FedEx Settles Delivery Fee Lawsuit for $21.5 Million

Federal Express Corp. agreed last week to pay $16.5 million in cash to settle a class action brought by businesses that alleged the company charged them excessive fees for delivering packages to business addresses. On Friday, Tennessee federal judge John T. Fowlkes approved the settlement - which includes injunctive relief valued at $5 million - and certified a class for the settlement.

Customers had been charged more than $5 million in excess delivery fees.

In 2011, FedEx was accused of applying a $2.75 residential delivery surcharge to packages delivered to non-residential address, such as government offices and businesses. FedEx claimed the charge was only applied to individual packages going to private homes, but in fact had been applying the charge to all packages, regardless of whether they were delivered to office towers or residential properties, the suit claimed. As such, the lawsuit alleged breach of contract and fraud, saying that customers had been mislead and charged more than $5 million in excess delivery fees.

Judge Fowlkes has now ruled that the settlement is fair and reasonable. The class certified to receive payment includes any FedEx customer who bought FedEx Express package delivery in the U.S. from February 18, 2010 until the class action’s resolution.

The lawsuit was first filed by a law firm who used the express service to send packages to a U.S. government immigration center and noticed that the residential delivery charge was applied. The suit also alleges that FedEx routinely charged additional fees when delivering packages to certain zip codes ruled more costly or difficult to reach. These delivery area rates ($2.75 for residential package delivery, and $1.85 for commercial) were allegedly applied in addition to the residential surcharges, even when packages were delivered to commercial properties. FedEx refused to correct these errors, the suit claimed.

As part of the settlement, the company has agreed to no longer use a third-party database to determine whether an address is residential or business, and will also stop using customer designations. The lawsuit claimed that FedEx’s database is currently flawed and commonly misclassifies addresses.