IBEW Local 90 Pension Fund v. Deutsche Bank AG et al
Filing
86
OPINION & ORDER re: 51 MOTION to Certify Class Lead Plaintiffs' and IBEW Local 90 Pension Fund's Notice of Motion and Motion for Class Certification and to Include IBEW Local 90 Pension Fund as a Named Plaintiff filed by The Stewa rd Global Equity Income Fund and the Steward International Enhanced Index Fund, IBEW Local 90 Pension Fund, Building Trades United Pension Trust Fund, 59 MOTION to Preclude // Daubert Motion to Exclude the Declaration and All Expert Testimony of Michael A. Marek filed by Josef Ackermann, Clemens Borsig, Hugo Banziger, Deutsche Bank AG, Anthony Di Iorio. For the reasons set forth above, defendants' Daubert motion to preclude the testimony of Marek is GRANTED and plaintiffs' mo tion to certify the proposed class is DENIED. The parties are directed to appear for a status conference in this matter on January 6, 2014 at 9:30 a.m. The Clerk of Court is directed to terminate the motions at ECF Nos. 51 and 59 (Signed by Judge Katherine B. Forrest on 10/29/2013) (mro) Modified on 10/29/2013 (mro)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
------------------------------------------------------------- )C
IBEW LOCAL 90 PENSION FUND, on
behalf of itself and all others similarly
situated,
USDCSDNY
DOCUMENT
ELECTRONICALLY FILED
DOC#: ____~----__
DATE FILED:
292013
OCT
Plaintiffs,
11 Civ. 4209 (KBF)
-vOPINION & ORDER
DEUTSCHE BANK AG, et aI.,
Defendants.
--------------------------------------------------------------)C
KA.THERINE B. FORREST, District Judge:
On June 1,2012, plaintiffs IBEW Local 90 Pension Fund ("IBEW"), on behalf
of itself and all others similarly situated, filed this action against defendants
Deutsche Bank AG ("DB"), Josef Ackermann ("Ackermann"), Clemens Borsig, Hugo
Biinziger, and Anthony Di Iorio (collectively, "defendants").l This purported class
action alleges violations of the securities laws based on alleged misstatements and
omissions by DB and its subsidiaries in connection with the nature, level of
exposure, and handling of risk in connection with certain residential mortgagebacked securities ("RMBS") and collateralized debt obligations ("CDOs"). (See
Amend. CompI.
~
3, dated June 1,2012, ECF No. 23.)
According to plaintiffs, during the period from January 3,2007 through
January 16, 2009 (the "Class Period"), DB engaged in a fraudulent scheme to profit
by originating and acquiring defective mortgages for securitization and resecuritization into its RMBS and CDOs and misrepresenting to investors its risk
1
This matter was transferred to the undersigned on November 9,2012.
management practices; plaintiffs also allege that DB concealed the failure to write
down impaired mortgages. (See generally id.
'I~
3-9, 12.)
Plaintiffs have moved to certifY a class and to include IBEW as a named
plaintiff.2 (See PIs.' Class Mot., dated July 1, 2013, ECF No. 51.) In support of their
class certification motion, plaintiffs have submitted three declarations by Mark A.
Marek. (See ECF Nos. 54, 70, 79.) The first two declarations set forth Marek's
opinion that DB's shares traded in an efficient market (see ECF No. 54, 70); in
Marek's third declaration, he opines that it is possible to calculate damages on a
class-wide basis.
ECF No. 79.)
Defendants oppose plaintiffs' motion to certify a class (see Defs.' Class Opp'n,
dated August 29, 2013, ECF No. 57), and have moved to exclude the declaration and
all expert testimony of Marek pursuant to Daubert v. Merrell Dow
Pharmaceuticals, Inc., 509 U.S. 579 (1993) (see Defs.' Mot. Preclude, dated Aug. 29,
2013, ECF No. 59). In support of their positions with respect to Marek, defendants
have submitted declarations from Paul Gompers ("Gompers") and Joseph Grundfest
("Grundfest"). (See ECF Nos. 62, 63.) The key question is whether Marek's
2 IBEW was the original named plaintiff in the first filed securities action in June
2011. (See Compl., dated June 21,2011, ECF No.1.) When the Amended
Complaint was filed a year later, on June 1, 2012, IBEW was no longer a named
plaintiff. (See Amend. CompI. ~'116-17.) The Amended Complaint named Building
Trades United Pension Trust Fund ("Building Trades") and Steward Global Equity
Income Fund ("Steward Global") and Steward International Enhanced Index Fund
("Steward International") (together, the "Steward Funds") as lead plaintiffs. (See
id.) Regardless, since the Court declines to certify the class in this case, it need not
address the issue of including IBE\V now as a named plaintiff.
2
contention that DB's shares were traded in an efficient market should be given
credence by this Court. 3
On October 4, 2013, this Court held an evidentiary hearing at which all
three experts testified and were cross-examined. 4 Defendants' experts - both in
their declarations and at the hearing - spent a significant amount of time on two
issues: first, that Germany was the dominant market for trading DB's global
registered shares ("GRSs") and German pricing of the shares drove U.S. pricing
(over 90% of DB GRSs traded in Germany during the Class Period); and second, the
impact of the major financial crisis occurred in the U.S. and Europe during the
Class Period, which resulted in restrictions on short sales of securities at various
points.
Proving market efficiency is fundamental to plaintiffs' claims. In order to make
out a claim under Section 10(b) of the Securities and Exchange Act of 1934, a
plaintiff must prove, among other things, reliance upon a misrepresentation or
omission by the defendant. See Amgen Inc. v. Connecticut Retirement Plans &
Trust Funds, U.S. - , 133 S. Ct. 1184, 1191-92 (2013) (citations omitted).
However, recognizing the difficulties of proving direct reliance, in Basic Inc. v.
Levinson, 485 U.s. 224, 241 (1981), the Supreme Court "endorsed the 'fraud-on-the
market' theory, which permits certain Rule 10b-5 plaintiffs to invoke a rebuttable
presumption of reliance on material misrepresentations aired to the general public."
Amgen, 133 S.Ct. at 1192 (citing Basic, 485 U.S. at 241-49). The fraud-on-the
market theory rests on the premise that "certain well developed markets are
efficient processors of public information," and therefore the price of a security at
any given time reflects the impoundment (or inclusion) of that information. Id.
4 The Court accepted the declarations submitted by the experts as their direct
testimony; the opposing party was then provided an opportunity to cross-examine
the proposed expert; the proffering party was then provided an opportunity for
redirect. (See ECF No. 83.)
3
3
For the reasons set forth below, the Court GRANTS defendant's motion to
exclude Marek's declarations and testimony and DENIES plaintiffs' motion for class
certification.
I.
Plaintiffs' Proposed Expert, Michael A. Marek
A. Marek's Qualifications
Marek has provided declarations and testimony on behalf of plaintiffs in
securities class action litigations, and specifically for plaintiffs' counsel, Robbins
Geller Rudman & Dowd ("Robbins Geller"), for over 20 years. (Tr. at 37-38; ="--==
Memorandum of Law in Support of Defendants' Motion to Exclude the Declaration
and All Expert Testimony of Michael A. Marek ("Defs.' Preclude Mem.") at 10, dated
Aug. 29, 2013, ECF No. 60.)
Marek started his career in this area at Princeton Venture Research. (Tr. at
37.) From the fall of 1986 until December of 1997, Marek worked behind the
scenes, assisting John Torkelson in the preparation of declarations signed and
submitted by Torkelson in various securities class action litigations. (rd. at 37.)
Torkelson's career ended when he pled guilty and went to jail for submitting false
declarations and taking secret success payments in connection with securities class
actions in which he provided declarations. (Id. at 37; Defs.' Preclude Mem. at 10.)5
5 At his deposition, defendants' counsel asked Marek a series of questions
concerning whether he had worked on certain cases (which, though not revealed to
Marek at his deposition, were involved in Torkelson's unlawful activities). (See
Marek Dep. at 59; Defs.' Preclude Mem. at 10.) Marek stated that he did not recall
whether he had worked on each case. (See Marek Dep. at 59.) At the hearing,
Marek flatly stated that he did not work on any of the unlawful Torkelson
4
As a result of Torkelson's legal troubles, Marek found himself out of a job.
(Tr. at 38.) Marek started his own firm, Financial Market Analysis, which would
continue providing sworn declarations to Robbins Geller and other firms in the
securities plaintiffs' bar. (Id.) Marek testified that for the last year or so,
approximately 100% of his income has come from the securities' plaintiffs bar. (Id.
at 38-39.) Marek also stated that he has "never offered and filed in opinion in
federal court that a market was inefficient." (Id.)
Marek earned his undergraduate degree from the University of Pennsylvania
- Wharton School of Finance. (Marek 711 Decl., Ex. A, dated July 1, 2013, ECF No.
54.) He does not have a graduate degree in any field (tr. at 36); he has never taught
a course in any aspect of financial markets or market efficiency (id. at 35); he has
never written an article or book in any area of financial markets or market
efficiency (id.). The only writing that Marek has ever done on market efficiency is
in connection with declarations for Robbins Geller and other similarly situated law
firms in connection with federal court litigation. (Id. at 35-36.)
B. Marek's Opinions
It is Marek's opinion that the market for DB GRSs in the U.S. was efficient
during the Class Period. (Tr. at 46; Marek 7/1 Decl.
~
7.) Marek performed an
declarations. (See Tr. at 38 (explaining that he did not work on any "fee
declarations").)
5
analysis, which he regards as an event study, based on 12 days when DB publicly
disclosed its earnings ("earning disclosure days" or "EDDs").
Tr. at 54.)6
a. Overview of Marek's Analysis
The definition of market efficiency that Marek used was "whether
information is readily disseminated and fully and accurately incorporated into the
price of a security" (tr. at 23), and that "as a result of informational efficiency ...
the price represents the consensus of the market's value of the security" (id. at 24).
Marek bases his opinion that the DB GRSs market was efficient largely on a
study he performed that he asserts demonstrates a cause and effect relationship
between the price at which DB GRSs were trading and the impoundment (or
incorporation/absorbtion) of material information. (See Marek 7/1 Decl.
~
59.)
Marek claims that his study shows that material information was reflected in the
share price. According to Marek, "[w]hen important, unexpected news about (DB]
was released to the market, the price of its GRSs moved in a directionally
appropriate way by a statistically meaningful amount." (Id.'1 61.)
b. Analysis of NYSE
Marek has stated on various occasions in this case that his assignment was
to review and discuss the efficiency of the "NYSE market" for DB GRSs during the
Class Period. (See Marek 7/1 Decl. ,[ 2; Marek 9/23 Decl.
~
2, dated September 23,
2013, ECF No. 70; Tr. at 8, 10.) Marek testified that he had intended to study
NYSE data only, and that at the time he wrote his initial declaration, this is what
In total, there were 515 trading days during the Class Period; thus, the EDDs
represent 2.3% of all Class Period trading days. (See Tr. at 17.)
G
6
he thought he had done. (See Tr. at 9-10.) At his deposition, Marek testified that
he did not know whether DB GRSs traded in any U.S. market besides the NYSE.7
(See Marek Dep. at 42.)
However, later in his deposition, Marek learned from information provided by
an attorney for defendants at his deposition that his data actually included data
from other U.S. exchanges in addition to the NYSE. (See Tr. at 12-13.) Once Marek
learned that the data he had been using was based on trading of DB GRSs on other
exchanges (in addition to the NYSE), he investigated his process and realized that
inadvertently he had included all of the following U.S. exchanges in his data set:
the NYSE, Archipelago Exchange ("NYSE Arca"), the Boston Stock Exchange, the
Chicago Stock Exchange, Direct Edge, the Chicago Board of Options, and Financial
Industry Regulatory Authority - Alternative Display Facility ("FINRA ADF").8 (Id.
at 9.)
In conjunction with these additional exchanges, 9 Marek failed to determine
whether the markets for DB GRBs were efficient.lo
Tr. at 10 (Q: But when you
7 At the evidentiary hearing, it was clarified during Marek's cross examination that
approximately 10% of DB GRS shares are traded in the U.S., and that
approximately half of those shares are traded on the NYSE. (See Tr. at 21.)
8 Marek explains: "During my deposition, I stated that the price and volume data I
retrieved ... for use in my analyses represented NYSE-traded GRSs only. In fact,
the trading date used in my [dJeclaration represented consolidated U.S. market
trading - while all of the GRSs were registered on the NYSE." (Marek 9/23 Decl. ~
9.)
An analysis of just the :N"'YSE (i.e., without other U.S. exchanges) would have been
wholly inadequate because, among other things, DB GRSs traded on multiple U.S.
exchanges during the Class Period. Nonetheless, this is precisely what plaintiffs
hired Marek to do; and, it is what Marek thought he had done until defendants'
9
7
were looking specifically at, for instance ... the robustness of the NYSE, you were
only looking at the l\'YSE? A: Correct."); Marek 7/1 DecL
~~r
24, 29-30,11 38,40,44
(analyzing the l\'YSE only).) In other words, Marek inadvertently used (helpful)
additional data, and then failed to take that data into account in conducting other
portions of his analysis.
c. Failure to Analyze
G~rman
Market
The vast majority of DB GRSs traded outside the United States
in Germany. (See Marek 9/23 Decl.
~
primarily
30).12 The German market was the primary
price driver for GRSs trading in the U.S. (See Tr. at 32).1 3 Additionally, a study
conducted by Grundfest demonstrates that during the time when U.S. trading
activity overlapped with German trading activity, the U.S. market reacted to the
price of shares trading in Germany within seconds. (See Marek 9/23 DecL
~
17.)
Marek conceded that if price formation for a security was driven by an
inefficient market and a second market followed the pricing in the first market,
"hypothetically it could be termed inefficient." (ld. at 32-34.) Marek testified that if
the price-forming market was inefficient, in order to determine whether the second
counsel indicated otherwise. (See Marek 7/1 DecL ~ 2; Marek 9/23 DecL ~ 2; Tr. at
10.)
]0 To the extent that Marek does discuss other U.s. stock exchanges, Marek admits
that this was a cut-and-paste job gone awry. (See Tr. at 10; Marek 9/23 Dec!. ~ 8.)
11 The Court notes that there are two paragraphs numbered "30."
12 Marek does not contest that "[t]he principal trading market for [DB] GRSs is the
Frankfurt Stock Exchange, the largest of German's stock exchanges." (Marek 9/23
Dec!. ~ 30 (citing Grundfest Dec!.
9, 12).)
13 According to Grundfest, and uncontested by plaintiffs, "price discovery" or "price
formation" "typically refers to the process through which a market incorporates
information into a security prices through investors' trading activities." (Grundfest
Decl. ~ 29 (citation omitted).)
,r'i
8
market was operating inefficiently as well or had managed to operate efficiently, he
would need to "look further." (ld. at 34-35.)
As an additional point, Marek testified that information regarding German
prices for the DB GRSs was efficiently impounded into the U.S. DB GRSs. (ld. at
56-57 (explaining that the fact that U.s. trading prices reacted within seconds to
the German trading prices "furthers the evidence that the U.S. markets were
informationallyefficient").) Marek conceded that this is not the same - and does
not purport to be the same
as whether the German market itself is efficiently
impounding information. (Id. at 57-58.)
Grundfest testified that his study (on which Marek relies) examined the
responsiveness of the U.S. price for DB GRSs to the German price; his study did not
attempt to examine whether the German market is itself pricing the GRSs
efficiently, or whether it is even impounding material information regarding DB in
an efficient manner. (ld. at 106-07.) In explaining his study, Grundfest testified
that the fact that the U.S. price for DB GRSs is so responsive to the German price
"gives you zero information, zero[,J about the efficiency of the process occurring
either in Germany or in the [U.S.]" (ld. at 107.)
Marek has not studied the efficiency of the German market. (Id. at 14.) He
does not offer an opinion as to whether the German market in which the DB GRSs
traded was efficient. (ld.)14
14 In a response to a question by the Court, Marek testified that if, hypothetically,
he knew that a small percentage (in the example, 2%) of shares were traded on the
NYSE and a much larger percentage of shares were traded on other U.S. exchanges,
9
d. Economic Turmoil and Short Sales Ban During Class Period
Marek testified that the proposed Class Period of January 2007 - January
2009 "was a period of economic turmoil." (Id. at 15, lB.) He agreed that
"[e]conomies around the world went into l'ecession. There were credit crises. There
were crises in terms of liquidity at a number of companies. There were
bankruptcies in the auto industry [and] large employers ...." (Id. at 16; see also
Marek 9/23 Decl.
'1 51.)
Marek stated that "during this period occasioned by this
turmoil there was a sheer enormity of [DB] company-specific news, a sheer
enormity of financial industry-related and macro-economic-based material and
unexpected news that came out during this Class Period." (Id.)15
In addition to the vast amount of information that was created during this
time, short sales were banned in both the U.S. and Germany during portions of the
Class Period. (Id. at 91.) The first short sale ban was in the U.s. and spanned the
period from July 21, 200B
August 12, 200B; the second in the U.S. was from
he would need to do additional testing to determine whether an opinion of efficient
trading of such shares on the NYSE meant that the shares traded efficiently on all
of the exchanges. (Tr. at 15-16.) During the oral argument portion of the October 4,
2013 hearing, plaintiffs' counsel argued that the Court's example of "2%" was
determinative of the answer to that question and suggested that the answer
might have been consistent with Marek's overall opinion in this case if the Court
had used a larger percentage. (Tr. at 123-24.) Notably, Grundfest testified credibly
and uniformly that in light of the amount of trading on the German exchange, one
could not reliably opine on the efficiency of the U.s. "markets" for DB GRSs without
examining the efficiency of the German market. (Tr. at 115-16.)
15 In fact, Marek stated that he has opined on market efficiency on 10 occasions and
that this was "the most complex [and] labyrinthine" because it was difficult to set
up an objective construct. (Tr. at 20.)
10
September 19, 2008
October 8,2008; in Germany, there was a short sale ban from
September 20, 2008 - January 31, 2010. (ld.)
According to Marek (as well as defendants' experts), arbitrage is one of the
principal hallmarks of an efficient market; short sellers are important to the
efficiency of a market. (ld. at 24-25.) Marek stated that if short sales were
constrained, the mechanics and operation of the market could also be constrained.
(Id. at 25.) Indeed, according to Marek, short sale bans "could delay the amount of
time [] it takes for information to be fully reflected in the price of a security;"
additionally, short sale bans "could increase transaction costs by, for example,
raising bid-ask spreads because of reduced liquidity in the market for a particular
security." (ld. at 26.)
Nonetheless, while certain studies have looked at the impact of the short sale
ban on liquidity of financial institutions, Marek did not know whether the studies
looked in particular at the German short sale ban (which was of a significantly
longer duration than the U.s. bans). (ld. at 28.) Marek also stated that he has
never before offered an opinion as to market efficiency where the securities at issue
had been subject to short sale bans during the Class Period. (ld. at 25.)
In connection with the facts of this case, Marek testified that he understood
that the DB GRSs were subject to short sale bans in both Germany and the U.S.
during the Class Period and he stated that those bans were because "of the market
turmoil involving financial institutions[,] specifically including [DB]." (ld.) Nlarek's
first declaration does not discuss the fact of the short sale bans at all. (See
11
generally Marek 7/1 Dec!.) With respect to short sale bans, his second declaration
largely responds to the work performed by Gompers, which demonstrates a wider
than normal bid/ask spread connected with the short sale bans. (Marek 9/23 Dec!.
~~
61-68.)
Marek did acknowledge that "while the U.S. GRS bid-ask spread did rise
during the ban periods, it is not clear that this widening was caused by the ban or
some other factor." (Marek 9/23 Decl.
~
66.) He asserts, however, that the bid-ask
spread did not rise to a level "even remotely suggesting market inefficiency." (Id.
~
68.) Marek agreed that it was possible that for a particular company, the market
for the trading of its securities may be efficient at one point in time and inefficient
at another. (Tr. at 24.)
e. Selection of Earning Disclosure Dates
In his initial declaration, Marek explained the appropriateness of his selected
EDDs by stating:
Because of the sheer enormity of the [DB]-specific
financial industry-related and macro[-]economic-based
material and unexpected news flow during the Class
Period, for purposes of event identification corresponding
to this Declaration, I will highlight here a clearly defined
subset of [DB]-related events: a total of 12 dates during
the Class Period on which [DB] released quarterly and
annual financial information or on which [DB] changed its
earnings guidance.
(Marek 7/1 Decl.
~r
57.) However, at the evidentiary hearing, Marek denied having
chosen the 12 selected EDDs due to the "sheer enormity of information." (Tr. at 17.)
Marek testified that he selected the EEDs because he determined that the "most
12
objective" way of conducting his analysis was to "isolate earnings disclosures versus
[all] other dates." (Id. at 16.)1(; Marek further stated that "for a securit[y] such as
[DB], which is heavily followed by analysts and investors, it's also somewhat likely
that those earnings have been anticipated and the earnings announcements are not
going to [] create [] any material change in the price of the stock." (Id. at 43.)
Nevertheless, Marek equated the 12 EDDs with "news" days that he tested
against "non-news" days. (Id. at 47.) Despite his testimony that earnings were
largely anticipated, Marek testified that he assumed in his analysis "that there was
a higher probability of material unexpected news being released to the market on
earnings disclosure dates in this instance than on non-earnings disclosure dates."
(Id. at 4B.)
As a criticism of Marek's selection and use of EDDs, Gompers' declaration
stated that if the October 30, 200B date was removed from Marek's EDDs, Marek's
results no longer have the same statistical significance. (Gompers Decl.
~
63.) In
response, Marek testified that by that date, "the earnings concept ... was nowhere
near as important to these banks and financial institutions as the liquidity part of
the earnings announcements." (Tr. at 49.) Yet, Marek testified soon thereafter that
the liquidity would be discussed on other, non-EDDs days within the 515 trading
days as well (for instance, at investment conferences). (Id. at 50.) Marek stated
J() Marek explained: "The [DB] class period was one of the longer class periods. It
also entailed ... a period of turmoil and a lot of news. The more you start picking
and choosing what you consider to be news, the more you become arbitrary in that
selection." ('fr. at lB.)
13
that he had not considered using disclosures of liquidity instead of EDDs. (Id. at 50
(stating "[i]t's just not something I considered").)
In conducting his analysis, Marek performed a regression analysis on the 12
EDDs to determine whether there was a statistically significant price movement
associated with the EDDs as "news" days, thus suggesting that the market for DB
GRSs was efficient. CId. at 54.) Marek explained that the purpose of his regression
analysis was to "directly measure the effect of information [here, the news disclosed
on EDDs] on the price of U.S. traded [DB] GRSs." QJi. at 54.) According to Marek,
his study of the 12 EDDs indicates that statistically significant price movement
occurred 25% of the time. (Id. at 30.) While Marek stated that this indicated the
market was efficient, he nonetheless agreed that if a company released material
information and the price of its shares did not move, it could mean that the market
was not efficient. CId. at 31, 32.)
C. Criticisms of Marek
Defendants' proffered experts (Grundfest and Gompers) suggest that Marek's
expert testimony should be disregarded. Specifically, Grundfest stated that Marek's
opinions are unreliable because he failed to analyze: "(1) the mechanics of price
formation on the German equities markets; (2) a study of the efficiency of the [DB]
GRSs as traded on their German home markets during the alleged Class Period;
and (3) ... the relationship between trading on the German markets and trading on
the [U.S.] markets." (Grundfest Decl.
'1 9.)
Gompers opined that Marek's analysis
14
"suffers from serious conceptual and methodological flaws and deficiencies,
rendering his opinions unreliable." (Gompers Decl.
~
6.)
a. Grundfest
i. Grundfest's Qualifications
Grundfest is the \Villiam A. Franke Professor of Law and Business at
Stanford Law School. (Grundfest Decl.
~ 1.)
He co-directs the Arthur and Toni
Rembe Rock Center for Corporate Governance at Stanford, as well as Stanford's
Directors' College (which provides courses for directors of publicly traded
companies). (Id.) Grundfest established and serves as a principal investigator for
the Stanford Class Action Securities Clearinghouse, a data source for empirical
analyses of class action litigation. (Id.)
Additionally, Grundfest was formerly a Commissioner of the Securities and
Exchange Commission ("SEC") for four years. (Id.
earned his law degree at Stanford Law School
coursework for a Ph.D. in economics. (ld.
~~
~
2.) He is an attorney
he
and has completed all necessary
2-3.) He has completed the M.Sc.
program in mathematical economics and econometrics at the London School of
Economics and has an undergraduate degree from Yale in economics. (ld.) He has
worked as an economist and econometrician at the Rand Corporation and at the
Brookings Institute, and has served as a senior economist on the President's
Council of Economic Advisors, where he was responsible for the capital markets
desk.
CldJ Grundfest has published numerous articles analyzing economic aspects
of the financial markets. (Id.
,r,r 4-5.)
In particular, he has a forthcoming article in
15
the Financial Review relating to information transmission between financial
markets. (ld.
~
5.) The courses he currently teaches at Stanford cover, inter alia,
the efficient market hypothesis and the 2008-09 financial crisis. (ld.)
The Court finds Grundfest well-qualified to offer the opinions he has
presented in this case. At the evidentiary hearing, the Court found Grundfest
consistent, articulate, responsive, and credible. In any area in which Grundfest and
Marek conflicted, the Court found Grundfest's analysis to be the more reasoned and
persuasIve.
11.
Marek's Failure to Analyze the German Market
Grundfest's declaration and testimony focused on Marek's failure to analyze
the informational efficiency of the German market, which is where pricing for DB
GRSs is primarily set. (Grundfest Decl.
~
9.) The facts contained in Grundfest's
declaration, and to which he testified, were not only uncontested by Marek, but in
fact, Marek embraced them. (See, e.g., Marek 9/23 Decl.
~~
16-34; Tr. at 35.)
Put simply, Grundfest and Marek differ as to whether the speed at which
"pricing" information from Germany is impounded into the price of DB's GRSs
traded in the U.S. is proof of broad informational market efficiency in the U.S.
Grundfest says no, not in and of itself; Marek says yes.
As set forth above and below, Marek's initial declaration does not address the
fact that the vast majority of the trading volume of DB GRSs occurred in Germany,
not the U.S. Grundfest's declaration demonstrates that this is certainly the case.
(Grundfest Decl
~
15.) Indeed, during the Class Period, over 90% of all DB GRS
16
shares were traded outside the U.S., primarily in Germany. (Tr. 21; Grundfest
Decl.
,r 12.)
DB's GRSs traded on six other German stock exchanges, as well:
Berlin, Dusseldorf, Hamburg, Hanover, Munich, and Stuttgart. (rd.) (The record is
silent as to what percentage of DB shares traded on the London or Paris
exchanges.) There is a two to three hour overlap (depending on daylight savings
time) between trading on the NYSE and in Germany.l7
~~
13.)
There are key differences between the trading of DB's GRSs in Germany
versus the U.S. (Id.,r 14.) Grundfest's work shows that "U.S. trading volume made
up only roughly 7.6% of the sum of German and U.S. trading volume." (ld.
~
15.)
The trade frequency of DB shares in Germany (defined as the number of shares
traded per minute each trading day) is, on average, 2.6 times that in the U.S. (ld.)
The average size of a DB share trade is larger in Germany than in the U.S.: 646
shares per trade in Germany as compared to 187 in the U.S. (Id.) According to
Grundfest, those differences in trading frequency and trade size are statistically
significant. (ld.)
Grundfest states: "Theory in market microstructure has posited that, all else
being equal, informed traders ... would prefer to trade in more liquid and deeper
markets." (ld.
~
16.) Thus, "[t]he fact that trading volume is substantially greater
17 Grundfest explained: "Regular trading hours on the NYSE are 9:30 Al\tl to 4:00
PM, Eastern Time. During most of the alleged Class Period, there is a two-hour
overlap, from 9:30 .AJ\tl to 11:30 AM, Eastern Time, between the NYSE trading day
and the Xetra [the trading system for all securities listed on the Frankfurt Stock
Exchange] trading day. There is a three-hour overlap, from 9:30 AM to 12:30 PM,
Eastern Time, when Daylight Savings Time is not synchronized between the U.s.
and Germany." (Grundfest Decl. ,r,r 12-13.)
17
in Germany is [ ] consistent with the notion that the German markets are the
dominant venue in which information would be impounded into [DB] GRS price."
(ldJ
In fact, U.S. investors comprise only one half of one percent of all of the DB
shareholders during the Class Period. (Id.'; 17.) Those investors held a total of
between 9.66% and 13.20% of DB GRSs during the Class Period. (Id.)18
According to Grundfest: "What you typically want to do is analyze the
market where price formation is actually occurring.... If the security is trading in
two markets, which market do we care about in terms of efficiency[?] Is it the
market where 90[%] of the trading actually occurs? ... [\l]arious forms of statistical
analysis will tell you that 80-90[%] of the information coming to that market is the
German information coming to the U.s. market[.] ..." (Tr. at 115.) Grundfest
explained that "common sense suggests that if this is a market where prices are
formed in Germany, let's look at price formation in Germany to determine the
efficiency of that market." (Id.) Grundfest then noted that Marek "hasn't looked at
price formation in Germany whatsoever." (ld.)
Grundfest explained that his report demonstrates that information regarding
DB tends to be disclosed first in Germany, while the U.S. markets are closed; DB
"tends to disclose its information just prior to the opening of the European
markets." (ld. at 116.) According to Grundfest, "that means that the initial price
Marek testified that he has never expressed an opinion as to market efficiency
where the trading on the market he was examining constituted less than 50% of the
trading of the security at issue. (Tr. at 22-23.)
18
18
response to the information is actually going to occur in the German markets. If
you want to test how quickly the German markets absorb the information, you can't
do that unless you look at the actual German market prices, and Mr. Marek hasn't
done any of that." (ld. at 116-17.)
Grundfest analyzed the timing of the release of the firm-specific disclosures
and news releases that allegedly contained the material information described in
the Amended Complaint. (See Grundfest Decl.
,r 21.)
\Vith one potential exception
on June 14, 2007, ID all but one of the statements was first released to the German
markets when the U.S. markets were closed, and often many hours before the
NYSE opened. 20 (Id.)
Grundfest also analyzed the 12 EDDs that Marek used in his event study.
(ld.
~
22.) The earnings disclosures on each of the 12 EDDs occurred before the U.S.
markets were open; the earnings disclosures were released either a few hours before
or just after the German markets opened. (ld.) Grundfest argues that "[a]n
examination of stock price movements during the window when the U.s. market
was closed" as opposed to when it was opened suggests that when Marek claims
there is a causal relationship between "news" and movement in DB GRS prices, the
movement happened in Germany first. (ld.
~
24.) Specifically, Grundfest's Exhibit
On June 14,2007, a DB executive allegedly made a misstatement to investors at
a conference in Lisbon, Portugal. (Grundfest Decl. ~ 21, n.23.) Accordingly,
Grundfest states that while this statement was not released to German markets
first, "it is likely that this news was first released to the investing public in Europe."
19
iliL)
The alleged statement which occurred in London appears to have been at an hour
when the U.S. markets were open. (Grundfest Dec!. 21, n.24.)
20
,r
19
7 shows the 12 EDDs chosen by Marek for his "event" study - on only three out of
the 12 EDD days did statistically significant price movement occur (i.e., 25% of the
time). (Id.,r 25.) According to Grundfest's analysis, the statistically significant
price movement occurred in Germany first. (Id.) Grundfest criticized Marek for not
undertaking a similar analysis of the German market and for "fail[ing] to consider
the potential implications of the U.S. market price reversals" in his analysis. (Id.)
As plaintiffs highlight, Grundfest's analysis does not determine whether the
German market is efficiently impounding information into the GRS price. (Id.,r 27;
Tr. at 106.) Rather, Grundfest's analysis "simply indicates that, when Mr. Marek
claims that a stock price movement was caused by potentially material information,
price formation seems to have primarily taken place in Germany before U.S.
investors started trading on such information." (ld.
~
27.) As a result, according to
Grundfest, "stock price analyses that focus solely on the U.S. markets [i.e., Marek's
analysis] overlook the true locus of price formation." (Id.)
In addition to determining that most potentially material, firm-specific
information either alleged by plaintiffs' in their Amended Complaint or used by
Marek drove prices in Germany first, the data established that when both the U.S.
and German markets were open, the German market led in price discovery
generally. (Id.
~
28.)
20
b. Gompers
i. Gompers' Qualifications
Gompers is the Eugene Hofman Professor of Busines Administration and
Faculty Chair of MBA Elective Curriculum at the Harvard Business School.
(Gompers Decl.
,r 1.)
Gompers teaches courses and conducts research in the areas
of corporate finance, the structure and governance of public and private companies,
valuation of companies, the behavior of institutional investors, and entrepreneurial
finance and management. (Id.) He teaches courses to Ph.D., MBA, and Executive
Education students. (Id.)
In addition to his teaching responsibilities, Gompers is a Research Associate
at the National Bureau of Economic Research. (Id.) He joined Harvard in 1995.
(Id.) Prior to that, Gompers was a member of the faculty of the University of
Chicago Graduate School of Business. (Id.) He earned his Ph.D. in Business
Economics from Harvard and also earned an economics degree from Oxford. (Id.)
Gompers has written numerous research articles, case studies, and notes that have
dealt with market efficiency and the impact of market inefficiency on firms and
investors. (Id.
~
2.) He is an editor and referee for several academic journals in the
area of economics. (Id.)
At the evidentiary hearing in this matter, Gompers was clear, articulate, and
credible. He presented the basis for his critiques with reference to academic work.
The Court found him reliable and plainly an expert in studies of market efficiency.
Based on his qualifications, quality and depth of reasoning, and manner of
21
presentation, the Court credits and relies on Gompers over Marek on all points as to
which they disagree.
11.
Gompers' Critique of Marek's "Event" Study
In providing a critique of Marek's methodology, Gompers testified: "In any
context of market efficiency, Mr. Marek's report does not demonstrate that the (DB]
GRSs were traded in an efficient market. There is no definition of efficient market
efficiency under which Mr. Marek's analysis could affirmatively demonstrate that
the [DB] GRSs traded in an efficient market." (Tr. at 65.) Indeed, Gompers has
identified a number of what he characterized as "serious conceptual and
methodological flaws and deficiencies, rendering [Marek's] opinion unreliable."
(Gompers Decl.
,r 6.)
As an example, Gompers points to Marek's failure to account for recent
research on the role of arbitrage in the functioning of an efficient market. 21 (ld.
~
7.) According to Gompers, at least one of Marek's citations is based on old research
setting forth now discarded assumptions regarding the role of arbitrage in an
efficiently functioning market. (Id.'1 27.) Gompers states that, in this case, the
financial crisis and short sale bans caused malfunctioning of arbitrage and should
21 Gompers explains: "Over the past four decades since the development of the
Efficient Market Hypothesis, researchers' understanding of how securities markets
function, as well as whether and when they function efficiently, has evolved
tremendously. A large and growing body of academic research has documented
evidence that even in an active and competitive market, various innate or
externally-imposed frictions can result in the price of a stock moving in a manner
inconsistent with the implications of the Efficient Market Hypothesis. A central
tenet of recent research on market efficiency has highlighted, in particular, the role
that effective functioning of arbitrage plays in ensuring market efficiency."
(Gompers Decl. ~ 7.)
22
have been analyzed for any impact on market efficiency.22 (Id.
~r~
8, 28-34.)
Gompers notes that Marek failed to undertake such a study even though he
conceded at his deposition that he was aware of the short sale restrictions during
the Class Period and agreed that they could make the market "less than perfectly
efficient." (ld.'1 35.)
As an additional example of the problems with Marek's study, Gompers
explains that Marek's "event study," which purports to show the cause and effect
relationship (which corresponds to the fifth Cammer factor, discussed infra), was
methodologically flawed.
ad. ,r,-r 10-12, 37 -73.)
In conducting his analysis, Marek studied the average absolute residual
returns and the standard deviation of residual returns between the 12 EDDs and
the 503 non-EDDs (which together comprise the 515 trading days during the Class
Period). (Gompers Decl.
,r 38.)
Marek finds that there is a high price volatility on
the EDDs relative to the non-EDDs and concludes that the difference in volatility is
indicative of the security trading in an efficient market. (Id.; see Marek 7/1 Decl.
,r,-r
58-59.) Marek also finds that 25% of the EDDs have a statistically significant
return versus the non-EDDs and concludes that the difference is unlikely to be
driven by random chance; therefore, he concludes, the GRSs traded in an efficient
market. (Gompers Decl.
,-r 39; see Marek 7/1 Decl. ,j 61.)
22 Gompers noted that short sale restrictions both generally and in relation to
those that were imposed during the recent financial crisis - "have been shown to be
linked to a significant deterioration of market function and efficiency." (Gompers
Decl. ~ 8.)
23
Gompers states that Marek wrongly assumed that the 12 EDDs provided a
basis for assessing price reaction to material, unexpected news; Gompers also
contends Marek's methodology in performing the regression was itself flawed.
(Gompers Decl.
~~
11-14.) Gompers explains that "rather than testing if the market
is consistently efficient in incorporating all information, Mr. Marek only tests
whether his event days are on average more likely to have statistically significant
residual returns than" non-EDDs. (Id.
~J
12.) Gompers also criticizes Marek's data
set as too limited in that it comprises only 2% of all trading days during the Class
Period; Gompers further contends that Marek's selection of those EDDs "is
haphazard and inconsistent." (Id.) Moreover, Gompers states that the EDD study
fails to examine whether the allegedly material disclosures set forth in the
Amended Complaint caused a statistically significant price movement. (Id.)
Gompers asserts that Marek's results in fact demonstrate that on the corrective
disclosure dates, there was not a statistically significant price decrease. (Id.)
Gompers also criticizes Marek for looking at a single type of information (i.e.,
EDDs); in Gompers' opinion, this one type of information would not provide a
sufficient foundation to opine on a market's efficiency. (Tr. 101 (explaining that no
one type of information is sufficient to determine market efficiency).)
Gompers also testified that Marek did not examine whether the EDDs
presented "new" news or instead, already anticipated news. (Tr. at 73 (explaining
that Marek "doesn't look at expectations"),) (l.dJ In fact, according to Gompers, the
EDDs "aren't news days," but instead, "are days that Mr. Marek has selected that
24
are days on which earnings disclosure information comes out. ..." (Id. at 76.) In
his declaration, Gompers opines that "Marek's failure to identify any material,
unexpected earnings news and analyze its value implication, he is not 'likely
understating the correspondence between material, unexpected news and a
significant change in the price of GRS,' but rather abstaining from analyzing the
existence of any such causal correspondence." (Gompers Decl.
7/1 Decl.
~
~l
50 (citing Marek
57).)
In addition, because Marek does not make a directional prediction of what
price movement ought to be ex ante, but instead relies on the judgment of traders,
"he seems to be ready to conclude that the view of the market as reflected in the
price must be correct. If so, Mr. Marek's purported cause and effect test effectively
presupposes his conclusion of market efficiency." (ld.
~l
51.)
Gompers analyzes one of the EDDs - October 30, 2008 - and determines that
while Marek found that it corresponded with a statistically significant return (and
indeed, drove a large part of Marek's finding of statistically significant returns on
25% of the EDDs), in fact the GRSs moved in a directionally inappropriate manner
on that day.23 According to Gompers, the EDD contained a negative disclosure
relating to investment banking losses and a write-down of assets. (ld.
~l
52.) In
In his reply declaration, Marek provides an explanation of why he disagrees with
Gompers' view of appropriate directionality on October 30, 2008. (See Marek 9/23
Decl. ~ 54.) There is no indication he performed such an analysis prior to receiving
Gompers' criticism.
23
25
addition, while DB beat earnings expectations, it did so based on one-time items.
In Gompers' opinion, if material information is impounded into a stock price,
and the stock moves in a directionally inappropriate manner, that is an indication
of market inefficiency. (Tr. at 86.) Gompers testified that "every single study of
earnings announcements has built models to look at earnings expectations and they
look at how realized earnings are different from expected earnings. . . . It's
absolutely necessary to look at [whether] the news on this day anticipated or not."
(ld. at 86-87.)
As an additional point, Gompers opined that Marek fails entirely to account
for the fact that DB GRSs were subject to short sale bans in both the U.S. and
Germany during the Class Period. (See, e.g., Gompers Decl.
~
84.) Gompers
performed a study that demonstrates put/call parity was impacted during the short
sale bans. (Tr. at 91-92.) According to Gompers, it is more likely than not that an
efficient market can be rendered inefficient for a period of time in the event of a
short sale ban. (ld. at 94-95.) Gompers explains that the inefficiency is because
negative information cannot be impounded into the price of a security as would be
the case without a ban. (ld. at 95-96.) This provides yet another reason that
Gompers believes Marek's analysis is seriously flawed.
According to Gompers, once October 30, 2008 is removed from the other results,
the absolute residual returns that Marek has shown are barely higher on EDD days
than on non-EDD days. (Id. ~ 63.)
24
26
DEFENDANTS' DAUBERT MOTION
As set forth above, Marek opines that the market for DB GRSs in the U.S.
was informationally efficient during the Class Period. (Tr. at 46.)
Relying on the standards set forth in Daubert v. Merrell Dow
Pharmaceuticals, Inc., 509 U.S. 579 (1993) and its progeny, defendants assert that
Marek is both unqualified to offer any opinion on market efficiency and that the
work he has here proffered in support of his opinions is, in any event,
methodologically flawed.
The Court agrees.
I.
Legal Standard for Daubert Motions
While expert testimony can be useful to both courts and juries in securities
cases,25 an expert must, in fact, be an expert; and, his or her opinions must
demonstrate such expertise. A trial court is tasked with the responsibility of
weeding out proffered expert opinions which do not meet certain required
standards. Daubert, 509 U.S. at 597; see also Major League Baseball Props., Inc. v.
Salvino, Inc., 542 F.3d 290,311 (2d Cir. 2008). Such an evaluation requires more
than a passing inquiry into whether "it looks like a duck and quacks like a duck."
Instead, the Court must delve more deeply into whether the proffered duck is
fact
III
a duck at all; and whether if a duck, it is doing the types of things a Court
would expect a duck to do. Failure as to either the first or the second inquiry
25 See, e.g., U.S. v. Bilzerian, 926 F.2d 1285, 1294 (2d Cir. 1991) (explaining the
potential usefulness of expert testimony in the context of a jury trial).
27
requires that the Court serve its gatekeeper function and exclude the declaration or
testimony.
The Court's gate-keeping role is based Rule 702 of the Federal Rules of
Evidence. Fed. R. Evid. 702.26 Daubert discusses Rule 702 at length. 27 In its
decision, the Supreme Court made it quite clear that a court should not simply
accept a proffered expert - even if he has been accepted as such before; the law
requires an inquiry into whether an expert is an expert, and some degree of
"regulation of the subjects and theories about which an expert may testify."
Daubert, 509 U.S. at 589.
Daubert requires three separate inquiries: (1) whether the proposed expert
is in fact qualified to offer the opinions he or she is proffering; (2) whether each
proposed opinion is based upon reliable data and methodology; and (3) whether the
proposed testimony would be helpful to the trier of fact or to answer the factual
question presented. See Nimely v. City of New York, 414 F.3d 381,396-97 (2d Cir.
2005); see also Arista Records LLC v. Lime Grp. LLC, 06 Civ. 5936, 2011 WL
1674796, at *1 (S.D.N.Y. May 2,2011).
26 Rule 702 provides: "A witness who is qualified as an expert by knowledge, skill,
experience, training, or education may testify in the form of an opinion or otherwise
if: (a) the expert's scientific, technical, or other specialized knowledge will help the
trier of fact to understand the evidence or to determine a fact in issue; (b) the
testimony is based on sufficient facts or data; (c) the testimony is the product of
reliable principles and methods; and (d) the expert has reliably applied the
principles and methods to the facts of the case." Fed. R. Evid. 702.
27 The language of Rule 702 has changed twice since Daubert; in 2000 and again in
2011.
28
Plaintiffs bear the burden of establishing by a preponderance of the evidence
that Marek has the appropriate qualifications and that his declarations and
testimony meet the requirements of Rule 702. Daubert, 509 U.S. at 593, n.10
(citation omitted); United States v. \Villiams, 506 F.3d 151, 160 (2d Cir. 2007)
(citations omitted); Arista Records, 2011 \VL 1674796, at *1. The fact that
defendants' experts have not proffered analyses that disprove market efficiency is
irrelevant - defendants do not bear such a burden. Defendants' experts may and
have limited their declarations and testimony to criticizing that of plaintiffs' expert,
Marek. In the context of the pending motions, the Court must then determine
whether such criticisms are valid and whether, notwithstanding the criticisms,
plaintiffs have carried their burden.
II.
Marek Lacks the Necessary Qualifications
Whether a proposed expert has the requisite qualifications depends on his or
her educational background, training, and experience in the field(s) relevant to the
opinions he or she seeks to express. See Arista Records, 2011 \VL 1674796, at *2
(citations omitted); see also United States v. Tin Yat Chin, 371 F.3d 31, 40 (2d Cir.
2004) (citations omitted) (explaining that experts should only be allowed to testify
in areas within their field of expertise); Carv Oil Co. v. MG Refining & Mktg., Inc.,
99 Civ. 1725, 2003 WL 1878246, at *2 (S.D.N.Y. Apr. 11, 2003) (citation omitted).
In the Second Circuit, courts have construed the inquiry into an expert's
qualifications with an eye towards the "liberal thrust" of the Federal Rules and
their general relaxation of traditional barriers to "opinion testimony." Daubert, 509
29
U.S. at 588-89 (citations omitted); In re Rezulin Prods. Liab. Litig., 309 F.Supp.2d
531, 559 (S.D.N.Y. 2004) ("The Second Circuit has taken a liberal view of the
qualification requirements of Rule 702, at least to the extent that a lack of formal
training does not necessarily disqualify an expert from testifying if he or she has
equivalent relevant practical experience.") (citation omitted). A "liberal thrust" does
not, however, mean that the requirement that a proffered expert actually be an
expert in the field in which he purports to provide opinions is eliminated.
In this case, Marek's expertise is being an expert in plaintiffs' securities
cases. That, under Daubert, is not sufficient to qualify as an expert.
Kumho
Tire Co. v. Carmichael, 526 U.S. 137, 152 (1999) (stating that a district court must
"make certain that an expert ... employs in the courtroom the same level of
intellectual rigor that characterizes the practice of an expert in the relevant field");
Amorgianos v. National RR Passenger Corp., 303 F.3d 256, 266-67 (2d Cir. 2002)
(noting that an expert's testimony is only admissible if the expert's analysis "is
reliable at every step" and further, that "the Daubert requirement that the expert
testify to scientific knowledge - conclusions supported by good grounds for each step
in the analysis
means that any step that renders the analysis unreliable under
the Daubert factors renders the expert's testimony inadmissible" (internal quotation
marks and citations omitted».
30
While Marek has proffered opinions in areas as diverse as damages, loss
causation, and market efficiency in his career,28 and although Marek has "achieved
professional designation of Chartered Financial Analyst" and is a member in good
standing of the CFA Institute (see Marek 9/23 Decl.
~
4), Marek does not have any
of the basic graduate education, teaching, or research experience or publications
that would provide the Court some basis to believe that he has the qualifications
necessary to make his opinions reliable: he has not been specially trained by
academics in the field; he has not written articles, taught any courses, or conducted
any relevant research. Instead, Marek's training appears to have been one year he
spent working for a firm after college and then his work for an economist who was
later indicted for submitting false declarations. The fact that Marek has - after
Torkelson was indicted - now gone into business as an "expert" himself, does not an
expert with reliable qualifications make. See In re Fosamax Prods. Liab. Litig., 645
F. Supp. 2d 164, 179 (S.D.N.Y. 2009) (explaining that "[t]he strength of an expert's
qualifications provides circumstantial evidence of reliability" and noting that the
"more qualified the expert, the more likely that expert is using reliable methods in a
reliable manner ....") (quotation marks and citations omitted).
28 See, e.g., In re Imperial Credit Indus., Inc. Sees. Litig., 252 F.Supp.2d 1005, 1014
(C.D. Cal. 2003) (finding Marek's work deficient and unreliable); Carpe v. Aquila,
Inc., 2005 \VL 1138833, at *4 (W.D. Mo. Mar. 23, 2005) (excluding Marek's report on
the basis that his work was fatally flawed and not resting on a reliable basis); In re
Organogenesis Secs. Litig., 241 F.R.D. 397, 401-02 (D. Mass. 2007) (rejecting
Marek's opinion); In re World Access, Inc., 310 F. Supp. 2d 1281, 1298-99 (N.D. Ga.
2004) (suggesting Marek's opinion was incomplete); Fruchter v. Florida Progress
Corp., 2002 WL 1558220, at *3, 10-11 (Fla. Cir. Ct. Mar. 20, 2002); Billhofer v.
Flamel Techs., S.A., 281 F.R.D. 150, 160-64 (S.D.N.Y. 2012).
31
For this court to rely on testimony from someone who lacks real expertise
asks this Court to dispense with the need for real qualifications. That is not the
law. One cannot become an expert simply by deeming himself as such. SEC v.
Tourre, No. 10 Civ. 3229, 2013 \VL 3089031, at *7 (S.D.N.Y. June 18, 2013) (citing
Thomas J. Kline, Inc. v. Lorillard, Inc., 878 F.2d 791, 800 (4th Cir. 1989) ("Although
it would be incorrect to conclude that [the proposed expert's] occupation as a
professional expert alone requires exclusion of her testimony, it would be absurd to
conclude that one can become an expert simply by accumulating experience in
testifying.")).
Several of the flaws in Marek's analysis demonstrate his lack of true
qualifications. For instance, in Marek's first report, he fails to tackle plainly
important considerations: that more than 90% of the DB GRSs were traded outside
the U.S., that another market (Germany) drove the pricing in the U.S., that the
financial crisis was ongoing throughout the Class Period, and that there were short
sale bans in both the U.S. and in Germany at various points during the Class
Period. See In re Zyprexa Prods. Liab. Litig., 489 F. Supp. 2d 230, 284-85 (E.D.N.Y.
2007) (explaining that an expert must use sound scientific methodology, which
"requires a scholar to make some effort to account for alternative explanations for
the effect whose cause is at issue") (citations omitted).
Marek's lacking expertise is also apparent in other ways. For example, his
first l'eport demonstrated a lack of awareness of current research in the area of
market efficiency. (See Gompers Decl.
~~[
6-7, 18-27.) In addition, Marek misread
32
the data set that he was using
believing it was NYSE alone; it was not. 29 In
addition, Marek stated that earnings were anticipated by the market but then
proceeded to use EDDs as his primary data set. This suggests that the approach
was structurally flawed: potentially, the EDDs did not necessarily contain new
information because the information was already anticipated prior to the EDD;
while earnings disclosures might contain other information, Marek did not
investigate whether any of the additional information was itself new. Marek also
failed substantively to take into account that DB was a financial institution
undeniably impacted by world's most recent financial crisis during the Class
Period. 30
The Court was also singularly unimpressed with Marek's in-court testimony.
Marek was evasive in answering questions when such answers were inconvenient,
he contradicted what he said at deposition or in his declarations, and he simply
changed his testimony if additional prodding by plaintiffs' counsel made it clear
that it was better for their case that he do so.
In short, if Daubert's requirement that an expert be sufficiently qualified and
have a certain level of expertise is to mean anything, it must mean that such
This turned out to be a fortunate error in one regard: without consolidated data,
Marek would have been analyzing the data of only one of several exchanges that
traded the DB GRSs in the U.S.
30 Marek did acknowledge that because DB was a financial institution during the
financial crisis, there was a tremendous quantity of information during the Class
Period - a "sheer enormity." (Marek 9/23 Decl. ~ 57.) Rather than critically
analyze how that market position may have impacted his analysis, however, Marek
avoided addressing its complexities by choosing the 12 most anticipated information
days during the 515 trading days during the Class Period.
29
33
qualifications and expertise be real- simply being an expert at being an expert is
not enough.
Accordingly, this Court finds Marek unqualified to offer declarations and
testimony in this case.
III.
Flaws in Marek's Methodology
Even were this Court were to overlook Marek's lack of expertise, it would
nonetheless preclude his declarations and testimony on the basis that his opinions
are based on unreliable and flawed methodology.
The reliability of a proposed expert's testimony "entails a preliminary
assessment of whether the reasoning or methodology underlying the testimony is
scientifically valid and whether that reasoning or methodology properly can be
applied to the facts in issue." Daubert, 509 U.S. at 592-93. Among the questions to
be answered is whether the theory or methodology can be tested, whether it has
been subjected to peer review, whether it has a potential rate of error, and whether
it is a "generally accepted" methodology or theory. Id. at 593-94. In Weisgram v.
Marley Co., the Supreme Court stated that expert testimony must meet "exacting
standards of reliability." 528 U.S. 440, 455 (2000) (citations omitted). "[T]he
Supreme Court has also stated that reliability within the meaning of Rule 702
requires a sufficiently rigorous analytical connection between [the expert's]
methodology and the expert's conclusions." Nimely, 414 F.3d at 396. A court's
inquiry as to whether an expert's proffered opinion is reliable is context specific; the
question is not whether the expert methodology might be generally reasonable but
34
rather whether in the context of the particular matter at hand it is reliable. See
Development Specialists, Inc. v. Weiser Realtv Advisors LLC, No. 09 Civ. 4084,
2012 WL 242835, at *8 (S.D.N.Y. Jan. 24, 2012) (citation omitted). In other words,
does the proposed expert's proffered opinion(s) "fit" the case at hand? Daubert, 509
U.S. at 591-92.
Here, Marek's analysis regarding market efficiency for DB GRSs suffers from
certain significant flaws. First, Marek fails adequately to account for the fact that
over 90% of DB's GRSs traded in a market other than the one he studied (and
indeed, outside the U.S.). The significance of this failing is readily apparent when
placed against Marek's concession that German pricing drove U.S. pricing. (Tr. at
61 (relying on Grundfest's data, Marek stating that it appears that the U.S. is
responding to Germany about 80% of the time).) Marek did not recognize this fact
in his analysis, let alone perform any work to determine whether the German
pricing was occurring in an efficient or inefficient market. As a result, Marek's
analysis is limited to the U.S. market's ability to efficiently impound one piece of
information: German pricing. That says nothing about whether that pricing is
itself based upon efficient impoundment of information.
Grundfest's work reveals the significance of this flaw. Indeed, Grundfest
shows that virtually all of the significant information that Marek himself examined
occurred when the U.S. market was not even open; the information was therefore
impounded efficiently or inefficiently (including not at all) into the German price, on
which the U.S. price was based. Failure to examine or render any opinions
35
concerning the primary market in which the security at issue traded undermines
any opinion as to whether that security traded in an efficient market.
Second, Marek's analysis fails to account for the particular circumstances
impacting financial institutions during the financial crisis. For instance, Marek
fails to take into account any market impact of the periods during which the U.S.
and Germany had imposed short sale bans. He did so while acknowledging that
arbitrage is one of the drivers of an efficient market. (Tr. at 24.) Moreover, while
Marek acknowledged at one point that liquidity was a more important factor than
earnings during the financial crisis, and indicated in response to the Court's
question that there would be non-EDDs on which DB made statements about
liquidity fuL. at 49-52), Marek later seemed to back-pedal from that answer fuL. at
52).
Third, Marek's choice of EDDs as the totality of information that he needed
to test in order to determine market efficiency makes little sense in the context of
the DB GRSs during this Class Period. As Marek acknowledged, earnings were
largely anticipated and there was a "sheer enormity" of information (apart from
earning disclosures) about DB during the Class Period. In addition, he assumed
that the price of the DB GRS was appropriate
as it was based on the combined
wisdom of "thousands" of traders. In this way, as Gompers suggested, Marek's
analysis is tautological
one cannot rely on the wisdom of the traders to conclude
that the price was efficient when the efficiency of the market is what Marek himself
has been hired to determine.
36
Fourth, even were the Court to put aside all of these other issues, the Court
credits the testimony and declarations of Gompers that Marek's regression was not
performed according to reliable methodology. (See, e.g., Gompers DecL
'l,r 66-68.)
For all of these reasons, the Court finds that Marek's opinions are based on
unreliable and flawed methodology. The Supreme Court has made it clear that the
Court should not ignore such flaws - but rather should place such flaws against the
requirements of the standards set forth in Daubert.
Marek's opinions do not pass muster under Daubert and accordingly, they are
excluded.
PLAINTIFFS' MOTION FOR CLASS CERTIFICATION
Plaintiffs have moved to certify the following class:
All purchasers of Deutsche Bank AG ("Deutsche Bank" or
the "Company") ordinary shares on the New York Stock
Exchange ("~~SE") and all purchasers of Deutsche Bank
ordinary shares in any domestic transaction from January
3, 2007, through January 16, 2009 (the "Class Period"),
who were damaged as a result of defendant's violations of
the federal securities laws. Excluded from the Class are
defendants, the officers and directors of the Company,
members of their immediate families and their legal
representatives, heirs, successors or assigns and any
entity in which defendant have or had a controlling
interest.
(PIs.' Mem. Supp. Class Cert. ("PIs.' Class Mem.") at 1, dated July 1, 2013, ECF No.
52.) Defendants oppose class certification on the basis that plaintiffs have failed to
carry their burden of proving by a preponderance of the evidence each of the
37
required elements of Rule 23 of the Federal Rules of Civil Procedure, 28 U.S.C. §
23(a), (b)(3). (See Defs.' Class Opp'n at 1.)
In particular, defendants assert that the named plaintiffs are neither typical
nor adequate representatives (lil at 19-21), and that individual questions will
predominate over common ones (lil at 8-12). In regards to the latter, defendants
point to the lack of sufficient evidence to demonstrate that DB GRSs traded in an
efficient market during the entirety of the Class Period, thereby removing plaintiffs'
ability to rely on the fraud-on-the-market theory to show reliance. (Id.) In addition,
defendants argue that the named plaintiffs are subject to unique defenses that also
make them inadequate representatives - and that mini-trials would be required as
to those defenses, again causing individual issues to predominate. (Id. at 16-19.)
For the reasons set forth below, the Court agrees. Even had the Court not
excluded the Marek declarations, plaintiffs have failed to carry their burden of proof
under Rule 23.
1.
Legal Requirements For Class Certification
A plaintiff seeking to certify a class must prove by a preponderance of the
evidence that its proposed class meets the requirements of Rule 23(a) and, if those
requirements are met, that the class is maintainable under at least one of the
subdivisions of Rule 23(b). See Wal-Mart Stores, Inc. v. Duke, - U.S. -,131 S.Ct.
2541, 2548 (2011). Plaintiffs here seek certification under Rule 23(a) and Rule
23(b)(3).
38
Pursuant to Rule 23(a), a plaintiff seeking certification first must
demonstrate that: (1) the class is so numerous that joinder of all members is
impractical; (2) there are questions of law or fact common to the class; (3) the claims
or defenses of the representative parties are typical of the claims or defenses of the
class; and (4) the representative parties will fairly and adequately protect the
interests of the class. See Fed. R. Civ. P. 23. These requirements are colloquially
referred to, respectively, as numerosity, commonality, typicality, and adequacy.
Rule 23(b)(3) requires that "questions of law or fact common to class members
predominate over any questions affecting only individual members, and that a class
action is superior to other available methods for fairly and efficiently adjudicating
the controversy." Fed. R. Civ. P. 23(b)(3); see also In re Initial Public Offering Sees.
Litig., 471 F.3d 24,33 (2d Cir. 2006).
Rule 23 is not a mere pleading standard. "A party seeking class certification
must affirmatively demonstrate his compliance with the Rule ...." Wal-Mart
Stores, Inc., 131 S. Ct. at 2551. '''In evaluating a motion for class certification, the
district court is required to make a definitive assessment of Rule 23 requirements,
notwithstanding their overlap with merits issues, and must resolve material factual
disputes relevant to each Rule 23 requirement.'" Severin v. Project Ohr, Inc., No. 10
Civ. 9696, 2012 \VL 2357410, at *4 (S.D.N.Y. June 20, 2012) (quoting Brown v.
Kelly, 609 F.3d 467,476 (2d Cir. 2010) (internal quotation marks and citation
ommited)). The district court must "receive enough evidence, by affidavits,
39
documents, or testimony, to be satisfied that each Rule 23 requirement has been
met." In re Initial Public Offering Sees. Litig., 471 F.3d at 41.
II.
Rule 23(a)
A. Numerosity and Common Questions of Law and Fact
In this case, there is no issue of numerosity or that at least one common
question oflaw or fact exists. 31
According to Second Circuit precedent, "numerosity is presumed at a level of
40 members." Consolidated Rail Corp.v. Town of Hyde Park, 47 F.3d 473,483 (2d
Cir. 1995) (citations omitted). "Plaintiffs need not set forth an exact class size to
establish numerosity." In re Bank of Am. Corp., 281 F.R.D. 134, 138 (S.D.N.Y.
2012). There are certainly at least 40 members of the proposed class in this case.
As for the requirement that there be common questions oflaw and fact, it is clear
that a there would be at least one common question for the proposed class: did
defendants in fact engage in the violations of the securities laws alleged?
B. Typicality and Adequacy
Defendants here contest the typicality and adequacy of the named plaintiffs.
(Defs.' Class Opp'n at 19-24.) The Court finds that while typicality is satisfied,
adequacy is not.
In the Second Circuit, typicality is satisfied when "each class member's claim
arises from the same course of events and each class member makes similar legal
arguments to prove the defendant's liability." See In re Flag Telecom Holdings,
Defendants do not contest either numerosity or the existence of at least one
common question.
31
40
Ltd., Sees. Litig., 574 F.3d 29,35 (2d Cir. 2009) (quotation marks and citation
omitted). If the same allegedly unlawful conduct was directed at or affected them
both, the typicality requirement is usually met.
Robidoux v. Celani, 987 F.2d
931, 936-37 (2d Cir. 1993).
To satisfy the adequacy requirement, plaintiffs must prove that the interests
of the named plaintiffs are not antagonistic to other members of the class. See In re
Flag Telecom, 574 F.2d at 35. 32 To some extent, typicality and adequacy overlap
courts generally have found that if a named plaintiffs claims satisfy the typicality
requirement, that plaintiff is also adequate to represent the class. See Damassia v.
Duane Reade, Inc., 250 F.R.D. 152, 158 (S.D.N.Y. 2008) ("The fact that plaintiffs'
claims are typical of the class is strong evidence that their interests are not
antagonistic to those of the class; the same strategies that will vindicate plaintiffs'
claims will vindicate those of the class."); see also Hicks v. Morgan Stanley & Co.,
No. 01 Civ. 10071, 2003 WL 21672085, at *3 (S.D.N.Y. July 16, 2003) (finding class
representatives adequate when the complaint alleged a common course of conduct
and unitary legal theory for the entire class period.)
Defendants argue that plaintiffs cannot meet the typicality or adequacy
requirements because: (1) their claims are subject to unique defenses; (2) plaintiffs
either refuse or are unable to provide proper discovery; (3) the Steward Funds are
religiously-based and raise concerns about their capacity to serve as a proper class
32 Adequacy also requires a showing that plaintiffs' attorneys are qualified,
experienced, and able to conduct the litigation. See In re Flag Telecom, 574 F.2d at
35. However, since Court denies class certification in this case, plaintiffs' motion to
appoint Robbins Geller as class counsel is rendered moot.
41
representative; and (4) the litigation is allegedly lawyer-driven. (See Defs.' Class
Opp'n at 16-24.) Since the Court finds below that plaintiffs' claims are subject to
unique defenses, it need not address the remainder of defendants' claims.
The presence of unique defenses may, in certain situations, defeat class
certification. See Gary Plastic Packaging Corp. v. Merrill Lynch, Pierce, Fenner &
Smith, Inc., 903 F.2d 176, 180 (2d Cir. 1990) (explaining that "class certification is
inappropriate where a putative class representative is subject to unique defenses
which threaten to become the focus of the litigation ... [r]egardless of whether the
issue is framed in terms of the typicality of the representatives claims ... or the
adequacy of the representation ...."); see also Baffa v. Donaldson, Lufkin &
Jenrette Sees. Corp., 222 F.3d 52, 59-60 (2d Cir. 2000) (finding that the district
court did not abuse its discretion in denying a request to intervene as class
representative because of her unique possible defenses) (citing Gary Plastics
Packaging Corp., 903 F.2d at 180).
In Flag Telecom, the Second Circuit affirmed a finding that certain class
representatives failed the typicality requirement for Rule 23 because they were
subject to unique defenses as a result of having been "in and out" purchasers
(buying and selling into and out of the securities at issue during the class period).
574 F.3d at 40-41; see also In re IMAX Sees. Litig., 272 F.R.D. 138, 147 (S.D.N.Y.
2010) (class representative was in-and-out trader and therefore subject to unique
defenses, such that it could not meet the typicality requirement); Kline v. Wolf, 88
F.R.D. 696, 699 (S.D.N.Y. 1981) (denying class certification where named plaintiff
42
was in-and-out trader and therefore faced unique defenses), affd, 702 F.2d 400 (2d
Cir. 1983); Bensley v. FalconStor Software, Inc., 277 F.R.D. 231, 241 (E.D.N.Y.
2011) (refusing to appoint fund as lead plaintiff because it was subject to unique
defenses as an in-and-out investor); In re Bally Total Fitness Secs. Litig., Nos. 04 C
3530, 04 C 3634, 04 C 3713, 04 C 3844, 04 C 3864, 04 C 3936, 04 C 4342, 04 C 4697,
2005 WL 627960, at *6 (N.D. Ill. 2005) (refusing to appoint in-and-out trader as lead
plaintiff because it would have to establish that losses were actually caused by the
alleged fraudulent statements and would need to expend considerable resources to
do so); c.£. In re Smart Techs., Inc. S'holders Litig., No. 11 Civ. 7673, 2013 WL
139559, at *9 (S.D.N.Y. Jan. 11, 2013) (excluding in-and-out purchasers from the
class).
Here, each of the current named plaintiffs is an "in-and-out-trader."33 (See
Declaration of Brian Barrett in Opposition to Lead Plaintiffs' and IBEvV Local 90
Pension Fund's Motion for Class Certification and to Include IBEvV Local 90
Pension Fund as a Named Plaintiff ("Barrett Dec!."), Ex. M, dated Aug. 29, 2013,
ECF No. 58.) This fact alone defeats certification.
supra.)
33 Throughout the Class Period - specifically on August 12, 2008 (180 GRSs),
October 14, 2008 (450 GRSs), and November 7, 2008 (200 GRSs) - Steward Global
Equity sold its GRSs; on February 9, 2009, it sold 19,660 GRSs. (See Barrett Decl.
Ex. M. at 3.) Steward International sold its GRS holdings on June 7, 2007 (160
GRSs), September 5, 2007 (130 GRSs), September 7, 2008 (20 GRSs), February 4,
2008 (130 GRSs), and on July 7,2008 (200 GRSs). (See
at 5-6.) On January 9,
2009, Building Trades sold 11,800 of its shares. (See id. at 1.)
43
III.
Rule 23(b)
Class certification will be defeated if a plaintiff fails to meet the basic
requirements of Rule 23(a). See, e.g., Wal-Mart Stores, Inc., 131 S.Ct. at 2556-57.
Plaintiffs here have failed to meet their burden under Rule 23(a). However,
assuming arguendo that they carried that burden, class certification must
nonetheless be denied on the separate basis that they have failed to carry their
burden under Rule 23(b)(3) to show that common issues predominate over
individual ones. See id.
A. Fraud-Qn-The-Market Theory
Here, the predominance issue relates to whether plaintiffs have
demonstrated that the DB GRSs traded in an efficient market - thereby allowing
the entire class to take advantage of the presumption of reliance set forth in Basic
Inc. v. Levinson for a "fraud-on-the-market" theory. 485 U.S. at 241-42.
The predominance requirement is intended to ensure that "the class will be
certified only when it would achieve economies of time, effort, and expense, and
promote uniformity of decision as to persons similarly situated, without sacrificing
procedural fairness or bringing about other undesirable results." Myers v. Hertz
Corp., 624 F.3d 537, 547 (2d Cir. 2010) (quoting Cordes& Co. Fin. Servs., Inc. v.
A.G. Edwards & Sons, Inc., 502 F.3d 191, 104 (2d Cir. 2007) (internal quotation
marks and citations omitted».
Reliance "is an essential element of the [Section] 10(b) private cause of
action." Amgen Inc., 133 S.Ct. at 1192 (internal quotation marks and citation
44
omitted). '" [P]roof of reliance ensures that there is a proper connection between a
defendant's misrepresentation and a plaintiffs injury.'" Id. (quoting Erica P. John
Fund, Inc. v. Halliburton Co., - U.S.
,131 S.Ct. 2179,2184-85 (2011».
Recognizing the difficulties of proving direct reliance, in Basic, 485 U.S. at
241, the Supreme Court "endorsed the 'fraud-on-the-market' theory, which permits
certain Rule 10b-5 plaintiffs to invoke a rebuttable presumption of reliance on
material misrepresentations aired to the general public." Amgen, Inc., 133 S.Ct. at
1192 (citing = = , 485 U.S. at 241-49). "The fraud-on-the-market theory rests on
the premise that certain well developed markets are efficient processors of public
information," and therefore, the price of a security at any given time reflects the
impoundment (or inclusion) of that information. Id. (citing Basic, 485 U.S. at 248).
The presumption of reliance is, however, just that - a presumption. It is
rebuttable. Amgen, 133 S.Ct. at 1193 (quoting Halliburton, 131 S.Ct. at 2185;
Basic, 485 U.S. at 248-49). "Absent the fraud-on-the-market theory, the
requirement that Rule 10b-5 plaintiffs establish reliance would ordinarily preclude
certification of a class seeking money damages because individual reliance issues
would overwhelm questions common to the class." Amgen, 133 S.Ct. at 1193 (citing
Basic, 485 U.S. at 242).
To defeat the presumption of reliance, defendants do not, therefore, have to
show an inefficient market. Instead, they must demonstrate that plaintiffs'
proffered proof of market efficiency falls short of the mark. That is precisely what
defendants have done here.
45
In analyzing market efficiency, courts have generally turned to a series of
factors most notably set forth in Cammer v. Bloom, 711 F. Supp. 1264, 1286-87
(D.N.J. 1989); see Teamsters, 546 F.3d at 200. The factors are: (1) the average
weekly trading volume of the securities at issue; (2) the number of securities
analysts reporting on or following the securities; (3) the extent to which market
makers traded in the securities; (4) the extent to which the issuer was/is eligible to
file an SEC Registration Form S-3; and (5) the demonstration of a cause and effect
relationship between the unexpected, material disclosures and changes in the
securities' price. Cammer, 711 F. Supp. at 1286-87. Here, defendants only contest
the last Cammer factor
the cause and effect relationship.
In order for the fraud on the market theory to apply, plaintiffs must
demonstrate that the securities at issue traded in an efficient market. In the
absence of an efficient market, it is not clear that the assumptions underlying the
fraud on the market theory can or should apply; whether or not certain material
information (including the alleged misstatements or omissions) was impounded into
the stock price cannot be assumed
it mayor may not have occurred. See, e.g., id.
at 248, n.27; In re Salomon Analyst :Yletromedia Litig., 544 F.3d 474,481, n.4.
a. Marek's Analysis of Market Efficiencv
The Court has already discussed the shortcomings of Marek's analysis of
market efficiency above. Here, the Court merely summarizes its conclusions.
Plaintiffs bear the burden of proving market efficiency - defendants do not.
Therefore, the questions asked of defendants' experts at the evidentiary hearing as
46
to whether they conducted their own analysis of market efficiency are beside the
point. The Court finds that Marek's failure to analyze the primary market in which
the DB GRSs traded - namely, Germany - is fatal to his analysis. In the absence of
any analysis that the information which Grundfest clearly demonstrated was first
released in Germany (before the U.S. market even opened) was impounded into the
price, there is an insufficient evidentiary basis to assert market efficiency.
In addition, Marek failed to take into account the three short sale bans in
Germany and the U.S. that occurred during the Class Period. Marek acknowledged
that arbitrage and short sales are aspects of maintaining market efficiency - and
that a ban on short selling could impact market efficiency (see tr. at 25), yet he
failed to consider their impact here. That, too, undermines the sufficiency of his
conclusions regarding market efficiency.
In addition, Marek's analysis of market efficiency was based on an
inadequate foundation of 12 trading days out of 515 - during a time in which a
"sheer enormity" of information regarding DB was released into the market. The 12
days chosen corresponded to earnings disclosure dates - yet Marek testified that
earnings would largely have been anticipated prior to formal disclosure. (See id. at
42-43.) Marek testified that liquidity was of more interest to the market vis-a-vis
financial institutions during this period of the financial crisis
and while liquidity
would be addressed in an earnings disclosure, Marek provided contradictory
testimony as to whether liquidity would have been discussed at other points in time
as well. (See id. at 49-52.)
47
Further, Gompers asserts that the choice of the 12 EDDs, particularly
without any analysis of the materiality of information released on those dates, or
whether price movements were directionally appropriate, undermines Marek's
conclusions. (See Gompers Decl.
~:~
49-54.) The Court credits Gompers' testimony.
Gompers is a highly qualified economist who has spent years studying, teaching,
and publishing on market efficiency. The Court finds that his opinions were more
grounded in recent academic literature, more sensible, and more credible than those
of Marek. 3·1
b. Conclusion
In sum, Marek's analysis falls short of what plaintiffs needed to present to
support a determination of market efficiency during the Class Period by a
preponderance of the evidence. That DB GRSs may have traded at many other
points in time in an efficient market is irrelevant (and not before the Court)
what
is clear is that an analysis of market efficiency that ignores the main market which
is impounding (or not) material information, and which ignores the fact that the
Class Period encompasses an extraordinary financial crisis directly impacting
trading conditions and the firm at issue, is fatally flawed.
As this Court has previously stated, class certification is a crucial inflection
point in securities litigation
and requires a careful analysis of the Rule 23 factors.
The parties spent a substantial amount of time in the declarations and at the
evidentiary hearing debating the adequacy of the sample size for the particular type
of "z-test" that :YIarek ran. ~e, e.g., Gompers Decl. ~~[ 45, 63-65; Marek 7/1 Decl.
~[~ 71-72; Tr. at 66-68.) Given the number of other flaws and shortcomings in
Marek's analysis, the Court finds it unnecessary to wade into these waters.
:34
48
See George v. China Automotive Sys., Inc., No. 11 Civ. 7533, 2013 WL 3357170, at
*1 (S.D.N.Y. July 3, 2013). Here, plaintiffs have failed to meet their burden insofar
as they have failed to prove by a preponderance of the evidence that the market for
DB GRBs was efficient.
B. The Named Plaintiffs' Trading Patterns
Class certification is separately inappropriate here based on the particular
trading patterns of the named plaintiffs. 35 The named plaintiffs' trading patterns
defeat predominance. Defendants have presented evidence - uncontested by
plaintiffs
that the two named plaintiffs both bought and sold DB GRSs during the
Class Period (e.g., that they are in-and-out-traders). (See Barrett Decl., Ex. M.)
Indeed, both Building Trades and Steward Funds purchased and sold DB GRSs
within the Class Period. (See Barrett Dec!., Ex. M.) Each of the named plaintiffs
also profited on some of the in-and-out-trades. (See Defs.' Class Opp'n at 17.) See
George, 2013 WL 3357170, at *3, *7 (explaining that while not determinative, fact
of making a profit with in-and-out-trading would cause time and resources on this
issue at the expense of common issues.)
Here, the in-and-out-trading patterns of the named plaintiffs raise
individualized questions regarding why they made their investments (was it in fact
:.\5 IBEW is not currently a named plaintiff (though it was originally). (See supra at
n.2.) Plaintiffs have requested to have IBE\V considered a named plaintiff. (See
id.) There is no evidence that IBEW was an "in-and-out-trader;" however, since
there is no presumption of reliance available here (see supra), this fact cannot save
the class. Accordingly, the Court declines to determine whether IBEW is
appropriately alleged as a named plaintiff - resolution of that issue is irrelevant to
the outcome of plaintiffs' motion for class certification.
49
reliance on the market?) and whether they have negative loss causation. See In re
Flag Telecom, 574 F.3d at 35-36; Smart Techns., 2013 WL 139559, at *8. These
individualized questions as to the named plaintiffs threaten to predominate over
common questions. Thus, these named plaintiffs cannot meet the "predominance"
factor Rule 23(b)(3).
Accordingly, plaintiffs have failed to meet their burden pursuant to Rule 23
and class certification is denied.
CONCLUSION
For the reasons set forth above, defendants' Daubert motion to preclude the
testimony of Marek is GRANTED and plaintiffs' motion to certify the proposed class
is DENIED. The parties are directed to appear for a status conference in this
matter on January 6, 2013 at 9:30 a.m.
The Clerk of Court is directed to terminate the motions at ECF Nos. 51 and
59.
Dated:
New York, New York
October'2.'\,2013
{C 7S.~
KATHERINE B. FORREST
United States District Judge
50
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