Freight rail companies accused of scheming to bump up rates through "aggressive" fuel surcharges argued this morning to undo a court order certifying a class in the case, arguing the decision was based on a faulty model of injuries and that the order would unfairly force them to settle.
The class – thousands of businesses that shipped products via freight rail – sued the four largest freight railroad companies in the United States for antitrust violations in 2007. U.S. District Senior Judge Paul Friedman certified a class last summer, which pushed up the total possible damages into the billions, according to court papers in the litigation.
Sidley Austin's Carter Phillips, arguing for the rail companies, told a U.S. Court of Appeals for the D.C. Circuit panel today that Friedman's order conflicted with a U.S. Supreme Court decision in March on class certification in antitrust cases. The plaintiffs' expert created a model that identified injuries to entities outside the class, he said, which under the high court's ruling in Comcast Corp. v. Behrend would bar class certification.
Lead counsel for the plaintiffs, Stephen Neuwirth of Quinn Emanuel Urquhart & Sullivan, argued the defendants were trying to get new review of factual questions already decided by Friedman by couching them as legal arguments. Friedman did a rigorous analysis of the expert's model, Neuwirth said, and took into consideration the fact that some entities faced fuel surcharges as the conspiracy was getting started in the time leading up to the official start date of the alleged conspiracy in 2003. He also disputed the relevance of the Comcast decision.
The case is one of the latest to attempt to clarify class certification standards following the U.S. Supreme Court's 2011 decision in Wal-Mart v. Dukes, which raised the bar for plaintiffs seeking certification by requiring proof of common questions of law or fact. The rail companies have also argued Friedman's order ran afoul of Wal-Mart because determining the injury to the plaintiffs would require individualized analysis of plaintiffs' contracts and negotiations with the rail companies.
Chief Judge Merrick Garland of the D.C. Circuit noted there was a difference between needing common questions of fact related to the alleged injury as opposed to damages, which could differ among the plaintiffs.
Neuwirth pointed to Friedman's findings that any evidence the rail companies gave discounts to shippers – part of the defendants' argument that there were negotiations specific to different plaintiffs that would require individualized analysis – was "anomalous."
D.C. Circuit Senior Judge David Sentelle pressed Phillips on whether the court could even hear the appeal, which was taking place as the underlying case proceedings moved forward. Phillips said they did because they were arguing Friedman made a "manifest error." Furthermore, he said, the damages at stake were exceptional and would serve as a "death knell" for his clients.
Sentelle expressed concern that Phillips' "death knell" argument would open the door to interlocutory appeals every time a class was certified and defendants facing the prospect of greater damages felt more pressure to settle. Phillips said the damages at issue were extreme, but the issue wasn't whether his clients felt they would be put out of business. The problem, he said, was the damages would pose such a risk that the companies would be forced to settle unmeritorious claims.
Neuwirth said Phillips' claims that the damages would put his clients in a bind were belied by the rail companies' public filings with the U.S. Securities and Exchange Commission. In those filings, he said, the companies said they didn't expect the litigation to have a material effect on their bottom line.
Garland noted the defendants' response was they made those assertions because they thought they would win before the D.C. Circuit. Neuwirth agreed it was a "theoretical possibility" the defendants could win, but added that was a big assumption to make in filings to the commission. The rail companies were responsible, he said, and would disclose if the possible damages posed a risk.
Both lawyers were asked if the court would have to either reverse or affirm Friedman's ruling, or could remand and order the judge to take another look in light of the recent Comcast decision. Phillips said they should reverse, because although the court hadn't decided Comcast at the time of Friedman's decision, he already had a chance to address the issues raised in that ruling.
Neuwirth at first demurred to pick a side when asked what the appeals court could do if they found Friedman made a "manifest error." When pressed by Garland, however, he said his clients "obviously" wouldn’t advocate for a straight-out reversal.
Judge Janice Rogers Brown also heard the case.