U.S. District Judge goes against four U.S. Class I railroad carriers in fuel surcharge case ruling

Late last week, the four largest United States Class I railroads—CSX, Norfolk Southern, BNSF, and Union Pacific—were dealt a collective setback, when U.S. District Court for the District of Columbia Paul Friedman ruled against the railroads, and in favor of more than 200 shippers, regarding an ongoing rail freight fuel surcharge litigation.

This case goes back several years and is based on shippers contending that the four Class I railroads collaborated to fix fuel surcharges.

The topic of shippers overpaying for fuel surcharges is far from new. In January 2007, the Surface Transportation Board (STB) issued a final ruling regarding railroad fuel surcharges, saying that it is an unreasonable practice for railroads to compute fuel surcharges in a manner that does not correlate with actual fuel costs for specific rail shipments. The ruling also declared that it will prohibit railroads from assessing fuel surcharges that are based on a percentage of the base rate charged to customers. Instead, railroad carriers now are supposed to develop a fuel surcharge computation that is more closely linked to the portion of their fuel costs that is attributable to a specific shipment along with other factors.

In his published opinion, entitled “Rail Freight Surcharge Antitrust Litigation,” Judge Friedman wrote that in any proceeding in which it is alleged that a carrier was party to an agreement, conspiracy, or combination in violation of a Federal law or of any similar State law, proof of an agreement, conspiracy, or combination may not be inferred from evidence that two or more rail carriers acted together with respect to an interline rate or related matter and that a party to such action took similar action with respect to a rate or a related matter on another route of traffic.

And he added that the railroad carrier defendants requested an order barring shippers from seeking an interference of a conspiratorial agreement, or colluding, stemming from railroads having engaged in bilateral, interline discussions followed by certain actions. The judge also noted that the carriers requested an order barring shipper plaintiffs from seeking an interference of a conspiratorial agreement from any evidence of a rail carrier evaluating whether or not it would take similar action as something previously discussed with an interline partner.   

“The Court does not agree with the defendants,” wrote Friedman. “Applying the statute in the way they suggest would extend its protection to discussions or agreements involving competing traffic of the rail carriers. This interpretation is inconsistent with Congress’s stated purpose to protect limited categories of discussions and agreements that concern interline movements.”

An Associated Press report said that the shippers that fled the lawsuits maintain that the four railroads had meetings, phone calls, and e-mail communications in which they “embarked on the conspiracy to apply the fuel surcharges to all traffic to generate profits.”  

Should this case go to trial, it could have a significant negative financial impact for the four U.S. Class I railroad carrier defendants, according to a research note issued this week by Tony Hatch, principal of New York-based ABH Consulting.

“A (pro-rail) lawyer friend wrote to me: ‘I’ve read it.  I don’t think it is good. How big will be determined,” wrote Hatch, adding that the lawyer said that it could result in billions in potential liability if a jury were to rule against the railroads.  

On Friday, February 19, the lead plaintiffs’ lawyer Stephen Neuwirth, an attorney at Quinn Emanuel, issued a statement, saying that the evidence establishes that for at least five years, the railroads violated U.S. laws by coordinating fuel surcharges as a way to raise rail freight prices.   

“Eager to prevent a jury from seeing this evidence, the railroads made arguments that would have left them effectively immune from antitrust laws,” said Neuwirth. “We are gratified by the court’s ruling and look forward to proving our case at trial.”