Market Expert Blocked in Antitrust Case

Expert economic testimony in an antitrust case was properly excluded when the expert failed to explain how he reached his analysis of one market using data from another, the 10th U.S. Circuit Court of Appeals has ruled.

The testimony came in an antitrust action alleging a horizontal group boycott within the aluminum industry. The plaintiff, Oklahoma-based Champagne Metals, operates an aluminum distributorship – known as a service center – that buys aluminum from mills and sells it to end users.

In its lawsuit, Champagne alleged that a group of older, more-established service centers had conspired to exclude it as a competitor. They did this, Champagne alleged, by threatening the mills with loss of their business.

Champagne contended that the established distributors held substantial sway in this so-called upstream market – the market from the distributors up to the mills. Its economics expert, Dr. Donald Murry, testified that the distributors' power within the upstream market was so great that their threats to withdraw their business from the mills represented "a credible threat."

The district court excluded Dr. Murry's testimony and granted summary judgment for the distributors. It concluded that his opinion about the upstream market was inadmissible because it was based entirely on sales and market data from the downstream market – that between distributors and end users. The expert offered no "plausible explanation, based on sound economic theory," to support substituting one market for the other, the court said.

Champagne appealed, asserting that Dr. Murry's testimony was appropriate. "It is reasonable for an economist to conclude, based on experience and what has been confirmed to him about the role of service centers, that any given distributor will sell downstream what it purchased upstream," the company argued.

But the 10th Circuit affirmed the district court, emphasizing that the flaw in Dr. Murry's testimony was not that his explanation was unreasonable, it was that he offered no explanation at all. The explanation offered by Champagne's counsel could not substitute for the expert's own failure to explain, the court said.

"Champagne points to no evidence in the record to support its claim that Dr. Murry actually concluded that the market shares in both markets were reasonably similar, nor does Dr. Murry's report contain such an explanation," the court explained.

"While it may be reasonable for an economist to determine that certain markets are interchangeable, we agree with the district court that, here, this explanation 'is solely the argument of counsel.' In light of this, we cannot conclude that the district court’s decision to exclude Dr. Murry's testimony was 'arbitrary, capricious, whimsical or manifestly unreasonable.'"

No Factual Basis

The district court also found that Champagne's expert failed to base his opinions on appropriate facts. Rather, the district court said, many of Dr. Murry's opinions were based solely on facts Champagne provided. "No reasonable economist would simply accept the self-serving statement of an interested party as fact," the district court said.

On appeal, Champagne argued that the district court misconstrued the role of an economics expert in antitrust litigation. His role was not to confirm defendants' threats to withdraw their business from the mills. Rather, "Dr. Murry's role in this litigation was to offer the opinion that, assuming such facts are established, an economist would confirm that such threats, and knowledge of them within the industry, would create a barrier to entry in the market."

Responding to this argument, the 10th Circuit said that Champagne was correct that, in general, "an economist’s role in an antitrust case is not to prove facts, but to opine on economic theory." In this case, however, Dr. Murry never "made clear that he was only assuming the facts he asserted," the court said.

To the contrary, Dr. Murry's report included statements that sounded like confirmations of facts, not assumptions about them, the court said. For example, he stated that Champagne "experienced difficulty acquiring sales persons because prospective employees feared Champagne would be unable to acquire the supplies of critical aluminum products from the mills at competitive prices."

Nowhere in the report did Dr. Murry make clear that he was merely assuming that Champagne had trouble hiring, the court noted. "Rather, the report conclusively states that Champagne 'experienced difficulty acquiring sales persons.'"

Given this, it was appropriate for the district court to exclude the expert's testimony on this ground, the court held.

"Expert testimony that fails to make clear that certain facts the expert describes as true are merely assumed for the purpose of an economic analysis may not assist the trier of fact at all and, instead, may simply result in confusion."

The case is Champagne Metals v. Ken-Mac Metals Inc., Nos. 04-6222 & 05-6139 (Aug. 7, 2006).

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