EAST ST. LOUIS – Economist Hal Singer spoiled his research in a potential class action for Jimmy John’s restaurant employees by mixing hourly and daily wages, Chief U.S. District Judge Nancy Rosenstengel ruled on Feb. 16.
Rosenstengel excluded a report Singer wrote for plaintiff Donald Conrad and she denied motions to exclude defense experts who challenged the report.
She found a wage discrepancy made Singer’s statistical regressions unreliable.
“This error is material,” she wrote. “Comparing inflated estimates of average wages leads to inflated estimates of impact.”
Thirteen lawyers represent Conrad, who proposes to lead a class action for about 600,000 employees at about 2,800 Jimmy John’s locations from 2014 to 2018.
Jimmy John’s employment agreements included a “no poaching” provision that prohibited workers from finding work at other Jimmy John’s locations.
Attorney Derek Brandt of the McCune Wright firm in Edwardsville sued Jimmy John’s for former employee Sylas Butler in January 2018.
The suit alleged that the provision depressed wages in violation of antitrust law.
Jimmy John’s moved to dismiss the suit, and former district judge Michael Reagan denied the motion in July 2018.
“Although the franchises are dealing in the same brand, they are still competitors, and anyone with a rudimentary understanding of economics would understand that the no-hire agreements have an anticompetitive effect on the labor market targeted by those firms,” Reagan wrote.
By then, Jimmy John’s had removed the provision from employment agreements.
In January 2019, Brandt moved to substitute Conrad for Butler as plaintiff.
Jimmy John’s counsel Rachel Brass of San Francisco opposed the motion, claiming discovery portrayed Butler as a less than desirable class representative.
Brass claimed that after he left Jimmy John’s, he found work with two other food service employers where he earned higher wages and worked more hours.
She claimed that in April 2016, while working for Jimmy John’s, he was charged with driving under the influence, and in July 2016, still working for Jimmy John’s, he was arrested for marijuana possession and visible intoxication.
She claimed his lawyers refused to provide a date for his deposition.
Reagan granted substitution and extended all deadlines by nine months.
“Although the court sympathizes with the fact that Jimmy John’s has spent resources investigating the current class representative that may now prove squandered, that is sometimes just a consequence of class action litigation,” he wrote.
Reagan retired and Rosenstengel took the case.
Singer prepared a report using weekly sales reports that franchisees regularly submitted to corporate headquarters.
From the reports he calculated that 87 to 91 percent of class members suffered antitrust injury.
Singer found 100 percent suffered injury as Jimmy John’s transmitted the artificially reduced compensation broadly across the class.
He claimed the no poaching provision gave stores more labor market power than they otherwise would have enjoyed.
He claimed that in the absence of the provision, workers could bid up wages by competition among independently owned stores.
He estimated damages by developing a model that compared wages when the provision was in effect to wages after the provision was halted.
His estimate doesn’t appear in the public record.
Economist Janusz Ordover reviewed the report for Jimmy John’s and challenged Singer’s mixture of hourly pay and shift pay.
Ordover compared Singer’s method to measuring people in feet and inches.
He found inconsistent reporting for some workers including Conrad, and claimed Singer treated Conrad as being paid on an hourly basis throughout the period.
He claimed he separated manager data into two groups, repeated Singer’s regression, and reduced the damage estimate by 66 percent.
Ordover challenged Singer on other points.
He claimed any impact of the provision was unlikely for employees at about 1,000 locations without a competing franchise within ten miles.
He claimed any impact was unlikely for the 56 percent of employees who leave Jimmy John’s in 12 weeks or less.
“Dr. Singer’s model allows an employee paid on a biweekly basis to have suffered impact during one week of his two week pay period, but not the other,” Ordover wrote.
He claimed Singer defined the employment market as Jimmy John’s, when an appropriate definition would include other quick service restaurants.
He found 98 percent of locations had at least ten other quick service restaurants within ten miles, with averages of 53 brands and 257 locations.
Another economist, Justin McCrary, reviewed Singer’s report for Jimmy John’s and argued that the interests of brands and stores can diverge.
He claimed that without restraints requiring franchisees to protect the value and quality of a brand, each franchisee would underinvest in the brand.
He claimed franchisors must strike a balance between expanding to new locations and ensuring that each franchisee remains committed to investing in the brand.
He claimed restraints could include similar layouts, menu items, promotions, and operation manuals.
He claimed restraints benefit workers in any franchise system by increasing demand for the brand’s products.
He claimed franchise agreements allowed discretion to invoke the no poaching provision and 88 percent of requests for release were granted.
“The proposition that an alleged cartel mechanism would have a market wide effect despite almost always being circumvented strains credulity,” he wrote.
Singer filed a rebuttal calling the mixture of hourly and daily wages a “random measurement error” and “mathematically irrelevant.”
He wrote that 14 million points of data effectively washed the error away.
Rosenstengel disagreed, and her order provided examples of wage inflation.
She redacted the numbers, as part of a process that took eight days.
She found reports of Ordover and McCrary reliable.
She wrote that she rejected Conrad’s attempts to mischaracterize McCrary’s deposition and downplay the extent of his research.
She wrote that McCrary removed Singer’s variables and found Singer’s model affirmed his own findings.
“The plaintiffs did not attempt refuting this in their reply brief,” she wrote.
She hasn’t set a trial date.
Lead counsel Brandt practices with the McCune Wright firm.
Richard McCune at the firm’s office in Ontario, Calif. represents Conrad.
Leigh Perica and Connor Lemire of the firm’s Edwardsville office and Michele Veroski in Ontario also represent him.
So do Anne Shaver, Dean Harvey, Yaman Salahi, Jalle Dafa, and Michelle Lamy, all of Lieff Cabraser in San Francisco.
So do Walter Noss and Sean Russell of Scott and Scott in New York City and Michelle Conston of that firm in San Diego.
Jimmy John’s counsel Brass practices at the Gibson Dunn firm in San Francisco.
Colleagues Caeli Higney, Joseph Rose, Lauren Dansey, Thomas Swanson, Warren Loegering, Kahn Scolnick, and Madeleine McKenna also represent Jimmy John’s.
Russell Scott of Greensfelder, Hemker and Gale in Belleville, acts as local counsel for Jimmy John’s.