# Dennis v. The Andersons Inc.

> District Court, N.D. Illinois · December 17, 2024

URL: https://www.frixlaw.com/law-library/cases/10761551

## Case

- **Court:** District Court, N.D. Illinois
- **Decided:** December 17, 2024
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/10761551

## How later opinions describe it (automated extraction)

- describing the inquiry required under Fed. R. Evid. 702 and Daubert v. Merrill Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993)
- explaining that the inquiry on whether an expert’s opinion is reliable “focuses on the expert’s methodology, not whether we agree with his conclusion.”

## Opinion text

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

RICHARD DENNIS, PORT 22, LLC., )
and MICHAEL GLASS )
)
Plaintiffs, ) No. 20 C 4090
)
v. ) Judge Robert W. Gettleman
)
THE ANDERSONS, INC. and CARGILL, INC. )
)
Defendants. )

MEMORANDUM OPINION & ORDER
In a motion still pending before the court, Richard Dennis, Port 22, LLC, and Michael
Glass (collectively “plaintiffs”) seek to proceed on behalf of a class of similarly situated wheat
futures market participants on claims of market manipulation under the Commodity Exchange
Act, violations of the Sherman Antitrust Act, and unjust enrichment and restitution/disgorgement
under Illinois law, against The Andersons, Inc. and Cargill, Inc. (collectively “defendants”).
Magistrate Judge Keri L. Holleb Hotaling previously issued a memorandum opinion and order
(Doc. 188) primarily denying1 defendants’ motion to exclude the testimony of plaintiffs’ class
certification expert Dr. Craig Pirrong (Doc. 143). Currently before the court is defendants’
objection to that order (Doc. 194). For the reasons explained below, defendants’ objection is
denied.
BACKGROUND
Plaintiffs assert Commodity Exchange Act and Sherman Antitrust Act claims, alleging
that defendants, who were supposed competitors, operated multiple grain storage warehouses in

1 Judge. Holleb Hotaling’s opinion granted defendant’s motion in small part regarding Dr. Pirrong’s statements in
paragraphs 49, 184, and 202 because they “cross the line into improper state-of-mind testimony.” Doc. 188 at 22.
Ohio and collaborated to manipulate prices of soft red winter wheat (“SRW wheat”) futures and
options contracts on the Chicago Board of Trade (“CBOT”).
Plaintiffs allege that defendants sold SRW wheat to the major purchasers in October and
November 2017 to suppress demand for physical SRW wheat. Then, on November 29, 2017,

The Andersons, Inc. registered for delivery two thousand certificates of CBOT December 2017
SRW wheat. This registration (falsely and intentionally, plaintiffs allege) signaled that The
Andersons, Inc. would sell ten million bushels of physical SRW wheat to parties holding long
positions in December 2017 SRW wheat futures. Consequently, December 2017 SRW wheat
futures prices decreased and the spread between the December 2017 and March 2018 SRW
wheat futures contracts widened. Defendants later collectively repurchased some of the shipping
certificates The Andersons, Inc. had delivered at the decreased prices. Plaintiffs allegedly
transacted in December 2017 and March 2018 SRW wheat futures and lost money because of the
decreased prices and widened spread caused by the scheme.
With certain exclusions unnecessary to enumerate here, plaintiffs seek to certify a class of

individuals or entities who purchased one of three positions in CBOT SRW wheat—(1) a long
position in CBOT SRW wheat December 2017 or March 2018 futures contracts; (2) a long
position in CBOT call options on CBOT SRW wheat March 2018 futures contracts; or (3) a short
position in CBOT put options on CBOT SRW wheat March 2018 futures contract—and then
liquidated the position through either an offsetting market transaction between November 30,
2017, and December 14, 2017, or a sale of a long position in a CBOT March 2018 futures
contract that was initiated prior to December 14, 2017, but closed after that date.
In their class certification filings, plaintiffs rely upon the initial and rebuttal reports of
their expert, Dr. Craig Pirrong (“Pirrong”), to establish requirements for class certification,
including typicality and predominance of common issues over individual issues. Pirrong opines
that defendants’ manipulation of December 2017 and March 2018 SRW wheat futures injured
plaintiffs on a class-wide basis. Pirrong estimates class-wide damages and proposes a
methodology for determining individual damages. Defendants challenged the reliability of

Pirrong’s study through the report of their expert, Professor Justin McCrary.

LEGAL STANDARD
A district court’s review of any non-dispositive decision made by a magistrate judge is
governed by Fed. R. Civ. P. 72(a), which states: “The district judge to whom the case is assigned
shall consider such objections and shall modify or set aside any portion of the magistrate judge’s
order found to be clearly erroneous or contrary to law.” The clear error standard in Rule 72(a) is
deferential; “the district court can overturn the magistrate judge’s ruling only if the district court
is left with the definite and firm conviction that a mistake has been made.” Weeks v. Samsung
Heavy Industries Co., 126 F.3d 926, 943 (7th. Cir. 1997). In the Seventh Circuit, a clearly

erroneous decision is one that “strikes us as wrong with the force of a 5 week old, unrefrigerated,
dead fish.” S Industries, Inc. v. Centra 2000, Inc., 249 F.3d 625, 627 (7th Cir. 2001).
“When an expert’s report or testimony is ‘critical to class certification,’” a court must
“make a conclusive ruling on any challenge to that expert’s qualifications or submissions before
it may rule on a motion for class certification.” Messner v. Northshore Univ. HealthSys., 669
F.3d 802, 812 (7th Cir. 2012) (quoting Am. Honda Motor Co. v. Allen, 600 F.3d 813, 815-16
(7th Cir. 2010)). Accordingly, because Pirrong’s report is critical to class certification, the court
must first rule on defendants’ motion to exclude before ruling on plaintiffs’ pending class
certification motion.
The rejection of expert testimony has been “the exception rather than the rule” since
Daubert was decided. Committee Notes on Rules—2000 Amendment, Fed. R. Evid. 702. In
ruling on defendants’ motion to exclude, the magistrate judge evaluated: “(1) the proffered
expert’s qualifications; (2) the reliability of the expert’s methodology; and (3) the relevance of

the expert’s testimony.” Gopalratnam v. Hewlett-Packard Co., 877 F.3d 771, 779 (7th Cir. 2017)
(describing the inquiry required under Fed. R. Evid. 702 and Daubert v. Merrill Dow
Pharmaceuticals, Inc., 509 U.S. 579 (1993)). A trial court has “considerable leeway in deciding
in a particular case how to go about determining whether particular expert testimony is reliable.”
Kumho Tire Co. v. Carmichael, 526 U.S. 137, 152 (1999). When a court evaluates the reliability
of expert testimony, “[t]he focus, of course, must be solely on principles and methodology, not
on the conclusions that they generate.” Daubert, 509 U.S. at 595 (1993). This court will review
the magistrate judge’s ruling for clear error in the application of these Rule 702 principles.

DISCUSSION

Defendants argue that the magistrate judge’s order contained the following four clearly
erroneous conclusions. First, the magistrate judge declined to exclude the March 2018 portion of
Pirrong’s event study, which defendants allege lacks sufficient statistical significance. Second,
the magistrate judge declined to exclude Pirrong’s ipse dixit assumption that defendants’
manipulation caused a constant level of price artificiality that persisted for three months. Third,
the magistrate judge found that the December 2017 portion of Pirrong’s event study is admissible
despite the high rate of false positives that it produces. Fourth, the magistrate determined that
Pirrong’s linear programming (“LP”) damages model, which defendants contend is neither
reliable nor helpful to a factfinder, is admissible. With the deferential standard of review
discussed above in mind, the court will review the magistrate judge’s order for clear error on
each of these four bases.

1. Statistical significance of March 2018 event study

Pirrong’s expert report includes an event study, a regression analysis that uses specified
control variables to estimate the daily market price of SRW and then compares those estimates to
the prices observed in the market. An event study is used to determine the direction and
magnitude of the effect of an unspecified variable, here, the alleged market manipulation.
Pirrong’s event study contains p-values associated with the cumulative residual on each
day of the study. A residual is the difference between the observed value (here, the actual daily
market price) and the estimated value (here, the daily market prices estimated by the control
variables). The cumulative residuals used in Pirrong’s event study are simply the sum of each
day’s residual and all the residuals that came before it within the period studied. A p-value gives
the probability of observing the residual due to random variance. For example, a p-value of .05

indicates that there is a 5% chance that the residual observed is due to random variance. A
residual with a p-value of .05 or less is said to be “statistically significant at the 5% level,” a
residual with a p-value of .10 or less is said to be “statistically significant at the 10% level,” and
so forth. The p-values in Pirrong’s event study range from as low as 0.00 to as high as 0.43.
Because many of the p-values in Pirrong’s event study exceed commonly used thresholds
of statistical significance (such as the 1%, 5%, and 10% thresholds), defendants argued before
the magistrate judge that Pirrong’s entire event study is unreliable. After carefully considering
the issue, the magistrate judge was “unconvinced that all of [Pirrong’s] results should be
excluded due to some p-values above 0.05, particularly where seven of eleven days (November
30 through December 8, 2017) within the December 2017 SRW wheat contracts regression
analysis returned p-values with statistical significance at the five percent level.” Ultimately, the
magistrate judge concluded that “[d]efendants’ arguments go to the weight, rather than the
admissibility, of the regression study results.”

Defendants advance the same statistical significance arguments before this court,
contending that the magistrate judge’s conclusions constitute clear error. Plaintiffs respond that
the magistrate judge properly fulfilled her role as a “gatekeeper" under Rule 702 and Daubert,
and primarily dedicate their briefing to citing authority that supports the magistrate judge’s order.
The magistrate judge’s conclusion that Pirrong’s event study is sufficiently reliable was
not clearly erroneous. A court has “considerable leeway in deciding in a particular case how to
go about determining whether particular expert testimony is reliable.” Kumho Tire Co., 526
U.S. at 152. In this particular case, it is reasonable that the magistrate judge, like many of our
sister courts, declined to use statistical significance at the five percent level, or any other bright
line threshold, as a proxy for reliability, and thus the admissibility, of Pirrong’s entire event

study. See, e.g., In re Testosterone Replacement Therapy Prod. Liab. Litig., No 17-cv-3775,
2023 WL 7183216, at *3 (N.D. Ill. Nov. 1, 2023) (holding the better approach is “to avoid
creating a bright-line rule and to instead examine the different bases for the experts’ opinions”);
In re Chi. Bridge & Iron, 2020 WL 1329354, at *4-5 (S.D.N.Y. March 23, 2020) (discussing
cases and concluding that “[n]o hard and fast rule dictates a cutoff of a 5% significance level to
prove price impact in a securities fraud case, nor should one.”); In re High-Tech Emp. Antitrust
Litig., No. 11-CV-02509-LHK, 2014 WL 1351040, at *15 (N.D. Cal. Apr. 4, 2014) (collecting
cases rejecting the use of statistical significance bright lines for admissibility).
Plaintiff’s theory of this case is that a discrete event—the registration of two thousand
certificates of CBOT December 2017 SRW wheat on November 29, 2017, (after defendants had
saturated the market through major SRW wheat sales in October and November) —drove the
market price of December 2017 and March 2018 SRW wheat futures downward. Pirrong’s event
study uses a regression analysis to isolate the effect of this event from the innumerable other

market factors—captured by the control variables—that determine the market price of SRW
wheat futures.
The downward price impact of this discrete event would be easiest to pick out from the
“noise” of other market factors right at the time of the event. As time passes and the other
market factors continue to exert pressures on price, the manipulation event would become more
difficult to pick out from the noise; what was first a bang fades into an echo. This is what
Pirrong’s event study shows. For December SRW wheat futures, the lowest, or most statistically
significant, p-values occur on November 30, 2017, and the days immediately following it.
Pirrong’s conclusion that defendants’ alleged market manipulation depressed prices in the
December SRW wheat futures market is statistically robust.

For March SRW wheat futures, the same conclusion is considerably less statistically
robust. Even on the first day after defendants’ registration of two thousand certificates of CBOT
December 2017 SRW wheat, the negative residual returns a p-value of 0.20. Given the mixed
statistical robustness of the results of the event study, this court agrees with the magistrate judge
that they are sufficiently reliable to be admissible. This court is not “left with the definite and
firm conviction that a mistake has been made.” Weeks, 126 F.3d at 943.2

2 The court rejects defendants’ argument that it was clear error for the magistrate judge to consider the event study
as a whole instead of considering the March 2018 portion of the event study separately from the December 2017
portion. In their filings before the magistrate judge, defendants challenged the entire event study, and in their
briefing before this court they concede as much. (“Defendants argued that the entire event study is unreliable”).
Even if defendants did originally ask the court to analyze the March 2018 and December 2017 portions separately,
defendants cite no authority supporting the proposition that a court is required to slice its analysis of an expert
opinion in the way that a party advocates. It is the court and not the litigants that enjoy “considerable leeway in
2. Ipse dixit assumption that price artificiality in the commodities marketplace spanned
three months at a fixed amount
Before the magistrate judge, defendants argued that Pirrong’s conclusion that the March
2018 SRW wheat futures contract had a permanent, fixed, artificial price depression of 1.2¢ per

bushel from December 14, 2017, to March 14, 2018, is unreliable because it is asserted with no
empirical proof. Defendants renew that challenge here, arguing that Pirrong “is left only with
his own word as to the existence of permanent price artificiality spanning three months in a
marketplace where prices change every second of every day.”
The magistrate judge determined that Pirrong “reviewed the identified records, performed
studies, and applied his extensive experience in futures markets to reach” his conclusion that the
1.2¢ per bushel artificial price depression held through the period from December 14, 2017, to
March 14, 2018. The record that the magistrate judge refers to differentiates this case form
Clark v. Takata Corp., 192 F.3d 750 (7th Cir. 1999), which defendants primarily rely upon.
Unlike in Clark, here, there is supporting research material on the record, such as the event

study itself, explanations based on economic principles, and Pirrong’s own academic work on
the subject. Id. at 758. See Craig Pirrong, Manipulation of the Commodity Futures Market
Delivery Process, 66 J. of Bus. 335 (1993) (analyzing the necessary and sufficient conditions
for long and short traders to manipulate commodities futures prices at contract expiration).
While Pirrong’s explanation of why the price artificiality would remain constant is open
to dispute, a disputable explanation is different than no explanation. See Metavante Corp. v.
Emigrant Sav. Bank, 619 F.3d 748, 761 (7th Cir. 2010) (contrasting ipse dixit from conclusions
supported by explanation). Defendants remain free to maintain their challenge to the weight

deciding in a particular case how to go about determining whether particular expert testimony is reliable.” Kumho
Tire Co., 526 U.S. at 152.
that Pirrong’s conclusion should be afforded, but the magistrate judge was correct to deem it
reliable.

3. False positives

Defendants argued before the magistrate judge that Pirrong’s event study is unreliable
because of the high rate of false positives it produces. A test for false positives takes Pirrong’s
model and applies it to time periods where there is no alleged market manipulation. A false
positive occurs when a residual has a p-value below a specified threshold of statistical
significance. Defendants’ test for false positives employed a 43% threshold of statistical
significance because that is the highest p-value reported for any day in Pirrong’s event study.
Using a high threshold of statistical significance yields a high rate of false positives. Here, it
indicated that there was price manipulation on “85% of the days for which Plaintiffs do not claim
manipulation.” After carefully considering this issue, the magistrate judge concluded that
“[b]ecause Defendants’ false positives argument spins off from the p-values discussion and

applies an across-the-board 43% threshold for statistical significance not adopted by Pirrong, the
Court is disinclined to reach a different result here.”
Defendants advance the same false positives argument here. The court finds that the
magistrate judge’s decision to admit the event study despite the high rate of false positives was
correct. The 85% false positive rate reported by defendants comes from the application of an
across-the-board 43% threshold for statistical significance that is not endorsed by Pirrong (and is
obviously not endorsed by the defendants given their arguments on statistical significance).
More troubling is the 19.66% false positive rate yielded by testing at a 5% level of statistical
significance. The magistrate judge concluded that Pirrong’s testimony is “closer to shaky than
unreliable,” Kleen Prods. LLC v. Int’l Paper, No. 10-cv-5711, 2017 WL 2362567, at *6 (N.D.
Ill. May 31, 2017). Consequently, defendant’s argument goes to the weight, and not the
admissibility, of Pirrong’s conclusion.

4. Linear programming (“LP”) damages model
First, defendants renew their argument that Pirrong’s LP damages model is unreliable
because it relies on an estimate of artificiality generated by the event study to calculate a range of
aggregate damages for the class members. The reliability of the use of a constant 1.2¢
artificiality estimate is already addressed above.
Second, as the magistrate judge notes throughout her opinion, defendants’ attack the
output and not the methodology of Pirrong’s estimation of a theoretical range of possible
damages. See Anderson v. Raymond Corp., 61 F.4th 505, 510-11 (7th Cir. 2023) (explaining
that the inquiry on whether an expert’s opinion is reliable “focuses on the expert’s methodology,
not whether we agree with his conclusion.”).

Third, defendants argue that the LP damages model is not helpful to the finder of fact
because it “estimates a theoretical $20 million range of possible damages” and “provides no
means for the trier of fact to estimate where in that broad range a reasonable, or probable,
estimate of damages falls.” The magistrate judge correctly concluded that “the Court is not
seeking to calculate actual damages” at the class certification stage. Instead, plaintiffs must
show that “proof of the damages caused by the scheme will either fail or succeed on a class-wide
basis.” Ploss v. Kraft Foods Group, Inc., 431 F. Supp. 3d 1003, 1018 (N.D. Ill. 2020). The court
agrees with the magistrate judge that Pirrong’s LP model is sufficiently helpful and reliable to be
admissible.
CONCLUSION
For the reasons explained above, defendants’ objection to the order denying in part
defendants’ motion to exclude testimony of plaintiffs’ class certification expert Dr. Craig Pirrong
(Doc. 194) is denied. The parties are directed to file a joint status report by January 6, 2025,
suggesting a briefing schedule on the pending motion for class certification.

ENTER:

[ax W. Gettleman
United States District Judge
DATE: December 17, 2024

11

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10761551. Public record. Not legal advice.