District Court Rejects Challenge to Loss Causation and Damages Expert in Federal Securities Case, Invites Supplemental Briefing on Burden of Proving Proportionality of Loss Causation and Damages among Multiple Defendants

In re DVI, Inc. Secs. Litig., No. 03-5336, 2013 U.S. Dist. LEXIS 164199 (E.D. Pa. Nov. 18, 2013), the U.S. District Court for the Eastern District of Pennsylvania considered cross-challenges seeking to exclude the proffered testimony of the plaintiffs and the defense’s loss causation and damages experts in a securities case arising under Section 10(b)(5) of the Securities Exchange Act of 1934. The court concluded that the defendants’ expert testimony should not be excluded under Rule 702 or the Daubert standard, but invited additional briefing on the burden of proving proportionality of loss causation and damages among the multiple defendants before ruling definitively on the defendants’ motion to exclude the plaintiffs’ expert.

In regard to the former issue, the court reiterated the standard for evaluating an expert opinion under Rule 702 and Daubert. Under the applicable standard, the court rejected the plaintiffs’ challenges to the qualifications and reliability of the defendants’ expert, who was testifying for the first time in a private securities case. In particular, the court found that the expert possessed the requisite qualifications to testify and had employed a reliable methodology in arriving at his conclusions, notwithstanding the fact that he relied on the event study that had been performed by the plaintiffs’ expert rather than performing his own event study. Separately, the court also dispensed with the plaintiffs’ arguments that the expert’s testimony should be excluded because the expert had failed to disclose several cases in which his testimony had been rejected, and that the expert otherwise had exceeded the permissible scope of his testimony. Specifically, the court determined that there was no failure to disclose information, and, even if there had been, the information was harmless and irrelevant. In light of these various considerations, the court determined that the jury should weigh the credibility of the testimony of the defense’s expert.

The court reserved ruling on the admissibility of plaintiff’s expert, however, pending the submission of additional briefing by the parties. Although the court had previously found that the anticipated testimony of the plaintiff’s expert should be allowed in various respects, it expressed its view that resolution of the defense’s motion to exclude the plaintiffs’ expert raised questions that the “[Third Circuit] Court of Appeals has not recently considered.” These questions generally concerned the burden of allocating liability among multiple defendants in connection with analyzing loss causation and damages, particularly with respect to the need to disaggregate non-fraudulent, negative information adversely affecting the stock price and the attribution and apportionment of liability and damages among and between each individual defendant relative to his or her alleged fraudulent activities. Viewing the defense’s motion as “a query as to how [the Third Circuit] Court of Appeals would rule,” the court decided that supplemental briefing on these issues was necessary before it could rule.  As such, it appears that a significant ruling on these issues will be forthcoming.

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