Antitrust Law Daily Class certification properly denied in rail freight price fixing suit
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Monday, August 19, 2019

Class certification properly denied in rail freight price fixing suit

By Jeffrey May, J.D.

Based on an expert report, more than 2,000 of the 16,000 customers in the proposed class would have negative damages.

A putative class of over 16,000 shippers was properly denied class certification in a price fixing action against the nation’s largest freight railroads because the expert’s damages model, offered by the complaining customers, could not prove classwide injury. The model showed that there was no injury for as many as 2,037—or 12.7 percent—of the 16,065 shippers. Even if predominance did not require common evidence extending to all class members, as the lower court suggested, the number of cases requiring individualized proof would not fall into a "de minimis" exception. Given the need for at least 2,037 individual determinations of injury and causation, the district court did not abuse its discretion in denying class certification on the ground that common issues did not predominate, the U.S. Court of Appeals in Washington, D.C. ruled (In re Rail Freight Fuel Surcharge Antitrust Litigation, August 16, 2019, Katsas, G.).

This is the second time the class certification issue has been considered by the D.C. Circuit in this case. In 2013, the appellate court vacated the certification of a class of shippers who paid purportedly inflated fuel surcharges as a result of the alleged price fixing conspiracy. The lower court was instructed to reconsider its decision certifying the class in light of the U.S. Supreme Court's decision in Comcast Corp. v. BehrendIn 2017, the district court on remand 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 a 211-page decision. The appellate court has now affirmed that ruling.

To show that causation, injury, and damages could be proved on a class-wide basis, the plaintiffs invoked two regression models constructed by their economist, Dr. Gordon Rausser. Although the district court initially concluded that Rausser’s regression analysis was "plausible" and "workable," on remand after permitting supplemental discovery and expert reports, the district court denied class certification. The court identified three shortcomings in the damages model, including that the model measured negative damages—and hence no injury—for over 2,000 members of the proposed class.

The appellate court agreed that the expert’s damages model did not prove classwide injury in light of the negative damages for 2,000 class members. The appellate court rejected the plaintiffs’ argument that their model measured the negative damages only because of normal prediction error.

Injury to all class members—de minimis exception. The appellate court also rejected the plaintiffs’ argument that predominance did not require common evidence extending to all class members. The appellate court noted that this contention appeared inconsistent with a statement in its 2013 decision that in order to establish predominance, plaintiffs must "show that they can prove, through common evidence, that all class members were in fact injured by the alleged conspiracy."

The district court considered the plaintiffs’ contention that common proof covering "virtually all" members of the proposed class, and leaving only a "de minimis" number of cases requiring individualized proof of injury and causation, would be enough to show predominance. However, it concluded that this case did not fall within such an exception. The appellate court agreed.

Further, the plaintiffs could not state a de minimis argument based on the fact that the class members for whom the damages model showed no injury represented less than 1 percent of the railroads’ overall revenue from the alleged conspiracy. Revenue was irrelevant to predominance analysis, according to the appellate court.

The case is No. 18-7010.

Attorneys: Kathleen M. Sullivan, Stephen R. Neuwirth, and Sami H Rashid (Quinn Emanuel Urquhart & Sullivan, LLP) and Michael D. Hausfeld and Michael P. Lehmann (Hausfeld) for appellants. Carter G. Phillips, Joseph R. Guerra, Kathleen Moriarty Mueller (Sidley Austin LLP) for appellee BNSF Railway Co. Saul P. Morgenstern (Arnold & Porter); Thomas A. Isaacson (Covington & Burling LLP); John M. Nannes and Tara L. Reinhart (Skadden, Arps, Slate, Meagher & Flom LLP); J. Scott Ballenger (Latham & Watkins LLP); Veronica S. Lewis and Andrew S. Tulumello (Gibson, Dunn & Crutcher LLP); Samuel M. Sipe, Jr., Linda S. Stein, Lucas C. Townsend (Steptoe & Johnson LLP); Kent A. Gardiner (Crowell & Moring LLP) for other appellees.

Companies: Dakota Granite Co.; BNSF Railway Co.; CSX Transportation, Inc.; Norfolk Southern Railway Company; Union Pacific Railroad Co.

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