N.D. Ill. Sept. 28, 2009

Background and Issues: On June 20, 2006, class-action lawsuits were filed on behalf of nurses in four cities – Memphis, San Antonio, Albany and Chicago. The complaints filed were nearly identical in substance and alleged that hospitals and hospital systems in each of the jurisdictions conspired to suppress nurse wages in violation of Section 1 of the Sherman Act. Another virtually identical case was filed in Detroit a few months later. The defendants in this, the Chicago, case are Advocate Healthcare, Resurrection Healthcare, University of Chicago Hospital and NorthShore University HealthSystem. The complaint has two counts. Count one alleges an agreement to suppress nurse wages. Count two alleges an agreement to exchange nurse wage information and that the effect of that exchange is to suppress nurse wages. The estimated size of the proposed class is 19,000. After extensive discovery, plaintiffs moved to certify the alleged class. The defendants opposed class certification principally on the grounds that injury in fact (antitrust impact) and damages could not be shown on a classwide basis with common proof, and therefore the requirements of Rule 23(b)(3) of the Federal Rules of Civil Procedure cannot be satisfied.

Key Facts: To sustain their burden under Rule 23(b)(3), plaintiffs principally relied on the declarations of their expert, Professor Gordon Rausser. To show that class members would have suffered wage suppression as a result of the alleged conspiracy, Prof. Rausser performed what he referred to as his “wedge” analysis, an empirical analysis designed to show the amount of the average wage suppression suffered by all nurses in the putative class. Through his model, Prof. Rausser estimated that the average wage suppression for nurses in the putative class was approximately 11.3%. Prof. Rausser also performed a multiple regression analysis to confirm that the common impact experienced through the alleged wage suppression would not be overshadowed by individual wage variation among the nurses.

Defendants’ expert, Prof. Robert Willig, criticized many of Prof. Rausser’s opinions. Prof. Willig said that the wedge analysis had serious methodological errors, and when those errors were corrected, the alleged wedge and the wage suppression disappeared. More fundamentally, the wedge only attempts to measure average wage suppression. According to Prof. Willig, even if one assumes that the average wage was reduced by the alleged conspiracy, that does not mean that all members of the proposed class suffered a reduced wage or that any reduction for an individual nurse could be calculated in a formulaic way by common proof. Prof. Willig also criticized Prof. Rausser’s regressions as being too imprecise and unreliable, leaving a wide range of explained variations in nurse wages.

Resolution: Judge Grady agreed with the defendants and denied plaintiffs motion for class certification. According to Judge Grady, plaintiffs did not meet their burden of demonstrating that antitrust impact or the amount of damages could be shown on a classwide basis with common proof. Prof. Rausser’s reliance upon average wages resulted in a fundamental flaw in his approach. Measuring an average base wage suppression does not indicate whether each putative class member suffered harm from the alleged conspiracy. Thus, it is not a methodology that can determine impact with respect to each class member. Judge Grady also agreed that Prof. Rausser’s regression models were too imprecise to avoid the need for individualized hearings on impact and damages.

Significance: Judge Grady expressly rejected the plaintiffs’ argument that at the class certification stage, plaintiffs are not obligated to demonstrate that Prof. Rausser’s analysis works; they merely are required to show that the model is workable. Judge Grady noted that the essence of plaintiffs’ argument is that the court should not subject the expert’s models to rigorous analysis, which is contrary to law. In so doing, Judge Grady’s decision follows a growing body of law that requires plaintiffs attempting to achieve class certification to do more than hire a competent expert who proposes to use accepted econometric models, such as regression analyses. As Judge Grady noted, “The critical issue is not whether Dr. Rausser’s techniques are generally accepted; it is whether they are appropriate when applied to the facts and data in this case.”