CSUN business law professor Melanie Stallings Williams asserts that a judge’s doubts about the value of testimony by economic experts may have cost California consumers $26 billion. Photo by Guillem de Balanzo, iStock.

In the fall of 2022, a federal judge in San Diego threw out a class-action lawsuit against eight of the state’s major oil companies that alleged they conspired to fix gas prices in California, costing consumers and retailers more than $26 billion.

What stunned California State University, Northridge business law professor Melanie Stallings Williams was that the judge in the case of Persian Gulf Inc. v. BP West Coast Products LLC acknowledged there was evidence of conspiracies to raise prices. However, the judge still dismissed the lawsuit because she did not find testimony from the economists who substantiated the price fixing valid.

Melanie Stallings Williams

“I was shocked,” said Williams, who teaches in CSUN’s David Nazarian College of Business and Economics. “I wanted to get to the bottom of why she made a decision—even after finding that there was evidence of collusive conduct—that cost California consumers $26 billion and disproportionately impacted the poor and communities of color, who often don’t have much choice when it comes to buying gas.

“What it comes down to,” she said, “is that when it comes to testimony in antitrust cases, which this one was, judges are more likely to dismiss testimony by economic experts, even if those experts have won Nobel Prizes for their work in economics, particularly if they are testifying for the plaintiffs.”

Williams’ findings, “Daubert’s Mystery Surcharge: The Heavy Exclusion of Economic Expert Testimony in Antitrust Litigation,” were recently published in the legal journal Competition Policy International Antitrust Chronicle.

Williams said that in antitrust litigation—like the California case involving the oil companies—economic experts are “more likely to be challenged and their testimony is more likely to be excluded than is the testimony of another types of experts or even of economists testifying in other types of cases.”

“Further,” she said, “economic experts testifying for antitrust plaintiffs are far more likely to be challenged—with cases often resultingly dismissed—than are experts testifying for defendants in such cases.”

Defendants’ attorneys and judges often justify their decisions by citing a 1993 U.S. Supreme Court precedent, Daubert v. Merrell Dow Pharmaceuticals, designed to ensure that expert testimony is both relevant and reliable.

Williams pointed to a study that showed between 2000 to 2008, researchers found that while antitrust cases accounted for only 0.3 percent of federal civil cases, they accounted for 18 percent of the challenges made to economic experts. A large majority, 85 percent, of these challenges were to plaintiffs’ economic experts. Courts were far more likely to exclude plaintiffs’ economic expert testimony, with 40 percent of such experts having their testimony fully or partially excluded. By contrast, successful Daubert challenges to defendant economic expert testimony in antitrust cases during the same period was only 1 percent.

“The irony is that Daubert was intended to help judges discern between those experts who truly knew their subjects and those who were basically quacks,” Williams said. “Instead, it’s being used to dismiss testimony by some of the nation’s leading economic experts.”

Which is what happened in the Persian Gulf case, she said.

University of California, Berkeley economist Severin Borenstein, one of the nation’s leading experts on oil and gasoline market pricing and competition, identified a “mystery surcharge” in California gas prices in the 2010s that suggested anticompetitive collusion among the oil companies.

“California consumers have long paid higher prices for gasoline than consumers in other states. This is partly attributable to a constellation of factors, including governmental regulation, the lack of a gas pipeline to the state and consumer preferences,” Williams said. “However, even accounting for these and other factors, Borenstein identified a ‘mystery gasoline surcharge,’ an excess fee that could not otherwise be explained.”

Borenstein identified a spike in the surcharge in 2015 that cost California consumers $6.7 billion in that year alone. In the subsequent five years, Borenstein found that the surcharge cost Californians more than $26 billion, which he equated to more than $2,600 for every family of four in the state.

“It was obvious that lawsuits would follow and that there would be a class-action, antitrust lawsuit,” Williams said. “After years of back-and-forth in court, the federal district judge granted a motion for summary judgement dismissing the suit on the basis that Daubert challenges to the plaintiff’s economists left no triable facts. That surprised me, given that some of the top economists had identified the surcharge.”

Williams said she believes the problem was that the judge did not understand the economic testimony.

“The court struggled with how a conspiracy to reduce competition and fix prices could have begun in 2011 but not have resulted in significant priced effects until 2015,” Williams said. “This is a concept that would be viewed by economists as unarguable—collusive conduct and its anticompetitive results are not always, or even typically, synchronous—became a legal basis for dismissal.”

Williams said lawyers for defendants in antitrust cases, such the one involving the oil companies, capitalize on the complexities involved in economic expert testimony and often successfully argue to have such testimony excluded as being irrelevant and unreliable.

“It’s an easy argument to make,” she said. “While a plaintiff’s economic expert must establish a record of sometimes complex concepts and data that would support a judgement, a defendant’s expert must simply be able to cast doubt on the plaintiff’s theory. Muddying the waters is often easier that proving a case.”

Plus, Williams said, the subject matter can be challenging for people who entered a profession in hopes of avoiding dealing with complex math problems.

“It has often been observed that law students—who later become lawyers and judges—are smart people who hate math,” she said. “For a classic law student, one who majored in political science and avoided statistics, this would create predictable problems in analyzing economic issues. The same could be true for other disciplines, of course, but somehow there is a greater inclination to take an intuitive—and, quite possibly, incorrect—approach to economics that one would avoid in evaluating testimony on topics like chemistry, physics or biology. This may increase the risk that a court excludes economic expert testimony because of the court’s own faulty understanding of the topic.

“In this case, I think California consumers paid the cost to the tune of more than $26 billion,” Williams said.

David Nazarian College of Business and Economics, Department of Business Law, Featured, Gas Prices, Melanie Stallings Williams.