In re Rail Freight Fuel Surcharge Antitrust Litig.-MDL No. 1869, BNSF

• Decision Date: 09 August 2013
• Docket Number: No. 12–7085.,12–7085.
• Citation: 725 F.3d 244
• Parties: In re RAIL FREIGHT FUEL SURCHARGE ANTITRUST LITIGATION–MDL NO. 1869, BNSF Railway Company, et al., Petitioners.
• Court: U.S. Court of Appeals — District of Columbia Circuit

725 F.3d 244

In re RAIL FREIGHT FUEL SURCHARGE ANTITRUST LITIGATION–MDL NO. 1869,

BNSF Railway Company, et al., Petitioners.

No. 12–7085.

United States Court of Appeals,District of Columbia Circuit.

Argued May 3, 2013.

Decided Aug. 9, 2013.

Appeal from the United States District Court for the District of Columbia.

Carter G. Phillips argued the cause for petitioners. With him on the briefs were Joseph R. Guerra, Saul P. Morgenstern, Maureen E. Mahoney, J. Scott Ballenger, Alan M. Wiseman, Thomas A. Isaacson, Theodore J. Boutrous, Jr., John M. Nannes, Tara L. Reinhart, Tyrone R. Childress, David G. Meyer, Veronica S. Lewis, Kent A. Gardiner, Kathryn D. Kirmayer, Andrew S. Tulumello, Samuel L. Sipe, Jr., and Linda Stein.

Theodore J. Boutrous, Jr., Andrew S. Tulumello, and Veronica S. Lewis were on the briefs for petitioner BNSF Railway Company. Richard J. Favretto, Michael E. Lackey, Jr., and G. Paul Moates entered appearances.

Mark T. Stancil, Robin S. Conrad, and Sheldon Gilbert were on the briefs for amicus curiae Chamber of Commerce of the United States of America in support of petitioners.

Stephen R. Neuwirth argued the cause for respondents. With him on the brief were William B. Adams, Michael D. Hausfeld, and Michael P. Lehmann.

Before: GARLAND, Chief Judge, BROWN, Circuit Judge, and SENTELLE, Senior Circuit Judge.

BROWN, Circuit Judge:

Over the last decade, the four major freight railroads imposed rate-based fuel surcharges on shipments over their tracks. Although the practice had existed for some time, it proliferated and intensified early last decade. Suspecting foul play, a group of shippers who paid these surcharges brought an antitrust suit accusing the freight railroads of engaging in a price-fixing conspiracy. They also sought and obtained certification of a class including all similarly situated shippers who paid these surcharges during the relevant period. The freight railroads now seek, via interlocutory appeal, to undo class certification, the crux of their argument being that separate trials are needed to distinguish the shippers the alleged conspiracy injured from those it did not. Satisfied that this case is among the rare instances in which interlocutory review of a certification decision is warranted, we exercise our discretion to hear this appeal.

I

A

Four companies account for nearly 90% of rail freight traffic: BNSF Railway Co. (BNSF); CSX Transportation, Inc. (CSX); Norfolk Southern Railway Co. (NS); and Union Pacific Railroad Co. (UP). See In re Rail Freight Fuel Surcharge Antitrust Litig. (Fuel Surcharge I), 587 F.Supp.2d 27, 29 (D.D.C.2008). In some regions, the railroads' networks overlap. In others, tracks may belong almost exclusively to a single railroad. A sizable percentage of shipping traffic over the four railroads' tracks is “interline,” i.e., serviced by multiple railroads,¹ and some is “intermodal” traffic, which involves transferring freight from trains to other forms of transportation like trucks or ships.

To offset fuel costs, freight railroads often include fuel surcharges on top of the base rates they charge their customers. These fuel surcharges have traditionally taken two forms. Mileage-based fuel surcharges raise total rates in proportion to shipping distances. Rate-based fuel surcharges, by contrast, depend on a prearranged “strike” or “trigger” price. When fuel prices are below the trigger price, no fuel surcharge supplements the base rate. But once fuel prices exceed the trigger price, a surcharge is imposed as a function of the base rate. Together, the fuel surcharge and base rate constitute the total rate paid (sometimes called the “all-in” rate).

Rate-based fuel surcharges were not unheard of at the start of the new millennium, but neither were they the norm. That all changed by the mid–2000s, when fuel surcharge provisions became ubiquitous, governing the vast majority of the defendants' shipments. At the same time, the defendants sharpened the surcharges' sting, with all four dropping their trigger prices between March 2003 and March 2004. Not all shippers were affected, though. Some had entered into so-called legacy contracts with the defendants before this period, thereby guaranteeing they would be subject to fuel surcharge formulae that predated the later changes.

B

The heyday of the rate-based fuel surcharge did not last. Eventually, the Surface Transportation Board (STB) put an end to the practice with respect to common carrier traffic within its regulatory authority. See Rail Fuel Surcharges, Ex Parte No. 661, 2007 WL 201205 (S.T.B. Jan. 25, 2007). The STB was especially troubled by the disconnect between the purported rationale for the fuel surcharges—fuel cost recovery—and the formula's dependence on base rates, which need not reflect the marginal fuel costs of a particular shipment. See id. at *4. The decision did not, however, directly implicate those shippers whose traffic was governed by bilateral contract. See id. at *10.

A flurry of antitrust class actions against the four major freight railroads ensued, all of which were ultimately consolidated before the district court. See Fuel Surcharge I, 587 F.Supp.2d at 29. While several sets of plaintiffs were part of the consolidated proceedings, this case deals with those eight plaintiffs ² who brought against the defendants a claim of price fixing under § 1 of the Sherman Act, 15 U.S.C. § 1. Following discovery, these plaintiffs sought certification of a class of shippers who paid the purportedly inflated fuel surcharges. See In re Rail Freight Fuel Surcharge Antitrust Litig. (Fuel Surcharge II), 287 F.R.D. 1, 12 (D.D.C.2012).³

As in any other case, obtaining certification required the plaintiffs to meet the two burdens prescribed in Federal Rule of Civil Procedure 23. First, the proposed class must satisfy all four “prerequisites” to certification: numerosity, commonality, typicality, and adequate representation.⁴Id. at 20. Second, the proposed class must fit one of three categories defined by Rule 23(b)—in this case, the plaintiffs had to show that the litigation presents “questions of law or fact common to class members [that] predominate over any questions affecting only individual members,” and that “a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.” Fed.R.Civ.P. 23(b)(3); see Fuel Surcharge II, 287 F.R.D. at 20. This latter criterion is known as the predominance requirement. Amgen, Inc. v. Conn. Ret. Plans & Trust Funds, ––– U.S. ––––, 133 S.Ct. 1184, 1191, 185 L.Ed.2d 308 (2013).

Class certification is far from automatic. As recognized by the district court, “Rule 23 does not set forth a mere pleading standard. A party seeking class certification must affirmatively demonstrate his compliance with the Rule—that is, he must be prepared to prove that there are in fact sufficiently numerous parties, common questions of law or fact, etc.” Wal–Mart Stores, Inc. v. Dukes, ––– U.S. ––––, 131 S.Ct. 2541, 2552, 180 L.Ed.2d 374 (2011); see Fuel Surcharge II, 287 F.R.D. at 22. Oftentimes, this inquiry resembles an appraisal of the merits, for “it may be necessary for the court to probe behind the pleadings before coming to rest on the certification question.” Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 160, 102 S.Ct. 2364, 72 L.Ed.2d 740 (1982). Such was the case here. While the defendants opposed class certification on a number of grounds, much of the debate centered on the predominance requirement and whether the plaintiffs could show, through common evidence, injury in fact ⁵ to all class members from the alleged price-fixing scheme, setting up another classic battle of the experts. See Fuel Surcharge II, 287 F.R.D. at 43–71. In the plaintiffs' corner was Dr. Gordon Rausser, the Robert Gordon Sproul Distinguished Professor at the University of California at Berkeley. See id. at 17. Facing off against him was Dr. Robert Willig, Professor of Economics and Public Affairs at Princeton University. See id. at 18.

The plaintiffs' case for certification hinged on two regression models prepared by Rausser. The first of these, the “common factor model,” attempted to isolate the common determinants of the prices shippers paid to the defendants. Rausser also constructed a “damages model,” which sought to quantify, in percentage terms, the overcharge due to conspiratorial conduct at various intervals over the Class Period. Purportedly, the two models operate in conjunction to “set forth a persuasive inference of causation: certain common factors predominate in the determination of freight rates; controlling for those common factors, analysis of defendants' transaction data reveals that there was a structural break in the relationship between freight rates and fuel prices around 2003,” the start of the Class Period. See id. at 69. Willig, for his part, contested various aspects of Rausser's methodology and conclusions. But for naught. The district court accepted Rausser's models as “plausible” and “workable,” rejected the defendants' critiques, and granted class certification. Id. at 67. This appeal followed.

II

Before addressing the merits, we pause to consider a thorny threshold question. Should we be exercising our appellate jurisdiction over this case in the first place? Class certification is, after all, not a final decision of the sort we typically review on appeal from the district court. See28 U.S.C. § 1291. Certain interlocutory decisions do qualify for immediate appellate review. See id. § 1292. But in the case of class certification, that review is discretionary, not automatic. SeeFed.R.Civ.P. 23(f) & advisory committee's note; see also28 U.S.C. § 1292(e) (creating jurisdiction over interlocutory appeals in those circumstances in which the Supreme Court has prescribed rules providing for such review).

Discretionary does not mean arbitrary. Choosing whether to exercise jurisdiction over an interlocutory appeal from a...