NERA's Role in Jerry Ryan, et al. v Flowserve Corporation, et al.

The Situation

In a securities class action alleging 10b-5 and Section 11 claims against Flowserve, a leading manufacturer of pumps, seals, and valves, Plaintiffs alleged that Flowserve overstated its financial position, causing the company's stock to trade at an inflated level.

NERA's Role

NERA Senior Vice President Lucy P. Allen served as an expert witness for Flowserve. Ms. Allen analyzed materiality and loss causation for 10b-5 claims and negative causation for Section 11 claims.

The Result

The Honorable Judge Jane J. Boyle, in the 5th Circuit, denied class certification in this action against Flowserve. The Court also rejected Plaintiffs expert's 'true financial condition' theory. Specifically, the Court found that "[t]he 'true financial condition' theory, if accepted, threatens to undermine the objective of securities law and disregards precedent."

The Court cited Ms. Allen's expert report more than 25 times in its opinion. Judge Boyle stated, "[t]he Court finds Defendants' event studies and review of analyst commentary particularly persuasive," and found that there was no evidence of loss causation, finding that Ms. Allen's "event studies and review of the analyst commentary belies any argument to the contrary." With respect to the Section 11 claims, the Court stated that, "the evidence provided by Defendants indicates that [...] the price decline was caused by some factor other than the alleged misstatements in the offering documents."