`FOR THE DISTRICT OF COLUMBIA
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`)
`In re RAIL FREIGHT FUEL SURCHARGE
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`ANTITRUST LITIGATION
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`~~~~~~~~~~~~~~~~-) MDL Docket No. 1869
`Misc. No. 07-0489 (PLF)
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`)
`)
`ALL CASES
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`~~~~~~~~~~~-)
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`This document relates to:
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`OPINION AND ORDER
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`This case has been there and back again -
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`through one round of class
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`certification, an appeal to the D.C. Circuit, and now a second round of class certification briefing
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`after the court of appeals vacated the Court's prior decision certifying the class and remanded for
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`further consideration. Through it all, the plaintiffs have principally relied on Dr. Gordon
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`Rausser's expert reports and testimony. But on the eve of a second class certification hearing,
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`plaintiffs were blindsided by evidence that indicates that Rausser has, for years, consulted with
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`and invested in companies that buy out class action claims for profit -
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`including a claim or
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`claims in this case - while serving as an expert witness in class action cases around the country.
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`Because Rausser's credibility has been drawn into serious question, plaintiffs
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`have moved for leave to file a supplemental expert report, limited in scope, to attest to the
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`integrity and reliability of Rausser's expert analysis and methodologies. Defendants argue that
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`Rausser's tarnished credibility does not warrant allowing an additional expert witness and that
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`they would be prejudiced by further delaying the already costly proceedings. After careful
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`EXHIBIT
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`i
`I ~{}t{JW
`I
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`CFAD Exhibit 1087
`CFAD v. NPS
`IPR2015-01093
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`consideration of the parties' briefs, exhibits, and the relevant legal authorities, the Court grants
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`plaintiffs' motion for leave to file a supplemental expert report. 1
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`I. BACKGROUND
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`The history of this case is recounted in detail in prior opinions of this Court and of
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`the U.S. Court of Appeals for the District of Columbia Circuit. See In re Rail Freight Fuel
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`Surcharge Antitrust Litig., 287 F.R.D. 1 (D.D.C. 2012); In re Rail Freight Fuel Surcharge
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`Antitrust Litig., 725 F.3d 244 (D.C. Cir. 2013). Only the facts relevant to plaintiffs' motion are
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`summarized here.
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`On March 10, 2014, defendants' counsel received an email from an employee of
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`Cascade Settlement Services ("Cascade") named Rod Montgomery. 2 That email stated, in part:
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`I fear the company's involvement with Gordon Rausser, majority owner of
`OnPoint Analytics, could be a serious conflict of interest . . . . Mr.
`Rausser holds a non-voting percentage ownership in our company,
`I believe he has a 10% interest in the
`specifically Cascade, LLC.
`company. As a result, he stands to gain directly from any purchases of
`claims made in the Rail case. He has been able to keep the company
`in
`the case given he has "insider"
`apprised of all developments
`information. His [damages] model [] also might have indirect or direct
`benefit to him financially.
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`The papers reviewed in connection with the pending motion include the
`following: plaintiffs' motion for leave to file a supplemental expert report ("Mot.") and exhibits
`[Dkt. No. 742]; defendants' opposition to plaintiffs' motion ("Opp.") and exhibits [Dkt. No.
`748]; transcript of October 2, 2014 hearing ("Oct. 2 Hrg.") [Dkt. No. 75l];transcript of October
`21, 2014 hearing ("Oct. 21 Hrg.") [Dkt. No. 752]; and transcript of November 13, 2014 hearing
`("Nov. 13 Hrg.") [Dkt. No. 754].
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`2
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`Cascade invests in class action lawsuits by buying out the claims of potential class
`plaintiffs. Cascade Settlement Services, http://vvww.cascadesettlement.com (last visited Nov. 26,
`2014). It also "provides comprehensive filing services to maximize settlement proceeds for
`institutional investors and corporations." Id.
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`2
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`Mot. Ex. 1. After receiving this email, "[ d]efendants tried to confirm or refute Mr.
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`Montgomery's claim using publicly available information," but were "unable to find any
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`evidence corroborating the allegations." Opp. at 6-7. Defendants, however, did not share Mr.
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`Montgomery's accusations with plaintiffs' counsel or the Court.
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`On July 31, 2014, defendants deposed Dr. Rausser and asked whether "there [is]
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`any formal relationship between OnPoint Analytics and Cascade Settlement Services."
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`Opp. at 7. Dr. Rausser answered "no," but stated that OnPoint Analytics "has done work for
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`[Cascade] in the past." Id. He denied that he or OnPoint had any ownership or other financial
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`interest in Cascade. Id. After the deposition,"[ d]efendants assumed that was the end of the
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`matter." Id. at 8. But on August 29, 2014, plaintiffs produced an errata sheet for Dr. Rausser's
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`deposition that, in effect, changed his answer regarding a financial interest in Cascade from a
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`"no" to a "yes." Id. The errata stated that Dr. Rausser does "have the right to share in
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`distributions from certain claims [Cascade] manage[s], but those do not include claims in this
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`case or any other case in which [he is] a testifying expert or OnPoint has performed any
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`services." Id.
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`Defendants responded to Dr. Rausser' s errata by issuing a series of subpoenas to
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`Dr. Rausser, OnPoint Analytics, Cascade, and Rod Montgomery. Mot. at 8; Opp. at 8. Plaintiffs
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`produced responsive documents from Dr. Rausser and OnPoint on October 1, 2014. Additional
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`discovery followed. See,~, Oct. 21 Hrg. at 7-8; Nov. 13 Hrg. at 5-6. In summary, the parties
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`agree that the documents produced appear to show that both OnPoint Analytics and Dr. Rausser
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`3
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`entered into agreements with Cascade to provide consulting and other services shortly after the
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`completion of the initial class certification hearing in this case. Opp. Exs. 8-9. 3
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`The evidence shows that, since at least 2010, Cascade has actively sought to
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`purchase the claims of potential class members in this case through marketing efforts. Mot. at
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`10-11. In July 2010, after completion of Dr. Rausser' s first class certification report but before
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`the class certification briefing was completed, Dr. Rausser and OnPoint each began negotiations
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`to enter business relationships with Cascade. Nov. 13 Hrg. at 41. The class certification hearing
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`took place on October 6 and 7, 2010. Id. OnPoint entered into a written agreement with
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`Cascade on October 24, 2010; Rausser entered into such an agreement on December 16, 2010.
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`Mot. at 9; Nov. 13 Hrg. at 41. The Rausser-Cascade agreement provided that Rausser would
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`receive, "among other compensation, a base fee equal to 10% of 'the amount of any Distribution
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`received by Cascade from any Fund during that quarter which is attributable to any Contract
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`entered into during the Term."' Mot. at 9-10 (quoting Mot. Ex. 17). On December 28, 2012, Dr.
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`Rausser also invested approximately $1.15 million into Cascade's "Fund 1," which is made up of
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`class action claim purchases. Opp. at 10; Opp. Exs. 11-15; Oct. 2 Hrg. at 12.
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`Documents produced during discovery on this matter also indicate that, between
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`2011 and 2013, Cascade consulted with Dr. Rausser "about various facets of this litigation."
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`Opp. at 10. In June 2012, Cascade purchased a claim in this litigation from class member Sturgis
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`Iron & Metal Co. Id. at 12. This claim was placed in Cascade's "Fund l," the same fund in
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`3
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`Through his personal attorney, Dr. Rausser has denied that he has or has had any
`conflict of interest in this case. Letter from Jonathan R. Bass, Esq. to Honorable Paul L.
`Friedman (Nov. 12, 2014) [Dkt. No. 755].
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`4
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`which Dr. Rausser had invested. Id. 4 Cascade also entered into agreements with five other class
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`members to administer the filing of their claims in this litigation. Mot. Ex. 34. Since defendants
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`issued their subpoenas, both OnPoint and Dr. Rausser have terminated their agreements with
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`Cascade. Mot. Exs. 38, 39.
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`The Court held closed hearings on October 2, 2014 and October 21, 2014 to
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`discuss Dr. Rausser's potential conflicts of interest. The Court then ordered the parties to submit
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`memoranda oflaw as to: (1) how this case should proceed, i.e. whether plaintiffs should be
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`permitted to submit a supplemental expert report over defendants' objection; and (2) whether
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`these proceedings should be unsealed. In response, plaintiffs filed this motion for leave to file a
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`supplemental expert report. On November 7, 2014, the Court ordered the unsealing of the
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`transcripts of the prior hearings, the parties' briefs filed on October 31, 2014 and November 7,
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`2014, and all further proceedings on this issue. Memorandum Opinion and Order, In re Rail
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`Freight Fuel Surcharge Antitrust Litig., 2014 WL 5803136 (D.D.C. Nov. 12, 2014) [Dkt. No.
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`745]. Soon after, the Court issued a Memorandum Opinion and Order directing the parties to
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`discuss at the November 13, 2014 status conference and motions hearing whether, as an
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`alternative to plaintiffs' proposal for a supplemental expert, the Court should simply order class
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`certification to be re-briefed ab initio with entirely new expert reports. Memorandum Opinion
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`and Order, In re Rail Freight Fuel Surcharge Antitrust Litig., 2014 U.S. Dist. LEXIS 158981
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`(D.D.C. Nov. 12, 2014) [Dkt. No. 750].
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`4
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`After Dr. Rausser's deposition on July 31, 2014, OnPoint Analytics President
`Laura Craft contacted Cascade about whether any claims in this litigation had been placed in
`Fund I. Cascade removed Sturgis' claim from that fund on August 14, 2014. Mot. at 12.
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`5
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`IL LEGAL STANDARD
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`"Courts considering a party's request to substitute a new expert have applied the
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`standard for modifying a scheduling order set forth in Rule 16(b) of the Federal Rules of Civil
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`Procedure." Doctor's Assocs., Inc. v. QIP Holder LLC, 2009 WL 5184404, at *4 (D. Conn. Dec.
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`23, 2009); see also TIC-The Industrial Co. Wyoming, Inc. v. Factory Mut. lns. Co., 2012 WL
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`2830867, at *8 (D. Neb. July 10, 2012); Barnes v. Dist. of Columbia, 289 F.R.D. 1, 14
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`(D.D.C. 2012). That Rule permits modification of a scheduling order "only for good cause,"
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`FED. R. C1v. P. 16(b)(4), meaning that "despite th[e moving] party's diligence, the time table
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`could not reasonably have been met." Lincoln Nat'] Life Ins. Co. v. Transamerica Fin. Life Ins.
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`Co., 20 I 0 WL 3892860, at *2 (N.D. Ind. Sept. 30, 2010). Although plaintiffs have moved to add
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`a supplemental expert -
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`as opposed to a straight substitution of one expert for another -
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`the
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`analysis remains the same: does good cause exist to alter the scheduling order and reopen
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`discovery for this purpose? 5
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`III. DISCUSSION
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`The parties agree that (1) Dr. Rausser's potential conflict of interest creates a
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`serious credibility issue, but (2) is not cause to disqualify him from testifying as an expert in this
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`case. See Mot. at 1; Opp. at 1-2; see also FED. R. Evrn. 702. They disagree, however, on how to
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`proceed. Despite the evidence cited above, Dr. Rausser maintains that he has never had a
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`5
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`This appears to be an issue of first impression in this or any Circuit. Neither the
`Court nor the parties have identified an analogous case that considered a request to add, but not
`to substitute, an expert after the discovery of evidence damaging the credibility of the moving
`party's existing expert. See Mot. at 15-23; Opp. at 4-5, 20.
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`6
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`
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`conflict of interest in this case and that defendants' accusations are false. Letter from Jonathan
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`R. Bass, Esq. to Honorable Paul L. Friedman (Nov. 12, 2014) [Dkt. No. 755] ("[T]he charges are
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`not true."). He has not withdrawn from this case. Nor have plaintiffs moved to withdraw Dr.
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`Rausser as their expert. Instead, plaintiffs have moved for leave to file a supplemental expert
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`report to "address the reliability and integrity of Dr. Rausser's opinions." Mot. at 1.
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`A. There Is Good Cause to Permit Plaintiffs to File a Supplemental Expert Report
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`The Court concludes that plaintiffs have established good cause because (1) the
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`plaintiff class would suffer significant prejudice without the report and testimony of a
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`supplemental expert, (2) there is no evidence in the record that plaintiffs or their counsel had
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`knowledge of the information affecting Dr. Rausser's credibility until very recently, and
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`(3) granting the motion will not be unduly burdensome or prejudicial to defendants. Moreover,
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`any prejudice to the defendants will be mitigated by the imposition of strict limits on the
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`supplemental expert.
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`1. Plaintiffs Would Suffer Significant Prejudice Without a Supplemental Expert
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`Dr. Rausser's expert testimony and repo1is are critical to plaintiffs' case. He has
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`been plaintiffs' principal expert, on class certification and the merits, since he was retained in
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`2009. Mot. at 4. Plaintiffs have filed expert reports authored by him on March 18, 2010, August
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`27, 2010, October 15, 2012, June 13, 2013, December 19, 2013, and May 28, 2014. See Mot. at
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`4-5. He has been deposed eight times. Oct. 21 Hrg. at 14-15. This Court relied heavily on Dr.
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`Rausser's testimony in previously granting class certification, see Dkt. No. 550, reported at 287
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`F.R.D. 1(D.D.C.2012), and the court of appeals remanded for reconsideration of"Rausser's
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`7
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`models" in light of the Supreme Court's decision in Comcast Corp. v. Behrend, 133 S. Ct. 1426
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`(2013). See 725 F.3d 244, 253 (D.C. Cir. 2013). Given the potentially grave damage to
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`Rausser's credibility, the plaintiff class would be significantly prejudiced by requiring it to
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`proceed without either an entirely new expert or a supplemental expert to address the integrity of
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`Dr. Rausser's expert testimony and reports. See TIC-The Industrial Co. Wyoming, Inc. v.
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`Factory Mut. Ins. Co., 2012 WL 2830867, at *8 (finding substantial prejudice where the
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`discredited expert was "plaintiffs sole liability expert, and denying the substitution could, in
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`effect, summarily resolve the case in favor of defendants").
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`Defendants counter that this Court can fairly and objectively consider Rausser's
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`testimony "without the 'assist' from [plaintiffs' supplemental expert]." Opp. at 20-21. The
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`Court disagrees. In light of the critical importance of Dr. Rausser's testimony, plaintiffs would
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`be substantially prejudiced without the opportunity to present a supplemental expert supporting
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`their argument that Rausser's economic analysis and methodologies are and always have been
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`credible and accurate, even if his credibility as a witness has been damaged.
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`2. There Is No Evidence That Plaintiffs Knew or Should Have Known
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`Plaintiffs first learned of Dr. Rausser's potential conflict of interest when
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`defendants served subpoenas in September 2014. Mot. at 2, 17. And defendants admit that,
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`despite the benefit of Mr. Montgomery's email alerting them to the potential conflict of interest,
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`they "were unable to find any [publicly available] evidence corroborating the allegations." Opp.
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`at 7. Once plaintiffs were made aware of the issue, they promptly brought it to the Court's
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`attention on October 2, 2014. There therefore is no evidence to discredit plaintiffs'
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`8
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`representation that they exercised reasonable diligence or to suggest that they acted in bad faith.
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`Nat'! R.R. Passenger Corp. v. Expresstrak, L.L.C., 2006 WL 2711533, at *2 (D.D.C. Sept. 21,
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`2006) (quoting DAG Enters., Inc. v. Exxon Mobil Corp., 226 F.R.D. 95, 105 (D.D.C. 2005))
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`("[I]f the [moving] party is not diligent, the inquiry should end."). Despite this, defendants assert
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`that plaintiffs should have investigated after Rausser's July 31, 2014 deposition, or, at the very
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`least, after his August 28, 2014 errata indicated that he may have a financial interest in Cascade.
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`Opp. at 12-14. Even ifthe Court accepts this argument, a one-month delay in investigating the
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`issue would not outweigh the significant prejudice plaintiffs would suffer if leave to file a
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`supplemental expert report were denied.
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`3. Defendants Will Not Be Significantly Prejudiced
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`Defendants argue that "it is unfair and prejudicial to halt the class certification
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`proceedings as they are finally concluding," Opp. at 23, and that plaintiffs' proposal "rewards
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`plaintiffs for Dr. Rausser's lack of objectivity and honesty." Id. at 5. Although the Court is
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`sensitive to the considerable time, effort, and money already spent by both parties in this
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`litigation, the delay now requested by the plaintiffs is reasonable in light of the seven-year-long
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`history of this case and the stakes involved. 6 Fu11hermore, the plaintiff class should not be
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`disadvantaged by denying it a supplemental expe11 in the absence of evidence that plaintiffs'
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`counsel knew or should have known of Dr. Rausser's conduct, or that plaintiffs' counsel acted in
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`6
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`Plaintiffs suggest that the delay of the class certification hearing will be seven
`months, from early November 2014 until May 2015, ifthe Court grants this motion. Mot. at 4.
`But the delay is likely to be somewhat longer if defendants require a supplemental expert report,
`additional depositions are taken, and supplemental briefs are filed, all of which appears probable.
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`9
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`bad faith or did not respond diligently. The prejudice suffered by defendants is outweighed by
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`the far greater prejudice plaintiffs would suffer if leave were denied.
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`4. Plaintiffs' Supplemental Expert Report Will Be Limited in Scope
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`Similar to the way in which other courts have handled substitute expert witnesses
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`and to mitigate the prejudice to defendants, the Court will limit plaintiffs' supplemental expert
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`report to "address[ing] the reliability and integrity of Dr. Rausser's opinions." Mot. at 1; see also
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`Doctor's Assocs., Inc. v. QIP Holder LLC, 2009 WL 5184404, at *5 (limiting a substitute
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`expert's testimony to "establishing the veracity and integrity of [the original expert] and the
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`conclusions reached in [that expert's] original expert report"). Plaintiffs' supplemental expert
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`may "express his opinions in his own language after reviewing the evidence and performing
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`whatever tests prior experts on both sides were allowed to perform." Lincoln Nat'l Life Ins. Co.
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`v. Transamerica Fin. Life Ins. Co., 2010 WL 3892860, at *3. But he "[may] not espouse any
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`new theory of liability, impact, or damage. Rather, that individual will confine his or her
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`opinions to the reliability, integrity, and accuracy of Dr. Rausser's previous work." Mot. at 2;
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`see Lincoln Nat'l Life Ins. Co. v. Transamerica Fin. Life Ins. Co., 2010 WL 3892860, at *2-3.
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`B. The Court Will Not Award Attorneys' Fees and Costs
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`Because there is no evidence in the record of bad faith, manipulation, or lack of
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`diligence by the plaintiffs or their counsel, the Court will not award any attorneys' fees and costs
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`at this time. See TIC-The Industrial Co. Wyoming, Inc. v. Factory Mut. Ins. Co., 2012 WL
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`2830867, at *10 (quoting Doctor's Assocs., Inc. v. QIP Holder LLC, 2009 WL 5184404, at *4)
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`("Generally, in cases in which courts have awarded costs and expenses associated with the
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`10
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`substitution of an expert, there has been evidence of bad faith, fault, or tactical maneuvering on
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`the part of the party making the substitution."). Defendants are free later to file an appropriate
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`motion for attorneys' fees and costs if new evidence indicates otherwise.
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`C. The Court Will Not Set Aside All Prior Briefing and Expert Reports
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`Although the Comi remains deeply concerned about the potential for Dr.
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`Rausser's credibility to be a distraction from the ultimate issue of whether the class should be
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`certified, the Court will not set aside all prior briefing and expert reports in this case. The Court
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`has been persuaded by the defendants' arguments that starting over would be extremely
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`prejudicial to defendants, particularly given the considerable length and cost of the class
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`certification proceedings to date. See,~' Nov. 13 Hrg. at 27-35, 53-55.
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`IV. CONCLUSION
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`For the foregoing reasons, it is hereby
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`ORDERED that plaintiffs' motion for leave to file a supplemental expert report
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`[Dkt. No. 742] is GRANTED; it is
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`FURTHER ORDERED that plaintiffs shall file a supplemental expert report on or
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`before April 1, 2015; it is
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`FURTHER ORDERED that by April 15, 2015, defendants shall notify the Court
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`whether they intend to file an additional expert report in response and propose a date by which
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`they will do so; and it is
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`11
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`FURTHER ORDERED that by April 22, 2015, the parties shall jointly propose a
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`schedule for defendants' deposition of plaintiffs' supplemental expert, the deposition of
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`defendants' expert, if necessary, and further briefing, if necessary.
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`SO ORDERED.
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`DATE: November 26, 2014
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`/s/ ~~~~~--~~~~~~~
`PAUL L. FRIEDMAN
`United States District Judge
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`12