From Ed Wolfe and Scott Group--Last week, Judge Miller (the Multi-District Litigation judge in Indiana) granted FDX's motion for Summary Judgment that its ground contractors in Kansas are independent contractors by law and not employees. We do not believe this ruling has been picked up yet by the newswires.

Why Does This Matter? This is an important precedent as this is the 1st of 28 states with class certification in the MDL that Judge Miller has ruled on. We view this as a strong positive for FDX, although the Judge ruled that both sides have 30 days to submit briefs on why the remaining 27 states may differ from KS. The plaintiffs' seem likely to appeal the KS decision.

Court Rules on Operating Agreement. The Judge's 103-page ruling focused on the language of FDX's Operating Agreement with its drivers and FDX's right to control rather than actual control. This seems contrary to Judge Miller's prior ruling in May that a group of FDX's independent contractors in IL were employees based on that state's 3-pronged "ABC" test.

FDX Dodges Large Bullet•For Now. Given the seemingly inconsistent recent rulings from Judge Miller, it's difficult to predict how he will rule on the remaining 27 states. Ultimately, it seems plausible that certain drivers/states will be classified as employees while others ICs. However, it seems increasingly likely to us that FDX should avoid a single, very large liability and an expensive restructuring in the foreseeable future resulting form the MDL, at least prior to likely appeals. 

We Still Favor UPS. On top of ongoing legal/regulatory risk for FDX, we recommend UPS which has a stronger track record of growing earnings in a flattish economy, and stronger cash flow for dividends and likely accelerated share buybacks next year. However, we view Judge Miller's most recent decision as a big positive for FDX overall. 

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