In re Industrial Diamonds Antitrust Litigation, MDL-948 (WCC).

• Decision Date: 01 November 2000
• Docket Number: No. 94 Civ. 3809(WCC).,No. MDL-948 (WCC).,No. 92 Civ. 5130(WCC).,MDL-948 (WCC).,92 Civ. 5130(WCC).,94 Civ. 3809(WCC).
• Citation: 119 F.Supp.2d 418
• Parties: In re INDUSTRIAL DIAMONDS ANTITRUST LITIGATION. This Document Relates To: American Diamond Tool & Gauge, Inc. v. De Beers Consolidated Mines, Ltd., et al., and Zollner Corp. v. De Beers Consolidated Mines, Ltd., et al.
• Court: U.S. District Court — Southern District of New York

119 F.Supp.2d 418

In re INDUSTRIAL DIAMONDS ANTITRUST LITIGATION.

This Document Relates To: American Diamond Tool & Gauge, Inc. v. De Beers Consolidated Mines, Ltd., et al., and Zollner Corp. v. De Beers Consolidated Mines, Ltd., et al.

No. MDL-948 (WCC).

No. 92 Civ. 5130(WCC).

No. 94 Civ. 3809(WCC).

United States District Court, S.D. New York.

November 1, 2000.

Stamell & Schager, LLP, New York City, Jared B. Stamell, of counsel, Meredith Cohen Greenfogel & Skirnick, PC, New York City, Robert A. Skirnick, of counsel, Berman DeValerio Pease & Tabacco LLP, San Francisco, CA, Joseph J. Tabacco, Jr., of counsel, Cooper & Kirkham, San Francisco, CA, Joseph D. Cooper, of counsel, Sommer & Barnard, Indianapolis, IN, William C. Barnard, Edward W. Harris, III, of counsel, for plaintiffs.

OPINION AND ORDER

WILLIAM C. CONNER, Senior District Judge.

This antitrust class action charges a conspiracy between defendant General Electric Co. ("GE") and defendants De Beers Consolidated Mines, Ltd. and De Beers Centenary, A.G. (collectively "De Beers") to fix prices for industrial diamonds in violation of Section 1 of the Sherman Act, 15 U.S.C. § 15. It is now before the Court on an inquest to assess damages, pursuant to FED.R.CIV.P. 55(b)(2), following a default by De Beers. For the reasons stated hereinafter, the Court finds that plaintiffs have thus far failed to prove their damages with sufficient definiteness to support a judgment against De Beers.

BACKGROUND

Procedural History

This litigation was started as three separate antitrust class actions against GE and De Beers, two of the actions being brought in this Court respectively by American Diamond Tool & Gauge, Inc. (92 Civ. 5130) and Zollner Corp. (94 Civ. 3809) and one in the Southern District of Ohio by Cold Spring Granite Co. (92 CV 511). The latter action was transferred to this Court by the Judicial Panel on Multidistrict Litigation for consolidated discovery with the two actions pending here. De Beers did not answer or otherwise appear in either of the New York actions and default judgment was entered against it on April 4, 1994 in Case No. 92 Civ. 5130 and on January 20, 1995 in Case No. 94 Civ. 3809. De Beers was not named as a defendant in the Ohio action.

Plaintiffs in all three actions moved under FED.R.CIV.P. 23(a) and 23(b)(3) for class certification and, in a decision filed July 10, 1996 and reported at 167 F.R.D. 374, this Court certified a plaintiff class consisting of:

all persons and entities located in the United States that purchased industrial diamond products for which the defendants set list prices directly from one of the defendants, or a corporation or other person owned or controlled by one of the defendants, at any time during the period of November 1, 1987, through May 23, 1994 (excluding (i) any federal, state or local government purchaser, and (ii) any defendant or other manufacturer of industrial diamonds, and any parent, subsidiary or affiliate of any defendant or other manufacturer of industrial diamonds).

Following extensive discovery and negotiation, GE settled all claims asserted against it by the plaintiff class by agreeing to pay plaintiffs' attorneys fees and expenses ($1,850,000 and $500,000 respectively) and to give each class member an in kind rebate of free diamonds of like grade and quality to their purchases of industrial diamonds from GE during a "claim period" of 20 months after the settlement became final, in an amount equal to 3% of the diamonds purchased by the member from GE during the claim period. If a class member purchased no diamonds from GE during the claim period, it was given the option of either transferring a share of its right to such in-kind rebate to another entity or of receiving from GE a cash payment of $1,000. After notification of the class members and a fairness hearing, the settlement was approved by the Court on July 23, 1999.

The Inquest

The Court conducted an inquest to fix damages against the defaulting defendant De Beers on July 26, 2000. The only witness was Dr. Michael C. Keeley, plaintiffs' economics expert. De Beers was not represented at the hearing. An attorney for its Irish subsidiary, De Beers Industrial Diamonds (Ireland), attended the hearing, but declined the Court's invitation to cross-examine the witness or otherwise actively participate.

Because all of the court reporters in the courthouse were occupied on other cases at the time, counsel agreed to have the proceedings recorded by machine. Unfortunately, it was later discovered that the recording machine had malfunctioned and that a readable record had been made of only a short portion at the end of the hearing. However, there was no prejudice because, along with their post-hearing memorandum, plaintiffs submitted an affidavit of Dr. Keeley repeating the substance of his testimony.

DISCUSSION

The Applicable Law

While a default constitutes an admission of all the facts "well pleaded" in the complaint, it does not admit any conclusions of law alleged therein, nor establish the legal sufficiency of any cause of action.

Once the default is established, defendant has no further standing to contest the factual allegations of plaintiffs claim for relief. Even after the default, however, it remains for the court to consider whether the unchallenged facts constitute a legitimate cause of action, since a party in default does not admit mere conclusions of law.

10A CHARLES ALAN WRIGHT, ARTHUR R. MILLER, MARY KAY KANE, Federal Practice & Procedure, Civil 3d, § 2688, at 63 (1988). A fact is not "well pleaded" if it is inconsistent with other allegations of the complaint or with facts of which the court can take judicial notice. See Trans World Airlines v. Hughes, 449 F.2d 51, 63 (2d Cir.1971).

Likewise, a default does not constitute an admission as to the amount of damages claimed, which must be established at an evidentiary hearing.

Even when a default judgment is warranted based on a party's failure to defend, the allegations in the complaint with respect to the amount of damages are not deemed true. The district court must instead conduct an inquiry in order to ascertain the amount of damages with reasonable certainty.

Credit Lyonnais Securities (USA), Inc. v. Alcantara et al., 183 F.3d 151, 155 (2d Cir.1999) (citations omitted). At the inquest in this case, plaintiffs sought to establish the amount of their damages by calculations described in the report and opinion testimony of their economics expert, Dr. Keeley.

The Opinion of Dr. Keeley

In theory, the methodology employed by Dr. Keeley to calculate the damages sustained by plaintiffs as a result of defendants' price-fixing conspiracy was simple and logical. First, he estimated the average "but for" U.S. market price that would have prevailed for each of 3 categories of industrial diamonds for each year of the class period in the absence of the price-fixing conspiracy by plotting on a graph a straight line extending from the last market price before the class period to the first market price after the class period. Next, for each year, he ascertained the actual average market price of that category of diamonds and subtracted from it the average "but for" price to determine the average price inflation attributable to the conspiracy that year. Then, for each year, he multiplied this average price inflation by the estimated total volume of U.S. sales of each category of diamonds during that year to determine the total damages for that year. Then he added these annual damages to determine the total damages for the class period. Finally, he increased the damages by an inflation factor to compensate for the lesser present value of dollars relative to their value during the class period. By this process, he computed total damages of $52,033,581 before the inflation adjustment and $68,811,674 after such adjustment. Thus, after trebling of the damages and deduction of $8 million as the estimated monetary value of the settlement with GE (Gary L. French Decl., Ex. E to Pls.' Mem.Supp. GE Settlement), plaintiffs sought judgment against De Beers in the amount of $198,435,022.

However, in practice, Dr. Keeley's application of this straightforward methodology was riddled with error. First, he ignored two specific limitations in the class definition and based his computations on two types of sales which were expressly excluded.

1. Inclusion of Excluded Sales

a. Non-List-Price Products

One of these improper inclusions was called to plaintiffs' attention at the inquest when the Court reminded plaintiffs' counsel that the class was limited to "all persons and entities located in the United States that purchased industrial diamond products for which the defendants set list prices ..." (emphasis added), and inquired whether Dr. Keeley had based his computations only on diamond products for which the defendants had set list prices. Obviously, plaintiffs' counsel had overlooked this limitation in the class definition, because after the hearing, they submitted a supplemental report of Dr. Keeley in which he stated that he had learned that list prices had not been set for some diamonds in one of the categories on which he had based his original computations and he accordingly reduced his computed damages for that category of diamonds by 15%, reducing the total damages to $49,350,592 plus an inflation adjustment of $15,928,582 for a total of $65,279,174 before trebling. After trebling and deduction of credit for the estimated value of the GE settlement, plaintiffs now seek judgment against De Beers in the reduced amount of $187,837,522. However that modest amendment left uncorrected a number of much more serious errors in Dr. Keeley's computations, such as inclusion of a large volume of purchases of industrial diamonds for which damages cannot be assessed against De Beers and reliance on mere estimates of sales of industrial diamonds where actual sales figures were available.

b....