Railroads Win Class Certification Appeal in Price-Fix Case

The four largest U.S. railroad companies won their bid to reverse a ruling that turned a price- fixing lawsuit against them by shippers into a group lawsuit with potential damages of at least $10 billion.

A three-judge panel of the U.S. Court of Appeals in Washington today threw out a decision by a lower-court judge certifying the class, sending it back for him to reconsider in light of a subsequent Supreme Court ruling on class certification. The lower court also used a flawed model for determining potential harm to shippers, the panel said.

“Mindful that the district court neither considered the damages model’s flaw in its certification decision nor had the benefit” of the Supreme Court case, “we will vacate class certification and remand the case to the district court to afford it an opportunity to consider these issues,” U.S. Circuit Judge Janice Rogers Brown wrote for the panel.

The suit, brought in 2007 by Olin Corp. and seven other companies that ship goods by rail, alleges the railroad operators colluded at an industry meeting in 2003 to impose a surcharge tied to total transportation costs rather than to actual fuel prices during a 3 1/2-year period.

Certified Class

U.S. District Judge Paul Friedman last year certified a class of about 30,000 shippers in a case against Union Pacific Corp., the largest U.S. carrier by revenues; Burlington Northern Santa Fe, a unit of Warren Buffett’s Berkshire Hathaway Inc., the number two freight carrier; and CSX Corp. and Norfolk Southern Corp.

“While this obviously was not our preferred outcome, we are gratified that the case was remanded,” Stephen Neuwirth, of Quinn Emmanuel Urquhart & Sullivan LLP, co-lead counsel for the shippers, said in an e-mailed statement. “We are confident that we will be able to demonstrate that the damages model in fact satisfies the highest standards that have been set by the courts, and that ultimately the case will move forward as a class action.”

Tom Lange, a spokesman for Union Pacific, said in a statement that the company is “pleased with the court’s decision and looks forward to the opportunity to reaffirm that Union Pacific’s fuel surcharge program complied with the applicable legal requirements.”

Rail Customers

More than two dozen rail customers have filed lawsuits, which were consolidated before Friedman. Archer-Daniels-Midland Co., the world’s largest grain processor, filed a separate complaint in March 2008.

The railroad companies in an appeals court filing cited industry analysts in estimating potential damages at $10 billion or more.

“Despite the defendants’ size and market position, liability of this magnitude could threaten their financial stability” and thus warranted review by the appeals court before the merits of the underlying case were determined, Brown wrote.

The appeals panel found fault with the accuracy of the methodology used to determine damages, ruling that “it detects injury where none could exist.” The alleged damages before and after the conspiratorial behavior claimed in the lawsuit were similar according to the model, the judges said.

The Supreme Court decision bearing on the case provides new guidance on determining whether multiple claims for damages can qualify for class action status.

The court in March said that proof of the applicability of a common methodology for measuring damages is needed before a case can continue as a class action covering many individual claims.

The case is In re Rail Freight Fuel Surcharge Antitrust Litigation, 12-07085, U.S. Court of Appeals, District of Columbia (Washington).

(With assistance from Tim Catts in New York. Editors: Glenn Holdcraft, Fred Strasser)