Court Opinion

ID: 2662168
Source: CourtListenerOpinion
Date Created: 2014-04-03 11:47:23.120889+00
Date Added: 2024-06-11T09:17:42.049836
License: Public Domain

UNITED STATES DISTRICT COURT
FOR THE DIS'I`RICT OF COLUMBIA

fn re RAlL FREIGHT FUEL SURCHARGE

ANTITRUST LITIGATION
MDL Docket No. 1869

Misc. N0. 07-489 (PLF)

This document relates t0:
 

ALL DIRECT PURCHASER CASES

\./\\_/\_/\-..¢'\.J'\J\q¢/\.¢/H_r'

OPINION

TABLE OF CONTENTS

SECT:ON
l. INTRODUCTION
H. BACKGROUND

III.

IV.

A. The Alleged Conspiracy

B. Surface Transportation Board Proceedings and
18 Class Action Lawsuits

C. Class Certification Papers and Supplemental Briefing
Before and After the Motions Hearing

D. "lnterline-Related" Communications

LEGAL STANDARD FOR CLASS CERTIFICA'I`ION UNDER
RULE 23(1))(3) OF THE FEDERAL RULES OF CIVIL PROCEDURE

A. Requirexnents of Rule 23(21) and (b)(?s)
B. Resolution of Factuaf Disputes and Standard of Proof
l. Factual Disputes and Dueling Experts
2. Standard of Proof
a. Facts Bearing on Rule 23
b. Expert Opinions and Regression Analyses
RULE 23(3) FINDlNGS AND CONCLUSlONS
A. Two lmplied Requirements
1. Class Definition
2. Named Representatives Within the Putative Class

B. Four Express Requirements

1 . Nulnerosity

2. Colnrnonality

3. Typicality

4. Adequacy of Representation

U

20
23

23
26
28

33
35
42
42
42
46
47
47
48
49
54

V.

VI.

RULE 23(b)(3) F}NDINGS AND CONCLUSKONS
A. Predolninance
l. Violation of Antitrust Law
2. impact
a. Uninjured Class Mernbers
b. “Presurnption” of Cormnon Impact
c. Antitrust Injury
d. lnjury-ln-Fact

i. Payment of an allegedly conspiratorial fuel
surcharge

ii. Component of the total price of shipping
iii. Expcrt opinions on injuiy-in-fact
3. Damages
B. Superiority
CONCLUSION

56
57
58
59
67
68
70
75

101
116
137
142
144

l. INTRODUCTION
This matter is before the Court on the motion of the direct purchaser plaintiffs for

class certification under Rule 23(b)(3) of the Federal Rules of Civil Procedure. Also before the
Court is the motion of the defendants to exclude what they refer to as "interline-related
cornmunications" from consideration for class certification or for any other purpose under

49 U.S.C. § 10706. The Court heard oral argument on both motions on October 6 and 7, 2010,
and took them under advisement. The Court delayed decision on the motions until after the
Supreme Court decided Wal-Mart Stores, lnc. v. Dukes, 131 S. Ct. 2541 (2011), and then invited
the parties to file supplemental briefs discussing the impact of the Wal~i\/Iart decision on the class
certification question in this case. Those briefs have been filed, and the motions now are ripe.

Upon consideration of the parties’ papers, the oral arguments presented by

counsel, the relevant legal authorities, and the entire extensive record in this case, the Court finds
by a preponderance of the evidence that the direct purchaser plaintiffs have satisfied all of the
requirements of Rule 23. 'I`he Court therefore will grant the direct purchaser plaintiffs’ motion
for class cer“tification; will certify this case as a class action under Rule 23(1:))(3) for purposes of
litigation and trial; will define the class as proposed by the direct purchaser plaintiffs in their
motion for class certification; will certify for class treatment the direct purchaser plaintifi"s’ claim
for price fixing in violation of Section 1 of the Sherman Act, 15 U.S.C. § l; will designate the

eight named plaintiffs as the class representatives; and will appoint Quinn Emanuel Urquhart

& Sullivan, LLP and Hausfled LLP as co-lead class counsel. The Court concludes that it need

not rule at this time on the defendants’ motion to exclude interline-related communications.‘

’ The papers reviewed in connection with the pending motions include the
following:

Class Cerlij?catfort. The second consolidated amended class action coinplaint

("Zd Arn. Compl.") [Dkt. No. 324]; the direct purchaser plaintiffs’ motion for class certification
("Class Mot.") [l)kt. No. 337]; the direct purchaser plaintiffs’ memorandum in support of motion
for class certification ("Class Mein.") [Dkt. No. 337-9]; the corrected expert report of Gordon
Rausser (" lst Rausser Report"); exhibits A through D submitted in support of the direct
purchaser plaintiffs’ motion for class certification; exhibits 1 through 224 submitted in support of
the direct purchaser plaintiffs’ motion for class certification (individually, "RD Ex."); the
defendants’ inemorandutn of law in opposition to plaintiffs’ motion for class certification ("Class
Opp.") [Dl587 F. Supp. 2d 27, 29-31 (D.D.C.
2008); In re Rail Freight Fuel Surcharge Antitrust Litig. ("Rail freight Il"), 593 F. Supp. 2d 29,
32, 34~35 (D.D.C. 2008), aff`d, Fayus Enters. v. BNSF Ry. Co., 602 F.3d 444, 445~46, 454 (D.C.
Cir. 2010). lt therefore will limit its discussion accordingly

This case involves the claim that defendants - BNSF Railway Cornpany

("BNSF"); CSX 'l`ransportation, lnc. ("CSX"); Norfolk Southern Railway Company ("NS"); and

certification or any other purpose prohibited by 49 U.S.C. § 10706 ("Iiiterline Mem.") {Dl2011 WL 5603995, at *1 (D.D.C_ Nov. 17, 2011)
(Facciola, l\/lag. J.). Magistrate judge Facciola’s expertise in e-discovery matters and his weekly
conference calls with counsel during the early stages of discovery made possible an efficient and
largely non~contentious discovery process despite the complexity of the case and the challenging
nature of some of the discovery issues.

Complaint, and all federal governmental entities, and (b) all

entities or persons that paid a Fuel Surcharge directly to any of the

Defendants solely pursuant to a railroad-shipper contract that was

(i) entered into before July l, 2003, and (ii) provided for a

stand-alone Fuel Surcharge to be paid under a predetermined

formula specifically set forth in the contract.

Class l\/lot. at l.

Plaintiffs request that this case be certified as a class action for litigation and trial
of plaintiffs’ claim for price fixing under Section 1 of the Sherman Act, 15 U.S.C. § l, and that
the eight named plaintiffs _ Dust Pro, lnc.; Carter Distributing Company; Dakota Granite
Company; Donneliy Commodities, lnc.; U.S. Magnesium LLC; Nyrstar Taylor Chemicals, lnc.;
Olin Corporation; and Strates Shows, lnc. m be designated as class representatives Class Mot.

at l. Plaintiffs further request that Quinn Emanuel Urquhart & Sullivan, LLP and Hausfeld LLP

be designated as co-lead class counsel under Rule 23(g) of the Federal Rules of Civil Procedure.

Defendants oppose plaintiffs’ motion for class certification, arguing that plaintiffs have failed to

satisfy the requirements of Rule 23.

A. The Alleged Cons',r)fracy

Plaintiffs allege that in early 2003 defendants, the four largest Class l railroads in
the continental United States, § 2d Am. Compl. ‘ll 1, conspired to increase their total revenues
through the use of standardized, uniforin, and supra~coriipetitive fuel surcharges. Rail Freight l,
587 F. Supp. 2d at 29. A Class l railroad is a large freight railway company that has "annual
carrier operating revenues of at least $250 inillion." lst Rausser Report at 20. Together,
defendants coinprise just one percent of all the freight railroads, § id., but control about

90 percent of rail freight traffic in the United States. 2d Am. Compl. 114; § Class Mein. at 7'.

BNSF and UP operate in the western United States; CSX and NS operate in the east. S_e_e lst
Rausser Report at 30-31; Willig Report 11 166.3

Before Congress passed the Staggers Rail Act in 1980, defendants would have had
to apply to the interstate Commerce Commission ("ICC") for approval of an across-the-board
rate increase. Rail Freight l, 587' F. Supp. 2d at 29~30. Following the deregulation of the railroad
industry, at least 80 percent of all rail shipments now move under private transportation
contracts, which are not rate regulated, or are otherwise exempt from rate regulation. I_d.
Plaintiffs allege that defendants ultimately determined that the most efficient way to increase
their profits was through the imposition of an across-the-board, artificially high, and uniform fuel
surcharge, g Q. at 30, instead of attempting to renegotiate all of their individual contracts, §§.,
or attempting to fix each base rate separately, which plaintiffs say "would have been extremely
complex, highly costly and effectively unmanageable." lst Rausser Report at 52 n.l 18.

The total freight price for a shipping customer, that is, the all-in rate, consists of a
base rate (also referred to as a line~haul rate) and any percentage fuel surcharge applied to the
base rate. _S_e§ Willig Report1l iS; Class Opp. at 3 (all-in price includes the base rate, fuel

surcharge, and other charges and elements of value). The base rate

3 To preview, §§ g at 61 n.ll & 64 n.12, Gordon Rausser is plaintiffs’ retained
expert, and Robert D. Willig is defendants’ retained expert. Dr. Rausser is the Robert Gordon
Sproul Distinguislied Professor at the University of California at Berkeley. He has held positions
teaching economics and statistics at numerous universities and has published widely in these
fields g lst Rausser Report at l. Dr. Willig is a Professor of Econoinics and Public Affairs at
Princeton University, where he holds a joint appointment in the Economics Department and at
the Woodrow Wilson School of Public and international Affairs. His focus is rnicroeconoinics,
specializing in industrial organization He has published widely in these fields §“eme_ Willig
Report at 1.

includes fixed cost (or overhead) elements, such as the cost of

organizing a particular shipment[,] . . . . the large fixed costs of
building and maintaining track, bridges, and other structures to
achieve long-run sustainability[,] . . . . [and] the railroad’s markup

of price over costs, i.e., the profitability element of pricing.
lst Rausser Report at 62. Plaintiffs allege that defendants imposed "an across-the-board
artificially high and uniform fuel surcharge" as a percentage multiplier of the base rate, thereby
permitting defendants "to raise total freight prices widely by a given percentage."  ,
587 F. Supp. 2d at 30; g ali lst Rausser Report at 50 ("[A]dding a percentage fuel surcharge
on top of line-haul rates or base rates is by its very nature a general price increase."). ln effect,
according to plaintiffs, the allegedly conspiratorial fuel surcharges operated like a tax, increasing
the total price of shipping by a set percentage. lst Rausser Report at 80. Plaintiffs contend that
this "approach yielded defendants billions of dollars of additional profits because the surcharge
raised rates far beyond the real increased cost of fuel." Rail Freight l, 587 F. Supp. 2d at 30.

According to plaintiffs, it took defendants some trial and error to reach the point
of conspiracy. Before the class period, plaintiffs say that defendants "operated as a
price-discriminating, interdependent, but non-collusive oligopoly." Class Mem. at 8. And for
many years before the class period, defendants "confronted a long-term, structural decline in rail
freight rates." § "Between 2000 and early 2003, the three-year period preceding the Class
Period," plaintiffs contend that defendants "unilaterally took various actions designed to increase
rail freight prices and revenues." _Ig. at 9. As plaintiffs describe it, "[t]hese uncoordinated
actions included, among other things, unilateral attempts to apply stand-alone fuel surcharges,
which were designed ‘to take advantage of future rising fuel prices’ and intended as ‘revenue

enhancement steps."’ Q. (quoting RD Ex. 9, E-inail from C. Adains, at UPFSC 0}47060,

Dec. 5, 2002; RD Ex. 163, NS 2000 Annual Report, at 3). But plaintiffs contend that defendants
"acting on their own had li1nited success when trying to boost revenues through fuel surcharges."
Q. Plaintiffs contend that these pre-class period "fuel surcharges were applied only sporadically
to a limited number of shippers," because defendants were concerned about competition -e
"losing business to other [railroads] that did not apply fuel surcharges[.]" lc_l. at 9-10.

Another barrier to broad application of fuel surcharges during the pre-class period,
according to plaintiffs, was wide use of "the so-called Rail Cost Adjustmeiit Factor, or ‘RCAF."’
Class Mem. at l l. The RCAF "is a weighted index that accounts for all significant input costs,
including fuel." Q.; me_e g_l_gg Willig Rep. jj 63 ("RCAF measures changes in the prices of major
components of the railroad industry’s operating expenses, including labor, fuel, materials,
equipment rents, depreciation, interest and other expenses.”). According to plaintiffs, wide use
of the RCAF impeded broad application of fuel surcharges because defendants "recognized that
imposing a stand-alone fuel surcharge where fuel price increases were already covered by the
RCAF would be perceived by shippers as double dipping.” Class Mern. at ll (quotations
omitted).

Thus, plaintiffs contend that before the class period

the number of shippers covered by stand~alone, rate-based fuel

surcharges was relatively low . . . , and fuel surcharges did not

contribute significantly to Defendants’ revenues or bottom lines,

Defendants were unable to meet their respective revenue

enhancement goals through the use of uncoordinated fuel

surcharges.

Class l\/lem. at 12.

10

But all of this allegedly changed in 2003. Plaintiffs contend that beginning in the
spring of 2003 "[t]lie four Defendants agreed to create and apply a common Fuel Surcharge" -»»~
linked to the price of oil on one of two oil indexes, the On-Highway Diesel Fuel ("HDF") index
or the West Texas intermediate ("Wl`l") index - "based on a percentage of base rates on an
across-the-board basis to all members of" plaintiffs’ putative class. Class Mem. at l9. Under
CSX's new, allegedly conspiratorial fuel surcharge program, the railroad would assess a
0.4 percent surcharge when the price of oil on the WTI index exceeded $23 per barrel, and an
additional 0.4 percent for every dollar above $23. § at 19. Plaintiffs say that "{u]nlike its
predecessor program, which required the price of oil to exceed the threshold price ($28 per barrel
under the old program) for 30 consecutive days, CSX’s new program would be based on the
average price of oil from the preceding nionth." E. at 19-20. And plaintiffs allege that BNSF,
UP, and NS adopted "essentially unifonn" programs, and all four defendants "remained in synch
through the class period." § at 24.

As plaintiffs describe it,

"[t]he only differences in the Defendants’ programs concerned the

indices used and the thresholds chosen. The two indices chosen

were closely related. The western railroads (BNSF and the UP)

linked their fuel surcharge to the on-highway diesel fuel (HDF)

index, whereas the eastern railroads (CSX and NS) linked their fuel

surcharge to the [W"l`l] index."

Class Mem. at 24 n.76 (quoting 1stRausser Report at 54-55). Although UP and BNSF used
slightly different thresholds in their fuel surcharge programs, plaintiffs allege that this difference

"had no practical effect”:

"The UP applied a fuel surcharge when the HDF was above the
threshold of $135 per gallon and the BNSF applied a Fuel

ll

Surcharge when the HDF index was above $l .25 per gallon. CSX
and NS both applied fuel surcharges when the WTI index was
above $23 per barrel. The different thresholds used by UP and
BNSF were not relevant to fuel surcharge amounts during the class
period, because the indices were all above the threshold values for
the entire Class Period. Consequently, the UP and BNSF Fuel
Sureharge programs provided for identical fuel surcharge
percentages once the $i .35 threshold was reached."

_l_c_l. (quoting lst Rausser Report at 55).

The next step in the alleged conspiracy, according to plaintiffs, was defendants’
agreement and collective action to cause the American Association of Railroads ("AAR") to
create a new cost escalation index, the All Inclusive index Less Fuei ("AIILF"), that removed
fuei costs from the prior cost escalation index, the All inclusive index ("AII"), on which the
RCAF was based. §§e_ Rail Freight I, 587 F. Supp. 2d at 30; _s_e_e Class Mern. at 27. Piaintiffs say
that defendants reached this agreement during the October and Dece1nber 2003 meetings of the
AAR; the AIILF index was published in December 2003. Rail Freight I, 587 F. Supp. 2d at 30;
§e_e Class Mem. at 29. As plaintiffs describe it, "[t]he magnitude of this accomplishment from
Defendants’ perspective cannot be understated." Class Men’i. at 29. Plaintiffs point to a letter
written by BNSF’s chief economist, Sam Kyei, in which he stated:

"ln December 2003 [Matt Rose, BNSF’s chief executive officer],

single~handedly got the A.A.R. to establish a non-fuel RCAF

index, now called the All-inclusive index Less Fuei . . . . In my

IS-year railroad career, no one had ever succeeded in steering the

A.A.R. to do this. . . . [T]he combination of sound price escalation

using this index and a fuel surcharge should tremendously help our

bottom-line for years to come. In fact, . . . the entire rail industry

should benefit from the escalation options the index provides."

Class Mein. at 29-30 (quoting RD Ex. 122, Letter from S. Kyei, at BNSF-0070502, Mar. l5,

2005).

l2

At this p‘>int, plaintiffs allege that defendants, having coordinated their fuel
surcharges and created and published the AII`LF, "worked tirelessly to achieve 100% Fuel
Surcharge coverage across their customers." Class l\/lem. at 31. Plaintiffs say that following
defendants’ agreement to coordinate their fuel surcharges, defendants’ fuel surcharge revenue
"skyrocketed": as an example, plaintiffs state that NS saw fuel surcharge revenue for certain
businesses grow exponentially from about $l l.6 million in 2002 to about $61.7 million,

$208 miliion, $650 inillion, and $9”!4 million in 2003, 2004, 2005, and 2006, respectively _I_c_i.
at 42-43. Plaintiffs say that because of the conspiracy, defendants "were able to reverse the
long-term downward trend in rail freight rates and move rates sharply upward[,]" Q. at 43, at the

expense of putative class inembers. l_d. at 45.

B. Surface Transpor‘iation Board Proceedfir.gs and 18 Class Acrz`on Lawsuits
Eventually, shippers of both rate-regulated and rate-unregulated freight traffic

complained about defendants’ use of fuel surcharges, arguing that the surcharges recovered far
more than the incremental cost of fuei, and that the surcharges had become non-negotiable
Shippers of rate-regulated traffic expressed their cornplaints to the Surface Transportation Board
("STB"), § 2d Am. Compl. 11 96; Class Mem. at 47, an agency that regulates certain aspects of
the railroad industry § Manufacturers Ry. Co. v. Surface Transp. Bd., 676 F.3d 1094, 1095
(D.C. Cir. 2012). in response, the STB "instituted [a] proceeding to inquire into rail carrier
practices related to fuel surcharges." Rail Fuel Surcharges, Ex Parte No. 661, 2007 WL 201205,

at *l (S.T.B. Jan. 26, 2007).

13

As the STB made clear, its proceedings on fuel surcharges and its ultimate
decision on the matter related only to rate-regulated freight traffic. §ee Rail Fuel Surcharges,
2007 WL 201205, at * 1 0 ("Under 49 U.S.C. 10?’09, we have no authority to regulate rail rates
and services that are govemed by a contract Therefore, our findings and actions here apply only
to regulated common carrier traffic."); se_e also Fayus Enters. v. BNSF Rv. Co., 602 F`.Sd at 445
(noting that under 49 U.S.C. § 10709 traffic that moves under railroad-shipper contracts
generally is not subject to challenge before the STB). And plaintiffs’ putative class in the instant
case includes only those shippers who purchased rate-urzregufaled transportation services mSm_e__e;
Class Mot. at l. But plaintiffs say that the fuel surcharges applied to rate»regulated freight traffic
are the same fuel surcharges applied during the class period to putative class members, §e_e_ Class
l\/lern. at 49; 2d Am. Compl. 11 98, and both sides reference the STB decision and rely on it for
various propositions in their class certification briefing §_e§ Class Mern. at 49; Class Opp.
at l6-l7; Class Reply at 22-25. The Court therefore will describe below the STB proceedings
and the STB’s 2002 decision.

The STB held hearings on the use of fuel surcharges on rate-regulated traffic in
May and August 2006. Rail Fuel Surcharges, 2007 WL 201205, at *l. On january 26, 2007, the
STB issued its decision on the matter, concluding:

[I]t is an unreasonable practice to compute fuel surcharges as a

percentage of the base rates. Because railroads rely on differential

pricing, under which rates are dependent on factors other than

costs, a surcharge that is tied to the level of the base rate, rather

than to fuel consumption for the movement to which the surcharge

is applied, cannot fairly be described as inerely a cost recovery

iriechanisni. Rather, a fuel surcharge program that increases all

rates by a set percentage stands virtually no prospect of reflecting
the actual increase in fuel costs for handling the particular traffic to

14

which the surcharge is applied. Two shippers may have traffic

with identical iiiel costs, but if one starts out with a higher base

rate (because, for example, it has fewer transportation alternatives),

it will pay dramatically more in fuel surcharges
_I_d. at *4. Thus, the STB directed defendants to change their practice of "coinputing rail fuel
surcharges as a percentage of a base rate" on regulated traffic. _Id. at * l.

The STB eniphasized, however, that its ruling did not ban all fuel surcharges for
regulated traffic. §_ge Rail Fuel Surcharges, 2007 WL 201205, at *6 ("[W]e are not precluding
railroads from incorporating as many factors that affect fuel consumption as they wish in
calculating fuel surcharges. Nor are we requiring them to incorporate every conceivable such
factor, as we agree that would be impracticable."). Under the STB’s decision, a railroad could
still choose to implement a fuel surcharge for rate-regulated traffic, but that surcharge "iriust be
based upon attributes of a movement that directly affect the amount of fuel consumed." lc_i_.
Essentially, the STB imposed the requirement that any fuel surcharge applied by a railroad must
have "a reasonable nexus to fuel consuinption." lg. The STB concluded that a fuel surcharge
applied as a percentage of a base rate fails that test because it "increases all rates by a set
percentage" and therefore "stands virtually no prospect of reflecting the actual increase in fuel
costs for handling the particular traffic to which the surcharge is applied." l”d_. at *4.

As discussed, the STB decision did not apply to rate-unregulated freight traffic.
Nor did the STB decision in any way preclude railroads from using fuel surcharges tied to base
rates in private contracts. As the STB noted in its decision:

Several carriers introduced evidence that many of their customers

favor the continued use of a fuel surcharge program that is tied to

the base rate. Given that such a program shifts greater
responsibility for fuel recovery to shippers with higher rates, it is

15

not surprising that a subset of customers (presumably those with

lower base rates) favor retaining a percentage-of-the-base-rate

approach We note that such shippers are free to enter into

contractual arrangements with carriers that incorporate into those

contracts any escalation provision for fuel cost recovery that the

parties wish.

Rail Fuel Surcharges, 2007 WL 201205, at *6 n.34.

Although some customers of rate-unregulated freight traffic may have favored the
use of fuel surcharges tied to base rates, many others did not, and that latter group of shippers had
similar complaints to those expressed before the S'I`B. §_e_e Class Meni. at 45~47. Those
complaints eventually gave rise to 18 separate class action lawsuits, pending in six districts,
involving common antitrust allegations relating to the use of fuel surcharges on rate~unregulated
freight traffic. Y Rail freight I, 587 F. Supp. 2d at 29; In re Rail Freight Fuel Surcharge
Antitrust Litig., 528 F. Supp. 2d 1358, 1358-59 (J.P.M.L. 2007). On November 26, 2007, the
Multidistrict Litigation Panel consolidated those 18 separate class actions and transferred them to
this Court, § In re Rail Freight Fuel Surcharge Antitrust Litig., 528 F. Supp. 2d at 1358-.59, and

now eight named plaintiffs request that this Court certify this case as a class action under

Rule 23(b)(3). _Sg Class Mot. at l~2.

C. Class Certi.`jfcati`on Papers cited Supplemeiifal Bri`eji`iig Before and After the Moti`o.=is Heai'iiig
As will be discussed in detail below, to obtain class certification plaintiffs must
satisfy the four threshold requirements of R.ule 23(a) - commonly referred to as numerosity,

commonality, typicality, and adequacy -~ and the two additional requirements of Rule 23(b)(3)

i6

 predominance and superiority." Althougli there is some dispute over whether plaintiffs have
satisfied some of the requirements of Rule 23(a), §§ Class Opp. at 75~82, the parties agree that
the central question before the Court relates to predominance, that is, whether plaintiffs have met
their burden to show that "questions of law or fact common to class members predominate over
any questions affecting only individual niembers[.]" FED. R. Civ. P. 23(b)(3); _s_e_q Defs.
Wal-Mart Reply Brief at l; Oct. 6 Tr. at 88; Oct. 7 Tr. at l67. That question, in tum, focuses on
whether plaintiffs have shown that the harm ~ that is, the impact ~ from the alleged conspiracy
is capable of proof at trial through evidence that is common to the class rather than individual to
its members. §§ §;g;, Dcfs. Wal~Mai't Reply Brief at l.

Plaintiffs maintain that they will be able to demonstrate the alleged conspiracy’s
impact at trial with common evidence. § Class Mein. at 67-75. And in support of their motion
for class certification, plaintiffs have submitted for consideration by the Court the expert report
of Dr. Gordon Rausser, the Robert Gordon Sproul Distinguished Professor at the University of
California at Berkeley. §§ lst Rausser Report at 1. Plaintiffs asked Dr. Rausser to determine,
among other things, whether “[t]here was a common impact of Defendants’ alleged conspiracy
on the Plaintiffs and the Class which can be demonstrated through evidence and economic
analysis common to the Class[.}" _I_d. at 4. Dr. Rausser analyzed the rail freight industry and

defendants’ transaction data and concluded that there was such a common iinpact. §§_e i_d_. at 5-8.

4 in addition to the four express requirements of Rule 23(a), there are two implied
requireinents: (l) the class must be "sufficiently defined so as to be identifiable as a class"; and
(2) the named representatives must "fall within the class." Vigus v. Southern lll.

Riverboat/Casino Cruises, Inc., 274 F.R.D. 229, 235 (S.D. Ill. 20l l) (citing Oshana v. Coca-Cola

_C_g;, 472 ll.3d 506, 513 (7th Cir. 2006); Alliance to End Repression v. Rochford, 565 F.2d 975,
97? (nh Cir. 1977)). `

17

As Dr. Rausser explains, he developed economic regressions that he applied to defendants’
transaction data; in view of the results of his regressions, he concludes, among other things, that
common evidence and economic analysis can be used to detennine the impact of defendants’
alleged conspiracy on a class-wide basis. _S__@ i_d. at 7~8, 80-81.

Defendants oppose plaintiffs’ n'iotion for class certification, arguing primarily that
individual issues predominate in detennining the impact of the alleged conspiracy. § Class
Opp. at 28-72. in support of their position that class certification is inappropriate, defendants
have submitted for consideration by the Court the expert report of Dr. Robert Willig, a Professor
of Economics and Public Affairs at Princeton University. §ge Willig Report 1| l. Among other
things, defendants asked Dr. Willig to determine "whether it is feasible for plaintiffs to
demonstrate through common proof that members of the proposed class suffered economic
injury[.]" _l“c_i_. ‘1[ ll. Dr. Willig concludes that it is not feasible; as he sees it, individual issues
predominate over common issues for purposes of determining the impact from the alleged

conspiracy. ld_. 1[25. According to Dr. Willig, "[e]valuation of plaintiffs’ claims in this matter

would require undertaking analysis that is specific to individual plaintiffs." g Furthennore, Dr.

Willig contends that Dr. Rausser’s regressions are flawed, and he disagrees with Dr. Rausser’s
conclusion that common evidence and analysis can be used to determine the impact of the

alleged conspiracy. §.

The parties and their experts therefore have presented this Court with what other
courts have referred to as a “battle of the experts" on predominance and, in turn, impact. Ellis v.
Costco Wholesale Corp., 657 F.Bd 970, 982 (9th Cir. 2011); In re Puerto Rican Cabotage

Antitrust Litig., 269 F.R.D. l25, 132 (D.P.R. 2010). Compare lst Rausser Report at 7, with

18

Wiilig Report '|| 25. As plaintiffs see it, they should win this l)attle: whereas Dr. Rausser used
economic analysis to show persuasively that workable formulas, common to the class, are
available to prove irnpact, Class Reply at l, Dr. Willig’s analysis should not be credited because
his methodology is "overtly f`lawed." lgl_. at 5. Defendants say the opposite, arguing that the
Court should not credit Dr. Rausser’s analysis because it is "fatally flawed." Class Opp. at 50.
ln preparation for the hearing on plaintiffs’ motion for class certification and in
view of the disputes between Dr. Rausser and Dr. Willig on the central issue of predominance,
the Court concluded that supplemental briefing was necessary. The Court therefore ordered
supplemental briefing on two issues, to be completed before the class certification motions
hearing: (l) What standard of proof should the Court apply when examining the requirements of
Rule 23 of` the Federal Rules of Civil Procedure?; and (2) Can the Court resolve factual disputes

relevant to Rule 23 requirements - with particular emphasis on conflicting expert reports m if

those factual disputes overlap with the merits of this case? _S_@ Order at l-Z, Sept. 17, 2010 [Dkt.

No. 423]. The Court then heard oral argument on plaintiffs’ motion for class certification,
including argument on these two supplemental issues, on October 6 and 7, 2010. §"QQ generally
Oct. 6 Tr.; Oct. 7 Tr.; w_e § Order at l-2, Oct. 5, 2010 [Dl552 F.3d 305, 316 n. 14 (3d Cir. 2008); Lindsay v. Government Einps. Ins. Co.,
251 F.R.D. Sl, 54 (D.D.C. 2008). Those requirements fall into two categories

First, the moving party must show that its proposed suit satisfies the two implied
and the four express requirements of l{ule 23(a). _S§_e Vigus v. Southern lll. Riverboat/Casino
Cruises, lnc., 274 F.R.D. at 235; Lindsay v. Governnrent Emps. Ins. Co., 251 F.R.D. at 54. As
for the implied requirements, plaintiffs must show ( 1) that their proposed class is "sufficiently
defined so as to be identifiable as a class"; and (2) that the named representatives "fall within the
class." Vigus v. Southern lll. Riverboat/Casino Cruises, Inc., 27'4 F.R.D. at 235. As for the
express requirements, the moving party must show that

(l) the class is so numerous that joinder of all members is
impracticable;

(2) there are questions of law or fact common to the class;

(3) the claims or defenses of the representative parties are typical
of the claims or defenses of the class; and

(4) the representative parties will fairly and adequately protect the
interests of the class.

FED. R. Clv. P. 23(a). Those four express requirements coinmonly are referred to as numerosity,
coinmonality, typicality, and adequacy failure to adequately demonstrate any of the Rule 23(a)
requirements is fatal to class certification. _S_e_§ Garcia v. Johanns, 444 F.3d 625, 631 (D.C. Cir.
2006).

23

Second, the moving party must show that its proposed suit falls within at least one
of the three categories of cases set forth in Rule 23(b). Lindsay v. Goveminent En'ips. lns. Co.,
251 F.R.D. at 54. ln this case, plaintiffs move for class certification under Rule 23(b)(3). That
part of Rule 23 is intended to encompass cases in which "a class action would achieve econoinies
of time, effort, and expense, and promote unifonnity of decision as to persons similarly situated,
without sacrificing procedural fairness or bringing about other undesirable results." § at 56
(quoting FE):). R. Clv. P. 23(1)) Aovisoav committee worn ro 1966 AMENDMENTS), In order to
certify a class under Rule 23(b)(3), a court must find "[1] that the questions of law or fact
common to class members predominate over any questions affecting only individual members,
and [2] that a class action is superior to other available methods for fairly and efficiently
adjudicating the controversy." FED. R. Clv. P. 23(b)(3). 'l`hese two requirements commonly are
referred to as predominance and superiority. As Rule 23(b)(3) states, in deciding whether a
moving party has satisfied the predominance and superiority requirements, pertinent
considerations for a court include:

(A) the class inembers’ interests in individually controlling the
prosecution or defense of separate actions;

(B) the extent and nature of any litigation concerning the
controversy already begun by or against class inembers;

(C) the desirability or undesirability of concentrating the ligation of
the claims in the particular forum; and

(D) the likely difficulties in managing a class action.

24

The Supreme Court has emphasized that a class certification decision invites a
"close look at the case," Amchein Prods. lnc. v. Windsor, 52l U.S. 591, 615 (1997) (quotations
omitted), and a class may be certified only "if the trial court is satisfied, after rigorous analysis,"
that the applicable Rule 23 requirements have been met. General Tel. Co. of the Sw. v. Falcon,
457 U.S. l47, l6l (1982). in examining the predominance requirement under Rule 23(b)(3), a
couit’s rigorous analysis "‘begins . . . with the elements of the underlying cause of action."’
Messner v. Northshore Univ. HealthS\/stern, 669 F.3d 802, 315 ('Fth Cir. 2012) (quoting Eril§
John Fund, lnc. v. Haliburton, Co., 131 S. Ct. 2179, 2134 (2()11)); _s§__».j; In re I~lydrogfen Peroxide
Antitrust Litigg., 552 F.3d at 31 1; § also Meiier, lnc. v. Warner Chilcott Holdings Co. lIl, 246
F.R.D. 293, 299 (D.D.C. 2007). A court must "examine the elements of plaintiffs’ claim through
the prism of Rule 23 to determine whether” the Rule 23 requirements have been met. _lg_re
Hydrogen Peroxide Antitrust Litig., 552 F.3d at 311 (quotations omitted).

Under Rule 23(¥;))(3), "[i}ndividual questions need not be absent." lvlessner v.
Northshore Univ. l-lealthSystem, 669 F.3d at 815. Indeed, "[t]he text of Rule 23(b)(3) itself
contemplates that such individual questions will be present. The rule requires only that those
questions not predominate over the cornmon questions affecting the class as a wliole." l§. "lf
proof of the essential elements of the cause of action requires individual treatinent, then class
certification is unsuitable." ln re Hydrogen Peroxide Antitrust Litig., 552 F.3d at 31 1 (quotations
ornitted).

In this case, plaintiffs allege that defendants engaged in price fixing, in violation
of Section 1 of the Sherinan Act. To prevail on the merits of their claim at trial, plaintiffs will

have to prove three eleinents: (l) a violation of the antitrust laws - here, Section 1 of the

25

Sherman Act; (2) individual impact or injury resulting from that violation; and (3) measurable
damages. _S__e_§ ln re Hydrogen Peroxide Antiti'ust Litig., 552 F.3d at 31 l; Meijer, lnc. v. Warner
Chilcott Holdings Co. III, 246 F.R.D. at 307. In antitrust cases, injury includes both
injury-in~fact and so~called antitrust iiijury. §§ Cordes & Co. Fin. Servs., lnc. v. A.G. Edwards

& SonS Inc., 502 F.3d 91, 106 (Zd Cir. 2007); § also Iri re Hydrogeii Peroxide Antitmst Litig.,

 

552 F.3d at 31 l.
At the class certification stage, however, plaintiffs need not prove their case. §

Behrend v. Comcast Corp., 655 F.3d 182, 199 (3d Cir. 2011), pe_ti_t_i_p_rl@@. 1 (U.S. Jan,
ll, 2012) (No. ll-864); In re Hydrogen Peroxide Antitrust Litig., 552 F.3d at 311; §§ _i§s_o_
Walsh v. Ford l\/iotor Co., 807 F.2d 1000, 1017~18 (D.C. Cir. 1986) ("Class action proponents
may not be called upon to prove their case in order to obtain certification.”). Instead, plaintiffs’
burden at the class certification stage is to demonstrate that the elements of their claim are
"capable ofpi'oof at trial through evidence that is common to the class rather than individual to
its members." in re Hydrogen Peroxide Antitiust Litig., 552 F.3d at 311-12 (emphasis added);
§ee_ Messner v. Northshore Univ. I-iealthSystem, 669 F.3d at 818; Behrend v. Coincast Corp., 655
F.3d at 192-93. 'l`hus, the Court’s focus at the class certification stage is on how plaintiffs will
attempt to prove the elements of their claim at trial. §§ Behrend v. Comcast Corp., 655 F.3d

at 199; In re l~iydrogen Peroxide Antitrust Litig., 552 F.3d at 31 l.

B. Resoluti`oii of`Factiial Di`sputes and Slandard of Proof
lt has long been established that the moving party cannot be called upon to prove

its case at the class certification stage. See, ;e_.gg Walsh v. Ford Motor Co., 807 F.2d at 1017-l 8.

26

Until recently, however, it was unclear whether and, if so, how, a court should assess factual
disputes, especially those related to the merits of plaintiffs’ cause of action, in ruling on a inotiori
for class certification Compare ln re Vitamins Antitrust Litig., 209 F.R.D. 252, 25'7 n.9 (D.D.C.
2002), with ln re Hydrogen Peroxide Antitrust Litig., 552 F.3d at 316-20. i\/loreover, there was
"little guidance . . . available on the subject of the proper standard of ‘proof’ for class
ceitification." in re Hydrogen Peroxide Antitrust Litig., 552 F.3d at 316; j_e l JosEPi~I M.
McLAUoiiLiN, McLAucnLiN on Cr.Ass AcrioNs § 3: 12 (Sth ed. 2011) ("Until recently . . . there
had been surprisingly little case law addressing the evidentiary standard the proponent of
certification must meet in demonstrating that Rule 23’s requirements are satislied."); Teamsters
Local 445 freight Div. Pension v. Bombardier lnc., 546 F.3d 196, 202 (2d Cir. 2008) ("readily
acknowledg[ing]" that prior case law had "been less than clear," and directly "address[ing] a
question that weaves through the[] various requirements of Rule 231 the standard of proof
applicable to evidence proffered to meet them"); §_e§ §ls_o Shariff v. Goord, 235 F.R.D. 563,

568 n.3 (W.D.N.Y. 2006) ("Neither Rule 23, nor the vast majority of cases interpreting it
identifies a particular burden of proof on the plaintiff.").

Although the D.C. Circuit has not yet had occasion to provide much guidance on

these questions, _se_g Kottaras v. Whole Foods Mkt., Inc., Civil Action No. 08-1832, --» F.R.D.
----, 2012 WL 259862, at *5 (D.D‘C. Jan. 30, 2012), the Supreme Court’s recent decision in
Wal-l\/lart as well as persuasive decisions from the Third Circuit and others have clarified the
standards that a district court must apply in determining whether to certify a class. Upon review
of those decisions, the Court concludes (l) that it can and must resolve any factual disputes

relevant to the requirements for class certification - even if that requires considerations

27

enmeshed in the factual and legal issues comprising plaintiffs’ claim on the rnerits, s_e_e Wal~Mart
Stores, lnc. v. Dukes, 131 S. Ct. at 255}-52; §e_e also In re l~lydrogen Peroxide Antitrust Litig.,
552 F.3d at 32(); and (2) that it should apply a preponderance of the evidence standard of proof in

doing so. §_e§, gg¢, in re Hvdrogeii Peroxide Antitrust Litig., 552 F.3d at 320.

l. F actual Disputes and Dueiing Experts

As the Supreine Court stated in Wal-Mart Stores, lnc. v. Dukes: "Rule 23 does not
set forth a mere pleading standard. A party seeking class certification must affirmatively
demonstrate his compliance with the Rule _ that is, he must be prepared to prove that there are
fnfaci sufficiently numerous parties, common questions of law or fact, etc." Wal-Mart Stores,
lnc. v. Dukes, 131 S. Ct. at 2551 (einphasis in original). A district court must be satisi"ied, after
"rigorous anaiysis," that the requirements of Rule 23 have been met, and

[f]requentiy that rigorous analysis will entail some overlap with the

merits of the plaintiff s underlying claim. That cannot be helped.

{T]he class determination generally involves considerations that

are enmeshed in the factual and legal issues comprising the

plaintiff’ s cause of action. . . . Nor is there anything unusual about

that consequence[.]

Wal-Mart Stores, lnc. v. Dukes, 131 S. Ct. at 2551-52 (quotations and citations ornitted).

The Supreine Court in Wal~Mart definitively resolved the question whether its
decision in Eisen v. Carlisle & Jacquelin, 417 U.S. 156 (1974), precludes inquiry into the merits
at the class certification stage. Before the Supreine Court issued its decision in Wal~l‘\/lart, much
of the law on that question arose from an "oft-quoted stateinent" in Eisen, s§_e_ ln re initial Pub.

Offering»s Sec. Litig., 4?1 F.3d 24, 33 (Zd Cir. 2006), that “nothing in either the language or

history of Rule 23 . . . gives a court any authority to conduct a preliminary inquiry into the inerits

28

of a suit in order to determine whether it may be maintained as a class action." Eisen v. Carlisle

& Jacguelin, 417 U.S. at 177. In the past, that statement in Eisen

has led some courts to think that in determining whether any Rule

23 requirement is niet, a judge may not consider any aspect of the

merits, and has led other courts to think that a judge may not do so
at least with respect to a prerequisite of Rule 23 that overlaps with
an aspect of the merits of the case.

In re initial Pub. Offerings Sec. Litig., 471 F.3d at 33.

The Supreme Court in Wa1-Mart made clear that that reading of its decision in

Eisen is wrong. As the Supre1ne Court stated:

[i]n [Eisen|, the judge had conducted a preliminary inquiry into the
merits of a suit, nor in order 10 determine the propriety of
certification uiider Rules 23(¢1) and (b) (he had already done that

. . . ), but in order to shift the cost of notice required by Rule
23(0)(2) from the plaintiff to the defendants

Wal~Mart Stores, lnc. v. Dukes, l3l S. Ct. at 2552 n.6 (etnphasis added) (citation omitted). To

the extent that language in _E_i_sie_n suggests the irnperrnissibiiity of a merits inquiry related to the
Rule 23(¢1) and (b) anaiysis, the Supreme Court made clear that such language "is the purest
dictum and is contradicted by . . . other [Supreme Court] cases." Wal-Mart Stores, lnc. v. Dukes,
131 S. Ct. at 2552 n.6. Thus, "it is appropriate v and indeed necessary - in some
circumstances to ‘consider[] a merits question at the Rule 23 stage."’ Kottaras v. Whole Foods
Mkt., Inc., 2012 WL 259862, at *6 (quoting Wal-Mart Stores, lnc. v. Dul482 F.3d 372, 381 (5th Cir. 2007); ln re initial
Puhlic Offerings Sec. Litig., 471 F.3d at 41; Gariety v. Grant Thornton, LLP, 368 F.3d 356, 366

(4th Cir. 2004); Szabo v. Bridgeport Machines, lnc.,~249 F.3d 672, 677 (7th Cir. 2001); _s“e~e_ a,_l_s'o_

29

l MCLAUGI~ILIN ON CLASS ACTlONS § 3: 12 ("The Supreme Court recently cemented consensus
that recently emerged among the United States Courts of Appeai. Virtually every circuit had
expressly adopted standards that require a district court considering class certification to consider
evidence" and "resolve factual disputes that are relevant to Rule 23’s criteria[.]").

The required rigorous factual review that a court must perform in examining
whether the requirements of Rule 23(a) and (b) have been met similarly applies to disputes
among experts relevant to class certification As the Third Circuit stated in 1n re Hydrogen
Peroxide Antitrust Litig.: "Expert opinion with respect to class certification, like any matter
relevant to a Rule 23 requirement, calls for rigorous analysis." in re Hydrogen Peroxide Antitrust
Litig., 552 F.3d at 323. Nothing in Rule 23 distinguishes expert evidence from other types of
evidence

Under Rule 23 the district court rnust be "satisfied," . . . or

"persuaded," . . . that each requirement is met before certifying a

class. Like any evidence, admissible expert opinion may persuade

its audience, or it may not. This point is especially important to

bear in mind when a party opposing certification offers expert

opinion. The district court may be persuaded by the testimony of

either (or neither) party’s expert with respect to whether a

certification requirement is met. Weighing conflicting expert

testimony at the certification stage is not only permissible; it may

be integral to the rigorous analysis Rule 23 demands

in re Hydrogen Peroxide Antitrust Litig., 552 F.3d at 323 (quoting General Tel. Co. of the Sw. v.

Falcon, 457 U.S. at 161; In re lnitial Pub. Offerings Sec. Litig., 417 F.3d at 41);§@211@ §
at 315 n. 13 (stating that the "ultirnate question" at the class certification stage is "whether the
district court is satisiied, by all the evidence and arguinents including all relevant expert opinion,

that the requirements of Rule 23 have been inet").

30

"Resolving expert disputes in order to determine whether a class certification
requirement has been met is always a task for the court - no matter whether a dispute inight
appear to implicate the ‘credibility’ of one or more experts{.]" in re Hydrogen Peroxide Antitrust
L_it_ig;, 552 F.3d at 324; ge In re initial Pub. Offerings Sec. Litig., 471 F.2d at 40 (concluding that
courts must "resolve[_`] factual disputes relevant to each Rule 23 requirement," including
weighing conflicting opinion evidence); Cordes & Co. Fin. Servs., ln'c. v. A.G. Edwards & Sons,
_"lr_i_c_;, 502 F.3d at l07; ln re Ethylene Propylene Diene Monomer (EPDM) Antitrust Litig., 256
F.R.D. 82, 96-97 (D. Conn. 2009). Such disputes among experts in an antitrust case may
include, among other things, different views on the appropriate characterization of the relevant
market, different views on how defendants structured their prices, and any other considerations
relevant to whether plaintiffs have satisfied the requirements of Rule 23. §_ee_ In re Hydrogen
Peroxide Antitrust Litig., 552 F.3d at 325; ln re EPDM Antitrust Litig., 256 F.R.D. at 96-97;
Hnot v. Willis Gr;). Holdings Ltd., 241 F.R.D. 204, 209-10 (S.D.N.Y. 2007). Failure to weigh
conflicting expert opinions "‘arnounts to a delegation of judicial power to the plaintiffs, who can
obtain class certification just by hiring a competent expert."’ Kottaras v. Whole Foods l\/lkt.,
lpg, 2012 WL 259862, at *11 (quoting ln re Hydrogen Peroxide Antitrust Litig., 552 I~`.3d
at 323).

There are, of course, liinits to a court’s inquiiy into disputes among experts, just
as there are li1nits to a court’s inquiry into factual disputes generally: they should be resolved at
the class certification stage only to the extent necessary to "satisf[y]" or "persuade[]" a court that
each requirement of Rule 23 has or has not been met. ln re l»lydrogen Peroxide Antitrust Litig.,
552 F.3d at 323 (quotations and citations omitted); _s_§_e_ also In re Zurn Pex Plurnbing Prods. Liab.
_l__._i*tjg;, 644 F.3d 604, 611 (Sth Cir. 201 l). Thus, for example, a court should only engage itself in

31

"‘statistical dueling"’ of experts if "such dueling presents ‘a valid basis for [granting or] denying
class certification."’ Hnot v. Willis G~rp. Holdings Ltd., 241 F.R.D. at 210 (quoting In re lnitial
Pub. Offerings Sec. l.itig,4l 7 F.3d at 35). Similarly, for example, a court should resolve "which
expert is correct," Cordes & Co. Fin. Servs., lnc. v. A.G. Edwards & Sons, Inc., 502 F.3d at 107,
when experts disagree on "wiietiier a single formula can be created, or wlrezher' there really {are]
too many factors at work for a multiple regression model to be methodologically sound." g
EPDM Antitrust Litig., 256 F.R.D. at 96-97 (citing Cordes & Co. Fin. Servs., lnc. v. A.G.

Edwards & Sons lnc., 502 F.3d at 107) (emphasis added).

 

ln contrast, if the defendants’ expert is "merely disputing the res'ulis of the

plaintiffs’ experts’ analysis rather than the feasibility of using a single forrnula methodology, that
would be a merits issue, not a class certification issue." ln re EPDl\/l Antitrust Litig., 256 F.R.D.
at 96 (emphasis added); s_eg i_d. at 100-01 (concluding that defendants’ challenge to plaintiffs’
expert at the class certification stage was a matter to be resolved at trial because, although each
sides’ expert "arrived at a polar opposing finding concerning common impact[,] . . . significantly
both employ single formulas"). When both experts agree on a methodology for determining
class-wide irnpact, but ultimately reach different conclusions whether putative class rnembers
were injured by an alleged conspiracy, a court need not resolve which expert is correct at the
class certification stage; that dispute presents a inerits question to be resolved by the finder of
fact at trial. ln re Currency Conversion Fee Antitrust I.,itig., 264 F.R.D. 100, 115 (S.D.N.Y.

2010); § ln re EPDI\/l Antitrust Litig., 256 F.R.D. at 90; l-Inot v. Willis Grp. Holdings Ltd., 241

F.R.D. at 209-10.

32

2. Standard of Proof
a. Facts Bearing on Rule 23

The Court concludes that plaintiffs must establish the requirements of Rule 23 by
a preponderance of the evidence, and that this standard applies to any factual disputes, including
those among experts, that bear on the decision whether to certify a class. As both sides
acknowledge, in the past some judges in this district at the class certification stage have required
plaintiffs to make only a "threshold showing" or to set forth a "colorable method" by which they
intend to satisfy the requirements of Rule 23. in re Vitarnins Antitrust Litig., 209 F.R.D. at 264;
_sp_e Pls. Supp. Brief at 1~2; Defs. Supp. Brief at 14~15. Recent decisions by the Second, Third,
and Fifth Circuits, however, all expressly hold that Rule 23 requirements must be established by
a higher standard: a preponderance of the evidence _S_e_e Brown v, Kelly, 609 F.3d 467, 476 (2d
Cir. 2010) ("'l"he Rule 23 requirements must be established by at least a preponderance of the
evidence.") (citing Teamsters Local 445 Freight Div. Pension v. Bombardier Inc., 546 F.3d

at 202 ("Today, we dispel any remaining confusion and hold that the preponderance of the

evidence standard applies to evidence proffered to establish Rule 23’s requirements.")); ln re Ins.

Brokerage Antitrust Litig., 579 F.3d 24l, 257-58 (3d Cir. 2009) ("The ‘[f]actual determinations
necessary to make Rule 23 findings must be made by a preponderance of the evidence."’)
(quoting In re Hydrogen Peroxide Antitrust Litig., 552 F.3d at 320); In re Hydrogen Peroxide
Antitrust Litig., 552 F.3d at 307 (expressly rejecting a "threshold showing" standard and
requiring proof by a preponderance of the evidence); Alaska Elec. Pension Fund v. Flowseiv

Corp., 572 F.3d 221, 228 (5th Cir. 2()09) ("‘[T]he preponderance of the evidence standard

33

applies to evidence proffered to establish Rule 23’s requirements."’) (quoting 'l`eamsters Local
445 Freight Div. l’ension v. Bombardier lnc., 546 F.3d at 202) (alteration in original).s

As the Third Circuit stated in ln re Hydrogen Peroxide:

[I]nvoking the phrase "threshold showing" risks misapplying

Rule 23. A "threshold showing" could signify, incorrectly, that the

burden on the party seeking certification is a lenient one (such as a

prima facie showing or a burden of production) or that the party

seeking certification receives deference or a presumption in its

favor. So defmed, "threshold showing" is an inadequate and

improper standard [T]he requirements of Rule 23 must be met,

not just supported by some evidence.
In re Hydrogen Peroxide Antitrust Litig., 552 F.3d at 321 (quotations omitted).

"Class certification requires a finding that each of the requirements of Rule 23 has
been rnet" by a preponderance of the evidence ln re Hydrogen Peroxide Antitrust Litig., 552
F.3d at 320; _s_e§ FED. R. Clv. P. 23(b)(3) (the court must "find[] that the questions of law or fact
coinmon to class members predominate"). A court can only do so upon weighing all relevant
evidence for and against class certification and then concluding by a preponderance of the
evidence that the Rule 23 requirements in fact have been met. §_qe_ _i_c_:l_. at 320-22; §e§ gl§_q Wal-
Mart Stores= lnc. v. Dukes, 131 S. Ct. at 2551 (party seeking certification "inust be prepared to
prove that there are infact sufficiently numerous parties, common questions of law or fact, etc.")
(emphasis in original). Applying a lesser standard would perrnit class certification even if a court

thought it less than likely that each Rule 23 requirement had been met, violating the Supreme

Court’s instruction that "actual, not presumed conformance" with Rule 23 is "indispeiisable."

5 ln their supplemental briefing, plaintiffs state that they do not object to the Court
applying the preponderance of the evidence standard because they believe they can readily satisfy
it; nevertheless, plaintiffs note that they "are not agreeing that a preponderance standard should
apply." Pls. Supp. Brief at 3 n.5.

34

General Tel. Co. of the Sw. v. Falcon, 457 U.S. at 160; §e_e also Wal~l\/Iart Stores, lnc. v. Dukes,

131 S. Ct. at 2551.

l). Exnert Opinions and Regression Analyses

An expert opinion presenting economic regression analysis commonly is used as a
basis for certifying a class. Y, _e_.g.“, ln re TFT~LCD (Flat Panel) Antitrust Litig., 267' F.R.D.
291, 313 (N.D. Cal. 201()) (citing cases accepting multiple regression analysis as a means of
proving antitrust injury and damages on a class-wide basis); ln re EPDM Antitrust Litig.,

256 F.R.D. at 95; g gls,o_ D/\Nlal. L. Runlr~l FELD, REFERENCE Gulna oN Mutrlr>l.lz Raortl~:ssiou
305-08 (Fan. JunlclAL CF.NTER, 3d ed. 2011). ln this case, plaintiffs’ expert, Dr. Gordon
Rausser, has developed two multiple regression models, a common factor model and a damage
model, that, in his opinion, together reveal that impact can be established at trial with evidence
common to the class. §_e_e_ 2d Rausser Report at 9l -92, 99-100; s_e_e §l§o Oct. 6 Tr. at 137.
Defendants’ expert, Dr. Rohert Willig, disagrees with Dr. Rausser’s analysis and concludes that
Dr. Rausser’s regressions suffer from fatal flaws §ee generally Willig Report.

Where, as here, experts disagree on the ultimate question whether an economic
regression model shows that impact is capable of proof at trial through evidence common to the
class, that disagreement must be resolved by a court at the class certification stage: a court must
determine "which expert is correct" about whether "the injury-in»fact question is common to the
class." Cordes & Co. Fin. Servs., lnc. v. A.G. Edwards & Sons, lnc., 502 F.Bd at 107; se_e l_r_i___r_e_
l;lvdrogen Peroxide Antitrust Litig., 552 F.3d at 324. To answer that question, the Third Circuit

instructed in ln re Hydrogcn Peroxide Antitrust Litig. that a court must apply a two prong test,

35

examining (l) whether the plaintiffs have established that their expert’s theory of common

impact is "plausible"; and, if so, (2) whether the plaintiffs have established by a preponderance of
the evidence that the expert’s plausible theory is "susceptible to proof at trial through available
evidence common to the class." In re Hvdrogen Peroxide Antitrust Litig., 552 F.3d at 325; _s_e§
Behrend v. Comcast Corp., 655 F.3d at 192-93.

The Third Circuit recognized in I_n re Hvdrogen Peroxide Antitrust Litig., and then
reaffirmed in Behrend v. Cotncast Corp., that an expert’s theory that impact is capable of
common proof at trial - by means of regression analysis or other common evidence -;- is not a
question of fact necessarily capable of resolution by a preponderance of the evidence. The
plausibility standard falls below a requirement of perfection, _s§_je_ Behrend v. Comcast Corp., 655
F.3d at 204 n.13 (a court need not determine that a regression model "is perfect at the
certification stage"), and above a "threshold," In re l~lvdrogen Peroxide Antitrust Litig., 522 F.3d
at 321 (quotations omitted), or a "not fatally i':lawed" standard In re lnitial Pub, Offerings Sec.
Lig;, 471 F.3d at 42. Plausibility depends on the "ability to establish ~»»»» whether through
inathematical models or further data or other means - the key logical steps behind [the] theoiy."
In re New Motor Vehicles Canadian Exp. Antitrust Litig., 522 F.3d 6, 25-26 (1st Cir. 2008).

By way of illustration, Dr. Willig criticizes Dr. Rausser’s coinmon factor
regression model for looking at only a snapshot in time and therefore purportedly failing to
examine changes in freight rates over time. §ee_ Willig Report jj 213. Whether this purported
error discredits Dr. Rausser’s common factor model is not a question that readily lends itself to

resolution by a preponderance of the evidence; indeed, such a standard has not been adopted by

36

any court and lacks intuitive force. §e§ Oct. 6 Tr. at 20 (plaintiffs’ counsel noting that "there has
been no direction by any circuit, let alone this district or the Supreme Court that applies an
evidentiary type standard to the assessment by the court as a whole of an expert report directed at
proof of impact or fact of damage and amount of damage"). Instead, applying the first prong of
the test set forth in In re Hydrogen Peroxide Antitrust Litig., the Court will evaluate whether this
purported error precludes a determination that Dr. Rausser’s theory of proof is "plausible,"
Behrend v. Comcast Co@., 655 F.3d at 204 n.13; In re Hydrogen Peroxide Antitrust Litig.,
552 F.Sd at 325, or "viable," in re New Motor Vehicles Canadian Exp. Antitrust Litig., 522 F.3d
at 25 (lst Cir. 2008); and that his regression analysis is "feasible," ln re EPDl\/l Antitrust l,itig.,
256 F.R.D. at 96, or "workabie." ln re Ainaranth Natural Gas Commodities Litig., 269 F.R.D.
366, 383 & n.118 (S.D.N.Y. 2010); §e_e in re Readv-i\/Iixed Concrete Antitrust Litig., 261 F.R.D.
154, 171 (S.D. lnd. 2009).° l
If a court detennines that the plaintiffs have established that their expert’s theory
of proof is plausible and that their expert’s regression analysis, if any, is workable, then the next
question for the court to resolve is whether the plaintiffs have established by a preponderance of
the evidence that the plausible theory and workable regression are ‘»‘susceptible to proof at trial

through available evidence common to the class." ln re Hydrogen Peroxide Antitrust Litig., 552

'F.3d at 325; _s_e§ Behrend v. Comcast Corp., 655 F.3d at 192-93. In assessing that question in this

° Defendants use the terms "feasible" and "viable" in evaluating the issue of
common i1npact. § Willig Report 'll ll (stating that defendants asked Dr. Willig to determine
"whether it is feasible for piaintiffs to demonstrate through common proof that members of the
proposed class suffered economic injuiy") (emphasis added); Defs. Wal-Mart Reply Brief at 1
(stating that the central question before the Court is whether plaintiffs have proffered "a triable
classwide method for proving injury at trial") (emphasis added).

37

case, the Court will resolve all factual disputes bearing on Dr. Rausser’s and Dr. Willig’s
analyses - including what the parties refer to as subsidiary factual disputes underlying the
experts’ opinions ~»~ by a preponderance of the evidence. §_e§ In re Hydrogen Peroxide Antitrust
_L_it_ig, 522 F.3d at 320~25; _s_ee Oct. 6 Tr. at 30-31. And ultimately, the Court will determine
which expert is correct, Dr. Rausser or Dr. Willig, on the question whether a workable regression
model can be used to establish by a preponderance of the evidence that impact can be proven at
trial with common evidence. Y, §g;, Behrend v. Comcast Corp., 655 F.3d at 192-93; lg;e_

Hydrogen Peroxide Antitrust Litig., 522 F.3d at 325; Cordes & Co. Fin. Servs., Inc. v. A.G.

Edwards & Sons, lnc., 502 F.3d at 10'7.

To summarize, the Court will resolve factual disputes relevant to Rule 23
requirements, and the Court will apply a preponderance of the evidence standard in examining
whether plaintiffs have satisfied each of the requirements of Rule 23. Accordingly, in order to
certify plaintiffs’ putative class, the Court "must find that the evidence more likely than not
establishes each fact necessary to meet the requirements of Rule 23." n re Hydrogen Peroxide
Antitrust Litig., 552 F.3d at 320; _s_ee also Behrend v. Corncast Corp., 655 F.?)d at 185 (plaintiffs
must establish by a preponderance of the evidence that they would be able to prove through
common evidence impact and a common inethodology to quantify damages). As for the
predominance requirement of Rule 23(b)(3), in examining Dr. Rausser’s conclusion that impact
can be established at trial with common evidence, the Court will determine whether Dr.

Rausser’s theory of proof is plausible and whether his regression models are workable; and, if so,

38

whether plaintiffs have established by preponderance of the evidence that his theory and models
are "susceptible to proof at trial through available evidence common to the class." In re

Hydrogen Peroxide Antitrust Litig., 552 F.3d at 325; § Behrend v. Comcast Corp., 655 F.3d

at 192~93.

Defendants contend that there are numerous factual disputes between the parties
and their experts that are relevant to whether plaintiffs have satisfied the predominance
requirement of Rule 23(b)(3), and defendants further contend that Dr. Rausser’s analysis is
fatally tlawed. Defendants identify four principal factual disputes and assert that each one bears
on whether impact can be proven at trial with common evidence: (l) whether rate~based fuel
surcharges frequently were used before the class period, ge Defs. Wal-Mart Brief at 5;

(2} whether "legacy shippers" »- that is, shippers who paid a rate-based fuel surcharge during the
class period under a contract that was entered into before July l, 2003 we would have continued
paying fuel surcharges, even absent the alleged conspiracy, §;e__e_ i_c_i_.; §§_e §tl§g Defs. Supp. Brief

at 17; (3) whether captive shippers - that is, those shippers served by only one railroad or those
shippers with no viable transport alternatives to the railroad that serves it a~ would have paid fuel
surcharges, even absent the alleged conspiracy, §§:§ Defs. Wal-Mart Brief at 6; Defs. Supp. Brief
at 18 & n.l0; and (4) whether some class inembers received concessions from a defendant on
certain aspects of their rail transportation agreement in exchange for acceptance of the
defendant’s fuel surcharge. § Defs. Wal-l\/lait Brief at 6; Defs. Supp. Brief at 19. As
defendants describe it, the Court’s resolution of each of these factual disputes in plaintiffs’ favor
is a necessary condition for class certification; defendants contend that these disputes "must be
resoived" in examining whether to certify plaintiffs’ putative class. Defs. Wal-Mart Brief at 6;
§§ Defs. Supp. Brief at 19»20.

39

The Court agrees with defendants that these factual disputes are relevant to Rule
23(b)(3)’s predominance requirement -»- primarily, whether plaintiffs can show that impact is
capable of proof at trial through evidence that is common to the class. Regarding, for example,
the issue lof concessions, if shippers received concessions in the form of base rate discounts in
exchange for the application of a fuel surcharge, then, as plaintiffs’ expert himself acknowledges,
the impact for those shippers "wouldn’t have been common to others" who did not receive such
discounts. lst Rausser Dep. at 2'/'2; _s_§e §§ i_d. at 270 (Dr. Rausser, acknowledging that "any
coordinated program that focuses just on a part of the pricing can be unwound or made far less
effective if there is a change in the base pricing"). Going further, if the fuel surcharge applied to
a shipper "was exactly offset by the base rate," then, as plaintiffs’ expert states, "there would be
no injury." 2d Rausser Dep. at 208.7

Defendants and their expert contend that some shippers included within plaintiffs’
class were not harmed by the alleged conspiracy because they received contract concessions in
the form of base rate discounts. And defendants say that determining which shippers received
such discounts requires individualized evidence and analysis that precludes a finding that impact

can be proven on a class-wide basis with common evidence. Plaintiffs and their expert disagree,

7 To be clear on terms, as discussed below, such an exact offset between a fuel
surcharge and a base rate would mean that an individual plaintiff has no claim for damages, but
not necessarily that that plaintiff was not injured by the defendants’ alleged conspiracy. Y, _e”.,g;,
in re EPDM Antitrust Litig., 256 F.R.D. at 88 ("[l]t is possible for a plaintiff to suffer antitrust

injury-in-fact and yet have no damages because it has taken steps to mitigate the actual price paid
through rebates, discounts, and other non-price factors . . . . By expending resources to negotiate
down from the supracomeptitive prices established by the caitel, plaintiffs who have suffered no
damages may still have suffered an injury-in-fact from the antitrust conspiracy. The fact that a
plaintiff may have successfully employed bargaining power to fend off the ejj"fecl of the
conspiratorial practices does not mean that it has not been put in a worse position but-for the
conspiracy.") (emphasis in original); §e§ i_nf£ at 1 l5-l6.

40

arguing that there is no evidence of widespread discounting and any examples of discounting are
anomalies that do not preclude a finding that impact can be proven on a class-wide basis with
cornmon evidence. Because this dispute is relevant to whether common evidence can be used to
establish impact at trial, the Court must resolve it by a preponderance of the evidence - even
though it plainly is an issue enmeshed in the factual and legal issues comprising the merits of
plaintiffs’ claiin.

Although the Court agrees with defendants that it must resolve this (and other)
factual disputes, the Court disagrees with defendants that the facts fall in their favor at this stage.
As discussed below, the Court finds by a preponderance of the evidence that the fuel surcharge
programs applied by defendants before the class period were nothing like the widespread
application of defendants’ more aggressive, standardized fuel surcharge programs during the
class period; that these standardized fuel surcharges were applied uniformly, to all or virtually all
class niembers; and that there is no evidence of widespread discounting of base rates in exchange
for application of fuel surcharges, and that any such discounting in the record is an anomaly that
does not preclude a finding of predominance. Furtheiinore, the Court credits Dr. Rausser’s
conclusion that impact and damages are capable of proof at trial with common evidence.

The Court finds that Dr. Rausser’s economic regression analysis is workable, and that he presents
a theory of proof that is plausible and susceptible to proof at trial through available evidence

common to the class.“

8 The findings set forth in this Opinion are made "only for purposes of class
certification and [are] not binding on the trier of facts" on the merits at trial. ln re lnitial Pub.
Offeriiigs Sec. Litig., 471 F.3d at 41; §§ ln re l"lydrogen Peroxide Antitrust Litig., 552 F.3d
at 318 (a court’s findings "for the purpose of class certification are conclusive on that topic," but
"do not bind the fact-finder on the inei'its"); § also Behrend v. Comcast Corp., 665 F.3d at 190.
'i`hese findings therefore "‘may be revised (or wholly rejected) by the ultimate factfinder{.]"’

In re livdrogen Peroxide Antitrust Litig., 552 F.3d at 318 n.l9 (quoting Unger v. Amedisys lnc.,
401 F.Bd 316, 323 (5th Cir. 2005)).

41

IV. RULE 23(a) FINDINGS AND CONCLUSIONS
A. Two Iniplz'ed Requirerrzenrs
l. Class Definition
The first implied requirement of Rule 23(a) is that the class must be "sufficiently
defined so as to be identifiable as a class." Vigus v. Southern lll. Riverboat/Casino Cruises, lnc.,
274 F.R.D. at 235; see also Johnson v. District ofColumbia, 248 F.R.D. 46, 52 (D.D.C. 2008);
Pigford v. Glickinan, 182 F.R.D. 341, 346 (D.D.C. 1998). "The requirement that a class be
clearly defined is designed primarily to help the trial court manage the class." Pigford v.
Glicl218 F.R.D. 262, 269
(S.D. Fla. 2003); §§ also johnson v. District of Colunibia, 248 F.R.D. at 52.
fn this case, plaintiffs seek certification of the following class:
All entities or persons that at any time from July l, 2003 until

December 31, 2008 (the "Class Period") purchased
rate-unregulated rail freight transportation services directly from

42

one or more of the Defendants, as to which Defendants assessed a
stand-alone rail freight fuel surcharge applied as a percentage of
the base rate for the freight transport (or where some or all of the
fuel surcharge was included in the base rate through a method
referred to as "rebasing") ("Fuel Surcharge").

Excluded from this Class definition are (a) Defendants, any
subsidiaries or affiliates of Defendants, any of Defendants’
co~conspirators, whether or not named as a Defendant in the
Co1nplaint, and all federal governmental entities, and (b) all
entities or persons that paid a Fuel Surcharge directly to any of the
Defendants solely pursuant to a railroad-shipper contract that was
(i) entered into before July l, 2003, and (ii) provided for a
stand~alone Fuel Surcharge to be paid under a predetermined
formula specifically set forth in the contract.

Class Mot. at l.°

Defendants contend that plaintiffs’ class definition "renders determining which
shippers would actually be in the proposed class extremely difficult, if not impossible." Class

Opp. at 75. According to defendants, there are two problems with plaintiffs’ proposed ciass:

9 During the class certification motions hearing, the Court noted that the class
definition proposed by plaintiffs in their motion papers is different from the class definition
proposed by plaintiffs in their second consolidated amended complaint. _Se_e Oct. 7 Tr. at 331.
Compare Class Mot. at l, _w_i_tl_i_ 2d Am. Co1npl. ‘\] 38. In view of some case law suggesting that a
district court may be bound by the class definition set forth in a complaint, §eg Berlowitz v. Nob
Hill Masonic Mgmt., Inc., Civil Action No. 96~1241, 1996 WL 724776, at *2 (N.D. Cal. Dec. 6,
1996); _s§_e gl§o Brewer v. Salyer, Civil Action No. 06-1324, 2009 WL 2019923, at *3 (E.D. Cal.
July 8, 2009), the Court directed two questions to the parties at the motions hearing: (l) How do
the plaintiffs want the class defined?; and (2) ls there some obligation on the plaintiffs to move to
amend their amended complaint to match the definition set forth in the class certification
motion? _S~e_e Oct. 7 Tr. at 331.

ln response to the Court’s two questions, the parties filed a joint submission

regarding the class definition in which they agreed that a formal amendment to plaintiffs’
complaint was "not necessaiy" and that the Court "may decide plaintiffs’ motion for class
certification based on the proposed class definition in the motion, and on the record before it."
Joint Class Definition Subinission at I. .ln accordance with the parties’ joint submission, the
Court has decided plaintiffs’ motion for class certification based on the proposed class definition
in their niotion, not the definition in their second consolidated amended complaint.

43

(l) there is no "{e]asy [w]ay" to determine whether freight traffic qualifies as rate-unregulated,
i_d.; and (2) plaintiffs propose no method to identify shippers with "rebased" rates. I_d. at 76.

As discussed, plaintiffs’ proposed class is specifically limited to
"rate-unregulated" traffic. Class Mot. at l. Plaintiffs have defined the term "unregulated" as
referring to "rail freight transportation services where the rates are set by private contracts or
through other means exempt from rate regulation under federal law." 2d Am. Compl. 11 l.
Defendants contend that it is difficult to discern whether freight traffic moves under a regulated
common carrier authority or, instead, under an unregulated contract. Class Opp. at 7'5.
According to defendants, determining whether freight traffic is rate~regulated or rate-unregulated
requires individualized inquiries viewed in light of the parties’ intent. ld_. Consequently,
defendants contend that "[d]etennining class membership would require individualized inquiries,
inaking class certification inappropriate." ld_. at 76.

The Court disagrees with defendants. As plaintiffs point out, the STB ruling in
2007 distinguished between rate-regulated and rate-unregulated traffic, expressly stating that its
ruling applied only to the foriner. §§ Class Reply at 39. Neither the STB nor defendants
asserted that it was too difficult to determine which traffic the ruling covered l_d. Furthermore,
in this case defendants have produced during discovery transaction data for rate-unregulated
traffic without arguing that it was too difficult to determine which transaction data related to that
type of traffic. l_d. And finally, defendants’ expert, Dr. Willig, has not claimed any difficulty in
distinguishing between rate-regulated and rate-unregulated traffic. "fo the contrary, Dr. Willig
was able to quantify both the arnount of rate-unregulated traffic during the class period and the

revenue it produced for defendants _S__e_e Willig Report 11 24 ("[S]hippers of unregulated traffic

44

with revenue-based FSCsf, that is, fuel surcharges, ]generated roughly 72 million carloads of rail
traffic during the class period and $ l 10 billion in revenue for def`endants. This reflects roughly
56 percent of defendants’ total non-regulated traffic over this period, For the class period as a
whole, there were nearly 30,000 shippers of unregulated traffic with revenue-based FSCS[.]");
§:_e gl_s_g_ lst Rausser Report at 89 (noting that "the data supplied by BNSF . . . records whether
the shipment was regulated or not"). Dr. Willig’s report therefore belies defendants’ claim that it
is too difficult to determine whether rail traffic qualifies as rate-unregulated

Defendants’ second argument focuses on plaintiffs’ proposed inclusion of
shippers who paid "rebased" rates. As plaintiffs describe it, at some point during the alleged
conspiracy NS “engaged in something that has come to be known in this case as rebasing;
namely folding at least part of the fuel surcharge into the base rate." Oct. 6 Tr. at 133.
Defendants contend that plaintiffs "do not identify . . . shippers" who paid a rebased rate "or
propose any methodology for doing so." Class Opp. at 76. And in the absence of any viable
methodology, defendants contend that it is impossible to determine what shippers are in the class
due to rebasing. E.

The Court disagrees with defendants Plaintiffs assert that shippers who paid a
rebased rate simply paid a new base rate with a portion of the previous supra-competitive fuel
surcharge "bal903 F.2d 176, 180 (2d Cir. 1990) ("[T]here is a danger that
absent class members will suffer if their representative is preoccupied with defenses unique to
it.").

Spoliation of evidence constitutes a unique defense, and courts have concluded

that in some circumstances defending against a charge of spoliation of evidence can render a

51

plaintiff an inadequate class representative. §§e, _e_.g;, Falcon v. Philips Elecs. N. Am. Corp., 304
I~`ed. App’x 896, 897 (2d Cir. 2008) (district court did not abuse its discretion in concluding that
defending against a charge of spoliation rendered a plaintiff an inadequate class i'epresentative).
The presence of a unique defense, however, "will not . . . destroy typicality [unless it] wilt skew
the focus of the litigation and create a danger that absent class members will suffer if their
representative is preoccupied with defenses unique to it." Meiier, lnc. v. Warner Chilcott
Holdings Co. Iil, 246 F.R.D. at 302 (quotations omitted) (alteration in original). in this case, the
Court agrees with plaintiffs that at this stage the spoliation issue is hypothetical and speculative,
se_e Class Reply at 39, and the Court is satisfied that this alleged unique defense presents a
question of law and fact ‘°that can readily be resolved by the Court without skewing the focus of
the litigation or creating a significant danger of distracting [plaintiffs’] ability to pursue the
interests of the absent class members." Meiier, lnc. v. Warner Chilcott Holdings Co. III, 246
F.R.D. at 302 (quotations omitted).

Finally, defendants argue that a "significant number" of putative class inembers’
contracts include broad arbitration clauses §p_e Class Opp. at 7'8. Defendants state that they
"intend, as they have a right to do, to rely on [those putative class members’] agreements to
arbitrate," which would include, according to defendants, the Shei‘man Act claim alleged in this
case. Q. at 7'8-79. Thus, defendants argue that shippers whose contracts include arbitration
provisions cannot pursue their claims in this Court and, as a result, cannot be part of the class
that plaintiffs seek to certify here. id at 79. And defendants assert that the Court should
consider these agreements to arbitrate 4a constituting, as defendants see it, affirmative defenses

4a in making its class certification decision. _iu_d_. (citing Rodnev v. Northwest Airlines, lnc.,

52

146 Fed. App’x 783, 786 (6th Cir. 2005). Defendants do not assert, however, that any of the
eight named plaintiffs have contracts containing arbitration clauses; nor do defendants assert that
they have initiated any arbitrations §__qe_ Class Reply at 40.

While defendants do not suggest under what part of Rule 23 the Court should
consider their argument regarding arbitration, courts generally have considered the question of
defenses in the context of examining the typicality and commonality requirements of Rule 23(a),
as well as the predominance requirement of Rule 23(b)(3). §§_:_e_, §g;, fn re Schering Plough Corp.
ERISA Litig., 589 F.3d at 598 (question of unique defenses is an offshoot of typicality
requirement); Gene & Gene LLC v. BioPay LLC, 541 F.3d 318, 327 (5th Cir. 2008) ("[T]he
predominance of individual issues necessary to decide an affirmative defense may preclude class
certification.") (quotations ornitted); Gunnells v. Healthplan Servs., Inc., 348 F.3d 417, 438 (4th
Cir. 2003) ("[A]ffinnative defenses must be factored into the calculus of whether common issues
predominate."). Regardless of which part of Rule 23 applies, however, the Court concludes that
"the possible arbitration of some class mernbers" does not, "by itself, defeat class certification."
Lemer v. l:~laimsohn, 126 F.R.D. 64, 66 (D. Colo. 1989) (emphasis added). Neither plaintiffs nor
defendants have initiated arbitration, and the Court concludes that defendants’ assertion
regarding their "inten[t]" to initiate arbitration, Class Opp. at 78, is too speculative to defeat
predoininance, much less commonality or typicality.

The Court finds that the claims of the eight named class representatives arise from
the "same events, practice, or conduct, and are based on the same legal theory as those of other
class inerribers." Lindsay v. Govemment Emps. lns. Co., 251 F.R.D. at 55 (quotations omitted).

Consequently, piaintiffs have satisfied their burden of showing by a preponderance of the

53

evidence that "the claims or defenses of the representative parties are typical of the claims or

defenses of the class[.]" FED. R. CIV. P. 23(a)(3).

4. Adequacy of Representation

'i`he fourth and final express requirement of Rule 23(a) is adequacy lt requires
that "the representative parties will fairly and adequately protect the interests of the class." FED.
R. Civ. P. 23(a)(4). Thus, this requirement "necessitates an inquiry into the adequacy of
representation, including the quality of class counsel, any disparity of interest between class
representatives and members of the class, communication between class counsel and the class
and the overall context of the litigation." Pigfoi‘d v. Glickman, 182 F.R.D. at 350. "A proposed
representative is ‘adequate’ if (l) his interests do not conflict with those of other class meinbers,
and (2) he will vigorously prosecute the interests of the class through qualified counsel."
Lindsay v. Govemment Emps. Ins. Co., 251 F.R.D. at 55.

Plaintiffs assert that the eight named representative plaintiffs have shown a
willingness to step forward, incur substantial discovery burdens, and prosecute this case in the
best interests of the members of the putative class. Class Mem. at 61. Furthermore, plaintiffs
assert that there are no conflicts with the unnamed members of the class that would warrant
denial of class certification lt_l. Finally, plaintiffs contend that they have protected the interests
of absent class members through the selection of qualified class counsel. As plaintiffs describe
it, interim co-lead class counsel Quinn Emanuel and Hausfeld

- firms that have extensive experience in both antitrust litigation

in particular and class action litigation generally -»~- have

vigorously prosecuted this action, expending substantial time and
resources in investigating the clainis, overseeing the production

54

and review of doeuments, taking and defending of depositions,
working with experts, and briefing and arguing motions.

_I_d_. at 62. Defendants present mostly the same arguments regarding adequacy as they did for
typicality. _S__e_§ Class Opp. at 79~80. For the reasons just discussed, _s__e,_i; s_gp@ at 49-54, the Court
rejects them.
ln addition, defendants argue that Donnelly Commodities, lnc. should be
disqualified because it filed for bankruptcy and is currently under the control of an appointed
trustee. Class Opp. at 81-82. According to defendants, when a class representative has filed for
bankruptcy under Chapter 7 and has had a trustee appointed, an "‘inherent’ conflict of interest
exists.” §. at 82 (quoting Dechert v. Cadle Co., 333 F.3d 801, 803 (7th Cir. 2003)). As
defendants see it, this is because of the trustee’s "‘dual role as class representative and creditors’
representative."’ _I_d. (quoting Dechert v. Cadle Co., 333 F.3d at 803). But the authority upon
which defendants rely for that proposition, Dechert v. Cadle Co., rejected a "flat rule that a
trustee in a bankruptcy . . . can never be a class representative." Dechert v. Cadle Co., 333 F.3d
at 803. And other courts have allowed such representation where, as here, "an additional
representative [is designated] to appear as plaintiff along with the Trustee[.}" Ernst & Ernst v.
U.S. Dist. Court for the S. Dist. of'l`ex., 457 F.2d 1399, 1400 (5th Cir. 1972). In this case,.of
course, there are eight representative plaintiffs only one of which, Donnelly Commodities, Inc., is
under the control of a trustee in bankruptcy The Court therefore sees no basis at this stage to
disqualify Donnelly Commodities, lnc. as a named representative
Finally, as for the quality of class counsel, the Court agrees with plaintiffs’

undisputed assertion that they have protected the interests of absent class members through the

55

selection of class counsel. §e§ Class Mem. at 62-63. As the Court previously has stated, the
firms Quinn Emanuel and Hausfeld both have sufficient resources and expertise to prosecute this
matter in the putative class’ best interests. §§ Memoranduin Op. & Order at 3, Mar. l3, 2009

[Dkt. No. 232]. As plaintiffs state:

Quinn Emanuel and l~lausfeld LLP have already demonstrated their

ability to work well together, coordinate the efforts of the various

other firms also representing plaintiffs in this multidistrict

litigation, and generate work product at the highest professional

levels. "i`ogether, these finris are extraordinarily well situated to

assess how Plaintiffs’ case will be presented at trial, and will be

prepared to try this case should that be necessary
Class Mem. at 63. Defendants do not disagree, and neither does this Court.'°

The Court finds that plaintiffs have met their burden of showing by a
preponderance of the evidence that "the representative parties will fairly and adequately protect
the interests of the class," FED. R. Civ. P. 23(a)(4}, because the interests of the eight named
representatives do not conflict with those of other class members, and because they will

vigorously prosecute the interests of the class through qualified counsel. Lindsay v. Govemment

Emps. Ins. Co., 251 F.R.D. at 55.

V. RULE 23(b)(3) FlNDlNGS AND CONCLUSIONS
Because plaintiffs have satisfied all of the threshold Rule 23(a) requirements by a
preponderance of the evidence, the Court now must conduct a "rigorous analysis" of the

requirements of Rule 23(b)(3). g ln re Zurn Pex Plumbing Prods. Liab. Litig., 644 F.3d at 6l l;

'° Under Rule 23(c)(1)(B) and (g), plaintiffs seek formal designation of Quinn
Emanuel and Hausfeld as co-lead class counsel. §_ee_ Class Mot. at 2; Class Mem. at 62 n.219.
Upon consideration of the matters set forth in Rule 23(g), the Court will grant plaintiffs’ request
and will designate these two finns as co-lead class counsel.

56

Madison v. Chalmette Refining I_,.L.C., 637 F.3d 551, 554 (5th Cir. 201 l); §§ a_ls_p_ Wal-Mart
Stores, Inc. v. l)ukes, 131 S. Ct. at 255 l. ln examining whether plaintiffs have satisfied their
burden under Rule 23(¥))(3), the Court has resolved the factual disputes between the parties and
their experts that are relevant to the requirements for class certification m even when such
resolution requires considerations enmeshed in the factual and legal issues comprising the
plaintiffs’ claim on the merits - and the Court has applied a preponderance of the evidence

standard of proof in doing so.

A. Predomr`narice

Rule 23(b)(3) requires that the Court "find[] that the questions of law or fact
common to class ineinbers predominate over any questions affecting only individual inembersf.]"
FED. R. Clv. P. 23(b)(3). As discussed, _s§q s_iipr_g at 25, in examining the predominance
requirement under Rule 23(b)(3), a court’s rigorous analysis "‘begins . . . with the elements of the
underlying cause of action."’ Messner v. Northshore Univ. HealthSvstein, 669 F.3d at 8l5
(quoting Erica P. john Fund, lnc. v. Haliburton, Co., 131 S. Ct. at 2184). The Court must
"scrutinz[e] plaintiffs’ legal causes of action to determine whether they are suitable for resolution
on a classwide basis." McCarthy v. Kleindienst, 741 F.2d 1406, 1412 n.6 (D.C. Cir. 1984). The
Court therefore examines "the elements of plaintiffs’ claim through the prism of Rule 23 to
determine" whether plaintiffs have satisfied the predominance requirement in re Hydrogen
Peroxide Antitrust Litig., 552 li.3d at 311 (quotations omitted). if proof of the essential elements
of the claim requires individual treatment, then common questions do not predominate and class

certification is "iinsuitable." id (quotations oinitted).

57

ln this case, plaintiffs allege that defendants engaged in price tixing, in violation
of Section 1 of the Sherman Act. Thus, to prevail on the merits of their claim at trial, plaintiffs
will have to prove three elements: ( l) a violation of the antitrust laws »- here, Section 1 of the
Sherinan Act; (2) individual impact resulting from that violation; and (3) measurable dainages.
_S_Q<_»: In re Hydrogen Peroxide Antitrust Litig., 552 F.3d at 311. At the class certification stage,
plaintiffs’ burden is different plaintiffs must show by a preponderance of the evidence that the
elements of their claim are "capab!e ofproof`at trial through evidence that is common to the

class rather than individual to its inembers." lpl_. at 311-12 (emphasis added).

l. Violation of Antitrust Law
Plaintiffs have alleged that defendants engaged in a horizontal price fixing

conspiracy to coordinate their fuel surcharge programs in order to effect an overall
supra-competitive total price increase on their customers, in violation of Section 1 of the
Sherman Act. _S__qe_ Am. Compl. 1111 l-2. A horizontal price fixing conspiracy, as alleged here, is a
per se violation of the Sher1nan Act. _S_e,_§, e_.g;, 'l`exaco Inc. v. Dagher, 547 U.S. 1, 5 (2006);
NYNEX Corp. v. Discon, Inc., 525 U.S. l28, l33~34 (1998); Jacobs v. "l`empur-Pedic Int’l, lnc.,
626 F.3d l327, 1334 (1 lth Cir. 2010). And the parties agree that this element of plaintiffs’ claim
is capable of proof at trial through evidence that is common to the class. §§ Class Mem.

at 65-66; _s_e§ Oct. 7 Tr. at 161 (defendants’ counsel, acknowledging that "whether there was or
was not a conspiracy is in fact capable of common proof, so that’s really not at issue in the
predominance analysis"). That is because plaintiffs’ allegations of price fixing indisputably "will

focus on the actions of the defendants, and, as such, proof for these issues will not vary among

58

class ineinbers." ln re Vitaniins Antitrust Litig., 209 F.R.D. at 264; ge Meijer= lnc. v. Warner
Chilcott Holdings Co. lll, 246 F.R.D. at 308 (because alleged violation of the antitrust laws
"relates solely to Defendants’ conduct . . . proof for [this] issue will not vary arnong class
members") (quotations omitted) (alteration in original). The Court therefore finds by a
preponderance of the evidence that the first eleineiit of plaintiffs’ claim is capable of proof at trial

through evidence that is common to the class rather than individual to its members.

2. impact

In this case, as in many antitrust cases, the second element of plaintiffs’ claim -
individual impact resulting from the alleged conspiratorial conduct (also referred to by the parties
as "injury") _ is the central issue. _$me_e Oct. 6 Tr. at 9; Defs. Wal-Mart Reply Brief at 1 ("The
parties . . . agree that the central question here is whether Plaintiffs have met their burden . . . to
show that common questions predominate over individual ones, which in turn requires that they
proffer a viable classwide method for proving injury at trial."); gee also ln re Hydrogen Peroxide
Antitrust Litig., 552 F.3d at 31 1.

ln examining whether impact is capable of common proof, it is important to note
at the outset that this element involves two distinct components: injury~in-fact; and antitrust
injury. § Bassett v. National Collegiate Athletic Ass’n, 528 F.Sd 426, 434 (6th Cir. 2008)
("[A] private antitrust plaintiff in addition to having to show injury~in-fact and proximate cause,
must allege, and eventually prove, antitrust injui"y.") (quotations omitted); Cordes & Co. Fin.
Servs., lnc. v. A.G. Edwards & Sons, Inc., 502 F.3d at 106; §§:_e also ln re Currencv Conversion

Fee Antitrust Litig, 264 F.R.D. at 114; Mazanderan v. independent 'I`axi Owners’ Ass’n, Inc.,

59

700 F. Supp. 588, 590 (D.D.C. 1988) (discussing the "two-fold requirement of individual
economic injury to [a] plaintiff that is grounded in the antitrust laws"). These two components
pose "two distinct questions": injury-in-fact presents the "fainiliar factual question whether the
plaintiff has indeed suffered harm," whereas antitrust injury presents "the legal question whether
any such injury is the ‘injury of the type the antitrust laws were intended to prevent and that
flows from that which makes defendants’ acts unlawful."’ Cordes & Co. Fin. Servs., Inc. v, A.G.

Edwards & Sons Inc., 502 F.3d at 106 (quoting Brunswick Corp. v. Pueblo Bowl-O~Mat, Inc.,

 

429 U.S. 47?, 489 (1977)). Antitrust injury is injury to competition, not just injury to an
individual Andrx Pharins., lnc. v. Biovail Corp. Int’l, 256 F.3d '799, 812 (D.C. Cir. 2001). And
the reason an antitrust plaintiff is required to prove antitrust injury is to ensure that a plaintiff can
recover "only if the loss stems from a competition-reducing aspect or effect of the defendant’s
behavior." Atlantic Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 334 (1990) (emphasis in
original).

1. lrvjury-irr-fact. The primary dispute in this case relates to the injury-in-fact
coinponent of the impact element The parties vigorously dispute whether injury~in-fact can be
established at trial with coinmon evidence, and they have submitted expert reports by
distinguished economists that reach diametrically opposed conclusions Plaintiffs contend that
they will prove injury-in~fact on a class-wide basis at trial "by showing that Defendants’
conspiracy caused the Class members to pay supra-co1npetitive prices during the Class Period."
Class Mem. at 67. According to plaintiffs, the effect of defendants’ alleged conspiracy was to
impose "on all Class members coordinated Fuel Surcharges that rose in lockstep and resulted in

across-the-board prices increases." i_d_. at 68.

60

Plaintiffs assert that they wilt show injury-in-fact "with public information,

Defendants’ documents, and witness testimony" - all of which, they contend, wilt be evidence

that is common to the class. Class Mem. at 70. Specifically, plaintiffs assert that common

evidence will show at trial that

l_d. (citations omitted).

Defendants intended to use their coordinated Fuel
Surcharge programs not as a means solely to recover fuel
costs, but as a means to raise revenues and profits

Defendants[] intended their coordinated fuel surcharge
programs to be applied across~the-board.

Defendants each, and in coordination with each other,
undertook during the Ciass Period to monitor success in
achieving broad application o[f] the Fuel Surcharges.

Defendants during the Class Period adopted policies
precluding discounting to offset the Fuel Surcharges.

Defendants recognized in internal documents that during
the Class Period, the Fuel Surcharges generated revenues
by raising prices paid by the Class far beyond Defendants’
actual fuel costs.

During the Class Period, the Fuel Surcharges were
responsible in large part for very large increases in
Defendants’ revenues and profits

Plaintiffs further contend that the analysis of their expert, Dr. Gordon Rausser,

confirms that injury-in-fact can be established at trial with common evidence and economic

analysis _Sg Class Me1n. at 71 ." Dr. Rausser explains that he has examined the rail freight

" Dr. Rausser provides a detailed discussion of his qualifications and background in
his expert report. _S_r§ lst Rausser Report at l-2. ln suinmary, Dr. Rausser is the Robert Gordon
Sproul Distinguished Professor at the University of California at Berkeley and the former Dean
of that University’s College of Natural Resources. Class Mem. at 4 n.3. Dr. Rausser’s work

6i

industry and concludes that certain structural factors make it so that "had a conspiracy occurred it
would have succeeded in subjecting the Class to a coinmon" injury-in-fact. 2d Rausser Report

at 80; s_@ lst Rausser Report at 7~8. Furthennore, Dr. Rausser has developed two economic
regression models and has analyzed 100 percent of defendants’ transaction data during the
alleged conspiracy. 2d Rausser Report at 91~92, 96. Dr. Rausser’s regression analyses
purportedly substantiate his theory of coinmon proof, showing that

I [Defendants] did implement a common rate increase across
the Class through their use of the fuel surcharge applied as
a percentage of base rates.

l Common factors such as shipment weight, distance, route
and commodity type, among others, predominate over
individual factors in the determination of freight rates.
These common factors can be measured using the
Defendants’ transaction data and used in a common
analysis to identify and quantity the harm experienced by
the Class.

l Defendants’ transaction data reveals that there was no
material discounting of base rates to offset the fuel
surcharges that were applied to shipments made by the
Class. As a result, Class rnembers commonly experienced
price increases from the Defendants’ actions irrespective of
the commodity they were shipping. . . .

l Class members paid significantly higher prices to
Defendants for rail freight transportation during the Class
Period than before and that these higher prices are not
explainable by price determinants other than the
conspiracy.

focuses on the subjects of economics, applied economics, econometrics, and statistics §c;§ §
He has published more than 250 aiticles, books, and book chapters, and has written more than
l00 conimissioned papers, governmental repoits, and work papers. _I”t_l_. Dr. Rausser served as the
Chief Economist to the Agency for international Development in Washington, D.C. from l988 to
1990, and as a Senior Econo1nist at the President’s Council of Economic Advisors from 1986 to
1987. Id.

62

lst Rausser Report at '7~8. Thus, according to Dr. Rausser, "[t]here was a common impact of
Defendants’ alleged conspiracy on the Plaintiffs and the Class which can be demonstrated
through evidence and economic analysis common to the Class[.]" lst Rausser Report at 4.
Defendants disagree that injury-in-fact can be proven at trial with common
evidence. As defendants frame the issues, in order to demonstrate that plaintiffs’ claims are

suited for class treatment

Plaintiffs must prove . . . that they have a method of providing a
common answer to each of the core questions each class member
would have to answer had it brought its own claim: (i) Dz`a*` Ipay a
fuel surcharge (or higher fuel surchar'ge) because of the alleged
corrspir‘acy? and (ii) Dz'd paynzeni of a fuel surcharge cause me to
pay morefor shipping than it would have otherwise paia'?
Defs. Wal-Mart Brief at 2 (emphasis in original). Defendants contend that the facts in this case
make clear that rate-based fuel surcharges were widely used before the start of the alleged
conspiracy; that the use of fuel surcharges was growing; and that even Dr. Rausser concedes that
some class inembers would have paid rate~based fuel surcharges absent the alleged conspiracy.
_S__t_:_e_ _i_c“l. Given these proffered facts, among others, defendants conclude that neither plaintiffs nor
their expert "has offered any way to use common evidence to show that, absent the alleged
conspiracy, every shipper would have paid a lower fuel surcharge or none at all." ld_. According
to defendants, plaintiffs therefore have failed to show that they have a common answer to the
first question quoted above. _I_c_l_.
As for the second question quoted above, defendants contend that it, too, cannot

be a.nswered with common evidence. According to defendants, the facts show that "many

shippers received contract concessions, including lower base rates than the railroads initially

63

offered, in exchange for accepting a fuel surcharge[.]" Defs. Wal-Mart Brief at 6. Because the
alleged conspiracy was only directed at a portion of the total price of shipping, defendants say
that any class member who obtained anything of value in exchange for accepting a fuel surcharge
may not have suffered injury-in-fact. §_e_e Class Opp. at 4l. And in view of the purported
evidence that "soine (but not all) shippers made trade~offs for fuel surcharges," i_d., defendants
contend that individualized issues predominate because "it is necessary to examine the
circumstances and negotiating history of each shipper to prove that it did not negotiate offsetting
savings and therefore pay a higher all-in price for shipping as a result of its having agreed to a
fuel surcharge.” Defs. Wal-Mart Brief at 2.

In support of their position that class certification is inappropriate in this case,
defendants have submitted the expert report of Dr. Robert Willig.‘z As Dr. Willig explains, he
was asked by defendants to address from an economic perspective "whether it is feasible for
plaintiffs to demonstrate through common proof that members of the proposed class suffered
economic injury"; "whether it is feasible to estimate each class member’s damages on a
class-wide basis"; and "to evaluate the damage methodology proposed by Professor Rausser as

well as the analyses that support his conclusions." Willig Report 1| ll.

‘2 Dr. Willig provides a detailed description of his qualifications and background in
his expert report. § Willig Report 1{1] l-6. in summary, Dr. Willig has been a Professor of
Econoinics and Public Affairs at Princeton University for over 30 years. Class Opp. at 6 n.2. He
has written 75 articles on economics and a book on competition and the theory of industrial
market structure _Id. His focus is on microeconomics, with particular specialization in industrial
organization, and he teaches courses on inicroecononiics, regulation, antitrust, and competition
policy. I_d. Dr. Willig served as the Chief Econoinist in the Antitrust Division of the United
States Departrnent of Justice from 1989 to l99l. lgl_. He also has done research and economic
analysis of the railroad industry, including testifying before the STB, and its predecessor, the
lCC, about issues affecting the industry. _l_gl_.

64

As for the issue of injury-in-fact, Dr. Willig’s overall conclusion is that assessing

injury-in-fact "requires an in-depth individualized inquiry into the circumstances of the particular

shipper." Willig Report ‘|| 15. in arriving at this conclusion, Dr. Willig makes six principal

points:

First, "[t]he fact that shippers paid FSCs [fuel surcharges]
is not cornmon evidence of class-wide impact or damages
assessment." Willig Report at 13.

Second, “[t]he levels of the FSCs paid by shippers provide
no common evidence of class-wide impact or damages
assessment." _l_q. at 14.

Third, "[t]he processes by which FSCs were applied to
shipper rates preclude common evidence of class-wide
impact or damages assessment." ld. at 16.

Fourth, "[a]ll-in rates varied widely and contradict the
possibility of com1non evidence showing class-wide
impact." ld. at 18.

Fifth, "Professor Rausser’s attempts to show that common
evidence can establish class-wide impact and assessment of
damages fail to support his conclusion." ld_. at 22.

Sixth, "[rn]ernbers of the proposed class have conflicting
economic interests.” _I,gl_. at 28.

2. Antitrust injury. Although it was not initially apparent from defendants’

papers that they also dispute whether antitrust injury can be established at trial with coinmon

evidence, §e_e_ Class Opp. at 50-56 (seemingly equating antitrust injury with injury-in-fact

argurnents); §_e_e_ also Oct. 7 Tr. at 172, defendants’ counsel stated at oral argument that

defendants do argue that some class members - specitically, captive shippers ~» cannot suffer

antitrust injury. §§§ Oct. 7 Tr. at 171-'73. As discussed, antitrust injury is "‘injury of the type the

65

antitrust laws were intended to prevent and that flows from that which makes defendants’ acts
unlawful."’ Cordes & Co. Fin. Servs., Inc. v. A.G. Edwards & Sons, Inc., 502 F.3d at 106
(quoting Brunswick Corp. v. Pueblo Bowl-O-Mat, lnc., 429 U.S. at 489). As defendants see it,
certain shippers in plaintiffs’ putative class are "captive shippers," also referred to synonymously
as "sole served" shippers. Oct. 6 Tr. at 30. Because of various factors, including geographic
location, these shippers have "no option but to use a single railroad when it ships out of its
place{.]" Oct. 7 'l`r. at 172. Defendants contend that these captive shippers cannot as a matter of
law suffer antitrust injury because they have "no reduction in competition" -»- having had no
competition in the first place -- "as a result of the alleged wrong." i<_:l_. And defendants argue
that identifying such captive shippers requires individualized inquiry.

Plaintiffs disagree. Plaintiffs contend that defendants themselves, as well as
defendants’ expert, Dr. Willig, admit that captives shippers are subject to competitive pressures,
§§§ Oct. 7 Tr. at 304, and that Dr. Rausser’s analysis confirms what defendants themselves have
admitted. _Lc“l. at 304-05.

The Court first addressees two preliminary legal issues regarding the impact
element the number of uninjured class rnembers sufficient to preclude a finding of
predominance, and the "presumption" of common impact. The Court then examines the parties’
and the experts’ arguments regarding whether antitrust injury and injury-in-fact are capable of

proof at trial through evidence that is common to the class.

66

a. Uniniured Class l\/lernbers
The first preliminary legal issue regarding impact involves a dispute between the
parties over the number of uninjured class inembers sufficient to preclude a finding of
predominance Defendants contend that plaintiffs "n'iust proffer a valid method for proving . . .
injury to all or viitually all class members on a simultaneous, class-wide basis[.]" Class Opp.
at 26-27 (quotations omitted). Defendants acknowledge that “[s]orne cases have suggested a
more relaxed requirement in which inability to show injury as to a few does not defeat class
certification where the plaintiffs can show widespread injury to the class." ld. at 27 n.39
(quotations omitted); §§ Oct. '/' Tr. at 258 (defendants’ counsel, acknowledging that "the case
law . . . is mixed on the issue of whether every single class member must be injured or whether
there's some negligible number"); _s§_e_ also Kottaras v. Whole Foods Mkt., Inc., 2012 WL
259862, at *7-8 (discussing cases addressing number of uninjured class lnembers sufficient to
preclude a finding of predoininance). Defendants assert, however, that this "relaxecl
requirement" has not been adopted by the D.C. Circuit, and argue that, in any event, plaintiffs
have failed to ineet either standard in this case. _S_ee Class Opp. at 27'; Oct. 7 Tr. at 253
'l`he Court concludes that defendants are incorrect about the legal standard for
impact. "Class certification is not precluded simply because a class may include persons who
have not been injured by the defendants’ conduct." Miins v. Stewart Title Guar. Co., 590 F.Bd
298, 308 (5th Cir. 2009) (citing K.ohen v. Pacific Inv. Mgrnt. Co., 5?’1 F.3d 672, 6'/'7 (”/th Cir.
2009). As the Seventh Circuit stated in Kohen v. Pacific lnvesttnent Manageinent Co.:
[A] class will often include persons who have not been injured by

the defendant’s conduct; indeed this is almost inevitable because at
the outset of the case many of the members of the class may be

67

unknown, or if they are known still the facts bearing on their

claims may be unknown Such a possibility or indeed inevitability

does not preclude class certiiication{.]
Kohen v. Pacific lnv. Mgint. Co., 571 F.3d at 677; se_e Messner v. Northshore Univ.
HealthSystem, 669 F.Sd at 823 (citing and quoting Kohen v. Pacific Inv. Mgint. Co., 571 F.3d
at 67 7). 'i`hus, the "inability to show injury as to a few does not defeat class certification where
the plaintiffs can show widespread injury to the class." Meiier, Inc. v. Warner Chilcott Holdings
QQQ, 246 F.R.D. at 310 (quotations omitted). Only when it is apparent that "a great many
persons" have not been impacted should a court deny class certification. Kohen v. Pacific lnv.
Mgrnt. Co., 571 F.3d at 677'. "There is no precise measure for ‘a great many.’ Such
determinations are a matter of degree, and will turn on the facts as they appear from case to

case." Messner v. Northshore Univ. HealthSystein, 669 F.3d at 825 (quoting Kohen v. Pacific

lnv. Mgmt. Co., 571 F.Sd at 677).

b. "Presumption" of Common impact
The second preliminary legal issue involves what the partes refer to as a

"presuinption" of common impact. Class Mem. at 69; Class Opp. at 27 n.40. "Soine courts have
found a presumption of common impact in cases involving allegations of horizontal
price-fixing." in re Vitamins Antitrust Litig., 209 F.R.D. at 266 (citing §g;, ln re Master Key
Antitrust Litig., 528 F.2d 5, 12, n. ll (2d Cir. 1975); In re Auction Houses Antitrust Litig.,

193 F.R.D. 162, 166 (S.D.N.Y. 20()0)). As the Third Circuit stated in Newton v. Merrill Lynch,

Pierce, Fenner & Sniith, Inc., "{i]n antitrust class actions, injury may be presumed when it is

68

clear the violation results in harm to the entire class." Newton v. Merrill Lynch, Pierce, Fenner

& Smith Inc., 259 F.3d 154, 179 n.2l (3d Cir. 2001).

 

Plaintiffs contend that applying a presumption of coinmon impact in this case
would be warranted, because if "Plaintiffs prove that Defendants coordinated their Fuel
Surcharge programs in an anticompetitive manner, then it would make basic economic sense to
recognize that all Class members, all of whom paid Fuel Surcharges that were either imposed for
the first time, or increased by the conspiracy, were impacted by the conspiracy." Class Mein.
at 69~70. Plaintiffs, however, make clear that they "do not rest on such a presumption," asserting
that they need not do so in view of the evidence in the record in support of their claim of
common impact. ld.

Although several judges in this district have mentioned this presumption in
passing, none actually has applied it. §_§e, e_.g:, Meiier, lnc. v. Warner Chilcott Holdings Co. lIl,
246 F.R.D. at 308 n.l6 (concluding that "[n]o . . . presumption is required . . . because [p]laintiffs
have established that common proof will predominate over individual issues"). And as the Third
Circuit more recently stated in in re Hydrogen Peroxide Antitrust Litig.: "Applying a
presumption of impact based solely on an unadorned allegation of price-fixing would appear to
conflict with the 2003 amendments to Rule 23, which emphasize the need for a careful,
fact-based approach, informed, if necessary, by discovcry." in re Hydrogen Peroxide Antitrust
I_._it_ig_., 552 F.3d at 326. 'l`o the extent that any such presumption of common impact remains
valid law, sic i_d_. at 327 (stating that district court, on remand, could consider whether

presumption of common impact "is compatible with the record of th[e] case"), it appears to be

69

some sort of presumption-plus, requiring "some additional amount of einpirical evidence."
American Seed Co., lnc. v. Monsanto Co., 271 Fed. App’x 138, 141 (3d Cir. 2008).

The Court agrees with the reasoning set forth by the Third Circuit in _Ip__r§
Hydrogcn Peroxide Antitrust Litig. and concludes that applying a presumption of impact based
on an unadorned allegation of price fixing appears inconsistent with the rigorous analysis that
must be performed in examining whether the requirements of Rule 23(b)(3) have been met. And
whatever remains of any such presumption or presumption-plus under the law, the Court
concludes that no presumption is required in this case, as plaintiffs themselves make clear that

they do not rely on it. Nor do they need to.

c. Antitrust Injug

in order to establish antitrust injury, the legal component of the impact element, at
trial, plaintiffs "must prove that the defendants engaged in an anti-competitive manipulation of
the markets." In re EPDM Antitrust Litig., 256 F.R.D. at 87. in examining this legal component
at the class certification stage, the Second Circuit held in Cordes & Co. Financial Services, lnc.
v. A. G. Edwards & Sons, lnc. that the plaintiffs successfully established that antitrust injury was
common to the class and predominated over individual questions because the plaintiffs alleged
only one type of injury in the complaint "overcharges paid to a horizontal price-fixing
conspiracy." Cordes & Co. Fin. Servs., lnc. v. A.G. Edwards & Sons, lnc., 502 F.3d at 107. As
the Second Circuit stated in _Q_r_gr_t§:§: "Because each class member allegedly suffered the same
type of injury, the legal question of whether such an injury is ‘of the type the antitrust laws were

intended to prevent and that flows from that which makes defendants’ acts unlawful,’ . . . is a

70

common one." _I_<_l_. (quoting Brunswicl< v. Pueblo Bowl-O-Mat, Inc., 429 U.S. at 489). As in

Cordes, the Court concludes that plaintiffs have satisfied the first part of the impact element by

showing that the legal question of antitrust injury is common to the class and predominates over
individual issues.

Plaintiffs have alleged only one type of injury in their second ainended
consolidated complaint: that defendants’ price fixing conspiracy imposed supra-co1npetitive total
price increases on the putative class, in violation of Section 1 of the Sherman Act. S_e§ 2d Ain.
Compl. jlj] l-2; Class Mem. at 1. Plaintiffs contend that the type of supra-competitive
overcharges allegedly imposed in this case "clearly constitute antitrust injury." Class Mem.
at 65 n.22l. Defendants disagree as to a subset of putative class members, arguing that so-called
captive shippers cannot suffer antitrust injury.

As defendants’ counsel described it at oral argument, antitrust injury is the injury
that flows from the harm that the antitrust laws are intended to prevent, and the antitrust laws are
intended to prevent only a reduction in competition. §=._e_ Oct. 7 Tr. at 172-73. Consequently, if
there is "no competition in the first instance for a customer’s business, that customer cannot
suffer antitrust injury." _Igl. at 173. Defendants and Dr. Willig contend that shippers served by
only one railroad do not benefit from rail-to-rail competition, and, as a result,

the railroad serving such a shipper would be expected to attempt to

extract the maximum possible rate given the shipper’s non-rail

alternatives and the value the shipper derives from rail service. A

conspiracy among railroads does not enable the serving railroad to

extract more than the rnaxirnuin rates from such a shipper For

shippers served by only one railroad, any attempt by the sewing

railroad to impose an FSC that is not desired by that shipper would

be expected to require that the railroad inake a concession with
respect to base rate or another dimension of contract.

71

Willig Report '1[ 132. Dr. Willig contends that any claim that captive shippers enjoy competition
"is contradicted by the well-recognized fact that ‘captive’ shippers experience higher prices than
shippers that face head-to-head rail competition." _l_d_. 1| l35.

The antitrust laws were enacted for "‘the protection of competition[.]"’ Ai_i_c_l_r§
Pharnis., lnc. v. Biovail Corp. int’l, 256 F.3d at 812 (quoting Brunswick Corp. v. Pueblo

Bowl-O-Mat lnc., 429 U.S. at 488) (emphasis in original). Defendants therefore are correct that

 

"where there {is] no competition, there [is] no antitrust injury." City of Pittsburgh v. West Penn
Power Conip., 147 F.3d 256, 266-67 (3d Cir. l998). in other words, "[w]ithout demonstrating
that there was competition, a plaintiff cannot show that the defendants’ actions have had or will
have anticompetitive effects." id_. (citing Continental Cablevision of Ohio, lnc. v. American
Elec. Power Co., 715 F.2d lll5, 1119-20 (6th Cir. 1983); §§ also in re Tobacco/Goveininental
Health Care Costs Litig., 83 i~`. Supp. 2d l25, 134-35 (D.D.C. l999) ("The antitrust laws were
not intended to prevent losses that result from increased competition but those resulting from
activity that may tend to lessen competition. . . . The reason an antitrust plaintiff is required to
plead antitrust injury is to assure that a plaintiff can recover only if the loss stems from a
coinpetition-reducz`rzg aspect or effect of the defendant’s behavior.") (quotations omitted)
(alteration and emphasis in original).

The Court, however, disagrees with defendants and Dr. Willig that captive
shippers are not subject to competitive forces -- a claim that is contradicted by the statements of
defendants’ own executives NS’ chief executive officer, Charles W. Moorman, testified before
Congress in 2007 that even captive shippers are subject to "competitive constraints [that] are

real," and he expressly acknowledged that "even where there is only one railroad serving a

72

facility, there are market factors at play." Corrected HD Ex. 36, Written Stateinent of Charles W.
l\/Ioonnan, at 16, Sept. 20, 2007. Similarly, UP’s chief executive officer, James Young, agreed
that railroads place "competitive constraints" on each other, even in the case of captive shippers.
HD Ex. 66, Young Dep. at 201. And CSX has acknowledged in internal documents that
"[s]tudies have shown that, in aggregate, captive shippers don’t pay higher prices than
non-captive shippers," and that "CSX[] sets prices based on all competitive factors." HD Ex. 37 ,
CSX Talking Points Response to Escalation Resource - Fuel Surcharge Alert,

at CSXFSC000l53 187.

That captive shippers enjoy competition is further reflected by the experience of
one of the named plaintiffs in this case before and during the class period, U.S. Magnesium has
an operating facility outside of Salt Lake City, Utah. As plaintiffs’ counsel stated at oral
argument, that plant is truly captive w "[t]here is . . . a single rail line coming up to the plant,
which is owned by [UP}." Oct. 6 Tr. at 92-93. in December 2002, before the class period, U.S.
l\/iagnesium riegot.iazed out of the application of a fuel surcharge. ._S__e_e_ RD Ex. l0, at USl\/l005647
(UP proposing to U.S. Magnesium a 4 percent increase on all rates and application of a fuel
surcharge, but ultimately agreeing to a 4 percent across the board increase without a fuel
surcharge). But one year later, during the period when plaintiffs say that defendants were
conspiring to impose fuel surcharges uniformly as to all shippers, the application of a fuel
surcharge was "lnandate[d] by UP management[.]” RD Ex. 72, at USM005663.

l\/ioreover, defendants’ executives expressly have denied in their depositions taken
in this case that they would have tried to impose more aggressive programs on captive shippers

than they were able to impose on non-captive shippers. BNSF’s chief executive ofticer, Matthew

73

K. Rose, stated that BNSF had never considered having a higher or more onerous fuel surcharge
for captive shippers, and that such an approach would "violate [BNSF] principle." HD Ex. 72,
Rose Dep. at 232. UP’s chief financial oflicer, Robert Knight, Jr., acknowledged that he was
unaware of any discussions on the topic of having separate fuel surcharge programs for captive
shippers. HD Ex. 70, Knight Dep. at 64. 'fhese statements are consistent with Dr. Rausser’s
analysis and conclusion, which the Court finds persuasive, that defendants’ transaction data show
that "so-called captive shippers paid the same Fuel Surcharge as others” during the class period.
2d Rausser Report at 23.

The Court therefore finds by a preponderance of the evidence that railroads are
affected by competitive constraints that apply to both captive and non-captive shippers, and that
plaintiffs have satisfied the first part of the impact element for all putative class inembers,
including captive shippers, by showing that the legal question of antitrust injury is common to
the class and predominates over individual issues. §_ee Cordes & Co. Fin. Servs., Inc. v. A.G.

Edwards & Sons Inc., 502 F.3d at 107.'3

 

'3 The Seventh Circuit’s decision in Messner v. Northshore University
HealthSystem suggests that defendants’ argument regarding captive shippers and antitrust injury
is more appropriately categorized as an argument that "the class for which certification is
requested is fatally overbroad because it contains members who could not have been harined{.]"
Messner v. Northshore Univ. HealthSvstem, 669 F.3d at 824. As the court in Messner explained:
"[I]f a proposed class consists largely (or entirely, for that inatter) of members who ore ultimately
shown to have sujj’ered no horm, that may not mean that the class was improperly certified but
only that the class failed to meet its burden of proof on the 1nerits. . . . if, however, a class is
defined so broadly as to include a great number of members whofor‘ sonia rcasorz could not have
been harrneo' by the defendant’s allegedly unlawful conduct, the class is defined too broadly to
permit certification." i_ci. (emphasis added). As the Court has found, however, plaintiffs have
shown by a preponderance of the evidence that railroads are affected by competitive constraints
applying to both captive and non-captive shippers. Thus, the Court concludes that the class is not
defined so broadly as to include a great number of inembers who "co.uld not have been harmed"
by defendants’ allegedly unlawful conduct. ic_i_.

74

d. Inju§y~in-Fact
The Court now addresses whether injury-in-fact is capable of proof at trial with
evidence coinmon to the class rather than individual to its members. _S_e_e ln re Hydrogen
Peroxide Antitrust Litig., 552 F.3d at 311-12. The Court finds by a preponderance of the

evidence that it is,

"it is a basic tenet of antitrust law that a cause of action will not lie if the plaintiff
has not been harmed.” Warren Gen. Hosp. v. Amgen inc., 643 F.3d 77, 92 (3d Cir. 2011). Thus,
in order to prevail at trial on their Sherman Act claim plaintiffs must prove not only an antitrust
violation - here, that defendants’ conspired on their fuel surcharge programs -»- but also a
"causal link between the violation and an injury to . . . business or property." federal
Prescription Serv., lnc. v. American Pharm. Ass’n, 663 F.2d 253, 268 (D.C. Cir. 1981); _sp_e
Tavlor Publ’g Co. v. .lostens, inc., 216 F.3d 465, 485 (5th Cir. 2000) ("[T]he fact of damages . . .
means that the antitrust violation must cause injury to the antitrust plaintiff.") (quotations
omitted); §§ also Hecht v. Pro-Football, lnc., 570 F.2d 982, 987 (D.C. Cir. 1977) ("{T]he
plaintiff must show both an fnjury-z`ri-jfact to his business or property and a causal connection
between that injury and the defendant’s allegedly illegal acts.") (emphasis in original) (quotations
o1nitted). Plaintiffs "need not exhaust all possible alternative sources of injury in fulfilling [their]
burden of proving compensable injury under" the antitrust laws, but they must show that the
antitrust violation was a "material cause of the injury[.]" Zenith Radio Coip. v. i-iazeltine
Research, inc., 395 U.S. 100, 114 n.9 (1969).

if plaintiffs would have suffered the same injury absent a conspiracy, then

plaintiffs will fail on the merits of their claim. _S_e_e F ederal Prescription Serv., lnc. v. Ainerican

75

Pharm. Ass’n, 663 F.2d at 268. Put another way, if the same alleged injury would have been
caused by independent, non-conspiratorial forces, then no causal link exists between the alleged
antitrust violation and the injury. And if individualized inquiry is necessary to make such a
determination on causation, then plaintiffs will have failed to show that common questions
predominate as to injury-in-fact. § in re New Motor Vehicles Canadian Exp. Antitrust Litig.,
522 F.3d at 25 (“Plaintiffs cannot make their case without common proof of causation{.]"); §_e_e_
also Kottaras v. Whole Foods Mkt., Inc., 2012 WL 259862, at *7.

This causation question f whether an antitrust violation was a material cause of
an injury - commonly is assessed by reference to what the parties and their experts refer to as
the but-for world. §”_e_e_ In re EPDM Antitrust Litig., 256 F.R.D. at 88 ("[G]enerally speaking,

antitrust injury-in-fact and damages are often determined by comparing the ‘but-for’ price m the

price a customer would have paid in the absence of the conspiracy -- and the actual price paid.").

This hypothetical construct is a world that is "free of the restraints and conduct alleged to be
anticompetitive." Blades v. Monsanto Co., 400 F.3d 562, 569 (8th Cir. 2005); §;e__c_: Cordes & Co.
Fin. Servs., lnc. v. A.G. Edwards & Sons, lnc., 502 F.3d at 107; Concord Boat Corp. v.
Brunswick Co§p., 207 F.3d 1039, 1055 (8th Cir. 2000). One way of showing that common
questions predominate on the issue of injury-in-fa.ct l

is to show that there is a common m.ethod for proving that the class

plaintiffs paid higher actual prices than in the but-for world, such

as using an economic regression model incorporating a variety of

factors to demonstrate that a conspiracy variable was at work

during the class period, raising prices above the but-for level for all
plaintiffs

76

In re EPDM Antitrust Litig., 256 F.R.D. at 88. And this precisely is what plaintiffs have

attempted to do through their expert, Dr. Rausser.

Comparing but-for prices with actual transaction prices by regression analysis,
however, is "not the only way for plaintiffs to succeed in a motion for class certification." l_n_;e
EPDM Antitrust Litig., 256 F.R.D. at 88 (emphasis in original). Other accepted types of
evidence for establishing class~wide injury-in-fact include: evidence of lock-step increases of
national price lists, s_ee_ i_d.; proof that defendants conspired to maintain an inflated base price
from which all negotiations began, _sj§:me _i~d. at 89; and evidence of structural factors that make an
industry susceptible to successful collusion. _S_ee id at 91-93; §_e_e a_ls_q Behrend v. Comcast
_CQL, 655 F.3d at 199. Ultimately, the question is whether plaintiffs have shown by a
preponderance of the evidence _ through regressions, structural industry factors, or any other
persuasive means w that "rnethods of coinmon proof exist to show class-wide impact[.]" _I_n_re
EPDM Antitrust Litig., 256 F.R.D. at 88; s_ce_e in re New Motor Vehicles Canadian Exp. Antitrust
_l;i_t_ig;, 522 F.3d at 25-26.

The alleged antitrust violation in this case is a conspiratorial agreement to impose
supra-competitive fuel surcharges -~ a component of the total price of a freight shipment m as a
percentage multiplier of the base rate of transportation as a means to impose supra-conipetitive
price increases on the putative class. §_e__e_ Class Mem. at 1; Am. Compl. 1§1| l-2. Plaintiffs do not
allege that defendants conspired to fix each base rate separately, §_e__e lst Rausser Dep. at 98 ("Q.
. . . There is no agreement to raise the base; right‘? A. Yes. Q. So all of the injury comes from
the fuei surcharge; right? A. Ultiiiiateiy, yes."), which, Dr. Rausser explains, "vvould have been

extremely compiex, highly costly and effectively unrnanageable." lst Rausser Rep. at 52 n.l 18.

77

Because the aileged antitrust violation involves only a component of the total
price, at trial plaintiffs will be required to prove in fact (l) that they paid a tiiel surcharge because
of the aileged conspiracy and (2) that, as a result, they paid more for shipping than they otherwise
would have paid. And in order to prevail at the class certification stage, plaintiffs now niust
show by a preponderance of the evidence that common proof can be used to answer the questions
(l) whether class inernbers paid a fuel surcharge because of the alieged conspiracy; and, if so,

{2) whether payment of that fuel surcharge caused class members to pay more for shipping than
they otherwise would have paid.

Plaintiffs contend that they have met their burden. They assert that they will
prove injury-in-fact at trial with public information, defendants’ own documents, and witness
testimony, all of which will be common to the class. _S;e_e Class Mem. at 7'0-'5"1. Plaintiffs further
assert that Dr. Rausser’s expert report confirms through economic regression analysis that
injury~in-fact is capable of common proof at trial. §g§ _i_d_. at 7 l-75.

Defendants and Dr. Willig disagree that common evidence can be used to
establish injury-in-fact at trial. §ee Class Opp. at 28-56. As for Dr. Rausser’s economic
regressions, defendants and Dr. Willig argue that Dr. Rausser’s analysis is "t`atally flawed.” §
at 50. Defendants do not “quibble with the notion . . . that regression analysis can in many cases
provide a basis for certifying a class." Oct. 7 Tr. at 263. But defendants maintain that Dr.
Rausser’s regressions and analysis suffer front methodological failures that render his
conclusions unreliable, _s¢_:_e Class Opp. at 62-72, ultimately invalidating his report altogether. Q.

at 72.

78

'l`he Court concludes that plaintiffs have satisfied their burden at this stage. lt
finds by a preponderance of the evidence that injury-in-fact is capable of proof at trial through

evidence that is common to the class rather than individual to its members.

i. Payment of an allegedly conspiratorial fuel surcharge

Defendants argue that individualized analysis is required to determine whether
class members would have paid a fuel surcharge but for the conspiracy. §§ Class Opp. at 28.

As defendants see it, plaintiffs have failed to offer any methodology by which they can show with
coinmon proof that class members would not have paid a fuel surcharge in the but-for world w
that is, the non-conspiratorial world. _S_e§ §

First, defendants assert that they had considerable ability and incentive to adopt
fuel surcharges entirely independent of any conspiracy. _S§g Class Opp. at 30. In support of this
claim, defendants point to the purported trend toward increased use of fuel surcharges before the
alleged conspiracy, and then contend that it is implausible that this trend would have stopped in
the but-for world. _S_ee_ _i_d_. at 30-31. Specii`ically, defendants assert that fuel surcharges were
"widely used" before the start of the conspiracy, with nearly 60 percent of shippers paying a
rate-based fuel surcharge as of June 2003, i_d. at 31 (citing Willig Report ‘|| 77); that there was "a
strong trend toward increasing use of fuel surcharges before the start of the alleged conspiracy,"
_i_r_i_. at 32, and that it is "iinplausible to suggest that this trend would have come to a screeching
halt in mid-2003," i_d. at 33; and that the use of fuel surcharges did not accelerate after the start of
the alleged conspiracy -»- "on the contrary . . . , the growth rate actually slowed after July 2003

for every defendant." §. at 34 (emphasis in original).

79

Dr. Willig points out that there are legitiniate economic rationales for the use of

l fuel surcharges because they can enhance economic efficiency §__e_g Willig Report 111 65-68. As

Dr. Willig explains:

The use of FSCs in many industries expanded in the early 2000s in

response to increases in both the levels and the volatility of fuel

prices, Over the alleged conspiracy period, fuel costs became an

increasingly large component of rail costs. . . .

FSCs were adopted in the rail industry due in part to dissatisfaction

with the RCAF index, which lags behind changes in fuel prices,

resulting in delays in cost recovery when fuel prices are rising.
Willig Report {l$l 65-66. 'l`hus, in view of the purported evidence showing a trend toward the
increasing use of fuel surcharges and the legitimate rationales for their use, defendants conclude
that there is no basis upon which the Court can conclude "that all or most of the members of the
purported class would not have paid fuel surcharges absent the alleged conspiracy." i_d_. at 35.

Second, defendants argue that plaintiffs face an even higher hurdle for a large
group of shippers in plaintiffs’ putative class, 55 to 68 percent of the class, that were already
paying fuel surcharges before July 2003 _ a group referred to by the parties as legacy shippers.
§e_e_ Class Opp. at 35. As defendants note, plaintiffs have excluded some legacy shippers from
the class definition. §_e_e i_d. Spccifically, plaintiffs have excluded from their putative class those
shippers that paid a fuel surcharge during the conspiracy period "solely pursuant to a
railroad-sliipper contract that was (i) entered into before July l, 2003, and (ii) provided for a
stand-alone Fuel Surcharge to be paid under a predetermined formula specifically set forth in the

contract." Class Mot. at l. if however, a legacy shipper entered into a new contract during the

class period that included a fuel surcharge, that shipper then is included in plaintiffs’ class

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because it would not have paid a fuel surcharge "solely pursuant to a railroad-shipper contract
that was . . . entered into before July 1, 2003[.]" Class Mot. at l (emphasis added); §§ Class
Opp. at 35-36. And defendants contend that this "narrow legacy exclusion," Class Opp. at 35,
presents a significant causation problem illustrated by the following example:

Consider a shipper that entered into a contract running from

january 2002 through December 2003 that contained a fuel

surcharge. if such a shipper entered into a new contract in Januaiy

2004 that also contained a fuel surcharge, it would fall within

Plaintiffs’ class definition because the fuel surcharge was not

"solely" in the pre-conspiracy contract. But, proof of causation for

such a shipper is problematic at best. The fact that the shipper had

a fuel surcharge when Defendants were concededly acting

independently makes it extremely likely that a fuel surcharge

would have been included in its january 2004 contract, regardless

of any alleged conspiracy to expand fuel surcharge coverage.

Certainly one cannot presume that all such shippers would have
avoided fuel surcharges thereafter.

_ld. at 36.

Third, defendants argue that any attempt to distinguish class members that had a
fuel surcharge only because of the alleged conspiracy from those that would have been subject to
one anyway necessarily would require individualized analysis. _Sie Class Opp. at 36-39.
According to defendants, many factors influence not only whether a customer would pay a fuel
surcharge in the but-for world but also the level of that surcharge. lll. at 37. Defendants contend
that these factors include: customers served by only one railroad (captive shippers); customer
history of purchasing rail freight; existence of capacity constraints; customers whose primary
freight alternative was truck; and customer receptivity to fuel surcharges. _S_e_e id at 37-39.
Defendants contend that these factors show that individualized analysis is required to determine

injuiy-in-fact at trial. gap i_d. at 36-37.

81

Plaintiffs disagree with defendants and make three principal points in response.
First, plaintiffs argue that defendants have incorrectly lumped fuel surcharges before the
conspiracy with the unifonn, standardized, and supra-competitive fuel surcharges imposed during
the conspiracy. According to plaintiffs, the fuel surcharges imposed during the conspiracy period
were "different both in design and application from those that caine before." Class Reply at 7.
Second, plaintiffs argue that evidence common to the class contradicts defendants’ claim that the
same fuel surcharges imposed during the conspiracy would have been imposed in the but-for
world. And third, relying on the economic regression analysis conducted by Dr. Rausser,
plaintiffs contend that evidence common to the class refutes defendants’ claim that any
individualized factors predoniinate. § Class Reply at 6-l6.

As for plaintiffs’ first point, they contend that "[in]ost of defendants’ arguments
and Dr. Willig’s analysis are built on a faulty assumption: that the FSCs used by Defendants
before and during the conspiracy were the same." Class Reply at '7. Plaintiffs assert, however,
that the allegedly conspiratorial fuel surcharges put in place in the spring of 2003 were

different both in design and application from those that came

before. . . . [T]hese new FSCs (i) got Defendants in lockstep in

calculating the percentage based on fuel indexes; (ii) used a trigger

equal to about 823 per barrel, rather than the higher 828 per barrel

(or higher) that several Defendants had previously used; and

(iii) adjusted the FSC based on the 30-day average fuel price, rather

than, as in several Defendants’ earlier programs, only when the

trigger was exceeded for 30 (or more) consecutive days.

Class Reply at 7. For this argument, plaintiffs rely on the testimony of defendants’ own

employees who repeatedly have admitted in depositions that the new fuel surcharges imposed

during the class period were "not the same as, were more aggressive than, and definitely yielded

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more revenue" than fuel surcharge programs applied before the alleged conspiracy l_d. at 7
& n.l6 (quotations oinitted). Moreover, plaintiffs say that these new, standardized, more
aggressive fuel surcharges were uniformly applied, with the express goal of 100 percent
coverage. _l_d_. at l; § id_. at 9-l0. ln contrast, fuel surcharge programs applied before the
conspiracy in some contracts were only "theoretically billable, in that they often were not
triggered or applied, and when they were, they were small." _l_d_. at 8 (quotations oinitted).
Regarding their second point, plaintiffs dispute defendants’ view of the but-for
world, arguing that it fails to acknowledge actual facts, established with evidence common to the
class, that defendants needed to conspire to surmount obstacles to widespread application of
uncoordinated fuel surcharges. As plaintiffs see it, before the conspiracy, defendants were
frustrated by the structural decline in rail freight rates and their inability to raise prices due to
"destructive pricing for rail share." Class Reply at 10 (quotations omitted). According to
plaintiffs, defendants were unable to use fuel surcharges as an effective revenue generator
because of competition ainong the defendants, customer resistance, and the frequent use of the
RCAF index. I_d. Consequently, plaintiffs argue that defendants’ experience with “theoretical
and insignificant FSCs before the Class Period cannot be extrapolated to the Class Period
beoause, among other reasons, increased customer resistance would be expected as the FSCs
were triggered with rising fuel prices, and as Defendants sought to lower the trigger thresholds
and implement more aggressive FSC programs." Class Reply at ll-l2 (quotations oniitted).
Regarding their third point, plaintiffs contend that Dr. Rausser’s regressions -~
now based on an analysis of l00 percent of defendants’ transaction data, sic 2d Rausser Report

at l2; Class Reply at 38 ~ refute defendants’ and Dr. Willig’s assertion that individualized

83

factors predominate. § Class Reply at 12. According to plaintiffs, Dr. Rausser has used
economic analysis to show that workable formulas, common to the putative class, are available to
"prove the conspiracy’s impact on the class - a ‘structural break in the relationship between fuel
prices and freight rates,’ a surge in rates attributable to the conspiracy, and significant
overcharges in comparison to prices that would have prevailed absent the conspiracy[.]" Q. at l
(quoting lst Rausser Report at 120, 122-23).

As plaintiffs describe it, Dr. Rausser’s analysis confirms that overall freight prices
are based on seven factors that arc common to all shipments, including, among other factors,
shipment weight, distance, route, and commodity type; and that these seven factors can be
measured using defendants’ transaction data and can be used in a common analysis to identify
and quantify the injury experienced by the class. lst Rausser Report at '7. Dr. Rausser’s
regression analysis takes into account the factors that influenced defendants’ prices during the
class period compared with benchmark prices during the three preceding years - a time period
in which Dr. Rausser concludes that defendants "acted as an interdependent oligopoly unaffected
by the type of collusion that determined prices during the Class Period." lst Rausser Report
at l l3. Upon an analysis of defendants’ transaction data, Dr. Rausser identified a "structural
break in the relationship between freight rates and fuel prices around 2003, which is consistent
with a conspiracy using Fuel Surcharges to raise freight rates.” 2d Rausser Report at 92. In other
words, Dr. Rausser’s analysis shows that, before the alleged conspiracy, “there was a relationship
between fuel costs and overall prices that was dramatically changed once the [alleged] conspiracy
went into effect." Oct. 6 Tr. at 139; §_r:_e i_d. (stating that, before the alleged conspiracy, "if fuel

prices went up by a certain amount, it would have a certain effect . . . on rail freight prices

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overall; and after the [alleged] conspiracy, if fuel prices went up, it had a much bigger effect on
the overall price"). Plaintiffs therefore contend that Dr. Rausser’s analysis shows that members
of the class paid artificially higher prices as a result of the conspiracy and were injured-in-fact by
the antitrust violation. §e_e_ Class Mem. at 47.

The Court agrees with plaintiffs and finds that they have shown by a
preponderance of the evidence that common evidence can be used at trial to answer the question
whether class members paid the allegedly conspiratorial fuel surcharges because of the alleged
conspiracy:

l. Fuel surcharges during the class period - aggressive storidar'dized,
and aniform. The Court is unpersuaded by defendants’ and Dr. Willig’s atteinpt to link fuel
surcharges that were in place before the alleged conspiracy to those applied during the alleged
conspiracy. Defendants place significant weight on their conclusion that their transaction data
show that "alinost 60% of Defendants’ customers, including all eight of the named Plaintiffs,
paid rate-based fuel surcharges before the conspiracy began." Class Opp. at 2 (emphasis in
original). And, according to defendants, Dr. Rausser’s admission during his deposition that he
would have expected each defendant to impose fuel surcharges as broadly as possible even
absent the conspiracy is particularly dairining. § § (citing lst Rausser Dep. at 281). But as
plaintiffs and their expert iiial<.e clear, their antitrust claim in this case is not a conspiracy to
impose just atty fuel surcharge; rather, plaintiffs claim that defendants agreed to increase total
prices "by widespread application and enforcement of coordinated, and aggressive, fuel
surcharges.” Pls. Wal-Mart Reply Brief at 7 n.l l; ge_g §._lgq lst Rausser Dep. at 94; 2d Rausser

Dep. ar 119»21.

85

The Court finds by a preponderance of the evidence that the fuel surcharge
programs applied before the class period were nothing like the widespread and uniform
application of standardized fuel surcharges during the class period, Before the alleged
conspiracy, defendants’ differentiated fuel surcharges were subject to competition and
negotiation with shippers, were less aggressive, and were applied only sporadically.
Furthennore, these pre-class period fuel surcharges were only "theoi'etically billable."

l-lD Ex. 65, Glennon Dep. at 26 (manager of NS pricing systems (now retired) acknowledging
that before the class period "the fuel surcharge was theoretically billable, so l would say that . . .
customers might not resist it as rnuch"). That is, these pre-class period fuel surcharges often
were not triggered or applied, and when they were they were small. §”e__e I-lD Ex. 66, Young Dep.
at 24-25 (UP chief executive officer stating that before the class period "[w]e had fuel surge (sic)
programs in many contracts, but because fuel had not run up, they were never impleinented"); i_d_.
at 28 (agreeing that fuel surcharges triggered "during the 2000 through 2002 time period never
reached significant percentage levels"); llD Ex. 70, Knight Dep. at 24 (UP chief financial officer
stating that during the 2000 through 2002 time period UP did not have a company-wide policy on
fuel surcharges: "[t]here were some isolated situations where there were sui'charges, but . . . no
policy position"); HD Ex. 68, Lanigan Dep. at 27 (BNSF executive vice president and chief
marketing officer stating that BNSF’S fuel surcharge participation rates in january 2003 were
"low," in the "25 to 30 percent rage"); HD Ex. 69, Gooden Dep. at l0l (CSX executive vice
president of sales and marketing agreeing that the "fuel surcharge revenue [CSX] was generating

prior to adoption of this new program in March of 2003" was "[l]ow ~ relatively low to where it

86

needed to be"); HD Ex. 'i'l, McNulty Dep. at ll8-l9 (CSX director of marketing, agricultural
products discussing "fairly minimal" fuel surchargers in 200l and 2002).

The fuel surcharges that defendants put in place in the spring of 2003 were of a
different breed. §__§c_:_ Class Reply at 7 (fuel surcharges were different "both in design and
application from those that came before"). The evidence shows that defendants employed these
fuel surcharges in lockstep, lowered the trigger price for the imposition of the fuel surcharge, and
adjusted the fuel surcharge based on the 30-day average fuel price rather than only when the
trigger was exceeded for 30 (or more) consecutive days. § lst Rausser Report at 54-60.
Defendants’ own executives admitted that the new fuel surcharge programs applied by the
defendants during the class period were different - that is, they were more aggressive and
yielded more revenue than earlier programs for exainple, UP’s chief executive officer, james
Young, testified that compared to the pre-2003 time period,

the impact of fuel surcharges on customers . . . was greater in ’03,

it was greater in ’04, it was greater in ’05 because, again, the

percent of recovery. And in negotiating contracts, [UP was] able to

get a fuel surcharge included in those contracts so you were having

a - having a greater recovery each year.

HD Ex. 66, Young Dep. at 57'. Patrick Glennon, a manager of pricing systems for NS (now
retired), testified that the new fuel surcharge program was "not the same" as before, HD Ex. 65,
Glennon Dep. at 67, admitting that it "definitely was more aggressive,” and "definitely yielded
more revenue." ld_. at 42; §e§ jc_l. at 6'§'. Indecd, as Mr. Glennon described the new program in an
internal NS e-inail: "By dropping the base to $23 per barrel, raising the percentage yield and
taking it sooner, the change is in fact a blatant general rate increase[.}" HD Ex. 30, E-mail from

P. Glennon, at NS_0l0004522, Apr. 29, 2003. internal CSX e-rnails siiiiilarly stated that

87

although the new fuel surcharge program may "seein[] somewhat benevolent, it is actually a large
increase in fuel surcharge billings -~ maybe as much as 100%.” RD Ex. 23, E-mail from
J. Couch, at CSX000326, l\/Iar. 19, 2003.

Not only were defendants’ class period iiiel surcharges more aggressive than
before, but they also were standardized and uniformly applied across all or virtually all shippers
-- regardless of whether such shippers were legacy or captive shippers. BNSF’s chief financial
officer testified before the STB in 2006 that "[o]ur surcharge program is the same for all
customers[.]" HD Ex. 9, 'I`estimony of Tom Hunt, at 272, May ll, 2006. UP told a major
customer,  , in 2005 that it was "unifonnly requiring" its “standard
fuel surcharge program . . . of all of [its] customers." HD Ex. 149, Letter from .l. Koraleski,
at UPFSC 0342883, Apr. 22, 2005.

Defendants and Dr. Willig, relying heavily on 21 declarations submitted by
railroad executives, contend that the evidence of aggressive, uniform, and standardized fuel

surcharges is not reflective of reality. § Class Opp. at 21-22, 56-58; Willig Report at 54-55."‘

"‘ The 21 declarations submitted by defendants are listed below in alphabetical
order: Declaration of Charles M. Adams, UP ("Adains Decl."), June l8, 2010; Declaration of
l_\/larc Allen, BNSF (“Allen Decl."), June 24, 20l0; Declaration of Jim Bolander, NS ("Bolander
Decl."), June 28, 2010; Declaration of Donna Cerwonka, CSX ("Cerwonka Decl."), June 22,
2010; Declaratioii of George T. Duggan, BNSF ("Duggan Decl."), June 29, 2010; Declaration of
David Garin, BNSF ("Garin Decl."), June 24, 2010; Declaration of Thomas R. Gehl, UP ("Gehl
Decl."), June l'l, 2010; Declaration of Thomas .l. lacobowski, BNSF ("Jacobowski Decl."), lune
23, 2010; Declaration of Christopher Jenkins, CSX ("Jenkins Decl."), June 28, 2010; Declaration
of Richard Kiley, NS ("Kiley Decl."), June 28, 2010; Declaration of .lohn Kraeiner, NS
("Ki'aeiner Decl."), June 23, 2010; Declaration of Julie A. Krehbiel, UP ("Krehbiel Decl."}, June
15, 2010; Declaration of David T. Lawson, NS ("Lawson Decl."), June 25, 2010; Declaration of
Ronald Listwak, NS ("l,istwak Decl."), June 28, 2010; Declaration of Scott D. McGregor, NS
(“McGregor Decl."), June 23, 2010; Declaration of "fini McNulty, CSX ("l\/lcl\iulty Decl."), June
28, 2010; Declaration of Joseph Osboi'ne, NS ("Osborne Decl."), June 28, 2010; Declaration of
Dean Piacente, CSX ("Piacente Decl."), June 22, 2010; Declaration of Richard A. Pagan, UP
("Pagan Decl."), June 16, 2010; Declaration of James R. Schaaf, NS ("Schaaf Decl."), June 23,
2010; Declaration of Andr'ew Strok, CSX ("Strok Decl."), June 21, 20l0.

88

According to defendants, their fuel surcharge programs during the class period "varied widely
from railroad to railroad as well as by shipper and commodity." Class Opp. at 21, 56-58.
Defendants say that

[i]t is an indisputable fact that the Defendants used dozens of fuei

surcharges during the Class Period. NS alone applied fifty distinct

fuel surcharge formulas during the Class Period, Lawson Decl.

11 14, UP had 90 different fuel surcharges between 2000 and 2008,

Adanis Decl. il 3, and BNSF had a total of 152 in effect at some

point between 2000 and 2007. Jacobowski Decl. ‘[l 6.

Class Opp. at 56. Defendants also argue that they had different fuel surcharges for intermodal
traffic, id at 21 _ that is, traffic that involves "goods shipped in containers or trailers on rail flat
cars as part of a continuous rnovernent with another mode of transport, such as truck or
steamship." Class Opp. at 14 n.l8.'5 fn view of these proffered facts, defendants argue that there
is no uniform or standard class-wide fuel surcharge that could be used to demonstrate a common
impact. §§e i_d. at 56.

The Court finds the railroad executives’ declarations unpersuasive Indeed, the
most damning portions of almost every single declaration on which defendants rely are
contradicted by the declarant’s subsequent deposition testiinony. By way of example, relying on
the declaration of Thomas J. Jacobowski, the general director of price management in BNSF’s

industrial products marketing department, defendants say that BNSF "had a total of 152 [fuel

surcharge fonnulas] in effect at some point between 2000 and 2007." Class Opp. at 56 (citing

15 There are two basic types of rail traffic: intermodal traffic; and carload traffic.

_Sg§; Class Opp. at 14 n.I 8; Oct. 7 Tr. at 207. As defendants define it, intermodal traffic
"proceeds both by rail and by some other mode." Oct. 7 Tr. at 207; §jqq Class Opp. at 14 n. 18.
"All other rail traffic is known as ‘carload’ traffic," Class Opp. at 14 n.l8, which consists of, for
example, "a container that has chemicals in it or that has coal, or it’s a designated kind of rail
vessel designed to hold the specific kind of traffic." Oct. 7 Tr. at 207-08.

89

.lacobowski Decl. ‘|| 6). But when this assertion was tested during his deposition, Mr. Jacobowsl2007 WL 201205, at *l.

Dr. Willig also maintains that the standardization and mechanical application of
fuel surcharges to base rates makes them an efficient tool for increasing freight rates across
shippers without having to renegotiate individual contracts. § Willig Report at 35-36. Dr.
Rausser agrees, but persuasively argues that "it is precisely this fact that makes the Fuel
Surcharges an efficient mechanism for price-tixing, raising total freight rates and thus the
Defendants’ profits." 2d Rausser Report at 30. lndeed, as the STB noted: "A fuei surcharge
program keyed to the base rate has one primary benefit - ease of application." Rail Fuei
Surcharges, 2007 WL 201205, at *6. But such a program - that is, one "that increases all rates
by a set percentage" ~M "stands virtually no prospect of reflecting the actual increase in fuel costs
for handling the particular traffic to which the surcharge is applied." _l_d_. at *4; ge gl_so_ lst
Rausser Report at 50 ("{A]dding a percentage fuel surcharge on top of line-haul rates or base
rates is by its very nature a general price increase.").

Captive shippers. Defendants’ and Dr. Willig’s argument regarding captive
shippers and injuiy-in~fact is essentially identical to the one made during oral argument regarding
antitrust injury. §ee §§ at 65~66, 71-72. Defendants say that customers served by only one

railroad m referred to by the parties as either "captive" or "sole served" shippers - "inight have

” As for use of the RCAF~A mechanism of recovery, BNSF price and fuel
escalation guidelines stated: "RCAF-A is absolutely unacceptable." RD Exf 223, BNSF Price
and Fuel Escalation General Guidelines, at BNSF-040422l, Jan. 2004.

97

difficulty avoiding a fuel surcharge, even absent a conspiracy." Class Opp. at 37."‘ Moreover, as
defendants contend, such shippers "do not benefit from rail competition in the first place" and
therefore "cannot be injured by an alleged conspiracy among railroads." Defs. Supp. Brief at

18 11.10. Thus, defendants argue that the alleged conspiracy on fuel surcharges would not be
expected to injure such captive shippers, Class Opp. at 37, and that such shippers m- of which
they are "many . . . , although the number cannot be determined with precision," Willig Report

at 75 a can be identified only with individualized inquiry. _S__qe Willig Report 1[1[ 139-43. And
so defendants argue that the existence of such shippers in plaintiffs’ putative class precludes a
finding of predominance.

The Court disagrees with defendants As the Court already has concluded,
plaintiffs have shown that captive shippers are subject to competitive forces; that defendants’
executives expressly have denied that they would have tried to impose more aggressive programs
on captive shippers than they were able to impose on non-captive shippers; and that defendants
uniformly imposed their standard fuel surcharges during the class period without regard for
whether the shipper was captive or had access to alternative modes of transportation §§ §Mu~p»rg
at ?2-?4; §§ _c;g;, HD Ex. 79, Garin Dep. at 111-14, 117-18, 120»21, 126-29; HD Ex. 77,
i_,istwak Dep. at '74~76, 93~101; §e_e gjsg HD Ex. 153, Draper Dep. at 322 (agreeing that UP
"adopted a standard surcharge program that it intended to be coinmon across its customers," and

explaining that "the difficulty of doing it -on a customer~by-custorner basis is one of the reasons it

’8 As defendants explain, the term "captive" is used in two different Ways: "ln some
cases, it is applied to a shipper that is served by only one railroad although that shipper has viable
transportation options available through trucks and/or barges. Other tirnes, it is applied to a
shipper that claims that it has no viable transport aiternatives to the raiiroad that serves it." Defs.
Supp. Briefat 18 n.l0.

98

was done on a global basis"). Plaintiffs have shown by a preponderance of the evidence that
defendants applied the allegedly conspiratorial fuel surcharges without discrimination. Thus, the
captive-shipper factor does not preclude a finding that injury-in-fact is capable of common proof
at trial.

Cuslonter history ofpur'chosz'ng rac'lfrelz`ght; existence ofcapacity corrstrairzts;
customers whose prz'rna)jyj”rreigfrt alternative was lruclc. Defendants argue that roughly one~third
of the shippers in the putative class first purchased rail freight after July 2003, and these shippers
therefore "have no pre-conspiracy history on which to assess their likelihood of paying fuel
surcharges absent collusion." Class Opp. at 38. Other shippers "have a long~standing history of
rail freight purchases from Defendants, which could inform what the negotiation would have
looked like, and whether it would have resulted in an assessment of a fuel surcharge, absent the
conspiracy." Q. Defendants contend that these varying histories require individualized analysis
that preclude a finding of predominance.

Next, defendants argue that certain shippers faced capacity constraints, and such
shippers would be more likely to pay a fuel surcharge in the but-for world, even with rail-to-rail
coinpetition. §ge Class Opp. at 38. And defendants then point to customers whose primary
freight alternative was tiuck. §e_§ id According to defendants, these customers "would be likely
to accept a rail fuel surcharge because trucking companies charged a fuel surcharges." Q. As
defendants see it, "[c]ustomers already paying fuel surcharges to competing transportation
alternatives would be unlikely to reject the idea of fuel surcharges by railroads." I_d.

The Court disagrees with defendants that any of these factors preclude a finding

that injury~iri-fact can be established at trial with common evidence. Evidence common to the

99

class shows that defendants intended to apply the new standard fuel surcharges to all of their
freight shipments - regardless of prior freight purchasing history or any other factor. To prevail
on the merits of their claim at trial, plaintiffs "need not exhaust all possible alternative sources of
injury in fulfilling [their] burden of proving compensable injury under" the antitrust laws, §e_n@
Radio Corp. v. Hazeltine Research, lnc., 395 U.S. at 114 n.9. Rather, they must show only that
the antitrust violation was a "material cause of the injury[.]" E. And at the class certification
stage, plaintiffs must show by a preponderance of the evidence that this is capable of common
proof They have satisfied their burden at this stage: plaintiffs have established by a
preponderance of the evidence that each defendant enforced policies ensuring across-the~board,
uniform application of their new fuel surcharge program,

Custorrzer receptivity lofuel surcharges. Defendants argue that some shippers
were "more amenable to fuel surcharges, and thus would have been more likely to agree to a fuel
surcharge even with competition among railroads." Class Opp. at 39. Defendants point out that
several sophisticated clients ~“~»  
~»- themselves proposed to pay a rate-based fuel surcharge. §p_e i_d. According to defendants,
_, for example, “proposed a rate~based fuel surcharge when its UP contract first came
up for renewal after July 2003." _ld_. - "volunteered to pay BNSF and NS a fuel surcharge
even though its contracts with those carriers did not require it." i_d_. - "acknowledged the
need for a fuel surcharge in its contracts with CSX[] because of the volatility of fuel prices." _I_c_l.
 , both BNSF customers, "were willing to pay a fuel surcharge
so long as their own formulas were used." E. According to defendants, these examples provide

further support for their claim that individualized analysis is necessary in order to determine what

l00

caused shippers to pay a fuel surcharge and whether they would have paid a fuel surcharge in the
but-for world. § §

The Court disagrees with defendants That some shippers may have been willing
to pay a fuel surcharge is not surprising lndeed, the STB noted in its 2007 decision that several
railroads had introduced evidence that "n'rany of their customers favor the continued use of a fuel
surcharge program that is tied to the base rate." Rail Fuel Surcharges, 2007 WL 201205, at *6
n.34. As the STB stated: "Given that such a program shifts greater responsibility for fuel
recovery to shippers with higher rates, it is not surprising that a subset of customers (presuinably
those with lower base rates) favor retaining a percentage-0f-the-base~rate approach." l”d,. But the
claim in this case is not a conspiracy to impose just any fuel surcharge; rather, plaintiffs claim
that defendant conspired to increase total prices "by widespread application and enforcement of
coora'inatea', and aggressive fuel surcharges." Pls. Wal-Mar'l; Reply Brief at 7 n. ll (emphasis
added); §§ a_tls_g lst Rausser Dep. at 94-95. 'l`hus, defendants’ assertion that, for example,
  were "willing to pay a fuel surcharge so long as their own
fornzulas were used," Class Opp. at 39 (emphasis added), does not discredit plaintiffs’ conclusion
that injury-in-fact from widespread, aggressive, standardized, and uniform fuel surcharges is

capable of common proof at trial.

ii. Component of the total price of shipping
A fuel surcharge is an add-on to the base rate for freight transportation The total

rail freight price for a shipping customer w the all-in rate -- consists of the base rate and any

l0l

percentage fuel surcharge applied to the base rate. Willig Report ll 18; g_e_§ Class Opp. at 3;
lst Rausser Report at 62. The base rate

includes fixed cost (or overhead) elements, such as the cost of

organizing a particular shipment[,] . . . . the large fixed costs of
building and maintaining track, bridges, and other structures to
achieve long-run sustainability[,] . . . . [and] the railroad’s markup

of price over costs, i.e., the profitability element of pricing
lst Rausser Report at 62. As discussed, plaintiffs do not allege that defendants conspired to fix
each base rate separately. §e§ lst Rausser Dep. at 98; _se_c_e ja_l§_q lst Rausser Report at 52 n. 1 18.
Rather, plaintiffs allege that defendants imposed "an across-the-board artificially high and
uniform fuel surcharge" as a percentage multiplier of the base rate, thereby permitting defendants
"to raise total freight prices widely by a given percentage."  , 587 F. Supp. 2d at 30;
§ g lst Rausser Report at 50 ("{A]dding a percentage fuel surcharge on top of line-haul rates
or base rates is by its very nature a general price increase."); 2d Am. Compl. ‘|l 13.

Defendants argue that since plaintiffs’ conspiracy claim is based on a component
of the overall price of shipping, "[pjayrirent of a collusively-imposed fuel surcharge . . . can
injure a shipper only if it caused the overall rate to be inflated above the competitive level."
Class Opp. at 41. And "[g]iven that the alleged conspiracy was directed only at a portion of the
total price," defendants argue that "any class niember that obtained anything of value in exchange
for accepting a fuel surcharge may not have suffered impact from the alleged conspiracy." _I_d_.
As defendants describe it,

[i]n view of evidence that some (but not all) shippers made

trade~offs for fuel surcharges, the task of determining which class

members were injured (because their fuel surcharge was added to

the rate with no corresponding reduction in price of other railroad
concession) and which were not injured (because they were able to

102

negotiate a price reduction or other service component that the

shipper valued, requires an individualized analysis of hundreds or

even thousands of railroad-shipper contract negotiations
;q. at 41-42_

Defendants maintain that cases in which a conspiracy claim is based only on a
component of the overall price "face a serious problem on class certification” because “[ijt is
nearly impossible to deterrnine, using conimon class-wide proof, whether the alleged
conspirators never reduced (or failed to raise) other elements of the price and thereby competed
on an overall price basis." Class Opp. at 43 (citing Exhaust Unlirnited, Inc. v. Cintas Corp.,
223 F.R.D. 506, 513 (S.D. Ill. 2004); Schoenbaum v. E.I. DuPont de Nemours & Co., Civil
Action No. 05-1108, 2009 U.S. Dist. LEXIS 114080, at *35 (E.D. Mo. Dec. 8, 2009); American
Seed Co. v. Monsanto Co., 238 F.R.D. 394, 401 (D. Del. 2006), gff_’d, 2008 U.S. App. I_,EXIS
6963 (3d Cir. Apr. l, 2008)). And defendants contend that this case is similar to Robinson v.

Texas Auto Dealers Ass’n, 387 F.Bd 416 (5th Cir. 2004), in which the Fifth Circuit reversed

certification of a class of automobile purchasers who challenged an agreement among auto

dealers on how they would list an automobile tax, referred to as a Vehicle inventory Tax ("VIT").

§§ Class Opp. at 44.

The Fifth Circuit in Robinson rejected the plaintiffs’ assumption that the tax was
simply added to the purchase price "for every consumer in the class," concluding:

Such an assumption defies the realities of the haggling that ensues
in the American market when one buys a vehicle. Although some
purchasers certainly negotiate a price that excludes taxes, titles, and
fees, others negotiate with an eye toward the "bottom line."
Bottorn-line purchasers base their negotiations on the final
purchase price, including every tax, fee, and surcharge.

l03

Robinson v. Texas Auto Dealers Ass’n, 387 F.3d at 423 (emphasis in original). 'l`hus, the Fifth

Circuit concluded that

[t]o determine whether a purchaser negotiated in a top-line or

bottom-line fashion, a court would have to hear evidence regarding

each purported class member and his iransacii`orr. Such an

individual examination would destroy any alleged predominance

present in the proposed class. The offered evidence plainly shows

that the class members’ individual negotiation styles prevent the

plaintiffs from arguing that all members of the class suffered an

antitrust injury just by paying a Vl"i`.

§ at 424 (emphasis in original). Defendants contend that, if anything, this case is even less
suited for class certification than Robinson because the automobile tax there never varied,
whereas, here "the actual fuel surcharge assessed can and does vary from shipper to shipper -
adding another variable to the negotiation over total prices." Class Opp. at 44.

Defendants also assert that the evidence in the recor'd, similar to the circumstances
in Robinson, shows that many of defendants’ customers negotiate toward the bottom line and
frequently trade fuel surcharges for rate reductions or other benefits §_e§ Class Opp. at 45. As
defendants describe it, "[t]here is overwhelming evidence that many of the sophisticated shippers
constituting a substantial portion of Defendants’ customer base focus on the overall price/service
package and frequently negotiate trade-offs between base rates, fuel surcharges and many other
terms of service." lgl. And relying on the declarations of various railroad executives, defendants
say that they have provided "nuinerous examples of major customers that negotiated items of

value to them as part of their contracts that also included their agreement to pay fuel

surcharges[.]" E. Thus, given the highly individualized nature of rail freight pricing, defendants

l04

contend that plaintiffs cannot establish with con'imon evidence that class inernbers paid more for
shipping as a result of paying the allegedly conspiratorial fuel surcharge

On this point, Dr. Willig has the same view. As he explains, rail contracts are
inultidiinensional, involving a wide variety of complex contractual provisions, and a shipper’s
evaluation of a contract "depends on the full package of contract tenns{.]" Willig Report 11 1 16.
Dr. Willig examines defendants’ transaction data and relies on defendants’ declarations to
conclude that the introduction of fuel surcharges into rail contacts during the class period "often”
resulted in concessions on other contract terrns. id if 122; § §. 11 123.

Plaintiffs do not appear to disagree with the general proposition that evidence of
discounting ~» for exarnple, reductions in a base rate - is relevant in assessing whether class
certification is appropriate Dr. Rausser himself has acknowledged that if shippers received
concessions in the form of base rate discounts in exchange for the application of a fuel surcharge,
then the impact for those shippers "wouldn’t have been common to those" who did not receive
such discounts. lst Rausser Dep. at 272; _s__@ gl_sg i_d at 270. Plaintiffs argue, however, that the
depositions of defendants’ declarants, on whom defendants primarily rely for their purported
evidence of discounting, have exposed that the declarations are both unreliable and inconsistent
with later deposition testirnony. § Class Reply at l7. According to plaintiffs, although
defendants claim that customers traded fuel surcharges for trade reductions, the depositions
establish that most reductions were in fact reduced t'ncreases, and even those such situations
were rare. _S__e_e _id. at 20.

As for Dr. Rausser, he acknowledges that defendants’ transaction data show that a

nominal amount of discounting occurred, §_e_e_ 2d Rausser Dep. at 21 l (describing "very little

105

deviations or anomalies"), but contends that there is no evidence of systematic discounting of
base rates to offset increases §__e_e 2d Rausser Report at 91 ("There is no evidence of a systematic
pattern of discounting base rates or providing other concessions in order to offset Fuel
Surcharges[.]"); Class Reply at 14. As Dr. Rausser sees it, "there is no real-world evidence of
widespread discounting of base rates, nor is there any established causal link between the isolated
instances of declining base rates and the imposition of Fuel Surcharges." 2d Rausser Report

at 66.

The Court agrees with plaintiffs that defendants’ executives’ declarations are
unpersuasive and inconsistent with their later deposition testimony. Furthennore, the Court finds
by a preponderance of the evidence that any examples of discounting are, at best, anomalies that
do not preclude a finding ofpredoininance. Finally, the Court concludes that the Fifth Circuit’s
decision in Robinson is inapposite to this case.

I. Defendants ’ declar‘az't'orts. Defendants and Dr. Willig rely heavily on the 21
declarations submitted by defendants’ executives purporting to show that many of defendants’
customers traded fuel surcharges for rate reductions Defendants point to eight such examples in
their opposition papers, g Class Opp. at 45-46, and then state that they "are not trivial
exceptions to a rule,” but rather "represent large revenues" and "retlect the diversity of outcomes
among negotiated contracts." id_. lf defendants’ declarations provide examples of anything, it is
the paucity of any evidence of discounting

Relying on the declaration of George "i`. Duggan, a vice president at BNSF,

defendants state  

106

  Cleee Opp-

at 45 (citing Duggan Decl. 11 l6). But during his deposition, Mr. Duggan testified that 1
  I~ilD Ex. 81, Duggan Dep. at 26-27
(elttr>heeie edded)-  

 
  Thie, then, is en
example of a reduced increase, not a discounting of the base rate in exchange for application of a
standardized fuel surcharge.

Relying on the declarations of Marc Allen and David Garin, both vice presidents

at BNSP, defendants state:

_In other instances, shippers agreed to pay the
standard BNSF fuel surcharge in exchange for receiving other

economic concessions from BNSF. Garin Decl. 11 12.
Class Opp. at 45-46. Mr. Allen, however, testified that BNSF’s "standard fuel surcharge
provision" was "the starting point in contract negotiations with respect to the fuel surcharge
provision to be included in the contract." HD Ex. 85, Allen Dep. at 27; g i_d. at 25 ("[O]ur

initial opening offer is almost always one that includes a standard fuel surcharge program."). As

for Mr. Gerin, he adreitted that  
 
 
 

l07

i_l(
lea
a
fill
\O
as
\O
re

Relying on the declaration of Dean Piacente, a CSX vice president, defendants

State1 
 
  Class OPP- at 46 (Cititla
Piacente Decl. ‘|l 6). But Mr. Piacente subsequently testified that  
_ HD Ex. 87, Piacente Dep. at 102.

Relying on the declaration of Tim McNulty, CSX’s director of marketing,

agricultural predaets, defendants state=  
 
 
 
Class Opp. at 46 (citing l\/lcNulty Decl.1[ 10). But as Mr. McNulty later testified at his

denesitien,  
HD Ex. 71, McNulty Dep. at 148.

Relying on the declarations of Ronald Listwak and James R. Schaaf, both vice

presidents at NS, defendants state: "In 2006, the South Mississippi Electric Power Association

108

agreed to pay the fuel surcharge if NS reduced the base rate by $0.35/ton. NS agreed." Class l
Opp. at 46 (citing Listwak Decl. ‘|[ 15; Schaaf Decl. 1[ 18). But as Mr. Listwak subsequently
testified during his deposition, NS "was able to achieve both the standard fuel surcharge and
Sign@*'icant base rate t`rtcreases" on its contract with the South Mississippi Electric Power
Association. HD Ex. '?7, Listwak Dep. at lll. Thus, Mr. Listwak’s declaration describes
another example of a reduced increase of the base rate, not a discounting of the original base rate
in exchange for application of the standard fuel surcharge.""

Relying again on the declaration of Mr. Listwak, defendants state:

Class Opp. at 46 (citing Listwak Decl. ‘||1§ 19-23). As Mr. Listwak admitted during his
depesitien, hewever, NS  
  HD Ex. '7'7, Listwal< Dei>- at ll?; NS -
 
_ .i,,d,-; and NS  
 
_ Q. at 119 (e1nphasis added).

'° Mr. Schaff, in his declaration, referenced the shipping customer _

  §.,e.s Sehaff Deel- ‘|I 18- But Mr-

Lawson, another NS vice president, admitted during his deposition that the Schaff declaration
described only three contracts without providing any information on whether _

_ HD Ex. 83, Lawson Dep. at 126.
109

2. Mandates not to discount base rates. Based in large part on the deposition
testimony of defendants’ own executives, the Court finds that plaintiffs have established by a
preponderance of the evidence that any discounting of the base rate by defendants was rare ~»»~
which is consistent with clear mandates from defendants not to modify their standard fuel
surcharge program. As an illustrative example, Donald Seale, at the time NS’ senior vice
president of inarl267 F.R.D. 583, 604 (N.D. Cal. 2010). Defendants should be "focused on
disputing the use of the methodology itself, not the results of the inethodology." fn re EPDM
Antitrust Litig., 256 F.R.D. at 96. In any event, the Court finds Dr. Rausser’s analysis
persuasive, _se_e_ 2d Rausser Report at 57-66, and credits his determination from his review of the
data that there was no evidence of systematic discounting The Court concludes that any
examples of such discounting are outliers, insufficient to defeat a finding of predominance. §§

Kohen v. Pacific lnv. Mgrn.t. Co., 571 E.?)d at 677.

113

4. Starri`ng poi`iilfor' riegorz`alfor:s. Finally, the Court concludes that the Fifth
Circuit’s decision in Robinson v. Texas Auto Dealers Ass’n, a case upon which defendants’
heavily rely, is inapposite to this case. The Fifth Circuit in Robinson framed the question
presented as "whether the mere payment of a VIT -- unaccompanied by any other evidence -
provides enough information such that a party may sustain a price~fixing suit on behalf of the
entire class." Robinson v. Texas Auto Dealers Ass’n, 387 F.3d at 423. in concluding that class
certification was inappropriate, the l~`iftli Circuit criticized the plaintiffs for assuming that the
automobile tax at issue "represents an additional charge that artificially increases the final
purchase price for every consumer in the class." Q. As the Fifth Circuit stated:

Such an assumption defies the realities of haggling that ensues in

the American market when one buys a vehicle. Although some

purchasers certainly negotiate a price that excludes taxes, titles, and

fees, others negotiate with an eye to the "bottoin line."

Bottoin-liiie purchasers base their negotiations on the final

purchase price, including every tax, fee, and surcharge,
E. (internal footnote omitted) (emphasis in original). Thus, in order to determine whether a
customer is a bottoin~lirie or top-line negotiator, the Fifth Circuit concluded that "a court would
have to hear evidence regarding each purported class member aria' fits transaction," and that was
fatal to a finding of predominance. i_d. at 424 (emphasis in original).

Here, however, plaintiffs have presented persuasive documentary and expert
opinion evidence that is common to the class that shows that the standard fuel surcharges were
intended to raise overall prices as a percentage multiplier of the base rate. Because each

defendant’s standardized fuel surcharge program was applied as a percentage inultipiier of a

sliippei"s base rate, application of that surcharge without discounting directly had the effect of

ll4

"increas[ing] all rates by a set percentage[.]” Rail Fuel Surcliarges, 2007 WL 201205, at *4.

And the standardized fuel surcharges applied during the class period were uniforni, were not
subject to negotiation, and were not discounted except in the case of anoinalies. Finally even
w1ien, in the rare case, base rates were discounted, railroad executives admitted that the standard
fuel surcharge program "even if not accepted . . . was an effort to at least influence the discussion
on . . . fuel surcharge." HD Ex. 88, Gehl Dep. at 55. In other words, the allegedly conspiratorial
fuel surcharges were the starting point for negotiations ~»~ a situation coinmonly observed in
price fixing conspiracies where classes have been certified _S_e_:_eh, _e_”.g;, In re Universal Serv. Fund
Tel. Billing Pi'actices Litig., 219 F.R.D. 661, 675 (D. Kan. 2004) (describing class actions where
"‘the negotiated transaction prices would have been lower if the stating point for negotiations had
been list prices set in a competitive niarket"’) (quoting ln re Industrial Diamonds Antitrust Litig.,
167 F.R.D. 374, 383 (S.D.N.Y. 1996)).

This case therefore is nothing like Robinson. Compare Robinson v. Texas Auto

Dealers Ass’n, 387 F.3d at 423 (deciding "whether the mere payment of a Vl'l` 4
unaccompanied by any other evidence -»~- provides enough information such that a party may
sustain a price-fixing suit on behalf of the entire class") (emphasis added). Instead, this case falls
within the line of cases holding that class-wide injury~in-fact can be proven at trial by showing
that the allegedly conspiratorial fuel surcharges were the starting point "‘froin which negotiations
for discounts began."’ l_n re Universal Serv. Fund Tel. Billing Practices Litig., 219 F.R.D. at 675
(quoting In re Industrial Diainonds Antitrust Litig., 167 F.R.D. at 383); _s_e_e In re Ready-Mixed
Concrete Antitrust Litig., 261 F.R.D. at 171~72. The theory behind this line of cases -~ which

applies with equal force here m

115

"is . . . that the negotiated transaction prices would have been

lower if the starting point for negotiations had been list prices set

in a competitive market Hence, if a plaintiff proves the alleged

conspiracy resulted in artificially inflated list prices, a jury could

reasonably conclude that each purchaser who negotiated an

individual price suffered some injury."

In re Universal Serv. Fund Tel. Billing Practices Litig., 219 F.R.D. at 675 (quoting in re
industrial Diarnonds Antitrust Litig., 167 F.R.D. at 383). In sum, individualized negotiations and
discounts are not an automatic bar to class action treatment §§ In re EPDM Antitrust Litig.,
256 F.R.D. at 89; in re Urethane Antitrust Litig., 251 F.R.D. 629, 637-38 (D. Kan. 2008); ln re
industrial Diamonds Antitrust Litig., 167 F.R.D. at 383.

Under this line of cases, then, the question is whether common proof can be used
to show that the alleged conspiracy on fuel surcharges, at the very least, affected the starting
point for negotiations. _S__e_e_ In re EPDM Antitrust Litig., 256 F.R.D. at 88-89; ln re Urethane
Antitrust Litig., 251 F.R.D. at 637-38. The answer is yes. Not only have defendants’ own
executives admitted that negotiations started with the standard fuel surcharge program, s_eg
HD Ex. 88, Gehl Dep. at 55; HD Ex. 85, Allen Dep. at 24~27; HD Ex. 83, Lawson Dep. at 38-41;
HD Ex. 77, Listwak Dep. at 23, l29; HD Ex. 89, Pagan Dep. at 55-56; HD Ex. 66, Young Dep.
at 71»75, but plaintiffs have shown m in reliance on defendants’ own documents and economic

analysis of defendants’ transaction data m that defendants’ standardized fuel surcharge programs

overwhelmingly were applied without discounting the base rate. §_e__q supra at 106-13.

iii. Expert opinions on injury-iii-fact
Plaintiffs do not rely only on the extensive documentary evidence in the record to

show that injury-in-fact is capable of proof at trial with evidence conimon to the class. Plaintiffs

116

also submit that they anticipate presenting at trial the testimony of Dr. Rausser, who, as they
describe, confirms with economic principles common to the class and a regression analysis that
injury-in-fact is capable of common proof. §<_:_§ Class Mem. at 71-75; s_e_e gi_l§r_) Class Mot., Ex. B,
Trial Plan at 8-9.

In his report, Dr. Rausser first discusses the rail freight industry and concludes
that five structural factors strongly suggest that a conspiracy to impose supra-competitive fuel
surcharges on shippers would have succeeded in subjecting the class to a common injury-in-fact.
§ lst Rausser Report at 10-52; 2d Rausser Report at 80-81. Then, Dr. Rausser performs
economic regression analyses on defendants’ transaction data that he says reveal that class
members suffered a common injury-in-fact from the alleged conspiracy. § lst Rausser Report
at 80-101, 120; 2d Rausser Report at 9l-92. Dr. Rausser has developed two economic regression
modeis: a "conimon factor model and a damage inodel." Oct. 6 Tr. at 137. According to
plaintiffs and Dr. Rausser, "[t]hese models together show that there are identifiable common
factors that explain pricing in the rail freight industry; and . . . that the conspiracy caused
significant overcharges across the class." l,d.; §§ 2d Rausser Report at 91-92. Thus, plaintiffs
say that Dr. Rausser has established that economic analyses relying on evidence common to the
class _ defendants’ transaction data and economic principles common to the class - "can be
used to show that Defendants’ conspiracy led to artificially high prices during the Class Period

for Class inembers." lst Rausser Report at 80-81.3'

2' As discussed below, §§ infra at 138-39, Dr. Rausser also concludes that a
common damage methodology works in this case.

117

Dr. Willig disagrees with some of Dr. Rausser’s views about the rail freight
inarket. _S`Q§ Willig Report at 64-l0(). More importantly, Dr. Willig finds flaws in Dr. Rausser’s
regression analyses, § i_d. at 107-59, and concludes that individualized inquiry is required to
determine whether a particular shipper was injured-in-fact as a result of the alleged conspiracy
_S§e_  'l] 285.

As the Third Circuit instructed in In re llydrogen Peroxide Antitrust Litig., the
Court has weighed the expert reports of Dr. Rausser and Dr. Willig as a part of the rigorous
analysis Rule 23 deinands. §p_e  re Hydrogen Peroxide Antitrust l.itig., 552 F.3d at 323-24.
The Court finds persuasive Dr. Rausser’s analysis, which supports plaintiffs’ argument that
injury-in-fact is capable of proof at trial through evidence common to the class. The Court finds
that Dr. Rausser’s theory is "plausible," Behrend v. Comcast Corp., 655 F.3d at 204 n.l3; §
Hydrogen Peroxide Antitrust Litig., 552 F.3d at 325, and "susceptible to proof at trial through

available evidence common to the class." ln re Hydrogen Peroxide Antitrust l,itig., 552 F.3d

at 325. Dr. Rausser persuasively has established "the key logical steps behind [his] theory,” In re

New Motor Vehicles Canadian Exp. Antitrust Litig., 522 F.Bd at 26, that injury-in-fact is capable
of proof at trial with workable economic models and analysis ~»»» that is, common evidence.

1. Rail freight industry. Dr. Rausser contends that the rail freight industry is
conducive to price fixing §e§ lst Rausser Repoit at 5. lie first identifies the geographic and
product scope relevant to the rail freight iiidustry. §ec_z i_d. at lO. As for the geographic scope,
defendants sell rail services throughout the continental United States. id 'l`ogether, defendants
possess a 90 percent niarket share based on track miles and a 94 percent market share based on

freight revenue. lg_l. at 21. 'I`ogether, they provide rail services throughout the continental United

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States "to nearly every industrial, wholesale, retail, and resource-based sector of the economy."
_I_c_i_. ln short, Dr. Rausser concludes that defendants have "an enormous market share in the rail
freight market," and that this "structure . . . created an environment conducive to collusiori[.]"
lc_l. at 20.

The product at issue is freight service. _S__e_e_ 1stRausser Report at 16. As Dr.
Rausser describes it, freight services are "homogenous and interchangeable across Defendants."
E. at 27. He further explains:

The service that the Class l railroads offer shippers is

interchangeable and therefore, when shippers make a choice

between railroads, they do so based on price. The service that is

offered to the market is simply the movement of goods between

origin and destination. Shippers can even use their own cars and

often do. Any differences that may exist between shippers

concerning reliability and speed are very likely to be eliminated

over time as railroads compete with each other and invest to

eliminate any service deficiencies they may have.
lc_l. ln view of this characterization of the product, Dr. Rausser concludes that "[b}ecause
customers choose between railroads based on price, there are strong incentives for railroads to
restrict the resulting price competition by collusion." lc_l.

Having examined the geographic market and the product at issue, Dr. Rausser
contends that the rail freight industry has five characteristics that make it conducive to price
fixing: (l) the industry is heavily concentrated; (2) there are significant barriers to entry; (3) rail
freight services are interchangeable across defendants, and shippers choose their railroad based
on price; (4) the demand for rail freight services generally is inelastic; and (5) pricing is

transparent. _S__e_§ 2d Rausser Report at 79. And according to Dr. Rausser, these five

characteristics strongly suggest that "had a conspiracy occurred it would have succeeded in

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subjecting the Class to a conin'ion" injury-in-fact. 2d Rausser Report at 80. Dr. Rausser

concludes:

Ciiaractei'i'stic 1 -~ as the industry is concentrated in the hands of
the Defendants, the alleged cartel would have been able to sustain
high prices across the Class and non-Defendant railroads would
have lacked the capacity to lure Class members away with lower

prices;

Characleri`slic 2 - the Defendaiits’ high prices would not have
been undercut by the creation of new railroads (a'e novo entry), or
the expansion of existing railroads;

Chai‘actei‘istic 3 -e because Class members considered the
railroads’ services as interchangeable and chose their railroad
based on price, they would have been harmed by the restriction of
that choice and the routinely imposed higher prices;

Characteristic 4 _ although some shippers may have been able to
find viable transport alternatives to rail (all price-fixing cartels lose
some custorners), the vast majority would have been unable to do
so and, thus, Defendants could profitably elevate their prices in a
coordinated manner without risk of losing substantial business;

Characlerisli'c 5 - costs of implementing and maintaining the
conspiracy would have been extremely low due to thoroughly
standardized service descriptions, established mechanisms for
communicating and tracking prices, and ease of using generally
available indexes to increase prices.

2d Rausser Report at 80-81 (footnotes omitted).”

22

Defendants contend that one part of "Characteristic 5" references objectionable

interline-related cornniunications. §§ Defs. lnterline Objections, Ex. C, at 80-81. Specitically,
defendants say that Dr. Rausser improperly has relied on interline-related communications when
he states that costs of implementing and maintaining the conspiracy would have been extremely
low due to "establislied niechaiiisnisfoi' coinniiuiicaiing and tracking prices[.]" E. (emphasis
added). 'l`he Court has not relied on this part of Characteristic 5 in reaching in decision on
plaintiffs’ motion for class certification

120

Not surprisingly, Dr. Willig disagrees with Dr. Rausser: he contends that the
industry characteristics discussed by Dr. Rausser "do not suggest, and provide no valid basis for
conciuding, that the alleged conspiracy would have had a systematic effect on rail rates paid by
inembers of the purported class." Willig Report1[43. As Dr. Willig sees it, the economics of the
rail industry imply that there can no common evidence of class~wide injury-in-fact. Willig
Report at 64.

Dr. Willig’s disagreement with Dr. Rausser appears to focus on two questions
about the structure of the rail freight industry: whether freight prices are truly interchangeable;
and whether pricing is transparent. As for the first issue, Dr. Willig contends that rail contracts
involve a wide variety of complex contractual agreements and are inultidimensional in nature.
Willig Report 11 115. Dr. Willig concludes:

Testimony from defendants’ marketing personnel as well as

defendants’ transaction data demonstrate that FSCS cannot be

viewed in insolation from the other dimensions of agreements

between railroads and shippers. Rather, only an individualized

inquiry can determine whether shippers benefitted froin

modification of other parts of the agreement as part of their

agreement to pay an FSC. The existence and magnitude of such

modifications cannot be measured on a class-wide basis since they

depend upon the terms of both rate and non-rate provisions of the

agreements
Willig Report 11 115. According to defendants, they "do not provide a product, much less a
fungible coinmodity"; rather, they "provide the inajority of their services pursuant to contracts
that reflect the diversity of rail customers and are highly differentiated, varying by customer,

lane, equipment, product being sliipped, and numerous other factors." Class Opp. at 58; se_e

wang Report 11 116.

121

Regardiiig the second issue, Dr. Willig contends that Dr. Rausser’s claim that
pricing is transparent is incorrect Willig Report ‘il 43. According to Dr. Willig, "rates typically
paid by members of the proposed class are confidential and are not transparent to other menibers
of the alleged conspiracy." I_c_l_. This industry characteristic, Dr. Willig says, "creates practical
incentives for members of the alleged cartel to ‘cheat’ or ‘deviate’ by offering concessions to
shippers on base rates, fuel escalation provisions, or other elements of rail contracts." @.

The Court finds persuasive Dr. Rausser’s characterization of the rail freight
industry. There is no question that the rail freight industry is concentrated in the hands of the
four defendants - they possess 90 percent market share based on track miles and control
94 percent of the market based on freight revenue w and Dr. Willig does not claim otherwise.
Nor does Dr. Willig dispute Dr. Rausser’s contention that there are signiiicant barriers to entry.

As for the nature of the product, the Court disagrees with defendants that "there
are a lot of individualized factors that drive shippers to choose between different rail freight
service providers." Oct. 6 Tr. at 32. Dr. Rausser persuasively has explained that customers
routinely switch between railroads for shipments along the same routes, "confirining that they see
the railroads’ services as interchangeable." lst Rausser Report at 2'7; §§ E. at 27-29. The Court
also credits Dr. Rausser’s conclusion that demand for freight services generally is inelastic. §
lst Rausser Report at 29-36. As he explains, "an analysis of the industry demonstrates that
Defendants’ businesses are concentrated in commodities and distances over which rail is the
most cost efficient transport option and therefore the demand that they faced was in general

ineiastic." l_gl". at 31-32.

122

Finally, regarding the issue of transparency, Dr. Rausser acknowledges, as he
inust, the existence of private contracts, but explains that rail freight pricing nevertheless is
established, well defined, and easily understood _S_e_e lst Rausser Report at 37.23 As Dr. Rausser
States: "[F]reight railroad companies use common types of price aitthorily documents, which
provide a detailed account of all the base freight charges, surcharges, accessorial, and fuel
surcharges associated with a specified rail inovernent." i_d_. at 37 (einphasis in original).
Although rail freight is, of course, a service, rather than a good, "that service is well defined and
highly standardized using coniinodity classifications for the material shipped, tonnage as a
measure of quantity, and miles representing the distance traveled." 2d Rausser Report at 29.
Thus, "[i]ntelligence on price quotes for this service can be exchanged and both parties in the
exchange know exactly what they are talking about," which "eases the costs of monitoring for a
caitel." _I_gl_. Moreover, the allegedly conspiratorial inechanisin applied by defendants _
standardized fuel surcharges ~ does not require constant communications once the details of the
surcharge have been agreed upon. _S__e_e_ lst Rausser Report at 50. And although Dr. Willig
contends that the existence of private price quotes creates practical incentives to "cheat" or
"deviate" by offering concessions, §e_e_ Willig Report ‘l§ 43, as the Court previously has found by a
preponderance of the evidence, § s_up_r_g at 106, the examples of discounting are, at best,

anornalies.

23 l\/loreover, as Dr. Rausser points out, the existence of private price agreements in
the rail freight industry does not distinguish the industry "from many other industries, including
some that have experienced price fixing despite the supposedly confidential nature of customer
contracts." 2d Rausser Report at 10 & n.l6 (citing peer-reviewed study concluding that "cartels
in industries with fuller reporting on prices are not statistically significantly higher than for
cartels in other industries"). »

123

The Court therefore is not persuaded by Dr. Willig’s characterization of the rail
freight industry, ge Willig Report‘l§1l43, 115-16, or by defendants’ attempts to discredit Dr.
Rausser’s analysis. _S_g§ Defs. Hr’ g Binder, Part IlI at 45; Oct. 7 Tr. at 222-35. Rather, the Court
finds that the five structural characteristics of the rail freight industry identified by Dr. Rausser,
and the evidence he marshals regarding those characteristics, provide strong support for
plaintiffs’ contention that injury-in-fact is capable of proof at trial with evidence common to the
class. §§ In re Puerto Rican Cabotage Antitrust Litig., 269 F.R.D. at 139 (considering, among
other things, highly concentrated industry, high entry barriers, static elasticity, and price
competition in finding by a preponderance of the evidence that predominance requirement was

satisfied); ln re EPDl\/l Antitrust Litigi., 256 F.R.D. at 92 (according to expert analysis credited by

the court, certain market factors "lay the groundwork for plaintiffs’ arguinent that, if collusive
behavior did occur, it would have been effective in raising prices across the class, thus
demonstrating class-wide injury»in~fact").

2. Backgrouricl on multiple regression analysis The centerpiece of Dr. Rausser’s
report focuses on two economic models that examine defendants’ transaction data through
multiple regression analysis. § 2d Rausser Report at 91-92; § all § at 1 l. Before
addressing the specific analyses done in this case, the Court provides below some background on
multiple regressions in general, as set forth in a reference guide published by the Federal Judicial
Center:

Multiple regression analysis is a statistical tool for
understanding the relationship between or among two or more
variables. Multiple regression involves a variable to be explained

- called the dependent variable »-~ and additional explanatory
variables that are thought to produce or be associated with changes

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in the dependent variable. For example, a inultiple regression
analysis might estimate the effect of the number of years of work
on salary. Salary would be the dependent variable to be explained;
years of experience would be the explanatory variable.

Multiple regression analysis is sometimes well suited to the
analysis of data about coinpeting theories for which there are
several possible explanations for the relationships among a number
of explanatory variables. Multiple regression typically uses a
single dependent variable and several explanatory variables to
assess the statistical data pertinent to these theories. . . . {For
example, ]in an antitrust cartel damages case, the plaintiffs expert
might utilize inultiple regression to evaluate the extent to which the
price of a product increased during the period in which the cartel
was effective, after accounting for costs and other variables
unrelated to the cartel. The defendant’s expert might use multiple
regression to suggest that the plaintiffs expert had omitted a
number of price-determining variables

More generally, inultiple regression may be useful (l) in

determining whether a particular effect is present; (2) in measuring

the magnitude of a particular effect; and (3) in forecasting what a

particular effect would be, but for an intervening event . . .

Multiple regression analysis can be a source of valuable

scientific testimony in litigation. However, when inappropriately

used, regression analysis can confuse important issues while

having little, if any, probative value.

RUBiNFELo, supra, at 305~08.

"In an antitrust suit, plaintiffs will generally use multiple regression analysis to
demonstrate that a ‘conspiracy’ variable has influence over the dependent variable (price) - that
is, class members paid a higher price than the basic economic principles of supply and demand
would otherwise dictate, thus demonstrating collusive behavior was at work." In re EPDM

Antitrust Litig., 256 F.R.D. at 95; § Schumacher v. 'l`yson fresh Meats, Inc., Civil Action

No. 02~1027, 2006 WL 47504, at *l n.l (D.S.D. Jan. 5, 2006) ("A inultiple regression analysis is

125

a statistical tool that atteiripts to reveal relationships between explanatory variables and a
dependent variable."). A inultiple regression model must, of course,

be correctly set up for the results to be valid. The expert’s choices
are crucial for the success of the analysis and the ultimate
fact-finder should consider the following when evaluating the
efficacy of the expert’s analysis: has the expert correctly identified
the dependent variable; has he or she chosen the correct
explanatory variable that is relevant to the question at issue; are the
additional variables chosen all correct or are some missing and/or
irrelevant; is the form of the analysis correct?

In re EPDM Antitrust l,itig., 256 F.R.D. at 95; g Roizii~irai.o, supra, at 310-17.

Ultimately, "[e]ven the best regression equation cannot prove causation."
Schuinacher v. Tyson Fresh Meats, Inc., 2006 WL 4'7504, at *'7; §§ RuaiNFnLi;>, _sgpg@, at 310.
Rather, "[t]he most it can show is a con‘elation that can give rise to an inference that causation
exists." Schuinacher v. Tyson Fresh Meats, Inc., 2006 WL 47504, at *7; §e§ Morgan v. United

Parcel Serv. of Am. lnc., 380 F.fid 459, 466 (Sth Cir. 2004) (a valid regression equation gives

 

rise to an inference of causation, but does not itself prove causation); §p_e_ gls_q ln re Oil Spill by
the Arnoco Cadiz Off the Coast of Fr. on l\/lar. 16, 1978, 954 F.2d l27'9, 1320 ("lth Cir. 1992)
("lf done right, regression analysis permits an inference of causation, and of the size of the
effect."). 'l`hus, "one must infer that a causal relationship exists on the basis of an underlying
causal theory that explains the relationship between the two variables." RUBINFELD, gi_gr_za_,
at 3 l0.

3. Dr. Rausser ’s regressi`on.s' are workable and su.s'ceptlble to pi'oof`at tr‘lal
llzi'ouglz cameron evi`clence. As discussed, Dr. Rausser explains that he developed two multiple

regression inodels, a coinmon factor model and a damage rriodel, that together reveal that

126

injury-in-fact can be established at trial with evidence common to the class. Y, gg;, 2d Rausser
Report at 91~92, 99~100; §;e_e_ _a_l_§_p_ Oct. 6 Tr. at 137. As Dr. Rausser describes it, his common
factor model performs "an investigation of whether . . . common transaction characteristics
predominate over individual factors in determining the variation in freight rates." 2d Rausser
Report at 84. Dr. Rausser analyzed defendants’ transaction data and concluded that there are
seven common factors that predominately explain rail price variations, and that these factors can
be controlled for in a regression. g lst Rausser Report at 92. ln other words, according to Dr.
Rausser, his common factor model explains pricing in the rail freight industry and shows, relying
only on defendants’ transaction data, that rail freight pricing is "highly standardized.” E. at 84.

According to Dr. Rausser, the seven factors that predominately explain rail price
variations are: (l) weight of the shipment; (2) distance; (3) whether the shipment is interline;
(4) the origin and destination; (5) the con'imodity being transported; (6) the rail car type; and
(7) the quarter of departure. _S»_e_:t_: lst Rausser Report at 92. Dr. Rausser concludes that these
seven factors are highly predictive of freight rates: he says that these factors explain "over 75%
of the variation in actual per car revenues for individual shipments." 2d Rausser Report at 66-67.
Because, according to Dr. Rausser, the seven common factors predominate over individual
factors in determining rail freight price, the seven common factors can be used in a common
analysis of iinpact. §;;_g 2d Rausser Report at 67; Y_e alj lst Rausser Report at 7 (statirig that
"coininon factors can be measured using the Defendants’ transaction data and used in a common
analysis to identify and quantify the harm experienced by the Class").

Dr. Rausser’s damage model builds on the common factor model to show, again

relying on defendants’ transaction data, that the alleged conspiracy injured class iiienibers by

127

inflating freight prices and to quantify the amount of damages. _Sg%_ 2d Rausser Report at 91-92.
Dr. Rausser says that the damage model works by taking into account the factors that influenced
defendants’ prices during the class period as cornpared to "benchinark" prices during the three
preceding years. lst Rausser Report at l 13. Dr. Rausser says that his regression analyses -
applied now to 100 percent of defendants’ transaction data, §§ 2d Rausser Report at 12 m find
"that all-in freight rates were higher during the Class Period than could be explained by
economic forces other than the alleged price-fixing eonspiracy" and reveal "a structural break in
the relationship between fuel prices and freight rates starting in 2003, consistent with the advent
of a price~fixing conspiracy using Fuel Surcharges as its facilitating inechanism." I_d. at 82-83;
§§ lst Rausser Report at 120. Dr. Rausser’s damage model calculates a class-wide overcharge
of 13.4 percent. __S__e_e 2d Rausser Report at 83; lst Rausser Report at 119~20.

Defendants and Dr. Willig argue that Dr. Rausser’s economic regressions suffer
from fatal flaws, and that neither his common factor model nor his damage model satisfies
plaintiffs’ burden of showing that injury-in-fact is capable of proof at trial with common
evidence. y Class Opp. at 63. As for the common factor model, defendants contend that it has
four flaws. Y i_d. at 63~65. First, defendants contend that Dr. Rausser "only studied traffic
destined for three geographic areas out of the thousands served by Defendants and only for a
single year -~- 2006." § at 63. The three destinations that he chose, according to defendants,
are not representative samples I_d. Second`, defendants argue that although Dr. Rausser’s model
shows that certain characteristics "play an important role in overall rail rates," it "says nothing
about whether the conspiracy caused all class inembers to pay a fuel surcharge they otherwise

would not have paid or how that fuel surcharge compared to whatever cost recovery inechanisin

128

would have been used instead." E. at 64. Third, defendants argue that Dr. Rausser’s model
"purports to explain 76~89% of the variation in overall rates," but provides "no scientific basis to
dismiss the ll-Z~2012 WL
253298, at *4 (N.l). Cal. Jan. 26, 2012) ("Defendants have not challenged the reasonableness of
plaintiffs’ methodology for proving classwide impact. lnstead, their arguments concern the
application of that methodology. Such analysis, liowever, goes beyond the inquiry at the class

certification stage.") (citing ln re Graphics Processing Units Antitrust l_.itig., 253 F.R.D. 478, 490

(N.p. car 2003))?"

24 Both sides and their experts reference and rely on a 2009 study that was conducted
by Laurits R. Christensen Associates, Inc. and commissioned by the STB to analyze competition,
capacity, and service quality in the rail freight industry. _S_;;_g, _e;g;, Oct. 6 Tr. at 140-4]; Oct. 7 Tr.
at 2?2-73; g;<_: generally HD Ex. 12, Li\uiurs R. Crinis"rr-;Nssn Assocu\rss, lNc., Votuivis 2,
AN/-\Lvsis or CoMPEriTioN, CAPACITY, AND Sii,nvscn Qum.lrv (Nov. 2009) (hereinafter,

135

Ultimately, in evaluating Dr. Rausser’s regressions and Dr. Willig’s criticisrns, the

Court must determine whether Dr. Rausser’s theory of proof is plausible and whether his
regression models are workable. The Court concludes that they are: Dr. Rausser has established
"the key logical steps behind [his] theory" that injury-in-fact is capable of proof at trial with
common evidence. ln re New Motor Vehicles Canadian Exp. Antitrust Litig., 522 F.3d at 26.
Relying on principles common to the class and an analysis of 100 percent of defendants’
transaction data, Dr. Rausser has presented a workable regression analysis that is susceptible to
proof at trial through available evidence common to the class. § Behrend v. Comcast Corp.,

655 F.3d at 198; in re l~lvdrogen Peroxide Antitrust Litig., 552 F.3d at 325.

The burden for plaintiffs at the class certification stage is to show by a
preponderance of the evidence "that the element of antitrust impact is capable of proof at trial
through evidence that is common to the class rather than individual to its ineinbers." ln re

Hydrogen Peroxide Antitrust Litig., 552 F.3d at 311-12. Plaintiffs have satisfied that burden.

The Court has examined all the relevant evidence and arguments including all relevant expert
opinion, _Y_e § at 315 n. l 3, and finds by a preponderance of the evidence that plaintiffs have

shown that impact is capable of proof at trial through common evidence.

"Christensen Report"). Plaintiffs say that the Christensen Report supports Dr. Rausser’s
conclusion that there was a structural break in the relationship between fuel costs and rail freight
prices that was consistent with the start of the alleged conspiracy. _Y_e Oct. 6 'l`r. at 140-41; _s_e_e_:
§ Christensen Report at 9-16~9-17. Defendants say, among other things, that the Christensen
Report "does quite the opposite." Oct. 7 Tr. at 272. Defendants do not dispute, however, that the
Christensen Report relies on evidence common to the class and itself constitutes such coinmon
evidence. 'i`hus, if anything, the Christensen Report supports plaintiffs view that injury-in-fact is
caj)able of coinmon proof at trial. The question of which party’s characterization of that report is
correct is a rnatter to be resolved by the finder of fact at trial.

136

3. Damages

The third element that plaintiffs will have to prove at trial is "ineasurable
datnages." In re Hvdrogen Peroxide Antitrust Litig., 552 F.3d at 311; l\/leijer, Inc. v. Warner
Chilcott Holdings Co. lll, 246 F.R.D. at 307. The element of damages is distinct from impact:
impact asks "\»vhetlzer the plaintiffs were harmed," whereas damages "quantify by how rrzuch."
ln re EMDM Antitrust Litig., 256 F.R.D. at 88 (emphasis in original). "The inquiry for a district
court at the ciass certification stage is whether the plaintiffs have demonstrated by a
preponderance of the evidence that they will be able to measure damages on a class~wide basis
using common proof." Behrend v. Comcast Co;p., 655 F.3d at 204.

"Some variation of damages among class inembers does not defeat class
certification." Behrend v. Comcast Corp., 655 F.3d at 204; g '/AA FEDERAL PR/\.crlc)_=. &
PROCEDURB, §_u_p_ra, § 1781 ("[I]t uniformly has been held that differences among the members as
to the amount of damages incurred does not mean that a class action would be inappropriate.").
Moreover, as the Seventh Circuit recently stated: "It is well established that the presence of
individualized questions regarding damages does not prevent certification under Rule 23(b)(3)."
Messner v. Northshore Univ. l»lealthSvstem, 669 F.?»d at 815; g Arreola v. Godinez, 546 13.3d
788, 801 ('/th Cir. 2008) ("Although the extent of each class inember’s personal damages might
vary, district judges can devise solutions to address that problem if there are substantial common
issues that outweigh the single variable of damages amounts . . . [T]he need for individual
damages determinations does not, in and of itself, require denial of {a] motion for cet'tification,")
(internal citations omitted); Ailapattah Servs., Inc. v. Exxon Corp., 333 F.Bd 1248, l26i (l lth

Cir. 2003) ("[N]urrierous courts have recognized that the presence of individualized damages

137

issues does not prevent a finding that common issues in the case predominate."); Hardy v. City
Optical Inc., 39 F.3d 765, 771 (?th Cir. ]994) (recogriiziiig that "[t]here have been inany antitrust
class actions in which the relief sought was damages, and the fact that the damages would
generally be different for each rnember of the class was not deemed an insurperable obstacle");
§ also Kottaras v. Whole Foods Mkt., Inc., 2012 WL 259862, at *?. To be sure, however,
"[c]oinplex and individualized questions of damages . . . weigh against finding predominance."
Behrend v. Comcast Corp., 655 F.?>d at 204.

Plaintiffs rely on Dr. Rausser to show that analysis common to the class can be
used to calculate and apportion class-wide damages among ciass members. § Class Mem.
at 75. As plaintiffs describe it, Dr. Rausser has observed that “it is entirely feasible to perform
the estimation of the percentage overcharge across the entire class for each regression
specification described in his report, yielding a caicuiation of overcharge for the entire class." E.

According to Dr. Rausser, his analysis reveals that "a professionally accepted
regression based methodology using the Defendants’ transaction data . . . does in fact work" in
assessing class-wide damages lst Rausser Report at 1 13. As Dr. Rausser expiains, he
"developed such a regression niodel" - that is, his damage modei -- "to test whether the prices
during the Class Period are significantly different than prices generated from an appropriate
‘bencliinark’ period, after adjusting for differences in all relevant economic forces." lc_l.

Dr. Rausser has calculated class-wide damages using his damage inodel
einployiiig the conspiracy and pre-conspiracy transaction data:

The percentage overcharge due to the alleged conspiracy can be

calculated using the regression model to coinpare freight rates in
the Class Period to those in the pre-Class Period, while using the

138

Defendants’ transaction data and publicly available data to account

for the other predominating common economic forces that

determine prices. The transaction data can be used to account for

the effect of shipment specific cliaracteristics, such as weight,

distance, route, car type, coinmodity type, and so on. . . . The

regression model can be used to "back out" the effect of these

factors to isolate the effect of the alleged conspiracy on freight

rates.
lst Rausser Report at ll4. He further adds that "to calculate each individual custorner’s
damages[,] the relationship between price drivers and freight rates calculated by the model mn on
the full range of data can be used to estimate the but-for price for each customer transaction." I_d.
at 122. 'I`hus, the "difference between this but-for price and the actual price paid is the
overcharge to that customer for that transaction."  at 122-23.

Defendants argue that "the complications of the individualized proof of damages
here preclude class certification." Class Opp. at 72. As defendants describe it, in most price `
fixing cases, plaintiffs will propose to calculate a standard overcharge percentage, which then is
applied to all class member purchases. §§ _i_d. at 73. In that situation, defendants contend that an
assessment of damages is not particularly compiicated: °‘the only individualized task is to tally up

a class member’s purchases, which are then multiplied by the common overcharge percentage."

Id.

Here, however, defendants argue that determining individualized damages

requires evidence of, among other things:

(l) the [individual] class inember’s actual fuel surcharge payments,
(2) the but-for fuel cost recovery that would have applied to that
class inember in light of its specific competitive situation,
including both the timing of when that fuel surcharge would have
been added and its terms, and (3) other adjustments to the base rate
or non-rate elements of the contract that were made as part of the
negotiations to add the fuel surcharge,

139

Class Opp. at 73. According to defendants, "[t]liese are all individualized determinations," and
Dr. Rausser’s damage model "does not account for any of these elements and therefore cannot be
used to estimate an individual class inember’s damages." ld. 'I`hus, defendants contend that
class certification niust be denied. §§ _ig_ at 73-74 (citing Piggly Wiggly Cfarksville, lnc. v.
interstate Brands Corp., 2l5 F.R.D. 523, 530-31 (E.D. Tex. 2003)); _s__e_§a_lg)_ Willig Report

at 137-5 l..

The Court disagrees with defendants and finds that plaintiffs have satisfied their
burden of showing by a preponderance of the evidence that "they will be able to measure
damages on a class-wide basis using common proof." Behrend v. Comcast Corp., 655 F.3d
at 204. Dr. Rausser has developed a workable regression model that uses defendants’ transaction
data to calculate damages to the class and to each class member. in his original repoit, Dr.
Rausser applied his regression methodology on a dataset that included about 25 percent of each
defendants’ total unregulated freight traffic over the period 2000 to 2008. _$__e_e_ Class Reply at 37.
As Dr. Rausser explains in his reply report, he now has run his regression model on the complete
set of defendants’ transaction data. §_§_;Q 2d Rausser Report at 96; § rul Class Reply at 3'7.
And, according to Dr. Rausser, "[t]he results on 100% of the relevant transactions confirm that a
structural break in the relationship between fuel prices and freight rates occurred in 2003, and
that this break increased freight rates above what they would have been absent the conspiracy.
The estimated class-wide overcharge is 13.4%." 2d Rausser Report at 83. Furthermore, as Dr.
Rausser explains, his damage model "does not assume that all shippers paid the same
overcharge." 2d Rausser Report at 92. Rather, he explains that his damage model "can be used

to calculate individual damages[.]" Q.

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The Court rejects defendants’ argument that Dr. Rausser’s damage model cannot
be applied on a class-wide basis to calculate damages because such damages vary on particular
shipments. § Class Opp. at 65; Willig Report 11 2'73. Even if that were true, it would not
preclude a finding of predo1ninance. _S_§g Messner v. Northshore Univ. HealthSystem, 699 F.3d
at 815; §§ supra at 137-38. And in any event, the Court agrees with Dr. Rausser that the
reported variation among shipments is to be expected and does not prevent a common damage
methodology from applying in this case. g 2d Rausser Report at 98 n.225.

The Court also rejects defendants’ argument that Dr. Rausser’s damage model
"yields nonsensical results." Class Opp. at 66. As defendants describe it: "Dr. Rausser says
injury to class members results from the payment of fuel surcharges, but the damages he
calculates, which are expressed as percentage reductions in all-in-rates, vastly exceed the fuel
surcharges actually assessed." I_d.; _s_eg Willig Report 1§1] 258-60. The Court agrees with plaintiffs
that this criticism is misplaced. As Dr. Rausser persuasively explains:

My damage methodology pertains to all-in rates, rather than merely

the increase in Fuel Surcharge percentages, and estimates how

much those all-in rates increased as a result of Defendants’

conspiratorial conduct. As documented throughout the discovery

record, the Fuel Surcharge is the facilitating mechanism used by

Defendants to increase these all-in rates. The computed all-in

overcharge which l have arrived at using 100% of the transaction

data is 13.4%, a figure well below the average percentage Fuel

Surcharge imposed during the Class Period.
2d Rausser Report at 96 (emphasis in original). To the extent that there are instances where
calculated overcharges do exceed the fuel surcharges assessed, the Court credits Dr. Rausser’s

explanation that this reflects various factors, including, for example, instances of

"double-dipping" - that is, when fuel surcharges were applied on top of base rates that

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themselves already have built-in fuel cost recovery mechanisms -- and instances of rebasing.

§§ at 96.

As the Third Circuit recently stated: "At the class certification stage we do not
require that Plaintiffs tie each theory of antitrust impact to an exact calculation of damages, but
instead [require] that they assure us that if they can prove impact, the resulting damages are
capable of measurement and will not require labyrinthine individual calcu1ations." Behrend v.
Comcast Corp., 655 F.3d at 206. The Court is persuaded that Dr. Rausser’s damage model
satisfies this burden, and the Court finds by a preponderance of the evidence that plaintiffs "will

be able to measure damages on a class-wide basis using common proof." id at 204.

B. Superiority

'The second requirement of Rule 23(b)(3) is superiority: a court must find "that a
class action is superior to other available methods for fairly and efficiently adjudicating the
controversy." FED. R. Civ. P. 23(b)(3); §§_e Meiier, lnc. v. Warner Chilcott Holdings Co. lll,
246 F.R.D. at 3 13. This requirement "ensures that resolution by class action will ‘achieve
economies of time, effort, and expense, and promote . . . uniformity of decision as to persons
siinilarly situated, without sacrificing procedural fairness or bringing about other undesirable
consequences." l\/leijer, Inc. v. Warner Chilcott l~loldings Co. III, 246 F.R.D, at 313 (quoting
Arnchein Prods Inc. v. Windsor, 521 U.S. at 615) (alteration in original).

"When common questions are found to predominate, then courts also generally
have ruled that the second prerequisite of Rule 23(b)(3) »-»- that the class suit be superior to any

other available means of settling the controversy - is satisfied in the context of an antitrust

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action." in re Readv-Mixed Concrete Antitrust Litig., 261 F.R.D. at 173 (quotations oinitted). 1n
contrast, when individual issues predominate, a class action will be deemed inferior. _$_e_§
McCarthy v. Kleindienst, 741 F.2d at 14l 5; §_e_e also Williains v. Glicl1997 WL 33772612, at *ll (D.D.C. Feb. l4, 1997) ("The greater the number of
individual issues, the less likely superiority can be established.").

Defendants contest the superiority requirement on the same grounds as they
contest predorninance: they say that a class action is inferior because individual issues
predominate regarding injury and damages. g Class Opp. at 74-75. But as the Court has
concluded, individual issues do not predominate, and so the Court finds that plaintiffs have
satisfied the superiority requirement.

This case involves approximately 30,000 shippers, and plaintiffs have shown by a
preponderance of the evidence that the elements of plaintiffs’ Sherman Act claim are capable of
proof at trial through evidence that is common to the class. Given the size, complexity, and
expense of this case, the Court finds that class action treatment is superior to any other available
methods for fairly and efficiently adjudicating plaintiffs’ claim. § FED. R. CIV. P. 23(b)(3).
The Court has considered plaintiffs’ proposed trial plan, § Class Mot., Ex. B, Trial Plan
at l-l0, as well as any possible difficulties in a trial on plaintiffs’ Sherman Act claim. Y Class
Opp. at 77-78. The Court concludes that the resolution of this case by class action will "‘achieve
economies of time, effort, and expense, and promote . . . uniformity of decision as to persons
siinilarly situated, without sacrificing faimess or bringing about other undesirable consequences."

Meiier, lnc. v. Warner Chilcott Holdings Co. 111, 246 F.R.D. at 313 (quoting Amchem Prods lnc.

v. Windsor, 521 U.S. at 615).

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Vl. CONCLUSION

F or the foregoing reasons, the Court finds by a preponderance of the evidence
(l) that plaintiffs have established each fact necessary to meet the requirements of Rule 23 of the
Federal Rules of Civil Procedure; and (2) that plaintiffs have established that the elements of
their Sherman Act claim are capable of proof at trial through evidence that is common to the
class rather than individual to its members.

Therefore, the Court will grant the motion of the direct purchaser plaintiffs’ for
class certification [Dkt. No. 337]; will certify this case as a class action under Rule 23(b)(3) for
purposes of litigation and trial; will define the class as proposed by the direct purchaser
plaintiffs’ in their motion for class certification; will certify for class treatment the direct
purchaser plaintiffs’ claim for price fixing in violation of Section 1 of the Sherman Act,

15 U.S.C. § l; will designate the eight named plaintiffs as the class representatives; and will
appoint Quinn Emanuel Urquhart & Sullivan, LLP and Hausfled LLP as co-lead class counsel for
the class. The Court will not rule at this time on the motion of the defendants to exclude
interline-related communications from consideration for class certification or for any other
purpose {Dkt. No. 4l7].

This Opinion temporarily has been issued under seal in its entirety in view of the
possibility that the Court has referenced "Conlidential" or "Highly Conlidential - Attorneys’
Eyes Only" material, as described in the Protective Order issued in this case. §_5;§ Protective
Order ‘|ljl 1.3, l.4, Jan. 29, 2009 (Facciola, l\/lag. .l.) [Dkt. No. 195]. This Opinion, however, will
not reinain under seal. The Court will order the parties to cneet and confer and file a joint report
by July l0, 2012 showing cause why this Opinion should not be published in full without
redactions on the public docket of this Court.

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If either party believes that some passage(s) of the Court’s Opinion should be
redacted, they must specify in the joint report which passage(s) and must specifically state the
cause for each redaction. In making any such request, the parties are reminded that the courts are
not intended to be, nor should they be, secretive places for the resolution of secret disputes. _S_g§,
§_.g;, Nixon v. Warner Commc’ns, lnc., 435 U.S. 589, 597 (1978) ("lt is clear that the courts of
this country recognize a general right to inspect and copy public records and documents,
including judicial records and documents.") (footnotes omitted); Johnson v. Greater Se. Cmty.
Hosp. Co§p., 951 F.2d 1263, 1277 (l`).C. Cir. l991} (noting that there is a "strong presumption in
favor of public access to judicial proceedings"}; United States v. Hubbard, 650 F.2d 293, 317
n.89 (D.C. Cir. 1980) (ho1ding that the trial court’s discretion to restrict access to court records
should "clearly be informed by this country’s strong tradition of access to judicial proceedings").
Accordingly, any redactions shall be made solely to the extent necessary to preserve the
confidentiality of the relevant information in accordance with the terms of the Protective Order
issued in this case. _S_e_e Protective Order jljl 1.3, l.4,

An Order consistent with this Opinion shall issue this same day.

SO ORDERED.
/s/
PAUL L. FRIEDMAN
DATE: June 2l, 2012 United States District Judge

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