Amazon Reneged on Logistics Contract from Peak of COVID-19 Demand, Alleges GSC

Amazon “reneged on without cause” a “contractual business relationship” it struck with logistics company GSC in late-2020 when the COVID-19 pandemic was “raging” and demand for Amazon’s products and services went “through the roof,” alleged GSC’s breach of contract complaint Friday (docket 1:23-cv-05368) in U.S. District Court for Southern New York in Manhattan.

At the peak of pandemic-induced demand for tech products, Amazon’s preferred ports of entry, Los Angeles and Long Beach, “suffered from significant backlogs,” said the complaint. Amazon reacted by “frantically searching for alternative ports of entry,” it said. Amazon reached agreement with GSC “to provide transloading, transportation, and other logistics services for cargo moving through the Port of Oakland,” it said. Amazon “eagerly pushed to enter into its business relationship with GSC,” seeking to leverage GSC’s “extensive logistics experience and reputation as a leader in that space in Northern California,” it said.

Amazon’s “commitment to the endeavor” was spelled out in “unambiguous contractual terms,” requiring GSC to be prepared to handle at least 500 containers a week, said the complaint. Amazon agreed to a four-year term and a “liquidated damages provision” to prevent it from walking away from the contract “for convenience,” it said. GSC hired and trained “well over” 200 employees and made significant other investments and changes to its business operations “to service Amazon’s substantial requirements,” it said.

As the effects of the pandemic receded, Amazon faced “drastically reduced consumer demand,” and by November 2022, the “backups and bottlenecks” at the Los Angeles and Long Beach ports “had cleared,” said the complaint. That forced Amazon into a “business decision that it no longer needed GSC’s transload services,” it said. But rather than honoring the terms of its agreement with GSC at the deal’s midpoint, Amazon began “contriving baseless non-performance accusations and purporting to terminate the agreement for cause without the required notice to cure,” it said: “In truth, Amazon’s attempt to abandon its commitments had nothing to do with GSC’s performance of its obligations.”

Amazon “induced” GSC to begin a “comprehensive logistics program” and invest millions of dollars required to meet its obligations “in the midst of the unprecedented public health crisis,” said the complaint. Amazon’s “bad faith breach has deprived GSC of its reasonable expectations in the parties’ agreement and, among other things, triggered the liquidated damages provision in favor of GSC,” it said.

The investment of time and money “associated with the contemplated commitment was such that GSC required the protection afforded by a liquidated damages clause in the event Amazon sought to back away from the deal prior to the end of the term,” said the complaint. “It was foreseeable that GSC would suffer lost opportunity costs by entering a work order with Amazon as GSC would be forced to turn down inquiries from large beneficial cargo owners that would conduct business with GSC if its building was available,” it said.

Amazon “was responsible for delivering inbound containers and supplying outbound trailers,” said the complaint. Amazon allocated virtually all of its work for carrier services in the Oakland area to one carrier, J.B. Hunt, “and accordingly Amazon was at the mercy of this single vendor,” said the complaint. Amazon’s inbound supply of containers was “inconsistent and choppy, making it difficult for GSC to maintain staffing appropriate to the work flow,” it said. Spikes in Amazon’s inbound supply “also led to backlogs at GSC’s yards,” it said.

Despite GSC’s “extensive efforts,” Amazon “never consistently met its requirement” to supply a minimum capacity of 500 containers a week, said the complaint. Amazon nevertheless blamed GSC for the shortfalls as false grounds for prematurely terminating the contract, it said. At no point before Amazon’s termination notice did Amazon or any of its employees ever advise GSC of any “performance failures,” it said.

Amazon’s failure to meet its “minimum weekly volume obligations” for 2021 and 2022 “caused GSC substantial lost profits as it could not receive compensation for processing the containers that Amazon failed to deliver,” said the complaint. It estimates it suffered $5.72 million in damages for 2021 and $7.68 million for 2022, it said. Amazon’s failure to give GSC “adequate notice” of the agreement’s termination also “directly resulted in GSC incurring labor related costs that otherwise would not have been incurred,” it said.