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In re Rail Freight Fuel Surcharge Antitrust Litigation

July 2, 2009


The opinion of the court was delivered by: John M. Facciola U.S. Magistrate Judge

MDL Docket No. 1869



Now pending before the Court is Defendants' Motion for Phased Discovery [#187] ("Motion").*fn1 Defendants propose a Case Management Order that provides for class discovery before class certification and merits discovery. Plaintiffs propose an alternative order that provides for class certification at the conclusion of all fact discovery.

The issue now before this Court is whether bifurcated discovery is appropriate.

I. Background

Defendants are the four largest Class I railroads based in the United States. Plaintiffs are eighteen businesses from multiple districts that allege that defendants entered into a conspiracy in 2003 which they continued to enforce through 2007.*fn2 The alleged conspiracy forms the basis of the dispute in this case.

Plaintiffs allege that defendants violated federal antitrust laws by conspiring to fix and maintain the prices of rail freight transportation services through the use of Rail Fuel Surcharges. Rail Fuel Surcharges are separate fees added to customers' bills by defendants, purportedly to compensate defendants for increased fuel costs. Plaintiffs claim that defendants, in pursuit of increased profits, devised a plan to impose inflated surcharges to as many customers as possible.

As part of their plan, defendants allegedly conspired to eliminate the surcharge being used by the Association of American Railroads ("AAR") -- a barrier that prevented defendants from imposing new, inflated surcharges. Plaintiffs claim that defendants conspired to cause the AAR to remove fuel from the All-Inclusive Index ("AII"), a rate-escalation provision used in most rail freight transportation agreements. The AII and a related index, the Rail Cost Adjustment Factor ("RCAF"), provided for the full recovery of fuel cost increases by railroads. Because no provision was in place to compensate railroads for fuel cost increases after the AAR removed fuel from the AII and RCAF, defendants were free to impose their own fuel surcharges.

Plaintiffs claim that defendants implemented a uniform Rail Fuel Surcharge program by which they fixed and imposed artificially high surcharges that exceeded their increased fuel costs and generated billions of dollars of profits. Plaintiffs claim that defendants agreed to maintain the established rates and took other collective actions to enforce their conspiracy. Plaintiffs also claim that defendants published the Rail Fuel Surcharges on their websites to ensure that each railroad adhered to the collusive pricing.

II. Summary of the Arguments

A. Defendants' Arguments in Support of Their Motion

District court judges are "accorded considerable discretion to limit both discovery and the extent of the hearing on Rule 23 requirements." In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 324 (3d Cir. 2008). Bifurcated discovery is warranted if "the interests of economy and reduced costs outweigh any minimal prejudice which would befall plaintiffs from delaying discovery on the merits." Supp. Memo. at 2. The Federal Rules of Civil Procedure promote a "just, speedy and inexpensive determination of every action." Fed. R. Civ. P. 1. In addition, Rule 23 encourages the determination of class certification "at any early practicable time." Fed. R. Civ. P. 23. Discovery pertaining "only to the merits delays the certification decision and may ultimately be unnecessary." MANUAL FOR COMPLEX LITIGATION (FOURTH) § 21.14 (2004).

Defendants argue that phased discovery facilitates early resolution of the class certification issue and reduces the burden of the subsequent merits discovery.

First, defendants argue that the Court should decide whether to certify a class as soon as possible. Defendants contend that the sheer size of plaintiffs' proposed merits discovery, which includes requests for 100 depositions and 70 separate document requests, will substantially delay the potentially dispositive class certification decision. See Coopers & Lybrand v. Livesey, 437 U.S. 463, 476 (1978). Defendants call plaintiffs' request to proceed with merits discovery and Rule 23 briefs in the early summer of 2010 "unrealistic" given the volume of plaintiffs' requests. Supp. Memo. at 4. Production of documents and answers would be more efficient if limited to class certification issues, thereby expediting the Court's consideration of class certification.

Defendants claim that plaintiffs, in opposing their Motion, intend to "begin class certification briefing more than 16 months later than they originally proposed in the Joint Rule 26(f) Report."*fn3 Based on plaintiffs' proposal that class briefing be completed in the end of 2010, the class certification issue may not be decided until the eve of trial in June 2011. Defendants argue that this approach creates an unworkable schedule if some of plaintiffs' proposed class is certified. It renders impossible interlocutory appeals of the class certification issue.*fn4 Also, it unfairly exposes putative class members to key rulings before requiring them to decide whether to opt out. See McCarthy v. Kleindienst, 741 F.2d 1406, 1412 (D.C.C. 1984) ("Fundamental fairness... requires that defendants haled into court not remain indefinitely uncertain as to the bedrock litigation fact of the number of individuals or parties to whom they may ultimately be held liable...").

Second, bifurcated discovery, defendants argue, is logistically possible in this case.*fn5

Defendants acknowledge that "it may be necessary for the court to probe behind the pleadings before coming to rest on the certification question." Reply at 6-7 (citing Gen. Tel. Co. v. Falcon, 457 U.S. 147, 160 (1982)). Still, they argue, this concept does not translate into a requirement for a ruling on the merits of whether plaintiffs have established a factual conspiracy. At the class certification stage, plaintiffs need only "demonstrate that the element of antitrust impact is capable of proof at trial through evidence that is common to the class"; they need not prove the element of antitrust impact itself. In re Hydrogen Peroxide Antitrust Litig., 552 F.3d at 311. Proof that the challenged fuel surcharges were conspiratorial is unnecessary because, defendants argue, the alleged conspiracy is assumed at the certification stage to determine whether injury to all class members can be shown by common proof. Reply at 9. For example, defendants find evidence concerning their relationships with one another to be irrelevant at this stage and seek their exclusion from initial discovery.

Defendants argue that they can effectively isolate electronically stored information ("ESI") relevant to class certification from ESI relevant to the merits. Defendants would apply "search terms for class certification topics to materials related to an agreed-upon set of custodians, and would leave for future merits discovery (if any) the application of the remaining search terms." Reply at 11. Defendants would use platforms that would identify documents viewed in earlier phases of discovery to prevent the need to review these documents again during merits discovery. Reply at 12. Manual ...

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