In Re Aluminum Phosphide Antitrust Litigation
1995 U.S. Dist. LEXIS 11026, 1995 WL 455957, 893 F. Supp. 1497 (1995)
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Rule of Law:
Under Federal Rule of Evidence 702 and the Daubert standard, expert testimony is inadmissible if its underlying methodology is not scientifically valid, relies on unsupported assumptions, and fails to account for undisputed alternative causes for the phenomena it purports to explain.
Facts:
- Until the early 1980s, the aluminum phosphide industry was dominated by a legal patent held by Degesch America.
- After the patent expired around 1980, new manufacturers began entering the market, causing prices for aluminum phosphide to fall steadily over time.
- Plaintiffs allege that from January 1, 1988, to December 31, 1992, several manufacturers, including Degesch America, Pestcon, and Casa Bernardo, conspired to fix the price of aluminum phosphide pellets and tablets.
- During this alleged conspiracy period, prices ranged from approximately $350 to $500 per case.
- By late 1993, after new competitors like Inventa and Midland had gained significant market share, prices had dropped to a range of $200 to $350 per case.
- Overall demand for aluminum phosphide was also declining from 1988 through 1993.
- In the late summer of 1991, the U.S. Department of Justice issued subpoenas for a criminal price-fixing investigation into the industry.
- Subsequently, some defendants, including Detia Degesch and Pestcon, pleaded guilty to conspiring to fix prices during a shorter period in 1990.
Procedural Posture:
- Class action plaintiffs filed suit against several manufacturers of aluminum phosphide in the United States District Court for the District of Kansas.
- The complaint alleged that the defendants engaged in an illegal price-fixing conspiracy in violation of the Sherman Act.
- Plaintiffs retained Dr. Richard C. Hoyt as an economic expert to provide a report and testimony on the existence and amount of damages caused by the alleged conspiracy.
- Defendants filed a joint motion in limine, a pre-trial motion, asking the court to exclude Dr. Hoyt’s testimony and expert report from the case.
- The district court held an evidentiary hearing on the defendants' motion, where it heard testimony from both the plaintiffs' and defendants' economic experts.
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Issue:
Is an expert economist's testimony on antitrust damages admissible under Federal Rule of Evidence 702 when the expert's methodology assumes the alleged conspiracy was the sole cause of price differences and fails to account for other significant market factors like increased competition and declining demand?
Opinions:
Majority - Vratil, District Judge
No. Expert testimony on antitrust damages is inadmissible if its methodology is not scientifically valid and fails to account for significant market factors other than the alleged conspiracy. The court, acting as a gatekeeper under Daubert v. Merrell Dow Pharmaceuticals, must ensure that expert testimony is both reliable and relevant. Dr. Hoyt's application of the 'before and after' model was methodologically flawed for two main reasons. First, he arbitrarily selected a post-conspiracy 'normative' period without a scientific basis, ignoring available pre-conspiracy data that showed similarly high prices, which would contradict his model. His explanation for the 'lag time' for prices to normalize was unsupported speculation. Second, Dr. Hoyt invalidly assumed that the alleged conspiracy was the sole cause of the price difference between the conspiracy period and his chosen normative period. This assumption is contrary to established economic principles, which require an analysis to account for other variables. Dr. Hoyt failed to perform a regression analysis or otherwise account for undisputed market changes, such as increased competition from new entrants and declining product demand, that could also explain the price drop. Because his reasoning is not grounded in the methods and procedures of science and relies on unsupported assumptions, his testimony is unreliable, irrelevant, and would not assist the trier of fact.
Analysis:
This case serves as a crucial application of the Daubert standard to economic expert testimony in antitrust litigation. The court's decision emphasizes that while a particular economic model, like the 'before and after' analysis, may be generally accepted, its specific application must be methodologically sound and rigorously applied to the facts of the case. By rejecting an expert's testimony for failing to isolate the effects of the alleged conspiracy from other market forces, the ruling establishes a high bar for proving damages. It signals to future litigants that expert opinions must be built on more than convenient assumptions and must actively rule out or account for alternative causal factors to be considered reliable and admissible.
