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FedEx contractor can’t claim contract breach after his operating agreement expired

By Ronald Miller, J.D.

A FedEx contractor failed to state a claim for breach of contract or fraud after the package delivery company terminated his service contract and refused to provide damages stemming from his inability to assign the rights to his service area beyond the remaining term of his Independent Service Provider (ISP) agreement, ruled the Eighth Circuit. The plaintiff claimed that FedEx breached his ISP agreement because it was unwilling to allow him to assign his rights to a service area, and it imposed new terms and conditions in violation of the agreement’s background statement. At the time he attempted to make an assignment, the contract he relied upon had expired. Further, he misread the plain language and context of the background statement. Accordingly, the appeals court affirmed the district court’s dismissal of both claims (Neubauer v. FedEx Corp., February 17, 2017, Gruender, R.).

The plaintiff entered into a Standard Operating Agreement (SOA) with FedEx, whereby he would pick up and deliver packages in return for weekly payments. Under the terms of the SOA, he was an independent service provider. Further, under the SOA, he held a “proprietary interest” in serving FedEx customers within a specific geographic area, known as a Primary Service Area (PSA). If a contractor no longer desired to provide services to FedEx during the term of the SOA, the contractor had “the right to assign his/her rights and obligations [under the SOA] to a replacement contractor.” However, FedEx had to approve the replacement contractor.

Replacement contractor. In 2004, pursuant to the assignment provision, FedEx approved the plaintiff as a replacement contractor for another PSA, and he paid an outgoing contractor $75,000 to assume the rights to service the PSA. The plaintiff then executed a SOA with FedEx and elected to have the initial term last until 2007, with automatic renewals for successive one-year terms unless either party provided written notice of termination within 30 days prior to the expiration of the existing term. Over the next few years, the plaintiff negotiated assignments with two other contractors. On both occasions, FedEx approved the plaintiff as a replacement contractor. The SOAs remained in place until 2011.

In March 2011, more than 30 days before the expiration of the SOAs, FedEx advised all North Dakota independent contractors, including the plaintiff, that it was transitioning to a different business model and would not renew existing SOAs. Instead, contractors who desired to transition into FedEx’s new business model could enter into a new ISP agreement. Under the terms of that agreement, a replacement contractor was only allowed to provide services for the remaining term of the original agreement. The plaintiff agreed to transition to the new ISP model. FedEx paid him $10,000 to execute the releases, whereby he agreed not to sue or demand arbitration from FedEx in regards to the transition from the SOA to the ISP agreement.

Termination of relationship. In 2014, FedEx terminated its relationship with the plaintiff due to purported breaches of the ISP agreement. He assigned his rights under the ISP agreement to a replacement contractor, but was only able to assign his rights for the remaining term of his ISP agreement. When FedEx refused to reimburse him for alleged damages, the plaintiff brought suit for breach of contract, fraud, constructive fraud, and fraudulent inducement, among other claims. The district court granted FedEx’s motion to dismiss in full.

Breach of contract claim. Under Pennsylvania law, which governed the construction of the SOA, a plaintiff asserting breach of contract must allege “(1) the existence of a contract, including its essential terms[;] (2) a breach of a duty imposed by the contract[;] and (3) resultant damages.” The amended complaint claimed that FedEx breached the SOA in two ways. First, it alleged that FedEx’s unwillingness to allow the plaintiff to assign his rights to the service areas under the SOA terms constituted a breach of the SOA. However, the SOA expired in 2011. In 2014, the plaintiff’s relationship with FedEx was governed by the ISP agreement, and he was not entitled to assign his rights under the terms of the SOA. So dismissal was proper as to this claim.

Second, the complaint asserted that the nonrenewal of the SOA and the ISP transition imposed new terms and conditions, in violation of the SOA’s background statement—which, the plaintiff argued, forbade FedEx from altering the SOA in any way. However, the plaintiff’s reading of the agreement ignored the context. The language that the plaintiff latched onto simply meant that FedEx could not impose new terms to alter the “understanding” that he “provide[d] these services strictly as an independent contractor, and not as an employee of FedEx.” Thus, the district court did not err in dismissing this claim.

Fraud claims. The plaintiff’s various fraud claims also failed. In effect, he claimed that FedEx made knowing misrepresentations to fraudulently induce him to enter into the SOA and the ISP agreement and execute the releases. However, his complaint was replete with general statements and conclusory allegations, and he failed to plead fraud with the specificity required by FRCP 9(b). For example, the amended complaint alleged that when entering into the SOA, the plaintiff relied on “vague and misleading” statements with respect to how much control FedEx would exercise over contractors. However, the amended complaint never detailed the content of those statements. Because the amended complaint did not come close to pleading the “‘who, what, where, when, and how’ of the alleged fraud,” the plaintiff’s fraud claims were properly dismissed as well.