Economics Expert’s Opinions on the Outcome-Based Compensation Structure Excluded
Posted on April 24, 2025 by Expert Witness Profiler
Allstate Insurance Company sells property, casualty, and life insurance in California through independent and exclusive agents. The Plaintiffs, who were exclusive agents for the Defendant from 1990 to 2023 and had signed Exclusive Agency Agreements, have filed a class-action lawsuit. Their claim centers on unreimbursed business expenses they incurred, including costs for rent, internet, licensed staff, payroll taxes and fees, mandatory insurance coverage, marketing, licensing, a cloud-based telephone system (Allstate Agency Voice), and computer equipment.
Pursuant to Federal Rule of Evidence 702, the Plaintiffs filed a motion seeking to exclude the expert report of the Defendant’s witness, Professor Paul Oyer. A key point of contention in their motion is Professor Oyer’s assertion that the Defendant provided “indirect” reimbursement for exclusive agents’ business expenses via outcome-based compensation.
The Court first addressed Plaintiffs’ Daubert Motion, and then considered whether Plaintiffs have met the requirements for class certification.
Economics Expert Witness
Paul Oyer is the Mary and Rankine Van Anda Entrepreneurial Professor and Professor of Economics at Stanford Graduate School of Business. He is also a research associate with the National Bureau of Economic Research and the editor-in-chief of the Journal of Labor Economics.
He has done several studies of how firms pay and provide incentives for their workers. Oyer looked at how salespeople and executives react to incentive systems and why some firms use broad-based stock option programs.
Discussion by Court
Motion to Exclude the Opinions of Professor Paul Oyer
Plaintiffs specifically contested Professor Oyer’s opinions that: (1) Defendant reimbursed exclusive agents’ business expenses “indirectly” by providing outcome-based compensation; and (2) that “Plaintiffs’ approach for damages based on expenses alone is conceptually flawed” because “[e]valuating the harm to members of the proposed class must be analyzed in the context of the total compensation to the [e]xclusive [a]gency, specifically the compensation used to cover the [e]xclusive [a]gency’s expenses that Plaintiffs seek as damages,” and “individualized inquiry is necessary to estimate the harm” to the agencies, if any.
The Plaintiffs contended that both of Professor Oyer’s opinions are irrelevant to the Court’s class certification analysis because they offer legal conclusions and conflict with California law regarding the reimbursement of business expenses.
Defendant argued that these opinions are relevant and admissible because Professor Oyer’s opinions “concerning the wide variations in the types and amounts of Plaintiffs’ expenses show that a determination of reasonable and necessary business expenses will change depending on the specific facts and circumstances of a particular [e]xclusive [a]gency’s business” and thus that individualized issues predominate.
Analysis
The Court concurred with the Plaintiffs, finding that the challenged opinions constituted impermissible legal conclusions. Here, Professor Oyer repeatedly opined that individualized inquiry is necessary to assess the proposed class’s damages stemming from unreimbursed business expenses. Professor Oyer also opined that Defendant’s “outcome-based compensation . . . is an efficient compensation method that indirectly compensates the [e]xclusive [a]gency for its efforts (including expenses)” and “any member of the proposed class who received compensation to cover the [e]xclusive [a]gency’s allegedly reimbursable expenses is not harmed.” The Court found that these opinions addressed “central legal questions” raised by Plaintiffs’ Motion for Class Certification, namely commonality and predominance.
In other words, Oyer’s opinions regarding commonality and predominance improperly invaded the province of the Court.
Moreover, the Plaintiffs demonstrated that the proposed class meet the requirements of Class Certification.
Held:
The Court granted the Plaintiff’s motion to exclude the testimony of Paul Oyer.
Key Takeaway:
Experts may not opine on “matters of law for the Court.” Plaintiffs challenged Oyer’s assessment of the proposed class’ damages. His opinions on the necessity of the individualized inquiry and the outcome-based compensation structure improperly invaded the province of the Court.
| Case Caption: | Canchola v. Allstate Ins. Co. |
| Doket Number: | 8:23-cv-00734-FWS-ADS |
| Court: | United States District Court for the Central District of California |
| Order Date: | March 28, 2025 |
