A federal judge on Thursday dismissed a lawsuit accusing Norfolk Southern NSC.N of causing hundreds of millions of dollars of losses for bondholders by concealing safety risks prior to the February 2023 derailment in East Palestine, Ohio of a train carrying hazardous chemicals.
U.S. District Judge Lewis Kaplan in Manhattan found no proof to support bondholder claims that Norfolk Southern’s statements in offering materials about its focus on safety were false, or that it was “cutting corners” on safety in pursuit of profits.
Kaplan found no duty to disclose that the use of “Precision Scheduled Railroading,” which employs longer and heavier trains with fewer workers, caused an unspecified increase in the risk of accidents, or that the Federal Railroad Administration in 2021 found Norfolk Southern’s conductor training inadequate.
He also said Norfolk Southern was not obligated to disclose that early improvements in operating metrics under a business strategy adopted in 2019 would prove unsustainable.
“When an issuer makes a disclosure about a particular topic, the representation must be complete and accurate,” Kaplan wrote. “Plaintiffs’ argument, however, stretches these principles past their logical breaking point.”
The lawsuit led by pension funds in Ohio and Michigan sought damages for investors who owned $3.95 billion of Norfolk Southern senior notes and bonds from seven offerings by the Atlanta-based railroad between May 2021 and January 2023.
Lawyers for the plaintiffs did not immediately respond to requests for comment.
Norfolk Southern said Kaplan’s decision reached “the right result, and we are very pleased with the outcome.”
A federal magistrate judge had recommended to Kaplan last July that the plaintiffs could pursue some of their claims.
The February 3, 2023 derailment included 38 railcars, and released more than 1 million gallons of hazardous materials and pollutants into the environment.
Last month, Norfolk Southern said it has incurred $1.44 billion of costs for environmental remediation and monitoring, community assistance and legal settlements from the derailment, after accounting for insurance payouts.
The case is Ohio Carpenters Pension Fund et al v Norfolk Southern Corp Bond-Note Securities Litigation, et al, U.S. District Court, Southern District of New York, No. 23-04068.
(Reporting by Jonathan Stempel in New York; Editing by Chris Reese and Nick Zieminski)
Photo: A view of the scene Friday, Feb. 24, 2023, as the cleanup continues at the site of of a Norfolk Southern freight train derailment that happened on Feb. 3 in East Palestine, Ohio. (AP Photo/Matt Freed)
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