Jaffe v. Household Intl Inc, et al

Filing 1866

MOTION by Defendants W F Aldinger, Household International Inc., D A Schoenholz, Unknown Gary Gilmer for judgment as Matter of Law or, in the Alternative, MOTION by Defendants W F Aldinger, Household International Inc., D A Schoenholz, Unknown Gary Gilmer for new trial (Renewed) (Clement, Paul)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
LAWRENCE E. JAFFE PENSION PLAN, ON
BEHALF OF ITSELF AND ALL OTHERS
SIMILARLY SITUATED,
Plaintiffs,

Lead Case No. 02-C-5893
(Consolidated)
CLASS ACTION

v.
Judge Ronald A. Guzman
HOUSEHOLD INTERNATIONAL, INC., ET
AL.,
Defendants.

DEFENDANTS’ RENEWED MOTION FOR JUDGMENT AS A MATTER OF LAW OR,
IN THE ALTERNATIVE, A NEW TRIAL
Defendants Household International, Inc., William F. Aldinger, David A. Schoenholz,
and Gary Gilmer (collectively “Defendants”), respectfully move for judgment as a matter of law
pursuant to Rule 50(b) of the Federal Rules of Civil Procedure, or, in the alternative, a new trial
pursuant to Rule 59 of the Federal Rules of Civil Procedure. In support of this motion, and
pursuant to this Court’s Order, Doc. 1856, Defendants submit herewith, and expressly
incorporate herein, Defendants’ Memorandum of Law In Support of Defendants’ Renewed
Motion For Judgment As A Matter of Law Or, In The Alternative, A New Trial (“Memorandum
of Law”).
As more fully set forth in the Memorandum of Law incorporated herein, Defendants are
entitled to judgment as a matter of law pursuant to Rule 50(b) on multiple grounds, including:

1.

Plaintiffs failed to present competent evidence to prove the essential element of

loss causation. See Memorandum of Law at 5-22. Plaintiffs’ “leakage model” failed to establish
loss causation as a matter of law for multiple reasons, including: (1) the leakage model failed to
identify the misrepresentations alleged to have introduced inflation into Household’s Stock Price,
see Memorandum of Law at 8-11; (2) the leakage model failed to establish a causal connection
between an alleged misrepresentation and a loss, see Memorandum of Law at 11-16; (3) the
leakage model failed to account properly for stock price declines resulting from non-fraud firmspecific factors, see Memorandum of Law at 16-20; and (4) the leakage model had numerous
additional infirmities that reinforce the model’s structural errors, see Memorandum of Law at 2022.
2.

The jury’s finding that the March 23, 2001 statement introduced the leakage

model’s sum total of inflation into the stock price precludes, as a matter of law, either materiality
or application of the “fraud-on-the-market” presumption of reliance as to other statements. See
Memorandum of Law at 31-34. Independently, because the jury found that all inflation in the
market price of Household stock was attributable to the March 23, 2001 statement, but that
Defendant Schoenholz was not liable for that statement, Defendant Schoenholz is entitled to
judgment as a matter of law. See Memorandum of Law at 34.
3.

Judgment in Defendants’ favor is further required because there was no legally

tenable basis for the jury to find the three theories of fraud presented by Plaintiffs—restatement,
predatory lending, and re-aging—to be actionable. As a matter of law, the record evidence fails
to meet the requisite standards of scienter to sustain a finding of liability in a private securities
fraud cause of action. See Memorandum of Law at 34-39.

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4.

Plaintiffs’ failure to prove a primary violation of § 10(b) and Rule 10b-5 by any

Defendant renders Plaintiffs’ § 20(a) claims for controlling person liability against Aldinger and
Schoenholz subject to dismissal as a matter of law. See Memorandum of Law at 49. Moreover,
the evidence was insufficient as a matter of law to support the imposition of § 20(a) liability as to
the statements at issue. See Memorandum of Law at 49.
*

*

*

As more fully set forth in the Memorandum of Law incorporated herein, Defendants are,
in the alternative, entitled to a new trial pursuant to Rule 59 for numerous reasons, including:
1.

The jury’s ad hoc, partial adoption of Plaintiffs’ leakage model resulted in an

irrational and unsupported verdict. See Memorandum of Law at 22-31. The Jury’s finding that a
March 23, 2001 statement concerning solely “predatory lending” introduced the leakage model’s
total sum of inflation into the stock price is legally impossible and foreclosed by the model itself,
see Memorandum of Law at 25-29, and resulted in a wholly unsupported, irrational verdict, see
Memorandum of Law at 29-31.
2.

The jury instruction on the first element of Plaintiffs’ claim misstated the law on

this essential element, as the Supreme Court’s decision in Janus Capital Group, Inc. v. First
Derivative Traders, 131 S. Ct. 2296 (2011), now unequivocally establishes. See Memorandum
of Law at 40-44. This instructional error requires a new trial as a matter of law. Id.
3.

The jury was improperly instructed on the element of scienter as a consequence of

the Court’s sua sponte and erroneous insertion of a “knew or should have known” standard. See
Memorandum of Law at 44-46. This instructional error also requires a new trial as a matter of
law.

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4.

The verdict form contained fundamental errors of law, including (1) wrongly

excluding Arthur Andersen from the set of those potentially at “fault” for Plaintiffs’ losses,
thereby rendering the apportionment verdict legally defective, see Memorandum of Law at 4749; and (2) failing to require that § 20(a) liability be assessed with respect to specific statements
for which liability was found, thereby rendering the § 20(a) verdict legally deficient, unsupported
and irrational, see Memorandum of Law at 49-52.
5.

The aggregate impact of erroneous evidentiary rulings resulted in an unfair trial.

See Memorandum of Law at 52-60. The Court erred in admitting prejudicial and unsupported
expert testimony, including that of Fischel, Ghiglieri, Cross, and Devor, see Memorandum of
Law at 52-57; and Plaintiffs misused hearsay evidence for improper substantive purposes and
improperly circumvented exclusion orders, see Memorandum of Law at 58-60.

These

evidentiary errors require a new trial.
6.

The Phase II proceedings deprived Defendants of the right to a proper

adjudication on the essential element of reliance. See Memorandum of Law at 61-65. The
limited discovery permitted as to certain claimants in Phase II demonstrated a lack of reliance,
see Memorandum of Law at 62-64; and the Phase II proceedings improperly constrained
Defendants from a full and fair opportunity to rebut the presumption of reliance, see
Memorandum of Law at 64-65.
For the foregoing reasons, and for those set forth more fully in the Memorandum of Law
incorporated herein, the Court should resolve all claims in Defendants’ favor and grant
Defendants’ Renewed Motion for Judgment as a Matter of Law. In the alternative, because the
jury’s verdict was irreconcilably inconsistent, numerous judicial errors individually and

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cumulatively deprived Defendants of a fair trial, and a verdict for Plaintiffs was against the
weight of the evidence, the Court should grant Defendants’ Motion for a New Trial.

Dated: July 30, 2013
/s/ Paul D. Clement
Paul D. Clement
BANCROFT PLLC
1919 M. Street, NW
Washington, DC 20036
R. Ryan Stoll
Mark E. Rakoczy
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM
155 North Wacker Drive
Chicago, IL 60606
[phone]
Thomas J. Kavaler
Patricia Farren
Jason M. Hall
CAHILL GORDON & REINDEL LLP
80 Pine Street
New York, NY 10005
[phone]
Attorneys for Defendants Household
International, Inc., William F. Aldinger,
David A. Schoenholz, and Gary Gilmer

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CERTIFICATE OF SERVICE
Paul D. Clement, an attorney, hereby certifies that on July 30, 2012, he caused true and
correct copies of the foregoing Defendants’ Renewed Motion for Judgment as a Matter of Law
or, in the Alternative, a New Trial to be served via the Court’s ECF filing system on the
following counsel of record in this action:
Michael J. Dowd, Esq.
Daniel S. Drosman, Esq.
Spencer A. Burkholz, Esq.
ROBBINS GELLER RUDMAN & DOWD LLP
655 West Broadway, Suite 1900
San Diego, CA 92101
Marvin A. Miller, Esq.
Lori A. Fanning, Esq.
MILLER LAW LLC
115 South LaSalle Street, Suite 2910
Chicago, IL 60603
/s/ Paul D. Clement
Paul D. Clement