Case Information
*1 Before: ROGERS and COOK, Circuit Judges; VAN TATENHOVE, District Judge. [*]
_________________
COUNSEL ARGUED: Neil K. Gilman, HUNTON & WILLIAMS LLP, Washington, D.C., for Appellants. Paul H. Friedman, DECHERT LLP, Washington, D.C., for Appellees. ON BRIEF: Neil K. Gilman, Richard L. Wyatt, Jr., Todd M. Stenerson, HUNTON & WILLIAMS LLP, Washington, D.C., Gordon Ball, BALL & SCOTT, Knoxville, Tennessee, R. Laurence Macon, AKIN GUMP STRAUSS HAUER & FELD LLP, San Antonio, Texas, for Appellants. Paul H. Friedman, DECHERT LLP, Washington, D.C., Carolyn Hazard Feeney, DECHERT LLP, Philadelphia, Pennsylvania, Steven R. Kuney, WILLIAMS & CONNOLLY LLP, Washington, D.C., W. Todd Miller, BAKER & MILLER PLLC, Washington, D.C., Jerry L. Beane, Kay Lynn Brumbaugh, ANDREWS KURTH LLP, Dallas, Texas, for Appellees.
_________________
OPINION
_________________
GREGORY F. VAN TATENHOVE, District Judge. Dean Foods Company and Suiza Foods Corporation were the two largest processed milk bottlers in the country in 2001. At that time, they announced plans to merge their operations, which the Department of Justice approved subject to divestment of particular milk processing plants. The merged company, now known as Dean Foods, is accused of violating 15 U.S.C. § 1 of the Sherman Antitrust Act by conspiring with a raw milk supplier/milk processor and the purchaser of the divested processing facilities to divide markets and restrict output. The district court granted summary judgment for Defendants, ruling that Plaintiffs could not provide sufficient proof of injury, nor could they establish the relevant antitrust geographic market, primarily because their expert’s testimony was excluded. Two retailers of processed milk, Food Lion LLC and Fidel Breto, appeal both of these conclusions. For the following reasons, we REVERSE and REMAND .
I
A Prior to 2001, Dean Foods Company and Suiza Foods Corporation competed to process and sell bottled milk to retailers. Suiza was the largest processor of milk in the United States, and Dean Foods was the second largest. Both processors purchased their raw milk from other entities. Dairy Farmers of America (“DFA”), a dairy farmer cooperative, was Suiza’s primary supplier and business partner, owning almost 34% of Suiza Dairy Group, which was a subsidiary of Suiza’s. Dean Foods obtained its raw milk predominantly from independent farmers.
Dean Foods and Suiza merged in 2001 under the name Dean Foods, hoping to obtain “distribution efficiencies and economies of scale,” which would result in millions of dollars in cost savings. As they began consolidating, certain agreements were negotiated, with input from the Department of Justice, to avoid antitrust problems. To secure financing for the merger, Suiza purchased DFA’s ownership interest in exchange for cash, six dairy processing plants, and two contractual provisions related to DFA’s ability to provide raw milk to the merging companies’ processing plants. One provision promised DFA a specific sum of money if its supply contracts for plants previously owned by Suiza were terminated within twenty years. The other provision stipulated that Dean Foods would owe DFA liquidated damages if DFA were not provided an opportunity to supply raw milk for the plants Dean Foods owned prior to the merger.
The six processing plants that DFA received from Suiza were quickly transferred to a newly formed partnership called National Dairy Holdings (“NDH”), which DFA partly owned. NDH was formed to compete with Dean Foods, and after it added five more processing plants Dean Foods divested, it became the second largest milk bottler in the southeast. NDH had four owners. Two owners were former Suiza executives, and one was a former business partner of DFA’s chief executive officer. Together, they owned a 50% equity interest. DFA owned the other 50% equity interest, and it possessed the power to “veto any agreement that would substantially affect the operation of NDH, contracts, or capital expenditures greater than $50,000, and the acquisition, expansion or disposal of NDH’s facilities.” The Department of Justice’s Antitrust Division approved NDH’s purchase and operation of the eleven plants.
These facts set the stage for the illegal conspiracy that Food Lion and Fidel Breto (“Plaintiffs”), two retailers of processed milk, have alleged — a conspiracy in which DFA serves as the keystone. With NDH as Dean Foods’ largest competitor, it would stand to reason that if NDH were weakened, Dean Foods would enjoy a stronger position in the marketplace for selling processed milk. Although DFA’s ownership stake provides an obvious incentive to fully support NDH’s fledgling enterprise, DFA’s raw milk supply agreements with the merged company create fertile soil for the development of a conflict of interest. Supported by several disputed factual allegations, the essence of Plaintiffs’ conspiracy claim is as follows:
NDH knowingly accepted ‘second best’ plants, operated those plants at losses and eventually shuttered some of those plants in an unlawful agreement with its competitor Dean/Suiza because, in return, its parent company, DFA, received a commitment from Dean/Suiza to allow it to supply raw milk to each Dean/Suiza bottling plant, including the pre- merger Dean plants previously supplied by independent dairy farmers.
[Appellant Br. at 15.]
B
The Plaintiffs originally brought suit in the district court based on five claims, alleging violations of Sections 1 and 2 of the Sherman Antitrust Act and Section 3 of the Clayton Act. The district court granted summary judgment to the Defendants on Counts II, III, and IV, but denied summary judgment on Counts I and V. After the close of discovery, the Defendants again moved for summary judgment on several additional grounds that had not been raised previously. The district court found the additional arguments Defendants raised to be convincing and granted summary judgment in favor of Defendants on Counts I and V, ruling that the Plaintiffs failed to meet the requirements for establishing an antitrust violation under Section 1 of the Sherman Antitrust Act. Plaintiffs now appeal the district court’s ruling on Count I.
In Count I, the Plaintiffs allege that the Defendants engaged in a conspiracy not
to compete, in violation of 15 U.S.C. § 1. For a plaintiff to successfully bring an
antitrust claim under Section 1 of the Sherman Act, the plaintiff must establish that the
defendant’s actions constituted an unreasonable restraint of trade which caused the
plaintiff to experience an antitrust injury.
Expert Masonry, Inc. v. Boone County,
Kentucky
,
II
This Court reviews the district court’s grant of summary judgment
de novo
. Yet
it must be mindful that “[i]n this circuit, courts are generally reluctant to use summary
judgment dispositions in antitrust actions due to the critical ‘role that intent and motive
have in antitrust claims and the difficulty of proving conspiracy by means other than
factual inference.’”
Expert Masonry, Inc. v. Boone County, Kentucky
,
A
Unfortunately, there is no general agreement on the exact standards to use when resolving antitrust cases. As much as we might wish that a precise process with clear elements existed, antitrust cases in this circuit, and in others, apply various approaches to adjudicating antitrust claims. There are some areas of consensus, however. A good starting point is the statute itself. Section 1 of the Sherman Act states that “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.” 15 U.S.C. § 1. The plaintiffs must first show, therefore, that an agreement between two or more economic entities exists since unilateral conduct would not violate this statute. Nat’l Hockey League Players Ass’n v. Plymouth Whalers Hockey Club , 419 F.3d 462, 469 (6th Cir. 2005).
Next, because nearly every agreement between parties could be considered a
restraint of trade, the Supreme Court has limited Section 1 to apply only to
“unreasonable” restraints of trade.
Nat’l Hockey League Players,
In the case at hand, the parties do not contest the first required element — the existence of a conspiracy. The district court found enough evidence of a conspiracy for Plaintiffs to persist past summary judgment on that element of their § 1 claim, and accordingly, that issue is not challenged here. The dispute instead centers on whether the district court erred in applying the rule of reason instead of the per se rule. Even if the conspiracy at issue is not a per se violation, Plaintiffs maintain that proof of a geographic market was unnecessary, and thus contest the district court’s finding that they failed to provide sufficient evidence of an appropriate geographic market. Finally, the parties also dispute the district court’s finding that Plaintiffs have not provided sufficient evidence of antitrust injury.
B
As explained above, the Plaintiffs must present evidence showing that the
Defendants’ agreement “unreasonably restrains trade” in order to satisfy the second
requirement of an antitrust claim.
Re/Max Intern., Inc. v. Realty One, Inc.
,
A restraint may be deemed unreasonable “either because it fits within a class of
restraints that has been held to be ‘per se’ unreasonable, or because it violates what has
come to be known as the ‘Rule of Reason.’”
FTC v. Indiana Fed’n of Dentists
, 476 U.S.
447, 457-58 (1986) (quoting
Chicago Bd. of Trade v. United States
,
Unless the restraint falls squarely into a
per se
category, the rule of reason should
be used instead.
Expert Masonry
,
When determining whether to use the
per se
rule or the rule of reason, courts
must consider the type of restraint at issue — whether it is horizontal or vertical.
Expert
Masonry
,
After careful consideration, the district court concluded that the agreement at
issue in this case should be scrutinized under the rule of reason because “the essence of
the agreement alleged by the Plaintiffs is one between Dean in its role as a processor of
bottled milk and DFA in its role as a supplier of raw milk, and that the [ ] supply
agreements for raw milk are central to the completion of the alleged conspiracy.”
In re
Southeastern Milk Antitrust Litig
.,
Plaintiffs have previously characterized the conspiracy as a complex relationship among DFA, Dean Foods, and NDH. That arrangement, however, necessarily involves vertical elements in the relationship between DFA and Dean Foods. Yet now on appeal, Plaintiffs contend that the conspiracy is much simpler than previously alleged, and urge this Court to find that Defendants have committed a per se violation of the Sherman Act. In support of this contention, Plaintiffs reassert that the Defendants’ agreement is horizontal, arguing that “the conspiracy here is the agreement between Dean/Suiza and NDH not to compete.” This argument, however, is unavailing. Plaintiffs should not be able to change their characterization of the conspiracy midstream in order to gain a more favorable outcome.
Plaintiffs concede that the reason NDH would agree to weaken itself is unclear
until NDH’s ownership structure is disclosed. Plaintiffs explain that NDH conspired
with Dean Foods only because DFA owned and controlled NDH, and because the
conspiracy served DFA’s purposes. Assuming Plaintiffs’ theory of their injury is true,
they suffered harm because of the result from the agreement between Dean Foods and
DFA. The conspiracy’s effect on the plaintiff, however, is not the sole means of
determining whether a restraint is horizontal or vertical. The agreement which causes
the effect is determinative.
See Business Electronics Corp. v. Sharp Electronics Corp.
Plaintiffs’ explanation that NDH acted as it did because of a horizontal agreement between Dean Foods and NDH has no logical basis because such an arrangement would present an agreement whereby Dean Foods simply benefits and NDH is harmed. Rather, DFA is the sine qua non for this conspiracy; NDH would compete but for DFA and the non-price restrictions it allegedly imposed on NDH.
“Courts cannot act perfunctorily when distinguishing restraints that merit a
per
se
approach from those that deserve rule of reason analysis,” and the court may apply
the
per se
rule “only if a restraint clearly and unquestionably falls within one of the
handful of categories that have been collectively deemed
per se
anticompetitive.”
Expert
Masonry,
Moreover, even if the agreement is horizontal in the way Plaintiffs now claim,
applying the rule of reason is the default position and can be applied to horizontal
restraints as well if they do not fit into existing categories of
per se
violations.
E.g.,
F.T.C. v. Indiana Fed’n of Dentists,
Finally, summary judgment is only appropriate when there are no genuine issues
of material fact, and the moving party is entitled to judgment as a matter of law. Fed.
R. Civ. P. 56(c);
Celotex Corp. v. Catrett,
As explained above, when applying the rule of reason analysis, plaintiffs
generally must establish the effect on the relevant geographic and product markets.
However, courts have recently begun to view the rule of reason in a broader manner in
certain cases. Plaintiffs contend that even if the Court applies the rule of reason to their
case, under the so-called “quick look” rule of reason analysis, they still should not be
required to prove geographic market because the adverse market effects are implied by
the obvious violation of the Defendants. Once the district court decided that the rule of
reason applied, it granted summary judgment to the Defendants, without addressing
whether a quick-look analysis might be appropriate. “[T]he alleged agreements
challenged by Plaintiffs ought to be subject to the rule of reason analysis, requiring that
Plaintiffs establish the relevant geographic antitrust market, something they cannot do.
For this reason, Defendants are entitled to summary judgment as to Count I of Plaintiffs’
complaint.”
In re Southeastern Milk Antitrust Litig
., 2012 WL 1032797, at *12.
Plaintiffs submit that this simple logic equation overlooks the recent deterioration of
clearly defined types of market analyses in favor of a more case-by-case approach.
Realcomp II, Ltd. v. FTC
,
This Court has characterized “quick look” analysis as a third type of category
arising from the blurring of the line between
per se
and rule of reason cases.
See Expert
Masonry
,
Whatever tool is used to judge an agreement, “the essential inquiry remains the
same — whether or not the challenged restraint enhances competition.”
Cal. Dental
Ass’n
,
[T]here is generally no categorical line to be drawn between restraints that give rise to an intuitively obvious inference of anticompetitive effect and those that call for more detailed treatment. What is required, rather, is an enquiry meet for the case, looking to the circumstances, details, and logic of a restraint. The object is to see whether the experience of the market has been so clear, or necessarily will be, that a confident conclusion about the principal tendency of a restriction will follow from a quick (or at least quicker) look, in place of a more sedulous one.
Cal. Dental Ass’n
,
Here, using the quick-look analysis, Plaintiffs do not necessarily need to show
geographic market evidence to defeat summary judgment. The district court did not
distinguish between the two types of rule of reason analysis as explained above — the
full rule of reason analysis and the quick-look form of analysis.
See Cal. Dental Ass’n
,
C
Under a quick-look analysis, the Plaintiffs do not necessarily need to establish either product or geographic [1] market evidence in order to defeat summary judgment. In that event, the exclusion of their expert’s testimony would no longer be relevant. However, the district court may yet determine that a full rule of reason analysis is still required, in which case Plaintiffs would not be able to establish the relevant market apart from the testimony of Professor Froeb, whose testimony was excluded by the district court. Thus, on remand, Professor Froeb’s testimony about geographic market may yet return to prominence, and therefore we review the decision to exclude it.
In applying the rule of reason to the case at hand, the district court required the
Plaintiffs to establish and define the relevant geographic market, but also held that
Plaintiffs’ expert witness, Professor Luke Froeb, formed his opinion concerning
geographic market by using an unreliable method.
In re Southeastern Milk Antitrust
Litig
.,
The district court’s decision to exclude Froeb under the standard required by
Daubert v. Merrell Dow Pharm., Inc.
,
1
Admissibility of expert testimony is governed by Federal Rule of Evidence 702
[2]
and informed by the seminal case applying Rule 702,
Daubert v. Merrell Dow
Pharmaceuticals, Inc.,
Geographic market is defined as “the region in which the seller operates, and to
which the purchaser can practicably turn for supplies.”
Tampa Elec. Co. v. Nashville
Coal Co.
,
The purpose of defining a geographic market is to reveal whether, or to what
extent, market power exists.
Thompson v. Metro. Multi-List, Inc.
,
The hypothetical monopolist is a related concept.
See
U.S. Dep’t of Justice and
Fed. Trade Comm’n, 1997 Horizontal Merger Guidelines (“Merger Guidelines”);
see
also FTC v. Whole Foods Market, Inc.
, 548 F.3d 1028, 1038 (D.C. Cir. 2008)
(acknowledging the use of this construct when examining a market);
Ky. Speedway
This should continue only until buyers in the relevant market respond to a SSNIP
by purchasing regardless of the increase. Merger Guidelines § 1.0. Although the
Merger Guidelines, including the hypothetical monopolist, are useful and informative
for courts in analyzing some antitrust violation claims,
Ky. Speedway
,
The process for excluding Professor Froeb’s testimony involved two orders from
the district court and one from the magistrate judge. This circuitous path warrants
explanation. In August, 2010, the district court initially denied summary judgment to
Defendants on Count I — violation of 15 U.S.C. § 1 by conspiring to restrain trade —
but granted summary judgment on Counts III and IV, which alleged monopolization in
violation of 15 U.S.C. § 2.
In re Southeastern Milk Antitrust Litig
.,
Froeb had marked out the geographic market for Counts III and IV by looking at regions where Dean Foods sells, and Food Lion buys, processed milk. He examined the states of Georgia, North Carolina, and Virginia as possible markets, but individually each state was too small for the imposition of a profitable price increase because suppliers would prevent a price increase by shipping cheaper milk into the affected area. A regional market including Georgia, North Carolina, Virginia, South Carolina, and the eastern part of Tennessee, however, was found to be sizeable enough. In making that determination, Froeb relied on estimates of transportation costs and elasticity of demand.
In reaching its conclusion, the district court did not evaluate Froeb’s methods
under Rule 702 and
Daubert
. Instead, while assuming that Froeb’s testimony was
reliable and relevant, the court identified four ways that Froeb’s methodology was not
in compliance with the Supreme Court’s requirements for discerning geographic market;
because of this, the court held that Plaintiffs failed to establish a genuine issue of
material fact on this required element.
In re Southeastern Milk Antitrust Litig
., 730 F.
Supp. 2d at 825. In support of this conclusion, the district court first cited two Supreme
Court cases for the proposition that raising a genuine issue of material fact cannot be
done solely through expert testimony unsupported by facts in the record.
Id
. at 28 (citing
Brooke Group Ltd. v. Brown & Williamson Tobacco Corp.
,
Four months later, the magistrate judge assigned to this case issued an order excluding Froeb’s geographic market testimony pursuant to Rule 702. The order explained that Defendants had to prevail on their motion to exclude Froeb’s testimony because the summary judgment decision previously issued by the district court established the law of the case. This was most clearly true for Froeb’s testimony pertaining to the monopoly claims, but the magistrate judge concluded likewise for the conspiracy claim, using different deposition testimony from Froeb to support this conclusion. Froeb had testified that the same analytic framework was used to demarcate the geographic markets for both claims, and the magistrate judge reasoned that if the framework was unreliable for the monopoly claims, it must also be so for the conspiracy claim.
This lengthy journey to exclusion finally culminated with the district court’s
order on Plaintiffs’ motion to reconsider the magistrate judge’s decision, in which the
court affirmed the magistrate judge’s decision to exclude Froeb’s testimony. The district
court was skeptical that it needed to rule on the same issue again, but it decided the
cautious approach was most prudent and considered Defendants’
Daubert
motion anew,
but as an alternative holding to the prior order. Nevertheless, Froeb’s opinions were
excluded again on similar grounds as before. Once again, the district court found that
Froeb’s deposition testimony did not satisfy the
Tampa Electric
standard because he had
used the hypothetical monopolist construct improperly. The court reemphasized the lack
of consideration of commercial realities — e.g., information about Plaintiffs’ purchasing
behavior or pricing, how retailers in the prescribed markets currently obtain supplies, or
actual elasticity of demand — and the lack of reliance on facts in the record. Froeb’s
model, based only on Food Lion’s locations, was again disparaged according to the
principle that “a geographic market cannot ordinarily be defined by reference to a single
customer.” . (citing
Apani Southwest Inc
.,
The district court’s reasoning in its decision to exclude Froeb’s testimony rests
on an incomplete review of the facts and the application of incorrect legal standards.
See
Romberio
,
Second, the requirement that an expert base his findings on facts in the record is
a proper legal proposition, but it was misapplied. In the district court’s order on
summary judgment, it emphasized that “[t]here is nothing in this record to illustrate that
Professor Froeb has based his opinions on evidence in the record; in fact, he appears to
admit that he did not do so, relying instead on a theoretical model he constructed for the
purpose of the analysis.”
In re Southeastern Milk Antitrust Litig
.,
Froeb’s report is bereft of citations to an underlying document or report as he opines on the relatively elementary economic concepts of competition between processing plants and the benefits one firm could garner by eliminating competition. [R. 1159-5 at 15.] Following that explanation, Froeb extensively cited facts from government studies, academic publications, and the record itself as he created a geographic market. [ See, e.g., id . at 19 n.34 (citing data showing demand for milk is relatively insensitive to price); see also id . at n.35 (citing information in the record showing the same result); [6] id. at 25 n.48 (citing record evidence regarding transportations costs; id . at 26 n.50 (same); id . at 26-27 n.51 (citing reports and record evidence as inputs for factoring transportation costs).] In sum, expert reports must be based on proper facts, but each of those facts does not have to occupy an independent part of the record for an expert to be able to use them when crafting an opinion.
Third, lack of reliance on evidence in the record was combined with criticism
that “commercial realities” were not considered. Commercial realities should be
contemplated when a geographic market is being created.
See Kolonn Indus.
, 637 F.3d
at 442-443. The district court was troubled by the absence of actual information from
Food Lion, such as Food Lion’s purchasing habits, where it actually sought out supplies,
and data about price elasticity. The hypothetical monopolist test and
Tampa Electric
both require data based on actual circumstances, e.g., where a buyer and/or seller is
located. Both inquiries, however, also require estimates, and even discount the value of
data based on actual behaviors. The question about buyers in
Tampa Electric
, for
instance, focuses on where they can “practicably” turn for supplies — not where they
actually do.
See Morganstern v. Wilson
,
Furthermore, Froeb did not completely ignore commercial realities. He may
have neglected to include important facts; and those identified by the district court may
have more closely aligned his analysis with that explained in the Merger Guidelines.
See
Merger Guidelines § 1.21 (“In considering the likely reaction of buyers to a price
increase, the Agency will take into account all relevant evidence, including, but not
limited to, the following: evidence that buyers have shifted or have considered shifting
purchases between different geographic locations in response to relative changes in price
or other competitive variables . . . .”). But actual inputs were considered, most notably
transportation costs and plant locations inside and outside of the proposed geographic
market. Including some facts while omitting others goes to the “accuracy of the
conclusions, not to the reliability of the testimony.”
In re Scrap Metal Antitrust
Litigation
,
Finally, the district court found that Froeb did not apply the Tampa Electric standard when forming the geographic market. Quoting Froeb’s deposition testimony, the district court found that he denied that his market analysis looked at the area “in which the seller operates and to which the purchaser can practically turn for supplies.” When a similar question was posed again, Froeb repeated his disclaimer that his model was based on a different approach. Because Froeb’s version of the hypothetical monopolist test was applied unconventionally — or at least purportedly so, based on his deposition testimony — his opinion was categorized as unreliable.
At its most basic, the hypothetical monopolist construct requires selection of the smallest area in which a SSNIP could be successfully imposed. For that construct to be valuable in a case, the area at issue must encompass at least some of the locations of the seller (Defendants) and the buyer (Plaintiffs), including where the buyer could turn for supplies if prices increased. See Merger Guidelines §§ 1.21, 1.22. The availability of suppliers that are actually alternatives is limited by the economic realities of the industry at issue. See id . at § 1.21. Applied in that way, the hypothetical monopolist and the Tampa Electric standard are practically equivalent: the hypothetical monopolist is “a useful framework for organizing the factors the courts have applied in geographic market definition.” 2 Earl W. Kinter et al., Federal Antitrust Law § 10.15 (2013).
Notwithstanding Froeb’s disclaimer, he also states in his deposition that he
“started with areas 5 and 7 because that seemed to include all three of the defendants.”
[R. 1159-5 at 27.] Fidel Breto’s one location was within that area, as were some of Food
Lion’s stores.
[7]
Practicable alternative suppliers were also considered,
[8]
extending as far
away as 300 miles from Milk Orders 5 and 7 and including all “regulated, non-captive”
plants. Opposing counsel asked if a smaller market were contemplated, and Froeb
replied that the market he described in his report was the only one considered. In their
response on appeal, Defendants criticize Froeb’s market delineation and suggest that the
market is “much smaller.” Multiple courts of appeal have held that market definition is
a question of fact.
Kolon Indus.
,
In conclusion, Froeb’s testimony should not have been excluded on the grounds relied upon by the district court.
D
As explained above, regardless of whether the court uses the rule of reason or the
per se
rule, antitrust plaintiffs must still prove that the restraint at issue caused them to
suffer an antitrust injury.
Expert Masonry
,
However, although the district court never explicitly addressed Defendants’
objections to Cotterill’s testimony, the summary judgment opinion strongly suggests that
the district court concurred with the magistrate judge. The court did not exclude
Cotterill’s testimony, but simply concluded that it “does not create a material issue of
fact.”
In re Southeastern Milk Antitrust Litig
.,
Antitrust plaintiffs cannot survive motions for summary judgment without
adequately alleging an antitrust injury.
Expert Masonry, Inc.
, 440 F.3d at 345. In
addition to having to show injury-in-fact and proximate cause, antitrust plaintiffs must
specifically establish “antitrust injury.”
In re Cardizem CD
,
In the case at hand, the district court concluded that Plaintiffs had not created a genuine issue of material fact as to either aspect of antitrust injury. In re Southeastern Milk Antitrust Litig ., 2012 WL 1032797, at *6. The court reasoned that Cotterill’s multiple regression analysis was too simplistic. Id . Instead of measuring the injury Defendants’ conspiracy inflicted, Cotterill merely discerned that after controlling for natural cost increases, prices rose an additional 7.9% between 2002 and 2007. This time period coincides with the timing of the merger, and the court accordingly concluded that Cotterill’s calculations only revealed the impact of the merger, which was not contested. Id .
In reaching that conclusion, the court relied on two facts. First, in Cotterill’s deposition testimony he stated that the purpose of his calculation was “to analyze whether in fact the creation of NDH and the assertion that there would be economies of size and lower prices through efficiencies generated by that creation from January 1, 2002 going forward, whether that in fact was true or not.” Id ., at *6 (quoting Cotterill Depo. April 12, 2010, at 17). Second, during the Department of Justice’s review of the merger, it created a model to estimate the potential merger’s price-effect. . In Cotterill’s expert report, he explained that his model was similarly designed to that of the Department of Justice, and consequently, the court concluded that Cotterill’s regression analysis must have measured the effect of the merger as well. .
That conclusion, however, was based on flawed propositions, and summary
judgment was not warranted on the issue of injury. Although Cotterill made the
statement quoted above, he added — in the same sentence as the testimony was
transcribed — that he was also charged with discerning “whether in fact there is a
reliable economic model of collusion rather than independent self-interest that says, yes,
they did engage in actions that in fact are consistent only with collusive decisions by
Dean, DFA, and NDH, and [those] decisions resulted in elevated prices to the plaintiffs
in this case.” Cotterill Depo. at 17-18.
[12]
Answering that question would expose the
precise sort of injury and causation that is required, especially when Plaintiffs must
benefit from all reasonable inferences.
See Logan v. Denny’s, Inc.
,
The district court’s concerns regarding Cotterill’s regression analysis also do not
support summary judgment. A multiple regression analysis is useful in quantifying the
relationship between a dependent variable (e.g., the price of milk) and independent
variables (e.g., energy costs and/or demand factors).
Wiesfeld v. Sun Chemical Corp
.,
Cotterill’s model, as applied to the facts, reveals three conclusions which, taken
together, can be viewed as evidence of antitrust injury. First, it is clear that Plaintiffs
purchased processed milk from the Defendants. Second, Cotterill’s model indicates that
after the merger Plaintiffs were charged 7.9% more for milk than an econometric
analysis could justify. And third, the district court found that evidence indicated that
Dean Foods and NDH, due to the influence of DFA, conspired to avoid competing
vigorously.
In re Southeastern Milk Antitrust Litig
.,
This conclusion also resolves the question of whether Plaintiffs’ injuries “flow
from that which makes defendants’ acts unlawful.”
In re Cardizem CD
,
III
For the aforementioned reasons, the district court’s opinion is reversed, and this case is remanded for further proceedings consistent with this opinion.
Notes
[*] The Honorable Gregory F. Van Tatenhove, United States District Judge for the Eastern District of Kentucky, sitting by designation.
[1] The definition of product market is not at issue on appeal.
[2] “A witness who is qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of an opinion or otherwise if: (a) the expert's scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue; (b) the testimony is based on sufficient facts or data; (c) the testimony is the product of reliable principles and methods; and (d) the expert has reliably applied the principles and methods to the facts of the case.” Fed. R. Evid. 702.
[3] “A market is defined as a product or group of products and a geographic area in which it is produced or sold such that a hypothetical profit-maximizing firm, not subject to price regulation, that was the only present and future producer or seller of those products in that area would likely impose at least a ‘small but significant nontransitory’ increase in price, assuming the terms of sale of all other products are held constant.” Merger Guidelines § 1.0.
[4] It is unclear whether Froeb’s statement applies to the geographic market created for the monopoly claims in Counts 3 and 4, the conspiracy claim in Count 2, or both.
[5] Orders 5 and 7 cover all or part of fourteen states: Alabama, Arkansas, Florida, Georgia, Indiana, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, South Carolina, Tennessee, Virginia, and West Virginia. Plaintiff Fidel Breto has one store located in Tennessee, and Food Lion has 1,300 stores in 11 states: Delaware, Florida, Georgia, Kentucky, Maryland, North Carolina, Pennsylvania, South Carolina, Tennessee, Virginia, and West Virginia. The states in Orders 5 and 7 in which Plaintiffs are located are as follows: Florida, Georgia, Kentucky, North Carolina, South Carolina, Tennessee, Virginia, and West Virginia.
[6] Price elasticity is noted as a foundational element in Froeb’s definition of a geographic market.
[7] With regard to Plaintiffs’ locations, Froeb graphs Orders 5 and 7, including many locales lacking any stores owned by Plaintiffs, and makes the following assumption: Customers locate stores near population centers and locate distribution centers to minimize the cost of distribution to stores. In the model, customer locations are represented by a grid of 119 evenly-spaced customer locations within Order Nos. 5 and 7. The total measure of demand at each location is proportional to the census population nearest that point. [ . at 32 n.60.] Froeb’s reason for doing this rather than mapping Plaintiffs’ locations is unclear, but his more extensive (and, albeit, hypothetical) rendering may be reliable under the principle that the greater includes the lesser. Froeb’s model includes the actual locations of Defendants’ (sellers) processing plants and, arguably at least, the practicable alternatives for Plaintiffs (buyers). His inclusion of additional (perhaps superfluous) buyers does not undermine his conclusion that prices could be manipulated. It should not be inferred that we are opining on the correctness of Froeb’s conclusions, we merely note that his method harmonizes with the Tampa Electric standard.
[8] “The model specifically considers (1) the locations of plants and customers, (2) the elasticity of demand for milk, determined by parameters that measure both demand and cost characteristics of the milk industry, and (3) the costs of transporting bottled milk.” [R. 1159-5 at 31.]
[9]
Coastal Fuels of Puerto Rico, Inc. v. Caribbean Petroleum Corp.
,
[10] Plaintiffs urge us to hold that the district court erred when it relied on Froeb’s deposition testimony more heavily than the contents of his expert report. Traveling down that line of argument is unnecessary. Simply reiterating a long-standing and unremarkable principle is sufficient: the law establishes burdens of persuasion, and parties must bear those burdens. Clear deposition testimony that contradicts one’s own expert report may make bearing that burden more difficult, and that challenge may grow more daunting when the testimony and report are related to a difficult legal issue. Ultimately, we trust that courts vigorously endeavor to rule properly by reviewing the evidence put before them. The onus is on the parties to advocate clearly.
[11]
In the context of reviewing a magistrate judge’s decision as to a dispositive motion and after
a party’s objection, three other courts of appeal have held that a presumption should exist that a district
court properly reviewed the motion.
United States v. Hamell
, 931 F.2d 466, 468 (8th Cir. 1991)
(explaining that unless contrary evidence is presented, the appellate court should assume a district court
engaged in appropriate review);
Brunig v. Clark
,
[12] The entire quote reads as follows: As I understand it, I have been asked to analyze whether in fact the creation of NDH and the assertion that there would be economies of size and lower prices through efficiencies generated by that creation from January 1, 2002 going forward, whether that in fact was true or not, and whether in fact there is a reliable economic model of collusion rather than independent self-interest that says, yes, they did engage in actions that in fact are consistent only with collusive decisions by Dean, DFA, and NDH, and that decisions resulted in elevated prices to the plaintiffs in this case. Now, that was a hypothesis, sir. First of all, there is a story that can be told that supports the defendants—or the plaintiffs. There is a story. There is a hypothesis that supports them. There is a counter-hypothesis, that is what Dean and Suiza represented to Justice, which in fact there [are] economies of size, there [are] efficiencies, we are going to pass those on and the plaintiffs in this case are going to enjoy the lower prices. That is what we looked at. Cotterill Depo. at 17-18.