In re: Rail Freight Fuel Surcharge Antitrust Litigation

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 28, 2018 Decided August 16, 2019
Reissued August 30, 2019
No. 18-7010
IN RE: RAIL FREIGHT FUEL SURCHARGE ANTITRUST
LITIGATION - MDL NO. 1869,
DAKOTA GRANITE COMPANY, ON BEHALF OF ITSELF AND ALL
OTHERS SIMILARLY SITUATED, ET AL.,
APPELLANTS
v.
BNSF RAILWAY COMPANY, ET AL.,
APPELLEES
Appeal from the United States District Court
for the District of Columbia
(No. 1:07-mc-00489)
Kathleen M. Sullivan argued the cause for appellants.
With her on the briefs were Stephen R. Neuwirth, Sami H.
Rashid, Michael D. Hausfeld, and Michael P. Lehmann.
Carter G. Phillips argued the cause for appellees. With
him on the brief were Joseph R. Guerra, Kathleen Moriarty
Mueller, Saul P. Morgenstern, Thomas A. Isaacson, John M.
Nannes, Tara L. Reinhart, J. Scott Ballenger, Veronica S.
2
Lewis, Samuel M. Sipe, Jr., Linda S. Stein, Andrew S.
Tulumello, Lucas C. Townsend, and Kent A. Gardiner.
Anton Metlitsky and Warren D. Postman were on the brief
for amicus curiae Chamber of Commerce of the United States
of America in support of defendants-appellees.
Before: GARLAND, Chief Judge, and ROGERS and KATSAS,
Circuit Judges.
Opinion for the Court filed by Circuit Judge KATSAS.
KATSAS, Circuit Judge: This case involves a putative class
of over 16,000 shippers allegedly harmed by a price-fixing
conspiracy among the nation’s largest freight railroads. The
district court denied class certification because the plaintiffs’
regression analysis—their evidence for proving causation,
injury, and damages on a class-wide basis—measured negative
damages for over 2,000 members of the proposed class. Based
on that consideration, we affirm.
I
This appeal arises out of eighteen antitrust actions
consolidated by the Multidistrict Litigation Panel. The
defendants are the four largest freight railroads in the United
States: BNSF Railway Company; CSX Transportation, Inc.;
Norfolk Southern Railway Company; and Union Pacific
Railroad Company. The plaintiffs, who are their customers,
allege that the railroads conspired to fix rate-based fuel
surcharges. Railroads impose fuel surcharges—additional
charges above the base shipping price—when the price of fuel
rises above a certain trigger price. Rate-based surcharges are
calculated as a percentage of the base shipping price.
3
Following consolidation, the action was divided into one
case involving direct purchasers and another involving indirect
purchasers. All plaintiffs alleged that the railroads violated
section 1 of the Sherman Act, 15 U.S.C. § 1, by conspiring to
fix prices. The direct purchasers sought treble damages under
section 4 of the Clayton Act, 15 U.S.C. § 15, and the district
court held that they stated a claim, In re Rail Freight Surcharge
Antitrust Litig., 587 F. Supp. 2d 27 (D.D.C. 2008). The indirect
purchasers sought injunctive relief under section 16 of the
Clayton Act, 15 U.S.C. § 26, and raised various state-law
claims. The district court held that the state claims were
preempted by federal law, but it declined to dismiss the federal
claims. In re Rail Freight Surcharge Antitrust Litig., 593 F.
Supp. 2d 29 (D.D.C. 2008), aff’d, Fayus Enters. v. BNSF Ry.
Co., 602 F.3d 444 (D.C. Cir. 2010).
The eight named plaintiffs in the direct-purchaser case—
Carter Distributing Company; Dakota Granite Company;
Donnelly Commodities, Inc.; Dust Pro, Inc.; Nyrstar Taylor
Chemicals, Inc.; Olin Corporation; Strates Shows, Inc.; and US
Magnesium LLC—moved to certify a class under Federal Rule
of Civil Procedure 23(b)(3). The proposed class consisted of
all shippers who paid rate-based fuel surcharges for
unregulated services purchased from the defendants between
July 1, 2003 and December 31, 2008. To show that causation,
injury, and damages could be proved on a class-wide basis, the
plaintiffs invoked two regression models constructed by their
economist, Dr. Gordon Rausser. The “common factor model”
identified seven variables said to determine the price of the
defendants’ services, including fuel surcharges. The “damages
model,” controlling for those variables, sought to isolate price
increases attributable to the alleged conspiracy. The railroads
criticized these models on various grounds, including that they
measured damages for shipments made under legacy contracts
fixed before any conspiracy allegedly began.
4
The district court initially certified the class. It noted that
if individualized proof were necessary to establish causation
and injury, then the plaintiffs could not satisfy the Rule
23(b)(3) requirement that common questions predominate. See
In re Rail Freight Fuel Surcharge Antitrust Litig., 287 F.R.D.
1, 43 (D.D.C. 2012). But the court found Dr. Rausser’s
regression analysis to be “plausible” and “workable,” so it
concluded that causation, injury, and damages were
“susceptible to proof at trial through evidence common to the
class.” Id. at 67. The court rejected many different criticisms
of the regression models, but it did not specifically address the
question of false positives for legacy contracts.
On interlocutory review, we vacated the certification order
and remanded for reconsideration in light of Comcast Corp. v.
Behrend, 569 U.S. 27 (2013). In re Rail Freight Surcharge
Antitrust Litig.–MDL No. 1869, 725 F.3d 244 (D.C. Cir. 2013)
(Rail Freight I). We explained that, for an antitrust class
action, common questions “cannot predominate where there
exists no reliable means of proving classwide injury in fact.”
Id. at 253. We expressed concern with the district court’s
failure to address “the damages model’s propensity toward
false positives,” which left us with no way of knowing whether
“the overcharges the damages model calculates for class
members [are] any more accurate than the obviously false
estimates it produces for legacy shippers.” Id. at 254. Finally,
we stressed that Rule 23, as construed in Comcast, requires a
“hard look at the soundness of statistical models that purport to
show predominance.” Id. at 255.
On remand, after permitting supplemental discovery and
expert reports, the district court denied class certification. In
re Rail Freight Surcharge Antitrust Litig., 292 F. Supp. 3d 14
(D.D.C. 2017) (Rail Freight II). The court concluded that Dr.
Rausser’s expert opinions were reliable enough to be
5
admissible at trial. Id. at 49–63. But in assessing
predominance, the court identified three shortcomings in his
damages model: first, it measured highly inflated damages for
intermodal traffic (i.e., shipments traveling by rail and another
mode of transportation such as trucks or airplanes), id. at 122–
26; second, as we had noted in the earlier appeal, the model
erroneously measured damages for shipments made under
legacy contracts, id. at 126–31; and third, the model measured
negative damages—and hence no injury—for over 2,000
members of the proposed class, id. at 132–41. The court
concluded that any one of these problems was enough to defeat
the plaintiffs’ argument for predominance. Id. at 122.
The plaintiffs filed a petition for permission to appeal the
class-certification decision under Federal Rule of Civil
Procedure 23(f). A motions panel of this Court granted the
petition without prejudice to reconsideration at the merits
stage. In re Rail Freight Fuel Surcharge Antitrust Litig.–MDL
No. 1869, No. 17-8005 (D.C. Cir. Dec. 20, 2017).
II
We begin with the question of our jurisdiction. Orders
denying class certification are neither final decisions under 28
U.S.C. § 1291, Coopers & Lybrand v. Livesay, 437 U.S. 463
(1978), nor injunctions immediately appealable under 28
U.S.C. § 1292(a)(1), Gardner v. Westinghouse Broad. Co., 437
U.S. 478 (1978). However, 28 U.S.C. § 1292(e) permits the
Supreme Court to promulgate rules creating new categories of
decisions appealable before final judgment. Exercising that
authority, the Court has provided that “[a] court of appeals may
permit an appeal from an order granting or denying class-action
6
certification,” if a “petition for permission to appeal” is timely
filed. Fed. R. Civ. P. 23(f).
In this case, the plaintiffs filed a timely petition for
permission to appeal, which was enough under Rule 23(f) to
secure our jurisdiction. That jurisdiction is “discretionary,”
Rail Freight I, 725 F.3d at 250, and the railroads contest
whether we should exercise it. But their argument on this point
is perfunctory—less than one page of briefing, with no case
citations—and it almost entirely duplicates their merits
arguments. According to the railroads, we should conclude
that the denial of class certification was correct. Then, we
should dismiss the appeal as raising neither a questionable
decision nor an unsettled issue—considerations that bear on
whether to permit the appeal in the first place, see id. at 250–
54. Because that disposition would make little sense at this
juncture, we decline to revisit the motions panel’s decision
accepting the appeal.
III
Federal Rule of Civil Procedure 23 sets forth various
requirements for the certification of class actions. Rule 23(a)
provides four “prerequisites” for any class certification,
including that there must be “questions of law or fact common
to the class.” If these prerequisites are met, Rule 23(b)(3)
permits certification if, among other things, “questions of law
or fact common to class members predominate over any
questions affecting only individual members.” For purposes of
these rules, a “common” question is one that is “capable of
classwide resolution—which means that determination of its
truth or falsity will resolve an issue that is central to the validity
of each one of the claims in one stroke.” Wal-Mart Stores, Inc.
v. Dukes, 564 U.S. 338, 350 (2011). In contrast, an
“individual” question is one for which “members of a proposed
7
class will need to present evidence that varies from member to
member.” Tyson Foods, Inc. v. Bouaphakeo, 136 S. Ct. 1036,
1045 (2016) (quotation marks omitted).
The party seeking class certification “must affirmatively
demonstrate” that the commonality and predominance
requirements are satisfied. Wal-Mart, 564 U.S. at 350. This
requires a “rigorous analysis” that often will “overlap with the
merits.” Id. at 351 (quotation marks omitted). Three recent
cases address the contours of this analysis. In Wal-Mart, the
Supreme Court ordered decertification of a Title VII class
where the plaintiffs presented insufficient proof that the
defendant had engaged in a general policy of sex
discrimination. Id. at 352–55. In Comcast, the Court ordered
decertification where the regression analysis used to show
common injury did not track the underlying theory of liability.
569 U.S. at 36–38. The Court rejected a contention that, at the
class-certification stage, “any method of measurement is
acceptable so long as it can be applied classwide, no matter
how arbitrary the measurements may be.” Id. at 36. But in
Tyson Foods, the Court held that concerns about the validity of
a statistical sample used to prove class-wide averages—which
the Court described as presenting a common objection to the
claims of each class member—should be addressed “as a
matter of summary judgment, not class certification.” 136 S.
Ct. at 1047 (quotation marks omitted).
IV
The direct-purchaser plaintiffs raise claims under section
4 of the Clayton Act, which provides treble damages to any
person “injured in his business or property by reason of
anything forbidden in the antitrust laws.” 15 U.S.C. § 15(a).
To establish liability under section 4, each plaintiff must prove
not only an antitrust violation, but also an injury to its business
8
or property and a causal relation between the two. Without
common proof of injury and causation, section 4 plaintiffs
cannot establish predominance. See, e.g., Comcast, 569 U.S.
at 36–38; Rail Freight I, 725 F.3d at 252–53.
The parties dispute the extent to which a court, in
conducting the “hard look” required by Rule 23, should assess
the reliability of common evidence. Specifically, they contest
whether Rule 23 requires reliability above and beyond what is
necessary to establish the admissibility of expert testimony
under Federal Rule of Evidence 702 and Daubert v. Merrell
Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). That
question arose because the district court found Dr. Rausser’s
regression models to be reliable for admissibility purposes,
Rail Freight II, 292 F. Supp. 3d at 54–63; held that “reliability
under Rule 23 is a higher standard than reliability under
Daubert,” id. at 91; and found no predominance based on
concerns that “undermine[d] the reliability of Dr. Rausser’s
damages model,” id. at 122. The defendants embrace this
reasoning; they argue that Wal-Mart and Comcast rejected
certification based on concerns that common evidence was
unreliable, even though its admissibility was uncontested. The
plaintiffs disagree; they contend that predominance ultimately
turns on whether the relevant evidence is common or
individualized, and they read Tyson Foods as holding that a
court may assess its reliability only in deciding admissibility or
summary judgment.
We need not resolve this dispute because Dr. Rausser’s
damages model, even if sufficiently reliable, does not prove
classwide injury. As the district court explained, his model
indicates that the proposed class consists of 16,065 shippers.
Rail Freight II, 292 F. Supp. 3d at 136. The plaintiffs maintain
that the alleged conspiracy injured every one of them. Yet the
damages model also indicates that 2,037 members of the
9
proposed class—or 12.7 percent—suffered “only negative
overcharges” and thus no injury from any conspiracy. Id. at
137. So even assuming the model can reliably show injury and
causation for 87.3 percent of the class, that still leaves the
plaintiffs with no common proof of those essential elements of
liability for the remaining 12.7 percent. The district court held
that the need for “individualized inquiries to determine which
of at least 2,037 (and possibly more) class members were
actually injured by the alleged conspiracy,” id. at 140,
precluded a finding of predominance. Id. at 122. We review a
district court’s assessment of predominance only for abuse of
discretion. Garcia v. Johanns, 444 F.3d 625, 631 (D.C. Cir.
2006). Here, we find no such abuse.
The plaintiffs argue that their model measures these
negative damages only because of normal prediction error. The
district court found that prediction error could not “account for
all—or even a substantial portion of—the 2,037 shippers that
the model shows to be uninjured.” Rail Freight II, 292 F. Supp.
3d at 139. The plaintiffs take issue with that finding, but it is
not clearly erroneous. In any event, the plaintiffs’ argument
about prediction error at most suggests that their damages
model might falsely have measured no injury for as many as
2,037 shippers. This line of reasoning describes a possible
problem with their own evidence; it does not point to
affirmative evidence—much less common affirmative
evidence—that a conspiracy did in fact injure these shippers.
The plaintiffs further argue that predominance does not
require common evidence extending to all class members.
That contention appears inconsistent with our statement in Rail
Freight I that the plaintiffs, to establish predominance, must
“show that they can prove, through common evidence, that all
class members were in fact injured by the alleged conspiracy.”
725 F.3d at 252; see also id. (“we do expect the common
10
evidence to show all class members suffered some injury”).
Despite these statements, the district court held that our opinion
did not require common evidence of injury to all class
members. See Rail Freight II, 292 F. Supp. 3d at 132–34.
Instead, it agreed with the plaintiffs that common proof
covering “virtually all” members of the proposed class, and
leaving only a “de minimis” number of cases requiring
individualized proof of injury and causation, would be enough
to show predominance. Id. at 135. For the sake of argument,
we assume that the district court correctly recognized a de
minimis exception to the general rule that, for claims under
section 4 of the Clayton Act, causation and injury must be
“capable of classwide resolution,” Wal-Mart, 564 U.S. at 350.
The court reasonably concluded that such a de minimis
exception would not encompass this case.
In assessing how many individual adjudications are too
many, both the district court and the parties invoke cases
addressing the question of when, if ever, a class may include
concededly uninjured members. Strictly speaking, this case
does not present that question, for the plaintiffs here insist that
each member of the proposed class was injured. Nonetheless,
the cited cases bear some similarity to this one: Uninjured class
members cannot prevail on the merits, so their claims must be
winnowed away as part of the liability determination. And that
prospect raises the same kind of question at issue here—when
does the need for individualized proof of injury and causation
destroy predominance? See, e.g., In re Asacol Antitrust Litig.,
907 F.3d 42, 51–58 (1st Cir. 2018); In re Nexium Antitrust
Litig., 777 F.3d 9, 18–22 (1st Cir. 2015).
The plaintiffs complain that the district court arbitrarily
imposed a six-percent upper limit on the percentage of
uninjured parties who may be included in a certified class. In
fact, the court’s analysis was more nuanced. As the court
11
explained, the “few reported decisions” involving uninjured
class members “suggest that 5% to 6% constitutes the outer
limits of a de minimis number.” Rail Freight II, 292 F. Supp.
3d at 137. The 12.7 percent figure in this case is more than
twice that approximate upper bound reflected in analogous
caselaw. Moreover, the district court considered raw numbers
as well as percentages: six percent of a “class totaling only
fifty-five” members might be de minimis, but 12.7 percent of
this class yields “2,037 uninjured class members” (according
to the common proof), all of whom would need individualized
adjudications of causation and injury. Id. at 137–38. Finally,
the district court stressed that the plaintiffs have proposed no
“further way”—short of full-blown, individual trials—“to
reduce this number and segregate the uninjured from the truly
injured.” Id. at 138. None of this was an abuse of discretion.
The absence of any winnowing mechanism sharply
distinguishes Nexium, the plaintiffs’ best case. There, the class
included purchasers of a drug allegedly shielded from
competition by the unlawful suppression of a generic
alternative. 777 F.3d at 13–14. The problem of uninjured class
members arose because a small percentage of the class, due to
brand loyalty, would have purchased the drug even if a less
expensive generic alternative had been available. Id. at 19–20.
The First Circuit held that the uninjured class members could
manageably be winnowed by having individual consumers file
minimal, likely unrebutted affidavit testimony indicating
whether, if given the choice, they would have purchased the
branded drug or a generic alternative. Id. at 20–21.
Nexium does not support class certification here. For one
thing, the First Circuit sharply limited that decision in Asacol.
There, the Court explained that any winnowing mechanism
must be truncated enough to ensure that the common issues
predominate, yet robust enough to preserve the defendants’
12
Seventh Amendment and due process rights to contest every
element of liability and to present every colorable defense. 907
F.3d at 51–54. Moreover, the Court held that Nexium’s
affidavit mechanism could not satisfy both conditions where
the defendant seeks to contest the question whether individual
class members would have shifted from the branded drug to a
less expensive generic alternative. See id. That would require
individual trials because genuinely contested affidavits do not
support summary judgment and are inadmissible. Id. Here, the
defendants intend to contest whether any of the 2,037 shippers
suffered injury as a result of any conspiracy. And the question
presented in these individual challenges—regarding impacts
on shippers of different sizes, shipping different products in
different geographic markets, with different transportation
options and different degrees of leverage—would be far more
complex than the single unitary question (branded or generic?)
at issue in Nexium and Asacol.
The plaintiffs also invoke the Supreme Court’s discussion
of uninjured class members in Tyson Foods. The defendants
there sought review of the question whether a certified class
may contain any uninjured members. But the Supreme Court
reserved that question, 136 S. Ct. at 1049, and the district court
here decided it in the plaintiffs’ favor, Rail Freight II, 292 F.
Supp. 3d at 133–35. So, this aspect of Tyson Foods does not
advance the plaintiffs’ appeal. The Supreme Court also
addressed a further “new argument” raised for the first time in
merits briefing—that plaintiffs at the certification stage must
prove that all class members were injured or establish a
manageable process for culling out uninjured class members.
136 S. Ct. at 1049. The Court held that this argument was
“premature” because the parties disagreed about what culling
mechanisms might be available and the district court had not
yet addressed the question. See 136 S. Ct. at 1050. This
holding rested on the inappropriateness of raising new issues
13
for the first time in Supreme Court merits briefing. See id. It
does not, as the plaintiffs here contend, permit district courts
considering class certification to defer questions about the
number and nature of any individualized inquiries that might
be necessary to establish liability. To the contrary, confronting
such questions is part-and-parcel of the “hard look” required
by Wal-Mart and Comcast, as recognized even by those courts
permitting a class to include some small number of concededly
uninjured individuals. See, e.g., In re Asacol, 907 F.3d at 51–
54; In re Nexium, 777 F.3d at 19–21.
Finally, the plaintiffs argue that the 2,037 class members
for whom their damages model shows no injury are a de
minimis portion of the class because their shipments make up
less than one percent of the railroads’ overall revenue from the
alleged conspiracy. But revenue is irrelevant to predominance,
which looks to whether elements such as causation and injury
may be proved through common evidence, not how much the
defendants benefited from any wrongdoing.
V
Looking beyond Dr. Rausser’s regression analysis, the
plaintiffs point to other evidence that they say can prove injury
and causation on a class-wide basis. In Rail Freight I, we
concluded that Dr. Rausser’s analysis was “essential” to the
plaintiffs’ case for certification: “No damages model, no
predominance, no class certification.” 725 F.3d at 253. The
district court reached the same conclusion on remand, after
careful review of all the documentary and expert evidence.
This was not an abuse of discretion.
The plaintiffs invoke documentary evidence that the
defendants enforced fuel surcharges “uniformly and with few
exceptions.” Rail Freight II, 292 F. Supp. 3d at 122; see id. at
14
103–07. But imposing fuel surcharges does not show injury
caused by a conspiracy. The parties vigorously dispute
whether higher overall prices during the class period were
attributable to causes besides any conspiracy—such as the
marked increase in fuel prices that occurred around the
beginning of the class period, see J.A. 6592–93. As the district
court explained, Dr. Rausser designed his regression models
precisely to control for these kinds of potential alternative
causes, see Rail Freight II, 292 F. Supp. 3d at 101, yet his
damages model showed that 2,037 shippers were uninjured
despite paying fuel surcharges. The plaintiffs’ evidence of
widespread fuel surcharges helps explain why the proposed
class is a large one, but it neither proves that the 2,037 shippers
were injured by the alleged conspiracy nor otherwise compels
a finding of predominance.
Next, the plaintiffs invoke the expert testimony of Dr.
James McClave, who argued that the 2,037 shippers must have
been harmed by the conspiracy. Dr. McClave reasoned that
because these shippers made fewer purchases on average, and
thus had less bargaining power than the rest of the class, they
must have been more susceptible to injury. Moreover, Dr.
McClave’s own study concluded that the defendants’ smallest
customers—roughly 10,000 shippers who made only one
purchase either before or during the class period—collectively
paid higher prices than did larger shippers.
This analysis is not common proof of injury to the 2,037
shippers. For one thing, of the 10,000 shippers studied by Dr.
McClave, only 3,700 were in the class, and Dr. McClave did
not indicate how many of them were included among the 2,037
class members for whom Dr. Rausser’s model showed no
injury. Moreover, evidence that a group of one-time shippers
may have paid higher prices collectively does not prove that all
(or almost all) of them were injured individually. And, as the
15
district court explained, Dr. McClave did not attempt to
identify how many of the one-time shippers did in fact pay
more, let alone which of them were among the 2,037. See Rail
Freight II, 292 F. Supp. 3d at 139.
The plaintiffs respond that Dr. McClave’s analysis, even if
inconclusive, at least suggests that reduced bargaining power
made the 2,037 shippers more vulnerable to any conspiracy.
This line of reasoning parallels one rejected by the Supreme
Court in Wal-Mart. There, an expert opined that Wal-Mart’s
“strong corporate culture” made it “vulnerable to gender bias.”
564 U.S. at 354 (quotation marks omitted). The Court found
this evidence insufficient to prove that injury could be
established on a class-wide basis, because the expert could not
say what percentage of adverse employment decisions were in
fact caused by bias. Id. The McClave study is similarly
incomplete because, as explained above, it does not attempt to
identify which of the small shippers, or what percentage of
them, were in fact harmed by the alleged conspiracy.
VI
In Asacol, the First Circuit noted the absence of even a
single case “allowing, under Rule 23, a trial in which thousands
of class members testify.” 907 F.3d at 57–58. That Court
declined to create “the first such case.” Id. So do we. Given
the need in this case for at least 2,037 individual determinations
of injury and causation, the district court did not abuse its
discretion in denying class certification on the ground that
common issues do not predominate.
Affirmed.