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Reviewing Two 3 rd Circuit Rulings : Use of Fed . R . Evid . 803 ( 3 ) to Prove Causation , Damages in Antitrust Cases

The Supreme Court’s rulings in Bell Atlantic Corp. v. Twombly and Ashcroft v. Iqbal have made it more difficult for plaintiffs to show causation and damages in antitrust cases. However, two still-applicable 3rd U.S. Circuit Court of Appeals cases demonstrate that plaintiffs can prove both elements by using their own testimony, including Federal Rule of Evidence 803(3) hearsay testimony to prove causation. Buttressing that testimony with non-speculative expert evidence further strengthens the likelihood of a plaintiff’s success, particularly before a jury. Twombly and Iqbal require that in all civil pleadings the plaintiff must plead sufficient facts to establish a facially plausible claim from which the court can infer defendant misconduct that “plausibly give[s] rise to an entitlement to relief.” However, the holdings by the 3rd Circuit in Callahan v. AEV Inc. and Stelwagon Mfg. Co. v. Tarmac Roofing Sys. Inc. continue to allow plaintiffs to meet that burden more readily but also provide opportunities for defendants to successfully challenge plaintiffs’ evidence. A successful plaintiff’s case contains two basic elements: proof of causation in the form of plaintiffs’ testimony concerning out of court statements by their customers explaining why those customers stopped buying a product from plaintiffs, admissible under Rule 803(3) hearsay exception to show customer motive and proof of loss in the form of plaintiffs’ own non-hearsay testimony that those customers stopped buying from them supported by expert evidence of causation and loss. In Callahan, owners of 16 beer retail stores in the Pittsburgh area brought antitrust and RICO actions alleging the defendants made false statements and submitted false affidavits to the Pennsylvania Liquor Control Board and lied to a grand jury to cover up those statements in order to circumvent LCB regulations. A defendant allegedly used his deception to open five “Beer World” stores in the Pittsburgh area between 1986 and 1988 in violation of LCB regulations, which limit the number of stores a single entrepreneur can own to one. A defendant then used the collective bargaining power of his five stores to negotiate lower wholesale prices than his competitors could obtain. District Judge Donetta Ambrose granted the defendants’ motion for summary judgment as to the antitrust claims and RICO claims. On appeal in 1999, Chief Judge Edward Becker, writing for the majority of the court joined by Circuit Judge Timothy Lewis, reversed that ruling and held plaintiffs’ testimony that customers told them they stopped buying beer from the plaintiffs because the defendants offered cheaper prices was admissible under Rule 803(3) “as evidence of the customers’ states of mind, i.e., their reasons for no longer shopping at the plaintiffs’ stores.” The 3rd Circuit further held this was sufficient disputed proof of causation for plaintiffs to defeat a summary judgment motion. The plaintiffs’ own deposition testimony as to actual loss was that those customers were “in fact no longer shopping at their stores.” The 3rd Circuit held that this sufficed to demonstrate actual loss at the summary stage. The 3rd Circuit also found in Callahan that the plaintiffs’ expert’s report considered some alternative explanations and were sufficiently grounded in fact to constitute adequate proof of injury and causation in combination with the “customer evidence.” The plaintiffs’ expert showed loss by comparing average gross profits for the 16 plaintiffs for the periods before and during the alleged antitrust conspiracy, and then calculating damages based on the difference between average gross profits during the two periods. The expert showed causation with a four-part analysis that addressed at least some possible alternative explanations. T H E O L D E S T L A W J O U R n A L I n T H E U n I T E D S T A T E S 1 8 4 3 2 0 0 9