(Bloomberg News circulated the following story by Cary O’Reilly on October 14.)
Union Pacific Corp., along with the three next largest U.S. railroad companies, has asked a judge to dismiss a lawsuit alleging they made billions of dollars in illegal profits by fixing prices on fuel surcharges.
The eight plaintiffs include US Magnesium, a Salt Lake City-based producer of magnesium; Zinifex Taylor Chemicals Inc. of Clarksville, Tenn.; and Strates Shows Inc., a traveling carnival based in Orlando, Fla.
At a hearing Friday in federal court in Washington, lawyers for Union Pacific, the largest U.S. railroad, Burlington Northern Santa Fe Corp., CSX Corp. and Norfolk Southern Corp. argued the case should be thrown out for lack of evidence the railroads broke any laws in creating a price index to pass on surging fuel costs to customers.
The collective decision by the companies to create the index “was lawful behavior,” said Kent Gardiner, the lead lawyer for the railroads. The plaintiffs “don’t allege a restraint of trade” associated with the index, he said.
The plaintiffs, direct purchasers of rail services and customers who contracted through intermediaries for shipping, allege the companies colluded at an industry meeting in 2003 to impose a surcharge tied to overall transportation costs rather than to actual fuel prices over a 3 1/2-year period.
More than two dozen customers have filed lawsuits, which were consolidated before U.S. Judge Paul Friedman in Washington. Archer Daniels Midland Co., the world’s largest grain processor, filed a separate complaint on March 26.
Burlington Northern and Union Pacific, which compete against each other in the western United States, began the collusion in July 2003, according to the complaint. All four railroads soon began working together to impose the surcharge, moving in “lock step” to raise prices, according to Stephen Neuwirth, the lead lawyer for the plaintiffs.
“We believe that in this case, the plaintiffs have given you evidence of a plausible conspiracy,” which is enough to let the case go forward at this stage, Neuwirth told the judge. Friedman didn’t say when he would rule.
Neuwirth pointed to a ruling last year by the Surface Transportation Board, which regulates some U.S. rail rates. The board found that the railroads used the surcharges to raise revenue on regulated freight, not just to cover increases in the price of fuel. He said this evidence alone is enough to allow the case to proceed.
Union Pacific, based in Omaha, Neb., and the other railroads deny they colluded on fuel surcharges.