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In re Rail Freight Fuel Surcharge Antitrust Litigation

November 7, 2008


The opinion of the court was delivered by: Paul L. Friedman United States District Judge

MDL Docket No. 1869


This matter is before the Court on defendants' motion to dismiss for failure to state a claim upon which relief can be granted under Rule 12(b)(6) of the Federal Rules of Civil Procedure.*fn1 The Court has carefully considered the arguments made by the parties in their papers and the oral arguments presented by counsel in court on October 10, 2008. The Court has concluded that plaintiffs have stated a claim under the test announced by the Supreme Court in Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955 (2007). Accordingly, defendants' motion to dismiss must be denied.


The Multidistrict Litigation Panel consolidated eighteen separate class actions, pending in six districts, involving common antitrust allegations against the four major United States railroads and transferred them to this Court on November 6, 2007. The plaintiffs were divided into two putative classes -- those who allegedly purchased rail freight transportation services directly from defendants from July 1, 2003 until at least June 30, 2007 and who were assessed a rail fuel surcharge for the transportation services, and those who allegedly purchased rail freight transportation services indirectly from the defendants. Plaintiffs in both putative classes allege that the defendant railroads violated Section 1 of the Sherman Act and Section 4 of the Clayton Act by conspiring to fix prices through their use of fuel surcharges.

Defendants BNSF Railway Company ("BNSF"), CSX Transportation, Inc. ("CSX"), Norfolk Southern Railway Company ("NS"), and Union Pacific Railway Company ("UP") have moved to dismiss the claims of both putative classes. The direct purchaser plaintiffs' complaint, and defendants' challenge to it, are discussed in this Opinion.*fn2 The motion to dismiss the indirect purchaser plaintiffs' complaint will be discussed in a subsequent opinion. Resolution of the instant motion to dismiss turns solely on the question of whether plaintiffs' complaint states a claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure.


Plaintiffs allege that in 2003, defendants, who control approximately ninety percent of all rail freight traffic in the United States, sought to increase their revenues through the use of fuel surcharges. Compl. ¶ 4. Before Congress passed the Staggers Rail Act in 1980, defendants would have had to apply to the Interstate Commerce Commission for approval of an across-the-board rate increase. Compl. ¶ 3. Following deregulation of the railroad industry, however, at least eighty percent of all rail shipments move under private transportation contracts, which are not rate regulated, or are otherwise exempt from rate regulation. Compl. ¶ 50. Plaintiffs allege that defendants determined that the most efficient means to increase their profits was through the imposition of an across-the-board artificially high and uniform fuel surcharge, rather than attempt to renegotiate all of these separate contracts. Compl. ¶ 54.

The barrier to this plan, according to plaintiffs, was that the great majority of rail freight transportation contracts already included rate escalation provisions that weighted a variety of cost factors, including fuel, based on an index called the All Inclusive Index (the "AII"). Compl. ¶¶ 4, 55. The railroad trade organization known as the Association of American Railroads ("AAR"), which is dominated by the four defendants, publishes this index. Compl. ¶¶ 4, 7. Plaintiffs allege that the AII (as well as a related cost index called the Rail Cost Adjustment Factor ("RCAF")) already accounted accurately for the impact of fuel cost increases. Compl. ¶¶ 4, 55. Any actual increase in fuel costs, no matter how large, would be contained in the AII and the RCAF. Compl. ¶ 55. Plaintiffs allege that the defendants conspired to remove fuel from the AII so that they could apply a separate "fuel surcharge" as a percentage of the total cost of freight transportation. Compl. ¶ 5. Doing so permitted plaintiffs to raise total freight prices widely by a given percentage. Compl. ¶ 56.

According to plaintiffs, top executives from each of the defendants met regularly at restaurants and various recreational and conference facilities in the spring of 2003 and thereafter to discuss their industry. Compl. ¶ 58. Shortly after one such industry meeting, in July 2003 the western railroads (BNSF and UP) began charging identical fuel surcharges based on the U.S. Department of Energy On-Highway Diesel Fuel Price Index. Compl. ¶¶ 7, 59. Plaintiffs allege that this parallel and complex pricing decision was based on an agreement among the defendants. Compl. ¶¶ 7, 60.

The next step in the alleged conspiracy, according to plaintiffs, was the defendants' agreement and collective action to cause the AAR to create a new cost escalation index, the All Inclusive Index Less Fuel ("AIILF"), which removed fuel costs from the prior cost escalation index (the AII). Compl. ¶¶ 9, 66. According to plaintiffs, defendants reached this agreement during the October and December 2003 meetings of the AAR. Compl. ¶¶ 9, 65. The index was published in December 2003. Compl. ¶¶ 9, 66. Subsequently, and in furtherance of the conspiracy, according to plaintiffs, the eastern railroads (CSX and NS) announced that they would apply identical fuel surcharges based on the West Texas Intermediate Index. Compl. ¶¶ 12, 69.

Plaintiffs allege that at that point, and as a result of these collective actions, defendants each applied their fuel surcharges in the same way -- as a percentage multiplier of the total base rate for rail freight transportation. Compl. ¶¶ 13, 75. They were able to do so because, under the AIILF, fuel was no longer included in the general cost escalation index. Plaintiffs allege that this approach yielded defendants billions of dollars of additional profits because the surcharge raised rates far beyond the real increased cost of fuel. Compl. ¶¶ 13, 75. Plaintiffs allege that defendants, in the east and west, uniformly computed the surcharges and agreed upon common trigger points for adjusting the percentages monthly. Compl. ¶ 14. As a result of this alleged collusion, the eastern and western railroads, respectively, imposed identical fuel surcharges for more than three years. Compl. ¶ 83.

In sum, relying on the uniformity of fuel surcharges, the creation and use of the AIILF, and various other allegations, plaintiffs contend that defendants conspired to fix prices in violation of Section 1 ...

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