Bricklayers & Trowel Trades v. Credit Suisse, 1st Cir. (2014)

7/26/2019 Bricklayers & Trowel Trades v. Credit Suisse, 1st Cir. (2014)

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United States Court of AppealsFor the First Circuit

No. 12- 1750

BRI CKLAYERS AND TROWEL TRADES I NTERNATI ONAL PENSI ON FUND,

Pl ai nt i f f , Appel l ant ,

J AMES UPHOFF; GOODMAN FAMI LY TRUST; MALKA BI RNBAUM, on behal fof her sel f and al l ot her s si mi l ar l y si t uat ed; NEI L MCCARTY;RODNEY W. NARBESKY, i ndi vi dual l y and on behal f of al l ot hers

si mi l ar l y si t uat ed,

Pl ai nt i f f s,

v.

CREDI T SUI SSE SECURI TI ES ( USA) LLC; CREDI T SUI SSE ( USA) , I NC. ;J AMI E KI GGEN; FRANK P. QUATTRONE; LAURA MARTI N; ELLI OT ROGERS,

Def endant s, Appel l ees.

APPEAL FROM THE UNI TED STATES DI STRI CT COURT

FOR THE DI STRI CT OF MASSACHUSETTS

[ Hon. Nat hani el M. Gor t on, U. S. Di st r i ct J udge]

Bef or e

Howar d, Ci r cui t J udge,Sout er , * Associ at e J ust i ce

and Tor r esen, ** Di st r i ct J udge.

Fr eder i c S. Fox, wi t h whom Kapl an Fox & Ki l shei mer LLP andShapi r o Haber & Ur my LLP wer e on br i ef , f or appel l ant .

*Hon. Davi d H. Sout er , Associ at e J ust i ce ( Ret . ) of t he Supr emeCour t of t he Uni t ed St at es, si t t i ng by desi gnat i on.

**Of t he Di st r i ct of Mai ne, si t t i ng by desi gnat i on.


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Lawr ence Por t noy, wi t h whom Dani el J . Schwar t z, J onat han K.Chang, Dharma Betancour t Fr eder i ck, Davi s Pol k & Wardwel l LLP,Rober t Buhl man, Si obhan E. Mee, Amanda V. Mul l er , and Bi nghamMcCut chen LLP wer e on br i ef , f or appel l ees.

May 14, 2014


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HOWARD, Circuit Judge. Al l egi ng vi ol at i ons of Secti ons

10( b) and 20( a) of t he Secur i t i es Exchange Act and of SEC Rul e 10b-

5, t he appel l ant pensi on f und and other Amer i ca Onl i ne ( "AOL")

shar ehol der s br ought t hi s cl ass act i on agai nst Cr edi t Sui sse Fi r st

Bost on ( "CSFB") , f ormer CSFB anal yst s J ami e Ki ggen and Laur a

Mar t i n, and ot her r el at ed def endant s. The shar ehol der s cl ai mt hat

CSFB f r audul ent l y wi t hhel d r el evant i nf or mat i on f r omt he mar ket i n

i t s r epor t i ng on the AOL- Ti me Warner mer ger , and that t he

shar ehol der s pur chased st ock i n t he new company at pr i ces t hat were

ar t i f i ci al l y i nf l at ed as a r esul t of t he def endant s' pur posef ul

omi ssi ons. Thi s appeal concer ns t he admi ssi bi l i t y of t he opi ni on

of t he shar ehol der s' exper t Dr . Scot t D. Hakal a, whose test i mony

t he di st r i ct cour t pr ecl uded f or l ack of r el i abi l i t y. We f i nd no

abuse of di scr et i on i n t hat deci si on. We al so agr ee wi t h t he

di st r i ct cour t t hat , wi t hout t he exper t ' s t est i mony, t he

shar ehol der s ar e unabl e t o est abl i sh l oss causat i on. Summar y

j udgment was t heref or e proper l y awar ded t o t he def endant s.

I. Background

A. Fact s

On J anuar y 11, 2001, Ti me Warner I nc. and AOL merged i nto

a si ngl e medi a and t echnol ogy company ( her ei naf t er r ef er r ed t o as

"AOL") . Thi s marr i age of "ol d" and "new" medi a r ecei ved ext ensi ve

cover age f r om bot h t he pr ess and t he f i nanci al i ndust r y. CSFB was

among t he many f i nanci al f i r ms r eport i ng on AOL' s busi ness and

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f or ecast i ng i t s out l ook f or t he f ut ur e. Ki ggen and Mar t i n headed

CSFB' s AOL cover age begi nni ng t he day af t er t he merger and

cont i nui ng f or about a year , t hr ough J anuary 2002, when CSFB ceased

cover i ng AOL ( Ki ggen r et i r ed i n J anuar y 2002; Mar t i n had l ef t CSFB

a f ew mont hs ear l i er ) . Dur i ng t he cover age per i od, CSFB publ i shed

t he r esul t s of i t s r esear ch i n r egul ar r epor t s. These cont ai ned,

i n addi t i on t o observat i ons about AOL, a buy or sel l r ecommendat i on

and a pr i ce t ar get , whi ch was a pr edi ct i on of AOL' s st ock pr i ce

t wel ve mont hs hence. CSFB i ssued t hi r t y- f i ve such r epor t s dur i ng

t hi s per i od, and each such repor t r ecommended buyi ng AOL st ock.

CSFB i ni t i al l y tar get ed AOL' s f ut ur e st ock pr i ce at $80, but

r evi sed i t downwardl y t o $75 one mont h l at er i n Febr uary 2001, and

t hen t o $45 i n Sept ember 2001. Ni ne mont hs l at er , AOL' s st ock was

t r adi ng at $11 per shar e.

The sharehol ders al l ege t hat Ki ggen and Mar t i n

mi sr epr esent ed t hei r t r ue opi ni ons i n t hese r epor t s, i n or der t o

mai nt ai n a good r el at i onshi p wi t h AOL. The shar ehol der s' t heor y i s

t hat AOL had t he pot ent i al t o gener at e si gni f i cant i nvest ment

banki ng r evenue f or CSFB, and Ki ggen and Mar t i n over st at ed AOL' s

f i nanci al st r engt h i n t he hopes of wi nni ng t hi s f ut ur e busi ness

( CSFB di d i n f act assi st AOL i n managi ng a bond deal pur port edl y

generat i ng between $750, 000 and $820, 000 i n f ees f or CSFB) . I n a

ser i es of i nt ernal emai l s among AOL t eammembers, Ki ggen and Mar t i n

expr essed doubt s about t hei r pr oj ect i ons f or AOL, yet deci ded not

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t o l ower t hei r est i mat es f or AOL' s f ut ur e per f or mance

notwi t hst andi ng t hese concer ns. Moreover , t hey r egul ar l y showed

t hei r pr oj ect i ons t o AOL and r evi sed t hembased on AOL' s r eact i ons.

Even as adver t i si ng r evenue, a key f act or i n AOL' s success,

decl i ned t hr oughout t he i ndust r y, CSFB r epor t s cont i nued t o pr edi ct

AOL' s abi l i t y to r i se above t he gener al sl owdown.

I n addi t i on, t he shar ehol der s al l ege t wo i nst ances i n

whi ch CSFB1 r ecei ved non- publ i c, mat er i al i nf or mat i on about AOL

t hat CSFB di d not di scl ose i n i t s cover age of t he company. On J ul y

10 and 11, 2001, Ant hony Lor enzo, a j uni or CSFB anal yst not

assi gned t o cover AOL, emai l ed t o Ki ggen i nf ormat i on about AOL

l ayof f s. Ci t i ng an unnamed sour ce, Lorenzo wr ote t hat AOL

"appar ent l y . . . had some l ayof f s" t hat "wer e medi um i n t er ms of

sever i t y and wi l l not be announced publ i cl y. " The par t i es di sagr ee

over t he i mpor t of t hi s t i p. The shar ehol der s cl ai m t hat t he

i nf or mat i on per t ai ned t o l ayof f s of "up t o 1, 000 empl oyees"

subsequent l y report ed i n The Wal l St r eet J our nal and The Washi ngt on

Post on August 13 and 14, 2001. CSFB counters t hat t hi s unnamed

sour ce ( l at er i dent i f i ed as a l ow- l evel empl oyee i n AOL' s

I nt er act i ve Mar ket i ng Gr oup) was r ef er r i ng onl y t o a smal l number

of l ayof f s t hat occur r ed wi t hi n t he I nt er act i ve Mar ket i ng Gr oup on

J ul y 10, 2001, as r epor t ed i n The Washi ngt on Post t he next day.

1 At t i mes, we r ef er t o t he def endant s, col l ect i vel y, as"CSFB".

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Lorenzo' s emai l s al so ment i oned " t hat AOL was under

i nvest i gat i on and has suspended some empl oyees f or i nappr opr i ate

account i ng act i vi t i es - - some deal s booked i nappr opr i at el y i nf l at ed

r evenue. " CSFB di d not di scl ose t hi s i nf or mat i on i n any of i t s

r epor t s; i t was event ual l y repor t ed by The Washi ngt on Post i n a

J ul y 2002 ar t i cl e di scl osi ng t hat AOL had engaged i n

"unconvent i onal " adver t i si ng deal s t hat mi ght have i nf l at ed

r evenue. On J ul y 24, 2002, AOL acknowl edged t hat t he SEC was

i nvest i gat i ng i t s account i ng pr act i ces, but deni ed any wr ongdoi ng.

B. Pr ocedur al Hi st or y

On t he basi s of t hese al l eged mat er i al mi sst at ement s and

omi ssi ons - - over st at i ng AOL' s f i nanci al st r engt h, not di scl osi ng

r epor t s of medi um- sever i t y l ayof f s, and not di scl osi ng r epor t s of

unconvent i onal account i ng - - t he shar ehol der s br ought sui t i n

December 2005 agai nst Ki ggen, Mar t i n, and CSFB under Sect i on 10( b)

of t he Exchange Act , 15 U. S. C. 78j ( b) , and under SEC Rul e 10b- 5.

The compl ai nt al so al l eged t hat CSFB, Cr edi t Sui sse Fi r st Bost on

( USA) I nc. ( CSFB' s par ent company) , and CSFB execut i ves Fr ank

Quat t r one and El l i ot Roger s vi ol at ed Sect i on 20( a) of t he Exchange

Act , 15 U. S. C. 78t ( a) , by f ai l i ng t o exer ci se cont r ol over t hei r

empl oyees' al l eged mi sst at ement s and omi ss i ons.

I n due cour se, t he def endants sought summary j udgment .

At t he hear i ng occasi oned by that mot i on, t he shar ehol der s and t he

def endant s each pr esent ed exper t t est i mony t o show t he ef f ect , or

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l ack t her eof , of CSFB' s omi ssi ons on AOL st ock pr i ces. The

shar ehol der s r etai ned Dr . Hakal a, whi l e CSFB empl oyed Dr . Ren M.

St ul z. Each si de subsequent l y moved t o excl ude t he other ' s exper t

opi ni on under Dauber t v. Mer r el l Dow Pharm. , I nc. , 509 U. S. 579,

597 ( 1993) ( " [ T] he Rul es of Evi dence- - especi al l y Rul e 702- - [ ] assi gn

t o t he t r i al j udge t he t ask of ensur i ng t hat an exper t ' s t est i mony

bot h r est s on a r el i abl e f oundat i on and i s r el evant t o t he t ask at

hand. " ) . I n due cour se, t he cour t hel d a Dauber t hear i ng t o

det er mi ne the admi ssi bi l i t y of t he pr of f er ed exper t t est i mony on

l oss causat i on.

C. Event St udi es and Expert Test i mony

Loss causat i on i s among the si x el ement s of a pr i vat e

cause of act i on f or secur i t i es f r aud; t he ot her f i ve ar e: a

mat er i al mi sr epr esent at i on or omi ssi on, sci ent er , a connect i on wi t h

t he pur chase or sal e of a secur i t y, r el i ance, and economi c l oss.

Dur a Pharm. , I nc. v. Br oudo, 544 U. S. 336, 341- 42 ( 2005) . To pr ove

l oss causat i on, a pl ai nt i f f "must show ' a suf f i ci ent connect i on

bet ween [ t he f r audul ent conduct ] and t he l osses suf f er ed . . . . ' "

I n r e Omni con Gr p. , I nc. Sec. Li t i g. , 597 F. 3d 501, 510 ( 2d Ci r .

2010) ( quot i ng Lat t anzi o v. Del oi t t e & Touche LLP, 476 F. 3d 147,

157 ( 2d Ci r . 2007) ) ( al t er at i ons i n or i gi nal ) . I n ot her wor ds, t he

st ock market must have reacted to t he subsequent di scl osur e of t he

mi sconduct and not t o a " t angl e of [ ot her ] f act or s. " Dur a Phar m. ,

544 U. S. at 343.

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The usual - - i t i s f ai r t o say "pref er r ed" - - met hod of

pr ovi ng l oss causat i on i n a secur i t i es f r aud case i s t hr ough an

event st udy, i n whi ch an exper t det er mi nes t he ext ent t o whi ch t he

changes i n t he pr i ce of a secur i t y r esul t f r om event s such as

di scl osur e of negat i ve i nf ormat i on about a company, and t he ext ent

t o whi ch t hose changes r esul t f r om ot her f act or s. 2 Fi r s t , t he

exper t sel ect s t he per i od i n whi ch t he event coul d have af f ect ed

t he market pr i ce. 3 The expert t hen at t empt s t o determi ne t he

ef f ect on t he shar e pr i ce of gener al mar ket condi t i ons, as opposed

t o company- speci f i c event s, usi ng a mul t i pl e r egr essi on anal ysi s,

a st at i st i cal means f or expl ai ni ng t he r el at i onshi p bet ween t wo or

mor e var i abl es. 1 Davi d L. Fai gman et al . , Moder n Sci ent i f i c

Evi dence; The Law and Sci ence of Expert Test i mony 430 ( 2012) .

Thus, f or any gi ven day, t he exper t predi ct s t he company' s share

pr i ce based on t he mar ket t r ends on t hat par t i cul ar day. The

exper t t hen compar es t hi s predi ct ed r et ur n wi t h t he act ual r et ur n

i n t he event wi ndow i n or der t o det er mi ne t he pr obabi l i t y that an

abnormal r etur n of t hat magni t ude coul d have occur r ed by chance.

2 For addi t i onal i nf or mat i on about event st udi es i nl i t i gat i on, see Sanj ai Bhagat & Rober t a Romano, Event St udi es andt he Law: Par t I : Techni que and Cor por at e Li t i gat i on, 4 Am. L. &Econ. Rev. 141 (2002) , and Mi chael J . Kauf man & J ohn M. Wunder l i ch,

Regr essi ng: The Tr oubl i ng Di sposi t i ve Rol e of Event St udi es i nSecur i t i es Fr aud Li t i gat i on, 15 St an. J . L. Bus. & Fi n. 183, 186( 2009) .

3 "St ock pr i ce, " "shar e pr i ce, " "mar ket pr i ce, " " cl osi ngpr i ce, " and "r et ur n" ar e al l used i nt er changeabl y t hr oughout t hi sopi ni on.

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I f t hi s pr obabi l i t y i s smal l enough, t he exper t can r ej ect t he

hypothesi s t hat normal market f l uct uat i ons, as opposed t o company-

speci f i c event s, can expl ai n t he movement i n the shar e pr i ce.

Cent r al t o mul t i pl e r egr essi on anal yses ar e var i abl es,

whi ch, as t he t er m i mpl i es, can have t wo or mor e possi bl e val ues.

I d. n. 1. Mul t i pl e r egr essi on i ncl udes a var i abl e t o be expl ai ned

( t he dependent var i abl e) and expl anat or y (or i ndependent ) var i abl es

t hat have t he pot ent i al t o be associ at ed wi t h changes t o t he

dependent var i abl e. I d. at 430. ( "[ A] mul t i pl e r egr essi on anal ysi s

mi ght est i mat e t he ef f ect of t he number of years of wor k on sal ary.

Sal ary woul d be the dependent var i abl e to be expl ai ned; years of

exper i ence woul d be t he expl anat or y var i abl e. " ) . The t hi r d t ype of

var i abl e at i ssue i n t hi s case i s a dummy var i abl e, whi ch i s al so

known as a "bi nar y var i abl e" because i t onl y has t wo possi bl e

val ues, such as gender , or , as i n t hi s case, t he exi st ence or non-

exi st ence of company- speci f i c event s. 4 By assi gni ng t he var i abl e

4 An opi ni on f r om t he Di st r i ct of New J er sey pr ovi des asucci nct exampl e of t he use of a dummy var i abl e:

[ S] uppose you ar e i nvest i gat i ng [ Uni t ed St at es]consumpt i on behavi or wi t h t i me ser i es dat a f or t he per i od1930 t o 1950. You woul d expect t hat consumpt i on behavi orwoul d have been si gni f i cant l y di f f er ent dur i ng t he year sof Wor l d War I I t han i t was bef or e and af t er t he war . To

t ake t hi s ef f ect i nt o account , you can cr eat e anar t i f i ci al var i abl e t hat wi l l t ake t he val ue 1 dur i ngeach of t he war years and t he val ue 0 dur i ng each of t heot her year s.

Ani mal Sci . Pr ods. , I nc. v. Chi na Nat ' l Met al s & Mi ner al s I mp. &Exp. Cor p. , 702 F. Supp. 2d 320, 358 n. 44 ( D. N. J . 2010) .

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a val ue of zero or one i n t he mathemat i cal f ormul ae used i n t he

anal ysi s, t he dummy var i abl e becomes mut ual l y excl usi ve wi t h

r espect t o any expl anat or y var i abl es, unabl e t o exi st or af f ect t he

out come si mul t aneousl y. Thus, by usi ng a dummy var i abl e, t he

pr oj ect ed var i ous out comes can reveal whi ch expl anat or y var i abl es

af f ect t he dependent var i abl e.

D. Dr . Hakal a' s Event St udy

Such i s the basi c st r uct ur e of an event st udy. I n i t s

mot i on t o excl ude Dr . Hakal a' s t est i mony, CSFB al l eged t hat hi s

methodol ogy i ncl uded t echni ques t hat di d not meet t he st andards of

r el i abi l i t y ar t i cul at ed i n Dauber t . I t chal l enged f our el ement s of

Dr . Hakal a' s st udy.

1. Sel ect i on of Event Dates

The f i r st al l eged f l aw i n Dr . Hakal a' s anal ysi s was hi s

sel ect i on of event dat es. CSFB cl ai med t hat Dr . Hakal a f ai l ed t o

conf orm t o event st udy met hodol ogy by sel ect i ng hi s event dat es

af t er r unni ng hi s r egr essi on anal ysi s. As not ed pr evi ousl y, t he

f i r st st ep of an event st udy i s i dent i f yi ng t he r el evant dat es t hat

are t he f ocus of t he st udy. CSFB argued t hat Dr . Hakal a r ever sed

t he st eps i n t hi s pr ocess, f i r st conduct i ng a r egr essi on anal ysi s,

and t hen, af t er i dent i f yi ng f i f t y- seven dat es wi t h st at i st i cal l y

si gni f i cant abnor mal r et ur ns, usi ng t hem as t he r el evant dat es f or

hi s event st udy.

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Accor di ng t o CSFB, t hi s r esul t s- dr i ven appr oach pr oduced

event dat es t hat had "l i t t l e r el at i onshi p wi t h t he al l egat i ons or

f act s i n t hi s case and ma[de] no sense even under [ Dr . Hakal a' s]

own def i ni t i on of ' r el evance. ' " For i nst ance, Dr . Hakal a

at t r i but ed some abnormal market i ncr eases i n AOL st ock pr i ces t o

t he def endants on days when CSFB r el eased no r epor t s about AOL - -

of t en when i t was no l onger r eport i ng about AOL. Dr . Hakal a al so

char act er i zed sever al of t he dat es i n hi s st udy as cor r ect i ve,

despi t e t he f act t hat t he compl ai nt had l abel ed t hem as

i nf l at i onar y. 5 On one event dat e, t he abnor mal market r et urn was

negat i ve, yet Dr . Hakal a cl assi f i ed t he dat e as i nf l at i onar y.

Fi nal l y, Dr . Hakal a of t en i dent i f i ed dat es as cor r ect i ve when no

negat i ve i nf ormat i on ent er ed t he market , and other dates as

i nf l at i onar y when no posi t i ve i nf or mat i on ent er ed t he mar ket .

2. Over use of Dummy Var i abl es

CSFB al so asser t ed t hat Dr . Hakal a' s use of dummy

var i abl es not onl y over st at ed t he basel i ne st abi l i t y of AOL' s st ock

pr i ces, but al so f ai l ed t o sat i sf y t he Dauber t r equi r ement of

r epr oduci bi l i t y. The goal of a r egr essi on anal ysi s i s t o creat e a

basel i ne agai nst whi ch t he mar ket r et ur n on event dat es i s

measur ed. Thr ough t he use of dummy var i abl es, t he event dat es

5 An i nf l at i onar y date occur r ed when mi si nf or mat i on oromi ssi ons i nf l at ed AOL' s st ock pr i ce. A cor r ect i ve dat e occur r edwhen t r ut hf ul i nf or mat i on caused AOL' s st ock pr i ce t o r et ur n t o i t snor mal l evel s.

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t hemsel ves ar e excl uded f r om, or "dummi ed out " of , t he regr essi on

anal ysi s t o i ndi cat e t he pr esence or absence of some event . Thi s

i s desi gned t o pr event t he event days t hemsel ves f r om di st or t i ng

t he basel i ne. Dr . Hakal a, i n addi t i on t o dummyi ng out r el evant

event dat es, dummi ed out al l dat es cont ai ni ng mat er i al news about

AOL. 6 He chose t hi s appr oach t o cont r ol f or days when AOL' s st ock

pr i ce mi ght have f l uct uat ed due t o t he r el ease of i nf or mat i on t hat

was, f or pur poses of t hi s l i t i gat i on, i r r el evant . He bel i eved t hat

t hese mat er i al news dat es coul d i mpr oper l y i nf l uence t he basel i ne

r egr essi on, and ci t ed ot her f i nanci al economi st s who endor se t hi s

met hodol ogy. Usi ng t hi s approach, Dr . Hakal a dummi ed out 211 out

of 388 days i n t he st udy per i od - - 54%of t he t ot al number of days.

CSFB argued t hat Dr . Hakal a' s appr oach went t oo f ar , cr eat i ng an

unr eal i st i cal l y st abl e basel i ne and t her eby ensur i ng t hat al l

r el evant event dates woul d appear more unusual t han t hey r eal l y

wer e.

CSFB al so at t acked Dr . Hakal a' s dummy sel ect i on as

ar bi t r ar y. Dr . Hakal a per f or med t hr ee event st udi es rel at i ng t o

t he Amer i ca Onl i ne- Ti me War ner merger . Al t hough he used t he same

6 The t er ms " r el evant event dates" and "mat er i al news dat es, "t hough si mi l ar , ar e di st i nct . Rel evant event dat es ar e t he f i f t y-seven dat es t hat ar e t he f ocus of Dr . Hakal a' s event st udy.Mat er i al news dat es r ef er t o t he addi t i onal one hundr ed f i f t y- f ourdat es Dr . Hakal a dummi ed out of hi s event st udy because t heycont ai ned mat er i al news.

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cr i t er i a t o sel ect t he mat er i al dat es each t i me, 7 he dummi ed out

more mat er i al dat es i n each subsequent st udy. CSFB argued t hat hi s

sel ect i on cr i t er i a wer e so vague t hat t wo economi st s woul d be apt

t o pi ck vast l y di f f er ent number s of mat er i al dat es gi ven t he same

i nst r uct i ons. Thus, CSFB ar gued, Dr . Hakal a' s met hodol ogy cannot

be r epl i cat ed. See Dauber t , 509 U. S. at 593 ( "Or di nar i l y, a key

quest i on t o be answered i n determi ni ng whether a t heor y or

t echni que i s sci ent i f i c knowl edge t hat wi l l assi st t he t r i er of

f act wi l l be whet her i t can be ( and has been) t est ed. " ) . The pr oof

of t hi s f l aw, accor di ng t o t he def endant s, was t he f act t hat even

Dr . Hakal a coul d not sel ect t he same number of mat er i al news dates

i n t hr ee separ at e event st udi es.

3. Previ ous l y Di scl osed I nf ormat i on

I n Basi c I nc. v. Levi nson, 485 U. S. 224 ( 1988) , t he

Supr eme Cour t hel d t hat a pl ai nt i f f i n a secur i t i es f r aud sui t need

not pr ove i ndi vi dual r el i ance on t he def endant s' f r audul ent

st at ement s when pur chasi ng company st ock. I d. at 247. I nst ead,

cour t s wi l l pr esume rel i ance as l ong as t he company' s shar es t r ade

i n an ef f i ci ent mar ket , t hat i s, one whi ch i ncor por at es al l publ i c

7 Dr . Hakal a' s cr i t er i a came f r om "t he NASDAQ gui del i nes as

r ecogni zed by t he SEC. " See Sel f - Regul at or y Or gani zat i ons; Not i ceof Fi l i ng of Pr oposed Rul e Change by t he Nat i onal Associ at i on ofSecur i t i es Deal er s, I nc. Rel at i ng t o I ssuer Di scl osur e of Mat er i alI nf or mat i on, 67 F. R. 51, 306 ( J ul . 31, 2002) . He al so i ncl uded"t hi r d par t y news and r epor t s, and anal yst s' r epor t s t o t hat l i stconsi st ent wi t h the academi c st udi es. "

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st at ement s about t he company - - i ncl udi ng t he def endant s'

f r audul ent st at ement s - - i nt o i t s shar e pr i ce. I d. "An i nvest or

who buys or sel l s st ock at t he pr i ce set by t he mar ket does so i n

r el i ance on t he i nt egr i t y of t hat pr i ce. " I d. Consequent l y,

i nvest or s must al so i mpl i ci t l y r el y on t he i nt egr i t y of t he

i nf or mat i on af f ect i ng t he st ock pr i ce. I nvest or s who avai l

t hemsel ves of t he f r aud- on- t he- mar ket t heor y recogni zed i n Basi c,

however , must be consi st ent . I f i t i s assumed t hat t he mar ket

r eact s t o t he f r aud, i t must al so be assumed t hat i t r eact s t o t he

t r ut h. Accor di ngl y, once a mi sst at ement or cor r ect i ve di scl osur e

i s publ i cl y known i n an ef f i ci ent mar ket , cour t s wi l l assume t hat

t he st ock pr i ce r eact s i mmedi at el y, and any cl ai m t hat an event

moved t he st ock pr i ce when t he event was not act ual l y a new

di scl osur e wi l l necessar i l y f ai l . 8

CSFB argued t hat Dr . Hakal a' s event st udy i ncl uded some

"new di scl osur es" t hat wer e not i n f act new t o t he market . CSFB

poi nt ed t o sever al i nst ances i n Dr . Hakal a' s event st udy when he

at t r i but ed t he r i se or f al l of AOL' s st ock pr i ce t o t he di scl osur e

of " st al e" i nf or mat i on. Consequent l y, CSFB aver r ed, t hi s

i nf or mat i on coul d not f or m t he basi s of a pr oper event dat e, and

8 A case pendi ng bef ore t he Supr eme Cour t has r ai sed t he i ssueof t he cont i nui ng vi abi l i t y of t he f r aud- on- t he- mar ket t heor y. SeeHal l i bur t on Co. v. Er i ca P. J ohn Fund, I nc. , No. 13- 317 ( U. S.ar gued Mar ch 5, 2014) .

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Dr . Hakal a' s r ej ect i on of t he ef f i ci ent mar ket hypot hesi s r ender ed

hi s st udy i nadmi ssi bl e.

4. Fai l ure t o Cont r ol f or Conf oundi ng Fact or s

The pur pose of an event st udy, as not ed, i s t o i sol at e

t he i mpact of an al l eged mi sst at ement , omi ssi on, or di scl osur e on

t he st ock pr i ce. A r ecur r i ng pr obl em i n event st udi es i s t he

pr esence of "conf oundi ng f act or s" - - news st or i es, st at ement s, or

event s t hat coi nci de wi t h r el evant event dates and t hat t hemsel ves

pot ent i al l y af f ect t he company' s st ock pr i ce. CSFB cl ai med t hat

Dr . Hakal a made no at t empt t o cont r ol f or t he many conf oundi ng news

st or i es t hat emerged at t he same t i me as CSFB r epor t s and ot her

r el evant event s, and t her ef or e t hat hi s event st udy di d not show

t hat CSFB' s st at ement s, as opposed to some ot her news st ory, moved

t he st ock pr i ce on any gi ven day.

E. The Di st r i ct Cour t ' s Opi ni on

I n J anuar y 2012, t he di st r i ct cour t i ssued an or der

pr ecl udi ng Dr . Hakal a' s t est i mony, r el yi ng on t he f our f act or s

ar gued i n CSFB' s mot i on t o pr ecl ude. Whi l e i t gave speci f i c

exampl es f or each f act or , t he cour t expl ai ned t hat t hese wer e

i l l ust r at i ve of per vasi ve pr obl ems.

Wi t h r espect t o t he event dat e sel ect i on, t he di st r i ct

cour t det er mi ned t hat

"[ r ] at her t han st udy t he mar ket ' s r eact i on t o themi sr epr esent at i ons al l eged i n t he compl ai nt , Dr . Hakal acher r y- pi cked unusual l y vol at i l e days and made t hem t hef ocus of hi s st udy. I f t he st ock pr i ce i ncreased

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shar pl y, he at t r i but ed i t t o t he def endant s ( even i f noCSFB r epor t s wer e r el eased on t hat day) . I f t he st ockpr i ce decreased shar pl y, he cal l ed i t a cor r ect i vedi scl osur e ( even i f t he news rel eased was posi t i ve) . TheCour t concl udes . . . t hat , qui t e si mpl y, Dr . Hakal a' st heor y does not match t he f act s.

Br i ckl ayer s & Tr owel Tr ades I nt ' l Pensi on Fund v. Cr edi t Sui sse

Fi r st Bost on, 853 F. Supp. 2d 181, 188 ( D. Mass. 2012) ( ci t at i ons

omi t t ed) ( i nt er nal quot at i on mar ks and al t er at i ons omi t t ed) ,

r econsi derat i on deni ed, publ i shed i n 853 F. Supp. 2d 181, 195 ( D.

Mass. May 17, 2012) .

Next , and wi t h l i t t l e i ndependent anal ysi s, t he di st r i ct

cour t f ol l owed t he r easoni ng of t wo ot her di st r i ct cour t s i n

concl udi ng t hat Dr . Hakal a' s use of dummy var i abl es was al so

unr el i abl e. See I n r e Nor t hf i el d Labs. , I nc. Sec. Li t i g. , 267

F. R. D. 536, 548 ( N. D. I l l . 2010) ; I n r e Xcel er a. com Sec. Li t i g. ,

No. 00- 11649- RWZ, 2008 WL 7084626, at *1 ( D. Mass. Apr . 25, 2008) .

I n t hose cases, cour t s had cr i t i ci zed t he hi gh per cent age ofdummi ed- out dat es i n Dr . Hakal a' s st udi es, f i ndi ng t hat t he

pr acti ce ar t i f i ci al l y st abi l i zed t he basel i ne r egr essi on. Her e,

t he di st r i ct cour t noted t hat Dr . Hakal a had dummi ed out a hi gher

per cent age of days i n t hi s st udy t han i n ei t her of t hose cases. I t

concl uded t hat " [ i ] f t hose cour t s wer e cor r ect i n excl udi ng hi s

event st udi es . . . , as t hi s Cour t bel i eves t hey wer e, i t f ol l owsa f or t i or i t hat hi s event st udy shoul d be excl uded her e. "

Br i ckl ayer s, 853 F. Supp. 2d at 189.

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The di st r i ct cour t al so f ound t hat Dr . Hakal a' s st udy

"r epeat edl y i gnor es t he ef f i ci ent mar ket pr i nci pl e" by at t r i but i ng

pr i ce f l uct uat i ons t o pr evi ousl y di scl osed i nf or mat i on. I d. The

shar ehol der s' at t empt t o "presume an ef f i ci ent mar ket t o pr ove

r el i ance and an i nef f i ci ent mar ket t o pr ove l oss causat i on, "

accor di ng t o the di st r i ct cour t , was t ant amount t o "hav[ i ng] t hei r

cake and eat [ i ng] i t t oo. " I d. at 190.

Fi nal l y, t he di st r i ct cour t r ej ect ed Dr . Hakal a' s at t empt

t o di saggr egat e conf oundi ng i nf or mat i on on t he event dat es. I t

acknowl edged t hat AOL r ecei ved near uni nt err upt ed coverage dur i ng

t he Cl ass Per i od, maki ng Dr . Hakal a' s t ask di f f i cul t . But i t

concl uded t hat Dr . Hakal a di d not use an accept ed means f or

separ at i ng t he i mpact of t he rel evant event f r om t he i mpact of

conf oundi ng i nf ormat i on. As an exampl e of one method t hat Dr .

Hakal a coul d have used, t he di st r i ct cour t di scussed i nt r a- day

t r adi ng anal ysi s. Thi s anal ysi s r equi r es t r acki ng t he st ock pr i ce

t hr oughout t he day to see whet her i t s dai l y hi ghs or l ows

cor r espond wi t h t he rel evant event , or wi t h t he r el ease of some

ot her i nf or mat i on. Dr . Hakal a di d not do t hi s. I nst ead, he

"ei t her at t r i but ed a r ough pr oport i on of t he movement t o each

r epor t or bl amed i t al l on t he def endant s. " I d. at 191. The

di st r i ct cour t consi der ed t hi s appr oach unr el i abl e and

unsci ent i f i c.

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The cour t ul t i mat el y concl uded t hat Dr . Hakal a' s event

st udy l acked suf f i ci ent r el i abi l i t y t o be pr esent ed t o a j ur y. I t

i ndi cat ed t hat "[ h] ad Dr . Hakal a' s event st udy suf f er ed f r om onl y

one of t he f our met hodol ogi cal def ect s i dent i f i ed by t hi s Cour t , or

suf f er ed f r om t hose f l aws j oi nt l y but t o a l esser degr ee, t oday' s

r ul i ng mi ght have been di f f er ent , " i d. at 191, but , gi ven t he

ext ent of Dr . Hakal a' s er r or s, pr ecl usi on was necessary.

The di st r i ct cour t awar ded summar y j udgment t o CSFB sua

spont e, deci di ng t hat Dr . Hakal a' s event st udy, "even i f i t wer e

admi t t ed, " di d not r ai se a t r i abl e i ssue of l oss causat i on. 9 I d.

at 191- 92. The di st r i ct cour t ' s r easoni ng l ar gel y r est at ed t he

pr obl ems t hat per suaded i t t o pr ecl ude Dr . Hakal a' s event st udy.

Af t er t hei r mot i on f or r econsi der at i on was deni ed, t he

shar ehol der s appeal ed bot h t he pr ecl usi on of Dr . Hakal a' s event

st udy and t he gr ant of summar y j udgment .

II. Analysis

A. Exper t Test i mony

We r evi ew a di st r i ct cour t ' s deci si on t o excl ude an

exper t wi t ness' s t est i mony f or abuse of di scr et i on. Mi l war d v.

Acui t y Speci al t y Pr ods. Gr p. , I nc. , 639 F. 3d 11, 13 ( 1st Ci r .

2011) . "Thi s st andar d i s not monol i t hi c: wi t hi n i t , embedded

f i ndi ngs of f act ar e r evi ewed f or cl ear er r or , quest i ons of l aw ar e

9 The def endant s' or i gi nal mot i on f or summary j udgment hadbeen deni ed ear l i er , subj ect t o bei ng r evi si t ed i f t he cour tdet er mi ned t hat Dr . Hakal a' s t est i mony shoul d be excl uded.

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r evi ewed de novo, and j udgment cal l s ar e subj ect ed t o cl assi c

abuse- of - di scret i on r evi ew. " Ungar v. Pal est i ne Li ber at i on Or g. ,

599 F. 3d 79, 83 ( 1st Ci r . 2010) .

Si nce t he Supr eme Cour t ' s deci si on i n Dauber t , t r i al

j udges have act ed as gat ekeeper s of exper t t est i mony, assess i ng i t

f or r el i abi l i t y bef or e admi t t i ng i t . See Mi l war d, 639 F. 3d at 14.

Exper t t est i mony comes i n many di f f er ent f or ms, but cer t ai n

non- excl usi ve f actor s can assi st a t r i al cour t i n i t s t ask: "( 1)

whet her t he t heor y or t echni que can be and has been t est ed; ( 2)

whether t he techni que has been subj ect t o peer r evi ew and

publ i cat i on; ( 3) t he t echni que' s known or pot ent i al r at e of er r or ;

and ( 4) t he l evel of t he t heor y or t echni que' s accept ance wi t hi n

t he r el evant di sci pl i ne. " Uni t ed St at es v. Mooney, 315 F. 3d 54, 62

( 1st Ci r . 2002) ( ci t i ng Dauber t , 509 U. S. at 593- 94) . Mor eover , an

exper t ' s opi ni on must be r el evant "not onl y i n t he sense that al l

evi dence must be r el evant , but al so i n t he i ncr ement al sense that

t he exper t ' s pr oposed opi ni on, i f admi t t ed, l i kel y woul d assi st t he

t r i er of f act t o under st and or det er mi ne a f act i n i ssue. "

Rui z- Tr oche v. Pepsi Col a of P. R. Bot t l i ng Co. , 161 F. 3d 77, 81

( 1st Ci r . 1998) ( ci t at i ons omi t t ed) .

As t he di st r i ct cour t obser ved, no si ngl e f act or i s

di sposi t i ve i n det er mi ni ng t he admi ssi bi l i t y of Dr . Hakal a' s exper t

t est i mony. Consequent l y, we wi l l addr ess t he f our f act or s f r omt he

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di st r i ct cour t ' s opi ni on i ndi vi dual l y bef or e anal yzi ng t he over al l

admi ssi bi l i t y of Dr . Hakal a' s t est i mony

1. Sel ect i on of Event Dates

The di st r i ct cour t commi t t ed no abuse of di scr et i on i n

concl udi ng t hat Dr . Hakal a sel ect ed event dat es based on unr el i abl e

cri t er i a. Event sel ect i on shoul d not be di f f i cul t t o under st and,

yet Dr . Hakal a' s event st udy l eaves us guessi ng as t o how he chose

t he f i f t y- seven dat es i ncl uded i n hi s study. He cer t ai nl y di d not

r el y on t he shar ehol der s' compl ai nt . Not onl y di d Dr . Hakal a

i ncl ude many dat es t hat bear no r el at i onshi p t o t he al l egat i ons i n

t he compl ai nt , i n some i nst ances he has t ur ned t he compl ai nt on i t s

head, t r eat i ng cer t ai n event s as cor r ect i ve when t he compl ai nt

l abel ed t hem i nf l at i onar y. Thi s compl et e di sconnect bet ween t he

event st udy and t he compl ai nt nul l i f i es t he usef ul ness of Dr .

Hakal a' s wor k; f r om al l appear ances, t he event st udy i s mor e

concerned si mpl y wi t h i dent i f yi ng abnormal market movement t han i n

suppor t i ng t he shar ehol der s' causat i on al l egat i ons. Thus, we agr ee

wi t h t he di st r i ct cour t ' s negat i ve assessment of Dr . Hakal a' s

sel ect i on of event dat es.

On appeal , t he shar ehol der s argue t hat t he di st r i ct cour t

coul d onl y ar r i ve at t hi s concl usi on by r ej ect i ng Dr . Hakal a' s

t est i mony, and t hat by so doi ng i t i nt er posed i t sel f as a

f act- f i nder . I t i s t r ue t hat a t r i al cour t shoul d not " det er mi ne

whi ch of sever al compet i ng sci ent i f i c t heor i es has t he best

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pr ovenance. " I d. at 85. I f an exper t has r eached her concl usi on

"i n a sci ent i f i cal l y sound and met hodol ogi cal l y r el i abl e f ashi on, "

i d. , t he di f f er ences " shoul d be t est ed by t he adver sar i al pr ocess, "

Mi l war d, 639 F. 3d at 15. Mor eover , t he cour t shoul d not r el y on

cr edi bi l i t y det er mi nat i ons t o r esol ve a di sagr eement bet ween

exper t s. See Seahor se Mar i ne Suppl i es, I nc. v. P. R. Sun Oi l Co. ,

295 F. 3d 68, 81 ( 1st Ci r . 2002) ( "The ul t i mat e credi bi l i t y

det er mi nat i on and t he t est i mony' s accor ded wei ght ar e i n t he j ur y' s

pr ovi nce. ") .

Her e, Dr . Hakal a st at ed on sever al occasi ons t hat he

pr e- sel ect ed r el evant event dat es wi t hout r ef er ence t o the st ock

pr i ce, yet t he di st r i ct cour t speci f i cal l y f ound, t o t he cont r ar y,

t hat Dr . Hakal a had "cher r y- pi cked unusual l y vol at i l e days and made

t hemt he f ocus of t he st udy. " Br i ckl ayer s, 853 F. Supp. 2d at 188.

The sharehol ders cl ai m t hat t he di st r i ct cour t i mpermi ssi bl y

di scr edi t ed Dr . Hakal a' s t est i mony on t hi s i ssue. Thi s ar gument

mi sses t he poi nt . The pr obl em i s not whet her Dr . Hakal a sel ect ed

hi s event dat es wi t h r ef er ence t o AOL' s st ock pr i ce. The pr obl em

i s t hat t he i ndi sput abl y vol at i l e dat es t hat Dr . Hakal a sel ect ed

wer e of t en unr el at ed t o t he shar ehol der s' al l egat i ons, and

t her ef or e do not "hel p t he t r i er of f act t o under st and t he evi dence

or t o det er mi ne a f act i n i ssue. " Fed. R. Evi d. 702( a) . The

di st r i ct cour t f ocused on t hi s def i ci ency, and not on t he mechani cs

of how Dr . Hakal a sel ect ed t hese event dates. Consequent l y, we see

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no reason t o addr ess whet her t he di st r i ct cour t made an

i mper mi ssi bl e credi bi l i t y det er mi nat i on.

2. Over use of Dummy Var i abl es

We t ur n next t o t he di st r i ct cour t ' s concl usi on t hat Dr .

Hakal a over used dummy var i abl es, whi ch, accor di ng t o t he cour t ,

"ar t i f i ci al l y def l at ed t he basel i ne vol at i l i t y of AOL' s st ock pr i ce

dur i ng t he Cl ass Per i od. " Br i ckl ayer s, 853 F. Supp. 2d at 189.

Whi l e our r evi ew of t he r ecor d l ends some suppor t t o t he di st r i ct

cour t ' s assessment , t her e ar e count er vai l i ng f act or s suggest i ng

t hat Dr . Hakal a' s excl usi on of var i ous dat es dur i ng t he Cl ass

Per i od af f ect s onl y t he wei ght , and not t he admi ssi bi l i t y, of hi s

event st udy.

CSFB ar gued, and t he di st r i ct cour t agr eed, t hat "Dr .

Hakal a' s event st udy uses a much hi gher per cent age of dummy

var i abl es t han i s consi der ed accept abl e i n t he f i nanci al

economet r i c communi t y. " I d. at 188. We t hi nk, however , t hat i n

ar r i vi ng at t hi s concl usi on, t he cour t may have gi ven i nsuf f i ci ent

wei ght t o t he shar ehol der s' pr of f er . The shar ehol der s of f er ed

schol ar shi p, see, e. g. , Rober t B. Thompson, I I , et al . , The

I nf l uence of Est i mat i on Per i od News Event s on St andardi zed Market

Model Pr edi ct i on, 63 Acc. Rev. 448, 466 ( 1988) ( " [ T] he di st r i but i on

of secur i t y ret ur ns dur i ng per i ods i n whi ch Wal l St r eet J our nal

news i s r el eased appear s t o di f f er syst emat i cal l y f r om t he

di st r i but i on of non- r el ease per i od r et ur ns. Thi s ' news- r el ease'

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ef f ect can be i ncor por at ed i n model s of t he r et ur ns gener at i ng

pr ocess by condi t i oni ng on news r el eases. " ) , as wel l as exper t

t est i mony f r om Dr . M. Laur ent i us Mar ai s10 t hat support ed Dr .

Hakal a' s appr oach.

CSFB has i dent i f i ed ar t i cl es t hat descr i be event st udy

met hodol ogi es wi t hout ment i oni ng the opt i on of cont r ol l i ng f or

mat er i al news. See, e. g. , A. Cr ai g MacKi nl ay, Event Studi es i n

Economi cs and Fi nance, 35 J . Econ. Li t er at ur e 13, 17- 19 ( descr i bi ng

var i ous market model s f or event st udi es wi t hout ment i oni ng a news-

condi t i oned model , but not i ng that " [ t ] he use of ot her model s i s

di ct at ed by dat a avai l abi l i t y") . The shar ehol der s, meanwhi l e,

poi nt t o academi c event st udi es t hat do cont r ol f or mat er i al news

dat es usi ng a def i ni t i on of "mat er i al news" nar r ower t han Dr .

Hakal a' s. See, e. g. , Ri char d Rol l , R2, 43 J . Fi n. 541, 558 ( 1988)

( sel ect i ng mat er i al news f r om t he Dow- J ones news servi ce and The

Wal l St r eet J our nal ) .

Ul t i mat el y, Dr . Hakal a' s appr oach may not be i nconsi st ent

wi t h t he met hodol ogy or goal s of a r egr essi on anal ysi s. A

r egr essi on anal ysi s seeks t o i sol at e t he ef f ect t hat one var i abl e

has on anot her . Dr . Hakal a' s event st udy sought t o i sol at e t he

ef f ect of t he gener al mar ket condi t i ons on AOL' s st ock pr i ce. He

bel i eves t hat "mat er i al news dat es" have t he pot ent i al t o di st or t

10 Dr . Mar ai s submi t t ed t est i mony r ebut t i ng Dr . St ul z' scr i t i ci sm of Dr . Hakal a' s use of dummy var i abl es.

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t hi s rel at i onshi p, and t her ef or e excl udes t hemf r omhi s anal ysi s.

Ot her mar ket economi st s may di sagr ee wi t h t he ef f i cacy of t hi s s t ep

or wi t h t he way t hat he def i nes mat er i al i t y, but i t i s har d t o see

how i t f ai l s t o f ol l ow t he l ogi c of r egr essi on st udi es. I ndeed,

CSFB' s event st udy excl udes cer t ai n dat es f or pr eci sel y t he same

r eason. Nor do we consi der t he per cent age of dummi ed- out dat es

di sposi t i ve of t he i ssue. The di st r i ct cour t was t r oubl ed by t he

f act t hat Dr . Hakal a excl uded 211 of t he 388 dates i n t he st udy

per i od. Br i ckl ayer s, 853 F. Supp. 2d at 188. That f act al one,

however , does not negat e t he r el i abi l i t y of hi s st udy. The

r emai ni ng 177 dat es provi ded enough dat a to conduct a robust

r egr essi on anal ysi s. As Dr . Mar ai s ( t he shar ehol der s' exper t on

t he i ssue of dummy var i abl es) not ed, t he i mpor t ant f act or i s not

" t he mechani st i c and super f i ci al per cent of some uni ver se of

observat i ons" t hat Dr . Hakal a dummi ed out , but t he "val i d t echni cal

pr i nci pl es concer ni ng t he val i di t y of t he exer ci se. "

The di st r i ct cour t not ed t wo previ ous cour t opi ni ons t hat

di sappr oved of Dr . Hakal a' s use of dummy var i abl es. We have hel d,

however , t hat " t he quest i on of admi ssi bi l i t y must be t i ed t o t he

f act s of a par t i cul ar case. " Mi l war d, 639 F. 3d at 14- 15 ( ci t at i ons

omi t t ed) ( i nt er nal quot at i on mar ks omi t t ed) . The i mpor t ance of

t hat counsel i s mani f est her e. Based on t he r ecor d bef or e us, Dr .

Hakal a' s event st udi es i n t hose t wo cases di f f er ed f r omt hi s one i n

at l east one key r espect : i n t he ot her cases he dummi ed out dat es

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on whi ch "any news" about t he company appear ed. Nor t hf i el d Labs. ,

267 F. R. D. at 548; see al so Xcel er a, 2008 WL 7084626, at *1. Thi s

i s not a f r i vol ous di st i ncti on, and t he di st r i ct cour t i n Xcel er a

hi ghl i ght ed i t s i mpor t ance: "Al t hough t he academi c l i t er at ur e

suppor t s t he use of dummy var i abl es f or event s i n whi ch si gni f i cant

company- speci f i c news i s r el eased, no peer - r evi ewed j our nal

suppor t s t he vi ew t hat dummy var i abl es may be used on al l dat es on

whi ch any company news appears. " Xcel era, 2008 WL 7084626, at *1.

No one contends t hat Dr . Hakal a dummi ed out ever y day i n whi ch AOL

appear ed i n a news st or y, yet t hat was pr eci sel y the pr obl em i n

Nor t hf i el d and Xcel er a. 11 Gi ven t hat Dr . Hakal a empl oyed a

di f f er ent met hodol ogy f or t hi s case, Nor t hf i el d and Xcel er a ar e of

l i mi t ed val ue i n assessi ng i t .

I n Bazemore v. Fr i day, 478 U. S. 385, 400 ( 1986) The

Supr eme Cour t obser ved t hat , "Nor mal l y, f ai l ur e to i ncl ude

var i abl es wi l l af f ect t he anal ysi s' pr obat i veness, not i t s

admi ssi bi l i t y. " Thus, whi l e Dr . Hakal a' s use of dummy var i abl es

may, as def endant s cont end, have ar t i f i ci al l y def l at ed t he basel i ne

vol at i l i t y of AOL' s st ock i n hi s r egr essi on anal ysi s, i t may be a

di sput e t hat shoul d be r esol ved by the j ur y.

11 CSFB argues t hat Dr . Hakal a empl oyed t he same "mat er i alnews" st andar d i n hi s event st udi es i n Nor t hf i el d and Xcel er a as hedi d her e. That may be t r ue, but i t does not addr ess t he f act t hatt he cour t s i n t hose cases speci f i cal l y f ound t hat Dr . Hakal aexcl uded any dat e cont ai ni ng company- speci f i c news. No suchf i ndi ng exi st s i n t hi s case.

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CSFB l aunches one more assaul t on Dr . Hakal a' s use of

dummy var i abl es. I t cont ends t hat hi s met hodol ogy f ai l s under

Dauber t because i t cannot be r epl i cated. Dr . Hakal a has per f ormed

t hr ee separate event st udi es r el ated t o t he AOL mer ger , and each

t i me he has dummi ed out more mat er i al news dat es t han bef ore.

Consequent l y, CSFB ar gues, hi s sel ect i on of mat er i al news dat es i s

ar bi t r ar y and coul d not be r epl i cat ed by anot her economi st . We ar e

not so sur e.

Dauber t suggest s t hat a key quest i on i n det er mi ni ng

whet her a par t i cul ar t echni que i s sci ent i f i c knowl edge t hat wi l l be

usef ul t o a j ur y i s "whet her i t can be ( and has been) t est ed. "

Dauber t , 509 U. S. at 593. Ther e, t he Cour t was encour agi ng t r i al

cour t s t o l i mi t exper t t est i mony t o f al si f i abl e t heor i es, meani ng

t hose "capabl e of empi r i cal t est . " I d. ( quot i ng Car l Hempel ,

Phi l osophy of Nat ur al Sci ence 49 ( 1966) ) . Test i ng a par t i cul ar

t heor y wi l l ei t her r epr oduce consi st ent r esul t s, t hus conf i r mi ng

t he t heor y, or i nconsi st ent r esul t s, t hus cast i ng doubt on i t . I n

t hi s case, Dr . Hakal a has t heor i zed t hat , gi ven cer t ai n

assumpt i ons, AOL' s st ock exper i enced abnor mal r et ur ns on f i f t y-

seven event dat es. One woul d t est t hat t heory by r epeat i ng hi s

event st udy under t he same condi t i ons t hat he di d. Thi s woul d not

be a di f f i cul t t ask, si nce Dr . Hakal a has pr ovi ded al l of t he

necessary gui del i nes t o recr eat e hi s event st udy.

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Rather t han put Dr . Hakal a t o t he t est , CSFB has si mpl y

argued t hat Dr . Hakal a' s t echni ques are unr epr oduci bl e because of

di f f er ences i n t he number of mater i al news dat es t hat he has

dummi ed out i n successi ve event st udi es. But CSFB here i s not

compar i ng appl es t o appl es. Onl y one of t he t hr ee st udi es t o whi ch

t hey r ef er i s at i ssue her e. One of t he ot her s was cr eat ed i n

suppor t of cl ass act i on cer t i f i cat i on; t he ot her was i n connect i on

wi t h a di f f er ent l awsui t . That f act al one coul d be enough t o

neut er CSFB s ar gument and l eave such mat t ers as f odder f or cr oss-

exami nat i on, not excl usi on.

Ul t i matel y, both t he number of dates Dr . Hakal a excl uded

f r om consi der at i on and t he met hods he empl oyed t o sel ect t hose

dat es cr eat e cl ose quest i ons. And whi l e, as not ed, appel l ant ' s

ar gument s r ai se cr edi bl e quest i ons, we need not r esol ve t hi s

par t i cul ar sub- i ssue because, as t he di st r i ct cour t concl uded, t he

ot her t hr ee bases f or excl udi ng Dr . Hakal a' s t est i mony ar e sound.

3. Pr i or Di scl osur es

We have descr i bed an ef f i ci ent market f or t he pur pose of

cl ass act i on secur i t i es l i t i gat i on as "one i n whi ch t he mar ket

pr i ce of t he stock f ul l y r ef l ect s al l publ i cl y avai l abl e

i nf or mat i on. " I n r e Pol yMedi ca Cor p. Sec. Li t i g. , 432 F. 3d 1, 14

( 1st Ci r . 2005) . We have al so expl ai ned t hat t he r el evant i nqui r y

i s whet her t he mar ket i s i nf or mat i onal l y ef f i ci ent , i d. at 16,

meani ng t hat "al l publ i cl y avai l abl e i nf or mat i on i s i mpounded i n

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[ t he] pr i ce" r api dl y af t er i t i s di ssemi nat ed. I d. at 14. The

di st r i ct cour t cor r ectl y appl i ed t hi s st andar d t o Dr . Hakal a' s

event st udy. Havi ng est abl i shed t hat AOL st ocks t r aded i n an

ef f i ci ent mar ket i n or der t o obt ai n cl ass cer t i f i cat i on, t he

shar ehol der s coul d not abandon t hat f actual pr emi se when pr ovi ng

l oss causat i on. Yet sever al of t he r el evant event s i n Dr . Hakal a' s

st udy ar e based on publ i shed r ef er ences t o i nf or mat i on pr evi ousl y

di scl osed t hat , under an ef f i ci ent mar ket t heor y, woul d have

al r eady been i ncor por at ed i nt o AOL' s shar e pr i ce. The l ag bet ween

t he or i gi nal di scl osur e and t he event dat e r anged f r om one day t o

r oughl y a mont h. The maj or i t y of t hese di scl osur es occur r ed at

l east a week bef or e t he event dat es; t hus, t he event dat es occur r ed

l ong af t er an ef f i ci ent market woul d have pr ocessed t he news.

The sharehol ders r espond t hat t he event dat es i ncl uded

new i nf or mat i on t hat was not cont ai ned i n t he or i gi nal di scl osur es.

We concl ude, however , t hat whi l e t he di scl osures made on t he event

dat es di d not mer el y par r ot pr evi ousl y rel eased i nf or mat i on, t hey

di d no more than t o pr ovi de gl oss on publ i c i nf or mat i on, and t hus

per mi t t ed t he di st r i ct cour t t o f i nd t hat t hey woul d not have moved

AOL' s shar e pr i ce i n an ef f i ci ent mar ket . See I n r e Omni con Gr p. ,

597 F. 3d at 512 ( hol di ng t hat t he "negat i ve char act er i zat i on of

al r eady- publ i c i nf or mat i on" does not const i t ut e a cor r ect i ve

di scl osur e of new i nf or mat i on) . For i nst ance, Dr . Hakal a i ncl uded

a Febr uary 2001 Lehman Br ot hers r epor t on AOL. Whi l e t hi s r epor t

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downgr aded i t s J anuary 2001 buy or sel l r ecommendat i on f or AOL, i t

based t hi s downgr ade on i nf ormat i on t hat was known t he pr evi ous

mont h. That Lehman Br ot her s reconsi der ed i t s i ni t i al appr ai sal of

AOL s busi ness, or l ost conf i dence i n AOL f r om one mont h t o t he

next , does not demonst r at e cor r ect i ve i nf or mat i on ent er i ng t he

mar ket . See i d. ( "A negat i ve j our nal i st i c char act er i zat i on of

pr evi ousl y di scl osed f act s does not const i t ut e a cor r ect i ve

di scl osur e of anyt hi ng but t he j our nal i st s' opi ni ons. ") . The

di st r i ct cour t di d not abuse i t s di screti on i n det er mi ni ng t hat

t hi s recur r i ng pr obl em af f ect ed t he admi ssi bi l i t y of Dr . Hakal a' s

event st udy.

4. Conf oundi ng Factors

When pr ovi ng l oss causat i on i n a secur i t i es f r aud sui t ,

pl ai nt i f f s " bear [ ] t he bur den of showi ng t hat [ t hei r ] l osses wer e

at t r i but abl e t o t he r evel at i on of t he f r aud and not t he myr i ad

ot her f act or s t hat af f ect a company' s st ock pr i ce. " I n r e Wi l l i ams

Sec. Li t i g. , 558 F. 3d 1130, 1137 ( 10t h Ci r . 2009) ; Dur a, 544 U. S.

at 343 ( hol di ng t hat a pl ai nt i f f does not show l oss causat i on i f

t he l ower shar e pr i ce r ef l ect s "not t he ear l i er mi sr epr esent at i on,

but changed economi c ci r cumst ances, changed i nvest or expect at i ons,

new i ndust r y- speci f i c or f i r m- speci f i c f acts, condi t i ons, or ot her

event s, whi ch t aken separ at el y or t oget her account f or some or al l

of t hat l ower pr i ce" ) . Thus, when conduct i ng an event st udy, an

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expert must addr ess conf oundi ng i nf ormat i on t hat ent ered t he market

on t he event dat e.

Thi s case deal s wi t h a hi ghl y publ i ci zed mer ger t hat

capt ur ed t he at t ent i on of t he ent i r e f i nanci al i ndust r y. Ther e i s

no doubt t hat Dr . Hakal a f aced a "her cul ean t ask" i n sor t i ng

t hr ough t he cont i nuous f l ow of i nf or mat i on about AOL. Br i ckl ayer s,

853 F. Supp. 2d at 190. We agr ee wi t h t he di st r i ct cour t , however ,

t hat Dr . Hakal a di d not est abl i sh any rel i abl e means of addr essi ng

t hi s pr obl em. I nst ead, he seemi ngl y made a j udgment cal l as t o

conf oundi ng i nf ormat i on wi t hout any met hodol ogi cal under pi nni ng.

I n suppor t of Dr . Hakal a' s t r eat ment of conf oundi ng

f act or s, t he shar ehol der s cor r ect l y poi nt out t hat "even a

st at i st i cal event st udy i nvol ves subj ect i ve el ement s. " I n r e Xer ox

Cor p. Sec. Li t i g. , 746 F. Supp. 2d 402, 412 ( D. Conn. 2010)

( ci t at i ons omi t t ed) ( i nt er nal quot at i on mar ks omi t t ed) .

Never t hel ess, a subj ect i ve anal ysi s wi t hout any met hodol ogi cal

const r ai nt s does not sat i sf y t he r equi r ement s of Dauber t . As t he

di st r i ct cour t not ed, "[ i ] t woul d be j ust as sci ent i f i c to submi t

t o t he j ur or s evi dence of def endant s' al l eged f r aud and AOL' s st ock

f l uct uat i ons and l et t hem specul at e whet her t he f or mer caused t he

l at t er . " Br i ckl ayer s, 853 F. Supp. 2d at 190; cf . Mi l war d, 639

F. 3d at 17- 19 ( admi t t i ng exper t t est i mony based on a subj ect i ve

"wei ght of t he evi dence" met hodol ogy, but i dent i f yi ng t he

est abl i shed st eps i n t hi s anal ysi s and t he f act or s used i n

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anal yzi ng t he causal r el at i onshi p) . Dr . Hakal a had t ool s at hi s

di sposal , such as i nt r a- day t r adi ng anal ysi s, t o gui de hi s anal ysi s

of conf oundi ng i nf or mat i on. 12

5. Bot t om Li ne

Ul t i mat el y, we concl ude t hat t he di st r i ct cour t di d not

abuse i t s di scr et i on i n excl udi ng Dr . Hakal a' s test i mony. Whi l e we

may quest i on i t s anal ysi s wi t h r espect t o dummy var i abl es, t he

cour t ' s t r eat ment of t he r emai ni ng t hr ee i ssues i s mor e t han

suf f i ci ent t o sat i sf y our def er ent i al r evi ew. See Rui z- Tr oche, 161

F. 3d at 83 ( "[ W] e wi l l r ever se a t r i al cour t ' s deci si on i f we

det er mi ne t hat t he j udge commi t t ed a meani ngf ul er r or i n j udgment . "

( ci t at i ons omi t t ed) ( i nt er nal quot at i on mar ks omi t t ed) ) .

Even concedi ng t he af orement i oned probl ems wi t h Dr .

Hakal a' s event st udy, however , t he shar ehol der s cont end that t he

event st udy i dent i f i ed abnormal market movement , on cer t ai n key

dat es, t hat di d not suf f er f r om any met hodol ogi cal i nf i r mi t i es.

Ther ef or e, t hey cl ai m, t he di st r i ct cour t abused i t s di scr et i on by

t hrowi ng out t he good wi t h t he bad. True enough, some r evi ewi ng

cour t s have f ound abuses of di scr et i on wher e t r i al cour t s r ej ect ed

12 Dr . Hakal a coul d al so have used cont ent anal ysi s. See,

e. g. , Davi d Tabak, Maki ng Assessment s About Mater i al i t y LessSubj ect i ve Thr ough t he Use of Cont ent Anal ysi s ( 2007) , avai l abl e atht t p: / / www. nera. com/ 67_5197. htm; Est her Br uegger & Fr eder i ck C.Dunbar , Est i mat i ng Fi nanci al Fr aud Damages wi t h ResponseCoef f i ci ent s, 35 J . Cor p. L. 11, 25 ( 2009) ( "' [ C] ont ent anal ysi s'i s now par t of t he t ool ki t f or det ermi ni ng whi ch among a number ofsi mul t aneous news event s had ef f ect s on t he st ock pr i ce. " ) .

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most l y sal vageabl e exper t t est i mony f or nar r ow f l aws. See Ci t y of

Tuscal oosa v. Har cr os Chems. , I nc. , 158 F. 3d 548, 563 ( 11t h Ci r .

1998) ( r ever si ng t he excl usi on of exper t t est i mony i n i t s ent i r et y

wher e onl y "a smal l port i on of [ t he] data and t est i mony [ was]

f undament al l y f l awed") . Her e, however , we conf r ont t he r ever se

si t uat i on - - per vasi ve pr obl ems wi t h Dr . Hakal a' s event st udy t hat ,

al l egedl y, st i l l l eave a f ew dat es unaf f ect ed.

The di st r i ct cour t was not obl i gat ed t o prune away al l of

t he pr obl emat i c event s i n or der t o pr eser ve Dr . Hakal a' s t est i mony.

Out of f i f t y- seven event dat es, t he shar ehol der s l i st f i ve "key

di scl osur es" that shoul d sur vi ve t he di st r i ct cour t ' s or der . The

di st r i ct cour t di d not abuse i t s di scr et i on i n t r eat i ng t he ent i r e

event st udy as i nadmi ss i bl e gi ven t he overwhel mi ng i mbal ance

bet ween unr el i abl e and r el i abl e dat es. The bur den of pr oof f al l s

on t he par t y i nt r oduci ng expert t est i mony. Moor e v. Ashl and Chem.

I nc. , 151 F. 3d 269, 276 ( 5t h Ci r . 1998) ( "The pr oponent need not

pr ove t o t he j udge t hat t he exper t ' s t est i mony i s cor r ect , but she

must pr ove by a pr eponderance of t he evi dence t hat t he test i mony i s

r el i abl e. ") . Requi r i ng j udges t o sor t t hr ough al l i nadmi ssi bl e

t est i mony i n or der t o save t he remai ni ng por t i ons, however smal l ,

woul d ef f ect i vel y shi f t t he bur den of pr oof and r ewar d exper t s who

f i l l t hei r t est i mony wi t h as much bor der l i ne mat er i al as possi bl e.

We decl i ne t o over t ur n t he di st r i ct cour t ' s r ul i ng on t hi s speci ous

l ogi c.

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We al so r ej ect t he sharehol der s' argument t hat CSFB

ambushed them wi t h new argument s at t he Dauber t hear i ng. 13 CSFB

pr esent ed no new argument s at t he Dauber t hear i ng. I nst ead, i t

made a thorough pr esent at i on of t he al l eged pr obl ems of each event

dat e. Thi s shoul d not have caught t he shar ehol der s of f guar d. The

Dauber t hear i ng occur r ed over t hr ee year s af t er CSFB f i r st

chal l enged Dr . Hakal a' s exper t t est i mony. Dur i ng t hose t hr ee

year s, CSFB r ei t er at ed i t s argument s i n exper t r epor t s,

deposi t i ons, and br i ef i ngs. I t ci t ed numer ous exampl es of speci f i c

dat es, but never cl ai med t hat t hose dat es const i t ut ed t he ent i r et y

of Dr . Hakal a' s f l aws. The shar ehol ders knew how CSFB woul d at t ack

Dr . Hakal a' s event st udy, and they coul d have ant i ci pat ed t he scope

of t he at t ack.

B. Summary J udgment

Our r evi ew of a grant of summary j udgment i s de novo,

i nt er pr et i ng t he r ecor d i n t he l i ght most f avor abl e t o t he

nonmovi ng par t y. See Henr y v. Uni t ed Bank, 686 F. 3d 50, 54 ( 1st

Ci r . 2012) . "Under [ Feder al Rul e of Ci vi l Pr ocedur e 56( a) ] ,

summary j udgment i s pr oper i f t he pl eadi ngs, deposi t i ons, answer s

t o i nt er r ogat or i es, and admi ssi ons on f i l e, t oget her wi t h t he

af f i davi t s, i f any, show t hat t her e i s no genui ne i ssue as t o any

mat er i al f act and t hat t he movi ng par t y i s ent i t l ed t o a j udgment

13 The part i es ar gue over whi ch st andard of r evi ew we shoul dappl y t o t hi s i ssue. We need not answer t hat quest i on, as t heout come i s t he same under any st andar d of r evi ew.

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as a mat t er of l aw. " Cel ot ex Cor p. v. Cat r et t , 477 U. S. 317, 322

( 1986) ( i nt er nal quot at i on mar ks omi t t ed) .

Al t hough t he di st r i ct cour t awarded summary j udgment t o

CSFB "even i f [ Dr . Hakal a' s event st udy] wer e admi t t ed, "

Br i ckl ayers at 191- 92, we need not engage i n such count er f actual

anal ysi s, see Peguer o- Mor ont a v. Sant i ago, 464 F. 3d 29, 34 ( 1st

Ci r . 2006) ( "We can af f i r m [ t he di st r i ct cour t ] on any basi s

avai l abl e i n t he r ecor d . . . . " ) . To sustai n t hi s sui t , t he

sharehol der s needed t o show a connect i on bet ween CSFB' s decept i ve

pr act i ces and t he dr op i n AOL' s st ock pr i ce. The shar ehol der s

r el i ed sol el y on Dr . Hakal a' s event st udy t o sat i sf y t hi s el ement .

Wi t hout i t , t hey cannot show a genui ne di sput e as t o t hi s i ssue.

The di st r i ct cour t di d not need t o t unnel i nt o Dr . Hakal a' s event

st udy f or any evi dence f avor abl e t o t he shar ehol der s' cl ai m. The

di st r i ct cour t excl uded Dr . Hakal a' s t est i mony i n i t s ent i r et y. We

uphol d t hat r ul i ng. Thus, t her e i s no evi dence t o sor t t hr ough,

and t hi s compl ete l ack of evi dence compel s a gr ant of summary

j udgment t o CSFB.

III. Conclusion

For t he f oregoi ng r easons, we affirmt he di s t r i ct court ' s

excl usi on of t he shar ehol der s' exper t t est i mony and consequent l y

affirm i t s awar d of summar y j udgment t o CSFB.

It is so ordered.

34

Bricklayers & Trowel Trades v. Credit Suisse, 1st Cir. (2014)

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