Brief for Defendants-Appellees

United States Court Of Appeals for the

Second Circuit

TEACHERS’ RETIREMENT SYSTEM OF LOUISIANA, CHRISTINE FLECKLES,

Plaintiffs-Appellants, L. NORMAN SHOWERS, on behalf of himself and all others similarly situated,

MICHAEL FEITERLAND, PAUL SCHAPKA, MICHAEL FEITLER, ANTHON JOHNSON, Plaintiffs, – v. –

PFIZER, INC., HENRY A. McKINNELL, GAIL CAWKWELL, JOSEPH M. FECZKO, KAREN L. KATEN, Defendants-Appellees.

JOHN L. LAMATTINA, Defendant.

ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK

BRIEF FOR DEFENDANTS-APPELLEES PFIZER INC., HENRY A. McKINNELL, GAIL CAWKWELL, AND JOSEPH M. FECZKO

PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP Beth A. Wilkinson Charles E. Davidow Alexandra M. Walsh 2001 K Street, NW Washington, DC 20006-1047 (202) 223-7300

PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP Andrew J. Ehrlich 1285 Avenue of the Americas New York, New York 10019-6064 (212) 373-3000

GIBSON, DUNN & CRUTCHER LLP Miguel A. Estrada Mark A. Perry 1050 Connecticut Avenue, NW Washington, DC 20036-5306 (202) 955-8500 SIMPSON THACHER & BARTLETT LLP Lynn K. Neuner 425 Lexington Avenue New York, New York 10017-3954 (212) 455-2000 DLA PIPER LLP (US) John R. Wellschlager 6255 Smith Avenue Baltimore, Maryland 21209-3600 (410) 580-3000

Attorneys for Defendant-Appellee Pfizer Inc. (additional counsel listed on inside cover)

14-2853-cvCase 14-2853, Document 159, 02/20/2015, 1443189, Page1 of 74

SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP Jennifer L. Spaziano 1440 New York Avenue, NW Washington, DC 20005 202-371-7000

Attorneys for Defendant-Appellee Henry A. McKinnell

BAKER & HOSTETLER LLP George A. Stamboulidis 45 Rockefeller Plaza New York, New York 10111 212-589-4200

Attorneys for Defendant-Appellee Gail Cawkwell

ALLEN & OVERY LLP Pamela R. Chepiga 1221 Avenue of the Americas New York, New York 10020 212-610-6300

Attorneys for Defendant-Appellee Joseph M. Feczko

Case 14-2853, Document 159, 02/20/2015, 1443189, Page2 of 74

CORPORATE DISCLOSURE STATEMENT

Pursuant to Federal Rule of Appellate Procedure 26.1, Defendant-

Appellee Pfizer Inc. (“Pfizer”) states that it has no parent corporation, and that no

publicly-held corporation owns ten percent or more of its stock.


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TABLE OF CONTENTS

Page

PRELIMINARY STATEMENT ............................................................................... 1

STATEMENT OF ISSUES PRESENTED ................................................................ 4

STATEMENT OF THE CASE .................................................................................. 5

A. Factual Background .................................................................... 5

B. Early Procedural History ............................................................. 7

C. The District Court’s Summary Judgment Order Limits Plaintiffs’ Damages Case ...................................... 8

D. Plaintiffs Submit A Supplemental Expert Report On Damages .................................................................... 9

1. Fischel’s Original Event Study Methodology ................................................................... 10

2. Fischel’s New Methodology And The 9.7% Adjustment ............................................................ 13

3. Fischel’s Failure To Address The Exclusion Of The Pharmacia Statements ....................................................................... 17

4. Fischel’s Reply Report ................................................... 18

E. The District Court Grants Defendants’ Daubert Motion ......................................................................... 19

F. The District Court Denies Plaintiffs’ Motion For Leave To Amend ................................................................ 20


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SUMMARY OF ARGUMENT ............................................................................... 21

STANDARD OF REVIEW ..................................................................................... 24

ARGUMENT ........................................................................................................... 25

I. The District Court Reasonably Concluded That Fischel’s Testimony Failed To Satisfy Rule 702 and Daubert .......................... 25

A. The District Court Reasonably Excluded Fischel’s Testimony Based On His 9.7% Adjustment ................................................................................ 26

1. Plaintiffs Provided No Basis To Find The 9.7% Adjustment Reliable ....................................... 26

2. The Adjustment Was Properly Subject To Daubert Review ........................................... 29

B. The District Court Reasonably Concluded That Fischel’s Failure To Account For Its Pharmacia Ruling Rendered His Opinion Unhelpful To the Jury ............................................................... 34

1. The District Court’s Findings Regarding The Discovery Record Were Sound .................................................................... 35

2. Plaintiffs’ Post-Hoc Rationalizations Provide No Basis For Reversal ....................................... 40

(a) Plaintiffs’ Maintenance Arguments ..................... 40

(b) Plaintiffs’ PSLRA Argument ............................... 43

II. The District Court Reasonably Denied Plaintiffs’ Motion For Leave To Amend ................................................................................. 45

A. The District Court Was Not Required To Accept Fischel’s Last-Minute Offer To Drop The 9.7% Adjustment ............................................................... 46


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B. Plaintiffs Have Shown No Abuse Of Discretion .................................................................................. 50

III. The District Court Correctly Excluded Nine Pharmacia Statements Under Janus ...................................................................... 57

CONCLUSION ........................................................................................................ 61

CERTIFICATE OF COMPLIANCE ....................................................................... 63


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TABLE OF AUTHORITIES

Page(s) CASES

Abrams v. Interco Inc., 719 F.2d 23 (2d Cir. 1983) ............................................................................ 45

Amorgianos v. Nat’l R.R. Passenger Corp., 303 F.3d 256 (2d Cir. 2002) .............................................................. 24, 31, 45

Analytical Surveys, Inc. v. Tonga Partners, L.P., 684 F.3d 36 (2d Cir. 2012) ............................................................................ 25

Anderson v. City of Bessemer, 470 U.S. 564 (1985)....................................................................................... 36

Andler v. Clear Channel Broad., Inc., 670 F.3d 717 (6th Cir. 2012) ......................................................................... 32

Auto-Owners Ins. Co. v. Uniden Am. Corp., 503 F. Supp. 2d 1087 (E.D. Wis. 2007) ........................................................ 48

Bazemore v. Friday, 478 U.S. 385 (1986)....................................................................................... 32

Brennan’s Inc. v. Dickie Brennan & Co., 376 F.3d 356 (5th Cir. 2004) ......................................................................... 32

Bricklayers & Trowel Trades Int’l Pension Fund v. Credit Suisse Sec. LLC, 752 F.3d 82 (1st Cir. 2014) ...................................................................... 31, 46

Carpenters Pension Trust Fund of St. Louis v. Barclays PLC, 750 F.3d 227 (2d Cir. 2014) .......................................................................... 41

City of N.Y. v. Mickalis Pawn Shop, LLC, 645 F.3d 114 (2d Cir. 2011) .......................................................................... 45

Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579 (1993)................................................................................passim


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DeMarco v. Lehman Bros. Inc., No. 03 Civ. 3470 (JSR), 2004 WL 2674611 (S.D.N.Y. Nov. 23, 2004) ...... 46

Design Strategy, Inc. v. Davis, 469 F.3d 284 (2d Cir. 2006) .......................................................................... 54

Dickenson v. Cardiac & Thoracic Surgery of E. Tenn., 388 F.3d 976 (6th Cir. 2004) ......................................................................... 50

Dunning v. Bush, 536 F.3d 879 (8th Cir. 2008) ......................................................................... 50

Dura Pharm., Inc. v. Broudo, 544 U.S. 336 (2005)................................................................................. 41, 43

Ehrenhaus v. Reynolds, 965 F.2d 916 (10th Cir. 1992) ....................................................................... 51

Fezzani v. Bear, Stearns & Co. Inc., 716 F.3d 18 (2d Cir. 2013) ............................................................................ 58

FindWhat Investor Grp. v. FindWhat.com, 658 F.3d 1282 (11th Cir. 2011) ..................................................................... 41

First State Orthopaedics v. Concentra, Inc., 534 F. Supp. 2d 500 (E.D. Pa. 2007) ............................................................. 56

Frank v. United States, 78 F.3d 815 (2d Cir. 1996), vac’d on other grounds, 521 U.S. 1114 (1997) ............................................. 57

Gen. Elec. Co. v. Joiner, 522 U.S. 136 (1997)....................................................................................... 24

Gillum v. United States, 309 F. App’x. 267 (10th Cir. 2009) ............................................................... 50

Hunt v. CNH Am. LLC, 511 F. App’x. 43 (2d Cir. 2013) .................................................................... 47

Irwin v. Dep’t of Veterans Affairs, 498 U.S. 89 (1990) ......................................................................................... 56


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Janus Capital Grp., Inc. v. First Derivative Traders, 131 S. Ct. 2296 (2011) ............................................................................... 8, 58

Kumho Tire Co. v. Carmichael, 526 U.S. 137 (1999)................................................................................. 26, 45

Lattanzio v. Deloitte & Touche LLP, 476 F.3d 147 (2d Cir. 2007) .......................................................................... 42

Lentell v. Merrill Lynch & Co., Inc., 396 F.3d 161 (2d Cir. 2005) .......................................................................... 43

United States v. Local 1804-1, Int’l Longshoremen’s Ass’n, 44 F.3d 1091 (2d Cir. 1995) .......................................................................... 24

Manpower, Inc. v. Ins. Co. of Pa., 732 F.3d 796 (7th Cir. 2013) ......................................................................... 32

Miller v. Wolpoff & Abramson, LLP, 321 F.3d 292 (2d Cir. 2003) .......................................................................... 25

Milward v. Acuity Specialty Prods. Grp., Inc., 639 F.3d 11 (1st Cir. 2011) ............................................................................ 32

In re Moody’s Corp. Sec. Litig., No. 07 Civ. 8375, 2013 WL 4516788 (S.D.N.Y. Aug. 23, 2013) ................. 42

Nimely v. City of N.Y., 414 F.3d 381 (2d Cir. 2005) .......................................................................... 33

In re Omnicom Grp., Inc. Sec. Litig., 541 F. Supp. 2d 546 (S.D.N.Y. 2008), aff’d, 597 F.3d 501 (2d Cir. 2010) ................................................................. 43

In re Omnicom Grp., Inc. Sec. Litig., 597 F.3d 501 (2d Cir. 2010) .......................................................................... 45

SEC v. Pentagon Capital Mgmt. PLC, 725 F.3d 279 (2d Cir. 2013) .......................................................................... 59

Powerweb Energy, Inc. v. Hubbell Lighting, Inc., No. 12 Civ. 220, 2014 WL 1572746 (D. Conn. Apr. 17, 2014) .................... 51


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SEC v. Razmilovic, 738 F.3d 14 (2d Cir. 2013) ............................................................................ 10

Red Rock Commodities, Ltd. v. Standard Chartered Bank, 140 F.3d 420 (2d Cir. 1998) .......................................................................... 44

Sauer v. Burlington N. R.R. Co., 106 F.3d 1490 (10th Cir. 1997) ..................................................................... 44

In re Se. Milk Antitrust Litig., 739 F.3d 262 (6th Cir. 2014) ......................................................................... 32

Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., 559 U.S. 393 (2010)....................................................................................... 56

Sherrod v. Lingle, 223 F.3d 605 (7th Cir. 2000) ......................................................................... 51

Smith v. Ford Motor Co., 215 F.3d 713 (7th Cir. 2000) ......................................................................... 48

Softel, Inc. v. Dragon Medical & Scientific Commc’ns, Inc., 118 F.3d 955 (2d Cir. 1997) .................................................................... 50, 51

Steele v. Aramark Corp., 535 F. App’x 137 (3d Cir. 2013) ................................................................... 50

Stollings v. Ryobi Techs., Inc., 725 F.3d 753 (7th Cir. 2013) ......................................................................... 32

Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148 (2008)....................................................................................... 44

Teamsters Local 445 Freight Div. Pension Fund v. Bombardier Inc., 546 F.3d 196 (2d Cir. 2008) .......................................................................... 31

In re TMI Litig., 199 F.3d 158 (3d Cir. 2000) .......................................................................... 55

Toney v. Rosewood Care Ctr., Inc. of Joliet, 62 F. App’x 697 (7th Cir. 2003) .................................................................... 56


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In re Vivendi Universal, S.A. Sec. Litig., 765 F. Supp. 2d 512 (S.D.N.Y. 2011) ........................................................... 40

Walker v. Soo Line R.R. Co., 208 F.3d 581 (7th Cir. 2000) ......................................................................... 48

Weisgram v. Marley Co., 528 U.S. 440 (2000)....................................................................................... 55

United States v. Williams, 506 F.3d 151 (2d Cir. 2007) .......................................................................... 26

In re Williams Sec. Litig., 558 F.3d 1130 (10th Cir. 2009) ..................................................................... 46

Zerega Avenue Realty Corp. v. Hornbeck Offshore Transp., LLC, 571 F.3d 206 (2d Cir. 2009) .......................................................................... 51

ZF Meritor, LLC v. Eaton Corp., 696 F.3d 254 (3d Cir. 2012) .......................................................................... 56

STATUTES AND OTHER AUTHORITIES

Private Securities Litigation Reform Act of 1995 ....................................... 40, 43, 44

Section 10(b) of the Securities Exchange Act of 1934 .....................................passim

Federal Rule of Civil Procedure 26 ................................................................... 50, 51

Federal Rule of Evidence 702 ...........................................................................passim

Bruegger & Dunbar, “Estimating Financial Fraud Damages with Response Coefficients,” 35 J. Corp. L. 11, 29 (2009) .................................................... 43


PRELIMINARY STATEMENT

When the District Court granted partial summary judgment for

Defendants, Plaintiffs and their expert faced a strategic crossroads. The Court had

rejected two of the seven dates that Plaintiffs’ expert, Professor Daniel Fischel, had

used to quantify stock price inflation attributable to Defendants’ alleged fraud—

and therefore to calculate damages in the case. Accordingly, portions of Fischel’s

original expert report, and the entirety of the day-by-day schedule of price inflation

he had calculated, were invalid and had to be redone.

One obvious path available to Fischel and Plaintiffs was to do what

Fischel had previously testified he would do if any of his dates were rejected:

disregard price movements on those dates and prepare a new schedule of price

inflation using the methodology he had urged before. That approach, however,

would have substantially reduced Plaintiffs’ claimed damages. Alternatively,

Plaintiffs could invent a new methodology that would minimize the reduction of

damages, but also would contradict Fischel’s prior deposition testimony and lack

any legal or academic support.

Plaintiffs, represented by some of the most experienced counsel in the

securities bar, and Fischel, among the best-known economic experts in securities

litigation, opted for the second, riskier path. In a one-page Supplemental Report

containing only a single, cryptic sentence of relevant “explanation,” Plaintiffs and


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Fischel unveiled a brand new methodology that yielded a substantially higher

damages claim than Fischel’s original methodology would have yielded if applied

to the remaining five dates. In fact, a consequence of this new methodology was

that by starting with seven dates and removing the two invalid ones, Fischel

produced a higher damages claim than if he had started with only the five dates

that survived summary judgment in the first place. This was Plaintiffs’ strategic

choice—to try to recoup some of the damages lost through the District Court’s

summary judgment decision by adopting a novel and inconsistent methodology,

while providing no meaningful explanation that could be used to challenge it.

Plaintiffs’ gambit backfired. After a year of litigation over Fischel’s

Supplemental Report, the District Court excluded it. Noting both the flaws in

Fischel’s new methodology and the lack of explanation in his report, the Court

ruled that Plaintiffs had failed to carry their Daubert burden to establish that

Fischel’s testimony was the result of a reliable methodology, reliably applied.

Further, the Court held that Fischel’s testimony completely ignored a different

portion of the summary judgment ruling, which held—contrary to Fischel’s

assumption—that Defendants were not liable for certain statements made by a

distinct non-party entity, Pharmacia Corporation.

Facing the undeniable fact that their case could not go forward

without Fischel’s testimony, Plaintiffs sought to retrace their steps and follow the


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path they had spurned a year earlier. They proposed yet another amended report

that would add 20 pages of previously withheld explanation and argument. The

new proposed report continued to advocate Fischel’s new methodology—which he

had testified under oath was “necessary”—but offered, as a backup, to scrap it and

revert to the old methodology (thereby admitting that the new one was not

necessary, after all) if doing so would spare Fischel from exclusion. The new

report offered an entirely new day-by-day schedule of price inflation during the

Class Period. It did all of this after the Final Pretrial Conference, and despite the

fact that admitting the new report would require another round of discovery,

another round of Daubert briefing, another ruling by the Court, and postponement

of the trial. By denying Plaintiffs’ motion for leave to amend, the District Court

acted well within its discretion.

Plaintiffs now come to this Court claiming that the District Court

abused its discretion by failing to relieve them of the foreseeable consequences of

the litigation risk they chose to take in hopes of magnifying their recovery. They

are entitled to no relief. Sophisticated parties represented by experienced counsel

are permitted to make strategic choices—on behalf of themselves and those they

have been found adequate to represent. But they are not entitled to a do-over when

their tactics do not work out as planned. The courts are not obliged to spare them


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from the consequences of their strategic choices. Nor may they use the specter of

harm to the class they represent to immunize them from those consequences.

The practical implications of Plaintiffs’ contrary position are both

immense and perverse. Were Plaintiffs to prevail here, experts (and the parties

they work for) would have no reason to proffer their most complete and reliable

analysis in the first instance. Instead, they would be encouraged to take the most

aggressive possible positions and withhold explanations that could expose

vulnerabilities, retreating only when necessary to avoid exclusion—even if, as

here, doing so would disrupt the court’s trial preparations. Daubert challenges,

revised reports, supplemental expert discovery, and trial delays would multiply.

And already-overworked courts would bear much of the burden.

STATEMENT OF ISSUES PRESENTED

1. Whether the District Court acted within its discretion in ruling

that Plaintiffs failed to establish the admissibility of Fischel’s testimony under Rule

702 and Daubert.

2. Whether the District Court acted within its discretion in

declining to permit Fischel to offer new opinions, new explanations, and new

methodologies after the Daubert ruling.


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3. Whether the District Court properly ruled at summary judgment

that Defendants could not be held liable for certain alleged misstatements made by

a non-party.

STATEMENT OF THE CASE

A. Factual Background

This litigation began in 2004. At that time, newly available data from

a study conducted by the National Cancer Institute (“NCI”) indicated a potential

association between high-dosage use of Celebrex, a medicine sold by Pfizer, and

an increased risk of heart attack and stroke. (A477.) Celebrex, which has been

approved by the Food and Drug Administration (“FDA”) since 1998, is intended to

treat arthritis pain without causing the gastrointestinal side effects associated with

alternate treatments like aspirin, ibuprofen, and naproxen. (SA5.)

Pfizer received this new NCI data on the evening of December 16,

2004. (A476.) The next morning, before the stock market opened, Pfizer issued a

press release reporting these results. (Id.) Over the following two trading days,

Pfizer’s stock price declined amid concerns that this new data might result in the

withdrawal of Celebrex from the market. (A931-32 ¶¶ 19, 21.) Shareholder class-

action complaints were filed within days asserting that Pfizer had known about, but

failed to disclose, these potential risks of Celebrex and another Pfizer medicine,

Bextra, in advance of the NCI study. In the following months, as concerns about


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Celebrex’s withdrawal proved unfounded, Pfizer’s stock price rebounded. (A932

¶ 21; A568-69, 41:22-42:15.)

Plaintiffs’ attempt to persuade this Court that they have a strong

liability case (Pl.Br. 9-16) is both irrelevant to the questions presented and

misleadingly incomplete. For example, in April 2005, the FDA concluded, based

on findings of an independent Advisory Committee, that Celebrex should remain

available for patient use. (A440.) The FDA observed that long-term clinical trials

did not suggest that the use of Celebrex was associated with any greater risk of

serious adverse cardiovascular events than traditional treatments. (A425; A428-

29; A432.) Based on its review of hundreds of previous studies, the FDA found

that the NCI study was the first and only clinical trial to indicate a potential

association between Celebrex and heart attack/stroke risk to a degree of statistical

significance. (A428-29.)1

Pursuant to the FDA’s conclusions, a new warning was added to the

label for Celebrex, as well as for every other prescription medicine in its class

(A438), and Celebrex remains available for patient use to this day. All four of the

individual defendants in this appeal—all alleged to have knowingly concealed

1 The FDA recommended that Bextra, another Pfizer medicine in the same class

as Celebrex, be removed from the market, but did so based on the risk of serious skin reactions. (A441.)


7

Celebrex’s alleged risk of heart attack and stroke—used Celebrex themselves or

within their immediate families. (ECF 590, at 3.)

B. Early Procedural History

The shareholder suits filed upon the release of the NCI study results

were consolidated and subsequently transferred to the Honorable Laura Taylor

Swain. Plaintiffs’ consolidated amended complaint asserts claims under Sections

10(b), 20(a), and 20A of the Securities Exchange Act against Pfizer and five of its

employees.2 The Complaint alleges that Defendants made statements that

concealed the risks ultimately revealed by the NCI study, and contends that these

alleged misstatements caused investors economic loss by artificially inflating

Pfizer’s stock price. (A153-375.)

The District Court managed the litigation carefully and deliberately.

On July 1, 2008, it denied in part Defendants’ motion to dismiss. (A110-43.) In

October 2009, the Court conducted a five-day Daubert hearing concerning certain

of both parties’ medical and scientific experts (not including Fischel, who had not

yet submitted a report), and denied cross-motions to exclude their testimony. (ECF

193, at 2-3.) On March 29, 2012, over Defendants’ opposition, the District Court

2 One originally-named Defendant, John LaMattina, was dismissed by stipulation

of the parties. (ECF 657.)


8

certified an investor class of purchasers of Pfizer stock from October 31, 2000 until

October 19, 2005, based, in part, on a report provided by Fischel. (A376, A404.)

C. The District Court’s Summary Judgment Order Limits Plaintiffs’ Damages Case

On March 28, 2013, the District Court granted in part and denied in

part Defendants’ motion for summary judgment. (SA1-29.) Two portions of that

ruling are relevant to this appeal.

First, the District Court observed that Plaintiffs had identified seven

dates on which Pfizer’s stock price allegedly dropped as the result of releases of

information concerning Celebrex and Bextra that Defendants had purportedly

failed to disclose (hereinafter, “corrective disclosures”). (SA19-21.) Plaintiffs

pointed to these price drops as evidence that Defendants’ alleged misstatements

had artificially inflated Pfizer’s stock price. The Court ruled that, with respect to

two of the seven drops, Plaintiffs’ claims failed as a matter of law because the

events that occurred on the days of the drops did not reveal relevant information

concerning Celebrex or Bextra. (SA22.) It denied Defendants’ challenges to the

remaining disclosure dates. (SA21.) Plaintiffs do not appeal this portion of the

District Court’s ruling.

Second, the Court held that nine of the alleged misstatements pled in

the Complaint were not actionable against the Defendants under Janus Capital

Group, Inc. v. First Derivative Traders, 131 S. Ct. 2296 (2011), because they were


9

made by a “separate and independent entity,” Pharmacia. (SA27-28.) Although

Pfizer acquired Pharmacia on April 16, 2003, the nine excluded statements were

made before that acquisition. (Id.) One, made on February 1, 1999, is the very

first alleged misstatement in the Complaint. (A271 ¶ 348.) The District Court

recognized that before Pfizer’s acquisition of Pharmacia, the companies had a co-

promotion agreement that allowed them to approve each other’s press releases

concerning Celebrex and Bextra. (SA28.) Based on that agreement, the District

Court concluded that a jury could find Defendants liable for certain Pharmacia

statements. (Id.) However, for nine particular statements made by, and attributed

to, Pharmacia—none of which was a press release—the Court concluded that

Defendants were not shown to have had “ultimate authority” over those statements

under Janus. (Id.)

Apart from these two rulings, the District Court largely denied

Defendants’ motion for summary judgment. (SA28-29.) On July 22, 2013, it

issued a scheduling order for the additional work required before trial. (ECF 512.)

The Final Pretrial Conference was held on May 23, 2014, and trial was scheduled

to begin on September 9, 2014. (A104.)

D. Plaintiffs Submit A Supplemental Expert Report On Damages

The District Court’s summary judgment order invalidated the

predicate of Fischel’s analysis—that the seven alleged corrective disclosure dates


10

were all valid—and thus also invalidated all of his day-by-day calculations

regarding the amount of alleged inflation present in Pfizer’s stock price during the

Class Period. Accordingly, as explained below, every one of Fischel’s 1,292 daily

inflation figures was wrong. (A1065-97.) Plaintiffs recognized that, as a result,

Fischel had to redo his analysis and submit a new report.

Although Fischel’s Supplemental Report took six weeks to prepare, it

was less than one page long. (A1775.) It did not address the District Court’s

exclusion of the Pharmacia statements. Its discussion of the District Court’s

rejection of two corrective disclosure dates consisted of a single sentence. (Id. ¶

2.) Because Plaintiffs’ appellate brief does not explain Fischel’s methodology or

his revision, some background is necessary to understand the issues that led to the

Daubert ruling.

1. Fischel’s Original Event Study Methodology

In his original report, Fischel used an event study3 to determine the

artificial inflation allegedly present in Pfizer’s stock price. (A934-40.) Under this

method, Fischel testified that he did not attempt to ascertain how or when the

3 In an event study, an expert “look[s] for ‘abnormal returns … when a stock

moves differently than predicted based upon market and industry factors’ and determines whether those abnormal returns are related to the alleged fraud.” SEC v. Razmilovic, 738 F.3d 14, 33 (2d Cir. 2013) (quoting district court opinion).


11

alleged artificial inflation first entered Pfizer’s stock price. (A1121, 82:13-19;

A593, 139:3-13.) Instead, he identified dates during the Class Period on which

fraud-related inflation purportedly came out of Pfizer’s stock price because of the

revelation of information about Celebrex and Bextra that, according to Plaintiffs,

Defendants had previously concealed. (A932 ¶ 20.) The amounts the stock price

decreased as a result of these alleged corrective disclosures (as opposed to

unrelated market factors) are called “residual stock price declines.” (A935 ¶ 26.)

Fischel then worked backward in time, concluding that each of those residual price

declines represented inflation that was present in the stock price on all earlier days

in the Class Period. (A563, 18:11-22.) Thus, to calculate the price inflation on any

given day, he added up all of the residual stock price declines that came after that

day. (Id.) The more corrective disclosures that came later, the higher the alleged

inflation calculated for that day. (A563, 19:5-13; A939 ¶ 30.)

Fischel’s methodology contained a second, necessary step as well. He

acknowledged that simply adding up all of the residual price declines that came

after the day in the Class Period being measured would result in an overstatement

of damages. (A567, 45:2-8.) This is because it was possible that some of the

inflation that eventually came out of Pfizer’s stock price was not yet present in the

price on the day being measured (for example, if an alleged misstatement had not

yet been made).


12

Thus, Fischel explained, to avoid overestimating inflation for any

particular day, he had to subtract any residual stock price increases resulting from

allegedly false statements about Celebrex or Bextra that introduced inflation into

the stock price for the first time after that day. (A569, 42:16-45:8.)4 He therefore

analyzed Pfizer’s stock price movements every day during the Class Period and

identified five dates on which he concluded that the price increased by more than

market forces could explain; the residual increase was, in his view, attributable to

the alleged fraud (“inflation-in” dates). (A929-38 ¶¶ 17, 22, 29 & Table 2; A568,

40:23-41:15.) Fischel determined what portion of the stock price increases on each

of those dates represented artificial inflation. (A938-39 ¶ 30 & n.14.)

Subtracting these residual price increases had the effect of reducing

overall damages. Instead of assuming that the inflation he calculated based on the

4 Professor Paul Gompers, Defendants’ economic expert, provided a simplified

example to help explain how Fischel’s original event study worked:

[I]f fraud-related inflation of $0.05 came out of the stock price on March 1, and fraud-related inflation of $0.10 came out of the stock price on April 1, then [Fischel] would conclude there must have been fraud-related inflation of $0.15 on dates in the class period prior to March 1…. [I]f fraud-related inflation of $0.03 came into the stock price on February 1 [via a mitigating price increase], then Fischel’s methodology would conclude that the fraud-related inflation before that date … was $0.12, rather than $0.15.

(A1151 ¶¶ 11-12.)


13

seven corrective disclosure dates was present throughout the entire Class Period,

his damages figure was reduced because much of the inflation entered the price

only late in that Period. While Plaintiffs now claim that subtracting the inflation

increases was “Pfizer-friendly” (Pl.Br. 5), Fischel previously acknowledged that

this step was necessary to avoid “overstat[ing] alleged artificial inflation.” (A569,

44:11-45:8.)

As explained above, Fischel made no attempt to determine how or

when Pfizer’s stock price was first inflated. (A1121, 82:13-84:2.) He simply

assumed that Defendants were responsible for all inflation that was supposedly

present at the start of the Class Period, because that is what the Complaint alleged.

(A1120-21, 78:9-79:19, 82:2-11.)

2. Fischel’s New Methodology And The 9.7% Adjustment

The District Court’s summary judgment order rejected two of the

corrective-disclosure dates proposed by Plaintiffs, and thereby invalidated the

foundational step in Fischel’s calculation of inflation for each and every day of the

Class Period. With his existing inflation model no longer usable, Fischel had to

start over and “conform[]” his analysis. (Pl.Br. 3.)

Before summary judgment, Fischel was specifically asked in a

deposition what he would do if any of his corrective disclosure dates were rejected.

Fischel responded that he would eliminate the residual price declines on the


14

rejected dates from his analysis and, as a result, the inflation he calculated for all

Class Period days before the rejected dates would be lower by an amount equal to

the stock price declines that were removed. (A1135-36, 38:9-39:5.) Had Fischel

done this in the wake of the District Court’s summary judgment ruling, he would

have reduced his inflation calculation by $0.67 per share for most of the Class

Period.5

But instead of just removing the $0.67 per share of residual stock

price declines and reducing all of his prior day-by-day calculations accordingly, as

he had testified he would, Fischel chose to switch methodologies. In addition to

removing the rejected corrective disclosure dates, he also changed all of the

residual stock price increases that his event study had previously measured on the

“inflation-in” dates. Although those dates received no mention in the summary

judgment opinion, and though he had received no new information about the

events or stock price movements on those dates, Fischel reduced the amount of

inflation added to the stock price on each inflation-in date by a uniform 9.7%. The

entirety of his explanation for that new step (the “9.7% Adjustment”) in his

Supplemental Report consisted of a single sentence:

5 Fischel had calculated a residual price decrease of $0.60 on the first eliminated

date, November 4, 2004, and (after adjustment) $0.07 on the second eliminated date, October 20, 2005. (A937-38.) See also Pl.Br. 21 ($0.67 per share price decline associated with rejected disclosure dates).


15

Because eliminating the stock price declines related to Celebrex and Bextra on [the two rejected] dates reduces the total residual stock price decline I estimated related to these drugs (see Fischel Report Table 1 & ¶ 30) by 9.7 percent, I proportionally reduce the residual stock price increases I measured that are related to these drugs (see id. Table 2 & ¶ 30) by 9.7 percent.

(A1775 ¶ 2.)

Fischel did not explain the logic of this adjustment. Nor did he

explain how he could have previously concluded, based on an event-driven

analysis, that the price increases he measured for these inflation-in days were fully

attributable to Defendants’ alleged fraud, but nonetheless could now conclude—

without revisiting his earlier analysis in any way—that only (and precisely) 90.3%

of those price movements was fraud-related.

The effect of Fischel’s new methodology was to assume that less

inflation entered Pfizer’s stock price during the Class Period—and thus,

importantly, that more had been present for the entirety of the Class Period. The

impact on damages was predictable and substantial. Had Fischel simply

eliminated the residual price declines for the rejected days, his calculation of stock

price inflation for the first two-and-a half years of the Class Period would have

been $0.67 per-share lower than the $1.46 he initially calculated for that period

(A1065-81; see also Pl.Br. 21), or $0.79. Under his revised 9.7% Adjustment, the

inflation he calculated was only $0.29 per-share lower, making inflation for the


16

period $1.17. (Compare A1065-81 (initial report table), with A2713-28

(Supplemental Report table).) For a company with more than six billion

outstanding shares of stock and more than 24 billion shares traded during the Class

Period (ECF 247 ¶ 13), increasing the price inflation for most of the Class Period

from $0.79 to $1.17—nearly 50%—results in a difference in the billions of

dollars.6

Fischel admitted in a subsequent deposition that he knew of no

instance in which another expert had made this type of adjustment, that he was

aware of no reference to it in the relevant literature, and that he had never

previously used it or subjected it to peer review. (A1110-15, 40:17-43:5, 50:11-

51:9.)

Defendants’ expert, Professor Paul Gompers, submitted a report

rebutting Fischel’s Supplemental Report. Gompers concluded that Fischel’s 9.7%

Adjustment had no economic justification and led to an analytical absurdity.

6 Fischel’s later proposed amended report implies that the 9.7% Adjustment

increased his inflation calculation from $0.96 to $1.17 per share (a 20% increase), rather than from $0.79 to $1.17, as described in text above. (Compare A2185-99 (proposed amended report table), with A2713-28 (Supplemental Report table).) The difference probably reflects his adjustment for the merger between Pfizer and Pharmacia and a correction of an error in his prior analysis identified at an earlier deposition. (A2231, n.16; A1897, 62:14-17.) In either case, the effect of Fischel’s adjustment on Plaintiffs’ damages claim is highly consequential.


17

(A1150-62 ¶¶ 10-37.) He explained, in particular, that if Fischel had simply not

included the two corrective disclosure dates rejected by the District Court in his

original analysis, his calculation of inflation would have been lower than the result

Fischel reached under his new methodology, because no adjustment of the inflation

increases would have occurred. In other words, by including the erroneous

disclosure dates in his original analysis, and then removing those dates and

applying the 9.7% Adjustment, Fischel ended up with higher inflation numbers

than if he had used the correct dates from the beginning. (A1160-62 ¶¶ 33-37.)

Gompers observed that “[n]o valid scientific analysis can have its final results turn

on how many unsupported events an earlier version of the analysis contained.”

(A1162 ¶ 37.)

3. Fischel’s Failure To Address The Exclusion Of The Pharmacia Statements

Fischel also testified during his post-summary judgment deposition

that, apart from the ruling eliminating the two alleged corrective disclosures, he

had only “skimmed” the District Court’s summary judgment decision to which his

Supplemental Report responded. (A1104, 15:2-9.) Directed to the portion of the

decision that rejected liability for certain statements made by Pharmacia, Fischel

testified that he had no opinion about that ruling, and that it “did not cause [him] to

modify [his] analysis” of inflation. (A1119-20, 76:14-77:15, 81:20-25.) Fischel

confirmed that his analysis assumed that the inflation purportedly present in


18

Pfizer’s stock price was caused by “statements [that] are attributable to

defendants.” (A1120, 78:16-22.) And he agreed that if “defendants are not liable

for … some or all of the statements,” then “for those statements where there was

no liability, there wouldn’t be any role for analyzing inflation or damages.”

(A1120, 79:5-19 (emphasis added).) But Fischel reiterated that his Supplemental

Report did not address that situation—which had come into being with the District

Court’s conclusion that certain statements made by Pharmacia were not

Defendants’ responsibility—and that the “jury would have to decide what to do.”

(A1119-20, 77:16-80:14.) Fischel’s report offered no guidance as to how the jury

should perform that analysis, which he testified “might not be simple

arithmetically.” (A1120, 79:21-80:14.)

4. Fischel’s Reply Report

After receiving Professor Gompers’ rebuttal report, Fischel responded

with yet another report, his third on the issues of loss causation and damages.

(A1212.) It contained no new analysis concerning the 9.7% Adjustment or the

Pharmacia ruling. Instead, in this report, Fischel asserted that he could have

omitted the inflation-in dates altogether—even though he had already testified that

doing so was improper—and that if he had done so, his damages estimate would

have been even higher. (Id. ¶ 2 & n.1; A569, 44:11-45:8.)


19

E. The District Court Grants Defendants’ Daubert Motion

On September 30, 2013, Defendants moved to exclude Fischel’s

testimony under Federal Rule of Evidence 702 and Daubert. (A1465.) On May

21, 2014, the District Court granted that motion. With respect to the 9.7%

Adjustment, the Court observed that Fischel had “proffered no explanation of the

analytical basis” for this adjustment; that he had not explained “the relationships

among the events triggering the respective price decreases and increases”; and that

he had cited no research references or peer review support for his methodology.

(SA30-31.) After articulating the law governing its gatekeeping function, the

Court concluded that Fischel’s 9.7% Adjustment had “not been shown to be the

product of reliable principles and methods reliably applied.” (SA31.)

With respect to Fischel’s failure to address the holding that

Defendants were not liable for certain Pharmacia statements, the Court noted that

Fischel had not conformed his analysis to that ruling despite having testified that

his opinion was premised on a contrary assumption. (Id.) The Court also

concluded that, given this assumption, Fischel’s “failure to account in any way for

the impact of the excluded Pharmacia statements render[ed] his opinions unhelpful

to the jury in making calculations of damages proximately caused by Defendants’

alleged misrepresentations and omissions.” (SA32.) In addition, the Court

adopted “substantially the reasons set forth in Defendants’ [Daubert briefing]” in


20

support of its ruling. (Id.; the cited memoranda appear at A1465 and A2127,

respectively.)

F. The District Court Denies Plaintiffs’ Motion For Leave To Amend

On May 23, 2014, the District Court held a Final Pretrial Conference.

(A2150.) Plaintiffs admitted that they could not “go forward without a damages

expert obviously.” (A2151, 5:11-14.) At Plaintiffs’ request, the District Court set

a schedule for Plaintiffs to move for leave to amend Fischel’s Supplemental

Report.

On June 6, 2014, Plaintiffs submitted their motion, attaching Fischel’s

20-page proposed amended report plus exhibits. (A2164.) Plaintiffs claimed that

they had “misjudge[d] … the level of explanation” required to support Fischel’s

revised opinion and were now attempting to “supply the requisite information.”

(ECF 666, at 11.) The proposed amended report continued to apply the 9.7%

Adjustment, but also (and inconsistently) stated that if the Court “disagree[d]” with

the Adjustment, Fischel would be willing to drop it. (A2179 ¶ 24.)

On July 8, 2014, the District Court denied Plaintiffs’ motion for leave

to amend. It concluded that Fischel’s proposed amended report again failed the

Daubert test. In addition, it cited the facts that:

• the proposed report came “on the eve of trial”;


21

• it included a “new approach” and explanations that had not

previously been disclosed;

• there was “no justification” for Fischel’s failure to disclose these

explanations earlier;

• certain explanations were inconsistent with Fischel’s prior

testimony; and

• allowing the amendment would prejudice the defense in the face of

an upcoming three-month trial.

(SA34-37.) Noting that Plaintiffs’ arguments were largely the same as those they

had raised in opposition to Defendants’ Daubert motion, the District Court likened

their motion to one for reconsideration and concluded that Plaintiffs could not

satisfy the standards governing such a motion. (SA34.) Because Plaintiffs were

unable to proffer admissible loss causation or damages evidence, the District Court

granted Defendants’ cross-motion for summary judgment. (SA37.)

SUMMARY OF ARGUMENT

The District Court properly applied well-established principles in

exercising its discretion to exclude Fischel’s testimony and to reject Plaintiffs’

belated attempt to remedy the flaws that led to the exclusion. Plaintiffs had

responded to the Court’s summary judgment ruling by submitting expert testimony

that was unexplained, unprecedented, and analytically flawed in order to pump up


22

their damages claim. The District Court was within its discretion in finding that

Plaintiffs had failed to carry their burden to establish admissibility. The Court was

equally within its discretion when it declined to spare Plaintiffs the foreseeable

consequences of their ploy by letting them disavow the position they had

maintained as “necessary” for the prior year, start over, and make different

strategic and substantive choices shortly before trial was to commence.

The reasonableness of the District Court’s Daubert ruling is illustrated

by the way in which Plaintiffs argue for reversal. Rather than defend the

admissibility of Fischel’s testimony based on the record that was before the

District Court when it ruled on the Daubert motion, Plaintiffs rely on Fischel’s

Supplemental Report together with the 20 pages of explanation that Fischel offered

only after the Court issued its ruling. Rather than explain why Fischel’s 9.7%

Adjustment was, in fact, reliable, Plaintiffs claim that the adjustment is a mere

“calculation” immune from Daubert review altogether and that, “at a minimum,”

Fischel should have been permitted to testify without it—an offer he made only

after unsuccessfully test-driving his new, damages-enhancing methodology.

Rather than challenge the Court’s finding that Fischel’s opinion would not be

helpful to the jury because he failed to account in any way for the exclusion of the

Pharmacia statements, Plaintiffs offer post hoc rationalizations for Fischel’s failure

that are absent from his Supplemental Report, contrary to his deposition testimony,


23

and unavailing. On the record that was actually before the District Court when it

ruled on the Daubert motion, the Court’s exclusion of Fischel’s testimony was

correct, and certainly within its discretion.

The District Court’s decision not to permit Fischel’s proposed

amendment was also within its discretion. Plaintiffs had adopted an aggressive

litigation strategy fully cognizant of the associated risks. In considering Plaintiffs’

request to be spared the consequences of their own tactical decisions, the District

Court weighed several considerations. Among them were the facts that Fischel had

withheld his newly-tendered explanations throughout a year of discovery; that

those explanations were inconsistent with his earlier sworn testimony; and that his

9.7% Adjustment continued to lack analytical or research support. The District

Court properly viewed Fischel’s offer to drop the adjustment he had sworn was

“necessary”—in exchange for being permitted to testify—as exacerbating

reliability concerns. And it concluded that, even if the proposed amendments had

been sufficient to satisfy Daubert (which the Court found was not the case),

considerations of “judicial economy” and prejudice to the defense warranted denial

of the proposed Amended Supplemental Report. (SA34-37.)

Reversing those conclusions would not only unduly disturb the

District Court’s sound exercise of discretion in this case, but would also encourage

parties and their experts to engage in similar tactics in future litigation—


24

withholding explanations and taking unreasonably aggressive positions, assured of

their entitlement to a second try. It would undermine the certainty that Daubert

rulings are meant to provide. And it would severely complicate the ability of

district courts to manage their dockets effectively.

Plaintiffs’ challenge to the Pharmacia portion of the District Court’s

earlier summary judgment ruling—a two-page afterthought at the end of their

brief—also fails. The District Court correctly concluded that Plaintiffs proffered

no evidence upon which a reasonable jury could conclude that Defendants “made”

statements uttered by Pharmacia personnel, and thus that those statements provided

no basis for imposing liability. (SA28.)

STANDARD OF REVIEW

The exclusion of expert testimony is reviewed for “abuse of

discretion,” even where it is “outcome-determinative.” Gen. Elec. Co. v. Joiner,

522 U.S. 136, 142-43 (1997); see also Amorgianos v. Nat’l R.R. Passenger Corp.,

303 F.3d 256, 264 (2d Cir. 2002).

Denial of leave to amend an expert report—a matter squarely within a

district court’s authority to manage proceedings before it—is subject to the same

deferential standard of review. See generally United States v. Local 1804-1, Int’l

Longshoremen’s Ass’n, 44 F.3d 1091, 1095 (2d Cir. 1995). To the extent that

Plaintiffs’ motion for leave to amend is viewed as a motion for reconsideration


25

(SA34), the standard of review for denial of that motion is also abuse of discretion.

See Analytical Surveys, Inc. v. Tonga Partners, L.P., 684 F.3d 36, 52 (2d Cir.

2012).

Summary judgment decisions are reviewed de novo. See Miller v.

Wolpoff & Abramson, LLP, 321 F.3d 292, 300 (2d Cir. 2003).

ARGUMENT

I.

The District Court Reasonably Concluded That Fischel’s Testimony Failed To Satisfy Rule 702 and Daubert

The District Court granted Defendants’ Daubert motion and excluded

Fischel’s testimony on two independent grounds: (1) that Fischel’s 9.7%

Adjustment “ha[d] not been shown to be the product of reliable principles and

methods reliably applied”; and (2) that his “failure to account in any way for the

impact of the [Court’s] exclu[sion of the] Pharmacia statements render[ed] his

opinion unhelpful to the jury.” (SA31-32.) These exercises of the Court’s

discretion are well supported by the record.

In rendering this decision, the District Court exercised its duty to

serve as gatekeeper with respect to expert testimony. The Court was charged with

“the task of ensuring that an expert’s testimony both rests on a reliable foundation

and is relevant to the task at hand.” Daubert v. Merrell Dow Pharms., Inc., 509

U.S. 579, 597 (1993). It had to “make certain that an expert, whether basing


26

testimony upon professional studies or personal experience, employs in the

courtroom the same level of intellectual rigor that characterizes the practice of an

expert in the relevant field.” Kumho Tire Co. v. Carmichael, 526 U.S. 137, 152

(1999).

A. The District Court Reasonably Excluded Fischel’s Testimony Based On His 9.7% Adjustment

Fischel’s explanation for the 9.7% Adjustment in his Supplemental

Report consisted of a single conclusory sentence providing no analytical basis.

(A1775 ¶ 2.) Neither that sentence nor Fischel’s subsequent testimony was

sufficient to demonstrate the reliability of this adjustment. And the argument on

which Plaintiffs now rely to sustain the adjustment—that it was not subject to

Daubert review in the first place—is contrary to established law.

1. Plaintiffs Provided No Basis To Find The 9.7% Adjustment Reliable

Plaintiffs bore the burden of showing that Fischel’s testimony

satisfied the admissibility requirements of Rule 702 and Daubert. See United

States v. Williams, 506 F.3d 151, 160 (2d Cir. 2007). Given Fischel’s deviation

from his own original methodology, his deposition testimony, and standard event

study principles, the District Court did not abuse its discretion in concluding that

Plaintiffs failed to carry that burden.


27

As the District Court noted, Fischel’s Supplemental Report “proffered

no explanation of the analytical basis” for his adjustment other than a single

conclusory sentence. (SA30.) The Court correctly concluded that “[n]o

explanation of the relationships among the events triggering the respective price

decreases and increases was offered.” (SA30-31.) Fischel had originally examined

each of the “inflation-in” dates to determine whether the residual price increases on

those dates were attributable to new misleading information entering the market—

and where he concluded they were, he included the full amount of those residual

price increases in his calculations. (A937-38 ¶ 29 & Table 2; A568, 40:23-41:15.)

In his Supplemental Report, however, Fischel made no effort to determine whether

the Court’s exclusion of two corrective disclosure dates bore any connection in

substance to the inflation-in dates; he did nothing to tie those dates together such

that the exclusion of the corrective disclosure dates would justify a change to

(much less a uniform adjustment of) the inflation-in dates. He simply asserted that

only 90.3% of the residual price increases on those dates related to the alleged

fraud.

In subsequent deposition testimony, Fischel offered little explanation

for this arbitrary reduction of inflation-in price movements other than to invoke a

purported “equilibrium principle” that all price increases must, in the aggregate,

equal all price decreases from corrective disclosures. (Pl.Br. 22-23; A1109-10,


28

37:22-38:8, 40:5-9.) But as Defendants explained in their Daubert briefing,

“equilibrium” was achieved simply by removing the $0.67 per share in rejected

dates from Fischel’s model—as Fischel had previously testified he would do—

because doing so automatically reduced the inflation present in the stock price

going back to the first day of the Class Period by a corresponding amount.

(A1484, 15 & n.4.) Thus, Fischel’s adjustment had nothing to do with restoring

equilibrium. Rather, it let him assume, contrary to his event study, that more price

inflation existed at the start of the Class Period and less entered during the Class

Period, and thus that more inflation was present for a longer time (such that

Plaintiffs’ resulting damages were higher).

Fischel identified “no research reference or peer review information”

to support his adjustment. (SA31.) Indeed, Fischel testified that he knew of no

instance in which another expert had employed this type of adjustment, that he was

aware of no reference to it in the relevant literature, and that he himself had never

previously used it or subjected it to peer review. (A1110-11, 40:17-42:24, 50:11-

51:9.) And with good reason: this adjustment is not an established component of

an event study; Fischel invented it for this case.

Neither Fischel nor Plaintiffs reconciled Fischel’s new position with

his earlier testimony that, if any corrective disclosure date were rejected, he would

only reduce his damages estimates by the amount of the residual price declines on


29

the rejected dates. (A568, 38:19-39:25.) Plaintiffs provided no justification for

Fischel’s about-face at the time the District Court ruled on the Daubert motion.

Nor, significantly, have Plaintiffs offered any response—either in the

District Court or here—to the devastating analytical flaw in Fischel’s 9.7%

Adjustment identified by Professor Gompers. If Fischel had never included the

two invalid corrective disclosure dates in his original analysis, and simply started

with the five corrective disclosure dates that survived summary judgment, he

would not have applied his uniform, across-the-board 9.7% haircut. (A1162 ¶ 36.)

As a result, his total damages calculation would have been lower throughout the

Class Period. (Id. ¶ 37.) Fischel applied the 9.7% Adjustment only to compensate

for the fact that the District Court had rejected his two invalid dates. The

consequence was that Fischel’s damages calculation was higher when he started

with seven dates and removed two, than it would have been had he gotten the five

corrective disclosure dates right in the first place. A methodology that rewards

mistakes is obviously unsound.

2. The Adjustment Was Properly Subject To Daubert Review

Perhaps the strongest indictment of Fischel’s 9.7% Adjustment is that

Plaintiffs do not attempt to defend it here. Instead, their primary argument—not

raised in their opposition to the Daubert motion in the District Court (see A1513-

22)—is that the adjustment should have been immune from Daubert scrutiny. In


30

Plaintiffs’ view, even if the Court disagreed with the adjustment, Defendants’

“quibbles” provided no basis for excluding Fischel’s testimony. (Pl.Br. 39-43.)

At the outset, Plaintiffs are incorrect in arguing that the adjustment

was only “a calculation, not a revised methodology.” (Pl.Br. 4, 42-43.) Fischel

himself repeatedly acknowledged that his adjustment was a “methodology,” not a

mere calculation.7 Unlike his original event study, Fischel’s new methodology

disregarded historical events that actually occurred on the relevant dates, and

instead determined inflation on any given day by aggregating all of the subsequent

stock price decreases, but only an arbitrary percentage (90.3%) of the subsequent

stock price increases he had previously included. Far from being a “rational

extrapolation[]” or “arithmetical adjustment” to his original event study approach,

Fischel’s inflation-increasing adjustment was an entirely new approach. (Pl.Br. 24,

41.)8

7 See, e.g., A1104, 17:7-21 (Fischel referring to the “methodology that I proposed

in the supplemental report”); A1110, 39:19-40:16 (“I did make the adjustment that’s reflected in the supplemental report …. So that’s basically the methodology that I used and the reasons why I did it.”).

8 While Gompers did not object to the “mechanical exercise” Fischel used in his initial event study to isolate residual stock price movements, he did not find “no flaws in,” “concur[] in,” or “agree[] with” that event study. (Compare Pl.Br. 20, 27, 37 with A1650, 64:17-65:14.) And Gompers vigorously disputed the methodology reflected in Fischel’s Supplemental Report. (A1144-75.)


31

Even if Plaintiffs were correct that the 9.7% Adjustment is not a new

“methodology,” the result would be no different. Rule 702 requires “reliable

principles and methods” and “reliabl[e] appli[cation of] the principles and methods

to the facts of the case.” An expert’s analysis must be reliable “at every step,” and

“‘any step that renders the analysis unreliable under the Daubert factors renders

the expert’s testimony inadmissible.’” Amorgianos, 303 F.3d at 267 (emphasis in

original, quoting In re Paoli R.R. Yard PCB Litig., 35 F.3d 717, 745 (3d Cir.

1994)) (noting that excluded expert “failed to apply his own methodology

reliably”). The law is no different for event studies. An expert who employs an

event study is not immune from Daubert scrutiny. See Teamsters Local 445

Freight Div. Pension Fund v. Bombardier Inc., 546 F.3d 196, 208 n.15 (2d Cir.

2008) (“An event study may be rejected [] if it is methodologically unsound or

unreliable.”). That is true even if some portions of an event study may be

salvageable:

The district court was not obligated to prune away all of the problematic events in order to preserve [the expert’s] testimony …. Requiring judges to sort through all inadmissible testimony in order to save the remaining portions, however small, would effectively shift the burden of proof and reward experts who fill their testimony with as much borderline material as possible.

Bricklayers & Trowel Trades Int’l Pension Fund v. Credit Suisse Sec. (USA) LLC,

752 F.3d 82, 96 (1st Cir. 2014). Nor is it relevant, as Plaintiffs suggest (Pl.Br. 3,


32

20-21, 34, 37, 39-40), that Defendants’ Daubert motion did not challenge the event

study in Fischel’s initial report; that report did not include the 9.7% Adjustment or

other defects that first appeared in the Supplemental Report after the summary

judgment ruling.

The cases cited by Plaintiffs say nothing different. (Pl.Br. 40-42.)

They stand for the unremarkable proposition that, where there are no other

reliability concerns about an expert’s opinion, an objection to the expert’s choice

of underlying “data inputs” or “variables” may not by itself warrant exclusion.9

But the District Court did not find Fischel’s factual inputs faulty. It excluded as

9 See Bazemore v. Friday, 478 U.S. 385, 400 (1986) (expert’s statistical

regression analysis of racial discrimination adequately “account[ed] for the major factors,” so did not need to include “all measurable variables”) (emphasis added); In re Se. Milk Antitrust Litig., 739 F.3d 262, 281 (6th Cir. 2014) (admitting antitrust expert who “[i]nclud[ed] some facts while omitting others”); Manpower, Inc. v. Ins. Co. of Pa., 732 F.3d 796, 808-09 (7th Cir. 2013) (given the “latitude” accorded to “statisticians employing regression analyses,” questions about the “reliability of the data itself” did not warrant Daubert exclusion of a “reasoned and founded” expert opinion); Stollings v. Ryobi Techs., Inc., 725 F.3d 753, 765-67 (7th Cir. 2013) (admitting expert where the “judge agreed that [the expert] correctly employed a valid methodology” but there was “uncertainty about” one of the expert’s “input[s]”); Andler v. Clear Channel Broad., Inc., 670 F.3d 717, 729 (6th Cir. 2012) (“it is not proper for the Court to exclude expert testimony merely because the factual bases for an expert’s opinion are weak”); Milward v. Acuity Specialty Prods. Grp., Inc., 639 F.3d 11, 22 (1st Cir. 2011) (addressing the “soundness of the factual underpinnings of the expert's analysis”); Brennan’s Inc. v. Dickie Brennan & Co., 376 F.3d 356, 374-76 (5th Cir. 2004) (affirming admission where dispute was over a “more accurate set of data” and defendants did not argue that expert’s “methodology was improper”).


33

unreliable the untested, unscientific, and inadequately explained methodology that

Fischel used to translate those data points into a damages opinion. (SA31.)

Plaintiffs repeatedly attempt to portray the objections to Fischel’s

Supplemental Report as a mere battle-of-the-experts between Fischel and Gompers

that the District Court was required to leave to the jury. (Pl.Br. 37-38, 46.) That

characterization is flawed. While the parties’ experts certainly disagreed, the

District Court’s decision to exclude Fischel’s testimony was a necessary and

proper exercise of its role as gatekeeper—a role required by Daubert and its

progeny—not, as Plaintiffs contend, an improper usurpation of the role of the jury.

As the Supreme Court has recognized, “[e]xpert evidence can be both powerful

and quite misleading because of the difficulty in evaluating it.” Daubert, 509 U.S.

at 597 (quotations omitted); see also Nimely v. City of N.Y., 414 F.3d 381, 396-97

(2d Cir. 2005) (gatekeeping function of district court to ensure level of intellectual

rigor of expert testimony). Here, the District Court acted within its discretion in

preventing Fischel’s testimony from reaching the jury, given that Fischel’s new

methodology was not properly justified, lacked any support in economic

literature,10 was invented for purposes of litigation, and yielded a higher damages

10 Plaintiffs are mistaken in suggesting that the District Court applied a bright-line

test requiring experts to back their testimony with published studies. (Pl.Br. 41.) The Court considered the absence of “research reference or peer review information” supporting Fischel’s novel adjustment methodology as one of


34

calculation than if the invalid corrective disclosure dates had been omitted from his

original analysis. These flaws are classic indicia of testimony warranting

exclusion.

B. The District Court Reasonably Concluded That Fischel’s Failure To Account For Its Pharmacia Ruling Rendered His Opinion Unhelpful To The Jury

In addition to rejecting the 9.7% Adjustment, the District Court cited

Fischel’s failure to account “in any way” for the Court’s ruling that Defendants

were not responsible for certain statements by Pharmacia or its employees as an

independent basis for his exclusion. (SA31-32.) It found, based on Fischel’s

deposition testimony and prior report, that his analysis was “premised on the

assumption that Defendants [we]re responsible for all of the alleged

misrepresentations and omissions alleged in the complaint.” (SA31.) The District

Court noted that its summary judgment decision, in which it held that Defendants

were not liable for certain misrepresentations and omissions made by Pharmacia,

invalidated that assumption. (SA30-31.) And it concluded that Fischel’s “failure

to account in any way for the impact of the excluded Pharmacia statements

render[ed] his opinions unhelpful to the jury in making calculations of damages

several bases for its ruling. (SA31.) That consideration was entirely proper under Daubert. See 509 U.S. at 594 (“The fact of publication (or lack thereof) in a peer-reviewed journal will thus be a relevant, though not dispositive, consideration in assessing the scientific validity of a particular technique or methodology on which an opinion is premised.”).


35

proximately caused by Defendants’ alleged misrepresentations.” (SA32.) The

District Court’s reasoning and conclusions were well within its discretion.

1. The District Court’s Findings Regarding The Discovery Record Were Sound

Plaintiffs first contend that the District Court’s Daubert ruling was

wrong because the Court misread Fischel’s testimony. (Pl.Br. 48-49.) They claim

that “Professor Fischel did not testify on deposition that he assumed Defendants

were responsible for all the misstatements in the complaint,” and that the District

Court “cited to a nonexistent assumption.” (Pl.Br. 48.) This argument does not

fairly characterize the record. Fischel testified that his analysis assumed that

Defendants were responsible for all misstatements that “may have caused

inflation” of Pfizer’s stock price.11 Some, if not all, of Pharmacia’s statements

certainly fell in that “may have caused inflation” category. Indeed, the very first

statement that Plaintiffs allege was misleading—and the only such statement for

over a year—was a Pharmacia statement for which the Court held that Defendants

11 Q. To put it another way, your analysis doesn’t take account of who was

responsible for any allegedly false statements that may have caused inflation of the price of Pfizer’s stock; is that right?

A. As long as the statements are attributable to defendants, that’s correct.

(A1120, 78:16-22; see also id. 78:23-79:19; A1121, 82:2-11.)


36

were not responsible. (A271 ¶ 348.)12 Fischel testified that he had assumed,

without doing any analysis of his own, that Defendants caused all of the inflation

present at the beginning of the Class Period—which necessarily includes inflation

caused by that Pharmacia statement. (A1121, 83:13-84:2.) Fairly read, Fischel’s

testimony demonstrates that he was relying on an assumption, rejected by the

District Court, that Defendants were responsible for all of the statements—

including Pharmacia statements—that allegedly caused inflation in Pfizer’s stock

price.

Even if Plaintiffs could proffer a plausible alternative reading of

Fischel’s testimony, the District Court’s reading of the record would not be subject

to second-guessing on appeal: “Where there are two permissible views of the

evidence, the factfinder’s choice between them cannot be clearly erroneous. This

is so even when the district court’s findings do not rest on credibility

determinations, but are based instead on physical or documentary evidence or

inferences from other facts.” Anderson v. City of Bessemer, 470 U.S. 564, 574

(1985) (citations omitted).

12 According to Fischel’s analysis, the pre-Class Period misstatements—including

that statement—were in the aggregate responsible for most of the approximately five years of positive inflation that Fischel calculated in his model. See A937 ¶ 29 (identifying no other inflationary statements until August 26, 2004, nearly four years after the start of the Class Period).


37

Moreover, when Defendants deposed Fischel regarding his

Supplemental Report, counsel asked what impact, if any, the Pharmacia ruling had

on his opinion. Fischel confirmed that if Defendants “are not liable for … some or

all of the statements,” then “for those statements where there was no liability, there

wouldn’t be any role for analyzing inflation or damages.” (A1120, 79:5-19

(emphasis added).) When asked how his analysis addressed that situation—the

already-existing situation “where defendants are responsible for some of the

statements and not responsible for some of the statements that are allegedly

misleading”—Fischel admitted that it did not. (A1120, 79:21-80:14.) Instead, he

testified that “[t]he jury would have to decide what to do,” would have to modify

his methodology in some way not addressed in his reports, and would have to

make some calculations that “might not be simple arithmetically.” (Id.; see also

A1121, 83:23-84:21.)13 In light of this testimony, the District Court permissibly

concluded that Fischel’s analysis would not help the jury in assessing loss

causation and damages. (SA32; see also SA31, SA36.)

13 This testimony was not “about an entirely different issue,” as Plaintiffs contend.

(Pl.Br. 50.) It came in an unbroken line of questions and answers about how an expert’s inflation calculations must be adjusted when a defendant is found responsible for some alleged misstatements but not for others—the exact issue here. (A1119-21, 76:14-85:23.)


38

Plaintiffs also contend that the District Court erred in finding that

Fischel failed to account for the Pharmacia ruling in any way. They assert that

Fischel did take the ruling into account before issuing his Supplemental Report, but

concluded that it had no impact, and thus Fischel had no obligation to explain his

thinking. (Pl.Br. 51-52.) That position cannot be squared with Fischel’s testimony

that the Pharmacia ruling could affect a proper analysis of inflation. (A1120-21,

79:5-19, 84:3-85:23.) It also contradicted Fischel’s testimony that he did not “have

an opinion” about the impact of the pre-Class Period Pharmacia statement.

(A1121, 83:18-84:2.)14 It is true that Fischel testified that the Pharmacia ruling

“did not cause [him] to modify [his] analysis in any way.” (Pl.Br. 26, 49; A1119,

77:8-15.) But it is equally clear that the reason the ruling had no effect is because

Fischel had not considered it before being deposed, likely because he had only

“skimmed” portions of the opinion. (A1104, 15:2-9; A1119, 76:14-77:15.) Once

again, the District Court’s reading of the record is not subject to second-guessing.

Finally, Plaintiffs claim that the District Court should have understood

from Fischel’s original report that the Pharmacia ruling would have no impact on

his analysis because, in that report, Fischel “had not associated any statistically

14 See also A1120, 81:14-25 (“I don’t have an opinion about the part of the court’s

opinion that you just referred me to about statements made by Pharmacia, other than what I said, that didn’t affect my analysis of inflation”).


39

significant increase in Pfizer’s stock price” with eight of the nine excluded

Pharmacia statements. (Pl.Br. 49; see also id. at 25-26.) This argument is flawed,

even apart from its inconsistency with Fischel’s testimony and the fact that Fischel

did not give that answer when asked at his deposition. First, it ignores Plaintiffs’

own allegation that the pre-Class Period Pharmacia misstatement did cause

inflation, as well as Fischel’s assumption that this was the case. (A271 ¶ 348;

A275 ¶ 359; A593, 139:6-12.) Moreover, it is a non-sequitur. Plaintiffs

themselves argued in the District Court that a false statement can cause price

inflation, even if it does not cause the price to rise. It does so when it conceals

from the market information (here, allegedly negative drug trial evidence) that

would otherwise cause the stock price to decline—in Plaintiffs’ words, where

“false statements confirm market expectations or at least do nothing to undermine

the public’s perception, the fact that the stock price did not rise when the

statements were released does not negate an effect on price.” (ECF 418, at 39-40.)

The District Court appropriately expected Fischel to address the

impact of its Pharmacia ruling, which Fischel testified could affect his analysis.

Because he failed to do so, the District Court was within its discretion in

concluding that Fischel’s opinion would not assist the jury.


40

2. Plaintiffs’ Post-Hoc Rationalizations Provide No Basis For Reversal

Plaintiffs advance two additional arguments for why there was no

need for Fischel to address the Pharmacia ruling. The first relies on “maintenance

theory,” i.e., that “where a company repeatedly makes statements … it is

reasonable to conclude that each misstatement played a role in causing the inflation

in the stock price (whether by adding to the inflation or helping to maintain it).” In

re Vivendi Universal, S.A. Sec. Litig., 765 F. Supp. 2d 512, 562 (S.D.N.Y. 2011).

The second cites a provision of the Private Securities Litigation Reform Act of

1995 (“PSLRA”). (Pl.Br. 51-56.) The District Court rightly rejected the first, and

the second was never presented below.

(a) Plaintiffs’ Maintenance Arguments

Plaintiffs argue that even if Pharmacia’s statements contributed to

inflation, Fischel could ignore the District Court’s exclusion of those statements

because Pfizer’s statements alone were sufficient to “maintain” all of the inflation

that was present in the stock price “at the beginning of the Class Period.” (Pl.Br.

51-52.) That argument fails for at least three reasons.


41

First, “maintenance theory” as Plaintiffs assert it is not the law. It has

not been addressed by the Supreme Court or this Court,15 and it is inconsistent with

the Supreme Court’s ruling that experts must disaggregate the full “tangle of

factors affecting price,” including all “facts, conditions, or other events”

contributing to price change other than the defendant’s “earlier misrepresentation.”

Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 343 (2005).

Second, Plaintiffs’ argument would require an unprecedented

expansion of maintenance theory even in those courts that recognize it. While

some courts have held that a defendant may be liable for maintaining inflation that

the defendant itself previously caused (because it bears responsibility in any

event),16 no court has concluded that a defendant can be liable for maintaining

15 Plaintiffs erroneously characterize Carpenters Pension Trust Fund of St. Louis

v. Barclays PLC, 750 F.3d 227 (2d Cir. 2014), as a “maintenance” case. (Pl.Br. 54.) The discussion they cite concerned whether certain disclosures were corrective of past misstatements, not whether “maintenance” is itself a basis of liability.

16 This distinction explains each of the authorities cited by Plaintiffs, including the Eleventh Circuit’s dictum in FindWhat Investor Group v. FindWhat.com, 658 F.3d 1282, 1314-17 (11th Cir. 2011) (addressing allegation that a single defendant maintained inflation caused by its own pre-class period misrepresentations). See Pl.Br. 52-56 (collecting other single-speaker inflation maintenance cases).


42

inflation caused by another speaker.17 In fact, this Court reached the opposite

conclusion in Lattanzio v. Deloitte & Touche LLP, 476 F.3d 147, 158 (2d Cir.

2007), where it affirmed dismissal of a complaint that failed to disaggregate losses

caused by a defendant’s misstatements from those caused by a non-party’s

misstatements.

Finally, even in those courts that have allowed claims to proceed on a

“maintenance” theory, a plaintiff cannot assert that theory without evidence. In re

Moody’s Corp. Sec. Litig., No. 07 Civ. 8375, 2013 WL 4516788, at *9 (S.D.N.Y.

Aug. 23, 2013). Rather, its expert must provide some basis to conclude that a

defendant’s “alleged misstatements actually had that [maintenance] effect.” Id.

Fischel did nothing to analyze whether inflation caused by Pharmacia was

maintained by Defendants, such as analyzing the parties’ statements to determine

whether, in light of their content, analysts’ reactions, or market information and

conditions when they were made, one party maintained inflation caused by the

other. Nor did he rely on that theory in his Supplemental Report or his deposition

testimony. Even Fischel’s amended report—which was not before the Court at the

17 Nor is the District Court’s original summary judgment opinion, which cited

maintenance theory, “irreconcilable” with its subsequent Daubert holding. (Pl.Br. 27, 55.) While the District Court allowed Plaintiffs to pursue a claim that Pfizer maintained inflation caused by Pfizer’s alleged misrepresentations pre-dating the Class Period, it did not rule that Defendants could be held liable for inflation caused by Pharmacia’s nine rejected statements. (SA17-18.)


43

time of its Daubert ruling—rests on the fact that “Plaintiffs allege that the

Defendants maintained” the inflationary effect of Pharmacia’s statements. (A2183

¶ 32 (emphasis added).)

A plaintiff bears the burden of proving that “the defendant’s

misrepresentations ‘caused the loss for which the plaintiff seeks to recover.’”

Dura Pharm., 544 U.S. at 345-46 (quoting 15 U.S.C. § 78u-4(b)(4)) (emphasis

added); see also Lentell v. Merrill Lynch & Co., Inc., 396 F.3d 161, 177 (2d Cir.

2005) (plaintiffs must establish that “it was defendant’s fraud—rather than other

salient factors—that proximately caused [their] loss”); In re Omnicom Grp., Inc.

Sec. Litig., 541 F. Supp. 2d 546, 554 (S.D.N.Y. 2008) (“Because the law requires

the disaggregation of confounding factors, disaggregating only some of them

cannot suffice.”), aff’d, 597 F.3d 501 (2d Cir. 2010). Where, as here, different

actors are “responsible for different misrepresentations that are, nonetheless,

revealed together in corrective disclosures,” that is simply “another species of

confounding information” that must be disaggregated. See Bruegger & Dunbar,

“Estimating Financial Fraud Damages with Response Coefficients,” 35 J. Corp. L.

11, 29 (2009) (A1332). But Fischel made no attempt to do so.

(b) Plaintiffs’ PSLRA Argument

Plaintiffs’ argument based on the PSLRA (Pl.Br. 56) fares no better.

They contend that disaggregation of damages was unnecessary because if


44

Defendants are found to have acted knowingly (and not merely recklessly), they

are jointly and severally liable for the full amount of the class’s loss; and even if

they acted only recklessly, the jury would apportion fault between Pfizer and

Pharmacia, making disaggregation by Fischel unnecessary. Because Plaintiffs did

not advance this argument before the District Court, it is waived. See Red Rock

Commodities, Ltd. v. Standard Chartered Bank, 140 F.3d 420, 421 n.1 (2d Cir.

1998). In any event, it lacks merit.

The PSLRA does not excuse a plaintiff from satisfying the threshold

burden under Section 10(b), and the PSLRA itself, to prove that the alleged

securities fraud “caused the loss for which the plaintiff seeks to recover damages.”

15 U.S.C. § 78u-4(b)(4). Nor does the PSLRA excuse a plaintiff from proving

actual damages. See, e.g., Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc.,

552 U.S. 148, 157-58 (2008). Defendants could not be jointly and severally liable

for, and the jury would have no role in allocating, any damages that Defendants are

not proven to have caused in the first place.18

18 Sauer v. Burlington N. R.R. Co., 106 F.3d 1490, 1494 (10th Cir. 1997), which

held that a defendant does not need expert testimony to show comparative negligence under the Federal Employers’ Liability Act, does Plaintiffs no good. Even if Sauer had any applicability to a securities fraud case, Plaintiffs would still face, and still fail to meet, their prima facie burden to offer admissible expert testimony on loss causation and damages.


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II.

The District Court Reasonably Denied Plaintiffs’ Motion For Leave To Amend

Plaintiffs contend that the District Court abused its discretion when it

declined to give them another try after the Daubert ruling. Courts, however, will

not allow parties “to ‘escape the consequences’ of their strategic decisions simply

because they have proven to be disadvantageous to them.” City of N.Y. v. Mickalis

Pawn Shop, LLC, 645 F.3d 114, 140 (2d Cir. 2011) (citation omitted); see also

Abrams v. Interco Inc., 719 F.2d 23, 30 (2d Cir. 1983) (Friendly, J.) (“We see no

reason why plaintiffs should be relieved of the consequences of their considered

strategy.”). The District Court acted well within its discretion in denying leave to

amend.

The potential downside of Plaintiffs’ strategy was undoubtedly known

both to their counsel and their expert. When an expert’s testimony fails the test of

Daubert, it must be excluded. See Amorgianos, 303 F.3d at 267 (unreliability

under Daubert “renders the expert’s testimony inadmissible”). If this exclusion

means that a plaintiff lacks the evidence necessary to prove its case, the result is

dismissal.19 Where a plaintiff tries to avoid that result by offering post-exclusion

19 See Kumho Tire Co. v. Carmichael, 526 U.S. 137, 158 (1999) (reinstating

district court order granting summary judgment based upon exclusion of unreliable expert evidence under Daubert); In re Omnicom Grp., Inc. Sec.


46

support for the expert’s opinion or changing it altogether, the district court may

deny the motion,20 and the courts of appeals sustain such dismissals.21

A. The District Court Was Not Required To Accept Fischel’s Last-Minute Offer To Drop The 9.7% Adjustment

Plaintiffs argue that because Fischel ultimately offered to withdraw

his adjustment and proceed without it as an alternative—after he had been

excluded, and while still claiming the adjustment was the correct approach—the

District Court was required to accept the offer, grant leave to amend, and reverse

its Daubert ruling. (Pl.Br. 5-6, 29-30, 45-46.) The District Court did not abuse its

discretion in declining Fischel’s invitation to negotiate over the 9.7% Adjustment

Litig., 597 F.3d 501, 512-13 (2d Cir. 2010) (affirming summary judgment dismissing securities class action where plaintiffs’ economic expert failed to reliably isolate stock-price declines caused by fraud from the impact of other market forces); In re Williams Sec. Litig., 558 F.3d 1130, 1143 (10th Cir. 2009) (affirming summary judgment in federal securities class action based upon exclusion of expert’s unreliable loss causation analysis under Daubert).

20 See, e.g., DeMarco v. Lehman Bros. Inc., No. 03 Civ. 3470 (JSR), 2004 WL 2674611, at *2 n.1 (S.D.N.Y. Nov. 23, 2004) (granting summary judgment after excluding plaintiffs’ loss causation expert under Daubert, and rejecting “ploy” to re-open discovery because plaintiffs’ expert wanted to make arguments that could have been made earlier).

21 See, e.g., Bricklayers, 752 F.3d at 97, aff’g 853 F. Supp. 2d 181, 194-95, 198 (D. Mass. 2012) (upholding grant of summary judgment after district court excluded plaintiffs’ economic expert and denied plaintiffs’ request to amend after the close of fact and expert discovery, with inadequate justification for the expert’s untimely attempt to address flaws in his economic analysis).


47

(which did not in any event cure his failure to account for the exclusion of the

Pharmacia statements).

Fischel’s last minute flip-flop confirmed for the Court that Fischel’s

testimony was fundamentally unreliable—and thus provided a proper basis for the

Court’s conclusion that the amended report, like the Supplemental Report, failed

the test of Daubert. (SA36.) Fischel had opined for twelve months that he “had

to” make the 9.7% Adjustment, and that it was “required” to accurately measure

inflation. (A1113, 50:5-10; A1212; A1511; A1515; A1517-18; A1521.) Plaintiffs

had said that to proceed without it would be “absurd.” (A1518.) Even when

Fischel finally offered to drop the adjustment in his proposed amended report—

after the Daubert ruling—he continued to maintain that it was correct. (A2178-79,

¶ 23.) His single-paragraph offer simply (but inconsistently) asserted that deleting

the adjustment was an “appropriate alternative.” (A2179 ¶ 24.) He provided no

principled economic explanation for why the previously-essential adjustment had

suddenly become optional. This was pure expediency, an effort to bargain for

admissibility by offering to testify contrary to what he claimed to believe if that

would get him back into court.

A district court acts within its discretion to reject “internally

inconsistent” expert opinions under Daubert. See Hunt v. CNH Am. LLC, 511 F.

App’x. 43, 45-47 (2d Cir. 2013). Here, the situation the District Court confronted


48

was not mere inconsistency but outright unreliability. Fischel’s offer—inviting the

Court to choose which methodology he would use—was irreconcilable with the

proper roles of the expert and the judge. As the District Court observed, it is not an

economist. (SA36.) And the Court was warranted in concluding that Fischel’s

willingness to jettison the methodology he had deemed economically “necessary”

demonstrated that his “proffered testimony [was] not deserving of an ‘expert

opinion’ label.” (Id.)

None of the cases cited by Plaintiffs is to the contrary. In all of those

cases, an expert offered alternative opinions from the outset to address multiple

different factual scenarios that a jury could find existed. (Pl.Br. 45-46.)22 Those

cases stand for the unremarkable proposition that experts may use alternative

methods where the underlying facts are uncertain, and where the methods are both

analytically sound and logically consistent—circumstances not present here. They

22 See, e.g., Smith v. Ford Motor Co., 215 F.3d 713, 718-21 (7th Cir. 2000)

(expert can testify as to possible causes for mechanical steering failure where jury would decide whether a design or manufacturing defect caused car crash, and where each of the hypothetical alternatives is “analytically sound”); Walker v. Soo Line R.R. Co., 208 F.3d 581, 589-90 (7th Cir. 2000) (expert could testify as to the alternative effects of lighting striking various locations where jury would decide if and where lighting struck); Auto-Owners Ins. Co. v. Uniden Am. Corp., 503 F. Supp. 2d 1087, 1094-96 (E.D. Wis. 2007) (expert could testify as to four possible causes of fire without pinpointing the “exact failure mechanism,” where jury would decide whether there was a design or manufacturing defect).


49

provide no support for the notion that the District Court was required to allow

Fischel to present diametrically opposing methodologies addressing the same set of

underlying facts—let alone embrace a methodology that he had stridently rejected

as incorrect—and to do so for the first time only after an adverse Daubert ruling.

Finally, Fischel’s offer did nothing to alleviate the “judicial economy”

concerns that the District Court also took into account. (SA35.) It ignored the

resources that had already been devoted to adjudicating the dispute over Fischel’s

original methodology, and the additional resources and scheduling complications

that allowing him to change the methodology on the eve of trial would create.

If this Court were to agree with Plaintiffs that the District Court was

required to accept their expert’s fallback position after an adverse Daubert ruling

and on the eve of trial, litigants in future cases would face perverse incentives. The

threat of exclusion, and the expectation that exclusion orders are final, serve a

salutary purpose: they encourage parties and their experts to take reasonable,

principled positions from the outset, and reduce the need for parties to file Daubert

motions in the first place. Absent that threat of exclusion and expectation of

finality, parties would have every incentive to test-drive their expert’s most

aggressive position, knowing that they are assured of the ability to retreat if

necessary. Given those aggressive positions, the number of Daubert motions and

burden on the courts would undoubtedly increase.


50

B. Plaintiffs Have Shown No Abuse Of Discretion

Plaintiffs argue that the District Court did not properly weigh the

circumstances and prejudice to the parties in denying leave to amend Fischel’s

Supplemental Report. (Pl.Br. 57-64.) In doing so, they ask this Court to overturn

the District Court’s factual findings concerning Fischel’s prior testimony and

reports; re-weigh the District Court’s analysis of prejudice caused by permitting

Fischel to submit another report, reopening expert discovery, and allowing another

round of Daubert litigation; and second-guess the District Court’s judgments about

case management and judicial economy in the face of an upcoming three-month

trial. These are matters properly committed to the broad discretion of the District

Court, which did not abuse that discretion.

Plaintiffs’ arguments mistakenly rely on the framework set forth in

Softel, Inc. v. Dragon Medical & Scientific Communications, Inc., 118 F.3d 955,

961 (2d Cir. 1997). (Pl.Br. 57-58.) The Softel analysis applies to an expert who

has been excluded as a sanction for missing a discovery deadline under the Federal

Rules of Civil Procedure.23 In that circumstance, Softel instructs that before

23 The other cases cited by Plaintiffs involve the same inapposite fact pattern. See

Steele v. Aramark Corp., 535 F. App’x 137 (3d Cir. 2013) (upholding exclusion of critical evidence for violation of Rule 26); Gillum v. United States, 309 F. App’x. 267, 270 (10th Cir. 2009) (analyzing sanction for Rule 26 violation); Dunning v. Bush, 536 F.3d 879, 889 (8th Cir. 2008) (reversing sanction under Rule 26); Dickenson v. Cardiac & Thoracic Surgery of E. Tenn., 388 F.3d 976,


51

considering the admissibility of the belatedly proffered opinion, a district court

should assess whether the missed deadline should be excused based on the relative

prejudice to the litigants of permitting or excluding the opinion and the impact on a

trial date. See 118 F.3d at 961-63. This Court has never suggested that the same

analysis applies where, as here, there has been full expert discovery, Daubert

briefing, and a judicial decision to exclude the expert.24 In these circumstances,

considerations such as judicial economy and finality of rulings become paramount.

Those considerations shape the standards applicable to motions for

reconsideration, because such motions address the situation where a District Court

983 (6th Cir. 2004) (discovery sanction for violation of Rule 26); Sherrod v. Lingle, 223 F.3d 605 (7th Cir. 2000) (sanction for violating discovery deadline); Ehrenhaus v. Reynolds, 965 F.2d 916, 918-21 (10th Cir. 1992) (sanction for violation of discovery order); Powerweb Energy, Inc. v. Hubbell Lighting, Inc., No. 12 Civ. 220, 2014 WL 1572746, at *3-*6 (D. Conn. Apr. 17, 2014) (considering sanction for violation of scheduling order).

24 Zerega Avenue Realty Corp. v. Hornbeck Offshore Transp., LLC, 571 F.3d 206 (2d Cir. 2009), cited in Plaintiffs’ brief, is off-point. (Pl.Br. 57-58.) In Zerega, the district court precluded expert testimony not under Federal Rule of Evidence 702, but because the sponsoring party failed to comply with a scheduling order. Zerega involved a unique pre-trial deadline by which the district court sought to require each side to explain why its own experts satisfied Daubert. On appeal, this Court emphasized that the district court’s order was “susceptible to some misunderstanding,” and that it was reasonable for the parties to interpret the order as setting a deadline for “Daubert challenges to their opponent’s prospective experts, which [the precluded party] in fact made in a timely manner.” Id. at 213 n.4. The unusual facts presented by Zerega provide no support for allowing Fischel to submit a new analysis after his opinions had been rejected under Daubert.


52

has already ruled and a party seeks reversal of that ruling. The District Court

properly invoked those standards here. It treated Plaintiffs’ motion for leave to

amend—which in substance asked the Court to reverse its Daubert ruling—as “in

essence, a motion for reconsideration of the in limine decision.” (SA34.) Because

Plaintiffs’ motion provided no information previously overlooked by the Court and

was not based on newly-discovered evidence, the Court justifiably held that

Plaintiffs were not entitled to “a second bite at the apple.” (Id.)

Plaintiffs’ argument also ignores the fact that the District Court did

not limit its holding to finding that amendment was unjustified on procedural

grounds; it concluded that the amended report itself failed to satisfy Daubert.

Noting Fischel’s invitation for the Court to select which methodology he should

employ, the Court held that the amended report’s “proffered damages analysis does

not meet the standard of Rule 702.” (SA36.) Even if the Softel factors applied

here and favored a grant of leave to amend (neither of which is the case), the

District Court was within its discretion in holding that the amended report still

failed the threshold established by Daubert.

Nor would the Softel factors help Plaintiffs even if they applied here.

(Pl.Br. 58-59, 62-64.) Fischel’s proposed amended report was dilatory not because

of a mere discovery deadline violation, but because it provided new opinions and

explanations that Plaintiffs conceded Fischel could—and should—have set forth


53

more than a year earlier in his Supplemental Report.25 Instead, those explanations

were withheld while Plaintiffs staunchly defended Fischel’s one-sentence proffer

and his newly-invented adjustment through a year of hard-fought litigation,

offering to explain his opinion and retreat to a new, more defensible position only

after their strategy failed.

Plaintiffs are also wrong that, even if Fischel’s proposed amended

report was “untimely, any delay was harmless.” (Pl.Br. 62.) They contend that

allowing the amended report would not have necessitated additional discovery or

any delay of trial. But with his amendments, Fischel proposed to replace a one-

page report (A1775)—containing a single sentence regarding his 9.7% Adjustment

and no mention of his Pharmacia opinions—with a detailed 20-page report that was

replete with hypotheticals, examples, and purported analysis; that contained a

completely revised table of daily inflation; and that was inconsistent with his prior

positions. (A2164-83.)

25 See ECF 666 (Pls.’ Mem. in Support of Motion for Leave to Submit Amended

Supplemental Expert Report), at 2 (Fischel’s Supplemental Report “reduced the impact of the offsetting disclosures on Table 2 by 9.7%, although he did not explain the basis for this latter adjustment”); 11 (“Fischel’s failure to fully explain his opinions … was simply a misjudgment as to the level of explanation that was required to adequately describe and support his 9.7 percent adjustment ….”); 13 (“Fischel, concluded, but failed to explain ….”); 16 (“While Fischel determined that the Court’s dismissal of these nine statements did not require an adjustment to his calculation of damages, he failed to explain that determination to the Court.”).


54

Given this proffer, the District Court acted reasonably in concluding

that the amended report could require a reopening of discovery and prejudice the

defense. Defendants would have been entitled to seek documentary discovery

regarding Fischel’s new analysis, to depose him again, to submit a report from

their expert in response, and to engage in another round of Daubert litigation, all

during preparations for a complex and fast-approaching three-month trial. See

Design Strategy, Inc. v. Davis, 469 F.3d 284, 297 (2d Cir. 2006) (“The prejudice to

the defendants in having to prepare for this evidence would have been severe, as

discovery would have had to be reopened to determine whether [plaintiff’s]

calculations were proper.”).

As the District Court recognized, this process would have required

that the impending trial be adjourned. (SA36-37.) Plaintiffs contend that the

“possibility” (in fact the near certainty) of a delay in trial is irrelevant to the

prejudice inquiry because Defendants themselves had previously sought a

continuance. (Pl.Br. 28, 34.) But Defendants were addressing what would be

necessary if the amended report were permitted. (A2153, 15:4-25.) That

acknowledgment does not diminish the prejudice to the defense. Defendants

played by the rules and their experts provided full and timely explanations of their

opinions. They expended substantial resources for years tailoring their defenses to

Fischel’s original report and then to his Supplemental Report. After a year of


55

Daubert litigation, they obtained a definitive ruling. Defendants would clearly

suffer prejudice if this Court decided to undo that ruling and prolong the

proceedings so that Fischel could provide new opinions and explanations and, if

necessary, reverse his opinion.

Plaintiffs also ignore the judicial economy concerns that informed the

District Court’s decision. Wholly apart from prejudice to Defendants, the Court

was justified in declining to devote its resources to overseeing yet another round of

discovery, adjudicating another round of Daubert litigation, and clearing another

three-month period on its busy docket to give Plaintiffs another opportunity to try

to satisfy the Daubert standard they had failed to meet.

Litigants proceed at their own risk when they “initially present less

than their best expert evidence in the expectation of a second chance should their

first try fail.” Weisgram v. Marley Co., 528 U.S. 440, 455-56 (2000). The District

Court was not required to “provide [Plaintiffs] with an open-ended and never-

ending opportunity to meet a Daubert challenge until [they] ‘get[] it right,’” let

alone “the opportunity to meet a Daubert challenge with an expert’s submission

that is based on a new methodology.” In re TMI Litig., 199 F.3d 158, 159 (3d Cir.

2000).

Plaintiffs suggest that special dispensation was required because they

represent a class of investors. But “Federal Rule of Civil Procedure 23


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contemplates no special treatment for plaintiffs in class action suits.” First State

Orthopaedics v. Concentra, Inc., 534 F. Supp. 2d 500, 524-25 (E.D. Pa. 2007).

Class plaintiffs can win or lose a Daubert motion, or a case, just like any other

party. See Toney v. Rosewood Care Ctr., Inc. of Joliet, 62 F. App’x 697, 702 (7th

Cir. 2003) (affirming dismissal of class action, and noting that the class is subject

to the same rules as other litigants); see also Shady Grove Orthopedic Assocs., P.A.

v. Allstate Ins. Co., 559 U.S. 393, 408 (2010) (the class action mechanism is a

procedural device that is “substantively neutral” and leaves the “rules of decision

unchanged”).26 In a class action, just as in an individual action, a lawyer is an

agent, and the clients must live with the agent’s decisions. See, e.g., Irwin v. Dep’t

of Veterans Affairs, 498 U.S. 89, 92 (1990) (“Under our system of representative

litigation, ‘each party is deemed bound by the acts of his lawyer-agent ….’”).

Plaintiffs’ appointment as representatives of a certified class did not confer on

them any special immunity from the consequences of their strategic choices.

26 Plaintiffs’ reliance on ZF Meritor, LLC v. Eaton Corp., 696 F.3d 254 (3d Cir.

2012), is misplaced. (Pl.Br. 60-61.) There, the Third Circuit held that a district court had abused its discretion in denying plaintiff’s expert leave to amend a report it had excluded. However, the circumstances differed materially from the present case because, among other things: (1) the data the expert proposed to use in the amended report was also contained in the earlier report, and his methodology was unchanged; and (2) there was no case management issue, since the expert’s testimony would occur in a later, second phase of the trial.


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III.

The District Court Correctly Excluded Nine Pharmacia Statements Under Janus

Finally, Plaintiffs briefly challenge the District Court’s ruling that

Defendants cannot be held liable based on nine alleged misstatements made by

Pharmacia or its employees. (Pl.Br. 64-66.) Plaintiffs do not specify or discuss

any evidence supporting their position that there were genuine issues of fact, thus

failing to present a proper issue for appeal.27 In any event, the District Court’s

ruling was correct and should be affirmed.

In Janus, the Supreme Court held that the investment adviser of a

mutual fund could not be liable under Section 10(b) for false statements made in

the name of the mutual fund, a separate corporate entity. Though the investment

adviser prepared the allegedly misleading prospectus, the Supreme Court reasoned

that “[o]ne who prepares or publishes a statement on behalf of another is not its

maker.” 131 S. Ct. at 2302. The Court concluded that where a statement is made

27 Plaintiffs merely string-cite pages of their lower-court Rule 56.1 Statement and

“incorporate by reference the evidence cited therein.” (Pl.Br. 10 n.5, 65.) See Frank v. United States, 78 F.3d 815, 833 (2d Cir. 1996) (finding waiver of argument made by reference to document filed in district court, and holding that “[i]ssues not sufficiently argued are in general deemed waived and will not be considered on appeal”), vac’d on other grounds, 521 U.S. 1114 (1997).


58

with attribution, that is “strong evidence that [the] statement was made by—and

only by—the party to whom it is attributed.” Id. at 2304, 2302.

Following Janus, this Court has held that even “knowingly

participating in, or facilitating,” securities fraud is insufficient to impose liability

under Janus. See Fezzani v. Bear, Stearns & Co. Inc., 716 F.3d 18, 24-25 (2d Cir.

2013) (financing fraudulent operations and parking securities is not actionable

where public statements are made by a “separate corporate entity”).

The Complaint does not name Pharmacia as a defendant or allege that

Pfizer has successor liability for Pharmacia’s statements. (A153.) Nonetheless,

Plaintiffs sought to hold Defendants liable for ten statements made by, and

attributed to, Pharmacia or its employees before Pfizer acquired Pharmacia: a

press release, a Form 8-K filing, and eight statements made by Pharmacia

employees during media interviews. (A271-78.) Defendants sought summary

judgment with respect to all ten statements. (SA27-28.)

The District Court denied Defendants’ motion with respect to the

press release because, prior to the merger, Pharmacia and Pfizer “had a co-promote

agreement, pursuant to which Pharmacia would not issue a press release without

Pfizer’s prior approval.” (SA28.) However, it granted the motion as to the

remaining nine statements. The Court noted that all of these statements were made

by Pharmacia, “a separate and independent entity,” or its employees, and that none


59

of the statements was attributed to Pfizer. (Id.) It found no evidence that would

allow a reasonable factfinder to conclude that Pfizer had “ultimate authority” over

remarks by Pharmacia employees during media interviews. (Id.)

Plaintiffs contend that this ruling disregarded evidence that “all public

communications regarding Celebrex and Bextra were approved in advance by

Pfizer.” (Pl.Br. at 65.) This argument misstates their own position below. In the

District Court, the material fact that Plaintiffs asserted in support of their

position—and on which they rely now (id., citing A647-48)—was that “Pfizer had

the ability to review and approve all press releases issued by [Pharmacia]

regarding Celebrex.” (A647 ¶ 7 (emphasis added).) The District Court

specifically credited that claim in denying Pfizer’s motion for summary judgment

as to a Pharmacia press release discussing a Celebrex study. (SA28.) As the Court

also recognized, the right to approve press releases is not the same as a right to

approve “all public communications,” and thus did not extend to comments made

by Pharmacia employees in media interviews.28 The ability to have input into

talking points or to participate in discussions about media strategy—the substance

28 SEC v. Pentagon Capital Mgmt. PLC, 725 F.3d 279 (2d Cir. 2013), is

inapposite because the defendant in that case had “ultimate control over both the content of the communications and the decision to late trade,” id. at 286-87, whereas Pfizer did not have “ultimate control” over extemporaneous interview responses by Pharmacia personnel.


60

of the record citations in Plaintiffs’ brief (Pl.Br. 65)—falls far short of

demonstrating “ultimate control” as required by Janus.29

Plaintiffs’ argument that Pfizer was responsible for Pharmacia’s Form

8-K filing (Pl.Br. 65-66) also fails. Even if Pfizer had a right to approve the press

release contained in the filing, Pfizer did not make or control the 8-K filing itself.

The filing was made by and attributed to Pharmacia, not Pfizer, and the record

contained no evidence that Pfizer had authority over the filing or its contents.

29 Plaintiffs assert in a footnote—without any citation to the record—that there

was “testimony by Pfizer’s media relations director that all statements were Pfizer-approved.” (Pl.Br. 65 n.14.) The record does not support this reading. To the extent Plaintiffs are referring to the testimony appearing at A664 ¶ 62, the witness was speaking specifically of the “co-promote agreement” that, by Plaintiffs’ own description in the District Court, provided “the ability to review and approve all press releases by the Co-Promoter regarding Celebrex.” (A647 ¶ 7 (emphasis added).) Moreover, the deposition questioning focused on press releases and advertisements, not interviews. And the testimony of the Pharmacia speakers on which Plaintiffs relied below made no mention of any actual direction by Pfizer. See, e.g., ECF 421, Ex. 93.


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CONCLUSION

The District Court’s judgment should be affirmed.

Dated: February 18, 2015

Respectfully submitted,

PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP By: /s/ Beth A. Wilkinson

Beth A. Wilkinson Charles E. Davidow Alexandra M. Walsh

2001 K Street, NW Washington, DC 20006-1047 Tel: (202) 223-7300 Fax: (202) 223-7420

Andrew J. Ehrlich

1285 Avenue of the Americas New York, New York 10019-6064 Tel: (212) 373-3000 Fax: (212) 757-3990 [email protected] Counsel for Appellee Pfizer Inc.

GIBSON, DUNN & CRUTCHER LLP

Miguel A. Estrada Mark A. Perry

1050 Connecticut Avenue, NW Washington, DC 200 Tel: (202) 955-8500 Fax: (202) 467-0539 [email protected] Counsel for Appellee Pfizer Inc. SIMPSON THACHER & BARTLETT LLP

Lynn K. Neuner George S. Wang

425 Lexington Avenue New York, New York 10017-3954 Tel: (212) 455-2000 Fax: (212) 455-2502 [email protected] Counsel for Appellee Pfizer Inc.


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DLA PIPER LLP (US)

John R. Wellschlager 6225 Smith Avenue Baltimore, MD 21209-3600 Tel: (410) 580-3000 Fax: (410) 580-6100 [email protected] Counsel for Appellee Pfizer Inc.

SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP

Jennifer L. Spaziano

1440 New York Avenue, NW Washington, DC 20005-2111 Tel: (202) 371-7000 Fax: (202) 393-5760 [email protected] Counsel for Appellee Henry A. McKinnell

BAKER & HOSTETLER LLP

George A. Stamboulidis 45 Rockefeller Plaza New York, New York 10111-0100 Tel: (212) 589-4200 Fax: (212) 589-4201 [email protected] Counsel for Appellee Gail Cawkwell

ALLEN & OVERY LLP

Pamela R. Chepiga 1221 Avenue of the Americas New York, New York 10020 Tel: (212) 610-6300 Fax: (212) 610-6399 [email protected] Counsel for Appellee Joseph M. Feczko


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Certificate of Compliance With Federal Rule of Appellate Procedure 32(a)(7)(C)

1. This brief complies with the type-volume limitation of Fed. R. App. P.

32(a)(7)(B) because the brief contains 13,994 words, excluding the parts

exempted by Fed. R. App. P. 32(a)(7)(B)(iii), as counted by the Microsoft

Word processing system used to produce this brief.

2. This brief complies with the typeface requirements of Fed. R. App. P.

32(a)(5) and the type style requirements of Fed. R. App. P. 32(a)(6) because

the brief is presented in a proportionally-spaced typeface, using Microsoft

Office Word Times New Roman and a 14-point font.

/s/ Beth A. Wilkinson Beth A. Wilkinson Counsel for Appellee Pfizer Inc.

Dated: February 18, 2015


Brief for Defendants-Appellees

Documents

Transcript of Brief for Defendants-Appellees