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In re Rail Freight Fuel Surcharge Antitrust Litigation

United States District Court, District of Columbia

November 13, 2017

In re RAIL FREIGHT FUEL SURCHARGE ANTITRUST LITIGATION This document relates to: ALL DIRECT PURCHASER CASES

          OPINION

          PAUL L. FRIEDMAN, UNITED STATES DISTRICT JUDGE

         TABLE OF CONTENTS

         PART ONE: INTRODUCTION AND BACKGROUND..........................................................1

         I. INTRODUCTION.......................................................................................................................1

         II. BACKGROUND........................................................................................................................4

         A. The Alleged Conspiracy.................................................................................................6

         B. Appeal to the D.C. Circuit...........................................................................................11

         C. Class Certification Papers and Supplemental Briefing Before the Class Certification Hearing...................................................................................................13

         D. Supplemental Expert Reports.......................................................................................15

         PART TWO; ADMISSIBILITY OF EXPERT TESTIMONY UNDER DAUBERT..........17

         I. INTRODUCTION.....................................................................................................................17

         II. EXPERT TESTIMONY AT CLASS CERTIFICATION........................................................17

         A. Rule 702 of the Federal Rules of Evidence..................................................................17

         B. Daubert Test Versus Rule 23(b) Reliability Standard.................................................19

         III. DAUBERT ANALYSIS OF THE EXPERTS IN THIS CASE.............................................21

         A. Dr. Gordon Rausser.....................................................................................................21

         1. Dr. Rausser's Credibility in Light of his Involvement with Cascade Settlement Services..........................................................................................22

         a. Factual Background Regarding Dr. Rausser and Cascade...................22

         b. Court's Conclusions Regarding Dr. Rausser's Credibility in the Daubert Context........................28

         2. Rule 702 Analysis of Dr. Rausser's Expert Opinion.......................................32

         a. Introduction..........................................................................................32

         b. Qualitative Economic Analysis............................................................34

         c. Documentary Record and Defendants' Transaction Data as Evidence of Class-wide Impact.................................39

         d. Common Factors Model......................................................................40

         e. Damages Model...................................................................................44

         f. Legacy Contracts.................................................................................50

         B. Dr. Joseph P. Kalt........................................................................................................58

         1. Aggressiveness and Coverage of Fuel Surcharges..........................................60

         a. Earning Power......................................................................................60

         b. Coverage: Application, Negotiation, and Discounting of Fuel Surcharges..........................................62

         2. False Positives..................................................................................................64

         a. Variable Fuel Coefficient.....................................................................65

         b. Legacy False Positives.........................................................................69

         c. Rates Equal to Variable Costs..............................................................71

         d. Pre-Class Period Fuel Surcharges........................................................72

         3. Structural Break Analysis................................................................................74

         4. Ordinary Fuel Cost Recovery..........................................................................78

         5. Uninjured Class Members................................................................................78

         C. Dr. Jeffrey J. Leitzinger...............................................................................................80

         1. Dr. Rausser's Research Methodology, Analysis, and Model Design..............82

         2. Constant Fuel Coefficient: Margin Compression and Fuel Price Hedging ....84

         3. Constant Fuel Coefficient: Box-Cox Sensitivity Analysis.............................87

         4. Annual Fuel Shares..........................................................................................88

         D. Dr. Dennis W. Carlton.................................................................................................90

         1. Issues Already Discussed.................................................................................91

         2. Constant Fuel Coefficient: Fuel Pass-Through Rates.....................................92

         3. Fuel Shares and Shephard's Lemma................................................................93

         4. RCAF False Positives......................................................................................95

         5. Uninjured Large Shippers................................................................................97

         E. Dr. James T. McClave.................................................................................................98

         1. Dr. Kalt's Structural Break Analysis...............................................................99

         2. Uninjured Class Members and Customer Indicator Variable........................100

         PART THREE: LEGAL STANDARD AND RULE 23(A) FINDINGS AND CONCLUSIONS............102

         I. LEGAL STANDARD FOR CLASS CERTIFICATION UNDER RULE 23.........................102

         A. Requirements of Rule 23 of the Federal Rules of Civil Procedure............................103

         B. Rigorous Analysis Post-Comcast...............................................................................106

         II. RULE 23(A) FINDINGS AND CONCLUSIONS.................................................................110

         A. Two Implied Requirements.........................................................................................110

         1. Class Definition.............................................................................................110

         2. Named Representatives Within the Putative Class........................................112

         B. Four Express Requirements.......................................................................................112

         1. Numerosity.....................................................................................................112

         2. Commonality..................................................................................................113

         3. Typicality.......................................................................................................114

         4. Adequacy of Representation..........................................................................115

         PART FOUR; RULE 23(B) FINDINGS AND CONCLUSIONS.........................................116

         I. PREDOMINANCE.................................................................................................................116

         A. Violation of Antitrust Law..........................................................................................117

         B. Impact........................................................................................................................118

         1. Plaintiffs 'Theory of Liability........................................................................119

         2. Antitrust Injury...............................................................................................123

         3. Injury-in-Fact.................................................................................................126

         a. Plaintiffs' Record Evidence of Class-wide Impact............................130

         i. Documentary Evidence.........................................................130

         ii. Coverage...............................................................................135

         b. Defendants' Challenges to Dr. Rausser's Common Factors and Damages Models.......................................139

         i. Dr. Rausser's Common Factors Model.................................139

         ii. Constant Fuel Coefficient: Whether Dr. Rausser's Damages Model is "Rigged" to Find Overcharges...............142

         iii. Structural Break Analyses: Whether Dr. Rausser's Damages Model Shows Structural Breaks and Overcharges Throughout the Pre-Class and Class Periods........................152

         iv. False Positives: Whether Dr. Rausser's Model Includes Impermissible False Positives...............................159

         c. Issues Precluding a Finding of Predominance...................................165

         i. Intermodal Shippers: Class Traffic Subject to Competitively Negotiated Formulas.....................................166

         ii. Legacy Shippers: Dr. Rausser's Damages Model Finds Unexplainable Overcharges..................................................173

         iii. Proposed Class Includes Too Many Uninjured Members ....182

         C. Damages....................................................................................................................200

         II. SUPERIORITY......................................................................................................................205

         CONCLUSION..........................................................................................................................206

         PART ONE: INTRODUCTION AND BACKGROUND

         I. INTRODUCTION

         This matter is again before the Court on a motion of the direct purchaser plaintiffs for class certification under Rule 23 of the Federal Rules of Civil Procedure. The Court previously certified the class in 2012. Sec In re Rail Freight Fuel Surcharge Antitrust Litig., 287 F.R.D. 1, 74 (D.D.C. 2012) ("Rail Freight III"). On appeal, the United States Court of Appeals for the District of Columbia Circuit vacated this Court's prior decision and remanded for further consideration in light of intervening Supreme Court precedent in Comcast Corp. v. Behrend, 569 U.S. 27 (2013). In re Rail Freight Surcharge Antitrust Litig. - MDL No. 1869. 725 F.3d 244, 255 (D.C. Cir. 2013). After remand, this Court permitted the Filing of extensive supplemental memoranda of law, the submission of additional and supplemental expert reports, and the taking of additional depositions of expert witnesses. See Stipulation and Order (Oct. 31, 2013) at 1-3 [Dkt. 694]; Scheduling Order (June 19, 2015) at 1-2 [Dkt. 772]. It also asked the parties to submit a joint statement of the legal issues to be addressed at the class certification hearing, see Order (Aug. 21, 2014) at 1-2 [Dkt. 725], which they did. Thereafter, the Court delayed the class certification hearing and its decision until after the Supreme Court decided Tyson Foods, Inc. v. Bouaphakeo, 136 S.Ct. 1036 (2016), and requested supplemental briefing on the impact of the Tyson Foods decision on the class certification questions in this case. See Order (Sept. 28, 2015) at 1-2 [Dkt. 785]. The Court held a class certification hearing spanning five days, with oral argument on the motion and expert testimony, on September 26-30, 2016.

         Upon consideration of the parties' papers, the testimony and reports of the expert witnesses, the oral arguments presented by counsel, the relevant legal authorities, and the extensive record in this case, the Court concludes that plaintiffs have failed to establish by a preponderance of the evidence that all of the requirements of Rule 23 of the Federal Rules of Civil Procedure have been satisfied. Specifically, plaintiffs have failed to establish that "questions of law or fact common to class members predominate over any questions affecting only individual members" under Rule 23(b)(3). Fed.R.Civ.P. 23(b)(3). While the documentary evidence is strong evidence of conspiracy and class-wide injury to so-called carload traffic, the damages regression model of plaintiffs' lead expert is flawed for three reasons: (1) a large portion of the class traffic reflected in his damages model was intermodal traffic - not carload traffic - that was subject to competitively negotiated fuel surcharge formulas established during the pre-class period and which never changed; (2) his damages model finds unexplainable overcharges with respect to legacy shippers - the very concern raised by the D.C. Circuit in its opinion in this case; and (3) there are too many uninjured shippers in the class who cannot be identified or sufficiently explained to satisfy the "all or virtually all" standard for predominance under Rule 23(b)(3) and the established case law. The Court therefore will deny the direct purchaser plaintiffs' motion for class certification.[1]

         II. BACKGROUND

         The Court has discussed the factual and procedural background of this case in prior decisions. See In re Rail Freight Fuel Surcharge Antitrust Litig., 587 F.Supp.2d 27, 29-31 (D.D.C. 2008) ("Rail Freight I"): In re Rail Freight Fuel Surcharge Antitrust Litig., 593 F.Supp.2d 29, 32, 34-35 (D.D.C. 2008) ("Rail Freight II"), affd, Fayus Enters, v. BNSF Ry. Co.. 602 F.3d 444, 445-46, 454 (D.C. Cir. 2010); Rail Freight III. 287 F.R.D. at 11-20. It therefore will limit its discussion here accordingly.

         This case involves the claim that defendants - BNSF Railway Company ("BNSF"); CSX Transportation, Inc. ("CSX"); Norfolk Southern Railway Company ("NS"); and Union Pacific Railroad Company ("UP") - engaged in a price-fixing conspiracy to coordinate their fuel surcharge programs as a means to impose supra-competitive total price increases on their shipping customers. See 2d Am. Compl. ¶¶ 1-2. A rail fuel surcharge ("FSC") "is a separately-identified fee that is charged by the railroads for ... agreed-upon transportation [services], purportedly to compensate for increases in the cost of fuel." Id. ¶ 2. Plaintiffs allege, however, that the four defendants, through their collective action, "conspired to impose Rail Fuel Surcharges that far exceeded any increases in the Defendants' fuel costs, and thereby collected billions of dollars of additional profits during the . . . conspiracy." Id.

         Plaintiffs have been divided into two putative classes: (1) the direct purchasers - those who allegedly purchased rail freight transportation from defendants from July 1, 2003, until December 31, 2008, and who were assessed a rail fuel surcharge for the transportation; and (2) the indirect purchasers - those who allegedly purchased rail freight transportation services indirectly from defendants. See Rail Freight HI. 287 F.R.D. at 12. Plaintiffs in both putative classes allege that defendants violated Section 1 of the Sherman Act, 15 U.S.C. § 1, by conspiring to fix prices through the use of fuel surcharges, and seek recovery under Section 4 of the Clayton Act, 15 U.S.C. § 15. See Rail Freight I. 587 F.Supp.2d at 29; 2d Am. Compl. ¶ 33.

         In 2008, defendants moved to dismiss the claims of both putative classes. On November 7, 2008, the Court denied defendants' motion regarding the direct purchaser plaintiffs, concluding that the direct purchasers had sufficiently alleged an agreement in restraint of trade. See Rail Freight I. 587 F.Supp.2d at 32. Shortly thereafter, on December 28, 2008, the Court denied in part and granted in part defendants' motion regarding the indirect purchaser plaintiffs, concluding that the indirect purchasers' state law claims were preempted and must be dismissed, but that the indirect purchasers' federal antitrust claim for injunctive relief could proceed. See Rail Freight II. 593 F.Supp.2d at 32, 43. The court of appeals affirmed this Court's dismissal of the indirect purchasers' state law claims. See Fayus Enters, v. BNSF Ry. Co., 602 F.3d at 454.

         The direct purchaser plaintiffs (hereinafter, "plaintiffs" unless otherwise specified) have moved for class certification. The parties no longer dispute the class definition previously accepted by this Court. See infra at 110-11. The Court therefore will consider here whether, under Rule 23 of the Federal Rules of Civil Procedure, to certify a class of:

All entities or persons that at any time from July 1, 2003 until December 31, 2008 ("the Class Period") purchased rate-unregulated rail freight transportation services directly from one or more of the Defendants, as to which Defendants assessed a stand-alone rail freight fuel surcharge applied as a percentage of the base rate for the freight transport (or where some or all of the fuel surcharge was included in the base rate through a method referred to as "rebasing") ("Fuel Surcharge").
Excluded from this Class definition are (a) Defendants, any subsidiaries or affiliates of Defendants, any of Defendants' co-conspirators, whether or not named as a Defendant in the Complaint, and all federal governmental entities, and (b) all entities or persons that paid a Fuel Surcharge directly to any of the Defendants solely pursuant to a railroad-shipper contract that was (i) entered into before July 1, 2003, and (ii) provided for a stand-alone Fuel Surcharge to be paid under a predetermined formula specifically set forth in the contract.

         Class Mot. at 1 & n. 1. This Court previously designated the eight named plaintiffs - Dust Pro, Inc.; Carter Distributing Company; Dakota Granite Company; Donnelly Commodities, Inc.; U.S. Magnesium LLC; Nyrstar Taylor Chemicals, Inc.; Olin Corporation; and Strates Shows, Inc. - as class representatives, and designated Quinn Emanuel Urquhart & Sullivan, LLP and Hausfeld LLP, as co-lead counsel. Rail Freight III, 287 F.R.D. at 74. Those designations also are no longer in dispute. See infra at 115. On remand, plaintiffs again request that this case be certified as a class action for litigation and trial of plaintiffs' claim for price fixing under Section 1 of the Sherman Act, 15 U.S.C. § 1, and defendants oppose plaintiffs' motion for class certification, arguing primarily that plaintiffs have failed to satisfy the predominance requirement of Rule 23(b)(3).

         A. The Alleged Conspiracy

         Plaintiffs allege that in early 2003 defendants entered into a conspiracy to increase their total revenues through the use of standardized, uniform, and supra-competitive fuel surcharges. Rail Freight L 587 F.Supp.2d at 29-30. These defendants are the four largest Class I railroads, which are defined by the Surface Transportation Board ("STB") as having annual carrier operating revenues of at least $250 million. Rausser Merits Rep. at 26; see also 2d Am. Compl. ¶ 1. The four Class I railroads control about 90% of rail freight track miles and account for 94% of all rail freight revenue in the continental United States. See 2d Am. Compl. ¶ 4; Rausser Merits Rep. at 26. BNSF and UP operate in the western United States; CSX and NS operate in the east. See Rausser Merits Rep. at 38.

         The defendant railroads are part of a large, integrated system. Class I railroads typically perform long-haul movement - moving shipments over long distances. See Rausser Merits Rep. at 30. Smaller regional and short-line railroads depend on interchanging traffic with larger Class I railroads. See Id. at 47. There are two basic types of rail traffic: intermodal traffic and carload traffic. See Class Opp. at 14 n. 19; Class Certification Hr'g Tr. (Sept. 26, 2016) at 183-84. As defendants define it, intermodal traffic travels by rail and one other mode of transportation such as truck or ship. Class Certification Hr'g Tr. (Sept. 26, 2016) at 186. "All other rail traffic is known as 'carload' traffic." Class Opp. at 14 n.19. Each railroad has a different published fuel surcharge formula for carload and intermodal traffic. Class Certification Hr'g Tr. (Sept. 26, 2016) at 188.

         Before Congress passed the Staggers Rail Act of 1980, defendants would have had to apply to the Interstate Commerce Commission for approval of an across-the-board rate increase. Rail Freight I. 587 F.Supp.2d at 29-30. Following the deregulation of the railroad industry, at least 80% of all rail shipments now move under private transportation contracts, which are not rate regulated, or are otherwise exempt from rate regulation. Id. Plaintiffs allege that defendants determined that the most efficient way to increase their profits was through the imposition of "an across-the-board artificially high and uniform fuel surcharge, " instead of attempting to renegotiate all of their individual contracts, see Id. at 30, or attempting to fix each base rate separately, which plaintiffs say "would have been extremely complex, very costly, and effectively unmanageable." Rausser Merits Rep. at 52 n.94.

         The total freight price for a shipping customer, called the "all-in rate, " consists of a base rate and a fuel surcharge applied as some percentage of the base rate. See Class Opp. at 3; Rausser Merits Rep. at 76. The base rate incorporates fixed costs such as the costs of organizing a particular shipment; building and maintaining railroad tracks, bridges, and other structures; and the railroad's markup of price over costs. Rausser Merits Rep. at 76. Plaintiffs allege that defendants imposed "an across-the-board artificially high and uniform fuel surcharge" as a percentage multiplier of the base rate, thereby permitting defendants "to raise total freight prices widely by a given percentage." Rail Freight I, 587 F.Supp.2d at 30. In effect, according to plaintiffs, the allegedly conspiratorial fuel surcharges operated like a tax, increasing the total price of shipping by a set percentage. Rausser Merits Rep. at 112-13. Plaintiffs contend that this "approach yielded defendants billions of dollars of additional profits because the surcharge raised rates far beyond the real increased cost of fuel." Rail Freight I, 587 F.Supp.2d at 30.

         Plaintiffs maintain that it took defendants some trial and error to reach the point of conspiracy. Before the class period, plaintiffs say that defendants "operated as a price-discriminating, interdependent, but non-collusive oligopoly." Class Mem. at 8. And for many years before the class period, defendants "confronted a long-term, structural decline in rail freight rates." Id. "Between 2000 and early 2003, the three-year period preceding the Class Period, " plaintiffs contend that defendants "unilaterally took various actions designed to increase rail freight prices and revenues." Id. at 9. As plaintiffs describe it, "[t]hese uncoordinated actions included, among other things, unilateral attempts to apply stand-alone fuel surcharges, which were designed to take advantage of future rising fuel prices and intended as revenue enhancement steps." Id. (internal quotation marks and citations omitted). But plaintiffs contend that defendants "acting on their own had limited success when trying to boost revenues through fuel surcharges." Id.; see Pis. Supp. Reply at 2. Plaintiffs contend that these pre-class period "fuel surcharges were applied only sporadically to a limited number of shippers, " because defendants were concerned about competition - "losing business to other [railroads] that did not apply fuel surcharges." Class Mem. at 9-10; see Pis. Supp. Reply at 1.

         According to plaintiffs, another barrier to broad application of fuel surcharges prior to the alleged conspiracy was the wide use of "the so-called Rail Cost Adjustment Factor, or 'RCAF.'" Class Mem. at 11. The RCAF "is a weighted index that accounts for all significant input costs, including fuel." Id. Plaintiffs assert that wide use of the RCAF impeded broad application of fuel surcharges because defendants "recognized that imposing a stand-alone fuel surcharge where fuel price increases were already covered by the RCAF would be perceived by shippers as double dipping." ]d. (internal quotation marks omitted).

         Plaintiffs contend that beginning in the spring of 2003 "the four Defendants agreed to create and apply a common Fuel Surcharge" - linked to the price of oil on one of two oil indexes, the On-Highway Diesel Fuel ("HDF") index or the West Texas Intermediate ("WTI") index - "based on a percentage of base rates on an across-the-board basis to all members" of plaintiffs' putative class. Class Mem. at 19. Under CSX's new, allegedly conspiratorial fuel surcharge program, the railroad would assess a 0.4% surcharge when the price of oil on the WTI index exceeded $23 per barrel, and an additional 0.4% for every dollar above $23. Id. Plaintiffs say that "[u]nlike its predecessor program, which required the price of oil to exceed the threshold price ($28 per barrel under the old program) for 30 consecutive days, CSX's new program would be based on the average price of oil from the preceding month." Id. at 19-20. And plaintiffs allege that BNSF, UP, and NS adopted "essentially uniform" programs, and all four defendants "remained in synch throughout the Class Period." Id. at 24. As plaintiffs describe it,

[t]he only differences in the Defendants' programs concerned the indices used and the thresholds chosen. The two indices chosen were closely related. The western railroads (BNSF and the UP) linked their fuel surcharge to the on-highway diesel fuel (HDF) index, whereas the eastern railroads (CSX and NS) linked their fuel surcharge to the West Texas Intermediate (WTI) index.

Id. at 24 n.76 (quoting Rausser Class Rep. at 54-55); see also Rausser Merits Rep. at 118. Although UP and BNSF used slightly different thresholds in their fuel surcharge programs, plaintiffs assert that this difference "had no practical effect":

The UP applied a fuel surcharge when the HDF was above the threshold of $1.35 per gallon and the BNSF applied a Fuel Surcharge when the HDF index was above $1.25 per gallon. CSX and NS both applied fuel surcharges when the WTI index was above $23 per barrel. The different thresholds used by UP and BNSF were not relevant to fuel surcharge amounts during the class period, because the indices were all above the threshold values for the entire Class Period. Consequently, the UP and BNSF Fuel Surcharge programs provided for identical fuel surcharge percentages once the $1.35 threshold was reached.

         Class Mem. at 24 n.76 (quoting Rausser Class Rep. at 55); see also Rausser Merits Rep. at 119.

         The next step in the alleged conspiracy, according to plaintiffs, was defendants' agreement and collective action to cause the American Association of Railroads ("AAR") to create a new cost escalation index, the All-inclusive Index Less Fuel ("AIILF"), which removed fuel costs from the prior cost escalation index, the All-inclusive Index ("AH"), upon which the RCAF was based. See Rail Freight I, 587 F.Supp.2d at 30; see Class Mem. at 27-28. Plaintiffs maintain that defendants reached this agreement during the October and December 2003 meetings of the AAR; the AIILF index was published in December of 2003. Rail Freight I. 587 F.Supp.2d at 30; see Class Mem. at 29. They point to a letter written by BNSF's chief economist, Sam Kyei, in which he stated:

In December 2003 [Matt Rose, BNSF's chief executive officer], single-handedly got the A.A.R. to establish a non-fuel RCAF index, now called the All-inclusive Index Less Fuel.... In my 18-year railroad career, no one had ever succeeded in steering the A.A.R. to do this.... [T]he combination of sound price escalation using this index and a fuel surcharge should tremendously help our bottom-line for years to come. In fact, ... the entire rail industry should benefit from the escalation options the index provides.

         Class Mem. at 29-30 (quoting RD Ex. 122, Letter from Sam Kyei, to Matt Rose (Mar. 15, 2005), at BNSF-0070502).

         At this point, plaintiffs allege that defendants, having coordinated their fuel surcharges and created and published the AIILF, "worked tirelessly to achieve 100% Fuel Surcharge coverage across their customers." Class Mem. at 31. Plaintiffs say that following defendants' agreement to coordinate their fuel surcharges, defendants' fuel surcharge revenue "skyrocketed." Id. at 42. For example, plaintiffs state that NS saw fuel surcharge revenue for certain businesses "grow exponentially from about $11.6 million in 2002, to about $61.7 million, $208 million, $650 million, and $974 million in 2003, 2004, 2005, and 2006, respectively." Id. at 42-43. Plaintiffs say that because of the conspiracy, defendants "were able to reverse the long-term downward trend in rail freight rates and move rates sharply upward, " Id. at 43, at the expense of putative class members. Id. at 45.

         B. Appeal to the D. C. Circuit

         Based on the allegations in the Second Consolidated Amended Class Action Complaint, the record, the arguments presented by counsel, and the existing case law regarding class certification, the Court certified the plaintiffs' class in 2012. Rail Freight III. 287 F.R.D. at 10. Defendants sought an interlocutory appeal before the court of appeals. In re Rail Freight Fuel Surcharge Antitrust Litig. - MDL No. 1869, 725 F.3d at 247. Before the D.C. Circuit issued its opinion, the Supreme Court decided Comcast Corp. v. Behrend, 569 U.S. 27. The D.C. Circuit concluded that an interlocutory appeal was appropriate under Rule 23(f) of the Federal Rules of Civil Procedure in light of the Supreme Court's decision in Comcast, which vacated the Third Circuit decision relied on by this Court in its class certification opinion. See In re Rail Freight Fuel Surcharge Antitrust Litig. - MDL No. 1869, 725 F.3d at 250-51, 253-54; Rail Freight III. 287 F.R.D. at 26, 62, 69. The D.C. Circuit also pointed to potential pressure on defendants to settle and an "identified defect" in the damages model offered by plaintiffs' expert, Dr. Gordon Rausser. In re Rail Freight Fuel Surcharge Antitrust Litig. - MDL No. 1869, 725 F.3dat251-52, 254.

         Defendants argued to the D.C. Circuit that Dr. Rausser's damages model quantifies injury for all shippers, including so-called "legacy shippers, " shippers who, as they describe, "were bound by rates negotiated before any conspiratorial behavior was alleged to have occurred." In re Rail Freight Fuel Surcharge Antitrust Litig. - MDL No. 1869, 725 F.3d at 252. The D.C. Circuit concluded that this Court had not addressed "the defendants' concern that the damages model yielded false positives with respect to legacy shippers, " and that the Supreme Court's recent Comcast decision "sharpens the defendants' critique of the damages model as prone to false positives." Id. at 253; see also Id. at 254.

         In its initial opinion, this Court also relied on Mims v. Stewart Title Guaranty Co.. 590 F.3d 298, 308 (5th Cir. 2009), and Kohen v. Pacific Investment Management Co., 571 F.3d 672, 677 (7th Cir. 2009), for the proposition that class certification is not precluded "simply because a class may include persons who have not been injured by the defendants' conduct." Rail Freight HI, 287 F.R.D. at 40. The D.C. Circuit stated in reference to those decisions that "Rule 23 not only authorizes a hard look at the soundness of statistical models that purport to show predominance - the rule commands it." In re Rail Freight Fuel Surcharge Antitrust Litig. - MDL No. 1869, 725 F.3d at 255. The court of appeals vacated this Court's decision and remanded to permit it to consider defendants' arguments regarding false positives and legacy shippers in the first instance in light of Comcast. Id. at 254-55. Consistent with the D.C. Circuit's mandate, the Court will address the changes to the Rule 23(b) predominance requirement after Comcast and conduct a rigorous analysis of plaintiffs' and defendants' submissions regarding legacy shippers.

         C. Class Certification Papers and Supplemental Briefing Before the Class Certification Hearing

         To obtain class certification, plaintiffs must satisfy the four threshold requirements of Rule 23(a) - commonly referred to as numerosity, commonality, typicality, and adequacy - and the two additional requirements of Rule 23(b)(3) - predominance and superiority. See FED. R. Civ. P. 23(a)-(b). The central question before the Court relates to predominance: whether plaintiffs have met their burden to show that "questions of law or fact common to class members predominate over any questions affecting only individual members." FED. R. Civ. P. 23(b)(3); see Comcast Corp. v. Behrend, 569 U.S. at 33. That question, in turn, focuses on whether plaintiffs have shown that the harm - that is, the impact - from the alleged conspiracy is capable of proof at trial through evidence that is common to the class rather than specific to its individual members. See Comcast Corp. v. Behrend, 569 U.S. at 33; In re Rail Freight Fuel Surcharge Antitrust Litig. - MDL No. 1869, 725 F.3d at 252.

         On October 15, 2013, the Court heard argument on the parties' respective views on the scope of the remand in light of the DC. Circuit's decision. The Court determined that the "D.C. Circuit neither explicitly nor implicitly restricted the scope of the remand to any single, narrow issue." Order (Oct. 16, 2013) at 2 [Dkt. 691]. The Court therefore permitted briefing on any issues that the parties believed would affect this Court's determination of whether plaintiffs have established that injury and damages could be established through common proof on a class-wide basis. Id. Specifically, the Court asked the parties to address, at a minimum, the following issues in supplemental briefing:

(1) Whether [Comcast] and the D.C. Circuit's remand decision establish a more demanding standard for evaluating expert proof of class-wide injury than the standard previously applied by this Court; and if so, (a) how that standard should properly be articulated or characterized, and (b) whether plaintiffs have met their burden under such standard.
(2) Whether the damages model presented by plaintiffs' expert generates "false positives" of injury to legacy shippers; and if so, whether this defect affects the validity of the model and thereby precludes certification of the class.
(3) Whether [Comcast] and the D.C. Circuit's remand decision reflect a rejection of Fifth and Seventh Circuit precedents holding that "[c]lass certification is not precluded simply because a class may include persons who have not been injured by the defendants' conduct, " Mims v. Stewart Title Guar. Co., 590 F.3d 298, 308 (5th Cir. 2009) (citing Kohen v. Pac. Inv. Mgmt. Co., 571 F.3d 672, 677 (7th Cir. 2009)); and if so, the implications of such rejection in this case.
(4) Whether [Comcast] announced a new rule regarding the acceptability of individualized damages determinations under Rule 23(b)(3) of the Federal Rules of Civil Procedure; and if so, the implications of such a rule in this case.

Id. at 2-3. In the parties' joint statement of proposed topics for class certification opening arguments, the parties added additional topics for discussion that they had also addressed in their supplemental briefs. See The Parties' Joint Statement of Proposed Topics for Class Certification Hearing Opening Arguments (Sept. 15, 2014) at 1-2 [Dkt. 727]. After the parties submitted supplemental briefing, the Supreme Court granted certiorari in another class action case, Tyson Foods, Inc. v. Bouaphakeo, and this Court postponed the class certification hearing pending the Supreme Court's decision in that case. Order (Sept. 28, 2015) at 1. The parties subsequently submitted supplemental briefing regarding the impact on this case, if any, of the Supreme Court's decision in Tyson Foods.

         In their supplemental brief on remand, plaintiffs suggested that the "core question" on remand is "whether Dr. Rausser's model in fact shows damages for shipments that could not have been affected by the conspiracy." Pis. Supp. Mem. at 2. This is incorrect. The D.C. Circuit's mandate was not limited only to questions regarding legacy shippers - although that was a main focus of its concern. See Order (Oct. 16, 2013) at 2-3. Because the D.C. Circuit vacated this Court's decision in its entirety, the Court has considered all of the arguments presented by the parties, and again addresses all of the issues bearing on class certification under Rule 23.

         D. Supplemental Expert Reports

         In addition to supplemental briefing on legal issues, the parties have submitted supplemental expert reports in this case for two reasons. First, as the class certification decision was pending before the D.C. Circuit, the parties continued with merits discovery. Dr. Rausser has now produced merits reports, and defendants' experts have produced responses. Discovery in the merits portion of this case is now closed.

         Second, the parties and this Court discovered only on remand a potential conflict of interest - namely, that for years Dr. Rausser has "consulted with and invested in companies that buy out class action claims for profit - including a claim or claims in this case - while serving as an expert witness in class action cases around the country." In re Rail Freight Fuel Surcharge Antitrust Litig., 75 F.Supp.3d 94, 95-96 (D.D.C. 2014). This development created serious questions about Dr. Rausser's credibility as an expert in this case. The Court considered whether there was good cause to allow plaintiffs to reopen discovery for the purpose of adding supplemental experts. Id. at 98. Defendants objected, but never moved to strike or exclude Dr. Rausser as an expert witness. See Id. at 95-96, 100. After briefing and oral argument, the Court determined that plaintiffs had established good cause to supplement the expert testimony of Dr. Rausser because (1) "the plaintiff class would suffer significant prejudice without the report and testimony of a supplemental expert, " (2) "there [was] no evidence in the record that plaintiffs or their counsel had knowledge of the information affecting Dr. Rausser's credibility, " and (3) "granting the motion [would] not be unduly burdensome or prejudicial to defendants." Id. at 99. The Court therefore permitted plaintiffs to file supplemental expert reports from Dr. Jeffrey J. Leitzinger and Dr. James T. McClave; defendants filed supplemental reports by Dr. Joseph P. Kalt and Dr. Dennis W. Carlton. At the class certification hearing on September 26-30, 2016, the Court heard testimony from all five experts - including Dr. Rausser - and arguments of counsel regarding the integrity of Dr. Rausser's work, his reliability, and his credibility. These issues will be addressed in Part Two of this Opinion regarding the admissibility of the expert testimony of each of the five proffered experts under Daubert and Rule 702.

         PART TWO: ADMISSIBILITY OF EXPERT TESTIMONY UNDER DAUBERT

         I. INTRODUCTION

         While the interlocutory appeal was pending before the court of appeals and prior to the remand, plaintiffs moved to exclude the opinions of defense expert Dr. Joseph P. Kalt. See In re Rail Freight Fuel Surcharge Antitrust Litig., No. 07-0489, 2016 WL 2962186, at * 1 (D.D.C. May 20, 2016). Defendants opposed the motion, arguing that "the proper forum for considering the reliability of Dr. Kalt's methodology and the validity of his opinions [was] at the class certification hearing itself."" Id- The Court denied plaintiffs' motion, concluding mat it was not required to hold a Daubert hearing before and separate from the class certification hearing. Id. at *2-3. The Court recognized, however, that "the Daubert and Rule 23 standards are different, " Id. at *2, and that "a district court must 'conduct a Daubert inquiry before assessing whether the requirements of Rule 23 have been met.'" Id. (quoting In re Blood Reagents Antitrust Litig., 783 F.3d 183, 188 (3d Cir. 2015)): see also Messner v. Northshore Univ. HealthSystem, 669 F.3d 802, 812 (7th Cir. 2012). The Court therefore "will first address the relevance of all expert opinions and the reliability of the experts' methodology under Daubert and Rule 702, and then [separately] conduct the 'rigorous analysis' of all of the relevant evidence ... that is critical to proving the class certification requirements under Rules 23(a) and 23(b) of the Federal Rules of Civil Procedure." In re Rail Freight Fuel Surcharge Antitrust Litig., 2016 WL 2962186, at *2.

         II. EXPERT TESTIMONY AT CLASS CERTIFICATION

         A. Rule 702 of the Federal Rules of Evidence

         "Rule 702 of the Federal Rules of Evidence effectively codifies the Supreme Court's decisions in Daubert v. Merrell Dow Pharm.. Inc., 509 U.S. 579 (1993), and Kumho fire Co. v. Carmichael, 526 U.S. 137 (1999)." FTC v. Whole Foods Mkt. Inc., No. 07-1021, 2007 WL 7632283, at * 1 (D.D.C. July 27, 2007). Rule 702 provides that if the Court finds that "scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue, " and if the Court finds that the witness "is qualified as an expert by knowledge, skill, experience, training, or education, " then the Court may permit the witness to testify - so long as the witness's "testimony is based on sufficient facts or data, " "the testimony is the product of reliable principles and methods, " and the witness has "reliably applied the principles and methods to the facts of the case." Fed.R.Evid. 702. The party seeking to introduce the expert testimony must demonstrate its admissibility under Rule 702 by a preponderance of the evidence. See Meister v. Med. Eng'r Corp., 267 F.3d 1123, 1127 n.9 (D.C. Cir. 2001) (citing Daubert v. Merrell Dow Pharm.. Inc., 509 U.S. at 592 n.10); Rothe Dev. Inc. v. Dep't of Defense, 107 F.Supp.3d 183, 197 (D.D.C. 2015) (citation omitted).

         "[T]he twin requirements for the admissibility of expert testimony are evidentiary reliability and relevance." FTC v. Whole Foods Mkt., Inc., 2007 WL 7632283. at *1. "With respect to evidentiary reliability, the Court's focus must be on the methodology or reasoning employed by application of the factors in Rule 702 and the non-exhaustive list of factors set forth in Daubert and Kumho." Id. (citing Daubert v. Merrell Dow Pharm. Inc., 509 U.S. at 595). These factors include: "(1) whether the theory or technique can be and has been tested; (2) whether the theory or technique has been subjected to peer review and publication; (3) the method's known or potential rate of error; and (4) whether the theory or technique finds general acceptance in the relevant scientific community." Ambrosini v. Labarraque, 101 F.3d 129, 134 (D.C. Cir. 1996) (citing Daubert v. Merrell Dow Pharm. Inc., 509 U.S. at 593-94). The Court is not bound by only these factors when considering reliability. As the D.C. Circuit has noted, "[t]he test of reliability is 'flexible' and 'the law grants a district court the same broad latitude when it decides how to determine reliability as it enjoys [with] respect to its ultimate reliability determination.'" Gilmore v. Palestinian Interim Self-Gov't Auth., 843 F.3d 958, 972 (D.C. Cir. 2016) (emphasis in original) (quoting Kumho Tire Co. v. Carmichael, 526 U.S. at 142).

         "With respect to relevance, the Court must determine whether the proffered testimony is sufficiently tied to the facts of the case and whether it will aid the factfinder in resolving a factual dispute." FTC v. Whole Foods Mkt.. Inc., 2007 WL 7632283, at *1 (citing Daubert v. Merrell Dow Pharm., Inc., 509 U.S. at 592-93). This is a consideration of "fit." Ambrosini v. Labarraque, 101 F.3d at 134 (citing Daubert v. Merrell Dow Pharm., Inc., 509 U.S. at 591). "'Fit' is not always obvious, and scientific validity for one purpose is not necessarily scientific validity for other, unrelated purposes." Id. (citing Daubert v. Merrell Dow Pharm., Inc.. 509 U.S. at 59R

         B. Daubert Test Versus Rule 23(b) Reliability Standard

         On remand, the parties have agreed that the Court must determine whether the plaintiffs have produced a reliable means of proving class-wide injury-in-fact sufficient to satisfy the predominance requirement of Rule 23(b)(3) of the Federal Rules of Civil Procedure. See Class Certification Hr'g Tr. (Sept. 26, 2016) at 26 (plaintiffs' opening argument); Defs. Supp. Opp. at 14. Previously, the Court certified the class under Rule 23 because plaintiffs had shown that Dr. Rausser's theory that injury-in-fact was capable of common proof was "plausible" and that his regression models were "workable." Rail Freight III. 287 F.R.D. at 62. After Comcast. this is no longer enough. Rather, under Rule 23(b)(3), the Court must undertake a rigorous analysis and determine whether there is a "reliable means" of proving injury-in-fact and damages through common evidence. In re Rail Freight Fuel Surcharge Antitrust Litig. - MDL No. 1869, 725 F.3d at 252-53.

         Both Daubert and Rule 23(b) require the Court to determine whether an expert's opinion is reliable. There is no indication, however, that the two reliability standards are one and the same, see In re Processed Egg Prods. Antitrust Litig., 81 F.Supp.3d 412, 417 (E.D. Pa. 2015), and the D.C. Circuit has not spoken to the issue. Although circuit courts of appeal have discussed generally how district courts must evaluate expert opinion at class certification, see William B. Rubenstein, Newberg on Class Actions § 7:24 (5th ed. 2017), only one court has discussed the scope of Daubert's reliability inquiry when courts must also determine reliability under Rule 23(b) or the difference between the two reliability standards. See In re Processed Egg Prods. Antitrust Litig., 81 F.Supp.3d at 415-17.

         As Judge Gene Pratter noted in In re Processed Egg Products Antitrust Litigation, the line between Daubert and class-wide impact "might prove somewhat illusory." 81 F.Supp.3d at 416. "[T]he reliability of the means of proving classwide impact frequently factors into the predominance determination in antitrust class actions, " while, at the same time "the Daubert analysis requires the Court to determine whether the expert testimony is reliable" - thus presenting "potential complications . .. relating to the scope of the Daubert inquiry" at class certification. Id. at 415-16. Judge Pratter emphasized that "the focus of the two inquiries is subtly different." Id. at 417. "Daubert 'focuses on principles and methodology, not on the conclusions generated by principles and methodology.'" Id. (quoting In re TMI Litig., 193 F.3d 613, 670 (3d Cir. 1999)). At class certification, the Court must "rule upon the conclusions generated by the principles and methodology, " id., to the extent that they are relevant to determining whether plaintiffs have satisfied Rule 23(b). Amgen Inc. v. Conn. Ret. Plans & Tr. Funds, 568 U.S. 455, 468 (2013). Rule 23 also requires "the Court to consider questions beyond the reliability" of expert testimony, such as whether the expert testimony is sufficient to demonstrate "common impact or that there is a reliable means of proving damages on a classwide basis." In re Processed Egg Prods. Antitrust Litig., 81 F.Supp.3d at 417.

         Before the Court are the expert reports and testimony of five, often dueling, experts. Their key disputes relate to whether plaintiffs have proffered a reliable means of proving class-wide impact and damages with common evidence, with each expert attacking and/or bolstering the methods and conclusions of the others. The Court therefore will begin by examining the qualifications of each expert, the reliability of their methodologies, and the relevance of their opinions under Daubert and Rule 702, before turning to the "rigorous analysis" required under Rule 23. Although there may be some overlap in these inquiries, the Court will not consider any expert opinion in its Rule 23 analysis that does not first satisfy Daubert and Rule 702. See In re Blood Reagents Antitrust Litig., 783 F.3d at 187. The Court recognizes that "opinion testimony should not be uncritically accepted as establishing a Rule 23 requirement merely because the court holds the testimony should not be excluded under Daubert or for any other reason." In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 323 (3d Cir. 2009). A conclusion that an expert's testimony is admissible under Daubert therefore "does not preclude the Court from denying class certification." In re Processed Egg Prods. Antitrust Litig., 81 F.Supp.3d at 417.

         III. DAUBERT ANALYSIS OF THE EXPERTS IN THIS CASE

         A. Dr. Gordon Rausser

         Dr. Gordon Rausser is plaintiffs' lead expert. He is the Robert Gordon Sproul Distinguished Professor at the University of California, Berkeley. Rausser Merits Rep. at 1. He received a B.S. in agriculture and statistics from California State University, Fresno and an M.S. and a Ph.D. in agricultural economics from the University of California, Davis. See Rausser Merits Reply, Ex. A at 3. He has held positions teaching economics and statistics at numerous universities and has published widely in those fields. See id., Ex. A at 3-48. Dr. Rausser has served as the chief economist at the Agency for International Development and as a senior staff economist on the Council of Economic Advisers. See id-, Ex. A at 2, 50. In addition to his position at Berkeley, Dr. Rausser is a senior economic consultant, founder, and chairman of the board of directors of OnPoint Analytics. See id., Ex. A at 1, 50. OnPoint Analytics is "an economic and statistical consulting firm that also provides data services." Rausser Merits Rep. at 4.

         1. Dr. Rausser's Credibility in Light of his Involvement with Cascade Settlement Services

         a. Factual Background Regarding Dr. Rausser and Cascade

         Before turning to the Daubert analysis of Dr. Rausser's work and his expert opinion, the Court must discuss events that have called into question Dr. Rausser's credibility as an expert in this case. In October of 2014, only a few days before the scheduled remand class certification hearing, the Court was informed that Dr. Rausser "for years, consulted with and invested in companies that buy out class action claims for profit - including a claim or claims in this case - while serving as an expert witness in class action cases around the country." In re Rail Freight Fuel Surcharge Antitrust Litig., 75 F.Supp.3d at 95-96. This information came to light only after the Court had certified the class, relying heavily on Dr. Rausser's expert opinions, and the D.C. Circuit had vacated that decision in light of Comcast and potential flaws in Dr. Rausser's damages model. See In re Rail Freight Fuel Surcharge Antitrust Litig. - MDL No. 1869, 725 F.3d at 255. After numerous status conferences and hearing from both sides, the Court permitted plaintiffs to file supplemental expert reports "address[ing] the reliability and integrity of Dr. Rausser's opinions." In re Rail Freight Fuel Surcharge Antitrust Litig., 75 F.Supp.3d at 100.[2] Defendants' experts were allowed to submit responses. These events, in part, caused a two-year delay in holding the remand class certification hearing.

         Although the Court has outlined some of these events in a previous opinion, it is appropriate to discuss those same facts here given the importance of Dr. Rausser's work to plaintiffs' motion for class certification. "On March 10, 2014, defendants' counsel received an email from an employee of Cascade Settlement Services ('Cascade') named Rod Montgomery." In re Rail Freight Fuel Surcharge Antitrust Litig., 75 F.Supp.3d at 96. Cascade "invests in class action lawsuits by buying out the claims of potential class plaintiffs." Id. at 96 n.2. "It also 'provides comprehensive filing services to maximize settlement proceeds for institutional investors and corporations.'" Id. (quoting Cascade Settlement Services, http://www.cascadesettlement.com/ (last visited Sept. 11, 2017)). Mr. Montgomery's e-mail stated in part:

I fear the company's involvement with Gordon Rausser, majority owner of OnPoint Analytics, could be a serious conflict of interest .... Mr. Rausser holds a non-voting percentage ownership in our company, specifically Cascade, LLC. I believe he has a 10% interest in the company. As a result, he stands to gain directly from any purchases of claims made in the Rail case. He has been able to keep the company apprised of all developments in the case given he has "insider" information. His [damages] model [ ] also might have indirect or direct benefit to him financially.

Id. at 96 (alteration in original).[3] Defendants did not immediately share this information with the Court or with plaintiffs' counsel. Id. In a previously scheduled deposition of Dr. Rausser on July 31, 2014, defendants' counsel asked him "whether 'there [is] any formal relationship between OnPoint Analytics and Cascade Settlement Services.'" Id. Dr. Rausser said no, but he added that OnPoint Analytics "has done work for [Cascade] in the past." Id. In response to further questions, he "denied that he or OnPoint had any ownership or other financial interest in Cascade." Id.; see also Defs. Ex. 1, Rausser Dep. (July 31, 2014) at 829.

         After Dr. Rausser's July 31, 2014 deposition, plaintiffs produced an errata sheet that qualified his response to one of the questions. In re Rail Freight Fuel Surcharge Antitrust Litig., 75 F.Supp.3d at 97. The errata sheet stated that Dr. Rausser did not have an ownership interest in Cascade as a company, but that he did "have the right to share in distributions from certain claims [Cascade] manage[s], but those do not include claims in this case or any other case in which [he is] a testifying expert or OnPoint has performed any services." Id.; see also Defs. Ex. 1, Errata to the Deposition of Gordon C. Rausser at 1-2.

         After additional discovery, it appeared that there was a far more substantial relationship between Dr. Rausser, OnPoint Analytics, and Cascade than Dr. Rausser had acknowledged. In July of 2010, "after completion of Dr. Rausser's first class certification report but before the class certification briefing was completed, Dr. Rausser and OnPoint each began negotiations to enter business relationships with Cascade." In re Rail Freight Fuel Surcharge Antitrust Litig.. 75 F.Supp.3d at 97; see also Status Conference Tr. (Nov. 13, 2014) at 41. This Court held the initial class certification hearing on October 6 and 7, 2010. On October 14, 2010, OnPoint Analytics, the consulting firm of which Dr. Rausser is the chairman and founder, entered into "a modeling services agreement" with Cascade. Class Certification Hr'g Tr. (Sept. 27, 2016) at 334-38.

         Dr. Rausser himself entered into an agreement with Cascade to provide consulting services on December 16, 2010. Class Certification Hr'g Tr. (Sept. 27, 2016) at 335. Under his consulting agreement, Dr. Rausser was to provide Cascade with "strategic services, " "origination services, " and "management services." Defs. Ex. 1, Consultation Agreement at 2. These services included, among other things, identifying cases and claims for purchase, modeling cases and claims, and marketing efforts. Class Certification Hr'g Tr. (Sept. 28, 2016) at 526. Dr. Rausser testified that there was an "oral understanding" with Cascade that he could not receive "any economic interest" for cases in which he was a testifying expert. Class Certification Hr'g Tr. (Sept. 27, 2016) at 340. This understanding was not reflected in his consulting agreement with Cascade or in OnPoint's agreement with Cascade. Class Certification Hr'g Tr. (Sept. 28, 2016) at 562; see also Defs. Ex. 1, Modeling Services Agreement.

         Dr. Rausser's compensation for these services included "distributions from funds." Class Certification Hr'g Tr. (Sept. 27, 2016) at 336. In 2011, Cascade set up Cascade Settlement Services Fund 1 ("Fund 1"). Id. at 339. It appears that Cascade was also trying to set up a second fund at some point after 2011. Id. In general, these funds include claims from class actions that Cascade has purchased at a lower price in the hope of redeeming claims for a higher value later. See Class Certification Hr'g Tr. (Sept. 28, 2016) at 525. Dr. Rausser's consulting agreement entitled him to 10% of "any Distributions received by Cascade from any Fund during that quarter which is attributable to any Contract entered into during the Term." Defs. Ex. 1, Consultation Agreement at 3. In addition to his consulting agreement, Dr. Rausser invested approximately $1.3 million in Fund 1 through a subscription agreement and a promissory note. Class Certification Hr'g Tr. (Sept. 28, 2016) at 528-30.

         Dr. Rausser testified that he had no knowledge that there was a claim from this case in Fund 1 when his deposition was taken on July 31, 2014. Class Certification Hr'g Tr. (Sept. 27, 2016) at 343. Dr. Rausser apparently learned that there was a claim from this case in Fund 1 after his July 31, 2014 deposition, when defendants asked him about Cascade. Class Certification Hr'g Tr. (Sept. 28, 2016) at 558. He testified that he spoke with officials at Cascade, and they later sent him documentation indicating that the Rail Freight claim had been removed from Fund 1. Id.

         Dr. Rausser's possible financial interest in this case, however, is not the only credibility concern. Cascade asked Dr. Rausser and his OnPoint Analytics colleague, Dr. Gareth Macartney, to discuss this case with them. See Class Certification Hr'g Tr. (Sept. 28, 2016) at 535. Dr. Rausser stated that he would answer any questions about this case as a courtesy so long as those questions could be answered from information in the public domain. Id. at 535-36. "[A] handful of times" during the four years that Dr. Rausser worked with Cascade, the company asked questions that could not be answered from information in the public domain, and Dr. Rausser testified that he did not respond to those questions. Class Certification Hr'g Tr. (Sept. 27, 2016) at 338.

         Defendants also have asserted that some of the work that OnPoint produced for meetings with Cascade conflicts with Dr. Rausser's expert opinion in this case. See Class Certification Hr'g Tr. (Sept. 30, 2016) at 1174-75. Specifically, they point to a memorandum from Dr. Macartney to Dr. Rausser, created before a meeting with Cascade, in which Dr. Macartney stated that "Rail Freight claim filing will be complex because":

(a) [t]he class definition excludes legacy contracts and mileage[] based Fuel Surcharges, but includes NS "re-based" Fuel Surcharges ...; (b) Fuel Surcharges depended on the price of oil and were therefore different depending on the timing of the shipment; (c) Fuel Surcharges were different in their underlying indexes (HDF or WTI), thresholds and conversion formulas for different Railroads and different shipper categories (such as Intermodal, Carload and Coal); (d) [t]here were (very rare) instances of exceptional Fuel Surcharges, with slightly non-standard formulas; (e) Interline shipments; [and] (f) [t]he estimate overcharge will vary by time (it was greater when the price of oil was high) and may vary by shipper category (such as Intermodal, Coal etc.), or some other dimension.

Defs. Ex. 1, Memorandum from Dr. Gareth Macartney to Dr. Gordon Rausser (Feb. 1, 2011), at OPA_GR_SUB_00227-28.

         Dr. Rausser did not actually receive any compensation from Cascade. He terminated his consulting agreement in 2014 before receiving any payments - apparently after his connection to Cascade came to light in this case. Class Certification Hr'g Tr. (Sept. 27, 2016) at 336, 338-39. There was no indication at the hearing that Dr. Rausser received a distribution from Fund 1. Dr. Rausser unsuccessfully attempted to sell his investment in Fund 1 to other investors, and he then gifted the investment to the University of California "to support a master's degree program in development practice, focusing on students from less developed countries." Id. at 344. Dr. Rausser testified that he saw no problem with his arrangement with Cascade, but "looking back in time, and given the appearances of some potential lack of objectivity or some potential conflict of interest, it's clear that [he] did not exercise sound judgment." Id. at 338.

         b. Court's Conclusions Regarding Dr. Rausser's Credibility in the Daubert Context

         Defendants have not moved to exclude or disqualify Dr. Rausser. Nor did the parties submit briefing specifically addressing the question whether it was appropriate for the Court to consider Dr. Rausser's credibility in its Rule 702 analysis. Dr. Rausser's affiliation with Cascade and his investments in Fund 1, however, were discussed at length at the remand class certification hearing. The Court has found no precedent - and counsel for the parties have provided none - directly addressing issues similar to those presented by Dr. Rausser's involvement with Cascade.[4]

         As this Court has stated, Dr. Rausser's "credibility has been drawn into serious question" after the discovery of his consulting arrangement and investments with Cascade. In re Rail Freight Fuel Surcharge Antitrust Litig., 75 F.Supp.3d at 96. Typically, any attempt by the Court to evaluate the "credibility of opposing experts and persuasiveness of competing scientific studies" conflates "the questions of the admissibility of expert testimony and the weight appropriately to be accorded such testimony by a fact finder." Ambrosini v. Labarraque, 101 F.3d at 141; cf. Elcock v. Kmart Corp., 233 F.3d 734, 751 (3d Cir. 2000). The Court sees two principal issues with respect to Dr. Rausser's credibility: (1) the potential conflict of interest based on his financial interest in Fund 1 and (2) the possibility that Dr. Rausser or his colleague, Dr. Macartney, provided Cascade with information that potentially is inconsistent with the opinions or conclusions Dr. Rausser has provided in support of plaintiffs' motion for class certification in this case. Given the unique circumstances presented by Dr. Rausser's involvement with Cascade, the Court has carefully considered whether it is necessary to exclude Dr. Rausser's expert opinion and concludes that it is not.

         With respect to whether Dr. Rausser's potential financial interest in Cascade Fund I created a conflict of interest under Rule 702, there is very little relevant case law. The most analogous situation is where an expert testifies on the basis of a contingency fee. Numerous courts have concluded that this practice is unethical, and some courts have found it a proper basis to exclude or disqualify an expert because the expert has a direct financial interest in the outcome of the litigation. See, e.g., Slaughter v. Raymond, No. 08-2170, 2011 WL 1789987, at *2 (CD. Cal. May 9, 2011) (collecting cases). But see Tagatz v. Marquette Univ., 861 F.2d 1040, 1042 (7th Cir. 1988) (noting that an expert's potential conflict of interest, such as a contingency fee arrangement, is a credibility determination for the fact-finder). In addition, at least one court has excluded testimony from an expert witness who was the only shareholder of the plaintiff company and therefore had "the only direct financial stake in the outcome of [the] litigation." See Perfect 10. Inc. v. Giganews. Inc., No. 11-7098, 2014 WL 10894452, at *5 (CD. Cal. Oct. 31, 2014) (emphasis in original). In Perfect 10. Inc. v. Giganews. Inc.. the court noted that district courts "reserve the power to disqualify an expert for rare or extreme cases, " but courts may exercise that power "to achieve 'important policy objectives ... includ[ing] preventing conflicts of interest and maintaining the integrity of the judicial process.'" Id. at *4 (quoting English Feedlot. Inc. v. Norden Labs.. Inc., 833 F.Supp. 1498, 1504 (D. Colo. 1993)).

         The Court concludes that it should not exclude Dr. Rausser under Rule 702 on the basis of his potential financial interest in this case. Dr. Rausser's alleged financial interest here is not similar to an expert testifying on the basis of a contingency fee. And, unlike the expert in Perfect 10, Inc. v. Giganews, Inc., Dr. Rausser is neither the sole investor in Fund 1 nor the sole shareholder of Cascade. See 2014 WL 10894452, at *5. It also is not apparent to the Court that Dr. Rausser submitted his expert reports knowing that he had or potentially had a direct financial interest in the outcome of this litigation. At the outset of his negotiations with Cascade, Dr. Rausser was aware that Cascade sought to buy claims in this case, Class Certification Hr'g Tr. (Sept. 28, 2016) at 533-34, and he identified claims from this case for Cascade's investment portfolio. See Defs. Ex. 1, E-mail from Dr. Gordon Rausser, to John Chilcott (May 21, 2013, 6:02 PM), at OPAGRSUB00880. Dr. Rausser testified, however, that he had no knowledge that a claim from this case was in Fund 1 - the only Cascade fund in which he had invested - prior to submitting his six expert reports in this case. Class Certification Hr'g Tr. (Sept. 28, 2016) at 558. When he called Cascade to check after his deposition in July of 2014, only then did he discover that a claim from this case was in Fund 1. Id. From these facts alone, the Court is not convinced that Dr. Rausser should be excluded under Rule 702.

         The Court next turns to the issue that Dr. Rausser - or his colleague, Dr. Macartney - possibly disclosed information to Cascade or gave it advice that is inconsistent with his expert opinion. The Third Circuit has noted specific instances where it may be appropriate for a district court to consider an expert's credibility at the Rule 702 stage. In Elcock v. Kmart Corp., the Third Circuit stated:

[C]onsider a case in which an expert witness, during a Daubert hearing, claims to have looked at the key data that informed his proffered methodology, while the opponent offers testimony suggesting that the expert had not in fact conducted such an examination. Under such a scenario, a district court would necessarily have to address and resolve the credibility issue raised by the conflicting testimony in order to arrive at a conclusion regarding the reliability of the methodology at issue. We therefore recognize that, under certain circumstances, a district court, in order to discharge its fact-finding responsibility under Rule 104(a), may need to evaluate an expert's general credibility as part of the Rule 702 reliability inquiry. . . . [T]he fact that an expert witness falsely reported his salary on an income tax return [by contrast] has little if any bearing on the reliability of a diagnostic test he frequently employs, but the fact that the expert lied about whether his methodology had been subjected to peer review, or intentionally understated the test's known rates of error, is a different matter entirely.

233 F.3d at 751 n.8.

         Defendants have asserted that Dr. Rausser and his OnPoint Analytics associate, Dr. Macartney, provided Cascade with information about the potential damages claims in this case that is inconsistent with the damages calculations he has offered in his reports. See Class Certification Hr'g Tr. (Sept. 30, 2016) at 1174-75. Defendants assert that Dr. Rausser's damages model provides for a weekly average overcharge for every shipper, regardless of their differences, even though he told Cascade that "the claims filing process in [this] case was going to be complex . . . [and] the estimated overcharge will vary by time and may vary by shipper category." Id. at 1175. Under the Third Circuit's approach, this evidence goes to the weight to be given to Dr. Rausser's expert opinion, not to its admissibility under Rule 702. See Elcock v. Kmart Corp.. 233 F.3d at 751 n.8. There is no allegation that Dr. Rausser lied about his methodologies or his work product in such a way that the Court would need to exclude Dr. Rausser's opinion for lack of reliability under Rule 702.

         Dr. Rausser testified that he did not "exercise sound judgment" in his involvement with Cascade. Class Certification Hr'g Tr. (Sept. 27, 2016) at 338. Despite his testimony that he saw no problem with his arrangement with Cascade, see id., Dr. Rausser was keenly aware that his consulting arrangement could appear to be a conflict of interest. In an e-mail to John Chilcott, a co-founder of Cascade, Dr. Rausser stated that Cascade's marketing department needed to stop using his name and likeness in "marketing materials for use in the Rail Freight case ... so as to avoid any conflict with [his] role as an expert witness." Defs. Ex. 1, E-mail from Dr. Gordon Rausser, to John Chilcott (May 21, 2013, 6:02 PM), at OPAGRSUB00881. The Court agrees that, at the very least, Dr. Rausser did not exercise sound judgment. Dr. Rausser has cost both parties considerable time and money in litigating this case and has put his professional reputation at risk.

         While Dr. Rausser's involvement with Cascade raises serious concerns regarding his credibility as an expert in this case, the Court will not exclude him or his expert opinions on this basis under Daubert and Rule 702. The Court heard extensive testimony and oral argument regarding the reliability of Dr. Rausser's work in support of class certification and will consider those arguments as it proceeds to evaluate the reliability of Dr. Rausser's methods and opinions under Daubert and Rule 702.

         2. Rule 702 Analysis of Dr. Rausser's Expert Opinion

         a. Introduction

         The Court has "broad discretion in determining whether to admit or exclude expert testimony." U.S. ex rel. Miller v. Bill Harbert Int'l Constr.. Inc., 608 F.3d 871, 895 (D.C. Cir. 2010) (quoting United States v. Gatling, 96 F.3d 1511, 1523 (D.C. Cir. 1996)). While defendants have not moved to exclude any of the plaintiffs' experts under Daubert and Rule 702 - including Dr. Rausser - the Court has recognized that district courts must first "conduct a Daubert inquiry before assessing whether the requirements of Rule 23 have been met." In re Blood Reagents Antitrust Litig.. 783 F.3d at 188; see supra at 17. The Court therefore addresses the admissibility of Dr. Rausser's expert opinion even though defendants have not raised any specific Daubert challenges to his work.

         In addition to the twin requirements that expert testimony must be reliable and relevant, FTC v. Whole Foods Mkt.. Inc., 2007 WL 7632283, at * 1, an expert witness also must be "qualified" under Rule 702. An expert may be qualified by "knowledge, skill, experience, training, or education." Fed.R.Evid. 702. The parties stipulated to Dr. Rausser's expertise as an expert in economics and econometrics. Class Certification Hr'g Tr. (Sept. 27, 2016) at 330. Based on Dr. Rausser's education and experience, the Court finds that he is qualified as an expert in economics and econometrics.

         While the D.C. Circuit was considering the interlocutory appeal of this Court's decision to certify the class, the parties continued with discovery in this case. In addition to his initial class certification expert reports, Dr. Rausser has submitted merits reports and supplemental reports, primarily addressing the D.C. Circuit's concern about whether his damages model produces false positives. Dr. Rausser by now has submitted six expert reports in this case: (1) Corrected Expert Report of Gordon Rausser (May 27, 2010); (2) Corrected Expert Reply Report of Gordon Rausser (Sept. 20, 2010); (3) Expert Report of Gordon Rausser (Oct. 15, 2012); (4) Expert Reply Report of Gordon Rausser (June 12, 2013); (5) Supplemental Expert Report of Gordon Rausser (Dec. 19, 2013); and (6) Supplemental Reply Expert Report of Gordon Rausser (May 28, 2014).

         Dr. Rausser's expert opinions can be grouped into five categories: (1) an economic analysis of the rail freight industry and defendants' conduct; (2) an analysis of defendants' transaction data as evidence of common impact; (3) a common factors analysis, (4) a damages model; and (5) a post-remand "legacy decomposition, " which is an in-depth analysis of the legacy shipments identified by defendants. The Court will address each aspect of Dr. Rausser's expert opinion and determine its admissibility under Rule 702.

         b. Qualitative Economic Analysis

         Dr. Rausser begins his expert opinion with an analysis of the documentary evidence in this case. See generally Rausser Merits Rep. at 11-112. At the class certification hearing, Dr. Rausser characterized the first question he examined as whether "there [is] factual support from the discovery record for an agreement [to collude]." Class Certification Hr'g Tr. (Sept. 27, 2016) at 346. Under Rule 704 of the Federal Rules of Evidence, the Court may not exclude evidence "just because it embraces an ultimate issue" in the case. Fed.R.Evid. 704(a). But in an antitrust case, an expert may not opine as to whether there was a conspiracy or an agreement to engage in price fixing; that is a question for the fact-finder. See In re Processed Egg Prods. Antitrust Litig., 81 F.Supp.3d at 421; In re Urethane Antitrust Litis, No. 04-1616, 2012 WL 6681783, at *3 (D. Kan. Dec. 21, 2012). An expert may opine as to whether particular conduct, "assuming [it] occurred, [is] consistent with a conspiracy, " but an expert "may not give any opinion concerning ... whether a particular event actually occurred." In re Urethane Antitrust Litig., 2012 WL 6681783, at *3. In certain portions of his expert reports and testimony, Dr. Rausser comes too close to offering opinions that certain events in fact occurred for the Court to admit these statements.

         At the class certification hearing. Dr. Rausser attempted to testify that defendants "agreed to" (1) "[c]reate aggressive new formulas and apply FSCs as broadly as possible"; (2) create "[p]olicies to ensure their common goal of achieving 100% FSC coverage"; (3) create "[p]olicies against negotiating, discounting, waiving, or offsetting FSCs"; and (4) "[e]ffectuate an across-the-board rate increase." Pis. Ex. 1 at 3; see also Class Certification Hr'g Tr. (Sept. 27, 2016) at 348-50. Dr. Rausser testified that this opinion was based on a number of documents in the record that he reviewed. Class Certification Hr'g Tr. (Sept. 27, 2016) at 349-50.[5] Because this portion of Dr. Rausser's expert testimony seeks to establish that there was in fact an agreement to collude based only on facts in the documentary record, the Court will exclude this portion of his testimony. The Court will also exclude those statements in Dr. Rausser's expert reports in which he opines that defendants intended or agreed to collude and that such actions were pretextual. See, e.g., Rausser Merits Reply at 31, 91, 94; Rausser Supp. Reply at 5.

         As part of his economic analysis in part IV of his Merits Report, Dr. Rausser explains characteristics of the U.S. rail freight industry that make the industry conducive to price fixing. See Rausser Merits Rep. at 11-51. According to Dr. Rausser, these factors are that (1) the alleged cartel members have market power; (2) "there is little threat of entry by non-cartel competitors"; (3) the "product or service is homogenous and interchangeable"; (4) the demand for the product or service "is relatively inelastic"; and (5) "the pricing of the product or service is well understood and easily communicated among industry participants." Id. at 11. Dr. Rausser opines that "[a]ll of these factors are present in the rail freight industry in which the Defendants operate." Id.

         More specifically, Dr. Rausser notes in Part IV that the four defendant railroads "are responsible for the vast majority of shipments in every sizeable state" in the United States. Rausser Merits Rep. at 12. The four defendants "account for over 90% of the track miles" in the continental United States and about "94% of all rail freight revenue" in the continental United States. Id. at 26; see also Class Certification Hr'g Tr. (Sept. 27, 2016) at 348. Because railroads incur high fixed costs to create and maintain railroad infrastructure, the current railroads have a competitive advantage, and there are "significant barriers to entry" for potential competitors. Rausser Merits Rep. at 32. Dr. Rausser states that "[a] price-fixing conspiracy is most effective in situations where demand for the conspirators' goods or service is sufficiently inelastic so that they can sustain artificially high prices without enough customers turning away so as to make the price increase unprofitable." Id. at 36.[6] According to Dr. Rausser, "an analysis of the industry reveals that the Defendants' businesses are concentrated in commodities and distances over which rail is the most cost-efficient transport option and therefore the demand that they faced was in general inelastic." Id. at 38-39; see also Class Certification Hr'g Tr. (Sept. 27, 2016) at 348. Lastly, Dr. Rausser explains that freight railroad companies "use common types of price authority documents" - such as contracts, private price quotes, and tariffs - which allow defendants to monitor each other's pricing behavior, "notwithstanding the extent of private contracting." Rausser Merits Rep. at 45-46; see also Class Certification Hr'g Tr. (Sept. 27, 2016) at 348.

         This portion of Part IV of Dr. Rausser's Merits Report is admissible. An expert is permitted to testify "as to whether an industry's market structure makes it particularly susceptible to collusion." In re Processed Egg Prods. Antitrust Litig., 81 F.Supp.3d at 421; see also In re Urethane Antitrust Litig., 2012 WL 6681783, at *3. Dr. Rausser has reviewed defendants' market share, geographic scope, and services offered to determine that the U.S. rail freight industry is susceptible to price fixing. See Rausser Merits Rep. at 11-49. This opinion certainly is within the scope of Dr. Rausser's expertise as an economist, see In re Processed Egg Prods. Antitrust Litig., 81 F.Supp.3d at 423, and there is no indication that Dr. Rausser's analytical methods are unreliable or based on insufficient data. The Court concludes that his opinions and discussion of these matters would "help the trier of fact to understand the evidence or to determine a fact in issue" and therefore are admissible. Fed.R.Evid. 702(a).

         Part V of Dr. Rausser's Merits Report is a closer call. In Part V of his economic analysis, Dr. Rausser explains that - after a review of the documentary evidence - he concludes that defendants' class period behavior "is consistent with" a price-fixing conspiracy and is "evidence of collusion." See Rausser Merits Rep. at 52-112. The former characterization is admissible expert opinion; the latter is not. To summarize his relevant opinion, Dr. Rausser states that defendants' behavior was "starkly different" during the class period, when compared to the pre-class period. Id. at 53. According to Dr. Rausser, a review of the documentary evidence shows that before the class period, defendants "act[ed] in a unilateral fashion and without [the] benefit of coordination, [and] faced difficulties in forcing shippers to accept their original fuel surcharges due to competitive circumstances." Id. at 55. He states that during the pre-class period fuel surcharges "were not applied consistently to all contracts and were often modified or waived in favor of base rate increases." Id. at 56. But during the class period, he says, defendants "coordinate[d] the development and implementation of their Fuel Surcharge programs, " Id. at 58; see also Id. at 58-70, and they adopted policies against negotiating with shippers and sought universal coverage to increase application of fuel surcharges. Id. at 67, 70-72.

         As previously noted, economic experts may testify as to "whether certain conduct is indicative of collusion, " In re Processed Egg Prods. Antitrust Litig., 81 F.Supp.3d at 420, or "consistent" with a conspiracy. In re Urethane Antitrust Litig., 2012 WL 6681783, at *3. Such testimony necessarily involves consideration of the defendants' conduct in the case. For example, Dr. Rausser states that "[t]he Fuel Surcharge program furthered the cartel's collusive interest, but was inconsistent with Defendants pursuing their independent, unilateral self-interest." Rausser Merits Rep. at 99. "This is precisely the type of inquiry an economist can be expected to make using his expertise." In re Processed Egg Prods. Antitrust Litig., 81 F.Supp.3d at 424. In addition, it can be helpful "for an expert to put events into an economic context." In re Urethane Antitrust Litig., 2012 WL 6681783, at *3. To the extent that Dr. Rausser, after reviewing the documentary record, opines as to whether defendants' behavior is consistent with collusion, this is permissible expert opinion. To the extent that he concludes that there was in fact collusion, it is not. The Court concludes that most, but not all, of Part V of Dr. Rausser's qualitative economic analysis is within the scope of his expertise as an economist and is relevant under Rule 702 to "help the trier of fact to understand the evidence or to determine a fact in issue." Fed.R.Evid. 702(a); see also FTC v. Whole Foods Mkt.. Inc., 2007 WL 7632283, at* l.[7]

         c. Documentary Record and Defendants' Transaction Data as Evidence of Class-wide Impact

         Dr. Rausser asserts that defendants' transaction data indicate that defendants implemented the alleged "Fuel Surcharge strategy across the board and that the prices paid by Class Members increased as a result." Rausser Merits Rep. at 113. According to Dr. Rausser, the transaction data demonstrate that defendants' fuel surcharge formulas were "highly similar." Id. at 114;. see Id. at 114-27. Based upon a review of the documentary evidence, he also states that defendants' policies assured class-wide impact because: (1) defendants intended to achieve universal fuel surcharge coverage, (2) there was a common policy of not discounting base rates, and (3) defendants' policies provided them with a pretext of fuel cost recovery. See Id. at 127-29. Dr. Rausser then states that the transaction data confirm these conclusions. Id. at 129-44.

         This portion of Dr. Rausser's opinion also required a review of the documentary record. It is a "sound economic practice to review the factual record and formulate a hypothesis that can be tested using economic theory, " so "examination of the factual record is necessary to determine which tests to run and to confirm that the stories drawn from the data and from the factual record are consistent." In re Processed Egg Prods. Antitrust Litig., 81 F.Supp.3d at 424. The Court will admit the subsections of Dr. Rausser's analysis that illustrate whether the transactional data demonstrate, for example, widespread application of fuel surcharges or a lack of discounting to shippers. This expert opinion is relevant to the issues to be decided at class certification and is within the scope of Dr. Rausser's expertise.

         The Court need not, however, admit bald conclusions based on the documentary record regarding defendants' intent or whether the fuel surcharge programs were pretextual. Dr. Rausser includes these statements in some of his discussion of the documentary record and the defendants' transaction data. See, ej>., Rausser Class Rep. at 102-03, 111; Rausser Merits Rep. at 127, 129, 145. "[T]he cases are clear that an economist's testimony is not admissible where he or she simply reads and interprets evidence of collusion as any juror might, or where an economist infers intent to collude from mere documentary evidence, unrelated to his or her economic expertise." In re Processed Egg Prods. Antitrust Litig., 81 F.Supp.3d at 421; see City of Tuscaloosa v. Harcros Chems., Inc., 158 F.3d 548, 565 (8th Cir. 1998). Such opinion is beyond the scope of Dr. Rausser's expertise as an economist, and the Court will exclude it as unreliable. See Goodman v. ...


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