A federal appeals court has reinstated an antitrust complaint against a milk processor, ruling that the trial judge used the wrong standard for excluding an expert witness.

On Friday in Food Lion LLC v. Dean Foods Co., the U.S. Court of Appeals for the Sixth Circuit remanded the case to Eastern District of Tennessee U.S. District Judge Ronnie Greer. Retailers Food Lion and Fidel Breto filed the action over milk they bought from defendants Dean Foods and the National Dairy Holdings partnership of processing plants.

The partnership was set up to compete with Dean under a settlement with federal regulators related to Dean’s 2001 merger with Suiza Foods Corp. The Dairy Farmers of America partially owned National Dairy Holdings during the relevant time.

The suit accused Dean of striking a secret deal to buy the raw milk it needed from Dairy Farmers of America. For its part, Dairy Farmers allegedly imposed non-price restrictions that harmed National Dairy’s ability to compete. The conspiracy allegedly harmed retail buyers of processed milk.

After excluding the plaintiffs’ experts’ testimony in March 2012, Greer ruled that they lacked proof of injury and failed to establish the relevant antitrust geographic market. The plaintiffs appealed.

Eastern District of Kentucky U.S. District Judge Gregory Van Tatenhove, sitting by designation, wrote for the Sixth Circuit, joined by circuit judges John Rogers and Deborah Cook him.

The court criticized the exclusion of testimony, which concerned the relevant geographic market for the antitrust claims and was offered by Luke Froeb, a former director of the Bureau of Economics at the Federal Trade Commission now attached to Vanderbilt University’s graduate school of management.

“The district court’s reasoning in its decision to exclude Froeb’s testimony rests on an incomplete review of the facts and the application of incorrect legal standards,” Van Tatenhove wrote.

The trial judge ruled that the expert relied on facts not in the case record, Tatenhove continued, instead relying on economic modeling plus “government studies, academic publications, and the record itself as he created a geographic market.” But the judge misread the U.S. Supreme Court precedents, Tatenhove said.

“[E]xpert reports must be based on proper facts, but each of those facts does not have to occupy an independent part of the record for an expert to be able to use them when crafting an opinion,” he said.

The trial judge incorrectly believed the expert could consider only the facts in the case record, Tatenhove continued. In fact, he wrote, experts are not thus limited.

“[E]xpert reports must be based on proper facts, but each of those facts does not have to occupy an independent part of the record for an expert to be able to use them when crafting an opinion,” he said.

“It’s an important decision in the Sixth Circuit as well as in the other appellate courts on the use of expert testimony in antitrust cases and [how to apply the Supreme Court’s] Daubert standard,” said Food Lion lawyer Richard Wyatt Jr., co-leader of the litigation group at Hunton & Williams in Richmond, Va.

Hunton Washington partner Neil Gilman argued for the plaintiffs.

Akin Gump Strauss Hauer & Feld also represented Food Lion and Gordon Ball of Knoxville, Tenn. represented Fidel Breto. Paul Friedman, a Washington partner at Dechert, argued for the defendants.

In a formal statement, Dean Foods spokesman Jamaison Schuler expressed disappointment at the outcome. “We remain confident that we have operated lawfully and fairly at all times in the Southeast,” he said.

Dairy Farmers of America declined to comment, according to spokeswoman Jennifer Huson.

Sheri Qualters can be contacted at squalters@alm.com.