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Court Rejects Rail Shippers Class Formation Request; Senators Press For Rail Reform

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Court Rejects Rail Shippers Class Formation Request; Senators Press For Rail Reform

Rail shippers saw federal action in recent weeks on some long-standing issues related to service charges and fuel surcharges:

Class certification denied by federal appeals court

Rail shippers will not be able to form a class action lawsuit to argue against alleged fuel surcharge price fixing, a federal appeals court ruled on August 16.

A three-member panel of judges from the U.S. Court of Appeals for the D.C. Circuit unanimously rejected a claim by rail shippers that they can form a class certification using a certain kind of analysis that measures the negative damages cited by a proposed class of plaintiffs. A court approval of a class certification would have enabled rail shippers to file a class action lawsuit. 

The rejection affirms a prior decision made by U.S. District Judge Paul Friedman in October 2017, according to a Law360 article.

This court ruling is just the latest action in a legal proceeding that has spanned over a decade. According to the August 16 decision, the proceeding, which is related to 18 antitrust actions that were consolidated by a multidistrict litigation panel, involves a reputed group of over 16,000 shippers that alleged harm because of the price fixing of fuel surcharges by four railroads – BNSF, CSX Corporation (NASDAQ: CSX), Norfolk Southern Corp. (NYSE: NSC) and Union Pacific Corporation (NYSE: UNP). 

But the appeals court denied class certification because the judges determined that over 2,000 members of the proposed class didn't qualify under the plaintiffs' regression analysis, which was the analysis that the plaintiffs used to argue their ability their ability to form a class. The regression analysis was the plaintiffs' way of providing evidence that shows causation, injury and damages on a class-wide basis. The appeals court denied the rail shippers' bid because the damages model used by the shippers didn't show that there was enough commonality amongst the shippers to certify a class.

While the August 16 decision rejects the notion of rail shippers forming a class certification using a regression analysis, the suit doesn't mean that rail shippers can't form a class certification under a different legal argument. Several related U.S. Supreme Court decisions have weakened the rail shippers' argument since the legal proceedings began 12 years ago, a source said.

The August 16 decision could have financial implications for shippers that have very large damage claims. These shippers will have to file their claim and become a plaintiff in an antitrust suit if they wish to recoup from alleged damages.

The decision has two key consequences, according to attorney Sandra Brown with the law firm of Thompson Hine. 

"First, for the Class I railroad defendants it reinforces that they are no longer facing a class action of approximately 16,000 shippers for allegedly conspiring to set rail fuel surcharges in violation of the federal Sherman Antitrust Act," Brown said. 

"Second, the decision also means that the clock starts ticking again with limited time left for shippers to bring individual claims against the railroads for that same alleged violation of antitrust law," she said.

Senators lobby Surface Transportation Board to take action

Several U.S. Senators pressed the Surface Transportation Board (STB) to consider taking action on some long-standing issues before the Board. 

Senator Roger Wicker (R-Mississippi), chairman of the Senate Committee on Commerce, Science and Transportation, wrote to the board about class exemptions. The scrap metals and forest products industries, which have class exemptions, say those exemptions make it harder for shippers to dispute rail rates.

Wicker asked the STB to consider revoking the class exemptions for paper and forest products since "shippers subject to class exemptions are unable to bring rate and other cases before the Board and have no forum for resolving such rail dispute," Wicker said in a July 22 letter.

And in a July 25 letter, Senators Tammy Baldwin (D-Wisconsin) and John Kennedy (R-Louisiana) asked the STB to take action on demurrage and accessorial charges and implement the recommendations suggested by a Board task force on rate reform. The senators also alluded to "several stalled rulemakings" that address rate relief, the review of commodity exemptions and reciprocal switching.

The Board responded to Wicker in an August 8 letter that it would consider all the comments and submissions that it received on the class exemptions.

While the STB traditionally does not discuss its thoughts or provide direction prior to rendering a decision, shippers were encouraged that the senators were pressing the Board to respond. 

"We commend the senators for their engagement as well as the STB for all their efforts to address this very important matter that has vast economic impacts on the nation's manufacturers," said Billy Johnson, a lobbyist for the Institute of Scrap Recycling Industries.

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