Grappling with Deregulation and Shared Facilities

Last summer, the long-running In re: Rail Freight Fuel Surcharge Antitrust Litigation 1 case took a detour through a rarely cited section of the Staggers Rail Act of 1980 (“Staggers”)2 that excludes certain communications and agreements between competing rail lines from evidence in antitrust cases. In response to the parties’ briefing on the scope of the statute, the Court requested the Department of Justice’s views on the statute. Though the DOJ’s guidance was specifically focused on the statute at issue, the advice it contained is relevant for competitors in any industry that have legitimate reasons in certain contexts to communicate with competitors or agree on prices with competitors, even as they otherwise compete on prices with them in the market. In the Rail Freight Fuel Surcharge litigation, the legitimate communications involve interline pricing between rail carriers shipping freight across multiple rail networks. In other industries, for example, it can involve a vertically-integrated company providing logistical or back-office services to a customer-facing competitor with which they compete for retail customers, or other dual distribution circumstances.

The Rail Freight Fuel Surcharge case concerns allegations that rail carriers colluded to charge customers higher rates through fuel surcharges. Staggers attempted to strike a balance between exposing rail rates to market forces, including antitrust laws, and allowing competing rail carriers to communicate lawfully about rates on shared interline traffic. It did so by making inadmissible evidence of a discussion or agreement between competing rail carriers that concerned an interline movement of one of the rail carriers if the discussion or agreement, would not, considered by itself, violate antitrust laws.

Rail freight can be moved via local traffic (involving a single rail carrier) or interline traffic (involving freight moving between two or more rail carriers). Rail carriers necessarily discuss and agree upon interline rates to allow freight to move freely across the whole national rail network. Staggers insulated lawful discussions about interline rates from antitrust scrutiny, to allow companies to efficiently settle interline rates without fear of treble damages and other antitrust penalties.

After the Rail Freight Fuel Surcharge defendants filed a motion regarding interpretation of the statute, and pointed out that the Court would be the first to interpret the statute since it was enacted, the Court requested the views of the United States via the Department of Justice and Federal Trade Commission as to the meaning of the statute and the intent of Congress when it enacted the statute.3

The DOJ filed a brief explaining its position, following consultation with the FTC, the Department of Transportation, and the Surface Transportation Board. The brief disagreed with both the defendants’ argument—that the statute requires courts to analyze each item of evidence on its own, and exclude any evidence that does not directly prove an antitrust conspiracy—and the plaintiffs’ argument that the statute only applies to suits involving “regulated” traffic such as contract or exempt traffic.

The DOJ instead argued that the statute makes evidence inadmissible if the rail carrier can show that (1) a discussion or agreement at issue concerns interline traffic; and (2) the evidence of a discussion or agreement would not, considered by itself, violate the antitrust laws.4 Most importantly for both the interpretation of the statute and practical guidance for future conduct, the DOJ clarified that a discussion or agreement that concerns interline traffic should only concern interline traffic, rather than discuss interline traffic as part of a broader discussion or agreement about rates.5 The DOJ also argued that in determining whether a piece of evidence, considered by itself, violates the antitrust laws, a defendant must show that the piece of evidence would not violate the antitrust laws by itself.6 The DOJ thus rejected the defendants’ proposed interpretation that the statute only applies to direct evidence of conspiracy, and proposed that courts should “make a contextual judgment about the proper scope of the ‘discussion or agreement’ at issue, and in doing so they should follow the Supreme Court’s admonition that statutes not be applied in a way that would confer antitrust exemptions and immunities without clear congressional mandate. The “discussion or agreement” should be defined, in other words, so that carriers cannot circumvent the antitrust laws by selectively cherry-picking the record to exclude probative evidence of anticompetitive behavior.”

Although the DOJ’s brief focused on the interpretation of Staggers, its guidance is relevant for counsel and clients in any industry in which companies engage in interline rate-setting, dual distribution, or other lawful communications or agreements about competitively sensitive agreements with firms with which they compete in other contexts. Most important is that lawful discussions with competitors related to pricing or other sensitive information should be cabined to only involve those employees who are responsible for such legitimate, coordinated rate-setting, and the discussions should not be combined with communications regarding competitive aspects of the industry. The best practice would be to firewall personnel and information between those with access to interline communications and agreements, on one side of the firewall, and those with access to competitively sensitive information, on the other side.

The DOJ’s position regarding whether a communication, “considered by itself,” violates the antitrust laws is also helpful to guide clients’ behavior. The brief acknowledged that direct evidence of an unlawful agreement is rare, as many courts have recognized.7 Instead, a court following Staggers must examine evidence of an agreement or communication in context with other evidence to determine whether it is admissible. Similarly, even at the pleading stage of antitrust cases, courts examine a plaintiff’s allegations of parallel conduct (such as concurrent or parallel price increases among competitors) with other circumstantial evidence or “plus factors” to determine whether an antitrust conspiracy is adequately pled.8 Thus, clients must be aware of factors including industry structure, trade associations, and employees’ conduct—apart from direct discussions about pricing or other sensitive subjects—to evaluate their exposure to antitrust risk.

1 No. 07-mc-00489 (D.D.C.).

2 49 U.S.C. § 10706(a)(3)(B)(ii)(II).

3 No. 07-mc-00489 (D.D.C.), Dkt. 933 (Feb. 25, 2020).

4 No. 07-mc-00489 (D.D.C.), Dkt. 969 (July 28, 2020), at 6.

5 No. 07-mc-00489 (D.D.C.), Dkt. 969 (July 28, 2020), at 7-10.

6 Id. at 17.

7 See, e.g., Anderson News, L.L.C. v. American Media, Inc., 680 F.3d 162, 184 (2d Cir. 2012) (“conspiracies are rarely evidenced by explicit agreements, but nearly always must be proven through inferences that may fairly be drawn from the behavior of the alleged conspirators.”).

8 See, e.g., Mayor & City Council of Baltimore, Md. v. Citigroup, Inc., 709 F.3d 129, 136 (2d Cir. 2013).

Share this post: