Securities Fraud Trial — Disclosures and Advice Admissible — Explanations of Disclosures and Advice Excluded

The trial judge in In re Apollo Group, Inc. Secs. Litig., 2008 U.S. Dist. LEXIS 61995 (D. Ariz. Aug. 4, 2008), accepted the jury’s conclusion that Apollo “on six different occasions ... misrepresented the actual state of affairs surrounding the program review [at the University of Phoenix, an institution Apollo owns] by making public statements at odds with the existence and contents of [a Department of Education] report.” Nonetheless, the court overturned the jury’s verdict on loss causation grounds. Two evidentiary rulings of note:

Analyst Report Admissible; Explanation by Analyst of Meaning of Report Inadmissible. A key event was the dissemination of an analyst report, after which the stock price of the University of Phoenix fell. “Apollo argue[d] that the Court's exclusion of [analyst] Kelly Flynn's testimony as to the meaning of her reports was prejudicial, especially in light of the fact that the Court permitted [Plaintiff] PABF's expert witness, Dr. Feinstein, to testify on the same subject. The Court disagrees. The Flynn reports were admitted as evidence of what the market was told on September 20, 2004. What these reports meant to the market could only be gleaned from the words contained in them. Permitting Flynn to testify as to the meaning of these words would have invited the jury to determine the meaning of the Flynn reports based on the author's unspoken thoughts and intentions rather than on the words themselves. The danger of confusion and unfair prejudice far outweighed whatever probative value such testimony may have had. See Fed. R. Evid. 403. Any testimony of the parties' loss-causation experts on the same subject simply did not present the same danger.” Query why the analyst was not qualified to testify to the common industry understanding of words or phrases used in her report, particularly if the plaintiff’s expert was allowed to do so.

Legal Advice Admissible; Rationale for Advice Inadmissible. Apollo also “argue[d] that the Court's refusal to permit Apollo's legal advisors to testify about the ‘rationale’ behind their legal advice was prejudicial error. Again, the Court finds no error in this evidentiary ruling. Apollo's legal advisors were permitted to testify as to the advice they actually communicated to Defendant Nelson, as evidence of Nelson's state of mind. They were also permitted to testify as to their qualifications and the professional capacity in which they rendered the advice — i.e., as lawyers with the fiduciary duty and ethical obligation to give their client the best legal advice they can — to establish why Nelson might have properly relied on their advice. But to allow Apollo's advisors to explain why they gave particular advice would have permitted these lawyers to offer what would have amounted to undesignated expert opinion on the governing law of the case, thereby invading the province of the Court and inviting jury confusion. Moreover, to the extent PABF attacked the credibility of these legal advisors by attempting to paint them as mere "highly-paid advocates," Apollo had an adequate opportunity to rehabilitate them by showing that the lawyers acted in their professional capacity, with all the ethical duties that accompany it.”

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