By Jay Cunningham
The Daubert standard is one area of the law that concerns attorneys and financial damages experts alike. For a financial expert, no other measure in the federal court system goes to the core of a financial expert’s competence and thoroughness in his or her work product like the Daubert standard. For a trial attorney, a case can often be jeopardized if a Daubert challenge to an expert is successful.
In 1993, the United States Supreme Court issued a ruling in Daubert v. Merrell Pharmaceuticals that addressed the admissibility of scientific testimony in federal court. The Daubert case gave federal trial judges a gatekeeping function in determining the reliability and relevance of testimony. The role of the trier of fact is to determine whether the expert is presenting scientific knowledge requiring a “preliminary assessment of whether the reasoning or methodology underlying the testimony is scientifically valid” and is accurately applied to the facts of the case.
In 1999, the Supreme Court’s opinion in Kumho Tire Co. Ltd. v. Carmichael adopted the criteria set forth in Daubert and applied them to all types of expert testimony in federal jurisdictions, including financial expert testimony.
The 7th Circuit has reaffirmed the Daubert standard that district courts must use to determine if expert testimony is admissible at trial:
“The Supreme Court in Daubert interpreted Rule 702 to require that district courts, prior to admitting expert testimony, determine whether the testimony is reliable and whether it will assist the trier of fact in determining some fact that is at issue. That is, the district court serves as a “gatekeeper” whose role is to ensure that an expert’s testimony is reliable and relevant.” (Stuhlmacher v. Home Depot U.S.A., Inc., -- F.3d --, 2014 WL 7174261, at *3 (7th Cir. Dec. 17, 2014).
While Indiana courts do not expressly adopt Daubert, the Indiana Supreme Court stated in Steward v. State, “the federal evidence law of Daubert and its progeny is helpful to the bench and bar in applying [Ind. R. Evid. 702(b)].”
Financial experts are often the subject of Daubert challenges. In fact, a 2016 study conducted by PwC LLP revealed that the 230 challenges to financial experts in 2015 represented the highest number of challenges observed in a single year. In short, Daubert challenges are here to stay in litigated matters.
A lack of reliability, relevance or expert qualifications are frequently cited reasons under Daubert to disqualify the testimony of an expert witness. It is incumbent on both the attorney and the financial expert to be prepared in confronting — and defeating — a Daubert challenge. The best defense to a Daubert challenge doesn’t begin when a motion to exclude an expert is issued. With this in mind, I offer five tips to consider when hiring and working with a financial expert.
Do your homework. Ask the financial expert to provide attorney references. Check for prior exclusions (websites such as dauberttracker.com can provide a database of experts, identification of any exclusions, and reasons given for any exclusions). Even put the expert through a mini-deposition to gain insights into his or her qualifications, knowledge and demeanor. These are all best practices prior to engaging with any financial expert, but especially if you have no prior experience working with that individual.
Don’t wait until the last minute. During the early phases of a case, there’s sometimes a tendency for attorneys to put the financial damages theory of the case aside. Resist this temptation and involve your financial expert early in the case. While financial experts often do work under tight deadlines, their analysis must stand up to the scrutiny of opposing counsel, so it is critical that he or she has sufficient time to prepare. Involving your expert earlier also gives you ample time to be sure his or her opinion is indeed supportive of your case. Discussing how your expert’s damage theory relates to the facts of the case in advance will help you avoid problems down the road.
Use your expert early and often. An expert’s opinion is only as good as the information he or she can rely upon. Some of the most significant value an expert can add occurs during the discovery phase. From providing assistance with document requests to preparing questions for depositions, using your expert early can help you get the best information possible upon which to base his or her opinions. You should err on the side of providing too much information to your expert. In a number of cases, courts have thrown out damage claims because the expert was spoon-fed documents and had been forced to take the client’s summary analysis at face value. When experts are left out of the process until late in discovery, there’s an increased likelihood that information critical to his or her opinion won’t be available.
Make the expert explain everything. Insist that your experts thoroughly explain the analysis that helped them arrive at their opinions. Sometimes, doing so will cause an expert to recognize a logical gap in his or her reasoning. As important, if you are unable to understand the expert’s approach yourself, there’s a strong likelihood you won’t be able to adequately defend it against a Daubert challenge, or, for that matter, explain it to the judge or jury during trial.
Involve the expert in any Daubert challenge. To the financial expert, it seems self-evident: if there’s a Daubert challenge posed, he or she should be closely involved in the rebuttal process. There are, however, numerous examples of attorneys who don’t seek the expert’s guidance when the expert has been confronted with a Daubert challenge. Nobody understands the basis of an opinion better than the expert who wrote it, and he or she should be given the opportunity to defend their work. Not involving the expert in a Daubert challenge risks omitting any arguments the expert would have made to support his or her opinion, thereby putting your case at risk.
It’s been said that a successful Daubert challenge can negatively impact a case; but it can also have lasting repercussions on a financial expert’s career. While the Daubert challenge may be an effective means for excluding unreliable testimony at trial, it has become a very common trial practice used against experts of all skill and experience levels. It is crucial that great care be taken to make the expert’s opinion as defensible as possible in order to avoid, or to counter, a Daubert challenge.•
• Jay Cunningham, CPA/CFF, CVA, MAFF, is a director in Katz Sapper & Miller’s Litigation Services Group. He can be reached at 317-452-1428 or email@example.com. The opinions expressed are those of the author.