Case 1:19-cv-01747-UNA Document 1 Filed 09/17/19 Page 1 of 44 PageID #: 1

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
JASON FLAKER, Derivatively on Behalf of
FEDEX CORPORATION,
Case No.:________________
Plaintiff,
v.
VERIFIED STOCKHOLDER
DERIVATIVE COMPLAINT

JAMES L. BARKSDALE, JOHN A.
EDWARDSON, MARVIN R. ELLISON,
SUSAN PATRICIA GRIFFITH, JOHN C.
INGLIS, ALAN B. GRAF, KIMBERLY A.
JABAL, SHIRLEY ANN JACKSON, R.
BRAD MARTIN, JOSHUA COOPER
RAMO, SUSAN C. SCHWAB, FREDERICK
W. SMITH, DAVID P. STEINER, PAUL S.
WALSH, DAVID J. BRONCZEK, RAJESH
SUBRAMANIAM, DAVID L.
CUNNINGHAM, DONALD F. COLLERAN,
and MICHAEL C. LENZ,

JURY TRIAL DEMANDED

Defendants,
-andFEDEX CORPORATION,
Nominal Defendant.
Plaintiff Jason Flaker (“Plaintiff”), by his undersigned attorneys, derivatively and on behalf
of nominal defendant FedEx Corporation (“FedEx” or the “Company”), submits this Verified
Stockholder Derivative Complaint against defendants James L. Barksdale (“Barksdale”), John A.
Edwardson (“Edwardson”), Marvin R. Ellison (“Ellison”), Susan Patricia Griffith (“Griffith”),
John C. Inglis (“Inglis”), Alan B. Graf (“Graf”), Kimberly A. Jabal (“Jabal”), Shirley Ann Jackson
(“Jackson”), R. Brad Martin (“Martin”), Joshua Cooper Ramo (“Ramo”), Susan C. Schwab
(“Schwab”), Frederick W. Smith (“Smith”), David P. Steiner (“Steiner”), and Paul S. Walsh

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(“Walsh”), David J. Bronczek (“Bronczek”), Rajesh Subramaniam (“Subramaniam”), David L.
Cunningham (“Cunningham”), Donald F. Colleran (“Colleran”), and Michael C. Lenz (“Lenz”
and, collectively, the “Individual Defendants”), for breaches of their fiduciary duties, corporate
waste, and unjust enrichment. Plaintiff alleges the following upon personal knowledge as to
himself and his own acts, and upon information and belief as to all other matters, based on the
investigation conducted by his attorneys, which included a review of:

the Company’s

announcements and press releases; the pleadings filed in two federal securities class action lawsuits
captioned, Rhode Island Laborers’ Pension Fund v. FedEx Corporation, No. 1:19-cv-05990
(S.D.N.Y.), and Karp v. FedEx Corporation, No. 1:19-cv-06183 (S.D.N.Y.) (together, the
“Securities Actions”); filings made by the Company with the U.S. Securities Exchange
Commission (the “SEC”); corporate governance documents available on the Company’s website;
securities analysts’ reports about FedEx; and news reports and other publicly available information
about the Company.
NATURE OF THE ACTION
1.

This stockholder derivative action arises from the Individual Defendants’ breaches

of fiduciary duties owed to the Company, as well as their complicity in constructive fraud,
corporate waste, unjust enrichment, and violations of the Securities Exchange Act of 1934, from
September 19, 2017 through December 18, 2018(the “Relevant Period”).
2.

FedEx provides customer and businesses worldwide with a broad portfolio of

transportation, e-commerce, and business services. Since its inception, FedEx generated most of
its revenues in the United States. In its 2016 fiscal year, 1 for instance, FedEx generated 76% of
its revenue from its U.S. operations. And although FedEx generated a significant amount of

1

FedEx’s fiscal year ends on May 31, so FedEx’s 2016 fiscal year ended May 31, 2016.
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revenue internationally, the Company lagged behind its competitors, especially in Europe, and
wanted to increase its market share.
3.

On April 7, 2015, FedEx announced that it had reached an agreement to acquire

Netherlands-based TNT Express N.V. (“TNT”), one of the world’s largest express delivery
companies, for $4.8 billion in cash. FedEx completed the acquisition on May 25, 2016. To date,
the acquisition of TNT has been FedEx’s largest ever acquisition, and it raised the Company’s
international revenues as a percentage of FedEx’s total revenues from 24% in FY2016 to 33% in
FY2017.
4.

After completing the acquisition, FedEx immediately began working to integrate

TNT’s business into FedEx’s legacy European operations. FedEx initially acknowledged that the
complete integration could take a number of years. However, on March 31, 2017, roughly ten
months after acquiring TNT, FedEx issued a three-year operating improvement target to achieve
a $1.2 billion to $1.5 billion operating income improvement above its fiscal 2017 results (the “TNT
Income Improvement Target”).
5.

Unfortunately, TNT (now a subsidiary of FedEx) fell victim to a global cyberattack

known as NotPetya, which spread a malware virus throughout its target’s computer systems (the
“Cyberattack”). The Cyberattack is considered one of the largest cyberattacks in history, causing
more than $10 billion in harm to its victims. As a result of the Cyberattack, which was announced
in a press release on June 28, 2017, TNT’s operations were severely impacted during the critical
period of the integration process into FedEx’s legacy European operations.
6.

Unknown to investors, however, FedEx began releasing materially false and

misleading information beginning on September 19, 2017, when it released the Company’s 2018
Q1 results. During the related earnings call, the Individual Defendants assured investors that all

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critical TNT systems were fully restored, and the remediation efforts would be completed by the
end of September 2017. The Individual Defendants also reaffirmed the TNT Income Improvement
Target. As a result, analysts issued positive reviews of FedEx, and FedEx’s stock price increased
2.1% on September 20, 2017.
7.

Throughout the Relevant Period, the Individual Defendants continued to assure

investors about TNT’s recovery from the Cyberattack and reaffirmed the TNT Income
Improvement Target.
8.

In reality, the Individual Defendants made materially false and misleading

statements and/or failed to disclose that: (i) TNT’s overall package volume growth was slowing
as TNT’s large customers permanently took their business to competitors after the Cyberattack;
(ii) as a result of the customer attrition, TNT was experiencing an increased shift in product mix
from higher-margin parcel services to lower-margin freight services; (iii) the anticipated costs and
timeframe to integrate and restore the TNT network were significantly larger and longer than
disclosed; (iv) FedEx was not on track to achieve the TNT Income Improvement Target; and (v) as
a result of the undisclosed negative trends and cost issues, FedEx’s positive statements about
TNT’s recovery from the Cyberattack, integration into FedEx’s legacy operations, customer mix,
customer service levels, profitability, and prospects lacked a reasonable basis.
9.

Beginning on June 19, 2018, FedEx made several disclosures revealing the falsity

of its previous representations. Nevertheless, the Individual Defendants continued to assure
investors that FedEx’s TNT business had successfully recovered from the Cyberattack and would
still be able to meet the TNT Income Improvement Target.
10.

The full extent of FedEx’s material misrepresentations and omissions regarding

TNT were revealed to investors on December 18, 2018, when FedEx reported a large profit miss

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for its 2019 Q2. FedEx revealed that the large profit miss was due to lower package volumes in
Europe and a negative shift in TNT’s product mix to lower margin freight business following the
Cyberattack. FedEx also lowered its earnings guidance and announced that the TNT Income
Improvement Target was no longer viable. On this news, FedEx stock dropped 12.2% to $162.51
per share on December 19, 2018.
11.

In addition, on August 13, 2018, certain of the Individual Defendants negligently

issued a materially false and misleading Proxy Statement (the “2018 Proxy”) urging stockholders
to re-elect the Board under false pretenses.
12.

As a direct and proximate result of the Individual Defendants’ breaches of fiduciary

duties and other misconduct, FedEx has sustained damages more fully described below.
JURISDICTION AND VENUE
13.

This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1331 in that the

Complaint states a federal question. The Court has supplemental jurisdiction over the state law
claims asserted herein pursuant to 28 U.S.C. § 1367(a).
14.

This Court has personal jurisdiction over each defendant because they have

sufficient minimum contacts with this District to render the exercise of jurisdiction by the Court
permissible under traditional notions of fair play and substantial justice. The Court has personal
jurisdiction over nominal defendant FedEx because it is authorized to do business in this state, has
consented to service in this state, and is incorporated within this District.
15.

Venue is proper in this District pursuant to 28 U.S.C. § 1391 because (i) a

substantial portion of the transactions and wrongs complained of herein occurred in this District
and (ii) Defendants have received substantial compensation and other transfers of money in the
District by doing business and engaging in activities having an effect in this District.

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PARTIES
16.

Plaintiff is a current stockholder of FedEx common stock and has continuously held

FedEx common stock since October 2014. Thus, Plaintiff was a stockholder at the time of the
transactions complained of herein. Plaintiff is a citizen of Illinois.
17.

Nominal Defendant FedEx is a Delaware corporation headquartered in Memphis,

Tennessee. FedEx’s common stock is listed on the New York Stock Exchange under the symbol
“FDX.”
18.

Defendant Barksdale served as a director of the Company from 1999 to September

2018. In addition, Barksdale served on the Board’s Information Technology Oversight Committee
(the “IT Oversight Committee”) during the Relevant Period.
19.

Defendant Edwardson has served as a director of the Company since 2003.

Edwardson served as the Chair of the Board’s Audit committee (the “Audit Committee”) during
the Relevant Period. While the Company’s stock price was inflated, Edwardson sold the following
shares with insider information regarding the Company’s market manipulation, false and
misleading statements, and lack of internal controls, all of which resulted in the Company’s stock
trading at artificially-inflated prices at the time of his stock sale:
Date
September 19, 2018

20.

Number of
Shares
1,160

Price

Proceeds

$242.30

$281,124

Defendant Ellison has served as a director of the Company since 2014. In addition,

Ellison served on the IT Oversight Committee during the Relevant Period.
21.

Defendant Graf has served as the Company’s Chief Financial Officer since 1998.

Graf is named as a defendant in the Securities Actions. While the Company’s stock price was
inflated, Graf sold the following shares with insider information regarding the Company’s market

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manipulation, false and misleading statements, and lack of internal controls, all of which resulted
in the Company’s stock trading at artificially-inflated prices at the time of his stock sale:
Date
December 21, 2017

22.

Number of
Shares
24,100

Price

Proceeds

$249.40

$6,011,093

Defendant Griffith has served as a director of the Company since March 2018.

Additionally, Griffith served as a member of the IT Oversight Committee during the Relevant
Period.
23.

Defendant Inglis has served as a director of the Company since 2015. Additionally,

Inglis served as the Chair of the IT Oversight Committee during the Relevant Period.
24.

Defendant Jabal has served as a director of the Company since 2013. In addition,

Jabal served as a member of the Audit Committee and IT Oversight Committee during the Relevant
Period. While the Company’s stock price was inflated, Jabal sold the following shares with insider
information regarding the Company’s market manipulation, false and misleading statements, and
lack of internal controls, all of which resulted in the Company’s stock trading at artificially-inflated
prices at the time of her stock sale:
Date
November 1, 2017

25.

Number of
Shares
3,980

Price

Proceeds

$225.60

$897,703

Defendant Jackson has served as a director of the Company since 1999. In addition,

Jackson served as a member of the Audit Committee during the Relevant Period. While the
Company’s stock price was inflated, Jackson sold the following shares with insider information
regarding the Company’s market manipulation, false and misleading statements, and lack of

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internal controls, all of which resulted in the Company’s stock trading at artificially-inflated prices
at the time of her stock sale:
Date
November 2, 2017

26.

Number of
Shares
3,730

Price

Proceeds

$225.70

$841,860

Defendant Martin has served as a director of the Company since 2011. In addition,

Martin served as a member of the Audit Committee during the Relevant Period.
27.

Defendant Ramo has served as a director of the Company since 2011. In addition,

Ramo served as a member of the Audit Committee and IT Oversight Committee during the
Relevant Period.
28.

Defendant Schwab has served as a director of the Company since 2009. In addition,

Schwab served as a member of the IT Oversight Committee during the Relevant Period.
29.

Defendant Smith, the founder of the Company, has served as a director, Chairman

of the Board and Chief Executive Officer (“CEO”) of the Company since 1998. Smith is named
as a defendant in the Securities Actions. While the Company’s stock price was inflated, Smith
sold the following shares with insider information regarding the Company’s market manipulation,
false and misleading statements, and lack of internal controls, all of which resulted in the
Company’s stock trading at artificially-inflated prices at the time of his stock sale:
Date
April 18, 2018

30.

Number of
Shares
124,000

Price

Proceeds

$256

$31,742,181

Defendant Steiner has served as a director of the Company since 2009. While the

Company’s stock price was inflated, Steiner sold the following shares with insider information
regarding the Company’s market manipulation, false and misleading statements, and lack of

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internal controls, all of which resulted in the Company’s stock trading at artificially-inflated prices
at the time of his stock sale:
Date
January 5, 2018

31.

Number of
Shares
3,016

Price

Proceeds

$266

$802,405

Defendant Walsh has served as a director of the Company since 1996. While the

Company’s stock price was inflated, Walsh sold the following shares with insider information
regarding the Company’s market manipulation, false and misleading statements, and lack of
internal controls, all of which resulted in the Company’s stock trading at artificially-inflated prices
at the time of his stock sale:
Date
April 18, 2018

32.

Number of
Shares
4,400

Price

Proceeds

$255

$1,122,000

Defendant Bronczek was the Company’s Chief Operating Officer (“COO”) and

President during the Relevant Period. Bronczek retired from the Company in February 2019.
Bronczek is named as a defendant in the Securities Actions. While the Company’s stock price was
inflated, Bronczek sold the following shares with insider information regarding the Company’s
market manipulation, false and misleading statements, and lack of internal controls, all of which
resulted in the Company’s stock trading at artificially-inflated prices at the time of his stock sale:
Date
January 2, 2018

33.

Defendant

Number of
Shares
46,555

Subramaniam

was

Price

Proceeds

$225.50

$11,894,261

the

Company’s

Chief

Marketing

and

Communications Officer and Executive Vice President (“EVP”) during the Relevant Period.
Subramaniam currently serves as the Company’s COO and President. Subramaniam is named as
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a defendant in the Securities Actions.

While the Company’s stock price was inflated,

Subramaniam sold the following shares with insider information regarding the Company’s market
manipulation, false and misleading statements, and lack of internal controls, all of which resulted
in the Company’s stock trading at artificially-inflated prices at the time of his stock sale:
Date
September 21, 2017

34.

Number of
Shares
6,750

Price

Proceeds

$219.60

$1,482,401

Defendant Cunningham was President and CEO of FedEx Express during the

Relevant Period. Cunningham retired from the Company in December 2018. Cunningham is
named as a defendant in the Securities Actions.
35.

Defendant Colleran was the Company’s Chief Sales Officer and EVP during the

Relevant Period. Additionally, Colleran currently serves as FedEx Express’s President and CEO.
Colleran is named as a defendant in the Securities Actions. While the Company’s stock price was
inflated, Colleran sold the following shares with insider information regarding the Company’s
market manipulation, false and misleading statements, and lack of internal controls, all of which
resulted in the Company’s stock trading at artificially-inflated prices at the time of his stock sale:
Date
September 21, 2017

36.

Number of
Shares
10,000

Price

Proceeds

$220

$2,200,002

Defendant Lenz was the Company’s Treasurer and Corporate Vice President during

the Relevant Period. Lenz is named as a defendant in the Securities Actions.
37.

Defendants Edwardson, Ellison, Griffith, Inglis, Jabal, Jackson, Martin, Ramo,

Schwab, Smith, Steiner, and Walsh are collectively referred to herein as the “Director Defendants.”

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38.

Defendants Smith, Graf, Bronczek, Subramaniam, Cunningham, Colleran, and

Lenz are collectively referred to herein as the “Officer Defendants.”
39.

Defendants Edwardson, Jabal, Jackson, Martin, and Ramo are collectively referred

to herein as the “Audit Committee Defendants.”
40.

Defendants Barksdale, Inglis, Ellison, Griffith, Jabal, Ramo, and Schwab are

collective referred to herein as the “IT Oversight Committee Defendants.”
41.

Defendants Edwardson, Graf, Jackson, Smith, Steiner, Walsh, Bronczek,

Subramaniam, Colleran are collectively referred to herein as the “Insider Selling Defendants.”
42.

The Individual Defendants participated in the issuance and preparation of

materially false and/or misleading statements by FedEx, including press releases and SEC filings.
Because of the Individual Defendants’ positions with FedEx, they were aware of the adverse
material non-public information about the business of FedEx, as well as its finances, markets, and
present and future business prospects, via access to internal corporate documents, conversations
and connections with other corporate officers and employees, attendance at management and/or
Board meetings and committees thereof, and via reports and other information provided to them
in connection therewith.
DUTIES OF THE INDIVIDUAL DEFENDANTS
43.

By reason of their positions as officers and/or directors of FedEx, and because of

their ability to control the business and corporate affairs of the Company, the Individual
Defendants owe the Company and its stockholders the fiduciary obligations of good faith, loyalty,
and candor and are required to use their utmost ability to control and manage the Company in a
fair, just, honest, and equitable manner.

The Individual Defendants are required to act in

furtherance of the best interests of the Company and its stockholders so as to benefit all
stockholders equally, and not in furtherance of their personal interest or benefit. Each officer and
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director owes to the Company and its stockholders the fiduciary duty to exercise good faith and
diligence in the administration of the affairs of the Company and in the use and preservation of its
property and assets, and the highest obligations of fair dealing.
44.

The Individual Defendants, because of their positions of control and authority as

officers and/or directors of the Company, directly and/or indirectly, exercised control over the
wrongful acts complained of herein.
45.

As senior executive officers, directors, and/or controlling stockholders of a

publicly-traded company, the Individual Defendants had a duty to prevent the dissemination of
inaccurate and untruthful information regarding FedEx’s financial condition, performance,
growth, operations, financial statements, business, management, earnings, internal controls, and
business prospects, so as to ensure that the market price of the Company’s common stock would
be based upon truthful and accurate information.
46.

To discharge their duties, the officers and directors of FedEx were required to

exercise reasonable and prudent supervision over the management, policies, practices, and internal
controls of the Company. By virtue of such duties, the officers and directors of FedEx were
required to, among other things:
a.

ensure that the Company complied with its legal obligations and

requirements, including acting only within the scope of its legal authority and disseminating
truthful and accurate statements to the SEC and the investing public;
b.

conduct the affairs of the Company in a lawful, efficient, business-like

manner to provide the highest quality performance of its business, to avoid wasting the Company’s
assets, and to maximize the value of the Company’s stock;

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c.

refrain from unduly benefiting themselves and other Company insiders at

the expense of the Company;
d.

properly and accurately guide investors and analysts as to the true financial

condition of the Company at any given time, including making accurate statements about the
Company’s financial results and prospects, and ensuring that the Company maintained an adequate
system of financial controls such that the Company’s financial reporting would be true and
accurate at all times;
e.

remain informed as to how the Company conducted its operations, and,

upon receipt of notice or information of imprudent or unsound conditions or practices, make
reasonable inquiry in connection therewith, and take steps to correct such conditions or practices
and make such disclosures as necessary to comply with federal and state securities laws; and
f.

ensure that the Company is operated in a diligent, honest, and prudent

manner in compliance with all applicable federal, state, and local laws, rules, and regulations.
47.

The conduct of the Individual Defendants complained of herein involves a knowing

and culpable violation of their obligations as officers and directors of the Company, the absence
of good faith on their part, or a reckless disregard for their duties to the Company and its
stockholders, which the Individual Defendants were aware, or should have been aware, posed a
risk of serious injury to the Company.
48.

In addition, FedEx maintains a Code of Business Conduct and Ethics (the “Code”),

pursuant to which the Individual Defendants were required to “comply[ ] with the law wherever
[FedEx] operate[s] and maintaining a high standard of business and personal ethics.” FedEx also
maintains Corporate Governance Guidelines (the “Guidelines”). The Guidelines explicitly state:

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Basic Responsibilities of Board Members.
The fundamental responsibility of members of the Company’s Board of Directors
is to promote the best interests of the Company and its stockholders by overseeing
the management of the Company's business and affairs. In doing so, Board
members have two basic legal obligations to the Company and its stockholders: (a)
the duty of care, which generally requires that Board members exercise appropriate
diligence in making decisions and in overseeing management of the Company, and
(b) the duty of loyalty, which generally requires that Board members make
decisions based on the best interests of the Company and its stockholders and
without regard to any personal interest.
Board Risk Oversight.
The Board of Directors has ultimate responsibility for risk oversight. While
management has day-to-day responsibility for assessing and managing the
Company’s risk exposure, the Board of Directors and its committees provide
oversight in connection with those efforts, with particular focus on ensuring that
the Company’s risk management practices are adequate and regularly reviewing
the most significant risks facing the Company. The Board of Directors has
delegated to each of its committees responsibility for the oversight of specific risks
that fall within the committee’s areas of responsibility.
Corporate Integrity and Compliance.
The Board of Directors is responsible for monitoring the Company’s compliance
with legal and regulatory requirements and overseeing the Company's corporate
integrity and compliance programs. The Board has delegated much of this
responsibility to the Audit Committee. In furtherance of this responsibility, the
Audit Committee will periodically discuss the implementation and effectiveness of
the Company’s corporate integrity and compliance programs with the Company’s
Executive Vice President, General Counsel and Secretary and Corporate Vice
President and Global Chief Compliance & Governance Officer. In addition, the
Audit Committee will periodically review the Company’s Code of Business
Conduct and Ethics, which sets forth the basic ethical principles all Board members,
officers, employees and contractors must follow, and recommend any proposed
changes to the Board of Directors for approval.
Employees, officers and directors must honestly and accurately report all business
transactions. You are responsible for the material accuracy of your records and
reports. Accurate record keeping and reporting are essential to the Company’s
ability to meet legal and regulatory obligations. All Company books, records and
accounts shall be maintained in accordance with all applicable regulations and
standards and accurately reflect the true nature of the transactions they record in all
material respects. The financial statements of the Company shall conform in all
material respects to generally accepted accounting principles and the Company’s
accounting policies. No undisclosed or unrecorded account or fund shall be

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established for any purpose. No false or misleading entries shall be made in the
Company’s books or records for any reason, and no disbursement of corporate
funds or other corporate property shall be made without adequate supporting
documentation. It is the policy of the Company to provide full, fair, accurate,
timely and understandable disclosure in reports and documents filed with, or
submitted to, the Securities and Exchange Commission and in all other public
communications.
49.

In addition, the Company’s Audit Committee is specifically tasked with the Board’s

oversight responsibilities.

The purpose of the Audit Committee is governed by the Audit

Committee Charter, which states:
The purpose of the Audit Committee is to:
• Oversee the independent auditor’s qualifications, independence and performance,
and preapprove all audit and allowable non-audit services to be provided by the
independent auditor;
• Assist Board oversight of (i) the integrity of the Company’s financial statements
and other financial information; (ii) the effectiveness of the Company’s disclosure
controls and procedures and internal control over financial reporting; (iii) the
performance of the Company’s internal auditors; and (iv) the Company’s integrity
and compliance programs, including compliance with legal and regulatory
requirements; and
• Prepare the audit committee report required to be included in the Company’s
annual proxy statement.
50.

The Audit Committee Charter states the responsibilities of the Audit Committee

members as follows:
Financial Reporting
10. Review and discuss with management and the independent auditor the
Company’s quarterly and annual financial reports, including management's
discussion and analysis of financial condition and results of operations, any
certification, report, opinion or review rendered by the independent auditor in
connection with such reports and any communications required by professional
standards between the independent auditor and the Committee prior to the public
release of such information.
11. Recommend to the Board of Directors whether the audited annual financial
statements should be included in the Company’s Annual Report on Form 10-K.

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12. Review and discuss with management and the independent auditor (i)
significant accounting and financial reporting issues and judgments made in
connection with the preparation of the Company’s financial statements and other
public reports, including the Company's selection and application of significant
accounting principles; (ii) any major issues as to the adequacy of the Company’s
internal controls and any special audit steps adopted in light of material control
deficiencies; (iii) the development, selection and disclosure of critical accounting
policies and estimates; (iv) the effect of financial reporting and accounting
initiatives and any related party or off-balance sheet transactions on the Company’s
financial statements; and (v) any analyses prepared by management or the
independent auditor of the effect of alternative assumptions, estimates or GAAP
methods on the Company's financial statements.
13. Review and discuss generally with management the types of information to be
disclosed and the types of presentations to be made in the Company’s earnings press
releases and in any financial information and earnings guidance provided by the
Company to analysts and rating agencies.
Internal Control Structure
14. Review, and discuss with management, the independent auditor and the
Corporate Vice President - Internal Audit the adequacy and effectiveness of the
Company’s (i) financial reporting procedures and (ii) internal control structure,
including its disclosure controls and procedures and internal control over financial
reporting (including any material weaknesses, significant deficiencies or significant
changes to internal controls).
15. Review and discuss with management, the independent auditor and the
Corporate Vice President - Internal Audit the Company’s annual internal control
report and the independent auditor's attestation to such report.
16. Periodically receive reports from and consult with the Information Technology
Oversight Committee of the Board of Directors regarding IT systems and processes
that relate to or affect the Company’s internal control systems.
Risk Assessment and Risk Management
17. Review and discuss with management and the Board of Directors (i) the
guidelines and policies that govern the processes by which the Company assesses
and manages its exposure to risk and (ii) the Company's major financial and other
risk exposures and the steps management has taken to monitor and control such
exposures.
Corporate Integrity and Compliance

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18. Oversee and discuss with the Company's Executive Vice President, General
Counsel and Secretary and its Corporate Vice President and Global Chief
Compliance & Governance Officer the Company’s compliance with legal and
regulatory requirements and the implementation and effectiveness of the
Company’s corporate integrity and compliance programs, including the Company's
Code of Business Conduct and Ethics. The Executive Vice President, General
Counsel and Secretary and the Corporate Vice President and Global Chief
Compliance & Governance Officer have authority to communicate directly with
the committee.
19. Periodically review the Company’s Code of Business Conduct and Ethics and
recommend any proposed changes to the Board of Directors for approval.
20. Review and make recommendations to the Board of Directors regarding
potential waivers of the Company’s Code of Business Conduct and Ethics
involving Board members or executive management.
21. Review and discuss with the Executive Vice President, General Counsel and
Secretary, the Executive Vice President and Chief Financial Officer, other members
of management, as appropriate, and the independent auditor any correspondence
with, or other action by, regulators or governmental agencies and any employee
complaints or published reports that raise material issues regarding the Company’s
financial statements or accounting policies.
22. Discuss with the Company’s Executive Vice President, General Counsel and
Secretary any legal matters that may have a material impact on the Company’s
financial statements, operations or reputation.
23. Review and discuss with the independent auditor any information obtained from
the independent auditor with respect to illegal acts in accordance with Section 10A
of the Securities Exchange Act of 1934, as amended.
24. Periodically review the Company’s procedures for (i) the receipt, retention and
treatment of complaints or concerns regarding financial fraud or accounting,
internal accounting controls or auditing matters; and (ii) the confidential,
anonymous submission by Company employees of complaints or concerns
regarding financial fraud or questionable accounting or auditing matters.
51.

In violation of the Audit Committee Charter, and their general duties as members

of the Audit Committee, the Audit Committee Defendants conducted little, if any, oversight of the
Company’s internal controls over public disclosures resulting in materially false and misleading
statements regarding the Company’s business, operational and compliance policies, and

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consciously disregarded their duties to monitor such controls over reporting.

The Audit

Committee Defendants’ complete failure to perform their duties in good faith resulted in
misrepresentations to the SEC, the investing public, and the Company’s shareholders.
52.

Further, the Company’s IT Oversight Committee is specifically tasked with the

Board’s oversight responsibilities regarding information technology issues. The purpose of the IT
Oversight Committee is governed by the IT Oversight Committee Charter, which states:
The purpose of the Information Technology Oversight Committee
is to:
• Review major information technology (“IT”)-related projects and
technology architecture decisions;
• Assess whether the Company’s IT programs effectively support
the Company’s business objectives and strategies;
• Assist Board oversight of cybersecurity risks and management
efforts to monitor and mitigate those risks;
• Advise the Company’s senior IT management team; and
• Advise the Board of Directors on IT-related matters.
53.

The IT Oversight Committee Charter states the responsibilities of the IT Oversight

Committee members as follows:
Cybersecurity
4. Review and discuss with management and the Board of Directors (i) the
Company’s cybersecurity risks and (ii) the steps management has taken to identify,
assess and monitor those risks.
5. Review and discuss with management (i) technologies, policies, processes and
practices for managing and mitigating cybersecurity risks and (ii) the Company’s
cyber-attack incident response and recovery plan.
IT Disaster Recovery
6. Review and discuss with management the Company’s IT disaster recovery
capabilities and contingency plans.

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Internal Controls
7. Review and discuss with management the quality and effectiveness of IT systems
and processes that relate to or affect the Company’s internal control systems.
8. Review and discuss with management and the Board of Directors (i) the
Company’s IT-related compliance risks, including IT-related internal audits, and
(ii) the steps management has taken to identify, assess, monitor, manage and
mitigate those risks.
9. Periodically report to and consult with the Audit Committee of the Board of
Directors regarding IT systems and processes that relate to or affect the Company’s
internal control systems.
Advisory Role
10. Advise the Company’s senior IT management team.
11. Stay informed of, assess and advise the Company’s senior IT management team
with respect to new technologies, applications and systems that relate to or affect
the Company’s IT strategy or programs.
54.

In violation of the IT Oversight Committee Charter, and their general duties as

members of the IT Oversight Committee, the IT Oversight Committee Defendants conducted little,
if any, oversight of the Company’s internal controls over the Company’s IT matters, resulting in
materially false and misleading statements regarding the Company’s business, operational and
compliance policies, and consciously disregarded their duties to monitor such controls. The IT
Oversight Committee Defendants’ complete failure to perform their duties in good faith resulted
in misrepresentations to the SEC, the investing public, and the Company’s shareholders.
55.

In addition, as executive officers and directors of a publicly-traded company whose

common stock was registered with the SEC pursuant to the Exchange Act, the Individual
Defendants had a duty not to effect the dissemination of inaccurate and untruthful information
with respect to the Company’s financial condition, performance, growth, operations, financial
statements, business, products, management, earnings, internal controls, and present and future

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business prospects, so that the market price of the Company’s common stock would be based upon
truthful and accurate information. Accordingly, the Individual Defendants breached their fiduciary
duties by knowingly or recklessly causing the Company to make false and misleading statements
of material fact about the Company’s maintaining adequate internal controls and compliance with
applicable rules and regulations.
56.

The Individual Defendants’ flagrant violations of their fiduciary duties and

unwillingness to heed the requirements of their own company’s Code, Audit Committee Charter,
and IT Oversight Committee Charter have inflicted, and will continue to inflict, significant harm
on FedEx, as detailed herein.
ADDITIONAL SUBSTANTIVE ALLEGATIONS
Background of FedEx
57.

FedEx is a multinational courier delivery services company headquartered in

Memphis, Tennessee. The Company is known for its overnight shipping service and pioneering a
system that could track packages and provide real-time updates on package location, a feature that
has now been adopted by most other carrier services.
58.

FedEx provides a broad portfolio of transportation, e-commerce, and business

services through companies competing collectively, operating independently, and managed
collaboratively, under the respected FedEx brand. These companies are broken into various
business segments; FedEx Express, FedEx Ground, FedEx Freight, and FedEx Services, among
others. FedEx Express is the world’s largest express transportation company, offering timedefinite delivery to more than 220 countries and territories.
59.

FedEx Ground is a leading North American provider of small-package ground

delivery services. FedEx Freight is a leading North American provider of less-than-truckload
freight services.

FedEx Services provides sales, marketing, information technology,
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communication, customer service, technical support, billing and collection services, and certain
back-offline functions that support FedEx’s transportation segments.
FedEx Acquires TNT for $4.8 Billion
60.

Although FedEx’s U.S. business is strong, accounting for 76% of the Company’s

revenues in FY2016 and commanding a substantial market share domestically, FedEx competes
against UPS, DHL International GmbH (“DHL”), and other carriers internationally.
61.

To better compete internationally and boost its European presence, especially,

FedEx announced on April 7, 2015 that it had entered into an agreement to acquire TNT, a
Netherlands-based shipping company, for $4.8 billion. The proposed acquisition would be
FedEx’s largest acquisition since the Company’s inception.
62.

In a call with analysts held on the same day, the Company’s executives touted the

benefits of the proposed acquisition of TNT, including the synergies that would be generated from
the Company’s legacy operations in Europe and TNT’s business.
63.

The acquisition of TNT closed on July 4, 2016, after receiving approvals from

TNT’s shareholders and multiple regulatory bodies.
64.

After the acquisition was completed, FedEx pushed onward to integrate its legacy

European business with TNT’s business. During the integration process, on March 31, 2017,
FedEx announced that TNT’s financial results would be combined with its FedEx Express
reporting segment, which would mean that public investors could no longer see TNT’s operational
results on a standalone basis.
65.

With the combined reporting in place, FedEx set the TNT Income Improvement

Target, which would measure FedEx Express’s operating income improvement over a three-year
period attributable to the synergies created by acquiring TNT. The TNT Income Improvement

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Target was set between $4.0 billion and $4.3 billion in fiscal 2020 as compared to $2.8 billion in
operating income in fiscal 2017.
66.

About a year after the TNT acquisition was completed, on June 27, 2017, various

news outlets reported that TNT’s computer systems were experiencing outages due to a potential
cyberattack. Later that day, FedEx confirmed that TNT was subject to cyberattacks.
67.

The next day, FedEx announced that TNT operations and communication networks

had been disrupted by the cyberattacks, resulting in customer service delays.

FedEx also

announced that it was quickly remediating the cyberattacks, but the resulting financial impact
could be material.
68.

On June 28, 2019, it was reported that several other large organizations were

breached from the Cyberattack, including Mondelez Internal Inc., DLA Piper, Maersk Line A/S,
and BNP Paribas S.A. The Cyberattack is considered one of the most devasting attacks in history
with more than $10 billion in financial harm on the victims.
69.

As a result of the Cyberattack, TNT’s operations were heavily affected. TNT

package deliveries to customers experienced significant delays and, worse, were lost throughout
Europe. Because of the deterioration of the services, a significant amount of TNT’s customers
permanently took their high-margin parcel business to UPS and DHL. During the Relevant Period,
unknown to investors, TNT was unable to recover the lost customers and their businesses.
The Individual Defendants Cause FEDEX to Issue Materially False and Misleading Statements
70.

Throughout the Relevant Period, FedEx’s stock was artificially inflated due to the

Individual Defendants’ causing FedEx to issue materially false and misleading information.
71.

On September 19, 2017, FedEx reported its 1Q 2018 results, which missed analysts’

estimates due to lost customer sales and remedial costs from the Cyberattack.

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72.

To quell investors’ concerns, the Individual Defendants highlighted its recovery

efforts from the Cyberattack and dismissed investors’ concerns about the impact the Cyberattack
had on FedEx’s business.
73.

On an earnings call held on September 19, 2017, the Company’s executives assured

investors that all critical TNT systems were fully restored to pre-Cyberattack levels and the
remaining repairs would be completed by the end of September 2017. During the call, Defendant
Bronczek stated:
Given the discussion around the impact of the cyberattack on TNT, I thought it
[was] very important to point out the underlying fundamentals of the FedEx
Express business remain very strong.
In particular, International Export Package revenue for the segment grew 4% in the
quarter after absorbing the impact of the cyberattack. And we have made
significant progress on the recovery of the TNT business and IT systems.
*

*

*

From a customer perspective, our teams are executing a detailed, thorough, and
customer-focused plan, targeting and restoring customer volumes to our expected
levels. This plan includes leveraging our senior officer team on sales calls to instill
confidence with customers so that we can fully meet their expectations…
Our service levels within Europe have been restored to pre-crisis levels. And
in August, this past month of 2017, our service levels were actually above those a
year ago in August of 2016. Tremendous work by the operations team. With strong
service levels and operations returning to near-normal capabilities, our focus now
shifts to finalizing the restoration of certain key customer-specific solutions and
their systems. We expect these IT capabilities to be restored by the end of this
month, enabling business-as-usual operations with full capabilities across all
customer segments just in time for peak shipping.
(emphasis added).
74.

Misled by the Company’s representations, analysts released positive views of the

Company. For example, Oppenheimer maintained an “Outperform” rating and its $229.00 target
on the Company’s stock based on supposed recovery of TNT systems and the TNT Income

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Improvement Target. Deutsche Bank also maintained its “Buy” rating and $235.00 price target on
the Company’s stock based on the unchanged TNT Income Improvement Target.
75.

On this news, the Company’s stock increased 2.1% to $216.95 per share on

September 20, 2017.
76.

The Individual Defendants continued to cause the Company to issue a materially

false and misleading information. On December 19, 2017, announcing its 2Q 2018 results in an
earnings call, defendant Smith touted TNT’s successful recovery from the Cyberattack, and stated:
We’re very proud of the progress the FedEx team has made in recovering from
the effects of the cyberattack at TNT. Let me express our appreciation to the
thousands of FedEx professionals who worked around the clock and tirelessly to
mitigate this unprecedented event. Dave will update you in his discussion of overall
global operations. We expect yield and volume growth at all of our transportation
segments will support revenue and earnings growth in the second half of fiscal
2018. Our plans remain on target to improve operating income at the FedEx
Express segment by $1.2 billion to $1.5 billion in fiscal 2020 versus fiscal 2017
and our goal remains to increase earnings, margins, cash flows and returns and we
are confident that we can do so.
(emphases added).
77.

On the same call, defendant Graf also reaffirmed the TNT Income Improvement

Target based on the supposed increased internal volumes despite the Cyberattack, stating:
Despite the challenges from the cyberattack, total international average
package volume increased 5% . . . We remain committed to our target of $1.2
billion to $1.5 billion in additional operating profit for the FedEx segment in
FY 2020 versus FY 2017, which includes TNT synergies as well as base business
and other operational improvements across the entire global FedEx Express
network.
(emphasis added).
78.

Defendant Bronczek echoed the other defendants and confirmed that TNT’s service

levels and operations were “back to normal,” and that TNT’s volumes and cost efficiencies were
improving, stating:

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First, let me start off with FedEx Express. They grew their revenues and profits, as
Alan just mentioned, despite the impact of the TNT Express cyberattack. The
underlying fundamentals of the business remain very strong with higher base
rates and growth in the international package and freight services. Cost
efficiencies are also improving. For example, we continue to see higher aircraft
fleet reliability, which increases our productivity. I’m also very happy to say that
at TNT, we are seeing strong service levels and operations are back to normal
after the June cyberattack.
(emphases added).
79.

On this news, FedEx stock increased 3.5% to $251.07 per share on December 20,

80.

On March 20, 2018, the Company issued 3Q 2018 results. In the 3Q 2018 earnings

2017.

call, defendant Graf, regarding the Company’s financials, stated:
As [defendant Smith] mentioned, we remain committed to our target of $1.2
billion to $1.5 billion in additional operating profit for the FedEx Express
segment in FY 2020 versus FY 2017, which includes TNT synergies as well as
base business and other operational improvements across the global FedEx Express
network.
(emphasis added).
81.

On the same call, defendant Bronczek touted the post-Cyberattack restoration of

TNT’s services and the TNT integration results, stating:
I also want to provide an update on our TNT integration. As you
know, this was the most significant acquisition in our company’s
history, and dramatically improves our global capabilities and
competitive posture. I’m happy to say that, at TNT, we are seeing
strong service levels, and the integration is accelerating. A key
element of our acceleration plan was to enable the flow of
packages between the legacy TNT and FedEx systems prior to
full integration. This allows us to direct volumes to the highest

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service, but the lowest cost networks. This capability is expected to
be in place by May 31 of this year.
(emphasis added).
82.

Addressing analysts’ questions, defendant Smith stated on the same call that TNT

volumes were back to pre-Cyberattack levels:
The second is from Jack Atkins of Stephens. To what degree was the June
cyberattack at TNT negatively impact 3Q results, I guess, it did negatively impact
3Q results at Express, and would you expect any lingering impact in the fourth
quarter? Now, I think these questions from Todd and Jack, and I’m going to ask
again Dave and David Cunningham to amplify this, reflects a bit of a
misunderstanding here, in that, please recall that when we started this fiscal year,
we told you that we were no longer going to be talking about Express and TNT.
So the numbers that are in the Express segment now are the combination of the two.
So the reality is, the FedEx Express volumes are growing, but the TNT volumes
were adversely affected by Not Petya and we are now going back up to where
we would have been had this attack not happened. And let me again give
enormous thanks to our sales, our customer service and particularly our IT
professionals that did the most unbelievable job of recovering from this attack,
which the U.S. government now says was a government or a governmentsanctioned attack on the Ukraine, and TNT was just a side victim of it.
So the fourth quarter will - I think, began to show these at a more granular fashion.
But we’re not seeing decline in Express traffic, in the fourth quarter we will
have recovered most of the NotPetya volume from TNT now.
(emphases added).
83. Defendant Cunningham echoed defendant Smith’s remarks, stating:
Yeah, I’d just add a couple of comments to what Fred and Dave just said. I think,
first thing you got to remember is the effects in Q3 were mostly one-off type of
effects. Q4 ends up being a seasonally strong quarter and we’ve already told you
what that’s going to be. Our TNT network was fully restored and back to business
as usual as of the end of 2017. The recovery of the business over the last five
months has been remarkable. And given the value proposition of the TNT
road networks, our freight volumes have been strong, and we are experiencing
solid growth in these products. The cyberattack continues to have a lingering
effect in the third quarter, and our existing customer base has not been fully restored
- has not fully restored all volumes as they continue to gain confidence in our ability
to provide service and recovery of our business. Our outstanding performance
during peak is evidence of the strength of our network and our recovery and our

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sales teams are leveraging this in the fourth quarter, and growing and winning
business.
(emphasis added).
84.

The above statements referenced in ¶¶ 71-82 were materially false and misleading

as the statements failed to disclose and/or misrepresented the following adverse facts which were
known to the Individual Defendants or recklessly disregarded by them: (1) TNT’s overall package
volume growth was slowing as TNT’s large customers permanently took their business to
competitors after the Cyberattack; (2) as a result of the customer attrition, TNT was experiencing
an increased shift in product mix from higher-margin parcel services to lower-margin freight
services; (3) the anticipated costs and timeframe to integrate and restore the TNT network were
significantly larger and longer than disclosed; (4) FedEx was not on track to achieve the TNT
Income Improvement Target; and (5) as a result of these undisclosed negative trends and cost
issues, FedEx’s positive statements about TNT’s recovery from the Cyberattack, integration into
FedEx’s legacy operations, customer mix, customer service levels, profitability, and prospects
lacked a reasonable basis.
THE TRUTH IS REVEALED
85.

On December 7, 2018, the Company abruptly announced that defendant

Cunningham, FedEx Express’s CEO, was to retire at the end of the month. Analysts immediately
suggested that Cunningham was being pushed out due to the performance issues within the FedEx
Express segment of the Company.
86.

On this news, FedEx stock dropped 6.4% to $201.39 per share on December 7,

87.

On December 18, 2018, the Company issued its 2Q 2019 results. In the disclosure,

2018.

FedEx lowered its fiscal 2019 outlook and told investors that the TNT Income Improvement Target

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would likely not be met by the end of fiscal 2020. On the 2Q 2019 earnings call, defendant
Bronczek explained that “[following TNT’s recovery from the cyberattack, [FedEx has] seen an
accelerated shift of [its] product mix to more freight than parcel, putting pressure on [FedEx’s]
system and of course [FedEx’s] costs.”
88.

On the same call, defendant Graf touched on the integration of TNT’s business with

FedEx’s legacy European business, stating that the integration of TNT was not progressing at the
previously touted pace due to, in part, “a change in service mix following the NotPetya cyberattack.
As to the TNT Income Improvement Target, defendant Graf stated:
The timing and amount of integration expenses and capital investments in any
future period may change as we continue to execute the integration of TNT. We
expect to realize the benefits of the TNT acquisition that were anticipated when the
company was acquired, although at a more moderate pace caused by reductions
in base business levels due to increasing economic weakness during the second
quarter and a change in service mix following the NotPetya cyber attack. As
a result, we now expect the operating profit improvement goal of $1.2 billion
to $1.5 billion for Express over fiscal year ‘17 will not be realized in FY ‘20.
(emphasis added).
89.

Responding to analysts’ questions regarding TNT, defendant Bronczek revealed

that TNT’s high margin parcel business had failed to grow at the previous expected rate, stating:
There is no question about the fact that I mentioned -- made in my comments that
one of the things that TNT really did very well, and we continue to do well with
TNT inside FedEx, is the freight product and their specialty freight product. So
after the cyberattack that product came booming back because no one is better than
we are in that product. So that product, of course, has a little bit different mix, a
little bit different cost structure to it. We’re focusing on our parcels as well. As
you pointed out, the questioner pointed out, our volumes are growing, they’re
just not growing as fast as what we would like them to grow.
(emphasis added).
90.

On this news, FedEx stock dropped 12.2% to $162.51 per share on December 19,

2018.

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91.

Analysts quickly responded to the disappointing revelations and slashed their price

targets. Based on the disclosure of the TNT integration and post-Cyberattack remedial measures,
some analysts questioned whether Company executives intentionally misled the investing public
by maintaining the TNT Income Improvement Target.
92.

On December 19, 2018 Barclays issued a report lowering FedEx’s price target,

stating:
Despite nearly a year of lagging Express segment results following the complete
operational shutdown of TNT from a computer virus (missed our margin
expectations 4 out of the last 5 quarters), FedEx management until today clearly
articulated to the investor community that: 1) TNT was fully operational following
the cyberattack; and 2) aggressive profit improvement plans were “confidently” on
track. . . . While we think Express results following the cyberattack clearly
indicated mix recovery challenges in the TNT business, management chose to
maintain guidance until today’s cut. Perhaps this analyst will be less trusting of
management commentary going forward.
(emphasis added).
93.

Deutsche Bank echoed Barclays’ frustrations of FedEx’s executives explanations

regarding the TNT integration and post-Cyberattack remedial measures, stating:
The commentary around Europe is not very satisfying, as it likely reflects
significant underperformance at TNT, on which Mgmt. is still not offering
necessary details (we believe TNT volumes are more heavily skewed towards
larger, palletized freight, as opposed to parcel, making the read-through to other
global package delivery companies less meaningful, in our view).
THE DIRECTOR DEFENDANTS ISSUED A MATERIALLY FALSE AND
MISLEADING PROXY STATEMENT DURING THE RELEVANT PERIOD
94.

In addition to the above false and misleading statements issued and/or caused to be

issued by the Individual Defendants, the Director Defendants also caused the Company to issue a
false and misleading proxy statement during the Relevant Period. Specifically, the Company’s
2018 Proxy sought stockholder votes to, among other things, re-elect all of the Director Defendants
to serve on the Board for fiscal 2019 and approve executive office compensation.

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95.

The Director Defendants drafted, approved, reviewed, and/or signed the 2018

Proxy before it was filed with the SEC and disseminated to FedEx’s shareholders. The Director
Defendants negligently issued materially misleading statements in the 2018 Proxy. These 2018
Proxy allegations are based solely on negligence, they are not based on any allegations of
recklessness or knowing conduct by or on behalf of the Director Defendants, and they do not allege
or do not sound in fraud. Plaintiff specifically disclaims any allegations of, reliance upon any
allegation of, or reference or any allegation of fraud, scienter, or recklessness with regard to the
2018 Proxy allegations and related claims.
96.

In support of re-electing themselves, the Director Defendants highlighted their

supposed oversight of the Company. In particular, the 2018 Proxy assured stockholders that the
Board and its committees regularly assess and manage the risks that FedEx faces, including legal
and regulatory risks, financial controls, and risks associated with compensation programs and
plans. The 2018 Proxy stated:
Board Risk Oversight
The Board of Directors’ role in risk oversight at FedEx is consistent with the
company’s leadership structure, with management having day-to-day responsibility
for assessing and managing the company’s risk exposure and the Board and its
committees providing oversight in connection with those efforts, with particular
focus on ensuring that FedEx’s risk management practices are adequate and
regularly reviewing the most significant risks facing the company. The Board
performs its risk oversight role by using several different levels of review. Each
Board meeting begins with a strategic overview by the Chairman of the Board and
Chief Executive Officer that describes the most significant issues, including risks,
affecting the company, and also includes business updates from the President and
Chief Operating Officer and each reporting segment CEO. In addition, at least
annually, the Board reviews in detail the business and operations of each of the
company’s reporting segments, including the primary risks associated with that
segment. The Board also reviews the risks associated with the company’s financial
forecasts and annual business plan.
Additionally, risks are identified and managed in connection with the company’s
robust enterprise risk management (“ERM”) process. Our ERM process provides

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the enterprise with a common framework and terminology to ensure consistency in
identification, reporting and management of key risks. The ERM process is
embedded in our strategic financial planning process, which ensures explicit
consideration of risks that affect the underlying assumptions of strategic plans and
provides a platform to facilitate integration of risk information in business decisionmaking.
The Board has delegated to each of its committees responsibility for the oversight
of specific risks that fall within the committee’s areas of responsibility.
THE AUDIT COMMITTEE reviews and discusses with management the
company’s major financial and other risk exposures and the steps management has
taken to monitor and control such exposures and the implementation and
effectiveness of the company’s compliance and ethics programs, including the
Code of Business Conduct and Ethics and the employee hotline program. In
addition, the Audit Committee is responsible for reviewing and discussing with
management the guidelines and policies that govern the processes by which the
company assesses and manages its exposure to all risk, including our ERM process.
The ERM process culminates in an annual presentation to the Audit Committee on
the key enterprise risks facing FedEx.
THE INFORMATION TECHNOLOGY OVERSIGHT COMMITTEE reviews
and discusses with management the company’s cybersecurity risks and the
technologies, policies, processes and practices for managing and mitigating such
risks, and it reviews and discusses with management the quality and effectiveness
of the company’s information technology systems and processes, including the
extent to which those systems and processes protect the company from technologyrelated risks.
97.

The 2018 Proxy thus assured stockholders that the Director Defendants were

involved with FedEx’s business strategy, actively monitored the Company’s risks and exposures,
following good corporate governance practices, and acting in an ethical and legal manner. In
reality, the Director Defendants were utterly failing in their oversight duties by allowing the
Company to operate with inadequate internal controls which resulted in the failure to disclose or
prevent the Individual Defendants from causing the Company to make materially false and
misleading statements and omissions about: (i) TNT’s overall package volume growth was
slowing as TNT’s large customers permanently took their business to competitors after the
Cyberattack; (ii) as a result of the customer attrition, TNT was experiencing an increased shift in

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product mix from higher-margin parcel services to lower-margin freight services; (iii) the
anticipated costs and timeframe to integrate and restore the TNT network were significantly larger
and longer than disclosed; (iv) FedEx was not on track to achieve the TNT Income Improvement
Target; and (v) as a result of the undisclosed negative trends and cost issues, FedEx’s positive
statements about TNT’s recovery from the Cyberattack, integration into FedEx’s legacy
operations, customer mix, customer service levels, profitability, and prospects lacked a reasonable
basis. The securities class action seeks tens of millions of dollars in damages.
98.

As a result of these misleading statements, the Company’s stockholders voted via

an uninformed stockholder vote to re-elect the Director Defendants to the Board.
DAMAGES TO FEDEX
99.

As a result of the Individual Defendants’ wrongful conduct, FedEx disseminated

false and misleading statements and omitted material information to make such statements not
false and misleading when made. The improper statements have devastated FedEx’s credibility.
FedEx has been, and will continue to be, severely damaged and injured by the Individual
Defendants’ misconduct.
100.

Indeed, the Individual Defendants’ false and misleading statements as alleged

above, have subjected FedEx to the Securities Actions. As a direct and proximate result of the
Individual Defendants’ actions, FedEx stands to expend millions of dollars in legal fees and
payments, in addition to the excessive compensation and benefits that were paid to the Individual
Defendants while they were breaching their fiduciary duties to the Company. Specifically, as a
result of the Individual Defendants’ breaches, FedEx has incurred significant expenses, including,
inter alia:
a.

unwarranted distribution of executive compensation and severance payments;

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b.

increased costs resulting from the loss of market capitalization and the Company’s
damaged reputation in the investment community;

c.

substantial costs to carry out internal investigations, including legal fees paid to
outside counsel; and

d.

potential damages related to litigation and/or SEC fines resulting from improperlyreported, overstated profits.

101.

Moreover, these actions have irreparably damaged FedEx’s corporate image and

goodwill. For at least the foreseeable future, FedEx will suffer from what is known as the “liar’s
discount,” a term applied to the stocks of companies who have been implicated in illegal behavior
and have misled the investing public, such that FedEx’s ability to raise equity capital or debt on
favorable terms in the future is now impaired.
PLAINTIFF’S DERIVATIVE AND DEMAND ALLEGATIONS
102.

Plaintiff incorporates by reference and realleges each and every allegation set forth

above, as though fully set forth herein.
103.

Plaintiff brings this action derivatively in the right and for the benefit of the

company to redress the Individual Defendants’ breaches of fiduciary duties.
104.

Plaintiff is an owner of FedEx common stock and was an owner of FedEx common

stock at all times relevant hereto.
105.

Plaintiff will adequately and fairly represent the interests of the Company and its

stockholders in enforcing and prosecuting its rights.
106.

As a result of the facts set forth herein, Plaintiff has not made any demand on the

Board to institute this action against the Individual Defendants. Such a demand would be a futile
and useless act because the Board is incapable of making an independent and disinterested decision
to institute and vigorously prosecute this action.
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107.

At the time of filing, the Board is comprised of the Director Defendants.

108.

All of the Individual Defendants have interpersonal or business connections that

render them incapable of independently or fairly considering the claims alleged herein.
Demand is Futile as to the Director Defendants Because They Face a Substantial Likelihood
of Liability
109.

The Director Defendants face a substantial likelihood of liability for their individual

misconduct.
110.

As alleged above, the Director Defendants breached their fiduciary duties by

negligently issuing the materially false and misleading 2018 Proxy soliciting the re-election of
themselves to the Board. Accordingly, the Director Defendants face a substantial likelihood of
negligence liability for issuing the 2018 Proxy and any demand upon these defendants is therefore
futile.
111.

Further, the Director Defendants were directors throughout the time of the false and

misleading statements referenced above, and as such had a fiduciary duty to ensure that the
Company’s SEC filings, press releases, and other public statements and presentations concerning
its business, operations, prospects, internal controls, and financial statements were accurate.
112.

Moreover, the Director Defendants owed a duty to, in good faith and with due

diligence, exercise reasonable inquiry, oversight, and supervision to ensure that the Company’s
internal controls were sufficiently robust and effective (and/or were being implemented
effectively), and to ensure that the Board’s duties were being discharged in good faith and with
the required diligence and due care. Instead, the Director Defendants knowingly and/or with
reckless disregard reviewed, authorized, and/or caused the publication of the materially false and
misleading statements discussed above that caused the Company’s stock to trade at artificially
inflated prices and misrepresented the financial health of FedEx.

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113.

The Director Defendants’ making or authorization of these false and misleading

statements, failure to timely correct such statements, failure to take necessary and appropriate steps
to ensure that the Company’s internal controls were sufficiently robust and effective (and/or were
being implemented effectively), and failure to take necessary and appropriate steps to ensure that
the Board’s duties were being discharged in good faith and with the required diligence constitute
breaches of fiduciary duties have resulted in the Individual Defendants facing a substantial
likelihood of liability. If the Director Defendants were to bring a suit on behalf of FedEx to recover
damages sustained as a result of this misconduct, they would expose themselves and their
colleagues to significant liability. This is something they will not do. For this reason, demand is
futile as to the Director Defendants.
Demand is excused as to the defendants Edwardson, Jackson, Smith, Steiner, and
Walsh.
114.

As alleged above, the Insider Selling Defendants sold FedEx stock under highly

suspicious circumstances. Defendants Edwardson, Jackson, Smith, Steiner, and Walsh possessed
material, nonpublic company information and used that information to benefit themselves.
Defendants Edwardson, Jackson, Smith, Steiner, and Walsh sold stock based on this knowledge
of material, nonpublic company information about the Company’s woefully inaccurate financial
statements, inadequate internal controls, and the impending decrease in the value of their holdings
of FedEx. Accordingly, defendants Edwardson, Jackson, Smith, Steiner, and Walsh face a
substantial liability for breach of their fiduciary duties of loyalty. Any demand upon Defendants
Edwardson, Jackson, Smith, Steiner, and Walsh is futile.
Demand is excused as to the Audit Committee Defendants.
115.

The Audit Committee Defendants, as members of the Audit Committee, reviewed

and approved the improper statements and earnings guidance. The Audit Committee’s Charter

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provides that it is responsible for the “oversight of (i) the integrity of the Company’s financial
statements and other financial information; (ii) the effectiveness of the Company’s disclosure
controls and procedures and internal control over financial reporting; (iii) the performance of the
Company’s internal auditors; and (iv) the Company’s integrity and compliance programs,
including compliance with legal and regulatory requirements[.]”
116.

Thus, the Audit Committee Defendants were responsible for knowingly or

recklessly allowing the improper statements related to the Company’s earnings guidance and
financial and disclosure controls. Through their knowledge or reckless disregard, the Audit
Committee Defendants caused improper statements made by the Company. Accordingly, the
Audit Committee Defendants breached their fiduciary duty of loyalty and good faith because they
participated in the wrongdoing described herein. Thus, the Audit Committee Defendants face a
substantial likelihood of liability for their breach of duties, so any demand upon them is futile.
Demand is excused as to the IT Oversight Committee Defendants.
117.

The IT Oversight Committee Defendants, as members of the IT Oversight

Committee, recklessly authorized FedEx to issue false and misleading statements, and failed to
timely correct such statements. The IT Oversight Committee Charter provides that the IT
Oversight Committee Defendants are responsible for “assess[ing] whether the Company’s IT
programs effectively support the Company’s business objectives and strategies.” Further, the IT
Oversight Committee Defendants are responsible for “assist[ing] Board oversight of cybersecurity
risks and management efforts to monitor and mitigate those risks.”
118.

Thus, the IT Oversight Committee Defendants were responsible for ensuring that

the Company not make misleading statements regarding the Cyberattack and its impact on the
Company’s business. Through their knowledge or reckless disregard, the IT Oversight Committee

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Defendants caused the improper statements made by the Company. Accordingly, the IT Oversight
Committee Defendants breached their fiduciary duties of loyalty and good faith because they
participated in the wrongdoing described herein. Thus, the IT Oversight Committee Defendants
face a substantial likelihood of liability for their breach of fiduciary duties, so any demand upon
them is futile.
Demand is excused as to defendant Smith.
119.

Defendant Smith faces a substantial likelihood of liability for violations of federal

securities laws, as indicated by the Securities Actions. Further, Defendant Smith, as an officer and
a director of FedEx, derives substantially all of his income from FedEx, making him not
independent. As such, defendant Smith cannot independently consider any demand to sue himself
for breaching his fiduciary duties to the Company, because that would expose him to liability and
threaten his livelihood.
Additional Demand Futility Allegations
120.

If FedEx’s current officers and directors are protected against personal liability for

their breaches of fiduciary duties alleged in this complaint by Directors & Officers Liability
Insurance (“D&O Insurance”), they caused the Company to purchase that insurance for their own
protection with corporate funds, i.e., monies belonging to the stockholders. However, Plaintiff is
informed and believes that the D&O Insurance policies covering the Individual Defendants in this
case contain provisions that eliminate coverage for any action brought directly by FedEx against
the Individual Defendants, known as the “insured versus insured exclusion.”
121.

As a result, if the Individual Defendants were to sue themselves or certain of the

officers of FedEx, there would be no D&O Insurance protection. This is a further reason why they
will not bring such a suit. On the other hand, if the suit is brought derivatively, as this action is
brought, such insurance coverage exists and will provide a basis for the Company to effectuate
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recovery. Therefore, the Individual Defendants cannot be expected to file the claims asserted in
this derivative lawsuit because such claims would not be covered under the Company’s D&O
Insurance policy. Under the factual circumstances described herein, the Individual Defendants are
more interested in protecting themselves than they are in protecting FedEx by prosecuting this
action.
122.

The Board has proven time and time again that it is incapable of exercising

independent judgment in deciding whether to investigate or bring actions that involve its individual
members. There is no reason to believe that this action would be any different. Each of the
Individual Defendants either participated directly in the wrongdoing alleged or are inextricably
linked to defendants who so participated. For all of the aforementioned reasons, demand on the
Board is futile and thus excused.
COUNT I
AGAINST THE INDIVIDUAL DEFENDANTS FOR
BREACH OF FIDUCIARY DUTY
123.

Plaintiff incorporates by reference and re-alleges each and every allegation set forth

above, as though fully set forth herein.
124.

Each Individual Defendant owed to the Company the duty to exercise candor, good

faith, and loyalty in the management and administration of FedEx’s business and affairs.
125.

Each of the Individual Defendants violated and breached his or her fiduciary duties

of candor, good faith, loyalty, reasonable inquiry, oversight, and supervision.
126.

The Individual Defendants’ conduct set forth herein was due to their intentional or

reckless breach of the fiduciary duties they owed to the Company, as alleged herein. The
Individual Defendants intentionally or recklessly breached or disregarded their fiduciary duties to
protect the rights and interests of FedEx.

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127.

In breach of their fiduciary duties, the Individual Defendants failed to maintain an

adequate system of oversight, disclosure controls and procedures, and internal controls.
128.

In addition, the Individual Defendants further breached their fiduciary duties

owed to FedEx by willfully or recklessly making and/or causing the Company to make false and
misleading statements and omissions of material fact and allowing the Company to operate with
inadequate internal controls which resulted in the misrepresentations and failure to disclose that
(i) TNT’s overall package volume growth was slowing as TNT’s large customers permanently
took their business to competitors after the Cyberattack; (ii) as a result of the customer attrition,
TNT was experiencing an increased shift in product mix from higher-margin parcel services to
lower-margin freight services; (iii) the anticipated costs and timeframe to integrate and restore the
TNT network were significantly larger and longer than disclosed; (iv) FedEx was not on track to
achieve the TNT Income Improvement Target; and (v) as a result of the undisclosed negative
trends and cost issues, FedEx’s positive statements about TNT’s recovery from the Cyberattack,
integration into FedEx’s legacy operations, customer mix, customer service levels, profitability,
and prospects lacked a reasonable basis. As a result of the foregoing, the Company’s public
statements were materially false and misleading at all relevant times.
129.

The Individual Defendants failed to correct and caused the Company to fail to

rectify any of the wrongs described herein or correct the false and misleading statements and
omissions of material fact referenced herein, rendering them personally liable to the Company for
breaching their fiduciary duties.
130.

The Individual Defendants had actual or constructive knowledge that they had

caused the Company to improperly engage in the wrongdoing set forth herein and to fail to
maintain adequate internal controls. The Individual Defendants had actual knowledge that the
Company was engaging in the wrongdoing set forth herein, and that internal controls were not
adequately maintained, or acted with reckless disregard for the truth, in that they caused the
Company to improperly engage in the wrongdoing and to fail to maintain adequate internal
controls, even though such facts were available to them. Such improper conduct was committed

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knowingly or recklessly and for the purpose and effect of artificially inflating the price of the
Company’s securities and engaging in insider sales. The Individual Defendants, in good faith,
should have taken appropriate action to correct the schemes alleged herein and to prevent them
from continuing to occur.
131.

These actions were not a good-faith exercise of prudent business judgment to

protect and promote the Company’s corporate interests.
132.

As a direct and proximate result of the Individual Defendants’ breaches of their

fiduciary obligations, FedEx has sustained and continues to sustain significant damages. As a
result of the misconduct alleged herein, the Individual Defendants are liable to the Company.
133.

Plaintiff on behalf of FedEx has no adequate remedy at law.
COUNT II
AGAINST THE DIRECTOR DEFENDANTS FOR
VIOLATION OF SECTION 14(A) OF THE EXCHANGE ACT

134.

Plaintiff incorporates by reference and realleges each and every allegation

contained above, as though fully set forth herein.
135.

The section 14(a) Exchange Act claims alleged herein are based solely on

negligence. They are not based on any allegation of reckless or knowing conduct by or on behalf
of the Director Defendants. The section 14(a) Exchange Act claims detailed herein do not allege
and do not sound in fraud. Plaintiff specifically disclaims any allegation of, reliance upon any
allegation of, or reference to any allegation of fraud, scienter, or recklessness with regard to the
nonfraud claims.
136.

The Director Defendants negligently issued, caused to be issued, and participated

in the issuance of materially misleading written statements to stockholders which were contained
in the 2018 Proxy. In the 2018 Proxy, the Board solicited stockholder votes to reelect the Director
Defendants to the Board.
137.

The 2018 Proxy, however, misrepresented and failed to disclose the Board’s risk

oversight and the Company’s inadequate internal controls which facilitated the illegal behavior

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described herein. By reasons of the conduct alleged herein, the Director Defendants violated
section 14(a) of the Exchange Act. As a direct and proximate result of these defendants’ wrongful
conduct, FedEx misled and deceived its stockholders by making materially misleading statements
that were essential links in stockholders following the Company’s recommendation and voting to
reelect the Director Defendants.
138.

Plaintiff, on behalf of FedEx, thereby seeks relief for damages inflicted upon the

Company based upon the misleading 2018 Proxy in connection with the improper reelection of the
Director Defendants to the Board.
COUNT III
AGAINST THE INSIDER SELLING DEFENDANTS FOR
INSIDER SELLING AND MISAPPROPRIATION OF INFORMATION
139.

Plaintiff incorporates by reference and realleges each and every allegation

contained above, as though fully set forth herein.
140.

At the time each of the Insider Selling Defendants sold his or her FedEx stock, he

or she knew the material, non-public information described above, and sold FedEx stock on the
basis of such information.
141.

The information described above was proprietary, non-public information

concerning the Company’s business operations, financial condition, and growth prospects. It was
a proprietary asset belonging to the Company, which each of the Insider Selling Defendants
misappropriated to his or her own benefit when he or she sold personal holdings in FedEx stock.
Each of the Insider Selling Defendants knew that this information was not intended to be available
to the public. Had such information been generally available to the public, it would have
significantly reduced the market price of FedEx stock.
142.

The Insider Selling Defendants’ sale of stock while in possession and control of

this material, adverse, non-public information was a breach of his or her fiduciary duties of loyalty
and good faith. Each of the Insider Selling Defendants is therefore liable to FedEx for insider
trading.

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143.

Since the use of the Company’s proprietary information for personal gain

constituted a breach of the fiduciary duties of the Insider Selling Defendants, the Company is
entitled to the imposition of a constructive trust on any profits such Insider Selling Defendants
obtained thereby.
144.

Plaintiff, on behalf of FedEx, has no adequate remedy at law.
COUNT IV
AGAINST THE INDIVIDUAL DEFENDANTS FOR
WASTE OF CORPORATE ASSETS

145.

Plaintiff incorporates by reference and realleges each and every allegation

contained above, as though fully set forth herein.
146.

As a result of the misconduct described above, the Individual Defendants have

wasted corporate assets by forcing the Company to expend valuable resources in defending itself
in the Securities Class Action that they brought on with their improper statements. In addition,
due to the Individual Defendants’ mismanagement, the Company has been forced to interrupt its
business and dedicate its resources and attention to restating and revisiting its past financial
statements.
147.

As a result of the decision to allow the Company to operate in an environment

devoid of adequate internal and financial controls, the Individual Defendants have caused FedEx
to waste its assets by paying improper compensation and bonuses to certain of its executive officers
and directors that breached their fiduciary duty.
148.

As a result of the waste of corporate assets, the Individual Defendants are liable to

the Company.
149.

Plaintiff, on behalf of FedEx, has no adequate remedy at law.
COUNT V

AGAINST DEFENDANTS THE OFFICER DEFENDANTS AND THE INSIDER
SELLING DEFENDANTS FOR UNJUST ENRICHMENT
150.

Plaintiff incorporates by reference and realleges each and every allegation

contained above, as though fully set forth herein.
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151.

By their wrongful acts and omissions, the Officer Defendants were unjustly

enriched at the expense of and to the detriment of FedEx. The Officer Defendants were unjustly
enriched as a result of the compensation they received while breaching fiduciary duties owed to
FedEx.
152.

Additionally, the Insider Selling Defendants sold FedEx stock while in possession

of material, nonpublic information that artificially inflated the price of FedEx stock. As a result,
the Insider Selling Defendants profited from their misconduct and were unjustly enriched through
their exploitation of material and adverse inside information.
153.

Plaintiff, as a stockholder and representative of FedEx, seeks restitution from these

defendants, and each of them, and seeks an order of this Court disgorging all profits, benefits, and
other compensation obtained by these defendants, and each of them, from their wrongful conduct
and fiduciary breaches.
154.

Plaintiff, on behalf of FedEx, has no adequate remedy at law.
REQUEST FOR RELIEF

WHEREFORE, Plaintiff demands judgment as follows:
A.

Declaring that Plaintiff may maintain this derivative action on behalf of FedEx and

that Plaintiff is a proper and adequate representative of the Company;
B.

Awarding money damages against all defendants, jointly and severally, for the

losses and damages suffered as a result of the acts and transactions complained of herein;
C.

Directing all defendants to disgorge all profits obtained from their wrongful

conduct and breaches of fiduciary duties, including all severance payments and payments of cash
bonuses;
D.

Granting appropriate equitable relief to remedy the Individual Defendants’

breaches of fiduciary duties, including, but not limited to the institution of appropriate corporate
governance measures;

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E.

Awarding to Plaintiff the costs and disbursements of the action, including

reasonable attorneys’ fees, accountants’ and experts’ fees and costs and expenses;
F.

Awarding pre-judgment and post-judgement interest against the Individual

Defendants at the highest rates permissible at law or in equity; and
G.

Granting such other and further relief as the Court deems just and proper.
JURY DEMAND

Plaintiff hereby demands a trial by jury.
Dated: September 17, 2019

Respectfully Submitted,
COOCH AND TAYLOR, P.A.
/s/ Blake A. Bennett
Blake A. Bennett (#5133)
The Nemours Building
1007 N. Orange Street, Suite 1120
Wilmington, DE 19801
Telephone: (302) 984-3800
Email: bbennett@coochtaylor.com
Attorney for Plaintiff

OF COUNSEL
BRAGAR EAGEL & SQUIRE, P.C.
W. Scott Holleman
Marion C. Passmore
Garam Choe
Alexandra B. Raymond
885 3rd Avenue, Suite 3040
New York, New York 10022
Telephone: (212) 355- 4648
Attorney for Plaintiff

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