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October 9, 2014
  In re Urethane Antitrust Litigation - Tenth Circuit
Case Name: In re Urethane Antitrust Litigation - Tenth Circuit

Headline: Tenth Circuit affirms $1.06 billion judgment against Dow Chemical Company under Sherman Antitrust Act for its role in price-fixing conspiracy.

Areas of Law: Antitrust Law, Civil Procedure

Issues Presented:

1. Do individualized issues relating to damages preclude Fed. R. Civ. P. 23(b)(3) class certification?

2. Did the District Court err in admitting the testimony of the plaintiffs' expert witness on statistics?

3. Is there sufficient evidence to support a price-fixing conspiracy claim without a causal connection between parallel price-increase announcements and increased prices?

4. Does distribution of damages through a pro rata reduction of the plaintiffs' damages model violate the Seventh Amendment to the United States Constitution?

Brief Summary:

The defendant (Dow Chemical Company) appealed the district court judgment against it, arguing that the plaintiffs class should not have been certified under Fed. R. Civ. P. 23(b)(3) or that certification should have been revoked on its motion because the class members had individualized issues relating to damages. It also argued that the testimony of expert witness Dr. McClave was unreliable and should not have been admitted into evidence, that evidence presented against it was insufficient to establish its liability, and that the manner in which the damages award was distributed violated the Seventh Amendment to the United States Constitution.

The Tenth Circuit held that the district court did not abuse its discretion in certifying and subsequently refusing to decertify the class because the existence and impact of a conspiracy raises common liability-related questions that predominate over the individualized questions of each class member's damages. It held that the district court did not err in admitting the expert witness' testimony because the defendant's criticism of the expert's use of statistical models spoke to the weight of the evidence and not its admissibility. It held that the evidence presented at trial was sufficient to allow the jury to find liability. Finally, the court held that allocating damages based on a pro rata reduction of the expert witness' damages model did not violate the defendant's Seventh Amendment rights because the defendant has no legal interest in the method of distribution for aggregate damages amongst class members.

Extended Summary:

A group of industrial purchasers of polyurethane products (collectively plaintiffs) sued Bayer AG, Bayer Corporation, Bayer Material Science, BASF Corporation, Huntsman International LLC, Lyondell Chemical Company, and Dow Chemical Company under the Sherman Antitrust Act, alleging a conspiracy to fix prices and allocate customers and markets. Every defendant but Dow Chemical Company settled prior to the trial. Plaintiffs subsequently dropped their allocation theory and focused solely on the price-fixing conspiracy. The jury found that the defendant participated in a price-fixing conspiracy, that the conspiracy caused plaintiffs to pay more for polyurethane products than they would have in a competitive market, and that plaintiffs suffered damages of $400,049,039. After trebling (tripling) damages under antitrust law and deducting settlements paid by the other defendants, the district court entered a judgment against the defendant for $1,060,847,117. The court allowed the plaintiffs to distribute the damages based on their expert witness' damages model with a pro rata reduction to reflect the jury's award of a lesser damages amount than the expert proposed.

The defendant challenged the district court's certification of the plaintiffs as a class under Fed. R. Civ. P. 23(b)(3), arguing that individualized questions relating to the damages suffered by different plaintiffs predominated over questions common to all members of the plaintiffs class. The defendant further argued that certification of the class in this instance was contrary to the Supreme Court's holdings in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011) and Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013).

The court addressed the defendant's challenge to the class certification by first evaluating, using a de novo standard of review, whether the district court applied the proper legal standard by requiring "that the questions of law or fact common to class members predominate over any questions affecting only individual members." Holding that the correct legal standard was applied, the court reviewed the district court's decision to certify and refusal to decertify the class for abuse of discretion.

The court summarized Wal-Mart, in which the plaintiffs were female employees who had alleged discrimination by their supervisors in decisions of pay and promotions. The district court in Wal-Mart certified a class of female employees, and the Ninth Circuit Court of Appeals upheld that certification. The Supreme Court disagreed with the Ninth Circuit and reversed. It reasoned that the evidence did not show a company-wide policy of discrimination or "common mode of exercising discretion that pervade[d] the entire company". Emphasizing the need for a class action to be capable of yielding common answers that would drive the resolution of litigation, the Supreme Court decertified the class because there was no common answer to the cause of the individual plaintiffs' pay and promotion disparities. The Court further held that the district court's method of deciding class-wide liability based on a sampling of class members, or "trial by formula", violated Wal-Mart's right to individual proceedings to present and litigate statutory defenses to individual claims.

The defendant here argued that it was entitled to individual proceedings to show that some plaintiffs could have escaped or mitigated their damages through price negotiations. The 10th Circuit disagreed because the defendant failed to show that the district court abused its discretion in finding that there were class-wide issues that predominated over those individualized issues. The district court held that the existence of a conspiracy and impact raised common questions capable of class-wide proof. Citing other courts that have addressed the matter, the court held that price-fixing affects all market participants and results in an inference of class-wide impact even if the prices are individually negotiated, especially when the conspiracy artificially inflates the baseline for price negotiations. The court noted that courts often tend to treat proof of a conspiracy as a common question that predominates over other issues. The district court did not abuse its discretion when it weighed the evidence and found that these common issues predominated over the individualized damages issues.

The defendant also argued that the district court ran afoul of Wal-Mart by allowing the use of extrapolations provided by Dr. McClave to prove class-wide impact and damages. It compared these extrapolations to the "trial by formula" prohibited by Wal-Mart. The 10th Circuit disagreed, holding that liability was not established using extrapolation; extrapolation was only used to approximate damages, while liability was established through common evidence. Dow also argued that class certification was inappropriate because Dr. McClave's models for extrapolation were defective, but Dow did not attempt to explain how this may have caused individualized questions to predominate over common questions or how it related to an abuse of discretion by the district court. The court declined to consider the issues because Dow failed to raise them at the district court level.

The court similarly declined to adopt the defendant's Comcast arguments. Comcast involved a class action lawsuit based on four theories of antitrust impact. The district court rejected three of the four theories as being incapable of class-wide proof. The only evidence used to support class-wide damages was the testimony of Dr. McClave, who, in that case, based his models on all four of the theories of antitrust impact. Because three of those four theories were rejected by the district court, the Supreme Court held that the models Dr. McClave used were defective and that the class did not satisfy its burden of proving damages on a class-wide basis. Without the models, the plaintiffs had no proof of class-wide damages and, as the Court reasoned, individualized questions would "inevitably overwhelm questions common to the class." Therefore, class certification could not survive.

The Tenth Circuit distinguished the present case from Comcast. It noted that Dr. McClave's benchmarks in the present case differed from those used in Comcast and were not necessarily defective. It also noted that the class certification in Comcast required proving class-wide damages, whereas class certification in the present case did not. Finally, the court noted that the individual issues that could have predominated in Comcast were not present in this case.

The defendant also challenged the admission of Dr. McClave's testimony into evidence. The 10th Circuit applied a de novo standard of review to whether the correct legal standard for admissibility was applied, citing the "relevant and reliable" standard of Kumho Tire Co. v. Carmichael, 526 U.S. 137 (1999). Finding that it was, the court reviewed the decisions of the district court for abuse of discretion.

The defendant argued against the reliability of Dr. McClave's multiple-regression analysis models, claiming that he engaged in "variable shopping" and "benchmark shopping" by choosing variables that would yield the supra-competitive prices he believed to exist. The court disagreed. The court referred to Bazemore v. Friday, 478 U.S. 385 (1986), as the standard for regression analysis models, which allows for admissibility as long as the models consider all of the major factors and variables.

The defendant argued that the use of toluene diisocyanate (TDI) without also including domestic demand variables violated the Bazemore standard. In his own testimony, Dr. McClave explained that he did so because domestic demand variables had no statistically significant relationship to price. The court held that allowing this was not an abuse of discretion by the district court.

The defendant also argued that Dr. McClave's use of domestic MDI and polyols variables without also using export variables constituted the omission of major variables. The defendant did not raise this objection in his Motion to Exclude Dr. McClave's testimony, however, and the court opted to apply a plain-error standard of review. Finding that there was no obvious error in Dr. McClave's choice of variables, the court declined to reverse on these grounds.

Similarly, the defendant argued that Dr. McClave engaged in "benchmark shopping" by moving the year 2004 from the "conspiracy period" to the competitive market "benchmark" period to produce more favorable results for the plaintiffs. The court held that this argument was without merit. Expert testimony must be reliable to be admitted into evidence. The court cited Manpower, Inc. v. Ins. Co. of Penn., 732 F.3d 796, 806 (7th Cir. 2013), which held that reliability "is primarily a question of the validity of the methodology employed by an expert, not the quality of the data used in applying the methodology or conclusions produced." The district court considered the defendant's arguments but determined that they went to the reliability of Dr. McClave's underlying data and not his methodology. The 10th Circuit held that this was not an abuse of the district court's discretion and declined to reverse on these grounds.

The defendant also challenged the sufficiency of the evidence used to demonstrate its liability, arguing that the district court erred in denying its motion for judgment as a matter of law. The 10th Circuit engaged in a de novo review of that decision. In the 10th Circuit, judgment as a matter of law is inappropriate "unless the proof is all one way or so overwhelmingly preponderant in favor of the movant as to permit no other rational conclusion." (citing Greene v. Safeway Stores, Inc., 98 F.3d 554, 557 (10th Cir. 1996)).

The court reviewed each of the defendant's three component arguments of this challenge. The defendant first argued that there was insufficient evidence that a price-fixing agreement was effectively implemented. It did not dispute the existence of an agreement to coordinate price increases and make them stick, nor did it dispute the existence of evidence involving coordination of those price increase announcements. Rather, it argued a lack of evidence of follow-through by the alleged conspirators to make the price increases stick. It further argued that this lack of evidence meant that the plaintiffs could not prove that there was an evidentiary connection between the parallel price-increase announcements and the increased prices plaintiffs were alleging.

The court considered this argument by first examining the evidence presented against the defendant at trial. This evidence included the testimony of insiders privy to knowledge of the conspiracy, including employees of the defendant Dow Chemical Company and executives from several of the defendant companies that settled prior to trial. It also included instances of collusive behavior, evidence of the susceptibility of the particular market to collusion, and the setting of prices at supra-competitive levels. Ultimately, the court determined that this evidence went beyond parallel announcements of price increases.

The court further held that the plaintiffs did not need to establish a causal connection between the price-increase announcements and actual price increases. Rather, both the announcements and the actual price increases were caused by the conspiratorial agreement. Upon reviewing the evidence presented to support a jury's inference of the success of those announcements, the court held that the jury could have reasonably made those inferences.

The defendant then argued that there was insufficient evidence of a conspiracy involving Lyondell, who was one of the defendants who settled prior to trial. The court found this argument to be without legal or factual merit. Establishing liability under Section 1 of the Sherman Antitrust Act, 15 U.S.C. ยง1, only requires that the defendant not act unilaterally. Even without Lyondell's participation in the conspiracy, there was sufficient evidence of a conspiracy between Dow and the other defendant companies to withstand Dow's motion for judgment as a matter of law. Furthermore, the evidence presented was sufficient to allow a reasonable jury to infer Lyondell's participation in the conspiracy.

The defendant also argued that the jury necessarily rejected Dr. McClave's models, which therefore left insufficient evidence of impact and damages. This was based on the jury's finding that there was no injury for the 23-month period preceding November 24th, 2000. The defendant reasoned that the jury partially rejected Dr. McClave's models and that this rejection invalidated the models in their entirety. It further reasoned that, without these models, the plaintiffs lacked sufficient evidence of impact and damages.

The defendant's argument primarily relied on the D.C. Circuit Court of Appeals' decision in In re Rail Freight Fuel Surcharge Antitrust Litigation, 725 F.3d 244, 252 (D.C. Cir. 2013). In In re Rail Freight, the expert witness' damages model yielded damages for a time period in which prices were freely set, which meant finding damages for plaintiffs who could not have possibly been injured. The defendant in that case challenged class certification through an interlocutory appeal to the D.C. Circuit, arguing that the expert's testimony and flawed damages model were inadmissible and, without them, individualized questions would predominate in trial. The D.C. Circuit Court agreed.

The 10th Circuit held that In re Rail Freight did not apply to this case. The court did not share the D.C. Circuit's concern that individualized questions might possibly predominate because the trial had already occurred. Furthermore, although the jury found no damages for a specific period of time, the defendant did not demonstrate that any plaintiff in the class could not possibly have suffered injuries. The court reasoned that the jury could have limited the conspiracy period based on the defendant's explanation of prices before November 24th, 2000 while agreeing with Dr. McClave's analysis for the conspiracy period afterwards. The court declined to disturb the jury's unequivocal findings on impact and damages.

The defendant argued that the damages award violated its rights provided by the Seventh Amendment to the United States Constitution. Because of the implication of a constitutional question, the 10th Circuit reviewed this challenge using a de novo standard of review. Defendant argued that the apportionment of damages based on a pro-rata reduction of Dr. McClave's damages model was problematic because the reason for the jury's reduction in damages was unknown, and so applying Dr. McClave's model took from the jury "the question of liability and the extent of the injury by an assessment of damages", citing Dimick v. Schiedt, 293 U.S. 474, 486 (1935). The court disagreed.

It began its analysis by noting that the defendant had no legally recognizable interest in the apportionment of an aggregate damages award, particularly because it never requested individualized findings on damages. The defendant claimed an interest because it wanted to ensure that all of the plaintiffs were bound by the judgment, but it did not identify any threat to the binding effect of that judgment. The three cases the defendant cited to support its position involved issues pertaining to jurisdiction, a decertified class, and additur. The facts were so far removed from the present case as to render them inapplicable. The court held that the defendant had not properly established a Seventh Amendment violation, and so declined to reverse on those grounds.

To read the full opinion, please visit:

Panel: Lucero, Murphy, Bacharach

Date of Issued Opinion: September 29, 2014

Docket Number: No. 13-3215

Decided: Affirmed the district court. Rejected the defendant's challenges to the order for class certification, the refusal to decertify the class, the admission of Dr. McClave's testimony, the sufficiency of the evidence, and the award of damages.


Carter G. Phillips, Sidley Austin LLP, Washington, D.C. (Joseph R. Guerra, C. Frederick Beckner III, Kathleen Moriarty Mueller, Jeffrey S. Beelaert, Sidley Austin LLP, Washington, D.C.; and Charles J. Kalil, General Counsel, the Dow Chemical Company, Duncan A. Stuart, Associate General Counsel, the Dow Chemical Company, Midland, MI, on the briefs) for Defendant-Appellant.

Paul D. Clement, Bancroft PLLC, Washington, D.C. (Zachary D. Tripp, Candice Chiu, William R. Levi, Bancroft PLLC, Washington, D.C.; Roberta D. Liebenberg, Donald L. Perelman, Gerard A. Dever, Matthew Duncan, Fine, Kaplan, & Black, RPC, Philadelphia, PA; Richard A. Koffman, Kit A. Pierson, Christopher J. Cormier, Sharon K. Robertson, Laura A. Alexander, Cohen Milstein Sellers & Toll, PLLC, Washington, D.C.; Joseph Goldberg, Freedman Boyd Hollander Goldberg Urias & Ward, P.A., Albuquerque, N.M.; Michael J. Guzman, Rebecca A. Beynon, Michael N. Nemelka, Kellogg, Huber, Hansen, Todd, Evans & Figel, PLLC, Washington, D.C.; and Robert W. Coykendall, Roger N. Walter, Morris, Laing, Evans, Brock & Kennedy, Chartered, Wichita, KS, on the briefs) for Plaintiffs-Appellees.

Kathryn Comerford Todd, Tyler R. Green, National Chamber Litigation Center, Inc., Washington, D.C.; Jeffrey L. Kessler, George E. Mastoris, Winston & Strawn LLP, New York, NY; and Gene C. Schaerr, Robert F. Ruyak, William A. Roach, Jr., Winston & Strawn LLP, Washington, D.C., filed an Amicus Curiae brief for the Chamber of Commerce of the United States.

Jonathan D. Selbin, Jason L. Lichtman, Lief Cabraser Heimann & Bernstein, LLP, New York, NY; Jordan Elias, Lief Cabraser Heimann & Bernstein, LLP, San Francisco, CA; and Ian J. McLoughlin, Rachel M. Brown, Shapiro Haber & Urmy, LLP, Boston, MA, filed an Amicus Curiae brief for the American Independent Business Alliance.

Author: Bacharach

Case Alert Author: Ian M. Alden

Case Alert Circuit Supervisor: Barbara Bergman

Edited: 10/09/2014 at 03:22 PM by Dawinder Sidhu

    Posted By: Dawinder Sidhu @ 10/09/2014 03:16 PM     10th Circuit  

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