District of Columbia Circuit Pulls The Brake On Class Certification Bid In Railroad Price-Fixing Suit
On August 16, 2019, the United States Court of Appeals for the District of Columbia Circuit affirmed a lower court’s decision to deny class certification in an antitrust action involving some of the country’s largest freight railroad companies. In Re: Rail Freight Fuel Surcharge Antitrust Litigation, MDL No. 1869, (D.C. Cir. Aug. 16, 2019). Plaintiffs alleged that defendants conspired to fix rate-based fuel surcharges in violation of Section 1 of the Sherman Act, Section 4 of the Clayton Act and various state laws. The panel, which consisted of Chief Judge Merrick Garland and Judges Judith Rogers and Gregory Katsas, held that class certification was inappropriate because plaintiffs’ regression analysis did not establish predominance.
Plaintiffs, customers of defendant freight railroad companies, alleged that defendants conspired to fix fuel surcharges, which are commonly charged when the price of fuel rises above a certain trigger price. Following MDL consolidation, the action was divided into separate cases involving (1) direct purchasers and (2) indirect purchasers. Plaintiffs in the direct-purchasers case moved for class certification pursuant to Federal Rule of Civil Procedure 23(b)(3).
In attempting to meet the predominance requirements of Rule 23(b)(3), plaintiffs relied primarily on two regression models. The district court initially certified the class, holding that the regression models were a workable means of proving causation, injury and damages at trial. On interlocutory review, the D.C. Circuit vacated and remanded the certification order in light of the Supreme Court’s decision in Comcast Corp. V. Behrend, 569 U.S. 27 (2013). On remand, the district court reconsidered plaintiff’s damages model. The court focused on three flaws: (1) that plaintiff’s model inflated damages for intermodal shipments, (2) that it erroneously measured damages for shipments made under legacy contracts, and (3) that it measured negative damages for 2,000 proposed class members. The district court determined that each of these issues was sufficient to defeat an argument for predominance and so denied class certification. Plaintiffs appealed.
On appeal, the Panel from the D.C. Circuit explained that to succeed in their Clayton Act claims, each plaintiff must show a causal injury to its business or property. As a result, without common proof of such injury, plaintiffs could not establish predominance for purposes of Rule 23. The Panel agreed that plaintiffs failed to meet this standard. While plaintiffs insisted that the alleged conspiracy injured all 16,065 shippers in the proposed class, plaintiffs’ damages’ model showed that 2,037 prospective class members (12.7 percent) incurred negative damages (and so suffered no injury). The Panel further rejected plaintiffs’ argument that any negative damages results were de minimis or the result of normal prediction error. Indeed, the Panel explained that plaintiffs’ argument about prediction error, “does not point to affirmative evidence—much less common affirmative evidence—that a conspiracy did in fact injure” the class members with negative damages. Accordingly, the Panel held that the district court did not abuse its discretion in denying class certification.
This case is a reminder that courts will enforce the need to truly establish class-wide proof of injury and causation, with common evidence, when conducting predominance inquiries. Courts may be especially apt to do so when there is no way, or only very complicated ways, to winnow out non-injured class members.