Filed: Apr. 12, 2016
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Summary: 14-2853-cv In re Pfizer Inc. Securities Litigation UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT August Term 2014 (Argued: May 26, 2015 Decided: April 12, 2016) No. 14-2853-cv –––––––––––––––––––––––––––––––––––– IN RE PFIZER INC. SECURITIES LITIGATION1 TEACHERS’ RETIREMENT SYSTEM OF LOUISIANA, CHRISTINE FLECKLES, JULIE PERUSSE, ALDEN CHACE, Plaintiffs-Appellants, L. NORMAN SHOWERS, ON BEHALF OF HIMSELF AND ALL OTHERS SIMILARLY SITUATED, MICHAEL FEITERLAND, ANTHON JOHNSON, Plaintiffs, -v
Summary: 14-2853-cv In re Pfizer Inc. Securities Litigation UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT August Term 2014 (Argued: May 26, 2015 Decided: April 12, 2016) No. 14-2853-cv –––––––––––––––––––––––––––––––––––– IN RE PFIZER INC. SECURITIES LITIGATION1 TEACHERS’ RETIREMENT SYSTEM OF LOUISIANA, CHRISTINE FLECKLES, JULIE PERUSSE, ALDEN CHACE, Plaintiffs-Appellants, L. NORMAN SHOWERS, ON BEHALF OF HIMSELF AND ALL OTHERS SIMILARLY SITUATED, MICHAEL FEITERLAND, ANTHON JOHNSON, Plaintiffs, -v...
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14‐2853‐cv
In re Pfizer Inc. Securities Litigation
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
August Term 2014
(Argued: May 26, 2015 Decided: April 12, 2016)
No. 14‐2853‐cv
––––––––––––––––––––––––––––––––––––
IN RE PFIZER INC. SECURITIES LITIGATION1
TEACHERS’ RETIREMENT SYSTEM OF LOUISIANA, CHRISTINE FLECKLES, JULIE
PERUSSE, ALDEN CHACE,
Plaintiffs‐Appellants,
L. NORMAN SHOWERS, ON BEHALF OF HIMSELF AND ALL OTHERS SIMILARLY
SITUATED, MICHAEL FEITERLAND, ANTHON JOHNSON,
Plaintiffs,
‐v.‐
PFIZER, INC., HENRY A. MCKINNEL, GAIL CAWKWELL, JOSEPH M. FECZKO, KAREN L.
KATEN,
Defendants‐Appellees,
JOHN L. LAMATTINA,
Defendant.
1 The Clerk of the Court is directed to amend the caption of the case.
1
––––––––––––––––––––––––––––––––––––
Before: KEARSE, POOLER, AND LIVINGSTON, Circuit Judges.
Plaintiffs appeal from a judgment of the United States District Court for
the Southern District of New York (Swain, J.) granting summary judgment to
defendants Pfizer, Inc. and several of its officers and directors (collectively,
“Pfizer”). Plaintiffs claim that Pfizer violated §§ 10(b), 20(a), and 20A of the
Securities Exchange Act of 1934 by making misrepresentations that concealed
cardiovascular risks associated with two of its drugs. After discovery, the
district court issued an order pursuant to Federal Rule of Evidence 702 excluding
Plaintiffs’ expert on loss causation and damages from testifying at trial. Without
the expert’s testimony, Plaintiffs could not establish essential elements of their
claims, so the district court granted judgment in favor of Pfizer. We conclude
that the district court’s rationales for excluding the testimony were inadequate to
justify excluding it in its entirety. We further conclude that the district court
erred in its earlier summary judgment ruling that no reasonable jury could find
Pfizer liable for certain statements made by companies that owned the drugs
before Pfizer. Accordingly, the judgment of the district court is VACATED and
the matter is REMANDED for further proceedings.
FOR PLAINTIFFS‐APPELLANTS: GREGORY P. JOSEPH, Douglas J. Pepe,
Sandra M. Lipsman, Joseph Hage
Aaronson LLC, New York, NY. Jay W.
Eisenhofer, James J. Sabella, Charles T.
Caliendo, Grant & Eisenhofer P.A., New
York, NY. Jonathan S. Massey, Massey &
Gail LLP, Washington, DC. David Kessler,
Andrew L. Zivitz, Matthew L. Mustokoff,
Kessler Topaz Meltzer & Check, LLP,
Radnor, PA.
FOR DEFENDANTS‐APPELLEES: MIGUEL A. ESTRADA, Mark A. Perry,
Gibson, Dunn & Crutcher LLP,
Washington, DC. Beth A. Wilkinson,
2
Charles E. Davidow, Alexandra M. Walsh,
Paul, Weiss, Rifkind, Wharton & Garrison
LLP, Washington, DC. Andrew J. Ehrlich,
Paul, Weiss, Rifkind, Wharton & Garrison
LLP, New York, NY. Lynn K. Neuner,
George S. Wang, Simpson, Thacher &
Bartlett LLP, New York, NY. John R.
Wellschlager, DLA Piper LLP (US),
Baltimore, MD. Counsel for Pfizer, Inc.
Jennifer L. Spaziano, Skadden, Arps, Slate,
Meagher & Flom LLP, Washington, DC.
Counsel for Henry A. McKinnell.
George A. Stamboulidis, Baker & Hostetler
LLP, New York, NY. Counsel for Gail
Cawkwell.
Pamela R. Chepiga, Allen & Overy LLP,
New York, NY. Counsel for Joseph M. Feczko.
Michael L. Calhoon, Julie B. Rubenstein,
Baker Botts LLP, Washington, DC. Counsel
for Karen L. Katen.
DEBRA ANN LIVINGSTON, Circuit Judge:
Plaintiffs‐Appellants Teachers’ Retirement System of Louisiana and
Christine Fleckles, acting on behalf of themselves and other similarly situated
investors (collectively, “Plaintiffs”), brought suit in the United States District
Court for the Southern District of New York against Pfizer, Inc. and several of its
3
directors and officers, 2 alleging violations of §§ 10(b), 20(a), and 20A of the
Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b), 78t(a), 78t‐1, as well as
Securities and Exchange Commission Rule 10b‐5 (“Rule 10b‐5”) promulgated
thereunder, 17 C.F.R. § 240.10b‐5. According to Plaintiffs, between October 31,
2000 and October 19, 2005, Pfizer made fraudulent misrepresentations and
fraudulently omitted to disclose information regarding the safety of two of its
drugs, Celebrex (celecoxib) and Bextra (valdecoxib). When the market
eventually learned of the cardiovascular risks associated with these drugs, the
value of Pfizer’s shares fell, harming Plaintiffs and other shareholders in the
process. A class‐action lawsuit followed.
The district court (Swain, J.) denied Pfizer’s motion to dismiss the
complaint, certified the class, and allowed the parties to proceed through
discovery. After extensive discovery and nearly a decade of litigation, the
district court granted a motion in limine to exclude Plaintiffs’ expert on loss
causation and damages, Daniel R. Fischel (“Fischel”), from testifying at trial. The
court provided two reasons for excluding the testimony. First, in an earlier
summary judgment ruling, the court had determined that Pfizer is not liable for
2 Herein, we refer to Pfizer, Inc., individually, and together with its directors and
officers party to this suit, as “Pfizer.”
4
certain alleged misrepresentations G.D. Searle & Co. (“Searle”) and Pharmacia
Corporation (“Pharmacia”) — the companies that manufactured Celebrex and
Bextra before Pfizer — made when they owned the drugs. Because Fischel did
not isolate the effects of Pfizer’s alleged misrepresentations and omissions from
the effects of certain of Searle’s and Pharmacia’s allegedly fraudulent statements,
the court concluded that his analysis would be unhelpful to the jury in
determining the losses that Pfizer caused.
Second, using an “event study,” Fischel had calculated stock‐price
inflation caused by Pfizer’s alleged fraud by identifying seven days on which
Pfizer’s stock price fell when the market discovered allegedly concealed
information about Celebrex and Bextra and five days on which Pfizer’s stock
price rose in reaction to new information about the drugs. When the district
court determined in its summary judgment ruling that the stock‐price declines
on two days in the event study could not reasonably be attributed to Pfizer’s
alleged fraud, Fischel removed those days from his analysis and also adjusted
the amount of the stock‐price increases that he included in his calculations. The
court concluded that Fischel’s methodology for adjusting the amount of price
increases attributable to Pfizer’s fraud was not “the product of reliable principles
5
and methods reliably applied.” In re Pfizer Inc. Secs. Litig., No. 04 Civ. 9866 (LTS)
(HBP), 2014 WL 2136053, at *1 (S.D.N.Y. May 21, 2014) (“In re Pfizer II”). For
these two reasons, the court prevented Fischel from testifying about loss
causation or damages. Left with no testimony on these issues, Plaintiffs could
not sustain key elements of their claims, and the district court granted Pfizer’s
motion for summary judgment.
On appeal, Plaintiffs argue that the district court abused its discretion in
excluding Fischel’s testimony, even if the district court correctly found that Pfizer
could not be held liable for certain Searle and Pharmacia statements, because
Fischel had no obligation to disaggregate those statements from Pfizer
statements. Plaintiffs also argue that the district court was incorrect to conclude
that Pfizer was not liable, as a matter of law, for the Searle and Pharmacia
statements. We conclude, first, that the district court abused its discretion by
excluding Fischel’s testimony in its entirety. The court erred in concluding that
Fischel needed to disaggregate the effects of Pfizer’s allegedly fraudulent
conduct from Searle’s or Pharmacia’s, regardless of whether Pfizer is ultimately
found liable for the latters’ statements. Under Plaintiffs’ theory of the case,
Fischel’s testimony could have been helpful to the jury even without such
6
disaggregation. As for Fischel’s adjustment to the price increases, the district
court did not abuse its discretion in concluding that this change was not
sufficiently reliable to be presented to a jury. However, Fischel’s error did not
render the remainder of his testimony unreliable. The court should have
prevented him from testifying about the adjustment, but otherwise allowed him
to present his findings on loss causation and damages.
We further find that the district court erred in concluding, as a matter of
law, that Pfizer had insufficient authority over certain Searle and Pharmacia
statements as to have “made” them for the purposes of Rule 10b‐5. We note,
however, that our finding that the district court abused its discretion in
excluding Fischel’s testimony does not turn on the question of Pfizer’s ultimate
liability for these statements. Accordingly, we hereby vacate and remand the
judgment of the district court for further proceedings consistent with this
opinion.
BACKGROUND
A. Factual Background
Celebrex and Bextra are part of a broad class of medicines known as non‐
steroidal anti‐inflammatory drugs, which are used to treat chronic pain and
7
inflammation. Before 1999, this class of drugs had a common problem: patients
who used the drugs over a long period of time often developed stomach ulcers
and other gastrointestinal problems. In this deficiency, pharmaceutical
manufacturers saw opportunity. Specifically, two companies — Merck & Co.,
Inc. and Searle — began researching a type of non‐steroidal anti‐inflammatory
drug, known as a Cyclooxygenase 2 (“COX‐2”) inhibitor, which could reduce
pain and inflammation without causing gastrointestinal distress. Both
companies ultimately succeeded, with Merck creating a drug called Vioxx, and
Searle creating Celebrex.
Pfizer, a “research‐based, global pharmaceutical company that develops,
manufactures and markets prescription medicines,” In re Pfizer Inc. Secs. Litig.,
No. 04 Civ. 9866 (LTS) (HBP), 936 F. Supp. 2d 252, 257 (S.D.N.Y. 2013) (“In re
Pfizer I”), first became involved with COX‐2 inhibitors through Searle. In
February 1998, Pfizer signed a series of agreements with Searle in which it
agreed to, among other things, help market Celebrex (collectively, the “Co‐
Promotion Agreement”). Searle later transferred control over Celebrex to
Pharmacia through a merger in early 2000, and Pharmacia succeeded to Searle’s
8
rights under the Co‐Promotion Agreement. 3 Pfizer continued to fulfill its
obligations under the Co‐Promotion Agreement until April 16, 2003, when it
obtained the exclusive rights to manufacture, promote, and sell Celebrex and
Bextra by purchasing Pharmacia.
Plaintiffs contend that, while Celebrex and Bextra eliminated the
gastrointestinal issues associated with non‐steroidal anti‐inflammatory drugs,
the drugs presented a different, dangerous side effect. As early as 1998, they
claim, Pfizer and Searle knew about studies linking the COX‐2 inhibitors to
cardiovascular problems in patients. But because Celebrex was an enormous
commercial success, Searle issued press releases and other public statements
denying that the drugs presented such risks. When ownership of Celebrex
passed to Pharmacia, and later to Pfizer, both companies continued to tout its
safety, as well as the safety of Bextra, notwithstanding the discovery of
additional medical evidence tying the drugs’ use to heightened cardiovascular
risks. According to Plaintiffs, the press releases and public statements that
Pharmacia and Pfizer issued during the class period had the effect of maintaining
the public’s misperception about the safety of Celebrex and Bextra. From a
3 In late 2001, the FDA approved Pharmacia’s drug Bextra, a COX‐2 inhibitor closely
related to Celebrex. According to Plaintiffs, Pfizer and Pharmacia entered into other co‐
promotion agreements regarding Bextra.
9
market perspective, this meant that during the class period, investors continued
to value Pharmacia, and later Pfizer, as if the companies’ products provided
alternatives to other non‐steroidal anti‐inflammatory drugs without other side
effects (namely, cardiovascular risks) that could deter consumers.
According to Plaintiffs, Pfizer’s effort to conceal these risks reached the
breaking point in the fall of 2004. On September 30, Merck announced that it
was withdrawing Vioxx from the market due to cardiovascular safety concerns.
Seeking to capitalize on the downfall of its largest competitor in the COX‐2
inhibitor market, Pfizer issued a series of press releases, advertisements, and
public statements assuring investors that no studies had “shown any increased
cardiovascular risk [associated with] Celebrex” and that Bextra’s “cardiovascular
safety profile is also well established in long‐term studies.” J.A. 790, 795 (internal
quotation marks omitted). But new scrutiny followed Merck’s announcement.
On October 6, an editorial in the New England Journal of Medicine “questioned the
safety of . . . [Pfizer’s] Celebrex and Bextra.” J.A. 802 (internal quotation marks
omitted). Soon after, information about studies linking the drugs to
cardiovascular risks reached the public eye. These revelations, Plaintiffs claim,
10
caused Pfizer’s share prices to fall as investors reassessed the value of Celebrex
and Bextra in light of the newly discovered risks.
B. Procedural History
On December 15, 2004, a putative class action was filed against Pfizer in
the United States District Court for the Southern District of New York (Swain, J.).
Plaintiffs represent all investors who purchased Pfizer stock between October 31,
2000 and October 19, 2005 (the “Class Period”). They allege that Pfizer concealed
the safety risks of Celebrex and Bextra — both through statements delivered by
Searle, Pharmacia, Pfizer, and their employees when Pfizer was a party to the
Co‐Promotion Agreement, and also through Pfizer’s own statements when Pfizer
later owned the drugs — in violation of §§ 10(b), 20(a), and 20A of the Securities
Exchange Act of 1934. With respect to the claims under these three sections, the
district court denied Pfizer’s motion to dismiss the complaint and, on April 6,
2012, certified the class.
With the class certified, Plaintiffs turned to developing their theory of
Pfizer’s liability. Notably, Searle and Pharmacia owned Celebrex and Bextra
before Pfizer, and both Searle and Pharmacia allegedly made fraudulent
misrepresentations and omitted to disclose material information about the
11
cardiovascular risks associated with the drugs. Plaintiffs alleged that Pfizer is
responsible for some of these misrepresentations — in particular, statements by
Searle, Pharmacia, and their employees — because Pfizer had authority over
those statements. But Pfizer, Plaintiffs contended, also engaged in its own
fraudulent misrepresentations and omissions about the drugs both before, and
during, the Class Period. Like the Searle and Pharmacia statements, these
misrepresentations and omissions supposedly concealed the cardiovascular risks
associated with Celebrex and Bextra.
This array of fraudulent misrepresentations and omissions created an issue
for Plaintiffs: how to determine whether Pfizer’s alleged fraud, as differentiated
from alleged fraud by Pharmacia or Searle, caused Pfizer’s stock price to fall. To
address that issue, Plaintiffs relied on an inflation‐maintenance theory of
liability. All three companies, Plaintiffs claim, engaged in fraudulent
misrepresentations and omissions that concealed the same information —
namely, that Celebrex and Bextra increase the risk of cardiovascular problems;
investors, however, typically change their assessment of a company’s value
based on new information, not statements that reiterate old news. Thus, by
fraudulently concealing the same risks that Pharmacia and Searle hid, Pfizer
12
perpetuated the market’s misperceptions about Celebrex and Bextra, which
caused the market to maintain the company’s stock price at an artificially high
level. Because the market would have adjusted the value of Pfizer’s stock to
reflect the true risks associated with Celebrex and Bextra if Pfizer had not
continued to conceal those risks, Pfizer should be liable for the full amount by
which its stock price fell when the market eventually discovered the truth.
If correct, this theory of liability could provide a means for establishing
that Pfizer is liable for the full value of the information that its predecessors
concealed.4 A theory of liability, however, does not constitute proof of liability.
It does not show that the alleged misinformation about the drugs, once revealed,
actually caused shareholders to lose money, nor does it identify the extent of
those losses. For those issues, Plaintiffs turned to Daniel R. Fischel, Professor
Emeritus of Law and Business at the University of Chicago Law School and a
former dean of that institution, who issued his initial expert report on January 13,
2012 (the “Initial Report”).
In this Initial Report, Fischel performed an event study analysis to
determine whether, and the extent to which, Pfizer’s stock price changed when
4 This Court has not yet ruled on whether an inflation‐maintenance theory is sustainable
under Rule 10b‐5 or addressed the evidence that a plaintiff must put forth in order to
succeed on such a theory.
13
the market learned about the cardiovascular risks associated with Celebrex and
Bextra. Fischel contended that, assuming that Pfizer engaged in
misrepresentations and omissions that kept information about the cardiovascular
risks of Celebrex and Bextra from the market, his methodology isolated the
extent to which the alleged fraud had artificially inflated Pfizer’s stock price
throughout the Class Period.
An event study is “a statistical regression analysis that examines the effect
of an event on a dependent variable, such as a company’s stock price.” Jay W.
Eisenhofer et al., Securities Fraud, Stock Price Valuation, and Loss Causation: Toward
a Corporate Finance‐Based Theory of Loss Causation, 59 Bus. Law. 1419, 1425 (2004).
Fischel briefly described this form of analysis in his Initial Report. In many event
studies, the expert begins by analyzing how the defendant company’s stock price
typically changes from day‐to‐day as compared to securities issued by similar
companies and the market as a whole. This comparison makes it “possible to
predict what the return of a [defendant company’s] security should be on a
certain date given the return for the market as a whole” — known as the
“predicted return.” Daniel R. Fischel, Use of Modern Finance Theory in Securities
Fraud Cases Involving Actively Traded Securities, 38 Bus. Law. 1, 18 (1982); J.A. 935.
14
The expert then identifies days on which information correcting the alleged
fraud reached the market and notes the amount that the defendant company’s
stock price changed on that day — the “actual return.” Fischel, supra at 18; J.A.
935. “[B]y comparing the predicted return with the actual return on the date of
release of the supposedly correct information or immediately thereafter, the
[event study] attempts to isolate the change in the return earned by investors that
is attributable solely to the allegedly withheld or false information.” Fischel,
supra at 18. The difference between the actual return and the predicted return is
known as the “residual return.” J.A. 935.
Performing an event study can thus help an expert to determine at least
two things. First, assuming that the defendant company fraudulently concealed
information, the event study shows how much money the fraud caused
shareholders to lose. Identifying residual returns on days when allegedly
concealed information reached the market indicates that the supposedly
withheld information caused the company’s stock price to change. See Frederick
C. Dunbar & Arun Sen, Counterfactual Keys to Causation and Damages in
Shareholder Class‐Action Lawsuits, 2009 Wis. L. Rev. 199, 228. If the release of
allegedly withheld information causes a stock price decrease, shareholders who
15
purchased the defendant company’s stock after the alleged fraud but before the
revelation may have paid a higher price than they would have but for the
defendant’s fraudulent conduct — known as an “artificial[ly] inflat[ed]” price.
J.A. 939.
Second, the event study helps the expert “calculat[e] what the price of [the
defendant company’s] security would have been had the alleged wrongful
conduct not occurred,” by estimating the amount of artificial inflation in the
company’s stock price over time. Fischel, supra at 17. Just as the existence of a
residual return on a day when the market discovers allegedly concealed
information shows that the company’s stock price was artificially inflated, the
size of the residual return on such a day provides evidence of the amount by
which concealing that particular information inflated the defendant company’s
stock. As a result, if concealed information reached the market through multiple
corrective disclosures, the sum of the residual returns associated with those
disclosures provides evidence about the amount of artificial inflation in the
company’s stock after the fraud but before those corrections. See Bradford
Cornell & R. Gregory Morgan, Using Finance Theory to Measure Damages in Fraud
on the Market Cases, 37 U.C.L.A. L. Rev. 883, 899 (1990). Thus, an expert using an
16
event study can estimate the amount of artificial inflation in the defendant
company’s stock price when shareholders purchased their shares, which is
equivalent to estimating the difference between what those investors should
have paid for the shares but‐for the alleged fraud, and what they actually paid.
See Dunbar & Sen, supra at 231.
After explaining these background principles, Fischel turned to the
particulars of Plaintiffs’ claims. At the outset, he emphasized that Plaintiffs had
not asked him to determine whether Pfizer did, in fact, fraudulently conceal
information about Celebrex and Bextra, or whether it concealed the same
information as Pharmacia and Searle. Rather, he “assume[d] Plaintiffs will be
able to establish at trial that [Pfizer] withheld material information” about the
cardiovascular risks associated with the drugs “from at least the beginning of the
Class Period,” J.A. 927 n.6, and instead used his analysis to determine whether,
and the extent to which, Pfizer’s share price fell when investors discovered those
risks. As Fischel explained, if Plaintiffs are correct that Pfizer concealed the
cardiovascular risks associated with Celebrex and Bextra, measuring the amount
by which the revelation of the risks caused Pfizer’s share price to change
17
identifies the “artificial inflation” in the company’s stock due to the alleged
fraud. J.A. 938‐39.
Operating under this theory, Fischel first identified seven days on which
the market learned information about the cardiovascular risks associated with
Celebrex and Bextra, and Pfizer’s stock price fell by a greater amount than
expected. In other words, on the days these disclosures (the “Corrective
Disclosures”) occurred, Pfizer’s stock price showed negative residual returns. But
Fischel also observed that, around the same time as the Corrective Disclosures,
Pfizer’s stock price rose more than expected on five days when the market
learned new information about the COX‐2 inhibitors. That is, on the five days
that these disclosures (the “Positive Disclosures”) occurred, Pfizer’s stock price
showed positive residual returns. To account for these positive residual returns,
Fischel offset the stock price movements on the Corrective Disclosure days by the
movements on the Positive Disclosure days. The result revealed that,
throughout the Class Period, Pfizer’s alleged misrepresentations and
concealments about the cardiovascular risks associated with Celebrex and Bextra
artificially inflated the value of its stock. Specifically, Fischel determined that
Pfizer’s stock was inflated by $1.46 per share at the beginning of the Class Period
18
and that inflation rose as high as $3.95 per share before eventually falling to $0
by October 20, 2005.
According to Fischel, offsetting the Positive Disclosures against the
Corrective Disclosures gave a more accurate measurement of the effects of the
alleged fraud because “[i]gnoring [these] price increases . . . would overstate
[the] alleged artificial inflation.” J.A. 1142. On two of the Positive Disclosure
dates, he noted, Pfizer’s stock price rose as the market learned about the risks
associated with Vioxx and implicitly predicted greater sales for Celebrex and
Bextra after learning that Vioxx was being withdrawn and Celebrex and Bextra
would be kept on the market. The subsequent Corrective Disclosures therefore
revealed both allegedly concealed information about Celebrex and Bextra and
showed the market that its prediction of greater sales was mistaken. To identify
just the artificial inflation associated with allegedly concealed information, then,
Fischel determined that he needed to offset the price increases on these two
Positive Disclosure dates against those on the Corrective Disclosure dates.
On the other three Positive Disclosure dates, Fischel observed that
investors increased their valuation of Pfizer after learning that, despite the link
between the COX‐2 inhibitors and cardiovascular problems, the risks were not as
19
severe as anticipated and Pfizer would be able to continue selling the drugs.
Investors, in other words, tempered their initially dire predictions about the
effect of the cardiovascular risks on Pfizer’s ability to sell Celebrex and Bextra.
Since he determined that the price movements on Corrective Disclosure days
reflected overly pessimistic projections, Fischel offset the value of the subsequent
Positive Disclosures to get a more accurate assessment of the true value of the
concealed information about the cardiovascular risks.
Recognizing the possibility that the factfinder might conclude that not all
the Corrective Disclosures identified by Fischel were related to the fraud, Pfizer’s
counsel pressed Fischel during a deposition on how he would adjust his analysis
to account for such a decision. To that end, Fischel addressed the following
hypothetical:
Q: If the jury were to agree [with] all of Plaintiffs’ allegations
except to conclude that [the Corrective Disclosure on] November 4th
2004 was not a corrective disclosure, how would that affect inflation
in your analysis?
A: . . . . If the statistically significant price decline on
November 4th for whatever reason is determined not to be an
appropriate part of the calculations, then the sum of the residuals on
all days before November 4th would obviously be different and the
artificial inflation numbers would change accordingly under those
assumptions.
20
Q: So translated into this specific example, that means that the
artificial inflation on dates preceding November 4th would be $0.60
lower [the amount of inflation that allegedly came out of the stock
price on November 4th] . . . is that correct?
. . . .
A: Correct.
J.A. 1135‐36.
Pfizer’s expert, Dr. Paul A. Gompers, responded directly to Fischel’s
report, rather than conducting his own analysis. Gompers did not contest the
use of the event study methodology and noted that he had “no major criticism”
of how Fischel obtained the “residual return[s]” in his analysis. J.A. 1645; 1652.
Instead, Gompers focused his criticism on Fischel’s assumptions that certain
Corrective Disclosures actually revealed information about Celebrex and Bextra
that had fraudulently been concealed.
After this initial round of expert discovery, Pfizer filed a motion for
summary judgment, which the district court granted in part and denied in part
on March 28, 2013. The court rejected Pfizer’s argument that Plaintiffs could not
show reliance because none of Pfizer’s alleged misrepresentations caused the
company’s stock price to rise. “A misstatement,” the court countered, “may
cause inflation simply by maintaining existing market expectations.” In re Pfizer I,
21
936 F. Supp. 2d at 264 (emphasis added) (internal quotation marks omitted). The
court concluded that Fischel’s analysis showing that Pfizer’s share price fell in
response to “disclosures of adverse information about Celebrex and Bextra[]”
could provide a basis for a reasonable jury to conclude that the price was
“artificially inflated at the beginning of the Class Period,” and that Plaintiffs
relied on that inflated price. Id. at 265. The district court then rebuffed Pfizer’s
argument that its alleged misrepresentations did not cause the company’s share
prices to fall, concluding that, for five of the seven Corrective Disclosure days,
Plaintiffs had raised a genuine dispute of material fact about whether Pfizer’s
share prices fell because the market discovered previously concealed
information. Id. at 265‐67.
The district court, however, also ruled against Plaintiffs in two respects:
First, it found that losses on two Corrective Disclosure dates could not
reasonably be attributed to disclosures exposing Pfizer’s alleged
misrepresentations. On one day, the disclosed information did not provide
evidence of a “causal link” between the COX‐2 inhibitors and cardiovascular
risks. Id. at 267. On the other, Pfizer did not “reveal[] any new information as to
Celebrex and Bextra’s cardiovascular risks” and instead only disseminated
22
business information regarding earnings. Id. at 267‐68. Second, the district court
addressed Plaintiffs’ argument that Pfizer is liable for statements by Searle,
Pharmacia and their employees when the Co‐Promotion Agreement was in
place. Plaintiffs identified ten such misrepresentations, but the district court
decided that Pfizer could not be held liable for nine of them. Pfizer, it concluded,
is liable only for Searle and Pharmacia statements over which it had “ultimate
authority.” Id. at 271. While the Co‐Promotion Agreement provided such
authority for press releases, only one of the ten alleged misrepresentations was a
press release. The district court concluded, as a matter of law, that Pfizer did not
have sufficient authority over the other nine statements, eight of which were
made directly by Searle or Pharmacia employees and one of which was
contained in a Pharmacia Form 8‐K filing. Id. 5 The court therefore granted
Pfizer’s motion for summary judgment to the extent that Plaintiffs’ claims were
tied to the two Corrective Disclosures that the court determined had not revealed
previously undisclosed risk, and to the extent that they were premised on
misstatements the court deemed not attributable to Pfizer.
5 The district court also concluded, as a matter of law, that some of the individual
defendants could not be held liable for statements contained in various 10‐Q filings
made by Pfizer because those individuals did not have ultimate authority over those
statements.
23
Plaintiffs responded to this summary judgment decision by having Fischel
file an updated expert report (the “Supplemental Report”). The Supplemental
Report contained no adjustments in response to the district court’s conclusion
that, as a matter of law, Pfizer could not be held liable for certain statements. But
the Supplemental Report did contain adjustments to account for the Corrective
Disclosures that the district court had decided could not be linked to Pfizer’s
misrepresentations. Fischel first removed these Corrective Disclosures from his
event study analysis, which resulted in the overall stock price declines caused by
the Corrective Disclosures falling “by 9.7 percent.” J.A. 1177. Fischel then stated
that, “[b]ecause eliminating the stock price declines related to Celebrex and
Bextra on these dates reduce[d] the total residual stock price decline [he]
estimated . . . by 9.7 percent,” he “proportionally reduce[d] the residual stock
price increases [he] measured . . . by 9.7 percent.” Id. (emphasis added).
During a second deposition, Fischel explained that excluding two
Corrective Disclosures created the possibility that some price changes on the
Positive Disclosure days involved reactions to non‐fraud‐related information about
Celebrex and Bextra. Despite being unable to identify “any clear one‐for‐one
relationship between any particular [P]ositive [D]isclosure and any particular
24
[Corrective] [D]isclosure,” J.A. 1114, he decided that the exclusion of the
Corrective Disclosures must have “ha[d] an effect on the [P]ositive [D]isclosures
because inflation cannot come out of a stock unless it goes into the stock.” J.A.
1110. Thus, he settled on a 9.7 percent proportional reduction to the amount of
the Positive Disclosures attributed to Pfizer’s fraud (the “Proportional
Reduction”).
Once again, Gompers issued a report challenging Fischel’s analysis (the
“Supplemental Response”). His Supplemental Response raised two objections to
Fischel’s Supplemental Report, both of which eventually became the basis for
Pfizer’s motion in limine to exclude Fischel from testifying. First, Gompers
argued that Fischel’s Proportional Reduction relied on an unreliable
methodology. He observed that the Initial Report concluded both “that there
[was] positive inflation [in Pfizer’s stock] at the beginning of the class period,” and
that Pfizer’s stock price increased during the class period on the Positive Disclosure
days. J.A. 1153‐54 (emphasis added). Gompers argued that, while the decision
to remove two of the Corrective Disclosures did “mean[] less inflation entered
the stock price,” J.A. 1159, that did not justify reducing price increases associated
with the Positive Disclosures, as opposed to the amount of artificial inflation that
25
was in Pfizer’s stock when the Class Period began. If Fischel had simply
removed the rejected Corrective Disclosures from his calculations without
carrying out the Proportional Reduction, Gompers explained, the amount of
artificial inflation at the beginning of the Class Period would have fallen by an
amount equivalent to the losses previously attributed to those Corrective
Disclosures, thus achieving equilibrium between inflation entering and exiting
Pfizer’s stock. Fischel failed to justify his decision to instead proportionally
reduce the amount of inflation attributable to the Positive Disclosures, Gompers
argued, which by comparison led to a higher estimate of artificial inflation in
Pfizer’s stock price at the beginning of the Class Period.
Second, Gompers argued that Fischel erred in his Supplemental Report by
ignoring the district court’s decision that Pfizer is not responsible for many of
Searle’s and Pharmacia’s alleged misstatements about Celebrex. Fischel’s
analysis, he argued, is “predicated on an assumption that . . . [Pfizer is] liable for
all alleged misstatements and omissions” made by Searle and Pharmacia, and
fails to disaggregate the “price inflation numbers that are attributable to [Searle’s
and] Pharmacia’s alleged misstatements and omissions.” J.A. 1162 (emphasis
26
added). As a result, his testimony would not be helpful to jurors who need to
decide the amount of damages attributable to Pfizer alone.
Relying on Gompers’s report, Pfizer moved, pursuant to Federal Rule of
Evidence 702, to exclude Fischel from testifying about loss causation and
damages. In an order issued on May 21, 2014, the district court granted the
motion. The court found that Fischel’s opinion was unreliable because he
“proffered no explanation of the analytical basis” for his Proportional Reduction
and provided neither an “explanation of the relationships among the events
triggering the respective price decreases and increases” nor “research reference
or peer review information . . . in support of [his proportional] adjustment
method.” In re Pfizer II, 2014 WL 2136053, at *1. Furthermore, the court decided
that “Fischel’s failure to account in any way for the impact of the excluded
[Searle and] Pharmacia statements renders his opinions unhelpful to the jury in
making calculations of damages proximately caused by [Pfizer’s] alleged
misrepresentations and omissions.” Id. It therefore excluded Fischel’s testimony
in its entirety.
Plaintiffs requested, and received, an opportunity to propose an amended
Supplemental Report to clarify Fischel’s position. Fischel used this opportunity
27
to explain that it was unnecessary to disaggregate Searle’s and Pharmacia’s
misrepresentations from Pfizer’s because Plaintiffs’ theory of liability was that
Pfizer’s misrepresentations and omissions during the Class Period maintained the
market’s “false expectations” about the safety of Celebrex and Bextra — false
expectations already in place prior to the Class Period, but kept in place after the
Class Period in part by Pfizer’s misrepresentations. J.A. 2182‐83. Because Fischel
assumed that Plaintiffs would be able to prove at trial that Pfizer’s alleged
misrepresentations during the Class Period concealed the same safety
information that was concealed just prior to the Class Period, Fischel averred,
each of Pfizer’s misrepresentations was responsible for maintaining the same
amount of artificial inflation. Fischel also described the Proportional Reduction
in greater detail, and noted that, if the Court disagreed with his methodology, it
should exclude only that reduction, rather than all of his testimony.
The district court considered Plaintiffs’ submissions and, on July 8, 2014,
denied their motion to amend the Supplemental Report. The court was “not
persuaded” that the proposed amendments “were sufficient to meet the
standards of Federal Rule of Evidence 702.” S.A. 35. And even if they were,
Plaintiffs had “no justification for the untimely disclosure of the additional
28
explanations and contextual information.” S.A. 35. The court also found
Fischel’s proposal to exclude only his proportional reduction to the Positive
Disclosures no more persuasive, explaining that his “offer to permit the Court to
select which of two putatively valid inflation determination methodologies to
present to the jury plainly demonstrates that the proffered testimony is not
deserving of an ‘expert opinion’ label.” S.A. 36. Without a loss causation and
damages expert, Plaintiffs could not hope to establish liability at trial, so the
district court granted summary judgment to Pfizer. This appeal followed.
DISCUSSION
On appeal, Plaintiffs contend that the district court erred by excluding
Fischel from testifying. First, they argue that Fischel’s failure to disaggregate the
impact of Pfizer’s and other companies’ misrepresentations is not a basis for
excluding his testimony because, contrary to the district court’s summary
judgment decision, Pfizer had ultimate authority over those statements. Even if
it lacked such authority, they continue, Fischel did not need to account for
Searle’s and Pharmacia’s statements in order to be helpful to the jury because,
under Plaintiffs’ inflation‐maintenance theory, Pfizer concealed the same
information as Searle and Pharmacia and is therefore liable for the full extent of
29
Plaintiffs’ alleged losses. Second, Plaintiffs contend that Fischel’s proportional
reduction to the Positive Disclosures was reliable and nothing more than an
update to the data in his event study and that the district court should not have
excluded Fischel’s testimony on this basis.
We conclude that, based on the record before the district court after
Pfizer’s motion in limine was fully submitted, the court abused its discretion by
excluding Fischel’s testimony in its entirety. In the context of Plaintiffs’ inflation‐
maintenance theory, even assuming, arguendo, that Pfizer lacked sufficient
authority over several Searle and Pharmacia statements, that would not require
Fischel to disaggregate the effects of Pfizer’s alleged misstatements from those of
Searle and Pharmacia in order to help the jury calculate the amount of losses that
Pfizer allegedly caused. Similarly, although the district court did not abuse its
discretion in concluding that Fischel’s Proportional Reduction was unreliable,
that conclusion did not justify excluding the remainder of his testimony. Instead,
the district court should have prevented Fischel from testifying about the
Proportional Reduction and otherwise allowed him to present his findings on
loss causation and damages.6 We also find that the district court was incorrect to
6 Because we conclude, based only on the record presented with the motion in limine,
that the district court abused its discretion by excluding Fischel’s testimony in its
30
conclude that, as a matter of law, Pfizer lacked sufficient authority over eight
statements by Searle and Pharmacia employees to the press, as to have “made”
those statements for the purposes of Rule 10b‐5 liability. But we note that the
district court abused its discretion in excluding Fischel’s testimony, regardless of
whether Pfizer ultimately is liable for those statements.
We emphasize that our decision is a narrow one. The district court
granted summary judgment after excluding Fischel from testifying pursuant to
Rule 702. We therefore consider only whether that decision was an abuse of
discretion in light of the evidence presented to the district court and the
Plaintiffs’ theory of the case. We need not, and do not, decide whether Plaintiffs’
inflation‐maintenance theory is either legally sustainable under Rule 10b‐5 or
sufficiently supported by the evidence in the record.
A. Searle’s and Pharmacia’s Statements
Our analysis begins with the district court’s determination that Pfizer can
be liable only for one Pharmacia press release about Celebrex, and not for nine
other allegedly fraudulent public statements made by Searle and Pharmacia
employees about the drug. Because the district court resolved this issue on a
entirety, we need not consider whether the district court erred by denying Plaintiffs’
motion to amend Fischel’s Supplemental Report.
31
motion for summary judgment, we review its conclusion “de novo, resolving all
ambiguities and drawing all permissible factual inferences in favor of” Plaintiffs.
Burg v. Gosselin, 591 F.3d 95, 97 (2d Cir. 2010) (internal quotation marks omitted).
Viewing the facts in this favorable light, we conclude that Plaintiffs have raised a
genuine dispute as to whether Pfizer had sufficient authority over certain
statements that individual Searle and Pharmacia employees made to various
media outlets regarding the risks associated with Celebrex. 7
Under Rule 10b‐5, it is “unlawful for any person, directly or indirectly, . . .
[t]o make any untrue statement of a material fact” in connection with the
purchase or sale of securities. 17 C.F.R. § 240.10b‐5. “To be liable, therefore, [a
defendant] must have ‘made’ the material misstatement[]” at issue. Janus Capital
Grp. v. First Derivative Traders, 131 S. Ct. 2296, 2301 (2011); see also Fezzani v. Bear,
Stearns & Co., 716 F.3d 18, 24‐25 (2d Cir. 2013). As the Supreme Court explained
in Janus, “the maker of a statement is the person or entity with ultimate authority
7 In Section B, infra, we conclude that, under Plaintiffs’ theory of the case, Fischel did not
need to disaggregate Searle or Pharmacia statements from Pfizer statements for
Fischel’s testimony to be helpful to the jury, even assuming that Pfizer is not liable for
certain Searle or Pharmacia statements. We nevertheless address the propriety of the
district court’s grant of summary judgment as to these statements, as Plaintiffs clearly
raise the issue on appeal. To be clear, we address only the question the parties present
to us: whether there is a genuine issue of material fact as to whether Pfizer had
sufficient authority over the alleged misstatements as to have “made” the statements for
the purposes of Rule 10b‐5.
32
over the statement, including its content and whether and how to communicate
it.” Janus, 131 S. Ct. at 2302. A defendant does “not ‘make’ a statement” simply
by “prepar[ing] or publish[ing] [it] on behalf of another.” Id. Thus, in that case,
a mutual fund investment advisor who “was significantly involved in preparing
[a client’s] prospectuses” did not “make” the statements contained therein. Id. at
2304‐05. Only the client had the “statutory obligation to file the prospectuses”
and nothing in the document “indicate[d] that any statements . . . came from” the
defendant rather than its client. Id. A “broader reading of ‘make,’” the Court
cautioned, would “substantially undermine” the rule from Central Bank of Denver,
N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164 (1994), which prohibits
private suits against aiders and abettors of Rule 10b‐5 violations. Id. at 2302; see
also Fezzani, 716 F.3d at 24‐25.
Here, the district court found — and Pfizer does not contest — that Pfizer’s
participation in the Co‐Promotion Agreement with Searle (later Pharmacia)
created a genuine dispute of material fact about whether the company had
“ultimate authority” over one of Pharmacia’s press releases about Celebrex. In re
Pfizer I, 936 F. Supp. 2d at 271. Plaintiffs claim that Pfizer’s involvement ran
deeper: Pfizer, they argue, also had “ultimate authority” over statements in a
33
Form 8‐K that Pharmacia filed with the Securities and Exchange Commission
(“SEC”), as well as eight statements about the drugs that Searle and Pharmacia
employees made to members of the media. Although Pfizer does not contest the
district court’s finding that a reasonable jury could conclude that Pfizer had the
right to approve press releases, Pfizer argues that there is no evidence that Pfizer
had similar authority over the Form 8‐K, and that its right to approve did not
extend to media statements made by Searle and Pharmacia employees. The
record offers no support for Plaintiffs’ argument with respect to the Form 8‐K
statements, but does provide sufficient evidence to create a genuine dispute as to
the eight other statements.
As to the statements in Pharmacia’s Form 8‐K, Plaintiffs have failed to
identify any evidence that raises a genuine dispute as to Pfizer’s authority over
these statements. The Co‐Promotion Agreement, unsurprisingly, dealt with the
signatories’ efforts to market Celebrex. But Plaintiffs have not pointed to
anything in the record that might allow a reasonable jury to conclude that Pfizer
influenced, much less had any authority over, Pharmacia’s Form 8‐K, a
regulatory disclosure required by the SEC to inform the public of specific events
that may be material to investors. See 17 C.F.R. § 249.308. On the contrary, the
34
Co‐Promotion Agreement stipulated that Searle (later Pharmacia) would have
“sole responsibility for communicating with . . . regulatory authorities” about
Celebrex, which naturally runs counter to any claim that Pfizer was responsible
for regulatory filings like the Form 8‐K. U.S. Agreement at 12, Ex. 33 to Pls.’
Opp. to Defs.’ Motion for Summ. J., No. 1:04–cv–09866, ECF 439. Summary
judgment as to the Form 8‐K statements was therefore wholly appropriate.
Plaintiffs’ evidence of Pfizer’s authority over the eight statements by Searle
and Pharmacia employees to various newspaper and journal articles fares
slightly better, however. In broad terms, the eight statements all conveyed that
there were no increased cardiovascular risks associated with Celebrex. To be
clear, there is no dispute that Searle and Pharmacia employees, not Pfizer
employees, actually delivered the statements to the press. Nor is there any
evidence that these employees held themselves out as representing Pfizer. And
“in the ordinary case,” the fact that the statements were attributed to Searle or
Pharmacia employees “is . . . strong evidence that [the] statement[s] w[ere] made
by — and only by — the party to whom [they were] attributed.” Janus, 131 S. Ct.
at 2302. Nevertheless, we find that there is a material question of fact whether
the present case deviates from the ordinary case. Notwithstanding that the eight
35
statements to the press were attributed to Searle and Pharmacia employees,
Plaintiffs have presented sufficient evidence to permit a reasonable jury to
conclude that Pfizer had “ultimate authority” over the statements’ “content and
whether and how to communicate” them. Id.
To start, Plaintiffs cite to a fax sent by a public relations firm, jointly
employed by Pfizer and Searle, to various Pfizer and Searle employees. See ECF
439, Ex. 110. Included in the fax is a “Q&A document” containing questions the
press might pose regarding cardiovascular risks associated with Celebrex, along
with scripted answers, id. at 5‐9, some of which convey effectively the same
content as the statements at issue, compare id. at 5, 9, with, e.g., J.A. 271, ¶ 348. The
“Q&A document,” the fax explains, would be “reviewed and finalized during
a . . . conference call” between Pfizer and Searle, before being “distributed . . . to
the appropriate parties at Searle and Pfizer for final sign‐off.” See ECF 439, Ex.
110, at 1 (emphasis added). This evidence is consistent with deposition
testimony by Andrew McCormick, a Pfizer senior management team member,
also cited by Plaintiffs, in which McCormick avers that “senior management” at
Pfizer “would . . . need to . . . approve[]” of “media responses [related to COX‐2
inhibitors], both to reporters and to publications in the forms of letters to the
36
editors” in order to “get [them] out the door.” ECF 439, Ex. 88 at 52‐53.
Although the evidence is not abundant, we are unable to conclude that no
reasonable jury could find from this evidence that Pfizer had “ultimate
authority” over the eight statements to the press.
Plaintiffs also rely on Pfizer’s Co‐Promotion Agreement with Searle (later
Pharmacia), pursuant to which Pfizer and Searle agreed to coordinate a wide
range of promotional activity concerning Celebrex. See ECF 439, Ex. 33. The
meaning of the Co‐Promotion Agreement, ambiguous or unambiguous, is not
dispositive of the question before us at summary judgment: whether a genuine
issue of material fact exists as to Pfizer’s authority over the eight Searle and
Pharmacia statements to the press. Assuming, arguendo, that the Co‐Promotion
Agreement unambiguously fails to provide Pfizer the power to approve or
disapprove of Searle’s and, later, Pharmacia’s statements to the press, other
evidence still creates a question of fact as to whether, notwithstanding any
procedures articulated in the contract, Pfizer in fact had “ultimate authority”
over these statements. The meaning of the Co‐Promotion Agreement is thus but
one factor in the factual determination whether Pfizer indeed had “ultimate
authority” over the eight statements to the media. Because we conclude that
37
material questions of fact preclude summary judgment regardless of the correct
interpretation of the Co‐Promotion Agreement, we need not interpret it in this
appeal.
We therefore conclude that the district court erred in determining that, as a
matter of law, Pfizer lacked sufficient authority over the eight allegedly
fraudulent statements that Searle and Pharmacia employees made to the media,
such that Pfizer could not have “made” the statements for the purposes of Rule
10b‐5. We therefore vacate the district court’s grant of summary judgment to
Pfizer with respect to those statements. As stated above, we leave undisturbed
the district court’s ruling regarding Pharmacia’s Form 8‐K statement.
B. Fischel’s Testimony
Plaintiffs’ principal arguments focus on whether the district court’s
decision to prevent Fischel from testifying at trial was a proper application of
Federal Rule of Evidence 702, which governs the admissibility of expert
testimony. Under Rule 702, an expert with “specialized knowledge [that] will
help the trier of fact” may testify so long as that testimony is “based on sufficient
facts or data” and “is the product of reliable principles and methods” that the
witness has “reliably applied . . . to the facts of the case.” The proponent of the
38
expert testimony has the burden to establish these admissibility requirements,
with the district court acting as a “gatekeeper” to ensure that the “‘expert’s
testimony both rests on a reliable foundation and is relevant to the task at
hand.’” United States v. Williams, 506 F.3d 151, 160 (2d Cir. 2007) (quoting Daubert
v. Merrell Dow Pharms., Inc., 509 U.S. 579, 597 (1993)).
The district court has broad discretion to carry out this gatekeeping
function. Its inquiry is necessarily a “flexible one,” Daubert, 509 U.S. at 594, and
the types of factors that are appropriate to consider will “depend[] upon the
particular circumstances of the particular case at issue,” Kumho Tire Co. v.
Carmichael, 526 U.S. 137, 150 (1999). We therefore review both the district court’s
“ultimate reliability determination” and its decision about “how to determine
reliability” for abuse of discretion. Id. at 142 (emphasis in original); see also
Amorgianos v. Nat’l R.R. Passenger Corp., 303 F.3d 256, 265 (2d Cir. 2002). But
“while the district court’s discretion is considerable, it is not unfettered.”
Williams, 506 F.3d at 160. The “gatekeeping” function under Daubert is
fundamentally about “ensur[ing] the reliability and relevancy of expert
testimony,” and district courts may not stray from those goals. Kumho Tire, 526
U.S. at 152.
39
In this case, the district court provided two reasons for excluding Fischel’s
testimony under Rule 702, both of which stemmed from its summary judgment
decision. For one, the district court noted that Fischel’s Supplemental Report did
not account for the district court’s determination that Pfizer was not liable for
many of Searle’s and Pharmacia’s alleged misrepresentations about Celebrex.
This oversight, it concluded, “renders his opinions unhelpful to the jury in
making calculations of damages proximately caused by [Pfizer’s] alleged
misrepresentations and omissions.” In re Pfizer II, 2014 WL 2136053, at *1. In
addition, the court found no “analytical basis” for Fischel’s proportional
reduction of the Positive Disclosures, and concluded that it had not “been shown
to be the product of reliable principles and methods reliably applied.” Id. We
address each of these reasons in turn and conclude that neither provides a
sufficient basis to exclude Fischel’s testimony in its entirety. Our conclusion does
not depend on Pfizer’s potential liability for the eight statements to the press by
Searle or Pharmacia.
1. Disaggregation of Statements
The district court’s first rationale for excluding Fischel’s testimony — that
he failed to account for the district court’s prior determination that Pfizer could
40
not be liable for certain statements by Searle or Pharmacia — rests on a
misapprehension of Fischel’s role in Plaintiffs’ claim. As Plaintiffs explained in
their opposition to Pfizer’s motions for summary judgment (and again in
opposition to Pfizer’s motion in limine), their theory of liability is that Pfizer’s
misrepresentations and omissions regarding the cardiovascular risks associated
with Celebrex and Bextra maintained Pfizer’s inflated share price by keeping
those risks hidden from the market. Under that theory, they argue that there is
no need to separately account for Searle’s and Pharmacia’s misrepresentations:
so long as Pfizer’s own fraudulent conduct kept the same information concealed
from the public, it is liable for the full value of that information to investors.
Fischel’s testimony, then, is important because it validates that the market
reacted to information about the risks associated with Celebrex and Bextra and
calculates the amount of artificial inflation in Pfizer’s stock assuming that the
company had been concealing those risks from the beginning of the Class Period.
Fischel did not purport to analyze how inflation entered Pfizer’s stock prior to the
Class Period because, under Plaintiffs’ theory, Pfizer may be liable for the full
value of that inflation regardless of how it got there.
41
A closer look at Plaintiffs’ inflation‐maintenance theory makes Fischel’s
role clear. Since Basic Inc. v. Levinson, 485 U.S. 224 (1988), securities class actions
under Rule 10b‐5 have relied on the idea that, “‘in an open and developed
securities market, the price of a company’s stock is determined by the available
material information regarding the company and its business.‘” Id. at 241.
According to Plaintiffs, a corollary to this idea is that fraudulent statements
containing the same falsehoods as earlier misrepresentations “will not cause a
change in the stock price . . . because the market has already digested that
information and incorporated it into the price.” FindWhat Investor Grp. v.
FindWhat.com, 658 F.3d 1282, 1310 (11th Cir. 2011). “[T]he inflation level need not
change,” however, “for new investors to be injured by a false statement.” Id. at
1314. If misrepresentations or omissions “prevent a stock price from falling,”
they can cause harm “by prolonging the period during which the stock is traded
at inflated prices.” Id. (first emphasis omitted); see also In re Vivendi Universal,
S.A. Secs. Litig., 765 F. Supp. 2d 512, 562 (S.D.N.Y. 2011). Thus, Plaintiffs argue,
Pfizer’s misrepresentations about Celebrex and Bextra need not be distinguished
from any statements by Searle or Pharmacia, because Pfizer prolonged the period
42
during which the same information about cardiovascular safety was concealed
from the market.
Fischel’s Initial and Supplemental Reports must be evaluated within the
context of this inflation‐maintenance theory. See Daubert, 509 U.S. at 591
(discussing the requirement that the expert testimony “‘fit[s]’” the plaintiff’s
theory of the case). As Fischel stated in his Initial Report, his task was to
“analyze the amount of alleged artificial inflation in Pfizer’s stock price during
the Class Period” under the assumption that Plaintiffs “will be able to establish at
trial that Defendants withheld material information about the cardiovascular
safety of Celebrex and Bextra.” J.A. 927 & n.6; see also 1111. To that end, he
opined that, “[u]ntil late 2004, investors believed that any cardiovascular safety
concerns regarding Celebrex and Bextra were limited,” J.A. 929, identified
disclosures related to those risks that caused Pfizer’s stock price to change, and
then calculated the artificial inflation in Pfizer’s stock price assuming that Pfizer
had, in fact, concealed those risks. This approach does not “directly measure
inflation caused by false statements”; instead, it “measure[s] the value of the
truth” that the market eventually discovered. Glickenhaus & Co. v. Household Int’l,
Inc., 787 F.3d 408, 416‐17 (7th Cir. 2015). And under Plaintiffs’ inflation‐
43
maintenance theory, the inflation caused by Pfizer’s misrepresentations and
omissions is “equal to the value of the truth . . . because had [its] statement[s]
been truthful, the stock price would have done what it did do once the truth was
revealed.” Id. at 417; cf. Lentell v. Merrill Lynch & Co., 396 F.3d 161, 173 (2d Cir.
2005) (“[T]o establish loss causation, a plaintiff must allege that the subject of the
fraudulent statement or omission was the cause of the actual loss suffered . . . .”
(emphasis, ellipses, and internal quotation marks omitted)); In re Omnicom Grp.,
Inc. Sec. Litig., 597 F.3d 501, 513 (2d Cir. 2010) (“A misrepresentation is the
proximate cause of an investment loss if the risk that caused the loss was within
the zone of risk concealed by the misrepresentations.” (emphasis and internal
quotation mark omitted)). Fischel was not asked to provide, and did not offer, a
way to identify how inflation entered the stock or to disaggregate the effect of
specific statements made before and during the Class Period.
In denying Pfizer’s summary judgment motion, the district court stated
that “a misstatement may cause inflation simply by maintaining existing market
expectations.” In re Pfizer I, 936 F. Supp. 2d at 264 (citing FindWhat, 658 F.3d at
1310) (emphasis added) (internal quotation marks omitted). As a result, Fischel
did not need to address the district court’s decision that Pfizer is not responsible
44
for nine of Searle’s and Pharmacia’s misstatements in his Supplemental Report.
He explained as much during his second deposition, stating that this portion of
the district court’s decision “didn’t affect [his] analysis of inflation,” and that his
analysis “assum[es] that [P]laintiffs will be able to prove their liability
allegations” but that he does not offer any opinion as to who was responsible for
the inflation in Pfizer’s stock price at the start of the Class Period.8 J.A. 1120‐21.
Plaintiffs then reiterated this point in opposition to Pfizer’s motion in limine:
“Fischel’s model . . . fits Plaintiffs’ allegations that . . . [Pfizer] made dozens of
misrepresentations which effectively repeated the same false message to the
market . . . and served to maintain Pfizer’s stock price at a constant, inflated
level.” J.A. 1524. As a result, he did not “assign damages on a statement‐by‐
statement basis.” J.A. 1522.
8 Pfizer counters that the district court plausibly could have understood Fischel’s
deposition testimony to mean that he assumed “that Defendants were responsible for
all of the statements — including [Searle and] Pharmacia statements — that allegedly
caused inflation in Pfizer’s stock price.” Pfizer Br. at 36. We admit that Fischel’s
deposition testimony, standing alone, is not the model of clarity. But the district court
was not evaluating the deposition testimony in a vacuum. Read within the context of
Fischel’s Initial Report, first deposition, and Plaintiffs’ opposition to the motion in
limine, it is clear that Fischel’s statement refers to the fact that his analysis assumes
Plaintiffs will be able to prove that Pfizer is liable for all of the inflation in its stock, not
that Pfizer is liable for every misrepresentation identified in the complaint.
45
Given the scope of Fischel’s opinion, it was an abuse of discretion to
prevent him from testifying on the grounds that he did not disaggregate the
stock price inflation caused or maintained by Pfizer’s own statements from that
caused or maintained by Searle’s and Pharmacia’s statements. At bottom, the
district court’s decision rests on the idea that, if Plaintiffs succeed, the jury will
have to attribute specific amounts of inflation to Pfizer in order to calculate
“damages proximately caused by [Pfizer’s] alleged misrepresentations and
omissions.” In re Pfizer II, 2014 WL 2136053, at *1. But as discussed above,
Plaintiffs’ theory is directly contrary to this idea: they argue that Pfizer is liable
for all of the artificial inflation related to Celebrex and Bextra because, through its
own fraudulent conduct, Pfizer concealed the same information as its
predecessors. In the context of that theory, Fischel’s testimony can be helpful to
the jury without disaggregating the effects of Pfizer’s specific misrepresentations
because it shows that the discovery of information Pfizer allegedly concealed
caused shareholders to lose money and calculates the amount of money they lost.
To be clear, we do not decide in this appeal that Plaintiffs’ theory is either
legally or factually sustainable. It might be that Plaintiffs’ inflation‐maintenance
theory is deficient under Rule 10b‐5 or that, even under such a theory, Plaintiffs
46
cannot establish, as they contend, that Pfizer concealed the same information as
Searle and Pharmacia hid. But these are reasons why Plaintiffs’ claim may be
legally or factually deficient, not justifications for concluding that, in the context
of Plaintiffs’ theory, Fischel’s testimony is unreliable or unhelpful to the jury.9
See Ambrosini v. Labarraque, 101 F.3d 129, 135 (D.C. Cir. 1996) (“The dispositive
question [under Rule 702] is whether the testimony will assist the trier of fact . . .
not whether the testimony satisfies the plaintiff’s burden on the ultimate issue at
trial.” (internal quotation marks omitted)). Daubert and Rule 702 merely
authorize the court to ensure that the “‘expert’s testimony both rests on a reliable
foundation and is relevant to the task at hand.’” Williams, 506 F.3d at 160
(quoting Daubert, 509 U.S. at 597). Put differently, Fischel’s failure to
disaggregate the effects of Pfizer’s, Searle’s, and Pharmacia’s statements renders
his testimony unhelpful only if Plaintiffs need to disaggregate those statements
9 Perhaps recognizing this problem, Pfizer argues that the “‘maintenance theory’ . . . is
not the law,” that “Plaintiffs’ argument would require an unprecedented expansion of
[the] maintenance theory,” and that Plaintiffs have not presented a sufficient “basis to
conclude” that Pfizer’s statements had the effect of maintaining an inflated stock price.
Pfizer Br. at 41‐42. Pfizer did not present these arguments below, and we decline to
evaluate them at this time. Similarly, we need not, and do not, address Plaintiffs’
contention that Fischel did not need to disaggregate the effect of alleged misstatements
by Pfizer’s predecessors because Pfizer can be held jointly and severally liable for those
statements under 15 U.S.C. § 78u‐4(f)(2)(A). These arguments may have merit, but they
are not properly resolved on this appeal.
47
to succeed at trial. Accordingly, we conclude that Fischel’s failure to distinguish
inflation associated with Pfizer’s misrepresentations from inflation associated
with Searle’s and Pharmacia’s statements was, in context, an inadequate basis on
which to exclude his testimony.
2. The Proportional Reduction
The district court’s second basis for excluding Fischel’s testimony relates to
his proportional reduction of the Positive Disclosures. As already explained, in
his Supplemental Report, Fischel removed the stock‐price declines associated
with two Corrective Disclosures after the district court decided that Pfizer’s
alleged fraud could not reasonably be found to cause the losses on those days.
Because removing those disclosures caused the overall value of the Corrective
Disclosures to fall by 9.7 percent, Fischel also reduced the amount of the stock
price changes associated with Positive Disclosures that he attributed to the fraud
by 9.7 percent. He described his rationale for this Proportional Reduction in a
single sentence contained in the Supplemental Report. The district court decided
that this Proportional Reduction rendered Fischel’s opinion unreliable because
he “proffered no explanation of [its] analytical basis” and failed to show that it
48
was “the product of reliable principles and methods reliably applied.” In re
Pfizer II, 2014 WL 2136053, at *1.
The district court’s conclusion that Fischel did not adequately explain his
proportional adjustment to the Positive Disclosures was not an abuse of
discretion. But Fischel’s failure adequately to explain the Proportional Reduction
was not a basis for excluding his testimony in its entirety. Instead, the court
should have prevented Fischel from testifying about the Proportional Reduction
and otherwise permitted him to offer his opinion about loss causation and
damages.
At the outset, the district court’s decision to scrutinize Fischel’s
Supplemental Report when assessing whether his testimony satisfies Rule 702’s
requirements was consistent with its gatekeeping function under Daubert. As we
explained in Amorgianos, Rule 702 directs the district court to “focus on the
principles and methodology employed by the expert, without regard to the
conclusions the expert has reached or the district court’s belief as to the
correctness of those conclusions.” 303 F.3d at 266. Part of that inquiry, however,
requires assessing whether the expert “appl[ied] his stated methodology reliably
to the facts of the case.” Id. at 269 (internal quotation marks omitted). If the
49
opinion “is based on data, a methodology, or studies that are simply inadequate
to support the conclusions reached, Daubert and Rule 702 mandate the exclusion
of that unreliable opinion testimony.” Id. at 266; see also General Elec. Co. v. Joiner,
522 U.S. 136, 146 (1997).
Fischel’s Supplemental Report involves precisely the application of
methodology to facts that district courts must scrutinize under Rule 702. In the
Initial Report, Fischel presented his event study methodology, identified both
Corrective and the Positive Disclosures, and used the price movement on the
days of those disclosures to calculate the artificial inflation in Pfizer’s stock.
When the district court concluded that Pfizer was not responsible for the stock‐
price changes associated with two of those Corrective Disclosures, Fischel had to
adjust his calculations. According to Plaintiffs, Fischel’s Supplemental Report
made this adjustment simply by updating the data he used in his event study
analysis — a type of analysis that Pfizer’s expert conceded was a valid way to
calculate artificial inflation. We agree that, because the district court had
determined that the stock‐price movements on the two excluded Corrective
Disclosure dates did not occur because of Pfizer’s fraud, Fischel clearly needed to
50
remove the price changes associated with those disclosures from his calculation
of artificial inflation. But this narrative tells only half the story.
The issue of the Positive Disclosures was a more complicated matter.
Fischel’s Initial Report identified Positive Disclosures as days on which Pfizer’s
stock price rose because of new information about Celebrex and Bextra. The
district court’s summary judgment decision left this portion of the Initial Report
untouched. Nonetheless, Fischel independently decided that the Positive
Disclosures needed revisiting in the Supplemental Report. According to Fischel,
even though the two excluded Corrective Disclosures were not actually
“corrective” because they did not reveal concealed information about
cardiovascular risks associated with Celebrex and Bextra, the price movements
on those days might nonetheless be related to information about the “cardiac
issues” linked to those drugs. J.A. 1109. If that were the case, some of the price
changes on Positive Disclosure days could reflect the market recalibrating its
evaluation of that non‐fraud‐related cardiac information. See J.A. 1110. Such
recalibration would not be related to the value of the fraudulently concealed
information, and therefore should not, in effect, reduce the calculation of
artificial inflation in Pfizer’s stock. See J.A. 1112 (noting that removing the
51
Corrective Disclosures “changes my analysis about what the appropriate way
to . . . allocate the residual price change between what is fraud related and what’s
not fraud related . . . .”). On the other hand, it might be the case that the Positive
Disclosures related only to fraudulently concealed information, or that the price
changes associated with the two excluded Corrective Disclosures had nothing to
do with new information about Celebrex and Bextra, and were thus entirely
unrelated to the Positive Disclosures. In either of those situations “it would be
perfectly appropriate to eliminate [the price declines associated with the
excluded Corrective Disclosures] . . . and not make any other adjustments.” J.A.
1109; see also J.A. 1115.
A hypothetical helps illustrate the point. Suppose Pfizer did, in fact,
conceal information about the cardiovascular risks associated with Celebrex and
Bextra. On Monday, some of that concealed information leaks, causing Pfizer
shares to fall by $2. The next day, the market learns of a new study about such
risks from Celebrex and Bextra — one that had not been concealed by Pfizer and
could not be attributed to its fraud — and the company’s shares fall by another
$2. Finally, on Wednesday, the market discovers that the cardiovascular risks
52
from the drugs are not as severe as first expected, and Pfizer’s stock price rises $1
on the news.
Certainly, according to Fischel’s principles, the Monday price decline
should be included when assessing the amount by which Pfizer’s fraud inflated
its share price and the Tuesday price decline should not. But what should be
made of the $1 price increase? It could be that the market overestimated the
significance of the concealed information, in which case the entire price increase
should be included when calculating the inflation caused by that fraud. Or it
could be that the market overestimated the significance of both the concealed
information and the new study, in which case only a portion of the $1 increase
would be related to the fraudulently concealed information. Under Fischel’s
mode of analysis, then, the expert needs to determine the relationship between
the disclosures and then apportion the proper amount of the price increase, if
any, to his evaluation of the fraud.
What is clear, then, is that the Proportional Reduction contained in
Fischel’s Supplemental Report was based on an implicit conclusion regarding the
relationship between the Corrective and Positive Disclosures. Indeed, during the
second set of depositions Fischel repeatedly described his process for arriving at
53
the Proportional Reduction as based on a “methodology” for evaluating the
“relationship between” the Corrective and Positive Disclosures. J.A. 1113‐14,
1110. Thus, Fischel drew just the sort of link between the facts and his
conclusion that district courts must evaluate for compliance with Rule 702, see
Amorgianos, 303 F.3d at 267; Ruggiero v. Warner‐Lambert Co., 424 F.3d 249, 254‐55
(2d Cir. 2005), and we agree with the court’s decision to scrutinize his analysis
under its gatekeeping function.
In performing that duty, the district court did not abuse its discretion by
deciding that Fischel’s 9.7 percent Proportional Reduction was not “the product
of reliable principles and methods reliably applied.” In re Pfizer II, 2014 WL
2136053, at *1. To begin, Fischel’s decision to reevaluate the Positive Disclosures
is in some tension with his earlier testimony. During his first deposition, Pfizer’s
attorneys asked him to evaluate a hypothetical situation in which the district
court concluded that one Corrective Disclosure did not actually correct a prior
fraudulent statement or omission. J.A. 1135. Fischel’s response suggested that
he would simply remove the offending disclosure — a conservative approach
that assumes no link between the Positive Disclosures and the removed
54
Corrective Disclosures. Fischel never mentioned that he might reconsider the
Positive Disclosures as well.
Moreover, even overlooking this inconsistency, it was not an abuse of
discretion to decide that Fischel’s Proportional Reduction was not a sufficiently
reliable application of his stated methodology to pass muster under Rule 702. As
explained above, the general methodology that Fischel outlined calls for
evaluating the “relationship between” the excluded Corrective Disclosures and
the Positive Disclosures to determine how to “allocate the” price changes on
Positive Disclosure days “between what is fraud related and what[] [is] not fraud
related.” J.A. 1112. Assuming this methodology is a reliable way to assess the
effect of the Positive Disclosures on the value of Pfizer’s alleged fraud,10 Fischel
did not reliably apply it in this case. Quite simply, Fischel never “offered” an
“explanation of the relationship[]” between the Positive Disclosures and the
excluded Corrective Disclosures. In re Pfizer II, 2014 WL 2136053, at *1. Neither
Because we conclude that the district court did not abuse its discretion by finding
10
Fischel’s Proportional Reduction to be an unreliable application of his stated
methodology, we need not, and do not, address the reliability of the methodology for
adjustment itself. Even assuming, arguendo, Plaintiffs are correct that the district court
was wrong to rely on a lack of “research reference or peer review information”
supporting the “adjustment method” when it excluded Fischel from testifying, In re
Pfizer II, 2014 WL 2136053, at *1, Fischel’s Proportional Reduction was still an unreliable
application of that methodology.
55
his Supplemental Report nor his second deposition included an analysis of
whether, in light of the district court’s decision, Pfizer’s stock price changed on
the excluded Corrective Disclosure days because of information about Celebrex
and Bextra. Similarly, Fischel never explained whether, or how, the information
in the Positive Disclosures related to those excluded Disclosures. Indeed, in the
one comment he made on the issue, Fischel said he could not find “any clear one‐
for‐one relationship between any particular [P]ositive [D]isclosure and any
particular [Corrective] [D]isclosure.” J.A. 1114.
Instead, Fischel asserted that the exclusion of Corrective Disclosures must
have “ha[d] an effect on the [P]ositive [D]isclosures because inflation cannot come
out of a stock unless it goes into the stock.” J.A. 1110. But in addition to stock
price increases on the Positive Disclosure days, Fischel quantified artificial
inflation in Pfizer’s stock price at the beginning of the Class Period on the
assumption that fraudulent statements and omissions prior to the Class Period’s
beginning had already inflated Pfizer’s stock price. Fischel calculated the amount
of this artificial inflation by observing how Pfizer’s stock price moved as the
concealed information became public — a process that involved summing the
price changes associated with the Corrective and Positive Disclosures. Excluding
56
two Corrective Disclosures from that calculation automatically reduces the
amount of artificial inflation present at the beginning of the Class Period, and for
good reason: if two Corrective Disclosures did not involve concealed
information, the price changes associated with them do not reflect the value of
that information. Thus, the mere fact that the district court excluded two
Corrective Disclosures does not necessarily require an adjustment to the Positive
Disclosures, much less an adjustment that is proportional to the overall decline in
value of the Corrective Disclosures. Instead, Fischel’s stated methodology
required evaluating the relationship between Corrective and Positive Disclosures
precisely because it might have been “perfectly appropriate to eliminate [the
excluded Corrective Disclosures] . . . and not make any other adjustments.” J.A.
1109.
If an opinion is based on “a methodology” that is “simply inadequate to
support the conclusions reached, Daubert and Rule 702 mandate the exclusion of
that unreliable opinion testimony.” Amorgianos, 303 F.3d at 266. After all,
“nothing in either Daubert or the Federal Rules of Evidence requires a district
court to admit opinion evidence that is connected to existing data only by the ipse
dixit of the expert.” Joiner, 522 U.S. at 146. In light of the “analytical gap”
57
between Fischel’s stated methodology and the manner in which he assessed the
relationship between the excluded Corrective Disclosures and the Positive
Disclosures, Amorgianos, 303 F.3d at 266 (internal quotation marks omitted), the
district court did not abuse its discretion by deciding that the Proportional
Reduction was unreliable and therefore inadmissible under Rule 702.
This brings us to the final issue we consider: whether the district court’s
decision that Fischel’s Proportional Reduction was unreliable justified excluding
his testimony in its entirety. When faced with expert testimony that contains
both reliable and unreliable opinions, district courts often exclude only the
unreliable testimony. See, e.g., Laumann v. Nat’l Hockey League, 2015 WL 3542322,
at *2, *22 (S.D.N.Y. May 29, 2015); Fed. Hous. Fin. Agency v. Nomura Holding Am.,
Inc., 2015 WL 640900, at *4‐*5 (S.D.N.Y. Feb. 16, 2015); Vazquez v. City of N.Y., 2014
WL 4388497, at *13 (S.D.N.Y. Sept. 5, 2014). This process of parsing expert
testimony is consistent with Rule 702’s “liberal admissibility standards,”
Amorgianos, 303 F.3d at 267, which favor allowing the jury to hear testimony that
“both rests on a reliable foundation and is relevant to the task at hand,” Daubert,
509 U.S. at 597. Of course, district courts are “not obligated to prune away all of
the problematic” elements of an expert’s proposed testimony “to save the
58
remaining portions, however small.” Bricklayers & Trowel Trades Int’l Pension
Fund v. Credit Suisse Sec. (USA) LLC, 752 F.3d 82, 96 (1st Cir. 2014). But when the
unreliable portion of an opinion can easily be distinguished from testimony that
could help the jury, it may be an abuse of discretion to throw the good out with
the bad. See City of Tuscaloosa v. Harcros Chems., Inc., 158 F.3d 548, 564 (11th Cir.
1998).
Here, we conclude that, although the district court did not abuse its
discretion by finding the Proportional Reduction unreliable, it went astray when
it excluded all of Fischel’s testimony on this basis. Fischel’s Proportional
Reduction was but one small part of an extensive economic analysis. In the
Initial Report, Fischel performed an event study to identify days on which
allegedly concealed information about Celebrex and Bextra caused Pfizer’s stock
price to change and to calculate the value of the information that the company
had supposedly been concealing. Pfizer’s expert, Dr. Paul A. Gompers, critiqued
particular elements of that analysis, but “overall” did not have “any major
criticism of [Fischel’s] event study.” J.A. 1645.
Fischel’s Proportional Reduction was a response to a new issue created by
the district court’s summary judgment decision. As explained above, excluding
59
two Corrective Disclosures created the possibility that some price changes on the
Positive Disclosure days involved reactions to non‐fraud‐related information about
the safety of Celebrex and Bextra. Thus, whereas the event study constituted a
broad statistical analysis aimed at identifying whether and how the market
responded to new information about the cardiovascular risks from Celebrex and
Bextra, the summary judgment decision prompted a narrow inquiry into the
particular relationship between the Positive Disclosures and the excluded
Corrective Disclosures.
Significantly, both Gompers and Pfizer challenged only the Proportional
Reduction and identified a specific, alternative course of action that they believed
Fischel should have taken. For instance, in his Supplemental Response, Gompers
focused exclusively on the lack of academic support or “an economically‐sound
justification for [the] 9.7% adjustment,” J.A. 1154, but did not offer a broader
criticism of the event study. Gompers contrasted the Proportional Reduction
with simply removing the Corrective Disclosures at issue — a process that he
labeled Fischel’s “original methodology” for handling excluded disclosures
because of Fischel’s testimony in his first deposition. J.A. 1151, 1156. Pfizer
made a nearly identical argument in its memorandum of law in support of its
60
motion in limine. There, the company criticized the 9.7 percent “adjustment” and
explained that, according to Fischel’s first deposition, “the Court’s rejection of
[the two Corrective Disclosure dates] simply required him to remove them from
his estimate of the inflation.” J.A. 1475. Pfizer added that “removing the
[Corrective Disclosure dates] . . . was by itself sufficient to achieve equilibrium”
between inflation entering and leaving the stock. J.A. 1476. Plaintiffs pointed
out the specificity of Pfizer’s critique in their opposition to the motion in limine,
noting that “Defendants contend Fischel should have . . . reduc[ed inflation at the
beginning of the Class Period] only” and should not have reduced price changes
associated with the Positive Disclosures. J.A. 1508.
On these facts, the district court abused its discretion by excluding all of
Fischel’s testimony. Although the Proportional Reduction may have been
unreliable, it was unreliable because Fischel failed to show that the 9.7 percent of
the price changes associated with Positive Disclosures was, in fact, related to the
excluded Corrective Disclosures. Fischel’s error on this issue, however, does not
cast a pall over his opinion — arrived at through the event study — that Pfizer’s
stock price fell during the Class Period when the market learned of information
about the cardiovascular risks associated with Celebrex and Bextra. Nor does it
61
call into question his methodology for identifying, and calculating the residual
returns associated with, the Positive and remaining Corrective Disclosures. All it
means is that Fischel could not reliably associate some of the residual returns on
the Positive Disclosure days with information revealed through the excluded
Corrective Disclosures, rather than with Pfizer’s alleged fraud. As the parties’
motion papers reveal, eliminating Fischel’s Proportional Reduction does not
render the remainder of his analysis useless; instead, it merely ensures the
adoption of the most conservative estimate of the losses Pfizer allegedly caused.
Thus, rather than excluding all of Fischel’s testimony, the district court should
simply have prevented him from making the Proportional Reduction. The
remainder of his testimony “both rests on a reliable foundation and is relevant to
the task at hand.” Daubert, 509 U.S. at 597. Excluding it was an abuse of
discretion.11
11 As a separate line of attack on the district court’s decision to prevent Fischel from
testifying, Plaintiffs contend that the district court erred by denying their motion to
amend Fischel’s Supplemental Report. At the start, we note that Fischel’s more detailed
rationale for the Proportional Reduction in the Amended Supplemental Report
provides no basis for upsetting the district court’s decision that the Reduction did not
rest on a reliable application of his stated methodology. Because we decide based on
the Initial Report and the Supplemental Report alone that the district court abused its
discretion by excluding Fischel’s testimony in its entirety, however, we need not
address Plaintiffs’ argument.
62
CONCLUSION
We conclude that the district court erred in granting summary judgment to
Pfizer on the issue of Pfizer’s liability for certain Searle and Pharmacia
statements. We also conclude that the district court erred in granting summary
judgment to Pfizer based on its exclusion of Fischel’s testimony, which we find
was an abuse of discretion. The judgment of the district court is therefore
VACATED and the case is REMANDED for further proceedings consistent with
this opinion.
63
