Pilot Flying J case draws legal firepower

Settlement is contentious issue

After federal agents raided the headquarters of Pilot Flying J on April 15, seeking evidence of fuel rebate fraud, it didn’t take long for Barrett to be approached about making a case against the company.

Barrett already knew Aubrey Harwell, the Nashville attorney helming Pilot’s legal defense, and called him with a simple proposition.

“(I told him) this seemed to be pretty one-sided (and) that I’m either going to be his worst enemy or I could be his best friend,” Barrett recalled later.

He may take plenty of money out of Pilot’s coffers, but at this point Barrett looks far more like a friend than an enemy of the Knoxville-based truck stop chain.

In July, a federal judge gave preliminary approval to a settlement deal hammered out by Harwell, Barrett and other attorneys in phone calls and face-to-face meetings.

The deal is a big step toward closure for Pilot on the civil side of the scandal but it also highlighted the complex state of play in the case.

While attorneys like Barrett, the scourge of the tobacco industry, were happy to strike a deal with Pilot, other plaintiffs’ lawyers have been contemptuous of the settlement proposal and appear unlikely to enroll their clients in it.

So what are the motivations for various parties in a high-profile, class-action case? It depends on where you stand.

Adam Zimmerman, a law professor at Loyola Law School of Los Angeles said plaintiffs’ attorneys in a class-action case typically work on a contingency basis — meaning they are paid a stake of the money received by their client — and thus have to consider the risk involved in pursuing a case instead of settling.

“The longer you kind of go, financing litigation without the certainty of a return on that investment,  the more and more risky it becomes for plaintiffs’ counsel,” Zimmerman said.

The expense of litigation weighs on both sides, of course, and Zimmerman cited the costs of discovery as a factor for defendants as well, saying those expenses sometimes lead to a “shotgun settlement” — one that is light on details and in which defendants don’t admit to wrongdoing.

“More and more courts have applied more scrutiny to those kinds of settlements,” the professor said, “the theory being (that) because the claims haven’t really been tested through discovery, judges need to take a stronger role in overseeing the settlement making sure it was not collusive.”

In the Pilot case, oversight of the settlement is expected to take place on Nov. 25, when a federal judge in Arkansas will hold a fairness hearing.

One question that may arise is the status of National Trucking Financial Reclamation Services, an Arkansas entity that has sued Pilot.

National Trucking was formed on April 22, four days after the government released an affidavit outlining the fraud allegations, and it isn’t a trucking company. Instead, according to documents filed in the case, it is “an assignee of the legal interest and claims of companies” that bought diesel fuel from Pilot.

National Trucking shares a Little Rock, Ark., address with the Arkansas Trucking Association, and its registered agent is Lane Kidd, who is the president of the ATA.

Pilot is a member of the ATA and has contributed to the organization’s conferences.

Pilot has said it had nothing to do with the creation of National Trucking, though, and Kidd has said Pilot didn’t know of his plans to sue.

Harwell, Pilot’s attorney, dismissed the notion that the connections were inappropriate. “Pilot belongs to a lot of trucking organizations in a lot of states. They are huge supporters of the trucking industry,” he said.

The November fairness hearing will likely pit Pilot and the plaintiffs with whom it settled — including National Trucking — against attorneys like Jerome Tapley, a Birmingham, Ala., lawyer who represents clients including Alabama trucking company WTW Enterprises.

Tapley said he got a call on the Monday after the government’s raid from one of Pilot’s fuel clients. The decision to sue, he said, was made based on the customer’s records and the FBI affidavit.

Tapley’s suit was filed on April 25, and the settlement deal was announced weeks later. The attorney said he reviewed the proposal with his client — outlining the client’s rights if it chose to settle or decided against the deal — but concluded that plaintiffs who settle gain no extra benefits.

“I think (the settlement is) an attempt by Pilot Flying J to avoid a criminal prosecution,” he added.

Pilot has a different view, of course, describing the settlement as an “extraordinary” effort to do what is right for its customers, a contention backed by plaintiffs’ attorney Barrett, who called the settlement the best he has seen in more than four decades of practicing law.

But Sandra Jordan, a former federal prosecutor in Pennsylvania who is now a professor at the Charlotte (N.C.) School of Law, acknowledged that defendants in a criminal case might see advantages to reaching a settlement in parallel civil litigation.

While prosecutors won’t necessarily drop charges, Jordan said, “what the defendant probably wants to do is to be in a position to go before the judge and look like a good corporate citizen that not only has corrected this error but has made the victims whole. That is always a good position to go into court with.”

Besides that, she said, a settlement such as the one reached by Pilot eliminates the need for depositions — which could be used against the company in a criminal proceeding.
Pilot, in fact, has made a similar argument in a separate civil proceeding taking place in Knox County Circuit Court.

Savannah, Ga.-based lawyer Mark Tate is leading that suit on behalf of multiple clients, and has rankled Pilot with his aggressive tactics, including the creation of a website called www.rebatebulls---.com.
Tate and his partners have pushed hard to obtain videotaped depositions of Pilot executives, including CEO Jimmy Haslam.

The company has countered by saying that employees who are subject to civil discovery “could be confronted with a situation where they are forced to exercise their Fifth Amendment rights against self-incrimination, thereby potentially prejudicing Pilot’s position in the civil case.”

Pilot has also argued that several of Tate’s clients are not owed any money at all — and that some owe money to Pilot.

The proceeding in Knox County has been one of the fastest-moving Pilot cases, but a state lawsuit in Louisiana may present higher stakes.

In August, Nashville trucking firm Western Express sued Pilot in Orleans Parish Civil District Court, alleging that it had lost more than $75 million due to Pilot’s actions, including more than $68 million in expenses related to additional debt obligations it was forced to incur.

That case was filed by another firm with a lengthy history in the tobacco class-actions, New Orleans-based Gauthier, Houghtaling & Williams.

The managing partner of that firm, John W. Houghtaling II, has turned the spotlight on Haslam, Pilot’s CEO.
In a prepared statement, Houghtaling said: “Did it really reach the top to Mr. Halsam? I don’t know yet, but we will find out, because right now the question is out there and we must answer it soon.”

Haslam has said he had no knowledge of the rebate fraud.

For its part, Pilot has put together its own high-powered legal team to make its case in court.

Harwell said he was contacted by Pilot officers on the day of the raid, and since then his firm has coordinated the company’s legal strategy, bringing in New York-based White & Case — a global firm with offices in cities including Jakarta, Prague, Sao Paulo and Abu Dhabi — and Denver firm Wheeler Trigg O’Donnell in supporting roles.

Asked about the settlement negotiations, Harwell said Barrett called him and wanted to know if the company was planning to “fight it out.” Pilot’s attorney responded by saying the company wanted to resolve the issue, but not in ways that involved exorbitant amounts of money.

During the negotiations, Harwell said, the two sides haggled over issues including the amount of interest Pilot would pay and the time period to be covered by the settlement.

“They’re trying to get all the money they can get. My goal was to be fair but as long as it was fair, not to pay all the money that they wanted,” Harwell said.

The result was a settlement deal in which Pilot agreed to pay 100 percent of customers’ losses, plus 6 percent interest and attorneys’ fees. Losses would be calculated by Pilot’s internal auditors, with accounting firm Horne LLP reviewing the accuracy of their work.

Whether the deal will ultimately be approved is anyone’s guess. And at least one plaintiff hasn’t been following every twist and turn of the negotiations.

Larry Townes is the owner of Townes Trucking, a Mississippi firm that sued Pilot and is one of the plaintiffs that entered the preliminary settlement deal.

Townes, though, said in an interview that his attorney agreed to the settlement proposal without asking him.

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