EAST ST. LOUIS – Former U.S. magistrate judge Stephen Williams recommends that Alton & Southern Railway share with CSX Transportation an audit pertinent to their $20 million dispute in district court.
On June 25, as special master, he advised Chief Judge Nancy Rosenstengel to deny Alton & Southern’s assertion of privilege on 194 audit documents.
Alton & Southern’s corporate parent, Union Pacific, conducted the audit.
Williams found the audit might have been related to litigation but the railroad didn’t prepare it for litigation.
Alton & Southern sued CSX for $4,364,090 in holding charges in 2017, claiming CSX delayed in accepting freight trains Alton & Southern built.
“It is not crystal clear from the facts in the record whether Union Pacific’s corporate audit department learned of the unbilled charges from the legal department when it was notified of the litigation or whether it learned of the unbilled charges in the course of its audit,” Williams wrote.
“It is also not completely clear whether Union Pacific corporate audit would have conducted an audit of the unbilled charges regardless of the current litigation or the law department’s request.”
He wrote that auditors prepared a special review of holding charges at Alton & Southern and a general report on the railway.
The audit committee discussed the review and the report at meetings in July, September, October and November 2018.
In December 2018, Alton & Southern amended its complaint to claim $19,780,670.
CSX moved to compel production of the audit, and Alton & Southern provided a log asserting work product privilege.
CSX moved again to compel production, and Rosenstengel appointed Williams to recommend resolution.
He found Alton & Southern failed to establish that the primary purpose of the documents was litigation, that the special review and the general report were circulated in preparation for an audit committee meeting and that neither document could fairly be described as having been created for the purpose of litigation.
“Rather, they are corporate governance documents distributed to Union Pacific’s corporate officers and directors for the purpose of facilitating oversight of Alton & Southern, one of Union Pacific’s wholly owned subsidiaries,” Williams wrote.
He found auditors assigned grades to operations and wrote, “This uniform grading system has no application to advancing litigation.”
He found management responses touched on personnel and one related directly to those involved in billing.
“Although these management responses involve strategy, they have nothing to do with legal or litigation strategy,” he wrote.
“Instead, they have everything to do with Union Pacific’s business strategy for managing Alton & Southern.”
He found an audit committee book contained no litigation strategy, but the way the privilege log described it might lead the reader to conclude otherwise.
“If litigation leads a business to identify, and take steps to rectify, problems with its processes, those actions do not fall under the work product protections,” he wrote.
“This is true even if the problems were initially identified by an attorney led investigation in support of that litigation.”
Among 213 documents on the privilege log, he protected 15 as work product and four as attorney client privilege.
Rosenstengel has set trial in December.
Kyle Wallor of Omaha and Paul Waller of Belleville represent Alton & Southern.
Charles Swartwout of Belleville and Allison Lee of St. Louis represent CSX.