Non-Negotiable Demands of Airborne In the Fall of 2000, Airborne announced to contractors that it had instituted a new service called Airborne @ Home, which involved sorting packages and delivering the packages to US Post Offices within the contract territory. It was mandatory that Assured agree to this additional service without the benefit of negotiation regarding pricing, volume or the operational impact on Assured. Although this was a major change in volume for contractors, Airborne did not negotiate in good faith for adjustments in the contracts of its contractors. Assured was informed that it would do this new service for a pre-set non-negotiable rate which only compensated Assured for a fraction of the cost of the new service. If Assured refused, its contracts would be taken away. As a result of this arbitrary and wrongful violation of the contract Assured has sustained damages. K. Airborne's Direction and Control Over Assured's Daily Operations
Claims of Assured 1. First Claim. Breach of Contract by Airborne The actions of Airborne as set forth above constituted a breach of the contracts between Airborne and Assured. 2. Second Claim. Fraud of Airborne Airborne provided statements to Assured which represented that Airborne was making all payments owed to Assured for deliveries made by Assured. These statements and representations were false and fraudulent and were made with the intention of deceiving Assured into believing that it was being fully compensated for the deliveries made by Assured and supposedly properly recorded by Airborne computers. These reports and representations involved material facts that were false and fraudulent and were known by Airborne to be false. The representations were made to deceive Assured to accept full payment amounts less than the full amounts owed by Airborne to Assured. Airborne representatives did deceive Assured and caused it to rely on the representations of Airborne and to accept as payment less than the amounts actually owed to it by Airborne. As a result Assured has been damaged in a presently undetermined amount.
Alternatively, Airborne made representations in the course of its business, which representations supplied false information for the guidance of Assured in its business. Airborne did not exercise reasonable care or competence in obtaining or communicating the representations to Assured. As a result of the negligent misrepresentations made by Airborne, Assured has been damaged as set forth above. 4. Fourth Claim. Breach of Contract by ABX The action of ABX in cancelling the Assured contracts without notice to Assured constitutes a breach of those contracts by ABX. 5. Fifth Claim. Attorneys' Fees Pursuant to the terms of the contract with Airborne, Assured is entitled to its attorneys' fees and costs incurred herein. Damages of Assured 1. The loss of the business of Assured Assured had a successful business. Assured had done contract work for Airborne for over 11 years. The business had steadily grown. Its size and operation management expertise allowed it to outperform others on service and its efficient system had enabled it to outbid other bidders for contracts.
Airborne=s fraud forced Assured to make a Afire-sale@ disposition of its fleet of vehicles. 3. Loss of Assured Contracts Reliance on the fraudulent actions of Airborne caused Assured to sustain losses on these six contracts which was caused by the actions of Airborne and/or ABX and/or the Individual Respondents. 4. Fraudulent Underpayment for Deliveries and Pickups Airborne=s deliberate underpayment of contractors, including Assured for deliveries and pickups made, has caused a loss to Assured. Since Airborne did not give contractors all of the records that are necessary to an exact calculation of this item of damages; production of accurate Airborne documents will be necessary in order to compute this item of damages. Exemplary Damages As a result of the deliberate, intentional and wanton conduct as set forth above, Airborne is liable for exemplary damages.
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