United States District Court, N.D. Illinois, Eastern Division
MEMORANDUM OPINION AND ORDER
AMY J. ST. EVE, District Judge.
Plaintiff Hannah's Boutique, Inc. ("Hannah's") has moved to bar certain opinions of
Defendants' expert Dr. Robert Kneuper and to strike Dr. Kneuper's expert report pursuant to Federal Rule of Evidence 702, Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993), and Federal Rule of Civil Procedure 37. For the following reasons, the Court denies Hannah's motion.
Hannah's is a specialty boutique located in Palos Park, Illinois that sells prom and homecoming dresses. (R. 270, Pl.'s Resp. to Defs.' SOF ¶ 2.) Peaches Boutique also sells prom and homecoming dresses, and is the largest specialty boutique retailer in the Chicago area. (R. 270, Pl.'s Stmt. of Add'l Facts ¶¶ 3, 7, 16, 17.) Defendants Roy and Barbara Surdej opened Peaches in 1985, and Defendant Jeffrey Surdej is their son. (R. 270, Pl.'s Resp. to Defs.' SOF ¶ 3.) Hannah's alleges that Peaches attained the largest market share in the Chicago Market by engaging in anticompetitive and predatory acts specifically aimed at foreclosing competition. (R. 188, Am. Compl. ¶ 9.) These alleged acts include demanding that certain high-end dress designers (the "Designers") not sell to specific specialty boutiques within the Chicago Market, including Hannah's, and organizing a meeting with the Designers at which Defendants attempted to impose policies on the Designers to limit the sale of dresses to other boutiques. ( Id. ¶¶ 10, 89-100.) Based in part on these allegations, Hannah's filed suit against Peaches under Section 2 of the Sherman Act, 15 U.S.C. § 2, for attempted monopolization (Count I), conspiracy to monopolize (Count II), and monopolization (Count III); under Section 1 of the Sherman Act, 15 U.S.C. § 1, for concerted refusal to deal (Count IV) and unreasonable restraint of trade (Count V); under Section 3 of the Clayton Act, 15 U.S.C. § 15, for exclusive dealing (Count VI); and under the Illinois Antitrust Act for illegal monopolization and unreasonable restraint of trade (Count VII) (the "Antitrust Claims"). Hannah's also asserts a variety of non-antitrust Illinois state law claims against Peaches. Peaches has moved for summary judgment solely on the Antitrust Claims, arguing that Hannah's cannot show that Peaches possessed "market power, " which Peaches contends is required for each of the Antitrust Claims.
In support of its arguments, Peaches disclosed Dr. Kneuper as an economic expert. He conducted an assessment of Hannah's antitrust allegations, and gives several opinions related to them. First, Dr. Kneuper opines that it is not economically plausible that Peaches possesses or potentially possesses market power relating to the retail sale of prom and homecoming dresses. Second, he opines that Plaintiff's alleged antitrust market is overly narrow and arbitrary. Third, according to Dr. Kneuper, Plaintiff's allegations of direct anticompetitive effects are not supported by the economic evidence. Hannah's moves to exclude the first opinion on several different grounds, and to bar Dr. Kneuper from relying on certain of Defendants' sales spreadsheets in giving his opinions. Plaintiff does not otherwise challenge Dr. Kneuper's second and third opinions, nor does it challenge his qualifications as an economic expert. The Court held a Daubert hearing on Plaintiff's motion on May 19, 2015 during which Dr. Kneuper testified.
"A district court's decision to exclude expert testimony is governed by Federal Rules of Evidence 702 and 703, as construed by the Supreme Court in Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993)." Brown v. Burlington N. Santa Fe Ry. Co., 765 F.3d 765, 771 (7th Cir. 2014); see also Lewis v. Citgo Petroleum Co., 561 F.3d 698, 705 (7th Cir. 2009). Rule 702, governing the admissibility of expert testimony, provides:
A witness who is qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of an opinion or otherwise if: (a) the expert's scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue; (b) the testimony is based on sufficient facts or data; (c) the testimony is the product of reliable principles and methods; and (d) the expert has reliably applied the principles and methods to the facts of the case.
"In short, the rule requires that the trial judge ensure that any and all expert testimony or evidence admitted is not only relevant, but reliable.'" Manpower, Inc. v. Ins. Co. of Pa. 732 F.3d 796, 806 (7th Cir. 2013) (citing Daubert, 509 U.S. at 589, 113 S.Ct. 2786); see also Bielskis v. Louisville Ladder, Inc., 663 F.3d 887, 894 (7th Cir. 2011) (explaining that ultimately, the expert's opinion "must be reasoned and founded on data [and] must also utilize the methods of the relevant discipline"); Lees v. Carthage College, 714 F.3d 516, 521 (7th Cir. 2013) (explaining the current version of Rule 702 essentially codified Daubert and "remains the gold standard for evaluating the reliability of expert testimony"). The Daubert principles apply equally to scientific and non-scientific expert testimony. See Manpower, Inc., 732 F.3d at 806 (citing Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137, 147-49, 119 S.Ct. 1167, 143 L.Ed.2d 238 (1999)).
Under the expert-testimony framework, courts perform the gatekeeping function of determining whether the expert testimony is both relevant and reliable prior to its admission at trial. See Manpower, Inc., 732 F.3d at 806; Lees, 714 F.3d at 521; United States v. Pansier, 576 F.3d 726, 737 (7th Cir. 2009) ("To determine reliability, the court should consider the proposed expert's full range of experience and training, as well as the methodology used to arrive [at] a particular conclusion."). In doing so, courts "make the following inquiries before admitting expert testimony: first, the expert must be qualified as an expert by knowledge, skill, experience, training, or education; second, the proposed expert must assist the trier of fact in determining a relevant fact at issue in the case; third, the expert's testimony must be based on sufficient facts or data and reliable principles and methods; and fourth, the expert must have reliably applied the principles and methods to the facts of the case." Lees, 714 F.3d at 521-22; see also Stollings v. Ryobi Techs., Inc., 725 F.3d 753, 765 (7th Cir. 2013); Pansier, 576 F.3d at 737. A district court's evaluation of expert testimony under Daubert does not "take the place of the jury to decide ultimate issues of credibility and accuracy." Lapsley v. Xtek, Inc., 689 F.3d 802, 805 (7th Cir. 2012) (citing Daubert, 509 U.S. at 596). Once it is determined that "the proposed expert testimony meets the Daubert threshold of relevance and reliability, the accuracy of the actual evidence is to be tested before the jury with the familiar tools of vigorous cross-examination, presentation of contrary evidence, and careful instruction on the burden of proof.'" Id.
Hannah's moves to strike Dr. Kneuper's first opinion that Peaches does not possess market power on several grounds. Dr. Kneuper bases his market power opinion on his conclusion that Peaches lacks market share, and Hannah's directs the majority of its arguments at that conclusion. Hannah's argues that a) Dr. Kneuper's use of the population of high school aged girls is not an accepted methodology for determining market share in the economic community; b) Dr. Kneuper's use of "basic intuition" to calculate market share is not admissible; c) the Court should exclude Dr. Kneuper's market share opinions because they only include Defendants' 2013 dress sales where a specific prom or homecoming event was registered; d) Dr. Kneuper's use of square footage to calculate Defendants' market share does not satisfy Daubert; e) Dr. Kneuper bases his market share opinions regarding the percent of square footage that Defendants possess upon unreliable data; and f) Dr. Kneuper's market power opinions ignore relevant and material sales data. Finally, Hannah's also moves to bar Dr. Kneuper from relying on several spreadsheets of sales data because Peaches allegedly did not produce the underlying data to Plaintiff in contravention of a Court order. The Court addresses each argument in turn.
I. Market Power Opinion
The Court first examines Hannah's arguments directed towards Dr. Kneuper's opinion on market power.
A. Estimation of Market Size Based Upon Populations of High School Aged Girls
Hannah's first two arguments, in which it criticizes Dr. Kneuper's reliance on population figures of high school aged girls and his use of "basic intuition" to calculate market share, both relate to Dr. Kneuper's estimate of the total market size, so the Court addresses them together. In reaching his conclusion that Peaches does not possess market power because its market share is too low, Dr. Kneuper performed several market share calculations. In one of them, he calculated Peaches' market share by comparing Peaches' unit sales with his estimate of the total unit sales in the relevant market. Dr. Kneuper calculated the total unit sales in part based on information that Plaintiff alleges in the Amended Complaint and that Plaintiff's witnesses confirm. In one of his calculations, he assumed that 50% of all high school aged girls attend prom or homecoming and that 75% of those girls attending dances buy one or more dresses. When asked about his basis for this assumption at his deposition, Dr. Kneuper testified that he based it upon "a combination of information [he] reviewed in this case and just basic intuition." (R. 241-2, Kneuper Dep. at 221.) He stated further, "I can't point you to a document in the case that provides those numbers if that's what you're asking." ( Id. at 222.) In its motion, Hannah's challenges both Dr. Kneuper's methodology for calculating Peaches' market share based on population data, and Dr. Kneuper's use of his "basic intuition" in his calculations.
"The role of the judge is to ensure that... the expert is using a valid methodology (scientific or otherwise), that there is sufficient data to justify the use of the methodology in the particular case, and that the expert applied the methodology appropriately." Stollings, 725 F.3d at 765. "Rule 702's requirement that the district judge determine that the expert used reliable methods does not ordinarily extend to the reliability of the conclusions those methods produce- that is, whether the conclusions are unimpeachable." Id. "Rule 702's reliability elements require the district judge to determine only that the expert is providing testimony that is based on a correct application of a reliable methodology and that the expert considered sufficient data to employ the methodology." Id. at 766. The Seventh Circuit has instructed that the "critical inquiry is whether there is a connection between the data employed and the opinion offered." Manpower, Inc., 732 F.3d at 806. If the opinion is "connected to existing data only by the ipse dixit of the expert, '" then it "is properly excluded under Rule 702." Id. (quoting General Electric Co. v. Joiner, 522 U.S. 136, 146, 118 S.Ct. 512, 139 L.Ed.2d 508 (1997)).
Dr. Kneuper performed his challenged calculations as follows. In its Amended Complaint, Plaintiff cites data from the United States Census Bureau that the Chicago Market has approximately 271, 761 girls between the ages of 15 and 19, and approximately 221, 146 girls between the ages of 14 and 17. (R. 188, Am. Compl. ¶ 4.) Plaintiff alleges that "[t]hese high school girls attend one (1) or more prom and homecoming dances each year, and many of these high school girls purchase different dresses for each event." ( Id. ¶ 5.) At her deposition, Susan Shaban, the owner of Hannah's, confirmed that she continued to believe that these statements are accurate. (R. 269-1, Shaban Dep. Tr. 163-165.) Dr. Kneuper also determined independently that there were 207, 858 females enrolled in Illinois public high schools located within the Chicago metropolitan statistical area during 2013. (R. 241-1, Kneuper Rep. at 26.)
Using these figures, Dr. Kneuper made several different estimates of the number of units sold in the Chicago Market. First, he used the 271, 161, 221, 146, and 207, 858 figures themselves as his estimate of the total number of units sold in the market. Then he conducted what he terms a "sensitivity analysis, " in which he assumed that only 50% of high school aged girls attend prom or homecoming, and only 75% of the girls attending those dances buy one new prom or homecoming dress. He then applied those percentages to each of the 271, 161, 221, 146, and 207, 858 numbers and estimated the total size of the market to be 101, 910, 82, 930, and 77, 947 units, respectively.
Hannah's first argues that the Court should exclude Dr. Kneuper's estimates of the size of the market because using population data to calculate market size is not a valid economic methodology. In response, Peaches argues that Dr. Kneuper is not using population data to calculate the market size, but instead is using the total number of units sold. Peaches contends that in estimating the total number of units sold it is merely relying on the population data that Plaintiff alleges in its complaint, and that Plaintiff's principal Ms. Shaban re-affirmed at her deposition. Peaches then asserts that Dr. Kneuper's calculation of the size of the market based on the total number of units sold is a valid economic methodology.
The Seventh Circuit recently addressed a similar issue in Stollings. In Stollings, the district court had barred the plaintiff's expert in a personal injury case from testifying to his opinion that the costs of including automatic braking technology on the model of saw that caused the alleged injury would not outweigh its benefits to society. Stollings, 725 F.3d at 764. The expert's opinion was based on his estimate that the automatic braking technology would be 90 percent effective, which he in turn based on the testimony of another witness that the technology worked in the "vast majority" of instances. Id. The district court excluded his testimony in part because it found the 90 percent figure to not be reliable, which it determined rendered the expert's entire opinion unreliable. Id. at 764-65.
The Seventh Circuit reversed, noting that because the district court had found the expert's methodology to be reliable, it "should have let the jury determine how the uncertainty about the effectiveness rate" affected the weight of the expert's testimony. The Seventh Circuit also noted that "[a]lthough the 90 percent figure was undoubtedly a rough estimate, it is also clear that [the expert's] bottom-line estimate of societal costs of saw accidents was so high that his opinion would have remained essentially the same even if the effectiveness rate were actually quite a bit lower... A jury should be capable of understanding how the value of the estimate affected [the expert's] conclusions." Stollings, 725 F.3d at 766-67.
Here, the Court similarly finds Dr. Kneuper's methodology of using total unit sales to determine the market size reliable. He cites several economic sources in support of this methodology, including the Horizontal Merger Guidelines of the United States Department of Justice and Federal Trade Commission, and Plaintiff itself does not contest using unit sales to calculate market size. As Dr. Kneuper explained at the hearing when asked how an expert typically calculates market share in an antitrust case:
Well, typically, one uses sales if sales are available. In most situations, sales is preferred. Some situations, other measures may be preferred. Where sales are not available, economists will typically look at - and by "sales, " I mean dollar sales. Economists will typically, in the alternative, look at unit sales or they will look at, in some cases, some count of competitors or what I would call an adjusted competitor count, as well, or capacity.
(5/19/15 A.M. Hearing Tr.) Dr. Kneuper testified that because he could not find reliable dollar sales data, he calculated Peaches' market share using a unit sales approach.
With respect to using population data specifically to estimate unit sales, Dr. Kneuper had the following colloquy with the Court:
THE COURT: And, so, the question is: Do you have any literature that supports your use of those units? Are ...