Antitrust Law Daily Wrap Up, ANTITRUST—E.D. Pa.: Egg purchasers’ expert satisfies Daubert factors, survives motion to exclude, (Jan 28, 2015)

By Greg Hammond, J.D.

In a price fixing class action brought by various direct purchasers of egg products, egg producers were unable to exclude the declaration, opinions, and testimony of the direct purchasers’ expert. In denying the producers’ motion to exclude, the federal district court in Philadelphia determined that the direct purchasers demonstrated that their expert was qualified in the field of economics; his analyses and damages model were reliable; and his declaration sufficiently fit the theory of the case (In re Processed Egg Products Antitrust Litigation, January 26, 2015, Pratter, G.).

Background. Grocery stores, commercial food manufacturers, restaurants, and other food service providers that purchased shell eggs and egg products (collectively, direct purchasers) filed a series of class action suits against egg producers, including Cal-Maine Foods, and trade association groups for manipulating the supply of eggs and egg products and thereby affecting domestic prices for those goods. The direct purchasers are seeking class certification and have offered the testimony of Dr. Gordon Rausser—who holds a Ph.D. in economics—in support of their motion. The egg producer defendants moved to exclude Rausser’s declaration, opinions, and testimony.

According to the court, the issues for consideration in a Daubert hearing are qualifications, reliability, and fit. As a preliminary matter, the court found that Rausser’s qualifications and experience demonstrated that he was qualified in the field of economics.

Factual record. The egg producers first challenged that Rausser’s testimony in sections IV and V of his declaration do not rely on his economic expertise, but merely on his cursory consideration of the evidence. The court, however, found both sections admissible. Specifically, section IV, titled “The U.S. Egg Industry is Conducive to Price Manipulation through Output Restriction,” was deemed admissible because the subjects discussed in this section were appropriate for an economist to opine on, and it would be helpful to the finder of fact since the conditions of a market that make collusion possible were outside the layperson’s body of knowledge and expertise. In addition, Section V, titled “Conspiracy Period Behavior and Pricing is Consistent with Collusion,” was found admissible because Rausser was applying principles from Section IV, and he was relating his factual findings so that in subsequent sections of his report, he could test whether the data are consistent with the theory of the case.

Reliability. The court next considered whether Rausser’s co-movement analysis in support of class-wide impact, his common factors regression model in support of common impact, and his damage model were reliable. First, the court found that the co-movement analysis in support of class wide impact was reliable enough because: (1) although his reliance on “average” prices of egg products was “suspect,” his methodology was reliable for demonstrating to some extent that the prices of eggs across various product types and geographic locations are related and “driven by the same supply and demand factors”; and (2) to the extent the egg suppliers argued that Rausser’s co-movement analysis is unhelpful, such an argument would be better addressed at the class certification stage of litigation.

Second, in Rausser’s declaration, he attempted to demonstrate that he can create a regression that shows the price of eggs is determined by a set of common factors. This was also deemed reliable, because the defendants were unable to identify any factor that Rausser failed to account for that was significant enough to render his analysis unreliable.

Lastly, the egg producers challenged Rausser’s method for calculating class wide damages, arguing: (1) Rausser’s regressions imply injury for putative class members that could not have been injured; (2) his model is unstable and unreliable; (3) Rausser’s benchmark period does not allow him to estimate any alleged overcharge; and (4) he made faulty assumptions about cage space requirements. The court rejected all four arguments, finding that the method for calculating damages was admissible under Daubert, but noting that these issues may affect its weight and should be revisited at class certification.

Fit. In their final argument, the egg producers asserted that Rausser’s regression model did not fit the direct purchasers’ theory that the producers conspired to reduce the supply of egg-laying hens. The court, however, concluded that for Daubert purposes, his testimony was relevant and reliable as a fairly straightforward way of estimating the increase in price attributable to the conspiracy. Specifically, the model “bakes in,” to some extent, the effect of supply on the price, and Rausser further set forth evidence that the demand for eggs was inelastic, demonstrating that the price is primarily determined by the supply of eggs. Consequently, under the model, an increase in price of eggs can fairly be attributed to an illegitimate restriction of supply.

The case number is 08-md-2002.

Attorneys: Moira Cain-Mannix (Marcus & Shapira LLP) for Marsh Supermarkets LLC. Evan W. Davis (Schnader Harrison Segal & Lewis LLP) for United Egg Producers, Inc. and United States Egg Marketers, Inc. Joseph M. Callow (Keating Muething & Klekamp) for Ohio Fresh Eggs, LLC. Carrie M. Anderson (Weil Gotshal & Manges LLP) for Michael Foods, Inc. Donald M. Barnes (Porter Wright Morris & Arthur LLP) for Rose Acre Farms, Inc. Christine C. Levin (Dechert LLP) for R.W. Sauder, Inc.

Companies: Marsh Supermarkets LLC; United Egg Producers, Inc.; United States Egg Marketers, Inc.; Ohio Fresh Eggs, LLC; Michael Foods, Inc.; Rose Acre Farms, Inc.; R.W. Sauder, Inc.

Cases: Antitrust PennsylvaniaNews