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Afms LLC v. United Parcel Service Co. and Fedex Corporation

July 27, 2012


The opinion of the court was delivered by: Hon. Nita L. Stormes U.S. Magistrate Judge United States District Court


Plaintiff AFMS, LLC filed an antitrust action against defendants United Parcel Service Co. (UPS) and FedEx Corporation (FedEx) in the Central District of California. AFMS, a third-party consultant in the shipping industry that provides negotiating and other advice to UPS and FedEx customers, alleges that UPS and FedEx instituted policies that resulted in many or all third-party consultants experiencing resignations, forced lay-offs, profit losses or being driven out of business.

UPS served a subpoena on non-party Shipware LLC, asking for documents it believes are relevant to its defense. Shipware agreed to produce most of the documents requested. Outstanding, though, are customer lists and documents showing communications with Shipware's customers. UPS argues these documents are relevant because they go to whether the alleged conduct prevents third-party consultants from providing their services. Shipware refuses to produce the documents, arguing that the information sought is highly-protected trade secrets, and its disclosure would cause Shipware to lose significant goodwill and effectively go out of business. For the following reasons, the court GRANTS UPS's motion to enforce the subpoena.


A. Third-Party Shipping Consultant Industry

Most shipping in the United States is conducted by UPS and FedEx. Martinez Decl. ¶ 3. In general, they offer two classes of rates for shipping services: published rates for infrequent customers, and discounted rates for high volume shippers under contract. Id. The level of discounts offered vary and are negotiated for each shipper. Martinez Decl. ¶ 4. Due to the variety and complexity of terms that can affect the pricing of the master contract between the shipper and the parcel carriers, a consulting industry has emerged since the 1990s that specializes in helping shippers understand and negotiate their parcel contracts. Martinez Decl. ¶¶ 6-7. These consultants include companies like AFMS and Shipware.

B. The AFMS Litigation

AFMS alleges that since 2009 and to the present UPS and FedEx have conspired to refuse to deal with shippers that use third-party consultants. It alleges both companies instituted policies of seeking to negotiate contracts directly with shippers rather than through third-party consultants. AFMS complains that this conduct threatens the continued viability of third-party consultants and deprives them of the ability to compete in this market. AFMS attached to its third-amended complaint a purported UPS policy handbook that explains procedures to prevent UPS customers from using third-party consultants. UPS Ex. 1, pp.28-61. According to the handbook UPS considers third-party consultants as "direct competitors." UPS Ex. 1, p.44. UPS has an apparent policy of sending customers a 30-day cancellation notice if they use or are considering using a third-party consultant. UPS Ex. 1,

C. Shipware's Business

Shipware was formed as a LLC in 2011. Martinez Decl. ¶ 8. It provides consulting and invoice auditing services to less than 20 volume shippers. Id. Its revenues for 2011 were approximately $270,000. Id. Shipware has expended a great amount of time, money and effort to identify potential customers that ship large volumes of packages and would benefit from its services. Martinez Decl. ¶ 10. Shipware considers the identity of its current and prospective customers its most valuable asset. Martinez Decl. ¶ 12. It also enters confidentiality agreements with these customers to protect their identity. Martinez Decl. ¶ 13. Shipware asserts that if it must disclose its potential customer names to UPS, it must notify those potential customers of the disclosure, which, in turn, may forfeit the potential for doing business for those customers. Martinez Decl. ¶ 16.

D. Subpoena to Shipware

In a statement to the press following the initiation of the AFMS litigation, Shipware's CEO, Rob Martinez, said that "Shipware is 'busier than ever' and that revenue has increased as the company writes more business." UPS Ex. 3, p.132. Martinez goes on to say that "Shipware's profits have been impacted because the formula it has traditionally relied on to divide the savings yielded from the negotiating process has changed." Id. Taking these statements, UPS says that Martinez has made various comments to the trade press showing he has a knowledge of the third-party consultant industry and the conduct at issue in the litigation. UPS Ex. 3, pp.132-133. Other discovery shows that Martinez has communicated with other third-party consultants about the alleged conduct and its impact. Beteta Decl. ¶ 7. In consideration of Martinez's statements, UPS served a subpoena on Shipware on March 23, 2012. UPS Ex. 3. The subpoena appears to seek documents related to these statements as well as to other issues in the litigation.

E. Subpoenas to Other Third-Party Consultants

Between March 23 and 27, 2012, UPS served seven subpoenas on third-party consultants, including Shipware. Beteta Supp. Decl. ¶ 3. UPS says that five of the entities have produced communications with their customers and/or documents identifying their customers. Beteta Decl. ¶ 6; UPS Motion, p.5. But Shipware points out that UPS does not provide any information as to what, exactly, these third-party consultants produced. It also contends that UPS misleads the court by stating it subpoenaed only six other third-party consultants.

According to Shipware, UPS has issued subpoenas to at least 14 other "similarly situated" third-party consultants. Tobin Decl. ¶ 3; Grippa Decl. ¶ 4. At least one other third-party consultant is concerned about the nature of the UPS ...

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