The news that Pilot Flying J, a company largely if not exclusively owned by Governor’s Haslam’s family and run by his brother, is the subject of a criminal investigation has made a lot of news in the last week. Headquartered in Knoxville, Tennessee, Pilot Flying J has over 600 retail locations and is the largest operator of travel centers and travel plazas in North America. The company is one of the largest privately owned companies in the United States.
The FBI has searched corporate headquarters in Knoxville as well as the homes of several employees of the company. It has been reported that FBI Special Agent Robert H. Root alleged in an affidavit that a “conspiracy and scheme to defraud executed by various Pilot employees to deceptively withhold diesel fuel price rebates and discounts from Pilot customers … for the dual purposes of increasing the profitability of Pilot and increasing the diesel sales commissions of the Pilot employees participating in the fraud.”
Here is the company’s latest press release on the matter. Here is the affidavit in support of the search warrant served on Pilot Flying J.
Obviously, both the company and some number of its employees could face criminal charges in the case, but the company will also face civil lawsuits over these charges. Here are some potential claims:
1. Breach of contract. If the applicable contract call for a certain level of rebates and the rebates were not provided at the required amount there will be a claim for breach of contract. There may or may not be a claim for attorney’s fees and related litigation expenses; that will depend on the contract.
2. Consumer protection act claims. the law of some states will permit a consumer protection act claim for unfair or deceptive practices. Tennessee law recognized this right until October 1, 2011, when Governor Haslam’s tort reform legislative took away a private cause of action for unfair or deceptive acts unless the acts were specifically enumerated in the statute. However, the pre-October 1, 2011 claims still could be filed under the TCPA for Tennessee companies and perhaps even companies from other states. If a TCPA claim exists under Tennessee law, Pilot Flying J would face treble damages and responsibility for attorneys’ fees if its conduct was found to be "unfair or deceptive."
3. Fraud. The alleged acts rise to the level of fraud. Fraud can give rise to punitive damages in Tennessee and in many other states. Under Governor Haslam’s tort reform statute punitive damages are capped for fraud that occurred on or after October 1, 2011. The caps are two times the amount of the compensatory damages or $500,000, whichever is greater. There is no cap on punitive damages for pre-October 1, 2011 conduct except for restrictions that would otherwise exist under the Constitution.
4. RICO: The Racketeer Influenced and Corrupt Organizations Act will be employed against Pilot Flying J and, if the allegations have merit RICO may well be triggered because of the probable use of the mail or wire in connection with the alleged scheme.
Finally, if the allegations are true the business will suffer a huge blow to its reputation, and the family members involved in the business will be hurt as well. It will be interesting to see how many companies pull their business from Pilot Flying J in the coming weeks and months.