The professionals who testify as experts – and the attorneys who retain them – are likely very familiar with the “Daubert Standard,” as challenges to experts and their testimony has become more and more commonplace since the 1993 U.S. Supreme Court ruling in Daubert v. Merrell Dow Pharmaceuticals, Inc. and the 1999 ruling in Kumho Tire Co. v. Carmichael.
Since the Kumho Tire decision, PricewaterhouseCoopers (“PwC”) has regularly analyzed the frequency and effectiveness of “Daubert Challenges.” This year, PwC published “Daubert challenges to financial experts,” which presents trends and outcomes over the 18-year period from 2000 through 2017.
The PwC report reminds us that the Daubert case “addressed the admissibility of expert scientific testimony in federal trials” and that the decision in Kumho Tire “clarified that the Daubert criteria were applicable to all types of expert testimony…including financial expert testimony.” Since the quantification of economic damages often falls under the purview of the financial expert, trends and outcomes in Daubert Challenges are very important both to the expert and the attorneys who retain them.
The PwC report presents five recurring themes, as follows:
- Courts generally “tend to work under the presumption of admissibility” and tend to prefer that issues regarding an expert’s assumptions, damage theories or use of data “be addressed through rigorous cross-examination.”
- When experts are excluded due to reliability concerns, it is primarily because the testimony was found not to be based on sufficient facts or data, as required by Rule 702 of the Federal Rules of Evidence (“FRE Rule 702”).
- FRE Rule 702 also requires an expert to have sufficient “knowledge, skill, experience, training or education” to be deemed qualified to testify. The PwC report found that “[d]epending on the situation, each of these factors may be ascribed a different weight.”
- More recently, Courts have been more apt to “provide financial experts the chance to revise or update their testimony…for issues and errors identified during the Daubert challenge process.”
- Financial experts should avoid testifying on legal issues that should be left to the trier-of-fact; when they “veer into this territory, they typically find themselves being prevented from testifying on these issues.”
The PwC study found that in 48% of the 206 Daubert Challenges reported in 2017, the financial expert’s testimony was fully or partially excluded. This is consistent with the 47% average exclusion rate over 2,410 challenges reviewed over the entire 18-year period. Lack of reliability has been the most common reason for exclusion both in 2017 and over the past 18 years, with Courts citing insufficient data or analytical methods not generally accepted as the primary reasons. In fact, reliability was the sole reason for exclusion in 43% of the challenges studied and was one of the reasons (along with relevance and/or qualification) in another 22%. On the other end, experts were excluded only 6% of the time based only on their qualifications.
It is incumbent upon the financial expert (and the attorney who retained him or her) to understand the implications of a Daubert Challenge and to understand the various reasons expert financial testimony has been and can be excluded. Given that Daubert Challenges have generally been on the rise over the last 18 years and nearly half of the challenges result in full or partial exclusion, the financial expert and his or her attorney need to make sure they are well-prepared for such challenges at the beginning of every engagement.
Norman A. Kur, CFE, CMA, AM