Partial Failure of Daubert Not Cause To Exclude Expert Witness

Under Daubert, an unreliable methodology used in one aspect of an expert witness' testimony does not justify, on its own, the exclusion of the entirety of the witness' testimony, a US appeals court has ruled.

In re Pfizer Inc. Securities Litigation, US Court of Appeals, 2nd Cir., Apr 12, 2016, the plaintiffs, investors in Pfizer, alleged violations of the Securities and Exchange Act, and the Securities and Exchange Commission Rule 10b-5, claiming Pfizer had fraudulently concealed the cardiovascular risks of two of its COX‐2 inhibitor drugs, Celebrex and Bextra. When the market eventually learned of the risks, the value of Pfizer's shares fell, harming the plaintiffs. A class‐action lawsuit followed.

The drugs had been manufactured by G.D. Searle & Co. and Pharmacia Corp. The plaintiffs' alleged that both companies made misrepresentations about the safety of the drugs, which Pfizer perpetualized after purchasing those companies.

The plaintiffs' loss causation and economic damages expert witness, Daniel R. Fischel, performed an event study analysis to determine the extent to which Pfizer's stock price changed when the market learned about the risks associated with the drugs. Fischel had calculated Pfizer's alleged stock‐price inflation by identifying seven days on which Pfizer's stock price fell when the market discovered the allegedly concealed information about the drugs and five days on which the stock price rose in reaction to new information about the drugs.

Pfizer's securities expert witness, Dr. Paul A. Gompers, challenged some of Fischel's assumptions on the link between the disclosures and the stock price decrease. The district court agreed in part, ruling that the losses on two of the days could not be attributed to the disclosures. The district court also ruled that Pfizer was not liable for alleged misrepresentations made by Searle and Pharmacia before Pfizer had control. Pfizer moved for summary judgment, which the district court granted to the extent the plaintiffs' claims were tied to those two days.

Fischel filed an updated supplemental expert report which removed the two days in question, but not for statements made before Pfizer had control of the drugs. Pfizer challenged Fischel's updated report with a supplemental report by Gompers, arguing that Fischel's proportional reduction used an unreliable methodology, and that Fischel failed to account for the excluded misstatements. Based on Gompers' supplemental report, Pfizer moved to exclude Fischel from testifying.

Fischel submitted another updated report arguing that it was unnecessary to account for the excluded statements because Pfizer's misrepresentations maintained the market's "false expectations" about the drugs' safety. He also described in detail his proportional reduction, and argued that if the court disagreed with his methodology, it should exclude the reduction, not all of his testimony.

The district court concluded that Fischel's analysis would be unhelpful because he did not isolate the effects of Pfizer's alleged misrepresentations from those of Searle's and Pharmacia's, and that, under Daubert, his methodology was not "the product of reliable principles and methods reliably applied." After the district court excluded Fischel's testimony, the plaintiffs had nothing to sustain their claims, and the district court granted Pfizer's motion for summary judgment.

The plaintiffs appealed, arguing that the district court abused its discretion, and the appellate court agreed. While the district court was within its discretion to reject Fischel's testimony about the adjustment to the price increases, the appellate court found that it was wrong to reject the remainder of his testimony.

The appellate court vacated the district court's judgment and remanded the case.