(The law firm Quinn Emanuel Urquhart Oliver & Hedges LLP issued the following on May 14.)
NEWARK, N.J. — A lawsuit seeking class action status has been filed today alleging a price-fixing conspiracy by the five major U.S.-based railroad freight haulers: CSX Transportation, Inc.; Norfolk Southern Railway Company; BNSF Railway Company; Union Pacific Railroad Company; and Kansas City Southern Railway Company.
The complaint, filed in U.S. District Court in Newark, N.J., alleges the railroads, which collectively control more than 90 percent of the rail freight traffic in the U.S., have since mid-2003 participated in a conspiracy to fix the prices of rail fuel surcharges applied to freight shipped at unregulated rates.
According to the complaint, the railroads “conspired to fix, raise, maintain, or stabilize prices of rail freight transportation services sold in the United States through use of rail fuel surcharges added to customers’ bills.” The complaint alleges that the railroads “moved in uniform lockstep” to fix prices for the fuel surcharges, which bore no direct relationship to their actual fuel cost increases. Because of this practice, the suit says, the railroads “restrained competition in the market for unregulated rail freight transportation services” and “realized billions of dollars in revenues … in excess of their actual increase in fuel costs from the specific customers on whom they imposed the surcharge.”
The lawsuit notes that the surcharges were tied to base shipping rates instead of fuel costs. The federal Surface Transportation Board (“STB”) found in January 2007 that these same fuel surcharge practices, as applied to freight shipped at federally regulated rates, were “unreasonable” and amounted to “double dipping.” However, that STB decision addressed only rate-regulated freight traffic, which makes up only a minority of all rail freight shipments in the U.S. The complaint here addresses the unregulated private rail freight transport contracts, and other unregulated rail transport, that constitute the majority of U.S. rail freight shipments.
According to the complaint, the railroads “have acknowledged that their fuel surcharge program is not a cost recovery mechanism, but a revenue enhancement measure intended to achieve across-the-board increases in the prices charged by defendants for unregulated rail freight transportation.”
The lawsuit seeks class action status on behalf of all direct purchasers of rate-unregulated rail freight transport services as to which the fuel surcharges were applied. The named plaintiff is Dust Pro, Inc., a Phoenix- based company that manufactured and distributed soil stabilizers, and that had the rail fuel surcharges applied to rail freight transport it purchased at unregulated rates.
Complaint Alleges Railroads “Moved in Uniform Lockstep”
The complaint contends that: “The fact that the defendants have moved in uniform lockstep for a period of nearly 38 months indicates that defendants were coordinating their behavior and conspired to fix prices for rail fuel surcharges. In a competitive environment, free of collusion, carriers with lower fuel costs would impose a lower surcharge to obtain a competitive advantage.”
According to the complaint, by July 2003 the freight haulers “agreed to stop competing with one another with respect to prices they charged … [and to] act in concert with one another in demanding the rail fuel surcharges,” using rising oil prices as “an easy way to increase dramatically their revenues” without having to negotiate new contracts with shippers.
STB Has Ruled Surcharges “Unreasonable Practice” and “Double Dipping”
In January 2007, the STB — in a decision that applied only to rate- regulated rail freight transport — ordered the railroads to stop computing the surcharge based on shipping rates, which it called an “unreasonable practice” because the fuel surcharges are not tied to the fuel consumption associated with the individual movements to which they are applied. The STB also found that the railroads had engaged in “double dipping” by imposing both the fuel surcharge and a separate rate increase that included a fuel cost component.
The lawsuit filed today contends, with respect to rail freight traffic that is not subject to STB rate regulation, that: “Rail freight shippers across the nation are being subjected to an endless string of rate increases by railroads made possible by a concentrated market structure, tight capacity, and coordinated pricing. Although the reason for deregulation of the railroad industry was to promote competition and lower freight rates, it is now clear that the opposite has come true — railroads are collectively charging shippers supracompetitive rates. The railroad industry today does not behave like a competitive market at all. Instead, it is dominated by the defendants in this case.”
The plaintiff is represented by Quinn Emanuel Urquhart Oliver & Hedges LLP. Counsel on the complaint also include the firms of Carella, Byrne, Bain, Gilfillan, Cecchi, Stewart & Olstein; LaRoe, Winn, Moerman & Donovan; and the Scruggs Law Firm, P.A.