Michaels Stores, Inc. sells arts and crafts and home decor products on its website and in its stores. Plaintiff, Nea Vizcarra, purchased several items from Michaels.com on November 28, 2022.
Vizcarra said that in purchasing the discounted items, she understood that she was purchasing items that regularly (including before the advertised promotion) retailed at the published “regular” price, that this published price was the market value of the products she was buying, and that she was receiving the items at a comparatively reduced price that was not always available.
Vizcarra brought this action on behalf of a putative nationwide class of people who “purchased one or more Michaels Products advertised at a discount on Defendant’s website or instore,” as well as on behalf of a similar California subclass. Michaels has moved to dismiss the amended complaint.
Bruce G. Silverman is the owner and manager of Silverman Consulting LLC, an advertising and branding firm.
He has testified as an expert in federal courts in Arizona, California, Delaware, Florida, Illinois and Oregon, in state courts in California and Missouri, at arbitrations, and before the Copyright Royalty Judges of the Library of Congress.
Silverman served as EVP/Executive Creative Director at three of America’s largest advertising agencies (Ogilvy, Bozell and BBDO), as President/COO of two of the nation’s best independently-owned agencies (Asher/Gould and Wong Doody), and as President/CEO of the principal U.S. unit of the world’s largest media planning and buying shop (Initiative Worldwide).
Colin B. Weir is President at Economics and Technology, Inc., a research and consulting firm specializing in economics, statistics, regulation and public policy. He conducts economic, statistical, and regulatory research and analysis and often testifies as an expert witness before state and federal courts.
His experience includes work on a variety of issues, including: “calculating economic harm and damage, and analyzing liquidated damages provisions; lost profits; false claims; diminution in value; merger/antitrust analysis; Early Termination Fees (ETFs); Late Fees; determination of Federal Excise Tax burden; and development of macroeconomic analyses quantifying the economic impact of corporate actions upon the US economy and job markets.”
Defendant asked the Court to exclude two sets of Silverman’s opinions: (1) opinions related to whether certain discounts are misleading to reasonable consumers (“Misleading to Consumers Opinions”), and (2) opinions related to whether Defendant’s Coupon Discount practice would be important to a reasonable consumer (“Michaels-Specific Opinions”).
Misleading to Consumers Opinions
Defendant argued that Silverman’s misleading to consumers opinions should be excluded because they opine on ultimate issues of law.
Since Silverman did not opine on any legal issues, the Court held that there is no reason to exclude his proffered testimony on those grounds.
Michaels-Specific Opinions
Defendant argued that Silverman’s Michaels-specific opinions should be excluded because they (1) exceeded the scope of Silverman’s expertise, (2) were not the product of any reliable principles and methods, and (3) invaded the province of the jury.
The Defendant specifically challenged whether Silverman’s advertising experience provides a sufficient foundation to offer opinions about Michaels, its customers, or the coupon discount at issue in the case, without having conducted consumer surveys. As an expert, Silverman is permitted to make certain factual assumptions in forming his opinions. Moreover, the Court is persuaded that Silverman’s opinions are adequately grounded in his extensive personal knowledge and experience. The Court also noted that the Defendant had not demonstrated how Silverman’s opinions would invade the province of the jury.
Opinions of ExpertColin B. Weir
In his report, Weir opined that it is possible to determine class-wide damages using three damages theories, one of which is a conjoint analysis. Weir “proposes to calculate Price Premium Damages using conjoint analysis (wherein consumers would receive the difference in value between what they paid and the value of what they received that is solely attributable to Defendant’s challenged conduct).”
The Defendant asked the Court to exclude Weir’s opinions that relied on his conjoint methodology on the grounds that they (1) are novel and unreliable, (2) ignore critical inputs, and (3) fail to properly account for supply-side factors.
The Court found that the Defendant had not established a basis for excluding Weir’s opinions at that stage of the proceedings. The Defendant’s challenges to Weir’s use of conjoint analysis went to the weight and credibility of his opinions, not their admissibility.
Held
The Court denied the Defendant’s motions to exclude certain opinions of Bruce Silverman and Colin Weir without prejudice.
Key Takeaway:
Silverman’s opinions are sufficiently grounded in his experience in the advertising industry, and he is permitted to rely on hypotheticals supported by evidence. Moreover, Silverman did not offer opinions on any legal issues. After all, an opinion is not objectionable merely because it embraces an ultimate issue.
This securities fraud putative class action is based on allegations that Tivity, a publicly traded company, as well as various high-ranking executives, made false or misleading statements and omissions, and had a scheme to defraud investors regarding, facts material to both: the purported success of Tivity’s acquisition of Nutrisystem, Inc. (“Nutrisystem”) in Q1 of 2019 (“Nutrisystem Claim”); and the valuation of Tivity’s goodwill and the Nutrisystem tradename throughout 2019 (“Goodwill Claim”).
According to Lead Plaintiff, Defendants’ materially false or misleading statements and omissions on these issues led to significant losses in shareholder value when, on February 19, 2020, Defendants disclosed Tivity’s financial results for 2019 and forecasts for 2020, and announced the resignation of the Nutrition Segment’s President, Keira Krausz as well as the termination, without cause, of Tivity’s CEO, Donato Tramuto.
Predictably, the effect (or lack thereof) of the allegedly fraudulent statements and omissions on the Corrective Disclosure and Tivity’s eventual decreased stock price is a central contested factual issue of this case. W. Scott Dalrymple sought to opine on the amount of loss Tivity shareholders experienced from Defendants’ scheme to defraud them, as well as their false and misleading statements and omissions, through evaluation of five items in the Corrective Disclosure.
Defendants filed a motion to exclude the testimony of Dalrymple.
Economics Expert Witness
W. Scott Dalrymple is an economist specializing in quantitative valuation, econometrics, statistics, securities analysis, antitrust, financial markets, and intellectual property.
Dalrymple has led numerous consulting, commercial litigation, and restructuring engagements on behalf of multinational companies, investors, financial institutions, and government agencies in the U.S., Europe, and Australia.
Dalrymple is supposed to analyze the impact of the Corrective Disclosure on Tivity’s stock price.
Dalrymple’s Analysis
First of all, Dalrymple assumed that Tivity’s stocks had been trading on a semi-strong form of an efficient market prior to Tivity’s release of the Corrective Disclosure on February 19, 2020. Then, Dalrymple conducted a market model event study by using a regression model to predict expected returns on Tivity’s stock during the event window (i.e., the day of the Corrective Disclosure).
Tellingly, Dalrymple made no attempt to separate the varying purported causes of Tivity’s stock drop included in the Corrective Disclosure—to determine whether some, all, or none of that information was attributable to Defendants’ fraud.
Dalrymple explained this seemingly glaring omission in his analysis. He contended that isolating the effects of the five items in the Corrective Disclosure is unnecessary given all that information is within what Lead Plaintiffs believe to be the zone of risk of Defendants’ concealed fraud.
The Court held that Dalrymple failed to both (1) bridge any connection between the alleged corrective information, Defendants’ fraud, and Tivity’s stock decline, and (2) apply any principled or economic method to support his conclusion that the items in the Corrective Disclosure did not constitute confounding information that required removal from his total damages calculation.
Dalrymple Fails to Properly Analyze the “Corrective” Nutrition Segment Financial Disclosures
The Court held that Dalrymple’s aggregation of the five items in the Corrective Disclosure (the Q4 and 2019 earnings results, Q1 and FY 2020 earnings guidance, impairments to Tivity’s goodwill and the Nutrisystem tradename, and the announcements of Tramuto’s termination and Krausz’s resignation) as a single bundle of new information, despite acknowledgement that some of the information implicated information beyond Defendant’s alleged fraud, demonstrated the issue with his approach.
Dalrymple made no effort to determine whether the Q4 and 2019 earnings results, Q1 and FY 2020 earnings guidance, and impairments to Tivity’s goodwill and the Nutrisystem tradename were actually “corrective.”
Nor did he account for that some of that financial information—information that, according to Lead Plaintiff, made the stock price fall—had already been anticipated by the market based on prior disclosures that the Nutrisystem acquisition may prove unsuccessful.
Because Dalrymple knew the market already anticipated that the Nutrisystem merger may have failed irrespective of Defendants’ fraud, the Court held that his analysis “should have carefully considered whether other factors [other than Defendants’ alleged fraud] might have been at play” in causing Tivity’s stock price decline.
Dalrymple Fails to Properly Analyze the “Corrective” Executive Departure Announcement Disclosures
Dalrymple’s treatment of Tivity’s executive departures revealed in the Corrective Disclosure is equally flawed. As with Dalrymple’s acknowledgement that Tivity’s financial information could contain non-fraud related information, he understood “that Tramuto’s eventual departure from the company may have been anticipated.”
The Court held that Dalrymple’s analysis of the purported corrective disclosures announcing Tramuto’s termination and Krausz’s resignation suffers from another flaw: these items are, as a matter of law, not within the zone of risk of Defendants’ alleged fraud. There is no evidence in the record that Tivity’s announcements of Krausz’s resignation and Tramuto’s termination revealed any fraud perpetuated by Defendants.
Because Dalrymple does not provide any bridge between his opinion that the announcement of Tivity’s executive departures had “limited, if any, negative impact” on Tivity’s share price and an analytical framework supporting that conclusion, the Court held that Dalrymple’s attempt to remove this non-fraud information from his equation is merely inadmissible ipse dixit.
Dalrymple’s Demeanor at the Daubert Hearing Underscores Why His Opinions Should Be Excluded
The shortcomings of Dalrymple’s analyses are compounded by his demeanor on the stand. Dalrymple has extensive experience as an expert in litigation. He has appeared as an expert at trials and hearings on nine prior occasions and has sat for twenty depositions.
However, during one exchange with Defendants’ counsel, Dalrymple directly contradicted his prior deposition testimony that he it did not causally connect any alleged misstatements to any of the five items from the Corrective Disclosure he based his opinions on by attempting to assert the opposite during the Daubert hearing. While testifying is no doubt a stressful experience, even for those familiar with the courtroom, Dalrymple’s contradictory positions about such basic elements of his reports and the tone and tenor of his testimony further underscores the problems with Dalrymple’s testimony and opinions.
Dalrymple’s Testimony and Opinions Are Inadmissible Under Rule 702
In this case, Dalrymple ignored the possibility that a portion of the five items in the Corrective Disclosure did not relate to Defendants’ fraud, and he also chooses to ignore his own knowledge confirming as much.
He then failed to properly deploy any reliable methodology based on sufficient data about the market to analyze whether there were any non-fraudulent factors within the Corrective Disclosure contributing to a drop in Tivity’s stock.
Because Dalrymple did not reliably determine whether the information he relied upon was corrective of Defendants’ fraud, and did not reliably calculate the loss in value, if any, of Tivity’s stock that was caused by only non-fraudulent factors, the Court held that his testimony is also unhelpful to the jury.
Held
The Defendants’ motion to exclude W. Scott Dalrymple’s testimony was granted by the Court.
Key Takeaway:
By presuming that analysts had already priced in all goodwill, integration, and diet-season risks in the Nutrition segment, Dalrymple treats any price drop from the five items in the Corrective Disclosure as necessarily fraud-related. But he finds support of this assumption only in the stock drop itself. For this, and the reasons stated above, his lack of methodological reasoning in disaggregating the fraud and non-fraud information in the Corrective Disclosure raises several “red flags that caution against certifying an expert includ[ing] reliance on anecdotal evidence, improper extrapolation . . . lack of testing, and subjectivity.”
As the COVID-19 pandemic took hold in early 2020, Congress established the Paycheck Protection Program (PPP). Several businesses applied for and received PPP loan approval from Prestamos CDFI, LLC (Prestamos). However, due to individual bank-related issues, the loan funds were returned to Prestamos, leaving the businesses without the promised financial assistance. Consequently, these businesses initiated a class action lawsuit against Prestamos, alleging breach of contract. They contend that Prestamos failed to fulfill its funding obligations, falsely recorded the loans as disbursed, held them liable for repayment, and hindered their ability to secure alternative funding.
Plaintiffs moved for class certification on September 6, 2024. They believe that class certification is appropriate because liability for each Plaintiff rises and falls with the same contract and PPP regulations.
Prestamos filed a motion to exclude the expert reports of William Briggs, William Manger, and Steven Feinstein. According to Prestamos, none of the expert reports satisfy Daubert because they improperly offered legal conclusions. And even if the experts can make such conclusions, Prestamos argued that Briggs and Manger are not qualified and that Feinstein did not use an accepted methodology. Plaintiffs opposed excluding the three reports.
Business Administration Expert Witnesses
William Briggs operates a consulting firm based in Austin, Texas. From November 2017 to January 2021, he served in multiple roles at the United States Small Business Administration (SBA). Prior to his appointment at the United States Small Business Administration, he was employed in multiple positions in and out of public service advising clients, companies, and officials.
William Manger served in the United States Small Business Administration (the “SBA”) for a total of almost eight years, from 2005 to 2009 and again from 2017 to January 2021. Most recently, he was Chief of Staff of the SBA from March 2020 to January 2021, during which he oversaw and led the SBA’s implementation of the Paycheck Protection Program (the “PPP”). In that role, he was responsible for promulgating PPP-specific rules and guidance, implementing PPP-specific processes at the SBA, and communicating with lenders, trade associations, government agencies, and members of Congress.
Steven Feinstein is Associate Professor of Finance at Babson College, and the founder and president of Crowninshield Financial Research, Inc., a financial economics consulting firm.
He holds a Ph.D. in Economics from Yale University, a Master of Philosophy degree in Economics from Yale University, a Master of Arts degree in Economics from Yale University, and a Bachelor of Arts degree in Economics from Pomona College. He also holds the Chartered Financial Analyst (“CFA”) designation, granted by the CFA Institute.
In 2023, the Northern District of Texas decided Greathouse v. Capital Plus Financial, LLC, 2023 WL 5746927 (N.D. Tex. Sept. 6, 2023). That case is virtually identical to this one. In both cases, borrowers brought a class action suit against a private lender alleging that the lender failed to fund their approved PPP loans in breach of the standard contracts.
In both cases, Plaintiffs alleged similar harms—responsibility to repay unfunded loans and inability to get loans from other lenders. Plaintiffs also had the same counsel and experts in both these cases. Both cases consisted of two motions—one to exclude the expert reports and another to certify the proposed classes. And, in both cases, the result will be the same: the expert reports will only be considered for their background opinions on the PPP and the proposed classes will not be certified because of the factual differences between Plaintiffs’ loan processes.
Prestamos likely objects most strongly to the three experts offering improper legal opinions that aim to differentiate this case from Greathouse and interpret PPP regulations.
Analysis
The Court excluded the opinions explaining the differences between this case and Greathouse. The experts’ opinions interpreting the PPP regulations were also be excluded because they provided legal conclusions on whether Prestamos complied with its regulatory duties under the PPP.
Beyond distinguishing this case from Greathouse and interpreting the PPP regulations, the Court noted that all three experts gave background information on the CARES Act, the PPP, and the relevant regulations.
Moreover, both Briggs and Manger have extensive experience serving in multiple roles in the SBA and Feinstein has significant knowledge of financial markets, investments, and relevant regulations.
Because Briggs, Manger, and Feinstein are qualified and their background opinions are reliable and fit with the main issue in the case, the opinions satisfy Daubert.
Held
The Court granted in part and denied in part Prestamos’s motion to exclude the expert reports of William Briggs, William Manger, and Steven Feinstein while the Plaintiffs’ motion for class certification was denied.
Key Takeaway:
The common question in this case asks whether Plaintiffs’ PPP loans should ever have been canceled. To answer this question, the Court needs to understand the PPP and the procedure of the loan process. The experts’ background opinions supply some of this knowledge by laying out basic information about the relevant statute and regulations.
Case Details:
Case Caption:
Marshall v. Prestamos Cdfi, LLC Chicanos Por LA CaUSA, Inc.
Docket Number:
5:21cv4337
Court Name:
United States District Court, Pennsylvania Eastern
Allstate Insurance Company sells property, casualty, and life insurance in California through independent and exclusive agents. The Plaintiffs, who were exclusive agents for the Defendant from 1990 to 2023 and had signed Exclusive Agency Agreements, have filed a class-action lawsuit. Their claim centers on unreimbursed business expenses they incurred, including costs for rent, internet, licensed staff, payroll taxes and fees, mandatory insurance coverage, marketing, licensing, a cloud-based telephone system (Allstate Agency Voice), and computer equipment.
Pursuant to Federal Rule of Evidence 702, the Plaintiffs filed a motion seeking to exclude the expert report of the Defendant’s witness, Professor Paul Oyer. A key point of contention in their motion is Professor Oyer’s assertion that the Defendant provided “indirect” reimbursement for exclusive agents’ business expenses via outcome-based compensation.
The Court first addressed Plaintiffs’ Daubert Motion, and then considered whether Plaintiffs have met the requirements for class certification.
Economics Expert Witness
Paul Oyer is the Mary and Rankine Van Anda Entrepreneurial Professor and Professor of Economics at Stanford Graduate School of Business. He is also a research associate with the National Bureau of Economic Research and the editor-in-chief of the Journal of Labor Economics.
He has done several studies of how firms pay and provide incentives for their workers. Oyer looked at how salespeople and executives react to incentive systems and why some firms use broad-based stock option programs.
Motion to Exclude the Opinions of Professor Paul Oyer
Plaintiffs specifically contested Professor Oyer’s opinions that: (1) Defendant reimbursed exclusive agents’ business expenses “indirectly” by providing outcome-based compensation; and (2) that “Plaintiffs’ approach for damages based on expenses alone is conceptually flawed” because “[e]valuating the harm to members of the proposed class must be analyzed in the context of the total compensation to the [e]xclusive [a]gency, specifically the compensation used to cover the [e]xclusive [a]gency’s expenses that Plaintiffs seek as damages,” and “individualized inquiry is necessary to estimate the harm” to the agencies, if any.
The Plaintiffs contended that both of Professor Oyer’s opinions are irrelevant to the Court’s class certification analysis because they offer legal conclusions and conflict with California law regarding the reimbursement of business expenses.
Defendant argued that these opinions are relevant and admissible because Professor Oyer’s opinions “concerning the wide variations in the types and amounts of Plaintiffs’ expenses show that a determination of reasonable and necessary business expenses will change depending on the specific facts and circumstances of a particular [e]xclusive [a]gency’s business” and thus that individualized issues predominate.
Analysis
The Court concurred with the Plaintiffs, finding that the challenged opinions constituted impermissible legal conclusions. Here, Professor Oyer repeatedly opined that individualized inquiry is necessary to assess the proposed class’s damages stemming from unreimbursed business expenses. Professor Oyer also opined that Defendant’s “outcome-based compensation . . . is an efficient compensation method that indirectly compensates the [e]xclusive [a]gency for its efforts (including expenses)” and “any member of the proposed class who received compensation to cover the [e]xclusive [a]gency’s allegedly reimbursable expenses is not harmed.” The Court found that these opinions addressed “central legal questions” raised by Plaintiffs’ Motion for Class Certification, namely commonality and predominance.
In other words, Oyer’s opinions regarding commonality and predominance improperly invaded the province of the Court.
Moreover, the Plaintiffs demonstrated that the proposed class meet the requirements of Class Certification.
Held
The Court granted the Plaintiff’s motion to exclude the testimony of Paul Oyer.
Key Takeaway:
Experts may not opine on “matters of law for the Court.” Plaintiffs challenged Oyer’s assessment of the proposed class’ damages. His opinions on the necessity of the individualized inquiry and the outcome-based compensation structure improperly invaded the province of the Court.
Case Details:
Case Caption:
Canchola v. Allstate Ins. Co.
Doket Number:
8:23cv734
Court:
United States District Court for the Central District of California
Named Plaintiffs Judy Kirkbride and Beeta Lewis are consumers in Ohio and Texas that purchased prescription drugs from The Kroger Company (“Kroger”) in the last several years. They alleged that Kroger, through a deceptive pricing scheme, overcharged them for prescription drugs by misreporting the “usual and customary” (U&C) prices for Plaintiffs’ medications, which resulted in higher copayments.
Plaintiffs offered Colin Weir as a damages expert primarily to “explain how classwide damages in this case can be calculated using Kroger’s own records.” After Kroger’s experts opined that, to calculate damages in this action, class members’ claims need to be re-adjudicated over the entirety of a plan year, and that process requires additional data from pharmacy benefit managers (“PBMs”) that may not exist, Plaintiffs proffered the rebuttal expert report of Dr. Susan A. Hayes.
Defendant filed Daubert motions to exclude Colin Weir’s expert report, Susan Hayes’ expert report, and Weir’s rebuttal report.
Economics Expert Witness
Colin B. Weir is President at Economics and Technology, Inc., a research and consulting firm specializing in economics, statistics, regulation and public policy. He conducts economic, statistical, and regulatory research and analysis and often testifies as an expert witness before state and federal courts.
His experience includes work on a variety of issues, including: “calculating economic harm and damage, and analyzing liquidated damages provisions; lost profits; false claims; diminution in value; merger/antitrust analysis; Early Termination Fees (ETFs); Late Fees; determination of Federal Excise Tax burden; and development of macroeconomic analyses quantifying the economic impact of corporate actions upon the US economy and job markets.”
Dr. Susan Hayes has over 40 years’ experience in the health care consulting, pharmacy benefit management industry. Hayes is the principal, owner, and founder of Pharmacy Investigators and Consultants.
In addition to her work at Pharmacy Investigators and Consultants, she is an Assistant Professional Practices Professor and the Director of the Health Informatics Masters Degree Program at Roosevelt University, where she teaches two of the graduate level classes. She is also a Certified Registered Pharmacy Technician in Illinois and has authored research that discusses ethical decision-making in the pharmaceutical industry.
Initially, the “price paid by Class Member,” according to Weir, is found in Kroger’s transactional records—a dataset of over 158 million pharmacy transactions of generic prescriptions that occurred between December 1, 2018 and November 30, 2022, in Ohio and Texas, with 38 variables describing each transaction. However, Kroger argued that Weir’s analysis “did not meet the requirements of Rule 702” for several reasons.
First, Weir allegedly lacked the “specialized knowledge” to answer the specific questions at issue: whether class members can be identified by certain Bank Identification Numbers (“BINs”) and classwide damages determined via a formula using only pricing lists and pharmacy claims data. Second, the formula Weir opines can calculate damages on a classwide basis purportedly comes directly from counsel. Finally, the “simplified methodology” proposed by Weir allegedly “ignores the complex set of payment steps that occur with each pharmacy transaction between third-party payors (“TPPs”), PBMs, pharmacies, and individual customers.”
Analysis
Ultimately, Kroger has failed to demonstrate that Weir’s testimony is inadmissible under Rule 702 and Daubert. Specifically, its first argument—that Weir lacks experience in the pharmaceutical industry to offer an admissible expert opinion on damages in this case—is foreclosed by Sixth Circuit precedent because a generally experienced expert’s “unfamiliarity with some specific aspects of the subject at hand merely affect[s] the weight and credibility of [the] testimony, not its admissibility.”
The Court held that Kroger’s second argument, that Weir’s methodology is unreliable because it relied on assumptions from Plaintiffs’ counsel, likewise missed the mark. Weir explained that his damages framework was based on Plaintiffs’ theory of liability in this case, and “it is entirely appropriate for a damages expert to assume liability for the purposes of his or her opinion.”
Finally, Defendant attacked Weir’s methodology by questioning his failure to consider certain information regarding class members’ individual drug prescription transactions in making his calculations. The Court held that Kroger’s arguments “go to the factual sufficiency of Weir’s analysis and not to the reliability of his underlying methodology.”
Motion to Exclude Susan Hayes’ Testimony
Kroger sought to exclude Hayes’ testimony, arguing that her “experience does not include calculating damages in litigation,” and that “she has no education, training, or experience in economics or accounting, let alone in calculating damages.”
Analysis
Kroger does not dispute that Hayes is qualified to opine about PBMs or the PBM industry standards and practices generally.
This Court likewise found Hayes qualified to offer expert opinions regarding PBM practices. Drawing on her decades-long experience in auditing PBMs, she has provided helpful testimony to this Court that rests on a “reliable foundation” and is “relevant to the task at hand.”
Held
The Court found that Plaintiffs have satisfied the requirements of Federal Rule of Evidence 702 to admit the expert testimony of Colin B. Weir and Dr. Susan A. Hayes.
Key Takeaway:
Furthermore, Kroger’s argument that Weir’s methodology “is based solely on assumptions provided by Plaintiffs’ counsel” is unpersuasive, because “experts may permissibly rely on assumptions about underlying facts that are stated to them by the client.”
Moreover, Rule 702 only requires that an expert have specialized knowledge that “will help the trier of fact to understand the evidence or to determine a fact in issue,” not all facts at issue.
The NCAA is an association whose members are colleges and universities competing in intercollegiate athletics. The NCAA governs student athletic competition at its member schools.
NCAA schools are divided into three divisions: Division I, Division II, and Division III. Division I schools, which are at issue in this litigation, generally “manage the largest athletic budgets and offer the highest number of athletics scholarships.” Coach compensation is the largest athletics expense for NCAA Division I schools.
NCAA bylaws limit the number of coaches that Division I schools can hire in a given sport. Prior to 2023, Division I programs other than basketball and men’s bowl-division football were permitted to hire a certain number of “unrestricted coaches,” who had no restrictions on compensation, plus one or two “volunteer coaches.” The bylaw at issue here, NCAA Bylaw 11.01.06 (hereinafter “Volunteer Coach Bylaw” or “the Bylaw”), defined a “volunteer coach” as “any coach who does not receive compensation or remuneration” from the school’s athletics department.
Following the repeal of the Volunteer Coach Bylaw, effective July 2023, the volunteer coach designation was eliminated and the number of unrestricted coaches was increased, typically by the number of volunteer coaches allowed under the prior rule. For instance, programs previously permitted one volunteer coach were allotted one additional paid coach.
Plaintiffs brought this putative class action alleging that the Volunteer Coach Bylaw violated § 1 of the Sherman Act. The proposed class consists of “[a]ll persons who, from March 17, 2019, to June 30, 2023, worked for an NCAA Division I sports program other than baseball in the position of ‘volunteer coach,’ as designated by NCAA Bylaws.”
Dr. Orley Ashenfelter created a statistical model to estimate the damages suffered by the members of the proposed class. Defendants, however, sought to exclude all evidence from this expert.
Economics Expert Witness
Orley C. Ashenfelter is an economist specializing in labor economics, antitrust policy, and the economic analysis of labor markets. He is the Joseph Douglas Green 1895 Professor of Economics, Emeritus, at Princeton University, where he also serves as a Senior Scholar in Economics.
Ashenfelter holds a Ph.D. in Economics from Princeton University and a B.A. from Claremont McKenna College. His professional experience includes directing Princeton’s Industrial Relations Section and serving as President of multiple economic associations, including the American Economic Association, the Society of Labor Economists, and the American Law and Economics Association. He has also held editorial positions at the American Economic Review and Journal of Wine Economics.
To formulate his model, Ashenfelter relied upon wage data and other documentation from hundreds of NCAA Division I schools, focusing on those that expanded their coaching staff beyond the prior limits on the number of unrestricted coaches following the repeal of the Volunteer Coach Bylaw.
He focuses on this subset of schools because they “provide the best currently-available evidence of what a competitive market will look like” in the absence of the repealed Bylaw. The model uses actual coach salary data following the Bylaw repeal as a “benchmark” to estimate the “but-for” compensation class members would have received. “But-for” analysis refers to the practice in antitrust cases of calculating classwide damages based on what class members’ economic position would have been absent the alleged antitrust violations (i.e., in the world that would have existed but for the alleged violation).
Ashenfelter’s analysis proceeds in two steps. In the first step, Ashenfelter categorizes sports programs according to how many unrestricted coaches each program was permitted to have under NCAA rules beginning July 1, 2023 (i.e., following the repeal of the Bylaw).
In the second step, Ashenfelter produces an estimate of the compensation class members would have received in the “but-for” world.
Defendant’s Objections
In the instant case, discovery is ongoing and Ashenfelter is still receiving new data and updating his analysis, which indicates that a full Daubert analysis is “premature” at this stage of the proceedings.
Ashenfelter’s Model Fails to Control for the Experience and Skill Level of Coaches
Defendant argues that Ashenfelter’s report is nonetheless inadmissible because it fails to account for several key factors. First, Defendant contends that Ashenfelter’s model fails to control for the experience and skill level of coaches because (1) his calculations did not incorporate experience level as a variable, and (2) he did not address potential selection bias in the sample of additional paid coaches hired after the bylaw repeal, who could have higher experience levels and therefore warrant higher wages. The Court clarified that these arguments are factually unfounded, as Ashenfelter’s analysis does account for experience using both pay ranking within the coaching hierarchy and age as proxies for experience.
Second, Defendant argues that Ashenfelter “excluded evidence from schools that did not add paid coaching positions after the bylaws were amended.” Again, this argument is unfounded.
Ashenfelter’s Analysis is Based Around Groupings of Dissimilar Sports
Finally, Defendant argues that Ashenfelter’s analysis is based around groupings of dissimilar sports and “tries to estimate market rates of pay for coaches in one sport by using salaries for coaching in other sports that are determined by different supply and demand conditions.” The Court ruled that this argument mischaracterizes Ashenfelter’s analysis. While the calculation of the step-down differential at step one uses groupings of sports based on how many coaches the NCAA permits a school to hire, the damage calculation at step two uses actual salary data from each sports program at each school and therefore accounts for differences across sports.
To the extent that Defendant thinks Ashenfelter’s analysis inadequately accounts for the variables discussed above, that is not a basis for exclusion under Daubert, but rather goes to the weight of the evidence.
It is undisputed that Ashenfelter possesses extensive experience and qualifications in the field of labor economics and that he based his analysis on the review of reliable documentation produced by NCAA Division I member schools. Regression analysis based on a “benchmark” or “yardstick,” like that employed by Ashenfelter, is a well-established method of calculating class-wide antitrust impact.
Held
The Court denied Defendant’s motion to exclude the testimony of Orley Ashenfelter.
Key Takeaway:
The ruling reinforces the use of established economic methodologies, like benchmark regression analysis, in antitrust cases, and addresses the standard for admissibility of expert testimony under the Daubert standard.
The copyright infringement case between Buck Goodday Woodall (“Bucky”) and The Walt Disney Company over the film “Moana” has highlighted the critical role of expert testimony in legal disputes, particularly when dealing with complex financial analyses.
Plaintiff Woodall sought to demonstrate financial damages by presenting expert testimony from Stan Smith, who proposed a “revenue-per-minute” analysis to allocate Disney+’s revenues to “Moana.” Smith’s methodology aimed to estimate the portion of Disney+’s revenue attributable to “Moana” based on viewing time.
However, Disney challenged the reliability of this analysis, arguing it failed to meet the standards set by Federal Rule of Evidence 702 and the Daubertruling.
The Court separately excluded Plaintiff’s expert Smith from opining regarding “Disney+’s revenues” that “can be proportionally allocated to Moana based on an analysis of revenue-per-minute of home viewing” on the ground “Smith’s revenue-per-minute analysis fails to satisfy Rule 702’s reliability requirement.”
Plaintiff filed a motion for reconsideration of the Court’s order excluding Smith’s revenue-per-minute analysis.
Economics Expert Witness
Stan Vladimir Smith,Ph.D. is a nationally renowned economist who received his Ph.D. from the University of Chicago. He is President of Smith Economics Group, Ltd., headquartered in Chicago, IL, which provides economic and financial consulting nationwide. He has worked as an economic and financial consultant since 1974, after completing a Research Internship at the Federal Reserve, Board of Governors, in Washington, D.C.
Disney’s objections centered on the lack of sufficient data, the absence of general acceptance within the relevant community, the lack of testing and peer review, and the unknown rate of error in Smith’s methodology. They essentially argued that the method itself was unsound. Woodall countered by claiming the analysis was “reasonable under the circumstances” due to Disney’s alleged withholding of revenue data and later attempted to introduce a “material difference in law” argument based on a recent Supreme Court decision, Warner Chappell Music, Inc. v. Nealy, 601 U.S. 366 (2024), which was an attempt to get the Court to reconsider the ruling.
The Court, however, sided with Disney, emphasizing the importance of reliability and adherence to the Daubert factors. The Court found that Woodall failed to demonstrate that Smith’s analysis was based on adequate data, was generally accepted, had been tested, or had a known rate of error. The “reasonable under the circumstances” argument was dismissed, as was the “material difference in law” claim, which was deemed unrelated to the exclusion of Smith’s testimony.
Held
Plaintiff failed to demonstrate a material difference in fact or law or any other basis for reconsideration of the Court’s order granting Defendant BVHE’s motion to preclude Plaintiff’s retained expert Stan Smith from opining at trial about Disney+. Accordingly, the Court denied the Plaintiff’s motion for reconsideration.
Key Takeaway:
The Court’s decision highlighted the stringent standards expert testimony must meet, particularly in complex financial matters, and underscored the importance of rigorous methodology and empirical support.
In early 2015, Plaintiffs, US Thrillrides, LLC (“USTR”) and Polercoaster, LLC began discussions with Defendant, Intamin Amusement Rides Int. Corp. Est. about partnering to build Polercoasters for Plaintiffs’ customers. The “Polercoaster” is “a roller coaster that is supported or suspended from a vertical tower instead of moving along a horizontal track.”
This case arises from a project to build a roller coaster at the Dubai Hills Mall. The developer of the Dubai Project, Emaar Entertainment LLC, originally entered into a Letter of Acceptance (“LOA”) agreement with Plaintiff US Thrillrides LLC (“USTR”) relating to the Dubai Project. However, Emaar ultimately terminated that agreement and contracted with Defendant to build a different roller coaster.
Basically, Plaintiffs filed claim for breach of the Confidentiality Non-Disclosure Agreement (“CNDA”) insofar as it is based on unauthorized use of Plaintiffs’ copyrights by Defendant and Plaintiff Polercoaster LLC’s (“Polercoaster”) copyright infringement claim.
Defendant filed a motion to exclude the testimony of Plaintiffs’ damages expert, Eric Lee while Plaintiff filed a motion to exclude the testimony of Defendant’s expert, Dr. Keith Ugone.
Accounting Expert Witness
Eric Lee is a financial and fraud expert with over 20 years of experience. He is a Certified Fraud Examiner (CFE) and Certified Insolvency and Restructuring Advisor (CIRA) and has a bachelor of science degree in accounting from Arizona State University.
Also, Lee has spent the last 15+ years in litigation, forensic and bankruptcy consulting, including the quantification of complex financial damages, lost profits, class action litigation, fraud investigations, reconstruction of financial records, corporate internal investigations, funds tracing, and other financial analyses.
Dr. Keith R. Ugone has provided economic and damages consulting services in antitrust cases, breach of contract cases, business interruption cases, class action certification matters, employment / loss of earnings cases, intellectual property cases, lender liability cases, professional negligence cases, and securities-related cases, among others.
Moreover, he specializes in the application of economic principles to complex business disputes and generally is retained in cases requiring economic analyses and/or damages-related analyses.
Plaintiffs’ claims are based on the breach of the CNDA due to unauthorized use of copyrights and copyright infringement. Lee’s expert opinions relate to actual damages, which are recoverable for both causes of action.
As is typical with damages expert opinions, Lee assumed that Plaintiffs will prevail on their substantive claims and that Plaintiffs are entitled to an award of actual damages. With those assumptions in place, Lee calculated the amount of damages that he opined would be appropriate.
Basically, Lee calculated two types of damages: (1) lost profits from consulting fees and royalty fees that Plaintiffs would have earned had the LOA not been terminated and their participation in the Dubai Project been completed; and (2) a reasonable royalty for the misappropriation of Plaintiffs’ intellectual property.
Lost Profits
Plaintiffs have not and cannot prove that Defendant caused the termination of the LOA or the end of Plaintiffs’ involvement in the Dubai Project. Multiple representatives involved in the decision to terminate Emaar’s relationship with Plaintiffs made clear that they would have chosen to have no roller coaster at the Dubai Hills Mall before they would have continued their relationship with Plaintiffs.
Therefore, the Court held that Lee’s opinions as to the amount of lost profits—i.e., the unpaid consulting fees and royalty contemplated under the LOA—will be excluded because Plaintiffs are not entitled to an award of such damages.
Reasonable Royalty
Lee’s opinions involve the calculation of a reasonable royalty for all of the intellectual property, confidential information, and trade secrets that Plaintiffs alleged were misappropriated or infringed in this case combined.
However, Lee did not break down the analysis by type of intellectual property or information. As relevant here, Lee’s opinions did not allocate a reasonable royalty to the use of Plaintiffs’ copyrights, specifically.
Without any basis to parse the damages allocated to copyright infringement—as opposed to patents, trade secrets, or confidential information which are no longer at issue—Lee’s opinions would only serve to confuse the jury.
The Court held that Lee’s opinions regarding the reasonable royalty, which do not allocate a royalty based on Plaintiffs’ copyrights specifically, must be excluded.
Keith Ugone
Plaintiffs sought to exclude the expert testimony of Defendant’s expert, Dr. Keith Ugone. As indicated by Defendant, Ugone is purely a rebuttal expert, offering a critique of Lee’s damages opinions. Because Lee’s opinions are being excluded, the Court held that Ugone’s opinions are no longer relevant and will also be excluded.
Held
The Court granted Defendant’s motion to exclude the testimony of Eric Lee.
2. The Court granted Plaintiffs’ motion to exclude Keith Ugone’s Testimony.
Key Takeaway:
To begin with, an expert’s offered opinion and the facts of the case must be an appropriate fit. There is no fit where a large analytical leap must be made between the facts and the opinion.
The Court excluded Lee’s opinions regarding the reasonable royalty because there is simply no “fit” between the facts remaining at issue in this case and the opinions rendered.
Please refer to the blog previously published about this case:
Plaintiffs, Angelique L. Lingard and Sudarien D. Smith brought this proposed consumer class action on behalf of themselves and other military servicemembers who are similarly situated against Defendants Holiday Inn Club Vacations, Inc. f/k/a Orange Lake Country Club, Inc. (“HICV”) for alleged violations of the Military Lending Act.
Plaintiffs and the proposed class members purchased timeshare interests from Defendants. Defendants are in the business of selling timeshare plans to consumers throughout the United States. These plans give their owners’ points, which allow them to stay at Holiday Inn Club Vacation Resorts throughout the United States, stay at out-of-network resorts around the world, and buy airline tickets, cruises, rental cars, and other vacation services. Plaintiffs alleged that Defendants’ timeshare contracts violate the MLA. Specifically, Plaintiffs alleged that their and proposed class members’ contracts contain mandatory arbitration, class action waiver, and jury trial waiver provisions in violation of the Act. For these alleged violations, Plaintiffs, on behalf of themselves and the class, sought an order declaring the contracts void from inception and awarding actual damages.
MLA Class: All persons who have entered into Timeshare Purchase Agreements to purchase one or more timeshare interests in the Orange Lake Revocable Trust, in substantially the same form as Exhibit C, after February 24, 2018[,] and who were identified as an active duty servicemember or a dependent within a [Department of Defense (DoD)] Man[p]ower database on the contract date. Default Subclass: All members of the MLA Class whose accounts are or were delinquent as evidenced by [Holiday Inn Club Vacations (HICV)] imposing a “use restriction” on their timeshare interest for nonpayment.
Defendants relied on the report of its expert, Paul Habibi, in its response in opposition to Plaintiffs’ motion for class certification. In rebuttal to Defendants’ expert, Plaintiffs disclosed Dr. Christopher Young and sought to rely upon his report to refute Habibi’s report. The parties sought to exclude each other’s proposed experts.
Economics Expert Witness
Christopher Young, Ph.D., MBA, MAFF, CVA is a professor of business ethics in the Department of Management and Global Business and a research fellow at Rutgers’ Institute for Ethical Leadership. His research focus is in the area of forensic economics, legal and business ethics. He holds a Ph.D. and M.B.A. in global political economy, finance, and accounting from Rutgers University.
Young is a nationally recognized testifying expert and writer in the field of economics, finance and business ethics. He has testified in state and federal courts, with respect to economics, financial policy, and business ethics matters. He has been invited to speak at many government and industry trade organizations. In addition to his academic career, Young has more than twenty-five years of experience in corporate finance, strategy, business ethics, and economic analysis. Outside of the University, he manages various research and consulting projects through his company, Red Maple Economics.
Paul Habibi is the owner of a real estate expert services firm. He is also a senior continuing lecturer at the University of California Los Angeles Schools of Management and Law, where he teaches in the areas of real estate, finance, and accounting. He holds a Master of Business Administration and is a licensed realtor, broker, and certified public accountant. Habibi teaches a course on timeshares for the MBA program at UCLA. He also teaches a course on business skills for lawyers, which covers business valuations and economic damages.
A full Daubert analysis is only required at the class certification stage “when an expert’s report or testimony is critical to class certification.”
The Court held that Young’s report is not critical to the its determination of whether to certify the proposed class because Plaintiffs have not heavily relied upon it for class certification. Indeed, Plaintiffs only refer to Young’s report in one sentence related to the manageability requirement for class certification under Federal Rule of Civil Procedure 23(b)(3)(D).
Plaintiffs sought to rely upon Young’s report to rebut Defendants’ expert’s opinion on the issue of class certification. Defendants have moved to exclude Young’s report on two grounds. Defendants contended that Young’s report was untimely disclosed and lacked reliability under Daubert.
Late Disclosure
The case management and scheduling order expressly stated that Plaintiffs’ deadline for disclosing class action expert reports was March 26, 2024. According to Defendants, Plaintiffs did not identify any expert or serve any expert report on that date. Instead, Defendants asserted that Plaintiffs disclosed Young’s identity and report on May 28, 2024, the day that class discovery closed.
The crux of Young’s opinion is that a common methodology can be used to estimate the offset owed to Holiday Inn from the proposed class members who used their timeshare points.
Although Plaintiffs recited the substantially justified or harmless standard under Rule 37, the Court held that they did not make any argument in support of their position. Rather, Plaintiffs explained that Young’s expert report was timely provided as a rebuttal expert report. The Court has rejected that argument. Plaintiffs have, therefore, failed to meet their burden of showing that their late disclosure was substantially justified or harmless.
Defendants maintained that they were prejudiced because Plaintiffs disclosed Young on the day class discovery closed. Although Defendants deposed Young after the Court granted an extension to the class discovery deadline solely for this to occur, Defendants asserted there is still unfair prejudice because many topics could not be fully explored at the deposition.
Given the prejudice caused by the untimely disclosure, the inability to cure the prejudice at the deposition, and the fact that the trial is only months away, the Court decided that Young’s opinion will be excluded.
Reliability
The Court held that Young’s report is full of limitations because he has not tested the theories he asks the Court to accept. For example, he opines that the market approach methodology “can be used” to estimate the offset due to Holiday Inn.
According to Young, this approach entails evaluating the following market observations to determine the value of the Holiday Inn points: (1) the purchase of points by the issuer, (2) the purchase of points in order to complete a transaction, (3) the sale of points in secondary markets, and (4) the redemption of points for items such as holiday stays, cruises, and car rentals, versus the cost of purchasing them. Young did not analyze these observations to make any calculations because he was not provided with this data, and he speculates as to whether Holiday Inn maintains this data.
In his report, Young offered only methods unapplied to this case that might determine the value of potential class members’ Holiday Inn points. According to the Court, this unapplied and speculative methodology did not support that a reliable class-wide damages methodology existed.
Paul Habibi
Defendants heavily relied on Habibi’s report to oppose Plaintiff’s motion for class certification. Specifically, they referred to the report to challenge Plaintiffs’ assertion that the issues in the proposed class action that are subject to generalized proof predominate over the damages issue subject to individualized proof. Plaintiffs challenged the admissibility of Habibi’s report under Daubert.
Habibi provided three opinions based on his training and experience: (1) Plaintiffs and proposed class members acquired unique and variable timeshare interests in different structures with different use rights, financing terms, and financing disclosures before and during the Proposed Class Period; (2) any negative impact on Plaintiffs’ and proposed class members’ credit scores, ability to obtain financing, and professional careers in the military cannot be reliably assessed using a common approach across the entire class; and (3) the remedies sought by Plaintiffs would require an individualized analysis of each proposed class member’s respective purchase, interest, and use history.
Qualifications
Plaintiffs asserted that Habibi is not qualified to render an opinion in this matter because his curriculum vitae does not refer to expertise in timeshares or economics or valuing non-traditional property interests such as timeshare vacation points.
However, the Court disagreed. Habibi’s extensive educational background and experience qualify him to provide expert testimony in this matter.
Relevance and Helpfulness
Plaintiffs maintained that Habibi’s first opinion is irrelevant and unhelpful because Plaintiffs’ proposed class definition is now limited to servicemembers who purchased one type of timeshare interest, an interest in the Orange Lake Revocable Trust. Initially, in the operative complaint, Plaintiffs’ proposed class definition was not limited to one type of timeshare interest and sought to include “all covered borrowers who financed a timeshare from Holiday Inn.”
Plaintiffs have the burden of showing that rescission is feasible and equitable on a class-wide basis based on the facts of the case.
According to Habibi, Plaintiffs have offered no way to determine, on a class-wide basis, the type of timeshare interest purchased by each proposed class member and the use rights of each proposed class member.
The Court held that Habibi’s first opinion is relevant to the predominance class certification analysis because the parties dispute whether actual damages can be easily calculated for all class members.
Plaintiffs contended that Habibi’s second opinion is also irrelevant and unhelpful because Plaintiffs did not seek damages for the harms described in the opinion.
The Court held that Habibi’s second opinion is relevant to the predominance class certification analysis because Defendants challenge whether determining standing for each proposed class member will predominate over issues subject to generalized proof.
As for Habibi’s third opinion, Plaintiffs maintained that it is irrelevant and unhelpful because Defendants failed to plead set-off as an affirmative defense. The Court found this argument unpersuasive because Habibi opined concerning Plaintiffs’ ability to establish a class-wide damages methodology, which they bore the burden of proving during the class certification stage and at trial.
The Court held that Habibi’s third opinion is relevant to the Court’s predominance class certification analysis since the parties dispute whether actual damages can be easily calculated for all class members.
Reliability
Plaintiffs argued that Habibi should have reviewed the third-party contracts that Holiday Inn had with other companies.
According to Plaintiffs, such a review would help determine a dollar value of points redeemed by class members for services provided by these third parties, which would help calculate the potential setoff for class members.
The Court found that Habibi analyzed the timeshare points usage history data of 300 proposed class members. Based on his analysis, Habibi determined the following: (1) 39% of the proposed class members redeemed all of their timeshare points to stay at another Holiday Inn resort, and (2) for the proposed class members who redeemed their points for external stays or outside services, the average class member used 26.9% of their total timeshare points towards outside services.
The Court held that Habibi’s analysis supported his conclusion that proposed class members have redeemed their points in various ways at different times such that there is no common value ascribed to points universally that could be used as a basis to ascribe a specific dollar value to the points on a class-wide basis.
Further, as mentioned above, Plaintiffs bore the burden of establishing that calculating damages on a class-wide basis predominates over issues subject to individualized proof. Defendants only offered Habibi’s testimony to rebut Plaintiffs’ assertion they have met their burden on this issue. Habibi’s nonscientific opinion about whether there is a common methodology that can be used to determine the value of the points redeemed by the proposed class members is reliable based on his training and experience, and the Court has already found this testimony to be relevant and helpful to the Court’s predominance class certification analysis.
Held
1. The Court denied Plaintiffs’ motion in limine to exclude the report and testimony of Paul Habibi.
2. The Court granted Defendants’ motion to exclude the opinions of Plaintiffs’ proposed expert Christopher Young.
3. The Court denied Plaintiffs’ motion to certify class. On or before March 14, 2025, Plaintiffs shall file a third amended complaint which omits class action allegations.
Key Takeaways:
Young’s report is full of limitations because he has not tested the theories he asked the Court to accept.
So long as the expert is minimally qualified, objections to the level of the expert’s expertise go to credibility and weight, not admissibility.
The fact that some of their contracts with their third-party vendors may provide some mechanism for reimbursement in dollars did not render unreliable Habibi’s opinion that there is no common approach that can be used to value the redeemed points of the proposed class members.
Case Details:
Case Caption:
Lingard Et Al V. Holiday Inn Club Vacations, Inc. Et Al
In this antitrust action, separate Plaintiff groups of users and advertisers sued Meta Platforms, Inc. (Meta), for alleged anticompetitive conduct under the Sherman Act and California state law in connection with the Facebook social-networking app.
The user group, headlined by named Plaintiffs Maximilian Klein, Sarah Grabert, and Rachel Banks Kupcho, alleged that Meta illegally acquired and maintained a monopoly in the “personal social network services” (PSNS) market “through repeated misrepresentations over its data collection and use practices” that “deprived its competitors of the ability to compete.” The user Plaintiffs have asked to certify a class of all persons in the United States who used a Facebook profile between December 2016 and December 2020.
The certification request rises or falls on the validity and reliability of the opinions of the user Plaintiffs’ economist, Nicholas Economides, with respect to antitrust injury and other elements required for proof of a monopolization claim. Meta asked to exclude the opinions of Dr. Economides under Federal Rule of Evidence 702 and related cases.
Meta illegally acquired and maintained a monopoly in the PSNS market
The user Plaintiffs’ main allegation is that Meta illegally acquired and maintained a monopoly in the PSNS market by deceiving users into believing that Facebook’s data collection and privacy practices were more protective than they actually were.
In Plaintiffs’ view, these false assurances prevented other firms from effectively competing in the alleged PSNS market. The user Plaintiffs contended that this barrier to competition injured them in a manner contemplated by the antitrust laws.
For the request to certify a class comprised of millions of Americans who used Facebook over the span of four years, the user Plaintiffs advance a single theory of antitrust injury. The theory is that, but for the misrepresentations about data privacy, Meta would have found itself in a competitive PSNS market that would have forced it to pay users for their data to retain robust user engagement. This theory is based entirely on the report of Economides, who opined that “Facebook would have compensated [users] a certain amount per month for their data in the but-for world where [users] knew the truth about Facebook’s data practices, because the alternative would have led to an unacceptable loss of market share for Facebook.”
Economics Expert Witness
Nicholas Economides is an internationally recognized academic authority on network economics, electronic commerce and public policy. His fields of specialization and research include the economics of networks, especially of telecommunications, computers, and information, the economics of technical compatibility and standardization, industrial organization, the structure and organization of financial markets and payment systems, antitrust, application of public policy to network industries, strategic analysis of markets and law and economics.
Professor Economides has published more than 100 articles in top academic journals in the areas of networks, telecommunications, oligopoly, antitrust, product positioning and on the liquidity and the organization of financial markets and exchanges. He holds a Ph.D. and M.A. in Economics from the University of California at Berkeley, as well as a B.Sc. (First Class Honors) in Mathematical Economics from the London School of Economics. Previously, he taught at Columbia University (1981-1988) and at Stanford University (1988-1990).
Economides starts with the general observation that, in competitive markets, “sellers must lower their prices or else lose market share.” He starts with the general observation that, in competitive markets, “sellers must lower their prices or else lose market share.”
This observation requires immediate modification for the alleged PSNS market because, as every online denizen knows, Facebook and other social-networking apps are provided without charge to users. Economides attempts to account for this fact by saying that, although users do not pay Meta to use Facebook, Meta “charges a price to users in the form of data collection and use.” He then proposes that, in a but-for world where competition in the PSNS market was not illegally constrained as alleged by plaintiffs, rival apps would offer “more competitive privacy practices” than Facebook, which would compel Meta to compete through “a reduction in the effective price of using Facebook.”
Economides postulated that this “reduction in the effective price” would take the form of a “negative price,” by which he means an affirmative payment by Facebook to users for their data. He quantified this but-for payment to be $5.00 per user per month.
Consequently, Economides concluded that the putative class of users suffered antitrust injury by being “overcharged” by Facebook, in that they were not affirmatively paid a flat rate of $5.00 per month for using Facebook, and that this resulted over the relevant class period in “total damages to the Class of $52.8 billion (pre-trebling).”
Meta’s Motion To Exclude Economides’ Testimony
Meta stated that Economides’ antitrust injury opinions amount to ‘junk science’ and should be excluded from the case under Federal Rule of Evidence 702 and the familiar standards set by the Daubert line of cases.
In Meta’s view, “the mere theory of ‘negative price markets’ . . . cannot bridge the analytical gap between how [Facebook] actually competes for users and how Economides speculates it would.”
Economides’ Antitrust Injury Opinions
Meta did not challenge Economides’ qualifications, and rightfully so. The record indicated that he is a qualified antitrust economist.
Meta’s main criticism was that Economides’ antitrust injury opinion, namely that Facebook users suffered the loss of direct payments for their data that they assertedly would have received in the but-for world, was unsupported by the record.
The necessary links in Economides’ theory of antitrust injury are: (1) Meta competes on price and quality (2) in the but-for world without the alleged data-privacy deception, Meta would face greater competition from rivals with respect to privacy practices (3) in response to greater competitive pressure, Meta would compete on price instead of quality to avoid losing users to rivals (4) even though the price for using Facebook is “zero,” in the sense that no money is exchanged, economic theory recognizes that competitive conditions in certain markets can result in “negative” prices (5) accordingly, Meta would pay users a “negative” price to retain them instead of collecting less data.
Because Economides cited credible sources for the various economic concepts he applied, the Court saw no basis for concluding those theories and principles themselves are not well accepted in the field of economics.
In response to greater competitive pressure, Meta would compete on price instead of quality to avoid losing users to rivals
Meta did not challenge Economides’ belief that Facebook would not change its data-collection practices in the but-for world. Rather, the thrust of Meta’s challenge to his opinions on antitrust injury concerns the third link described above that Facebook would choose to compete on price instead of quality in the but-for world to avoid losing users.
To be sure, Economides relied on economic literature discussing the theory and existence of negative prices in online and double-sided platform markets, which are the types of markets the PSNS market is said to be. However, the Court held that economic theory alone does not make his opinions admissible.
In addition, the user Plaintiffs did not even allege, let alone establish with evidence, that any other participant in the PSNS market has ever competed by paying users. In telling contrast, Meta provided evidence that firms in the PSNS and adjacent markets have never competed via “negative” prices.
The record undercuts the third link in Economides’ theory by demonstrating that firms in the PSNS market, including Meta, have consistently competed on the axis of quality through better content, functionality, services, and the like to keep users engaged and the stream of user data flowing, even if the firms theoretically could compete on price. The Court held that this undisputed record about the real world, and the lack of any meaningful contrary evidence, is a big red flag for Economides’ theory.
Also, citations to economic literature did not demonstrate that the economic principles of zero-and negative-price markets were reliably applied to the facts of this case.
Overall, Economides did not identify reliable and validated economic literature to support his specific conclusion that, upon coming to the proverbial fork in the road between quality and price, Facebook would choose price in the but-for world
Lack of Sufficient Factual Grounds
Besides, Economides pointed to research initiatives where Meta paid individuals in test groups to permit Meta to harvest and use a range of data from them. The problem for Economides is that these market-research programs entailed payments for user data outside the context of Facebook’s social-networking services, where Meta is not already “bartering” for user data with Facebook’s services and the quality thereof.
The problem of factual fit also affected Economides’ opinions about Meta’s internal discussions of paying users. The Court held that the two discussions that he highlighted actually concerned user data that Meta could not or did not already obtain through Facebook’s social-networking service.
A third proposal discussed by Economides arose in the context of Apple’s 2020 App Tracking Transparency (ATT) feature, which required apps running on Apple products to “obtain users’ agreement to ‘track’ users (i.e., collect and use their data) outside that app” through a pop-up prompt. This proposal contemplated paying a “data dividend” (i.e., money for relevant purposes) “to users to incentivize them to continue providing their data to Facebook” when confronted with the ATT prompt. The Court found Economides’ analysis of this proposal and its relevancy perfunctory to the point of being of little utility.
To be sure, a fourth and final proposal did contemplate “paying users for access to their personal information” as part of a “transparent approach to privacy that should become the model moving forward.”
The Court held that this idea alone, which Meta ultimately rejected, is too thin a reed on which to base the sweeping extrapolation Economides makes that Meta would pay all U.S. users money every month for using Facebook.
Analysis
Even taken as a whole, the Court held that the four proposals did not provide “sufficient factual grounds” for the third necessary link in Economides’ theory.
For all four, he opined that “Facebook recognized that the data it was collecting and using was responsible for much of its revenue and that it would make economic sense to compensate users in order to get that data (rather than lose it).”
But that conclusion does not necessarily follow from the starting point. Economides never explained why Meta would focus exclusively on answering new competition by paying users. There is no doubt, as he says, that Meta makes a lot of money from user data, but he did not demonstrate that Meta would be compelled to retain users by paying them, rather than through innovations in services and product quality. This shortfall goes beyond merely ignoring evidence that Meta in the real world has consistently competed on the basis of quality.
Consequently, the Court concluded that Economides’ opinions cannot be the basis for finding antitrust injury in this case.
Held
The Court granted in part Meta’s motion to exclude Economides’ opinions about antitrust injury. The Court denied the user Plaintiffs’ renewed motion for class certification.
Key Takeaway:
There is simply too great an analytical gap between the facts on which Economides relies and that third link in his theory. The purpose of the Court’s inquiry under Rule 702 is to “ensure that proposed expert testimony imparts ‘scientific knowledge’ rather than guesswork.” Because that necessary third step in his theory of antitrust is without basis, and so rests on guesswork, the Court cannot conclude that Economides’ methodology and opinions are reliable and consequently admissible.
An expert’s job is to consider existing data and make inferences, hypotheses, and extrapolations, and “for this reason, ‘an expert is permitted wide latitude to offer opinions.’” Even so, there must be a sound foundation in the evidence to support every step on the way to their conclusions.
Case Details:
Case Caption:
Klein Et Al V. Meta Platforms
Docket Number:
3:20cv8570
Court:
United States District Court for the Northern District of California
