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In re Processed Egg Products Antitrust Litigation

United States District Court, E.D. Pennsylvania

November 8, 2017



          GENE E.K. PRATTER, United States District Judge

         In December of 2014, this Court issued an order requiring Daubert motions to be filed by May 25, 2015. More than two years after the deadline, on August 11, 2017, the defendants filed a Daubert motion to exclude the plaintiffs' expert Dr. Michael Baye. The defendants claimed that recent opinions of this Court and a Court-ordered 2016 supplement to Dr. Baye's initial report rendered Dr. Baye's testimony inadmissible. In support, they submitted their own expert report from Dr. Walker disputing Dr. Baye's findings. The direct action plaintiffs moved to strike the motion and rebuttal expert report as untimely. The defendants claim those Court opinions and the 2016 supplement not only render the testimony admissible, but constitute good cause to file after the deadline.

         The defendants have shown good cause to challenge only Dr. Baye's 2016 supplement, but no more; the defendants' challenge to the rest of Dr. Baye's report fails. To reach that conclusion, this Court is called to answer an age-old question: which came first, the chicken or the egg?[1] The defendants argue that the chicken came first, and created the egg. They claim that the opinions issued by this Court (collectively, the chicken) created persuasive reasons that Dr. Baye's analysis was flawed (the resulting egg), and those reasons did not come into existence until after the Daubert deadline. The plaintiffs counter that the defendants have scrambled the matter. They argue that the egg (the reasons) preexisted both the chicken (the opinions) and the Daubert deadline. They argue that those reasons were present at the Daubert deadline, and the defendants simply failed to raise them.

         This Court will settle the age-old debate once and for all: the egg came before the chicken.[2] The defendants cannot show good cause by poaching the reasoning from this Court's recent opinions when that reasoning was available at the Daubert deadline. Similarly, the defendants cannot yolk a permissible challenge of Dr. Baye's supplement to a broader challenge of Dr. Baye's overall conclusions when they failed to challenge those conclusions by the deadline.

         The defendants' Daubert motion is stricken as untimely, with the exception of the challenges to Dr. Baye's 2016 post-Daubert supplement. However, the Daubert challenge to that supplement ultimately fails on the merits, and Dr. Baye may testify regarding the supplement at trial. Accordingly, the portion of Dr. Walker's rebuttal report addressing the post-Daubert supplement is also admissible because Dr. Walker could not have filed that report by the Daubert deadline.


         I. Factual Background

         The parties are already well familiar with the factual background of this case, which the Court will not reiterate here. Relevant to the issue at hand, the plaintiffs claim an overarching egg price-fixing conspiracy throughout the United States starting around 2001. This conspiracy was allegedly conducted using a certification program run by the United Egg Producers (UEP) in which egg producers achieved a decrease in supply by requiring increased cage space for chickens and mandating 100% compliance with the program (among other tactics).

         In support of their allegations, the direct action plaintiffs (DAPs) hired Dr. Michael Baye, a business economist from the University of Indiana, to give his expert opinion on whether this UEP Certified Program affected supply significantly enough to increase prices. Dr. Baye concluded that the UEP requirements increased prices in a measurable way.

         II. Dr. Baye's Initial Report

         On behalf of the DAPs, Dr. Baye filed a report quantifying the impact of the alleged conspiracy on egg production. He began by explaining that the market for eggs is inelastic, meaning that a small decrease in supply would lead to a drastic increase in prices (because demand stays relatively constant). This inelasticity not only makes the alleged conspiracy more effective, but it also simplifies the economic analysis because there are so few substitutes for eggs. In other words, the regression analysis has far fewer variables to account for.

         Dr. Baye analyzed the egg market in the United States between 1992 and 2012. His regression analysis accounted for variables like the real prices of feed, electricity, diesel, agricultural wages, national income, population, interest rates, changes in consumer preferences and seasonal fluctuations. He also allowed “for the possibility that changes in other excluded or unobserved factors impacted flock size, and allow the influence of these other factors to be independent as well as correlated over time.” Baye Rep. ¶ 154.

         After controlling for these factors, Dr. Baye broke these periods into pre-conspiracy (1990-2001) and post-conspiracy (2001-2012) time periods.[3] Before the conspiracy, flock sizes in the United States grew fairly constantly. After the conspiracy, however, flock growth decreased substantially. Dr. Baye isolated five different restrictions that the UEP program imposed, and the dates on which they were imposed. He observed that as each restriction was implemented, flock size progressively decreased. In the end, once all five restrictions were in place, flock size was 6.7% lower than projected.

         He repeated this analysis using egg consumption, rather than flock size, as the metric. The inelasticity in market demand for eggs makes this an attractive metric, given that egg consumption also controls for increased productivity in laying chickens from the increased cage space.[4] Dr. Baye accounted for similar variables outlined above, and found that egg production was 5.2% lower than it should have been. Dr. Baye ran six different models, all of which produced statistically significant reductions in supply. Dr. Baye filed his report prior to the May 2015 deadline for Daubert motions. That month came and went without a challenge to Dr. Baye's qualifications or report.

         III. Dr. Baye's Arizona Supplement

         Over a year later, on September 12, 2016, this Court ruled that the DAPs could not recover damages for sales affected by an Arizona regulation governing cage space restrictions. In re Processed Egg Prods. Antitrust Litig., 2016 WL 4771864, at *9 (E.D. Pa. Sept. 12, 2016). As part of that ruling, the Court instructed the plaintiffs to supplement their expert report to remove damages based upon eggs produced or sold in Arizona after October 1, 2009. Dr. Baye filed his supplemental report (the Arizona Supplement) on November 4, 2016. In that supplement, Dr. Baye explained that “adjustments for Arizona require no additional regressions or economic analysis of the overall impact of Defendants' and their co-conspirators' coordinated conduct.” Ariz. Suppl. ¶ 2.

         To remove the impact of Arizona's regulation, Dr. Baye effectively assumed that Arizona did not exist. To do so, he isolated the supply side (eggs produced in Arizona) and demand side (eggs purchased in Arizona). In adjusting the supply-side impact, Dr. Baye found that Arizona produced 0.25% of the nation's eggs during the relevant time period, but conservatively assumed that Arizona really produced 2.3% of the eggs in the United States. He then took Arizona's share of the population (2.1%) and added it to that estimate. After some other minor changes, Dr. Baye reduced his overall damages calculations by 4.2%.

         In effect, Dr. Baye's conservative approach assumes that all eggs consumed in Arizona are imported from other states, and all eggs produced in Arizona are exported to other states. By doing so, he effectively eliminates any possible impact from the Arizona law, since it only applies to eggs either consumed or produced in Arizona.

         Another year passed after this report before the defendants brought their Daubert motion to exclude both Dr. Baye's Arizona Supplement and his initial report. The defendants attached their own supplemental report of Dr. Jonathan Walker, an economist working for Economists Incorporated. Dr. Walker's report purported to undermine Dr. Baye's report and supplement. The plaintiffs moved to strike the motion and Dr. Walker's report as untimely.

         IV. Legal Standard & Challenge

         This opinion addresses two separate motions, each of which bear on the ...

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