Economic Expert Witness Opines on Wage Fixing Scheme


Economic Expert WitnessCase: Fleischman v. Albany Medical Center United States District Court, N.D. New York.July 22, 2010728 F.Supp.2d 130

Facts: Plaintiffs commenced the instant action against Defendants claiming that they conspired among themselves to keep down the wages of registered nurses in the Albany area. Registered nurses, on behalf of themselves and all other similarly situated, brought class action against hospitals in the area claiming that they conspired among themselves to keep down the wages of registered nurses in the area, scamming their employees in order to earn more of a profit.

Expert: Plaintiffs brought the expert witness Orley Ashenfelter. testify concerning anticompetitive effect, injury-in-fact, and damages. Ashenfelter “currently serves as the Joseph Douglas Green Professor of Economics at Princeton, where he specializes in labor economics, and was recently elected to serve as President of the American Economic Association.” See Plaintiffs’ Opposition Memo. at 3. He has previously served “as the director of the Office of Evaluation of the U.S. Department of Labor and had testified for the Federal Trade Commission in a variety of antitrust matters. Ashenfelter opined that “the fees that Defendants paid for agency nurses, when appropriately adjusted, were equal to or less than competitive staff nurse wages because in a competitive market employees were paid what they are worth. Ashenfelter selected agency nurses as a benchmark because they are used as a substitute for staff nurses in the workplace and their wages are not set by the Defendant hospitals.

Defendants challenge the reliability of Ashenfelter’s methodology arguing that it is inadmissible under Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993), and should be excluded from consideration. The court reviewed the admissibility of the expert witness under the Rule  702 of FRE considered several factors and ruled the testimony as admissible.

Conclusion

  1. Reliability

Orley Ashenfelter used “standard economic tools to study whether staff nurses in this action suffered impact and damages as a result of Defendants’ alleged conspiracy. The expert used widely accepted economic concept, called marginal revenue product (MRP). MRP is the “value that an employee creates for his or her employer.” The concept promulgates that an employer will not “incur costs to employ a staff nurse or hire an agency nurse that, in total, exceed a nurses’ [MRP].” In other words, according to economic theory, Ashenfelter opines that because agency nurses “are interchangeable with staff nurses, working instead of, and alongside, staff nurses at the exact same hospitals performing the exact same tasks on the same day” the two types of nurses are worth the same to the hospitals.

Challenge: Defendants argue that Prof. Ashenfelter’s methodology is unreliable because: (1) it assumes that agency nurse rates are set in a national market; (2) it does not account for differences in experience; (3) it is based on the assumption that Defendants made extensive long term use of Agency nurses; (4) the but-for wages created by his methodology are not credible; (5) the but-for wages barely change over the class period; (6) the methodology can only be applied to a subset of the nurses; and (7) the methodology cannot prove impact and damages for the two named plaintiffs.

  1. Defendants argue that Ashenfelter has “no basis to believe that there is any connection between the adjusted bill rates for agency nurses and the competitive wages of staff nurses.

Court concluded that experts are entitled to differing opinions as to the validity of the methodology, so long as the challenged methodology is grounded in reliable scientific principles and facts. Here, the expert’s testimony was based on the methodology that is well accepted economic principle and uses undisputed data, exclusion is not granted

(2) Defendant argued that the methodology does not take into the account experience (nurses bill rates vary by experience).

The court said that the Ashenfelter took into account all available data which allowed him to account differences in competitive wages based on job type. The benchmark does not account for experience because it the data is not available.

(3) Defendant argued that the methodology is premised on idea that defendants made the extensive long term use of agency nurses and he admitted that he cannot distinguish between appropriate long term agency use and inappropriate agency use” and therefore his opinions are unreliable.

Court said agency use has not effect on reliability

(4) Defendant argued that Ashenfelter’s methodology should be excluded as unreliable because the but-for wages were not credible and barely change over time.

The court concluded that Ashenfelter’s methodology is based on sound economic principles and applies undisputed facts. Defendants will have the opportunity to cross-examine Ashenfelter at trial as to the credibility of his results and the jury will be able to assign the appropriate weight to the expert’s opinions. The methodology requires a step-by-step application of undisputed pay roll information into a methodology which this Court finds to be reliable. There is no analytical gap between this application and the results found by Ashenfelter.

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