March Madness: Drafting Error Leads to Dismissal of Criminal Charges against FedEx

Win red dice

Middle Tennessee State beats Michigan State. Yale beats Baylor. The Cinderella season is upon us. The next big winner is . . . FedEx.

The government has accused FedEx of conspiring with online pharmacies to ship illegal drugs to dealers and addicts. The facts of the indictment alone are intriguing. But an even more interesting issue has arisen with respect to the statute of limitations and tolling agreements in the case.

In short, the government messed up the drafting of a tolling agreement, and FedEx is taking advantage of the mistake. The outcome was the dismissal of several charges against the company.

Statute of Limitations and Tolling Agreements

I posted a resource guide on statutes of limitations a while back, which you can find here.  As a general rule, federal crimes carry a five-year statute of limitation. .

The initial indictment in this case was filed in July of 2014. All of the counts against FedEx involve incidents that allegedly occurred in 2007 and 2008. Even a lawyer can do that math. It seems like a pretty easy win for the defendant on limitations grounds.

The superseding indictment was filed just a month after the initial indictment (in August 2014) and charged all three entities with the same criminal conduct. The charges involve violations of the Controlled Substances Act, conspiracy and money laundering.

However, the government and FedEx entered into several tolling agreements before the first indictment. These tolling agreements added two and a half years to the statute of limitations.

Tolling agreements are not uncommon in white collar cases. They allow the government more time to investigate and the defense more time to convince the government not to indict. Here, FedEx and the government were negotiating a non-prosecution agreement at the time of the tolling agreements. FedEx eventually rejected the non-prosecution agreement.

Tolling agreements are contracts and are generally interpreted like any other contract. When interpreting the agreement, the court will usually stick to the agreement’s “four corners.”

FedEx’s Structure

FedEx, like many large corporations, is composed of a parent company (FedEx Corp) and several wholly owned subsidiaries, including Federal Express Corporation (FedEx Express) and FedEx Corporate Services (FedEx Services). Each is a separate and distinct corporate entity.

FedEx’s Motion to Dismiss and the Government’s Response

The motion to dismiss was filed by FedEx Corp and FedEx Services. They argue that the only party that entered into the tolling agreements with the government was FedEx Express. The tolling agreements did state that all of FedEx Express’s subsidiaries would also be subject to the agreements, but FedEx Corp and FedEx Services are not subsidiaries of FedEx Express.

Because the statute of limitations against FedEx Corp and FedEx Services expired before the indictment was filed, these two entities contend that all but one of the counts against them should be dismissed.

The government admitted that FedEx Corp and FedEx Services are not subsidiaries of FedEx Express. However, it says it was just a mistake; when the government entered into the tolling agreement with FedEx Express, it thought that it was entering into a contract with the parent corporation, FedEx Corp.

The government also tried to pass the buck, arguing that FedEx knew about the mistake and should have corrected it. In the end, the government asked the court to apply the “reformation rule” and rewrite the tolling agreement to name the correct parties.

If you don’t remember this rule from law school, don’t worry. It just means that when one party is mistaken as to the effect of a contract and the other party, aware of that mistake, does nothing to correct it, that the contract should be reformed in favor of the innocent party.

In reply, FedEx denied that it knew about the mistake.

We can see from the government’s papers that the prosecution was confused. But that does not mean that FedEx knew the government was confused or that it intended to take strategic advantage of the confusion. Nothing in the record establishes such conclusions, and they are not true.

In a nice turnaround of the absurd secrecy of the grand jury system, FedEx also points out that it had no idea that the government intended to charge all three entities and not just FedEx Express. Plus, the information about FedEx’s structure was widely, and publicly, available to the government. No state secrets here.

FedEx for the Win

On March 18, 2016, the court (Judge Breyer) issued the decision, granting the motion to dismiss. The first page of the decision says it all:

FedEx has moved to dismiss a number of the counts pending against two of its corporate entities in this case as barred by the statute of limitations. In response, the government requests relief that it concedes is “unprecedented.” The government entered the name of the wrong defendant in a tolling agreement, and now—in the context of a criminal prosecution—it requests that the Court cross out the name of the defendant who signed the tolling agreement and replace it with the name of a defendant who did not. No criminal case, the government admits, supports this course of action. The Court is not surprised.

Nevertheless, the government argues that FedEx should have perceived that the government intended to bind a different defendant to the agreement, and thus FedEx should have corrected the government’s mistake. The government appears to have forgotten that in a criminal prosecution, the defendant is not required to make the government’s case. FedEx’s corporate structure is clearly described on numerous public websites—including sec.gov—which the government could have used to check its work in drafting the tolling agreement that underpins this novel prosecution. But the government did not check its work. Accordingly, for these reasons and those set forth below, the Court GRANTS FedEx’s motion to dismiss.

In the end, the court concluded that the government failed to establish:

(1) the basis for reformation under the Restatement given the government’s inability to show that non-disclosure or bad faith gave rise to the government’s mistake; (2) that the government’s reliance on any purported misstatement or omission was justified; and (3) fraudulent misrepresentation given the facts indicating that FedEx lacked the intention to mislead. Furthermore, no criminal law authority supports reformation of the tolling agreements at issue here, and the Court concludes that an evidentiary hearing is unnecessary given the available record.

Congrats to FedEx. I hope you keep up the good fight.

This entry was posted in Conspiracy, Money Laundering, Statute of Limitations, Uncategorized and tagged . Bookmark the permalink.

One Response to March Madness: Drafting Error Leads to Dismissal of Criminal Charges against FedEx

  1. Pingback: Celebrating Summer with Recent Wins in the White-Collar World | Grand Jury Target

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