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Novatel Case Closes in on Trial

November 23, 2011

In November 2011, plaintiffs scored a significant victory when U.S. District Court Judge Anthony J. Battaglia of the Southern District of California denied the bulk of defendants’ motion for summary judgment in the securities class action against Novatel Wireless, clearing the way for trial. As the parties designated experts to testify in the upcoming trial, attorneys for lead plaintiffs Plumbers’ & Pipefitters’ Local #562 Pension Fund and Western Pennsylvania Electrical Employees Pension Fund recently made further progress when they successfully moved to exclude the testimony of defendants’ expert on loss causation.

In ruling on the summary judgment motion, Judge Battaglia held that plaintiffs had presented sufficient evidence that there were serious, triable issues concerning alleged misrepresentations defendants made about Novatel’s financial health and prospects, including the concealed cancellation of a major contract with Sprint, one of its largest customers. The judge also noted that certain individual defendants who knew of the Sprint cancellation netted almost $29 million by selling company stock, writing that “common sense tells us that their decision … was influenced by the information.”

In March, Judge Battaglia granted plaintiffs’ motion to exclude defendants’ loss causation expert’s testimony. The expert had intended to opine that plaintiffs could not show loss causation, or corrective disclosures, on the days when plaintiffs had alleged Novatel’s stock was adversely impacted by the disclosure of previously concealed facts. Plaintiffs’ attorneys argued that the expert’s personal definition of “loss causation,” which required the market to infer fraud through review of media and analyst reports (to determine whether someone suggested that “something [was] inappropriate”) was an erroneous and inapplicable standard. Indeed, plaintiffs’ attorneys were able to get another of defendants’ experts to agree with plaintiffs, stating that “I thought [the standard was] whether or not the conduct was revealed and not whether or not a reasonable investor can infer that a fraud has occurred.”

Judge Battaglia was similarly unconvinced by the loss causation expert. The defendants tried to minimize the damage done by contending that if the expert was wrong in defining loss causation, only certain of the expert’s legal conclusions needed to be excluded, and not his entire testimony. However, the judge wrote, “If erroneous legal conclusions form the basis of [the expert’s] rebuttal opinions, the Court fails to see, and the Defendants have failed to articulate, what else [the expert] would provide testimony on, aside from these opinions.”

Robbins Geller attorneys Douglas R. Britton, Robert R. Henssler, Jr., Lucas F. Olts and Eric I. Niehaus are prosecuting the case on behalf of lead plaintiffs Plumbers’ & Pipefitters’ Local #562 Pension Fund and Western Pennsylvania Electrical Employees Pension Fund.

In re Novatel Wireless Securities Litigation, No.08cv1689 (S.D. Cal.).

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