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In Re Novatel Wireless Securities Litigation

February 7, 2013


The opinion of the court was delivered by: Hon. Anthony J. Battaglia U.S. District Judge

This Document Relates to


On January 14, 2013, Defendants filed a Motion for Reconsideration, (Doc. No. 453), of this Court's Order issued December 14, 2012, (Doc. No. 450), in which the Court denied Defendants' Motion to Exclude the Expert Testimony of Bjorn I. Steinholt. Plaintiffs filed an opposition, (Doc. No. 456), and Defendants filed a reply, (Doc. No. 457). The Court finds this motion appropriate for submission on the papers without oral argument pursuant to Civil Local Rule 7.1.d.1.

For the reasons set forth below, Defendants' Motion for Reconsideration, (Doc. No. 453), is GRANTED. Furthermore, the Court's previous Order Denying Defendants' Motion to Exclude the Expert Testimony of Steinholt, (Doc. No. 450), is VACATED, and Defendants' Motion to Exclude the Expert Testimony of Steinholt is GRANTED. Additionally, Plaintiffs are granted the opportunity to cure Steinholt's expert opinion and report in light of the Court's decision herein.


Plaintiffs allege that between February 27, 2007, and November 10, 2008 (the "Class Period"), Defendants engaged in a fraudulent scheme to inflate Novatel's stock value so that Defendants could sell their stock in the company for a profit. (FAC, Doc. No. 23 at ¶¶ 1, 12). Plaintiffs contend that Novatel's success was largely dependent on its ability to supply wireless modems to its two largest customers, Sprint and Verizon, which in 2006 accounted for 38.2% and 19.7% of Novatel's revenue respectively. (Id. at ¶ 14). According to Plaintiffs, Defendants "knew that the market was particularly sensitive to information about these customers" and "[s]trong financial results would surely spur an increase in Novatel's stock price whereas any negative information regarding these customers would reduce it." (Id. at ¶ 14.)

Plaintiffs allege that throughout the Class Period, Defendants Weinert and Leparulo misrepresented the financial condition of the Company because they told investors that the Company was seeing strong demand for its products, and did not disclose to investors that Novatel did not have an adequate "product mix" to meet the needs of its customers. (Id. at ¶¶ 57(a)(iii), 62(a)(ii), 66(a)(ii), 73(a)(ii).) Plaintiffs also allege that Novatel covered up the slowdown in its business by shipping product "early," which purportedly violated accounting rules governing revenue recognition. (Id. at ¶ 6.) Plaintiffs allege that during this time period, Defendants were selling significant amounts of their Novatel holdings. (Id.) Plaintiffs allege that during the Class Period, Defendants sold 1,258,466 shares of Novatel stock for almost $29 million in proceeds. (Id. at ¶ 15.) Plaintiffs allege that 62% of the Defendants' Class Period sales occurred in June and July 2007, just before the market learned about these concealed facts. (Id. at ¶ 16.) Plaintiffs claim that four specific stock price declines on July 20, 2007, February 21, 2008, April 15, 2008, and August 20, 2008, resulted from the market learning of these allegedly concealed facts. (Id. at ¶¶ 125-28.)

Defendants' Motion for Reconsideration

A. Legal Standard

Federal Rule of Civil Procedure 60 provides, in pertinent part: "On motion and just terms, the court may relieve a party or its legal representative from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; ... or (6) any other reason that justifies relief." Fed. R. Civ. P. 60(b). District courts also have inherent authority to entertain motions for reconsideration of interlocutory orders. Amarel v. Connell, 102 F.3d 1494, 1515 (9th Cir. 1996) ("[I]nterlocutory orders ... are subject to modification by the district judge at any time prior to final judgment." (quotation omitted)); see also Balla v. Idaho State Bd. of Corrections, 869 F.2d 461, 465 (9th Cir. 1989); Fed. R. Civ. P. 54(b). Although a district court may reconsider its decision for any reason it deems sufficient, generally a motion for reconsideration "is appropriate if the district court: (1) is presented with newly discovered evidence; (2) committed clear error or the initial decision was manifestly unjust; or (3) if there is an intervening change in controlling law." School Dist. No. 1J, Multnomah County v. ACandS, Inc., 5 F.3d 1255, 1263 (9th Cir. 1993); see also Hydranautics v. FilmTec Corp., 306 F. Supp. 2d 958, 968 (S.D. Cal. 2003). Whether to grant or deny a motion for reconsideration is in the sound discretion of the district court. Navajo Nation v. Norris, 331 F.3d 1041, 1046 (9th Cir. 2003) (citing Kona Enter., Inc. v. Estate of Bishop, 229 F.3d 877, 883 (9th Cir. 2000)).

B. Analysis

Defendants' seek reconsideration of the Court's previous Order denying Defendants' Motion To Exclude the Expert Testimony of Bjorn I. Steinholt ("Daubert Motion") in light of the Court's summary judgment opinion issued following the parties' briefing with regard to the Daubert Motion. Prior to addressing the merits of Defendants' request for reconsideration, the Court finds a brief summary of the relevant procedural background warranted under the circumstances.

On November 23, 2011, the Court granted in part and denied in part Defendants' Motion for Summary Judgment.*fn1 (Doc. No. 414.) Of particular note with regard to the instant motion, the Court granted Defendants' summary judgment as to Plaintiffs' channel stuffing claims. (Id.) The Court concluded that Plaintiffs' had failed to provide the evidence demonstrating falsity, materiality or scienter necessary for their channel stuffing claims. (Id. at 19.) Accordingly, Plaintiffs' allegations of channel stuffing are no longer at issue in the case. The Court denied Defendants' Motion for Summary Judgment as to Plaintiffs' remaining claims. (Id.) When the Court issued its summary judgment opinion, Defendants' Daubert motion was fully briefed and, thus, the parties had not raised any arguments pertaining to the summary judgment ruling therein.

Over a year later, the Court ruled upon Defendants' Daubert Motion. (Doc. No. 299.) Plaintiffs offered Steinholt's expert testimony as evidence regarding loss causation and damages attributable to the allegedly fraudulent acts of Defendants. (Steinholt Rep., Doc. 299-4.) In his expert report, Steinholt distinguished between fraud and non-fraud-related factors when calculating loss causation and the resulting damages; however, Steinholt did not apportion the loss causation and damages among the individual claims alleged by Plaintiffs. As Steinholt created his expert report prior to the Court issuing its summary judgment opinion, Steinholt treated Plaintiffs' channel stuffing allegations as fraud-related for the purposes of computing loss causation and damages. After considering the parties' arguments pertaining to Steinholt's analysis, which notably did not address the summary judgment decision as noted ...

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