Antitrust Law Daily Class certification denied to rail customers alleging price fix from fuel surcharge programs
Tuesday, November 14, 2017

Class certification denied to rail customers alleging price fix from fuel surcharge programs

By E. Darius Sturmer, J.D.

Direct purchasers of rail freight shipping services were not entitled to certification as a class for purposes of their claims that BNSF Railway Co., CSX Transportation, Inc., Norfolk Southern Railway Co., and Union Pacific Railroad Co. engaged in a price fixing conspiracy to coordinate their fuel surcharge programs as a means to impose supracompetitive total price increases on their shipping customers, the federal district court in Washington, D.C. has determined. In an opinion issued last month but unsealed yesterday, the court determined that the plaintiffs failed to satisfy the predominance and superiority requirements for class certification under Federal Rule of Civil Procedure 23(b)(3). Therefore, it denied their motion for class certification (In re Rail Freight Fuel Surcharge Antitrust Litigation, October 10, 2017; released November 13, 2017, Friedman, P.).

Underlying suit. In the complaint, the purchasers alleged that the four defendants, through their collective action, "conspired to impose Rail Fuel Surcharges that far exceeded any increases in the Defendants’ fuel costs, and thereby collected billions of dollars of additional profits." A rail fuel surcharge, the court noted, is a separately-identified fee railroads charge for "agreed-upon transportation [services], purportedly to compensate for increases in the cost of fuel." According to the plaintiffs, the defendants reached the point of conspiracy in 2003 with their agreement to create and apply a common surcharge and "worked tirelessly to achieve 100% Fuel Surcharge coverage across their customers." As a result of the conspiracy, the plaintiffs said, the defending railroads "were able to reverse the long-term downward trend in rail freight rates and move rates sharply upward." The conspiracy was alleged to continue through December 2008.

Prior certification. The direct purchaser plaintiffs were once a class. Earlier in the lengthy litigation, in 2012, the same court certified that class. However, its decision was vacated on appeal and remanded for further consideration in light of intervening Supreme Court precedent in Comcast Corp. v. Behrend, 569 U.S. 27 (2013), which declared that a proposed class’ failure to produce a damages model sufficiently tied to its theory of liability precluded a finding of predominance.

On remand, the court first considered at great length whether to admit several supplemental expert reports alongside the testimony of the plaintiffs’ lead expert, owing to "serious questions about his credibility as an expert" in light of certain conflicts of interest in the litigation. Ultimately, it found the plaintiffs’ lead expert’s methodology sound and reliable, and therefore admissible under Rule 702, but it also allowed nearly all of the supplemental reports that cast doubt on the lead expert’s damages model.

Findings on remand. Noting that its earlier findings that the plaintiffs met each of the Rule 23(a) requirements—numerosity, commonality, typicality, and adequacy—by a preponderance of the evidence went unchallenged on appeal or remand, the court reaffirmed its conclusion that the plaintiffs had easily fulfilled their burden under Rule 23(a). However, the same could not be said as to Rule 23(b)(3)’s predominance requirement.

Predominance. While the plaintiffs had presented strong evidence of conspiracy and class-wide injury to so-called carload traffic, numerous flaws in their lead expert’s damages regression model precluded a finding that common questions of law or fact would predominate over questions affecting only individual members, in the court’s view. First, a large portion of the class traffic reflected in the expert’s damages model was intermodal traffic—not carload traffic—that was subject to competitively negotiated fuel surcharge formulas established during the pre-class period and which never changed. In addition, the expert’s damages model found unexplainable overcharges with respect to "legacy shippers"—those whose negotiated rates with the railroads pre-dated the conspiracy. Finally, the model left too many uninjured shippers in the class who could not be identified or sufficiently explained to satisfy the "all or virtually all" standard for predominance under Rule 23(b)(3) and the established case law.

Superiority. The defending railroads’ argument that the purchasers had failed to show the superiority of the class action mechanism as required under Rule 23 was also successful. Because the court had concluded that the plaintiffs failed to meet the predominance requirement and that the proposed class action would require significant individualized inquiries regarding both injury and damages, it could not conclude that a class action would be superior.

The case is MDL Docket No. 1869.

Attorneys: Benjamin D. Brown (Cohen Milstein Sellers & Toll PLLC) for Dakota Granite Co., McIntyre Group, Ltd. and GVL Pipe & Demolition, Inc. Andrew Santo Tulumello (Gibson, Dunn & Crutcher, LLP) for BNSF Railway Co. Kent Alan Gardiner (Crowell & Moring LLP) for CSX Transportation, Inc. Jennifer B. Patterson (Kaye Scholer, LLP) for Norfolk Southern Railway Co.

Companies: Dakota Granite Co.; McIntyre Group, Ltd.; GVL Pipe & Demolition, Inc.; BNSF Railway Co.; CSX Transportation, Inc.; Norfolk Southern Railway Co.

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