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Class certification denied in railroad fuel surcharge case by U.S. District Judge

A 2007 lawsuit that cited Class I railroads­- Burlington Northern Santa Fe Corp., CSX Corp., Norfolk Southern Corp., and Union Pacific Corp- collaborated to fix fuel surcharges was denied class certification,… By Jeff Berman

A 2007 lawsuit that cited Class I railroads­- Burlington Northern Santa Fe Corp., CSX Corp., Norfolk Southern Corp., and Union Pacific Corp- collaborated to fix fuel surcharges was denied class certification, due to what United States District Judge Paul L. Friedman called a failure to “establish that questions of law or fact common to class members predominate over any questions affecting only individual members.”

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 May 2007, Phoenix-based Dust Pro Inc. and other shippers filed an antitrust suit that seeks class-action status on behalf of parties that shipped goods on various Class I railroads that allegedly fixed prices for fuel surcharges that did not relate to actual fuel costs. LM reported at this time that these fuel surcharges were the result of rail carriers imposing fuel surcharges on regulated freight under private contracts. And Quinn Emmanuel, a New York-based law firm representing Dust Pro and other shippers said in an interview that “the ultimate relief we’re seeking is for the shippers who were victims of these fuel surcharges to get back the amount they overpaid.

Judge Friedman explained in his order that while documentary evidence is strong, evidence of conspiracy and class-wide injury to so-called carload traffic, the damages regression model of the plaintiffs’ lead expert is flawed for three reasons:

  • a large portion of the class traffic reflected in the damages model was intermodal traffic and not carload traffic, which was subject to competitively negotiated fuel surcharge formulas established during the pre-class period and which never changed;
  • the plaintiffs damages model finds unexplainable overcharges with respect to legacy shippers, the very concern raised by the D.C. circuit in its opinion in this case; and
  • there are too many uninjured shippers in the class who cannot be identified or sufficiently explained to satisfy the “all or virtually all” standard for predominance under Rule 23 (b)(3) and the established case la

The Judge added that by November 10, 2017 the parties shall meet and confer and file a joint notice with the Court regarding how they wish to proceed in this case should plaintiffs file a petition to appeal with the Clerk of the D.C. circuit and, if so, whether there are any outstanding issues that need to be addressed by the Court.

Going back to the STB’s May 2006 hearing on fuel surcharges—Ex Parte no. 661—the common compliant of rail shippers was that there wasn’t enough transparency in how carriers assess fuel surcharges, explained a railroad stakeholder whom added that  until there is more transparency, these types of lawsuits could continue.

“Whenever the railroads have previously presented information on fuel surcharges, they have not tied it into any numbers that were auditable in a public forum [before the STB ruling],” said the. “There are requirements [with the new rule] for them to be submitting initial information now, but these filings are from 2003 to the present and until the railroads clear up the transparency problem this is going to continue to be a major problem for them to deal with. Until the railroads clear up the lack of transparency…this is probably going to get worse for them—not better. They are going to have to reveal more information about the accuracy of their fuel surcharges than they have come out with before, and until they do that it is going to be something that is going to continue to fester out there. It makes a lot of sense for railroads to release this information retroactively based upon audible records. If they don’t do that, I think it is a mistake.” 

Another factor he stressed is that there needs to be addresses is that there needs to be a mechanism to include transparency for fuel surcharges going back to the 2002-2003 timeframe, as opposed to the current rule which does not apply to past fuel surcharges prior to the ruling.

About the author
Jeff Berman, Group News Editor
Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman

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