Thursday, May 29, 2008

$23 Million Judgment Upheld in Scrap Metal Price Fixing Case

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The U.S. Court of Appeals in Cincinnati has upheld a $23 million judgment in favor of a class of scrap metal generators who alleged price fixing claims against a scrap metal broker. The appellate court rejected the broker's contentions that the plaintiffs' expert was unreliable, that the generators' damages were not supported by the evidence, that class certification was improper, and that the lower court improperly tolled the statute of limitations.

Expert Testimony

The trial court did not abuse its discretion by admitting the testimony of the plaintiffs' expert, offered to prove the amount of damages the class incurred as a result of anticompetitive conduct. The plaintiffs' expert performed his analysis according to a reliable method (the "during and after" method) and reliably applied that method to the facts of the case. The expert's calculations were tested on cross-examination and subjected to further scrutiny and criticism by the defendant's own expert.

The defendant did not argue that the plaintiffs' expert was unqualified or that his testimony was irrelevant. Nor did it challenge the reliability of the broadly-accepted "during and after" method to determine damages. Instead, the defendant challenged the reliability of the expert's testimony. However, the task for the district court in deciding whether an expert's opinion was reliable was not to determine whether it was correct, but rather to determine whether it rested upon a reliable foundation.

In the appellate court’s view, the challenge to the damages analysis of the plaintiffs' expert went to the weight, not the admissibility, of his testimony. The district court determined the testimony to be sufficiently reliable and appropriately passed the torch to the jury to make the ultimate determination. The defendant's contention that the trial court abused its discretion by failing to hold a Daubert hearing before ruling on the admissibility of the damages expert's testimony also was rejected.


The jury's award of $11.5 million in damages was supported by the testimony of the plaintiffs' expert, even though the expert estimated aggregate damages of $20.9 million. The defending broker's challenge to the verdict was directed at the accuracy of the amount of damages and not the fact of damages. The defending broker argued that the jury must have resorted to speculation and conjecture to arrive at the $11.5 million figure, and that this illustrated the insufficiency of the evidence on damages. However, the fact that the jury chose to assess damages in an amount substantially below that recommended by the plaintiffs' expert did not mean that the evidence offered in support of lost profits was inadequate.

The appellate court also ruled that the jury verdict did not represent an "impermissible fluid recovery." The defendant unsuccessfully argued that, because the jury returned a verdict in an amount less than the damages estimated by the plaintiffs' expert, it was impossible to figure out: (1) how the jury reached its verdict, (2) to which class members the verdict applied, and (3) in what amounts it applied to each class member. Rather than proposing a fluid recovery, the plaintiffs provided evidence of a classwide aggregate injury, in the court's view.

The expert opined that every class member who sold ferrous scrap incurred a 16.4 percent undercharge for every sale during the class period, resulting in aggregate damages of $20.9 million. That the jury awarded a lower amount than the expert suggested did not mean that it rejected the expert's uniform-impact theory; instead, the jury might have simply rejected the undercharge amount of 16.4 percent. Ultimately, the $11.5 million verdict was tripled to $34.5 million and the amount received from settling defendants was subtracted to arrive at a judgment of $23,036,000.

Class Certification

Certification of the class of industrial scrap-generating companies was affirmed, despite the defending broker's argument that the "predominance of common questions" requirement of Federal Rule of Civil Procedure 23(b)(3) was not met because damages could not be calculated on a class-wide basis. A precise mathematical calculation of damages was not required before deeming a class worthy of certification. The requirements of Rule 23(b)(3) are satisfied if the plaintiffs can establish that the defendants conspired to interfere with the free-market pricing structure.

Statute of Limitations

The trial court did not err in instructing the jury on tolling and the applicable statute of limitations. The court had suspended the limitations period based on the pendency of related criminal or civil proceedings by the government and instructed the jury that it could consider acts four years prior to March 2000. The court also gave a fraudulent concealment instruction allowing the jury to alter further the dates in consideration, if it found the requisite elements. The appellate court concluded that the jury could have reached its verdict based on a fraudulent concealment theory. Any error in the trial court's instructions would have been harmless.

The May 15 decision is In re Scrap Metal Antitrust Litigation, 2008-1 Trade Cases ¶76,157.

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