FedEx Ground has filed a lawsuit against one of its top delivery contractors, alleging that he is distributing false and misleading information about the firm and its relationships with contractors in order to increase the fortunes of his web of businesses.
FedEx Ground (NYSE: FDX) accused Spencer Patton of “creating a fictitious crisis” between FedEx Ground and its approximately 6,000 contractors in order to shift contractor business to his companies in an early Friday filing. According to the lawsuit, Patton overstated the financial challenges faced by FedEx Ground contractors in order for them to renegotiate their contracts with the unit through one of his businesses, Route Consultant.
According to the claim, Patton’s attempt to present a bleak picture of the situation at FedEx Ground is a “promotional campaign for the consultancy, brokerage, and other services of Route Consultant” aimed at the unit’s contractors.
Patton has warned that up to 35% of the unit’s contractors are in financial trouble as a result of fast-rising operating costs and a slowing in e-commerce delivery volumes. Some contractors may not be able to complete the year without the assistance of FedEx Ground. Local delivery drivers are paid per stop, while line-haul drivers are paid by the mile.
The suit, filed in federal district court in Tennessee, accuses Route Consultant of breaking federal and state laws by making false claims that have harmed FedEx Ground’s brand and reputation. The claim seeks unspecified monetary damages, disgorgement of Route Consultant’s profits produced by Patton’s alleged activities, and a permanent injunction prohibiting Patton from engaging in allegedly unlawful conduct on behalf of his company.
Patton stated in an emailed statement on Friday that the lawsuit overlooks the essential issue of the anguish faced by many contractors.
“It’s unclear how suing their contractors — many of whom are in dire financial straits — solves the problem of inflation, high gas prices, and a driver scarcity,” Patton said.
Patton stated in a second statement that he is not afraid of legal action and that he knew “when he began speaking on behalf of small business owners in the community that a lawsuit was a likely weapon FedEx would use.”
Patton claimed earlier this week, through a spokeswoman, that worries about his business relationships are a distraction from the pressing fact that around one-third of the 6,000-member contractor network is in financial jeopardy.
Patton said that Route Consultant’s success is still dependent on FedEx Ground’s success. He laughed at the idea that his primary purpose is to fill his nest. According to Patton, it would be absurd to intentionally create a crisis situation knowing that the negative press would harm the value of all independently held contractor enterprises.
Pay attention to the business structure.
Patton’s company structure will be a major topic of discussion, based on the charges in the action. Patton Logistics is a contractor with 275 trucks that operates in ten states. Patton’s company, Route Consultant, which he formed after establishing a contractor, provides a wide range of advice and consulting services.
Patton’s most well-known service is the brokerage of geographical territories that are purchased and sold. According to the claim, he offers a three-month course that teaches potential investors how to find, acquire, and operate a FedEx Ground area. According to the claim, Route Consultant provides post-closing “milestone support” for the first 90 days after purchase to new contractors.
Patton has been president of ADTP Inc., an entry-level driver training program owned and operated by FedEx Ground contractors, for the past eight and a half years, according to his LinkedIn profile. He also runs Patton Holdings, a portfolio of commercial and residential rental buildings in Nashville, Tennessee, where he lives.
The claim comes less than a week after Patton told approximately 3,500 contractors at a two-day conference in Las Vegas that unless FedEx Ground gave financial assistance to his business before Nov. 25, the day after Thanksgiving known as Black Friday, he would close the contractor business.
Patton’s speech last Saturday accused FedEx Ground of being out of touch with contractor demands and employing management who lack a thorough understanding of day-to-day operations.
Patton also chastised FedEx Ground CEO John Smith for failing to reply to his offer to appear in front of the gathering.
Patton reiterated his earlier comments that he is not attempting to impose a timeframe on when FedEx Ground must act. He did, however, said last weekend that “we need a deadline” to ensure contractors can stay afloat and offer reliable service during peak season.
Patton has established the Trade Association of Logistics Professionals, which he says would be open to all contractors who work for transportation and logistics organizations. A 10-person committee will be formed inside that group to work on behalf of FedEx Ground contractors.
FedEx Ground has stated that it will only discuss contract amendments on an individual basis, rather than through a third-party bargaining unit. For the past 50 years, the unit’s parent has been staunchly anti-union, and Patton’s allusion to Nov. 25, likely the busiest day of the year for the unit, has been read as an ultimatum.
Cease-and-desist
FedEx Ground issued a cease-and-desist letter to Patton on July 26 demanding that he cease all “advocacy” on behalf of any service providers other than his own, that he cease disparaging the company’s brand and reputation, and that he cease any plans to form a committee to negotiate on behalf of other contractors.
FedEx Ground has stated that any type of collective bargaining is a violation of the unit’s contract with its contractors. Patton’s actions since then indicate that he has no intention of disbanding the committee.
The unit understands that the contractor network is under stress and is taking steps to alleviate the pain. One action has been taken: Sunday deliveries have been suspended from over 15% to 20% of the national network. Patton has stated repeatedly that Sunday service should be discontinued totally since there aren’t enough volumes to pay the operational costs and it affects the overall network’s package flow smoothness.
FedEx Ground’s lawsuit reiterated previously reported assertions that only 10% of contracts have been filed for renegotiation since the beginning of the year. FedEx Ground has agreed to 40% of renegotiation requests since July 1, soon before Patton fired his first salvo, according to the claim, with more than 90% of those conversations resulting in higher contractual payments.
According to the lawsuit, an unnamed industry expert recently appraised the 100 provider businesses for sale on Route Consultant’s website and stated that they generated 16% operating margins. According to the analyst, the businesses were sold at an average multiple of 0.8x sales and more than 2 times their fleet value.
“These are not distressed enterprises,” the analyst was cited as stating in the claim.
