CHATTANOOGA, Tenn. (CN) – The former executives of Pilot Flying J who sit on trial for fraud in a Tennessee federal courtroom cared about the truck stop company they helped build, defense lawyers said in their opening statements Tuesday.
The day before, federal prosecutors sketched out their narrative in their opening arguments. They said the four defendants, two former Pilot executives and two former inside sales representatives, conspired and committed fraud.
From 2008 to 2013, they allegedly promised trucking companies discounts on diesel but furtively lessened the discounts companies received.
But in the federal court in downtown Chattanooga, the defendants’ lawyers reminded jurors just how high the burden of proof is in a federal felony criminal trial while also giving background on their clients, setting the stage for their challenge of the government’s interpretation of events.
Pilot services the trucking industry, dealing in billions of gallons of fuel each year, and sits parked at number 15 on Forbes’ list of America’s largest private companies. Its CEO Jimmy Haslam III also owns the National Football League’s Cleveland Browns. His brother Bill Haslam, the current Republican governor of Tennessee, worked as Pilot’s president in the 1990s.
In 2014, Pilot admitted corporate responsibility for promising a series of rebates to trucking companies that bought fuel at its truck stops but then mailing checks with smaller discounts. It signed a criminal enforcement deal and agreed to repay the trucking companies it duped, and also agreed to pay a $92 million fine to the U.S. government.
Eighteen former Pilot employees were charged, and all but four pleaded guilty. Their trial on conspiracy charges began Monday in Chattanooga.
Attorney Anthony Douglas Drumheller of Texas-based Rusty Hardin & Associates was the first to address the jury Tuesday on behalf of defendant Mark Hazelwood, the former president of Pilot.
April 15, 2013, was a Monday and the day that FBI and IRS agents descended upon Pilot’s Knoxville, Tenn., headquarters, Drumheller told jurors.
In the morning, Hazelwood took a conference call, a meeting and then went home for a sandwich. In the afternoon, Drumheller said, Hazelwood planned to hop onto a jet to oversee a small merger in Missouri and he packed, throwing together khakis, jeans and button-down shirts that displayed Pilot’s brand.
But on the road, he received a call from an unknown number. He answered.
“That day is important to Mr. Hazelwood because it tells you all you need to know about Mr. Hazelwood,” Drumheller said.
When Hazelwood learned of the raid, he went back to the office, and agreed to be interviewed by federal agents. The CEO, CFO and Pilot’s general counsel were not at the headquarters at the time of the raid, Drumheller said.
Hazelwood faced a choice, Drumheller said. “He went into the storm.”
Born in Ohio, Hazelwood began his career washing dishes at a diner truck stop. In 1985 – soon after the federal government deregulated the trucking industry – Hazelwood began working at Pilot as a district manager.
He spent 29 years working his way up and became a key player in Pilot’s development. He wasn’t the kind of person to cheat or ruin relationships with its customers, Drumheller told the jury.
Besides, only 35 percent of the company’s revenues are attributable to fuel sales, he said.
“Mike is a big picture thinker and innovator,” Drumheller said, adding that Hazelwood introduced the driver-driven focus of the company, pushing a welcoming environment for trucks.
Hazelwood’s defense attorney said the government had to prove conduct and a specific state of mind to secure a conviction. On the conspiracy to commit fraud charge, for example, prosecutors have to prove the defendant voluntarily joined the fuel rebate scheme.
“There is not guilt by association,” Drumheller said.
In addition to conspiracy, Hazelwood is accused of wire fraud. But “commodity prices vary,” Drumheller said.
On the charge of witness tampering – based on prosecutors’ claim that Hazelwood called his administrative assistant and falsely told her that he never read the trip reports he asked for — “I encourage you to look past the title,” Drumheller told the jury.
Next up, John Kelly of Bass, Berry & Sims PLC in Washington, D.C. spoke to the defense of Scott Wombold.
The government painted Wombold with a broad brush, Kelly said, just because of his position as former vice president of direct sales at Pilot.
“Guilt by association is not a basis for conviction. You need more,” Kelly said.
Furthermore, some of the ways Pilot issued rebates, specifically manual rebates, is a “legitimate business practice in the trucking industry,” Kelly said. The problem comes, he continued, when the customer is not told.
Wombold also grew up in a small Ohio town and began working at a truck stop pumping gas. Eventually, he worked his way up as vice president of national accounts for Pilot. At least one employee engaged in rebate fraud, Kelly said, and started before Wombold headed the division. That employee had autonomy and “he liked being a lone wolf,” Kelly said.
Besides conspiracy and fraud charges, Wombold faces three counts of making false statements to federal agents during the April 2013 raid.
But Kelly said agents entered the Pilot headquarters with raid jackets donned, ordering people to raise their hands.
“Scott made statements under very tough circumstances,” he said.
Kelly also said the conversation in question was never recorded. While the federal agents had recording equipment, they chose not to record and instead relied on “vague notes,” he said.
Near the beginning of his opening statements in defense of defendant Heather Jones, her lawyer Benjamin Vernia showed the jury a photo of a baseball player, bat in hand, sizing up pitch.
Keep your eyes on the ball, Vernia said. With a trial like this, which has the ability to change the course of a life forever, he said, the government has to prove every element beyond a reasonable doubt.
While Jones’ job title may have been inside sales representative, that was not exactly right, Vernia said.
Instead, he said she was a regional account representative dealing with specific fuel customers, signing up customers and issuing coupons for, say, free coffee.
“Most of Heather Jones’ job had nothing to do with pricing,” Vernia said.
Instead, like the military or other businesses, there’s a chain of command, the attorney told jurors, adding that there were reasons why a company’s rebate amount might change. They might not have purchased the minimum number of gallons in a month, for example.
While part of Jones’ job was to process the rebate checks each month, Vernia said she didn’t choose which customers to charge and didn’t say how much to charge, but instead carried out instructions.
“Employees have to trust each other to do their job right,” Vernia said.
Meanwhile, Jonathan Cooper, defending Karen Mann, said she was supporting the regional sales representatives who oversaw Canada.
“Team Canada,” as it was called, measured fuel differently than the other regions and priced it differently, according to Cooper.
While the people Mann was supporting needed to know the business, from customers to competition to profit margins, Mann herself set up accounts, worked on Microsoft Excel, and processed credit applications, Cooper said.
“Karen’s job knowledge was focused on the office work, administrative part of the process,” he told the jury.
Mann had limited discretion and needed approval on anything that cost Pilot, her attorney added.
“The government wants you to think that she did this on her own,” Cooper said.
And while Cooper said he was not trying to say that she was simply following orders, “She trusted these men. She trusted what they had to tell her.”
Cooper said Mann’s voice will not appear on sound recordings presented during trial. As for witnesses, he said they are asked to recreate something that happened in 2008 – nine years ago.
“It is the government’s burden to prove what was in Karen Mann’s head,” Cooper said.
As the second day wound to a close, the prosecution called its first witness, Janet Welch, an inside sales representative who will take to the stand again on Wednesday, the third day of a trial that is expected to run at least six weeks.