Story updated 2/11/2020 to reflect CH Robinson DOES have an active PACA license #20001042 and can be viewed here
New details regarding the massive lawsuit filed against CH Robinson are just now coming to light. Freight Broker Live was the first freight media company to cover this lawsuit, which was filed January 16th, 2020 in the U.S. District Court in Minneapolis. Our breaking news story can be read here. Read the full complaint at the bottom of this article
A group of farmers located in both North and South America have filed a massive lawsuit against mega broker CH Robinson claiming the third-party logistics company skimmed profits from their wholesale produce suppliers, which caused some of the suppliers to go under, court documents obtained by Freight Broker Live aledge.
Most do not know that Robinson started out as a wholesale produce brokerage house buying,selling and marketing of produce from farmers and wholesaling it to grocery chains. According to their website, Robinson is one of North America’s largest wholesale produce suppliers.
The lead plaintiff David Moore, along with over a dozen or so farmers from two continents filed the lawsuit alleging Robinson, skimmed profits from transportation services, misappropriated rebates and hid profit income from the farmers which violated the Perishable Agricultural Commodities Act (PACA).
What is the Perishable Agricultural Commodities Act?
The Perishable Agricultural Commodities Act (PACA) was enacted at the request of the fruit and vegetable industry to promote fair trade in the industry. According to the the United States Department of Agriculture, PACA protects business dealing in fresh and frozen fruits and vegetables by establishing and enforcing a code of fair business practices and helps businesses resolve disputes. According to the statute, 7 U.S. Code § 499c, “After December 10, 1930, no person shall at any time carry on the business of a commission merchant, dealer, or broker without a license valid and effective at such time.” Neither C.H Robinson or Robinson Fresh appear to hold such a license, the complaint alleges. Robinson does have a license as well as 26 registered branch licenses.
Under PACA, it is unlawful “for a commission merchant, dealer, or broker “to make, for a fraudulent purpose, any false or misleading statement in connection with any transaction involving any perishable agricultural commodity”; “to fail, without reasonable cause, to perform any specification or duty, express or implied, arising out of any undertaking in connection with any such transaction”; and “to fail or refuse truly and correctly to account and make full payment promptly” with respect to any transaction.
The complaint alleges “CHR Worldwide, CHR Company, and CHR Inc., acting through their common executive officers and other employees, jointly engaged in illegal, unfair, unconscionable, and deceptive business practices to gain an economic advantage over its law-abiding competitors by defrauding struggling Growers.”
The first example of these deceptive practices is laid out early in the complaint, the plaintiffs allege a “pinkwashing” scheme where Robinson promises to donate a portion of the proceeds off the sale to retailers of watermelon to breast cancer organizations, while allegedly “What Robinson Fresh neglects to inform its prospective customers and the general public is that it is secretly charging the Growers for all the money Robinson Fresh claims it is donating and that it never told the Growers it was overcharging them,” the complaint alleges.
The complaint also alleges that Robinson also received rebates of fees paid by shippers for pallets, seeds and “additional reduction of 2% of freight charges made by carriers” without notifying the growers of this discount and reported retained these rebates without passing them on to the growers.
Cooking the Books (Allegedly)
The complaint lays out a transportation scheme where they allege Robinson uses two separate account systems. A produce software named “Famous” which generates consignment grower accountings that are open to both grocers and the United States Department of Agriculture’s PACA division, and a separate “secret” system for “freight revenues and expenses” called Navisphere.
According to the complaint, accountings of freight costs and revenues in Navisphere are not provided growers “even though these freight revenues and expenses are generated from the sales of the respective growers’ produce” and “that freight revenues from each shipment of Plaintiffs’ produce resulted directly from each Plaintiff consigning such produce to Robinson Fresh.”
According to the complaint “although Robinson Fresh’s sole compensation for services provided under the Agreements was to be its sales commission of the true FOB price, it engaged in conduct to receive additional revenue that belonged to Plaintiffs and other growers and failed to disclose and seek authorization for expenditure of Plaintiffs’ proceeds of sale.”
Allegations of “freight topping”
According to the complaint, Robinson would broker out loads from the growers to the customer and “obtained additional undisclosed net revenue from the consignment agreement with Plaintiffs, over and above the agreed commission collected by it.”
To make extra revenue from loads moved through their brokerage, Robinson allegedly used two methods to conceal the profit. Either adding additional shipping cost to the FOB price of the goods, and retaining a portion of the transportation costs separate from the customer invoice which was shared with the growers resulting in additional profit for Robinson outside of their agreements with the growers.
The complaint alleges:
Robinson Fresh had an economic incentive to self-deal at the expense of its growers such as Plaintiffs. If Robinson Fresh had merely passed through the cost of transportation without a hidden, unauthorized transportation profit, it would have received only the agreed upon percentage of the true sales price as commissions—the same as its honest competitors—the remainder of the customer purchase price above the charge by the trucker would be proceeds payable to the grower, such as Plaintiffs.
By allocating additional revenue on a customer sale to transportation over and above what was charged by the transportation supplier, Robinson Fresh retained for itself all the additional undisclosed revenue over and above the true transportation cost instead of limiting itself to the contractually agreed sales commissions.
The complaint says “freight topping” occurred by offering a 2% reduction on carrier invoices for prompt payment of carrier invoices for loads hauled, also known in the trucking world as quick-pay. Robinson reportedly did not disclose or pass on this to its growers. Robinson was required by its contracts and federal laws to accurately account for all produce received on consignment, but instead provided “false or incomplete accountings” of sales.