By Mike Costello, CPA, ABV, CFF, CFE, ASA
It is commonplace for expert testimony to be challenged, but Daubert challenges can be particularly dreadful. However, as an experienced financial expert witness with a couple of Daubert challenges under my belt, I have found they can be avoided or overcome when the financial expert has relevant credentials, experience and uses methodologies that conform to academic literature and professional standards.
Federal Rules of Evidence govern the admissibility of testimony in federal courts, and many states have modeled their rules after the federal rules. Federal Rule 702 allows expert testimony when scientific, technical, or other specialized knowledge will assist the judge or jury to understand evidence or make sense of the facts involved in the case.
In 1993, a U.S. Supreme Court case affirmed the gate keeping role of judges by giving them authority to determine the reliability and relevance of expert testimony. Although Daubert v. Merrill Dow Pharmaceuticals, Inc. involved certain scientific testimony, a 1999 case, Kuhmo Tire Company v. Carmichael extended the courts’ gate keeping role to other academic disciplines.
Why all of the fuss? In a Daubert hearing, where the court makes a preliminary ruling on the admissibility of expert testimony, an expert may be barred from testifying. As a result, that expert’s opinion will not be considered by the trier of fact.
Daubert imposes four tests:
- Has the methodology used been tested?
- Has it been reviewed by other practitioners? Has it been published in professional journals?
- What is the methodology’s known error rate? Has the expert’s profession established standards to control its use? If
so, has the expert complied with these standards?
- Is it generally accepted by members of the scientific community?
These Daubert tests are the general standards used to evaluate the admissibility of scientific evidence. Their purpose is to keep “junk science” out of the evidence under consideration in a case.
The challenges with which I have had personal experience involved commercial lost profits damages cases. In one of them, I used a statistical method, regression analysis, to calculate expected future revenues. The essence of the challenge to my testimony was that Certified Public Accountants are not statisticians and do not understand how to apply statistical science in the course of providing professional accounting services for clients.
To counter the proposition that I was not qualified to testify regarding regression analysis, I educated the attorneys who had hired me that I had regularly used regression analysis to prepare financial forecasts in my CPA work over the years. Additionally, as an undergraduate business administration student, I had taken two statistics courses as a basis for other upper level classes where statistics, and in particular, regression analysis, were used. I also reviewed with the attorneys courses I had taken from my masters’ program that included regression analysis. Finally, I gave them information about a CPA continuing education class in which I had participated on financial forecasting that included a section on using regression analysis. I survived the Daubert hearing with my lost profits calculation deemed admissible. In the end, the jury awarded the approximate damage figure I had calculated.
There are many practical ways to prepare for a Daubert challenge. Among them:
- Give information in your report about qualifications, professional articles written, presentations made and cases
where expert testimony has been rendered.
- Give information about all opinions in the report and the basis for each one, including the methodologies used.
Most importantly, show the detail, with reasons, for your work.
- Follow all relevant technical and professional standards.
- Always exhibit character and integrity in your work.
- Use generally accepted methods and supply all assumptions for your work.
- Review your work. In our firm, we are fortunate to have multiple experienced, credentialed professionals available
to read expert reports before submitting them to third parties.
- Test the conclusions of the report for reasonableness.
WE CAN HELP
Increasingly, Daubert challenges will be a part of the judicial landscape. However, with proper advance preparation, they should not be as daunting. Our litigation support professionals would be pleased to consult with you concerning any upcoming cases with which you may be involved. We can be reached at 800.782.8382.