Union Pacific 2011 Annual Report Download - page 18

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18
damages of over $30 million, and other unspecified damages, including treble damages. Some of the
allegations in the complaint are addressed in the existing fuel surcharge litigation referenced above. The
complaint also includes additional unrelated allegations regarding alleged limitations on competition for
shipments of Oxbow’s commodities. Judge Friedman, who presides over the fuel surcharge matter
described above, also presides over this matter. The parties filed briefs and answers regarding the
motions to dismiss the action filed by the defendant railroads, and the court’s decision regarding this
motion is pending.
We deny the allegations that our fuel surcharge programs violate the antitrust laws or any other laws and
deny the other allegations in the Oxbow complaint. We believe that these lawsuits are without merit, and
we will vigorously defend our actions. Therefore, we currently believe that these matters will not have a
material adverse effect on any of our results of operations, financial condition, and liquidity.
U.S. Customs and Border Protection (CBP) Dispute and Litigation – As we reported in our Quarterly
Report on Form 10-Q for the quarter ended June 30, 2010, CBP directed its field offices to issue penalties
against the Railroad beginning in December 2007 for discoveries of illegal drugs in freight cars crossing
the border from Mexico. The freight cars were in trains delivered by Mexican railroads directly to CBP; the
Railroad received the trains only after CBP inspected them. Additionally, CBP asserted or reinstated
previously asserted penalties that had been held in abeyance while the Railroad and CBP pursued a
collective plan to address drug smuggling. In some instances, CBP seized freight cars in which drugs
were found. The parties resolved their dispute over the seized freight cars, which were released by CBP
for a payment by the Railroad of $40,000. The total amount of fines for drug seizures asserted by CBP
prior to June 1, 2011, exceeded $500 million.
On July 22, 2011, the Railroad and the Acting Commissioner of CBP signed an agreement under which
the Railroad does not pay any fines but commits to participate in, and provide $50 million to fund, a major
initiative to enhance border and supply chain security for rail shipments transiting the border with Mexico.
CBP will reduce all fines asserted prior to June 1, 2011 (other than those involved in the Nebraska
litigation discussed below) to zero on a pro rata basis as the Railroad makes expenditures of its $50
million commitment. Under the agreement, CBP also agrees that it will not assert penalties for drugs
found on or after June 1, 2011, for a period of five years unless the Railroad fails to carry out the
agreement or the Railroad or its personnel have specified degrees of involvement in drug smuggling. The
agreement does not compromise the position of either party regarding the validity of the fines. CBP
maintains its position that the fines were required by law, while the Railroad maintains its position that it
has complied with all laws.
As previously reported in our disclosures regarding the CBP dispute and litigation, the Railroad filed a
complaint in the U.S. District Court for the District of Nebraska on July 31, 2008, asking the court to enter
(1) a judgment declaring that CBP’s penalties and seizures are invalid and unenforceable and (2)
preliminary and permanent injunctions prohibiting CBP from enforcing penalties and holding seized freight
cars and directing CBP to refrain from asserting additional penalties and from making future equipment
seizures. On December 19, 2011, the District Court ruled in favor of the Railroad, finding that the CBP
acted outside of its authority in assessing the penalties. The court also entered a permanent injunction
that enjoins CBP from taking any action against the Railroad for seizures of drugs found on railcars
entering the U.S. from Mexico over which the Railroad has no control. The amount of fines involved in the
Nebraska litigation, approximately $38 million, is not material to the Railroad. Therefore, the resolution of
this matter will not have a material adverse effect on any of our results of operations, financial condition,
and liquidity.
Item 4. Mine Safety Disclosures
Not applicable.