Opposing Class Certification by Attacking Plaintiffs ...media.straffordpub.com/products/opposing-class... · 12/20/2016 · “Rigorous Analysis” of Damage Evidence = Daubert The

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Presenting a live 90-minute webinar with interactive Q&A

Opposing Class Certification by Attacking

Plaintiffs' Classwide Damages Methods Examining and Preparing to Challenge Damages Methods

such as Surveys, Event Studies and Regression Analysis

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

TUESDAY, DECEMBER 20, 2016

Galen D. Bellamy, Partner, Wheeler Trigg O'Donnell, Denver

Jeremy M. Creelan, Partner, Jenner & Block, New York

Aaron Dolgoff, Vice President, Charles River Associates, Boston

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Predominance:

Comcast and the World That Came

Before

Jeremy Creelan

[email protected]

December 20, 2016

6

Pre-Amchem: Increasing Scrutiny of Certification

• As class actions used increasingly to bring mass tort claims in 1980s, courts increased scrutiny of certification on predominance and other Rule 23 grounds. For example:

– Castano v. Am. Tobacco Co., 84 F.3d 734, 740 (5th Cir. 1996) (tobacco): “The district court erred in its analysis in two distinct ways. First, it failed to consider how variations in state law affect predominance and superiority. Second, its predominance inquiry did not include consideration of how a trial on the merits would be conducted.”

– In re Am. Med. Sys., Inc., 75 F.3d 1069, 1085 (6th Cir. 1996) (penile implants): “As this case illustrates, the products are different, each plaintiff has a unique complaint, and each receives different information and assurances from his treating physician. Given the absence of evidence that common issues predominate, certification was improper.”

– Boughton v. Cotter Corp., 65 F.3d 823 (10th Cir. 1995) (hazardous emissions from uranium mill)

7

Amchem Prod., Inc. v. Windsor (1997):

“Cohesiveness” Test

• Purported class action on behalf of all those exposed to

defendant’s asbestos

• Settlement class – neither party intends to litigate

• District Court certified class based on shared experience of

asbestos exposure & interest in prompt compensation; held

that settlement was fair

• 3d Cir. vacated for lack of predominance under Rule

23(b)(3)

8

Amchem Prod., Inc. v. Windsor (1997):

“Cohesiveness” Test

• Ginsburg for Majority (6)

– “The Rule 23(b)(3) predominance inquiry tests whether proposed

classes are sufficiently cohesive to warrant adjudication by

representation.”

– Predominance readily met in consumer or securities fraud as well

as antitrust cases

– Predominance may be met in mass tort cases arising from common

cause or disaster

– Fact that all members had been exposed to asbestos was

insufficient to meet predominance, as different members were

exposed to different products for different amounts of time in

different ways, and differences in state law compounded those

disparities

– Settlement class – lower bar?

9

Amchem Progeny:

Predominance Requirement Powerful

• Predominance requirement satisfied:

– Smilow v. Sw. Bell Mobile Sys., Inc., 323 F.3d 32, 39–40 (1st Cir.

2003)

– Gunnells v. Healthplan Servs., Inc., 348 F.3d 417 (4th Cir. 2003)

– In re Visa Check/MasterMoney Antitrust Litig., 280 F.3d 124 (2d Cir.

2001)

• Predominance requirement NOT satisfied:

– Danvers Motor Co. v. Ford Motor Co., 543 F.3d 141, 148 (3d Cir.

2008)

– Broussard v. Meineke Disc. Muffler Shops, 155 F.3d 331 (4th Cir.

1998)

– Jackson v. Motel 6 Multipurpose, Inc., 130 F.3d 999 (11th Cir. 1997)

10

Amchem Progeny:

Predominance Requirement Unclear

• Individualized damages a bar to certification

– Randall v. Rolls-Royce Corp., 637 F.3d 818 (7th Cir. 2011)

– Blades v. Monsanto Co., 400 F.3d 562, 570-71 (8th Cir. 2005)

• Individualized damages NOT a bar to certification (majority)

– Yokoyama v. Midland Nat’l Life Ins. Co., 594 F.3d 1087, 1089 (9th

Cir. 2010)

– In re New Motor Vehicles Canadian Exp. Antitrust Litig., 522 F.3d 6

(1st Cir. 2008)

– Allapattah Servs. v. Exxon Corp., 333 F.3d 1248, 1261 (11th Cir.

2003)

11

Comcast v. Behrend (2013):

“Rigorous Analysis” of Predominance

• Purported class action on behalf of 2M Comcast

subscribers

• Sherman Act claims challenging alleged “clustering”

scheme to eliminate competition in Philadelphia area

• District Ct rejected 3 of Ps’ 4 theories of anti-competitive

impacts; accepted “overbuilder deterrence” theory b/c

“capable of measurement on classwide basis” and “capable

of classwide proof”

• Ps’ expert damages analysis included all 4 impacts; did not

isolate “overbuilder” theory

12



• Scalia for Majority (5)

– “Rigorous analysis” required at class certification to confirm Ps’

damages case consistent with liability case under FRCP 23(b)(3)

– Overlap with merits analysis

– Ps’ expert did not tie supra-competitive prices to “overbuilder

deterrence” theory damages incapable of measurement on a

classwide basis if based on Ps’ expert analysis

13



• Ginsberg for Dissent (4)

– Court should dismiss cert. as improvidently granted b/c question

presented whether expert evidence admissible at certification

– “no new ground” on FRCP 23(b)(3) standards

– Class may be certified even if damages not provable in aggregate

– Ps’ expert analysis did allow classwide proof of damages because

Comcast agreed that Ps’ 3 other theories had no impact on prices

14



• Key Takeaways

– Part of pantheon of recent SCOTUS cases shifting merits analyses

earlier in life of a case

– Lingering difficulties for appeals courts trying to review half-formed

factual record from certification stage

– Strategic Note: Identify mismatch between Ps’ theory and damages

model before class cert. consideration

15



• Questions

– Would courts take Scalia at his word? • Or limit Comcast to its facts?

• Or limit Comcast to nexus between damages theory and liability theory?

– Comcast addressed combined liability-damages class

certification: impact on liability-only or damages-only

classes?

– Was Comcast about reliability of damages analysis or

case management or Due Process?

370 Seventeenth Street | Suite 4500 | Denver, Colorado 80202-5647 | P 303.244.1800 | F 303.244.1879 | wtotrial.com

THE EVOLVING IMPACT OF COMCAST

ON PROPOSED CLASS DAMAGES

MODELS

Galen D. Bellamy

[email protected]

December 20, 2016

Question 1 Raised by Comcast: How

“Rigorous” Must the Analysis Be?

Comcast held that courts must consider challenges to damage

methodology even if those challenges overlap with the merits.

If a court must consider challenges to class damages evidence, does

that include Daubert challenges to damages experts?

How developed or far along must the damages methodology be to

survive challenge?

Any proposed model need not include exact calculations.

Is the rigorous analysis of classwide damages limited to ensuring that

the plaintiffs’ model is consistent with its liability theory?

17

“Rigorous Analysis” of Damage

Evidence = Daubert

The Circuit Courts agree that some form of Daubert analysis is

appropriate at the class certification stage.

Full Daubert: Third, Fifth, Seventh, and Eleventh Circuits:

In re Blood Reagents Antitrust Litig., 783 F.3d 183 (3d Cir. 2015).

Unger v. Amedisys Inc., 401 F.3d 316, 323 n.6 (5th Cir. 2005).

Am. Honda Motor Co. v. Allen, 600 F.3d 813, 815-16 (7th Cir. 2010).

Sher v. Raytheon Co., 419 F. App’x. 887, 890 (11th Cir. 2011).

Modified Daubert:

In re Zurn Pex Plumbing Prods. Liab. Litig., 644 F.3d 604, 612 (8th

Cir. 2011) (“focused” Daubert analysis at class certification).

Tait v. BSH Home Appliances Corp., 289 F.R.D. 466, 495 (C.D. Cal.

2012) (“tailored” Daubert analysis at class certification).

18

Question 2 Raised by Comcast: Must Damages be

Measureable on A Classwide Basis to Meet

Predominance?

Certain statements from the majority appeared to suggest yes:

“[U]nder the proper standard for evaluating certification, respondents’

model falls far short of establishing that damages are capable of

measurement on a classwide basis.”

“If the model does not even attempt to [measure damages flowing

from reduced overbuilder competition], it cannot possibly establish

that damages are susceptible of measurement across the entire class

for purposes of Rule 23(b)(3).”

But the dissent said otherwise:

“[T]he decision should not be read to require, as a prerequisite to

class certification, that damages attributable to a classwide injury be

measureable ‘on a class-wide basis.’”

19

Must Damages be Measureable on a

Classwide Basis? (cont’d)

Significant questions practitioners were asking in the immediate

wake of Comcast in light of these statements:

Is it Plaintiffs’ burden under Rule 23(b)(3) to come forward with

evidence that damages can be calculated on a classwide basis?

Must they employ a damages “model” to satisfy that burden (or were

the Court’s statements to that effect specific to that antitrust case)?

If damages are not measureable on a classwide basis, must

certification be denied under 23(b)(3)?

20

Early Circuit Court Decisions Appeared to

Suggest that Damages Must be Measureable

on a Classwide Basis

The D.C. Circuit Court of Appeals, for example, succinctly

summed up how many practitioners viewed the state of the law

immediately following Comcast:

“No damages model, no predominance, no class

certification.”

In re: Rail Freight Fuel Surcharge Antitrust Litigation, 725

F.3d 244 (D.C. Cir. 2013)

21



After Comcast, the Tenth Circuit reversed certification and

remanded to the district court to “consider the extent to which

material differences in damages determinations will require

individual inquiries.”

Wallace B. Roderick Revocable Living Trust v. XTO Energy, 725 F.3d

1213 (10th Cir. 2013)

Thus, after Comcast, “material” differences in individual damages

determinations could tip the predominance scale against

certification.

22



Although the early decisions by the DC Circuit and Tenth Circuit

suggested that Comcast might have real bite, the consensus that

has since emerged is that Comcast:

Does not require that damages be measureable on a classwide basis

to satisfy predominance;

Does not impose a new requirement that Plaintiffs come forward with

a damages “model” as a prerequisite to satisfying Rule 23(b)(3).

23


Classwide Basis? (Cont’d)

It remains the law after Comcast that the need for individual

damages calculations alone does not defeat a finding of

predominance.

Leyva v. Medline Industries, Inc., 716 F.3d 510 (9th Cir. 2013)

In re Whirlpool Corp., 722 F.3d 838 (6th Cir. 2013)

Butler v. Sears, 727 F.3d 796 (7th Cir. 2013)

In re Deepwater Horizon, 739 F.3d 790 (5th Cir. 2014)

In re Nexium Antitrust Litig., 777 F.3d 9 (1st Cir. 2015)

Roach v. T.L. Cannon, 778 F.3d 401 (2d Cir. 2015)

Neale v. Volvo Cars of N. Am., LLC, 794 F.3d 353 (3d Cir. 2015)

Brown v. Electrolux Home Products, 817 F.3d 1225 (11th Cir. 2016)

24

Can the Need for Individual Damage

Calculations Ever Defeat Predominance?

Although it is clear that individual damages calculations “alone”

cannot defeat predominance, that does not mean such

calculations are irrelevant to the predominance inquiry.

“Without presenting another methodology, respondents cannot

show Rule 23(b)(3) predominance: Questions of individual

damage calculations will inevitably overwhelm questions common

to the class.”

Comcast, 133 S.Ct. at 1433.

25

Early Circuit Court Decisions Left the

Door Open

The decisions issued after Comcast by the Fifth, Sixth and

Seventh Circuits all focused on the fact that those cases involved

liability classes, so they did not need to decide what impact

individual damages calculations might have on predominance.

The decisions issued by the First, Second and Ninth Circuits all

noted that there was an easy way to calculate individual damages

in those cases.

Still an open question after these cases about how to evaluate a

class seeking certification of both liability and damages theories

where damages are not measureable on a classwide basis and

individual damages are not readily calculable.

26

Consider The Ninth Circuit

Reaffirmed that, even after Comcast, damage calculations alone

cannot defeat class certification.

Leyva v. Medline Industries, Inc., 716 F.3d 510 (9th Cir. 2013).

Further, a proposed class damages model can pass muster even

if it is “an approximation . . . uncertain, contingent, or difficult of

ascertainment.”

Pulaski & Middleman, LLC v. Google, Inc., 802 F.3d 979, 989

(2015).

27

Consider The Ninth Circuit (cont’d)

So is Comcast toothless? Not so fast . . .

Doyle v. Chrysler Group, LLC (9th Cir. 2016) (unpublished):

Reversed certification because plaintiff had not demonstrated that

damages could be measured on a classwide basis.

Distinguished Leyva and Pulaski because those cases involved “a

common methodology for calculating damages”.

28

When Do Individual Damages Calculations

Tip the Predominance Scale?

Brown v. Electrolux Home Products, 817 F.3d 1225 (11th Cir.

2016)

Like the Circuit Courts that had reached the issue before it, the

Eleventh Circuit recognized that the “black letter rule” in every circuit

is that individual damages calculations generally do not defeat a

finding of predominance.

Noted that the predominance issue is qualitative, and the individual

issues raised by damages determinations are often easy issues to

resolve when damages calculations are formulaic.

Recognized that an “exception” to the blackletter rule when

computing individual damages will be complex and fact-specific.

29

Question 3 Raised by Comcast: How

Precisely Must the Liability Theory and

Damages Model Align?

The primary holding of Comcast was that the class liability and

damages theories must align:

“[A] model purporting to serve as evidence of damages in this class

action must measure only those damages attributable to that theory.”

“Calculations need not be exact . . . but at the class certification stage

(as at trial) any model supporting a ‘plaintiff’s damages case must be

consistent with its liability case’”

Model does not establish that class damages are capable of

measurement if the model “identifies damages that are not the result

of the wrong.”

30

Liability and Damages Must Align

From the defense perspective, this is probably where the most

fruitful application of Comcast has been, but the lower courts are

not aligned on what this requirement actually means in practice.

Compare:

Hughes v. Ester C. Co., NBTY, Inc., 2016 WL 6092487 (E.D.N.Y.

Sept. 30, 2016).

Goldemberg v. Johnson & Johnson Consumer Companies, Inc., 2016

WL 5817012 (S.D.N.Y. Oct. 4, 2016).

31

Consider the Ninth (again) Brazil v. Dole Packaged Foods, LLC, (9th Cir. 2016) (unpublished):

Did not cite Comcast.

District court decertified class because plaintiffs’ damages expert could not

isolate the impact that “all natural” label had on price.

Ninth Circuit affirmed because plaintiffs had not shown that the price premium

solely attributable to the “all natural” label could be calculated with proof

common to the class.

In re ConAgra Foods:

Plaintiffs’ expert asserted that he could use regression analysis to determine

damages, but could not isolate damages flowing solely from allegedly false

aspect of “100% natural” claim.

Court granted amended motion for class certification that relied on revised

class damages models (regression + conjoint analyses) to isolate price

premium.

Currently on appeal. The Ninth Circuit heard oral argument in September on

the same day as Brazil.

32

Liability and Cognizable Damages

Theory Must Align

Harnish v. Widener University School of Law, 833 F.3d 298 (3d

Cir. 2016):

Did not cite Comcast.

Showed how a flawed damages model can prevent certification.

Not only must damages model measure damages attributable solely

to Plaintiffs’ theory of liability, but it must measure a legally cognizable

theory of damages pursuant to underlying state law.

33

Three Years After Comcast,

Consensus has Emerged

on Three Key Points

First, the “rigorous analysis” of damages evidence includes

considering whether class damages experts satisfy FRE 702 and

Daubert.

Second, although individual damage calculations alone will not

defeat predominance, courts are increasingly willing to consider

the need for such inquiry as a factor in deciding whether common

issues outweigh individual issues.

Third, proof of class damages must measure only those damages

attributable to Plaintiffs’ theory of liability.

34

Arguments Under Comcast That

Have Been Successful In Attacking

Plaintiffs’ Class Damages

The proposed methodology has not been sufficiently developed.

District court cannot perform its “rigorous analysis” or evaluate the

reliability of the opinion under Daubert.

The proposed damages model does not obviate the need for

individual inquiry.

Courts have recognized that the need for such inquiries can defeat

predominance.

The proposed methodology does not measure only damages

flowing from the alleged injury.

Or the method does not measure damages in a way that is

cognizable under the underlying substantive law.

35

Comcast and the Application of

Damages Methods at Class Certification

December 20, 2017

Aaron Dolgoff

Vice President

[email protected]

200 Clarendon Street Boston, Massachusetts 02116-5092 617-425-3000

Topics covered

Using examples from securities, antitrust and labor/employment class actions:

• Briefly introduce a few damages methods Plaintiffs might use at Class

Certification phase

• Discuss various Plaintiffs and Defendant arguments supporting or rebutting

these methods

• Provide some lessons from case outcomes

37

Securities Litigation Damages Approaches

• In securities class actions every class member will necessarily have

individualized damages calculations based on the size and timing of their

respective trades

– Individual calculations do not preclude a common approach (i.e., individual calculations are not

necessarily a barrier to class certification)

• Two generic approaches to damages in securities suits:

(1) Stock price inflation: Actual purchase price – “But-for” purchase price

Economic models are used to estimate the “but-for” price

(2) Rescission of out-of-pocket losses: Actual purchase price – Actual sale price

[perhaps offset for unrelated losses]

38

Securities Litigation Comcast Decisions – Summary

• Some damage methods are easier to establish classwide application

– Claims securities “worthless”/ rescission claims (Cromeans v. Morgan Keenan, Dodona v.

Goldman Sachs)

– Statutory formulas (§11 of 1933 Securities Act) (NJ Carpenters Health v Residential Capital)

– Burden remains on plaintiff to offer evidence of damages methodology (e.g., Kosmos Energy Ltd.

Securities Litigation in which the court found plaintiffs offered no evidence in support of

predominance requirement for a §11 claim)

• Damage claims requiring estimation of stock price inflation (i.e., 10(b)-5) generally

require an economic method and expert opinion

– Event study method has become most commonly applied method to determine stock price

inflation

– Applying an event study to a damages formula is insufficient: plaintiffs need to show how their

damages methodology tracks their theory of liability (e.g., BP Securities Litigation 1 – class

denied)

39

Securities Litigation Event Study Method

1. Identify events

– Disclosure vs misstatement

– Cannot directly test impact of an omission

2. Define length of event windows

– Tradeoff: isolating window to the identified event vs statistical confidence

3. Calculate excess return using an appropriate economic model

– Control for market, industry and/or other exogenous factors (i.e., factors unrelated to

the event being tested)

4. Test statistical significance

40

Securities Litigation Issues in Measuring Value Impact of an Event

• Confoundment (i.e., the isolation problem)

– Defining the event window

– Isolating individual effects (example: controlling for earnings announcements)

– Impact on statistical significance

• How does the event information relate to plaintiffs’ theory of harm?

– Undisclosed risk vs. Realization of risk

• Is the information really “news”?

– Public disclosure

– Dissemination mechanisms (e.g., analyst reports)

• Statistical confidence / reliability of model

41

Securities Litigation Does the Event Related to Theory of Harm? BP Securities Litigation II Example

42

“Pre Explosion” or “Process Safety” Subclass

“Post Explosion” or

“Spill Severity” Subclass

Securities Litigation BP Securities Litigation II– Post-Explosion Subclass

• Plaintiffs’ damage method

– Damage theory: defendants withheld information about the severity of the oil spill

– Event study method applied to a set of disclosure dates

– Constant $ of inflation between disclosures

• Defendant arguments

– It is improper to carry-back stock price declines to the first alleged spill severity misstatement

because there is no evidence defendants had the same information at that earlier time

– Improper overlap of corrective disclosure events between Pre-Explosion and Post-Explosion

subclasses

• Subclass certified

– Defendants arguments concern loss causation – challenging the “fit” between alleged corrective

events and alleged fraudulent statements.

– Failure to prove loss causation is not an impediment to class certification

– “Plaintiffs’ task … is to present a legally viable, internally consistent and truly classwide approach

… Whether Plaintiffs have properly executed under the approach is a question for a different day.”

43

Securities Litigation BP Securities Litigation II– Pre-Explosion Subclass

• Plaintiffs’ damage method

– Damage theory: Consequential damages theory

• “Materialization-of-risk” - misstatements deprived investors the opportunity to divest prior to realization of risk

– Event study to measure price impact of realization of risk across 8 corrective events (reduced by amount known

to the market, i.e., risks voluntarily assumed by investors)

– Apportion across alleged misrepresentation dates (linear step-up over time)

• Defendant arguments

– Corrective events were not related to the process safety misstatements

– Arbitrary allocation (back-casting) method; can produce irrational results

– Failure to measure value of an undisclosed risk, as distinct from value impact from realization of that risk.

• Subclass not certified

– Selection of improper corrective events not relevant: loss causation need not be proven at class certification

– “Plaintiffs damage model [back-casting] need not be perfect. It need not be ‘correct.’ … [the] damages

methodology contains its flaws, but is not wholly arbitrary.”

– Fatal flaw denying certification: consequential damages theory cannot be applied uniformly

• Lumps together those who would have bought at heightened risk with those who would not

• Presumes investor reliance on factors other than price (i.e., risk), a theory inconsistent with fraud-on-the-market theory

44

Securities Litigation Alternatives to Event Study Method

• Indicators from factual record

– Contemporaneous analyst reports

– Plaintiff or other investor valuation analyses

• Direct valuation of alleged misstatement / omission

– E.g., discounted cash flow method to value an earnings misstatement regarding earnings

• Regression or other benchmarking techniques

– Statistically isolating effects of similar information disclosures in cross-sectional studies

– Issues

• Comparability

• Controls for case-specific factors

45

Antitrust

Damages Approach

• Antitrust damages may be measured by a model of overcharges, where actual

prices paid are compared to but-for prices

• Multiple regression is used to separate the impact of the alleged misconduct

from other supply and demand factors affecting price:

46

Antitrust Steps in Using Regression Models

47

Antitrust Potential Certification Issues in Use of Regression Models

48

Antitrust In re Rail Freight Fuel Surcharge Antitrust Litigation

• Plaintiffs alleged 4 rail freight carriers conspired to increase freight prices through fuel surcharges

• Plaintiffs’ expert controlled for various factors believed to affect prices of all rail shipments and found a

significant change in the relationship between fuel prices and freight rates at the start of the class

period

• Appellate court decision focused on one of Defendant’s rebuttal arguments: “false positives”

– Defendants found plaintiff’s model estimated damages for customers with rates set by contracts

signed before the alleged misconduct.

49

Plaintiff Reply to Defendant Arguments Court

Pre-class shippers are not part of class;

relevant issue is whether the class paid

higher rates

Although false positives don’t disprove the model… Plaintiffs

misapprehend their burden… It is not enough to submit a

questionable model whose unsubstantiated claims cannot be refuted

through a priori analysis… we have no way of knowing the

overcharges the damages model calculates for class members is any

more accurate than the obviously false estimates it produces for

legacy shippers.

The conspiracy may have predated the class

period, thus tainting even legacy contracts

Plaintiffs failed to present any evidence of this possibility, a claim that

is also at odds with the district court’s factual findings.

Antitrust In re High-Tech Employee Antitrust Litigation (1 of 2)

50

Plaintiff model Defendant Critique Court Finding

Conduct Regression

• Show impact of anti-

solicitation agreements

and quantify damage by

each proposed class

• Controls for benchmark

period of two years before

and after the class period.

• Plaintiffs should have produced

disaggregated models which

would show dramatically different

results for each Defendant.

• If benchmark period is restricted

to just after the class period the

model shows over-compensation

rather than under-compensation.

• Failure to control for value of

equity compensation.

• Failed to control for the fact that

compensation within firms is

correlated, thus requiring the use

of “clustered standard errors.”

• Defendant expert does not appear to have created a

truly disaggregated model… moreover, his use of so

many variables may “minimize artificially” the effects

of the anti-solicitation agreements. Aggregation may

also be appropriate given limited sample size.

• Defendants fail to explain why it makes sense to limit

the benchmark period (e.g., by showing that the pre-

conduct period is not comparable to the post-conduct

period).

• Defendant’s control for equity compensation (S&P

500) does not reflect variations in Defendants’ stock

prices or compensation.

• The fact that when standard errors are clustered the

results are not significant at the 95% level does not

render the regression inadmissible / unreliable.

Court not persuaded that the Conduct Regression by itself provides plausible method of showing

detrimental effects were experienced by all or nearly all class members… Nevertheless, the Court is

persuaded that the regression provides reasonable method of … showing impact generally, and

providing a measure of class-wide damages.

Antitrust In re High-Tech Employee Antitrust Litigation (2 of 2)

51

Plaintiff model Defendant Critique Court Finding

Common Factors Analysis

• Statistical model to assess

firm wide compensation

structures and the

formulaic way in which total

compensation varied over

time” (evidence of “rigid

wage structure”)

• Almost all of the model’s “fit” is

explained by employer and job title

• Cannot establish that compensation

of different employees with different

job titles are correlated over time.

• The analysis shows where an employee works

and what an employee does plays a large role in

determining salary. Plaintiff expert fails to explain

how one can infer from that that Defendant’s

salary structures were so rigid that compensation

for employees with different titles would

necessarily move together

Compensation Movement

Charts

• Track compensation for top

10 positions at Google and

Apple over time (to show

co-movement)

• Plaintiff examined only a small

fraction of the class and focused on

Technical Class employees

• In light of Plaintiffs failure to provide a broader

sampling, the Court is not persuaded that the

[charts] are particularly probative of whether

salaries for all or nearly all Class members moved

together

“the Court has concerns about the capacity of Plaintiffs’ evidence and proposed methodology to

prove impact to the All Employee Class or the Technical Class. The Court is most concerned about

whether the evidence will be able to show that Defendants maintained such rigid compensation

structures that a suppression of wages to some employees would have affected all or nearly all

Class members. The Court is also concerned that Plaintiffs’ proposed classes may be defined so

broadly as to include large numbers of people who were not necessarily harmed by Defendants’

allegedly unlawful conduct.”

Labor and Employment Minor League Baseball (Senne, et al. v. Kansa City Royals, et al.)

• Plaintiffs alleged FLSA and state wage and hour law violations (minimum wage and

overtime of minor league players)

• The court conditionally certified FLSA class with more than 2,000 players opting-in to

the class.

– Plaintiffs motion for state law class certification

– Defendants motion to decertify FLSA class

• In support of class certification Plaintiffs submitted expert declarations for survey and

damages experts

– Survey expert designed survey to obtain estimates of player hours worked at various activities / times of

year (e.g., spring training, championship season, winter); pilot survey implemented using opt-ins to FLSA

class.

– Damages expert demonstrated use of pilot survey data combined with other data (e.g., game schedule,

travel times between cities) to calculate damages

– Defendants filed motion to exclude Survey expert declaration and testimony (damages expert relies on

survey results, so exclusion of survey would effectively preclude damages analysis)

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Labor and Employment Example from Minor League Baseball (Senne, et al. v. Kansa City Royals, et al.)

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Defendants’ Expert Rebuttal criticism Court opinion

Pilot survey sample bias (respondents

were all class opt-ins)

No reason to believe a survey conducted at a later stage will suffer from this

defect

Potential bias from non-response

(about 1/3 response rate)

Defendants have raised the possibility of non-response bias, but not

demonstrated any actual bias

Bias from ambiguity in questions

combined with predetermined

category ranges that might influence

responses

The use of closed-ended questions is an accepted practice in conduct surveys

of this nature.

Complicated survey questions invited

“best guess” answers

“Troubled” by format of the question flagged… while on its own this problem is

not sufficient to render the survey unreliable, when combined with assumptions

about players’ memories, the reliability is questionable.

Self-interest bias The methodology used in conducting the pilot is fundamentally flawed and

plaintiffs have not shown they can overcome these problems when they

conduct the more comprehensive survey. All minor league players have a

vested interest, regardless of whether they opted in to the FLSA class.

Plaintiffs have not pointed to any specific records that can be used to validate

survey results. Self-interest bias is compounded by the ability of players to

remember mundane events to come up with reliable answers.

* The above does not address Plaintiffs’ subsequent attempts for reconsideration based on additional expert declarations.

Summary Implications

• Important to empirically test assumptions about reliability of damages model across

sub-classes or compared to those outside the class

– Not enough to show potential flaws in plaintiffs’ expert opinions – need demonstrate those flaws are real

and have measurable impact

• At Class Certification stage courts are not looking for perfection from plaintiffs’

experts

– Damages calculations need not be correct

– An appropriate model incorrectly applied may still be sufficient for class certification

– Remediable errors in Plaintiffs’ methods are less likely to prevent class certification

• Expert opinions must address fundamental issues:

– Do plaintiffs provide an approach to estimate a common impact across plaintiffs or sub-classes?

– Is the damage model consistent with plaintiffs’ liability theory?

– Is the damage model confounded by alternative liability theories?

– Are there reliable data (measurable, sufficient data, unbiased) to implement the damages method?

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