OnPoint expert Christine Davis recently provided trial testimony in a wrongful termination and defamation case filed against a nonprofit entity, namely The Roman Catholic Bishop of Santa Rosa (Diocese of Santa Rosa). The case involved a claim by the plaintiff, who was in charge of accounting and financial reporting for one of the parish churches in the Diocese, that she was wrongfully terminated after 28 years of service as retaliation for expressing concerns to her superiors regarding certain decisions and managerial conduct by her immediate supervisor, also a defendant in this case.

Ms. Davis, a forensic accountant and the Director of Forensic & Financial Accounting at OnPoint Analytics, testified as the accounting and damages expert on behalf of the defendants. Applying her forensic and financial accounting expertise, she presented detailed evidence of certain material errors in the plaintiff’s accounting work for the parish church. These errors included the complete absence of accounting and financial reporting for numerous and recurring transactions that occurred for several years as evidenced by the cash flows reflected in a church bank account. Ms. Davis also quantified numerous income tax fines and penalties assessed on the parish church resulting from failure by the plaintiff to timely file certain employer tax returns and deposit the correct amount of certain payroll taxes when due.

The Superior Court judge for Sonoma County awarded judgment for the Diocese on each of plaintiff’s claims. The Diocese of Santa Rosa was represented by Adrienne Moran of Shapiro, Galvin, Shapiro and Moran.

OnPoint is pleased to welcome the newest member to our team, Ben Koos. Ben recently earned a M.S. in Economics from Cal Poly San Luis Obispo, where he studied the complementary effect of product market reforms and intellectual property rights on innovation intensity. While pursuing his undergraduate studies, Ben modeled the deforestation rates of rain forests in Cameroon and the economic impact of solar energy versus coal or natural gas in Arizona. He also volunteered for AIESEC, a global non-profit that facilitates international internships for college students. Ben’s responsibilities within the organization were largely oriented around helping the San Luis Obispo chapter manage its budget. He is particularly excited to conduct research related to antitrust, intellectual property and environmental damages cases. In his spare time, Ben enjoys reading, hiking and practicing martial arts. To learn more about Ben, please click here.

OnPoint experts Christine Davis and Johan Walden recently provided trial testimony in a high-profile breach of trust case involving one of the heirs of the McClatchy newspaper empire and Gary Pruitt, the current CEO of Associated Press. The case involves allegations that Gary Pruitt, then CEO of The McClatchy Company, along with other McClatchy Company executives, mismanaged trust assets and ignored the conflict-of-interest that arose from their dual role as trustees of the subject trust and members of the Board of The McClatchy Company.

The case was brought by Carlos McClatchy, an income beneficiary of a once-large trust established in 1974 by former Company President, Eleanor McClatchy. The petitioner alleged that co-trustees who simultaneously served on the Board of The McClatchy Company breached their fiduciary duties and ignored the economic interests of trust beneficiaries when they embroiled the trust in a highly leveraged $4.5 billion acquisition of Knight Ridder, Inc. completed in June 2006. The trust’s investment assets were entirely concentrated in stock of The McClatchy Company. Stock in the McClatchy Company is currently trading around $8 per share, representing a 99% decline since its peak in 2005, after considering the effect of stock splits.

The bench trial took place in San Francisco Superior Court, lasted approximately six weeks, and involved testimony by OnPoint experts Dr. Johan Walden and Christine Davis.

Dr. Johan Walden, a tenured Associate Professor of Finance at UC Berkeley’s Haas School of Business, testified on matters related to investment risk and portfolio diversification, which included a quantitative analysis of risk arising from the Knight-Ridder acquisition. Dr. Walden applied modern portfolio theory and concluded that the risk of a large loss could have been avoided through diversification of the trust’s assets. To learn more about Dr. Walden, click here.

Christine Davis, CPA, CFF, CVA, CGMA, the Director of Forensic & Financial Accounting at OnPoint Analytics, testified on matters related to economic damages. Using three methods with statutory bases in the California Probate Code and Delaware General Corporations Law, Ms. Davis calculated economic damages suffered by the trust and Carlos McClatchy to be in excess of $280 million.

Carlos McClatchy is represented by Gilmur R. Murray and by Mark Mosley of Seiler Epstein Ziegler & Applegate LLP.

OnPoint Experts Steve Hamilton and Dan Werner recently published an article in Law360 on the recent surge in “deceptive pricing” litigations and the challenges faced by experts when calculating damages in these cases. “Fictitious pricing,” “false advertising” and “phantom markdowns” are among the deceptive schemes that major retailers have allegedly engaged in to create the illusion that consumers are receiving a higher-quality product at a discounted price. In such instances, “compare at” prices mislead consumers into believing they are receiving a bargain, yet it turns out that such products are never sold at their “regular” or “full price.” Another misleading tactic involves manufacturing discounted products for outlet stores that are never sold in regular stores. Such deceptive acts typically result in greater revenues for retail companies at the expense of the consumer, who may have never considered purchasing the product at its actual price in the first place, if it were not for the misleading “sale.”

Best Buy, Amazon, J.C. Penney, Kohl’s, and Nordstrom are a few of the many well-known retailers who have allegedly engaged in deceptive pricing schemes. A number of methodologies have been offered for calculating damages, all of which Dr. Hamilton and Dr. Werner discuss at length, as well as new methodologies they believe will survive scrutiny by the courts. To read the article, please click here.

OnPoint’s Director of Forensic and Financial Accounting, Christine Davis, was recently invited to speak about fraud topics and the role of forensic accounting in legal settings at the Practising Law Institute’s annual program, Basics of Accounting for Lawyers 2017: What Every Practicing Lawyer Needs to Know. The Practising Law Institute is a nonprofit organization dedicated to providing attorneys and other professionals with the knowledge and expertise needed to excel in the legal field and remain at the forefront of evolving trends. PLI offers a variety of educational programs designed by over 4,000 professionals including CPAs, lawyers, judges, investment bankers, and government regulators. The Basics of Accounting for Lawyers 2017 program was designed as an introductory accounting course that addresses common areas where accounting and law intersect. Accounting fraud, damages calculations, and forensic investigations are such areas where experts with a background in accounting are often asked to assist in litigation matters. Ms. Davis’s specialized skills, extensive litigation consulting experience, and natural ability to build an emotional connection with her audience have not only made her an effective expert witness, but have also garnered her a reputation as an insightful speaker at educational programs, events and college classes. In her presentation, Ms. Davis addressed the application of forensic accounting in a legal setting by describing four examples of cases involving alleged fraud, the role of the forensic accountant in evaluating evidence, and the type of relevant documents containing such evidence. Ms. Davis also illustrated a number of fraud red flags when reviewing financial statements and financial reports, including potentially intentional accounting errors underlying overstated revenues and assets or understated reserves and liabilities, suspected misappropriation of an entity’s cash, and suspected corruption or illegal acts in the form of kickbacks or bribes.

District Court Judge Gene Pratter denied Defendants’ motion to decertify a class of direct purchasers of shell eggs who allegedly suffered damages from anticompetitive behavior by egg producers. The case involves allegations that egg producers inflated the prices of eggs by reducing their supply. Among other acts, the Defendants’ alleged scheme involved the adoption of cage space requirements for egg laying hens under the United Egg Producers (UEP) Certified Program. Ostensibly for animal welfare, it is alleged that the true purpose of such requirements was to reduce the number of hens per cage and thus the number of eggs supplied to the market.

Over the course of this case, OnPoint expert Dr. Gordon Rausser submitted six expert reports, provided three days of deposition testimony, and testified at both a class certification hearing and a Daubert hearing. In Dr. Rausser’s report in support of Plaintiffs’ motion for class certification, he concluded that the egg industry was conducive to price-fixing and that the Defendants engaged in collusive behavior during the class period, resulting in widespread damages to class members. Using a regression analysis to isolate and quantify the effects of the Defendants’ alleged price-fixing behavior, Dr. Rausser determined that such behavior resulted in substantial overcharges and class-wide damages.

Based on Dr. Rausser’s testimony, on September 18, 2015, Judge Pratter certified a class of direct purchasers of shell eggs. She found that “Dr. Rausser has measured whether that conspiracy was successful in increasing the price of eggs. His model fits the theory of liability and satisfies Comcast.” However, the Judge requested further briefing on when the class period should end; the Plaintiffs originally sought a class period from September 24, 2004 through the present. On February 2, 2016, the Judge decided that the proper cut-off date for the class period would be December 31, 2008. The Judge described how, in the period after 2008, animal welfare regulations implemented by a handful of U.S. states actually mandated increased cage space requirements, rendering the adoption of such requirements legal. Judge Pratter reasoned that, because of these regulations, the price elevation Dr. Rausser’s model “attributes to the conspiracy intermingles lawful and unlawful behavior between 2008 and 2013.” For these reasons, Judge Pratter ruled that, although damages could be quantified on a class-wide basis for the years 2004 through 2008, they could not be for the post-2008 years.

Defendants seized on this decision to argue that all data post-2008 should be removed from Dr. Rausser’s overcharge regression model. They also argued that when such data was removed, the results of the model no longer fit the Plaintiffs’ theory and thus the class should be decertified. Judge Pratter has now dismissed Defendants’ argument. She agrees with the Plaintiffs that Dr. Rausser’s model should use all of the available data, including post-2008 data, to estimate the class-wide overcharge, even if damages would no longer be claimed on a class-wide basis post-2008. She writes:

Plaintiffs argue, and the Court agrees, that removing all post-2008 data from Dr. Rausser’s model is unnecessary. When it set the cutoff date, the Court recognized that ‘the UEP Certification program continued through 2013 and included the same types of instrumentalities as are alleged to have characterized the conspiracy pre-2008’…The Court again recognized at summary judgement, that ‘it is undisputed that the defendants continued to operate as members of the UEP Certified Program after the lawsuits were filed [in 2008]… [and] the plaintiffs have put forward evidence that allows them to argue that the effects of this conspiracy continued through at least 2012.’

The Judge also distinguished the issues in this case from those in Comcast. In Comcast, the Supreme Court found that plaintiffs’ expert’s regression model was not appropriate because it was designed to measure the combined effect of four alleged acts, but three of those acts were subsequently ruled unsuitable for certification because they were not susceptible to class-wide proof. Judge Pratter finds the current situation to be quite different:

The Supreme Court in Comcast focused on the rigidity of the model given the viable theories in the case, not the underlying data itself. It did not conclude that particular data was tainted, but rather that the model itself failed to ‘bridge the differences between supracompetitive prices in general and supracompetitive prices attributable to [the one theory viable for class treatment].’ …That the Court here has recognized a similar rigidity for Dr. Rausser’s model after 2008 does not command taking the next step of stripping post-2008 data from the model itself. The Court’s holding [in its decision to cut-off the class period at December 31, 2008] was simply a recognition and application of the model’s limit on measuring damages in light of the circumstances. Accordingly, the Court rejects this attempt to, yet again, invalidate Dr. Rausser’s model under Comcast.

The Judge also rejected Defendants’ argument that a supposed “structural break” in 2008 resulted in “a divergence between the effects of the explanatory variables [on egg prices, in Dr. Rausser’s model] in different time periods,” and required post-2008 data to be removed from the model. Judge Pratter “conclude[d] that removal of post-2008 data is not analytically required under Comcast, but further, removal of the data could be problematic because, for instance, removing all post-2008 would involve excluding 52% of the available data.”

Judge Pratter concluded: “For the foregoing reasons, the Court will deny the Defendants’ Motion to Decertify the Direct Purchaser Plaintiffs’ Class.” To read the opinion, Click here.

District Court Judge Lynn Adelman certified a class of indirect purchasers of After-Market Sheet Metal (“AMSM”) parts who allegedly suffered damages from price-fixing by AMSM parts manufacturers. AMSM parts are used to replace car parts such as hoods, doors, and fenders after they become damaged in collisions. The class includes third-party payors such as car insurance providers.

According to Plaintiffs, an environment conducive to anticompetitive behavior in the industry can be traced back to 30 years ago in Tainan, Taiwan, where small manufactures of AMSM parts were acquired by the Defendants, resulting in high industry concentration among four large manufacturers. Plaintiffs allege that between 2003 and 2009, the Defendants and their co-conspirators artificially raised the prices of AMSM parts and conspired to reduce their supply, and in doing so, directly violated state and nation-wide antitrust laws. OnPoint expert Dr. John Connor submitted a report wherein he opined that the AMSM parts industry is highly concentrated, that there are few good substitutes for AMSM parts, that demand is inelastic and that there are substantial barriers to entering the industry.

These characteristics provided an environment conducive to price manipulation and supply reduction. Dr. Connor also presented working methodologies for estimating class-wide damages using regression models. The Court found that Dr. Connor’s estimation of price elevation, of the rate of pass-through of that price elevation, and of the dollar amount of economic harm suffered by the class of indirect purchasers was sufficient to show that there was a method for determining aggregate class-wide damages and, as the Judge put it, that “class issues predominate.” To learn more about John Connor, click here.

OnPoint Analytics is pleased to introduce the latest addition to our team: Dr. Vivek Shah. Dr. Shah is an Economist with extensive experience in statistical and econometric modeling, analysis, and research. He has been involved in calculating economic damages and evaluating the impact of government policies in a variety of industries. Dr. Shah has over eight years of litigation consulting experience and has analyzed issues relating to anti-competitive behavior including monopolization, price-fixing, patent infringement, and economic damages due to breach of contract. Dr. Shah has also issued expert reports related to False Claims Act matters involving Medicare fraud and has been called to provide deposition testimony. His academic research is focused on insurance, development, and evaluations of public policy. Prior to joining OnPoint, Dr. Shah was a litigation consultant at Berkeley Research Group and Charles River Associates International. Dr. Shah received his Ph.D. in Applied Economics from the Wharton School at the University of Pennsylvania.

To learn more about Dr. Shah, click here.

OnPoint expert and forensic CPA Christine Davis recently provided deposition testimony in a wage-and-hour lawsuit filed in a United States District Court against one of the largest cities in California. Ms. Davis served as the damages expert on behalf of the city. In June 2017, Ms. Davis also submitted an expert report in the matter, providing thorough analysis of voluminous time records and detailed compensation data to address damage claims brought by the named plaintiffs on behalf of themselves and those similarly situated.

The plaintiffs in this collective action comprise hundreds of certain non-exempt employees in the city’s fire department who have alleged that there are employees with an established work period of 28 days with a 212-hour FLSA overtime threshold, and employees with an established work period of 14 days with a 106-hour FLSA overtime threshold. Ms. Davis’s role in the ongoing case concerns the calculation of overtime compensation under the Federal Labor Standards Act (“FLSA”) using the appropriate “regular rate of pay,” and the determination of whether minimum wages were paid under the FLSA and the California Labor Code.

OnPoint’s Director of Forensic and Financial Accounting, Christine Davis, recently testified on behalf of the Claimant in an arbitration hearing regarding a dispute between two partners who formed an LLC in the electrical apparatus and equipment, wiring supplies, and construction materials business. Claimant petitioned the Santa Clara Superior Court for an order compelling arbitration as a result of multiple actions against Respondent, who was the manager of the LLC. Claimant alleged breach of the LLC agreement, failure to account, diversion of funds, breach of fiduciary duty and wrongful termination.

In May 2017, Ms. Davis filed her expert report wherein she analyzed the accounting for the LLC and opined on the quality of such accounting, described evidence of comingling of funds with a separate LLC, and calculated undistributed profits allocable to the Claimant based on the presumption that he had been entitled to such profits but for the “wrongful termination.” During her arbitration testimony at JAMS, Ms. Davis provided evidence of her findings. The arbitrator, a retired U.S. district judge, ruled in favor of the Claimant, concluding that Claimant was wrongfully denied participation in the operations of the business. The Claimant has been awarded damages for unpaid partner profits pertaining to three years of operations, attorney’s fees, costs and expenses, as well as an option to purchase Respondent’s membership interest.