PALO ALTO, California -- September 7, 2000 -- A federal judge has granted Emery Worldwide Airlines’ request for a summary judgment in a lawsuit filed against the U.S. Postal Service, saying he agreed with Emery’s interpretation of a critical contract agreement on pricing for transportation and sortation of Priority Mail. He gave the Postal Service until Oct. 12 to comply with the contract. Emery Worldwide Airlines (EWA) is a wholly owned subsidiary of CNF Inc. (NYSE: CNF), a $6-billion management company of global supply chain services.

Federal Senior Judge Reginald W. Gibson of the U.S. Court of Federal Claims, in an Aug. 25 decision, upheld EWA’s central contention about the meaning of a critical August 4, 1998 agreement on pricing changes. In his decision, Gibson said the USPS must respond to the company’s specific pricing proposal proffered back in February 1999.

The judge also ruled that a pricing method still employed by the USPS must be discontinued and that certain deductions the USPS made from payments to Emery were improper. The company had also sought a summary judgment on a motion to hold the USPS in breach of the contract, which would have allowed EWA to cease operations. Judge Gibson declined to find USPS in breach "at this time".

In April 1997, EWA and the USPS entered into a contract for Emery to operate a network of sortation and transportation processing centers for Priority Mail. The company opened and continues to operate 10 centers with more than 4,000 employees, primarily along the eastern seaboard. The contract runs through February 2002. Soon after operations began, it became clear that projections of mail volumes made by the USPS were inaccurate. The higher volumes cost EWA significantly more money to fulfill the contract. Further, the USPS imposed numerous changes in performance requirements that significantly increased EWA’s operating costs. These and related developments led EWA and the USPS to a new pricing agreement in August 1998.

However, the Postal Service subsequently declined to fulfill its obligations, the judge said, and in fact has never given EWA its contract price for operating the contract in 1999 or 2000. Gibson said the USPS’ refusal to honor the pricing agreements was "indefensible" and "a mystery to this court." In addition to requiring the USPS to pay EWA a new price for 1999 and 2000, Gibson said the USPS must adhere to the August 1998 pricing agreement "in good faith" through 2002 when the contract expires. The company said today that it welcomes the judge’s decision but regretted that Gibson did not uphold the request for a breach. The company said that it continues to negotiate with the Postal Service for resolution of all issues in dispute, including termination of the contract. CNF Inc. is a $6-billion management company of global supply chain solutions with businesses in trucking, air freight and logistics. Emery Worldwide Airlines is a subsidiary company operating a fleet of aircraft for the company’s North American air freight operations.