In re Linerboard Antitrust Litigation

• Decision Date: 30 July 2007
• Docket Number: MDL No. 1261.,No. 03C-6977 (N.D.Ill.).,No. 03C-3944 (N.D.Ill.).,No. 03-CV-1702 (D.Md.).,03C-3944 (N.D.Ill.).,03C-6977 (N.D.Ill.).,03-CV-1702 (D.Md.).
• Citation: 497 F.Supp.2d 666
• Parties: In re LINERBOARD ANTITRUST LITIGATION. This Document Relates to: Procter & Gamble Company, et al. v. Stone Container Corporation, et al. Mars, Inc., et al. v. Stone Container Corporation, et al. Perdue Farms, Inc. v. Stone Container Corporation, et al.
• Court: U.S. District Court — Eastern District of Pennsylvania

497 F.Supp.2d 666

In re LINERBOARD ANTITRUST LITIGATION.

This Document Relates to:

Procter & Gamble Company, et al. v. Stone Container Corporation, et al.

Mars, Inc., et al. v. Stone Container Corporation, et al.

Perdue Farms, Inc. v. Stone Container Corporation, et al.

MDL No. 1261.

No. 03C-3944 (N.D.Ill.).

No. 03C-6977 (N.D.Ill.).

No. 03-CV-1702 (D.Md.).

United States District Court, E.D. Pennsylvania.

July 30, 2007.

MEMORANDUM

DuBOIS, District Judge.

In this multidistrict litigation brought under Section 1 of the Sherman Act, 15 U.S.C. § 1, plaintiffs allege that several U.S. linerboard manufacturers conspired to restrict linerboard output in order to increase the price of corrugated sheets and corrugated boxes.¹ Currently before the Court is Defendants' Motion to Exclude the Testimony of Prof. Halbert L. White, Jr. ("Motion to Exclude"), the direct-action plaintiffs' damages expert.

Defendants contend that Professor White's predictive econometric damages model does not address the issue of causation — whether defendants' alleged unlawful conduct caused the alleged overcharge for corrugated sheets and corrugated boxes. Although defendants affirmatively challenge only the "fit" of Professor White's testimony, defendants' arguments also implicate the reliability of Professor White's methodology in the context of establishing antitrust damages. In contrast, defendants do not challenge Professors White's qualifications as an economist or the reliability of predictive modeling in other contexts.²

After conducting oral argument and a Daubert hearing³ on June 14, 2007 and July 2, 2007, the Court concludes that Professor White's damages model fits the facts of this case and is a reliable method of establishing causation of damages in price-fixing cases.⁴ Accordingly, his testimony is admissible and defendants' Motion to Exclude is denied. The Court need not and does not address whether Professor White's testimony, standing alone, would be sufficient to support a finding of causation of damages so as to survive a motion for summary judgment.⁵

I. BACKGROUND

The factual background of this case is described in detail in this Court's previous opinions. See, e.g., In re Linerboard Antitrust Litig., 2000 WL 1475559, *1 (E.D.Pa. Oct.4, 2000) (denying motion to dismiss); In re Linerboard Antitrust Litig., 203 F.R.D. 197, 201-04 (E.D.Pa.2001), aff'd, 305 F.3d 145 (3d Cir.2002), cert. denied, 538 U.S. 977, 123 S.Ct. 1786, 155 L.Ed.2d 666 (2003) (certifying classes of direct purchasers of corrugated boxes and corrugated sheets); In re Linerboard Antitrust Litig., 296 F.Supp.2d 568 (E.D.Pa.2003) (approving final class settlement); In re Linerboard Antitrust Litig., 2004 WL 1221350, *1 (E.D.Pa. Jun.2, 2004) (awarding class counsel attorney's fees); In re Linerboard Antitrust Litig., 223 F.R.D. 335, 337 (E.D.Pa.2004) (denying motion to dismiss state claims based on statute of limitations); In re Linerboard Antitrust Litig., 223 F.R.D. 357 (E.D.Pa.2004) (denying motion under Rule 60 and motion for expedited discovery); In re Linerboard Antitrust Litig., 2005 WL 1625040, *1 (E.D.Pa. July 11, 2005) (granting motion to remand for lack of subject matter jurisdiction); In re Linerboard Antitrust Litig., 443 F.Supp.2d 703 (E.D.Pa.2006) (granting motion for summary judgment against one direct action plaintiff). Accordingly, the Court sets forth only those facts necessary to resolve defendants' Motion to Exclude.

A. Overview

Plaintiffs in this case purchased corrugated products from defendants.⁶ According to plaintiffs, defendants "conspired to raise the price of corrugated containers and corrugated sheets throughout the United States by restricting production and/or curtailing inventories in violation of federal antitrust laws." In re Linerboard Antitrust Litig., 223 F.R.D. 357, 359 (E.D.Pa.2004). Specifically, plaintiffs allege that defendant Stone Container Corporation ("Stone")

devised a strategy to invite its competitors to increase the price of linerboard. As part of this strategy, Stone planned to take downtime at its plants to reduce its production and inventory of linerboard substantially, and contemporaneously to purchase substantial amounts of linerboard from competitors — actions which, plaintiffs allege, were extraordinary, and not in the regular course of business.

* * * * * *

The concerted actions of the defendants in taking downtime at the mills producing linerboard, and then increasing the price of linerboard, resulting in price increases for corrugated sheets and corrugated boxes, forms the basis of the conspiracy at issue in this case.

In re Linerboard Antitrust Litig., 203 F.R.D. 197, 204 (E.D.Pa.2001).

In its Memorandum addressing class certification, the Court explained that the conspiracy alleged in this case is tantamount to a price-fixing agreement. "An agreement on output also equates to a price-fixing agreement. If firms raise prices, the market's demand for their product will fall, so the amount supplied will fall too — in other words, output will be restricted. If instead firms restrict output directly, price will as mentioned rise in order to limit demand to the reduced supply." Id. at 216 (citing Westinghouse Elec. Corp. v. Gulf Oil Corp., 588 F.2d 221, 226 (7th Cir.1978)).

B. Discussion of Impact at the Class Certification Stage

To demonstrate that the questions of law and fact common to the members of the class predominated over any questions affecting only individual members, the Court applied a presumption of impact known as the "Bogosian short-cut":

"If, in this case, a nationwide conspiracy is proven, the result of which was to increase prices ... beyond the prices which would obtain in a competitive regime, an individual plaintiff could prove fact of damage⁷ simply by proving that the free market prices would be lower than the prices paid and that he made some purchases at the higher price."

Id. (citing Bogosian v. Gulf Oil Corp., 561 F.2d 434, 454 (3d Cir.1977)).

The Court also briefly addressed plaintiffs' "econometric models to be used to establish impact." Id. at 218. Specifically, the Court examined the affidavit of Dr. John C. Beyer, plaintiffs' economic expert. As the Third Circuit explained in affirming the Court's class certification,

In discussing ... feasible approaches[] which could be used to provide quantitative methods for corroborating his opinion on impact and for estimating damages, [Dr. Beyer] suggested as a potential benchmark[] the potential prices charged for linerboard during a competitive period when there would be no effects of the conspiracy. He explained that the necessary data was available to do the analysis and described the types of data he would use. He discussed also a multiple regression model⁸ to isolate the effects of various influences on corrugated container prices, thereby allowing a determination of the impact of any one of the variables, including, in this case, the impact of the conspiracy.

In re Linerboard Antitrust Litig., 305 F.3d 145, 154 (3d Cir.2002).

II. PROFESSOR WHITE'S ECONOMETRIC MODEL

Direct-action plaintiffs retained Professor White to opine on the extent to which the alleged conspiracy caused them to pay higher prices for corrugated containers.⁹ White Rpt. ¶ 1. The objective of Professor White's analysis was "to estimate `but-for' prices of corrugated containers and sheets, that is, the prices that would have prevailed but for the existence of the alleged conduct, covering every affected purchase for each plaintiff in this matter." Id. ¶ 120. In other words, Professor White estimated "but-for prices consistent with the level of competition and interaction of market forces that prevailed when the alleged conduct was not in effect." Id. To accomplish this, Professor White developed an "econometric model that relates product prices to the underlying costs and demand shifters in the industry using data that exclude the period of the alleged conduct. [He] then appl[ied] this relationship to estimate what prices would have been during the period of the alleged conduct, had they followed the relationship estimated outside the alleged conduct period." Id.

The econometric model that Professor White developed and applied was a "prediction model." "A prediction model captures the statistical relationship between prices and cost, demand, and other potentially predictive factors." Id. ¶ 126.

Prediction models.... are fundamentally different than causal models (also known as "structural" models). Whereas causal models are intended to measure the ceteris paribus effects of specific economic factors, the purpose of a prediction models is to accurately predict outcomes that would be observed during a period of interest. Prediction models account for unobservable causal factors by the use of suitable proxies.

Id. ¶ 130. "By constructing the prediction model using data that exclude the alleged conduct period, [Professor White] obtain[ed] a model that reflects the predictive relationship between prices and predictive factors in the absence of the alleged conduct." Id. ¶ 126.

To select the relevant predictive factors for his regression equation,¹⁰ Professor White first "identified a set of candidate predictor variables using economic theory and an understanding of the relevant market." Id. ¶ 127. He then "used a statistical criterion, cross-validation, to select from these candidate variables a subset of predictors that delivers superior accuracy. This method involves repeatedly holding out part of the data to measure the predictive ability of a given set of predictors." Id.

"Among the predictive factors [Professor White] did not include are economic variables subject to the control of the defendants such as inventory levels or downtime that was taken for market purposes. Nor did [Professor White] include other variables whose values would be affected by the alleged coordinated action of the defendants, such as the price of recycled...