Mr. Dee's Inc. v. Inmar, Inc.

MR. DEE'S INC., et al. Plaintiffs, v. INMAR, INC., et al. Defendants.

No. 1:19cv141

United States District Court, M.D. North Carolina

September 16, 2021

MEMORANDUM OPINION AND ORDER

L Patrick Auld United States Magistrate Judge

This matter comes before the Court on “Defendants' Motion to Exclude the Supplemental Report and Testimony of Plaintiffs' Expert Witness Pursuant to FRE 702 and Daubert” (Docket Entry 212) (the “Expert Motion”). For the reasons that follow, the Court will deny the Expert Motion, such that the Court may consider the proposed expert testimony in deciding whether class certification remains appropriate.^[1]

BACKGROUND

I. Procedural History

Alleging anticompetitive behavior in violation of Section 1 of the Sherman Act, Mr. Dee's Inc., Retail Marketing Services Inc., and Connecticut Food Association (the “Plaintiffs”) seek relief in this action against Inmar, Inc. (“Inmar”), Carolina Manufacturer's Services (“CMS”), ^[2] Carolina Services, ^[3] and Carolina Coupon Clearing, Inc. (“CCC”)^[4] (the “Defendants”). (Docket Entry 145 (the “Operative Complaint”), ¶¶ 1, 114.) According to the Operative Complaint, Defendants conspired with International Outsourcing Services, LLC (“IOS”) “to allocate customers and markets and to fix prices” (id., ¶ 1), which scheme allegedly resulted in increased coupon-processing fees for entities that transacted with Defendants or IOS. (See id., ¶¶ 1-7.)

Plaintiffs originally sought to bring this action, pursuant to [Federal Rule of Civil Procedure] 23 [(“Rule 23”)], on behalf of . . . [a]ll entities in the United States that have been overcharged by IOS or [Defendants] for coupon[-]processing services from January 1, 1997 through the present (and continuing until the effects of IOS's and [Defendants]'s fraudulent and anticompetitive scheme ceases).

(Id., ¶ 96.) To that end, Plaintiffs moved to certify two classes: (1) “[a]ll manufacturers in the United States that have purchased coupon[-]processing services directly from IOS, Defendants, or their subsidiaries or affiliates, from April 11, 2001 through March 28, 2007” (Docket Entry 151 at 15); and (2) “[a]ll retailers or retailer associations in the United States that have purchased coupon[-]processing services directly from IOS, Defendants, or their subsidiaries or affiliates, from April 11, 2001 through March 28, 2007” (id. at 15-16). (See Docket Entry 150 (the “Class Certification Motion”).)

In connection with the Class Certification Motion, Plaintiffs submitted a report from Kathleen Grace (“Grace”), whom Plaintiffs tendered as an expert (see Docket Entry 151 at 15). (Docket Entry 151-12 (the “Original Grace Report”).) Defendants opposed the Class Certification Motion (see Docket Entry 158), attaching their own expert report from Michael Kheyfets (“Kheyfets”) (Docket Entry 159-1 (the “Original Kheyfets Report”)). Plaintiffs replied (Docket Entry 172), submitting a rebuttal report from Grace (Docket Entry 172-1 (the “Rebuttal Grace Report”)).^[5] Concurrent with their opposition to the Class Certification Motion, Defendants moved to exclude Grace's testimony and the Original Grace Report. (Docket Entry 160 (the “Old Expert Motion”); see also Docket Entries 161 (Declaration), 162 (supporting memorandum).) Plaintiffs responded in opposition (Docket Entry 175), ^[6] and Defendants replied (Docket Entry 188).

During the pendency of the Class Certification Motion and the Old Expert Motion, Plaintiffs sought to compel Defendants to produce certain data that Defendants had withheld during discovery. (Docket Entry 166; see also Docket Entry 167 (supporting memorandum).) The Court (per the undersigned United States Magistrate Judge) granted that request, ordering Defendants to “produce to Plaintiffs, for the period from 2000-09, ‘[a]ll coupon processing transactional data'” (Docket Entry 187 (the “Discovery Order”) at 28 (quoting Docket Entry 141-2 at 11)). Together with that relief, the Court authorized Plaintiffs to file a supplement regarding the Class Certification Motion and/or the Old Expert Motion, “limited to discussion of the [above-referenced] coupon processing transactional data produced by Defendants” (id. at 28-29).

On December 23, 2020, Plaintiffs filed two such supplements (Docket Entries 193 (the “First Supplement”), 196 (the “Second Supplement”)), along with another report from Grace (Docket Entry 193-2 (the “Supplemental Grace Report”)). Via the First Supplement, Plaintiffs proposed the following narrowed class definitions:

(1) manufacturers listed in “Appendix A” [of the Supplemental Grace Report], which are those that paid observably higher CCC or IOS shipping fees during the conspiracy period (April 11, 2001 to March 28, 2007); and

(2) retailers or retailer associations listed in “Appendix B” [of the Supplemental Grace Report], which are those that paid observably higher CCC shipping fees during the conspiracy period.

(Docket Entry 193 at 7 (internal commas omitted).) The Second Supplement (i) explained how Grace analyzed the newly produced transactional data (Docket Entry 196 at 4-7, 9-12), (ii) disclaimed reliance on the analysis in the Original Grace Report (id. at 4), (iii) argued that Plaintiffs have mooted Defendants' challenges to the Original Grace Report (id.), and (iv) asked the Court to deny the Old Expert Motion (id. at 12). Because Plaintiffs abandoned the analysis in the Original Grace Report, the Court (per the undersigned) terminated the Old Expert Motion as moot, but noted that Defendants could “properly challenge the new opinions [in the Supplemental Grace Report].” (Text Order dated Dec. 29, 2020.)

On May 12, 2021, Defendants filed the Expert Motion, thereby renewing their effort to exclude Grace's opinions, to include the Supplemental Grace Report. (Docket Entry 212; see also Docket Entry 213 (supporting memorandum).) Another expert report from Kheyfets accompanied the Expert Motion. (Docket Entry 212-2 (the “Supplemental Kheyfets Report”).) Plaintiffs opposed the Expert Motion (see Docket Entry 221), tendering numerous exhibits, to include a declaration from Grace (Docket Entry 221-8 (“Grace Declaration”)).^[7] Defendants replied. (Docket Entry 227.)

II. Factual Background

A. Coupon Industry Overview

Manufacturers of consumer goods issue coupons to consumers, who can redeem the coupons at retailers. (Docket Entry 151-12, ¶ 8; accord Docket Entry 159-1, ¶¶ 21-22.) Consumers receive a discount off the purchase price from the retailer, which then seeks reimbursement from the manufacturer that issued the coupon. (Docket Entry 151-12, ¶ 8; accord Docket Entry 159-1, ¶ 22.) Two types of coupon processors facilitate those transactions between retailers and manufacturers: retail coupon processors (“Retail Processors”) and manufacturer coupon processors (“Manufacturer Processors”). (Docket Entry 151-12, ¶ 8; accord Docket Entry 159-1, ¶ 22.)

“Retailers collect coupons redeemed at their stores and send them to Retail Processors. Retail Processors then sort and count the coupons, and send the coupons and invoices for the coupon values to manufacturers or to [M]anufacturer[ P]rocessors.” (Docket Entry 145, ¶ 13 (internal parenthetical omitted); accord Docket Entry 151-12, ¶ 8; Docket Entry 159-1, ¶ 22.) Manufacturers who rely on counts by Retail Processors utilize “one-count” processing, in contrast to “two-count” processing, by which manufacturers direct Manufacturer Processors to conduct a second count. (Docket Entry 159-1, ¶ 22 n.16.) Under two-count processing, Manufacturer Processors audit coupons “to ensure that the Retail Processor has submitted an accurate count of coupons, that the coupons were properly redeemed, and that coupons were not otherwise fraudulently submitted.” (Docket Entry 145, ¶ 13; accord Docket Entry 159-1, ¶ 22 n.16.) After Manufacturer Processors determine the value of coupons redeemed, manufacturers reimburse retailers. (Docket Entry 151-12, ¶ 8; accord Docket Entry 159-1, ¶ 22.)

Regarding the pricing of coupon-processing services, retailers typically pay processing fees to Retail Processors. (Docket Entry 151-12, ¶ 10; accord Docket Entry 159-1, ¶ 134 (Exhibit 28).) In addition, manufacturers often pay incremental fees, including special handling fees and shipping fees. (Docket Entry 151-12, ¶ 8; accord Docket Entry 159-1, ¶ 42 (Exhibit 1).) Under a full-service agreement, manufacturers pay such fees to the Retail Processor; under a pay-direct arrangement, manufacturers remit payment directly to the retailer. (Docket Entry 151-12, ¶ 40; accord Docket Entry 159-1, ¶ 42 (Exhibit 1 Notes)). However, manufacturers may “refuse to pay [incremental] fees and ‘chargeback' the value of the fees to the Retail Processor.” (Docket Entry 145, ¶ 15; accord Docket Entry 151-12, ¶ 10; Docket Entry 159-1, ¶ 42.) In that circumstance, a Retail Processor may “extract the incremental fee from a [retailer] by subtracting the value of the manufacturer's incremental fee chargeback from the amount the Retail Client receives for coupons submitted by the [retailer] to the Retail Processor.” (Docket Entry 145, ¶ 15; accord Docket Entry 159-1, ¶¶ 38, 41.) When Retail Processors deduct the chargeback in that manner, retailers “that purchase directly from a manufacturer may simply deduct the value of the incremental fee chargeback from the amount the retailer owes the manufacturer or wholesaler in connection with the purchase of product.” (Docket Entry 145, ¶ 17; accord Docket Entry 159-1, ¶¶ 38, 41.)

B. Nature of the Alleged Conspiracy

According to the Operative Complaint:

“Inmar and another processor named NCH Marketing Services Inc. (‘NCH') each have roughly 50 percent share of th[e] market [for manufacturer coupon-processing services]. NCH focuses its business on serving the

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