Second Circuit Reverses District Court on Exclusion of Expert Testimony in Securities Fraud Case

Second Circuit Reverses District Court on Exclusion of Expert Testimony in Securities Fraud Case

April 12, 2016

On April 12, 2016, the Second Circuit vacated and remanded a lower court judgement, resurrecting a securities class action against pharmaceutical giant Pfizer, Inc. The case alleges the company made false representations and concealed the cardiovascular risks related to two of the its drugs, Celebrex and Bextra.

Judge Swain of the United States District Court for the Southern District of New York had excluded the testimony of the Plaintiffs’ loss causation and damages expert, Daniel R. Fischel just prior to trial.  Judge Swain reasoned that because Pfizer could not be held liable for the alleged misrepresentations made by the previous manufacturers of the drugs, Fischer should have disaggregated the effects of those statements.  She also reasoned that Fischel inappropriately adjusted his “event study” in response to a court finding, which rendered his methodology insufficiently reliable.   With no expert testimony allowed, Pfizer was granted summary judgment.

The appeals court declared the wholesale exclusion of the expert testimony an abuse of discretion.  First, under Plaintiffs’ inflation-maintenance theory, there is no need to separate the effects of misstatements attributable to Pfizer from those of the previous manufacturers.   The appeals court further found “that the district court erred in determining, as a matter of law, that Pfizer lacked sufficient authority” over eight of nine alleged misstatements, declaring enough evidence exists to make this a question of fact for the jury in this particular case.

As to the second issue, the appeals court agreed that Fischel’s adjustment was rightfully excluded under Federal Rule of Evidence 702 as he failed to give a sufficient “analytical basis” for the adjustment.  However, the district court had erred in excluding Fischel’s testimony completely.  The more appropriate response would have been to exclude the testimony relating to the reduction, but continue to allow Fischel to testify about loss causation and damages.

 

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