Wednesday, August 21, 2013

Rail Freight Lawsuit Mirrors Previous Shipping and Forwarding Anti-Trust and Cartel Cases

Billions of Dollars Riding on Huge Class Action Proceedings
Shipping News Feature

US – As any regular reader of the Handy Shipping Guide news section will know there has been a succession of cartel scandals and anti-trust suits which have blighted the reputations of freight forwarding and ocean shipping operatives right around the globe in the past few years (those unfamiliar just type ‘cartel’ into the News Search box for an update). The billions of dollars and euro’s so far extracted by the relevant authorities and claimants from guilty parties however might well pale into comparative insignificance if the plaintiffs in a class action against four of the big US rail cargo corporations ever get their way.

CSX Corp, Norfolk Southern, Union Pacific and Warren Buffett’s Burlington Northern Santa Fe (BNSF) are looking at damages estimated by several industry analysts at potentially costing over $100 billion. The crux of the alleged offences stems from an allegation that the four conspired in 2003 to set a fuel surcharge which was in fact linked to their overall costs, as opposed to a genuine hike in rates to cover energy costs.

The lawsuit raised against the ‘gang of four’ has been lodged as a class action, with around 30,000 shippers hitched to the legal bandwagon, but already cracks have begun to appear in the prosecution’s case, almost inevitable given the wide ranging financial hardship allegedly suffered by an array of claimants with vastly differing financial interests. A recent Supreme Court ruling on class certification has meant the Appeal Court sent the case back to a lower Court for trial.

With its ruling in March in the case of Comcast Corp. v. Behrend the Supreme Court basically adjudged that lower Courts were not always addressing the proper ground rules necessary to certify a class action i.e. a case damaging a set of plaintiffs which have all been affected by a common set of factors, e.g. higher rates, and that the evidence produced against the accused is applicable to all those certified as part of one ‘class’.

The new ruling stated that the plaintiff’s accusations did not demonstrate that damages were measurable ‘on a class wide basis’, in other words the damage to claimants varied too widely to make a single judgement fair and reasonable. This ruling, if applied henceforth in lower Courts, has the potential to be a game changer. Up to now any corporation, faced with financing one huge case whilst the opposition consisted of many, sometimes thousands, of claimants, all of whom would only be responsible for a fraction of their total legal costs, would frequently settle to avoid possible massive damages, even bankruptcy.

As we have pointed out before in similar cases involving freight carriers, anti-trust authorities all over the world are quite happy to impose huge fines for cartel activity, money which apparently simply disappears into the public purse even though the financial damage is to others, none of whom benefit from the money. These rulings can be a precursor to actions such as the current one but, as we have speculated before, by the time the case is settled, not only have years passed but often the perpetrators have been acquired by other companies.

Furthermore, any monies paid to ‘aggrieved’ freight agents is hardly likely to be disseminated to the agents customers at such a late stage unless a specific amount is actually in dispute, an unlikely scenario. The point about these cases is that, at the time, the agent pays the surcharge or whatever, passes it to his customer who simply sends it on down the supply chain until, eventually, it reaches the end user.

The situation for the rail carriers is likely to be that several very large customers will actually have the best claim and it could be said that involving so many other smaller claimants in a class action, whilst appealing to the lawyers, could muddy the waters for years to come and actually damage the claims of those who say they are principally affected.

Already in this case there are problems arising over conflicts of interests, almost inevitable when so many are involved. US law firm Latham & Watkins stand accused of just such a conflict, as representatives for Union Pacific the firm has previously worked for several of the claimants facing them from the other side of the Court. Some of these in fact also had other suits against one or more of the current defendants. One suspects that this is yet another anti-trust case which is going to run and run.