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From Antitrust Law Daily, January 28, 2014

Expert testimony offered by dairy cooperatives charged with monopsonization scaled back

By Jeffrey May, J.D.

An expert for defending dairy cooperatives in an antitrust class action brought on behalf dairy farmers was not qualified to offer an opinion on “cooperative governance,” the federal district court in Rutland, Vermont, has ruled. However, the court denied the complaining farmers’ motion to exclude the expert’s testimony on other grounds (Allen v. Dairy Farmers of America, Inc., January 23, 2014, Reiss, C.).

The complaining dairy farmers alleged a theory of monopsonization based on unilateral and conspiratorial conduct in violation of federal antitrust law. They contended that Dairy Farmers of America, Inc. (DFA), Dairy Marketing Services, LLC (DMS), and others conspired to depress prices for raw Grade A milk paid to farmers and to allocate markets in the Northeast United States. The dairy farmers sought damages in the amount class members would have received for sales of fluid Grade A milk in the absence of the alleged antitrust violations.

The court certified two subclasses of dairy farmers to proceed with the claims in November 2012. In December 2013, the court granted in part and denied in part the defendants’ motion to exclude the plaintiffs’ expert economist, Gordon Rausser, who is a professor at the University of California at Berkeley. In this most recent decision, the court considered the plaintiffs’ motion to exclude certain opinions and testimony of the defendants’ expert economist, Joseph Kalt. Kalt is a professor of International Political Economy at Harvard University’s John F. Kennedy School of Government.

The plaintiffs were successful in their efforts to exclude Kalt’s opinions on “cooperative governance” matters, including his opinions regarding the governance of dairy cooperatives. While Kalt could testify regarding the economic incentives of the participants in the alleged conspiracy, he was not qualified to testify regarding the legal and regulatory framework governing the production and marketing of milk and the dairy cooperatives’ role within that complicated framework or regarding the legal, ethical, or regulatory restrictions on the manner in which a dairy cooperative’s management does business, the court ruled.

The court rejected the plaintiffs’ efforts to exclude Kalt from testifying regarding the following topics: (1) his analyses and opinions concerning the relevant geographic market; (2) his opinions based on his univariate analysis regarding farmer prices and premiums; and (3) his opinions that rely on U.S. Department of Agriculture (USDA) pricing survey data. However, the court did impose some limits.

With respect to relevant market analysis, the plaintiffs failed to identify a flaw in Kalt’s opinions that would require their exclusion under Rule 702 of the Federal Rules of Evidence, the court concluded. Kalt criticized the plaintiffs’ proposed relevant geographic market as too narrow. The plaintiffs unsuccessfully argued that Kalt had improperly applied the “SSNIP” test (a test to measure a small but significant non-transitory increase in price to analyze the impact of anticompetitive behavior in a proposed market). Also rejected was the plaintiffs’ contention that Kalt “ignored and misapplied well-established market definition concepts” in his market definition testimony. The plaintiffs would be permitted to challenge Kalt’s opinions at trial through vigorous cross-examination, the court explained.

The plaintiffs’ expert had offered opinions regarding the alleged uniformity of premiums and pricing for milk paid to farmers. The court ruled that Kalt’s univariate analysis was admissible for the limited purpose of challenging the plaintiffs’ assertion of uniformity in prices or premiums. The defendants’ expert was not, however, permitted to rely on his univariate analysis to offer an opinion regarding the cause of the alleged lack of uniformity in prices and premiums. Univariate analysis is a statistical analysis of a single variable frequently referred to as a “descriptive statistic.”

The court denied the plaintiffs’ motion to exclude Kalt’s analyses and opinions that stemmed from his use of prices reported in USDA surveys. The plaintiffs had argued that there was no reliable evidence that the survey prices were representative of the actual prices paid by processors and that the expert impermissibly used these prices to draw conclusions regarding the prices paid by processors.

The USDA survey was based on prices that had not been verified as having actually been paid by processors. However, the expert accurately characterized the prices as “announced prices” or “survey data” and accurately reflected both the source of the data and its limitations. Therefore, the data was neither meaningless nor inherently unreliable. The court would prohibit the expert from referring to “prices paid” when using USDA survey data to avoid juror confusion.

The case is set to go to trial later this year.

The case is No. 5:09-cv-230.

Attorneys: Danyll W. Foix (Baker & Hostetler LLP) and Emily J. Joselson (Langrock Sperry & Wool, LLP) for Alice H. Allen. Amber L. McDonald (Baker & Miller PLLC) and Carl R. Metz (Williams & Connolly LLP) and Ian P. Carleton (Sheehey Furlong & Behm P.C.) for Dairy Farmers of America, Inc.

Companies: Dairy Farmers of America, Inc.

MainStory: TopStory Antitrust VermontNews

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