Recently, four days into what had been scheduled to be a seven-week trial, the US Department of Justice voluntarily dismissed the last of the criminal charges it had brought in its money laundering and drug trafficking prosecution of FedEx. Such was the abrupt end of two years of litigation in the US District Court for the Northern District of California in which the DOJ alleged that FedEx had conspired with online pharmacies to distribute $820 million worth of Xanax, Valium, Ambien, and other drugs without prescriptions. This case marked the first time the DOJ has attempted to prosecute a freight company (as opposed to individual employees) for drug trafficking related to online pharmacies.
The sudden about-face from the DOJ came three months after FedEx won a motion to dismiss on a statute of limitations issue stemming from a series of tolling agreements. Specifically, FedEx Corp. (the parent company) and FedEx Corporate Services, Inc. (the company’s e-commerce services subsidiary) successfully argued that they were not bound by the DOJ’s agreement to extend the tolling the statute of limitations with Federal Express Corp. (the company’s expedited shipping subsidiary). U.S. v. FedEx Corp., et al., No. 3:14-cr-00380, 2016 WL 1070653, *3-5 (N.D. Cal. Mar. 18, 2016).
The DOJ argued that FedEx should have disclosed the error prior to the running of the statute of limitations. US District Judge Charles Breyer disagreed. “The government appears to have forgotten that in a criminal prosecution, the defendant is not required to make the government’s case,” wrote Judge Breyer. “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.” Id. at *1.
That left one charge of misbranded drug distribution conspiracy, two counts of money laundering conspiracy, and one count of conspiracy to distribute controlled substances, facing FedEx Corp. and FedEx Corporate Services, Inc. headed into a June bench trial. (Federal Express Corp. still faced the full brunt of the 15 charges in the indictment.) The DOJ decision to drop the remaining charges came after Judge Breyer reportedly expressed interest in hearing the testimony of two DEA agents – testimony which FedEx claimed would show its cooperation with the investigation. According to reports from the trial, the DOJ protested that the agents’ testimony should not come in because the government had not included the agents on its witness list.
While the DOJ has not stated publicly why it decided to dismiss the remaining charges, for companies facing criminal investigation, there are at least two key takeaways from the FedEx case. First, carefully examine any tolling agreements with the government to see if the entities named in the agreement are the entities that could be charged. After the court’s dismissals in this case, the DOJ is certain to pay special attention to such details going forward. Second, government investigators may be useful witnesses to corporate defendants at trial insofar as they can testify to the company’s level of cooperation.