Pensions invested in Norfolk Southern sue the railroad over 'omissions'
Pension funds invested in Norfolk Southern have filed a proposed class action lawsuit alleging that the railroad, its executives, and security underwriters should be held liable for allegedly failing to disclose business strategies that led to an increased risk of derailments.
A complaint was filed Tuesday in U.S. District Court in New York by the Ohio Carpenters Pension Fund and the City of Pontiac Reestablished General Employees’ Retirement System alleging that due to “misleading statements and omissions” the price Norfolk Southern’s Senior Notes dropped, causing hundreds of millions of dollars in damages to holders of the notes.
According to Investopedia, Senior notes are bonds that must be repaid before most other debts if the issuer declares bankruptcy, making senior notes more secure than other bonds.
The complaint cites the February 3, 2023, East Palestine derailment and other derailments leading to government investigations into the railroad’s safety practices.
According to the lawsuit, the market value of the Senior Notes has fallen below their issuance prices, using as examples Senior Notes issued in May 2021 were trading at 68% of their value, and notes issued in August 2021 trading at 64% of their value three and a half months after the East Palestine derailment.
The suit enumerates the alleged misleading statements and omissions by Norfolk Southern, including the railroad’s use of the so-called “Precision Scheduled Railroading”, which according to attorneys Labaton Sucharow “was part of the culture of increased risk-taking at the expense of reasonable safety precautions due to the Company’s near-term focus on profits.”
Claiming that Norfolk Southern was more vulnerable to train derailments, the complaint also alleges that the railroad’s capital spending and replacement programs were “designed to prioritize profits over the Company’s ability to provide safe, efficient, and reliable rail transportation services.”
The lawsuit is also critical of Norfolk Southern’s lobbying efforts, claiming they also undermined safety efforts.
The complaint claims that the Precision Scheduled Railroading strategy undermined worker safety and a commitment to an injury-free workplace because “the plan prioritized reducing expenses through fewer personnel, longer trains, and less spending on safety training, technology, and equipment.”
The suit states that the alleged undisclosed adverse facts and circumstances made an investment in Norfolk Southern’s Senior Notes speculative or risky.
The complaint accuses the railroad of violating the Securities Act and asks the court to declare the case a class action, which would allow other holders of Norfolk Southern Senior Notes to join as plaintiffs.
Asked to respond to the complaint, a spokesperson for Norfolk Southern told 21 News that they are unable to comment on pending litigation.