IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

LAWRENCE E. JAFFE PENSION )

PLAN, on behalf of itself and all )

others similarly situated, ) 02 C 5893

)

Plaintiff, ) Judge Jorge L. Alonso

)

v. )

)

HOUSEHOLD INTERNATIONAL, )

INC., et al., )

)

Defendants. )

MEMORANDUM OPINION AND ORDER

The case is before the Court on defendants’ motion to reconsider the Court’s ruling that the

Seventh Circuit’s mandate precludes them from arguing or offering evidence that Professor Fischel’s

leakage and specific disclosure models do not control for market and industry factors. Defendants

contend that the ruling is at odds with the Appellate Court’s opinion, which instructs the Court to

retry the issue of loss causation in its entirety. 

Whether that is true depends on the scope of the remand, about which the Seventh Circuit

has said:

There are two major limitations on the scope of a remand. First, any issue that could

have been but was not raised on appeal is waived and thus not remanded. Second,

any issue conclusively decided by this court on the first appeal is not remanded. To

determine whether an issue falls within the second limitation the opinion needs to be

looked at as whole. The court may explicitly remand certain issues exclusive of all

others; but the same result may also be accomplished implicitly. For example if the

opinion identifies a discrete, particular error that can be corrected on remand without

the need for a redetermination of other issues, the district court is limited to

correcting that error.

United States v. Husband, 312 F.3d 247, 250-51 (7th Cir. 2002) (quotation, citations, and footnote

omitted). The question here is whether the Seventh Circuit remanded this case for a new trial on all
facets of loss causation or only for a determination of whether Fischel’s models account for firmspecific, non-fraud information. 

Unfortunately, the opinion is not entirely clear on this point. The Seventh Circuit starts its

opinion by observing: “The defendants broadly attack the expert’s loss-causation model. They also

make the more modest claim that his testimony did not adequately address whether firm-specific,

nonfraud factors contributed to the collapse in Household’s stock price during the relevant time

period. This latter argument has merit, as we explain below.” Glickenhaus & Co. v. Household,

Int’l, Inc., 787 F.3d 408, 413 (7th Cir. 2015). The explanation was:

 . . . . [Defendants] argue that the leakage model, which the jury adopted, did

not account for firm-specific, nonfraud factors that may have affected the decline in

Household’s stock price. . . . The model assumes that any changes in Household’s

stock price – other than those that can be explained by general market and industry

trends – are attributable to the fraud-related disclosures. If during the relevant period

there was significant negative information about Household unrelated to these

corrective disclosures (and not attributable to market or industry trends), then the

model would overstate the effect of the disclosures and in turn of the false

statements. . . .

Firm-specific, nonfraud factors were not entirely ignored, however. Although

the leakage model doesn’t account for their effect, Fischel testified that he looked for

company-specific factors during the relevant period and did not find any significant

trend of positive or negative information apart from the fraud-related disclosures[.].

. . 

. . . .

The defendants contend that this was not enough. Because it was the

plaintiffs’ burden to prove loss causation, they argue that the leakage model needed

to eliminate any firm-specific, nonfraud related factors that might have contributed

to the stock’s decline. . . . 

. . . .

[I]n order to prove loss causation, plaintiffs in securities-fraud cases need to

isolate the extent to which a decline in stock price is due to fraud-related corrective

disclosures and not other factors. . . .

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Fischel’s models controlled for market and industry factors and general

trends in the economy—the regression analysis took care of that. But the leakage

model, which the jury adopted, didn’t account for the extent to which firm-specific,

nonfraud related information may have contributed to the decline in Household’s

share price. Fischel testified—albeit in very general terms—that he considered this

possibility and ruled it out. The question is whether that’s enough or whether the

model itself must fully account for the possibility that firm-specific, nonfraud factors

affected the stock price.

. . . . 

The defendants argue that to be legally sufficient, any loss-causation model

must itself account for, and perfectly exclude, any firm-specific, nonfraud related

factors that may have contributed to the decline in a stock price. It may be very

difficult, if not impossible, for any statistical model to do this. . . . Accepting the

defendants’ position likely would doom the leakage theory as a method of

quantifying loss causation. On the other hand, if it's enough for a loss-causation

expert to offer a conclusory opinion that no firm-specific, nonfraud related

information affected the stock price during the relevant time period, then it may be

far too easy for plaintiffs to evade the loss-causation principles explained in Dura.

There is a middle ground. If the plaintiffs’ expert testifies that no

firm-specific, nonfraud related information contributed to the decline in stock price

during the relevant time period and explains in nonconclusory terms the basis for this

opinion, then it’s reasonable to expect the defendants to shoulder the burden of

identifying some significant, firm-specific, nonfraud related information that could

have affected the stock price. If they can’t, then the leakage model can go to the

jury; if they can, then the burden shifts back to the plaintiffs to account for that

specific information or provide a loss-causation model that doesn’t suffer from the

same problem, like the specific-disclosure model.

Glickenhaus & Co. v. Household Int’l, Inc., 787 F.3d 408, 419-22 (7th Cir. 2015) (footnotes

omitted). The Court ended the opinion by saying that “defendants are entitled to a new trial limited

to the two issues we’ve identified here: loss causation and whether the three executives ‘made’

certain of the false statements under Janus’s narrow definition of that term.” Id. at 433.

After carefully examining the opinion and considering the parties’ submissions and

arguments, the Court concludes that the retrial is not limited to determining whether Fischel’s

models adequately account for Household-specific, nonfraud factors. Though some language in the

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opinion seems to support that view, the Court is persuaded that, had the Seventh Circuit wanted the

retrial to be so limited, it would have said so explicitly. Absent such explicit direction, the Court

assumes that the element of loss causation must be retried. Accordingly, the Court vacates its oral

ruling limiting the evidence on loss causation solely to whether Fischel’s models adequately account

for Household-specific, nonfraud factors.

SO ORDERED. ENTERED: May 31, 2016

__________________________________

HON. JORGE L. ALONSO

United States District Judge 

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