After seven years of litigation, the Rail Freight Fuel Surcharge Antitrust Litigation has been further delayed. After twice postponing a hearing on the critical issue of class certification this fall, Judge Paul L. Friedman of the U.S. District Court for the District of Columbia issued an Opinion and Order (“Order”) on November 26 with a revised schedule allowing the plaintiffs to file a supplemental expert report by an additional expert on or before April 1, 2015. This unusual delay—in a case in which a class had previously been certified but where certification was vacated by the Court of Appeals because of a criticism of the plaintiffs’ expert evidence—was caused by the unprecedented situation in which the plaintiffs’ class and damages expert, Gordon Rausser, was found to have a likely financial conflict of interest. While it will not be a complete do-over of expert discovery and briefing, the new round of expert testimony will likely delay a decision on class certification at least seven months or, more likely, close to a year. The new deadlines set by the Court are as follows:
- April 1, 2015 – Plaintiffs’ supplemental expert report due
- April 15, 2015 – Defendants to notify the Court whether they intend to file an additional expert report
- April 22, 2015 – On or before this date, the parties must jointly propose a schedule for defendants’ deposition of plaintiffs’ supplemental expert, the deposition of defendants’ expert, if necessary, and further briefing, if necessary
Plaintiff shippers are suing the Class I railroads to recover damages from an alleged conspiracy to overcharge for fuel. The plaintiffs seek class certification so that the shippers as a group may sue in a single lawsuit. The District Court first certified the putative class in 2012, but the railroads successfully secured a reversal of the certification by arguing on appeal that the plaintiffs’ expert’s economic model was defective and by relying upon an intervening “clarification” of class certification standards by the Supreme Court (Comcast Corp. v. Behrend). On remand, the District Court instituted a process for reconsideration that included a new extensive round of expert discovery and that was expected to result in arguments this fall as to whether the class should be certified again.
The Potential Conflict of Interest
Just prior to the new class certification hearing, the plaintiffs’ attorneys were “blind-sided,” according to the Court, with evidence that Rausser, the expert economist on whom they had relied throughout the class certification process, had an apparent financial conflict of interest. Without knowledge of the plaintiffs’ attorneys, Rausser and his consulting company had, shortly after completion of the initial class certification hearing in 2010, entered into agreements with Cascade Settlement Services (“Cascade”) to provide consulting and other services. Cascade invests in class action lawsuits by buying out the claims of potential class plaintiffs and has done so in this case. Additionally, Rausser invested in Cascade funds and may have provided the firm with information and opinions regarding the case.
Rausser has maintained that he does not have a conflict of interest. He submitted his original class certification report prior to his involvement with Cascade, but he offered supplemental testimony after engaging in the relationship with Cascade. Defense counsel learned of the Cascade relationship in March of this year but, apparently for tactical reasons, did not reveal the information to plaintiffs’ counsel until the eve of the scheduled certification hearing. Plaintiffs’ counsel then immediately brought it to the attention of the Court.
Because Rausser has a potential financial interest in class certification, the integrity of his testimony has become an issue. Prior to revelation of the potential conflict of interest, the defendant railroads had argued that Rausser’s economic models on class-wide impact of the alleged price-fixing conspiracy were methodologically flawed. Now that the apparent conflict of interest has been disclosed, defendants have an additional argument for challenging his testimony, i.e., that it is infected by bias.
The Parties’ Arguments
Because of Rausser’s apparently unilateral actions, the Court and both sides of the litigation were forced into the position of having to consider whether his testimony was so tainted as to be unusable. If so, the class certification process likely would have to start over—a result that would impose significant costs on all parties. Alternatively, if the Court were to permit Rausser to continue as plaintiffs’ only expert, the conflict of interest could create a distraction that would interfere with presentation of the merits of plaintiffs’ claim. In an effort to avoid either result, the plaintiffs moved the Court for leave to file a supplemental expert report to attest to the integrity of Rausser’s expert analysis and methodologies.
In the Order, the Court granted plaintiffs leave to “supplement” Rausser’s evidence through a new expert. The supplemental expert may review and conduct tests on Rausser’s evidence and provide an opinion but may not advocate new theories. The new expert must confine his or her opinion to the reliability, integrity and accuracy of Rausser’s previous work.
The defendants unsuccessfully argued that no supplemental witness was required. The railroads wanted the tactical advantage of having Rausser’s conflict of interest available as a ground for impeaching his expert report. Additionally, the railroads argued that permitting a supplemental expert witness would be unfair and prejudicial because it would cause additional delay and drive up litigation costs. The District Court decided, however, that another five-month delay would be reasonable “in light of the seven-year-long history of this case and the stakes involved.” The Court declined to award attorney fees and costs against the plaintiffs, finding that there was no record of bad faith, manipulation or lack of diligence by the plaintiffs or their counsel.
Next Steps & Tactics
The Order directs the plaintiffs to file their supplemental expert report on or before April 1, 2015. The defendants can then notify the Court whether they intend to file an additional expert report. The Court further ordered that, by April 22, 2015, the parties shall jointly propose a schedule for defendants’ deposition of plaintiffs’ supplemental expert and the deposition of defendants’ expert, if necessary.
The Court’s decision to allow the class certification process to be extended has benefits and costs for both sides. The defendants have preserved their ability to attack Rausser’s credibility and his approach—including for purposes of a second appeal, if necessary. They have also gained at least some additional delay, which typically serves the interests of defendants. They will have another opportunity, once the supplemental report is filed, for additional briefing and arguments. The plaintiffs, on the other hand, get a third chance to repair any flaws in Rausser’s original models, this time with a new expert.