Court Releases Public Opinion, Sets Scheduling Conference in Fuel Surcharge Antitrust Litigation
Date: July 17, 2012
On July 13, 2012, the U.S. District Court for the District of Columbia issued the 145-page public version of its class certification opinion (Opinion) in In re Rail Freight Fuel Surcharge Antitrust Litigation. The Opinion provides the Court's rationale for its June 21, 2012 order, which certified and defined the class of shipper plaintiffs.
As we reported in our June 21 bulletin, the Court originally filed the Opinion under seal to allow the parties to address whether it contained material that should be protected from the public view. The Opinion contains redactions on six of the 145 pages, all of which appear to be names and discussions of railroad customers that are not named plaintiffs.
The Court addresses each of the class certification requirements of Federal Rule of Civil Procedure 23 and concludes that the plaintiffs have met their burden of showing by a preponderance of the evidence that they have satisfied all of the requirements of Rule 23. The Opinion provides important insight into the nature of the class and the merits of the class claims, including the following issues:
- The Court finds that the class definition requirement is met because it is easy to distinguish between rate-regulated and rate-unregulated traffic and neither the Surface Transportation Board nor the defendants' expert had any trouble distinguishing which shippers were included in the class as defined.
- The Court finds that class certification is not defeated by the fact that some class members might have arbitration clauses in their shipping contracts because no arbitration has been initiated and the defendants' assertion of an intent to initiate arbitration is "too speculative to defeat predominance, much less commonality or typicality."
- The Court finds that the defendants' claim that captive shippers are not subject to competitive forces is contradicted by the statements of the defendants' own executives, and thus captive and non-captive shippers are subject to a common antitrust injury.
- The Court finds unpersuasive the railroad executives' declarations, submitted as evidence to refute class-wide injury-in-fact and relied upon by the defendants' expert, Robert D. Willig, noting that "the most damning portions of almost every single declaration on which defendants rely are contradicted by the declarants' subsequent deposition testimony."
- The Court finds that intermodal shippers may be members of the class because the railroads applied the fuel surcharges uniformly to all traffic types.
- The Court rejects the defendants' claim that certain legacy shippers, including shippers that renewed contracts during the class period, should be excluded from the class and instead finds that such shippers are only excluded to the extent they fall within the class definition exclusion related to contracts entered into prior to July 1, 2003. The Court bases this conclusion on the finding "that the fuel surcharge programs applied by defendants before the class period were nothing like the widespread application of defendants' more aggressive, standardized fuel surcharge programs during the class period; that these standardized fuel surcharges were applied uniformly, to all or virtually all class members; and that there is no evidence of widespread discounting of base rates in exchange for application of fuel surcharges, and that any such discounting in the record is an anomaly that does not preclude a finding of predominance."
- The Court finds that the case is not just about any fuel surcharge, but rather whether the defendants agreed to increase total prices by widespread application and enforcement of coordinated and aggressive standardized fuel surcharges tied to base rates. Accordingly, a person is not precluded from bringing a claim against the railroads just because that person was willing to pay a fuel surcharge.
- The Court finds that the plaintiffs have presented persuasive documentary and expert evidence that is common to the class that shows the standard fuel surcharges were intended to increase the overall price as a percentage multiplier of the base rate.
- Rejecting the contentions of the defendants' expert, Willig, the Court finds that the plaintiffs' expert, Gordon Rausser, provides an economic regression analysis that is persuasive and workable and presents a theory of proof that is plausible and susceptible to proof at trial through available evidence common to the class.
- The Court finds that Rausser's analysis shows that before the alleged conspiracy, "there was relationship between fuel costs and overall prices that was dramatically changed once the [alleged] conspiracy went into effect." Further, the fuel surcharges put in place in the spring of 2003 were of a "different breed," employed in lockstep, were more aggressive and yielded more revenue than earlier programs and were "in fact a blatant general rate increase."
- The Court notes that the plaintiffs' expert estimates that the class-wide overcharge amounts to 13.4 percent based upon the expert's review of 100 percent of the defendants' transactional data covering the years 2000 to 2008 and including 200 million shipments.
- The Court finds persuasive Rausser's characterization of the rail freight industry: (1) The defendants have "an enormous market share" which creates "an environment conducive to collusion"; (2) there are significant barriers to entry; (3) services are interchangeable across defendants; (4) demand is inelastic; and (5) pricing is transparent. The Court finds that the evidence Rausser marshals regarding those characteristics provides strong support for the plaintiffs' contention that injury-in-fact is capable of proof at trial with evidence common to the class.
- The Court rejects the defendants' argument that Rausser's damage model "yields nonsensical results" because the damages he calculates exceed the fuel surcharges actually assessed. The Court agrees with the plaintiffs' expert that, to the extent the fuel surcharge damages exceed the actual charges assessed, it is because the damages reflect various factors, including instances of "double-dipping" and the impact of rebasing of rates.
- The Court did not rule on the defendants' motion to exclude interline-related communications because the Court stated that it did not need to rely on that evidence in its Opinion.
While the Court addresses many factual disputes, including expert disputes concerning class certification, the Opinion makes clear that it is not resolving the merits of the class claims. The Court acknowledges that the findings in the Opinion are only for purposes of class certification and are not binding on the trier of facts.
As we discussed in our July 9 bulletin, the defendants filed a petition seeking to appeal the Court's certification decision on July 5, 2012. The district court proceedings will continue during the appeal unless the defendants' request for a stay is granted. The case schedule, however, has not been finalized. On July 13, the parties filed a joint status report regarding the case schedule, and the Court has scheduled a status conference for August 9.
This case continues to have far-reaching implications for rail shippers. For any company that shipped large volumes of goods by rail and paid fuel surcharges directly to one or more of the defendant railroads in the class period (July 1, 2003 to December 31, 2008), there are many facts and legal issues to evaluate. Thompson Hine has the knowledge and experience to assist shippers in evaluating the potential impact of the class certification decision and class membership in the litigation.