UPCOMING: RAILROAD / Antitrust case alleges four largest U.S. freight railroads conspired to impose “rate-based” fuel surcharges (i.e., calculated as a percentage of base transportation rate – not mileage or other basis). Seeks money damages in 10 figures (after trebling). Railroads seek interlocutory (i.e., before final disposition in trial court) review of class certification issues.

Before the United States Court of Appeals, District of Columbia Circuit.

In re: RAIL FREIGHT FUEL SURCHARGE ANTITRUST LITIGATION

No. 12-7085

Pending Appeal:

On Petition for Permission to Appeal Pursuant to Federal Rule of Civil Procedure 23(f). 2012 WL 6018796 (December 3, 2012).

How Interlocutory Appellants-Defendant Railroads Describe the Case: 

“ISSUES PRESENTED

“Whether interlocutory review is appropriate to resolve one or more of the following class certification issues:

“(1) Whether the district court erroneously certified a class on the ground that common evidence can establish “widespread” injury and damages, notwithstanding the fact that the class contains members who suffered no injury and individualized assessments of shipper circumstances are necessary to determine whether particular class members were injured and by how much; and

“(2) Whether the district court erred in reviewing plaintiffs’ expert analysis under a mere “plausibility” standard, without subjecting it to the rigorous analysis necessary to ensure that the requirements of Rule 23 [relating to class actions] are met, and in certifying a class even though their expert’s model is unable to distinguish between effects from lawful causes and allegedly unlawful causes.

“STATEMENT OF THE CASE

“This is an antitrust case alleging that the four largest U.S. freight railroads conspired to impose “rate-based” fuel surcharges on their customers. A rate-based fuel surcharge is a surcharge that is calculated as a percentage of the base transportation rate, rather than on mileage or some other basis. The district court certified a class of approximately [Material Under Seal Deleted] shippers claiming [Material Under Seal Deleted] billion in damages, after trebling.

“The central dispute at this stage concerns whether injury and damages from the alleged conspiracy can be established on a class-wide basis with common admissible evidence – or, instead, will require individualized examination of customer circumstances. In some antitrust class actions, the uniform nature of the product and market are such that the alleged conspiracy, if it happened, would have raised the entire price of the product above an ascertainable competitive level. In such a case, injury and damages can be determined formulaically based on the difference between the price a class member paid and the competitive price.

“The picture here is vastly more complicated. Many diverse market dynamics affect the extent to which any shipper would have paid fuel surcharges *3 and the price they would have paid in a competitive market. For example, a large proportion of the class, including all eight named plaintiffs, paid rate-based fuel surcharges before the alleged conspiracy began, and the use of fuel surcharges was increasing rapidly. For many shippers, including those in one of the largest categories of rail traffic (intermodal traffic), the surcharges paid during the alleged conspiracy were based on the same formulas that were in place before the alleged conspiracy. For other shippers, the formulas were different, but the new, allegedly collusive, formulas produced surcharges that were, on average, lower than the prior formulas. Those phenomena illustrate that for any class member the “but for” or “competitive” benchmark price may include a fuel surcharge equal to or greater than the allegedly collusive fuel surcharge.

“In addition, many shippers negotiate with rail carriers based on overall freight rates and services and may have received off-setting concessions that foreclose a showing of harm. And many shippers are served by only one railroad and are protected by a regulatory system that recognizes that they may lack effective competition for their business. Absent a highly individualized showing that they benefit from indirect rail competition, these shippers cannot show that any alleged conspiracy reduced competition for their traffic and thereby caused them antitrust injury.

“As a result of these individualized factors, any alleged conspiracy to impose a fuel surcharge would not have any impact on a significant number of class members, and identifying them requires inquiry as to each shipper. The district court nevertheless certified the class based on a finding that plaintiffs had proffered an expert who provided a “plausible” statistical theory that, with other common evidence, could establish “widespread” harm. Individual exceptions, the district court found, were rare “anomalies” and thus the class would not contain a “great many” uninjured shippers. Defendants submit that finding is clearly erroneous, because undisputed evidence shows that the exceptions are far from rare. But the more important legal point is that the district court misunderstood the significance of this evidence for determining whether common issues predominate, as they must, under Fed. R. Civ. P. 23(b)(3).

“First, the district court rejected the standard, adopted by at least four circuits, that requires plaintiffs to demonstrate that injury to all or virtually all class members may be proven through common evidence. Instead, the district court required plaintiffs to demonstrate only “widespread harm” within the class, a standard inconsistent with Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011). There, notwithstanding statistical proof purporting to show widespread harm from a “culture of discrimination,” the Court rejected a proposed class action that would have allowed recovery by some class members who had no valid claim. It held that “[c]ommonality requires the plaintiff to demonstrate that the class members ‘have suffered the same injury,’ ” which means that the injury question is “capable of classwide resolution” with common evidence – “in one stroke.” Id. The Court also clarified that a class may not be certified purely on the basis of plaintiffs’ proposed evidence, without considering the individualized evidence or defenses that defendants are entitled to present. Id. at 2561. Wal-Mart makes clear that the proper inquiry is not whether harm is widespread, but whether injury can be demonstrated through class-wide common proof (on both sides) or instead requires individualized inquiry.

“Second, the district court reviewed plaintiffs’ expert’s analysis under a mere “plausibility” standard, which is contrary to the decisions of at least two Courts of Appeals that require full evidentiary scrutiny, and with Wal-Mart, 131 S. Ct. at 2552, which requires “rigorous analysis” to ensure the requirements of Rule 23 are satisfied.

“These two key issues are important and recurring questions on which, as the district court recognized, this Court “has not yet had occasion to provide much guidance.” (Op. 27.) This Petition presents the Court with an opportunity to clarify the law in this circuit and to apply the proper standards to reverse the plainly inappropriate certification of a multi-billion dollar class action that falls far short of the requirements of Rule 23.”

Core of Appellants’ Argument

Railroads’ argument here goes to class certification – with two central points:

1. Class should not have been certified because it contains members who either suffered no injury or whose members would require individualized assessments of shipper circumstances in order to determine whether or not class members were injured and, if so, to what extent.

2. Plaintiffs’ expert analysis should not have been reviewed under “a mere ‘plausibility’ standard” in determining whether or not class certification is warranted.

Comment:

With claimed monetary damages in the billion – with a “b” – this litigation is the focus of enormous effort on behalf of the four defendant Class I railroads, and features stellar legal talent, notably Carter Phillips, counsel of record for Petitioner BNSF Railway Co., and Maureen Mahoney, counsel of record for Union Pacific Railroad Company.

Clearly, obtaining and retaining class certification is a make-or-break for plaintiffs who without such certification would otherwise have to make their cases on a company-by-company individual basis – probably a bridge too far given the number of shippers and differentiation of their circumstances.