United States District Court, D. Arizona
Mark Smilovits, individually and on behalf of all others similarly situated, Plaintiffs,
First Solar, Inc.; Michael J. Ahearn; Robert J. Gillette; Mark R. Widmar; Jens Meyerhoff; James Zhu; Bruce Sohn; and David Eaglesham, Defendants.
G. CAMPBELL SENIOR UNITED STATES DISTRICT JUDGE.
securities fraud class action is set for trial in January
2020. The parties have filed nine motions to exclude expert
testimony under Federal Rule of Evidence 702 and Daubert
v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579
(1993). The motions are fully briefed. No party requests oral
argument or a Daubert hearing. This order addresses
six of the motions. The Court will address the remaining
motions in a separate order.
First Solar, Inc. produces photovoltaic solar panel modules.
Its stock is publicly traded on the NASDAQ stock exchange.
Plaintiffs purchased First Solar stock between April 30, 2008
and February 28, 2012 (the “Class Period”).
See Doc. 171 at 22. The Individual Defendants are
First Solar officers and executives who purchased or sold
First Solar stock during the Class Period while allegedly
concealing information from the market about manufacturing
and design defects causing faster power loss in certain
declines in First Solar's stock price, beginning on July
29, 2010, followed the departure of First Solar's CEO,
disappointing financial results, and the release of quarterly
financial disclosures reporting the product defects.
See Doc. 401 at 7-8. First Solar's stock fell
from nearly $300 per share to less than $50 per share during
the Class Period. See Id. at 2.
allege that Defendants engaged in several acts of fraud
during the Class Period, including concealing the product
defects, misrepresenting the cost and scope of the defects,
and reporting false information on financial statements. Doc.
93 at 7-20. Plaintiffs further allege that when First Solar
later disclosed the product defects and attendant financial
liabilities to the market, the stock price fell, causing
economic loss to Plaintiffs. Id. at 124-41.
assert violations of §§ 10(b) and 20(a) of the
Securities Exchange Act of 1934 and Securities Exchange
Commission (“SEC”) Rule 10b-5. Id. at
135-36. Section 10(b) “makes it unlawful to ‘use
or employ, in connection with the purchase or sale of any
security[, ] . . . any manipulative or deceptive device or
contrivance in contravention of such rules and regulations as
the [SEC] may prescribe.'” In re Oracle Corp.
Sec. Litig., 627 F.3d 376, 387 (9th Cir. 2010) (quoting
15 U.S.C. § 78j(b)). Rule 10b-5 forbids, in connection
with the purchase or sale of a security, “the making of
any ‘untrue statement of a material fact' or the
omission of any material fact ‘necessary in order to
make the statements made . . . not misleading.'”
Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 341
(2005) (quoting 17 C.F.R. § 240.10b-5). The scope of
Rule 10b-5 is coextensive with that of § 10(b). See
Oracle, 627 F.3d at 387; Stoneridge Inv. Partners,
LLC v. Sci.-Atlanta, Inc., 552 U.S. 148, 157 (2008). To
establish a violation of § 10(b) and Rule 10b-5,
“a plaintiff must prove (1) a material
misrepresentation or omission by the defendant; (2) scienter;
(3) a connection between the misrepresentation or omission
and the purchase or sale of a security; (4) reliance upon the
misrepresentation or omission; (5) economic loss; and (6)
loss causation.” Stoneridge, 552 U.S. at 157.
claim that the Individual Defendants are liable for the
alleged § 10(b) and Rule 10b-5 violations as
“controlling persons” under § 20(a). Doc. 93
at 136, ¶¶ 257-58. To establish a claim under
§ 20(a), a plaintiff must first prove a primary
violation of § 10(b) or Rule 10b-5 and then show that
the defendant exercised actual power over the primary
violator. See In re NVIDIA Corp. Secs. Litig., 768
F.3d 1046, 1052 (9th Cir. 2014).
Rule 702 and Daubert Standards.
Rule 702, an expert may offer “scientific, technical,
or other specialized knowledge” if it “will
assist the trier of fact to understand the evidence, ”
provided the testimony rests on “sufficient facts or
data” and “reliable principles and methods,
” and “the witness has reliably applied the
principles and methods to the facts of the case.”
Fed.R.Evid. 702(a)-(d). The proponent of expert testimony has
the ultimate burden of showing, by a preponderance of the
evidence, that the proposed testimony is admissible under
Rule 702. See Cooper v. Brown, 510 F.3d 870, 942
(9th Cir. 2007); Fed.R.Evid. 104(a). The trial court acts as
a gatekeeper for expert testimony to assure that it
“both rests on a reliable foundation and is relevant to
the task at hand.” Daubert, 509 U.S. at 597;
see Davis v. McKesson Corp., No.
CV-18-1157-PHX-DGC, 2019 WL 3532179, at *3-4 (D. Ariz. Aug.
Defendants' Motion to Exclude Davisson's Testimony
(Docs. 528, 631).
retained Valerie Davisson, a former securities analyst, to
opine on several issues related to non-public information
First Solar purportedly failed to disclose to investors and
analysts. See Doc. 528-1 at 6. Davisson was asked to
opine about: (1) the role of securities analysts with respect
to publicly traded companies; (2) the state of the solar
panel market and the challenges First Solar faced during the
Class Period; (3) the importance of cost per watt,
efficiency, product quality, product reliability, and
warranty to market participants considering making an
investment in First Solar; and (4) whether and how the
allegedly concealed information would have materially altered
analysts' ability to assess First Solar's stock
value. Id. at 6-7. Davisson's opinions on these
topics, and her qualifications and methodology, are set forth
in a 75-page report. Id. at 2-80.
move to exclude all of Davisson's opinions. Docs. 528
(sealed lodged motion), 631 (redacted public version).
Defendants argue that Davisson has no expertise in the solar
industry, that she employs no reliable method in reaching her
opinions, that her testimony would confuse the jury, and that
she offers impermissible legal conclusions about materiality.
Id. at 5-6. The Court will address each argument.
assert that Davisson has no expertise in the solar industry.
Doc. 528 at 5, 10-11. In support of this argument, Defendants
purport to rely on Davisson's own testimony that stock
analysts typically specialize by industry. Id. at
12. But Davisson testified that sell-side analysts specialize
by industry, and that she was a buy-side analyst. Doc. 528-4
at 16. Defendants do not address this distinction, and do not
cite any other source for their assertion that Davisson must
have solar industry expertise to render her expert opinions.
Doc. 528 at 12.
this evidence, the Court cannot conclude that solar industry
expertise is necessary for the opinions Davisson offers about
the market effects of Defendants' alleged
misrepresentations. She worked for more than ten years as a
securities portfolio manager. Doc. 528-1 at 8. As a buy-side
analyst, Davisson recommended the purchase of stocks for
large institutional clients. Id. She assessed and
predicted market dynamics, opined on management credibility,
forecasted earnings, and valued stocks. Id. She
interviewed more than 500 management teams, participated in
thousands of earnings conference calls, and attended hundreds
of investor conferences. Id. As a sell-side analyst,
Davisson performed industry research and in-depth analysis,
wrote research reports, and modeled company financials to
establish a price target and allow valuation comparisons
between companies. Id. at 9. Davisson also spent ten
years at large publicly traded manufacturing companies, where
her job entailed understanding quarterly earnings forecasts
and performing quarterly variance analyses used by investor
relations departments. Id. She attended St. Louis
University, earning Bachelor of Science in Business
Administration and Master of Accounting degrees. Id.
She was a certified public accountant in Arizona from 1994 to
also served as the chief financial officer of the solar
company PosiGen from 2014 to 2015. Doc. 528-1 at 7-8, 528-4
at 22. As a member of PosiGen's executive team, Davisson
was heavily involved in each department, including the
company's technology department. Doc. 528-4 at 23.
Defendants note that PosiGen is a residential solar company,
but do not explain why Davisson's position at PosiGen
“did not provide her with any relevant expertise”
in the industry. Doc. 528 at 11.
moving to exclude Defendants' rebuttal expert, Dr. Varun
Sivaram, Plaintiffs explain that Davisson's opinions
about the state of the solar panel market and the challenges
First Solar faced as a public company (see Doc. 528-1 at
11-29) are based on her expertise in financial analysis,
including predicting market dynamics, evaluating management
credibility, forecasting earnings, and valuing stocks. Docs.
472, 488 at 14. Plaintiffs concede that Davisson is not an
expert on solar technology or manufacturing and avow that she
will offer no opinions on these topics. Id. at 6,
14; see Doc. 528-3 at 7-8 (Davisson explaining that
she does “not offer any technical opinions in this
702 “contemplates a broad conception of expert
qualifications.” Thomas v. Newton Int'l
Enters., 42 F.3d 1266, 1269 (9th Cir. 1994). “As
the terms of the rule state, an expert may be qualified
either by ‘knowledge, skill, experience, training, or
education.'” Id. Davisson's
substantial knowledge and experience as a securities analyst,
coupled with her experience in manufacturing and her exposure
to the solar industry, are sufficient to qualify her to opine
about the role of securities analysts and the effect the
allegedly concealed information had on analysts' ability
to assess the true value of First Solar stock. See
Doc. 528-1 at 7-11 (Davisson's qualifications and summary
of opinions); see also Hangarter v. Provident Life &
Accident Ins. Co., 373 F.3d 998, 1016 (9th Cir. 2004)
(“Given Caliri's significant knowledge of and
experience within the insurance industry, the district court
did not abuse its discretion in concluding that he was
qualified to testify as an expert witness.”); GSI
Tech., Inc. v. Cypress Semiconductor Corp., No.
5:11-CV-03613-EJD, 2015 WL 364796, at *2 (N.D. Cal. Jan. 27,
2015) (collecting cases where “testimony grounded on
the expert's personal knowledge and experience was
admissible in light of his background in the area”);
Donahoe v. Arpaio, No. CV-10-02756-PHX-NVW, 2013 WL
12419625, at *2 (D. Ariz. Sept. 20, 2013) (“Like
Hangarter, [the expert's] opinions rest on
personal experiences derived from fifty-plus years involved
directly and indirectly in law enforcement and the knowledge
specifically challenge Davisson's opinion that analysts
would have wanted to know about the “inverse
relationship between STBi and module efficiencies.”
Doc. 528 at 12-13 (quoting Doc. 528-1 at 11). Davisson
explained in her deposition that internal First Solar
documents confirm such an inverse relationship. Doc. 528-4 at
32; see Doc. 528-3 at 10, 19-20. Defendants are free
to disagree with this conclusion, but such disagreements do
not render Davisson unqualified to offer opinions in this
case. See Alaska Rent-A-Car, Inc. v. Avis Budget
Grp., Inc., 738 F.3d 960, 969 (9th Cir. 2013)
(explaining that a judge should “not exclude opinions
merely because they are impeachable”).
contend that Davisson identifies no reliable methodology in
reaching her opinions. Doc. 528 at 14. The Court does not
approached her analysis in this case “in the same way
that [she] would have approached First Solar if it were a
company [she] covered as a Wall Street analyst.” Doc.
528-1 at 10. Davisson describes her methodology as follows:
I read the Company's public filings, earnings
transcripts, analyst reports about the Company, and
contextual analyses and information about the solar industry
and the Company's competitors. In conducting my analysis,
I also reviewed numerous internal documents produced by First
Solar to plaintiffs in this case.
I then analyzed the differences between the information about
First Solar and the solar industry that was publicly
available and the internal information about the Company and
the solar industry that was not available to investors,
analysts, or anyone in the public. I also conducted my own
analyses of the public and nonpublic information.
Id.; see Doc. 528-4 at 8-9 (explaining that
her methodology was based in part on her “experience as
an equity analyst”). Davisson's opinions about
information First Solar concealed from the market and the
effect of the concealment on analysts' ability to fairly
assess the value of First Solar stock are based on documents
she reviewed, her independent analysis, and her knowledge and
experience as a securities analyst. Doc. 528-1 at 10-11.
have shown, by a preponderance of the evidence, that Davisson
employed a reliable methodology in reaching her opinions.
See GSI Tech., 2015 WL 364796, at *2 (“Murphy
relied on his industry experience to form an opinion. This
methodology is proper, thus Murphy's opinion is
admissible.”); Bixby v. KBR, Inc., No.
3:09-CV-632-PK, 2012 WL 12952722, at *4 (D. Or. Aug. 29,
2012) (“[W]hen experts employ established methods in
their usual manner, a district court need not take issue
under Daubert”); Noyes v. Kelly Servs.,
Inc., No. 2:02-CV-2685-GEB-CMK, 2008 WL 782846, at *2
(E.D. Cal. Mar. 21, 2008) (“[T]he methods described by
[the expert] are sufficiently reliable to support his
proffered opinions . . . and satisfy the requirement in Rule
703 that data upon which the expert relies be ‘of a
type reasonably relied upon by experts in the particular
assert that Davisson's opinions should be excluded
because she uses no “scientific” method. Doc. 528
at 5; see Doc. 652 at 7 (Davisson “employs no
testable or replicable methodology”). But the
“Daubert factors (peer review, publication,
potential error rate, etc.) simply are not applicable to
[non-scientific] testimony, whose reliability depends heavily
on the knowledge and experience of the expert.”
Hangarter, 373 F.3d at 1017; see Fed. R.
Evid. 702 advisory committee's notes to 2000 amendments
(“In certain fields, experience is the predominant, if
not sole, basis for a great deal of reliable expert
testimony.”). Under Rule 702 and Daubert,
expert testimony “is reliable if the knowledge
underlying it has a reliable basis in the knowledge and
experience of the relevant discipline.” Primiano v.
Cook, 598 F.3d 558, 565 (9th Cir. 2010) (citation
further assert that Davisson ignores a large amount of public
information about First Solar that securities analysts would
consult, selectively quotes from statements made by stock
analysts, and relies on a small subset of documents produced
in this litigation. Doc. 528 at 14-15. But unless an
expert's opinion lacks enough accurate factual
information to provide a reasonable factual foundation,
“criticism of an expert's decision to base an
opinion on some facts but not others should be challenged
through the traditional means at trial, not through a
Daubert motion.” IceMOS Tech. Corp. v.
Omron Corp., No. CV-17-02575-PHX-JAT, 2019 WL 4750129,
at *9 (D. Ariz. Sept. 30, 2019). The Court finds that
Davisson's opinions are based on a sufficient factual
foundation to satisfy Rule 702(b). Defendants' factual
arguments are appropriate subjects for cross-examination,
rebuttal expert testimony, and jury argument, but they do not
so undercut Davisson's opinions as to render them
inadmissible under Rule 702. See id.; In re
Citimortgage, Inc. HAMP Litig., No. ML 11-2274 DSF, 2013
WL 8844095, at *3 (C.D. Cal. Oct. 7, 2013) (expert's
“failure to deal with the entire universe of documents
is not a reason for exclusion”).
Whether Davisson's Testimony Will Confuse or Assist the
argue that Davisson's testimony will confuse the jury
because a section of her report “is about 25%
‘opinion' and 75% ‘recitation of facts that
she assumed[.]” Doc. 528 at 16 (citing Doc. 528-1 at
52-79). Defendants also cite portions of Davisson's
deposition testimony for the proposition that she “has
difficulty keeping ‘facts' straight from the
‘opinions[.]'” Id. at 16-17 (citing
Doc. 528-4 at 13); see Doc. 652 at 11-12.
clearly sets forth the factual bases for her opinions in her
report. See Doc. 528-1. The Court assumes she will
do so in her testimony, and that Defendants will clarify on
cross-examination any factual assumptions they believe are
not actual opinions. The Court cannot conclude that the jury
will be confused by Davisson's testimony.