United States District Court, S.D. New York
February 24, 2004.
U.S. INFORMATION SYSTEMS, INC., ODYSSEY GROUP, INC. and BLUE DIAMOND FIBER OPTIC NETWORKS, INC., Plaintiffs, -against- INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS LOCAL UNION NUMBER 3, AFL-CIO, A R COMMUNICATION CONTRACTORS INC., ADCO ELECTRICAL CORPORATION, FIVE STAR ELECTRIC CORPORATION, FOREST ELECTRIC CORPORATION, HUGH O'KANE ELECTRIC COMPANY LLC, IPC COMMUNICATIONS, INC. and NEAD INFORMATION SYSTEMS, Defendants
The opinion of the court was delivered by: JAMES FRANCIS, Magistrate Judge
MEMORANDUM AND ORDER
For want of unbiased data, expert evidence is lost. The defendants in
this antitrust case have moved to exclude the proposed testimony of the
plaintiffs' expert witness, Dr. Frederick C. Dunbar, pursuant to Federal
Rules of Evidence 702 and 703 on the ground that his methods and the
resulting testimony are unreliable. Many of the defendants' arguments are
without merit. However, because the plaintiffs have failed to demonstrate
that the data set upon which Dr. Dunbar's analysis was based was
unbiased, the defendants' motion must, in large part, be granted.
The plaintiffs in this action are electrical contractors who employ
workers represented by the Communications Workers of America, AFL-CIO
(the "CWA") to install telecommunications systems for commercial
customers. The plaintiffs allege that the defendants who include
the International Brotherhood of Electrical Workers ("IBEW") Local Union
Number 3, AFL-CIO ("Local 3") and a number of electrical contractors
conspired to violate the antitrust laws by excluding from the
market contractors who, like the plaintiffs, employ workers who are
members of the CWA, rather than Local 3. The plaintiffs have alleged
violations of the Sherman Antitrust Act, 15 U.S.C. § 1, 2 (the
"Sherman Act"), and New York's Donnelly Act, N.Y. Gen. Bus. Law § 340
(the "Donnelly Act"). (Second Complaint dated Feb. 22, 2002 ("Sec.
Compl.") ¶¶ 70-92).*fn1 The plaintiffs' principal claim is that the
defendants have "combined and conspired with each other, and others
presently unidentified, to carry out a common plan to coerce and induce
building owners and tenants, building managers, general contractors,
information technology consultants, and others in the
construction industry to exclude the plaintiffs from the market for
telecommunications installation work." (Sec. Compl., ¶ 36). The
plaintiffs further allege that "[i]n the absence of collusion, each
electrical contractor defendant would have an economic incentive to
perform the electrical installation work correctly and without incident
in order to satisfy the customer. No rationally profit-maximizing
contractor in the defendants' position would commit the illegal
activities that the defendants have committed except in furtherance of
the unlawful conspiracy among the defendants." (Sec. Compl., ¶ 40).
Finally, the plaintiffs claim that "because of the universal nature of,
and reliance by all businesses upon, the telecommunications industry, an
antitrust violation in this arena is especially harmful." (Sec. Compl.,
The plaintiffs seek to introduce the expert testimony of Dr. Dunbar on
economic issues related to antitrust liability and damages in this case.
(Declaration of Dr. Frederick C. Dunbar Opposing Defendants' "Daubert"
Motion dated March 7, 2003 ("Dunbar Decl."), ¶ 1). Dr. Dunbar is a
Senior Vice President of National Economic Research Associates, Inc.
("NERA"), specializing in antitrust and financial economics. (Dunbar
Decl., ¶ 3). Dr. Dunbar's practice at NERA includes "providing
valuation services, performing economic research on public policy
matters, and consulting on antitrust economics." (Dunbar Decl., 1 4). Dr.
Dunbar issued an initial report on October 3, 2002, as well as a
rebuttal report on December 17, 2002, outlining his findings.
(Dunbar Decl., ¶ 1). Additionally, he was deposed for three and
one-half days regarding his conclusions. (Declaration of Jeffrey M.
Eilender in Support of Defendants' Motion to Exclude the Testimony of
Plaintiffs' Proposed Expert, Dr. Frederick C. Dunbar, dated Feb. 7, 2003
("Eilender Decl."), ¶ 15). The defendants have submitted several
expert reports of their own, including reports by a certified public
accountant, Stephen W. Shulman, and economists Orley C. Ashenfelter,
Henry S. Farber, and John R. Woodbury. (Expert Report of Stephen W.
Shulman, CPA, dated Oct. 31, 2002 ("Shulman Report"); Expert Report of
Orley C. Ashenfelter and Henry S. Farber dated Oct. 31, 2002
("Ashenfelter/Farber Report"); Expert Report of John R. Woodbury dated
Oct. 30, 2002 ("Woodbury Report")).
Dr. Dunbar's initial report analyzed a number of issues that are
relevant to the plaintiff's claim of monopoly leveraging that is,
the use of market power in one market (electrical installation services)
to reduce competition and inflict antitrust injury in another market
(telecommunications installation). (Dunbar Decl., ¶ 7; Expert Report
of Frederick C. Dunbar dated Oct. 3, 2002 ("Dunbar Report") at 40). To
establish a Sherman Act conspiracy, the plaintiffs must produce evidence
sufficient to show: (1) a combination or some form of concerted action
between at least two legally distinct economic entities; and (2) that
combination or conduct constituted an unreasonable restraint of
trade either per se or under the "rule of reason."
U.S. Information Systems, 2002 WL 91625, at *4; see
also Tops Markets, Inc. v. Quality Markets, Inc.,
142 F.3d 90, 95-96 (2d Cir. 1998). The plaintiffs must also "adequately . . .
define the relevant product market." Rock TV Entertainment, Inc. v.
Time Warner, Inc., No. 97 Civ. 0161, 1998 WL 37498, at *2 (S.D.N.Y.
Jan. 30, 1998) (quotations and citation omitted). Finally, the plaintiffs
must establish that they have "antitrust standing" and have suffered
"antitrust injury." National Camp Association, Inc. v. American
Camping Association, Inc., No. 99 Civ. 11853, 2000 WL 1844764, at *3
(S.D.N.Y. Dec. 15, 2000); Atlantic Richfield Co. v. USA Petroleum
Co., 495 U.S. 328, 334 (1990).
In examining these elements of the plaintiffs' claims, Dr. Dunbar
asserts that he applied "well-recognized statistical procedures to
unbiased data as well as well-accepted economic theory to facts." (Dunbar
Decl., ¶ 7). He summarized his findings in five categories.
1. Market Power
First, Dr. Dunbar examined the market for electrical installation and
discussed how "market power" could be asserted in that market.
Market power is the ability to raise prices above
competitive levels persistently. Market power is
absent if an attempt to raise prices above
competitive levels would be made unprofitable by
an increase in supply from
other firms in the market or by short run
entry from firms outside the market.
(Dunbar Report at 4). Using this "standard economic definition for
market power," Dr. Dunbar concluded that the defendants have monopolized
the market for electrical installation by controlling the supply of
electricians.*fn2 (Dunbar Report at 5). Dr. Dunbar came to this
conclusion by examining several factors.
First, he analyzed the market for electrical installation services
generally and Local 3's role in that market. Local 3 is the sole
collective bargaining agent of electricians in the New York metropolitan
area, giving it significant power to control the labor force and raise
the wages of its members. (Dunbar Report at 6). Because Local 3 does not
deal directly with end users, it works in conjunction with electrical
contractors to sell its members' services. (Dunbar Report at 7). Local 3
has agreements with the New York Electric Contracting Association and the
Association of Electrical Contractors, Inc. that provide that for each
job, certain key decision makers of the contractor must be Local 3
members. (Dunbar Report at 8). Additionally, a Joint
Industry Board ("JIB"), consisting of fifteen members representing
the union and fifteen members representing the employers, controls and
manages the supply of electricians to the contractors and administers
benefits and pensions. (Dunbar Report at 9).
To estimate the size of the electrical installation services market in
the New York metropolitan area, Dr. Dunbar relied upon: (1) data that
Local 3 produced in its semi annual surveys regarding the total
number of inside construction electricians and the number of electricians
used in the commercial construction industry in Local 3's jurisdiction;
(2) the ratio of the National Electrical Benefit Fund ("NEBF") wages
earned within Local 3's jurisdiction relative to the county wages (data
that was also produced by Local 3); (3) the value of commercial
construction in New York State that is published by the Bureau of Census;
and (4) data on the dollar value of the top construction projects in New
York, as published by the New York Construction News. (Dunbar Report at
10). Local 3 surveys estimate that electricians employed on commercial
projects represent about 35% of the total inside electricians and that
NEBF wages represent 70% of the total wages of the relevant counties.
(Dunbar Report at 10). From this, assuming all Local 3 workers to be
equally productive, Dr. Dunbar calculated the wages of electricians who
are working in the construction industry to be approximately $344
million. (Dunbar Report at 10-11). Assuming that labor represents 40% to
50% of the total value of the work,
Dr. Dunbar estimated the size of the market for electrical
installation to be in the range of $1 billion to $1.2 billion. (Dunbar
Report at 11).
Dr. Dunbar next examined Local 3's dominance over the supply of
electricians to large commercial projects within its jurisdiction. After
reviewing evidence from several sources, including testimony of members
of the JIB, testimony of a member of the IBEW, and court transcripts from
cases dealing with Local 3 over the past 60 years, Dr. Dunbar concluded
that "electrical contractors who are bidding on electrical installation
jobs in the New York metropolitan area employ only Local 3 electricians."
(Dunbar Report at 11-14).
2. Distinct Markets
Dr. Dunbar next examined the market for telecommunication installation
services and the market for electrical installation services to determine
whether there were strong economic reasons for providing the two services
together. He concluded that the two markets are "historically separate,"
that "the jobs are bid separately and often the contractors are two
independent companies," and that there are "no obvious economies to
having electrical and telecom installation provided by the same
contractor." (Dunbar Report at 14). In analyzing the size of the
telecommunications installation market, Dr. Dunbar relied heavily on a
consulting report for Information Transport Systems ("ITS"), a New York
telecommunications contractor. (Dunbar Report at 15). The report
estimated that the size of the New York metropolitan market was between
$300 million and $500 million annually. (Dunbar Report at 15).
Dr. Dunbar identified several reasons why the provision of
telecommunications installation is separate from electrical installation.
First, telecommunications installation requires specialized training
different from the training needed to perform electrical installation.
(Dunbar Report at 17). Based on a survey conducted by the IBEW and the
National Electrical Contractors Association ("NECA"), the IBEW concluded
that in Local 3, the percentage of the union's journeymen who can perform
telecommunications installation work is about 38%, with just over half of
those actually having the certification to do so. (Dunbar Report at 17).
Relying on this same survey, Dr. Dunbar pointed out that when asked
whether their region could support a separate telecommunications unit
within their local area and whether such a unit would require separate
classifications, training programs and agreements, over 80% of local
unions responded that their area could support a separate unit, and over
90% responded that such a unit would require a distinct structure.
(Dunbar Report at 18).
Next, Dr. Dunbar pointed to the separate bidding processes for
telecommunications and electrical installation supporting his
determination that the two markets are distinct. Dr. Dunbar
discussed the way that "bid leveling" sheets are prepared by
consultants hired to review bids submitted by various parties. Separate
bid leveling sheets are prepared for the electrical and
telecommunications segments of each project. (Dunbar Report at 21). Dr.
Dunbar identified several examples, including the renovations on the
Doubletree Hotel in New York City and the construction project for the
National Football League's offices. (Dunbar Report at 21-22).
Finally, Dr. Dunbar attempted to show that "[t]he defendants, and
industry participants in general, view electrical and telecommunications
installation as separate markets." (Dunbar Report at 23). He examined the
2002 Strategic Marketing Plan" of ITS and defendant IPC Communications,
Inc., as well as the depositions of various parties and non-parties, to
demonstrate what he found to be a generally-held belief that the markets
are distinct. (Dunbar Report at 23-24).
3. Anticompetitive Conduct
Dr. Dunbar next examined whether there was "parallel behavior, motive
and opportunity, the ability to communicate, and behavior that was
inconsistent with independent action in a competitive market" in order to
determine whether there was anticompetitive conduct by the defendants.
(Dunbar Decl., ¶ 25; Dunbar Report at 25-35). He asserted that this
methodology is widely accepted by economists and that "[p]laintiffs often
point to parallel business
behavior, such as stable, noncompetitive pricing, and add it to
evidence that implies the existence of an explicit agreement. Thus,
plaintiffs search for so-called plus factors i.e., other factors
and circumstances that supplement evidence of parallel behavior
to support an inference of conspiracy." (Dunbar Decl., ¶ 25). He
concluded that "Local 3, in concert with defendant electrical
contractors, engaged in anticompetitive conduct to injure competition in
the telecommunications installation services market." (Dunbar Report at
25). Dr. Dunbar claimed that "the predictions of market equilibrium when
suppliers would be competing independently on the merits are quite
different from the outcomes that are observed in this market." (Dunbar
Decl., ¶ 29). According to Dr. Dunbar, this imbalance in market
equilibrium leads to the situation where "the union needs the contractors
to leverage its monopoly into telecommunications; and the contractors
employ the reputation effect of being able to control delays and
vandalism in order to compete with lower priced, equally or
better qualified CWA contractors." (Dunbar Decl., ¶ 29).
Dr. Dunbar reached his conclusions by examining several factors: (1)
lack of demarcation between Local 3 and the electrical contractors, (2)
communication by defendant electrical contractors of Local 3's threats of
possible vandalism and unwillingness to work overtime, (3) the failure to
discipline workers who refused to work, (4) the incentive of defendant
electrical contractors that rely on
Local 3 labor to act in concert with Local 3 to reduce competition
from lower priced bidders that use CWA labor, and (5) the benefits that
would come to the defendant electrical contractors based on this scheme.
(Dunbar Report at 25-29). Dr. Dunbar identified several instances where
the plaintiffs' telecommunications installation work was vandalized. He
pointed to deposition testimony from various sources claiming that
members of Local 3 committed these acts of vandalism. (Dunbar Report at
29-32). He also described instances when the defendants "agreed not to
work overtime on projects where the plaintiffs (or other firms that did
not use Local 3 labor) obtained the telecommunications installation
services contract." (Dunbar Report at 32-35 & Attachment 4).
4. Iniury to Competition
After looking at the conduct described above, Dr. Dunbar concluded that
it constituted "an attempt by the union and co-defendants to expand into
a distinct market." (Dunbar Report at 35). He opined that "[i]f such an
expansion was from competition on the merits, then we would expect lower
prices and/or improved service quality. . . . Local 3 intends to extend
its monopoly power from electrical installation into telecommunications
installation with the result being higher prices and no service
improvement." (Dunbar Report at 35). Dr. Dunbar asserted that "[a]ll of
the elements necessary to establish a monopoly leveraging claim
are present here. The practices permitted the defendants to gain a
competitive advantage over the plaintiffs in the telecommunications
installation services market, causing injury to both the plaintiffs (in
the form of lost profits and business) and to consumers generally (in the
form of higher prices)." (Dunbar Report at 35).*fn3
Dr. Dunbar addressed a common criticism of the monopoly leveraging
argument: that "there is only one monopoly profit, which implies that the
monopolist gains nothing by seeking to leverage its monopoly into another
market;" the monopolist would instead "charge the monopoly price in its
primary market and garner its monopoly profits there." (Dunbar Report at
36). Dr. Dunbar disputed the relevance of that argument to the facts at
hand for several reasons. First, because individual members of the union
get compensation only if they actually work, the union cannot simply
increase the union wage and reduce the total number of hours worked, as
that would deny some members of the union any benefit:
[T]he nature of the union implies that it can
extract some, but not all, of the monopoly profits
available in its primary market, the market for
electrical installation services. Consequently, it
would benefit by increasing the number of hours
worked in markets other than the electrical
installation services market, such as the
telecommunications installation market. Given that
the defendants charge higher prices than other
parties that supply telecommunications
installation services, they could either lower the
prices that they charge in
that market (a competitively acceptable
practice) or take steps to leverage their monopoly
power in the electrical installation market into
the telecommunications installation market (a
competitively harmful practice).
(Dunbar Report at 36).
Dr. Dunbar also asserted that, because craft trades other than
electrical installation contractors are also present at the construction
site, the defendant contractors would have an incentive to extend their
monopoly into other trades in order to avoid sharing profits. (Dunbar
Report at 36-37). According to Dr. Dunbar, as a result of such
incentives, "the defendants repeatedly took steps to dissuade the
customers of telecommunications installation services . . . from
utilizing the services of the plaintiffs for reasons not related to
competition on the merits but rather to achieve anticompetitive ends."
(Dunbar Report at 37). Additionally, Dr. Dunbar claimed that there is
"considerable evidence that the defendants charged significantly more for
telecommunications installation services than did the plaintiffs."
(Dunbar Report at 38). To make this determination, he "analyzed the
bidding and bid leveling data" which purportedly shows that "bids
submitted by Local 3 contractors for telecommunication installation
services are 46% higher than those submitted by CWA contractors." (Dunbar
Decl., ¶ 34; Dunbar Report, Exhs. V-l, V-2, V-3). Based on the data,
he also contended that "for those instances in which a CWA contractor was
the low bid, but the contract was awarded to a Local 3 contractor, the
customer paid on average 36% more than the low bid." (Dunbar
Decl., ¶ 34).
Because of what he identified as "anticompetitive leveraging," Dr.
Dunbar asserted that "Local 3 contractors have managed to coerce
consumers into hiring them at higher prices." (Dunbar Report at 40-41).
Out of 24 bids for which he had data on the winning bidder, he found that
a CWA contractor was chosen only three times and that a Local 3
contractor was chosen 20 times (and in one case the union affiliation was
unknown). (Dunbar Report at 41). This, according to Dr. Dunbar,
demonstrates that "Local 3 contractors are at or close to market
dominance" and that the practices at issue "pose a very real risk of
producing a market where the only firms supplying telecommunications
installation services are firms that use Local 3 workers. (Dunbar Report
After reaching the conclusion the plaintiff USIS has been injured by
the anticompetitive practices of the defendants, Dr. Dunbar addressed the
issue of damages. (Dunbar Report at 41-45). First, he identified the
various sources of damages as follows: (1) occasions where USIS won the
competition to provide telecommunications installation services, but
subsequently lost the contract to a Local 3 contractor; (2) projects
where USIS was not awarded a project even though it was the lowest
bidder, with the project ultimately going to Local 3; (3) the loss of
follow-up maintenance work on contracts USIS was not awarded; (4) costs
incurred by USIS due to vandalism committed on projects where USIS
was providing the telecommunications installation services; (5)
additional marketing, sales, and supervisory costs to "counter the impact
on prospective customers and their advisors from the anticompetitive
conduct of the defendants;" and (6) occasions where the plaintiffs were
denied the opportunity to bid for projects given the customers'
expectation that choosing a CWA contractor would result in vandalism and
increased costs. (Dunbar Report at 41-42).
After identifying these sources, Dr. Dunbar estimated a range of
damages using two approaches. The first model was based on parameters
provided by USIS, while the second was based on statistical parameters.
(Dunbar Report at 42).
Under the first approach, USIS identified 60 instances where it was the
low bidder on a particular project but was not awarded the business, and
five projects for which it won the bid but was subsequently removed.
(Dunbar Report at 43). USIS's damages are the lost profits on these 65
projects, which Dr. Dunbar approximated to be $19.6 million. (Dunbar
Report at 43 & Exh. VI-1). To this he added damages based on an
estimate of associated maintenance work. Using a consulting report from
the Building Services Research and Information Association ("BSRIA"), Dr.
Dunbar estimated that maintenance work accounts for 25% of all cabling
revenue. (Dunbar Report at 43). The lost revenue from this category of
therefore 25%*fn4 of the damages resulting directly from lost
bids. (Dunbar Report at 43). Next, Dr. Dunbar simply added the costs
incurred by USIS in repairing damage attributed to vandalism by Local 3
employees, a figure estimated by USIS to be $169,000. (Supplementary
Responses of Plaintiff U.S. Information Systems, Inc. to Defendants'
Interrogatories dated July 22, 2002 ("Pl. Supp. Resp."), attached as Exh.
11 to Eilender Decl., at 3). Finally, USIS estimated its costs of
counteracting anticompetitive behavior to be $750,000. (Pl. Supp. Resp.
at 3). This provides a total of approximately $25.4 million in damages.
(Dunbar Report at 44).
Under the second approach, Dr. Dunbar used the same basic framework as
the first method, but he substituted "different values for increased
revenues from change orders and gross profits." (Dunbar Report at 44).
His analysis of change orders demonstrated that "on average they amounted
to 15.6% of the originally awarded amount." (Dunbar Report at 44).
The lost profit per dollar of revenue is estimated
based on statistical cost estimation. The USIS
financials divide almost all costs into two
categories: cost of goods sold and SG&A
(selling, general and administrative). Cost of
goods sold is a variable cost but SG&A is
generally considered to be a fixed cost in the
short run. Over the long run, however, part of
SG&A can increase with the scale of the
enterprise. The variable portion of SG&A can
be estimated using linear regression analysis.
(Dunbar Report at 44). In Exhibit VI-3 to his report, Dr. Dunbar
utilized regression analysis to determine the portions of cost of goods
sold and of SG&A that vary with revenues. The coefficients on
revenues were interpreted to represent the amount of each dollar of
revenue that goes to costs. (Dunbar Report at 44). Dr. Dunbar explained
this statistical analysis of USIS's financial data as follows:
[F]or every dollar received in revenue, $.70 is
spent on costs of goods sold. Similarly, for every
dollar received on revenue (over a period longer
than the short run), $.12 goes to increased
SG&A. In the case of USIS, however, part of
SG&A is actually profits because it includes
the compensation to the principals. The third
regression in Exhibit VI-3 shows that for every
dollar of revenue, $.06 is paid to the principals
in compensation. Consequently, the lost profits
from a dollar of lost revenue would be
$.24 (=$1 ($.70 $.12 $.06)).
(Dunbar Report at 44). According to Dr. Dunbar, the estimate of damages
from this approach is $14.7 million. (Dunbar Report at 44).
Dr. Dunbar noted several issues that arise in calculating damages with
respect to the final category, the occasions where the plaintiffs were
denied an opportunity to bid. At the time his report was prepared, USIS
had identified 19 projects which it claimed it had been improperly denied
the opportunity to bid on, allegedly due to anticompetitive acts. Dr.
Dunbar was able to ascertain the winning bid on only seven projects from
the bid leveling documents; there were no data available on the other
twelve. (Dunbar Report at 45). Dr. Dunbar also contended that there is
"uncertainty about the rate at which USIS would have won
the competitive bids if defendants had allowed a fair auction
process." (Dunbar Report at 45). Although USIS was often the low bidder
for the projects, there is "some possibility, however, that other CWA
bidders would have also submitted bids in the same range as USIS creating
competition for the winning bid." (Dunbar Report at 45). He therefore
concluded that "[e]stimation of the damages from the final category is
less clear-cut, but quantifiable if more data become available." (Dunbar
Report at 45).
Dr. Dunbar revised several of his damages estimates in his rebuttal
report in response to the report of Stephen W. Shulman, CPA, the
defendants' damages expert. (Rebuttal Report of Frederick C. Dunbar,
dated Dec. 17, 2002 ("Dunbar Reb. Report") at 25-26; Shulman Report at
12-19). Mr. Shulman provided a different damages estimate based on USIS's
lost profits on projects it was unable to win because of the defendants'
conduct. Taking into account certain items in Mr. Shulman's report, Dr.
Dunbar re-estimated USIS's damages using a similar approach as was
outlined in his first report, but with revised data. (Dunbar Reb. Report
at 25). He performed a regression to "estimate the effect of changes in
revenue on changes in direct, indirect and variable SG&A costs."
(Dunbar Reb. Report at 25 & Exh. D3). He also conducted a regression
analysis to "estimate the effect of changes in revenue on officers'
compensation." (Dunbar Reb. Report at 25 & Exh. D3). Additionally, he
revised the damage estimate downward based on the finding that
the low bidder on a project would win the contract only 66.7
percent of the time, while second lowest bidder would win 25.9 percent of
the time, the third lowest bidder 3.7 percent, and the fourth lowest
bidder also 3.7 percent. (Dunbar Reb. Report at 25 & Exh. D4; Dunbar
Decl., ¶ 47 & n.32). Finally, Dr. Dunbar examined the damages
USIS incurred due to projects where it was excluded from the bidding
A witness qualified as an expert will be permitted to testify if his or
her testimony "will assist the trier of fact to understand the evidence
or to determine a fact in issue." United States v. Lumpkin,
192 F.3d 280, 289 (2d Cir. 1999) (quoting Fed.R.Evid. 702). To be
admissible, expert testimony must be both relevant and reliable.
Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 589
(1993). The proponent of expert testimony must establish its
admissibility by a preponderance of the evidence. See
Bourjaily v. United States, 483 U.S. 171, 175-76 (1987);
Astra Aktiebolag v. Andrx Pharmaceuticals, Inc., 222 F. Supp.2d 423,
487 (S.D.N.Y. 2002) (citing Fed.R.Evid. 104(a)).
In Daubert, the United States Supreme Court confirmed that
the trial court should be a gatekeeper, preventing the jury from being
overwhelmed by unsupportable speculation cloaked as "expertise."
Id. at 596. In Kumho Tire Co. v. Carmi chael,
526 U.S. 137, 141 (1999), the Court elaborated, stating that
holding setting forth the trial judge's general
`gatekeeping' obligation applies not only to testimony based on
`scientific' knowledge, but also to testimony based on `technical' and
`other specialized' knowledge." In construing Daubert, the
Second Circuit has emphasized the discretion of the trial court:
First, . . . Daubert reinforces the idea
that there should be a presumption of
admissibility of evidence. Second, it emphasizes
the need for flexibility in assessing whether
evidence is admissible. Rather than using rigid
"safeguards" for determining whether testimony
should be admitted, the Court's approach is to
permit the trial judge to weigh the various
considerations pertinent to the issue in question.
Third, Daubert allows for the
admissibility of scientific evidence, even if not
generally accepted in the relevant scientific
community, provided its reliability has
independent support. Finally, the Court expressed
its faith in the power of the adversary system to
test "shaky but admissible" evidence, and advanced
a bias in favor of admitting evidence short of
that solidly and indisputably proven to be
Borawick v. Shay, 68 F.3d 597, 610 (2d Cir. 1995) (citation
omitted). In response to the Court's opinion in Daubert and
decisions that followed, Rule 702 of the Federal Rules of Evidence was
amended and now provides:
If scientific, technical, or other specialized
knowledge will assist the trier of fact to
understand the evidence or to determine a fact in
issue, a witness qualified as an expert by
knowledge, skill, experience, training, or
education, may testify thereto in the form of an
opinion or otherwise if (1) the testimony is based
upon sufficient facts or data, (2) the testimony
is the product of reliable principles and methods,
and (3) the witness has applied the principles and
to the facts of the case.*fn5
The Advisory Committee Notes to the 2000 Amendments to Rule 702 declare
that rejection of expert testimony is "the exception rather than the
As a threshold matter, it must be determined whether Dr. Dunbar's
testimony is relevant to the issues involved in the litigation. Expert
testimony is not relevant if the expert is offering a personal evaluation
of the testimony and credibility of others or of the motivations of the
parties. See United States v. Duncan, 42 F.3d 97, 101
(2d Cir. 1994)("When an expert undertakes to tell the jury what result to
reach, this does not aid the jury in making a decision, but
rather attempts to substitute the expert's judgment for the jury's.");
United States v. Scop, 846 F.2d 135, 142 (2d Cir. 1988),
rev'd in part on reh'g, 856 F.2d 5 (2d Cir. 1988). An expert's
testimony must be helpful; it must "fit" with the issues to be resolved
in the case. "Rule 702's `helpfulness' standard requires a valid
scientific connection to the pertinent inquiry as a precondition to
admissibility." Daubert, 509 U.S. at 591-92.
The defendants do not appear to dispute the relevance of Dr.
Dunbar's testimony. His report certainly corresponds to the issues
raised in the case and can be useful to the plaintiffs in making out
their antitrust claims. Thus, there is no reason to exclude Dr. Dunbar's
testimony on grounds of relevance.
It must next be determined whether Dr. Dunbar's testimony is reliable,
that is, whether it is more than "subjective belief or unsupported
speculation." Daubert, 509 U.S. at 590. An expert's testimony
is admissible under Rule 702 as long as the processes or techniques that
he used to formulate his opinions are reliable. Danbert, 509
U.S. at 594-95. Here, the defendants claim that Dr. Dunbar's testimony is
unreliable based on his methods and the data to which he applies them.
(Revised Memorandum of Law in Support of Defendants' Motion to Exclude
the Testimony of Plaintiffs' Proposed Expert, Dr. Frederick C. Dunbar
("Def. Memo.") at 1). Although most of their arguments fail, the
defendants are correct that Dr. Dunbar's opinion must be excluded insofar
as it is predicated on an unreliable data sample.
As an initial matter, there is no basis in the record to challenge the
qualifications of Dr. Dunbar. Dr. Dunbar is qualified as an expert
witness in the field of economics and antitrust law given his extensive
credentials, including his education, experience and general knowledge of
the subject matter. See McCullock v. H.B.
Fuller Co., 61 F.3d 1038, 1043 (2d Cir. 1995) (allowing
expert testimony and finding that defendant's "quibble" with the expert's
qualifications was "properly explored on cross-examination").
The defendants claim that Dr. Dunbar's testimony should be excluded
since "the methodology he used to support his opinions is so deeply
flawed that the opinions themselves are unreliable." (Reply Memorandum in
Support of Defendants' Motion. ("Def. Reply Memo.") at 1). "In assessing
the reliability of a proffered expert's testimony, a district court's
inquiry under Daubert must focus, not on the substance of the
expert's conclusions, but on whether those conclusions were generated by
a reliable methodology." Trouble v. Wet Seal, Inc.,
179 F. Supp.2d 291, 301 (S.D.N.Y. 2001); see also Daubert,
509 U.S. at 595. In Daubert, the Supreme Court set out a list
of non exclusive factors that a trial court may consider in
determining whether an expert's reasoning or methodology is reliable: (1)
whether the theory or technique on which the expert relies has been
tested that is, whether the expert's technique can be challenged
in some objective sense, or whether it is instead simply a subjective,
conclusory approach that cannot reasonably be assessed for reliability;
(2) whether the theory or technique has been subjected to peer review and
publication; (3) the known or potential rate of error of the technique or
theory when applied; (4) the existence and maintenance of standards
technique's operation; and (5) whether the theory or method has
been generally accepted by the relevant scientific community.
See Daubert, 509 U.S. at 593-94. This list was meant
to be "helpful, not definitive," and a trial court has latitude in
determining whether an expert's testimony is reliable. Kumho
Tire, 526 U.S. at 151.
The defendants offer several objections to Dr. Dunbar's methodology.
a. Unscientific Testimony
The defendants allege that:
[Dr.] Dunbar did not use regression analysis or
any other econometric technique in reaching his
conclusions on liability. The only `quantitative
analysis' he performed . . . is a straightforward
arithmetic demonstration that bids which include
Local 3 labor are, in general, higher than bids
which include CWA labor not surprising,
given that CWA wages are about half as much as
Local 3 wages.
(Def. Reply Memo, at 4). In responding to the defendants' contention
that his testimony is unscientific, Dr. Dunbar claims that his
methodology consisted of (1) statistical analysis of quantitative data
and (2) application of economic theory to facts. (Dunbar Decl., ¶ 6).
He goes on to detail the respects in which he conducted a statistical
analysis and those in which he utilized economic theory.
Dr. Dunbar states that he performed a statistical analysis of bid
prices and bid leveling data to "test plaintiff's market power
hypothesis." (Dunbar Decl., ¶ 11; Dunbar Report, Exhs. V-l, V-2,
V-3). In order to evaluate his hypothesis, Dr. Dunbar and
plaintiffs' counsel sent out over 100 discovery requests to non-parties,
including building owners and consultants. These requests yielded bid
leveling documents related to 75 separate projects spanning the
time period from 1996 to 2002. (Dunbar Decl., ¶ 39). With these data,
Dr. Dunbar conducted three separate analyses, the results of which are
attached as Exhibits V-l, V-2, and V-3 to his original report. Exhibit
V-l lists all of the jobs among the 75 projects where a single firm
submitted dual bids for the same project one using Local 3
employees and the other using CWA employees. (Dunbar Report at 39). Dr.
Dunbar found that in each case the Local 3 bid was higher by a simple
average difference of 44% and a weighted average difference of 50%.
(Dunbar Report, Exh. V-l). Exhibit V-2 compares the average bid prices of
separate Local 3 and CWA contractors for the same jobs. There were 44
identified jobs, and for 43 of those, the average bid price for Local 3
contractors was higher than the average bid price of CWA contractors.
Exhibit V-2 shows the difference between the bids for each job both in
terms of a dollar amount and as a percentage. Dr. Dunbar concluded that
"[o]verall, the data show that the prices bid by Local 3 installers are
41 percent higher than those bid by CWA installers." (Dunbar Report at
40). Finally, Exhibit V-3 identifies 11 jobs where Local 3 was awarded a
contract even though a CWA contractor (USIS in all instances but one)
lowest bid. Again, this exhibit shows the difference in both actual
dollars and a percentage. Dr. Dunbar determined that the simple average
differential between the bids was 36% and the weighted average
differential was 22%. He asserts that the exhibits "show with virtual
statistical certainty that defendant contractors have the ability
profitably to maintain prices above competitive levels." (Dunbar Decl.,
¶ 11). Dr. Dunbar states that these data show that "for those
instances in which a CWA contractor was the low bid, but the contract was
awarded to a Local 3 contractor, the customer paid on average 36% more
than the low bid (22% more on a dollar weighted average)." (Dunbar Decl.,
¶ 34). From these data, Dr. Dunbar concluded that "[o]n average
telecommunications contractors employing Local 3 labor had significantly
higher bids than telecommunication contractors employing CWA labor" and
that "using Local 3 labor versus CWA labor causes substantial increase in
prices." (Dunbar Report at 39-40). He found this differential to be
statistically significant. (Plaintiffs' Response to the Court's
Memorandum and Order dated Sept. 29, 2003 Re Daubert Hearing ("P1.
Daubert Resp.") at 4; Transcript of Daubert Hearing dated Dec. 5, 2003
("Daubert Tr.") at 24, 26-28).
Contrary to the defendants' assertion, the value of Dr. Dunbar's
analysis is not limited to the calculation of the bid differentials, but
also includes the inferences an economist would draw from the facts in
the record concerning the nature of the
market.*fn6 Dr. Dunbar went on to apply "textbook economic theory"
to this information, concluding from the facts in the record that the
economic indicators of market dominance in electrical installation,
market distinctions between electrical and telecommunications
installation, and anticompetitive conduct are present in this case.
(Dunbar Decl., ¶ 12). Whether this is an appropriate inference to be
drawn from the data is a question that is certainly open to dispute. The
defendants are fully able, however, to contest this inference both
through the testimony of their own expert witnesses, (e.g.,
Ashenfelter/Farber Report at 43-45) and through cross examination
of Dr. Dunbar.
The fact that the defendants' experts would draw contrary inferences
from the same data does not render either expert's testimony
inadmissible, nor does it speak to the reliability of the methodology.
"When a trial court . . . rules that an expert's testimony is reliable,
this does not necessarily mean that contradictory expert testimony is
unreliable." In re Blech Securities Litigation, No. 94 Civ.
7696, 2003 WL 1610775, at *20
(S.D.N.Y. March 26, 2003) (quoting Fed.R.Evid. 702, Advisory
Committee Notes to 2000 Amendments); see In re Rationis
Enterprises, Inc. of Panama, No. 97 Civ. 9052, 2003 WL 203210, at *2
(S.D.N.Y. Jan. 20, 2003)(refusing to exclude plaintiffs' expert testimony
merely because defendants' expert reached different conclusions). There
is no single, established methodology for determining whether the
relevant market reflects evidence of anticompetitive behavior, and Dr.
Dunbar's report has a "traceable, analytical basis in objective fact."
Primavera Familienstifung v. Askin, 130 F. Supp.2d 450, 522
(S.D.N.Y. 2001) (quoting Bracrdon v. Abbott, 524 U.S. 624, 653
(1998)), amended in part on reconsideration, 137 F. Supp.2d 438
(S.D.N.Y. 2001). The statistical analysis that Dr. Dunbar conducted
may not be as complex as the multiple regression analysis utilized in
cases cited by the defendants, see, e.g., Petruzzi's IGA
Supermarkets, Inc. v. Darling-Delaware Co., 998 F.2d 1224, 1238, (3d
Cir. 1993), but the value of Dr. Dunbar's testimony is found largely in
his interpretation of the data.
b. Flawed Market Share Analysis
The defendants also challenge Dr. Dunbar's methodology in analyzing
market share. (Def. Memo. at 6). In his rebuttal report, Dr. Dunbar
alludes to Exhibit 5 of the report by Professors Ashenfelter/Farber, the
defendants' expert witnesses. He states that:
As can be seen in Exhibit 5 to the report of
Professors Ashenfelter and Farber, market shares
relatively stable over the five years of
data that are provided. If firms were competing
aggressively for multimillion dollar contracts, it
would not be surprising to see large swings in
market share, because the contractors can, in
effect, rent labor through the hiring hall. This
flexibility allows labor to move relatively easily
from one firm to another making large swings in
market share possible. The stability of market
shares in electrical contracting is consistent
with noncompetitive explanations.
(Dunbar Reb. Report at 20). The defendants' experts contend that
contrary to this conclusion, the "market shares of Local 3 contractors
have shown considerable variability." (Rubuttal Report of Orley C.
Ashenfelter and Henry S. Farber dated Jan. 17, 2003 ("Ashenfelter/Farber
Reb. Report") at 2). Referencing economic literature on the issue by
Kenneth G. Elzinga and Neil H. Jacoby, Professors Ashenfelter and Farber
stated in their report that:
[S]table market shares may provide some indication
that an industry has been cartelized or that it
may behave in some other anticompetitive way.
Although no firm benchmark exists, in his multi
industry study Jacoby finds that a
coefficient of variation of 7% to 15% appears
normal. Elzinga uses Jacoby's results as a norm
for industries where there is no anticompetitive
behavior. He also analyzes industries where there
was known cartelization and shows that the
coefficient of variation of market shares was
below the range identified by Jacoby in these
industries. . . . [T]he coefficient of variation
in the share of total wages (wage shares) for
firms that employ Local 3 labor . . . vary from
6.3% to 39.2% . . . and only one coefficient out
of nine . . . falls below 7%. The average
coefficient is 19.7% . . . [which does] not
support Dr. Dunbar's conclusion that these data
are "consistent with noncompetitive explanations."
(Ashenfelter/Farber Reb. Report at 2-3). The defendants claim that
because Dr. Dunbar's analysis did not consider the "Jacoby/Elzinga
Theory," he "did not take into account the standard economic
theory," thus revealing a flaw in his methodology. (Def. Memo, at
Dr. Dunbar responded to this claim, stating:
The industries studied by Dr. Jacoby are
relatively concentrated. Consequently, the largest
firms collectively account for relatively high
shares. It can be seen that the co-defendants and
co-conspirators in the electrical contracting
market in Local 3's jurisdiction have a collective
share that is less than that of the largest firms
in Dr. Jacoby's sample of industries, yet their
share stability is about the same. When we include
the firms included in Exhibit 5 of the
[Ahenfelter/Farber Report], the industry share is
closer to those in the Jacoby study and the
coefficient of variation is much less. Moreover,
as I explained in my report, economists would
expect the stability of shares to depend on the
characteristics of the industry. Electrical
contracting would be an industry in which one
would expect shares to fluctuate dramatically.
(Dunbar Decl., ¶¶ 31, 32). Thus, Dr. Dunbar has not ignored the
studies by Drs. Jacoby and Elzinga. Rather, he acknowledges these studies
and describes how their work actually supports his conclusions. This is
therefore not a flaw in Dr. Dunbar's methodology. To the extent that the
defendants disagree with the conclusions Dr. Dunbar reaches, their
experts can testify about the contrary interpretation, and they can
challenge Dr. Dunbar's conclusions on cross-examination.
c. Data Sample
The next, and ultimately most compelling, objection the defendants make
to Dr. Dunbar's methodology is that his report was based on a "skewed
data set." (Def. Memo, at 7). The defendants claim that the data sample
is unreliable based both on the sample size and how the sample was
In order to generate data for Dr. Dunbar to use, the plaintiffs
compiled a list of many different entities that would be likely to have
records with information on projects bid with CWA labor during the
relevant time period. These sources included information technology
consultants, customers believed to have been involved in projects of this
type, general contractors with experience in the field, building owners,
electrical and telecommunications contractors, and various federal and
state agencies. (Declaration of Richard A. Cirillo dated Dec. 22, 2003
("Cirillo Decl."), ¶ 2). The plaintiffs wanted to obtain the
"broadest available range of information bearing on the defendants'
efforts (1) to exclude the plaintiffs from being allowed to bid on
telecommunications installation projects, (2) to prevent projects from
being awarded to the plaintiffs, (3) to cause projects awarded to the
plaintiffs to be reassigned to Local 3 affiliated contractors, and (4) to
raise the plaintiffs' costs, thereby making them less competitive and
depriving them of profits." (Cirillo Decl., ¶ 1).
Initially, the plaintiffs claim they sought "unlimited
discovery," while the defendants attempted to circumscribe the
scope of discovery to "a limited number of particular projects, arguing
that discovery should be permitted only as to a few projects or only to
the projects listed in the complaint." (Cirillo Decl., ¶¶ 4-5). Judge
Berman ultimately permitted only limited discovery, and accordingly,
discovery requests were initially sent to 75 entities. (Cirillo Decl.,
¶¶ 4-5). The responses from these requests were of little use to the
plaintiffs. "The responses from the approximately 75 initial subpoena
recipients ranged from a denial that they had any documents at all or a
refusal to cooperate, to expressed concern that responding to the
subpoenas would result in retaliation from the defendants against the
responding entity." (Cirillo Decl., ¶ 5).
Following this disappointing response, the plaintiffs prepared a second
set of subpoenas to serve on additional entities. In contrast to the
first set of discovery requests, the subsequent subpoenas "were more
focused on the particular projects to which, at the defendants'
insistence, the plaintiffs' damages (but not equitable relief) claims
were to relate in this lawsuit." (Cirillo Decl., ¶ 7). This second
set of subpoenas was sent out in two waves. While information about the
same projects was sought in both waves, the subpoenas were sent to
different entities. (Cirillo Decl., Exhs. C, D, E, F). The responses the
plaintiffs received from both sets of subpoenas were made available to
Dr. Dunbar and
his staff. It is on this information that Dr. Dunbar based his
report. (Cirillo Decl., ¶ 8). Dr. Dunbar separated the information he
received from the plaintiffs into two different categories. The first was
comprised of information provided by USIS relating to all bids that it
submitted during the relevant period, whether won or lost, including the
dollar value of each bid. This category had no information about
competing bids for a project; it consisted only of information about
USIS's own bids and whether it won or lost the project. (Dunbar Decl., 1
39). The second category contained "hard copies of bid-leveling documents
that IT consultants and other customers produced during discovery."
(Dunbar Decl., ¶ 39).
(i) Sample Size
The defendants claim that Dr. Dunbar based his opinion on only 60 to 90
of the thousands of telecommunications installation jobs that USIS bid
during the relevant time period. (Def. Memo. at 7).*fn8 Accordingly, the
defendants allege that Dr. Dunbar was working with an insufficiently
representative data sample. According to the defendants, this caused "at
least two manifestly flawed and unreliable analyses, and therefore flawed
conclusions." (Def. Memo, at 7). First, by ignoring the "thousands of
projects that USIS and
other CWA contractors won," he miscalculated the probability that
the defendants would monopolize the telecommunications industry. (Def.
Memo, at 8). Second, he relied on the same insufficient sample in
concluding that there were anticompetitive effects on the market. (Def.
Memo, at 8).
As long as a sample is representative that is, it was not
selected in a biased manner sample size will not skew the results
of the analysis. It will have an effect on whether the results are
significant, i.e., whether the analyst can be confident that a perceived
difference is due to the factor being studied rather than to chance. Put
another way, "[d]iscerning subtle differences in the population requires
large samples; even so, small samples may detect truly substantial
differences." Federal Judicial Center, Reference Manual on
Scientific Evidence 126 (2d ed. 2000). Whether the results are
significant can be tested, as Dr. Dunbar did here, using measures such as
the t-statistic. Id. at 175; (Daubert Tr. at 22-25).
Accordingly, small sample size goes to the weight rather than to the
reliability (and admissibility) of a study. See
McCullock, 61 F.3d at 1044 (faults in use of methodology go to
weight, not admissibility); Playtex Products, Inc. v. Procter &
Gamble Co., No. 02 Civ. 8046, 2003 WL 21242769, at *2-3 (S.D.N.Y.
May 28, 2003) (errors in survey went to weight, not admissibility);
A &M Records, Inc. v. Napster Inc., No. C9905183MHP, 2000
WL 1170106, at *3-4 (N.D. Cal. Aug. 10, 2000) (error in identifying
target population did not affect admissibility of expert's
testimony). Thus, despite the potential effect the small sample size
could have on the persuasiveness of Dr. Dunbar's conclusions, his
testimony is not inadmissible solely based on sample size alone.
(ii) Sample Selection
The defendants also claim that the selection of the sample was biased.
(Def. Memo, at 7). They argue that the projects identified and used by
the plaintiffs are "a biased sample chosen by Plaintiffs precisely
because they were projects Plaintiffs lost a selection criterion
that assured an unrepresentative database from which to draw
conclusions." (Def. Reply Memo, at 7). The defendants fault Dr. Dunbar
for not basing "his conclusions on a random sample that would yield an
unbiased data set." (Def. Memo. at 7). Specifically, the defendants
assert that "75% of the subpoena recipients selected by Plaintiffs'
counsel were associated with projects named in the Complaint or on a list
of projects on which Plaintiffs alleged they were damaged" (the "Selected
Projects"), and that "50% of all subpoena recipients were asked only for
documents regarding those Selected Projects or some subset thereof."
(Letter from Kevin J. Toner dated Jan. 23, 2004 ("Toner Letter") at
Because the data sample was "chosen by Plaintiffs' lawyers and
biased toward projects where lead plaintiff [USIS] was known to have been
the lowest bidder but did not win the job," the defendants maintain that
the sample was "neither random nor representative." (Toner Letter at 2).
Most statistical analyses pertinent to judicial proceedings, and
certainly those dealing with economic and antitrust issues, are not based
on randomized controlled experiments. Rather they are observational
studies grounded in real world data. See Reference Manual
on Scientific Evidence, supra, at 94-95. Consequently,
they cannot be held to the same rigid standards of scientific precision.
Nevertheless, the reliability of any analysis depends upon an unbiased
selection of sample data. As Dr. Dunbar testified:
Basically, the necessary condition is that the
sample that you use or observe is not selected on
the basis of the variable at issue. The variable
at issue here is price. And as long as the
selection of the sample isn't really related to
price or a variable related to price in such a way
that it biases your results, then you can perform
a perfectly adequate hypothesis test or use that
for statistical inference.
(Daubert Tr. at 16). Yet, the plaintiffs are unable to establish that
the data set utilized by Dr. Dunbar was unbiased.
In the second set of subpoenas, the plaintiffs designated a list of 103
projects that were related specifically to their damages claims. (Cirillo
Decl., ¶ 7; Toner Letter at 3). While this was
done according to the desires of the defendants to limit discovery
and Judge Berman's resulting order, its effect was ultimately to taint
the resulting data sample. By allowing the projects listed in the
subpoena to be selected on the basis of the plaintiffs' damages claims,
the data sample would necessarily contain projects where the plaintiffs
believed they had either been unfairly kept out of the bidding process or
wrongfully denied the award. This is precisely a selection of data based
on price, since the unfairness that the plaintiffs suspected was that
their bid was materially lower than that of a contractor using Local 3
labor, but that they nevertheless lost the contract.
This selection process is closely analogous to that which proved fatal
to the proposed expert evidence in Rowe Entertainment, Inc. v.
William Morris Agency, Inc., No. 98 Civ. 8272, 2003 WL 22124991, at
*3 (S.D.N.Y. Sept. 15, 2003). There, the expert concluded that black
concert promoters were underutilized by the defendant booking agencies
due to race discrimination. The expert based his study on a sample of
1,561 contracts. Of those contracts, however, 1,214 were selected by
plaintiffs and plaintiffs' counsel out of a possible 100,000 which were
produced by the defendant agencies. The expert in Rowe argued
that since the plaintiffs were "unaware of how he would conduct his
analysis when they selected the contracts, they would not know how to
create a biased group of contracts." Id. at *2. However, the
plaintiffs' counsel testified
that, at least in part, the contracts had been selected because
they involved specific artists named in the Amended Complaint.
Id. at *3. The court found that since the contracts were
selected on this basis, the sample the expert received was neither
"random nor representative." Id. "Instead, the sample would,
perforce, be biased or weighted towards the concert contracts for those
artists whose business Plaintiffs wanted but did not get." Id.
Because over three-quarters of the expert's sample would not be
representative, the court held that the entire sample was
The analysis here was similarly flawed. Although Dr. Dunbar did not
make a selection among the data made available to him, those data were
already a sample of the universe of telecommunications projects chosen by
means of the discovery process. And, as discussed above, that process was
systematically biased to select projects with the very price differential
that Dr. Dunbar's analysis was designed to test for.
On February 18, 2004, plaintiffs' counsel submitted an unsolicited
letter presenting further arguments in support of their position. (Letter
of Maxwell M. Blecher dated Feb. 18, 2004 ("Blecher Letter)). Since
briefing on the Daubert motion had long since been closed, this
submission was untimely. Nevertheless, because of the importance of Dr.
Dunbar's testimony to the outcome of this case, I have considered the
arguments. Most compelling is Dr. Dunbar's contention that while
the data selection process necessarily chose projects in which the bid
price for the contractor using Local 3 labor was lower than that for the
contractor employing CWA members, there is no evidence that the sample
would be unrepresentative with respect to the price
[N]obody involved in the process of selecting the
subpoenas attempted to select projects for which
the USIS price was lower relative to a Local 3
bidder than was the case for projects not
selected. [Defendants' counsel's] argument that
the projects listed in the complaint (from which
many, but not all, of the bid leveling documents
derive) is based on the belief that USIS was the
low, but unsuccessful bidder is irrelevant; that
thought process does not result in selecting bid
leveling documents which enhanced the price
difference. As even defendants' experts attest, it
would be expected that any CWA subcontractor would
have a lower bid than any Local 3 subcontractor.
But there is no evidence that projects were
dropped from the sample selection process because
the difference in a Local 3 contractor price and a
CWA contractor price was closer than was the case
for those projects that were selected.
(Declaration of Frederick C. Dunbar dated Feb. 17, 2004, attached as
Exh. 1 to Blecher Letter, ¶ 8).
I am not persuaded. Even though, as Dr. Dunbar observes, Local 3
contractors will always have higher bids than CWA contractors, it can
certainly be inferred that the projects identified in the Complaint were
the most egregious examples and were likely to reflect a greater price
differential. As plaintiffs' counsel acknowledged, "we did start out with
the projects [where] we know there had been activity of the type that is
described in the
complaint[.]" (Daubert Tr. at 11). It is unrealistic simply to
assume that bid leveling documents chosen in this manner would have the
same average price differential as those for projects where the
plaintiffs had not felt so aggrieved.
Finally, Dr. Dunbar performed no analysis that might rebut the finding
of apparent bias. He did not, for example, compare the price differential
for projects identified in the first round of subpoenas, which apparently
were more representative, with those in the second round, which was
infected by the selection criteria. If the price differential between the
two groups were substantially the same, then an argument could be made
that the selection process had no impact on the fairness of the sample.
But no such sensitivity testing was conducted.
As the proponents of the expert, it is the plaintiffs' burden to
demonstrate the reliability of his data. Here, the plaintiffs have not
met that burden, and Dr. Dunbar's data sample therefore cannot provide
the basis for his testimony. Kumho Tire, 526 U.S. at 152.
d. Inconsistent Application of Methodology
The defendants also object to Dr. Dunbar's methodology by claiming that
he applied his own methodology inconsistently by "disregard[ing] his
stated methodology when it did not suit Plaintiffs' ends." (Def. Memo, at
9). They claim that Dr. Dunbar's opinions are "one sided
interpretations of the available data," and
as such are inadmissible under Rule 702. (Def. Reply Memo, at 5).
The defendants identify several examples of this alleged inconsistency.
First, they state that Dr. Dunbar "claimed to credit documentary evidence
over testimonial evidence," but did so only when "the `preferred'
evidence did not contradict the conclusion he wished to reach." (Def.
Memo, at 9). In support of this, they point to the section of Dr.
Dunbar's rebuttal report describing an incident where one of the
defendant contractor's alleged acts of vandalism helped it obtain a job
for McGraw-Hill that USIS had also sought. (Def. Memo, at 9; Dunbar Reb.
Report at 11). The defendants claim that Dr. Dunbar came to this
conclusion despite a letter from McGraw-Hill's Vice President of Real
Estate Services stating that McGraw-Hill had "no knowledge of any threats
or intimidation that were made against this Company or any one of its
contractors, and certainly none that had any influence on the bid
process." (Def. Memo, at 9). The defendants assert that Dr. Dunbar
instead relied on the deposition testimony of USIS principal John Lagana.
(Def. Memo, at 9; Dunbar Reb. Report at 11). In his deposition, Dr.
Dunbar explained his conclusion, stating that he gave the McGraw-Hill
letter "less credibility . . . than other evidence which reveals what
actually happened." (Deposition of Frederick C. Dunbar dated December 30,
2002, attached as Exh. 16 to Eilender Decl., at 55). In response, the
plaintiffs state that Dr. Dunbar "was not ignorant of [the McGraw-Hill
letter], but knew of
it and assessed its significance and limitations." (Plaintiffs'
Opposition to Defendants' Motion ("Pl. Memo.") at 19).
Although it is possible that Dr. Dunbar placed undue weight on the
deposition testimony over the McGraw-Hill letter, this in itself does not
necessitate the exclusion of his testimony. While an expert should
address evidence that contradicts his conclusions, "[i]t is not
required . . . that an expert categorically exclude each and every
possible alternative cause in order to render the proffered testimony
admissible." Astra Aktiebolag, 222 F. Supp.2d at 488. Dr.
Dunbar admits that "[o]ne of the purposes of my report is to explain to
the trier of fact the economic conclusions that would be contingent on
their findings regarding the conduct at issue." (Dunbar Decl., ¶ 43).
The finder of fact in this case will make determinations about what did
or did not occur. The defendants' objections to purported inconsistencies
in Dr. Dunbar's methodology go to the weight, not the admissibility of
his testimony. Zuchowicz v. United States, 140 F.3d 381, 386
(2d Cir. 1998) (citing McCullock, 61 F.3d at 1044).
e. Improper Reliance on Deposition Testimony
The defendants next urge the exclusion of Dr. Dunbar's testimony on the
ground that "[t]here was no economics or science to [Dr.] Dunbar's
analysis; he simply read parts of the record, then reached a verdict."
(Def. Memo, at 6). The defendants allege that Dr. Dunbar's testimony
would relate to "non-technical matters" that
the jury would be fully capable of understanding without his
testimony. (Def. Memo. at 6).
While the defendants are undoubtedly correct in their contention that
"[a]n expert must do more than sift through non-technical evidence and
tell the jury how to decide the case" (Def. Memo, at 5-6), Dr. Dunbar's
report could certainly aid the jurors by helping them understand the
basic economic principles of market power, the concept of distinct
markets, and other economic intricacies this case involves.
The defendants cite to Primavera, 130 F. Supp.2d at 529-30,
as support for the exclusion of expert testimony for failure to assist
the trier of fact. (Def. Memo, at 5-6). In Primavera, the
defendants sought to exclude the testimony of three experts. The court
allowed two of the experts to testify but precluded the third, finding
that he merely offered "credentials rather than analysis." Id.
at 529 (quoting Minasian v. Standard Chartered Bank,
PLC, 109 F.3d 1212, 1216 (7th Cir. 1997)). The expert in
Primavera was asked to examine whether the defendants had
complied with the terms of a contract, adhered to the covenant of good
faith and fair dealing, and conducted certain transactions in a
commercially reasonable manner. Id. at 528. The court found
that the expert's initial assignment was "flawed from the outset" because
"[r]ather than being asked to develop an expert opinion that might happen
to embrace certain ultimate issues, he was asked to reach legal
regarding those ultimate issues." Id. at 528. The court
found that the expert supported his opinions by relying "almost
exclusively on his interpretation of deposition testimony by witnesses in
this case. In so doing, he does not serve as an expert but, rather, seeks
to supplant the role of counsel in making argument at trial, and the role
of the jury interpreting the evidence." Id. at 529.
Here, although much of Dr. Dunbar's report does rely on deposition
testimony of various parties, he has not merely assumed the role of
counsel. Rather, he has applied his expertise to the facts of the case,
and drawn conclusions from those facts. He first utilizes deposition
testimony to provide background information on the nature of the
electrical installation market. He cites to the deposition testimony of
Raymond Melville, the assistant business manager for construction for
Local 3, in order to explain the role of the JIB in controlling the
allocation of supply of electricians. (Dunbar Report at 9). He also
refers to the declarations of Richard Ryan, a member of the IBEW, and
David Kaliff, an information technology consultant, to provide
information on the importance of unions in supplying labor for electrical
installation in large commercial projects. (Dunbar Report at 13 &
n.24). Similarly, Dr. Dunbar refers to several depositions in the section
of his report describing the market for telecommunications installation.
He cites the testimony of three different telecommunications consultants
to provide information on the type of training and certification needed
to perform telecommunications installation. (Dunbar Report at 18-21).
He relies on the deposition testimony of several representatives of
the contractor defendants to further support his assertion that the
market for telecommunications installation is distinct from the market
for electrical installation. (Dunbar Report at 24). Finally, Dr. Dunbar
cites the deposition testimony of customers, consultants, and union
representatives describing certain incidents where Local 3 workers
refused to work overtime and certain acts of vandalism that occurred
during the relevant time period. (Dunbar Report at 25-34).
Although Dr. Dunbar does rely heavily on these depositions, he does so
primarily to provide background information. It is well settled that an
expert is free to offer testimony to provide a background for the case.
United States v. Mulder, 273 F.3d 91, 102 (2d Cir. 2001);
United States v. Dalv, 842 F.2d 1380, 1388 (2d Cir. 1988)
("Background evidence may be admitted to show, for example, the
circumstances surrounding the events or to furnish an explanation of the
understanding or intent with which certain acts were performed."). If Dr.
Dunbar's report consisted only of that background information, the
defendants would certainly be correct in their assertion that it is
unnecessary for an expert to testify about those depositions. Dr. Dunbar,
however, uses the information in the depositions to describe the setting
in which the parties were operating. From there, he applies economic
principles to determine
whether the situation described was one that tended to show
economic indicators of market dominance and monopoly leveraging. (Dunbar
Report at 4-34). Dr. Dunbar's testimony does not consist of
"conclusions . . . offered without benefit of citation to research,
studies, or other generally accepted support for expert testimony."
Primavera, 130 F. Supp.2d at 529. Rather, his ultimate
conclusions are based on the application of "standard economic
methodology" to the facts at hand. In order to reach those ultimate
conclusions, it is permissible for Dr. Dunbar to rely on deposition
4. Alternative Explanations
The defendants further contest the admissibility of Dr. Dunbar's
testimony because he "fails to account for obvious alternative
explanations for the conclusions expressed." (Def. Memo, at 10). The
defendants assert that "the most obvious alternative explanation for
everything [Dr. Dunbar] deems conspiratorial conduct" is that such
conduct "was the result of Local 3 members acting independently to
preserve their work." (Def. Memo, at 11). The defendants attribute the
"handful of incidents of `misconduct' that [Dr.] Dunbar relied upon to
construct his conspiracy theory" on a longstanding conflict between Local
3 members and CWA members over CWA members' willingness to work for lower
wages. (Def. Memo, at 11-12). The defendants thus claim that any of the
acts Dr. Dunbar found to be conspiratorial are simply the product of
animosity between workers of the two unions.
Additionally, the defendants suggest that "[Dr.] Dunbar reached the
liability opinions set forth in his initial Report without considering
his own conclusion that the lowest bidder loses a job fully one-third of
the time even absent any interference, and the undisputed fact that
general contractors do not base their hiring decisions solely on price."
(Def. Memo. at 12). Moreover, the defendants also contend that Dr. Dunbar
"ignored the evidence that on a large job, hiring the same contractor to
do both the electrical and telecommunications work makes it easier to
complete both projects." (Def. Memo. at 12).
In response, the plaintiffs claim that Dr. Dunbar "considered [the
defendants'] hypothesis" but ultimately rejected it, reasoning that "the
effects in the market would not have been possible without coordination,
condonation, encouragement and enforcement by Local 3 as the members'
union and by the contractors as the members' employers. (Pl. Memo. at 18;
Dunbar Report at 25-29). In his Rebuttal Report, Dr. Dunbar addresses the
conduct he finds to be inconsistent with the possibility that the
defendants acted independently:
[T]he Defendants' experts' claim that
electrical contractors acting independently would
threaten labor problems to win business from CWA
employers does not make sense if the
electrical subcontractor carrying the threats
would not get the contract for the
telecommunications installation. History shows,
however, instances in which threats were carried
by Local 3 employers who would not be the winning
bidder on the telecommunications installation
contract. Such contractors did not stand to gain
directly by the job
going to a non-CWA contractor. The
benefits accrue to a different Local 3 telecom
contractor and to Local 3 members.
(Dunbar Reb. Report at 9). Dr. Dunbar then goes on to describe five
incidents where the behavior of one Local 3 employer engaging in conduct
such as threatening not to work overtime actually benefitted a competing
Local 3 employer. He asserts that these are examples of behavior that is
inconsistent with independent action by Local 3 or its members. (Dunbar
Reb. Report at 10-12; Deposition of Frederick C. Dunbar dated December
31, 2002, attached as Exh. 17 to Eilander Decl., at 341). Dr. Dunbar to
describes circumstances where Local 3 officials "intervene[d] to take
business away from USIS." (Dunbar Reb. Report at 15-17). Additionally, he
rebuts the defendants' proposed theory by pointing out the potential that
Local 3 utilized facilitating devices such as the JIB to influence the
bidding process. (Dunbar Reb. Report at 16).
An expert must demonstrate that he has adequately accounted for obvious
alternative explanations in order for his testimony to be reliable.
See Claar v. Burlington Northern Railroad Co.,
29 F.3d 499, 502 (9th Cir. 1994) (testimony excluded where the expert failed
to consider other obvious causes for the plaintiffs' injuries);
cf. Ambrosini v. Labarraque, 101 F.3d 129, 141 (D.C.
Cir. 1996) (possibility of some un-eliminated causes presents question of
weight, so long as most obvious causes have been considered and
reasonably ruled out by expert); Royal Insurance Co. of America
Joseph Daniel Construction, Inc., 208 F. Supp.2d 423,
427-28 (S.D.N.Y. 2002). Before a conclusion on causation can be reliably
drawn, the expert must make some reasonable attempt to eliminate some of
the most obvious causes. An expert is not required, however, to
categorically exclude each and every possible alternative cause.
See Astra Aktiebolag, 222 F. Supp.2d at 488.
In this case, Dr. Dunbar addressed the defendants' alternative theories
of the case, and ultimately found them to be unpersuasive. The defendants
cite to cases such as Matsushita Electric Industrial Co. v. Zenith
Radio Corp., 475 U.S. 574, 588 (1986), to support the proposition
that an antitrust plaintiff must demonstrate that alternative,
non-conspiratorial explanations for behavior are not equally likely.
(Def. Reply Memo, at 6). Although this is certainly true, it does not
necessarily speak to the admissibility of Dr. Dunbar's opinion. In order
for Dr. Dunbar's testimony to be admissible, he need only demonstrate
that he has "adequately accounted" for alternative explanations; he does
not need to prove that his opinions are in fact more likely than the
suggested alternatives. See Fed.R.Evid. 702, Advisory
Committee Notes to 2000 Amendments. If at trial the defendants can
persuade the finder of fact that other explanations are equally likely,
then they should certainly prevail. However, the possibility of some
un-eliminated causes does not render Dr. Dunbar's testimony unreliable.
Dr. Dunbar's analysis satisfies the Daubert standards for
reliability in many respects. As an expert in antitrust economics, he
utilized recognized, scientific methods to analyze the monopoly
leveraging claims in this case. Some of his findings, such as those
related to damages,*fn10 are independent of the flawed data collection
process and therefore remain admissible. However, to the extent that any
of Dr. Dunbar's conclusions concerning liability are based on the skewed
data sample, they do not meet the Daubert requirements and are
thus inadmissible. If the plaintiffs believe that Dr. Dunbar will be able
to offer relevant expert testimony after excising those parts of his
analysis that rely on the biased data, they must proffer a revised expert
C. Embedded Legal Conclusions
In addition to objections about Dr. Dunbar's methodology, the
defendants claim that Dr. Dunbar's reports and testimony are "replete
with conclusions about the existence of a conspiracy based
upon conclusions of law that are indefensible and outside the realm
of [his] expertise." (Def. Memo, at 16). The defendants allege that
"[Dr.] Dunbar is acting as an advocate rather than economist." (Def.
Memo, at 23). The plaintiffs respond by asserting that "[c]oncerted
action is a concept with which economists deal in their discipline" and
therefore it is "commonplace that economic analysis extends to
distinguishing concerted or collaborative behavior from individual or
unilateral behavior in a market." (Pl. Memo, at 23; Dunbar Decl., ¶
26). The plaintiffs assert that Dr. Dunbar's testimony would explain "the
economics of the concerted action claim," including "[t]he competitive
significance of parallel behavior, motive and opportunity, facilitating
devices, communications ability, and behavior inconsistent with
independent action in a competitive market." (Pl. Memo, at 24). Moreover,
the plaintiffs contend that any confusion could be dispelled at trial
through the type of questions the attorneys would ask.
It is inappropriate for an expert provide legal conclusions. "Although
an expert may opine on the ultimate issue of fact, she `may not give
testimony stating ultimate legal conclusions based on those facts.'"
Media Sport & Arts S.r.L. v. Kinney Shoe Corp., at No. 95
Civ. 3901, 1999 WL 946354, at *1 (S.D.N.Y. Oct. 19, 1999)(quoting
United States v. Bilzerian, 926 F.2d 1285, 1294 (2d Cir.
1991)). Although courts generally permit expert testimony concerning
mixed questions of fact and law, the determination of
purely legal issues is the exclusive purview of the court. Thus,
expert testimony that merely states a legal conclusion must be excluded.
See Andrews v. Metro North Commuter Railroad Co.,
882 F.2d 705, 709-10 (2d Cir. 1989) (holding that it was reversible error to
allow a forensic engineer to testify that "the railroad was negligent");
F.H. Krear & Co. v. Nineteen Named Trustees, 810 F.2d 1250,
1256, 1258 (2d Cir. 1987)(district court properly excluded testimony of
attorney expert witness that contracts at issue were unenforceable
because they lacked essential terms). This is the case because "[e]xpert
evidence should not be permitted to `usurp either the role of the trial
judge in instructing the jury as to the applicable law or the role of the
jury in applying that law to the facts before it.'" Primavera,
130 F. Supp.2d at 528 (quoting GST Telecommunications, Inc. v.
Irwin, 192 F.R.D. 109, 110 (S.D.N.Y. 2000)). The issue here is thus
whether Dr. Dunbar's report contains embedded legal conclusions, or
simply identifies factors, the existence of which would tend to indicate
Economists often explain whether conduct is indicative of collusion.
For example, courts have held that an expert is permitted to testify that
the "climate" of a specific market was consistent with a conspiracy.
In re Polypropylene Carpet Antitrust Litigation, 93 F. Supp.2d 1348,
1355 (N.D. Ga. 2000) (denying in part defendants' motion to exclude
plaintiffs' expert testimony because the expert's proposed testimony
"that the climate of the
polypropylene market during the relevant time period was consistent
with a finding that Defendants engaged in a conspiracy to fix prices"
would be "helpful to the trier of fact"); Re/Max International, Inc.
v. Realty One, Inc., 173 F.3d 995, 1003, 1010-11 (6th Cir.
1999)(expert economist, after describing conditions in respective
markets, opportunities for collusion, evidence pointing to collusion,
terms of certain undisputed agreements, and market behavior, expressed
opinion that there was concert of action consistent with plaintiff's
conspiracy theory). But cf. City of Tuscaloosa v. Harcros
Chemicals, Inc., 158 F.3d 548, 565 (11th Cir. 1998)(finding an
expert witness' "characterizations of documentary evidence as reflective
of collusion, and his characterizations of particular bids as `signals,'"
not appropriate for expert testimony). The distinction between a legal
conclusion and appropriate expert testimony is "extremely fine and courts
faced with determining whether an expert's opinion goes too far are often
forced to recite a slew of case law in an attempt to determine where the
line should be drawn." TC Systems Inc. v. Town of Colonie,
213 F. Supp.2d 171, 181 (N.D.N.Y. 2002).
In their responsive briefs, the plaintiffs suggest a "compromise"
similar to the approach taken by the Honorable Shira A. Scheindlin in
Union Carbide Corp. v. Montell N.V. 28 F. Supp.2d 833
(S.D.N.Y. 1998). In that case, Judge Scheindlin held that the plaintiff's
experts would not be permitted to testify as to
their legal conclusion that the defendant's conduct was
"anti-competitive" or "unlawful." Id. at 843. The experts
could, however, testify that the market was "`not competitive' and to
explain how they reach[ed] that conclusion." Id. This approach
seems applicable to the facts here as well. Using this model, Dr. Dunbar
would not be permitted to state that the defendants did or did not engage
in anticompetitive conduct. He could, however, point to factors that
would tend to show anticompetitive conduct in a market. He could then
indicate whether he believed those factors existed here, and what the
economic significance of those factors would be. He could also explain
how certain conduct could affect a market through the use of
hypothetical statements. Recognizing that the ultimate determination of
what did or did not happen in this case is left to the finder of fact,
Dr. Dunbar could hypothesize that if certain conduct did occur, economists
would expect the market to react in a particular way. This is different
from reaching the ultimate legal conclusion about whether a conspiracy
existed or anticompetitive conduct actually occurred. Those determinations
are the province of the trier of fact. See Blech
Securities, 2003 WL 1610775, at *22-24; Jannus Group, Inc. v.
Independent Container, Inc., No 98 Civ. 1075, 1999 WL 672550, at *1
(S.D.N.Y. Aug. 25, 1999).
Because of the flaws in the selection of Dr. Dunbar's data
sample, his expert report does not meet the Daubert
standard. For the reasons set forth above, the defendants' motion to
preclude Dr. Dunbar's testimony on issues relating to causation and
liability is granted insofar as that testimony is based on the original
data sample. Dr. Dunbar may, however, offer expert testimony to the
extent that it is not dependent on the biased data. If the plaintiffs
intend to offer such testimony, they shall submit a revised expert report
within two weeks of the date of this Memorandum and Order.