Plaintiffs The Tripp Plating Works, Inc. (“Tripp”) and Finch Paper, LLC (“Finch”) (collectively referred to as “Indirect Purchaser Plaintiffs” or “IPPs”) alleged that Defendants Olin Corporation (“Olin”), K.A. Steel Chemicals, Inc. (“K.A. Steel”), Occidental Chemical Corporation (“OxyChem”), Westlake Chemical Corporation (“Westlake”), Shintech Incorporated (“Shintech”), and Formosa Plastics Corporation, U.S.A. (“Formosa USA”) (collectively, “Defendants”) conspired to artificially reduce or eliminate competition for the pricing of caustic soda sold in the United States. IPPs claimed that Defendants colluded to fix caustic soda prices, forcing purchasers to pay inflated, supracompetitive prices.
In response, Shintech and Formosa USA separately moved to strike portions of the testimony provided by IPPs’ expert witness, Dr. Gareth Macartney, Ph.D. Additionally, all Defendants jointly moved to exclude certain opinions offered by Macartney. IPPs, in turn, have also moved to strike and exclude certain opinions offered by the Defendants’ expert witness, John H. Johnson IV, Ph.D.
Economics Expert Witnesses
John H. Johnson IV, Ph.D, is the Chief Executive Officer of Edgeworth Economics, LLC, a consulting firm that provides clients with objective expert economic and financial analysis for complex litigation and public policy debates. He holds a B.A. in Economics from the University of Rochester and a Ph.D. in Economics from the Massachusetts Institute of Technology (MIT), where he specialized in labor economics and econometrics. Johnson leverages his expertise to deliver analytical clarity and strategic insights to clients facing high-stakes legal and policy challenges.
Get the full story on challenges to John H Johnson IV’s expert opinions and testimony with an in-depth Challenge Study.
Gareth Macartney is the Senior Economist, Director of Competition, and Chief Executive Officer at OnPoint Analytics, Inc., an economic and statistical consulting firm. He holds a Ph.D. in Economics from University College London. Macartney specializes in providing rigorous economic and statistical analysis, particularly in matters related to competition and complex litigation.
Discussion by the Court
a. Class Certification
On December 28, 2023, the Court denied a motion for class certification filed by the Direct Purchaser Plaintiffs (DPPs), including Miami Products & Chemical Co., Amrex Chemical Co., Inc., Main Pool and Chemical Co., Inc., Midwest Renewable Energy, LLC, Perry’s Ice Cream Company, Inc., and VanDeMark Chemical, Inc. The Court now addresses a similar request by the Indirect Purchaser Plaintiffs (IPPs) to certify two classes under Federal Rule of Civil Procedure 23. The Court assumes familiarity with the DPP Class Certification Decision and Order and prior proceedings in this matter.
IPPs adopted the factual background from the DPPs’ motion for class certification. The Court incorporated by reference the detailed summary of Defendants’ alleged manipulation of the caustic soda market, which purportedly caused customers to pay supracompetitive prices. The allegations focused on Defendants’ price increase announcements and their impact on the caustic soda market.
The IPPs argued that common issues predominated, justifying class certification. However, the Court found that IPPs failed to meet the requirements of Rule 23(b)(3). Their damages model, prepared by Macartney, relied on flawed data from Dr. Russell Lamb, who misclassified contract types by not reviewing individual contracts. This error undermined the model’s ability to demonstrate class-wide injury. Additionally, Macartney’s assumption that price increase announcements influenced index-based pricing was speculative and lacked evidentiary support. He failed to show how inflated prices were incorporated into price indices, a critical component for proving class-wide injury.
The pass-through model, based on data from only three distributors out of more than 155, was not representative of the proposed class. This limited dataset did not capture the complexities of the supply chain, leading to individualized issues that overshadowed common questions. Therefore, the Court concluded that IPPs did not provide a reliable method for proving class-wide injury and damages, and denied class certification.
b. John H Johnson IV
Johnson has provided an expert report responding to and critiquing Macartney’s opinions. Johnson argues, among other things, that: (1) Macartney’s assessment of the impact of Defendants’ price increase announcements is disconnected from economic evidence, in part because pricing for caustic soda is individually negotiated between each supplier and distributor, and the pricing mechanisms and terms vary substantially across distributors, Defendants, and over time; (2) the overcharge regression fails to account for global supply and demand conditions that impact the domestic price of caustic soda; (3) the overcharge regression improperly calculates an average overcharge for distributor and non-distributor purchasers, rather than customer-specific overcharges; (4) the pass-through model relies on data from only three distributors to estimate pass-through rates for 155 distributors, with no statistical tests to support the conclusion that the purchases and sales associated with these three distributors are representative of those excluded from the analysis; and (5) the pass-through model oversimplifies the caustic soda supply chain.
As part of his critique of the regression model, Johnson conducted his own multiple regression analysis, adding various export price measures. He ran six additional regressions, each incorporating one measure of export prices (contemporaneous and three-month lagged). These additional tests yielded an estimate of the purported overcharge that was negative or statistically insignificant.
Admissibility of Johnson’s Opinions
IPPs argue that Johnson’s overcharge regression analyses, and his opinions and testimony based on them, are unreliable because they are prone to endogeneity and fail to reliably control for global supply and demand for caustic soda. More specifically, IPPs contend that Johnson committed a fundamental error by using spot export prices as a variable, asserting that such prices are not reliable indicators of international prices or demand in their respective localities. IPPs acknowledge that DPPs raised a similar argument regarding Johnson’s opinions during their class certification motion and similarly seek exclusion of his spot export price analyses.
Previously, the Court considered and rejected the argument that Johnson’s use of spot export prices rendered his analysis and testimony unreliable. The Court found Johnson’s explanation of his methodology reasonable and persuasive. Nothing in the IPPs’ submissions provides a basis for the Court to reconsider its prior finding that there is no justification under Rule 702 to strike or exclude Johnson’s opinions. Accordingly, the Court denies IPPs’ motion to strike Johnson’s opinions and testimony.
c. Gareth Macartney
Macartney has opined, among other things, that: (1) common evidence demonstrates that the structure of the caustic soda industry is conducive to anticompetitive behavior; (2) common evidence and methods demonstrate that Defendants engaged in collusive behavior that artificially increased the price of caustic soda; and (3) a common, reliable standard economic methodology may be used to calculate damages on a classwide basis. Applying that methodology, he has estimated class-wide damages of $155 million for the State Antitrust Class.
Macartney has further opined that class-wide damages for the Unjust Enrichment Class can also be calculated using common evidence, amounting to $712 million in revenue terms, $355 million in gross profit terms, and $348 million in net profit terms.
A key part of his opinion is the performance of a reduced-form pricing regression analysis to demonstrate that caustic soda prices were artificially inflated during the alleged class period. To conduct this analysis, Macartney used a standardized database of Defendants’ transaction data received from Russell Lamb, DPPs’ expert economist. His model shows an overcharge of 11.61% for all of Defendants’ customers and a 16.37% overcharge for distributor customers. He then applied a regression model to estimate the proportion of Defendants’ price increases passed through to distributor customers. This model provides an estimate of passthrough at a rate of 81%.
The Court denies the Defendants’ motions to strike Macartney’s opinions and testimony as moot.
Held
The Court denied Shintech’s and Formosa’s motions to exclude certain opinions and proposed testimony of Gareth Macartney as moot and denied Defendants’ joint motion to exclude his opinions and testimony. The Court also denied IPPs’ motion to strike and exclude portions of John H. Johnson IV’s opinions and proposed testimony.
Key Takeaways:
When the opponent contended that Johnson’s use of spot export prices constitutes a true error that requires his analyses to be excluded because the spot export prices are not indicators of international prices or demand in their respective localities, the Court held that Johnson has explained his methodology in a way that was both reasonable and persuasive.
Case Details:
| Case Caption: | Miami Products & Chemical Co. V. Olin Corporation Et Al |
| Docket Number: | 1:19cv385 ; 1:19cv975 |
| Court: | United States District Court for the Western District of New York |
| Order Date: | December 16, 2024 |
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