A US judge has ruled in favour of Polar Air Cargo (PO, New York JFK) by dismissing a lawsuit filed by forwarder Cargo on Demand (CoD) which alleged it lost USD4 million through fraud and racketeering at the cargo airline.

New York District Court judge Jesse M. Furman, on July 11, 2023, [case 22-CV-10243], in essence, found that Polar Air Cargo as a company was not at fault. However, another fraud and racketeering suit is still pending in the same court against some of the airline's former executives [case United States v. Winkelbauer, 23-CR-133 (JMF), ECF No. 3 (S.D.N.Y.)].

In the case at hand, Judge Furman granted CoD one final opportunity to amend its complaint, even though he expressed scepticism that the freighter forwarder could cure defects in its claims, pointing out that there was a possibility that CoD was complicit in, rather than a victim of, any fraud by executives at Polar Air Cargo. He said CoD had already been given one opportunity to amend its allegations, which it did not use.

CoD was ordered to file any amended complaint by August 11, 2023.

Cargo on Demand alleged that Polar Air Cargo defrauded it of at least USD4 million by charging illicit fees, poaching its customers, and abruptly terminating the parties' contract.

In 2014, CoD and Polar Air Cargo, a venture of Atlas Air Worldwide Holdings and DHL Express, entered into a so-called Blocked Space Agreement (BSA), whereby CoD agreed to pay the airline for an allotment of cargo capacity on specific air routes. The parties renewed the agreement annually until 2021, updating it to reflect changes in pricing and routes.

However, to use its cargo space allotment, CoD alleged it had to pay USD4 million worth of kickbacks termed as "consulting fees" to certain Polar Air cargo executives and various third-party consulting companies, on top of the rates quoted in the agreement. Some executives of Polar Air Cargo were also principals of these third-party consulting companies. COD said these kickbacks harmed its business because, given the competitive nature of the freight-forwarding industry, it could not pass on the additional fees to its customers and had to take out a high-interest loan of USD1 million to cover the extra "fees".

On January 1, 2021, CoD and Polar Air Cargo entered into a different agreement whereby the airline agreed to provide more favourable cargo rates in exchange for CoD's confidential customer information. CoD alleged Polar Air Cargo harmed its business by reducing the cargo space available to CoD; placing CoD on a cash account and requiring it to pay an extra 5% for its shipments; requiring CoD to pre-pay for shipments rather than ship on credit; and poaching its customers.

On December 31, 2021, Polar Air Cargo terminated its relationship with CoD - ostensibly because the illicit payment scheme had been uncovered.

The freight forwarder went on to sue the airline on two counts of the federal Racketeer Influenced and Corrupt Organisations Act (RICO) and six New York state laws, including fraud, aiding and abetting fraud, common-law conspiracy, unfair trade practices, breach of contract, and "tortious interference with prospective contractual relations".

Still, Judge Furman found the case had no merit, as Polar Air Cargo itself didn't enter into any illicit agreements. "The complaint appears to rely on a theory that Polar [Air Cargo] is vicariously liable for the acts of its executives." He found CoD's case fell short on the RICO claims as it failed to establish the existence of a corrupt "enterprise," conspiracy towards, or a pattern of racketeering. CoD's state-law claims were dismissed as well, on the legal basis established by the US Supreme Court that "when the federal claims are dismissed, the state claims should be dismissed as well".

Separate indictment

However, as reported - following a separate indictment on March 13, 2023, the US Attorney's Office in the Southern District of New York announced that ten suspects face felony charges including wire fraud, conspiracy and money laundering in connection with allegations of long-standing fraud and racketeering at Polar Air Cargo that had cost the airline an estimated USD52 million in lost revenue. According to the four-count indictment [case United States v. Winkelbauer, 23-CR-133 (JMF), ECF No. 3 (S.D.N.Y.),], the former Polar Air Cargo executives accepted USD23 million in kickbacks or disbursements received due to their ownership of conflicted companies between 2009 and July 2021. The case is also pending before Judge Furmann in the New York District Court.

The former executives are

  • former Vice President & Chief Operations Officer Lars Winkelbauer, 47;
  • former VP of Marketing, Revenue Management and Network Planning Abilash Kurien, 45;
  • former VP of Operations, Systems Performance & Quality Carlton Llewellyn, 55; and
  • Senior Director, Customer Service & Capacity (Americas) Robert Schirmer, 58.

The other defendants are vendors who had business arrangements with Polar Air Cargo. They are Skye Xu, 40; Benjamin (Ben) Wei, 58; Alvaro Lopez, 50; Fabiola Cino, 45; Orlando Wong, 60; and Patrick (Pat) Lau, 43.