In re Apollo Group Inc. Securities Litigation, CV04-2147-PHX-JAT.

• Decision Date: 09 November 2007
• Docket Number: No. CV04-2334-PHX-JAT.,No. CV04-2204-PHX-JAT.,No. CV04-2147-PHX-JAT.,CV04-2147-PHX-JAT.,CV04-2204-PHX-JAT.,CV04-2334-PHX-JAT.
• Citation: 527 F.Supp.2d 957
• Parties: In re APOLLO GROUP INC. SECURITIES LITIGATION. This Document Relates To: All Actions.
• Court: U.S. District Court — District of Arizona

Page 957

527 F.Supp.2d 957

In re APOLLO GROUP INC. SECURITIES LITIGATION This Document Relates To: All Actions.

No. CV04-2147-PHX-JAT.

No. CV04-2204-PHX-JAT.

No. CV04-2334-PHX-JAT.

United States District Court, D. Arizona.

November 9, 2007.

Robert D. Mitchell, Mitchell & Forest, Francis Joseph Balint, Jr., Kathryn Ann Jann, William G. Fairbourn, Bonnett Fairbourn Friedman & Balint PC, Rosemary Joy Shockman, Shockman Law Office PC, Phoenix, AZ, Patrick Joseph Coughlin, Lesley E. Weaver, Lerach Coughlin Stoia Geller Rudman & Robbins LLP, San Francisco, CA, Stephen G. Schulman, Sharon M. Lee, Milberg Weiss Bershad & Schulman LLP, New York City, Marc M. Umeda, Robbins Umeda & Fink LLP, Ramzi Abadou, Coughlin Stoia Geller Rudman & Robbins LLP, William Shannon Lerach, Lerach Coughlin Stoia Geller Rudman & Robbins LLP, John L. Haeussler, Samuel M. Ward, Stephen Richard Basser, Barrack Rodos & Bacine, San Diego, CA, Jeffrey A. Barrack, Leonard

Barrack, Mark R. Rosen, William J. Ban, Barrack Rodos Bacine, Philadelphia, PA, for Plaintiff.

Aileen Yen-Hua Mo, Daniel P. Muino, Gibson, Dunn & Crutcher LLP, San Francisco, CA, Christopher B. Campbell, Dalena Marie MarCott, Jared M. Toffer, Jason W. Glicksman, Jessica A. Taggart, Joseph P. Busch, III, Kristopher Price Diulio, Mark T. Pollitt, Maura M. Logan, Wayne Warren Smith, Elizabeth A. Brem, Robert E. Palmer, Gibson Dunn & Crutcher LLP, Irvine, CA, David B. Rosenbaum, Maureen Beyers, William J. Maledon, Osborn Maledon PA, James R. Condo, Joel Philip Hoxie, Joseph G. Adams, Snell & Wilmer LLP, Phoenix, AZ, for Defendants.

ORDER

JAMES A. TEILBORG, District Judge.

Pending before the Court are Defendants Apollo Group, Inc. ("Apollo"), Todd S. Nelson, and Kenda B. Gonzales's motions in limine to exclude the expert testimony of Mr. Douglas Branson, Dr. Allan Ingraham, Dr. Jay Finkelman, and Dr. Steven Feinstein. Lead Plaintiff Policemen's Annuity and Benefit Fund of Chicago has responded to each of these motions. Having considered each motion and the responses thereto, the Court now rules on the motions.

I. Background

This securities-fraud class action centers around a Department of Education ("DOE") program review at the University of Phoenix ("UOP") that began in August 2003 and ended by settlement agreement in September 2004. Lead Plaintiff claims that Defendants made false or misleading statements concerning the status of this program review by failing to disclose the contents of a DOE report. As a result, according to Lead Plaintiff, Apollo's stock price was artificially inflated throughout the class period until the truth was fully disclosed to the market on September 20, 2007, after which Apollo's stock price fell significantly.

II. Legal Standard

Each of the pending motions concerns challenges to the admissibility of expert testimony. Rule 702 of the Federal Rules of Evidence provides:

If scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education may testify thereto in the form of an opinion or otherwise, if (1) the testimony is based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has applied the principles and methods reliably to the facts of the case.

In Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 589, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993) ("Daubert I"), the Supreme Court held that Rule 702 imposed a special gatekeeping obligation upon a trial judge to make a preliminary assessment of the admissibility of expert scientific testimony. Specifically, the Court held that under Rule 702, "the trial judge must ensure that any and all scientific testimony or evidence admitted is not only relevant, but reliable." Id. In making this determination, the trial court engages in a two-part inquiry. First, the court must determine whether the expert's testimony reflects "scientific knowledge," that is, "whether their findings are `derived by scientific method,' and whether their work product amounts to `good science.'" Daubert v. Merrell Dow Pharm., Inc., 43 F.3d 1311, 1315 (9th Cir.1995) ("Daubert II"). Second, the court must determine whether the proffered expert testimony is relevant, "i.e., that it logically advances a material aspect of the proposing party's case." Id. Essentially, under Daubert, the trial court's task "is to analyze not what the experts say, but what basis they have for saying it." Id. at 1316.

A. Qualification as Expert

"The question of admissibility only arises if it is first established that the individuals whose testimony is being proffered are experts in a particular . . . field." Id. at 1315. Thus, as an initial matter, the trial court must determine whether the proffered witness is qualified as an expert by "knowledge, skill, experience, training or education." Fed.R.Evid. 702. To satisfy this standard, it is essential that "the proposed witness's qualifying training or experience, and resultant specialized knowledge, are sufficiently related to the issues and evidence before the trier of fact [such] that the witness's proposed testimony will be of assistance to the trier of fact." 3 Jack B. Weinstein & Margaret A. Berger, Weinstein's Federal Evidence, ¶ 702[04][1][b], at 702-45 (citing United States v. Chang, 207 F.3d 1169, 1173 (9th Cir.2000) (finding proposed expert witness's expertise in international finance insufficient to qualify witness to testify regarding authenticity of security instrument)).

B. Reliability

Next, the trial court must ensure that the proffered expert testimony is reliable. Generally, to satisfy Rule 702's reliability requirement, "the party presenting the expert must show that the expert's findings are based on sound science, and this will require some objective, independent validation of the expert's methodology." Daubert II, 43 F.3d at 1316. Toward this end, the Supreme Court in Daubert I set forth the following factors for the trial court to consider when assessing the reliability of proffered expert testimony. First, "a key question to be answered in determining whether a theory or technique is . . . knowledge that will assist the trier of fact will be whether it can be (and has been) tested." 509 U.S. at 593, 113 S.Ct. 2786. Second, the Court looks at whether the theory or technique has been subjected to peer review and publication. Id. Because publication in a peer-reviewed journal increases the likelihood that substantive flaws in the technique will be detected, "[t]he fact of publication (or lack thereof) . . . will be a relevant, though not dispositive, consideration in assessing the scientific validity of a particular technique or methodology on which an opinion in premised." Id. at 594. Third, "in the case of a particular scientific technique, the court ordinarily should consider the known or potential rate of error . . . and the existence and maintenance of standards controlling the technique's operation." Id. (internal citations omitted). Fourth, the Court considers the degree of acceptance of the method or technique within the relevant scientific community. Id. In engaging in this analysis, the trial court should be mindful that:

The inquiry envisioned by Rule 702 is . . . a flexible one. Its overarching subject is the scientific validity—and thus the evidentiary relevance and reliability —of the principles that underlie a proposed submission. The focus, of course, must be solely on principles and methodology, not on the conclusions that they generate.

Id. at 594-95, 113 S.Ct. 2786 (footnotes omitted).

It is also well-settled that the four Daubert factors—testing, peer review, error rates, and acceptability in the relevant scientific community—are merely illustrative, not exhaustive, and may be inapplicable in a given case. Daubert II, 43 F.3d at 1317. For instance, the Ninth Circuit has advised that a trial court may also question whether the expert is proposing to testify about matters "growing naturally and directly out of the research they have conducted independent of the litigation, or whether they have developed their opinions expressly for the purposes of testifying" as another significant inquiry weighing on reliability. Id. "That the testimony proffered by an expert is based directly on legitimate, preexisting research unrelated to the litigation provides the most persuasive basis for concluding that the opinions he expresses were `derived by the scientific method.'" Id.

Accordingly, "[e]stablishing that an expert's proffered testimony grows out of pre-litigation research or that the expert's research has been subjected to peer review are the two principal ways the proponent of expert testimony can show that the evidence satisfies the first prong of Rule 702." Id. at 1318. Failing this, the proponent may attempt to meet this burden through the testimony of its expert. Id. at 1319.

For such a showing to be sufficient, the experts must explain precisely how they went about reaching their conclusions and point to some objective source—a learned treatise, the policy statement of a professional association, a published article in a reputable scientific journal or the like—to show that they have followed the scientific method, as it is practiced by (at least) a recognized minority of scientists in their field.

Id. In other words, "the party proffering the evidence must explain the expert's methodology and demonstrate in some objectively verifiable way that the expert has chosen a reliable scientific method and followed it faithfully." Id. at 1319 n. 11. Offering the expert's qualifications, conclusions, and an assurance of reliability is insufficient. Id. at 1319.

C. Relevance

The other component of the trial court's gatekeeping function under Rule 702 is to ensure that the proffered expert testimony is relevant. As...