Rail Freight Fuel Surcharge Antitrust Litig. - MDL No. 1896 v. BNSF Ry. Co.

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AnUcb $ttt ffnurI of ppitl

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 28, 201$ Decided August 16, 2019

No. 18-7010

IN RE: RAIL FREIGHT FUEL SURCHARGE ANTITRUST

LITIGATION - MDL No. 1 $69,

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?. Lehmann.

Carter G. Phillips argued the cause for appellees. With

him on the brief were Joseph R. Guerra, Kathleen Moriarty

Mueller, Saul?. Morgenstern, Thomas A. Isaacson, John li

Nannes, Tara L. Reinhart, J Scott Ballenger, Veronica S.

Lewis, Samuel M Sipe, Jr., Linda S. Stein, Andrew S.

Tulumello, Lucas C. Townsend, and Kent A. Gardiner.

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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, ChiefJudge, 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.

NOTE: Portions of this opinion contain Sealed Information,

which has been redacted.

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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

AntitrustLitig., 587 F. Supp. 2d27(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), afT 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—rnoved 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.

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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

AntitrustLitig.—MDLNo. 1869, 725 F.3d 244 (D.C. Cir. 2013)

(Rail Freight 1). 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 If). The court concluded that Dr.

Rausser’s expert opinions were reliable enough to be

admissible at trial. Id. at 49—63. But in assessing

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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)(l), 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

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

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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

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

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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 Corncast, 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 5.

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

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

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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. $upp. 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

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

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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

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,

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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

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 ll 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

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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 Nexiurn, 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’

Seventh Amendment and due process rights to contest every

element of liability and to present every colorable defense. 907

F.3d at 5 1—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

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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 5. 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 5. 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 5. Ct. at 1050. This

holding rested on the inappropriateness of raising new issues

for the first time in Supreme Court merits briefing. See id. It

does not, as the plaintiffs here contend, perniit 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 Nexiurn,777 F.3d at 19—2 1.

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1—,

1.)

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. $upp. 3d at 122; see id. at

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 l.A. 65 92—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. $upp. 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

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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 shippers who made only one

purchase I I—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 shippers studied by Dr.

McClave, only 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

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. $upp. 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

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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