Superior Production Partnership v. Gordon Auto Body Parts Co.

RECOMMENDED FOR FULL-TEXT PUBLICATION

Pursuant to Sixth Circuit I.O.P. 32.1(b)

File Name: 15a0075p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

_________________

SUPERIOR PRODUCTION PARTNERSHIP, dba PBSI, ┐

Plaintiff-Appellant, │

│

│ No. 13-4466

v. │

>

│

GORDON AUTO BODY PARTS CO., LTD.; GORDON │

AUTO BODY PARTS USA CORP., │

Defendants-Appellees. │

┘

Appeal from the United States District Court

for the Southern District of Ohio at Columbus.

No. 2:06-cv-00916—Edmund A. Sargus, Chief District Judge.

Argued: June 10, 2014

Decided and Filed: April 22, 2015

Before: MERRITT, GIBBONS, and DONALD, Circuit Judges.

_________________

COUNSEL

ARGUED: James Allison Wilson, Jr., VORYS, SATER, SEYMOUR & PEASE LLP,

Columbus, Ohio, for Appellant. J. Scott Ballenger, LATHAM & WATKINS LLP, Washington,

D.C., for Appellees. ON BRIEF: James Allison Wilson, Jr., Kenneth J. Rubin, VORYS,

SATER, SEYMOUR & PEASE LLP, Columbus, Ohio, Amanda M. Roe, VORYS, SATER,

SEYMOUR & PEASE LLP, Cleveland, Ohio, for Appellant. J. Scott Ballenger, LATHAM &

WATKINS LLP, Washington, D.C., John C. Albert, CRABBE, BROWN & JAMES LLP,

Columbus, Ohio, Joanna Rosen, LATHAM & WATKINS LLP, San Francisco, California, Yi-

Chin Ho, LATHAM & WATKINS LLP, Los Angeles, California, for Appellees.

1

No. 13-4466 Superior Prod. P’shp v. Gordon Auto Body Parts Co., et al. Page 2

_________________

OPINION

_________________

JULIA SMITH GIBBONS, Circuit Judge. Gordon Auto Body Parts (“Gordon”), a

Taiwanese company, was one of several early entrants into the United States market for

replacement truck hoods. For a while, it faced competition solely from a handful of other

Taiwanese manufacturers, at least some of whom participated in joint ventures with Gordon.

Superior Production Partnership (trade name “PBSI”) eventually entered the market for certain

replacement hoods but found that it could not match the prices of Gordon and the Taiwanese

firms. Believing that Gordon and the other firms were conspiring to drive it out of business with

predatory prices, PBSI brought antitrust claims against Gordon.

The district court granted Gordon’s motion for summary judgment after ruling on several

discovery disputes. PBSI appeals both the resolution of the discovery disputes and the grant of

summary judgment. Because PBSI has failed to make any showing that Gordon’s prices were

below an appropriate measure of cost, we affirm.

I.

Gordon and a handful of other Taiwanese manufacturers produce an array of replacement

parts for automobiles that have been in collisions. Before the mid-2000s, they were the only

producers of replacement hoods for certain models of trucks in the American market. Gordon

and at least two of the other Taiwanese manufacturers had formal agreements or joint ventures

related to shared investments in plant equipment and production of parts.

PBSI started making replacement bumpers as early as the 1980s. In the early 2000s, its

management decided to expand into the market for replacement hoods, eventually beginning

production on its first hood in 2006. The company soon began manufacturing replacement

hoods for four different trucks. Sometime before or shortly after PBSI’s entry into these

markets, Gordon and other Taiwanese manufacturers reduced their prices on the same hoods.

Though PBSI had planned to expand into production of other replacement parts, it found the

No. 13-4466 Superior Prod. P’shp v. Gordon Auto Body Parts Co., et al. Page 3

price competition in these first four markets sufficiently discouraging to nix those plans. PBSI’s

management now claims that it may be forced to exit the replacement hood market altogether.

Believing its competitors’ price changes to be illegal, PBSI filed a suit in federal district

court with several antitrust claims, including violations of Sections 1 and 2 of the Sherman Act

and Section 13(a) of the Clayton Act as amended by the Robinson-Patman Act. The core

allegations of the complaint described a predatory pricing scheme among Gordon and other

Taiwanese manufacturers to force PBSI to cease production of truck hoods. The complaint

defined the relevant markets as those for the four replacement truck hood models in the United

States.

After discovery commenced, PBSI served requests for production on Gordon. Of

particular relevance here, PBSI sought (i) “[a]ll documents and communications relating to the

cost of production and manufacture of” the four types of hoods for several years in each market

and (ii) “[a]ll documents which evidence, relate to, or refer to communications between or

among Gordon” and other Taiwanese manufacturers or “any agreement regarding pricing,

sharing or use of tooling or refraining from competition” in the United States or elsewhere.

Gordon responded to the cost documentation request with what were apparently summaries of its

manufacturing costs and contracts with suppliers; PBSI rejected this production as inadequate to

determine Gordon’s cost-calculation methods and verify its actual costs incurred. PBSI therefore

moved to compel production of all cost documentation—including invoices and accounts

payable records—underlying the summaries. Gordon objected that this scale of production

would be unduly burdensome.

Gordon did produce tooling1 and production agreements among the Taiwanese firms

covering two of the four truck hoods but objected to the requests for agreements covering other

parts as irrelevant. Gordon claimed that any such agreements did not concern the “relevant

markets.” Gordon also insisted that the remaining agreements “only involve[d] the equal sharing

of the cost to produce the manufacturing tool/die for [other parts], and do not involve pricing of

the part[s].” PBSI moved to compel production of these agreements as well.

1

“Tooling” (or “tools and dies”) refers to metal dies used to manufacture metal goods.

No. 13-4466 Superior Prod. P’shp v. Gordon Auto Body Parts Co., et al. Page 4

The magistrate judge granted PBSI’s motion in part. As to cost documentation, the judge

agreed that PBSI was “entitled to do some comparison of the documents from which the

summaries ha[d] been drawn . . . to identify the frequency with which the summaries do not

reflect information correctly[,]” but he also expressed concern at the burden of producing “every

single piece of paper generated by Gordon over the relevant time period which relates to the

costs of the products at issue.” Faced with significant uncertainty about the relative merits of

these claims, the judge settled on an “auditing” procedure by which the parties would agree on a

subset of the underlying cost data necessary to “allow [PBSI] to verify or dispute the accuracy of

the summary information[.]” If the “results . . . reveal[ed] substantial discrepancies between the

summary information and the backup documents,” the judge would be willing to compel further

production. As to the agreements among the Taiwanese competitors, the magistrate essentially

agreed with Gordon that any agreements relating to joint tooling or die production were

irrelevant to predatory pricing of the truck hoods, but the judge admitted that he “c[ould not]

tell” whether any parts “production agreements” outside of tooling arrangements, namely,

“pricing agreements and [other] agreements which might limit competition,” had been turned

over. The magistrate “assume[d] either that any such agreements [had] already been produced,

or that they do not exist.”

With respect to the cost data, there is no indication in the record that PBSI objected to

this order or asked for reconsideration by the district court until approximately 18 months later

when it filed a second, separate motion to compel. In that motion, PBSI reasserted its position

that Gordon should produce “all [b]ackup [c]ost [d]ocumentation.” By this time, Gordon had

produced cost data for five fiscal quarters under an agreement with PBSI negotiated pursuant to

the magistrate judge’s initial decision. When the magistrate judge denied this second motion to

compel, PBSI filed an objection with the district court. The district court construed the second

motion to compel as an attack on the conclusion of the magistrate’s order denying in part the first

motion to compel, found the “auditing procedure” in the magistrate’s first order to be a

“reasonable compromise between [the parties’] competing interests,” and affirmed denial of the

second motion to compel.

No. 13-4466 Superior Prod. P’shp v. Gordon Auto Body Parts Co., et al. Page 5

With respect to the competitor agreements, PBSI filed a motion to “Compel[]

Compliance with, or for Clarification of,” the magistrate’s order on the initial motion to compel.

PBSI specifically sought clarification that Gordon should produce any competitor agreements

relating to production of parts other than the four truck hoods, as evidence of a “proclivity” for

collusion. The magistrate admitted that the previous order “did not address directly the

relevance of production agreements for other parts.” But he nonetheless refused to compel

production of any agreements for other parts. The judge thought it “extremely unlikely that

PBSI can make a convincing argument that such evidence is admissible under either Fed. R.

Evid. 403 or 406, so that the request is not reasonably likely to lead to the discovery of relevant

evidence based” on PBSI’s “proclivity” theory. PBSI filed a timely objection with the district

court, but the district court affirmed the decision for essentially the same reasons articulated by

the magistrate.

PBSI and Gordon also submitted expert reports from economists Henry McFarland and

Robert Hall, respectively. Both experts submitted second reports addressing each other’s initial

findings. We explain these reports in more detail below. Each party moved to exclude the

expert testimony of the other. The district court denied PBSI’s motion to exclude Hall’s reports,

but granted in part Gordon’s motion to exclude McFarland’s reports. The court specifically

excluded McFarland’s opinions on “predatory intent” and recoupment, the latter of which, in the

court’s view, was intertwined with McFarland’s comparison of prices and costs.

Gordon then moved for summary judgment on all antitrust claims, claiming there was no

genuine dispute of material fact on either the issue of below-cost pricing or recoupment of losses.

In the same opinion in which it resolved the motions to exclude expert testimony, the district

court granted Gordon summary judgment. The court stated that its conclusion rested on a lack of

evidence that Gordon could recoup its costs and that it would “not analyze and resolve whether

PBSI presents evidence . . . [of] below-cost pricing[.]” However, as with the motions to exclude,

the district court essentially subsumed its analysis of below-cost pricing into its examination of

recoupment.

PBSI timely appealed the grant of summary judgment as well as the district court’s

rulings on discovery and the expert reports.

No. 13-4466 Superior Prod. P’shp v. Gordon Auto Body Parts Co., et al. Page 6

II.

We begin with the framework of antitrust law. Sections 1 and 2 of the Sherman Act,

15 U.S.C. §§ 1–2, address “concerted” and “independent” action, respectively. Copperweld

Corp. v. Independence Tube Corp., 467 U.S. 752, 767–68 (1984). Because Congress perceived

different risks from multilateral and unilateral conduct, it set different standards for liability

under each section. Id. at 768–69.

A.

The law on predatory pricing claims under § 2 is significantly clearer, so we begin there.2

Section 2 prohibits three types of actions: monopolization, attempted monopolization, and a

conspiracy to monopolize. See 15 U.S.C. § 2. A monopolization claim has two elements:

“(1) the possession of monopoly power in a relevant market; and (2) the willful acquisition,

maintenance, or use of that power by anti-competitive or exclusionary means as opposed to

‘growth or development resulting from a superior product, business acumen, or historic

accident.’” Conwood Co. v. U.S. Tobacco Co., 290 F.3d 768, 782 (6th Cir. 2002) (quoting Aspen

Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 595–96 (1985)). “An attempted

monopolization [under § 2] occurs when a competitor, with a dangerous probability of success,

engages in anti-competitive practices the specific design of which are, to build a monopoly or

exclude or destroy competition.” Id. at 782 (alteration in original) (quoting Smith v. N. Mich.

Hosps., Inc., 703 F.2d 942, 954 (6th Cir. 1983)). Conspiracy to monopolize entails “proof of

concerted activity,” but, like the other two § 2 claims, requires an initial identification of the

relevant markets.3 Potters Med. Ctr. v. City Hosp. Ass’n, 800 F.2d 568, 574 (6th Cir. 1986).

Finally, “for a completed monopolization claim to succeed, the plaintiff must prove a general

intent on the part of the monopolist to exclude; while by contrast, to prevail on a mere attempt

claim, the plaintiff must prove a specific intent to destroy competition or build a monopoly.”

Conwood Co., 290 F.3d at 782 (internal quotation marks omitted). But since “‘no monopolist

2

For the purposes of this case, the analysis of PBSI’s § 2 claims extends to its claims under the Robinson-

Patman Act, 15 U.S.C. § 13(a)–(b). See Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209,

219, 221–22 (1993); Spirit Airlines, Inc. v. Nw. Airlines, Inc., 431 F.3d 917, 938 (6th Cir. 2005) (citing Schwartz v.

Sun Co., 276 F.3d 900, 903–04 (6th Cir. 2002)).

3

The definition of a market for antitrust purposes has two components: “the relevant product market and

the relevant geographic market.” E.I. du Pont de Nemours & Co. v. Kolon Indus., Inc., 637 F.3d 435, 441 (4th Cir.

2011).

No. 13-4466 Superior Prod. P’shp v. Gordon Auto Body Parts Co., et al. Page 7

monopolizes unconscious of what he is doing . . . [i]mproper exclusion . . . is always deliberately

intended.’” Id. (alteration in original) (quoting Aspen Skiing Co., 472 U.S. at 602–03).

Helpfully, the Supreme Court has operationalized § 2 in this context to focus on the

economic “essence” of predatory pricing: that “[a] business rival has priced its products in an

unfair manner with an object to eliminate or retard competition and thereby gain and exercise

control over prices in the relevant market.” Brooke Group Ltd. v. Brown & Williamson Tobacco

Corp., 509 U.S. 209, 222 (1993). The Court established two prerequisites to liability. See id. at

222–24. The first of these requires that the defendant’s prices be shown to be “below an

appropriate measure of [its] costs.” Id. at 222. This circuit applies a burden-shifting framework

to determine the “appropriate measure of a rival’s cost.” Spirit Airlines, Inc. v. Nw. Airlines,

Inc., 431 F.3d 917, 938 (6th Cir. 2005). Specifically:

If the defendant’s prices were below average total cost but above average variable

cost, the plaintiff bears the burden of showing defendant’s pricing was predatory.

If, however, the plaintiff proves that the defendant’s prices were below average

variable cost, the plaintiff has established a prima facie case of predatory pricing

and the burden shifts to the defendant to prove that the prices were justified

without regard to any anticipated destructive effect they might have on

competitors.

Id. (internal quotation marks omitted). Notably, this court has also required that predatory prices

be at least below average total cost. Arthur S. Langenderfer, Inc. v. S.E. Johnson Co., 729 F.2d

1050, 1055–56 (6th Cir. 1984).

The Supreme Court’s second prerequisite to liability is “a demonstration that the

competitor had a reasonable prospect, [under the Robinson-Patman Act], or, under § 2 of the

Sherman Act, a dangerous probability, of recouping its investment in below-cost prices.” Brooke

Group Ltd., 509 U.S. at 224. This recoupment element requires at least two showings.

Recoupment first implies that the “below-cost pricing must be capable . . . of producing the

intended effects on the firm’s rivals, whether driving them from the market, or . . . causing them

to raise their prices to supracompetitive levels within a disciplined oligopoly.” Id. at 225.

Additionally, even if the target is forced to exit or is disciplined, “[d]etermining whether

recoupment of predatory losses is likely requires an estimate of the cost of the alleged predation

and a close analysis of both the scheme . . . and the structure and conditions of the relevant

No. 13-4466 Superior Prod. P’shp v. Gordon Auto Body Parts Co., et al. Page 8

market.” Id. at 226. Most notable among these “structure[s] and conditions” of the market are

barriers to entry that protect the monopolistic profits of a successful predator. See Spirit Airlines,

Inc., 431 F.3d at 946.

B.

The text of § 1 of the Sherman Act declares illegal “[e]very contract, combination . . . or

conspiracy, in restraint of trade[.]” 15 U.S.C. § 1. Where, as here, the plaintiff relies on

circumstantial evidence of illicit collusion, that evidence must “tend[] to exclude the possibility

that the alleged conspirators acted independently”—which assumes that the inferences of

conspiracy from that evidence are plausible as a matter of economic theory. Matsushita Elec.

Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 588, 593–94 (1986) (internal quotation marks

omitted). In other words, courts are more likely to infer an illegal agreement as the economic

plausibility of anticompetitive conduct grows. See In re Publ’n Paper Antitrust Litig., 690 F.3d

51, 62–63 (2d Cir. 2012) (“[B]roader inferences [of an agreement] are permitted, and the ‘tends

to exclude’ standard is more easily satisfied, when the conspiracy is economically sensible for

the alleged conspirators to undertake and the challenged activities could not reasonably be

perceived as procompetitive.”) (internal quotation marks omitted); In re High Fructose Corn

Syrup Antitrust Litig., 295 F.3d 651, 661 (7th Cir. 2002) (Posner, J.) (“More evidence is required

the less plausible the charge of collusive conduct.”). Additionally, the illegal conspiracy must

produce antitrust injury, namely, an injury to competition itself. In re Se. Milk Antitrust Litig.,

739 F.3d 262, 284 (6th Cir. 2014).

Courts have rarely addressed the application of § 1 to the scenario before us. Matsushita,

undoubtedly the leading case, declared single-firm predatory pricing generally implausible and a

conspiracy to charge predatory prices even more so. 475 U.S. at 589–91. But Matsushita did

not make it entirely clear if § 1 liability required a showing of prices below some “appropriate”

level of cost, as in Brooke Group. See Matsushita, 475 U.S. at 584 n.8 (noting that, for that

particular case, the Court would view the threshold as either “(i) pricing below the level

necessary to sell [plaintiff’s] products, or (ii) pricing below some appropriate measure of cost”

without deciding if those tests applied to future cases). Nor did Matsushita expressly lay out a

recoupment requirement.

No. 13-4466 Superior Prod. P’shp v. Gordon Auto Body Parts Co., et al. Page 9

Nonetheless, we think it best to infer these same elements in a § 1 predatory pricing

claim. Matsushita clearly considered both below-cost pricing and the likelihood of recoupment

to impact, if not fully determine, the plausibility of a predatory pricing conspiracy. See id. at

590–91. And whether predation and recoupment are merely considerations that inform the

plausibility of inferring an agreement, as PBSI suggests, or are formally independent

requirements beyond a § 1 agreement and antitrust injury, as Gordon argues, is a technicality we

need not address here. Either way, a plaintiff must grapple with these concepts in proving its

case under § 1. See R.J. Reynolds Tobacco Co. v. Cigarettes Cheaper!, 462 F.3d 690, 695–96

(7th Cir. 2006) (Easterbrook, J.).

As explained below, neither PBSI’s § 1 claim, § 2 claim, nor its Robinson-Patman Act

claim can survive summary judgment on the issue of below-cost pricing. We therefore analyze

each assignment of error solely for its illumination of the relationship between Gordon’s prices

for the hoods and its costs of production.

III.

We turn first to the district court’s discovery orders, as any significant errors here would

offer a clear reason to reverse summary judgment. See, e.g., Tenn. Valley Auth. v. United States,

60 Fed. Cl. 665, 675–76 (Fed. Cl. 2004) (“A party that has not had the opportunity to obtain

evidence in support of its opposition to a motion for summary judgment should not have that

inability held against it.”). We review a trial court ruling limiting or denying discovery for an

abuse of discretion. Robertson v. Lucas, 753 F.3d 606, 623 (6th Cir. 2014); see also Louzon v.

Ford Motor Co., 718 F.3d 556, 560 (6th Cir. 2013) (reviewing denial of a motion to compel for

abuse of discretion). “An abuse of discretion occurs if the district court relies on clearly

erroneous findings of fact, applies the wrong legal standard, misapplies the correct legal standard

when reaching a conclusion, or makes a clear error of judgment.” Louzon, 718 F.3d at 560

(internal quotation marks omitted).

The parties may demand “any nonprivileged material that is relevant to any party’s claim

or defense,” so long as that material “appears reasonably calculated to lead to the discovery of

admissible evidence.” Fed. R. Civ. P. 26(b)(1). But the trial court may limit discovery where

“the burden or expense of the proposed discovery outweighs its likely benefit, considering the

No. 13-4466 Superior Prod. P’shp v. Gordon Auto Body Parts Co., et al. Page 10

needs of the case, the amount in controversy, the parties’ resources, the importance of the issues

at stake in the action, and the importance of the discovery in resolving the issues.” Fed. R. Civ.

P. 26(b)(2)(C)(iii). In sum, “[a]lthough a plaintiff should not be denied access to information

necessary to establish her claim, neither may a plaintiff be permitted to ‘go fishing’ and a trial

court retains discretion to determine that a discovery request is too broad and oppressive.”

Surles ex rel. Johnson v. Greyhound Lines, Inc., 474 F.3d 288, 305 (6th Cir. 2007) (internal

quotation marks omitted).

A.

PBSI argues that the district court should have compelled production “of all documents

showing Gordon’s costs to produce the four hoods at issue, including the cost of materials, labor,

and administrative overhead.” Gordon does not dispute the relevance of this cost data; it

responds instead that PBSI waived this argument below and that the district court reasonably

exercised its discretion by requiring limited production of cost documents.

We agree with Gordon that PBSI waived its right to appeal this issue for failure to object

to the magistrate judge’s order in a timely fashion. On a non-dispositive issue, a party must

object to a magistrate’s order within 14 days of receiving a copy of the order. Fed. R. Civ. P.

72(a). Failure to do so risks losing the right to appeal the underlying issue to this court. Stemler

v. City of Florence, 126 F.3d 856, 866 n.9 (6th Cir. 1997).

Here, the magistrate judge entered an order in December 2008 granting in part PBSI’s

motion to compel. That order quite clearly set up a scheme for initially limited production of

cost documentation based on the reasonable compromises of both parties, but PBSI did not raise

this issue again until a year and a half later when it moved to compel production of the same

documents. PBSI’s later motion might have been permissible had it “alleged failure to comply

with the prior order of the Court,” or had it been based on materials reviewed as a result of

Gordon’s compliance with the first order, but that is not the tack it took. Instead—and as the

magistrate judge and district court recognized—the second motion to compel effectively sought

full reconsideration of the initial order. In the words of its own motion, PBSI argued that “[t]he

information provided by Gordon does not allow PBSI [to] fully evaluate every element of

Gordon’s costs over the relevant time period. . . . PBSI must be allowed to look at the entire

No. 13-4466 Superior Prod. P’shp v. Gordon Auto Body Parts Co., et al. Page 11

period of time for which Gordon’s pricing was extraordinarily low.” This is far beyond the

limits of the magistrate judge’s original decision.

PBSI did timely object to the denial of its second motion to compel. But it would be

inappropriate to permit PBSI to sidestep the 2008 order merely by filing a similar motion and

forcing the district court to respond anew. See Daley v. Marriott Int’l, Inc., 415 F.3d 889, 892–

93, 893 n.9 (8th Cir. 2005) (denying appellate review where plaintiff failed to object to a

magistrate’s ruling in time but later filed a motion to reconsider); Key Energy Res., Inc. v.

Merrill (In re Key Energy Res., Inc.), 230 F.3d 1197, 1200–01, 1201 n.3 (10th Cir. 2000)

(finding waiver even where the district court reached the merits of the magistrate judge’s ruling

on a motion to reconsider filed after the window for objecting).

Failure to object is not a jurisdictional bar on appellate review, however, so we may

“excuse the default in the interest of justice[.]” Alspaugh v. McConnell, 643 F.3d 162, 166 (6th

Cir. 2011) (internal quotation marks omitted). But we do not think PBSI has shown an injustice

or abuse of discretion regarding the production of cost data. The magistrate judge faced

plausible, competing claims about the need to verify the summary data already produced, and the

potential for “extreme hardship” of fully depicting manufacturing costs in four markets across

several years. So the magistrate judge sensibly allowed the burden of discovery to escalate only

as a greater benefit became apparent. In this case (and as agreed to by the parties), that meant

initial production of cost documentation for five fiscal quarters to allow PBSI to “verify or

dispute the accuracy of the summary information[.]” If this limited production suggested flaws

in Gordon’s summaries, PBSI could return to court to compel further production.

Although the magistrate judge and district court referred to this scheme as an “auditing

procedure,” it might better be described as sampling4—a discovery method often thought well

within the discretion of a trial court. See, e.g., Larson v. AT&T Mobility LLC, 687 F.3d 109, 130

n.33 (3d Cir. 2012) (“[T]he parties may need some focused discovery, which may include

sampling of the sources, to learn more about what burdens and costs are involved in accessing

the information, what the information consists of, and how valuable it is for the litigation in light

4

We do not mean to suggest that the court’s method was a truly random sample used to make a statistical

inference about a larger population. Rather, we use this term in the sense used in the Fed. R. Civ. P. 26(b)(2)

advisory committee notes.

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of information that can be obtained by exhausting other opportunities for discovery.” (alteration

in original) (quoting Fed. R. Civ. P. 26(b)(2) advisory committee notes)); see also Fed. R. Civ. P.

34(a) (permitting sampling of documents or electronically stored information). In fact, sampling

may have been a permissible approach to discovery of cost information even if Gordon had

never produced any cost summaries whatsoever. See Soto v. Castlerock Farming & Transp.,

Inc., 282 F.R.D. 492, 503–04 (E.D. Cal. 2012) (collecting cases approving sampling as a

discovery compromise). And even if this sampling did not produce PBSI’s desired results ex

post, this does not make it an impermissible method for the trial court to manage discovery ex

ante.

B.

PBSI also argues that the district court should have compelled production of the

competitor agreements relating to automobile parts other than the four truck hoods. PBSI points

to deposition testimony of Gordon employees that appears to confirm the existence of production

agreements the Taiwanese firms made to establish artificially high prices in other product and

geographic markets. But PBSI contends only that these agreements are relevant to

recoupment—not the relationship between the costs and prices of the truck hoods. We simply

see no indication—and PBSI gives us no reason—that the agreements among Taiwanese firms

about addressing joint production of other parts meaningfully influenced Gordon’s cost of

producing, or revenue from selling, the four truck hoods at the heart of this case. Those

agreements that did concern the truck hoods were produced during initial discovery, and,

notably, PBSI does not rely on them to defeat summary judgment on below-cost pricing.

Consequently, any error in the discovery orders covering these agreements does not warrant

remand.

IV.

We turn next to the expert reports. We review the “district court’s decision to admit

expert testimony, including its ‘decisions about how to determine reliability’ and ‘its ultimate

conclusion,’ for abuse of discretion.” Surles ex rel. Johnson, 474 F.3d at 293 (quoting Kumho

Tire Co. v. Carmichael, 526 U.S. 137, 152 (1999)). We have summarized the substantive test for

admissibility as follows:

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Under Rule 702 of the Federal Rules of Evidence, “a proposed expert’s opinion is

admissible, at the discretion of the trial court, if the opinion satisfies three

requirements. First, the witness must be qualified by ‘knowledge, skill,

experience, training, or education.’ Second, the testimony must be relevant,

meaning that it ‘will assist the trier of fact to understand the evidence or to

determine a fact in issue.’ Third, the testimony must be reliable.”

Burgett v. Troy-Bilt LLC, No. 13-6327, 2014 WL 4290109, at *3 (6th Cir. Sept. 2, 2014)

(quoting In re Scrap Metal Antitrust Litig., 527 F.3d 517, 528–29 (6th Cir. 2008)). “The Rule

702 inquiry is a flexible one and its focus must be solely on principles and methodology, not on

the conclusions they generate.” Lee v. Smith & Wesson Corp., 760 F.3d 523, 526 (6th Cir. 2014)

(quoting Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 595 (1993)) (internal alterations

and quotation marks omitted). Similarly, Rule 702 directs courts to focus on the reliability of

expert testimony, rather than the “credibility and accuracy” of that testimony. In re Scrap Metal

Antitrust Litig., 527 F.3d 517, 529 (6th Cir. 2008).

Before applying these standards, we describe in more detail the expert testimony at issue.

Hall’s report found, inter alia, that Gordon’s prices never fell below average avoidable cost and

that the risk of future entry would undermine any attempt to recoup predatory losses in the

markets for the hoods. McFarland attempted to calculate average variable costs in his first report

but found this “very difficult to measure” given gaps and ambiguities in the data; ultimately,

though, he concluded that Gordon’s “prices are often above the estimated level of [average

variable] costs, but the difference . . . is often very small.” He found this “aggressive pricing”

“disturbing” and potentially suggestive of a predatory scheme. McFarland also addressed the

prospects of a predator recouping its losses in his first report. In his analysis, Gordon might

recoup its losses either through higher prices for the hoods after PBSI’s exit, or “if [the scheme]

discouraged PBSI from entering the production of other hoods,” Gordon might enjoy “higher

sales and prices[.]”

In his second report, McFarland revamped his theory of predation. Rather than focus on

average variable or average avoidable cost, he opted instead for what he called the “no economic

sense” test, under which the losses from predation are measured as any downward deviation

from a profit-maximizing price. McFarland’s second analysis also addressed the likelihood that

PBSI would be forced out of the four markets for replacement hoods, and it provided more

No. 13-4466 Superior Prod. P’shp v. Gordon Auto Body Parts Co., et al. Page 14

quantitative explanation of Gordon’s recoupment prospects, even comparing those to the

“losses” under the “no economic sense” test.

A.

As relevant here, the district court excluded as unreliable McFarland’s opinion on two

issues: (i) predatory intent and (ii) below-cost pricing. PBSI contests both exclusions. We find

no abuse of discretion.

1.

McFarland opined in both reports that Gordon’s pricing strategy reflected an intent to

force PBSI out of the markets for replacement hoods. The district court excluded this part of the

report under Rule 702(a) because, in its view, specialized knowledge would not aid the factfinder

in determining intent. We see no meaningful error on this particular ruling.

If the district court used “intent” to mean either the “general” intent required for

“completed” monopolization or the “specific” intent required for attempted monopolization, see

Conwood Co., 290 F.3d at 782, there is certainly no need for expert assistance. As noted above,

the Supreme Court has virtually eliminated the substance of this element, or at least folded it into

the other elements of a predatory pricing claim.5 See Aspen Skiing Co., 472 U.S. at 602–03

(“[T]here is agreement on the proposition that no monopolist monopolizes unconscious of what

he is doing. . . . Improper exclusion (exclusion not the result of superior efficiency) is always

deliberately intended.” (internal quotation marks omitted)). And if the district court used

“predatory intent” as shorthand for injury to competition, see, e.g., D.E. Rogers Assocs., Inc. v.

Gardner-Denver Co., 718 F.2d 1431, 1439 (6th Cir. 1983), that question collapses into the

predation and recoupment analyses in McFarland’s report. Post-Brooke Group, a firm only acts

as a “predator” to the extent that it sells at prices below an appropriate measure of cost and

stands to recoup its losses through later supracompetitive profits. 509 U.S. at 222–24. And as

discussed below, McFarland’s report has serious infirmities relating to the cost-price

relationship.

5

We also note that, in the case of predatory pricing, intent to harm competition itself can often accrue to the

benefit of consumers. When a would-be predator sets its prices too low but later finds that it cannot recoup those

losses, consumers have gained. Brooke Group Ltd., 509 U.S. at 223–24. Antitrust law should not pose an obstacle

to this sort of inept predation. Id. at 224.

No. 13-4466 Superior Prod. P’shp v. Gordon Auto Body Parts Co., et al. Page 15

Thus, no expert testimony is truly needed on the question of intent, at least assuming that

all other elements have been established, and the court therefore did not abuse its discretion in

barring McFarland from testifying on this narrow question.

2.

The district court’s second quarrel with McFarland’s report also has merit. The court

framed the problem as a flaw in McFarland’s recoupment analysis, but we think the court’s

reasoning is more applicable to below-cost pricing. We conclude that McFarland’s opinion does

not apply a permissible test for this issue.

In his initial report, McFarland concluded that he could only say that Gordon’s “prices

are often above the estimated level of costs, but the difference between price and cost[] is often

very small.” Though he found this proximity “disturbing,” he admitted in his second report that

Gordon’s “aggressive pricing strategy” could not be shown to fall below average variable or

average avoidable costs. He therefore analyzed Gordon’s short-term losses using what he termed

the “no economic sense test,” which calculates losses as possible profits foregone by not

charging a higher price. Under this test, a predator does not necessarily price below average

variable, average avoidable, or average total cost; rather, it simply charges something less than

the profit-maximizing price. McFarland then compared his estimate of these foregone profits

with his calculations of what Gordon and its alleged conspirators stood to gain by forcing PBSI

out of the market for replacement truck hoods to reach his conclusion about the likelihood of

recoupment.

The district court and Gordon are correct that admitting an expert opinion on predation

relying on either a “disturbing” proximity test or a “no economic sense” test is flatly contrary to

law. See Brooke Group Ltd., 509 U.S. at 222–23 (“[A] plaintiff seeking to establish competitive

injury resulting from a rival’s low prices must prove that the prices complained of are below an

appropriate measure of its rival’s costs.”). While the appropriate measure of cost has some

flexibility (as, say, between average variable and average total cost), see Spirit Airlines, Inc.,

431 F.3d at 938, this flexibility extends only to costs directly incurred, not all conceivable

No. 13-4466 Superior Prod. P’shp v. Gordon Auto Body Parts Co., et al. Page 16

opportunity costs.6 See Arthur S. Langenderfer, Inc., 729 F.2d at 1058 (rejecting a “profit

maximization” theory of predation similar to that used here); see also United States v. AMR

Corp., 335 F.3d 1109, 1118 (10th Cir. 2003) (“Courts and scholars have observed that such a

sacrifice test would necessarily involve a great deal of speculation and often result in injury to

the consumer and a chilling of competition.”). Consequently, McFarland’s analysis of putative

losses from predation is inadmissible, and the district court did not abuse its discretion in

rejecting the “no economic sense” test. Nor are prices close to, but above, some measure of cost

permissible evidence of anticompetitive conduct. Rather, they are the essence of competition.

Brooke Group Ltd., 509 U.S. at 223–24.

B.

As it did in the district court proceedings, PBSI now contends that Hall’s opinion is

contrary to law, and therefore inadmissible, because he compared Gordon’s prices only to

average variable cost. Relying on a few stray remarks in the 200 or so pages of material from

Hall, PBSI claims that his entire analysis is tainted by the lack of references to average total cost,

another metric for predation. The district court, reading Hall’s report as a whole, disagreed. In

its view, the remarks identified by PBSI referred to common practice among economists, not

lawyers, and, more importantly, did not purport to “find that predatory pricing may never exist if

a firm’s pricing is above” average variable cost.

The district court was well within its discretion to admit Hall’s testimony. We agree that

no statement identified by PBSI categorically excludes average total cost as a legal criterion for

predation. And since average variable cost is clearly relevant to and consistent with this court’s

case law on predation, see Spirit Airlines, Inc., 431 F.3d at 938, any supposed risk of confusion

6

As the Fifth Circuit explains in more detail:

It must be noted that the expert relied on an erroneous interpretation of the law regarding

predatory pricing. The opinion clearly indicated that the expert believed the law of this Circuit

allowed a finding of predation when prices are above a firm’s variable costs but below a “short-

run profit maximizing price.” As we explained above, this position is no longer tenable in the

wake of Brooke Group. This error may explain, but does not excuse, the expert’s failure to address

the question of variable cost. In affirming summary judgment, we may disregard the conclusions

of an expert opinion grounded in an error of law.

Stearns Airport Equip. Co. v. FMC Corp., 170 F.3d 518, 533 n.14 (5th Cir. 1999).

No. 13-4466 Superior Prod. P’shp v. Gordon Auto Body Parts Co., et al. Page 17

to the factfinder would be easily outweighed by the utility of Hall’s (concededly reliable)

analysis.

V.

Having addressed and approved the procedural and evidentiary rulings by the district

court, we now consider the ultimate issue in this case: whether Gordon should have received

summary judgment based on the record before the district court.

We review a grant of summary judgment de novo. Payne v. Novartis Pharm. Corp.,

767 F.3d 526, 530 (6th Cir. 2014). Summary judgment is appropriate where the evidence on

record shows no genuine dispute as to any material fact and the movant is entitled to judgment as

a matter of law. Fed. R. Civ. P. 56(a), (c). The moving party must first demonstrate to the court

that an essential element of the nonmoving party’s case is absent; upon that showing, the non-

moving party must then present sufficient evidence to demonstrate that there is a factual

controversy as to that element, or at least explain why such evidence is not available. See

Celotex Corp. v. Catrett, 477 U.S. 317, 322–23 (1986). We grant all reasonable inferences in

favor of the non-moving party. Matsushita, 475 U.S. at 587–88. But “[t]he mere existence of a

scintilla of evidence in support of the plaintiff’s position will be insufficient” to defeat summary

judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986).

Our conclusions on the discovery and expert testimony issues go a long way toward

resolving PBSI’s appeal of the grant of summary judgment. PBSI, without the benefit of

McFarland’s “no economic sense” analysis, has little to support an essential part of its case.

Rather than pointing to evidence in the record, PBSI primarily argues that vague inferences

about “predatory intent” or a “scheme’s predatory nature” can replace a cost-price comparison

under its reading of Spirit Airlines.

While Spirit Airlines did not lay out a cost test that must be used to show predation,

431 F.3d at 938–39, it is untenable to suggest that a plaintiff can skate by without any method for

comparing prices to cost. See Arthur S. Langenderfer, Inc., 729 F.2d at 1056; see also R.J.

Reynolds Tobacco Co., 462 F.3d at 695–96. Since price cuts are generally pro-competitive,

some comparison to cost is necessary to determine injury to competition; without a cost-based

No. 13-4466 Superior Prod. P’shp v. Gordon Auto Body Parts Co., et al. Page 18

test of predation, courts would inevitably punish firms for being the most efficient producers.

See Brooke Group Ltd., 509 U.S. at 222–24. Spirit Airlines is therefore best read to allow

plaintiffs the flexibility to apply a cost-based test other than average variable cost (or variations

on average variable cost). See 431 F.3d at 945 (finding an issue of material fact given an

“intellectual disagreement” over the proper calculation of average variable costs); see also AMR

Corp., 335 F.3d at 1116 (“[W]e do not favor [average variable cost] to the exclusion of other

proxies for marginal cost. Whatever the proxy used to measure marginal cost, it must be accurate

and reliable in the specific circumstances of the case at bar.”). Plaintiffs can proffer any number

of proxies for the marginal cost of production. See AMR Corp., 335 F.3d at 1115–20 (discussing

several alternatives).

But without McFarland’s “no economic sense” test, PBSI has not offered such a metric.

And even if there is a reasonable inference from the expert reports that Gordon’s prices were

below average total cost, that inference still leaves the burden of production on PBSI. Spirit

Airlines, Inc., 431 F.3d at 938. Thus, PBSI’s claims, under both the Sherman Act and the

Robinson-Patman Act, succeed or fail based on an analysis of average variable cost. See AMR

Corp., 335 F.3d at 1120–21 (affirming summary judgment on a predatory pricing claim where

plaintiff’s cost metrics were unreliable and no one disputed that prices were above average

variable cost). It is not helpful to the plaintiff that Gordon’s prices may have a “close proximity”

to average variable cost, or that any price cuts merely coincided with competitive entry. So long

as prices are still above cost, those actions simply suggest pro-competitive behavior. Brooke

Group Ltd., 509 U.S. at 224.

Finally, PBSI provides only a single record citation, across both of its briefs, to support

its assertion that Gordon priced below its variable costs. That citation purports to compare costs

discussed in deposition testimony with a table of prices in McFarland’s initial report. On our

review of that deposition testimony, we simply do not see any cost figures with sufficient

specificity to construct a meaningful comparison. The deposition transcript does provide one

aggregate cost figure for a single truck hood in 2006. But it does not at all illuminate how costs

varied throughout the year or how sales of the hoods were distributed across time—at least one

of which is necessary to comparing Gordon’s costs to its highly fluctuating prices. To infer from

No. 13-4466 Superior Prod. P’shp v. Gordon Auto Body Parts Co., et al. Page 19

this evidence that Gordon sold below cost, we would be forced to assume that it sold the

overwhelming majority of its output only during the few months with the absolutely lowest

prices in McFarland’s table. Even putting aside the issue of whether a predatory pricing scheme

could succeed in such a short period of time, PBSI points to no evidence that Gordon’s output

was concentrated in this interval. We do not find this assumption reasonable. PBSI’s last-gasp

citation, then, is no more than a “scintilla” of evidence on an essential element of each of its

antitrust claims, and summary judgment was therefore appropriate. Anderson, 477 U.S. at 252.

VI.

The judgment of the district court is affirmed.