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In re Bear Stearns Companies, Inc. Securities, Derivative, And Erisa Litigation

United States District Court, S.D. New York

June 30, 2017

BEAR STEARNS COMPANIES INC., JAMES CAYNE, WARREN SPECTOR AND DELOITTE & TOUCHE LLP, Defendants. This Document Relates To: Securities Action, 08 Civ. 2793 BRUCE S. SHERMAN, Plaintiff,

          Counsel for Plaintiff BOIES, SCHILLER & FLEXNER LLP Richard B. Drubel, Esq.

          Counsel for Defendants PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP Jessica S. Carey, Esq.


          ROBERT W. SWEET U.S.D.J.

         Defendants The Bear Stearns Companies Inc. ("Bear Stearns"), James E. Cayne, and Warren J. Spector (together, "Defendants") have moved pursuant to Federal Rules of Civil Procedure 16, 26, and 37, to strike the revised expert report (the "Revised Report") of Dr. John D. Finnerty ("Finnerty") served by Plaintiff Bruce S. Sherman ("Plaintiff") on December 21, 2016. Based upon the conclusions set forth above, the Revised Report is stricken.

         I. Prior Proceedings

         The procedural history and factual background of the underlying multidistrict litigation has been detailed in various opinions by this Court. See, e.g., In re Bear Stearns Companies, Inc. Sec, Derivative, & ERISA Litig., No. 08 CIV. 2793, 2014 WL 4443458, at *1 (S.D.N.Y. Sept. 9, 2014) (hereinafter, "In re Bear Stearns"); In re Bear Stearns, 909 F.Supp.2d 259, 263 (S.D.N.Y. 2012); In re Bear Stearns, 763 F.Supp.2d 423 (S.D.N.Y. 2011), on reconsideration, No. 07 CIV. 10453, 2011 WL 4072027 (S.D.N.Y. Sept. 13, 2011), and on reconsideration, No. 07 CIV. 10453, 2011 WL 4357166 (S.D.N.Y. Sept. 13, 2011).

         The Plaintiff filed his complaint on September 24, 2009 alleging securities violations by the Defendants. This and similar actions were determined to be part of a multidistrict litigation, 08 Md. 1963 (RWS).

         Plaintiff's complaint alleges that he purchased a large block of Bear Stearns common shares between June 25, 2007 and March 13, 2008 at prices ranging from $53.77 to $140.76 per share. He sold 229, 150 shares of Bear Stearns common stock on March 19, 2008 at the price of $5.23 per share. Sherman alleges Defendants misrepresented Bear Stearns's financial condition, including the value of Bear Stearns's mortgage assets, the nature of its risk management, and the adequacy of Bear Stearns's capital and liquidity, leading Sherman to purchase and retain Bear Stearns common stock, ultimately suffering massive losses.

         Sherman proffered Finnerty as an expert in loss causation and the damages Sherman suffered as a result of the conduct alleged. Finnerty concluded that, on March 14 and March 17, 2008, Bear Stearns's stock price fell due to corrective disclosures that revealed alleged fraud at Bear Stearns, and from December 20, 2007 through March 13, 2008 (the "Leakage Period"), Bear Stearns's stock price fell because news of the alleged fraud "leaked" into the market. According to Finnerty, as a result of the revelation of the alleged fraud via both corrective disclosures and leakage, Plaintiff's damages were over $13 million.

         On April 16, 2015, Defendants served a rebuttal expert report from Professor Allen Ferrell ("Ferrell"), which responded to Finnerty's report, cataloguing a number of significant flaws in Finnerty's loss causation methodology and calculation of Plaintiff's damages. Defendants deposed Finnerty on May 14, 2015, and expert discovery closed on June 22, 2015.

         On August 17, 2015, Defendants moved to exclude Finnerty's report and testimony as unreliable under Federal Rule of Evidence ("FRE") 702.

         By order of July 5, 2016 (the "July 5 Order"), the report and testimony of Dr. John D. Finnerty was excluded. The July 5 Order determined that Finnerty's report and testimony were inadmissible under FRE 702, because Finnerty's leakage methodology for estimating loss causation and damages had not been generally accepted by courts or the scientific community, or subjected to peer review, and because Finnerty's methodology failed adequately to account for the impact of non-fraud related information and effects on Bear Stearns's stock price.

         The Plaintiff moved to clarify whether the ruling applied to "only those portions of Finnerty's report addressing leakage (as distinct from corrective disclosures)." By order of December 6, 2016 (the "December 6 Order"), this Court stated that the July 5 Order "excluded the entirety of Finnerty's report as it was written, merging the two damages calculations." On December 21, 2016, Plaintiff sent an email to Defendants attaching the Revised Report. No leave to submit a Revised Report was sought by the Plaintiff.

         This case was part of a multidistrict litigation that was settled by opinion granting the Lead Plaintiff s motion for a distribution order approving administrative determinations and directing distribution of reserved settlement funds dated July 8, 2014. See Docket of Case No. 08 Md. 1963, ECF No. 448. Plaintiff in the instant action opted out of the ...

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