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Price-Fixing Suit Aims to Punch Rail Cos. Ticket

Some the country’s biggest rail companies are hoping to avoid a legal train wreck.

Since summer 2007, roughly 30 companies have joined a class action against the country’s four largest freight lines: Union Pacific, Burlington Northern Santa Fe, Southern Norfolk, and CSX. They allege that in 2003, the rail companies entered into a price-fixing scheme regarding fuel surcharges, the rate the rail companies charged customers to cover the cost of diesel fuel.

The cases were consolidated in the U.S. District Court for the District of Columbia, where Judge Paul Friedman is presiding over the class action. It has taken almost two full years for the case just to reach discovery, and Friedman is still deciding how that process will proceed. But with a docket chock-full of marquee firms on both sides, it has the potential to cost the industry serious money.

The rail lines—all Fortune 500 companies—have geared up a list of top D.C. firms for their defense, including Mayer Brown and Steptoe & Johnson for Burlington Northern Santa Fe; Crowell & Moring for CSX; Skadden, Arps, Slate, Meagher & Flom and Kaye Scholer for Norfolk Southern; and Howrey for Union Pacific.

While the issues might seem arcane, the money involved in any award could be huge. According to Supply Chain Digest Research, a trade publication, Union Pacific alone may have overcharged customers by $1.16 billion, with the other three following close behind. Michael Hausfeld, whose firm, Hausfeld LLP, is co-lead counsel with Quinn Emmanuel Urquhart Oliver & Hedges, says he believes a judgment in his clients’ favor could cost the rail lines hundreds of millions of dollars.

In the last several years, transportation companies have weathered a storm of antitrust litigation, with government prosecutors and private plaintiffs alike targeting airlines, trucking companies, and rail operators over their pricing practices. Hausfeld himself has been involved in class actions against air carriers and trucking companies. He says the rail case fits into a larger controversy over the way the transportation industry has operated over the past decade.

“You’ve got to look at the transportation industry generally,” he says. “From trucking to airlines to railroads. Each saw increasing fuel costs that they expensed as a fuel surcharge” as a way to inflate their profits. He says his firm is looking into the possibility of more such suits in the future.

Several defense lawyers declined to comment for this story or did not return phone calls. Those who did speak for the article generally played down the significance of the case. Right now, says Howrey partner Alan Wiseman, plaintiffs are just overeager to sue.

“There’s a herd mentality amongst the plaintiffs’ antitrust lawyers,” Wiseman says. “If one case is filed, there are 50 antitrust lawyers who will follow.”

He says Howrey has only devoted a “relatively small” number of lawyers to the case.
 

Practice Areas: Antitrust / Competition