Ashton Woods Holdings v. USG Corp. (In re Domestic Drywall Antitrust Litig.), CIVIL ACTION MDL No. 13-2437

IN RE: DOMESTIC DRYWALL ANTITRUST LITIGATION

THIS DOCUMENT RELATES TO:

Ashton Woods Holdings LLC, et al., Plaintiffs, v. USG Corp., et al., Defendants.

CIVIL ACTION MDL No. 13-2437

15-cv-1712

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA

April 6, 2020

MEMORANDUM RE: DAUBERT MOTIONS

Baylson, J.

Table of Contents

I. Introduction ....................................................................................... 2

II. Background ......................................................................................... 5

A. Elements of Price-Fixing Case ......................................................... 5

B. Summary of Likely Presentation of Facts at Trial .................................... 7

C. The Court's Umbrella Damages Opinion ............................................ 8

III. Summary of Challenged Experts' Reports ................................................... 10

A. David Hall's Report ..................................................................... 11

B. Dr. Robert Willig's Report ............................................................ 13

C. Dr. Daniel Ingberman's Report ........................................................ 14

1. Dr. Ingberman's Fact of Injury Report ...................................... 14

2. Dr. Ingberman's Amount of Damages Report .............................. 15

IV. Parties' Arguments on Daubert Motions ...................................................... 17

A. Homebuilder Plaintiffs' Motion to Preclude Testimony of David Hall ......... 17

1. Hall is Unqualified ............................................................. 17

2. Hall Fails to Use Economic Tests ............................................ 18

3. Hall's Report Does Not Fit ................................................... 19

B. Homebuilder Plaintiffs' Motion to Preclude Testimony of Dr. Robert Willig ..................................................................................... 21

1. Cointegration ................................................................... 21

2. First Differences ............................................................... 24

C. Defendants' Motion to Preclude Testimony of Dr. Daniel Ingberman .......... 24

1. Defendants' Arguments ....................................................... 24

2. Homebuilder Plaintiffs' Arguments ......................................... 26

V. Legal Standard: Admissibility of Expert Testimony ........................................ 27

A. Qualification ............................................................................. 28

B. Reliability ................................................................................ 29

C. Fit .......................................................................................... 30

VI. Discussion ......................................................................................... 31

A. Hall's Testimony Will Be Precluded ................................................. 31

1. The Pass-Through Defense ................................................... 31

2. Hanover Shoe and Clayworth ................................................ 32

3. Analysis .......................................................................... 34

B. Dr. Willig's Testimony Will Not Be Precluded ..................................... 37

C. Dr. Ingberman's Testimony Will Not Be Precluded ............................... 40

1. Proving Damages at Trial ...................................................... 41

2. Dr. Ingberman's Market Share Testimony ................................. 42

VII. Conclusion ......................................................................................... 46

I. Introduction¹

Plaintiffs in this action are twelve large homebuilders ("Homebuilder Plaintiffs")² that operate in various parts of the United States. They have brought suit against several drywall manufacturers in the Northern District of California alleging a conspiracy to fix prices. The case was consolidated for pretrial proceedings in this Court by a Judicial Panel on Multidistrict Litigation (the "MDL").

The Court separated the plaintiffs in the MDL into three groups: the Direct Purchaser Plaintiffs ("DPPs"); the Indirect Purchaser Plaintiffs ("IPPs"); and the Homebuilder Plaintiffs. The Court certified a class of DPPs, and that case settled several years ago. Although certification ofa proposed class of IPPs was denied, a settlement was subsequently reached in the IPP action as well. In addition to this case, there is one opt-out action, Home Depot v. LaFarge, Docket No. 18-5305, that is currently pending.

In the Homebuilder Plaintiffs action, there have been a number of pretrial proceedings, which have been extensively summarized in other memoranda. Much of the discovery that took place centered on the class actions, and pursuant to an agreement, Homebuilder Plaintiffs secured a great deal of evidence from the extensive class actions discovery.

Pending before the Court are three motions that challenge the admissibility of various expert testimony under Federal Rule of Evidence ("Rule") 702 and Daubert:

• [ECF 321] Homebuilder Plaintiffs' Motion to Preclude the Testimony of Defendants' Expert, David Hall. Hall is a certified public accountant who gave expert opinions on the concept of downstream pass through.³

• [ECF 320] Homebuilder Plaintiffs' Motion to Preclude the Testimony of Defendants' Expert, Dr. Robert Willig. Dr. Willig is an economist who gave expert opinions on various issues including upstream and downstream pass through; the likelihood of conspiracy; and market dynamics.

• [ECF 319] Defendants' Motion to Preclude the Testimony of Homebuilder Plaintiffs' Expert, Dr. Daniel Ingberman. Dr. Ingbermanis an economist who gave expert opinions on the fact of Homebuilder Plaintiffs' injury and the calculation of damages.

Following extensive briefing on the Daubert motions, oral argument was delayed because the parties advised the Court that they were attempting to settle the case. Several original Defendants have since settled with Homebuilder Plaintiffs (the "Settling Defendants"), but the case continues against L&W (a subsidiary of USG Corporation) and PABCO (together, "Defendants").

The Court held oral argument on the pending Daubert motions on January 9, 2020. The parties submitted supplemental briefing after the hearing. (Docket No. 13-2437, ECF 899 (Pls.' Supp. Mem.); ECF 437 (Defs.' Supp. Mem.).) The Court requested that the parties provide an additional round of supplemental briefing answering specific questions related to the motions regarding Hall and Dr. Ingberman. (ECF 439.) The parties submitted the requested briefing thereafter. (ECF 440, Pls.' Supp. Mem. re Ingberman; ECF 441, Pls.' Supp. Mem. re Hall; ECF 442, Defs.' Supp. Mem. re Hall; ECF 443, Defs.' Supp. Mem. re Ingberman.)

Stated briefly, governing Third Circuit law⁴ liberally permits experts to testify as long as the expert has established basic qualifications; offers reliable testimony, and gives testimony that fits the facts of the case. Applying this standard, and after considering the arguments of the parties articulated in the briefing, at oral argument, and in the supplemental materials, the Court will GRANT Homebuilder Plaintiffs' Motion to Preclude the Testimony of Defendants' Expert, DavidHall, (ECF 321); DENY Homebuilder Plaintiffs' Motion to Preclude the Testimony of Defendants' Expert, Dr. Robert Willig, (ECF 320); and DENY Defendants' Motion to Preclude the Testimony of Homebuilder Plaintiffs' Expert, Dr. Daniel Ingberman, (ECF 319).

II. Background

The factual background and chronology of this case have been summarized comprehensively in previous memoranda. (ECF 390;⁵ ECF 397.⁶) The Court therefore limits its background discussion to the facts and principles that relate to the pending Daubert motions.

A. Elements of Price-Fixing Case

In this antitrust price-fixing case, Homebuilder Plaintiffs have the burden to show three elements of proof.

First, Homebuilder Plaintiffs must show that Defendants conspired to fix prices. Defendants contest the existence of a conspiracy but the Court previously determined Homebuilder Plaintiffs produced sufficient evidence that, if credited by the trier of fact, would establish these Defendants engaged in an agreement to increase prices and eliminate job quotes. Therefore, the Court properly denied the Motion for Summary Judgment as to Defendants. (ECF 397.)

Although the price of drywall increased each year from 2012 to 2015, the Court limited the conspiracy period to the 2011 and 2012 conduct that led to "the price increases for 2012 and 2013." (ECF 93 at 6.) The Court found that the facts alleged were "insufficient to set out any plausibleclaims based on the 2014 and 2015 price increases."⁷ (Id.) Despite this ruling, Homebuilder Plaintiffs (with expert support) asserted that the effects of the illegal price-fixing agreement continued in calendar years 2014 and 2015. The Court has determined that Homebuilder Plaintiffs may include proof of damages for those years. See id. at 8 n.5 ("The parties should not confuse [the conspiracy] window with the possibly different time period for the calculation of damages. It is possible that Homebuilder Plaintiffs . . . may be able to prove damages for a broader time period than the scope of discovery and liability.").

Second, Homebuilder Plaintiffs have the burden of proving the fact of injury. The Court determined that California law will apply to Homebuilder Plaintiffs' state antitrust claims arising from (a) purchases made in states that repealed the rule of Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977), barring indirect purchasers from recovering against antitrust violators ("repealer states"), and (b) purchases made in states that did not repeal Illinois Brick ("nonrepealer states"). (ECF 400 ¶ 10.)⁸

Third, Homebuilder Plaintiffs must prove compensable injuries. For the reasons discussed in the Court's October 3, 2019 Memorandum,...