February 05, 2015 Articles

A Look at the Tenth Circuit's Urethane Antitrust Ruling

What it does and does not say about the reach of Comcast and the role of courts as gatekeepers for expert testimony.

Eric S. Hochstadt and Jane Cooper

On September 29, 2014, the Court of Appeals for the Tenth Circuit affirmed the class certification determination in In re Urethane Antitrust Litigation, 768 F. 3d 1245 (10th Cir. 2014) (Urethane) and left intact a jury verdict resulting in a $1 billion award against Dow Chemical Company (Dow). The Tenth Circuit subsequently declined Dow's request for a re-hearing en banc. The decision is notable in two respects: (i) how it distinguished the Supreme Court's recent decision in Comcast Corp. v. Behrend, 133 S.Ct. 1426 (2013) (Comcast); and (ii) how disputes over expert testimony were left to the jury as matters going to the weight of the evidence, not its admissibility.

Background


Urethane is a case involving an alleged conspiracy by competitors to fix prices for polyurethane chemical products, used in various consumer and industrial components such as footwear, mattress foams, insulation, and sealants. The plaintiffs are direct purchasers. During the course of the litigation, the plaintiffs settled with six of the seven defendants, leaving Dow as the lone defendant facing treble damage exposure based on joint and several liability. 768 F.3d at 1250.

The district court certified a class of direct purchasers in July 2008. On the day before the trial began, in January 2013, Dow moved to decertify the class. Without ruling on the motion, the court allowed the trial to go forward. The jury ultimately found that Dow had participated in a price-fixing conspiracy, the conspiracy caused the plaintiffs to pay supra-competitive prices, and damages suffered totaled just over $400 million. After trebling the damages and deducting the amounts paid by the settling defendants, the court entered judgment against Dow for just over $1.06 billion. 768 F.3d at 1252.

Over a month after the end of trial, Dow renewed its motion to decertify the class, relying in part for the first time on the Supreme Court's then-recent opinion in Comcast. In Comcast, customers brought an antitrust class action suit against the cable television company, alleging that Comcast obtained a monopoly through transactions with competitors for allocation of regional cable markets, and that Comcast engaged in other conduct excluding and preventing competition. 133 S.Ct. at 1426. In reversing the class certification decision of the Third Circuit, the Supreme Court held that the regression model utilized by the plaintiffs' expert, Dr. McClave (the same damages expert in Urethane), was inadequate to prove that damages could be measured across the entire class to show that common issues would predominate over individual ones. The plaintiffs initially proposed four theories of antitrust impact but the district court accepted only one as capable of class-wide proof. Id. at 1430–1431. Because Dr. McClave's damages model assumed the validity of all four of the plaintiffs' original theories of antitrust impact, it could not provide the basis of common proof necessary for class certification when only one theory was permitted.

Dow argued that the damages models created by plaintiffs' statistics expert, Dr. McClave, failed to provide a nexus between the plaintiffs' theory of harm and the impact on class members. The district court denied the motion. On appeal, Dow challenged, among other things, both the denial of its motion to decertify the class and the admissibility of Dr. McClave's testimony. Id. at 1253.

Distinguishing Comcast


Just like in Comcast, Dow argued that Dr. McClave's model in Urethane suffered the same fatal flaw by failing to distinguish between damages attributable to the liability theory that was pursued at trial and another liability theory not pursued. Id. at 1257. The Tenth Circuit declined to apply Comcast, but instead adopted the views of the Comcast dissent regarding the scope of the Supreme Court's holding: "Comcast does not control because: (1) the decision turned on a concession that is absent here, and (2) we know from the actual trial that individualized issues did not predominate." Id. at 1258. According to the Tenth Circuit, unlike the plaintiffs in Comcast,

our plaintiffs did not concede that class certification required a method to prove class-wide damages through a common methodology. This distinction was highlighted in the Comcast dissent, which explained that the plaintiffs' concession on this point—an "oddity" specific to that case—was outcome determinative.

Id., quoting Comcast, 133 S.Ct. at 1436-1437 (Ginsberg & Breyer, JJ., dissenting).

Importantly, the circuit court noted the different procedural setting of Comcast. Whereas the plaintiffs in Urethane proved class-wide damages at trial, the issue before the Supreme Court in Comcast was whether the district court could determine before trial that the plaintiffs could prove damages on a class-wide basis. Since Dow raised its challenges to Dr. McClave's testimony after trial, the district court "had the discretion to find a 'fit' between the plaintiffs' theory of liability (a nationwide conspiracy to fix prices) and the theory of class-wide damages." Id. at 1259.

Weight vs. Admissibility of Evidence


Dow also challenged Dr. McClave's testimony in two respects. First, Dow contended that plaintiffs' use of Dr. McClave's models resulted in a "trial by formula" that was condemned by the Supreme Court in Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541 (2011) (Wal-Mart). In Wal-Mart, a Title VII gender-discrimination case, the Supreme Court reversed the Ninth Circuit's affirmation of the district court's certification of a class constituting female employees of Wal-Mart Stores. The Court found that there was no "glue" holding together the reasons for the alleged instances of discrimination in pay and promotions to female employees. Id. at 2551–2552. The Court emphasized that what matters for purposes of class certification "is not the raising of common 'questions'—even in droves—but, rather the capacity of a classwide proceeding to generate common answers apt to drive the resolution of the litigation." Id. at 2551. Second, Dow contending that there were flaws in Dr. McClave's multiple-regression analysis that rendered his testimony unreliable and, thus, inadmissible.

As to running afoul of Wal-Mart, the Tenth Circuit disagreed and concluded that the plaintiffs used Dr. McClave's models to approximate damages, not to prove Dow's liability. Urethane, 768 F.3d at 1256–1257. By contrast, the Tenth Circuit remarked that the offending conduct in Wal-Mart wasthe use of expert testimony to prove Wal-Mart's liability in circumstances where there was no "glue" holding together the reasons for the alleged instances of discrimination in pay and promotions to female employees. Id. (citing and quoting Wal-Mart, 131 S.Ct. at 2551–2552). As for Dr. McClave's multiple-regression analysis, the Tenth Circuit noted that the analysis is a statistical tool used to determine the relationship between an unknown, "dependent" variable, such as price, and one or more "independent" variables that are thought to impact the dependent variable. Id. at 1260. The Tenth Circuit went on to note that the validity of a regression analysis depends on selection of the appropriate independent variables. Id. After examining the variables chosen by Dr. McClave and allegedly omitted improperly by Dow, the Tenth Circuit acknowledged that such choices are "open to debate," id. at 1262, and it was within the discretion of the district court to accept Dr. McClave's explanation for omitting certain variables. In sum, the Tenth Circuit found that Dow's challenges "bore on the weight of Dr. McClave's testimony rather than its admissibility." Id.

Implications


The Urethane decision's analysis of Comcast will leave something to be desired for both the plaintiff and defense bars. The defendants will likely point out that the decision was driven by the unique procedural posture coming up after the trial occurred in a class action proceeding. The plaintiffs will likely point out that the decision renders defense arguments about the predominance of individual issues to be hypothetical. Both sides will have room to argue.

As for the Urethane decision's impact on the admissibility of disputed expert testimony, the ruling endorses a broad view of the discretion afforded district court judges in acting as gatekeepers. The ruling puts a lot of stock in the ability of juries to weigh disputes over complex economic issues, such as the propriety of including or not including certain variables in a regression analysis. Whether that is a correct view is beyond the scope of this piece, but surely is open to debate.

Keywords: litigation, expert witnesses, Urethane, Dow, Comcast, Wal-Mart

Eric S. Hochstadt is a partner in the Antitrust/Competition Group in the Litigation Department in the New York office of Weil, Gotshal & Manges LLP. D. Jane Cooper is an associate in that Group. The views expressed in this article are solely those of the authors.


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