KANSAS CITY, Mo. (KCTV) – More than a dozen farmers are suing Union Pacific Railroad, claiming a secret deal drove up grain prices and blocked competition.
The federal lawsuit, filed Tuesday, Jan. 27, alleges Union Pacific and Kansas & Oklahoma Railroad conspired to preserve a monopoly over westward grain shipments from Kansas and Colorado.
Union Pacific, however, denies the claims.
“Union Pacific denies the allegations of the lawsuit and will present the facts to the court and Surface Transportation Board, which handles these issues,” the company wrote in a statement to KCTV5.
What the lawsuit alleges
The Soloviev Group says its subsidiaries – Weskan Grain and Colorado Pacific Railroad – filed the lawsuit against Union Pacific and K&O on Tuesday.
Law firms Ajamie LLP and Sharp Law LLP represent the farmers.
The lawsuit alleges the two railroad companies deliberately stifled competition for a newly rehabilitated rail line to preserve control over westward shipments of grain.
According to Tom Ajamie, managing partner at Ajamie LLP, the two did so through a secret agreement to impose exorbitant fees on rail traffic from western Kansas to eastern Colorado.
The lawsuit claims the railroads used the secret agreement to impose a $500-per-railcar fee on the shipments using a competing rail line. That fee made it “cost-prohibitive” for farmers to use the alternative route.
The lawsuit also alleges violations of the Sherman Act, the federal antitrust law, as well as Kansas and Colorado state competition laws.
The $500 fee that changed everything
At the heart of the lawsuit is a connection fee that allegedly blocks farmers from using a more direct, cost-effective route to West Coast markets.
The complaint says Union Pacific and K&O secretly amended a 1997 lease agreement in 2019. The amendment imposed an “interchange fee” exceeding $500 on any railcar that connected with the competing Towner Line.
“Based on information and belief, the Interchange Fee exceeds $500 per railcar, making it cost-prohibitive for parties shipping grain west from the Relevant Market to use the Towner Line,” the suit states.
Since the fee was adopted more than six years ago, not a single westbound railcar carrying any commodity has shipped over the Towner Line from the affected region, according to the complaint.
“In fact, no westbound railcar carrying any commodity has shipped from the Relevant Market and travelled over the Towner Line in the more than six years since the Interchange Fee was adopted,” the petition notes. “Defendants, therefore, have used the Interchange Fee to unlawfully maintain their dominance over westbound shipments from the Relevant Market.”
Why farmers need West Coast access
According to the plaintiffs, grain farmers and shippers must reach West Coast markets to remain competitive. Those markets contain several of the largest mills and ports.
Farmers need nearby rail lines to transport grain, they continued, as trucks and distant rail lines are too expensive.
Between 1996 and 2018, farmers could not transport grain west on the Towner Line due to its condition, the suit claims.
“CXR attempted to give shippers and farmers in the Relevant Market an alternative and more direct route west by purchasing the Towner Line in early 2018 and rehabilitating it. The line reopened for freight service in 2019,” according to the suit.
But shortly after the line reopened, the suit notes that Union Pacific and K&O allegedly imposed the $500 fee – effectively shutting down the competition.
The impact on farmers and consumers
By increasing the cost of shipping grain west and preventing the use of the Towner Line, the suit claims that the pair decreased the amount that farmers receive for their grain.
The move also increased the amount that Weskan pays to transport grain and significantly reduced the amount that CXR generates from the Towner Line, the petition states.
The plaintiffs say that higher shipping costs for farmers ultimately mean higher prices for consumers who buy grain products.
The rail line at the center of the dispute
Union Pacific owns the Lease Track and leases it to K&O following a 1997 lease agreement, the complaint says.
The track connects to the K&O-owned Great Bend Line to the east and the XCR-owned Towner Line to the west.
Shortly after CXR acquired the Towner Line in 2018, the suit claims Union Pacific and K&O secretly and illegally amended the 1997 lease.
As part of the 2019 amendment, the complaint indicates that the pair agreed to impose a significant interchange fee on any railcar that originated or terminated on the Lease Track and interchanged with the Towner Line.
Who’s suing
The 13 farmer plaintiffs include:
- D&L Farms, GP, Scott City, Kansas
- E&D Farms, GP, Marienthal, Kansas
- D&C Farms, GP, Marienthal, Kansas
- L&E Farms, GP, Leoti, Kansas
- North Four Farms, GP, Marienthal, Kansas
- Marienthal Grain LLC, Marienthal, Kansas
- D&A Farms, GP, Dighton, Kansas
- Hineman Land & Cattle, Inc., Dighton, Kansas
- Hineman Ranch, L.L.C., Dighton, Kansas
- Circle C Farms, Inc., Scott City, Kansas
- Steven Compton, Scott City, Kansas
- Mark Sanders, Towner, Colorado
- JLD Partnership, Eads, Colorado
The firm claims that Union Pacific secretly agreed and conspired with the short-line railroad owner operator to stifle competition and control westward shipments of grain from:
- Kansas
- Lane County
- Scott County
- Wichita County
- Greeley County
- Colorado
- Kiowa County
The bigger picture: Union Pacific’s merger plans
According to Ajamie, Union Pacific is currently attempting to merge with Norfolk Southern to form a transcontinental freight railroad.
The company has cited bottlenecks across the country that slow down freight rail transit.
“With this lawsuit, Weskan Grain and Colorado Pacific Railroad also seek to make freight rail transportation more efficient by making it easier for rail traffic to move east to west on multiple lines, not just those owned by Union Pacific Railroad Company,” Ajamie says.
What the lawsuit claims
The lawsuit alleges that through the secret agreement and related misconduct, the defendants have fixed, raised and stabilized transportation prices for the westward shipments of grain.
Plaintiffs also say the move allocated markets between the two companies and harmed them through higher prices and lost profits, thereby eliminating competition in the region.
As a result, the suit claims the defendants violated Sections 1 and 2 of the Sherman Act and Kansas and Colorado state competition laws.
The lawsuit seeks to end the alleged monopoly and recover damages for the farmers.
What happens next
The case will be heard in federal court. Union Pacific says it will also present its case to the Surface Transportation Board, the federal agency that regulates railroads.
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