Animal Sci. Prods., Inc. v. Hebei Welcome Pharm. Co. (In re Vitamin C Antitrust Litig.)

IN RE VITAMIN C ANTITRUST LITIGATIONThis document relates to:ANIMAL SCIENCE PRODUCTS, INC., et al., Plaintiffs,

v.HEBEI WELCOME PHARMACEUTICAL CO. LTD., et al., Defendants.

06-MD-1738 (BMC) (JO)

05-CV-0453

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK

DATED: December 20, 2012

MEMORANDUM

DECISION AND ORDER

COGAN, District Judge.

This litigation arises out of allegations that a group of Chinese vitamin C manufacturers conspired to fix the price of vitamin C at non-competitive levels and to limit the supply of vitamin C for export to the United States. Plaintiffs have moved for an order excluding the testimony of defendants' expert, Dr. Lawrence Wu under Federal Rule of Evidence 702 and the Supreme Court's decision in Daubert v. Merrill Dow Pharms., Inc., 509 U.S. 579, 113 S. Ct. 2786 (1993). For the reasons set forth below, plaintiffs' motion is denied.

BACKGROUND

At issue are the competing models used by the parties' experts to calculate the damages allegedly suffered by the direct purchaser plaintiff class as a result of defendants' conduct.¹ Plaintiffs' expert, Prof. Douglas Bernheim, used vitamin C market prices from before and after the class period (December 1, 2001 through June 30, 2006) to develop a model forecasting the price for vitamin C that would have obtained in the United States if not for defendants' alleged anticompetitive behavior. The difference between the actual price and the "but-for" price calculated by Prof. Bernheim constitutes the amount plaintiffs claim they were overcharged as a result of the alleged fix-pricing conspiracy. Prof. Bernheim also adjusted the "but-for" price in order to account for the effects of the SARS epidemic, which occurred during the class period. Prof. Bernheim initially estimated the plaintiff class' damages to be $58.4 million, but then revised this figure to $54.1 million.

Defendants retained Dr. Wu to challenge Prof. Bernheim's damages model. Specifically, Dr. Wu was tasked with reviewing Prof. Bernheim's analysis and methodology for errors. He was instructed to "assume the plaintiffs' claims of a conspiracy" and to develop a model by making appropriate corrections to Prof. Bernheim's analysis in order "to calculate damages that might be claimed on behalf of class members for the conspiracy which plaintiffs allege." Based on his model, Dr. Wu concluded that Prof. Bernheim "greatly overstate[d] the amount of damages which plaintiffs may claim" and found that "damages that might be claimed on behalf of class members for the conspiracy which plaintiffs allege are no more than $1.3 million."

Prof. Bernheim later submitted a rebuttal report critical of Dr. Wu's analysis. Specifically, Prof. Bernheim argued that Dr. Wu's model produced results that fail "plausibility checks" or "sanity checks" and that, therefore, his analysis is unreliable. Plaintiffs, relying on Prof. Bernheim's rebuttal report, bring this motion and characterize Dr. Wu's analysis as "junk science" that the Court should not allow to be presented to the jury. Plaintiffs' motion consists of a laundry list of ways in which, they contend, Dr. Wu's analysis fails to meet the "plausibilitychecks" identified by Prof. Bernheim and several other critiques of the methodology employed by Dr. Wu. In response, defendants argue that plaintiffs merely dislike Dr. Wu's conclusions. They defend the reliability of Dr. Wu's methodology and provide explanations for its supposed failures to satisfy "plausibility checks."

DISCUSSION

The admission of expert evidence is governed by Rule 702 of the Federal Rules of Evidence, which provides that:

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.

The proponent of expert testimony bears the burden of "establishing by a preponderance of the evidence that the admissibility requirements of Rule 702 are satisfied." See Humphrey v. Diamant Boart. Inc., 556 F. Supp. 2d 167, 174 (E.D.N.Y. 2008) (internal quotation marks omitted). Nevertheless, under Daubert "the district court functions as the gatekeeper for expert testimony." Raskin v. Wyatt Co., 125 F.3d 55, 66 (2d Cir. 1997). See also Kumho Tire Co. v. Carmichael, 526 U.S. 137, 141, 119 S. Ct. 1167, 1171 (1999) ("We conclude that Daubert's general holding - setting forth the trial judge's general 'gatekeeping' obligation - applies not only to testimony based on 'scientific' knowledge, but also to testimony based on 'technical' and 'other specialized' knowledge.").

When deciding whether a proposed expert witness may testify, the Court must first determine whether the proposed witness is qualified as an expert. Baker v. Urban Outfitters. Inc., 254 F. Supp. 2d 346, 352 (S.D.N.Y. 2003). If the proposed expert witness meets thethreshold qualification requirement, the court must then "ensur[e] that [his] testimony both rests on a reliable foundation and is relevant to the task at hand." Daubert, 509 U.S. at 597, 113 S. Ct. at 2799.

"[I]n analyzing the admissibility of expert evidence, the district court has broad discretion in determining what method is appropriate for evaluating reliability under the circumstances of each case." Amorgianos v. Nat'l R.R. Passenger Corp., 303 F.3d 256, 265 (2d Cir. 2002). However, "[i]n assessing the reliability of a proffered expert's testimony, the court's inquiry under Daubert focuses not on the substance of the expert's conclusions, but on the principles and methodology used to generate the conclusions." Clarke v. LR Sys., 219 F. Supp. 2d 323, 332 (E.D.N. Y. 2002). Generally courts consider the indicia of reliability enumerated in Rule 702, as well as "additional factors bearing on reliability" set forth in Daubert. United States v. Williams, 506 F.3d 151, 160 (2d Cir. 2007). The Daubert reliability factors include:

(1) whether a theory or technique has been or can be tested; (2) "whether the theory or technique has been subjected to peer review and publication;" (3) the technique's "known or potential rate of error" and "the existence and maintenance of standards controlling the technique's operation;" and (4) whether a particular technique or theory has gained general acceptance in the relevant scientific community.

Id. (quoting Daubert, 509 U.S. at 593-94, 113 S. Ct. at 2796-97). The Daubert reliability inquiry is, however, "a flexible one" and "Daubert makes clear that the factors it mentions do not constitute a definitive checklist or test." Kumho Tire, 526 U.S. at 150, 119 S. Ct. at 1175 (emphasis in original, internal quotation marks omitted). Indeed, "the law grants a district court the same broad latitude when it decides how to determine reliability as it enjoys in respect to its ultimate reliability determination." Id. at 142, 119 S. Ct. at 1171.

Although the Daubert inquiry is flexible, it is also rigorous. See Amorgianos, 303 F.3d at 267 ("To warrant admissibility . . . it is critical that an expert's analysis be reliable at everystep."). Under Daubert, an expert must "employ[] in the courtroom the same level of intellectual rigor that characterizes the practice of an expert in the relevant field." Kumho Tire, 526 U.S. at 152, 119 S. Ct. at 1176. Still, "the rejection of expert testimony is the exception rather than the rule" and "the Second Circuit's standard for admissibility of expert testimony is especially broad." Clarke, 219 F. Supp. 2d at 332. Indeed, "[although expert testimony should be excluded if it is speculative or Conjectural, or if it is based on assumptions that are so unrealistic and contradictory as to suggest bad faith or to be in essence an apples and oranges comparison, other contentions that the assumptions are unfounded go to the weight, not the admissibility, of the testimony." Grand River Enters. Six Nations. Ltd. v. King, 783 F. Supp. 2d 516, 526 (S.D.N.Y. 2011) (quoting Boucher v. U.S. Suzuki Motor Corp., 73 F.3d 18, 21 (2d Cir. 1996)).

Plaintiffs have not challenged the relevance of Dr. Wu's testimony. Since Dr. Wu's testimony relates to the proper calculation of the damages that plaintiffs are seeking, its relevance is patent. Nor have plaintiffs argued that Dr. Wu lacks sufficient qualifications to satisfy the first prong of Daubert's two-part test. Even if they had, the Court would conclude that Dr. Wu is a well-qualified expert based on his credentials and experience. Instead, plaintiffs' motion focuses entirely on the reliability of Dr. Wu's analysis and raises two principal challenges. First, plaintiffs argue that Dr. Wu's model is not reliable because it generates conclusions that fail "plausibility checks." Second, plaintiffs challenge the reliability of the methodology that Dr. Wu employed based on several specific critiques.

I. Plausibility Checks

Plaintiffs' first argument is that Dr. Wu's analysis fails "plausibility checks" with regard to its conclusions concerning (1) the effects of defendants' alleged cartel on vitamin C prices, (2) the effects of Chinese government regulation on vitamin C prices, and (2) the effects of theSARS and avian flu epidemics on vitamin C prices.

According to Dr. Wu's model, there is a period of time in 2001 and 2002 when the estimated "but-for" market price of vitamin C exceeded its actual price. Based on this fact, plaintiffs argue that, "contrary to basic economic logic, Dr. Wu's analysis predicts that the cartel's collusive behavior had the effect of systemically reducing prices below competitive levels." Plaintiffs claim that these results are implausible and, indeed, their argument has intuitive appeal. Defendants highlight possible...