Berens & Glickman on Daubert Challenges to Loss Causation

Berens & Glickman on Daubert Challenges to Loss Causation


In re Williams Securities Litigation -- WCG Subclass, 558 F.3d 1130 (10th Cir. 2009), a securities fraud class action, clarifies the contours of "loss causation" as defined by Dura Pharms., Inc. v. Broudo, 544 U.S. 336 (U.S. 2005). In re Williams Securities Litigation illustrates that, in Dura’s wake, courts are taking an increasingly closer look at the evidence underlying a plaintiffs loss causation theories at all stages of litigation. In this Analysis, Sally J. Berens and Benjamin Glickman examine In re Williams Securities Litigation and discuss Daubert challenges to loss causation expert opinions and event studies in post-Dura securities litigation. They write:
 
 
     The Tenth Circuit's decision held that a plaintiff's loss causation burden under Dura requires affirmative evidence that the loss was not caused by plausible non-fraud factors, especially where comparable declines are seen throughout the market or the defendant's industry. The decision demonstrates that expert testimony regarding loss causation that fails to disentangle fraud and non-fraud factors, or otherwise fails adequately to link the loss to the alleged fraud, may be rejected as unreliable under Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 589 (1993), and--without this expert evidence--summary judgment may be awarded to defendants. Williams II serves as a powerful reminder that loss causation theories adequate to survive a motion to dismiss or to obtain class certification may be insufficient to survive a motion for summary judgment, if not supplemented by reliable expert testimony and evidence linking the alleged loss to the alleged fraud and disentangling the effect of other non-fraud factors on stock price.
 
     . . . .
 
     As the first appellate decision to evaluate Dura's loss causation requirements in the context of a Daubert challenge to expert evidence, In re Williams Securities Litigation will have important implications for securities fraud litigants across the country.
 
▪ First, the decision clarifies the contours of Dura's loss causation requirements and demonstrates the stringent evidentiary burden plaintiffs face. Regardless of the loss causation theory espoused (e.g., leakage, materialization of the risk, or corrective disclosure), plaintiffs must present affirmative evidence linking the revelation of the truth regarding an alleged fraud to a corresponding loss and disentangling the various non-fraud factors that may have affected price.
 
▪ Second, the decision demonstrates that, in view of the prevailing loss causation standards, courts can be expected to take a close look at plaintiffs' loss causation theories and evidence at all stages of litigation.
 
(footnotes omitted)
 

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