Compass Lexecon has been involved in many of the largest and most complex antitrust litigation and financial market cases over the past thirty years. Details of recent cases in which Compass Lexecon has been involved are provided below or can be located by using the Search Bar capability.
Representative Cases View Snapshot of Cases by Year
On November 12, 2013, US Airways and American Airlines announced that they had reached a proposed settlement with the Department of Justice (DOJ) and several states to end the litigation challenging their merger and that, as a result, they expect to complete the merger by the end of 2013. Under the settlement, the parties agreed to divest slots and gates at several airports and to make certain other commitments, but otherwise are allowed to proceed with the merger that will create the world's largest airline and, even with the divestitures, generate over $1 billion in estimated annual synergies. According to the Wall Street Journal: "Many antitrust and airline industry experts deemed the settlement a victory for the carriers, because it left the vast majority of their merger plan intact."
This proposed settlement effectively brought to a close nearly two years of Compass Lexecon work on this matter, starting with separate teams advising both US and American on the merger, proceeding to a joint Compass Lexecon team submitting multiple white papers and making several presentations during the DOJ investigation of the matter, and culminating with the submission of four expert reports by Compass Lexecon experts (Dennis Carlton, Janusz Ordover, Dan Kasper, and Rajiv Gokhale) as part of the litigation. The clients have been universal in their praise of the work and their view that Compass Lexecon played a significant role in what they see as a successful resolution of the case.
Among those working on a large Compass Lexecon team supporting the multiple experts on the case were Mark Israel, Chip Bamberger, Darin Lee, Yair Eilat, Lynette Neumann, Eugene Orlov, Theresa Sullivan, Eric Amel, Bo Bourke, Jonathan Bowater, Mike Easterly, Jay Ezrielev, David Fenichel, Joseph Goodman, Nauman Ilias, Bryan Keating, Neal Lenhoff, Bich Ly, Ian MacSwain, Avisheh Mohsenin, David Molin, Greg Pelnar, Hans-Jürgen Petersen, Jonathan Polonsky, Jeff Raileanu, Michael Sabor, Rohini Sadarangani, Dan Stone, and Jonathan Williams. Throughout the case, Compass Lexecon worked closely with outside counsel, including Richard Parker and Henry Thumann of O'Melveny and Myers; John Majoras, Joe Sims, and Bruce McDonald of Jones Day; Rick Rule and Andrew Forman of Cadwalader, Wickersham, and Taft; Paul Denis and Paul Friedman of Dechert; and MJ Moltenbrey of Paul Hastings. Compass Lexecon also worked closely with inside counsel for the airlines, including Stephen Johnson and Howard Kass of US, and Bruce Wark and James Kaleigh of American.
FTC Relies Heavily on Econometric Analyses
On November 1, 2013, the United States' Federal Trade Commission provided regulatory clearance for the merger of OfficeMax and Office Depot, two of the largest office supplies retail chains in the United States. The office supplies industry attracted significant attention among the antitrust community in 1997, when Staples and Office Depot attempted to merge. That transaction was challenged by the FTC, and was blocked by the Court. The court proceedings in FTC v. Staples (1997) involved large-scale, complicated econometric work that pioneered the application of econometrics in antitrust cases. As a consequence, the February 2013 announcement of the OfficeMax and Office Depot merger generated a lot of public attention.
A Compass Lexecon team — Jon Orszag, Eugene Orlov, Dan Stone, Neal Lenhoff, Joseph Goodman, Jonathan Williams and many others in the Chicago office — was retained by Paul T. Denis, James A. Fishkin and Rani A. Habash of Dechert LLP to first advise the board of directors of OfficeMax and then provide economic analysis of the proposed transaction. Compass Lexecon also worked closely with Matthew J. Reilly, Kevin J. Arquit, Andrew M. Lacy and Evan I. Cohen of Simpson Thacher & Bartlett LLP, who were retained by Office Depot.
Compass Lexecon performed detailed econometric analyses of the competitive retail price effects of the transaction and the merging parties' pricing, and substantially expanded the econometric modeling used in FTC v. Staples. The analysis concluded that there was no systematic evidence that the proposed merger would result in higher retail prices, a finding that was presented to the FTC and ultimately cited as one of the main reasons to clear the merger. Specifically, the FTC said, "The econometric analysis reflects the new competitive dynamics in the industry and shows that the proposed merger is unlikely to result in anticompetitive price effects... All of the econometrics, none of which assumed or depended on any particular definition of a relevant product or geographic market, indicate that the merger is unlikely to lead to anticompetitive price increases."
We were retained by counsel for Google Inc. and counsel for Google’s founders, Larry Page and Sergey Brin (the “Founders”), to analyze Plaintiff’s claims that Google’s April 12, 2012 proposal for the issuance of a new class of non-voting stock via a stock dividend was “a thinly veiled attempt to further entrench the Founder s’ voting power and control over the Company without any legitimate business purpose” and was detrimental to Google existing Class A shareholders. Daniel R. Fischel, Compass Lexecon’s President, submitted a report and a rebuttal report and testified at deposition, opining that, among other things, the economic evidence did not support Plaintiff’s claims, and that the proposed Recapitalization was comparable to or more favorable to Class A shareholders than recapitalizations by other companies that have issued non-voting or limited voting common stock. On June 16, 2013 -- just prior to the commencement of trial -- the parties entered into a Memorandum of Understanding that documents the parties’ agreement to settle Plaintiff’s claims. The proposed settlement, which will allow the proposed recapitalization to proceed with certain minor modifications, was approved by Chancellor Leo E. Strine, Jr. on October 28, 2013. Professor Fischel was assisted by David J. Ross, Laurel Van Allen, Jonathan Polonsky and Sam Hollander. Google is represented by William B. Chandler III, Boris Feldman, David J. Berger and Gideon A. Schor of Wilson Sonsini Goodrich & Rosati, and by William M. Lafferty, Kevin M. Coen and D. McKinley Measley of Morris, Nichols, Arsht & Tunnell LLP. The Founders are represented by Ronald L. Olson, John W. Spiegel and George M. Garvey of Munger, Tolles & Olson LLP and by Stephen P. Lamb of Paul Weiss, Rifkind, Wharton & Garrison LLP.
Judgment Follows Successful Trial Testimony of Compass Lexecon's President, Professor Daniel Fischel
Last week, Judge Ronald A. Guzman of the Northern District of Illinois entered a judgment against Household International (now HSBC Finance Corporation) and three officer defendants of $2.46 billion, the largest judgment following a securities fraud class action trial in history. Earlier, a federal court jury in Chicago delivered a verdict in favor of Compass Lexecon's client, a class of investors. The jury determined that all four defendants violated federal securities laws and that a result, Household's stock price was inflated by $23.94 a share for much of an 18 month period. Compass Lexecon expert Daniel Fischel provided expert testimony on materiality, causation, and the quantification of inflation on behalf of the plaintiff class in the case.
Professor Fischel at trial quantified inflation using two different methods - the first focusing on stock price reactions to specific disclosures and the second focusing on analysis of stock price movements over a longer period based on a leakage model. Professor Fischel also responded to various criticisms and claims by defendants' experts as the only rebuttal witness. The jury adopted the per share inflation calculations taken directly from Professor Fischel's leakage model in its verdict. A lengthy damages phase then followed the trial prior to the entry of the judgment.
A team from our Chicago office including Mike Keable, David Ross, Jessica Mandel, Jerry Lumer, Cliff Ang, and Peter Clayburgh worked on the case and provided valuable assistance. We worked with Mike Dowd, Spence Burkholz, Dan Drosman, Azra Mehdi, and Luke Brooks from Robbins Geller Rudman & Dowd LLP who successfully represented the plaintiff class.
On October 16, 2013, a federal jury rejected SEC claims that Mark Cuban engaged in insider trading when he sold his stake in internet company Mamma.com after learning that the company would sell shares in a private investment in public equity (“PIPE”) transaction that purportedly caused its stock price to decline. A team from our Chicago office led by Mike Keable acted as consultants to Cuban’s counsel. We analyzed the economic evidence regarding Mamma.com’s stock and the materiality of PIPE transaction announcements and concluded that it was inconsistent with the SEC’s claims.
On September 30, 2013 the United States District Court for the District of Maryland found unconstitutional a Maryland Public Service Commission (“PSC”) order directing the state’s electric utilities to enter into long-term contracts that required them to pay PSC-set prices for the sales of capacity and energy from a new power plant to be constructed by a State-chosen developer. This court case focused on the constitutionality of the PSC-mandated contract for differences (“CFD”) that would have required the developer successfully to bid its new capacity and energy into the federally-regulated regional wholesale power markets of the PJM Interconnect, while the utilities would have been required to pay the developer the differences between the PJM market prices and the contract price - an out-of-market price set by the PSC. The court found that the PSC's order unconstitutionally dictated, through the CFD, wholesale prices in interstate power markets where the doctrine of field preemption forecloses state regulation since it is a field that by law is occupied entirely by the federal government. This ruling favored Compass Lexecon clients PPL EnergyPlus, LLC, PSEG Power, LLC and the other Plaintiffs.
The court frequently cited the testimony of Compass Lexecon’s Professor Bobby Willig on how the federally regulated PJM electricity markets work, how the CFD would result in the Maryland PSC setting the wholesale prices received by the power plant developer, how the CFD would affect the wholesale market bidding of the new generation plant developer and other market participants, and how federal wholesale-market policy goals would be undermined. Professor Willig’s testimony explained the economics underlying the structure of PJM’s wholesale markets for electric generation capacity and energy, and showed on the basis of the economics of the definition and functionality of pricing that the CFD would have supplanted the PJM market prices with the PSC-set contract prices.
Compass Lexecon was retained by David L. Meyer of Morrison & Foerster LLP and Richard L. Roberts of Steptoe and Johnson. Professor Willig was primarily supported by Glenn Mitchell and Marc Huntley from the Pasadena office with additional support provided by Joe Cavicchi and David Molin from the Boston office.
Jury Finds Minimal Damages for HannStar Based on Testimony from Compass Lexecon Expert Professor Dennis Carlton and No Liability for Toshiba
HannStar and other Taiwanese, Korean, and Japanese firms (not including Toshiba) had previously reached guilty plea agreements with the U.S. Department of Justice for fixing prices on LCD panels. In this litigation, Best Buy accused Toshiba and HannStar of conspiring for the better part of a decade with other firms to fix prices for LCD panels and sought damages related to this alleged conspiracy. Best Buy asked for damages of more than $2 billion post-trebling. Plaintiffs relied on their economic expert for their claimed damages which was based on a complicated econometric model. Plaintiffs' expert claimed average overcharges were around 20%.
Compass Lexecon's Professor Dennis Carlton testified that Best Buy's expert witness had greatly overstated any overcharges resulting from the alleged conspiracy. He explained how some basic economic calculations showed how unreasonable Plaintiffs' expert's claims were. He also showed that with some simple changes to the Plaintiff's expert's econometric model, the huge price overcharge disappeared. Professor Carlton presented his own econometric model, and found overcharges that were in the range of 0.4% to 1.9%, depending upon the type of panel.
The jury found no liability for Toshiba, and, for HannStar, which admitted liability, the jury awarded direct damages in precisely the amount based on Professor Carlton's analysis — $7.47 million. The jury also found that the conduct did not have a direct, substantial and reasonably foreseeable effect on commerce in the United States. For this reason, press stories after the verdict stated that HannStar may ultimately not have to pay any damages.
Professor Carlton was supported by teams in Compass Lexecon's Washington D.C, Boston and Chicago offices, which included Mark Israel, Ian MacSwain, Allan Shampine, Chris Cavanagh, Guillermo Israilevich, Georgi Giozov, Joel Papke, Quinn Johnson, Ben Wagner, Dave Grothouse, and many others. The team worked closely with Chris Curran, Mark Gidley, Martin Toto and Kristen McAhren of White & Case who successfully represented Toshiba, and Robert Freitas of Freitas, Tseng & Kaufman who successfully represented HannStar.
Panel Relies Extensively on Analysis by Compass Lexecon Expert Professor Robert Willig
On August 9, the United States Court of Appeals for the D.C. Circuit ruled unanimously in favor of Compass Lexecon's clients, the four major U.S. railroads, BNSF, CSX, Norfolk Southern and Union Pacific, and vacated the District Court's certification of a class in the Rail Freight Fuel Surcharge Antitrust Litigation. The D.C. Circuit's opinion relied extensively on the expert testimony provided by Compass Lexecon's Professor Robert Willig in concluding that the plaintiffs' expert's analysis of common injury among members of the proposed class was fundamentally flawed and yielded "obviously false estimates."
Plaintiffs in the case alleged that the four major railroads conspired to impose rate-based fuel surcharges on shipments beginning in 2003 and sought certification of a class of rail customers that paid fuel surcharges. Plaintiffs' claimed that certification of this expansive class was appropriate based on a purported statistical analysis that attempted to relate changes in rates paid by the railroads' customers after 2003 to the increased use of fuel adjustment clauses in shipping contracts as well as changes in the structure of these clauses.
The District Court granted class certification, but on appeal the panel reversed, stressing that the Supreme Court's March 2013 decision in Comcast v. Behrend requires a higher standard of review for proving common injury in class certification. The panel further held that the district court failed to consider the flaws in the plaintiffs' damage model that had been highlighted by Professor Willig, specifically those that led to substantial false positives.
The opinion is particularly important because of the panel's emphasis on the newly critical role of the use of reliable statistical methods in class certification analysis, concluding that "[i]t is now clear, however, that Rule 23 not only authorizes a hard look at the soundness of statistical models that purport to show predominance—the rule commands it. Mindful that the district court neither considered the damages model's flaw in its certification decision nor had the benefit of Behrend's guidance, we will vacate class certification and remand the case to the district court to afford it an opportunity to consider these issues in the first instance."
Dr. Willig was supported by a team in Compass Lexecon's Chicago office that included Hal Sider, Tom Stemwedel and Dzmitry Asinski, and worked closely with Tom Isaacson of Covington & Burling, Samuel Sipe of Steptoe & Johnson, Saul Morgenstern of Kaye Scholer, and Shari Lahlou at Crowell & Moring.
Compass Lexecon's President, Professor Daniel Fischel Testifies Successfully at Trial
Following the 9/11 Terrorist Attacks on the World Trade Center, leaseholder Larry Silverstein and associated business entities ("Silverstein") filed suit against various airline defendants including American Airlines, United Airlines, and Boeing seeking tort damages for losses sustained as a result of destruction of the buildings. Subsequent litigation had established that the maximum tort damages recoverable were approximately $3.5 billion. The issue in the current case was whether Silverstein could proceed with his tort damage claim, even though he had already recovered approximately $5 billion in business interruption and replacement cost insurance proceeds.
The airline defendants, represented by lead counsel Roger Podesta of Debevoise & Plimpton LLP, argued that the $5 billion in insurance payments already received "corresponded" to the $3.5 billion of potential tort damages because they were both for the same economic loss and, therefore, Silverstein was entitled to no further compensation. Silverstein, by contrast, claimed that there was no correspondence because of his obligation to rebuild the destroyed buildings and, therefore, he should be allowed to proceed to trial to recover tort damages of billions of dollars against the airlines, in addition to the $5 billion in insurance recoveries. After a July 2013 bench trial, Judge Alvin K. Hellerstein of the United States District Court, Southern District of New York ruled in favor of the airline defendants and held that the $5 billion in insurance recoveries corresponded to and "completely offset" potential tort damages against the airline defendants and, therefore, Silverstein was entitled to no further compensation.
Compass Lexecon's President, Professor Daniel Fischel, testified for the airline defendants at trial. Among other things, Professor Fischel explained the relationship between replacement cost and diminution in market value as two different ways to measure the loss caused by damage to property. Professor Fischel further explained that a plaintiff is fully compensated if they receive insurance proceeds for business interruption and/ or replacement cost in an amount greater than the lesser of diminution in market value or replacement cost. Judge Hellerstein quoted from and relied on Professor Fischel's testimony in his opinion, concluding that it was "more credible" than the testimony by the opposing expert.
Compass Lexecon also was heavily involved in earlier phases of the litigation. We worked closely with Brian Fraser of Richards Kibbe & Orbe LLP (who also was one of the counsel for the airline defendants at the correspondence trial) on various issues relating to the valuation of the destroyed World Trade Center buildings. During this earlier phase, Professor Fischel made numerous oral and written presentations discussing the proper valuation methodology for calculating losses caused by the terrorist attacks.
Apart from the counsel listed above, we also worked with Maura Kathleen Monaghan and Erica Weisgerber of Debevoise & Plimpton LLP, Desmond T. Barry, Jr. and Evan Kwarta of Condon & Forsyth LLP, Rowan Gaither of Richards Kibbe & Orbe LLP, Jeffrey J. Ellis of Quirk & Bakalor, P.C., and Ann Taylor and T. Patrick Byrnes of Locke Lord Bissell & Liddell LLP. The Compass Lexecon team that worked on this matter in addition to Professor Fischel included Rajiv Gokhale (who also filed several declarations), Todd Kendall, and Erika Morris of our Chicago office.
Seamless North America LLC and GrubHub Inc., the two largest providers of Internet-based online restaurant discovery and food ordering services, sought to merge in mid-2013. The two firms and their counsel, Karen Silverman, Josh Holian, Debbie Won, Miriam McClure and Shahab Asghar of Latham and Watkins for Seamless and Mark Tully, Kirby Lewis, and Todd Hahn of Goodwin Procter for GrubHub retained Compass Lexecon to provide economic analysis of the transaction. Jon Orszag, Kevin Green and Maria Stoyadinova assisted by a team from the Washington, D.C. office, Genaro Marquez and Piyal Hyder, helped the parties receive regulatory clearances from the DOJ. Compass Lexecon performed a wide ranging analysis of the competitive effects of the transaction, including a written submission to the DOJ. Our analysis addressed relevant markets for online ordering, the relevance and magnitude of network effects in a two-sided market, and detailed empirical analysis of commission rates across cities and over time, among other topics.
On May 29, 2009, Cox Enterprises, Inc. consummated a short-form merger wherein Cox Enterprises, Inc., through its wholly-owned subsidiary Cox Media Group, acquired the shares of Cox Radio, Inc. stock it did not own at a price of $4.80 per share. Petitioners (Towerview LLC et al.) alleged that the merger consideration of $4.80 per share substantially underestimated the value of their shares.
A four-day trial took place in November 2012 at the Court of Chancery of the State of Delaware in which Compass Lexecon Executive Vice President Rajiv B. Gokhale testified on behalf of Cox Radio, Inc. Petitioners’ valuation expert testified at trial that the fair value of the petitioners’ shares was between $11.05 to $12.12 per share. Compass Lexecon Executive Vice President testified that the fair value of the petitioners’ shares was in a range of $3.40 to $5.29, with a midpoint of $4.28 per share.
On June 28, 2013, Vice Chancellor Donald F. Parsons issued an opinion concluding that the fair value of petitioners’ shares was $5.75 per share. In reaching his decision, Vice Chancellor Parsons accepted and began with “Gokhale’s model as a general framework,” because “Gokhale’s approach provides a more appropriate starting point,” and found “Gokhale’s valuation approach to be more reliable generally.”
Compass Lexecon worked with Kevin G. Abrams, J. Peter Shindel Jr., and Daniel A. Gordon of Abrams & Bayliss LLP. Rajiv Gokhale was assisted by Cliff Ang, Margaret Hlebowitsh, Avisheh Mohsenin, Andrew Lin and others in the Chicago office.
Compass Lexecon’s clients, SHP Asset Management (“SHP”) and its affiliates (Plaintiffs), and defendant CalPERS had invested in SHP Senior Housing Fund, which was formed to invest in retirement homes. SHP, as fund manager, was entitled to receive an Incentive Distribution at the end of 2007 and every seven years thereafter and an Asset Management Fee every quarter. In late 2007, CalPERS retained Duff & Phelps to appraise the retirement homes and affiliated nursing facilities for the purpose of determining the Incentive Distribution. In June 2008, CalPERS ordered Duff & Phelps to revise its earlier appraisals and sought to replace the original appraisals with revised appraisals that placed lower values on the properties. Compass Lexecon Executive Vice President Rajiv Gokhale testified on behalf of Plaintiffs that the reasons offered by Duff & Phelps for revising its appraisals did not justify the significant reduction in value from the original appraisals to the revised appraisals.
Delaware decided the dispute in Plaintiffs’ favor. As a result, CalPERS must pay SHP an Incentive Distribution based on the Original Duff & Phelps Appraisals. Chancellor Strine opined that at trial Rajiv Gokhale “testified convincingly that the two reasons that Duff & Phelps gave for restating the appraisals … could not justify this huge reduction in value” from Duff & Phelps’ original to its revised appraisals.
Compass Lexecon worked with Matthew F. Davis, Timothy R. Dudderar, and Matthew E. Fischer of Potter Anderson & Corroon LLP. Rajiv Gokhale was assisted by Avisheh Mohsenin, Paul Eastwood, Michael Pugh, and others in the Chicago office.