Expeditors in court – new motion in, new allegations emerge

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With the spotlight on its ‘no layoffs’ policy, there is more than staff matters currently concerning the trade as far as $15bn-market-cap Expeditors is concerned, I gather.

They say 

Market sources have closely followed the latest business developments, and it was one Premium aficionado who recently argued that the forwarder from Seattle “has lost a lot of volumes, as they’ve become too expensive (caused by the growth ambitions of others that have large war-chests)”.

Another contact last week, after reading our ‘Expeditors in court‘ coverage, took legal risk tied to staff less seriously than volume-related hurdles.

“In the past, they were able to grow their business, but today they are not growing. Therefore, they have no choice but to cut staff. But I don’t know the reason why they are not able to grow: wrong strategy, wrong managers?”

And when alleged “billing issues” came up, we were told:

“Due to their incentive programme, overcharging is always possible but that said, as a public company, they should not stick to a no-layoff policy. But to me, it’s more concerning that they don’t know how to grow volumes. Their market share Asia to Europe is lousy.”

That’s another story, however, than today’s focus. Yet, as we collect additional feedback on the operational side of things, it’s worth considering* what follows.

(*Just as more feedback came the Premium way with regard to executives who have left the firm and that, to sum it all up here, are “upset that Expeditors, unlike many companies their size, do absolutely nothing of significance from a corporate philanthropy standpoint”. Let’s move on.)

Sequel

As a natural sequel of ‘Carrabes vs Expeditors’ (previously reported here), the plaintiff’s “motion for leave to file first amended complaint” was filed today, 21 January.

It’s alleged not only that layoffs were conducted but also that business practises did not live up to the required standards of excellence for a firm of Expeditors’ reputation in the market.

Here are some key nuggets contained in the motion papers lodged with the United States District Court, District of Massachusetts (emphasis in bold added):

To start with:

“The amendment adds significant factual allegations based on newly discovered evidence regarding Defendant’s systematic scheme to covertly terminate employees while maintaining the facade of a no-layoff policy, as well as engaging in fraudulent billing practices.”

Moreover:

“The amendment also adds new causes of action under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1962(c) and (d), based on defendant’s pattern of racketeering activity involving wire fraud.”

These are notoriously tough claims to prove, but nonetheless the plaintiff insisted:

“Proposed amendment includes a promissory estoppel claim, based on plaintiff’s reasonable reliance on defendant’s promises, including its widely publicized no layoff policy, and alternative claims for intentional interference with contractual and advantageous relations against proposed defendants Tracy Peveri and Brian Carrabes.”

The plaintiff is taking this to the next level, it seems.

(Although we maintain a base case according to which the case will settle out of court.)

In fact, as part of his legal strategy, this amendment asks that Expeditors managers Tracy Peveri and Brian Carrabes (the plaintiff’s brother) join Expeditors as defendants in the case, while in the original filing they were not formally treated as such, although they were thought to be part of the conversations at the time Michael Carrabes was terminated.

“The claims against proposed defendants Tracy Peveri and Brian Carrabes are asserted in the alternative, addressing their malicious and intentional conduct that was outside the scope of their legitimate employment duties at Expeditors.”

In the supporting material, the allegations also touch another aspect that is quite sensitive for a forwarder: clients.

(We have tried to contact Expeditors, but we have been unable to do so by the time this report was published.)

In fact

It is alleged that:

“Expeditors has been accused by a number of its customers of engaging in improper billing and business practices. For example, in a lawsuit Expeditors filed against Kohler, Co. (“Kohler”) and/or its subsidiaries, for allegedly unpaid invoices, in 2023, Kohler claimed that they had found “billing and invoice discrepancies” and, as a result, withheld payment of $20 million and demanded a full audit of the suspect invoices due to an overbill rate of 28.9%.”

That was widely reported at the time.

Furthermore, elsewhere:

“By email dated September 22, 2022, [industrial powerhouse] 3M notified Expeditors that the accuracy of its billing was unacceptable with 37 out of 70 invoices being questionable. 3M further claimed that it was constantly being billed for costs Expeditors agreed to bear.”

And then:

“On February 28, 2023, Bridgestone Golf sent an email to Expeditors identifying a significant overbilling issue that had persisted since April 2022. The email specifically alleged that many of the invoices contained multiple instances of double billing, among other improper charges.”

Also:

“By letter dated July 31, 2023, LumiStella notified Expeditors of a myriad of issues it had with the company, including chargebacks, billing the wrong parties, sending late and inaccurate invoices and the lack of transparency and responsiveness in addressing billing concerns.”

Finally:

“In a lawsuit filed by POC USA, LLC (“POC”) against Expeditors in November of 2023, POC claimed, among other things, that Expeditors made false statements to induce it to do business with it and engaged in unfair and deceptive business practices that resulted in it being unjustly enriched.”

Board duties 

The plaintiff alleges that “upon information and belief, other major companies were the victim of these fraudulent billing practices” because although not directly related to the covert termination scheme, “the fraudulent billing scheme furthered the goals of the enterprise in that it generated desperately needed revenue for Expeditors and its subsidiaries”.

What about responsibility, then?

The plaintiff insists in the papers filed today that the failure of internal controls at Expeditors “extended to the company’s board of directors”.

As confirmed in a recent letter dated “January 8, 2025, from Stephen C. Willey, counsel for Expeditors, the board of directors was ‘fully briefed’ on the allegations of the covert termination scheme, fraudulent billing practices, and retaliatory actions against the employees, including the Plaintiff”.

Despite being aware of these serious allegations, according to the plaintiff, the board “failed to investigate the claims or take any corrective action to prevent or address the unlawful conduct described herein”.

Well…

Not worth their time?

Possibly, but it would be great to hear from Expeditors why that might have been the case.

Was board intervention, according to the code of conduct, not required even though along the lines of other claims, the motion suggests that the alleged covert programme disproportionately impacted minorities?

As disclosed in proxy filings last year, this element carries particular relevance because Expeditors recommended to vote against two proposals at the 2024 annual general meeting, including one concerning the “effectiveness of the company’s diversity, equity, and inclusion [DEI] efforts”.

Nonetheless, the plaintiff added that based on information and belief, the board also failed:

“To notify its company auditors, KPMG, of serious issues requiring disclosure. These included allegations of fraud related to the covert termination scheme, which involved falsified performance reviews, backdated documents, and pretextual terminations to bypass the company’s no-layoff policy. The board also failed to disclose inadequate financial controls, manipulation of employee compensation, and fraudulent billing practices that led to customer complaints and lawsuits.”

On the matter, he concluded:

“Additionally, the board did not report potential inaccuracies in SEC [US Securities and Exchange Commission] filings concerning headcount reductions, employee compensation, and the company’s financial condition. By withholding this information, the board breached its fiduciary duties and undermined the integrity of the company’s financial reporting and internal controls.”