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Eshelman v. Puma Biotechnology, Inc.

United States District Court, E.D. North Carolina, Southern Division

March 8, 2019

FREDRICK ESHELMAN, Plaintiff,
v.
PUMA BIOTECHNOLOGY, INC., Defendant

          ORDER

          JAMES C. DEVER III, UNITED STATES DISTRICT JUDGE

         On February 13, 2019, Fredric N. Eshelman ("Eshelman" or "plaintiff) moved to exclude the testimony and opinion of Puma Biotechnology, Inc.'s ("Puma" or "defendant”) expert witness [D.E. 335] and filed a memorandum in support [D.E. 336]. On February 20, 2019, Puma responded in opposition [D.E. 345]. On March 8, 2019, the court held a hearing concerning the motion. As explained below, the court grants Eshelman's motion to exclude and excludes the testimony and related exhibits.

         I.

         On October 29, 2015, Eshelman, a pharmacist and venture capitalist, submitted a proposal to Puma's shareholders to increase the size of Puma's board of directors from five to nine seats, while nominating himself and three other people to the additional four seats. Puma opposed Eshelman's proposal. Eshelman alleges that Puma defamed him in statements that Puma made in January 2016 concerning Eshelman in opposing Eshelman's proposal. See Compl. [D.E. 5]. Specifically, one of Puma's slides stated that "Eshelman's misrepresentations are no surprise given his history," that Eshelman was the CEO of PPD "when it managed a clinical trial during the development of the antibiotic drug Ketek," that "[f]raud was uncovered in this trial by the FDA's Office of Criminal Investigation," that "[a]s [CEO] of PPD, Eshelman was forced to testify before Congress regarding PPD's involvement in this clinical trial fraud in 2008," and that "Eshelman was replaced as CEO for PPD in 2009." [D.E. 181-24] 16-18 (emphasis omitted); [D.E. 171] ¶ 49. Another slide stated that "Puma's Board does not believe that someone who was involved in clinical trial fraud that was uncovered by the FDA should be on the Board of Directors of a public company; particularly a company that ism me process of seeking FDA approval." Id. On February 3, 2016, Eshelman filed suit against Puma alleging, inter alia, libel per se. See Compl. [D.E. 5].

         On September 28, 2018, the court granted in part and denied in part Eshelman's motion for partial summary judgment and denied Puma's motion for summary judgment [D.E. 304]. On October 29, 2018, the court entered an order explaining the court's rulings on the parties' motions for summary judgment [D.E. 306]. The court held that Puma's allegedly defamatory statements concern Eshelman and that Puma published the allegedly defamatory statements. See Id. at 20. Moreover, the court held that two of Puma's statements were defamatory per se. See Id. at 23-24. The trial will begin on March 11, 2019.

         At the trial, the jury will be asked two questions. First, "When read in the context of the entire presentation, were defendant Puma Biotechnology, Inc.'s statements that plaintiff Fredric N. Eshelman was 'replaced as CEO of PPD' after being 'involved in clinical trial fraud' false?" Second, "Did defendant Puma Biotechnology, Inc. act with actual malice when it accused plaintiff Fredric N. Eshelman of being 'replaced as CEO of PPD' after being 'involved in clinical trial fraud'?" If the jury answers each question yes, then the jury will be asked, "What amount of compensatory damages is plaintiff Fredric N. Eshelman entitled to recover from defendant Puma Biotechnology, Inc.?" In determining compensatory damages, the jury will be instructed, inter alia;

If you determine that defendant Puma Biotechnology, Inc.'s statements were false and made with actual malice, then plaintiff Fredric, N. Eshelman is entitled to be awarded compensation for presumed damages even without proof of actual damages or economic harm. Presumed damages are damages that are assumed, without proof, to have occurred to plaintiff Fredric N. Eshelman as a result of the publication by defendant Puma Biotechnology, Inc. of the defamatory statements. Presumed damages include matters such as loss of reputation or standing in the community, mental or physical pain and suffering, inconvenience, or loss of enjoyment which cannot be definitively measured in monetary terms.
Presumed damages arise by inference of law and are not required to be specifically proved by evidence. This means that you need not have proof that plaintiff Fredric N. Eshelman suffered loss of reputation or standing in the community, mental or physical pain and suffering, inconvenience or loss of enjoyment in order to award him damages for such harm because such harm is presumed by the law when a defendant publishes a libelous statement with actual malice.

         On February 13, 2019, Eshelman moved to exclude the testimony and opinion of Puma's expert witness, Dr. Anil Shivdasani ("Shivdasani"), and to prohibit Puma from introducing Shivdasani's expert report and two articles written by Shivdasani [D.E. 335]. On February 20, 2019, Puma responded in opposition [D.E. 345].

         Shivdasani is the Wells Fargo Distinguished Professor of Finance and the Director of the Wells Fargo Center for Corporate Finance at the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill. See [D.E. 361] 8; [D.E. 361-3] ¶ 1. Shivdasani received a master's degree and a Ph.D. in finance from Ohio State University. See [D.E. 361] 9. He has published articles in peer-reviewed journals, notably a Journal of Financial Economics article from 2007 entitled "Financial Fraud, Director Reputation, and Shareholder Wealth." See id., at 12; [D.E. 335-3]. Puma retained Shivdasani "to opine on whether certain statements made by Puma in its proxy presentations have harmed (Eshelman's] reputation and business opportunities." [D.E. 361-3] ¶7.

         Shivdasani's corporate finance research, in part, has focused on "issues related to corporate boards, corporate directors, senior management teams and specifically with an emphasis on the role of reputation and the impact of reputation in corporate governance." See [D.E. 361] 11. In "Financial Fraud, Director Reputation, and Shareholder Wealth," Shivdasani explored the effect of financial fraud allegations on outside directors. See [D.E. 335-3]. Specifically, Shivdasani's study considered outside directors of companies facing shareholder class action lawsuits alleging financial misrepresentation in violation of Rule10b-S. See Id. at 8. Shivdasani concluded that outside directors of companies facing such shareholder class action lawsuits experienced "almost no evidence of abnormal turnover from the board of firms accused of fraud," but that they experienced "a large and significant decline in the number of other board appointments." Id. at 31-32. Shivdasani also found a relationship between company valuation and such allegations of fraud concerning outside directors. These metrics-shareholder class action lawsuits alleging financial misrepresentations in violation of Rule 1 Ob-S, future board appointment opportunities, and company valuation:-are the only data that Shivdasani considered in assessing reputational harm. Cf. [D.E. 361] 52-61. Shivdasani published a shorter article based on this study in the "Financial Times." See [D.E. 335-2].

         Shivdasani seeks to testify at trial about the methodology, known as the "event study methodology," underlying his opinions. See [D.E. 361] 17-20.[1] In his deposition, Shivdasani testified that he collects large data sets, conducts statistical analyses of the data sets, and assesses the effect of certain events in "a rigorous scientific manner." Id. at 17. In this case, Shivdasani collected publicly-available data concerning Eshelman and the companies with which he worked as a director. See Id. at 24-32. He then compared the data before and after Puma made and published the allegedly defamatory statements in January 2016. See M. at 28. Based on his study, Shivdasani opined in his expert report that (1) "the rate at which Eshelman received new inquiries and proposals for new investment opportunities increased" after Puma made the allegedly defamatory statements, (2) Eshelman suffered no diminished future board opportunities after Puma made the allegedly defamatory statements, (3) the value and stock price of the public company on which Eshelman served on the board of directors did not decrease after Puma made the allegedly defamatory statements, and (4) the data are inconsistent with Eshelman'sassertion that "he suffered reputational or financial harm as a result of Puma's allegedly defamatory statements." [D.E. 361-3] ¶ 10.

         In Shivdasani's "for trial" deposition, Shivdasani discussed his professional and academic credentials and his research involving corporate valuation and governance. See [D.E. 361] 8-16. Shivdasani testified that some of his academic research focused on reputational harm as it relates to careertrajectories and corporate valuation. See Id. at 15-16. Shivdasani described the methodology that he employs in his studies. See Id. at 17-21. After being offered as an expert, Shivdasani described the process by which he evaluated Eshelman's case and ultimately developed his opinion that Eshelman suffered no reputational harm as a result of Puma's allegedly defamatory statements. See Id. at 21-34. He summarized the basic premise underlying his work: "Reputation is a major consideration in the career trajectory of corporate directors [and]... adverse events and events of fraud result in a decline in career opportunities for corporate directors." Id. at 36.

         Shivdasani testified that he considered various data in his analysis before and after Puma published the allegedly defamatory statements in January 2016, including whether Eshelman received or lost executive positions, how shareholders voted on Eshelman's appointments to new executive positions, how many business opportunities were communicated to Eshelman, and whether the stock prices of companies in which Eshelman served as a director changed. See Id. at 38-39. Shivdasani opined that, based on his review of the data, Eshelman did not suffer any reputational harm as a result of Puma's publication of allegedly defamatory statements in January 2016. See Id. at 48-50; Id. at SO ("I found no evidence of reputational harm for Dr. [Eshelman] as a result of Puma's statement."). Shivdasani conceded, however, that he did not consider other evidence in determining whether Eshelman suffered any harm as a result of Puma's allegedly defamatory statements, including mental pain and ...


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