United States District Court, N.D. California
ORDER REGARDING MOTIONS TO EXCLUDE EXPERT OPINIONS AND MOTION FOR CLASS CERTIFICATION Re: Dkt. Nos. 133, 165, 141.
JOSEPH C. SPERO, Chief Magistrate Judge.
This is a putative class action brought on behalf of women who donated eggs (sometimes referred to as oocytes) through fertility clinics and donation agencies that agreed to comply with ethical guidelines set by Defendants American Society for Reproductive Medicine ("ASRM") and Society for Assisted Reproductive Technology ("SART"). Plaintiffs Lindsay Kamakahi and Justine Levy allege that Defendants' guidelines regarding "appropriate" compensation for egg donors constitute a horizontal price fixing agreement in violation of Section 1 of the Sherman Act. Plaintiffs now seek to certify a plaintiffs' class. Plaintiffs and Defendants each seek to exclude an opposing expert's opinions pursuant to Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). The Court held a hearing on January 23, 2015. For the reasons stated below, Plaintiffs' motion to exclude the opinions of Dr. Insoo Hyun is DENIED, Defendants' motion to exclude the opinions of Dr. Hal Singer is GRANTED, and Plaintiffs' Motion for Class Certifications is GRANTED IN PART and DENIED IN PART.
A. The Defendants
ASRM is an organization "devoted to advancing knowledge and expertise in reproductive medicine." Consolidated Am. Compl. ("CAC, " dkt. 63) ¶ 10; Answers ¶ 10. ASRM's membership consists of medical professionals and corporations located throughout the United States. CAC ¶ 10; Answers ¶ 10. ASRM has an Ethics Committee and a Practice Committee that establish standards for its members; the central function of the Ethics Committee is the publication of "ethics reports" setting forth certain ethical standards for reproductive professionals, while the central function of the Practice Committee is to promulgate guidelines and standards to be followed by reproductive professionals. CAC ¶ 10; Answers ¶ 10.
SART "is an affiliated society to ASRM." CAC ¶ 11; Answers ¶ 11. It considers itself as the "primary organization of professionals dedicated to the practice of assisted reproductive technologies in the United States." CAC ¶ 11; Answers ¶ 11. According to its website, SART's members include over 392 practices (including many in this District), representing over 85% of the clinics engaged in the practice of assisted reproductive technologies in the United States. CAC ¶ 11; Answers ¶ 11. SART's mission is "to set and to help maintain the standards for assisted reproductive technologies, including guidelines regarding ethical considerations, laboratory practice and proper advertising." CAC ¶ 11; Answers ¶ 11.
B. Egg Donation and the Challenged Guidelines
"Many women in the U.S. rely on assisted reproductive technologies to have children. The main form of assisted reproduction is in vitro fertilization (IVF'), which, in some circumstances, requires the use of third-party egg donors." Hyun Report (dkt. 126-1, under seal) ¶ 10; see also CAC ¶ 36; Answers ¶ 36. Egg donors are subject to a screening process that requires them to "compile and disclose a detailed medical and psychological history about themselves and their close blood relatives" and undergo medical testing. CAC ¶ 38-40; see also Answers ¶¶ 38-40. If approved, donors "undergo hormone injections aimed at stimulating egg production and... are usually advised against behaviors such as unprotected sex, smoking, drinking, and taking certain prescription drugs." Answers ¶ 42, see also CAC ¶ 42. In the course of hormone treatment, donors "must also receive frequent blood tests and ultrasound examinations... requiring frequent doctor visits, " and may experience side effects including "mood swings, fluid retention, and enlarged ovaries." CAC ¶¶ 43-44; see also Answers ¶¶ 43-44. The process culminates in a surgical procedure to retrieve eggs from the donor's ovaries. CAC ¶ 45; Answers ¶ 45. Many women who donate eggs through fertility clinics or donor agencies receive monetary compensation.
In 2000, ASRM promulgated a report that "sets forth guidelines that reflect the ASRM Ethics Committee's recommendation on proper compensation for egg donors." Answers ¶¶ 59-60; McLellan Decl. (dkts. 119-4/119-6) Ex. 1. In 2007, ASRM "reaffirmed the findings of the 2000 ethics guidelines in a report entitled Financial Compensation of Oocyte Donors." Answers ¶ 63; McLellan Decl. Ex. 2. Both reports (collectively, the "Guidelines") include general principles of how compensation should be determined. For example, the 2000 report states that "compensation should not vary according to the number or quality of oocytes retrieved or the donor's ethnic or other personal characteristics." McLellan Decl. Ex. 1 at 219. The Guidelines also set limitations on the amount of compensation that is appropriate. The 2000 report states that "at this time sums of $5, 000 or more require justification and sums above $10, 000 go beyond was is appropriate." Id. The 2007 report similarly states that "at this time sums of $5, 000 or more require justification and sums above $10, 000 are not appropriate." Id. Ex. 2 at 308.
Fertility clinics that are members of SART agree to follow ASRM guidelines as a condition of membership. CAC ¶ 69; Answers ¶ 69. SART also encourages egg donation agencies that recruit donors to follow the Guidelines, and has (at least at times) provided a list on its website of agencies that signed an agreement to do so. Answers ¶¶ 76-80. In 2006, SART advised agencies that they would be removed from SART's website if they failed to comply with the requirements of membership. Id. ¶ 78.
C. The Named Plaintiffs and Their Claims
Plaintiffs Kamakahi and Levy are individuals who donated eggs at SART member clinics and received compensation. CAC ¶ 9. Plaintiffs allege in this action that the $5, 000 and $10, 000 limits regarding "appropriate" compensation constitute an unlawful horizontal price fixing agreement in violation of the Sherman Act, 15 U.S.C. § 1, and that these limits resulted in artificially low levels of compensation for Plaintiffs and other egg donors. See CAC ¶¶ 106, 109. They do not challenge any other provision of the Guidelines. See id. ; Cert. Reply (dkts. 134-3/136) at 1-2. Plaintiffs seek treble damages, costs, and attorneys' fees, as well as an injunction barring further use of the appropriate price guidelines. CAC ¶¶ E, F.
D. Procedural History
This action originated in April of 2011 with Kamakahi filing a complaint on behalf of herself and similarly situated donors against the present Defendants and Pacific Fertility Center, the clinic where Kamakahi donated eggs. Kamakahi Compl. (dkt. 1). After Kamakahi declined to consent to the jurisdiction of a magistrate judge, the case was assigned to Judge Armstrong. Dkt. 6. Levy filed a separate class action complaint against Defendants in August of 2011. Levy Compl. (case no. 4:11-cv-03803, dkt. 1). Judge Armstrong granted a motion to consolidate the two cases in March of 2012 and appointed Plaintiffs' counsel as interim lead class counsel. Dkt. 52.
Plaintiffs filed their operative Consolidated Amended Complaint, which does not name Pacific Fertility Center as a defendant, in April of 2012. See generally CAC. Defendants moved to dismiss, contending that the Guidelines should be evaluated in the context of the rule of reason rather than as an alleged per se violation of the Sherman Act, and that Plaintiffs failed to adequately plead a rule of reason claim. See generally Mot. to Dismiss (dkt. 57). Defendants argued that Plaintiffs alleged market definition-egg donor services in the United Stated-was insufficient as to both the product definition and geographic definition. Id. at 17-21. On March 29, 2013, Judge Armstrong denied Plaintiffs motion, holding that Plaintiffs adequately pled a per se theory of liability and that Plaintiffs' market definition was neither legally defective nor "facially unsustainable." Order Denying Mot. to Dismiss CAC (dkt. 63).
By stipulation of the parties, the case was referred to the undersigned magistrate judge for all purposes on June 10, 2013. Dkts. 74-77.
E. The Present Motions
1. Motion for Class Certification
Plaintiffs now seek to certify a class defined as follows:
All women who sold Donor Services for the purpose of supplying human eggs to be used for assisted fertility and reproductive purposes ("AR Eggs") within the United States and its territories at any time during the time period from April 12, 2007 to the present (the "Class Period") to or through:
a. any clinic that was, at the time of the donation, a member of [SART] and thereby agreed to follow the Maximum Price Rules, as set forth by SART and [ASRM]; and/or
b. any AR Egg Agency that was, at the time of the donation, agreeing to follow the Maximum Price Rules.
Cert. Mot. (dkts. 119-5/141) at 1. Plaintiffs request that if the Court determines that "only one of these categories (i.e. only patients of clinics, or only patients of agencies) meets the requirements for class certification, " the Court certify a class consisting of only the category that qualifies. Id. at 1 n.1. As a further alternative, if the Court finds that the case as a whole is not suitable for resolution as a class action, "Plaintiffs seek certification of an issue class... limited to adjudicating the question of whether Defendants violated the antitrust laws." Id. at 2.
Plaintiffs contend that the proposed class meets each requirement of Rule 23(a) of the Federal Rules of Civil Procedure, and that, under Rule 23(b), common issues predominate such that a class action is superior to other methods of adjudicating the controversy. For their predominance argument, Plaintiffs first cite the issue of whether the Guidelines violate the Sherman Act, an issue they claim can be resolved solely through classwide proof. Id. at 8-9. Plaintiffs also argue that documentary evidence and regression analysis by their expert witness Dr. Hal Singer can show through classwide proof that each class member was injured, id. at 9-14, and the extent of each class member's damages, id. at 15-16.
Defendants oppose class certification. See generally Cert. Opp'n (dkts. 126-4/126-3). They argue that Kamakahi's claim is not typical of the proposed class because her donor agreement with Pacific Fertility Center includes an arbitration clause, and that other purported class members may have unique arbitration agreements that would need to be addressed individually. Id. at 7-8. Defendants also contend that there are conflicts of interest among the class based on varying opinions as to whether donors with more desirable personal traits should receive greater compensation, id. at 8-9, and that the portion of the class defined as donors through agencies (as opposed to clinics) that agreed to follow the Guidelines is not ascertainable, id. at 9.
As for predominance, Defendants argue that Plaintiffs cannot use Dr. Singer's analysis to show that each class member was injured, in part because his regressions cannot reliably be applied to clinics and agencies beyond the specific agencies from which he reviewed data. Id. at 11-23. They also claim that Plaintiffs' documentary evidence is insufficient to show that each class member was injured, id. at 24-25, and argue that as a matter of law, an antitrust action cannot be certified under Rule 23(b)(3) unless such a showing can be made using common evidence. Id. at 10-11 (citing, e.g., Bell Atl. Corp. v. AT&T Corp., 339 F.3d 294, 302 (5th Cir. 2003). Defendants suggest that not only might some class members not have been injured, but some might have benefited from the Guidelines because absent the Guidelines, they would not have been selected to donate at all. Id. at 22.
Defendants make similar arguments regarding Plaintiffs' inability to calculate class members' damages through classwide proof. Id. at 27-28. According to Defendants, Plaintiffs' inability to show that class members suffered impact and damages also forecloses certification of an issue class to address whether the Guidelines violate the antitrust law
Plaintiffs also move for certification of a subclass pursuant to Rule 23(b)(2) of the Federal Rules of Civil Procedure, seeking injunctive relief on behalf of "all women within the Donor Class who intend to sell Donor Services in the future to or through any clinic or AR agency agreeing to follow the Maximum Price Rules established by Defendants." Cert. Mot. at 1. Defendants oppose certification of the subclass, arguing that the named plaintiffs do not intend to donate eggs again in the future and therefore lack standing to seek injunctive relief and to represent other donors who do intend to donate again. Cert. Opp'n at 28-30. Defendants also claim that there are conflicts of interest among the proposed future donor subclass because some members may benefit from the Guidelines. Id. at 31.
2. Motions to Exclude Expert Reports
Each party moves to exclude expert testimony that the other offers as relevant to the question of whether impact and damages can be shown on a class-wide basis.
Defendants submit a report by Dr. Insoo Hyun, Ph.D., a bioethicist, that discusses principles of medical ethics and presents justifications for the Guidelines based on such principles. See generally Hyun Report. Plaintiffs argue that Dr. Hyun's report improperly addresses the merits of the case rather than issues of class certification, and that his conclusions are not based on a scientific method. See generally Mot. re Hyun (dkt. 133). Defendants counter that Dr. Hyun's testimony is relevant to understanding factors that would affect physicians' decisions regarding donor compensation if the challenged provision of the Guidelines were not present, Opp'n re Hyun (dkt. 139) at 3-7, and is based on reliable methods and qualifications, id. at 7-9.
Plaintiffs submit three reports by Dr. Hal Singer, Ph.D. an economist, which present methods and analysis that Plaintiffs believe can show impact and damages through classwide proof. See generally Singer Report (dkt. 119-7); Singer Reply Report (dkt. 134-4); Singer Supp'l Report (dkt. 151-6) (each under seal). Dr. Singer analyzed compensation data from three egg donor agencies that affirmatively renounced their agreements to comply with the Guidelines, and prepared regression models to isolate the effect of that decision. See Singer Report ¶¶ 45, 58; Singer Supp'l Report ¶ 6. Defendants argue that Dr. Singer's analysis is unreliable because it cannot be applied to other clinics and agencies, and because it rests on improper assumptions and fails to include relevant variables. Mot. re Singer (dkt. 165) at 5-14. Defendants also attack, as inaccurate and unsupported by economic analysis, Dr. Singer's conclusion that clinics and agencies employ a "rigid pricing structure." Id. at 14-17. Plaintiffs dispute Defendants' arguments and further contend that such arguments properly go to weight rather than admissibility. See generally Opp'n re Singer (dkt. 162).
III. LEGAL STANDARDS
The parties' motions require the Court to resolve two separate but related inquiries: (1) whether the court should consider certain expert reports in deciding the question of class certification; and (2) whether a class should be certified. Although the parties' Daubert motions are a threshold issue to Plaintiffs' class certification motion, the "relevance" prong of the Daubert inquiry depends on what the parties will need to show to support or defeat class certification, and the class certification questions of predominance and commonality in turn depend on the elements of Plaintiffs' underlying antitrust claim. This Order therefore discusses each of the three relevant legal standards-for antitrust claims under the Sherman and Clayton Acts, class certification under Rule 23, and expert testimony under Rule 702 and Daubert -before analyzing the parties' motions.
A. Legal Standard for Plaintiffs' Underlying Antitrust Claim
The merits of Plaintiffs' substantive claim are not presently before the Court, but the nature of the underlying claim is relevant to understanding what Plaintiffs will need to show to prevail, which in turn informs the two present issues. The Court therefore briefly addresses the underlying cause of action.
Plaintiffs bring this action under section 1 of the Sherman Act, which prohibits "contract[s], combination[s] in the form of trust or otherwise, or conspirac[ies], in restraint of trade, " 15 U.S.C. § 1, and under the Clayton Act, which grants private parties harmed by such restraints the right to sue for damages and injunctive relief, id. §§ 15(a), 26. Courts have long held that the Sherman Act is not as broad as its literal language might suggest, and "that Congress intended to outlaw only unreasonable restraints." Texaco v. Dagher, 547 U.S. 1, 5 (2006) (quoting State Oil Co. v. Khan, 522 U.S. 3, 10 (1997)) (emphasis in Texaco ). Courts "presumptively appl[y] rule of reason analysis, under which antitrust plaintiffs must demonstrate that a particular contract or combination is in fact unreasonable and anticompetitive before it will be found unlawful." Id. Certain "plainly anticompetitive" agreements, however, including "[p]rice-fixing agreements between two or more competitors, otherwise known as horizontal price-fixing agreements, " are considered unlawful per se . Id. "Horizontal price fixing is a per se violation regardless of whether the prices set are minimum or maximum." Knevelbaard Dairies v. Kraft Foods, Inc., 232 F.3d 979, 988 (9th Cir. 2000) (citing Arizona v. Maricopa Cnty. Med. Soc'y, 457 U.S. 332 (1982)). Plaintiffs contend that the challenged compensation guidelines constitute such an agreement. Compl. ¶¶ 3, 106. In the alternative, Plaintiffs argue that the compensation guidelines are anticompetitive and unlawful under the rule of reason. Id. ¶ 107.
The Clayton Act states that "any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor." 15 U.S.C. § 15(a). In much the same way that the facially broad language of the Sherman Act has been construed as addressing only certain types of agreements, however, "[t]he Supreme Court has held that Congress did not intend to afford a remedy to everyone injured by an antitrust violation." Knevelbaard Dairies, 232 F.3d at 987 (citing Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 535 (1983)). In other words, it is not enough that a plaintiff has been injured; the plaintiff also "must have antitrust standing.'" Knevelbaard Dairies, 232 F.3d at 987. That question turns on the following factors: "(1) the nature of the plaintiff's alleged injury; that is, whether it was the type the antitrust laws were intended to forestall; (2) the directness of the injury; (3) the speculative measure of the harm; (4) the risk of duplicative recovery; and (5) the complexity in apportioning damages." Id. (quoting Am. Ad Mgmt., Inc. v. Gen. Tel. Co. of Cal., 190 F.3d 1051, 1054 (9th Cir. 1999)).
The first of these factors-the nature of the injury-is the most important. "A showing of antitrust injury is necessary, but not always sufficient, to establish [antitrust] standing...." Cargill, Inc. v. Monfort of Colo., Inc., 479 U.S. 104, 110 n.5 (1986); see also Am. Ad Mgmt., 190 F.3d at 1055. This factor itself has four required elements: "(1) unlawful conduct, (2) causing an injury to the plaintiff, (3) that flows from that which makes the conduct unlawful, and (4) that is of the type the antitrust laws were intended to prevent." Am. Ad Mgmt., 190 F.3d at 1055. The remaining factors also inform the decision, but "a court need not find in favor of the plaintiff on each factor" other than antitrust injury. Id.
B. Legal Standard for Class Certification
In the federal courts, class actions are governed by Rule 23 of the Federal Rules of Civil Procedure. Under that Rule, a party seeking class certification must demonstrate that "(1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class." Fed.R.Civ.P. 23(a). Further, although not explicitly discussed in the Rule, "an implied prerequisite to class certification is that the class must be sufficiently definite; the party seeking certification must demonstrate that an identifiable and ascertainable class exists." Xavier v. Philip Morris USA Inc., 787 F.Supp.2d 1075, 1089 (N.D. Cal. 2011). In short, a party must show numerosity, commonality, typicality, adequacy, and ascertainability.
A proposed class must also satisfy at least one of the subsections of Rule 23(b). Plaintiffs in this action primarily invoke Rule 23(b)(3), which provides that a class that meets the requirements of Rule 23(a) may be certified where "questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy." Fed.R.Civ.P. 23(b)(3). Plaintiffs also seek to certify a subclass of future donors for injunctive relief under Rule 23(b)(2), which permits certification where "the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole." Fed.R.Civ.P. 23(b)(2).
"The class action is an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only." Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541, 2550 (2011) (internal quotation marks and citation omitted). "In order to justify a departure from that rule, a class representative must be part of the class and possess the same interest and suffer the same injury as the class members." Id . "A party seeking class certification must affirmatively demonstrate his compliance with [Rule 23]-that is, he must be prepared to prove that there are in fact sufficiently numerous parties, common questions of law or fact, etc." Id. at 2551. "Rule 23 does not set forth a mere pleading standard." Id.
"Before certifying a class, the trial court must conduct a rigorous analysis' to determine whether the party seeking certification has met the prerequisites of Rule 23." Mazza v. Am. Honda Motor Co., Inc ., 666 F.3d 581, 588 (9th Cir. 2012) (citation omitted). Such analysis, however, is not a "license to engage in free-ranging merits inquiries [regarding the ultimate outcome of the case] at the certification stage." Amgen Inc. v. Conn. Ret. Plans & Trust Funds, 133 S.Ct. 1184, 1194-95 (2013). Rather, "[m]erits questions may be considered to the extent-but only to the extent-that they are relevant to determining whether the Rule 23 prerequisites for class certification are satisfied." Id . (citation omitted).
If the Court determines that Plaintiffs cannot maintain a class action for all purposes, Plaintiffs seek to certify a class "with respect to particular issues" pursuant to Rule 23(c)(4), specifically, "whether Defendants' agreement violates the antitrust laws." Cert. Mot. at 2; 19-24. "Even if the common questions do not predominate over the individual questions so that class certification of the entire action is warranted, Rule 23 authorizes the district court in appropriate cases to isolate the common issues under Rule 23(c)(4)(A) and proceed with class treatment of these particular issues. Valentino v. Carter-Wallace, Inc., 97 F.3d 1227, 1234 (9th Cir. 1996). Courts faced with a proposed issue class should consider "whether the adjudication of the certified issues would significantly advance the resolution of the underlying case, thereby achieving judicial economy and efficiency." Id. at 1229. In at least some circumstances, it is appropriate to certify a class to "accurately and efficiently resolve the question of liability, while leaving the potentially difficult issue of individualized damage assessments for a later day." Jimenez v. Allstate Ins. Co., 765 F.3d 1161, 1164 (9th Cir. 2014) (affirming a district court order that took this approach, without explicitly citing Rule 23(c)(4)).
C. Legal Standard for Expert Testimony
Rule 702 of the Federal Rules of Evidence permits a party to offer testimony by a "witness who is qualified as an expert by knowledge, skill, experience, training, or education." Fed.R.Evid. 702. This Rule embodies a "relaxation of the usual requirement of firsthand knowledge, " Daubert, 509 U.S. at 592,  and requires that certain criteria be met before expert testimony is admissible. The Rule sets forth four elements, allowing such testimony only if:
(a) the expert's scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or determine a fact in issue;
(b) the testimony is based on sufficient facts or data;
(c) the testimony is the product of reliable principles and methods; and
(d) the expert has reliably applied the principles and methods to the facts of the case.
Fed. R. Evid. 702. These criteria can be distilled to two overarching considerations: "reliability and relevance." Ellis v. Costco Wholesale Corp., 657 F.3d 970, 982 (9th Cir. 2011). The inquiry does not, however, "require a court to admit or exclude evidence based on its persuasiveness." Id.
When a party seeks to exclude expert testimony or reports at the class certification stage, courts apply the Daubert standard to evaluate the challenged evidence. Id. The reliability prong requires the court to "act as a gatekeeper' to exclude junk science, " and grants the court "broad latitude not only in determining whether an expert's testimony is reliable, but also in deciding how to determine the testimony's reliability." Id. (citing Kumho Tire Co. v. Carmichael, 526 U.S. 137, 145, 147-49, 152). Evidence should be excluded as unreliable if it "suffer[s] from serious methodological flaws." Obrey v. Johnson, 400 F.3d 691, 696 (9th Cir. 2005).
The relevance prong looks to whether the evidence "fits" the issues to be decided: "scientific validity for one purpose is not necessarily scientific validity for other, unrelated purposes, " and "[e]xpert testimony which does not relate to any issue in the case is not relevant." Daubert, 509 U.S. at 591. "Where an expert report' amounts to written advocacy... akin to a supplemental brief, a motion to strike is appropriate because this evidence is not useful for class certification purposes." Williams v. Lockheed Martin Corp., No. 09CV1669 WQH (POR), 2011 WL 2200631, at *15 (S.D. Cal. June 2, 2011) (citation omitted; ellipsis in original).
In this case, both of the challenged expert reports are offered to inform the commonality and predominance inquiries: specifically, whether damages and antitrust impact can be demonstrated through common proof. See Opp'n re Hyun at 3-4; Opp'n re Singer at 1. The Court must therefore ...