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UPS Settles Relator’s Delivery Fraud Case for $25 Million

Bag-of-money-300x300 2The U.S. Department of Justice announced this week that United Parcel Service Inc. (“UPS”) has agreed to pay $25 million to resolve allegations that it submitted false claims to the federal government in connection with its delivery of Next Day Air overnight packages. UPS provides delivery services to hundreds of federal agencies through contracts with the U.S. General Services Administration (“GSA”) and U.S. Transportation Command, which provides support to Department of Defense agencies.  Under these contracts, UPS guaranteed delivery of packages by certain specified times the following day. From 2004 to 2014, however, UPS allegedly engaged in practices that concealed its failure to comply with its delivery guarantees, thereby depriving federal customers of the ability to request refunds for the late delivery of packages. More specifically, the shipping company allegedly recorded inaccurate delivery times on packages to make it appear that the packages were in fact delivered on time, applied inapplicable “exception codes” to excuse late delivery, such as “security delay,” “customer not in,” or “business closed”, and provided inaccurate “on-time” performance data under the federal contracts.UPS is a global package delivery company headquartered in Sandy Springs, Georgia. Part of UPS’ domestic product portfolio is its “Next Day Air” (“NDA”) class of services, which include Next-Day Air Early A.M. service, Next-Day Air service, and Next-Day Air Saver service, which, respectively, guarantee delivery on the next business day to most zip codes by 8:00 am, 10:30 am, and 3:00 pm. In its contracts with the GSA, UPS had agreed to provide “Guaranteed Service Refunds” to federal customers for Next Day Air services when a federal customer requested a refund within a specified period. The complaint was filed in 2011 by relator Robert K. Fulk, a former UPS employee. Beginning in 2004, Fulk worked for UPS for five years as a driver and a manager. As a result of the settlement Fulk will receive $3.75 million for his role in helping to uncover the fraud.

Similarly, in 2011, FedEx Corporation (“FedEx”), another global package delivery company, agreed to pay the federal government $8 million to settle a similar whistleblower complaint alleging that the company violated the False Claims Act. The complaint was filed by a FedEx employee that, in the wake of the 2001 terrorist attacks in New York and Washington, D.C., observed the company’s couriers using “delivery exception codes” to reflect that increased security measures at government facilities were causing delays in the timely delivery of overnight FedEx packages. The complain alleged that even after heightened security measures subsided or became routine procedures for entering government locations, FedEx couriers continued to use the security-delay exception code in order to excuse their own failures to deliver Priority Overnight packages by the specified commit time of 10:30 a.m. and to avoid the obligation to reimburse government customers under the company’s Money Back Guarantee. FedEx allegedly violated the False Claims Act by submitting invoices to the government that reflected misuses of the security delay and other delivery exception codes and precluded the government from seeking its money back on late delivered packages. As a result of the settlement, the relator, Mary Garofolo, received $1.44 million as her share of the government’s recovery.

More recently, in July 2014, FedEx was indicted for allegedly delivering prescription pain pills, sedatives, anti-anxiety drugs, and other controlled substances from illegal online pharmacies. It was charged with 15 counts of conspiracy to distribute controlled substances and misbranded drugs and drug trafficking that carry a potential fine of twice the gains from the conduct, alleged to be at least $820 million for it and co-conspirators. FedEx allegedly delivered drugs to internet pharmacies that supplied pills to customers who filled out online questionnaires, but were never actually examined by doctors. The illegal deliveries allegedly began in 2000, and FedEx continued to do business with one internet pharmacy whose manager had been arrested for violating drug laws. The company also allegedly served a fulfillment pharmacy that supplied internet pharmacies that were shut down by law enforcement, with their owners and doctors convicted of illegally distributing prescription drugs. That indictment came one year after UPS had agreed to forfeit $40 million in payments it received from illicit online pharmacies under a non-prosecution agreement with the U.S. Department of Justice. In that agreement, UPS acknowledged doing business with online pharmacies even after it learned they were illegally distributing controlled substances without requiring valid prescriptions.