Securities Case Judges Haven’t Fully Absorbed Expert Rule Changes

Securities litigation routinely involves highly sophisticated—and sometimes new or esoteric—expert evidence that parties and courts rigorously test under Federal Rules of Evidence 702 admissibility standards.

For the first time in decades, those standards changed substantively when amendments to Rule 702 became effective last December. Since then, a handful of courts have had an opportunity to address the rule amendments, but the approaches taken haven’t been consistent so far.

Reliability and Fit

Two aspects of the 2023 amendments in particular raise implications for recurring Rule 702 issues in securities cases. First, the changes underlined the court’s threshold role in assessing the reliability of an expert’s opinion.

The commentary to the amendments cautioned that some prior holdings that reliability determinations go to “weight and not admissibility” were “incorrect,” and emphasized that district courts should assess reliability as part of the admissibility determination—rather than send the issue to the fact finder.

Second, concerning the Rule 702 requirement that expert evidence “assist” the trier of fact—often analyzed as a question of “fit” to the claims or issues in the case—the commentary noted courts had applied inconsistent and at times “unnecessarily strict” standards.

The commentary specifically cautioned against the requirement some courts imposed that expert evidence “appreciably help” the fact finder. It suggests “fit” should be considered closer to the relevance standard—asking whether the evidence is capable of assisting a fact finder at all.

Case Analysis

Numerous courts have already considered the implications of these changes since the amendments came into effect. In the context of securities litigation, at least 10 decisions addressed expert admissibility under Rule 702. These decisions have followed one of three approaches with respect to the 2023 changes.

At least three decisions expressly considered and applied the new rules. In one case, the court explicitly noted the court’s decisions “would be identical under both the old and the new versions.” In DoubleLine Capital v. Odebrecht Finance, the court addressed the changes in the amendment but suggested they had no impact on the court’s analysis. In a third case, the court quoted amended Rule 702 and said nothing more.

At least four decisions applied the old rule and quoted now-superseded language. Nonetheless, three of these decisions appear consistent with the spirit of the 2023 amendments as articulated in the committee notes, assessing “fit” under a more lenient threshold and conducting detailed reliability assessments.

The fourth decision in this category rejected a reliability challenge as going to weight, not admissibility—a possibility the 2023 commentary expressly envisioned. It’s unclear whether the court’s analysis would have changed had the parties or court addressed the 2023 amendments.

At least three decisions addressed Rule 702 but didn’t expressly consider the 2023 amendments or commentary. For example, the court in In re Franklin Wireless Corp. Deriv. Litig. excluded an expert opinion for improperly offering a legal conclusion—an issue not directly impacted by the amendments—and there is no indication that the court considered the amended portions. The other two decisions, U.S. v. Salzano and SEC v. Mueller, didn’t involve substantive application of Rule 702.

Uniformity Lacking

These observations indicate that, in securities cases, courts have yet to uniformly adopt the 2023 amendments or consider the implications of the commentary on prior incorrect holdings. This isn’t entirely unexpected given the pace these issues are raised and resolved in securities cases. For perspective, in 2023, there were only approximately 13 Rule 702 rulings in securities cases.

In several decisions above, the 2023 amendments became effective during briefing or while a decision was pending. While the amendments expressly applied even to pending disputes “insofar as just and practicable,” there’s no indication the parties in those cases asked the courts to consider the changes.

Given the common use of expert evidence in securities cases, it’s likely those cases will increasingly consider these amendments as a new basis to challenge or protect the admissibility of expert evidence, and there’s a possibility courts will hold more expert admissibility hearings under Federal Rule of Evidence 104(a).

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Jesse Jensen is partner and Aasiya Glover is an associate at Bernstein Litowitz Berger & Grossmann. Both focus their practices on securities fraud, corporate governance, and shareholder rights litigation.

Write for Us: Author Guidelines