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In re Western States Wholesale Natural Gas Antitrust Litigation

United States District Court, D. Nevada

March 30, 2017

WILLIAMS COMPANIES. et al., Defendants. REORGANIZED FLI, INC. et al., Plaintiffs, LEARJET, INC. et al., Plaintiffs,
ONEOK, INC. et al., Defendants. SINCLAIR OIL CORP., Plaintiff,
E PRIME INC. et al., Defendants. SINCLAIR OIL CORP., Plaintiff,
ONEOK INC. et al., Defendants. HEARTLAND REGIONAL MEDICAL CENTER et al., Plaintiffs,
ONEOK, INC. et al., Defendants. ARANDELL CORP. et al., Plaintiffs,


          ROBERT C. JONES, United States District Judge

         These consolidated cases arise out of the energy crisis of 2000-2002. Plaintiffs (retail buyers of natural gas) allege that Defendants (natural gas traders) manipulated the price of natural gas by reporting false information to price indices published by trade publications and by engaging in “wash sales.” Four motions for class certification, six motions for summary judgment, fourteen motions to strike expert opinions or briefs, a motion to amend complaints, a motion to reconsider an order of the magistrate judge, a motion to seal, and a motion for suggestion of remand of five of the eight remaining actions (the class actions) to their respective transferor courts are pending before the Court.


         In 2003, the Judicial Panel on Multidistrict Litigation (“JPML”) transferred seven class action cases from various districts in California to this District under 28 U.S.C. § 1407 as Multidistrict Litigation (“MDL”) Case No. 1566, assigning Judge Pro to preside. Since then, the JPML has transferred in several more actions from various districts throughout the United States. Between 2003 and 2015, Judge Pro ruled on many motions to remand, to dismiss, and for summary judgment. He also approved several class settlements. Several parties settled on their own. One or more of the cases have been to the Court of Appeals twice and to the Supreme Court once. In 2007, the Court of Appeals reversed several dismissals under the filed rate doctrine and remanded for further proceedings. In 2013, the Court of Appeals reversed several summary judgment orders, ruling that the Natural Gas Act did not preempt state law anti-trust claims and that certain Wisconsin- and Missouri-based Defendants should not have been dismissed for lack of personal jurisdiction. The Supreme Court granted certiorari as to preemption under the Natural Gas Act and affirmed. The case was soon thereafter reassigned to this Court when Judge Pro retired. The Court has issued several orders on motions to dismiss and for summary judgment. Eight of the eighteen consolidated cases remain open, the others having been variously settled, dismissed, or remanded to state courts.


         The motions are based primarily upon the opposing sides' arguments (which are in turn based on opinions by their own experts) that the other side's experts have used unreliable methods, have made poor assumptions, etc. The main problem with these kinds of arguments is that the Court requires expert assistance to understand the issues in the first instance. An opposing expert's opinion may be helpful in understanding the issues, as well. Some degree of debate and uncertainty as to the issues may exist, and the Court must determine class certification (and juries must eventually determine liability) based on the relevant legal standards having considered the expert evidence provided by all proffered witnesses who have more expertise in some relevant area than a layman and whose testimony will be helpful to the Court in understanding the issues. Finally, the Court notes that it does not require and will not consider any expert's opinion on the law itself.

         A. Motions Nos. 2547 and 2548

         Defendants in the ‘233, ‘987, ‘1019, ‘915, and ‘1351 Cases (“the Class Actions”) ask the Court to strike the expert opinions of Dr. Mark Dwyer and his colleague Dr. Michael Harris. The Court denies the motions. It does not matter whether the experts used a reliable definition of “churning” but whether their “testimony is the product of reliable principles and methods [they have] reliably applied . . . to the facts of the case.” Fed.R.Evid. 702. FERC's or others' definition of “churning” for regulatory or industry purposes may or may not overlap completely or partially with Dwyer's and Harris's understandings of the term. But so long as they have reliably applied reliable principles and methods to determine that Defendants' activity- whatever it was and whether it falls within anyone's definition of “churning”- had the effect of artificially inflating natural gas prices or some other effect that could reasonably support a verdict in Plaintiffs' favor under the antitrust laws at issue, their testimony is not objectionable under Rule 702 based on unreliability. Defendants argue that Dwyer and Harris did not sufficiently establish causal relationships between trades and price increases or even separate legitimate, non-manipulative rapid trades from manipulative rapid trades. But Defendants are able to argue (and counter with other experts) as to the depth of their analysis and as to their alleged prior inconsistent statements as to definitions they have used during the litigation. Dwyer and Harris may testify as to the pace of trading and their opinions as to the effect it had on prices. Defendants can argue as to whether Plaintiffs have any evidence of individual or concerted intent to manipulate prices.

         B. Motion No. 2620

         Plaintiffs in the Class Actions ask the Court to strike the expert opinions of Dr. Michelle Burtis. The Court denies the motion. Dr. Burtis's alleged antagonism towards class actions may be relevant to impeachment for bias, but it does not disqualify her as an expert. Plaintiffs' objection to Dr. Burtis is mainly over her disagreement with their own expert, Dr. Harris, as to whether individual trades should be examined for legitimacy versus conspiracy before concluding a conspiracy. The Court does not need either side's experts to address that issue. The Court will not strike Dr. Burtis's testimony but will not rely on any of her legal conclusions just as it will not rely on legal conclusions made by any expert. The Court will consider her expert testimony where it is helpful to class certification.

         C. Motion No. 2621

         Plaintiffs in the Class Actions ask the Court to strike the expert opinions of Michael De Laval. Plaintiffs mainly attack De Laval's lack of academic credentials in the field of economics and argue that his experience trading in the wholesale energy market is not relevant. The Court disagrees. The experience of an actual natural gas trader may be very valuable to understanding the impact of Defendants' actions on price fluctuations. In some respects, it may even be more valuable than the opinions of economics experts who have never actually traded natural gas. An actual trader who witnesses trades and price fluctuations as they happen may have a perspective that cannot be replicated by a cold, after-the-fact mathematical analysis. That is not to say that his testimony will be more important or helpful than that of any particular economist's, but it is certainly relevant and helpful enough for him to give expert testimony in this case. The Court finds that his testimony, along with the testimony of experts in other areas, will aid in understanding the issues and evidence.

         D. Motion No. 2622

         Plaintiffs in the Class Actions ask the Court to strike the expert opinions of Dr. Christopher L. Cavanagh. They argue that he has wrongly impugned the methods of one of their own experts, Dr. Dwyer. They also argue that his methods are unreliable because he makes incorrect assumptions about the natural gas market. The Court will not exclude his testimony for these reasons. As noted, the Court will consider his testimony and Dr. Dwyer's, as well as their criticisms of one another's methods, in determining the relevant legal issues.

         E. Motion No. 2623

         Plaintiffs in the Class Actions ask the Court to strike the expert opinions of Dr. Randall Heeb, Ph. D. They argue that his testimony is based on a misunderstanding of Plaintiffs' theory of collusion and is based on unreliable methods. Plaintiffs argue that Dr. Heeb concludes there was no illegal collusion because the evidence does not show that Defendants acted identically at all times with respect to price reporting, but Plaintiffs note that a conspiracy can exist even though not all members of the conspiracy participate in it in the exact same way at the exact same time and that some members of the conspiracy may in fact be at cross purposes at various times based on their individual interests. The Court agrees with Plaintiffs' statement of the law, but it will not strike Dr. Heeb's testimony altogether simply because his conclusions imply his belief in an incorrect legal standard. As with other experts who have a flawed understanding of the law or, more accurately, who have exceeded the limits of their expertise by opining on the law at all (which probably includes most of the experts in this case), Dr. Heeb offers some amount of valuable expertise to the Court, and the Court will not strike his testimony.

         F. Motion No. 2624

         Plaintiffs in the Class Actions ask the Court to strike the expert opinions of Dr. Hendrik Bessembinder, Ph. D. They argue that his opinions contradict opinions he offered in 2007 as a witness for the CFTC. The Court notes that this is legitimate evidence of bias for impeachment purposes but is not a basis to strike his testimony as altogether unreliable. Plaintiffs also argue that Dr. Bessembinder's analysis of “wash trading” and “churning” is not made in the context of Rule 23 standards. But it is this Court's function to analyze expert testimony against the standards of Rule 23. No proffered expert in the case is a legal expert as to Rule 23 (or even an attorney to the Court's knowledge), so such an analysis is not expected; it would be beyond the scope of his or her expertise. The Court does not need that kind of expert testimony. It needs expert factual testimony, and Dr. Bessembinder, like the other experts in the case, provides some.

         G. Motion No. 2625

         Plaintiffs in the Class Actions ask the Court to strike the expert declaration of Bob Broxson (attached as Exhibit 3 to Dr. Bessembinder's expert report) for largely the same reasons they move to strike the testimony of Drs. Burtis and Cavanagh, i.e., his attacks on Plaintiffs' own experts. Broxson is an expert in natural gas procurement, marketing, transportation, and trading, having worked in the industry for 35 years and testified as an expert in several cases, (see Broxson Decl. 5 & apps. A-B, ECF No. 2465, at 52), and his testimony, limited to his area of expertise, will be helpful to the Court.

         H. Motions Nos. 2644 and 2645

         Defendants in the Class Actions ask the Court to strike the expert opinions of George L. Donkin and Dr. Merrill J. Bateman. The Court grants the motion to strike their testimony in part based on untimeliness. As noted, their testimony was offered only in reply to Defendants' objections to the class certification motions and Defendants therefore were not able to depose them by June 24, 2016, as contemplated by the Scheduling Order, or to provide expert testimony in response. The evidence therefore cannot be considered, see, e.g., Tovar v. U.S. Postal Serv., 3 F.3d 1271, 1273 n.3 (9th Cir. 1993), except as relevant to rebutting evidence in the opposition briefs. The Court will not strike the testimnony (as relevant to rebutting evidence in opposition to the motions for class certification) for unreliability, however. Again, movants argue that the experts' testimony is unreliable because it is in conflict with (and criticizes) the methods and conclusions of their own experts. The Court again rejects this argument, as it has done consistently as to experts on both sides.

         I. Motion No. 2650

         Defendants in the ‘1351 Case ask the Court to strike certain evidence offered by Plaintiffs in opposition to Defendants' Motion for Summary Judgment (ECF No. 2399). (See Opp'n, ECF No. 2638). The Court denies the motion as moot because it denies the motion for summary judgment without relying on any of the challenged evidence. See infra.

         J. Motion No. 2651

         Defendants in the Class Actions ask the Court to strike the declarations of Dr. Merrill J. Bateman and George Donkin submitted with Plaintiffs' reply briefs or for leave to file a surresponse. The Court grants the motion in part for the reason it granted Motions Nos. 2644 and 2645 in part. See supra. The Court will not permit a surresponse but will strike the expert testimony, except as relevant to rebuttal of expert testimony adduced by Defendants in opposition to the relevant motions.

         K. Motion No. 2679

         Plaintiffs in the Class Actions ask the Court to strike the declarations of Drs. Joseph Kalt, Michelle Burtis, and Christopher Cavanagh filed on November 2, 2016. Plaintiffs first argue the declarations are untimely. The Court agrees and grants the motion. The issue is largely moot, however, because the November 4, 2016 declarations were proffered as support for a requested surresponse with respect to the motions for class certification. The Court has denied leave to file a surresponse and has rendered one unnecessary by striking the untimely expert testimony of Dr. Merrill J. Bateman and George Donkin as to support for class certification.

         L. Motion No. 2767

         Defendants in the ‘1019 and ‘915 Cases ask the Court to strike Plaintiffs' Opposition (ECF No. 2737) to Defendants' Motion for Summary Judgment (ECF No. 2694). The Court denies the motion. The opposition is in excess of the local page limits, but the briefings in these consolidated cases are voluminous in general. To the extent leave is required for the oversized brief, the Court grants it. The Court denies the motion as moot on the merits of the admissibility of the challenged evidence, because the Court does not rely on that evidence in denying summary judgment. See infra.


         A court must grant summary judgment when “the movant shows that there is 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). Material facts are those which may affect the outcome of the case. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute as to a material fact is genuine if there is sufficient evidence for a reasonable jury to return a verdict for the nonmoving party. See id. A principal purpose of summary judgment is “to isolate and dispose of factually unsupported claims.” Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986).

         In determining summary judgment, a court uses a burden-shifting scheme. The moving party must first satisfy its initial burden. “When the party moving for summary judgment would bear the burden of proof at trial, it must come forward with evidence which would entitle it to a directed verdict if the evidence went uncontroverted at trial.” C.A.R. Transp. Brokerage Co. v. Darden Rests., Inc., 213 F.3d 474, 480 (9th Cir. 2000) (citation and internal quotation marks omitted). In contrast, when the nonmoving party bears the burden of proving the claim or defense, the moving party can meet its burden in two ways: (1) by presenting evidence to negate an essential element of the nonmoving party's case; or (2) by demonstrating that the nonmoving party failed to make a showing sufficient to establish an element essential to that party's case on which that party will bear the burden of proof at trial. See Celotex Corp., 477 U.S. at 323-24.

         If the moving party fails to meet its initial burden, summary judgment must be denied and the court needn't consider the nonmoving party's evidence. See Adickes v. S.H. Kress & Co., 398 U.S. 144 (1970). If the moving party meets its initial burden, the burden then shifts to the nonmoving party to establish a genuine issue of material fact. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). To establish the existence of a factual dispute, the nonmoving party need not establish a material issue of fact conclusively in its favor. It is sufficient that “the claimed factual dispute be shown to require a jury or judge to resolve the parties' differing versions of the truth at trial.” T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass'n, 809 F.2d 626, 631 (9th Cir. 1987). In other words, the nonmoving party cannot avoid summary judgment by relying solely on conclusory allegations unsupported by facts. See Taylor v. List, 880 F.2d 1040, 1045 (9th Cir. 1989). Instead, the opposition must go beyond the assertions and allegations of the pleadings and set forth specific facts by producing competent evidence that shows a genuine issue for trial. See Fed. R. Civ. P. 56(e); Celotex Corp., 477 U.S. at 324.

         At the summary judgment stage, a court's function is not to weigh the evidence and determine the truth, but to determine whether there is a genuine issue for trial. See Anderson, 477 U.S. at 249. The evidence of the nonmovant is “to be believed, and all justifiable inferences are to be drawn in his favor.” Id. at 255. But if the evidence of the nonmoving party is merely colorable or is not significantly probative, summary judgment may be granted. See Id. at 249-50. Notably, facts are only viewed in the light most favorable to the nonmoving party where there is a genuine dispute about those facts. Scott v. Harris, 550 U.S. 372, 380 (2007). That is, even where the underlying claim contains a reasonableness test, where a party's evidence is so clearly contradicted by the record as a whole that no reasonable jury could believe it, “a court should not adopt that version of the facts for purposes of ruling on a motion for summary judgment.” Id.

         A. Motion No. 2399

         E prime Energy Marketing, Inc. (“EPEM”) and Xcel Energy Inc. (“XE”) move for defensive summary judgment in the ‘1351 Case (Breckenridge Brewery of Colo., LLC v. OneOK, Inc.). Movants argue there is no evidence EPEM traded natural gas commodities or reported trades to industry publications during the relevant time period (January 1, 2000 to October 31, 2002) (“the RTP”), and therefore neither EPEM nor XE (EPEM's former parent company) can be liable under the Colorado Antitrust Act of 1992, Colo. Rev. Stat. section (“CRS”) 6-4-101 et seq.

         Even assuming Movants have satisfied their initial burden on summary judgment, however, Plaintiffs have satisfied their shifted burden to provide evidence of EPEM's sale of natural gas to Plaintiffs during the RTP. E prime, Inc.'s Rule 30(a)(6) deponent testified that EPEM purchased natural gas from e prime, Inc. for sale to customers by EPEM personnel. (Figoli Dep. 117-19, ECF No. 2638-3). Plaintiffs have adduced copies of natural gas sales contracts between EPEM and BBI Acquisition Co. and between EPEM and Breckenridge Brewery of Colo., LLC on August 29 and 24, 2001, respectively, both effective for one year beginning September 1, 2001. (Suppl. Smith Decl. ¶¶ 6, 8 & Exs. 3, 5, ECF No. 2638-9). The Court denies the motion for summary judgment.

         B. Motions Nos. 2436 and 2709

         OneOK Energy Services Co., L.P. (“OESC”), formerly known as OneOK Energy Marketing and Trading Co., moves for summary judgment against Sinclair Oil Corp. (“Sinclair”) in the ‘282 Case (Sinclair Oil Corp. v. OneOK Energy Services Co., L.P.) based on res judicata and/or release based on release under a settlement agreement reached in a consolidated class action brought in the Southern District of New York (“the NYMEX Case”). Sinclair has counter-moved for summary judgment on the res judicata and release issues. The Court denies both motions, as material issues of fact remain as to notice to Sinclair of the NYMEX settlements.

         The Amended Consolidated Class Action Complaint (“ACCAC”) in the NYMEX Case alleged that the defendants had manipulated the prices of natural gas futures and options on the New York Mercantile Exchange (“NYMEX”) between January 1, 2000 and December 31, 2002 by reporting inaccurate, misleading, and false trading information, including artificial volume and price information, to trade publications that compile and publish such information. The Complaint here makes the same allegations. (Compare Compl. ¶¶ 2-5, with Am. Consol. Class Action Compl. ¶¶ 5, 60-70, ECF No. 2300-1). OESC was a Defendant under the ACCAC. The plaintiff class in the NYMEX Case was defined as persons who had bought or sold natural gas futures or options on NYMEX during the relevant times. Plaintiff was a member of the NYMEX class according to facts it has admitted. (See Am. Resps. to Reqs. for Adm. 2-3, ECF No. 2437-6 (“Sinclair admits that it traded in NYMEX contracts during the Relevant Time Period.”)).

         On May 24, 2006, the court in the NYMEX Case entered a Final Judgment and Order of Dismissal (“the First Settlement Order”) with an expanded plaintiff class definition reaching back to June 1, 1999. The first group of settling class members was to receive a total of nearly $73 million. On June 15, 2007, the court in the NYMEX Case entered a Final Judgment and Order of Dismissal (“the Second Settlement Order”) with a similarly defined plaintiff class. The second group of settling class members was to receive a total of nearly $28 million. Paragraph 6 of the First Settlement Order and Paragraph 5 of the Second Settlement Order provided for releases of the parties from further litigation:

The Released Parties are finally and forever released and discharged from any manner of claims . . . and causes of action in law, admiralty, or equity, whether class, individual, or otherwise in nature . . . whether known or unknown, suspected or unsuspected, whether concealed or hidden, or in law, admiralty, or equity, that the Representative Plaintiffs and other members of the Class who have not timely opted out of the settlement and excluded themselves from the Class (“Settling Plaintiffs''), or any of them, individually, or as a class (whether or not they make a claim upon or participate in the Settlement Funds), ever had, now have or hereafter can, shall or may have, against the Released Parties arising from or relating in any way to trading in NYMEX Natural Gas Contracts (including purchasing, selling, or holding any NYMEX Natural Gas Contract, or taking or making delivery of physical natural gas pursuant to any NYMEX Natural Gas Contract, or any combination thereof, whether as a hedger or speculator), whether or not asserted in the Action, including without limitation, claims which (a) arise from or relate in any way to any conduct complained of in any complaint filed in the Action, (b) have been asserted or could have been asserted in any state or federal court or any other judicial or arbitral forum against the Released Parties or any one of them, (c) arise under or relate to any federal or state commodity price manipulation law, any state or federal unfair or deceptive business or trade practices law, or other law or regulation, or common law, including, without limitation, the Commodity Exchange Act, 7 U.S.C. § 1 et seq., the federal antitrust laws (as that term is defined in 15 U.S.C. § 12), or state antitrust laws and/or (d) the claims brought in this Action. The Settling Plaintiffs, and each of them, are hereby enjoined from asserting any such claims against the Released Parties.

(First Settlement Order ¶ 6(a), at 4-6, ECF No. 2300-5 (emphases added; footnote omitted)). The omitted footnote defines “Released Parties” as, inter alia, the settling defendants and their predecessors and successors. (See Id. 4 n.3, at 4-5). The release language of the Second Settlement Order is the same in relevant respects. (See Second Settlement Order ¶ 5(a), at 4-5, ECF No. 2300-7).

         These releases would seem to bar the present claims against OESC, which was a defendant in the NYMEX Case. (See Am. Consol. Class Action Compl. ¶¶ 39-40). The NYMEX court found that notice to the class had been sufficient and that the settlements were fair and reasonable, and OESC provides evidence that the NYMEX Case claims administrator mailed notices to both of Sinclair's NYMEX brokers, ABN AMRO and Smith Barney, (see Glenn Aff., ECF No. 2437-8). There is no evidence that Sinclair opted out of the class. Sinclair, however, argues that it had no relationship with the brokers to whom notice was mailed since 2003, before it even filed the ACCAC in the NYMEX Case. (See Johnson Aff. ¶¶ 5-6, ECF No. 2520-1). It also argues that this was known to the settlement administrator, so notice to its previous brokers was not reasonable. The Court finds that service upon a party's broker at the time of the relevant trades was reasonable. A broker has a fiduciary duty to notify a former client of such notice. If the broker fails to do so, the client may have a fiduciary claim against the broker, but he has no argument that notice to the broker of record was not a reasonable attempt to notify him of the relevant information.

         The Court has also rejected the argument in granting a similar summary judgment motion in the ‘1331 Case, (see Order 9-13, ECF No. 2416), that the NYMEX Case concerned harm to natural gas futures traders via Defendants' acts, i.e., the artificial inflation of futures prices via reporting false prices and engaging in wash trades, whereas the present case concerns harm to natural gas consumers due to those acts. The release language of the Settlements is broad enough to preclude the present claims. The release clause releases OESC and other settling defendants from “any manner of claims . . . and causes of action” by settling plaintiffs:

relating in any way to trading in NYMEX Natural Gas Contracts . . . including without limitation, claims which . . . relate in any way to any conduct complained of in any complaint filed in the Action [or which] arise under or relate to any federal or state commodity price manipulation law, any state or federal unfair or deceptive business or trade practices law, or other law ...

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