failure to properly allege falsity dooms FedEx at 6th Circuit

Fedex Ground Package System, Inc. v. Route Consultant, Inc., No. 23-5456, --- F.4th ----, 2024 WL 1364707 (6th Cir. 2024)

The court of appeals affirmed the dismissal of FedEx’s false advertising claims (under the Lanham Act and Tennessee Consumer Protection Act), albeit on somewhat different grounds. The district court had focused on FedEx's harm story; the court of appeals turns on falsity.

FedEx (here called FXG) alleged that Route Consultant made disparaging statements to foster discontent between FXG and its contractors, which would damage FXG and benefit Route Consultant.

FXG doesn’t deliver packages directly; it has a network of independent service providers (confusingly for me, ISPs) that provide pickup and delivery within neighborhoods, and transportation service providers (TSPs). Collectively they’re called “contracted service providers” (CSPs).

Spencer Patton owns several ISPs that work with FXG and also owns Route Consultant, a consultancy business for current CSPs and those that are looking to get into the business. Route Consultant advises CSPs on “buying and selling FXG routes, ISP and TSP ownership and operations, and fleet strategy.” It also provides brokerage services for CSPs interested in selling their business or otherwise assigning their CSP contracts, and it provides instructional courses and programs for CSPs.

FXG asserts that Route Consultant launched a promotional campaign premised on a “fictionalized crisis” between FXG and its CSP network, claiming that the CSPs were “financially collapsing under the weight of ... dramatic cost changes” resulting from global economic trends, and that these changes had “gone unaddressed by FXG in 2022.”. The alleged aim was to motivate CSPs to renegotiate their contracts with FXG, which would in turn allow Route Consultant to position itself as the intermediary for the renegotiations.

FXG identified nine specific claims relating to FXG’s alleged failure to make financial adjustments, including that the “average FXG business run by a CSP currently operates on profit margins below 0%”; “the current CSP financial model is collapsing due to substantial increases in the cost of fuel, labor, and vehicles over the past 12 months”; pointing to “soaring levels of CSP default rates as evidence of the current financial stress within the network”; and “Almost all of the other contractors that had renegotiation requests were also denied.”

For purposes of a motion to dismiss, “a complaint may not baldly assert that a challenged statement is false or misleading. It must explain why and how it is so.”

Statements that FXG had made “no financial adjustments” for CSPs: These were factual claims, but not plausibly alleged to be literally false. The complaint alleged literal falsity because “ISPs [ ] requested mid-contract renegotiations for only about 10% of their agreements in 2022; FXG has consented to approximately 40% of renegotiation requests since July 1, 2022; and over 90% of those renegotiations led to agreement on new terms that resulted in higher contractual payments to the ISPs.” But, in the context in which they were made, Route Consultant was not describing a failure to make financial adjustments on an individualized basis, but contrasting the “flat, across-the-board” CSP pay increases that FXG made in 2020 “in order to overcome the extraordinary conditions of” the COVID-19 pandemic and also asserting that FXG refused to properly address the issues raised by a “group of FedEx contractors” who wrote letters of concern. “The surrounding context of the statements makes no mention of individual renegotiation requests being denied.”

On a motion to dismiss, only “reasonable inferences” are drawn in the plaintiff’s favor. “And under the circumstances present here, it would be unreasonable to divorce [the statements] from their context.” Without literal falsity, the complaint didn’t allege misleadingness.

Statements that the “average FXG business run by a CSP currently operates on profit margins below 0%” and that “since [ ] Q4 of 2020, the industry has seen ‘a 15% pullback on the value of routes ….’” These were also statements of fact, but the complaint didn’t actually plead that they were false or misleading. Alleging that these businesses generated an operating margin of 16%, based on FXG’s calculations from Route Consultant’s appendix, didn’t go to profit margin. Likewise, alleging that an “industry analyst ... noted that ‘these ISP businesses are being sold for an average multiple of 0.8x Sales and over 2x their fleet value’ ” does not “explain how the sales value of an ISP at one point in time demonstrates whether there has been a ‘pullback’ in a route’s value over a period of time.”

Financial model collapsing/soaring levels of CSP default rates: These were not statements of fact but loose, hyperbolic terms. Even if “soaring” just meant rising, FXG didn’t plead falsity, “because its complaint refers only to the financial health of ISPs, not CSPs, and says nothing about defaults at all.” Anyway, collapsing/soaring couldn’t be measured to be falsified.

“Almost all of the other contractors that had renegotiation requests were also denied.” This was a statement posted in August 2022; the allegation that “FXG has consented to approximately 40% of renegotiation requests since July 1, 2022; and over 90% of those renegotiations led to an agreement on new terms that resulted in higher contractual payments” did not make this statement literally false, because it wasn’t limited to the period starting in July 2022; in context, it referred to requests over the past year and was not “unambiguously deceptive.”