Cases that deal with linear regression are not particularly exciting except to a small brand of “quant” lawyers who see such things “differently.” Judge Posner, the author of several books, including Economic Analysis of Law (8th ed. 2011), is a judge who sees things differently as well.
In a case decided late last year, Judge Posner took the occasion to chide the district court and the parties’ legal counsel for failing to assess critically a regression analysis offered by an expert witness on the quantum of damages in a contract case. ATA Airlines Inc. (ATA), a subcontractor of Federal Express Corporation, sued FedEx for breaching an alleged contract to include ATA in a lucrative U.S. military deal.
Remarkably, the contract liability was a non-starter; the panel of the Seventh Circuit reversed and rendered the judgment in favor of the plaintiff. There never was a contract, and so the case should never have gone to trial. ATA Airlines, Inc. v. Federal Exp. Corp., 665 F.3d 882, 888-89 (2011).
End of Story?
In a diversity case, based upon state law, with no liability, you would think that the panel would and perhaps should stop once it reached the conclusion that there was no contract upon which to predicate liability. Anything more would be, of course, pure obiter dictum, but Judge Posner could not resist the teaching moment, both for the trial judge below, the parties, their counsel, and the bar:
“But we do not want to ignore the jury’s award of damages, which presents important questions that have been fully briefed and are bound to arise in future cases.”
Id. at 889. That award of damages was based upon plaintiff’s expert witness’s regression analysis. Judge Posner was perhaps generous in suggesting that the damages issue, as it involved a regression analysis, had been fully briefed. Neither party addressed the regression with the level of scrutiny given by Judge Posner and his colleagues, Judges Wood and Easterbrook.
The Federal Express defense lawyers were not totally asleep at the wheel; they did object on Rule 702 grounds to the regression analysis offered by plaintiff’s witness, Lawrence D. Morriss, a forensic accountant.
“There were, as we’re about to see, grave questions concerning the reliability of Morriss’s application of regression analysis to the facts. Yet in deciding that the analysis was admissible, all the district judge said was that FedEx’s objections ‘that there is no objective test performed, and that [Morriss] used a subjective test, and [gave] no explanation why he didn’t consider objective criteria’, presented issues to be explored on cross-examination at trial, and that ‘regression analysis is accepted, so this is not “junk science.” [Morriss] appears to have applied it. Although defendants disagree, he has applied it and come up with a result, which apparently is acceptable in some areas under some models. Simple regression analysis is an accepted model.”
Id. (quoting District Judge Richard L. Young).
Apparently it is not enough for trial judges within the Seventh Circuit to wave their hands and proclaim that objections go to weight not admissibility; nor is it sufficient to say that a generally accepted technique was involved in formulating an opinion without exploring whether the technique was employed properly and reliably. Judge Posner’s rebuke was short on subtlety and tact in describing the district judge’s response to FedEx’s Rule 702 objections:
“This cursory, and none too clear, response to FedEx’s objections to Morriss’s regression analysis did not discharge the duty of a district judge to evaluate in advance of trial a challenge to the admissibility of an expert’s proposed testimony. The evaluation of such a challenge may not be easy; the ‘principles and methods’ used by expert witnesses will often be difficult for a judge to understand. But difficult is not impossible. The judge can require the lawyer who wants to offer the expert’s testimony to explain to the judge in plain English what the basis and logic of the proposed testimony are, and the judge can likewise require the opposing counsel to explain his objections in plain English.”
Id. The lawyers, including Federal Express’s lawyers, also came in for admonishment:
“This might not have worked in the present case; neither party’s lawyers, judging from the trial transcript and the transcript of the Rule 702 hearing and the briefs and oral argument in this court, understand regression analysis; or if they do understand it they are unable to communicate their understanding in plain English.”
You can read the rest of N. Schachtman’s post here: http://schachtmanlaw.com/judge-posners-digression-on-regression/
*He has the lawyerly wisdom not to include comments on his own blog.
See also Posner’s opinion for the 7th circuit court here: ATA Airlines, Inc. v. Federal Exp. Corp., 665 F.3d 882 (2011)
How are they using “objective”/”subjective” test and criteria here?
ATA’s expert put forward a simple linear regression to predict damages “but for” the alleged breach. It appears that the regression was set up in a rather screwy way, and Judge Posner had some fun, dressing down the expert witness, and the lawyers on both sides for not understanding the regression and its many problems.
I wonder what people think of Judge Posner’s point that the width of the confidence interval undermined the expert witness’s interpretation. Shouldn’t Judge Posner have adverted to the prediction interval?
And perhaps worse, given that Judge Posner scolded everyone in sight, consider the judge’s definition of a confidence interval, from page 895 of the opinion:
“Confidence intervals (familiar as the ‘margins of error’ reported in predictions of election outcomes) are statistical estimates of the range within which there can be reasonable confidence that a correlation or prediction is not the result of chance variability in the sample on which the correlation or prediction was based; 95 percent confidence is the standard criterion of reasonable confidence used by statisticians.”