In re Aluminum Phosphide Antitrust Litigation

• Decision Date: 05 July 1995
• Docket Number: Civ. A. No. 93-2452-KHV.
• Citation: 893 F. Supp. 1497
• Parties: In re ALUMINUM PHOSPHIDE ANTITRUST LITIGATION, This Document Relates to: All Actions.
• Court: U.S. District Court — District of Kansas

893 F. Supp. 1497

In re ALUMINUM PHOSPHIDE ANTITRUST LITIGATION, This Document Relates to: All Actions.

Civ. A. No. 93-2452-KHV.

United States District Court, D. Kansas.

July 5, 1995.

Deborah Farrar Quirk, Kansas City, MO, Thomas H. Brill, Mission Hills, KS, Joel C. Meredith, Krishna Narine, Meredith, Cohen & Greenfogel, P.C., Philadelphia, PA, Vernon N. Reaser, Jr., Reaser & Wall, Victoria, TX, Issac L. Diel, Leawood, KS, for National Bugmobiles, Inc.

Edmund S. Gross, Farmland Industries, Inc., Kansas City, MO, Alvin D. Shapiro, Law Offices of Alvin D. Shapiro, Kansas City, MO, for Farmland Industries, Inc.

David E. Everson, Jr., Tammy L. Womack, Stinson, Mag & Fizzell, Kansas City, MO, Nancy L. Heilman, Cohen & Grigsby, Pittsburgh, PA, for Pestcon Systems Inc., Degesch America, Inc., Detia Freyberg, GmbH.

Eric D. Braverman, Employers Reinsurance Corp., A. Bradley Bodamer, Morrison & Hecker, Overland Park, KS, James E. Wright, III, Jones, Walker, Waechter, Poitevent, Carrere & Denegre, New Orleans, LA, for Bernardo Chemicals Ltd., Inc., Casa Bernardo Ltd., Christina S. Bernardo.

Floyd R. Finch, Jr., Katharine S. Bunn, Jeffrey J. Simon, Sally B. Surridge, Brian J. McGrath, James R. Ward, Blackwell, Sanders, Matheny, Weary & Lombardi, Kansas City, MO, Tessa K. Jacob, Blackwell, Sanders, Matheny, Weary & Lombardi, Overland Park, KS, for Inventa Corp., United Phosphorus, Ltd.

G. Stanton Masters, Bryan Cave, Kansas City, MO, James L. Eisenbrandt, Bryan Cave, Overland Park, KS, Nancy L. Heilman, Cohen & Grigsby, Pittsburgh, PA, for Detia-Degesch GmbH.

Thomas M. Bradshaw, Dianne M. Hansen, Armstrong, Teasdale, Schlafly & Davis, Kansas City, MO, James R. Hobbs, Marilyn B. Keller, Wyrsch, Atwell, Mirakian, Lee & Hobbs, Kansas City, MO, for McShares Inc.

REVISED MEMORANDUM AND ORDER

VRATIL, District Judge.

This price-fixing case comes before the Court on Defendants' Joint Motion in Limine to Exclude Dr. Richard C. Hoyt's Testimony and Expert Report From this Case (Doc. # 443), filed May 5, 1995. Class action plaintiffs claim that defendants engaged in an illegal price-fixing conspiracy under the Sherman Act, 15 U.S.C. § 1, and — more specifically — that defendants conspired to fix the case price of aluminum phosphide pellets and tablets in the United States from January 1, 1988, through December 31, 1992. Plaintiffs seek damages on behalf of all entities (except those owned by defendants) which purchased such products during that period. Movants seek to preclude certain portions of the testimony and report of plaintiffs' economic expert, Dr. Richard C. Hoyt, under Federal Rules of Evidence 104(a), 403, 702, and 703.

On May 16, 1995, the Court held an evidentiary hearing on defendants' motion and heard the testimony of both Dr. Hoyt and defendants' economic expert, Dr. John J. Siegfried. Having considered the evidence adduced at that hearing, along with the expert reports of both Dr. Hoyt and Dr. Siegfried, the Court finds that defendants' motion should be and hereby is sustained in the respects and for the reasons set forth below.

A. Factual Background¹

Aluminum phosphide is a fumigant used to control insects in the storage of raw agricultural commodities and other food and nonfood products. Aluminum phosphide reacts with moisture in the air and releases phosphine gas, which is toxic to insects. In the United States, aluminum phosphide is primarily sold in pellets and tablets. Until the early 1980's, the aluminum phosphide industry was dominated by a legal patent on a product called Phostoxin, sold by Degesch America. Around 1980, the patent expired and new manufacturers began to enter the market. Aluminum phosphide prices began to fall steadily over time as the advantage of the original patent monopoly eroded and new entrants into the market gained market share.

Aluminum phosphide products may be imported and sold in the United States, but only by those companies which are registered with the Environmental Protection Agency. Between 1988 and 1993, those companies were Degesch America, Inc., Inventa Corporation, McShares, Inc., Pestcon Systems, Inc., Bernardo Chemicals, and Midland Fumigant.² During the relevant time period, these defendants — along with co-defendants United Phosphorus Ltd., Casa Bernardo, Detia Degesch GmbH, and Detia Freyberg GmbH — manufactured or distributed aluminum phosphide products for sale in the United States.³

In the late summer and early fall of 1991, the United States Department of Justice issued subpoenas with respect to an ongoing investigation of criminal price-fixing in the aluminum phosphide industry. On November 1, 1993, that investigation resulted in criminal indictments against Detia Degesch, Detia Freyberg, Degesch America, Pestcon, Casa Bernardo, Inventa, and United Phosphorus.⁴ In those indictments, the United States alleged that defendants had conspired to raise the price of aluminum phosphide pellets and tablets from January, 1990, to November, 1990. Detia Degesch and Pestcon pleaded guilty to these charges, admitting that they had conspired to fix prices at a meeting in Rio de Janeiro in January, 1990. Casa Bernardo entered a plea of nolo contendere. The United States dismissed the charges against Detia Freyberg and Degesch America. Inventa and United Phosphorus proceeded to trial, but the United States District Court for the District of Kansas ultimately dismissed the charges against them.

B. Findings of Fact

The Court makes the following findings of fact by a preponderance of the evidence based on the evidence and testimony presented at the hearing on May 16, 1995:

In order to prevail on their antitrust claim, plaintiffs must prove that they sustained injury by reason of defendants' unlawful conduct. See Farley Transp. Co., Inc. v. Santa Fe Trail Transp. Co., 786 F.2d 1342, 1348 (9th Cir.1985). In doing so, plaintiffs must establish that defendants' unlawful activities caused at least some of their injury, rather than the injury being wholly attributable to other factors. Id. at 1349. In the absence of more precise proof, causation of injury may be found as a matter of just and reasonable inference from proof of defendants' wrongful acts and their tendency to injure plaintiffs, and from evidence of change in prices not shown to be attributable to other causes. See Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251, 262-64, 66 S.Ct. 574, 579, 90 L.Ed. 652 (1946). Once causation of damages has been established, the amount of damages may be determined by a just and reasonable estimate, as long as the jury verdict is not the product of speculation or guesswork. MCI Communications v. American Tel. & Tel. Co., 708 F.2d 1081, 1161 (7th Cir.), cert. denied, 464 U.S. 891, 104 S.Ct. 234, 78 L.Ed.2d 226 (1983).

Plaintiffs propose to supply this evidence through the expert testimony of Richard C. Hoyt, Ph.D., president of Analytics, Inc., an economics and statistical consulting firm in Excelsior, Minnesota. Dr. Hoyt has a doctorate in Agriculture and Applied Economics. He held teaching positions at the William Mitchell College of Law in St. Paul, Minnesota from 1977 to 1978, and the College of St. Thomas in St. Paul, Minnesota from 1978 to 1979. Since that time, Dr. Hoyt has devoted his full-time attention to forensic ends: a "partial list" of his experience as an expert witness includes 121 cases (42 antitrust cases, 15 contract cases, 21 discrimination cases, 29 injury/death cases, two patent cases, 10 stockholder suits, and two toxic waste cases). In addition, in the last 25 years, Dr. Hoyt has published eight articles. Two articles, published in the Minnesota Law Review and the Hamline Law Review in 1976 and 1988, respectively, deal with comprehensive models for calculating future damage awards. Four articles on similar topics appear in the Journal of Legal Economics (1991 and 1993) and Issues & Methods in Litigation Economics (1991). Dr. Hoyt is an expert for hire.⁵

Before and After Model

Dr. Hoyt proposes to testify to the fact and amount of damages caused by defendants' alleged conspiracy.⁶ Dr. Hoyt's opinion, according to his report dated March 27, 1995, is as follows: (1) from January 1, 1988 through October 31, 1993, defendants had the ability and the economic incentive to maintain prices for aluminum phosphide pellets and tablets at "higher than competitive levels" throughout the United States;⁷ (2) the market structure of the aluminum phosphide industry, "in conjunction with an agreement to fix prices ... had the effect of raising, stabilizing and maintaining prices of aluminum phosphide products at supra-competitive levels over an extended period of time"; and (3) the fact and the extent of defendants' supra-competitive pricing can be measured by a "before and after" model which "generally compares defendants' prices in two distinct time periods (conspiratorial and normative) and calculates the degree to which prices were raised and/or maintained at artificially high levels." Expert Report of Richard C. Hoyt, p. 8, ¶ 8. All parties agree that the "before and after" model is well accepted within the field of economics, and that it may be properly applied to determine the fact and the amount of damages in this case. The dispute is whether Dr. Hoyt indeed applied the "before and after" model, or whether his purported application is so fundamentally flawed as to render his conclusions inadmissible under Daubert v. Merrell Dow Pharmaceuticals, Inc., ___ U.S. ____, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993).

The theoretical basis for the "before and after" model, in Dr. Hoyt's words, is as follows:

This model is based upon the premise that the normative period is a measure of what the competitive price would have been absent illegal conduct. Under this well accepted approach, the monetary impact to the class is the difference between the actual price and the estimated competitive price, multiplied times the quantities purchased by all class members.

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