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BERNSTEIN LITOWITZ BERGER
& GROSSMANN LLPDAVID R. STICKNEY (Bar No. 188574)TIMOTHY A. DeLANGE (Bar No. 190768)NIKI L. MENDOZA (Bar No. 214646)
BENJAMIN GALDSTON (Bar No. 211114)
12481 High Bluff Drive, Suite 300San Diego, CA 92130
Tel: (858) 793-0070
Fax: (858) 793-0323
-and-
MAX W. BERGER
ROCHEL.LE FEDER HANSEN
1285 Avenue of the Americas
New York, NY 10019
Tel: (212) 554-1400Fax: (212) 554-1444
Attorneys for Lead Plaintiff
The New York State Common RetirementFund and Co-Lead Counsel for the Class
BARRACK, RODOS & BACINELEONARD BARRACKM. RICHARD KOMINSJEFFREY A. BARRACKBETH R. TARGAN3300 Two Commerce Square2001 Market StreetTel: (215) 963-0600Fax: (215) 963-0838
-and-STEPHEN R. BASSER (Bar No. 121590)
402 West Broadway, Suite 850
San Diego, CA 92101Tel: (619) 230-0800Fax: (619) 230-1874
UNITED STATES DISTRICT COURTNORTHERN DISTRICT OF CALIFORNIA
SAN JOSE DIVISION
In re McKESSON HBOC, INC. Master File No. 99-CV-20743 RMW (PVT)
SECURITIES LITIGATION And Related Cases
CLASS ACTION
Date: August 30, 2007
This Document Relates To: Time: 2:00 p.m.
Place: Courtroom 6, Fourth Floor
ALL ACTIONS. Judge: The Honorable Ronald M. Whyte
LEAD PLAINTIFF'S NOTICE OF MOTION AND MOTION IN LIMINE NO. 5
TO PRECLUDE CHRISTOPHER B. BARRY FROM OFFERING
ACCOUNTING AND CAUSATION OPINIONS AT TRIAL
$ 11 LEAD PLAINTIFF'S NOTICE OF MOTION AND MOTION IN LIMINE NO. 5 TO PRECLUDE CHRISTOPI IER B. BARRY FROM
OFFERING ACCOUNTING AND CAUSATION OPINIONS AT TRIAL
Master File No. 99-CV-20743 RMW
ITABLE OF CONTENTS
2Page
3MEMORANDUM OF POINTS AND AUTHORITIES ................................................................ ........1
4
I. Background ......................................................................................................................... ........ 25
6 A. Barry Admits He Is Not Qualified to Offer Expert Accounting Opinions.. ........... .......3.
7 B. Barry Does Not Know The Causation Standard Applicable Here AndHis Use Of The Wrong Standard Taints His Methodology With Unreliability ..... ........6
8
II . Argument ............................................................................................................................ ........ 99
A. Legal Standards for the Admissibility of Expert Opinion Testimony at Trial ....... ........910
11 B. Barry Is Not Qualified to Render Reliable Opinions .............................................. ...... 10
12 C. Barry Uses The Wrong Standards, Tainting His Methodology With
Flaws That Make His Opinions Speculative And Unreliable ................................. ......1213
D. Barry's Opinions Improperly Usurp the Role of the Court .................................... ......1514
III. Conclusion .......................................................................................................................... ......1715
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28 LEAD PLAINTIFF'S NOTICE OF MOTION AND MOTION IN LIMINF. NO. 5 TO PRECLUDE CHRISTOPIIER B. BARRY FROM
OFFERING ACCOUNTING AND CAUSATION OPINIONS Al̀ TRIAL
Master File No. 99-CV-20743 RMW
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'T'ABLE OF AUTHORITIES
Cases Page( s )
Aguilar v. Intl Longshoremen's Union Local No. I.0.966 F.2d 443 (9th Cir. 1992) ................................ ......
Brooke Group Ltd. v. Brown & Williamson Tobacco Corp.,509 U.S. 209 (1993)) ................................................................... ..............................................I3
Claar v. Burlington N. R.R. Co.,
29 h.3d 499 (9th Cir. 1994) ....................................................... ........................................11,11,13
Concord Boat Corp. v. Brunswick Corp.,207 F.3d 1039 (8th Cir.2000) .................................................... ..............................................13
Crow Tribe of Indians v. Racicot,87 F.3d 1039 (9th Cir. 1996)- ................................................... ..............................................15
Dairy Farmers of Any., Inc. v. Travelers Ins. Co.,
391 F.3d 936 (8th Cir.2004) ...................................................... ..............................................13
Daubert v. Merrell Dow Pharm., Inc.,509 U.S. 579 (1993) ................................................................... ..........................1.9, 10, 12, 17
Diviero v. Uniroyal Goodrich Tire Co.,919 F. Supp. 1353 (D. Az. 1996) ............................................... .............................................. I 1
Elsayed Mukhtar v. Cal. State Univ., Ilayward,299 F.3d 1053 (9th Cir. 2002) ................................................... ..............................................15
Garnac Grain Co.. Inc. v. Blackley,932 F2d 1563 (8th Cir. 1991) ................................................... ..............................................1 1
Gen. Elec. Co. v. Joiner,522 U.S. 136 (1997) ................................................................... ........................................1a, 15
Glastetter v. Novartis Pharm. Corp.,
252 F.3d 986 (8th Cir. 2001) ..................................................... ..............................................12
Humphreys v. Regents of the Univ. of Cal., No. C 04-03808,2006 WL. 1867713 (N.D. Cal. July 6, 2006) ............................. ..............................................11
In re Imperial Credit Indus., Inc. Sec. Litig.,252 F. Supp. 2d 1005 (C.D. Ca. 2003) ...................................... ........................................13, 14
LEAD PLAINTIFF s NOTICE OF MOTION AND MOTION IN LIN11NE NO. 5 TO PRECLUDE CFIRISTOPHER B. BARRY FROM
OFFERING ACCOUNTING AND CAUSATION OPINIONS AT TRIAL
Master He No 99-CV-20743 RMW
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Cases Page ( s)
In re Oracle Sec. Litig.,829 F. Supp. 1176 (N.D. Ca. 1993) ................................... ......................................................14
Jinro Am. Inc. v. Secure Inv., Inc.,
266 F.3d 993 (9th Cir. 2001) ............................................. ................................................10, 11
Kumho Tire Co., Ltd. v. Carmichael,526 U.S. 137 (1999)_ ........................................................ ..................................................9, 10
Maffei v. N. Ins. Co. of New York.
1.2 I.3d 892 (9th Cir. 1993) ............................................... ......................................................15
Marx & Co., Inc. v. Diners' Club, Inc.,550 F.2d 505 (2d Cir.). cert. denied, 434 U.S. 861 (1977) ................................................15, 17
McHugh v. United Serv. Auto. Ass'n,164 F.3d 451 (9th Cir. 1999) ............................................. ......................................................15
Mills v. Elec. Auto-Lite Co.,396 U.S. 375 (1970)_,_ .................................................... .................................. ....8, 14, 1.6
O'Conner v. Commonwealth Edison Co..13 F.3d 1090 (7th Cir. 1994) ............................................. ......................................................15
Perkins v. Volkswagon of Am., Inc.,596 F.2d 681 (Sth Cir. 1979) .............................................. ..................................... .......11
TSC Indus. Inc. v. Northway Inc.,426 U.S. 438 (1976)_ ......................................................... ......................................................16
The Pinal Creek Group v. Newmont Mining Corp.,
352 F. Supp. 2d 1037 (D. Az. 2005) .................................. ......................................................16
Turpin v. Merrill Dow Pharlns., Inc.,959 F.2d 1349 (6th Cir. 1992) ........................................... ................................................13, 15
United States v. Bilzerian,926 F.2d 1285 (2nd Cir. 1991) ........................................... ................................................15, 17
United States v. Duncan,42 F.3d 97 (2d Cir. 1994) ................................................... .................. ... .............
United States v. MaraBelles,724 F.2d 1374 (9th Cir. 1984) ........................................... ......................................................10
LEAD PLAINTIFFS NOTICE OF MOTION AND MOTION IN LIMINE NO. TO PRECLUDE CHRISTOPHER B. BARRY FROM
OFFERING ACCOUNTING AND CAUSATION OPINIONS AT TRIAL
Master File No. 99-CV-20743 RMW
iii
ICases Page
2United States v. Scop,
3 846 p.2d 135 (2d Cir.). revW in part on reh'g on other grounds, 856 F.2d 5 (2d
Cir.1988) ............................................................................................................................15, 17
4
Virgin Atl. Airways Ltd. v. British Airways PLC,
69 F. Supp. 2d 571 (S.D.N.Y. 1999) ........................................................................................13
6Weisgrarn v. Marley Co.,
7 528 U.S. 440, 120 S. CO. 1011 (2000) ......................................................................................13
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28 LEAD PLAINTIFF'S NOTICE OF MOTION AND MOTION IN LIMINE NO 5 TO PRECLUDE CHRISTOPHER S. BARRY FROM
OFFERING ACCOUNTING AND CAUSA"T ION OPINIONS AT TRIAL
Master File Na. 99-CV-20743 RMWiv
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PLEASE TAKE NOTICE that pursuant to the Stipulation and Case Management Order No. 5
entered in this case on November 16, 2006 (Docket No. 1535), at the Pretrial Conference scheduled at
2:00 p.m. on August 30, 2007, in the courtroom of the Honorable Ronald M. Whyte, 280 South First
Street, San Jose, California 95113, Lead Plaintiff, the New York State Common Retirement Fund will,
and hereby does, move in Brine for an Order precluding Christopher B. Barry from offering
accounting and causation opinions at trial. This notice and motion relies on the accompanying
memorandum and declaration of Jeffrey A. Barrack in support thereof, Lead Plaintiffs submissions in
opposition to the motion for summary judgment, and the submissions in opposition to Bear Stearns'
motions to strike the declarations of Messrs. Atkins, Berliner and Nye.
MEMORANDUM OF POINTS AND AUTHORITIES
Lead Plaintiff, the New York State Common Retirement Fund, by its undersigned counsel,
hereby moves for an order precluding Christopher B. Barry, a proffered expert of defendant Bear
Stearns & Co., Inc. ('`Bear Stearns"), from testifying at trial in response to the opinions of two of Lead
Plaintiffs experts, Robert Berliner and Blaine Nye. Unlike Berliner and Nye, Barry lacks sufficient
qualifications in accounting and causation to offer technical and specialized opinions as an expert on
those subjects at trial. Barry, therefore, utilized improper accounting and causation methodologies and
standards in formulating his opinions, resulting in unreliable and speculative accounting and causation
opinions . Barry' s opinions with respect to generally accepted accounting principles ("GAAP") and
with respect to causation violate Rule 702 of the Federal Rules of Evidence, are not admissible at trial
under Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993), and its progeny, and will not assist
the trier of fact to understand the evidence or determine facts in issue. Barry's testimony on GAAP
and causation only serves to confuse the issues and are also excludable for that reason under Rule 403.
LEAD PLAINTIFF'S NOTICE OF MOTION AND MOTION IN LIMINE NO. 5 TO PRECLUDE CHRISTOPHER B. BARRY FROM
OFFERING ACCOUNTING AND CAUSATION OPINIONS AT TRIAL
Master File No. 99-CV-20743 RMW
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1. Background
Barry was asked by counsel for Bear Stearns to respond to the expert reports submitted by
Lead Plaintiff in this case . J.T Atkins is Lead Plaintiff s expert on investment banking and fairness
opinions. Robert Berliner is Lead Plaintiffs expert on generally accepted accounting principles and
generally accepted auditing standards . Blaine Nye is Lead Plaintiff s expert on damages. They each
I submitted Rule 26 expert reports.
Barry's Rule 26 report was served on February 9, 2007. Attached to Barry's report as
Appendix A is his curriculum vitae, which demonstrates a complete absence of sufficient education,
experience , licensure or other specialized qualifications in the :Fields of accounting and auditing . Id. at
Appendix A. The CV also demonstrates that Barry is neither an econoanetrician nor a chartered
financial analyst. Id. The opinions in Barry's report with regard to the expert opinions of Messrs.
Berliner and Nye are based on. his academic experience in the field of business management.' Id. at
1J3-6.
Barry is a college professor who teaches finance and business administration at Texas
Christian University in Fort Worth, Texas. Barry has a Bachelor of Science degree in industrial
management, a Masters Degree in Business Administration that he earned from Indiana University in
1972, and a Doctoral Degree in Business Administration that he earned one year later from Indiana
University in 1973. Barry is not a certified public accountant, and he lacks any specialized training or
experience i n accounting , auditing or with GAAP.
Furthermore, Barry creates a legal requirement for establishing "loss causation" that does not
exist, and is certainly not the standard for demonstrating loss causation for a Section 14(a) claim under
1 While Barry's opinions in response to J.i, Atkins are also not based on adequate specialized qualifications to make themprobative because Barry lacks any meaninuaful investment banking experience, Lead Plaintiff does not seek to excludethose opinions in the instant motion. Lead Plaintiff reserves its right to conduct voir dire of Barry at trial and object to the
admissibility of Barry's opinions regarding J.T. Atkins' testimony at that time.
Lrr\tl r[-tV IN I Srr a Ivv I ]1- F. tic lv±V 1 IViti e !N J IvjV I ttjir IIN L..FwU;EN'S:: IV V. J 3 V rl\r4LAuuc t- fi\ If 1 vrrnnr\ u. 6ri1\R I S --i
OFFERING ACCOUNTING AND CAUSATION OPINIONS AT TRIAL
Master File No. 99-CV-20743 RMW
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the Securities Exchange Act. Rather. Barry confuses the Section 14(a) standard with the standard for
demonstrating causation . under Section 10(b). As a result , his methodology for opining on loss
causation is flawed, and yields irrelevant and unreliable opinions. Significantly, Barry did not conduct
an event study in connection with his loss causation opinions. Barry's lack of relevant expertise and
his use of flawed methodologies demonstrate that he has no probative specialized knowledge on
GAAP and causation. Barry's deposition testimony shows that his accounting and causation opinions
in his Rule 26 report are not proper expert opinions and are not admissible at trial.
A. Barry Admits He Is Not Qualified to Offer Ex p ert Accounting Opinions
In its motion to strike Berliner's declaration, Bear Stearns concedes that it does not have the
benefit of an accounting expert."' Likewise, Barry himself made it clear during his deposition that lie
is not an accounting expert, nor an auditing expert:
Q. Do you consider yourself an expert in accounting?
A. I would not have my -- you know, I wouldn 't say that I'm an accounting expert in
the sense that, yeah, I'm not a CPA, for example. ... I wouldn 't really call myself an
accounting expert per se.
Ex. 2 (Barry N.T. at 23 :16-24 (emphasis added)); see also id. at 148:7-149:5 (- 1 am not an auditor").`
Barry's admission that he is not an accounting or auditing expert is not surprising, given his
complete lack of adequate qualifications in accounting and auditing.
Q. And you said that you use -- you're familiar with accounting, but you're not an
expert in accounting; is that fair?
2 See Bear Stearns' Motion to Strike Portions of the Report of Robert W. Berliner, at pp. 3, $, submitted under seal by
Bear Stearns on or about June 22, 2007 (` ... Bear Stearns was unable to enrage or designate an appropriate expert to
rebut these opinions [by Berliner]. As a result, Bear Stearns was denied the assistance of such an expert during discovery
and the opportunity to present rebuttal testimony.... Thus, Bear Stearns did not have the benefit of an accounting expert
to consult on the issues during the extensive discovery in this case.")
3 All Exhibits referenced herein are contained in the declaration of Jeffrey A. Barrack , unless otherwise noted.
LEAD PLAINTIFF'S NOTICE OF MOTION AND MOTION IN LIMINE NO. 5 TO PR.[ CLUDE CHRISTOPHER B. BARRY FROM
OFFLRUNCG ACCOUNTING AND CAUSATION OPINIONS AT TRIALMaster File No. 99-CV-20743 RMW
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A. I guess what I'm trying to say is that what I said early on was that in order to be
good in finance, you have to have an understanding of accounting, but I would not call
nzyself an accounting expertfor litigation purposes.
Q. Do you believe that you're qualified to give an expert opinion on materiality from
an accounting and auditing point of view? ...
A. I -- I'm very comfortable with being able to respond to the way that someone [else]
attempted to do a materiality argument; that, I'm comfortable with doing. I wouldnt
call myself a -- an audit expert who would do the materiality , you know, for a
company per se. *
Q. Am I correct that you cannot tell us as you sit here what accounting standards
govern -- I'm sorry. what accounting standards address the issue of materiality, what
GAAP standards?
A. Well, I mean, I'm certainly aware that GAAP addresses the issue of materiality.
Whether or not these things need to be reported or not is a function of that, but they
also depend upon the auditors or the CPAs in general analysis of whatever it is -- I
mean, there may be very different set of issues that arise in a particular case. So I'm not
saying -- so, yes, I would say I can 't cite for you here's a specific set of accounting
things that you have to do to conclude on materiality . I wouldn't say that. **
Q. But you can't articulate , you can't state as we sit here today what GAAP or GAAS
standards apply; correct ? "Yes" or "no"?
A. I would say "yes" and "no." Yes, I know that there are issues that have to do with
whether or not there is a significant effect or an appreciable effect. No. I can 't tell you
what specific accounting methodologies have to be applied in reaching that
conclusion.
Q. What accounting literature did you consult in preparing your rebuttal to Mr.
Berliner?
A. To Mr. Berliner?
Q. Yes.
A. I just looked specifically at what it was that he said and the conclusion that he
reached about materiality. And you'll notice that I didn't say that he is -- I didn't try to
make an accountant expert opinion about that. I tried to make the point they haven't
been able to demonstrate that there would be a material price effect of the information
that they had at the time, and he hasn't demonstrated that.
Q. Are you offering an opinion as to whether the accounting issues that Bear Stearns
was aware of in its due diligence for the merger were material to HBOC's financials
from the standpoint of accounting or auditing pronouncements relating to materiality?
LEAD PLAINTIFF'S NOTICE OF MOTION AND MOTION IN LIMINE NO 5 TO PRECLUDE CI IRISTOPHER B. BARRY FROM
OFFERING ACCOUNTING AND CAUSATION OPINIONS AT TRIAL
Master File No 99-CV-20743 RMW
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A. And you asked do I have an opinion about that?
Q. Are you intending to offer an opinion on that?
A. And what I was intending to offer an opinion was that Mr. Berliner didn't show that
the information known by them was material. That's what I'm trying to say . Irin not
specifically trying to say that I should do a materiality analysis and here it is. But I
didn't -- .I don't believe that what he did in his analysis presents materiality conclusions
properly.
Q. Do you understand that Mr. Berliner offered an opinion on materiality from an
accounting standpoint'?
A. Yes, I do.
Q. If you didn't look at materiality from an accounting standpoint, how can you rebut
his testimony? * * *
A. Okay? So what I'm stating here is that -- and I state this in especially in'96 and '97,
is that Mr. Berliner reaches a claim that there's materiality, Deloitte & Touche reach the
opinion that it wasn't.4 Arthur Andersen reached the opinion that it wasn't. The work
that M.r. Atkins has attempted to do in this case to demonstrate that there should be
some effects, he's failed to do so. It hasn't been significant. He hasn't been able to
show that there should have been price effects. So using the -- my understanding of
materiality, which would be that if it was material, then the release of it would have
had price effects, that has not been shown in this matter, and he hasn't demonstrated
that it would have.
Q. Is that the principal standard that you believe accountants use to determine whether
something is material?
A. It's definitely the case that accountants want to know if this thing would have an
impact, if it would affect valuation in some sense or prices in some sense. They
certainly do look at that. And so in related to that notion of materiality, that's my
conclusion.
Id. at 267:5-272:24 (emphasis added).
Barry's deposition testimony establishes that he has no qualifications in accounting or auditing,
does not know the generally accepted accounting standards that address materiality determinations,
a In fact, the testimony of Deloitte's witness, Teresa Briggs, is directly inconsistent, and is at odds, with what Barry says.
See Declaration of David Stickney in opposition to motion for summary judgment, Vol. 4, at Briggs Exhibit (Briggs N.T.
at 194:6-16, 196:11-24, 197:13-23, 271:18-272:25).
LEAD PLAINTIFF'S NOTICE OF MOTION AND MOTION IN LIMINE NO. 5 TO PRECLUDE CHRISTOPHER 8_ BARRY FROM
OFFERING ACCOUNTING AND CAUSATION OPINIONS AT TRIAL
Master File No. 99-CV-20743 RIM'
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and as an alternative, he utilized his personal "understanding of materiality" to reach his conclusions
in response to the GAAP opinions on materiality offered by Mr. Berliner, a highly qualified
accounting and auditing expert. See declaration of Robert Berliner in opposition to motion to
summary judgment (Docket No. 1600).
B. Barry Does Not Know The Causation Standard Applicable Here And
His Use Of The Wrong Standard Taints His Methodology With Unreliability
Barry's deposition testimony demonstrates that he creates legal requirements that do not exist.
Barry applied a standard he understands to be related to a substantially different claim, and his
understanding of that standard is wrong.
Q. Do you understand that there are differences in the types of activity that Section14(a) regulates and Section 10(b) regulate?
A. I understand as a technical matter that, for exal-nple, just -- that with a variety of
different types, they are different in some respects. Like I mentioned 10, 11, and 12,
and now 14 as well, that they have different characteristics. I understand that they do.
Q. Are you aware that Section 14(a) and Rule 14a-9 apply to proxy voting and only to
proxy voting? ...
A: I mean, I certainly recall -- I don't recall in detail the specifics of what it was that I
read, I don't know, three years or so ago, two or three years ago, specifically addressing
that, but I know that what was being addressed specifically with regard to the damage
calculations being done in the matter had to do with that type of topic.
Id. at 37:2-39:2; see also id. at 64:2-24.
Based on a legal requirement that does not exist, Barry attempts to criticize Lead Plaintiff's
expert, Blaine Nye by contending that Nye failed to show that Bear Stearns' fairness opinion caused
artificial inflation in the price of McKesson stock. Id. at 54:11-16. Nye testified that by being an
essential link in bringing about the merger, Bear Stearns' false fairness opinion caused the transfer of
inflation from HBOC to McKesson and thereby caused McKesson's stock to become artificially
inflated. Upon further examination, Barry admitted that that his causation opinions do not relate to the
LEAD PLAINTIFF'S NOTICE OF MOTION AND MOTION IN I.IMINI: NO. 5 TO PRECLUDE CHRISTOP}1ER B. 13ARRY FROM
OFFERINO ACCOUNTING AND CAUSATION OPINIONS AT TRIAL
Master File No. 99-CV-7074 i IRMW
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transfer of artificial inflation from HBOC shares to McKesson shares by operation of the exchange
ratio. 1cL at 164:3-165:15.
Immediately after those telling admissions. Barry essentially agreed with the very principle
utilized by Blaine Nye to detect and measure the losses directly caused by Bear Stearns- opinion in the
proxy statement. According to Barry:
If you make the assumption that prior to the merger there was inflation already in
HBOC and it still existed at the time in which the transfer occurred. and the exchanges
occurred, which the HBOC shareholders got McKesson shares, then, yes, there would
be a movement ... of inflation to McKesson shares.
Id. at 160:4-16.
Q. Would you agree that if you knew how much inflation or if you came to a
conclusion as to how much inflation existed in HBOC stock immediately prior to the
merger, it would be a simple mathematical calculation to figure out how much was
transferred to McKesson stock?
A. That can easily be calculated.
Q_ Using the exchange ratio?
A. Yes.
Id. at 164:3-166:1. Nye identified and quantified the amounts of artificial inflation in HBOC stock at
the time of the merger with the use of an event study and calculated the portion that was transferred to
McKesson shareholders. See declaration of Blaine Nye in opposition to motion for summary
judgment. at ¶jJ3-7, 9 (Docket No. 1594) (citing Nye's Rule 26 Report, attached thereto, at ¶124); see
also Ex. 3 (Nye N.T. at 34: 17-35:8 , 212:1-214:22).
Barry has no idea how much inflation existed immediately prior to the merger on January 11,
1999. Ex. 2 (Barry N.T. at 15 5 :21-160:16). He never even attempted to detect or measure it. Id. In
point of fact, Barry did not perform an event study in connection with his loss causation opinions-
When further examined at his deposition, Barry explained the purported "causation"" standard
he applied to reach his conclusions. He testified that he sought to determine whether Nye
LEAD PLAINTIFF'S NOTICE OF MOTION AND MOTION IN I..IN11NI. NO. 5 TO PRECLUDE CHRISTOPHER B. BARRY FROM
OFFERING ACCOUNTING AND CAUSATION OPINIONS A I' TRIAL
Master File No 99-CV-20743 RMW
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"demonstrated that if everything that Bear Stearns knew had been in fact disclosed by the company
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prior to that time, that there would have been any price effect whatsoever." Ex. 2 (Barry N.T. at
166:21-167: 14). Tie stated that the standard , or methodology, used to reach his conclusions was an
"attempt to identify the specific effects on stock prices or damages (if any) that might have occurred
because of the accounting information that Bear Stearns was aware of when it issued its fairness
opinion." See declaration of Christopher Barry in support of motion for summary j€:tdgment, exhibit A
(Barry Report) at 11 Ile., 50 (Docket no. 1586). Barry, who has previously testified as an expert in
Section 10(b) cases, but not in a Section 14(a) case, clearly does not appreciate the differences,
between these statutes. Barry's approach appears to be geared for determining loss causation in a
fraud-on-the-market case under Section 10(b). It is not, however, the correct standard for determining
causation tinder Section 14(a).5
Nowhere in his Rule 26 report or his testimony does Barry provide any basis in law or
economic theory for applying such a standard to the task of detecting and measuring causation and
damages in a Section 14(a) claim. Indeed, Barry admitted in his deposition that his standard is not
based on the law and theory that address the harm caused by false and misleading proxy statements
soliciting shareholder votes. Ex. 2 (Barry N.T. at 64:2-24). Nowhere does Barry explain how his
As discussed in Lead Plaintiffs Memorandum In Opposition To Bear Stearns' Motion To Strike The Declaration Of Dr.
Blaine F. Nye And The Declaration Of Edward J. Sincavage, the causation requirement in Rule 14a-9 cases is
fundamentally different from the causation requirement Rule lob-5 cases due to the differences in the nature of the
respective types of claims. Unlike Section 10(b), which is concerned with artificial inflation of the price at which
securities are purchased caused by the dissemination into the market of false or misleading information, Section 14(a) is
intended to remedy the corruption of shareholder proxy voting by false or misleading statements in the proxy solicitation
materials. Mills v. Elec. Auto-Lite Co., 396 U.S. 375, 381 (1970). Corruption of the voting process - unlike price inflation
- is not an economic issue that can be proven with the kind of analysis typically provided by economic experts in Rule
lob-5 fraud-on-the-market cases. As the Supreme Court explained, the Mills test was intended to "avoid the
impracticalities of determining how many votes were affected, and, by resolving doubts in favor of those the statute is
designed to protect, will effectuate the congressional policy of ensuring that the shareholders are able to make an informed
choice when they are consulted on corporate transactions." 396 U.S. at 385. Under ,14ills the loss causation inquiry
focuses on whether the trutlsuetion approved as a result of the proxy vote -- not the "particular defect in the solicitation
materials" caused economic loss to the shareholders. 396 U.S. at 384. The method for proving a defendant's
responsibility for economic harm prescribed by Hills is to establish (a) the materiality of the defendant's false statements
in the proxy solicitation materials, (b) that the proxy solicitation was an essential link in the transaction, and (c) that the
transaction caused economic harm. This is precisely what Dr. Nye demonstrates in his Report.
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personal standard for detecting and measuring the loss suffered by the class here is sound. testable,
accepted, or yields reliable results.
11. Argument
A. Legal Standards for the Admissibility of Expert Opinion Testimony at Trial
Rule 702 of the federal Rules of Evidence states: "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." The Supreme Court interpreted Rule 702 and
articulated general guidelines for its application in Dauber!, 509 U.S. 579, and Kumho Tire Co., Ltd v.
Carmichael, 526 U.S. 137 (1999). Daubert, the seminal opinion, focused on scientific testimony;
Kuinho made clear that Dcwbert 's principles apply to "technical or other specialized knowledge" as
well. Kumho, 526 U.S. at 141, 147-49.
As an initial matter, as recognized by the Supreme Court in Dauber!:
[T]he word "knowledge" connotes more than subjective belief or unsupported
speculation.... [I]n order to qualify as "scientific knowledge," an inference or assertion
must be derived by the scientific method. Proposed testimony must be supported by
appropriate validation-i.e., "good grounds," based on what is known. In short, the
requirement that an expert's testimony pertain to "scientific knowledge" establishes a
standard of evidentiary reliability.
Dauhert at 590; see also id. at n. 9 (equating "evidentiary reliability" with "trustworthiness")
Subsequently, the Court in Kumho expressly extended Dauber7's standard of "evidentiary reliability"
to all experts , not just scientific ones . Kumho, 526 U.S. at 147-48 . As recognized by the Ninth Circuit.
"that standard: `requires a valid ... connection to the pertinent inquiry as a precondition to
admissibility. And where such testimony's factual basis, data, principles, methods, or their application
are called sufficiently into question ... the trial judge must determine whether the testimony has a
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reliable basis in the knowledge and experience of [the relevant] discipline."' Jinro Ain. Inc_ v. Secure
Lm,v., Inc., 266 F.3d 993. 1005 (9th Cir. 2001) ( quoting Kuinho Tire. 526 U.S. at 149).
Also as recouznized by the Ninth Circuit, Daubert invoked "an important constraint on expert
testimony:"
Rule 403 permits the exclusion of relevant evidence if its probative value is
substantially outweighed by the danger of unfair prejudice, confusion of the issues. or
misleading the jury...... Judge Weinstein has explained: -Expert evidence can be both
powerful and quite misleading because of the difficulty in evaluating it. Because of this
risk, the judge in weighing possible prejudice against probative force under Rule 403 ...
exercises more control over experts than lay witnesses."
Jinro, 266 F.3d at 1005 (quoting Daubers, 509 U.S. at 595).
Applying these principles in Jinro, the Ninth Circuit held that the district court abused its
discretion in admitting testimony of a purported expert where it was not reliable and, in any event, it
was unduly prejudicial and should have been excluded under Rule 403.
Barry's opinions likewise fail to satisfy these requirements for admissibility as they relate to
the accounting and causation issues raised by Lead Plaintiff's well-qualified experts, Robert Berliner
and Blaine Nye.
B. Barry Is Not Qualified to Render Reliable Opinions
Barry's testimony on materiality is in direct response to Berliner's testimony regarding
materiality from an accounting standpoint . Barry is admittedly not qualified as an expert in
accounting, and for that reason, his testimony about the materiality determinations made by certified
public accountants in this case, and his own materiality conclusions based thereon, are not reliable
accounting, opinions, and are therefore inadmissible at trial. See United Stales v. MaraBelles, 724 F.2d
1374. 1381-82 (9th Cir. 1984) (citing Rule 702). While courts should be "i tindful of Rule 702 and
[the] case law's recognition of practical knowledge and experience as providing an adequate basis for
expert testimony[, where the] deposition testimony of [the witness ] indicates that [his] practical
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knowledge does not provide [him] with the requisite expertise in auditing or accounting," as here, the
expert testimony should be excluded. See Garnac Grain Co., Inc. v. Blackley. 932 F.2d 1563, 1566-67
(8th Cir. 1991). Where, as here, the expert testifies in such a way that indicates he has "very little
knowledge, understanding or experience"' in the field on which his testimony is based, the testimony
should be excluded. Diviero vv. Uniroyal Goodrich Tire Co., 919 F. Supp. 13 5 3)... 1357-58 (D. Az.
1996) (citing Clear v. Burlington A,. R.R. Co.. 29 F.3d 499, 502 (9th Cir. 1994)). The witness's
expertise and experience must "fit" the facts of the case. Id. (citing Dauubert; Perkins v. t'olksrw agon of
Am., Inc., 596 F2d 681; 682 (5th Cir. 1979)). Where an expert's limited experience or other
qualifications prevent his opinions from fitting the requirements of the discipline in which he is
opining, as here, he does not satisfy the reliability requirement for expert testimony. See Humphreys
v. Regents of the Univ. of Cal.. No. C 04-03808, 2006 WL 1867713 (N.D. Cal. July 6, 2006); Garnac
Grain. v, Blackley, 932 F.2d at 1567 (inability to identify generally accepted accounting principles
indicative that witness not an expert in accounting); see also Jinro, 266 F.3d at 1005-06 (district court
abused discretion in admitting testimony of proffered expert whose purported qualifications amounted
to little more than his limited exposure from his work experience, finding that '-[hJe did not have the
legal, business or financial expertise" to testify as an expert on the matter).
Here, in sharp contrast to Lead Plaintiff's expert, Robert Berliner, who is a certified public
accountant and who is undisputably qualified, Barry admits he is not an expert in accounting or
auditing. Barry admits that he would not consider himself an expert in accounting. Barry could not
identify what generally accepted accounting principles address the question of materiality at issue in
this case. He even admits that he used his own, personal, "understanding" of what materiality means.
Barry's admissions demonstrate that he is not qualified to render reliable accounting opinions.
Likewise, Barry's testimony is tantamount to an admission that he has no idea what the
standard for causation is in connection with a claim for a misleading proxy solicitation under Section
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14(a). Further- while Barry acknowledges that it would be "easy" to measure the amount of artificial
inflation that was transferred from HBOC shares to McKesson shares by operation of the exchange
ratio that was the subject of Bear Stearns' fairness opinion, he also admits that he is not offering an
opinion about that. Barry did not conduct an event study and he says nothing about the statistical
signi ficance of the corrective disclosures in this case . Barry's knowledge about the causation issue in
this case has no indication of reliability. In short, Barry has not shown that he possesses the technical
or other specialized knowledge necessary for detecting and measuring the harm suffered by the class
here.
Barry's accounting and causation opinions are not helpful to the trier of fact. The standards
governing the admissibility of expert testimony at trial require the Court to separate expert evidence
that is based on "good grounds from subjective speculation that masquerades as scientific knowledge."
Glasteller v. Novartis Pharm. Corp., 252 F.3d 986, 989 (8th Cir. 2001) (internal quotations omitted).
Barry's personal unqualified opinions are not admissible Rule 702 expert testimony. Permitting
Barry' s accounting and causation opinions to be presented to the trier of fact would only serve to
confuse the issues, mislead the fact-finder as to the appropriate standards, and otherwise cause unfair
prejudice to the class. For all of these reasons Rule 403 of the Federal Rules of Evidence requires
exclusion of Barry's opinions in response to Berliner and Nye.
C. Barry Uses The Wrong Standards, Tainting His Methodology With
Flaws That Make His Opinions Speculative And Unreliable
In exercising its gate-keeping function, a district court should make "a preliminary assessment
of whether the reasoning or methodology underlying the testimony is scientifically valid and of
whether that reasoning or methodology properly can be applied to the facts in issue." Daz.ibert, 509
U.S. at 592-593. Thus, even if Barry were qualified as an expert in fields of accounting and Section
14(a) causation -- which the evidence demonstrates he is not -- his opinions are still not based on
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relevant methodology and are therefore speculative and lacking in reliability. See id., Concord Bout
Corp. v. Brunswick Corp.. 207 1- 3d 1039, 1056-57 (8th Cir.2000) (citing Virgin Atl. Airivoys Ltd. v.
British Airrw-a 's PLC, 69 F. Supp. 2d 571. 580 (S.D.N.Y. 1.999); T' eisgram v. Ifarlev Co., a28 U.S.
440, 120 S.Ct. 1011, 1015, 1020 (2000); Brooke Group Ltd v. Brown & t 'illiamson Tobacco Corp..
509 U.S. 209, 242 (1993)); see also Dairy Farmers ofrlna., Inc. v. Travelers Ins. Co.. 391 F.3d 936.
943 (8th Cir.2004); Burlington N. R.R. Co.. 29 F.3d at 502-03.
In addition, the expert's opinion must be excluded if it is not based on facts or data of a type
reasonably relied upon by experts in the field in forming inferences or opinions upon the relevant
subject. See In re Imperial Credit Incurs., Inc. Sec. Litig., 252 F. Supp. 2d 1005, 1013-14 (C.D. Ca.
2003).6 With respect to the issue involved here, Barry admits that he has no idea what the generally
accepted accounting principles are addressing materiality. He could not testify about the accounting
or auditing methods applicable to materiality determinations.
I don't remember the details of that.... I can't cite for you here's a specific set of
accounting things that you have to do to conclude on materiality . ... I can't tell you
what specific accounting methodologies have to be applied in reaching that
conclusion. ... I'm not specifically trying to say that I should do a materiality
analysis and here it is.
See Ex. 2 (Barry N.T. at 267:5 -272:24 (emphasis added)). Barry's opinions concerning materiality are
not based on accounting or other methodology recognized by generally accepted accounting
principles. Barry admits he did not perform an accounting materiality analysis. Barry even admits
that the methodology he used for reaching his materiality opinions was based on "using ... my
understanding of materiality." Id. Barry's materiality opinions are nothing other than his personal
commentary on the evidence.
"Expert testimony is useful as a guide to interpreting .., facts, but it is not a substitute for them." Brooke Group Ltd., 509
U.S. at 242. A court should not admit opinion evidence that "is connected to existing data only by the ipso dixit of the
expert." Gen_ Elec. Co. v. Jo/ncr. 522 U.S. 136, 146 (1997) (citing Turpin v. Merrill Dow Pharms_, Inc., 959 F.2d 1349,
1360 (6th Cir. 1992)).
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Barry's opinions on causation in this Section 14(a) case are equally unreliable because he
similarly fails to utilize, and evidently does not even know, the standards for detecting and measuring
causation for a Section 14(a) claim. Ex. 2 (Barry N.T. at 37:2-39:2, 64:2-24). Ile could not articulate
what harm the statute seeks to protect against and he could not articulate how one detects and
measures the harm caused by a shareholder vote tainted by a false and misleading proxy statement. Id.
He did not perform an event study, a failure fatal to the admissibility of his loss causation opinions.
See, e.g., Imperial Credit, 252 F. Stipp. 2d at 1015-16; In re Oracle Sec. Lrtig., 829 F. Supp. 1176,
1181-82 (N.D. Ca. 1993). Barry criticized Nye for failing to measure the artificial inflation created by
Bear Stearns' false statements, showing that Barry failed to grasp that the Section 14(a) claim in this
case is not based upon Bear Stearns having created artificial inflation by its false fairness opinion, but
rather having caused the transfer of artificial inflation to McKesson shareholders. Id. at 54:11-16.
And with regard to the opinions of Blaine Nye that detect and measure the transfer of inflation from
HBOC shares to McKesson shares by operation of the exchange ratio, Barry admits he offers no
opinion on that. Id. at 164:3-166:1. Barry then injects his own personal standard, without bases in
Section 14(a) principles, and offers his opinions based thereon. Id. at 166:21-167:14 (seeking to link
"effects on stock prices" with "accounting information that Bear Stearns was aware of when it issued
its fairness opinion")
Barry fails to provide any bases in law or economic theory for applying such a standard to the
task of detecting and measuring causation and c armages in connection with a Section 14(a) claim.
Furthermore, he fails to measure the undisputed artificial inflation in HBOC stock that existed at the
time of the merger. Indeed, as Lead Plaintiff has demonstrated in its memoranda in opposition to the
motion for summary judgment and in opposition to the motion to strike the declaration of Blaine Nye,
Section 14(a) losses for material false statements such as a :false fairness opinion are those that flow
from the transaction itself. See Mills, 396 U.S. at 388 ("Where the defect in the proxy solicitation
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relates to the specific terms as of the merger the district court might appropriately order an accounting
to ensure that the shareholders receive the value that was represented as coming to them."). Barry
admits in his deposition testimony, on the contrary, that his standard is not based on methods,
standards and principles for detecting and measuring the harm caused by a false and misleading proxy
statement used to solicit shareholder votes for a merger. Id. at 64:2-24. Nowhere does Barry explain
how his personal standard for detecting and measuring the loss suffered by the class here is sound,
testable, accepted, or capable of yielding reliable results. Rule 702, Fed. R. Evid, Advisory
Committee Notes to 2000 Amendments (citing O'Conner v. Commonwealth Edison Co., 13 F.3d 1090
(7th Cir. 1994)); see Turpin, 959 F.2d at 1360 ; Gen. Elec, v. Joiner, 522 U.S_ at 146. Therefore
Barry's accounting and causation opinions should be excluded as unreliable. Id.
D. Barry's Op inions Improperly Usur p the Role of the Court
Generally, the use of expert testimony is not permitted if it will. "usurp either the role of the
trial judge in instructing the jury as to the applicable law or the role of the jury in applying that law to
the facts before it." United States v. Bilzerian, 926 F.2d 1285, 1294 (2nd Cir. 1991); accord United
States v. Scop, 846 F.2d 135, 140 (2d Cir.), rev'd in part on reh'g on other grounds, 856 F.2d 5 (2d
Cir.1988); Marx & Co., Inc. v. Diners' Club, Inc., 550 F.2d 505, 510-11 (2d Cir.), cert. denied, 434
U.S. 861 (1977). Expert testimony cannot be used to guide the jury as to whether something is legally
significant. McHugh v. United Serv. Auto. Assn, 164 F.3d 451, 455 (9th Cir. 1999); see Crow Tribe of
Indians v. Racicot, 87 F.3d 1039, 1045 (9th Cir. 1996) (the role of experts is to interpret and analyze
factual evidence in light of their scientific , technical or other specialized knowledge ); Maffei v. N. Ins.
Co. ofNew York, 12 F.3d 892, 898-99 (9th Cir. 1993) (an insurance expert's declaration that sulphur
dioxide cloud constituted a "hostile fire" as described in insured's policies was improper expert
testimony); Aguilar v. Intl Longshoremen's Union Local No. 10, 966 F.2d 443, 447 (9th Cir. 1992);
Elsayed Mukhtar v. Cal. State Univ., Hayward, 299 F.3d 1053, 1066 fn. 10 (9th Cir. 2002); McHugh,
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164 F.3d at 454: see also The Pinal Creek Group vv. Newinonl Mining Corp., 352 F. Stipp. 2d 1037,
1042-43 (D. Az. 2005). In addition . when an expert ` -undertakes to tell the jury what result to reach.
this does not aid the jury in making a decision, but rather attempts to substitute the expert's,' udgment
for the jury's." United States v. Duncan, 42 F.3d 97. 101 (2d Cir. 1994). Experts are not permitted to
invade the province of the court, and where their opinions do so, they are inadmissible at trial.
juryBarry's accounting and causation opinions invade the province of the judge to instruct the J
as to legal meaning. For example, Barry's standard of accounting materiality ("fundamentally what it
amounts to is that if this thing is not likely to affect the value or the price , is not likely to have an
impact, then it's probably not material. [It is a question oft whether or not there is a significant effect
or an appreciable effect... a material price effect of the information that they had at the time." Ex. 2
(Barry N.T. at 267:5-272:24)), is not correct either as a statement of law , see TSC Indtis. Inc. v.
Norihwaoy Inc., 426 U.S. 438, 449 (1976), or GAAP. S'ee Report of Robert Berliner at l-1 through 1-9,
annexed to the declaration of Robert Berliner in opposition to motion for summary judgment
(Discussing Staten-tent of Financial Accounting Concepts No. 2. Qualitative Characteristics of
Accounting Information ("FASCON 2"), and Staff Accounting Bulletin 99, Materiality ("SAB 99"))
(Docket No. 1600). Barry offers no basis for this standard, and it is not at all related to FASCON 2 or
SAB 99.
Likewise, while the causation standard for a Section 14(a) claim is articulated in Mills, 396
U.S. at 385 (when, as here, a proxy solicitation is an essential link in accomplishing a transaction such
as a corporate merger, only proof of materiality is required to establish "a causal relationship between
the violation and the injury for which he seeks redress"), Barry's causation standard is one he
misappropriates from a substantially different claim without bases in any authority. Id. at 166:21-
167:14 (seeking to link "effects on stock prices" with "accounting information that Bear Stearns was
aware of when it issued its fairness opinion"); see also Barry Report, supra, at ^'1 I I e.. 50. Indeed, in
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his declaration submitted in support of Bear Stearns' summary judgment motion. Barry contradicts his
own standard by asserting that proof of causation is impossible here under any "valid economic
t ieoiy." See Barry Decl. at 2. But Barry never performs one generally accepted procedure to detect
and measure l osses here , and unlike Lead Plaintiffs expert. Blaine Nye. did not conduct an event
I study.
Barry nevertheless offers accounting and causation opinions in such a way as to influence the
jury to thinking. that his materiality and causation standards have some sort of legal meanin4g, and in so
doing, he steps far beyond his proper role to interpret and analyze factual evidence, and improperly
invades the province of the court to instruct the jury on the legal meaning of accounting standards
addressing materiality and methods for detecting losses in securities cases. Barry's testimony is not
admissible because it will usurp the role of the Court. Bilzerian, 926 F.2d at 1294; accord Scop, 846
F.2d at 140; Marx, 550 F.2d at 510-11. Such opinions tend only to cause confusion of the issues,
mislead the fact-finder and otherwise cause unfair prejudice, and are also excludable under Rule 403.
For these reasons too, Barry's accounting and causation testimony is not admissible at the trial of this
case.
III. Conclusion
For the reasons stated above, Lead Plaintiffs motion for an order excluding Barry from
testifying in response to Berliner and Nye at trial should be granted. Barry lacks sufficient
qualifications in accounting. Barry also utilized improper accounting and causation standards, tainting
his methodologies with flaws that make his opinions speculative and unreliable. Barry effectively
invades the province of the Court. Barry's opinions with respect to GAAP and causation violate Rule
702 of the F ederal Rules of Evidence , are not admissible at trial under Daubert v. Merrill Dow
Pharmn., Inc., and its progeny, and will not assist the trier of fact to understand the evidence or
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determine facts in issue . Barry's testimony on GAAP and causation only serves to confuse the issues
and mislead the fact-finder, and is also excludable for that reason under Rule 403.
Dated: July 30, 2007 Respectfully submitted,
BARRACK, RODa & BACINE
By:LE NA D BARRACKM. R ARD KffMINSJEFFREY A. BARRACKBETH R. TARGAN3300 Two Commerce Square2001 Market StreetTel: (215) 963-0600Fax: (215) 963-0838
-and-STEPHEN R. BASSER (Bar No. 121590)402 West Broadway, Suite 850San Diego, CA 92101Tel: (619) 230-0800Fax: (619)2')0-1874
-and-
BERNSTEIN LITOWITZ BERGER& GROSSMANN LLP
DAVID R. STICKNEYTIMOTHY A. DeLANGENIKI L. MENDOZABENJAMIN GALDSTON12481 High Bluff Drive, Suite 300San Diego, CA 92130Tel: (858) 793-0070Fax: (858) 793-0323
-and-MAX W. BERGERROCHELLE FEDER HANSEN1285 Avenue of the AmericasNew York, NY 10019Tel: (212) 554-1400Fax: (212) 554-1444
Attorneys for Lead PlaintiffThe New York State Common RetirementFund and Co-Lead Counsel for the Class
LEAD PLAINTIFF'S NOTICE OF MOTION AND MOTION IN LIMINE NO. 5T0 PRECLUDE. CHRISTOPHER B. BARRY FROM
OFFERING ACCOUNTING AND CAUSATION OPINIONS AT TRIAL.
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