Antitrust Law Daily Wrap Up, ANTITRUST—DDC: Coal Shippers Fail to State Claims Against Railroads Stemming from Fuel Surcharges, Market Allocation, or Lack of Infrastructure Development, (Feb 27, 2013)

By E. Darius Sturmer, J.D.

Union Pacific Railroad Company and BNSF Railway Company did not violate Sec. 1 or Sec. 2 of the Sherman Act by imposing a uniform fuel surcharge on customers or by allegedly allocating the freight market such that they ceased competing with each other for customers, the federal district court in Washington, D.C. has ruled (Oxbow Carbon & Minerals LLC v. Union Pacific Railroad Co., February 26, 2013, Friedman, P.) The federal antitrust claims asserted by six related companies that were customers of the railroads were therefore dismissed.

The plaintiffs, each of which is involved in various aspects of the production, marketing, sale, and shipment of coal and petroleum coke, further contended that Union Pacific independently monopolized or attempted to monopolize the rail freight market in the Western United States by participating in the alleged conspiracies and failing to take certain pro-competitive actions, including expanding rail infrastructure in the Western United States.. However, they failed to allege adequate facts to state a claim for unlawful price fixing or for monopolization, attempted monopolization, or conspiracy to monopolize, in the court’s view.

Sec. 1 claims. The complaint lacked sufficient factual allegations concerning how any one of the six different plaintiffs was harmed by the alleged conspiracy, the court found. The complaint provided only a one or two sentence description of each entity and included very little information about the business operations of the individual plaintiffs. It contained no information about where most of the plaintiffs conducted their coal and petroleum coke operations, and made no mention of which entities purchased freight transportation services from the defendants, let alone which entities even paid the alleged anticompetitive fuel surcharge.

The plaintiffs appeared to concede that certain entities among them did not pay the uniform standard fuel surcharge, but rather a distinct coal-specific surcharge. The court noted that even if it were to accept the plaintiffs’ characterization of the coal surcharge as sufficiently similar to the fuel surcharge referenced in the complaint, it could not identify within the complaint “the basic facts to support an inference that each plaintiff was harmed by the imposition of any surcharge.” This was because the plaintiffs failed to specifically allege that each entity paid a surcharge at all; instead, the court observed, they merely stated that the six entities in the aggregate paid fuel surcharges.

By omitting basic facts about each entity’s business operations, the plaintiffs fell short of “the threshold requirement of [Federal Rule of Civil Procedure] 8(a)(2) that the ‘plain statement’ possess enough heft to sho[w] that the pleader is entitled to relief,” the court said, citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), 2007-1 Trade Cases ¶75,709.

Sec 2. claims. Union Pacific and BNSF would not have conspired to monopolize the market for either rail freight transportation services or rail freight transportation services for coal and petroleum coke in certain western parts of the United States by agreeing not to compete with each other for incumbent customers, the court decided. This was because acts to create or maintain a shared monopoly could not give rise to a Sec. 2 claim. The complaint clearly alleged that the defendants each held market power in the same markets and acted in order to protect this shared monopoly, in the court’s view.

The court noted that “[i]n enacting the prohibitions on monopolies, Congress was concerned about ‘the complete domination of a market by a single economic entity,’ and therefore did not include ‘shared monopolies’ or oligopolies within the purview of Section 2.” Thus, to the extent that the plaintiffs had alleged a market structure in which Union Pacific and BNSF each possessed and sought to protect market power within the same markets, their monopoly claims based on an alleged agreement to monopolize had to fail.

Even if the complaint were construed to allege a conspiracy to allocate an entire market to Union Pacific, the plaintiffs still did not plead conspiracy to monopolize under the Twombly standard. Their allegation of parallel conduct and bare assertion of conspiracy did not suffice. While the complaint did aver that a parallel sudden shift had taken place in the defendants’ conduct in the context of an industry structure conducive to collusion and alongside an alleged conspiracy regarding pricing, the court noted that it lacked factual allegations about how the alleged agreement came about, the basic terms of the agreement itself, or any explanation of how the defendants used the agreement to monopolize the rail freight market. Moreover, they did not once explicitly specify which market Union Pacific and BNSF purportedly agreed to allocate to Union Pacific, instead suggesting that both defendants continued to serve their respective incumbent customers within the same markets. Without basic factual information about the alleged conspiratorial agreement, the allegations did not raise a right to relief above the speculative level.

The plaintiffs also could not maintain monopolization or attempted monopolization claims based on the accusation that Union Pacific “restricted in many ways the flow of all rail traffic in the Western United States to prevent meaningful competition.” The plaintiffs asserted that Union Pacific had “failed to take procompetitive actions”—specifically, by discontinuing operations on one line and failing to increase capacity at a particular tunnel—despite representations that it would invest in infrastructure.

Claims of “insufficient assistance in the provision of service to rivals” generally were not cognizable Sec. 2 claims, and the complaining customers had provided no further explanation of how Union Pacific’s failure to undertake these infrastructure developments fell within any exception to that general rule, the court explained.

The case is Civil Action No. 11-1049 (PLF).

Companies: Oxbow Carbon & Minerals LLC; Oxbow Mining, LLC; Oxbow Calcining International LLC; Oxbow Midwest Calcining LLC; Oxbow Calcining LLC; Terror Creek LLC; Union Pacific Railroad Company; BNSF Railway Company.

Attorneys: Merril Jay Hirsh (Troutman Sanders LLP) for Oxbow Carbon & Minerals LLC; John M. Majoras (Jones Day) for Union Pacific Railroad Company.

Cases: Antitrust DistrictofColumbiaNews