U.S.-based Class I railroads get welcome news in fuel surcharge case

The four United States-based Class I railroads received good news late last week, when the United States Court of Appeals for the District of Columbia Circuit dismissed a June 2012 decision by a U.S. District judge in the District of Columbia that maintained Burlington Northern Santa Fe, Union Pacific, Norfolk Southern, and CSX worked together—or colluded—on fuel surcharges assessed to shippers.

When that decision was issued last year, a Bloomberg report stated that the railroads asked the U.S. Court of Appeals to reverse the ruling, explaining that it could lead to a cumulative $10 billion or more in potential damages for roughly 30,000 shippers.

While the case may not have gone away completely for the railroads, the United States Court of Appeals for the District of Columbia Circuit in its decision last week remitted the case back to a federal district court in Washington to reconsider its decision following a recent Supreme Court decision centered on class-decertification.

“While this obviously was not our preferred outcome, we are gratified that the case was remanded,” said Stephen R. Neuwirth of Quinn, Emanuel, Urquhart & Sullivan, co-lead counsel for the plaintiffs, in a 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.”
In the court’s decision last week, it was pointed out that the lower court underestimated the potential harm to railroads, and the method for calculating prospective damages was flawed.  And due to the “the pressure to settle posed by the threat to the defendants’ market capitalization, and the identified defect in the damages model, we grant the defendants’ interlocutory appeal,” Judge Janice Rogers Brown, wrote in the court’s findings, according to a recent Bloomberg report.
Union Pacific Director of Corporate Communications Tom Lange told LM that
the Omaha-based carrier is “pleased with the court’s ruling and looks forward to the opportunity to reaffirm that Union Pacific’s fuel surcharge program complied with the applicable legal requirements.”

Various reports indicated that the plaintiffs maintain that the railroads, which control roughly 90 percent of U.S.-based freight rail volume, collaborated to maintain prices through fuel surcharges that were part of shippers’ bills and they also contend that this fuel surcharges had no direct correlation to actual fuel cost increases.

This case centers on what a Reuters report described as “an endless string of rate increases” between 2003-2008 which generated billions of dollars in extra revenues for the four railroads. What’s more, it added that the eight shipper plaintiffs say that the railroads took advantage of a concentrated market, tight capacity, and coordinated pricing.

Reuters also noted that overcharge claims are being presented as evidence and are under a seal, adding that a study by the American Chemistry Council indicated that fuel surcharges imposed by all major freight railroads topped fuel cost increases by $6.4 billion between 2003-2007.

Issues between railroads and shippers regarding how fuel surcharges are applied are far from new. In January 2007, the Surface Transportation Board issued a final rule focused on how railroads calculate and apply fuel surcharges.

In that ruling, the STB declared that computing fuel surcharges in a manner that does not correlate with actual fuel costs for specific rail shipments was an “unreasonable practice.” Toward that end, the agency said, it said it would prohibit railroads from assessing fuel surcharges that are based on a percentage of the base rate charged to customers. Instead, carriers were required 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.