Venkataraman v. Kandi Technologies Group

Background

Srinivasan Venkataraman and Lead Plaintiff Tom Brooks, individually and on behalf of others similarly situated, alleged that Kandi Technologies Group, Inc. and Individual Defendants Xiaoming Hu, Cheng Wang, Liming Chen, Jerry Lewin, and Henry Yu violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. They also alleged that the Individual Defendants were liable under Section 20(a) of the Exchange Act. The claims arose from Kandi’s restatement of certain financial statements in March 2017. The opinion states that Kandi’s share price allegedly fell $0.30 per share, or approximately 6%, after the announcement that the statements would need to be restated.

Earlier in the case, the court ruled that claims based directly on statements made before June 10, 2015, were time-barred. The Section 10(b) and related Section 20(a) claims based on later alleged misstatements remained. The court later granted Plaintiff’s motion for class certification in part.

Summary-judgment motions and expert evidence

Defendants moved for summary judgment, arguing principally that Plaintiff had no expert evidence supporting loss causation and damages. Loss causation means showing that the alleged misstatements caused the claimed economic loss. Defendants argued that Plaintiff’s expert, Dr. Adam Werner, had previously been retained only to address market efficiency and whether damages could be calculated using a common method for class-certification purposes. According to Defendants, his earlier work did not determine whether particular alleged misstatements affected Kandi’s stock price or quantify Plaintiff’s losses.

Plaintiff submitted a second declaration from Dr. Werner with his own summary-judgment motion. The declaration addressed loss causation and damages for the first time, but it was submitted nine months after expert discovery had closed. Defendants argued that the declaration violated the expert-disclosure rules and the court’s scheduling order. They submitted a declaration from their own expert responding to it.

Under Federal Rule of Civil Procedure 26, an expert generally must disclose the opinions and supporting reasons the expert will give. Rule 37 allows a court to exclude information that was not timely disclosed unless the failure was substantially justified or harmless. Applying four factors—Plaintiff’s explanation, the importance of the evidence, prejudice to Defendants, and the possibility of a continuance—Judge Ho found that all four favored exclusion. The court found Plaintiff’s explanation unpersuasive, the late declaration important to his case but inexcusable, the prejudice to Defendants severe, and reopening discovery inappropriate because discovery had been closed for nearly a year and a half.

Ruling

Without the second Werner declaration, Plaintiff had no evidence from which a jury could find loss causation or damages. The court held that these were essential elements of the Section 10(b) claims and that Plaintiff’s Section 20(a) claims also failed because those claims depended on a primary violation. The court therefore granted Defendants’ motion for summary judgment and denied Plaintiff’s motion for summary judgment.

The court did not reach Defendants’ alternative argument that the alleged misstatements were not legally actionable, and it did not address Plaintiff’s arguments concerning the other elements of the securities-fraud claims. The court also denied the parties’ motion for leave to file reply briefs, disregarded both proposed reply briefs and the last five pages of Defendants’ opposition brief, and directed the Clerk of Court to close the case.