Did FedEx Really Overcharge Its Business Customers?

A series of emails authored by Alan Elam, a sales executive in Scottsdale, Arizona, and Chris Suhoza, the company’s vice-president for solutions, point to a culture at FedEx (NYSE:FDX) of systematically overcharging business and government customers for many years.

Why is FedEx Being Sued?

A complaint filed in Tennessee in 2011 by Manjunath Gokare, an immigration attorney, and the California-based legal firm Goldstein Demchak Baller Borgen & Dardarian accused FedEx of charging residential rates for sending time-sensitive documents to business offices. The filing claimed that the company levied a $3 per package fee on approximately 500,000 occasions.

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The Elam emails were included with the 11 documents that were unsealed on Monday by the judge handling the case, according to Bloomberg.

In August 2011, Elam wrote to his superior questioning the company’s practice of charging residential rates to business customers. “We are systematically overcharging our customers for residential delivery fees,” he wrote in an email seen by the Financial Times. “I have brought this to the attention of multiple people over the past five years and am confident that many MDs and VPs are aware of the issue. To date, no one has taken it up and recognized it to be a problem.”

Suhoza responded that the company was “working this customer experience issue through,” but the policy was never rectified. Elam had expected this, and wrote in the same email that he believed FedEx was “choosing not to fix this problem because it is worth so much money.”

FedEx has denied the allegations. As company spokeswoman Sally Davenport told Bloomberg in an emailed statement, “These 11 documents do not tell the entire story of this case.” She stated that the surcharge issue could have been resolved by the company’s customer service department before it was handed over to the legal system.

Gokare and Goldstein Demchak Baller Borgen & Dardarian want the case to be classified as a class action, as there are scores of other FedEx customers who were overcharged as well.

The suit seeks damages of three times the excess fees.

CHEAT SHEET Analysis: Does “Honest Accounting Govern FedEx’s Books”?

One of the core components of our CHEAT SHEET Investing Framework requires companies to have zero evidence of accounting manipulation. In this case, Elam’s emails appear to indicate that FedEx knowingly overcharged its business customers over a period of years. However, whether the company acted dishonestly is still dependent on the verdict of the Tennessee court.

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