One error in an extensive economic analysis does not automatically call into question the entire expert opinion, the 2nd Circuit Court of Appeals recently said in the context of a securities fraud lawsuit involving the drug giant Pfizer. With this pronouncement, the appeals court resuscitated a class action that had died after the district court excluded the plaintiffs' loss causation and damages expert under Daubert based on errors in the expert's event study. Deprived of the testimony, the plaintiffs were unable to prove two critical elements of their claim.
Shareholders in Pfizer sued the company alleging it made fraudulent misrepresentations about the safety of its Celebrex and Bextra drugs—nonsteroidal anti-inflammatory drugs to treat chronic pain and inflammation. According to the plaintiffs, even though Pfizer and the prior owners of the drugs knew about the drugs’ dangerous side effects as early as 1998, they kept touting the drugs’ safety to keep the public’s misperception going and cash in on the drugs’ commercial success.
The plaintiffs hired one of the most reputed experts working in the field to prove the fraud actually caused losses and compute the extent of the loss to shareholders. He performed an event study to determine whether and to what degree Pfizer’s stock price changed when investors discovered the risks associated with the two drugs.
Pfizer offered rebuttal testimony only. Its expert “overall” did not have “any major criticism” of the event study the plaintiffs' expert developed. However, Pfizer's expert objected to certain assumptions the plaintiffs' expert made about certain corrective disclosures. Almost a decade into the litigation, the district court found the plaintiff expert opinion had two irremediable flaws and declared the entire testimony inadmissible under Daubert.
The 2nd Circuit Court of Appeals firmly disagreed. In taking such a drastic step, the district court "went astray," the appeals court said. It pointed out that “parsing” expert testimony and excising the unreliable part(s) from the reliable testimony accords with the “liberal admissibility standards” of Daubert and Federal Rule of Evidence 702.
Read more about the appeals court's ruling here.