FedEx Ground has sued one of its largest delivery contractors, claiming he is spreading false and misleading information about the company and its relationships with contractors to boost the fortunes of his web of businesses.
In a filing early Friday, the U.S. ground-delivery unit of FedEx Corp. (NYSE: FDX) accused Spencer Patton of “creating a fictionalized crisis” between FedEx Ground and its approximately 6,000 contractors so he could drive contractor business to his companies. According to the suit, Patton has exaggerated financial hardships facing FedEx Ground contractors so they will use one of his businesses, Route Consultant, to renegotiate their contracts with the unit.
Patton’s push to paint a dire picture of the situation at FedEx Ground is a “promotional campaign for the consultancy, brokerage and other services of Route Consultant” directed at the unit’s contractors, the suit alleged.
Patton has warned that up to 35% of the unit’s contractors are in some level of financial distress due to rapidly escalating operating costs and a slowdown in e-commerce delivery volumes. Some contractors may not make it through the year without help from FedEx Ground. The company pays local delivery drivers a per-stop fee and line-haul drivers a per-mile fee.
The suit, filed in federal district court in Tennessee, charges Route Consultant with violating federal and state laws by making unfounded allegations that have damaged FedEx Ground’s brand and reputation. The suit seeks unspecified financial damages, a disgorgement of Route Consultant’s profits that have been generated through Patton’s alleged behavior, and an injunction permanently blocking Patton from engaging in the allegedly unlawful conduct on behalf of his company.
In an emailed statement on Friday, Patton said the lawsuit avoids the central issue of the suffering being endured by many contractors.
“It’s unclear how a lawsuit against their contractors — many who are really struggling financially — solves the problem of inflation, high gas prices and a driver shortage,” Patton said.
In a separate statement, Patton said he wasn’t afraid of legal action and that he knew “when he started speaking on behalf of small business owners in the community that a lawsuit was a likely weapon FedEx would deploy.”
Earlier this week, Patton said through a spokesperson that concerns about his business arrangements are a sideshow that distracts from the pressing fact that about one-third of the 6,000-member contractor network are in financial peril.
Patton added that Route Consultant’s success remains dependent on the success of FedEx Ground. He scoffed at the notion that his primary goal is to feather his nest. Patton said it would be ludicrous to deliberately create a crisis climate knowing the adverse publicity might damage the value of all the independently owned contractor businesses.
Focus on business structure
Based on the allegations in the suit, Patton’s business structure will be a major topic of conversation. As a contractor, Patton Logistics operates in 10 states with 275 trucks. Route Consultant, which Patton founded after starting up a contractor, offers a broad range of advisory and consulting services.
One of Patton’s most prominent services is the brokering of geographic territories that are bought and sold. He offers a three-month course to teach potential investors how to identify, acquire and operate a FedEx Ground territory, according to the suit. For new contractors, Route Consultant provides post-closing “milestone support” for the first 90 days after a purchase, the suit said.
For the past eight and a half years, Patton has been president of ADTP Inc., which is an entry-level driver training program that is owned and operated by FedEx Ground contractors, according to his LinkedIn profile. He also runs Patton Holdings, a portfolio of rental commercial and residential properties in Nashville, Tennessee, where he is based.
The suit comes less than a week after Patton, speaking before about 3,500 contractors at a two-day conference in Las Vegas, said he would shut the contractor business by Nov. 25, the day after Thanksgiving known as Black Friday, unless FedEx Ground provided financial help to his business before then.
Patton’s keynote last Saturday accused FedEx Ground of being out of touch with the needs of contractors and being staffed with managers who don’t have a strong understanding of the day-to-day operations.
Patton also criticized FedEx Ground CEO John Smith for not responding to his invitation to speak before the group.
Patton repeated previous claims that he is not looking to place a deadline on when FedEx Ground needs to take action. However, he said last weekend that “we need to have a timeline” to ensure contractors can stay afloat to provide reliable service during peak season.
Patton has formed the Trade Association of Logistics Professionals, which he has said will be open to all contractors who work on behalf of transport and logistics companies. Within that group is expected to be a 10-person committee that will act on behalf of FedEx Ground contractors.
FedEx Ground has said it will only negotiate contractual changes on an individual basis and not through any form of third-party bargaining unit. The unit’s parent has been adamantly anti-union for its 50 years in business and has interpreted Patton’s reference to Nov. 25, arguably the busiest day of the year for the unit, as an ultimatum.
On July 26, FedEx Ground sent Patton a cease-and-desist letter demanding that he stop all “advocacy” on behalf of any service providers besides his own, that he stop disparaging the company’s brand and reputation, and that he stop any plans to form a committee that would negotiate on behalf of other contractors.
FedEx Ground has said that collective bargaining in any form is a breach of the contract between the unit and its contractors. Based on Patton’s actions since then, he apparently has no plans to disband the committee.
The unit acknowledges the contractor network is under pressure, and said it is taking steps to mitigate the pain. One step has been to suspend Sunday deliveries across about 15% to 20% of the national network. Patton has said repeatedly that Sunday service should be scrapped entirely because there aren’t enough volumes to offset the operating costs and it disrupts the package flow fluidity of the entire network.
In the suit, FedEx Ground repeated previously reported claims that only 10% of contracts have been submitted for renegotiation since the start of the year. Since July 1, shortly before Patton fired his first salvo, FedEx Ground has consented to 40% of renegotiation requests, the suit said, noting that more than 90% of those negotiations resulted in higher contractual payments.
According to the suit, an unnamed industry analyst recently valued the 100 provider businesses listed for sale on Route Consultant’s website and said they generated 16% operating margins. The businesses were being sold at an average multiple of 0.8x sales and more than 2 times their fleet value, according to the analyst.
“These are certainly not businesses in distress,” the analyst was quoted in the suit as saying.