 (Photo: Michael Patrick, Knoxville News Sentinel)
The company owns and operates a national network of travel centers under the Flying J and Pilot brands that cater to the trucking industry and interstate travelers.
The search warrant was unsealed April 18, 2013, and said the agents were looking for evidence related to an alleged scheme to defraud Pilot’s customers of rebates and discounts they were owed for buying diesel fuel from the company.
According to an affidavit filed with the search warrant, a Pilot employee approached the FBI in May 2011 and told agents about the alleged scheme. The source said the company’s sales representatives struck deals with small, unsophisticated trucking companies to get them to buy their fuel at Pilot but would then fail to give them the promised discounts and rebates, relying on the inability of these customers to track the amount they were rightly owed. In doing so, according to the affidavit, Pilot made more money and the sales reps made higher commissions.
Working with the FBI, this Pilot employee, known as Confidential Human Source-1, agreed to gather more documents and also to secretly record conversations between himself and other Pilot employees.
Two other persons, Cathy Geisick, a former sales representative, and a current Pilot employee referred to as Confidential Human Source-2, also helped the government build its case and received non-prosecution agreements.
To avoid criminal charges, Pilot Flying J entered into a criminal enforcement agreement with the government on July 14, 2014, accepting “responsibility for the criminal actions of its employees.” The company agreed to pay a $92 million penalty and cooperate with the government in its investigation. Pilot later reached a separate $85 million settlement with trucking companies.
By the end of 2015, 10 current or former Pilot employees had entered guilty pleas on charges of either committing wire or mail fraud or conspiracy to commit fraud. On February 9, 2016, an indictment was unsealed against eight current or former Pilot employees, including Mark Hazelwood, the company’s former president.
Hazelwood, then 57 years old, was charged with two counts of wire fraud, conspiracy to commit mail and wire fraud, and witness tampering. The indictment said the alleged crimes took place between 2008 and April 15, 2013, the day of the raid.
According to the indictment, Hazelwood was fired by Pilot in May 2014 and a month later tried to get his former administrative assistant, Sherry Blake, to falsely tell investigators that Hazelwood didn’t read the trip reports prepared by the sales representatives. These reports detailed the activities of the sales force, including the alleged fraud done to boost Pilot’s profitability.
Four of the people named in the indictment, including John Freeman, the company’s vice president of sales and alleged architect of the rebate scheme, entered guilty pleas. But Hazelwood and three others – Scott Wombold, Heather Jones, and Karen Mann – fought the charges.
Their trial began on November 7, 2017 in Chattanooga, in the U.S. District Court for the Eastern District of Tennessee, with Judge Curtis Collier presiding.
Hazelwood’s defense was led by Rusty Hardin, a well-known criminal-defense attorney from Houston, Texas. In opening arguments and throughout the trial, Hazelwood’s attorneys said that he was unaware of the fraud conducted by the employees he supervised.
The government’s case was built on emails and recollections of hallway conversations among the Pilot sales force. Janet Welch, who had pled guilty and would later receive probation, testified that she assumed Hazelwood knew the sales force was shorting customers on promised deals. She testified that she emailed Hazelwood in 2008 to tell him that her boss had said to short a customer a penny a gallon “unless they have a way to track cost.” She testified that Hazelwood told her to go ahead. At the time, Pilot was selling 3.5 billion gallons of diesel fuel; a penny on each gallon added up to $35 million.
Arnold Ralenkotter, a former director of sales for the Northeast Region, said that Pilot learned about the discount business from Flying J, which was a competitor until the two companies merged in 2010. Because fuel prices fluctuated widely and frequently, Ralenkotter said, it “created an opportunity for us to keep some of that spread.”
Holly Radford, a regional account representative, testified that everybody at Pilot knew about the scheme. “It was known, and it was generally accepted,” she said. “I always knew it was wrong. If you blatantly put in a different discount to deceive them, I believe that's wrong.”
During cross-examination, Hardin asked her if there was proof Hazelwood was aware of the fraud and whether he ever told her to defraud anyone. “Directly?” she said. “No. It was known, and it was generally accepted.”
Brian Mosher, Pilot’s former director of national accounts, testified about a raucous sales meeting at Freeman’s home on October 25, 2012, where Freeman boasted that he, Mosher and others needed to teach the next generation of sales representatives the tricks of the rebate scheme. Unbeknownst to the participants, the meeting was secretly recorded by Vince Greco, the FBI’s informant known as CHS-1. On the recording, Mosher said that he planned to tell “stories” of fraud as a teaching tool. Hazelwood responded, “I’d agree with that.”
During his cross-examination, Hardin pressed Mosher to show where the words “cheat” or “fraud” were spoken on the secret recording. “Nowhere in this is anybody talking about cheating the customer," Hardin said. Mosher said, “Everyone in the room knew that's what we were talking about. We all knew what that meant.”
Later, at that same gathering, Hazelwood was recorded shouting racial epithets and asking to hear a song by David Allen Coe about a white man upset that his girlfriend has dumped him for a Black man. “Where’s our greasy (racial epithet) song?” he asked.
Also on the recording, Hazelwood can be heard making racist and derogatory comments about the Cleveland Browns and their fans. Jimmy Haslam III, the CEO of Pilot, is the majority owner of the Browns. (He was not charged with any crimes and denied any knowledge of the scheme.) Haslam’s father, Jimmy Haslam II, started Pilot, and his brother, Bill Haslam, was governor of Tennessee from 2011-2019.
Hazelwood’s attorneys tried to prevent prosecutors from playing this part of the tape to jurors, arguing that Hazelwood and the others at the meeting weren’t acting as Pilot employees but rather as a group of drunk friends when they made those comments. But Collier disagreed, writing, “This characterization overlooks the evidence that all of the people present were Pilot direct sales employees, and they had gathered in that private home for the express purpose of conducting a Pilot management meeting and planning Pilot training activities.”
During her testimony, Blake said that Hazelwood called her in June 2014, just before she was to speak with attorneys for the law firm Pilot had retained to conduct an in-house investigation. She said Hazelwood began to press her about the trip reports she sent him each week. “He said … ‘I want you to know I didn’t read the trip reports. I didn’t have a way to respond to the trip reports. Do you understand?’ I responded, ‘Yes,’ but I felt like I was being used.”
Blake said she had told Hazelwood in April 2014, before he was fired, that she would be interviewed by the investigators. She said that Hazelwood and his wife each gave Blake $10,000 in early April. While they had given Blake generous monetary gifts in the past, Blake said the previous year’s amount was only $10,000 from the couple.
Hazelwood did not testify. Neither did Greco, the government’s mole, or Freeman, the architect of the rebate fraud. In closing arguments, the government portrayed Hazelwood as a leader who encouraged the employees under him to engage in fraud and who acknowledged their illegal activities when told about them. Prosecutors also said that when Hazelwood grew concerned about his executive assistant telling investigators that he was a knowledgeable, hands-on executive, he encouraged her to shade the truth.
But Hardin said that the government was trying to make a criminal matter out of a civil case. In closing arguments, he said that Hazelwood was simply an aggressive businessman, not a crook. He criticized prosecutors for cutting a deal with Mosher in exchange for his testimony. (He received a sentence of 30 months in prison.) “What they did was to decide to give a deal to the triggerman in a capital murder to get someone else,” Hardin said.
On February 15, 2018, the jury convicted Hazelwood of wire fraud, conspiracy to commit mail and wire fraud, and witness-tampering. He was acquitted of a second count of wire fraud. The jury also convicted Wombold of wire fraud, and Jones of conspiracy to commit wire fraud. Mann was acquitted.
Hazelwood was sentenced on September 26, 2018 to 12½ years in prison, although he was placed on house arrest while his appeal was pending.
Prior to his sentencing, on June 25, 2018, Hazelwood filed a motion for a new trial. Now represented by new attorneys, he said that Collier had erred in allowing jurors to hear the inflammatory recording. Even with the limiting instructions, the damage was done.
His appellate attorneys wrote: “The final instruction said, ‘You cannot and must not use this evidence by itself to decide that Mr. Hazelwood is guilty of the offense charged in the indictment.’ This clearly communicated to the jurors that, as long as they also factored in other evidence, they could rely on the racially charged comments to convict Hazelwood of the indictment.”
The motion also said that Hardin and the rest of Hazelwood’s trial team had provided ineffective representation. By repeatedly questioning the government’s witnesses about whether Hazelwood was a good businessman with sound judgment, the trial attorneys had opened the door to allow prosecutors to play the inflammatory recording. Second, they said the attorneys had failed to investigate the truth of Blake’s claim about the Hazelwoods’ payments to her after she learned of her upcoming deposition.
According to the motion, Blake was mistaken. She received the payments before learning of the deposition, not after. In addition, she had gotten $15,000, not $10,000, from the Hazelwoods in 2013, making the later payment a less drastic increase than what prosecutors presented.
Collier denied the motion on September 21, 2018. First, he wrote that Hazelwood’s motion was untimely, filed well after the deadline for a motion where there wasn’t new, previously undiscovered evidence. Second, he said, the inflammatory tape appeared to have little influence on jurors.
“If this evidence had inflamed the jury and overwhelmed its judgment, one would have expected a quick verdict finding Defendant guilty on all counts. This did not happen. The jury deliberated over several days. It found Defendant guilty on three counts and not guilty on a fourth. Defendant does not explain how a jury that was irrationally inflamed against him would have nevertheless decided to acquit him on one count.”
Hazelwood then appealed the ruling to the U.S. Court of Appeals for the Sixth Circuit. On October 14, 2020, a three-judge panel ruled 2-1 to throw out the convictions of Hazelwood, Jones, and Wombold.
The appellate court did not rule on Hazelwood’s claims of ineffective representation. But it said that Collier erred in allowing jurors to hear Hazelwood’s racist statements. “This is vintage bad character evidence — and precisely the type of reasoning the Federal Rules of Evidence forbid,” the court wrote.
The appellate decision noted that Collier himself told jurors that the recordings did not speak to any of the elements of the crimes with which Hazelwood was charged. Writing for the majority, Justice Richard Suhrheinrich compared Hazelwood with Henry Ford, who modernized industrial production but was also a rabid anti-Semite. “Like Ford, Hazelwood’s personal views are despicable, but they do not correlate with his business judgment,” the court said.
On July 27, 2021, the U.S. Attorney’s Office for the Eastern District of Tennessee moved to dismiss the charges against Hazelwood, Wombold and Jones. Along with mentioning the government’s “limited resources” in prosecuting a case about events that took place nearly 10 years ago, the motion said that one key witness had “personal circumstances” that would make it difficult for the government to compel her to testify. In addition, other witnesses had already served their sentences, were unlikely to cooperate with a new trial, and had made statements that could challenge their credibility.
Collier granted the motion to dismiss on July 28, 2021.
In a statement, Hazelwood’s appellate attorneys said, “We look forward to seeing the next chapter of Mark’s life, surrounded by his wife Joanne and his loving family, and are honored to have been able to tell his whole story in full truth. Mark is innocent.”
– Ken Otterbourg
|