Class Actions: When Your Expert Witness Is (and Should Be) an Economist

Episode Notes

Transcript

Dave Scriven-Young:

Hello everyone and welcome to Litigation Radio. I’m your host, Dave Scriven-Young. I’m a Chicago litigator in the commercial environmental employment and architects and engineers practices of O’Hagan Meyer, which handles a full range of litigation matters with more than 285 attorneys and 21 offices across the country. On the show, we talk to the country’s top litigators and judges to discover best practices in developing our careers, winning cases, getting more clients, and building a sustainable practice. Please be sure to subscribe to the podcast on your favorite podcasting app to make sure that you’re getting updated with future episodes. This podcast is brought to you by the litigation section of the American Bar Association. It’s where I make my home in the aba. The litigation section provides litigators of all practice areas, the resources we need to be successful advocates for our clients. Learn more at ambar.org/litigation.

More than 10,000 class action cases were filed in the federal courts in 2023, asserting all types of claims, securities, antitrust, employment, retirement income, security act, employment, consumer protection, privacy insurance, and product liability. And in that same year, class action plaintiffs had a success rate of more than 70% in obtaining certification. In many of these cases, experts played a significant role in class certification. So what are the best practices for working with experts in class action cases? Well, our guest on today’s show will help us to answer that very question, and our guest is Jeffrey Klenk. He’s a managing director in the Washington DC office of Berkeley Research Group. He focuses his practice on the application of economic theory to issues of antitrust as well as to the analysis of damages stemming from commercial litigation matters. Jeff’s work has included providing an analysis of alleged price fixing, tying and bundling arrangements, the use of conditional rebates and resale price maintenance. He has also analyzed reasonable royalties and lost profits and patent infringement matters, lost wages and employment disputes and issues associated with class certification. Welcome to the show, Jeff.

Jeffrey Klenk:

Well, thank you so much for having me on today, Dave.

Dave Scriven-Young:

Well, of course. Well give us a little bit of context and tell us a little bit about your career path and how you ended up working as an expert.

Jeffrey Klenk:

Sure. So I graduated from Penn State in the early two thousands with both my undergraduate and graduate degrees in economics. And in terms of how I ended up in economic consulting, I actually did exactly what I would counsel college students today not to do. I showed up cold to a job interview knowing nothing about the firm I was interviewing with. So rather than me asking detailed questions about the firm I was interviewing with, I found myself having to get an explanation of what the economic consulting field actually was. Needless to say, I did not get that job offer, but I went back to my dorm room and I started to investigate the competitors to the firms with which I had interviewed. And based on the interview and my own research, I became hooked that it quickly became clear to me that economic consulting was a way for me to take my classroom learning, so my academic theory and apply it in a very real world setting. So for instance, you can sit in an industrial organization class for instance, and learn about concepts such as market concentration or competitive strategy, but in economic consulting, you get to take those abstract theories and apply them to actual firms and actual industries and in a sense almost test how well academic theory works in a very applied setting.

Dave Scriven-Young:

Obviously part of the consulting would be litigation. What are some of the other examples of what economic consulting could entail?

Jeffrey Klenk:

Clients will frequently ask for assistance in conducting various sorts of valuations. And so that comes up frequently in the intellectual property space where a client, for instance, might have a portfolio of patents and they would be looking to assign a value to their intellectual property or to those patents in particular. And as economists like to say, economists have a tool set and within that tool set, they have the ability to apply their economic training to solving a wide variety of problems. And so valuing patents, for instance, uses the same sort of tools that I might use and any number of other types of economic cases.

Dave Scriven-Young:

Got it. And then we talked about litigation and especially class actions. My understanding is that there is quite a bit of class action work in the antitrust context. So what is all that about and how do class actions arise in that antitrust context?

Jeffrey Klenk:

I think it’s helpful to talk first a little bit about what an antitrust case is. So there are obviously antitrust laws in America generally governed by the Sherman Antitrust Act. And so that boils down to either a firm or a group of firms acting in concert with the intent of raising prices above competitive levels. And so even if one firm is directing its conduct against just one other firm, chances are the effect is some sort of elevated pricing in the marketplace. And so once you have claims of elevated pricing, then it becomes more evident how a class action might form that. Any firm that believes it paid an elevated price or any consumer who believes he or she paid an elevated price would then have grounds to sue the firm that is accused of raising prices. And so in my experience, I generally see two different types of class actions form in the antitrust arena. One would be a group of consumers bringing a suit or one might be more what one would call industrial purchasers bringing a lawsuit, but both sets of class actions would revolve around allegations of inflated pricing.

Dave Scriven-Young:

Got it. Can you give us an example of a class action that you worked on in the antitrust context, just to give us a concrete example?

Jeffrey Klenk:

Sure. So a few years ago I worked on a case involving aluminum warehousing, and that case actually gained quite a bit of exposure. It was written up in a number of high profile publications like the New York Times for instance, and it involved claims that various investment banks were exploiting a loophole in the warehousing system for aluminum stocks and supposedly as a result of the conduct of the defendants that was causing the price of aluminum to increase above competitive level. So an artificial increase in aluminum pricing.

Dave Scriven-Young:

How are economists then used in those class actions?

Jeffrey Klenk:

Why don’t I talk a little bit about how economists are used in class actions generally? And then we can go back to this specific example involving aluminum warehousing and talk a little bit about the work that my firm did as well as the judge’s decision in that case.

Dave Scriven-Young:

Yeah, that sounds good.

Jeffrey Klenk:

In any class action, regardless of whether it involves antitrust claims or other sorts of claims, the key to getting a class certified is to show that the impact of the alleged misconduct is generally homogenous across all proposed class members. That just because a case is brought as a class action, a defendant doesn’t lose any of its due process rights. So if a defendant would have a certain defense available to it with respect to one particular plaintiff, the defendant then doesn’t lose that ability or that right to bring that defense just because thousands or even millions of claims were aggregated together in a class action. And so one of the things that the court will do when looking to certify a case is to assess whether the impact of the misconduct is common or whether there are all of these individualized defenses that might arise such that there’s no grounds for efficiency or that the defendant might lose its ability to raise these individualized defenses if a class is certified.

And so that’s a lot of legal jargon, but for an economist, what it means is that I analyze accepting the misconduct is true. I analyze what the economic effect of that misconduct would’ve been across all of the proposed class members. So if the claim is elevated pricing, well, how did the prices actually paid by proposed class members change as a result of the misconduct? Did prices in fact go up or were there some proposed class members that due to their own unique or individualized circumstances may have been able to avoid the effects of the price increase? And so if I see all these prices going up and that’s tied to the alleged misconduct, well then that would be indicative of perhaps common impact, more likely a more frequently what I find is that despite claims of elevated pricing, the prices actually paid by proposed class members are all over the place. Some proposed class members actually paid a lower price, some may have paid the same price and some may have in fact paid a higher price. But those are the sorts of individualized economic impacts that I would look for.

Dave Scriven-Young:

And how do you find that out? Because I assume in the complaint it’s going to be drafted in a way that skews toward the plaintiff. Is there some sort of limited discovery that you’re doing during the class certification process and then you’re assisting in the analysis of those documents?

Jeffrey Klenk:

Well, it’s a good question, Dave. And in fact, over the last few decades, the discovery for class certification has really expanded dramatically that I would say in most cases, especially in the antitrust context, it is far from limited. So as an economist, what I would expect to see in terms of discovery for a class certification is transaction level data that would actually let me analyze prices on a transaction by transaction basis across all proposed class members. Now, in one sense that sounds kind of easy. You get this database, you look at prices and you’re off. In fact, it becomes fiendishly difficult that economists like to look at prices on a so-called net basis. So after applying all relevant discounts or rebates or other price reductions. And so that work can get very tedious and very complex very quickly as an economist is trying to drill down to the prices that were actually paid. But ideally, that data would be available at the class certification phase and you could then start analyzing it on a class member by class member basis.

Dave Scriven-Young:

How early should economists be engaged in class actions? Because we are talking about the class certification process. Should economists be engaged before then?

Jeffrey Klenk:

Maybe this is a little bit of my own professional or personal bias coming through, but I think counsel should retain their economists as early as possible. And sometimes that means even before the complaint is filed, that particularly on the plaintiff side, given the heightened pleading standards since wombly for antitrust cases, it is oftentimes helpful to have an economist help draft the complaint that an economist’s input can create a much more specific complaint alleging specific economic conduct as well as specific observations about pricing. But even on the defendant’s side, oftentimes the defendants are large Fortune 500 companies and they need assistance in knowing what data to produce the plaintiffs are going to come in and ask for very specific types of data. And oftentimes responding to those data requests is best done with the help of an economist. So really from both the plaintiff and the defendant perspective, getting your economic expert engaged as soon as possible will oftentimes help the case go smoother and will oftentimes help save costs down the road.

Dave Scriven-Young:

And I’ve worked with experts very early on in some plaintiff’s cases that I’ve worked on in drafting the complaint. It’s been valuable to get experts input not only in the just understanding what you should be thinking about, but then also what facts you need to throw into the complaint. So I imagine in the antitrust context, which has a very specific standard and evidence that you are going to want to use, at least on the plaintiff’s side, I can imagine just using an expert to draft your complaint or to at least review it before it gets filed can be extremely helpful.

Jeffrey Klenk:

Yes, without a doubt.

Dave Scriven-Young:

So let’s talk about tips on working with experts. Attorneys have different styles in how they engage experts and how they use experts throughout the retention. From an expert perspective, what are some tips that you would give attorneys on how best to work with experts such as yourself?

Jeffrey Klenk:

One tip that I would give related more generally to class actions is that in my experience, the attorneys tend to be focused very much on the merits of the case. And that’s not a surprise. They have clients who feel they were aggrieved as a result of the misconduct, or they have clients that are absolutely convinced that they did nothing wrong and they want to be exonerated. And so very often I see attorneys work to develop the discovery record to reflect the merits of a case, but sometimes forgetting about the class certification process. And so oftentimes I find myself reminding attorneys that it’s still the class cert phase of the case. And at Class Cert it’s crucially important to again, analyze the impact and the possibility of individualized issues and taking discovery that will get to those sort, will get to those sorts of issues. So I always counsel attorneys that I work with not to lose sight of class cert because they’re already out trying to fight the case on its merits.

Dave Scriven-Young:

Part of an expert’s job is to assist an attorney in defeating their opponent’s experts, right? Whether that’s preparing for depositions or trial testimony or that sort of thing. So what are some tips that you might give for helping or for attorneys and using experts in defeating the other side’s experts?

Jeffrey Klenk:

It’s a good question, Dave, but let me just register a personal comment that I generally shy away from using the word defeat, that by law as an economist, I am an independent and objective expert. And so while I certainly respond to the other side and criticize the other side for economic mistakes that they might make, I don’t really view it as me defeating someone or me winning a case. It’s really me providing the most accurate and objective economic evidence possible. Now, that said, I very much am involved in critiquing the other side’s economic analysis. And one way I think that I can add real value is in assisting counsel with deposing the other expert. Again, oftentimes counsel in my experience is very wary of deposing an economist that they’re always worried that the economist and right rightly so, knows more economics than they do. And so oftentimes what I observe is attorneys asking very generic or very bland type questions of an economist.

Most economists are experienced enough witnesses that they can pretty easily get through that sort of the depositions that are tough for economists are the ones that really dig into the facts of the case and ask very specific fact-based questions using documents or using industry research. And so I find that deposing an economist is much more effective if you can find a document inconsistent with the opposing expert’s opinions and show him or her that document and then start drawing a contrast between the opinions being offered by the expert and the actual record evidence. That’s when you start to see economists squirm in their seats during a deposition.

Dave Scriven-Young:

Can you give us an example of when you’ve seen perhaps somebody squirming in their seats or a very good cross-examination of an opponent’s expert?

Jeffrey Klenk:

A perfect example is I was working with the defendants and the claim was that it was the defendant’s anti-competitive conduct that was causing a decline in profitability of the plaintiff. And so we obviously started to analyze the plaintiff’s profitability and the reasons for the decline in that profitability. There is no doubt that the plaintiff’s profits had declined, but while plaintiffs were trying to attribute that to the defendant’s anti-competitive conduct, we in fact found a number of reasons unrelated to the anti-competitive conduct for why that firm’s sales were declining. And in fact, the decline in that firm’s sales were well recorded in various trade press. So if one started to look at various newspaper articles or magazine articles or just online, there are all these other reasons for why this firm’s sales had declined, none of which the plaintiff’s economists had accounted for in his analysis. And so then when the attorney started asking questions such as, well, perhaps it was this change in management, perhaps it was turnover among the executive ranks that caused the decline in sales, couldn’t that be? And the plaintiff expert had no answer for that. And so the defendant’s counsel marched through a half dozen factors that could have caused this decline in sales, none of which plaintiff’s economists had accounted for, but any one of which would’ve been sufficient to explain the decline in sales wholly apart from the alleged anti-competitive conduct.

Dave Scriven-Young:

And that certainly seems like a good or fruitful theory for maybe a summary judgment motion and certainly a way to attack, if you will, or try to taint the expert’s opinion at trial.

Jeffrey Klenk:

And I would go even further than that, that particularly in light of the Comcast decision, which requires that in class actions, the plaintiff’s damages model be specifically tied to the alleged misconduct. When you start having these countervailing factors and you don’t account for them, that really undermines any sort of claim that the plaintiff’s motto is specifically tied to the misconduct being alleged.

Dave Scriven-Young:

So tell me a little bit more about the damages standard and how you can go about attacking damages specifically that even seems to be outside of the antitrust context, where certainly damages have to be calculable and not just generally pled once you get to the summary judgment stage or to trial. So we’d love to hear more about how you attorneys can go about using experts to try to attack the opinions of the other side.

Jeffrey Klenk:

This is where econometric analysis becomes very important, and econometrics is just a fancy word for the application of economic theory. Two statistics. So in your garden variety price fixing case where firms get together in the proverbial cigar smoke filled room and raise prices, it may very well be that we observe increased prices in the marketplace. But just because a group of executives met and agreed to raise prices, and just because we observe elevated pricing doesn’t mean that there’s necessarily a link between those two events. It could also be, for instance, that an important raw material price increased during that same time period. So one could think back to the fluctuations in oil particularly over the last two decades, oil prices have skyrocketed and then fallen back and then skyrocketed again. And so if you’re going to make the claim that an observation of elevated prices is attributable to the defendant’s misconduct, you also then need to account for all of these other factors that also could have affected prices. Even econometric analysis isn’t necessarily going to show that causal link, but it will at least start to eliminate other possible causes such as oil price fluctuations that may have resulted in elevated pricing.

Dave Scriven-Young:

And you hear a lot about that in the political realm where you don’t really have to have a lot of evidence in order to back up your claim, but certainly in a court of law, you certainly need to make those specific connections in order to meet a standard of proof. So that’s interesting. And so I guess finally, in terms of discovery, we talked a little bit about discovery, but how else can experts be helpful in going through document productions and other discovery in terms of crafting as well as kind of responding to discovery requests and then actually going through kind those records?

Jeffrey Klenk:

Well, again, in my experience, economists and lawyers are generally reviewing the record for very different points. Again, attorneys are oftentimes reviewing the record for that smoking gun document that either vindicates the plaintiffs or exonerates the defendants, but that’s very much merits related. And oftentimes the sorts of documents that would either speak to common impact or the documents that would speak to individualized situations tend to be glossed over by attorneys because they aren’t laser focused on the economics of class certification. And so oftentimes in my experience, I’ll get sent a batch of so-called Hot documents, and I’ll look through the documents and I can easily see why they were flagged as hot. But frequently they are of little relevance to me as an economist trying to wrestle with the economic implications of the challenge conduct. And so I will then send my staff back through the documents, for instance, looking for very specific items that the attorneys simply may not have been clued in on.

The other thing I would note here is that I, and most other, or at least many other economists will ask for access to the entire document record. And I think whenever that request gets made, attorney’s initial response is to see dollar signs and to see some sort of elevated cost. And certainly without careful management that can become expensive. But why I do it is twofold. First, it is to make sure that I am finding the right documents that are laser focused on the economics of the case, but there’s also a real risk at deposition to accusations of your economist having been spoonfed materials by attorneys and not having conducted his or her own independent review of the record. And so even if it’s just me taking some of my staff and having them take a day or two to go through the Relativity database, for instance, I like being able to say that I had unfettered access to the record so that I could conduct my own independent review and accurately assess the record without having been limited to just documents that the attorneys thought it was important that I review.

Dave Scriven-Young:

Well, and that’s a great practice point as well, which is when you have an expert retained and you’re having folks go through the record that you should actually ask the expert, Hey, what are the records that we should be looking for to help and to assist in your review of the case as well? In addition to kind of the legal stuff that we think is important, because that’s why we retain experts is because you have a perspective on either an industry or some other kind of academic analysis that we don’t understand. And so you can direct us to categories of records that we may not even know are relevant. So good example of That’s a great

Jeffrey Klenk:

Point. Good example of that, for instance, is in a price fixing case, if I were retained by the defendants, what I would want to show are all of these individualized negotiations. So even if some sort of price was agreed upon in that smoke-filled room, the defendants still were out negotiating with their customers in violation of whatever alleged agreement was reached. And so I would frequently then ask for emails or other documentation of negotiations between the defendant, ands customers, or I might even ask for a very specific category of documents such as meeting competition documents where firms for resale price maintenance purposes, or for Robinson Patman purposes have to document why they are giving out discounts. And so those are the sorts of documents that have little bearing on whether or not executives met, but could be crucial in determining what the effect of any agreement was actually out in the marketplace.

Dave Scriven-Young:

Excellent. Well, great tips really do appreciate that. Jeff, we are at the end of our time together. Kind of any last thoughts you might have on the use of experts, specifically economists in class actions.

Jeffrey Klenk:

I think when attorneys and economists can find a way to work together, it has synergistic effects that effectively using your economists or economists actually listening to their attorneys definitely results in improved or enhanced work product.

Dave Scriven-Young:

Well, hopefully our listeners have gained some knowledge in that regard. And Jeffrey Clank from Berkeley Research Group, thank you so much for being on the show today.

Jeffrey Klenk:

Well, thank you for having me. I really enjoyed it.

Dave Scriven-Young:

And now it’s time for a quick tip from the A litigation section. I’m pleased to welcome back Latasha Ellis to the show. It is Latasha’s last tip, Latasha’s litigator in the Washington DC Office of Hunt, Andrews Kirth focusing on insurance coverage cases. Welcome back to the show, Latasha.

Latosha M. Ellis:

Hey, thank you.

Dave Scriven-Young:

Well, I understand you’re going to be giving us some tips about professional civility. So what is your quick last tip?

Latosha M. Ellis:

My swan song? So I really wanted to talk about professional civility because of a conversation I had with a group of attorneys earlier this week. One of the attorneys that I was talking to, he said, we need to be really aggressive, we need to be aggressive. And the other attorney said, I think we just need confident advocacy. And so that just got me thinking about professional civility generally. And before I go into the three tips that I have, I did want to just dispense with what I think are some wildly held misconceptions about civility at the outset. First, I think that civility is not the same as agreement. I think the presence of civility does not mean the absence of disagreement. In fact, I think most state bars and obviously the A, b, A, we have codes of civility, which assumes that people will disagree.

I also think that civility is not the absence of criticism respect for the other person or the party. Sometimes it does in fact call for criticism, but that does not mean that you are not being civil. And I also don’t think that civility, it is not the same as liking someone. I think knowing or liking the other person is not a prerequisite for civility. I mean, civility compels us certainly within as a litigator to show respect even for others who we are sharing our space with in the Courtroom. And finally, I think that civility should not be equated with politeness or manners alone. Although impoliteness is certainly almost always uncivil. Good manners are alone, I do not think are the mark of civility. So having dispensed with those misconceptions, I wanted to share three tips that I think will help people, particularly litigators practice professional civility.

The first tip is what goes around comes around. I personally think this is maybe one of the best reasons for civility. There is always an instance when you may need some consideration from opposing counsel. And my school of thought is always, if it doesn’t prejudice my case, if it doesn’t prejudice my client, then why not do it? Why not give that extension? Why not agree to change a hearing date? If it’s not going to prejudice your case or your client, you should do it. The second tip is waste, not want, not generally the behaviors that constituted almost always results in increased resources, time and money. So it’s the lawyer’s time, which inevitably means the client’s money and in most instances, both the time and money for the court. So waste, whatnot, I think is always the balance and something that should be top of mind.

If you’re thinking about disagreeing or being uncivil so to speak, and not agreeing to that extension or not agreeing to change that hearing date or maybe doing something else that you probably isn’t the nicest thing. And the third tip is there is power in the written word. If you don’t say it, if you don’t write it, then you don’t have to explain it. I think in today’s age, with email and everyone being able to email and send things quickly, there’s what I call keystroke courage. And while those emails and those letters may feel good to write, I think that sometimes you just have to take a beat and think about whether or not it should actually be sent. I think that as a former clerk, whenever we saw briefs with what we considered outrageous language or accusations and briefs, we considered it the functional equivalent of shouting in court.

And it always made us wonder, this must mean that they have a terrible argument because why would they be so uncivil in their brief? So I think it’s important to remember the power in the written word, especially because that email may become an exhibit, but just not dignifying bad behavior by responding to it. So in today’s world, I think greater client influence requires more civility in some instances. And I think that professional civility, especially for litigators, is so important in building relationships, credibility and the legal practice and certainly the Courtroom and your reputation, but also in some instances, if you’re going to take that extra step to avoid disciplinary measures. So when thinking about how to practice professional civility, I hope that everyone will remember three things, what goes around comes around waste, not want, not your time, your client’s money, and third, just the power of the written word. And so those are my tips and for what is my final episode or my final tips for the podcast. So thanks Dave.

Dave Scriven-Young:

Well, wonderful tips as always, Latasha, and thank you so much for being on the show today, but as well as just providing the best tips and contributions over the past several years. So thank you so much.

Latosha M. Ellis:

Thank you. It’s certainly been my pleasure. And who knows, maybe I will come back around and do some more things for the podcast in the distant future.

Dave Scriven-Young:

Well, I sure hope you will, and we would love to have you back on. So thanks again.

Latosha M. Ellis:

Thank you.

Dave Scriven-Young:

And that’s all we have for our show today. And I’d love to hear your thoughts about today’s episode. If you have comments or questions you’d like for me to answer on an upcoming show, you can contact me at d scriven Young at O’Hagan meyer dot and connect with me on social. I’m a attorney, DSY on LinkedIn, Instagram X, and Facebook. You can also connect with the ABA, Litigation Section on those platforms as well. But as much as I’d like to connect with you online, nothing beats meeting you in person in one of our next litigation section events. So please make plans to join us at the 2024 Professional Success Summit taking place November 7th through the eighth in Atlanta, Georgia. The Summit features empowering programming to help you unlock your professional potential. Whether you seek valuable trial tips, engaging networking opportunities, insight from leading lawyers and judges, or CLE credit, you’ll leave this inclusive summit with tools and practical insights to help you achieve your greatest heights.

Register today at ambar.org/pss 2024. If you like the show, please help spread the word by sharing a link to this episode with a friend or through a post on social and invite others to join the show and community. If you can leave a review over at Apple Podcast, it would be incredibly helpful. Even a quick rating at Spotify is super helpful as well. And finally, I want to quickly thanks some folks who make the show possible. Thanks, Michelle Oberts, who’s on staff with the litigation section. Thanks. Also goes out to the co-chairs of the Litigation Section’s audio content committee, Haley Maple and Tyler True thank you to the audio professionals from Legal Talk Network. And last but not least, thank you so much for listening. I’ll see you next time.

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