FedEx fights to overturn jury’s $66M award to ATA

Court filings the package-delivery giant made in recent weeks suggest its attorneys were stunned when a jury in October awarded the monstrous sum to the now-defunct Indianapolis airline.

ATA charged in the two-year-old breach-of-contract suit that FedEx’s unexpected decision in January 2008 to drop it as a military-charter partner forced it into bankruptcy liquidation that spring.

ATA had been flying military charters for more than two decades. It contends FedEx was legally obligated to keep it on board through at least September 2009.

Hogwash, the Memphis company said in a barrage of recent court filings asking Judge Richard Young to retry the case or overrule the jury and enter a judgment in favor of FedEx.

In a separate securities filing, the company said it had set aside a $66 million reserve to cover the verdict, even though “we do not agree with the verdict or the amount of damages awarded and are appealing the matter.”

The case hinged on a September 2006 letter that described how business was to be divvied up through September 2009 between ATA and another airline that was part of the FedEx military-charter team.

That was a legal contract, ATA says. But FedEx said it wasn’t even close, because it didn’t address financial terms and other key issues. It noted the legal standard for an enforceable contract is “a meeting of the minds of the parties, in mutual assent to all essential terms.”

In a court filing, FedEx attorneys wrote, “Given the uncontroverted evidence and the relevant law … there is simply no reasonable basis in the record on which the jury could find that an agreement on just one term of FedEx Team membership was an enforceable contract for FedEx Team membership.”

They also balked at the size of the jury award. FedEx said that, in fiscal 2007, ATA earned just $2.1 million from its military charter business. Awarding many times that amount provides an “excessive windfall” to ATA.

Even if the initial jury award stands, it will do nothing to bring back the Indianapolis airline. Money from the judgment would go to creditors still owed millions of dollars in the company’s Chapter 7 bankruptcy.

But it surely would give former ATA executives more than a little satisfaction to see FedEx get its comeuppance.

The loss of the military charter business came at an inopportune time, just as ATA was trying to line up additional capital. Chief Restructuring Officer Steven Turoff told creditors two years ago that losing the business “was an unanticipated blow which, with the scheduled-service business already suffering, made the future viability of ATA suspect in the capital markets.”

A FedEx executive said in a deposition that his company decided to dump ATA because Northwest Airlines wanted more business and was being courted to join United Parcel Service’s team.

The U.S. military awarded carriers in its charter program points based on the number and type of aircraft they committed. Because Northwest contributed nearly 25 percent of the FedEx team’s points, “if it was not part of the team, there would be a substantial reduction in business for all the remaining carriers,” according to a FedEx filing.

Appliance retailer banged up

The army of analysts who entered 2011 with “buy” recommendations on HHGregg Inc. stock no longer look so smart.

Shares of the Indianapolis-based retailer of consumer electronics and appliances have tumbled since Jan. 7, when the company sharply cut earnings expectations for the fiscal year ending March 31 and said same-store sales in the latest quarter dipped about 6 percent.

The company says consumers are gravitating toward lower-cost TVs, rather than the pricier, most technologically advanced models. The sluggish economy also is squeezing appliance sales.

The stock now trades for around $19.75, down 23 percent since early December and 35 percent since June.

Analysts didn’t see it coming. After the company announcement, Janney Montgomery Scott lowered its price target from $30 to $22, and Credit Suisse cut its target from $28 to $22.

David Strasser of Janney Montgomery Scott said in a note to clients that industry trends may not favor HHGregg this year. He said the hot sector is portability—think tablets and smart phones—a segment to which HHGregg has limited exposure.•

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