ZF Meritor LLC et al v. Eaton Corporation

Filing 337

MEMORANDUM AND ORDER. Signed by Judge Sue L. Robinson on 12/20/2013. (nmfn)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE

ZF MERITOR LLC and MERITOR
TRANSMISSION CORPORATION,

)
)

)
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Plaintiffs,

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) Civ. No. 06-623-SLR
)
)
)
)

v.
EATON CORPORATION,
Defendant.

MEMORANDUM AND ORDER
At Wilmington this 20th day of December, 2013, having reviewed defendant's
motion for judgment as a matter of law, its motion to exclude opinion testimony of Dr.
David W. DeRamus, and the papers filed in connection therewith, I issue my decision
based on the following reasoning:
1. Background. The procedural history of this case is related in the decision of
the United States Court of Appeals for the Third Circuit in ZF Meritor LLC v. Eaton

Corp., 696 F.3d 254 (3d Cir. 2012). Of relevance to the pending motion, the Third
Circuit concluded:
First, we hold that Plaintiffs' claims are not subject to the price-cost
test, and instead must be analyzed as de facto exclusive dealing claims
under the rule of reason. Second, we conclude that Plaintiffs presented
sufficient evidence to support the jury's finding that Eaton engaged in
anticompetitive conduct and that Plaintiffs suffered antitrust injury as a
result. Third, we find no error in the District Court's decision to admit
DeRamus's testimony on the issue of liability. Fourth, we hold that the
District Court properly exercised its discretion in excluding DeRamus'
damages testimony based on his expert report, but we conclude that the

District Court abused its discretion by preventing DeRamus from
submitting alternate damages calculations based on data already
included in his initial report. Finally, we hold that Plaintiffs lack standing
to pursue injunctive relief, and therefore, we will vacate the injunction issued
by the District Court. We will remand to the District Court for further
proceedings consistent with this opinion.

/d. at 303 (emphasis added). Defendant filed its motions rather than proceed to trial on
the issue of damages.
2. Motion for judgment as a matter of law. Defendant justifies its course of
action based on the rationale that DeRamus' amended damages report "fails to
separate out damages that resulted from Eaton's lawful, above cost prices from the
non-price conduct identified by the Third Circuit as anticompetitive." (D. I. 311 at 9)
Defendant goes on to argue that DeRamus' opinion "that Eaton's prices were 'not
separable' from Eaton's non-price conduct ... is flatly inconsistent with the Third
Circuit's ruling which expressly differentiated between Eaton's price and non-price
conduct." (/d.)
3. I disagree with defendant's characterization of the Third Circuit's opinion.
Rather than "expressly differentiating between Eaton's price and non-price conduct,"
the Third Circuit merely rejected defendant's price-cost test, explaining that
here, Plaintiffs do not allege that price itself functioned as the exclusionary
tool. As such, we conclude that the price-cost test is not adequate to judge
the legality of Eaton's conduct. Although prices are unlikely to exclude
equally efficient rivals unless they are below-cost, exclusive dealing arrangements can exclude equally efficient (or potentially equally efficient) rivals, and
thereby harm competition, irrespective of below-cost pricing .... Where, as
here, a dominant supplier enters into de facto exclusive dealing arrangements
with every customer in the market, other firms may be driven out not because
they cannot compete on a price basis, but because they are never given an
opportunity to compete, despite their ability to offer products with significant
customer demand.

2

696 F.3d at 281 (citations omitted). As noted by the Third Circuit, "[a]lthough the
Supreme Court has created a safe harbor for above-cost discounting, it has not
established a per se rule of non-liability under the antitrust laws for all contractual
practices that involve above.:cost pricing." /d. at 278.
4. Contrary to defendant's contention, then, the Third Circuit by its decision did
not mandate that plaintiffs "disaggregate business losses attributable to [defendant's]
lawful lower prices." (0.1. 311 at 1) The Third Circuit simply recognized that, under the
rule of reason, defendant's lower pricing was not "the clear driving force" behind
defendant's anticompetitive conduct, but one of many factors to consider in the context
of antitrust injury and damages. Defendant's motion for judgment as a matter of law is
denied.
5. Motion to exclude the expert opinion of Dr. DeRamus. Once again I am
being asked to consider whether the expert opinion of plaintiffs' expert should be
excluded pursuant to Fed.R.Civ.P. 702 which, as described by the Third Circuit,
imposes an obligation upon a district court to ensure that expert testimony
is not only relevant, but reliable. . . . As we have made clear, "the reliability
analysis [required by Daubert] applies to all aspects of an expert's testimony:
the methodology, the facts underlying the expert's opinion, [and] the link
between the facts and the conclusion." ...

696 F.3d at 291 (citations omitted). Therefore, "[w]here proffered expert testimony's
'factual basis, data, principles, methods, or their application are called sufficiently into
question, ... the trial judge must determine whether the testimony has 'a reliable basis
in the knowledge and experience of the relevant discipline."" /d. at 294 (citations
omitted).

3

6. Plaintiffs contest defendant's objections to Dr. DeRamus' opinion, and argue
that such objections are procedurally barred by the doctrines of law of the case and/or
waiver. I disagree. As noted by defendant, I made clear during the pretrial proceedings
that the original DeRamus expert report was so poorly crafted that I only had the time
and resources to review the most glaring of its problems prior to trial. As a general
proposition, I did not find the methodologies utilized by Dr. DeRamus to be the issue
under Rule 702 but, rather, that the assumptions and facts manipulated under such
methodologies were not grounded in reality. (See, e.g., D.l. 309, appendix val. 1, exs. 1
and 2) Moreover, the Third Circuit in its decision specifically declared that it was
expressing "no opinion as to the reliability or admissibility of DeRamus' alternate
damages calculations. That is a matter left to the District Court on remand." 696 F.3d
at 300 n.28.
7. By the same token, however, I reject defendant's argument that the
DeRamus opinion is fatally flawed because it fails to "disaggregate the losses
attributable to Eaton's lawful, lower prices or other competitive efforts ... from those
attributable to Eaton's non-price conduct." (D. I. 309 at 27-28) As explained above, the
Third Circuit found that pricing was not the driving force behind the anticompetitive
effects of defendant's conduct, but was a factor among many that should be reviewed
in a rule of reason analysis. As further recognized by the Third Circuit in LePage's Inc.
v. 3M, 324 F.3d 141 (3d Cir. 2002),

[i]n Bonjorno v. Kaiser Aluminum & Chern. Corp., 752 F.2d 802, 812 (3d Cir.
1984), this court stated that "[i]n constructing a hypothetical world free of the
defendants' exclusionary activities, the plaintiffs are given some latitude in
calculating damages, so long as their theory is not wholly speculative." /d.
Once a jury has found that the unlawful activity caused the antitrust injury,
4

the damages may be determined without strict proof of what act caused the
injury, as long as the damages are not based on speculation or guesswork
/d. at 813. The Bonjorno court noted that it would be extremely difficult, if
not impossible, to segregate and attribute a fixed amount of damages to any
one act as the theory was not that any one act in itself was unlawful, but that
all the acts taken together showed a§ 2 violation. /d.

/d. at 166. Consistent with the facts of record and the rule of reason analysis applied to
those facts by the Third Circuit, I likewise find disaggregation unnecessary, if not
impossible.
8. With respect to the remaining criticisms of Dr. DeRamus' amended expert
report, 1 defendant contends that DeRamus improperly projects years of lost profits after
the dissolution of plaintiff ZF Meritor LLC, and compounds such damages by then
adding on a lost enterprise value. Defendant also argues that Dr. DeRamus'
econometric model is unreliable because its variables "are not tethered to the record."
(D.I. 309 at 19)
9. The United States Supreme Court has noted that "[t]rial and appellate courts
alike must ... observe the practical limits of the burden of proof which may be
demanded of a treble-damage plaintiff who seeks recovery for injuries from a partial or
total exclusion from a market; damages issues in these cases are rarely susceptible of
the kind of concrete, detailed proof of injury which is available in other contexts." Zenith

Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 123 (1969). Nevertheless,
damages may not be determined by "mere speculation or guess," Story Parchment Co.

v. Paterson Parchment Paper Co., 282 U.S. 555, 563 (1931), but must be grounded at
a minimum on assumptions that rest on "adequate bases." Terrell v. Household Goods

1

The report is found at D.l. 309, appendix volume 1, ex. 5.

5

Carriers' Bureau, 494 F.2d 16, 24 (5th Cir. 1974).

10. In this regard, there is a wide ranging view among courts as to what
constitutes an "adequate base." Defendant cites to Concord Boat Corp. v. Brunswick
Corp., 207 F.3d 1039 (8th Cir. 2000), for the proposition that,

[i]n recent years the Supreme Court has put renewed emphasis on the
importance of the "fit" of an expert's opinion to the data or facts in the
case: ... "[N]othing in either Daubert or the Federal Rules of Evidence
requires a district court to admit opinion evidence that is connected to
the existing data only by the ipse dixit of the expert. A court may conclude
that there is simply too great an analytic gap between the data and the
opinion proffered."
/d. at 1055 (citing General Elec. Co. v. Joiner, 522 U.S. 136, 146 (1997)). In concluding

that the evidence presented by plaintiffs was insufficient to demonstrate antitrust injury,
causation and damage, the court in Concord Boat Corp. v. Brunswick Corp. stated that
the opinion of plaintiffs' expert "should not have been admitted because it did not
incorporate all aspects of the economic reality of the stern drive engine market and
because it did not separate lawful from unlawful conduct." 207 F.3d at 1057. 2
11. I recognize that the decision in Farmington Dowel Products Co. v. Forster
Manufacturing Co., 421 F.2d 61 (1st Cir. 1970), is on all fours with the facts at bar. In

that case, the court rejected plaintiff's method of calculating damages, which method
would have required an estimate of profits for a period of some ten years
during which the company neither existed nor made profits, plus an
estimate of the 'going concern' value in 1968 of a company which had
ceased being a going concern over ten years before, which estimate would
have involved a further estimate of profits for a more remote future period.
2

A careful reading of the decision reveals, however, that the focus of the court's
opinion was "the expert's method of analysis related to antitrust liability," not damages.
/d. at 1056.

6

While we recognize, as did the district court, that the private antitrust
litigant is not required to prove the amount of damages with any certainty
... -the method urged by [plaintiff], at least as applied to this case, relies
too heavily on speculation and conjecture, particularly concerning the
determination of 'going concern' value so long after the company ceased
to be a going concern.

/d. at 81 (citations omitted).
12. In contrast to the above analysis is that found in Terrell v. Household Goods
Carriers' Bureau, with the court providing the following explanation for its decision on
damages:
To deny recovery to a businessman who has struggled to establish a
business in the face of wrongful conduct by a competitor simply
because he never managed to escape from the quicksand of red ink
to the dry land of profitable enterprise would make a mockery of the
private antitrust remedy ....
Particularly is the calculation of damages difficult when the future
profits of an enterprise as young as [plaintiffs] must be determined,
since there is no reliable track record to look back on. But uncertainty
cannot end the efforts of the federal courts to redress the harm
caused proprietors by violations of the freedom of the marketplace.
The wrongdoer must bear the risk of the uncertainty in measuring the
harm he causes.
494 F.2d at 23, n.12. In that case, the court concluded that, because the expert's
estimates rested on facts that, although in dispute, could support the assumptions upon
which the estimates were based, the expert testimony was properly admitted by the trial
court. 3
13. In reviewing Dr. DeRamus' amended report in the context of a finding of
antitrust injury, I decline to exclude such evidence, as his approach generally has

3

The court also noted that the factual disputes between the parties were
presented to the jury and defendant had had ample opportunity to discredit plaintiffs'
expert and his reasoning.

7

support in the law and in the record. In the first instance, defendant overstates its
argument regarding the time frames for damages selected by Dr. DeRamus. There can
be no dispute that a plaintiff injured by anticompetitive practices may recover lost profits
while in business, and "going concern" value as of the date the business terminated,
with the going concern value representing "the value which the business would have
had at that time but for [the defendant's] illegal actions." Farmington, 421 F.2d at 81.
Plaintiffs assert that Meritor Transmission continued in the market into 2007 and that,
based on case law, 4 plaintiffs should be able to extend the time frame for lost profits
until a date at or near trial (February 2009), with a going concern value calculated from
that date.
14. Despite defendant's protestation to the contrary, the case law relied on by
defendant does not directly refute this approach. The court in Farmington
acknowledged that the method urged by plaintiff, "as applied to this case," "relie[d] too
heavily on speculation and conjecture, particularly concerning the determination of
'going concern' value so long [ten years] after the company ceased to be a going
concern." 421 F.2d at 81. Likewise, the issue in Bonjorno v. Kaiser Aluminum &
Chemical Corp., 559 F. Supp. 922, 936-37 (E. D. Pa. 1983), was whether the continued
operation of plaintiff's business beyond the damage period barred recovery for future
loss of profits as a going concern. Finally, although the "going concern" value in Eiberg
v. Sony Corp., 622 F.2d 1068, 1081 n.25 (2d Cir. 1980), was calculated as of the date
the business ceased operations, the court was not asked to address the scenario
4

See Southern Pines Chrysler-Plymouth, Inc. v. Chrysler Corp., 826 F.2d 1360,
1363-64 (4th Cir. 1987).

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presented instantly. I conclude from the above that Dr. DeRamus' calculations, based
on his time frame, are not invalid as a matter of law.
15. With respect to the remainder of defendant's objections, I acknowledge that
Dr. DeRamus did not factor into his econometric model all the potentially relevant
variables that defendant identifies, and bases his projections as much on defendant's
success in the market as plaintiffs' lack luster track record before dissolution.
Nevertheless, consistent with the "generous principle[s]" that apply to the calculation of
damages by antitrust plaintiffs, especially those whose businesses were new when they
suffered antitrust injury, I conclude that the remaining objections can be vetted through
discovery and are fodder for cross-examination at trial. In sum, defendant's motion to
exclude the opinion testimony of Dr. DeRamus is denied.

16. An appropriate order shall issue.

United States

9

1stnct Judge