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August 24, 2016

Panacea or Double Edged Sword?


Last March, the Corporate Council of the Corporation Law Section of the Delaware State Bar Association released legislation proposing to amend Section 262 of the Delaware General Corporation Law in response to criticisms regarding whether the conduct of appraisal arbitrage is consistent with the intent of the appraisal statute. The first revision was intended to limit the right to bring an appraisal action against a publicly traded company if the interest was de minimis as compared to the number of outstanding shares or the value of the merger consideration, or structured as a short-form merger. The second was designed to provide a means by which respondents could limit the accrual of statutory interest on appraisal awards. Since taking effect August 1, 2016, however, practitioners have observed that the decision to exercise the option of limiting the accrual of statutory interest by making prepayments to shareholders seeking appraisal is not as simple as it seems.


The statute originally provided that unless the court found otherwise, interest on the amount adjudicated to be fair value accrued at a rate of 5 percent over the Federal Reserve discount rate (including any surcharge), compounded quarterly, from the effective date of the merger through the date of payment of the judgment. While that provision has been maintained, it has been amended so that in addition, at any time before the entry of judgment, the respondent corporation may elect to pay an amount (of its own choosing) in cash to each stockholder entitled to appraisal. Thereafter, the accrual of interest will be limited to the sum of (1) any difference between the amount of cash paid and the fair value of the shares, and (2) interest accrued up until the cash payment, unless paid at that time.


Accordingly, prepayment risk may deter petitioners motivated mainly by the opportunity to earn interest at the statutory rate, or those hoping to use the statutory rate to induce a quick settlement. On the other hand, as a petitioner’s capital may be locked-up in an appraisal action for up to two years or more, prepayments may actually serve as an inducement and source of financing for those otherwise deterred.


Deciding on the amount is equally perplexing. Factors underlying an appraisal claim that might be analyzed in making the determination include valuations considered by the board, the merger price and related market check. Regardless of how determined or what the amount may represent in the mind of the respondent, however, the petitioner or court may take it as an indication of the respondent’s fair value. Further, the amount may raise valuation conflicts if paid prior to completion of the respondent’s expert’s analysis.


Strategic issues aside, the decision to prepay may be equally influenced by a respondent’s financial position, growth and investment opportunities. Firms with healthy balance sheets and excess cash flow not otherwise deployable may find it worthwhile. Others may reject the approach as counterintuitive, or find the opportunity costs too high despite the statutory interest premium over current market rates. All things considered, then, respondents evaluating the prepayment option must weigh carefully whether the potential gain exceeds the potential costs of its unintended consequences.


Boris J. Steffen, RSM US LP, Washington, D.C.



June 8, 2016

Selection of Civil Engineering Experts


The Winter 2016 Litigation Management Magazine, a publication of the Claims and Litigation Management Alliance (CLM), recently included an article on the selection of multiple experts in complex fire and explosion claims. The article highlights the importance of retaining different, but complimentary, experts for the varied facets of more complex claims. The identification of the key and complimentary skillsets remains a critical exercise when investigating the cause of complex claims. This article will focus on these competencies and credentials represented by these skillsets in the arena of civil engineering. To find a qualified professional civil engineer, it is important to be familiar with how the sub-disciplines of civil engineering are different and how the different licenses and credentials represent advanced skills and abilities, which can enhance the effectiveness of forensic investigations and in turn the dispute resolution process.


Civil engineering is a broad discipline that consists of the application of scientific principles to the built environment. Civil engineering includes the sub-disciplines of water resources engineering, civil-site engineering, transportation engineering, construction engineering, structural engineering, and geotechnical engineering. The professional engineering license, the most basic professional credential, represents that the engineer is minimally competent to practice engineering to protect the health and safety of the public. The three Es—education, experience, and examination—are considered the three legs of the stool of licensure for public practice.


The education for each of the disciplines has a basic common core of mathematics, physics, chemistry, statics, surveying, structural analysis, fluid mechanics, soils mechanics, and mechanics of materials. It is not until the senior year of college that more advanced classes in an area of specialty is selected.


The American Society of Civil Engineers (ASCE) has spent considerable time and effort defining the requirements for an individual entering the practice of civil engineering at the professional level. Within their Civil Engineering Body of Knowledge for the 21st Century, they readily admit that this Body of Knowledge is not fulfilled at the Bachelor’s degree level in engineering, rather, additional education and experience is required.


In addition to formal education, there are two other requirements for licensure: 4 years of experience in the area of claimed proficiency and passing two examinations.


It is during the first four years of experience after graduation that true application to real life situations really starts for the engineer in their area of specialization. This is when the requirements of codes and standards in their specialty are learned and where young engineers start to learn about the procedures and practices necessary to provide safety.


The Fundamentals of Engineering (FE) examination is the initial, pre-professional examination of the licensing process. It is an 8-hour exam that tests the basic knowledge core provided by the formal education. The 8-hour Principles and Practice of Engineering or PE exam is the second of two exams in the licensing process, and it tests the application of the knowledge to real life scenarios. Both tests are made up of only multiple choice questions.


ASCE has three academies wherein certifications are provided for those demonstrating advanced knowledge and skills in civil engineering: The American Academy of Water Resources Engineers, The Academy of Coastal, Ocean, Port & Navigation Engineers, and the Academy of Geo-Professionals. The requirements for certification in these academies include approval of the education and professional references as well as an oral examination.


In the area of structural engineering, advanced knowledge and skills are represented by passing the NCEES 16-hour Structural Engineering (SE) Examination in addition to the FE exam. The SE examination consists of two days of tests. Both days of the exam include 40 multiple choice questions in the morning and 3 or 4 essay questions in the afternoon. It is clear that the NCEES 16-hour SE Exam sets a higher bar for structural engineer compared to the 8-hour Principles and Practice exam and therefore represents a more advanced skillset for tackling more complex problems.


The most qualified engineers have advanced levels of qualifications and proficiency represented by licenses or certifications in a specialty sub-discipline. These licenses and credentials for forensic civil engineers represent the advanced abilities of the engineers that will enhance the effectiveness of forensic investigations.


Randall P. Bernhardt, Engineering Systems Inc., O’Fallon, MO



April 21, 2016

Delaware State Bar Association Releases Proposed Amendments to DGCL Governing Appraisal Rights


For over a decade now there has been increasing debate among legal practitioners regarding the practice of appraisal arbitrage, in which investors acquire the shares of the target firm in a merger, after the record date, with the intention of petitioning for appraisal. In the ensuing appraisal proceedings, valuation experts for the petitioner and respondent are called on to testify as to their opinion of the fair value of the target. Upon hearing this evidence, which may include competing discounted cash flow, guideline public company and merger price less synergy analyses proffered by the experts, the Court of Chancery is to determine the fair value of the shares, taking into account all relevant factors.


In response to commentary regarding whether the conduct of appraisal arbitrage is consistent with the intent of the appraisal statute, the Corporate Council of the Corporation Law Section of the Delaware State Bar Association released legislation on March 16, 2016, that proposes to amend Section 262 of the Delaware General Corporation Law (DGCL). Under the amendments, Section 262, which governs appraisal rights, would be revised in two key aspects. The first would limit the right to bring an appraisal action against a publicly traded company if the interest was de minimis as compared to the number of outstanding shares or the value of the merger consideration, or structured as a short-form merger. The second would provide a means by which respondents could limit the accrual of statutory interest on appraisal awards.


The de minimis limitation provides that if immediately before the merger, the shares of the class, or series of stock, of the respondent corporation, were listed on a national securities exchange, the Court of Chancery may dismiss an appraisal proceeding unless (1) the total number of shares entitled to appraisal exceeds 1 percent of the outstanding number of shares in the class or series entitled to appraisal, (2) the value of the merger consideration for the total number of shares entitled to appraisal exceeds $1 million, or (3) the merger was accomplished as a short-form merger under Sections 253 or 267 of the DGCL. The rationale underlying the de minimis limitation is to preclude shareholders that have minimal holdings from demanding appraisal where the respondent may be willing to settle simply to avoid the costs associated with litigation, including discovery, retaining valuation experts and other burdens. Short-form mergers are exempt from the exception, however, as appraisal may be the only suitable remedy given that shareholder approval is not required using the structure.


The proposal to limit the accrual of statutory interest does so by giving respondent corporations the option of making an early payment. Implemented with the intention of simplifying appraisal proceedings and limiting the amount of time spent by the court, the parties and the experts in determining an appropriate rate of interest, the statute currently provides that unless the court finds otherwise, interest on the amount adjudicated to be fair value accrues at a rate of 5 percent over the Federal Reserve discount rate (including any surcharge), compounded quarterly, from the effective date of the merger through the date of payment of the judgment. By comparison, the Corporate Council amendment proposes that at any time before the entry of judgment, the respondent corporation may pay an amount in cash to each stockholder entitled to appraisal. Thereafter, the accrual of interest will be limited to the sum of (1) any difference between the amount of cash paid and the fair value of the shares, and (2) interest accrued up until the cash payment, unless paid at that time. Though the Council did not find empirical evidence to support the existence of interest arbitrage, the amendment is intended to address the concern that the statutory interest rate encourages the strategy given that the statutory rate has exceeded money market and government yields for some time.


If adopted by the General Assembly, the amendments to the statute would be effective for transactions closed under agreements entered into on or after August 1, 2016. Pending litigation would not be affected.


Keywords: expert witnesses, litigation, appraisal rights, valuation experts, fair value, statutory interest, interest arbitrage, Court of Chancery, Delaware General Corporation Law


Boris J. Steffen, RSM US LP, Washington, D.C.



March 31, 2016

SCOTUS Ruling Will Lead to More Daubert Challenges at Class Certification Stage


In its 6–2 decision on March 22, 2016, the Supreme Court in Tyson Foods v. Bouaphakeo (last visited Mar. 31, 2016) (hereinafter, Slip Op.) ensured that district courts will be forced to resolve the “battle of the experts” at the critical class certification stage. The key question addressed by the Supreme Court was whether statistical evidence was appropriately used in certifying a class of workers.


By way of brief background, employees of Tyson Foods who worked at a particular food processing plant brought a class action lawsuit seeking additional overtime pay for work-related “donning and doffing” their protective gear. Slip Op. at 2–3. The employees alleged that Tyson Foods did not pay them for that time resulting in underpayment of wages. Id. The company had not kept records for the time spent donning and doffing by employees. Id. at 5.As a result, employees used an expert to conduct a survey of donning and doffing time by employees at the particular plant for various tasks, and an estimate of the time was prepared. Id. Another expert for the employees used that information to derive an estimate of the uncompensated work for each employee. Id. at 5–6. Using that methodology, 212 of the 3,344 putative class members had no injury because the average donning and doffing time did not put them over the 40-hour threshold to qualify for overtime pay. Id. The company did not file a motion challenging the admissibility of this expert evidence under Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). Id. at 6. The class was certified and ultimately a jury verdict awarded $2.9 million in unpaid wages although the plaintiffs’ expert evidence called for a $6.7 million award in unpaid wages. Id. at 7.


The Supreme Court analyzed whether the statistical evidence enabled the employees to meet their burden of showing that common questions would predominate over individual issues under Federal Rule of Civil Procedure 23(b)(3). Id. at 8–9. The company argued that each employee must provide that the amount of time spent donning and doffing, when added to his or her regular hours, amounted to more than 40 hours in a given week, and that this necessitated “person-specific inquiries” that would predominate over common questions. Id. at 9–10. Moreover, Tyson Foods claimed that the plaintiffs’ statistical evidence “assum[es] away the very differences that make the case inappropriate for classwide resolution. Reliance on a representative sample, petitioner argues, absolves each employee of the responsibility to prove personal injury, and thus deprives petitioner of any ability to litigate its defenses to individual claims.” Id. The employees argued that individual inquiries were “unnecessary because it can be assumed each employee donned and doffed for the same average time.” Id. The Supreme Court concluded that “[w]hether this inference is permissible becomes the central dispute in this case.” Id. at 9.


In affirming the grant of class certification, the majority rejected “the adoption of broad and categorical rules governing the use of representative and statistical evidence in class actions.” Id. at 15. According to the majority, the “permissibility” of such evidence “turns not on the form a proceeding takes—be it a class or individual action—but on the degree to which the evidence is reliable in proving or disproving the elements of the relevant cause of action.” Id. at 10. The majority cited the Federal Rules of Evidence for relevant evidence (401), excluding relevant evidence for prejudice, confusion, waste of time, or other reasons (403), and testimony by expert witnesses (702). Id.


In this case, the Supreme Court concluded that the statistical evidence did not trump the company’s defense but, rather, the defense of the plaintiffs’ expert evidence being unrepresentative or inaccurate was “common” to the class. Id. at 12. Also, the Supreme Court distinguished its holding from Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011), where the “experiences of the employees … bore little resemblance to one another.” Id. at 14.


The Supreme Court thus limited its holding by stating that “[t]he fairness and utility of statistical methods in contexts other than those presented here will depend on facts and circumstances particular to those cases.” Id. at 15. Thus, it will be left to future class actions of all types and the district courts to assess whether and when—in the face of Daubert challenges—whether statistical evidence is admissible to support certifying a class. The admissibility of expert evidence will thus become even more crucial for parties and practitioners in the wake of Tyson Foods.


Keywords: expert witnesses, litigation, Tyson Foods, class certification, statistical evidence


Eric S. Hochstadt, Weil, Gotshal & Manges LLP, New York, NY



March 30, 2016

Allocation Still the Focus for Patent Damages Experts


Although the Supreme Court’s decision on allocation in cases involving design patents is not likely to be made for some time, the courts have repeatedly stressed the need to for allocation in cases involving utility patents. Recently, in BMC Software v. Servicenow, Inc., a case filed in the Eastern District of Texas, Judge Gilstrap once again reemphasized this point in a Daubert decision. In that decision he ruled that the expert’s testimony had failed to properly apportion BMC's patented features from the unpatented features of ServiceNow's “Click for Enhanced Coverage Linking Searches” products. The court stated that the 50 percent revenue reduction applied by BMC’s expert did not properly apportion the incremental revenue associated with the patents in suit and, therefore, the expert had not rendered a reliable opinion on the incremental value that the patented invention provided to the final product.


The court allowed BMC’s expert to supplement his opinion and stated that it would reevaluate the issue of whether the expert properly apportioned the patented features from the unpatented features after that supplementation. Following Ericsson (Ericsson, 773 F.3d at 1226), the court ordered that the expert’s supplementation must be presented in such a way that the jury would not be able to calculate the total revenues associated with ServiceNow's Click for Enhanced Coverage Linking Searches. The court stated that the 50 percent reduction of total revenues, for instance, must be generically presented as the amount identified as the amount at issue in the case and not as half of total revenues from ServiceNow's Click for Enhanced Coverage Linking Searches.


In its decision, the court referred repeatedly to the appellate decision in Ericsson v. D-Link. In that December 2015 decision, the Ericsson court vacated the jury’s damages award. In Ericsson the court admitted that “logically” an economist could apportion the patented features from the unpatented features in a number of ways—by adjusting the royalty base, by adjusting the royalty rate, or a combination thereof. However, while the court did state that an appropriately apportioned royalty award could be fashioned by starting with the entire value of a multi-component product, a jury may not be equipped to understand the role that the royalty rate would then have to take on in the apportionment equation. The concern is that the jury would be misled into overcompensating the patent owner, a concern that Judge Gilstrap has underscored in his decision in BMC.


Keywords: expert witnesses, litigation, utility patent, royalty, expert, allocation


Jennifer Vanderhart, FTI Consulting, Washington, D.C.



February 19, 2016

Data Processing and Hidden Assumptions


In data, as in life, there is no perfection. An area that can get overlooked in litigation is the pre-processing of raw data for use in downstream analyses. How fundamental data manipulation issues are resolved can be an important factor in determining the reliability of even the most sophisticated downstream statistical analysis.


There are three data issues that can arise: discontinuities or incompleteness; data that are themselves the result of a process rather than raw measurements; and (in time-series data) data periodicity mismatches.


1. Incompleteness and discontinuities. These can arise when a company has changed its accounting or operations tracking systems (e.g., from Oracle to PeopleSoft). The before-and-after cutover can produce discontinuities because account or tracking numbers change, and there may be no simple crosswalk between the two due to different methods in which the data are aggregated at the most fundamental level. The expert may conclude that pre-cutover data simply cannot be used because any reasonable splicing method will hide (e.g., aggregate relevant with irrelevant data) the data that is most relevant to the case. In other instances, splicing the two data series can be done without causing downstream problems, but counsel will still want to know how and why a particular splicing approach was used. Depending upon the nature of the discontinuity, the splice may be made in the downstream statistical analysis itself, such as using a dummy variable in a regression analysis to account for the discontinuity. The upshot is that counsel should understand what the options were to address a discontinuity, why a particular path was taken, and what the outcome would have been using an alternative approach.


It is not obvious when missing data, or records with incomplete fields, will cause a problem. One approach (and the default approach used by many statistical packages) is to drop incomplete cases. But dropping incomplete cases can produce potentially misleading results if the remaining records do not represent the characteristics of the population. For example, if survey responses were submitted by one class (e.g., men) and not by another (e.g., women), but the topic of interest included men and women, the data would not be representative. An expert will have to decide (possibly in consultation with company subject-matter experts) whether to splice, interpolate, or impute observations for the missing data—and what approach is optimal as applied to the facts of that case.


2. Data that are a result of process rather than raw measurements. These may also create issue in situations such as accounting data, in which data may be plant value accounts and are not direct measurements of a physical process or of an economic transaction. They are instead accounting constructions based on accounting principles and rules. This might be fine for some analyses, but not others. For example, an expert may conclude that a firm happens to be worth its book value, but this conclusion is the outcome of his or her analysis involving various tests and the use of market-based data, and would not be based on the accounting data except as an input into that analysis.


3. Periodicity mismatches. These may occur when some data, such as the book data on plant accounts, are available quarterly, yet the more relevant analysis is monthly. The expert may seek to create a monthly variable via interpolation methods. Whether or not this is a good idea depends on the structure of the downstream analysis and on the output of interest. If the important output is a point estimate and if the interpolated variable would (in real life) be expected to evolve in a way that is reasonably characterized by the interpolation, its use may be okay. Interpolated data could affect the statistical significance in unanticipated ways relative to the result that would occur were monthly data actually available.


Downstream statistical analyses can command attention because this is where the estimate of the variable of interest to the litigation is actually produced. The upstream data pre-processing step can be as important to the determination of the end result as the analysis itself. It is important to understand how the experts addressed tricky data issues, and how use of alternatives would have affected the results of the analysis.


Keywords: expert witnesses, litigation, downstream data, data processing, downstream statistical analysis


Frank Pampush, PhD, CFA, Navigant Economics


Navigant Consulting is Litigation Advisory Services Sponsor of the ABA Section of Litigation. This article should not be construed as an endorsement by the ABA or ABA Entities.


January 27, 2016

Use of Multiple Experts in Civil Engineering Cases


This piece was inspired by an article written by Weston Anson, published May 2013, in the GPSolo e-report on the ABA website. The article, entitled “The Multiple Roles and Types of Experts,” focused on IP and related business/financial issues, but for cases involving civil engineering problems, there is a varied perspective.

For the litigation team, an important initial step is to determine what types of expertise are needed and whether a consulting expert would be beneficial in addition to a testifying expert(s). Another important question is when should they be hired? For civil engineering related cases, once the case becomes valid, at least the primary expert should be hired in order to better understand the engineering issues. This would be especially true if the damage is ongoing on a construction site.

In most cases there is valuable factual evidence which can be collected firsthand which would be otherwise missed or not accurately collected, thus leaving you to rely on second-hand data. Furthermore, this hired expert will likely be able to provide advice early on in the case, such as what other experts will be required and when. It is important at this time to consider those hired specialists, at least initially, as consulting experts. This will allow for flexibility of hiring a different testifying expert(s) at a later time depending upon how the case progresses. Since consulting experts do not testify they cannot be subject to Daubert Challenge. Moreover, the early hiring of the consulting (primary) expert, in lieu of having a 30–45 day or less deadline to formalizing opinions, can provide valuable insight into understanding the various aspects and merits of the case. Finding out later unknown aspects of the case results in “swimming upstream” and exposure to lack of sufficient investigation and preparation.

In civil engineering cases, contracting consulting expert(s) from the beginning can be a tremendous help with fact discovery, including determining what discovery requests should be made through interrogatories, subpoenas, or fact depositions. Missing areas of discovery can result in incomplete expert investigations. At times, the chosen testifying expert (because of his past experience with the project) is later found not adept at the litigation process. As soon as this is discovered, it would be most beneficial to hire a consulting expert to assist him and potentially augment his testimony. This person can even exist in the same firm with the advantage of increased continuity and communication level.

In civil engineering related cases, there are typically two types of experts. These types specialize in either the technical (causation), or the damage claim (effect) aspect of the problem. In the technical area, the disciplines which can be involved may include general civil, hydrologic, environmental, transportation, geotechnical, and structural engineers. For damages, experts can be related to various types of contractors or estimators for ground, foundation, and building damages, or those who specialize in construction problems, such as delays or added costs. Moreover, within these disciplines, the expertise required may need to be further refined to the specific case conditions.

In cases of significant size, multiple technical (knowledge) and damage experts will likely be required. For example, geotechnical engineers would work with foundation damage experts, while the structural engineer on the same case would work with the building repair contractor. It is not unusual to find a technical expert who also specializes in damage aspects of the case.

As a final note, it is important to consider, when there is a multi-disciplinary team of experts, that all should be sufficiently informed of each other’s work and of the data collected to ensure that it is incorporated into their investigations.

Keywords: expert witnesses, litigation, civil engineering, technical expert, damage claim expert

Gennaro G. Marino, Marino Engineering Associates, Inc., St. Louis, MO


December 18, 2015

10 Tips for Posturing Your Case for Successful Daubert Challenge


Litigators file hundreds of Daubert motions every year. Appellate courts frequently affirm trial court rulings on them. The high rate of affirmance stems from the deference given to trial court Daubert decisions. Trial courts will get it right the first time if you follow this tried-and-true checklist.


  1. 1. Scour Scientific Literature
  2. “The courtroom is not the place for scientific guesswork, even of the inspired sort. Law lags science; it does not lead it.” Rosen v. Ciba-Geigy Corp., 78 F.3d 316, 319 (7th Cir. 1996). Peer-reviewed literature helps to define the boundary between admissible testimony and unscientific guesswork. Scouring the scientific literature up front is the best way to find that boundary and gain insight into the appropriate methodologies employed by knowledgeable experts in the field.


  3. 2. Scour the Expert’s Published Literature
  4. Scientific literature published by the expert offers ammunition for a successful Daubert attack. “The ultimate test of a scientific expert’s integrity is her readiness to publish and be damned.” Daubert v. Merrell Dow Pharms., Inc., 43 F.3d 1311, 1318 (9th Cir. 1995) (quotations omitted). When experts publish, they must adhere to rigorous standards of scientific integrity that prohibit unfounded conclusions—their litigation opinions should be held to the same standards. Knowing what the expert has and has not written and published will better equip you to challenge the testimony.


  5. 3. Apply Governing Law
  6. Work within the framework established by your judge, your district, and your circuit. E.g., United States v. Nacchio, 608 F. Supp. 2d 1237, 1252 n.23 (D. Colo. 2009) (“A very homely, and admittedly imperfect analogy that I routinely use is that an opinion is the witness’s end product. It is like a ‘cake’” that needs a baker (qualified expert), recipe (methodology), and ingredients (facts and data).). When a judge articulates an approach, ignore it at your peril.


  7. 4. Exploit the Manual on Scientific Evidence
  8. The Manual on Scientific Evidence, now in its third edition, contains chapters, or “reference guides,” on a variety of topics commonly the subject of expert testimony. Available on the Federal Judicial Center’s website, www.fjc.gov, the manual educates judges on topics within the Daubert context. The judge deciding your motion will refer to the manual—you should too.


  9. 5. Exploit the Expert’s CV
  10. Experts routinely fill their CVs with memberships in professional organizations. Most organizations have their own standards members should follow. Disregarding those standards without good reason casts doubt upon the scientific integrity of the expert’s work. Experts can hardly assert that they have employed scientifically rigorous analysis when they disregard the principles of their own organizations.


  11. 6. Question Opinions Expressed with Absolute Certainty
  12. Daubert cautions that nothing in science is known with absolute certainty. When experts proclaim knowledge of something with certainty, but the scientific knowledge does not share that certainty, they expose themselves to the criticism that their testimony is unreliable. What’s good for the goose is good for the gander—the need for scientific integrity applies to everyone’s experts.


  13. 7. Narrowly Focus Daubert Challenges
  14. Why challenge an expert’s qualifications when the expert is qualified enough to meet the liberal qualification standard of Rule 702? Instead, use the expert’s strengths to your advantage. An expert who is highly credentialed and degreed should know better than to state opinions formed unreliably and unsupported by the available scientific knowledge.


  15. 8. Remember Daubert Factors Are Guidelines, Not Rules
  16. The Daubert factors—testing, peer-review and publication, rate of error and existence of standards, and general acceptance—are guidelines for assessing scientific reliability and relevance, not hard and fast requirements that all testimony must satisfy in every case. Resist the temptation to shoehorn all Daubert reliability criteria into your argument when one or more of them may not apply.


  17. 9. Consider Applicable State Law
  18. State law plays a role in the Daubert analysis, particularly when the party relies upon the expert’s testimony to meet the burden of proof. Daubert challenges must consider state law on burden of proof and sufficiency. If the testimony does not satisfy those burdens, it is not relevant and, in the words of Daubert, probably does not fit.


  19. 10. Evaluate Each Step in the Expert’s Analysis
  20. Unreliability in any step of the expert’s analysis can render the testimony inadmissible. Scrutinizing each step in the expert’s analysis will strengthen the argument for exclusion.


Following this checklist will help focus the issues for the trial court, increase the chances of success on any Daubert motion, and preserve the trial court’s favorable ruling on appeal.


John D. Sear, Bowman and Brooke LLP, Minneapolis, MN. Reprinted in shortened form with permission from the February 2010 issue of LJN’s Product Liability Law & Strategy, ©2010 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.


October 28, 2015

Disclosure of Metadata


Electronic discovery raises important issues particularly for production of expert witness work product. Should the original file be modified to include only the most relevant information? Should the file size be reduced either by eliminating extraneous information or by flattening the file? Should the file be produced in a format other than its native format? Another important issue is the redaction of the metadata.


Metadata provide information such as when was the file created, who created it, when was it last modified, and so forth. It is automatically created by the operating system and the application used. Although many times such information seems innocuous, metadata can contain information demonstrating, for example, when data was entered into a database and who entered it. Such information can be critical in product liability cases. Other data, such as modifications to a file just before it was produced, can make a deposition more difficult for an expert witness.


Christian Dodd from Hickey Smith presented a primer for experts and attorneys on metadata that was published on Law 360, “Metadata 101 For Lawyers: A 2-Minute Primer.” He recommends four issues that experts and attorneys need to consider.


First, be informed about the metadata that are contained in all files that may be discovered.

Second, understand the ways that metadata can be removed from a file prior to production. However, any modifications made to the file after the metadata are removed introduce new metadata into the file. Thus, the removal process must be repeated after all modifications are made to the file.

Third, if the metadata contain information that is critical to the issues in a case, then preserving the data may be essential. Further, destruction of the information after its importance is understood can potentially lead to sanctions.

Fourth, the safest approach is to resolve as part of discovery negotiations whether metadata can be deleted or must be preserved.


Keywords: expert witnesses, litigation, electronic discovery, metadata, Christian Dodd


Victoria Lazear, Cornerstone Research, Menlo Park, CA


October 13, 2015

Preventing Friendly Fire


Expert witnesses are retained to assist the court by applying appropriate skill and care to the case evidence and make sense of it. Often, an expert’s methodology and delivery are the key ingredients to a favorable outcome; however, lacking the proper level of care and attention could result in equally unfavorable outcomes. The question becomes, is there any legal recourse if an expert does not abide by the duty of care and is negligent in his or her services? The short answer (as expected) is, “It depends.” To make an assessment, the court and the plaintiff (i.e., counsel and/or the client who hired the expert) must make separate, yet sequential, evaluations:


  1. The court must determine that the witness immunity doctrine does not apply.
  2. The plaintiff must prove that (a) the expert breached a duty owed, and (b) the breach of that duty was the proximate cause of some actual loss or damage.


The plaintiff’s burden of proof will be unique to each case and is outside the scope of this analysis. However, identifying which courts have decided to forego witness immunity for friendly experts (as opposed to adverse experts) provides valuable insight. Seven of the eight states that have heard cases involving lawsuits against friendly expert witnesses have determined that friendly experts are not entitled to immunity. As such, the courts have determined that allowing friendly experts to be liable for negligence is in the best interest of the judicial system:

“Properly viewed, however, the roles of ‘hired gun’ and servant of the court are not necessarily incompatible. In reality, the expert retained for litigation is hired to present truthful and competent testimony that puts his client's position in the best possible light. The expert witness's oath, the heat of cross-examination, the threat of a perjury prosecution, and, not least, the expert's professional ethics code all serve to limit the feared excesses of an expert subject to malpractice liability. (Case No. 2001-CQ-1106, Supreme Court of Louisiana, 2002)


“…by definition, expert witnesses retained by a party are not objective witnesses. They have no personal knowledge of the facts of a case. They are retained by a party to assist that party in advocating its position. Moreover, the existence of liability will, in my view, encourage experts to be more careful and thorough resulting in more accurate, reliable testimony.” (Case No. 99-1868F, Superior Court of Massachusetts, 2001)


At its core, there is a dual pressure on experts—they must clear Daubert motions from opposing counsel, while recognizing the distinct possibility that their own client could bring civil action against them for malpractice. This risk should serve as added motivation for experts to set expectations early with counsel, formulate an objective and thorough opinion, and follow through on those commitments.


Unfortunately, that is not always the case. Similar to cases in which an expert is the critical component to a favorable judgement, there are a number of situations in which the court’s decision hinged on an unreliable and/or ineffective witness during deposition or trial testimony:


In a 2014 California Appellate decision, the Court refused to base its ruling on the Plaintiff’s accounting expert, citing: "[d]uring the hearing the court was compelled to take two recesses so that [the accounting expert] could rework his accounting calculations, which had been based on incorrect information. At one point the court had to point out where he had erred in his calculations. The court finds [the] expert testimony not reliable…” (Case No. B253593, Court of Appeal of California, 2014)


In a 2010 United States Court of Appeals product liability case, the Court did not accept the methodology and basis of a qualified expert’s opinion based, in large part, to the differing accounts offered by Counsel and his friendly expert: “[Counsel] lists seven additional articles and studies that he contends [the expert] relied upon in reaching his conclusion…a review of [the expert’s] deposition testimony shows that he mentioned one article…” (Case No. 09-13813, United States Court of Appeals, 2010)


To mitigate these unexpected and unwanted outcomes, the underlying theory of doing the right thing for the client must be at the foundation for all representative parties. Attorneys should hire the right expert for the case, communicate expectations clearly, and properly prepare the expert for testimony. Similarly, experts should intimately understand the case in which they are testifying, anticipate objections from the other side, and effectively communicate the basis for their opinions. This recipe will provide your client an aligned legal team and should manage to keep your expert friendly and not on the other side of the aisle.


Keywords: witness, expert witness, litigation, friendly expert, malpractice, witness immunity, duty of care, Daubert


—Alex A. Koltsov, Grant Thornton, LLP, Phoenix, AZ


September 8, 2015

Guidance Offered Regarding Permissible Expert Testimony in Pharmaceutical Labeling Actions


With the growing number of lawsuits filed against Eli Lilly and Company surrounding its antidepressant Cymbalta, the U.S. District Court for the Central District of California issued an important ruling regarding the expertise needed by witnesses to testify about the adequacy of pharmaceutical labeling. In Hexum v. Eli Lilly & Co., Judge Wilson offers guidance on the limitations placed on experts in pharmaceutical-based products liability actions. No. 2: 13-cv-02701-SVW-MAN2015, U.S. Dist. LEXIS 106153, *1 (C.D. Cal. Aug. 10, 2015).


Erin Hexum and her husband brought suit against Eli Lilly based on its alleged failure to warn about the risks associated with the discontinuation of Cymbalta. Eli Lilly moved to exclude testimony of two experts, Dr. Joseph Glenmullen and Dr. Louis Morris. Judge Wilson struck parts of the experts’ reports and limited their testimony to their specific areas of expertise.


Dr. Louis Morris
One of the experts offered by the plaintiffs, Dr. Morris, a social scientist, offered opinions regarding the adequacy of Cymbalta’s label. Dr. Morris worked at the FDA for more than twenty years and held prominent positions such as Acting Director of the Division of Drug Advertising and Labeling and Chief of the Drug Research, Education, and Labeling Branch. His primary responsibilities involved evaluating consumer-oriented advertising materials. Dr. Morris sought to testify as to whether the Cymbalta label was inconsistent with FDA guidance, if Eli Lilly could have altered the label to more accurately reflect information published in a 2005 medical journal, and whether the label was misleading to physicians. Dr. Morris described his methodology as the same process he used at the FDA for determining whether promotional materials were misleading.


Judge Wilson held that Dr. Morris was unqualified to opine about the accuracy of Cymbalta’s labeling under FDA guidance. Judge Wilson stated, “Plaintiffs still fail to show that Morris’s conclusions are the result of reliable methods reliably applied. The FDA relies on analysis of this type performed by experts with significant training and experience. Morris is a social psychologist with substantial regulatory experience. He is not a clinical psychologist and has never prescribed medication to patients.” Id. at *20–21 (citation omitted). He continued, “Moreover, Morris does not claim that the FDA typically reviews published articles summarizing and analyzing raw data rather than the raw data itself. Thus, to the extent that Morris seeks to opine regarding whether Cymbalta’s label adequately represents the data submitted to the FDA under the FDA’s own guidelines, he fails to show that he followed the FDA’s process of comparing the data to the label.” Id. at *21–22. Therefore, Dr. Morris’s experience evaluating promotional materials did not qualify him to testify regarding the adequacy of labeling directed towards physicians. His lack of experience as a prescribing doctor also rendered him incapable of opining whether the risks of potential side effects were adequately disclosed.


Dr. Morris also opined that Cymbalta’s label, which stated “the following symptoms occurred,” implied that the listed symptoms occurred in the aggregate, and not that each of the symptoms occurred individually. This testimony was also struck because “Morris is not a doctor and has not studied doctors’ interpretations of Cymbalta’s label.” Id. at*24. Judge Wilson limited the scope of Dr. Morris’s testimony to opinions regarding the FDA’s general procedures and regulations, and only in rebuttal to Eli Lilly’s defense-in-chief.


Dr. Joseph Glenmullen
The plaintiffs also offered the testimony of Dr. Glenmullen relating to the label’s adequacy, veracity, and tendency to mislead, as well as Eli Lilly’s corporate conduct. In his expert report, Dr. Glenmullen discussed the adequacy of Cymbalta’s label in light of the prescribing habits of physicians. He specifically opined that “doctors rarely have the time to conduct their own research” and that “treating physicians rely on the label as the ultimate authority on a drug’s safety and efficacy.” Id. at*8–9. He further opined that Eli Lilly obscured the results of its clinical trials by publishing the results in a medical journal “not widely read in the United States” and that physicians who were aware of the published clinical trials would credit the drug label over the journal article.


Judge Wilson excluded these findings under Federal Rule of Evidence 702, holding that they lacked support; Dr. Glenmullen had not cited any relevant authority or study in support of these opinions. Dr. Glenmullen’s experience prescribing antidepressants was insufficient on its own to meet the requirements of Rule 702.


Despite the lack of support for some of Dr. Glenmullen’s specific findings, the court denied Eli Lilly’s motion to exclude his complete testimony. Judge Wilson concluded that his experience as a clinical psychiatrist and in academic writing about antidepressant withdrawal rendered him a qualified witness. Therefore Dr. Glenmullen could testify about general causation (i.e., whether Cymbalta could cause discontinuation symptoms) and the nature of those symptoms. Furthermore, as a clinical psychiatrist, he could opine as to whether the label adequately reflected the available data. He could not, however, “speculate regarding what would have happened in a given study if a different methodology [] were used.” Id. at *11. He was also barred from discussing Lilly’s corporate conduct as beyond the scope of his expertise.


Judge Wilson’s opinion is an example of a court exercising its role as “gatekeeper” by preventing testimony outside of a witness’s specific area of expertise. Judge Wilson makes clear that an expert’s qualification to testify about a specific issue in the case does not grant broad discretion to offer opinions that are void of relevant support or methodology. Going forward, counsel should be diligent to insulate their experts from challenge by ensuring their experts remain within the scope of their claimed expertise. Opposing counsel should be cognizant of opposing experts’ scope of expertise. In addition, counsel should—as they should for their own submissions—ensure their experts have support for their claims and opinions.


Keywords: expert witnesses, litigation, Cymbalta, Eli Lilly, scope of expertise


Lucas Michelin, Drinker Biddle & Reath LLP, Philadelphia, PA


September 8, 2015

Preparing Your Expert for Cross-examination


Law360 recently published two articles (Law360 subscription login required) reminding attorneys that an important part of trial strategy is to not forget about preparation for cross-examination of an opposing expert. With this reminder fresh in the minds of your opposition, it’s important to prepare your own expert for some of the tactics that may be deployed against them during cross-examination. These preparation strategies are particularly important if you’re working with a newer expert or someone who doesn’t act as an expert witness on a regular basis (such as an academic).


Remind your witness to keep a calm demeanor in the face of cross-examination. Both articles heavily advocated for a cross-examining attorney to try to get the expert witness to lose his or her temper on the stand. They suggested that this could make the witness appear hostile or lead the jury to question the expert’s impartiality.


Encourage your expert to carefully consider each question that is being asked and respond appropriately without getting caught on a roll. Both of the Law360 articles suggested leading the witness down a path of questioning where the expert would be inclined to repeatedly answer “yes,” and then ask a question the expert might normally answer negatively. The articles suggested it could throw the expert off to have to answer “no” after a long series of “yeses.”


Trying to trip up an expert by appearing to agree with viewpoints contrary to the expert’s own opinion was another tactic suggested by the articles. As before, prepping your expert to take time to mentally evaluate each question before answering will also help her or him to avoid accidentally agreeing with something contradictory to their original opinion. This is particularly important if the cross-examining attorney attempts to lead your expert down a path of hypothetical scenarios.


Finally, be aware of any information that may support your opposition’s stance or any potential weaknesses in your expert’s testifying history. Another stratagem suggested in the articles was for an attorney to try to highlight these potential pitfalls during cross-examination, so it is imperative that your expert be prepared to address and de-emphasize conflicting information.


Keywords: expert witnesses, litigation, preparation, cross-examination, testimony


Lindsey Dean, Veris Consulting, Inc., Reston, VA


September 8, 2015

Tips for Young Lawyers: Patent Infringement and Design-Around Solutions


There are often gray areas in determining damages resulting from the infringement of a patent in litigation when damages are based upon a design-around solution. This is in part because infringement can vary depending upon the number of claims found to be infringed upon and how broadly or narrowly they are defined by the court during the claim construction process. A design-around solution refers to whether a viable alternative exists to avoid infringing the patent at issue.


To put forth a successful patent damages calculation based upon a design-around solution that withstands the scrutiny of the court, a damages expert should work with technical experts and counsel to understand the scope and reach of the asserted claims. With the assistance of counsel, a damages expert should engage with the technical expert early on in discovery to gain insight on claim construction that may ultimately affect a damages expert’s findings. Additionally, a damages expert should maintain this communication with the technical expert and counsel throughout the duration of the case and leverage this line of communication as the case, and the interpretation of the asserted claims, potentially evolves.


Understanding the scope and reach of the asserted patent claims assists the damages expert in determining if a design-around solution is feasible and, if so, what changes would need to be made to an accused product to avoid infringement of the patent-in-suit. For instance, assume a patent infringement complaint consisted of ten asserted claims, and the court has yet to rule on whether all ten asserted claims will remain in the case. A damages expert in this situation may want to initially assume that all ten claims are infringed upon and work with the technical expert to establish a ceiling on damages. Later, if only three of the ten claims survive the claim construction ruling and it is determined that the remaining claims only marginally contribute to the functionality of the product that embodies the patent-in-suit, a damages expert can potentially adjust the initial damage figure with input from the technical expert to reflect the court’s ruling.


The patent holder and plaintiff’s counsel rarely advance design-around solutions; rather, they typically take the position that there are no acceptable design-around alternatives to the asserted claims at issue. Nevertheless, a damages expert should confirm by discussion with the technical expert that this is in fact the technical expert’s opinion before relying upon it.


Defense counsel may be reluctant to have its damages and technical experts interface during the course of a litigation. Typically, counsel for an accused infringer retains a technical expert to address patent invalidity, unenforceability, and/or non-infringement. However, the underlying assumption regarding infringement when determining damages in general and when quantifying damages based upon a design-around solution specifically, is that absent infringement, there are no damages and no need to design around any of the claims asserted by the patent holder. Hence, by asking a technical expert to entertain potential design-around solutions, defense counsel may believe that it runs the risk of undermining its position that the patent is not valid, enforceable, or infringed. For instance, counsel may be concerned that the trier of fact would conclude that even the defendant’s own technical expert believed that some form of infringement occurred—as evidenced by a design-around solution he vetted with the damages expert—which would not be needed absent infringement. To address these concerns, it is important that a technical expert’s opinions regarding invalidity, unenforceability, and/or non-infringement be appropriately differentiated from his or her opinions pertaining to a design-around solution and are accordingly communicated to the trier of fact as a fallback position only if there is a finding of liability.


Whether working on behalf of a plaintiff or a defendant, counsel should facilitate communication between the damages and technical experts early on in a litigation matter in order to formulate cohesive opinions that do not undermine one another. Additionally, the parties should collectively communicate often throughout the duration of the case as the facts and circumstances specific to the matter evolve, especially in light of a court’s ruling on claim construction.


Keyword: expert witnesses, litigation, design-around solution, patent infringement, technical expert, damages expert


James E. Pampinella and Alexander Sinai, Navigant Consulting, San Francisco, CA


Navigant Consulting is a corporate sponsor of the Section of Litigation. Neither the ABA nor ABA entities endorse non-ABA products or services. This article should not be construed as an endorsement.


August 10, 2015

"Battle of the Experts" Results in Denial in "Pay-For-Delay" Lawsuit


On June 10, 2015, the U.S. District Court for the Eastern District of Pennsylvania denied class certification to End Payor plaintiffs in In re Modafinil Litigation. The End Payor’s case is Vista Healthplan, Inc. v. Cephalon, Inc., No. 2:06-cv-1833, 2015 WL 3623005 (E.D. Pa. June 10, 2015). In an opinion that closely examined competing expert testimony, the district court held that the plaintiffs had failed to establish the Rule 23 requirements of ascertainability and predominance.


The plaintiffs sued Cephalon, the maker of anti-narcolepsy drug Provigil, and four generic pharmaceutical companies claiming that settlements of patent infringement lawsuits resulted in $2.5 billion in overcharges to purchasers of Provigil or its generic equivalent because Cephalon paid the generics to stay off the market. The prospective End Payor classes included consumers and third-party payors, such as health insurance plans. However, the classes excluded eight groups of purchasers, including insureds covered by plans with flat copays, “brand loyalists” who only bought branded Provigil even after generics were available, and insureds who purchased only generic modafinil pursuant to a fixed copay.


The plaintiffs’ economic expert opined that a methodology comparing the price for branded and generic Provigil, and what the prices would have been if generics entered the market earlier, demonstrated the plaintiffs’ claims could be satisfied through proof at trial common to the class. The defendants’ economic expert opined that significant variations in the industry—contracts between health insurance plans and insureds, pharmacies, and drug manufacturers, as well as the various class exclusions—required individualized inquiry, making certification inappropriate.


The district court concluded that identification of the proposed End Payor classes would require extensive individualized fact-finding. The plaintiffs argued their classes were well-defined with clear exclusions and that comprehensive records of Provigil purchases could easily be obtained from available data. But the district court concluded that the plaintiffs’ evidence of such information was lacking. For example, the district court cited the testimony of the plaintiffs’ expert that “[he] ha[d]n’t been asked to” identify the class members and that he could verify that they belonged in the class “when class members come forward with their claims.” Vista Healthplan, 2015 WL 3623005, at *10. The district court disagreed with the plaintiffs’ argument that this was more appropriate during damages allocation. Further, the district court noted the “rigorous” nature of the ascertainability requirement in the Third Circuit and did not find persuasive a recent ruling by the First Circuit in In re Nexium Antitrust Litigation, 777 F.3d 9, 20 (1st Cir. 2015), where class certification was granted in a “pay-for-delay” case notwithstanding there was no methodology for distinguishing between injured and uninjured class members.


The district court also found the plaintiffs had failed to show that common evidence of injury would predominate over individual questions. For example, the district court concluded that the plaintiffs’ numerous categories of uninjured purchasers—for example, “brand loyalists”—could not be identified with common proof. Every class member’s purchasing history and insurance plan would need to be reviewed. The district court disagreed with the plaintiffs’ expert that a de minimis number of class members were uninjured, but also did not believe it was as high as the defendants’ expert estimated at 17 percent. The district court cited the plaintiffs’ expert testimony that “[y]ou have to look at individualized records … for a number of consumers” as evidence that an individualized analysis would be required. Vista Healthplan, 2015 WL 3623005, at *19.


Nevertheless, the district court disagreed with the defendants that the plaintiffs failed to demonstrate predominance with respect to common proof of damages. The plaintiffs’ expert used yardsticks—data compiled from generic launches of similar drugs—to calculate rates of substitution and pricing in the “but for” world absent the challenged anticompetitive conduct. He also considered data derived from the real-world launch of generic Provigil. Citing Behrend v. Comcast Corp., 133 S. Ct. 1426 (2013), the defendants claimed that questions of individual damages calculations would overwhelm questions common to the class. The district court disagreed, finding the methods used by the plaintiffs’ expert to be acceptable.


While the litigation is ongoing, the decision demonstrates the major role that the ascertainability requirement can play at class certification. At least in the Third Circuit, the plaintiffs should be prepared to submit actual evidence, including expert testimony, to demonstrate ascertainability of the proposed class. The ruling also shows the importance of expert testimony as to whether or not there is common proof of injury or the proposed class contains a meaningful number of uninjured class members.


Keywords: expert witnesses, litigation, End Payor, Cephalon, Provigil


Eric S. Hochstadt, Weil, Gotshal & Manges LLP, New York, NY, and Dan Antalics, Weil, Gotshal & Manges LLP, Washington, D.C. The views expressed in this article are solely those of the authors.


July 6, 2015

District Court Limits Expert Testimony for Rendering Legal Conclusions


A major concern for any expert testifying as to due diligence, proper disclosure, or comportment with industry standards, is having his or her testimony excluded for invading the province of the judge. An expert witness usurps the court’s function by defining the applicable law; it is for the judge and not the expert witness to make that determination and to instruct the jury appropriately. However, the line between permissible and impermissible testimony in these cases is often blurred. The United States District Court for the District of New Jersey faced these issues recently in Krys v. Aaron; No. 1:2014-cv-02098, (D.N.J. June 12, 2015).


A central issue in Krys was whether defendants were involved in or knew that a hedge fund’s excess cash was not segregated from the defendants’ other holdings. The plaintiffs’ expert, a law professor, opined on the regulatory requirements and industry practices regarding segregation in general and as applied to this case. In particular, the expert opined first, that certain statutes, regulations, and contract provisions entitled the plaintiff to have its excess cash segregated; and second, that the “[d]efendants’ ‘many’ egregious violations, ‘especially when viewed in their totality in the circumstances of this case constitute a knowing fraud, breach of fiduciary duty and trust, and conversion.’” Krys, slip op. at 16.


The court found that the expert had invaded the court’s province by making impermissible legal conclusions, including “rendering a legal opinion concerning whether various agents of [defendants] complied with their obligations under federal securities law.” Id., slip op. at 14, emphasis removed. However, rather than strike the expert’s report in its entirety, the court sought “to better define [sic] the line between permissible testimony on ultimate issues and an impermissible legal opinion.” Id., slip op. at 15.


The court began by noting that Federal Rule of Evidence 704(a) specifically permits an expert to proffer testimony that “embraces an ultimate issue to be decided by the trier of fact.” Id. Were this not the case, “the factfinder might be left hanging if the witness [could not] cap off the testimony with a conclusion about the ultimate issue to which the expert is testifying.” Id. However, this rule (sometimes referred to as “the ultimate issue rule”) does not permit an expert to instruct the jury as to what result to reach. As the court noted, the advisory committee’s notes to FRE 704(a) provide an example: “[A]n expert may not render any ultimate opinion concerning, for example, whether a specific party had ‘capacity to make a will,’” but may offer an opinion concerning whether that party had “sufficient mental capacity to know the nature and extent of his property and the natural objects of his bounty and to formulate a rational scheme of distribution.” Id., slip op. at 16. The Krys court further explained:


Taken together, these authorities therefore instruct that any qualified expert … may provide an opinion on whether a party’s conduct or actions meet the underlying bases for an ultimate issue in a case (by, for example, testifying concerning whether certain acts would in the abstract be improper and/or inconsistent with a party’s legal duties), but may not merely instruct the jury on the result to reach based upon a party’s specific conduct or actions (by, for example, stating that a party did indeed violate an applicable duty through certain actions). Id., slip op. at 17.


Applying these rules to the dispute before it, the court excluded the expert’s testimony “to the extent he reaches the specific conclusion that any the defendant acted in compliance with and/or in violation of applicable legal duties or segregation requirements.” Id. However, rather than excluding the expert’s entire report, the court allowed the report “[w]ith appropriate redactions, [because the expert’s] proposed testimony will be helpful to the jury in assessing the underlying conduct in this case.” Id.


Keywords: expert witnesses, litigation, Krys v. Aaron, expert testimony, province of judge, Federal Rule of Evidence 704(a)


Mark A. Allen, Cornerstone Research, Menlo Park, CA


June 28, 2015

Proposed Expert Testimony in Refco Limited under Federal Rule of Evidence 702


Refco, Inc. (Refco) was a New York-based financial services company doing business as a broker of commodities and futures contracts. One of Refco’s customers was SPhinX Ltd. (SPhinX), a global hedge fund comprised of seventy Cayman Island funds, one of which, SPhinX Managed Futures Fund (SMFF), maintained brokerage accounts with Refco’s onshore and offshore affiliates. Over the course of litigation to recover damages for breach of fiduciary duty subsequent to Refco’s bankruptcy in October 2005, counsel for the parties filed motions to exclude the testimony of each other’s experts based on the qualifications, reliability, and fit requirements of Federal Rule of Evidence 702.


The defendants’ motion to exclude the testimony of the plaintiffs’ CFTC and CEA expert was granted in part and denied in part, as was the plaintiffs’ motion to exclude the testimony of the defendants’ rebuttal expert. In both cases, the court excluded testimony deemed to constitute legal opinions. Background testimony concerning the futures industry, account segregation issues, and the industry customs and practices during the relevant time frame was allowed, however.


The court rejected the defendants’ “effort to recalibrate” the plaintiffs’ valuation expert’s testimony to recover damages as the report clearly related only to the valuation of PlusFunds Group, Inc. (SPhinX’s investment advisor). The court also found the defendants’ challenges to the bases of the plaintiffs’ expert’s report to relate to weight rather than admissibility, and that the issues were therefore appropriately handled through cross-examination rather than by exclusion of otherwise relevant and reliable valuation work.


The court found the defendants’ damages expert’s consideration of events subsequent to PlusFunds Group, Inc.’s failure, including financial market conditions in 2008–2009, did not cause the expert’s opinion to be unreliable. Further, the court concluded that the expert’s professional certifications, experience providing expert testimony and in bankruptcy matters supported his opinion that the plaintiffs’ could have achieved a larger recovery through Refco’s bankruptcy proceeding. Lastly, the court held that the expert’s reliance on the plaintiffs’ expert’s assumptions to support certain opinions absent any independent analysis went to the weight of his testimony and not its admissibility since the assumptions had sufficient foundation in the record, and could be challenged through cross-examination.


The defendants’ motion to exclude the testimony of the plaintiffs’ expert regarding the defendants’ knowledge of Refco’s failure to segregate SMFF’s cash was granted in part and denied in part. The court excluded portions of the plaintiffs’ expert’s testimony that opined as to the defendants’ state of mind and/or subjective intent, as well as testimony it found to be inadmissible legal opinion. The court did allow testimony concerning industry practices, however, reasoning that while an expert must have specialized knowledge in the area of testimony, that knowledge does not have to be from formal academic training and professional credentials. Rather, the specialized knowledge may be acquired from practical experience that equips the expert at a minimum with “skill or knowledge greater than the average layman.”


The plaintiffs’ motion to exclude the defendants’ expert’s testimony concerning the practices of fund administrators was denied. In doing so, the court rejected the plaintiffs’ arguments that the defendants’ expert’s testimony contained improper and/or unsupported “findings of fact and conclusions of law.” The court found rather that the plaintiffs’ argument relied entirely on an abbreviated overview contained in the executive summary of the expert’s report, and that the substantive sections of the report provided in-depth analysis of the bases for the expert’s opinions, supported by detailed citations to the record along with his perceptions of industry practices.


The defendants’ motion to exclude the testimony of the plaintiffs’ expert regarding audit and advisory services provided to Refco was granted in part and denied in part. The argument made by the defendants’ was that the plaintiffs’ expert should be precluded from testifying with respect to any of the SMFF financial statements because the defendants’ did not prepare the statements or the accompanying footnotes. Further, the defendants’ argued that at a minimum, the plaintiffs’ expert should not be allowed to testify regarding SMFF’s 2002 financial statement since it was not referred to in his report.


In the latter case, the court granted the defendants’ motion since, while an expert is not limited to the exact words contained in their report, the report should contain a complete statement of all opinions along with the underlying basis for each. The court denied the defendants’ motion to exclude the plaintiffs’ expert’s limited testimony regarding 2003 and 2004, however, as it was substantially similar to the relevant paragraphs of his report and his opinion.


Keywords: expert witnesses, litigation, expert testimony, Refco, SPhinX, bankruptcy


Boris J. Steffen, Gavin Solmonese, LLC, Washington D.C.


May 28, 2015

Expert Witness Role in $9.8M Mine Subsidence Ruling


In September 2014, the Circuit Court of Macoupin County, Illinois, Judge Patrick Londrigan presiding, awarded the Gillespie School District nearly $10 million in damages due to a major mine subsidence event that occurred in 2009. The subsidence resulted from the collapse of a subjacent coal mine that had been closed since the mid-1950s, resulting in extensive damage to an elementary school. The 7-year old Benld Elementary School was damaged beyond repair and condemned for use as a school and eventually demolished. A new school was built in Gillespie, being within the same school district, at a cost in excess of $29 million in 2013. The significance of the court’s ruling is related to a precedent imposing liability for subsidence to current owners of closed coal mines, under limited circumstances, even though the owner was not involved in the removal of coal.


The ruling was based in part on expert testimony. The experts in the case determined that in fact the damage to the school was due to mine subsidence. In addition, the present day cost to replace the building was determined and they also determined that the mine would need to be stabilized. Expert testimony noted that re-building on the same site was not practical without mine stabilization as the ground was still moving. Cost to stabilize the mine was however denied by Judge Londrigan due to the fact that the property wasn’t grouted prior to building the school in 2002.


In the Macoupin County case, the school district sued Union Pacific because its merger partner (Chicago and North Western), owned a subsidiary which mined the coal between 1905 and 1957. In 1995, the railroad companies, Chicago and North Western, merged with Union Pacific, and Union Pacific was the surviving entity. In 1956, Chicago and North Western, through its Board of Directors, passed a resolution that its subsidiary, Superior Coal, who had originally mined under the school site, be dissolved, in which dissolution was finalized in 1957. The court held that Union Pacific was liable for the damages because the Board of Directors of Chicago and North Western had passed a resolution assuming all the assets and liabilities of its subsidiary, Superior Coal. The school district also filed a claim under the theory of alter ego alleging that Chicago and North Western had treated Superior Coal as a department of the parent corporation as opposed to a separate corporate entity. This relationship, if sustainable under the facts, can expose current owners of coal mines to liability for subsidence damages, if an alter ego relationship existed between the parent corporation and its subsidiary. Union Pacific is presently appealing the 2014 ruling of the Circuit Court of Macoupin County to the Illinois Fourth District Appellate Court.


This case may have larger implantations, however, the U.S. Bureau of Land Management (BLM) states: “There are estimates of as many as 500,000 abandoned mine in our nation.” One of the problems in determining the true number is the lack of accurate mine maps. Many mines from the 1880s are unknown or lack accurate mapping. There are many hazards that can be associated with abandoned mines, with subsidence being of the most visible and devastating.


Coal extraction by underground mining consists of leaving mine voids with “columns” of coal to support the overlying ground. This method is called room and pillar mining. The voids are often referred as room, entries or mains and the remaining coal “columns” are called pillars. Subsidence can occur when these pillars cannot support the ground above them. The problem with older mines is that they are less engineered and lack enough underground support. Subsidence can occur at any time. Mine subsidence risks are a major factor for land developers, particularly in heavily mined states and areas where prime land is in short supply. Preliminary testing for undermined areas is essential when mining is suspected.
On April 15, 2015, a mine subsidence in an adjoining room and pillar panel, caused structural damage to at least 15 homes in Benld, Illinois, which occurred approximately four blocks from the site of the former Benld Elementary School. The damage may have been caused as a result of a subsidence in the same coal mine that is owned by Union Pacific and/or the neighboring Superior Coal, which is also owned by the same corporate structure.


Keywords: expert witnesses, litigation, subsidence, coal mining, Union Pacific, Benld, Superior Coal


Gennaro G. Marino, Marino Engineering Associates, Inc, Urbana, IL


April 16, 2015

Expert Witness Bootstrapping


No more expert witness bootstrapping allowed! On March 25, 2015, a New Jersey court decided that testifying experts cannot testify (in New Jersey anyway), on either direct or cross-examination, about the findings of a non-testifying expert in the case to bolster the testifying expert’s opinion or credibility. In this particular case, William James v Rosalind Ruiz, Superior Court of New Jersey Appellate Division, Docket No. A-3543-13T2, the New Jersey appellate court distinguishes between an expert basing his or her opinion on otherwise inadmissible hearsay evidence vs. testifying directly to that evidence under the guise of Rule 703.


The court found that lawyers too often use experts to testify at trial about opinions held by other experts who are not called to testify themselves. In James v. Ruiz, the appellate court prohibited lawyers from asking an expert witness whether that expert’s findings are consistent with those of a non-testifying expert, “where the manifest purpose of those questions is to have the jury consider for their truth the absent expert’s hearsay opinions about complex and disputed matters.” The court found that lawyers are using the approach to take advantage of expert witnesses’ knowledge of opinions of other experts who are not present at trial and cannot be examined.


While the recent decision may only impact expert witnesses in New Jersey for now, the “bootstrapping” prohibition is likely to be adopted by other jurisdictions, both state and federal.


Keywords: expert witnesses, litigation, bootstrapping, New Jersey, hearsay opinions, non-testifying expert


Marc B. Sherman, Alvarez & Marsal, Washington, D.C.


March 30, 2015

Errors and Methodology: Be Wary of Mistakes in Expert Opinions


In the matter of Equal Employment Opportunity Commission (EEOC) v. Freeman, the circuit court ruled on February 20, 2015, to completely exclude the testimony of the EEOC’s expert and ruled for summary judgment in favor of Freeman. The suit alleged that Freeman, a company that provides integrated services for expositions, conventions, and corporate events, engaged in a background check process that had a disparate impact on black and male job applicants. In the ruling the circuit court found that Freeman’s expert’s report “contained a ‘plethora’ of ‘analytical fallacies,’ reflected ‘cherry-picked’ data, produced ‘a meaningless, skewed statistic,’ and included a ‘mind-boggling number of errors.’”


The EEOC hired the expert to review Freeman’s applicant employment tracking and background check database to determine if Freeman’s background check process adversely impacted black and male applicants. The expert filed the report, and then went on to file three additional amendments to the report, each with different calculations and results. The EEOC claimed that, in one iteration of the amended report, the expert had identified and fixed several errors, but the court found that the amendments were inadequate. The court stated, “Even when Murphy submitted late-in-the-day amendments, he still relied upon ‘a skewed database plagued by material fallacies.’ The slapdash nature of Murphy’s work convinced the district court that the EEOC had only a ‘theory in search of facts to support it.’”


The court also found, based upon a comparison of the raw data to the expert’s database, that the expert regularly introduced errors into the data and omitted relevant time periods and observations. The court provided three distinct factors that other courts have relied upon when excluding an expert’s testimony:


  1. 1. In Lilly v. Harris-Teeter Supermarket (720 F.2d 326 (4th Cir. 1983)), the court cautioned experts against drawing broad conclusions from incomplete data.
  2. 2. In Bricklayers & Trowel Trades Int’l Pension Fund v. Credit Suisse Secs. (USA) L.L.C (752 F.3d 82, 92 (1st Cir. 2014)), the court excluded expert testimony that “cherry-picked” relevant data.
  3. 3. In Brown v. Burlington N. Santa Fe Ry. Co. (765 F.3d 765, 773 (7th Cir. 2014)), the court excluded analysis that contained obvious errors and mistakes.


The court found that each of these three factors were applicable to Freeman’s expert’s report in this matter.


While this case appears to present an extreme example of unacceptable expert work, the ruling is a reminder to all experts to be vigilant in proposing only sound, intellectually honest methodologies, supported by careful data handling techniques and processes designed to minimize, to the extent possible, data and calculation errors. Experts reviewing data are often tasked with determining the validity of the data received and must make choices to include or exclude certain pieces of data. It is accepted good practice in data analysis to sometimes exclude outliers or exclude other data anomalies. Excluding certain data is considered acceptable—and necessary—when there is good, disciplined reason to believe that including that data would genuinely create misleading results or cause statistical fallacies. The court points out that excluding data in order to support a pre-conceived theory is not acceptable, however.

The ruling is also a reminder to attorneys to ensure that they understand their expert’s methodology, that the methodology meets or exceeds litigation standards, and that data handling and data editing techniques are consistent with accepted good practice.


Click here for more information.


Keywords: expert witnesses, litigation, EEOC, Freeman, errors, mistakes, inaccurate report


Jeremy Guinta, Associate Director, Navigant Consulting, Los Angeles, CA


Navigant Consulting is a corporate sponsor of the Section of Litigation. Neither the ABA nor ABA entities endorse non-ABA products or services. This article should not be construed as an endorsement.


March 17, 2015

Halliburton II: Possible Implications on Role of Experts in Securities Class Actions


Fraud-on-the-market and Halliburton II
In a private securities fraud action investors can recover damages only if they prove that they relied on the defendant’s misrepresentation in deciding to buy or sell a company’s stock. In 1988, the Supreme Court ruled in Basic v. Levinson, 485 U.S. 224 (1988) thatsecurities class action plaintiffs could prove class-wide reliance by invoking the “fraud-on-the market” doctrine (FOM), which is the “rebuttable presumption of reliance on public, material misrepresentations regarding securities traded in an efficient market” in which a security’s price quickly and correctly impounds material new public information.


Basic did not clarify how efficiency could be adequately proven for reliance purposes. Therefore, following Basic, lower courts have typically considered a list of ad hoc factors as intuitive indicators or proxies of market efficiency. For instance, a district court decision shortly after Basic first listed five such factors. See Cammer v. Bloom, 711 F. Supp. 1264 (D.N.J. 1989). However, many of these factors except for the fifth (price impact), have little probative value according to recent research, including a study I co-authored last year, and may indicate that a security traded in an efficient market, when in fact it did not. Moreover, market efficiency theory has been vigorously attacked since Basic. Indeed, the 2013 Nobel Prize in economics was shared by Eugene Fama, the founding father of the market efficiency theory, and Robert Shiller, one of its most influential critics.


In Halliburton Co. v. Erica P. John Fund, Inc. No. 13-317 (Halliburton II) the Supreme Court revisited the applicability of the FOM doctrine 26 years after Basic. Although Halliburton II did not overturn Basic, it permitted defendants to rebut the FOM presumption at the class certification stage by introducing evidence that the alleged misrepresentation did not impact the market price, noting that “the fact that a misrepresentation has price impact is ‘Basic’s fundamental premise.’”


Measuring Price Impact
In an efficient market, a stock’s price can change due to news unrelated to the company, such as market or industry news, or even due to random fluctuations not related to any news per se. Therefore, to assess the price impact of a particular firm-specific news event, economists generally use a statistical method known as an “event study.” In an event study, the stock’s “excess return” (or price change net of the change attributable to contemporaneous changes in the market or industry indices) following an event is first calculated. This excess return is compared to its normal range of fluctuation. If it is outside its normal range, the excess return is said to be “statistically significant”. If not, the evidence generally does not support the conclusion that the event had a price impact. The Halliburton II ruling is likely to result in a battle of economic experts to assess price impact early in the litigation process.


Implications of Halliburton II
Alleged misrepresentations are expected to inflate the stock price. So, following Halliburton II the defendants are likely to engage experts early to assess if the stock’s price reaction following alleged misrepresentations was statistically significant. The defendants may attempt to exclude some alleged misrepresentations by proving they did not have any price impact. Even if a stock’s price reaction following an alleged misrepresentation is found to be significantly positive, the defendants may chisel some of that price reaction away by arguing that it was attributable to other firm-specific news not at issue, rather than the alleged misrepresentation. The defendants may argue that the remaining insignificant price reaction proves that the misrepresentation per se did not have any price impact. By excluding some misrepresentations for lack of price impact, the defendants’ bargaining power during negotiations could improve as fewer remaining misrepresentations could shorten the class period and hence lower potential damage exposure.


The plaintiffs’ experts may criticize defendants’ event study results on technical grounds. The plaintiffs may also argue that lack of a price increase following a misrepresentation does not prove that the stock traded in an inefficient market, by casting the misrepresentation as an “omission” that propped up the stock price at its prior inflated level rather than inflating it further. As a logical matter, while such an omissions argument may have merit, it must be proven. Absence of proof (or a price impact) does not constitute proof. Yet, if courts accept such arguments, then a debate on price impact issues may become irrelevant, making class certification a virtual certainty once again. Only time will tell the extent to which Halliburton II actually affects the manner in which 10b(5) securities class actions proceed in the future.


Keywords: expert witnesses, litigation, Halliburton II, price impact, private securities fraud action, market efficiency theory, fraud-on-the-market


Sumon C. Mazumdar, Lead Director of the Securities and Finance Practice, Navigant Economics. Also leadership member of the Securities Litigation and Class Actions committees of the American Bar Association’s Section of Litigation.


Navigant Consulting is a corporate sponsor of the Section of Litigation. Neither the ABA nor ABA entities endorse non-ABA products or services. This article should not be construed as an endorsement.


March 13, 2015

Expert Report Ghostwriting Leads Court to Disregard Expert Testimony


Dr. Vincent Rue held himself out as an expert in the late ‘80s and early ‘90s; however courts found that he lacked academic qualifications and professional experience necessary to rely on his testimony and they found his work “lacked analytical force.” Hodgson v. State of Minn., 648 F. Supp. 756, 768 (D. Minn. 1986). Rue’s professional work was never accredited by a peer-reviewed journal as they found his work to have “no value” and to be “based upon a priori beliefs rather than an objective review of the evidence.” Planned Parenthood v. Casey, 744 F. Supp. 1323, 1333 (E.D. Penn. 1990).


Despite his lack of credible background, several states have recently hired Rue as a litigation consultant for other experts. In a Texas trial, four of the five state experts changed their testimony when emails showed that Dr. Rue was the true author of their purported expert reports. One expert, Dr. Deborah Kitz, testified under oath that she was the author of her rebuttal report, yet in an email to Rue she wrote, “I see ‘my’ report that you returned to me yesterday references my review of a report from a Dr. Layne-Farrar. I’ve never seen that report.” Another email revealed that another expert, Dr. Peter Uhlenberg, asked Rue what to do about contradictory evidence, and Rue suggested that Uhlenberg leave the information out of his report. Id. In its opinion on the Texas case, the court found that


although the experts each testified that they personally held the opinions presented to the court, the level of input exerted by Rue undermines the appearance of objectivity and reliability of the experts’ opinions. Further, the court is dismayed by the considerable efforts the State took to obscure Rue’s level involvement with the experts’ contributions.


Whole Women’s Health, et al. v. David Lakey, M.D., et al., 2014 U.S. Dist. LEXIS 124500, at *7–8 (W.D. Tex. 2014).


Later in 2014, one of the same experts who had used Rue as a ghostwriter in the Texas case was further discredited in an Alabama case. In the Alabama case, Dr. James Anderson admitted that his supplemental report had been drafted in its entirety by Rue and that Anderson himself had not independently verified the information he signed his name to as his opinion. The court found that Rue’s involvement “reached beyond the typical involvement of an attorney or litigation consultant in helping an expert put his opinions into words or providing background research.” The court was “struck by the flimsiness of Anderson’s basis for reliance on Rue” as Anderson did not attempt to find any information on Rue’s background or prior history. Planned Parenthood Southeast, Inc. et al. v. Luther Strange, et al., 33 F. Supp. 3d 1381, 8–14 (M.D. Ala. 2014).
The Texas case is undergoing appeals in the Fifth Circuit. The Alabama case has not been appealed.


Keywords: expert witnesses, litigation, ghostwriting, Vincent Rue, consultant, credentials


Lindsey Dean, CPA, Veris Consulting


March 3, 2015

"Better Safe than Sorry": Verifying Expert Witness Credentials


Engaging the right expert is a critical factor in securing a positive outcome for your client in a litigation dispute. While performing steps, such as calling references or performing a general internet search, are a good start, the process of verifying an expert’s credentials is often over-looked. Thanks to technology, most expert credentials can be verified quickly and easily at little to no cost by accessing publicly available online information.


Expert witnesses will, of course, highlight their accomplishments, such as professional certifications and licenses, educational background, prior testifying experience, and authored publications in order to emphasize their credibility as experts. While the vast majority of experts disclose this information accurately and completely, recent history shows that there are exceptions. Recently, there have been examples of experts overstating or misstating facts about their background with potentially damaging consequences. Taking the time to perform steps such as the ones described below to verify your expert’s credentials will provide peace of mind while also potentially preventing future headaches.


Professional Certifications and Licenses
Professional certifications and licenses can be verified for free through the issuing authority’s website or through the website of the state issuing the license. The state licensure websites typically provide the license status, such as active, inactive, or expired, and may even include important information such as prior disciplinary actions or suspensions that the license holder has on record.


An easy way (albeit with a small fee) to confirm an expert’s educational background is to obtain a degree verification from the online database “National Student Clearinghouse.” This database can often confirm undergraduate and graduate degrees issued by the vast majority of higher education institutions in the United States.


If you want to verify an advanced degree such as a PhD, one free way is to confirm the existence of the expert’s dissertation. While the existence of a dissertation will not definitively prove the expert has received a PhD, the absence of one should be an item for follow-up. Educational institutions’ websites often include listings of dissertations issued, and ProQuest has a “Dissertations & Theses Database” on its website where dissertations can be located and purchased if desired.


Prior Testifying Experience
Some expert witnesses disclose a complete listing of their testifying experience, and experts are required in a federal case to disclose testimony given in the preceding four years. See Rule 26(a)(2)(B) of the Federal Rules of Civil Procedure. There are various legal research databases (e.g., WestlawNext, LexisNexis) that will provide, for a fee, a listing of cases in which your prospective expert has testified. You can use this listing to verify the expert’s listed testimony and also review for any undisclosed prior testimony.


Experts often publish articles, whitepapers, studies and other research in their field. If an expert has listed a publication that you want to verify, it is often available for free on the publisher’s website or with a paid subscription to the publisher’s content. If you are concerned about potentially undisclosed publications authored by the expert, there are many free or subscription search engines that can be used.


Keywords: expert witnesses, litigation, credentials, verification, professional licenses, professional certificates


Daniel N. Berman, CPA, Navigant Consulting, Inc.


Navigant Consulting is a corporate sponsor of the Section of Litigation. Neither the ABA nor ABA entities endorse non-ABA products or services. This article should not be construed as an endorsement.


January 27, 2015

Daubert Challenge Leads to Case Dismissal


Expert witnesses and the lawyers who retain them are well-aware of the dangers of an opinion that strays outside the expert’s core area of expertise. Such risks may become particularly acute when the expert embraces methods or research that are inherently controversial and open to challenge. The expert risks exclusion of testimony and the lawyer may wind up having his or her entire case thrown out. A recent decision shows just how real such risks truly are.

In EEOC v. Kaplan Higher Educ. Corp.,748 F.3d 749 (6th Cir. 2014), affirming 2013 U.S. Dist. LEXIS 11722 (N.D. Ohio Jan. 28, 2013), the court of appeals affirmed the exclusion of expert testimony and the dismissal of a discrimination case which challenged an employer’s use of credit histories. A key element of the decision was the admissibility of expert testimony.

The EEOC’s case involved an employer’s use of credit histories. Kaplan made limited use of credit histories in its hiring for certain sensitive positions and race-blind evaluation of the individual circumstances underlying a poor credit history. The EEOC is concerned that poor credit histories may result in a disparate impact against African-Americans in hiring decisions that cannot be explained by factors other than race. However, there appear to be some methodological issues in the research directly supporting this supposition, given the potential for confounding influences, such as income.

In order to bridge the analytical gap between the EEOC’s theoretical presumption of disparate impact and the case-specific facts in Kaplan, the EEOC’s expert undertook a study purporting to show a statistically significant correlation between rejection rates and race as a result of Kaplan’s use of credit histories. To do so, however, the expert needed race data for applicants who were not hired; and these data did not exist. The expert’s solution was to have the EEOC subpoena the DMV license records for job applicants from 38 states and to task a team of coders to identify race from a visual inspection of the color ID photographs obtained, where race data was otherwise lacking (24 states).
The trial court found this methodology flawed, leading to a successful Daubert challenge and ultimate to dismissal of the case. The same expert’s opinion in Freeman also failed a Daubert challenge, leading to dismissal of that case, as well. In the end, the EEOC could not demonstrate that there was a disparate impact in either company’s use of credit histories.

Methodologies based on visual identification have had trouble under Daubert challenges before—most notably in the seminal decision in Kumho Tire. Reliance on visual inspections for determining race has similarly been disfavored by courts before the decision in Kaplan, see Kaplan Higher Learning Educ. Corp., 2013 U.S. Dist. LEXIS 11722, at *25–26; and, as the district court in Kaplan noted, the EEOC, itself, discourages employers from visually identifying an individual by race. Id. at *25. The EEOC’s expert in Kaplan tried to overcome objections by using a formalized “coder methodology”, a procedure common to certain kinds of academic social science studies. The testifier adopted a highly structured process to ensure inter-coder consistency. But whether inter-coder consistency speaks to coder accuracy, and hence reliability, remained an unanswered question.

The raters were able to reach a consensus on race at the 80% confidence level 88.3% of the time. The team consisted of five individuals with advanced degrees and prior experience involving multi-racial populations, but none had experience in identifying race from photographs. The EEOC’s expert could measure “consistency” among the raters, but could not quantify the degree of “accuracy” or margin of error in the coding process. In the end the only support for a claim of “accuracy” which the EEOC was able to offer was anecdotal evidence and the professional judgment of their expert. It wasn’t enough. As Judge Blackmun observed in Daubert: “there are important differences between the quest for truth in the courtroom and the quest for truth in the laboratory.” 509 U.S. 579, 596–97 (1993).

The EEOC and its expert were therefore rebuked in both the district court and court of appeals: “The EEOC brought this case on the basis of a homemade methodology, crafted by a witness with no particular expertise to craft it, administered by persons with no particular expertise to administer it, tested by no one, and accepted only by the witness himself.” Kaplan Higher Educ. Corp., 748 F.3d at 754.

Keywords: expert witnesses, litigation, Daubert, testimony, exclusion, admissibility

David Gulley, Adjunct Professor, Columbia University, New York, NY. Prof. Gulley thanks David B. Ross of Seyfarth Shaw, one of the attorneys who argued for exclusion, and who provided much of this information in correspondence.


January 22, 2015

Ghostwriting Expert Report a Remarkable Breach of Ethics and Protocol


A recent opinion from the U.S. District Court for the Eastern District of Michigan on a motion to preclude expert testimony underscored the importance of maintaining an expert’s objectivity. In Numatics Inc. v. Balluff Inc. and Barnum Company (13-11049), the court excluded the testimony of an expert retained by defense counsel based on the fact that the expert’s report was written by counsel.


The case involved a claim of patent infringement related to a system intended to control the opening and closing of hydraulic and pneumatic valves. The defendants hired an expert witness to provide expert opinions related to its claim that the patent at issue was invalid due to the fact that it was obvious.


In its order, the court focused on Rule 26 of the Federal Rules of Civil Procedure, which provides that expert testimony “must be accompanied by a written report—prepared and signed by the witness. Fed. R. Civ. P. 26(a)(2)(B). In this case, the court found that the problems with the expert’s testimony “stem from the fact that he did not draft his own report; defense counsel drafted it for him”, calling the practice “a remarkable breach of ethics and protocol.” While noting that that expert “may indeed be competent to provide testimony in support of the invalidity defenses in this case…he has surrendered his role to defense counsel, and that is not how the adversary process works.”


The court did however provide guidance on how counsel can appropriately help an expert witness prepare his/her report. Specifically, the court noted that


[i]n most cases, expert witnesses are not attorneys, and they may not apprehend the required components of a report set forth in Rule 26(a)(2)(B). The retaining attorney certainly may explain the rule’s requirements and coach the expert to be sure the report touches all the bases. That is a far cry, however, from abject ghostwriting, which is not allowed under any circumstances.


In assessing the expert’s role in Numatics v. Balluff and Barnum the court’s opinion was informed by both the lack of time and effort spent on the engagement by the expert and the striking similarity between the text of the expert’s report and that of defense counsel’s contentions.


Specifically, the court found that the expert had spent a total of “less than 30 hours developing his opinions about the case, nearly half of which was spent at or traveling to the law office of Balluff’s attorneys.”


With regard to the actual text of the expert’s report, the court found that sections were “copied nearly verbatim from [the defendant’s] invalidity contentions” submitted by counsel:


Section H of the report…is nearly indistinguishable from Balluff’s third supplemental invalidity contentions…The pictures, charts, and diagrams are the same. The Citations are the identical. The prose is indistinguishable down to the punctuation, leading to only one possible conclusion: the report was ghost-written by Balluff’s attorneys as a legal brief disguised (thinly) as an expert disclosure.


Although plaintiffs had only sought exclusion for specific sections of the expert’s report, the court excluded the expert from the case completely, characterizing him as “nothing more than a highly qualified puppet.” Citing Rule 702, the court pointed to its role as a gatekeeper noting that


[e]xpert witnesses are allowed to testify based on information furnished by others because they have technical expertise in a given field that ‘will help the trier of fact to understand the evidence.’ An expert who is merely a party’s lawyer’s avatar contributes nothing useful to the decisional process.


This decision reinforces the importance of adhering to Rule 26 but also to maintaining clear boundaries between expert opinion and legal argument. An expert that is viewed by the trier of fact as nothing more than a mouth-piece for counsel is essentially of no value. The power of using an expert witness effectively comes from the expert’s objectivity, both in appearance and substance. Counsel should be cautious of becoming too involved in the drafting of its expert’s report. Doing so may be disastrous for the case if it results in the expert losing credibility or being formally excluded.

Keywords: expert witnesses, litigation, expert objectivity, patent infringement, Numatics, Balluff

Jonathan Couchman, Veris Consulting, Reston, VA


January 22, 2015

Know Your Experts: Financial Interests Can Undermine Credibility


Since 2009, the proposed class in Rail Freight had relied on an economist, Dr. Gordon Rausser, as both their class certification and merits expert. Just before a second class certification hearing, first the defendants and then the plaintiffs received information that Dr. Rausser may have had a financial interest in the litigation and, therefore, could have been operating under a conflict of interest. Dr. Rausser denied any conflict, and the parties agreed that although there was no need to disqualify him, the information raised a serious credibility issue.


The defendants learned, in an email from an employee of Cascade Settlement Services (a company that purchases the claims of potential class members), that Dr. Rausser held a non-voting ownership stake in the company and had been providing information to the company regarding case developments. After denying any financial interest in Cascade during a deposition, Dr. Rausser submitted an errata sheet that changed the answer and effectively confirmed the relationship among himself, his majority-owned company, and Cascade. Subsequent discovery confirmed that Dr. Rausser, both individually and through his company, had entered into consulting and services contracts with Cascade. The discovery also confirmed that Dr. Rausser had invested more than $1 million in a Cascade fund, which included potential class claims in the Rail Freight litigation in which Dr. Rausser was a testifying expert.


Notably, the defendants did not move to disqualify Dr. Rausser. Instead, the plaintiffs moved to file a supplemental expert report attesting to the reliability and integrity of Dr. Rausser’s opinions. That is, notwithstanding Dr. Rausser’s credibility as a witness, the plaintiffs wanted to continue to rely on his opinions and analysis and, therefore, sought to verify the credibility and accuracy of the analysis and methodologies. Judge Paul Friedman of the United States District Court for the District of Columbia treated the motion as a request to modify a scheduling order under Federal Rule of Civil Procedure 16(b) and considered whether good cause existed to alter the scheduling order and reopen discovery.


Judge Friedman concluded that the plaintiffs would be “significantly prejudiced” due to the “potentially grave damage” to Dr. Rausser’s credibility if the plaintiffs were not permitted to provide the proposed supplemental report. The prejudice to the plaintiffs outweighed any prejudice to the defendants as a result of delaying the class certification hearing. Judge Friedman determined that modifying the scheduling order would be appropriate because the plaintiffs exercised reasonable diligence, and there was no suggestion that they acted in bad faith.


Judge Friedman concluded that the plaintiffs exercised diligence once they learned about their expert’s potential conflict of interest, but it remains an important lesson for all lawyers to be aware of potential conflicts when retaining an expert or investigating an opponent’s expert. It is also an important lesson for expert witnesses when considering other professional or personal opportunities. Dr. Rausser’s conflict arose approximately three years into the Rail Freight litigation and involved an investment in a broad fund, not a direct purchase of the claim. Expert witnesses must stay apprised of ongoing engagements and avoid potential conflicts before they arise. Counsel should ensure that their experts remain conflict-free throughout the litigation—no matter how long its duration.

Keywords: expert witnesses, litigation, conflict of interest, expert, prejudice, bias

Todd N. Hutchison, Associate, Drinker Biddle & Reath, LLP, Philadelphia, PA. The views or opinions expressed herein are the author’s alone and do not reflect the views or opinions of the firm or its clients.


December 31, 2014

The Cram Down Debate In re: MPM Silicones, LLC


Experts are frequently asked to provide analyses and calculations of interest rates in litigation, whether for purposes of calculating the present value of lost profits, for example, or prejudgment interest thereon. In Chapter 11 proceedings, it is common for experts to testify regarding the calculation of the interest rate to be applied in the repayment of a secured claim, which when associated with the involuntary imposition of a plan of reorganization on a class of creditors that have voted to reject the plan, is referred to as a cram down interest rate. On August 26, 2014, in concluding the plan of reorganization confirmation hearing for In re: MPM Silicones, LLC, (Momentive), Judge Robert Drain of the Bankruptcy Court for the Southern District of New York issued a bench ruling significant in concluding that the allowed claim of a secured creditor may be satisfied by a long-term note with a below-market interest rate.
The dispute over the appropriate cram down rate of interest in the Momentive confirmation proceedings arose from certain note holders who argued for interest rates higher than that proposed in Momentive’s plan of reorganization based on their views of what market-based lenders would expect for new, replacement notes. Given that Momentive had secured a $1 billion exit financing facility for a term of seven years, however, senior secured creditors argued that this was evidence of a market rate, and that this rate should be used as a proxy for the cram down interest rate.


Judge Drain considered two methods for purposes of calculating interest: the coerced loan approach and the formula approach. Under the coerced loan approach, a cram down interest rate is determined from the rate of interest a secured creditor would achieve if it foreclosed on the collateral underlying its allowed claim, and reinvested the proceeds in assets similar to that of the debtor, for a period of time comparable to that proposed in the debtor’s plan of reorganization. By comparison, as decided by the Supreme Court in Till v. SCS Credit Corp., using the formula approach, a cram down interest rate is determined from the sum of a risk-free rate and a premium for risk. In practice this is usually accomplished by adding to the prime rate, which is the rate offered by financial institutions to the most credit-worthy borrowers, a risk premium of between 1 and 3 percent. In Till, the Court added also that “when picking a cram down rate in a Chapter 11 case, it might make sense to ask what rate an efficient market would produce.”


In arriving at his conclusions, Judge Drain followed the analytical guidance provided in the Supreme Court’s decision in Till v. SCS Credit Corp., and in the Second Circuit’s decision in In re Valenti. In both cases, the Court rejected the coerced loan approach proposed by the senior secured lenders in Momentive. Judge Drain rejected the coerced loan approach for much the same reasons, and in choosing the formula approach, decided that it was not appropriate to consider an analysis of market-based interest rates for similar loans to determine an appropriate cram down interest rate.


Explaining his findings, Judge Drain noted that the objective of a cram down interest rate is to place a creditor in the same position it would have been in economically if it had received the value of its allowed claim immediately, not as if it had arranged a new loan. Further, the rate should not include any element of profit, cost or fees since such a rate would not be appropriate for purposes of calculating the present value of a secured creditor’s deferred distributions in a cram down calculation. In addition, it is not appropriate to consider market-based evidence, except secondarily for purposes of determining an appropriate risk premium, in which case factors including the circumstances of the debtor’s estate, the underlying collateral, the terms of the new debt, and the feasibility and duration of the plan of reorganization should be taken into account. The risk adjustment, however, should not be used as a means of backing into a market rate.

Keywords: expert witnesses, litigation, cram down interest rate, coerced loan approach, formula approach, Momentive, MPM Silicones

Boris J. Steffen, Gavin Solmonese, LLC, Washington D.C.


December 30, 2014

What's the Deal? Risks of Pre and Post-Acquisition Disputes in an Active M&A Market


Navigant Consulting is a corporate sponsor of the Section of Litigation. Neither the ABA nor ABA entities endorse non-ABA products or services. This article should not be construed as an endorsement.

In the United States, mergers and acquisitions (M&A) activity continues to increase, and many predict the trend will continue in 2015. Some of the factors contributing to the rise in this activity include large cash reserves of companies, ability to borrow at low interest rates and increasing confidence in economic recovery. With the rise in M&A deals, there inevitably will be disputes resulting from issues occurring during pre and post-acquisition phases.
Buyers, sellers, and their counsel must give proper attention to risks associated with the transaction process to minimize the potential for a future dispute. Areas in M&A deals that frequently are disputed include:

  • A material adverse change (MAC) clause allows the buyer to refuse to complete a transaction if the company to be acquired (target) experiences a significant event or series of events that negatively impact its financial condition. An example of a MAC is the loss of a customer account that will result in a significant decline in projected future sales for the target. There are often disagreements between parties as to what constitutes a “material” change. Therefore, a quantitative guideline should be included where possible. Quantitative guidelines could specify dollar value changes in assets, liabilities or operating results. Poorly-defined MAC clauses could lead to a disagreement between a buyer and seller as to whether a MAC occurred.
  • Purchase price adjustments (PPA) involving working capital or net assets (often referenced as post-closing adjustments) are performed to ensure that changes in certain key balance sheet metrics of the target are reflected in the final purchase price. For example, the purchase price paid by the buyer may be reduced if the target’s actual working capital (i.e., current assets less current liabilities) at closing is less than the contractually stipulated amount, which usually is based on historical working capital from the target’s financial statements available at the initial valuation date. Permitting PPAs only when they exceed a specified material amount and clearly stating how the adjustment is calculated in the sale agreement will help to reduce the potential for disputes over any PPA.
  • Representations and warranties (R&W) provide the basis on which the buyer and seller relied when signing the M&A deal. If one of the parties’ R&Ws are inaccurate, the R&W breach can serve as a basis for a claim. For example, a seller may represent that there were no significant product defects at the time of closing. If the buyer discovers post-closing that there was correspondence with customers informing the sellers of the defect before the acquisition date, there would be grounds for the buyer to assert an R&W breach. The buyer likely would pursue legal action and damages for the seller’s breach.
  • An earnout provision makes a portion of the purchase price contingent on the subsequent performance of the acquired company. Earnout payments to the sellers often are based on sales revenue, net income, EBITDA, or other cash flow benchmarks. Earnout periods can range from one to five years. One reason why a deal would include an earnout provision is that there is a disagreement between the buyer and seller on the value of the acquired company. Future performance is used to determine if the seller receives the additional compensation. Disputes can arise if the seller believes the buyer is using different accounting estimates or temporarily dampening operating results to reduce the payout during the earnout period.
  • Departures from Generally Accepted Accounting Principles (GAAP) can give rise to differences in valuations of the target company. When a company is a privately-held entity and not subject to an independent audit of its financial statements, there could be instances where certain accounting may not be in accordance with GAAP. It is important for the buyer and seller to be promptly made aware of these potential issues and reach an agreement on how these items will be treated for purposes of determining PPAs and any earnout provisions.

Effective recognition and management of potential risks can reduce the possibility of costly pre and post-acquisition disputes. Many of the issues that lead to disputes can be minimized by thorough due diligence including verification of key accounting areas (e.g., revenue recognition, inventories, accounts receivable, contingent liabilities), clear contractual definitions (e.g., MAC clauses, PPAs, earnouts) and obtaining appropriate R&Ws on key areas of the business. If the deal is subject to PPAs or earnout provisions, the agreement of sale should contain sufficient detail that buyers and sellers clearly understand the calculations and related inputs. Even if addressing risks ahead of time does not avoid a dispute, taking the appropriate risk-mitigating steps will, at minimum, provide more clarity on accounting and valuation issues should a dispute occur.

Keywords: expert witnesses, litigation, mergers, acquisitions, M&A

Brian P. Sullivan, CFA, Director, Navigant Consulting, Inc.

Navigant Consulting is a corporate sponsor of the Section of Litigation. Neither the ABA nor ABA entities endorse non-ABA products or services. This article should not be construed as an endorsement.


November 31, 2014

The Neutrality of Expert Testimony

In an August 2014 opinion in McGuire v. Metro Life Insurance Company (12-10797), the U.S. District Court for the Northern District of Michigan highlights a specific set of circumstances that prompted a unique approach to address cross Daubert motions. McGuire, as a representative of Union Carbide, claimed that MetLife breached fiduciary duties in the management of a benefits plan under ERISA. MetLife argued that it was not a fiduciary under ERISA because it never managed planned assets.


To reinforce each side’s case, testifying experts were hired by the parties to review various documents and provide an opinion for the court to consider. McGuire retained an actuary with over 40 years of experience in the field, and a Ph.D. from Yale. MetLife hired two experts with similarly impressive experience and credentials. When the experts proffered wholly different opinions, both parties filed Daubert motions. The court denied these motions and provided the following critique:


Neither party appears to have scrutinized their own experts’ opinions applying the same criteria they have used to criticize the opposition’s experts. The relevant opinions the actuarial experts have advanced are the type of opinions they are qualified to give: opinions concerning the type of insurance contracts at issue and how those type of contracts typically operate in the insurance industry.


Additionally, the court appeared somewhat frustrated in understanding what documents were relied upon by each of the three experts:


Notably, all three experts indicate in their reports what documents they reviewed in formulating their opinions. However it is not at all clear whether the three experts considered the same information during their review of the case materials. [emphasis added]


These excerpts provided color regarding the court’s apparent dissatisfaction with the biased approach in attempting to exclude the other side’s expert(s), without considering their own expert(s)’ potential shortcomings. It also demonstrates some frustration in trying to understand what documents were considered versus what was relied upon. Rather than exclude either or both parties’ experts, the court took a different route and applied Federal Rule of Civil Procedure 706 (Rule 706) in retaining a neutral expert at the parties’ expense. However, not only did the court apply Rule 706, but due to discovery challenges along with potential concerns on what was “reviewed” versus “considered” by the experts, the court took it one step further.


The court decided to also provide the neutral with “some of the authority of a master under Federal Rule of Civil Procedure 53 [(Rule 53)], what at least one court has termed an ‘expert master.’” The court noted that masters have a broad set of authority, but the appointment in this case would be limited, specifically to the “power to compel” evidence. The court provided additional guidance on what information was to be provided to the neutral by both parties, and then provided the neutral expert with the discretion to request what he or she believed was needed in order to weigh the evidence as he or she felt appropriate.


This opinion is a reminder that the court is ultimately seeking objectivity and transparency from expert witnesses, and that gamesmanship should be avoided. Moreover, a court-appointed neutral expert may not have the benefit of either side’s perspective and counsel’s broader knowledge of case facts and circumstance, not to mention the additional expense.

Keywords: expert witnesses, litigation, Daubert, expert, master, neutral expert, Rule 706, ERISA, Rule 53

—Michael A. Fahlman and Alex A. Koltsov, Grant Thornton LLP, Phoenix, AZ


November 24, 2014

Brazil v. Dole and the Importance of Reliable Damage Models at the Class Certification Stage

On November 6, 2014, U.S. District Judge Lucy Koh of the Northern District of California issued a ruling de-certifying the damages class in Chad Brazil v. Dole Packaged Foods, LLC, a case involving claims that Dole mislabeled some of its products as “All Natural” when in fact they include “unnatural” ingredients like ascorbic acid and citric acid. In de-certifying the class, Judge Koh focused squarely on the plaintiffs’ expert’s damages model, ruling that it was incapable of measuring reliably the effect of the challenged conduct on price. Judge Koh identified two critical failings of the model: (1) it ignored key factors that affected the prices of the products at issue (namely advertising expenditure), and (2) it did not identify reliably which products actually had the challenged “All Natural” labeling. Given the heightened focus on damages models at the class certification stage, Judge Koh’s ruling and the failings of the plaintiffs’ model are instructive for expert work more generally. In what follows, I walk through the model’s failings in more detail.

A well-known flaw of any damages model is something economists refer to as “the omitted variable problem.” As implied by its name, the omitted variable problem arises when a damages model is missing a key economic factor that drives prices. For example, if you are studying the price of ice cream, it is important to control for the costs of milk. In the Dole matter, the plaintiffs’ expert attempted to use a hedonic price regression to isolate the incremental effect of the “All Natural” label on price, controlling for other key economic factors that influence price, including package size, seasonality, year, and brand. The economic logic of such a model is quite simple—if reliably measured, the incremental effect of the “All Natural” label on prices tells us the exact amount by which a customer overpaid when they bought a mislabeled product.

So what went wrong? For one, the model suffered from the omitted variable problem. Specifically, it did not include a critical factor that is well understood to affect the prices of the products at issue—advertising. By excluding advertising from the analysis, the model was incapable of assessing whether the incremental effect on price attributed to the “All Natural” label reflected the “true effect” of the label or differences in advertising across the products. As Judge Koh succinctly put it, without advertising expenditures in the model, “[h]ow could the Court know whether any price premium on the challenged products was due to Dole’s “All Natural” labeling claim rather than to its advertising expenditures?”

The problems with the plaintiffs’ model did not end there. As noted above, the whole purpose of the hedonic price model is to answer the following hypothetical question—if just the “All Natural” label was removed and all other product characteristics were unchanged, by how much does the price change? A PhD in Economics is not required to understand that reliable price data on products both with and without the “All Natural” label are needed to answer this question. Indeed, if we could set up an ideal experiment to measure precisely the effect of the “All Natural” label, we would offer for sale the exact same product—one with the label and one without—and then collect data on the prices paid for each.

What did the plaintiff’s expert do? Rather than conduct sufficient research to determine which products in his model did and did not have the “All Natural” label, he included the challenged Dole products (i.e., those with the challenged label) as well as non-Dole products in his model and assumed that non-Dole brands did not have the label. Judge Koh rightly decided that such an approach is fundamentally unreliable. “The whole objective of Dr. Capps’ model is to isolate the price premium attributable to Dole’s “All Natural” label claim…. So if the model is unsure whether the non-Dole products actually made an “All Natural” labeling claim, then how can the Court know whether the price premium the model generates is based on Dole’s labeling claim rather than on some other factor? Put simply, it cannot.”

While the failings of the plaintiffs’ model are very specific to the facts of the Dole matter, Judge Koh’s ruling has broader implications for expert testimony. Judge Koh’s engagement on the key technical issues surrounding the damages model highlights the growing importance of rigorous expert testimony at the class certification stage. The courts have begun to raise the bar, and the quality of expert testimony must rise to meet it.

Keywords: expert witnesses, litigation, Dole, expert testimony

Bryan Ricchetti, Cornerstone Research, Chicago, IL. The views expressed in this article are solely those of the author, who is responsible for the content, and do not necessarily represent the views of Cornerstone Research.


October 31, 2014

New Laws Regulating the Destruction of Records

Effective January 1, 2015, commercial entities and employers in Delaware must comply with two recently signed data destruction laws that regulate the destruction of records, both tangible and electronic, containing personal identifying information. HB 294, which applies to employers, and HB 295, which applies to commercial entities, both require that “reasonable steps” be taken to destroy or arrange for destruction of consumer and personnel data when the information is no longer to be retained by the employer or commercial entity. While the new statutes are clearly applicable to companies doing business in Delaware, it is possible that any corporate entity organized under Delaware law might be subject to these statutes, which include a private right of action. Litigation consulting firms working in mass torts and class actions routinely receive and then destroy large aggregations of personal identifying information. Such firms should consider carefully the extent to which they may be required to comply with Delaware’s new data destruction law.

The personal identifying information subject to destruction includes any data set containing a first name or first initial and last name of a consumer or employee, as the case may be, in combination with any one of the following data elements, when either the name or the data element is not encrypted:


  • Signature
  • Full date of birth
  • Social security number
  • Passport number
  • Driver’s license or state identification card number
  • Insurance policy number
  • Financial services account number
  • Bank account number
  • Credit card number
  • Debit card number
  • Any other financial information
  • Any personally identifiable confidential health care information, including an individual’s health care history, diagnosis, condition, treatment, or evaluation.

Notably, personal identifying information does not include publicly available directories (such as a phone book) which contain information that an individual has voluntarily consented to have publicly disseminated or listed, including name, address, or telephone number. Nor does personal identifying information include other directories derived from such publicly available directories.

Commercial entities and employers must comply with the new laws by destroying the data so that it becomes “entirely unreadable or indecipherable through any means.” Under both laws, reasonable methods for proper destruction include:

  • shredding;
  • erasing; or
  • otherwise destroying or modifying the personal information.

Although HB 295 specifically exempts financial institutions subject to the Gramm-Leach-Billey Act, consumer reporting agencies, health care institutions subject to HIPAA, and government agencies, it applies to all other commercial entities regardless of size, revenue, number of employees, or charitable status. This includes business trusts, estates, limited partnerships, joint ventures, organizations, associations, and limited liability partnerships.
Unlike many of the data destruction laws enacted by other states, the Delaware law does not specify whether it applies to those commercial entities maintaining records concerning Delaware citizens, where no business is actually conducted in the state. It also does not specify whether it applies to the thousands of entities that are merely incorporated in Delaware with no other Delaware nexus. However, it is certainly possible that the plaintiffs’ bar will advocate for a broad application of these statutes, especially given the private right of action that Delaware has created.

Failure to take reasonable steps to destroy personal identifying information could result in substantial liability under both laws. With respect to commercial entities, while no specific statutory damage amount is provided for in HB 295, each record unreasonably disposed by a commercial entity will be considered an individual violation of the law, and any consumer with actual damages caused by such failure may file a civil action and is entitled to treble damages. Additionally, where the Attorney General determines that a violation has occurred and proceedings would be in furtherance of the public interest, the Division of Consumer Protection of the Delaware Department of Justice is granted authority to bring an action in law, or the Division of Consumer Protection may bring an administrative enforcement proceeding.

With respect to employers subject to HB 294, liability may result where an employee incurs actual damages as a result of a reckless or intentional violation of the law. Similar to HB 295, the does not provide for a specific statutory damage amount but does allows for the harmed employee to file a civil action against their employer and provides for treble damages. However, unlike HB 295, HB 294 does not provide for enforcement by the Department of Justice or the Division of Consumer Protection.

Keywords: expert witnesses, litigation, destruction law, records, identifying information, Deleware, data destruction

Lauren S. Novak, Schiff Hardin LLP, Chicago, IL


September 22, 2014

CSIRO v. Cisco: The Court as the Damages Expert

On July 23, 2014, Judge Leonard Davis of the Eastern District of Texas issued his Findings of Fact and Conclusions of Law in the case of CSIRO v. Cisco (6:11-cv-00343-LED, E.D. Tex. 2014). CSIRO is the principal research organization for the Australian Federal Government and the matter involved a single patent, the ‘069 patent. The ’069 patent discloses techniques to solve issues related to wireless networking and the “multipath” problem, and the court had already ruled that the 802.11 a standard embodied the core technology of the ‘069 patent. The case had been tried on the merits and the parties had stipulated to liability and to the scope of the accused products, therefore the case at hand was tried only on damages.

CSIRO’s damages expert proposed that CSIRO’s reasonable royalty damages amounted to $30,182,922. The royalty base consisted of the Cisco and Linksys end products, which CSIRO’s expert argued were the smallest saleable patent practicing units (SSPPU). He then opined that the incremental profits of the products that embodied the 802.11a and 802.11g standards over the products that practiced the 802.11b version of the standard were primarily attributable to the ‘069 patent. For Linksys products, CSIRO’s expert determined that the profit premium ranged from $6.12 to $89.93 and for Cisco products, the range was $14.00 to $224.00. He then considered the remaining Georgia-Pacific factors (stating that his incremental profit analysis took into account factors 9, 10 and 11) and concluded that a per-unit royalty between $1.35 and $2.25 based on volume would be reasonable.

The court opined that the expert’s analysis suffered from several flaws. First, the expert only considered a single product from a single retailer at a single point in time for each version of the standard, which the court stated was not an adequate sample size. Second, to determine the price premium on the Linksys products, the expert discounted the retail price of the product at CompUSA by the retailer’s gross profit margin, estimated by taking an average of the gross profit margins of Amazon, Office Depot, Circuit City, Staples, and Best Buy. He did not consider the gross profit margin of CompUSA, which the court opined would have been the most relevant. Third, the court felt that the wide range in the profit premiums of the accused products indicated that the expert’s methodology was not reliable. Fourth, the court did not believe that the expert’s qualitative consideration of several of the Georgia-Pacific factors was based on sound methodology. Finally, the court opined that the reliability of the expert’s analysis was further compromised because the proposed royalty rates were higher than certain of the rates offered to the wireless industry by CSIRO around the time of the hypothetical negotiation.

Cisco’s damages expert, who proposed damages of no more than $1,100,000, did not fare much better. The court found issue with basing the royalty rate on a 1998 Technology License Agreement, which it determined was not comparable to a hypothetical license negotiated several years later. However, the court opined that the primary problem with the methodology employed by Cisco’s expert was that the royalty base was the chip price, despite the fact that the chip itself is not the invention and because the chip price is an unreliable base because it had been artificially depressed due to widespread infringement.

The court then constructed its own reasonable royalty rate based on information as close to the hypothetical negotiation dates as possible. CSIRO commissioned a valuation study in 2003 and by 2004 offered willing licensees, including Cisco, rates between $1.40 and $1.90 per unit, based on volume. Additionally, in informal discussions in October 2005, CSIRO offered Cisco a rate of $0.90 per unit. The court therefore established a starting range of $0.90 to $1.90 per unit.

The court then examined the Georgia-Pacific factors to determine if any adjustment to the starting range was necessary. Factors 3 and 4 indicated a downward adjustment, and factors 8, 9, and 10 favored an upward adjustment. The other Georgia-Pacific factors were neutral. Therefore the court opined that no adjustment was necessary for Cisco products. Linksys products were given a 27.4 percent discount based on their lower profitability. The court then concluded that damages in the relevant time period were $16,243,067 plus pre-judgment interest.

It will be interesting to see how the court’s use of the entire market value rule (EMVR) in this matter affects other cases. Although the court did not cite to evidence that the technology was the basis for the sale of the end products, the court nonetheless used the end products as the royalty base. Such an analysis goes against the tide of recent decisions on patent damages, and whether EMVR is affected by this decision remains to be seen.

Keywords: expert witnesses, litigation, CSIRO, Cisco, royalty

Jennifer Vanderhart, Ph.D., FTI Consulting, Washington, D.C.



September 16, 2014

Russian Government Ordered to Pay $50 billion

On July 18, 2014, a Tribunal in the Permanent Court of Arbitration in The Hague unanimously held that the Russian Federation had taken a series of actions that effectively resulted in the expropriation of the interests of GML subsidiaries Hulley Enterprises Limited, Yukos Universal Limited, and Veteran Petroleum Limited (which together held 70.5 percent of the shares) in defunct OAO Yukos Oil Company (Yukos). Consequently, in the largest international arbitration award in history, the Russian Government was ordered to pay damages of approximately $50 billion, on top of legal fees of $60 million.

Each damages expert submitted two reports. The claimants’ expert, using discounted cash flow, comparable company and comparable transactions analyses, and assuming that all of respondent’s actions violated the governing Energy Charter Treaty, concluded that the claimants should be compensated for the value of their shares as of November 21, 2007, the day Yukos was delisted, assuming that Yukos had merged with oil company Sibneft, been listed on the NYSE, and that the claimants would have received dividends from 2004 through November 2007. The total was brought forward to a date near the claimants’ last submission to the Tribunal with pre-award compound interest at a rate of LIBOR plus four percent, which resulted in damages of approximately $114 billion.

Respondent’s damages expert did not offer a damages valuation of his own, but focused on explaining why the claimants’ expert’s reports were not useful. The respondent’s damages expert’s criticisms included that the valuation date chosen by the claimants’ expert was arbitrary and artificially inflated damages, and that he:

  • ignored causation and the degree to which Yukos’ conduct might have added to the loss,

  • corrected errors in his DCF analysis such that the result was unchanged, indicating that it was “reverse engineered,”

  • included major international oil companies in his comparable company analysis that were not comparable to Yukos,

  • assumed events that never occurred and were speculative and overstated, and

  • erred in applying inflation, export duty and mineral extraction tax rates.

The Tribunal determined the date of expropriation to be December 19, 2004, the first date on which the series of the respondent’s actions were found to result in a significant and irreversible diminution of the claimants’ investment. As the respondent’s expropriation was deemed illegal, however, the Tribunal, in rejecting the respondent’s ex ante approach, concluded that the claimants could also choose the date of the award (June 30, 2014) as the valuation date for damages purposes because they were entitled to restitution on that date, as well as compensation for any shortfall, given that even if Yukos’ value had declined, the claimants could have sold it for a higher value at an earlier date but for the expropriation.

The Tribunal calculated the claimants’ damages as equal to the value of their shares as of each valuation date, plus the value of the dividends they would have received up to each valuation date, plus pre-award simple interest thereon. The Tribunal rejected the claimants’ use of compound interest, as well as its expert’s assumptions regarding Yukos’ listing on the NYSE and merger with Sibneft as uncertain and speculative, and found the claimants’ damages valuation analyses to be unreliable due to errors, lack of comparability, and its expert’s admission that the discounted cash flow analysis was influenced by personal, pre-determined views of an appropriate amount. The Tribunal consequently deemed “most tenable” a “corrected” comparable company analysis that it deduced from the oral testimony of the respondent’s expert as the best available estimate of Yukos value on November 21, 2007. To adjust Yukos’ value to the dates of expropriation and award, the Tribunal multiplied it by a factor representing the change in the RTS Oil and Gas Index between November 21, 2007 and each date.

The value of lost dividends was set by the Tribunal “in the exercise of its discretion” considering the claimants’ expert’s calculations of free cash flow to equity, “corrections” thereto by the respondent’s expert, and the Tribunal’s perceptions of risks associated with higher taxes, Yukos’ dividend policy and complex offshore structure. To calculate interest, the Tribunal rejected Libor as discredited, the yield on Russian sovereign bonds issued in USD as excessive, and the U.S. Prime Rate as inappropriate lacking evidence the claimants had to borrow as a consequence of the expropriation. Instead, the Tribunal adopted a return on investment approach and used the average yield of ten-year U.S. Treasury bonds from January 1, 2005 to May 2014 to calculate simple pre-award interest. Damages as of December 19, 2004 totaled $21.988 billion, and at June 30, 2014, $66.694 billion. Concluding that the claimants’ were entitled to the higher amount as the expropriation was illegal, while finding the claimants’ misconduct contributed to the damages they suffered by 25 percent, the Tribunal reduced the damages award to $50,020,867,798.

Keywords: expert witnesses, litigation, Yukos

Boris J. Steffen, Gavin Somonese, LLC, Washington D.C.



September 3, 2014

Court in Rembrandt Vision Matter Reacts to Inaccurate Expert Testimony—Twice!

In Rembrandt Vision Technologies, L.P. v. Johnson & Johnson Vision Care, Inc., a case in the middle district of Florida, Jacksonville division, a remarkable set of orders emerged relating to the scientific testimony of each side’s expert witness. On July 10, 2014, District Judge Timothy J. Corrigan entered a post-trial order pertaining to a Rule 60 motion in which he indicated that the expert witness retained by defendant Johnson & Johnson (JJVC) was assumed by the court to have falsely testified. Two years prior, when ruling on a Rule 50 motion at trial, Judge Corrigan had entered an order in the same case that described the expert witness for plaintiff Rembrandt Vision Technologies (Rembrandt) as seeming to “implode” on the stand and opined that this had led to a “derailment” of the trial and had “disserved” the jury due to the expert’s dramatic “change in course.” We have summarized the two orders below and provided a brief discussion of how Judge Corrigan chose to handle each instance of significantly inaccurate expert testimony.

The expert witness retained by Rembrandt provided the only evidence of a crucial element in the patent infringement claims made by Rembrandt. The expert witness undertook the testing of contact lenses, a task where methodology is of utmost importance due to the need for precise measurements and the use of highly calibrated equipment. While on the stand, the expert initially testified in accordance to his expert report during direct and initial cross-examination; upon further challenges to his methodology, however, the expert changed his testimony “on the fly” to a significantly different alternative methodology. The expert’s new explanations, especially his claim that nearly the entire method disclosed in his expert report was a “typo,” were described by the court as “bordering on the fanciful.” In response to this inconsistent testimony, JJVC verbally placed two motions before the court:

  • 1. To exclude the expert’s testimony from evidence and for judgment as a matter of law in relation to the expert’s methodology, and

  • 2. Judgment as a matter of law of no willful infringement.

The court granted both motions. Regarding the first motion, Rembrandt conceded that without its expert witness testimony, “no reasonable jury could find infringement.” Therefore, under Rule 50(a), the judge found in his 2012 ruling in JJVC’s favor that it was entitled to judgment as a matter of law. The second motion was granted in the same 2012 ruling on the grounds that Rembrandt, with a badly damaged expert, was unable to present a “legally sufficient evidentiary basis for a reasonable jury” to find that JJVC knowingly acted with the intention of infringing the patent owned by Rembrandt. Without the ability to rely upon its expert witness report, Rembrandt had too little evidence to refute JJVC’s noninfringement arguments. 

After the court addressed these issues surrounding the plaintiff’s expert witness, unexpectedly the accuracy of several elements relating to the defendant’s expert witness testimony was also called into question. After carefully evaluating evidence around the testimony, Judge Corrigan, for reasons explained in his opinion, chose to assume for purposes of his ruling that the defendant’s expert had testified falsely when he said that he personally performed tests cited in his expert report. In addition, the court assumed the defendant’s expert had testified falsely about his qualifications as an expert in performing those tests. JJVC agreed that there was “clear and convincing evidence” that its scientific expert also gave false testimony.

Rembrandt moved for a retrial based on the problems with the defendant’s expert testimony once the case had been determined in favor of the defendant. In adjudicating this request by the plaintiff, Judge Corrigan looked to Rule 60—in particular, Rule 60(b)(2) and Rule 60(b)(3)—to determine whether a new trial was required.

Under Rule 60(b)(2), a five-point evaluation was used to determine whether the requested relief from judgment would be granted. With respect to this evaluation, Judge Corrigan stated, “I believe, notwithstanding the serious misconduct by [the Defendant’s expert], this was a fair, though imperfect, trial.” Rule 60(b)(3) “provides that the court may relieve a party from a final judgment because of fraud, misrepresentation, or misconduct “by an opposing party.” Judge Corrigan opined that there must be “clear and convincing evidence” that JJVC obtained the verdict through “fraud, misrepresentation, or misconduct AND that the fraud prevented the movant from fully and fairly presenting its case.” Judge Corrigan determined that the judgment was not unfairly obtained, pointing out in his opinion that the testimony of JJVC’s expert witness was less important than the testimony of Rembrandt’s expert. While Judge Corrigan called it a “close and difficult call,” another trial was not initiated.

As part of his opinion, Judge Corrigan also pointed out that, in addition to severely disadvantaging his party, the inaccurate expert testimony given by the expert witness retained by JJVC potentially places him at risk for possible criminal investigation for perjury or related crimes, although it is noted that he has “already suffered significant professional consequences.” The court made no mention of consequences for the expert witness retained by Rembrandt.

Keywords: false testimony, fraud, Rule 60(b), scientific testimony

—Nick Prus, Stout Risius Ross, Chicago, IL



August 29, 2014

O'Bannon v. NCAA: No Slam Dunks

Navigant Consulting is a corporate sponsor of the Section of Litigation. Neither the ABA nor ABA entities endorse non-ABA products or services. This article should not be construed as an endorsement.

Is the NCAA a “joint venture” or a “cartel”? Was Ed O’Bannon at UCLA to be a “full-time student” or a “full-time athlete”? U.S. District Judge Claudia Wilken of the Northern District of California must tackle difficult questions such as these in the matter of O’Bannon v. NCAA. The trial, in its third and final week, is five years in the making and could have drastic implications for the future of high-profile college sports.

Former Bruins star Ed O’Bannon filed suit against the NCAA in 2009, alleging price-fixing for naming, image, and likeness (NIL) rights of current and former collegiate athletes. Nineteen other current and former football and men’s basketball players, including NBA legends Bill Russell and Oscar Robertson, have joined O’Bannon as plaintiffs. The plaintiffs have lost or dropped claims to damages; however, they are seeking an injunction against NCAA terms that prohibit schools from compensating players for licensing rights.

While price-fixing is normally considered illegal per seunder U.S. antitrust law, federal legislation and courts have established limited exemptions for sports industries and have placed the behavior under the rule-of-reason doctrine. Judge Wilken therefore may have to decide ultimately not only whether the NCAA engages in price-fixing, but whether doing so is necessary to preserve the “amateurism model” of college sports and whether the social benefits of this model outweigh its costs.

The plaintiffs’ key expert witness is Stanford University economist Roger Noll, who has testified on several high-profile sports litigation controversies. Dr. Noll argues that the NCAA has monopoly power in the markets for college athlete recruitment and uses that power to fix prices (at $0) for licensing rights to athlete NILs, thereby distorting both the markets for recruits and for athlete licensing rights. The defense will counter Dr. Noll’s analysis with testimony by New York University economist Daniel Rubinfeld. In addition, University of Chicago economist and Nobel laureate James Heckman has testified for the defense, providing estimates of benefits, in terms of future earnings, that student-athletes receive through their participation.

None of the three expert economics witnesses will likely come away from their court appearances unscathed. Judge Wilken asked for repeated clarifications from Dr. Noll on what court observers have described as “convoluted” arguments about harmful distortions resulting from the alleged cartel. Meanwhile, NCAA attorneys are trying to strike a statement by defense witness Dr. Heckman, who in his deposition appears to have agreed with the plaintiffs that NIL rights exist for players and are appropriated by the school (the defense argues that he was confused by the question). And plaintiffs’ attorneys have already brought up in court the fact that NCAA witness Dr. Rubinfeld explicitly calls the NCAA a cartel in his microeconomics textbook. While he will surely be pressed on this point on cross-examination, his deposition indicates that he will not deny that the NCAA is a cartel, but rather will argue that its behavior is justified on (athletic) competitiveness and educational grounds.

If Judge Wilken decides the NCAA’s behavior is illegal, she may draw from a menu of remedies. Even if she finds the players entitled to financial compensation for the use of their NILs, she need not cast aside the amateurism model entirely—granted one of the ambiguities in the case is what the boundaries of “amateurism” are. For instance, the court could allow the schools to continue to act as exclusive bargaining agents for their players, but require that the schools share revenues according to some fixed amounts or rates with all student-athletes in certain sports. In doing so, the court could continue to allow the NCAA to prohibit schools from bargaining with current or prospective students over financial compensation. Such an arrangement would mitigate social concerns over professionalizing student-athletes and the resulting inequities. For many, though, including NCAA President Mark Emmert, any such compensation of student-athletes above the NCAA allowances for educational expenses crosses the line into professionalism.

Whatever decision Judge Wilken devises will likely face appeal. Furthermore, O’Bannon v. NCAA is but one of several NCAA-related antitrust cases currently active. There are at least four suits challenging the NCAA rules that cap scholarships at less than the cost of college attendance. Another case, Jenkins v. NCAA, presents the broadest and most direct challenge to the amateurism model. With these cases consolidated in her court, Judge Wilken may very well be, as ESPN’s Luke Cyphers remarks, the most important referee in American sports.

Keywords: price-fixing, licensing rights, NCAA rules, NIL rights

Justin Lenzo, Navigant Economics and Northwestern University, Evanston, IL

Navigant Consulting is a corporate sponsor of the Section of Litigation. Neither the ABA nor ABA entities endorse non-ABA products or services. This article should not be construed as an endorsement.



July 30, 2014

Using Expert Witnesses in Valuation of Minority Shareholder Interests

When working with a client on a dissenting shareholder or minority shareholder oppression case, it is important to understand the valuation requirements that may apply and be able to communicate those requirements to your retained experts. Dissenting shareholder cases relate to appraisal rights when the majority shareholders make a decision to which the minority shareholder does not agree, and minority oppression cases relate to the dissolution of a company to which the minority owner does not agree.

“Fair value” in the context of dissenting shareholder cases is often different than “fair market value” as it is often used in other contexts. Fair value in the context of minority shareholder cases is a statutorily defined term that varies by state, and sometimes even varies between dissenting shareholder cases and minority oppression cases.

Some of the valuation factors in these cases include whether:

  • Statutes allow for a marketability discount,
  • State statutes allow for a minority discount,
  • Effects of the action causing the shareholder dissention have an impact on the fair value and if the inclusion of the effects of the action would be inequitable to either shareholder, and
  • The state requires use of “customary valuation concepts and techniques” and if they give any explanation of what those concepts and techniques are.

For example, in Florida the statute addresses the use of marketability and minority discounts in the case of dissenting shareholder cases, but the statute doesn’t address the use of the discounts in minority oppression cases. Further complicating its statute, Florida does not allow for marketability and minority discounts in cases with 10 or fewer shareholders, but does allow for their use in cases with greater than 10 shareholders.

Because of the variations between states, it is important to make sure your appraisal expert is aware of the specific statutes that relate to the case where the company is incorporated so your expert is able to make an appropriate valuation that will be accepted by the court.

For more detail on the nuances of shareholder valuation, see McGladrey’s recent webcast on “Valuation issues in dissenting shareholder cases” and tune in to their June 3, 2014, webcast “Post-closing disputes: what to know, how to avoid them” (see webpage for free CLE applicability in your state).

Keywords: litigation, experts, expert witnesses, dissenting shareholder cases, shareholder valuation, appraisal expert, minority oppression cases, minority discount

Lindsey Dean, Veris Consulting, Inc., Reston, VA


July 28, 2014

Due Diligence on Experts

Although due diligence on experts has long been a common practice in preparation for examining an expert, it has reached new heights. In the past, many lawyers have found “Googling experts” to be an effective tool for material that can be used for cross-examining an expert. Now attorneys have begun running segments of an expert’s report through Google to locate instances where an expert has plagiarized another work, according to an article in the Los Angeles Daily Journal, April 2, 2013.

Surprisingly, the most frequently cited instances have plagiarized Wikipedia. Long criticized for relying on anonymous postings that, according to its website, “anyone can edit,” Wikipedia generally offers researchers an easily understood overview of a topic. However, the reliability of the facts varies widely depending on the author. Most researchers are aware of the common rule that Wikipedia can never be the primary source relied upon for information. Thus, it is surprising that any expert has been undermined for plagiarism from Wikipedia.

The examples cited in the article by the Daily Journal are quite telling. One expert was undone in cross-examination when the opposing attorney showed an exhibit comparing a section in the expert’s report to a section in Wikipedia. In another situation, the attorney chose to use the plagiarism as grounds for excluding the witness. Although the motion was only partially successful, the other side chose not to call the expert. However, in a third situation, attorneys believed the attempt to discredit the witness did not affect the verdict because the wording was too general.

Policing all of the inputs to an expert’s report is daunting. Not only do lawyer review and provide suggestions in explication of a topic, an expert also receives input from consultants who assist the expert in developing the opinions. The requirements for an expert to avoid being “Dauberted” and the need for a report to demonstrate an understanding of the complexity of litigation make it virtually impossible for experts in most situations to single-handedly author an expert report. Further, the general policy when a group reviews a document is that the clearest statement is retained, and many experts will follow this rule unless the rewritten section is inconsistent with the underlying opinion. It would seem possible that that the language used is merely a common way of describing a complex topic. Nonetheless, the experts’ admission that they deliberately copied sections from Wikipedia seems to undermine this notion.

Not infrequently, attorneys claim that they write the first draft of a report particularly when the report must provide a technical explanation of a concept. Perhaps the attorneys are not careful to avoid copying from another source or they rely on a technical expert who is not so careful. Again the expert’s admission that they copied sections of Wikipedia suggests that this is not the explanation for the cited plagiarisms. However, an expert might find it appropriate when adopting another person’s rewriting to vet the version, but this does make the editing process even more cumbersome.

Others fault the attorney for not closely scrutinizing every word in a report. Ultimately, both the attorneys and the expert have a stake in the expert’s report withstanding scrutiny. Thus, both the expert and the attorneys need to follow the rule of research never to plagiarize and to insist that others’ input also does not plagiarize. As a further safeguard, when reviewing others’ input, the expert should consider rewriting sections where the language seems inconsistent with the rest of the report.

Keywords: litigation, experts, expert witnesses, due diligence, plagiarism, Wikipedia

Vicki Lazear, Cornerstone Research, Menlo Park, CA. This article expresses only the opinions of the author and not necessarily those of Cornerstone Research.



July 14, 2014

Sinkholes and Karst Geology: Impact on Insurance, Litigation, and Priceless Automobiles

On February 12, 2014, the world watched as dramatic video footage showed a large sinkhole consume eight prized Corvettes at the National Corvette Museum in Bowling Green, Kentucky. One of the most spectacular sinkholes prior to the Corvette event was in Winter Park, Florida, in 1981, when an entire city block fell in due to karst geology, taking with it a Porsche dealership. Residents in Kentucky and Florida are no strangers to sinkholes as both state’s geology have karst terrain, which leads to sinkholes.

More dramatic events have unfortunately led to loss of life or injury. In March 2013, a house collapsed in Tampa, Florida, into a 20-foot wide hole, taking a resident of the home to his death, while two weeks later a sinkhole on an Illinois golf course swallowed a 43-year-old mortgage broker, who was rescued by his golf partner.

Karst refers to the solutioning of limestone, which results in voids and crevices in the bedrock. These voids create unstable soil overburden conditions. Although the subsidence expressed on the ground surface can be in a variety of forms, the most dangerous are called “cover collapse events,” which form sinkholes and occur abruptly. Sinkholes or subsidence above mines also occur when the underlying mine structure becomes unstable. The mined resource is mechanically extracted and may be solution brined when the resource (e.g., salt) is soluble in water. Solution mining requires injection and extract holes where low concentrate water is pumped into the formation. The injected water dissolves the resource and creates a cavity, and then gets pumped out at an extraction well. The high concentrate water (i.e., liquor) is then sent to the processing plant to remove the resource from the water.

To date, one of the largest unprecedented events leading to litigation occurred at Bayou Corne in Assumption Parish, Louisiana, on August 3, 2012, when a two-acre sinkhole opened up as an adjacent salt mine wall failed, leading to the collapse of the salt dome. The mine is operated by Texas Brine Co., which leases the site from Occidental Chemical Corp. The sinkhole has continued to grow and has now consumed  29 acres of the former recreation area and cypress swamp. The event caused methane gas to spread into the aquifer and underneath nearly 90 homes. An evacuation was executed and remains in effect. Texas Brine Co. maintains updates on its website regarding remediation efforts.

A typical sinkhole originates from natural erosion of rock, while a salt-dome collapse from mining has the potential to lead to a major environmental disaster due to escaping gas and the magnitude of the subsidence. The U.S. Geological Survey cites salt deposit depths of 10,000 feet in the Gulf Coastal Plain of the south central United States.

On October 22, 2013, Liberty Insurance Underwriters Inc. filed suit against Texas Brine Co. in the U.S. district court in Houston, asking U.S. District Judge Lynn N. Hughes to declare that the company does not owe Texas Brine or Occidental under its policy because of prior knowledge. The Baton Rouge, Louisiana, newspaper, the Advocate, reported that Liberty claims that Texas Brine ignored warnings from its own employees and others for nearly 15 year prior to the massive collapse in 2012. Liberty faces $50 million in exposure and is Texas Brine’s third insurer in line. The primary insurer is Zurich American Insurance Co., and the second is Liability Insurance Co.

On Tuesday April 8, 2014, the Washington Post reported that just one week before the class-action litigation was set to go to trial, Texas Brine Co. reached a settlement of $48.1 million with the Assumption Parish property owners to end claims and to buy out their property. This settlement is just the beginning as there are 12 lawsuits, including those from pipeline companies and the suit involving the Assumption Parish government is still pending in the state district court over the sinkhole.

Whether natural or man-induced, sinkholes will continue to be in the news and inevitably in the courts. A better understanding of the characteristics of karst geography or mining practices may help reduce or even prevent the likelihood of these types of disasters in the future.

Keywords: litigation, expert witnesses, sinkholes, karst geography, mining, subsidence, erosion

Gennaro G. Marino, Marino Engineering Associates, Inc., Urbana, IL


July 8, 2014

Economic Experts and Estimation of Damages: The Basic Framework

Smith v. Company is a hypothetical civil suit in which Smith, the plaintiff, alleges that Company’s wrongful acts caused him to suffer economic losses. Smith could retain an economic expert to calculate his losses caused by the wrongful act (damages), which requires an understanding of applicable damage theories and relevant data analysis.

To calculate damages, the expert may compare Smith’s actual situation to a hypothetical situation, identical in all respects “but-for” the wrongful acts. Identifying such a but-for world, and consequently Smith’s losses solely attributable to the wrongful acts, requires careful economic analysis.

The expert could calculate Smith’s damages in three ways as we explain below. Using expectation or reliance measures of damages, the expert could calculate Smith’s loss-based or compensatory recovery, or he could calculate Company’s ill-gotten gains from the wrongful acts as a restitution measure of Smith’s damages. For expository ease, we presume Company’s liability and a different wrongful act in discussing the various damage calculations.

1. Expectation or Benefit-of-the-Bargain Measure

Company and Smith entered into an agreement according to which Smith would be the exclusive licensee of a particular Company technology. Smith started selling a product incorporating that technology but soon found that Company also licensed the technology to a rival. Smith sued Company for breach of contract and claimed lost profits.

In this example, the economic expert would need to determine what the but-for market for Smith’s product would have been without the rival’s product. The expert may also determine the share of the market that Smith lost and/or the decline in the price of Smith’s product resulting from the newfound competition. The expectation damages would represent the difference between Smith’s actual profits and his expected but-for profits. Such damages would restore Smith to his economic position, absent the breach.

2. Reliance Measure

Smith invested in Company, a drug manufacturer, which at the time was developing a new drug. Smith later learned that the drug was a failure when it was announced that the drug had failed FDA trials. Smith sued Company for damages, alleging it had known but failed to properly disclose the drug’s poor prospects when he had made the investment. Under the reliance measure, Smith’s damages could be calculated as his actual investment in Company less the but-for investment he would have made even if he were aware of the new drug’s impending failure. This damage award would restore Smith to his economic position had Company not made the misrepresentation in the first place.

To determine Smith’s but-for investment, the expert could in this case examine the extent to which the stock prices of public pharmaceutical companies had on average declined following similar announcements. Such analysis would have to exclude the impact of market and industry factors using statistical methods such as regression analysis, and the impact of other news that could also have simultaneously impacted these firms’ stock prices, which requires careful analyses of all relevant events related to the firms studied.

3. Restitution or Disgorgement Measure

Alleging that Company had infringed one of his trademarks, Smith could claim that Company’s incremental profits from the use of the infringed trademark constituted “ill-gotten gains” or “unjust enrichment” as restitution damages.

To calculate such damages, the expert would have to identify Company products associated with the trademark, and Company’s actual and but-for profits from such product sales. To calculate but-for profits, the expert would have to identify noninfringing factors (i.e., factors other than advertising and brand identity associated with the infringed trademark) that could influence a consumer’s decision to buy Company products and the profits attributable to such factors. Such restitution damages could not be duplicative of Smith’s other damage claims.

It is clear, even from such highly stylized examples, that calculating economic damages can be extremely complex. The expert must know the applicable economic and financial theories to construct a proper but-for situation, and the necessary data, which may come from public sources, commercial data vendors, professional/trade organizations, or parties to the litigation, which may entail appropriately-worded discovery requests. Hence, parties may engage economic experts even at the discovery stage of litigation. The expert must also know statistical methodologies such as correlation, sampling, and regression analysis to analyze the data. The expert must ensure that the methodology to calculate damages is well-accepted, and that the computation is based on proper documents and supporting evidence so that it could survive the challenges posed by the counterparty.

Keywords: litigation, expert witness, damages, economic experts, restitution, reliance damages, expectation damages

Debo Sarkar, director of finance and securities practice, Navigant Consulting


May 5, 2014

Expert Methodologies: Must They Be Subject to Peer Review?


In a January 2014 opinion in Richard A States Jr. v. Fernwood Hotel and Resort (12–0906), the U.S. District Court for the Middle District of Pennsylvania addressed whether aspects of Daubert must be applied in evaluating the admissibility of expert testimony under Federal Rules of Evidence 702. 

In this case, the plaintiff was struck in the head by ceiling glass at a restaurant and claimed personal injury and emotional distress damages, and hired an expert to testify on the cause of the falling glass. The defendant filed a Daubert motion to exclude the expert, noting, among other things, that the court must consider “whether the [expert’s] method has been subject to peer review.”

The plaintiff’s expert was a practical expert in the field, and not a PhD engineer/academic type. The expert relied on his own experience in the glass industry to form the basis for his opinion, as opposed to employing accepted engineering practices. As the court pointed out (citations omitted):

[The expert] has been in the glass business for thirty-nine years. He began as a glazier in the 1970’s and has since run companies engaged in glass installation for both homes and offices. Every year, he attends classes in the glass field to keep current on new materials. He oversees and troubleshoots glass installation projects and is familiar with building codes in the tri-state New York area. He has worked with tempered glass and with greenhouse structures similar to the structure in Wintergreens Restaurant. Throughout his career he has trained over 200 apprentice glaziers, and builders rely on him for his glass expertise.

The court concluded that while the expert’s employed method was based on his own experience, and was not a methodology subject to peer review, it did not preclude his testimony. The court seemed to base its decision on his practical experience, and the actual efforts the expert performed as part of his work in the litigation.  The court provided perspective on some of the reasons why in this particular circumstance, it was not required for the expert to have a methodology that is subject to peer review.  Some of these reasons may be helpful when considering whether hiring a practical expert is the right answer for your case. (citations omitted).

[The expert] rendered his opinion after a careful review of the evidence. It is not based on a scientific hypothesis that can be published or peer reviewed. His opinion is supported, though, not by a testable theory, but by his understanding of glass products. [He] has extensive experience with tempered glass, gleaned from his career in the industry, installing glass, especially in greenhouse structures similar to the one from which the glass fell on Plaintiff States, and serving as a glass consultant on major projects. His thirty-nine years of personal and practical experience support the reliability of his opinion. As such, many of the factors Defendants ask the Court to examine—peer review, publication, potential rate of error, general acceptance, standards controlling the technique’s operation, and the relationship of the technique to reliable methods—do not apply to [his] testimony.

Because his opinion is based solely on his experience, however, the court has examined [his] qualifications and the non-judicial uses to which his opinions have been put. As discussed, [he] has experience in the glass field in both the private and commercial context. What most impresses the court is his experience with tempered glass, the kind of glass at issue in this case, and his experience with greenhouse-like structures, the type of structure at issue in this case. His years of experience and relevant expertise provide the necessary support for his opinions. Also, his opinions have been requested in a non-judicial context, as he has been brought on as a consultant for glasswork in both homes and offices.

Keywords: litigation, expert witnesses, Daubert, 702, peer review, rate of error, general acceptance, expert, litigation

Michael A. Fahlman, Grant Thornton, LLP, Phoenix, AZ


April 30, 2014

Anadarko Settles Tronox Fraudulent Transfer Litigation with $5 Billion Payment


Anadarko Petroleum Corp. (Anadarko) announced on April 3, 2014, that it had agreed to pay $5.15 billion to settle claims arising in litigation brought by the United States and the Anadarko Litigation Trust pursuant to the spin-off and separation in 2005–2006 of subsidiary Kerr-McGee Corp.’s (Kerr-McGee’) chemical business, Tronox Incorporated (Tronox), from its oil and gas business, together with the legacy environmental and tort liabilities of both. The essence of the dispute, originally filed on May 12, 2009, in the bankruptcy proceedings of Tronox and its subsidiaries, and tried in the U.S. Bankruptcy Court for the Southern District of New York in a case of first impression between May and September 2012 that required 34 days and the testimony of 28 witnesses, of which 14 were experts, was that Anadarko and Kerr-McGee had fraudulently transferred valuable assets out of Tronox, leaving Tronox insolvent and unable to support the environmental liabilities left behind. The settlement, coming on the heels of the bankruptcy court’s ruling in December 2013 that Anadarko, which acquired Kerr-McGee shortly after the spin off of Tronox for approximately $18 billion, was liable for damages of between $5.15 billion and $14.5 billion, resolves all claims against Kerr-McGee and provides Anadarko with contribution protection from third-party personal litigation claims from the more than 4,000 sites covered by the settlement.

Preet Bharar, U.S. Attorney for the Southern District of New York, commented on introducing the settlement that “If you are responsible for 85 years of poisoning the earth, then you are responsible for cleaning it up. That’s why this case was brought. And that’s why the defendants are paying a record $5.15 billion—to fund that colossal cleanup and to make things right.  The company tried to keep its rewards and shed its responsibilities by playing a corporate shell game, putting its profitable oil-and-gas business in a new entity and leaving behind a bankrupt shell holding the environmental liabilities of the defunct, polluting lines of business.  The company tried to cleanse its valuable business from its toxic legacy liabilities. Now the defendants will pay to cleanse the land and water.”

More specifically, according to the U.S. Department of Justice the settlement amount, approximately $1.17 billion of which is interest at a rate of 6 percent, represents the largest payment for the cleanup of environmental contamination in history, with $4.4 billion slated to provide for environmental cleanup claims in accordance with a 2011 agreement specifying allocation percentages between the United States, the bankruptcy estate, and certain state, local and tribal governments. Of the larger recoveries, $1.1 billion is to be paid to a trust for the cleanup of two dozen locations dispersed throughout the United States, including a Superfund Site in Columbus, Mississippi.; $1.1 billion is to be given to a trust for the cleanup of a former chemical manufacturing site in Nevada associated with contamination of Lake Mead; $985 million will be allocated to the U.S. EPA to finance the cleanup of 50 abandoned uranium mines around the Navajo Nation; $224 million will be paid to the U.S. EPA for the cleanup of thorium contamination at a Superfund site in New Jersey; while $217 million is to be paid to the Federal Superfund for costs incurred by the EPA in the cleanup of the Federal Creosote Superfund Site in Manville, New Jersey.

While the settlement must be approved by both the Bankruptcy and Federal District Courts, the news was greeted with enthusiasm by the stock market, with Anadarko’s shares increasing in value by nearly 15 percent on the afternoon the settlement was announced, adding more than $5 billion to the company’s market capitalization.

For more on this case, click here.

Keywords: litigation, expert witnesses, settlement, Anadarko, Tronox, environmental liabilities, Kerr-McGee Corp, transferring valuable assets

Boris J. Steffen, Gavin/Solmonese LLC, Washington, D.C.


April 24, 2014

Foreseeability vs. Hindsight


Historically in securities litigation, attorneys and experts have utilized various damage theories to address suitability and other theories of liability, including, among others, “out-of-pocket” and “market adjusted theories.” These damages theories measure damages based on hindsight rather than foresight. In practice, however, hindsight is not available at the time the risk analysis and evaluation occurs. Therefore, a proper calculation of potential damages for a claim alleging suitability as well as others should be to determine what was foreseeable at the point of the recommendation.

Many cases have been brought against those in the financial industry regarding portfolio losses during the financial crisis in 2008 as well as other time periods. The market meltdown is an extreme instance, which exemplifies an unforeseeable event. While claimants wish to recover the entire amount of their loss, case law, such as Hadley v. Baxendale, teaches that only foreseeable damages are recoverable. This begs the question, was the financial crisis or excess loss foreseeable by a reasonable person at the time of recommendation? And also at the point of recommendation, were the objectives, and therefore the risk that was foreseeable, suitable for that client?

To answer these questions, one would look at the information that was available at the time. As an example, prior to the fall of 2008, an investment advisor knew one thing for sure: the historical performance of the investment or strategy they recommended for their client. From this, one can calculate historical annualized return (mean) and historical volatility (measured by standard deviation). The standard deviation of historical performance is used by investors to predict the range of returns that are most likely for a given investment and is the standard of the industry.

Plaintiffs have utilized hindsight to bring claims against their brokers and advisors that their portfolios carried excess risk making them unsuitable and thereby causing damages However, one can use the historical returns and volatility to create a normal distribution and calculate the foreseeable risk at the point of a recommendation. A normal distribution allows someone to find the probability that a portfolio will have a certain return. The empirical rule uses a normal distribution and states that 99.7 percent of the data will fall within three standard deviations of the mean. In other words, one can determine the maximum foreseeable downside risk by using these metrics. Anything beyond this would not be reasonable for an advisor to foresee. Additionally, one can determine a fund’s suitability for a client by asking if that level of risk is acceptable given the client’s objectives.

For example, assume a client has an objective of growth and a moderate risk tolerance. The client has over 12 years of experience investing in an equity portfolio benchmarked against the S&P 500. The broker recommends an investment into a managed program that has, historically, outperformed the S&P 500, with slightly more risk. At the point of this recommendation, what was the foreseeable excess risk and return?

The chart below uses the historical performance of the recommended managed program in comparison to its benchmark. Using this, an investment advisor can make suitability determinations by comparing potential upside risk with potential downside risk and by using the maximum foreseeable downside risk. The hypothetical portfolio has a mean of 14.83 percent and a standard deviation of 17.75 percent. The benchmark (the S&P 500) has a mean of 10.07 percent and a standard deviation of 14.53 percent. As can be seen in the chart, while the advisor recommends additional risk, the excess return of the portfolio outweighs the excess risk. Since we know that three standard deviations below the mean will account for 99.7 percent of all outcomes, the returns in the table below can be compared to estimate potential excess loss in dollars by applying the difference to the initial investment amount. Here, 99.7 percent of the time, the acceptable risk of a growth portfolio (i.e., the S&P 500) was $335,200. The foreseeable risk of the recommended manager was a maximum of $384,200. Therefore, the excess risk of $49,000 could be the only foreseeable damage.

As demonstrated by this example, standard deviation has been utilized by the industry for many years as a generally accepted method to quantify and calculate risk. Applying that measurement to an appropriate index, which represents the client’s objective, can provide reasonable foreseeability of 99.7 percent of the possible outcomes. These outcomes define excess risk and reward over and above the client’s agreed upon or stated objective and avoid importing after the fact guesswork as to who or what was the better management tool.

                                                                                 Potential Excess Losss


Keywords: litigation, expert witnesses, damage theories, liability, foreseeability, hindsight, risk, investment advisor recommendations, financial crisis, portfolios, securities industry

Jay Rosen, Capital Forensics, Inc., Arlington Heights, IL


March 25, 2014

Apple v. Samsung—Try, Try, Try, and Try Again


On March 6, in a 42-page opinion, Judge Lucy Koh denied Apple’s renewed motion for a permanent injunction. Apple, Inc. v. Samsung Electronics Co., et al, No. 11-CV-01846-LHK (N.D. Cal 2014).  Apple had requested that the court bar 23 of Samsung’s products from the United States based on their infringement of three Apple utility patents. The patents-in-suit are colloquially referred to as the “snap-back” patent, the “pinch-to-zoom” patent, and the “double-tap-to-zoom” patent. 

The battle between these two parties and the history of motions regarding injunctions is lengthy.  In the present motion, the court provides a timeline starting in December 2011 when Judge Koh denied a motion filed by Apple for a preliminary injunction based on other patents. The Federal Circuit, in one of three decisions it made regarding injunctions in this and a related matter involving the same parties, had vacated and remanded with respect to one of the three utility patents at issue in that motion.  In upholding Judge Koh’s decision with respect to the other intellectual property the Federal Court stated that “[t]o show irreparable harm, it is necessary to show that the infringement caused harm in the first place. Sales lost to an infringing product cannot irreparably harm a patentee if consumers buy that product for reasons other than the patented feature.” (Id, cited at 5).

Judge Koh refers to the three Federal Circuit decisions as Apple I, Apple II and Apple IVApple III is the decision she rendered denying a motion for permanent injunction after the jury decision was reached in the first trial between the parties. Among other factors that favored Samsung, Judge Koh opined that Apple failed to prove a causal nexus between Samsung’s infringement and Apple’s alleged harm. Because the causal nexus was central to the present motion, Judge Koh describes the information Apple presented in Apple III in its attempt to show a causal nexus:

1) information showing the importance of ease of use as a factor in phone choice, which the court found was too general to establish a causal nexus; 2) evidence of deliberate copying by Samsung, which the court found was not evidence of a causal nexus because it only showed what Samsung thought would generate sales and not what actually did generate sales; and 3) a conjoint survey presented by an Apple expert witness, which the court found was evidence that consumers were willing to pay for the patented features but not that consumers would change their behavior based on whether the features were included in the phones. 

In Apple IV, the Federal Circuit affirmed the district court’s ruling as to the design patent and trade dress claims, but vacated and remanded as to the utility patents-in-suit. Apple renewed its motion for a permanent injunction for Samsung’s infringement of its utility patents, resulting in the present opinion. Apple submitted the same three groups of evidence that it presented in Apple III.  The court describes in detail the “group three” evidence—the conjoint survey conducted by Apple’s expert—because in Apple IV the Federal Circuit agreed that the evidence in groups one and two could not establish a causal nexus. 

The conjoint survey conducted by Apple’s expert is able to measure generally a consumer’s willingness to pay for a given feature, but not the actual amount a consumer would be willing to pay. That is because the survey only measures the demand side of the equation, and is not able to analyze the interaction between market demand and market supply factors. The court also found that the survey is not able to calculate whether any price increase associated with the patented features would be significant. In addition, the court opined that the methods by which the patented features were presented to the survey respondents likely led to inflated measures of willingness to pay for the patented features. Ultimately the court concluded that Apple had not met its burden of proving the causal nexus necessary to establish irreparable harm and merit a permanent injunction.

Keywords: litigation, expert witnesses, Apple, Samsung, Judge Koh, permanent injunction

Jennifer Vanderhart, FTI Consulting, Washington, D.C.


March 11, 2014

Must Treating Physicians Be Paid For Their Testimony?


Many courts have wrestled with the issue of whether physicians who treat the injuries of a party should be compensated as experts when being compelled to testify. Whether physicians must be paid depends on whether they are testifying as expert or fact witnesses. As a practical matter, however, this question is not always clear-cut. The Arizona Court of Appeals recently took up this issue and held that a treating physician is only an expert witness when the facts known and opinions held by the physician are developed in anticipation of litigation.

In Sanchez v. Gama, 233 Ariz. 125, 310 P.3d 1 (Ariz. Ct. App. 2013), the plaintiff suffered injuries from an auto accident with Sanchez. The chiropractor who treated the plaintiff for her injuries was disclosed as both a fact witness and as an expert witness. When the defendant subpoenaed the chiropractor’s deposition testimony, the chiropractor requested that he be paid as an expert witness. The trial court agreed with the chiropractor and ordered the defendant to pay him $300 per hour as an expert witness for his deposition testimony. The defendant appealed.

The Arizona Court of Appeals reversed the trial court order, finding that the chiropractor was testifying as a fact witness, not as an expert. Even though the chiropractor was listed as an expert witness by the plaintiff, the court of appeals reasoned that this label was not determinative of the chiropractor's status. Rather, it is the substance of the testimony that determines the physician's status because Rule 26 of the Arizona Rules of Civil Procedure states that a witness is an expert only if retained specifically in anticipation of litigation. The court pointed out that the chiropractor was not an expert because his testimony was almost entirely based on information the chiropractor observed during his treatment of the patient, which was independent of the litigation. While the court recognized a few jurisdictions who have adopted a rule that testifying doctors are always entitled to compensation as experts, the court of appeals in Sanchez fell in line with the majority of jurisdictions who have addressed the issue.

Keywords: litigation, expert witnesses, fees, reimbursement, deposition testimony, Rule 26, treating physician, fact witness

Edward A. Salanga and Edward J. Hermes, Quarles & Brady LLP


March 5, 2014

Program on Maximizing Effectiveness of Expert Witnesses a Success


The Expert Witnesses Committee hosted a Regional CLE Workshop on Wednesday, February 26 in Berkeley, California titled “Expert Witnesses: Maximizing Their Effectiveness.” The seminar consisted of three panels and each panel was comprised of attorneys, experts, and consultants to attorneys.

The first panel addressed how attorneys identify a need for expert testimony and what factors should be considered in choosing an expert. This panel discussed how experienced litigators determine what types of experts are needed to develop and tell the party’s trial story. The panel also discussed terms of retention, identifying the most effective uses of experts during discovery and in case development, streamlining workflow, and dealing with cost and budgeting pressures. They also discussed how they use experts in their cases.

The second panel considered how attorneys should communicate and work with experts in the wake of the 2010 Amendments to Federal Rule of Civil Procedure 26. This panel discussed attorney-expert communications, expert discovery, and motion practice since the 2010 Amendments, which were intended to limit expert discovery by protecting from disclosure draft reports and certain communications between attorney and expert. Panelists discussed whether and how that goal has been achieved as well as issues that persist in spite of the rule changes. The general sentiment was that the biggest change was protection of expert drafts. However, the changes did little to protect communication between an expert and his support as well as communications between the attorney and the expert’s support.

The third panel addressed the important holding from Daubert v. Merrell Dow Pharma., Inc., 509 U.S. 579 (1993), that, “[e]xpert evidence can be both powerful and quite misleading because of the difficulty in evaluating it.” This panel, comprised of experts, attorneys, and trial consultants, explored issues about the goal of expert testimony and discussed the most effective uses of such testimony.  The panel further discussed the impact that expert testimony can have on judges and juries in cases requiring fact-finding on sophisticated and complex issues. There was a particularly lively discussion about what characterizes an ideal expert.

Keywords: litigation, expert witnesses, expert testimony, Federal Rule of Civil Procedure 26, 2010 Amendments, expert discovery, Daubert v. Merrell Dow Pharma, Inc., panel

Vicki Lazear, Cornerstone Research, Menlo Park, CA 


February 25, 2014

Canadian Supreme Court Issues Ruling in Moore v. Getahun


In Moore v. Getahun 2014 ONSC 237 (CanLII), involving a medical-malpractice action, the Ontario Supreme Court released a decision including an injunction precluding litigation counsel from reviewing draft reports with expert witnesses.

Common practice for many expert witnesses includes litigation counsel’s review of report drafts before final submission, to ensure accuracy of case facts and legal issues. However, based on Madam Justice Janet Wilson’s recent decision, this may no longer be possible in Canada. During trial, it emerged that one of the defendant’s experts submitted their report to counsel representing the defendant, asking for comments. A 90-minute phone conversation ensued, where counsel suggested certain edits that were ultimately made by the expert before final submission of the report to the plaintiff’s counsel. 

Judge Wilson opined that this is an improper practice and may harm an expert’s credibility and neutrality, stating, “The purpose of Rule 53.03 is to ensure the expert witness’ independence and integrity. The expert’s primary duty is to assist the court” and “I conclude that counsel’s prior practice of reviewing draft reports should stop. Discussions or meetings between counsel and an expert to review and shape a draft expert report are no longer acceptable”.  She further held that after submission of the final report, if suggestions, clarifications or alterations are needed, these should be fully disclosed in writing and made available to the opposing counsel.

The decision is at odds with the U.S. Federal Rules of Civil Procedures, which were amended in 2010 and “protects drafts of any report or disclosure required under Rule 26(a)(2), regardless of the form in which the draft is recorded.”  The rule also elaborates that all communications between counsel and any witness are protected, unless they are related to the expert’s compensation, facts or data that counsel provided and the expert considered in forming their opinion, or assumptions that counsel provided and the expert relied upon in forming their opinion. Additionally, the committee notes for the amendment elaborate that, “refocus of disclosure on ‘facts or data’ is meant to limit disclosure to material of a factual nature by excluding theories or mental impressions of counsel.” Based on this language, general communications between counsel and an expert regarding overall report comments and theories may be protected.  As we can see, while the United States has been trending toward greater protection of expert witnesses in recent years, Canadian law is moving in the opposite direction based on Judge Wilson’s decision. Experts who perform work in Canadian courts should be aware of this distinction.

The ruling, while intending to ensure transparency and independence of expert witnesses, may be more harmful than helpful.  Expert opinions are largely based on hypotheses, assumptions, and fact-finding, where an expert may change their methodology several times before settling on a conclusion. Therefore, it is often necessary to review opinions with peers and other professionals before submitting a report.  While it is unclear how the ruling will be adopted, it will be interesting to review and evaluate its impact on how Canadian experts develop their opinions and draft reports.

Keywords: litigation, expert witnesses, draft reports, Canadian Supreme Court, Rule 26

Candice Quinn, Stout Risius Ross, Chicago, IL


February 18, 2014

Seventh Circuit Reverses Decision for Reliance on Flawed Expert Testimony


“Judges and other lawyers must learn to deal with scientific evidence and inference.” Caterpillar Logistics, Inc. v. Perez, et al., No. 13‐1106, slip op. at 4 (7th Cir. Dec. 12, 2013). In Caterpillar v. Perez, the U.S. Court of Appeals for the Seventh Circuit admonished an administrative law judge for relying on the flawed testimony of the Department of Labor’s expert witness. The court vacated a citation issued by the administrative law judge to Caterpillar for its failure to report a packing department employee’s work-related injury, epicondylitis, or elbow inflammation, because the administrative law judge adopted the “minority view within the medical profession” and disregarded the majority view without any logical explanation.  Whereas epidemiological studies found, and Caterpillar’s own experience demonstrated, that this condition is caused by the combination of repetitive motion and “force” (a defined term), DOJ’s expert testified that the employee developed the condition without exerting “force.”

The court did not reject the expert’s opinion because it reflected a minority view but because the expert lacked a sound analytical framework. The expert should have used statistical analysis to attempt to demonstrate that the incidence of epicondylitis among workers who undertake repetitive motion is greater than for people whose jobs do not entail repetitive motion. Instead, he disregarded Caterpillar’s experience that this was its only packing operations employee to develop epicondylitis, ignored contrary scientific literature, and failed to provide any evidence to support his theory. 

Litigators and their experts should be aware that the Seventh Circuit will reject an opinion grounded in an “un-scientific and anti-intellectual” framework.  Id. at 5.

Keywords: litigation, expert witnesses, opinion, flawed testimony, statistical analysis, minority view, majority view, evidence

Adam Diederich, Schiff Hardin, Chicago, IL


February 3, 2014

SDNY Judge Denies Class Certification in a Major Securities Fraud Class Action


Recently, the Southern District of New York denied class certification to a shareholder plaintiffs group in a securities class-action lawsuit accusing the German bank, Deutsche Bank AG, of misrepresenting the risks of mortgage-related investments that were central to the financial crisis. IBEW Local 90 Pension Fund v. Deutsche Bank AG et al, U.S. District Court, Southern District of New York, No. 11-04209.

To obtain a class certification in securities class actions, plaintiffs must prove that the security at issue traded in an efficient market. Typically, plaintiffs’ experts conduct a mechanical review of some factors that are considered intuitive “proxies” of market efficiency as “evidence” and class certification is almost always granted to the basis of this preliminary review.  Once a class is certified, defendants frequently settle to avoid the magnified costs and risks associated with a trial, and the merits of the case (including the proper application of legal presumptions) are rarely examined at a trial.  Thus, it is critical to class action plaintiffs that they survive this threshold inquiry.

In IBEW Local 90, the court focused extensively on the qualifications of the expert hired by the plaintiffs, Michael Marek, noting that Marek's expertise came from acting as an expert in securities class actions, which she said was "not sufficient." The court added that Marek had “not been specially trained by academics in the field; he has not written articles, taught any courses, or conducted any relevant research.”  The decision has clear implications about what constitutes sufficient qualification to provide expert witness testimony and indicates that class-action plaintiffs should be careful to conduct a more searching review, even at early stages of litigation.

Keywords: litigation, expert witnesses, securities class actions, class certification, qualifications, Deutsche Bank AG

Sumon C. Mazumdar, Navigant Economics, Oakland, CA


January 27, 2014

Motion for Summary Judgment Granted for Failure to Retain Damages Expert


Damages experts are a routine part of litigation, as the issue of financial losses is often complicated. A variety of subject-matter experts and financial experts are a standard feature in litigation to sort out the issues and help judges and juries understand the numbers. But what if there is no damages expert? Can a proper award of damages be made?

In Unicom Monitoring LLC v. Cencom, Inc., the District of New Jersey granted defendant’s motion for summary judgment on plaintiff’s claim for damages because the plaintiff failed to show that it could prove damages—in large part because the plaintiff failed to retain a damages expert.

In this case, Unicom Monitoring, LLC was granted summary judgment for its patent-infringement claims against Cencom, Inc. With respect to damages, the plaintiff alleged that it could prove the revenue and profits earned by Cencom related to the infringement, and the reasonable royalty that Unicom was entitled to because of the infringement.

However, Unicom did not identify a damages expert or submit a damages report during the case. While the company claimed it was entitled to a 30 percent royalty on the revenue earned by Cencom via the infringement, it did not support that claim with expert testimony or any other credible evidence. Cencom argued that since Unicom did not present any evidence that the award it was seeking was reasonable, the court should award no damages.

The court pointed out in its decision that the prevailing claimant should receive damages which are adequate to compensate for the infringement.  The decision also indicated that establishment of a reasonable royalty rate does not necessarily require expert testimony.

The plaintiff claimed the reasonable royalties were $36,000 to $37,000.  However, in this particular case, the court determined that Unicom presented no evidence whatsoever to support its claim for damages. Since the plaintiff failed to present any evidence on which a reasonable royalty calculation could be done, no damages were awarded.  

Although the case was pending since 2006, the plaintiff decided that no damages expert was necessary.  Given the rather small damages at issue in the case, one might imagine that it may not have seemed cost effective to retain a damages expert. Yet when faced with the alternative—an award of zero dollars—an expert witness may have be a good investment.

Keywords: litigation, expert witnesses, damages, reasonable royalties, awards, patent infringement, summary judgment

Tracy L. Coenen, Sequence Inc. Forensic Accounting, Milwaukee, WI


Navigant Consulting, Inc. is a sponsor of the Section of Litigation, and this article appears in connection with the Section’s sponsorship agreement with Navigant. Neither the ABA nor ABA sections endorse non-ABA products or services.  

January 22, 2014

New Professional Certification Released


Construction litigators understand that the outcome of many cases rests, in part, on expert witnesses who are called upon to perform an analysis of schedule delay, cost overruns, standard of care, or other project-related factors.  They will then have to explain their analysis in understandable terms to the trier of fact. 

AACE International (formerly known as the Association for the Advancement of Cost Engineering) has released a new professional certification—the Certified Forensic Claims Consultant (CFCC)—that allows individuals to demonstrate, through documented experience and rigorous testing, that they are ready to assume the role of testifying expert in matters that require cost-engineering expertise. 

Individuals holding the CFCC certification represent themselves as experts in one or more aspects of cost engineering, project controls, and project or program management.  The requirements to sit for this certification examination are more stringent than other professional certifications, which certify competency, not expertise.  The requirements are:

Education: A four year college/university degree from an accredited institution of higher learning in engineering, building construction technology, business, economics, construction management, architecture, building sciences, computer science, mathematics, or a related field.

Experience:  A minimum of 10 years of verifiable experience in the construction- claims arena. The applicant’s experience must have been centered on drafting and submitting change orders, time extensions, and claims. The applicant must demonstrate that he or she actively and consistently participated in the entire range of dispute activities, from claims preparation and submittal through resolution in mediation, arbitration, or litigation.

Post Education Professional Certifications:  All candidates must have at least one of the following professional certifications:

• Certified Cost Professional

• Planning and Scheduling Professional

• Certified Construction Manager

• Certified Professional Constructor

• Professional Engineer

• Registered Architect

• Chartered Quantity Surveyor

References: All candidates must submit four letters of recommendation from industry professionals (external or in-house legal counsel or attorneys and/or clients, past or present) who can attest to the candidate’s claims-related experience.

Written Report or Professional Paper:  A candidate must submit:  (a) an expert report prepared by the candidate and submitted to and accepted as evidence in a matter in arbitration or litigation; (b) a formal claim prepared by the candidate; or (c) a claims-related professional/technical paper concerning an issue in which the candidate has personal experience, and that has been published or accepted for publication by a professional journal. 

Cannons of Ethics:  All candidates for the CFCC certification must review, accept, and agree to abide by both AACE’s Cannon of Ethics and the ASFE’s “Recommended Practices for Design Professionals Engaged as Experts in the Resolution of Construction Industry Disputes.” 

Once these requirements are met, candidates must sit for a rigorous one-day exam consisting of multiple-choice questions related to legal knowledge; dispute resolution and rules of evidence; cost damages; lost productivity analysis; planning, scheduling and delay analysis; project management and documentation; and ethics and professional practice.

Each candidate must also respond to four essays questions.  The scenarios outlined in each essay question are similar to those in which a testifying expert is customarily involved.  The purpose of this portion of the certification exam is to explore the candidate’s experience, knowledge, and analytical and communication skills more thoroughly than can be achieved through the multiple choice questions. 

The CFCC certification may be of significant assistance to counsel in construction disputes in identifying and qualifying experts.

Keywords: litigation, expert witnesses, construction, certification, Certified Forensic Claims Consultant (CFCC), AACE International

James G. Zack, Jr., Navigant Consulting, Inc., Boulder, CO


January 21, 2014

Experts Play a Critical Role in Proposed Mining Applications


Recent news headlines include: “Citizen Suit Watch: Supreme Court of Illinois Rejects Attack on Mining Permit Reclamation Plan”, “Sierra and Canton Area Citizens Save a Tributary from Strip Mining”, “Citizens group wants plug pulled on Alaska Mine” and “Appalachian Coalfield Leaders Join Tar Sands Pipeline White House Protest”.

These are but a few of today’s headlines about the conflict between regulators, mining companies, and mining-concerned groups in the United States. Emotions can run high and technical engineering information can be misinterpreted by well meaning “experts” within these groups. Potential environmental effects typically at issue here are those related to water pollution, loss of groundwater resources, and damaging effects from ground subsidence.

This problem will persist in the future. In the United States, MSHA statistics state that there were 819 active underground mines and 13,464 surface mines across the nation (2010). In addition, it is estimated there are over 500,000 abandoned mines in the United States. Due to the United States’ use of fossil fuels and the predicted increase in the export of U.S. coal there will be a need for continued exploration of reserves in the future. U.S. Energy Information Administration (EIA), Annual Energy Outlook: Early Release.

Regulators are caught in the middle between the mining company and land interest groups. State regulators have some qualifications to review a mine permit application, but typically do not have sufficient resources to hire an expert to evaluate the vast number of environmental and engineering analyses presented in a permit application; despite the important role such experts play. The problem of insufficient funding is frequently compounded by concerns of legal action by the mining company if the regulator’s review of the application results in negative impact, especially when sovereign immunity does not apply.

From an environmental group or surface interest perspective, environmental and engineering experts are difficult to recruit as most experts find it a conflict of interest to be associated with non-mining entities. In addition, many of these groups do not have the funding capability to hire the appropriate expert(s). The difficulty these groups face in hiring experts compounds the challenges they face in pursuing their agenda.

For mining companies, environmental specialists or engineers are not difficult to contract as funding is typically not a problem, especially with the potential of a long-term business relationship with the client. However, in this case, there is still the problem of selecting the appropriate expert(s). Faulty or incomplete analyses can significantly delay the approval of the mining permit. This can be a considerable economic liability to the mining company.

As increased conflicts between regulators, mining companies and mining concerned groups in the United States continue, the need for precise analysis of scientific and engineering factors will remain a key factor in the peaceful and safe resolution of these complex issues. Experts with extensive experience in the area will remain critical players as the various stakeholders pursue their respective interests. These experts must be mindful of not just the scientific and engineering facts at issue, but also the competing interests of the various industry groups, regulators, and public interest advocacy organizations.

Keywords: litigation, expert witnesses, mining companies, regulators, land interest groups, engineering experts, environmental experts, permit applications, competing interests

Gennaro G. Marino, PhD, P.E., D.GE, Marino Engineering Associates, Inc., Urbana, IL


December 19, 2013

Failure to Use Expert Early in Case Results in Denial of Class Certification


When working with expert witnesses, it is important to have discussions early and often with the expert as to the underlying principles of the case. Having these discussions early on can help both the lawyer and the expert hone in on where the case needs to go to ultimately be successful. Sometimes not having these discussions can have negative consequences as demonstrated in a recent order denying class certification to the plaintiffs in In Re BP P.L.C.

In In Re BP P.L.C., having an expert involved early on could have helped the plaintiffs gain the class certification they were hoping to obtain from a Texas federal judge. In this case, the plaintiffs discussed a proposed damages model in court before properly vetting the model with an expert. The plaintiffs intended to use an “event study” which is a statistical analysis based on a dependent variable.

In the BP case, the defendants hired an expert to actually do the event study analysis as the plaintiffs proposed and showed that it did not “accurately reflect any liability findings” in the case.

Citing the Supreme Court’s Comcast Corp. v. Behrend ruling, the judge determined that the damages theory was not specific enough to apply to all members of the class but also did not allow damages to be “measured on a class-wide basis consistent with [the plaintiffs’] theories of liability.” Had the plaintiffs worked with an expert early on, they would have been able to ensure their proposed damages methodology would apply to the liability theories in question and modified their liability and damages theory accordingly.

The plaintiffs have been given 30 days to supplement their original motion to obtain class certification.

Keywords: litigation, expert witnesses, class certification, damages theory, methodology

Lindsey Dean, Veris Consulting, Reston, VA


December 18, 2013

Expert's Resignation Does Not Moot a Pending Daubert Challenge


In Buckley v. Deloitte & Touche USA LLP, the Second Circuit issued a summary order (No. 12-3522-CV; Oct. 16, 2013) affirming the district court’s exclusion of the testimony of the plaintiff’s corporate-restructuring expert witness, despite that expert’s earlier resignation from his engagement.


This tort and contract action arose out of the auditing work done jointly by the defendants Deloitte & Touche USA LLP and Deloitte & Touche LLP on behalf of the plaintiff DVI, Inc., a now-defunct health-care finance company. The bankruptcy trustee of DVI, Inc. asserted that the defendants’ conduct caused DVI’s collapse. The defendants sought to exclude the testimony of the plaintiff’s corporate-restructuring expert witness, and also moved for summary judgment. The district Court excluded the expert report (888 F.Supp 2d 404 (SDNY 2012)), saying it lacked the factual foundation and reliable methodology that made opinion testimony useful to a jury. The district court also opined that because the plaintiff failed to come forward with any admissible evidence upon which a jury could find that the defendants caused the plaintiff’s injuries, the district court granted summary judgment in the defendants’ favor. The plaintiff appealed, alleging the district court abused its discretion.

The Second Circuit’s Opinion
As a preliminary matter, the Second Circuit panel rejected the plaintiff’s argument that the relief requested in the defendant’s motion was moot merely because the expert purportedly resigned before the defendants’ motion to exclude his testimony was decided. The court noted that, in theory, the expert could have later agreed to testify at trial. Therefore, the defendants were entitled to a ruling on whether his testimony was admissible. 

Moving on to the merits, the Second Circuit concluded that the district court did not abuse its discretion in excluding the expert report as lacking a sufficient factual basis. “[The Expert] opined that, had Deloitte reported that DVI’s ‘loan loss reserve’ was materially understated on any of the four alleged ‘breach dates,’ DVI’s Board of Directors would have successfully restructured DVI or liquidated DVI. The expert report further opined that, with respect to the first three of those dates, the Board would have adopted particular restructuring plans and DVI’s lenders would have supported those plans.”

The panel ruled that the district court acted well within its discretion in excluding these opinions as unduly speculative, as “there is simply too great an analytical gap, between the principal bases for the opinions—[the expert’s] experience as a restructuring expert and DVI’s financial statements—and the opinions themselves”

While Buckley argued that the district court’s decision set an impermissible hurdle that no plaintiff asserting claims of auditor liability . . . ever could surpass, the court noted that argument overlooked that the lower court identified several specific examples of types of evidence the expert could have incorporated into his report to lend factual support to his opinions. These examples included the views of DVI’s former board members and lenders regarding the restructuring or liquidation plans that they purportedly would have adopted or supported.

The appeals court also held, for substantially the same reasons as those stated in the district court opinion, that the lower court properly granted Deloitte’s summary judgment motion. It stated that absent the expert’s opinions, there was insufficient evidence in the record to permit a reasonable juror to find that:

(1) but for Deloitte allegedly failing to disclose that DVI’s loan loss reserve was materially understated on the alleged breach dates at issue, the Board would have restructured or liquidated DVI; or (2) but for Deloitte allegedly failing to disclose that DVI’s loan loss reserve was materially understated on the first three breach dates, the Board would have adopted the particular restructuring plans described by Epstein, and DVI’s lenders would have supported those plans.

The court opined that a different conclusion was not warranted by the sporadic deposition testimony of former DVI board members and management that Buckley relied on its brief, and that none of that testimony suggested that the board would have restructured DVI in the manner described by the expert or would have liquidated DVI in response to discovering that DVI's loan loss reserve was understated.  Finally, the court concluded that in any event, for the reasons stated in the district court decision, that the court “. . . correctly determined that Buckley’s evidence failed to show that what was alleged to have been Deloitte’s tortious conduct was a proximate cause of DVI’s injury as a matter of law.”

Keywords: litigation, expert witnesses, testimony, Daubert, exclusion, admissibility, resignation

Robb Itkin, Simon Consulting, Phoenix, AZ


November 25, 2013

Exclusion of Expert for Using Faulty Data Reversed


As previously reported by Ryan Billings of Kohner, Mann & Kailas for the Business Torts Litigation and Unfair Competition Committee,  the Seventh Circuit recently held in Manpower, Inc. v. Insurance Co. of Pennsylvania, No. 12-2688, ___ F.3d ____ (Oct. 16, 2013), that a district court erred in excluding the plaintiff’s expert. The plaintiff retained an accountant to calculate Manpower’s losses after a building collapse left it unable to use its offices for more than a year. The district court ruled that the accountant relied on faulty data, and therefore the accountant’s opinion failed to meet the standards under Rule 702 of the Federal Rules of Evidence as required based on Daubert v. Merrell Dow Pharmaceuticals, Inc. Because Manpower had no other way to prove its losses, the district court granted the insurance company’s motion for summary judgment. The plaintiff appealed to the Seventh Circuit.

The Seventh Circuit reversed and held that “[r]eliability is primarily a question of the validity of the methodology employed by an expert, not the quality of the data used in applying the methodology or the conclusions produced.” The court went on to note that, “[t]he soundness of the factual underpinnings of the expert’s analysis and the correctness of the experts’ conclusions based on that analysis are factual matters to be determined by the trier of fact.” Thus, the district court had usurped the role of the jury. Further, the Seventh Circuit ruled, “ . . . the court may not exclude testimony because the court disagrees with the reasoning behind choosing a set of data upon which to extrapolate.”

The distinction, although not always clear-cut, is that courts assess methodology while juries assess data.

For further discussion, see the Business Torts Litigation Committee’s case note.

Keywords: litigation, expert witnesses, methodology, validity, data, expert analysis, Rule 702, Manpower, calculating losses

Vicki Lazear, Cornerstone Research, Menlo Park, CA


November 22, 2013

District Court Rejects Copyright Plaintiff's Unsupported "Multiplier" Theory of Lost Profits


The Southern District of California recently granted defendants’ Daubert motion to strike testimony of a copyright plaintiff’s damages expert whose lost profits calculation assumed 1:1 lost sales for every accused product sale and then applied a 2.06 “multiplier” to those lost sales under the theory that the plaintiff lost additional product sales beyond those associated with its asserted copyrights.

In Brighton v. RK Texas Leather et al., 923 F.Supp.2d 1245 (S.D. Cal. 2013), plaintiff Brighton sued several defendants for copyright, trade dress and trademark infringement relating to the defendants’ sales of accused handbags, wallets and jewelry. With respect to its copyright infringement claims, Brighton sought actual damages instead of statutory damages. The copyright statute allows a plaintiff to recover either (1) the copyright owner’s actual damages and additional profits of the infringer, or (2) statutory damages. Actual damages can include two distinct elements: (1) actual damages, including lost profits and damage to goodwill; and (2) defendants’ profits from the sales of infringing products.

In support of its actual damages associated with “lost profits,” Brighton offered the testimony of an accounting expert, Dr. Robert Wunderlich, who opined that there was a 1:1 correspondence between accused sales and Brighton’s lost sales. Wunderlich then added a “multiplier” of 2.06 to each Brighton lost sale under the assumption that Brighton would have sold 2.06 units of authentic products for each infringing sale, because, he assumed, customers who purchased $20 or $50 accused handbags would have paid over $200 for an authentic handbag. Wunderlich did not conduct any supporting economic analysis or obtain any survey evidence to support his assumption about consumers’ willingness to pay more for authentic products.

In other words, Wunderlich opined that each infringing sale correlated to one lost transaction to Brighton in which Brighton’s customer would have purchased 2.06 authentic items. Under this methodology, Wunderlich opined that Brighton was entitled to $115 million in lost sales even though defendants collectively had sales of only $8 million.

Defendants moved to strike the testimony and opinions of Wunderlich on the grounds that his opinion was (1) not relevant because it was not tied to the facts; (2) unreliable because he did not use a scientific methodology that can be replicated by others, but instead offers an ipse dixit conclusion; and (3) unhelpful because Wunderlich’s impermissible assumptions are noncommittal and evasive.

In concluding that his lost profits opinion was inadmissible under Daubert, the district court found Wunderlich’s methodology unsound and the facts underlying his testimony unsupported. The court was especially critical of Wunderlich’s 1:1 lost sales assumption the lack of any “nexus from the knockoff customer to the typical Brighton customer who would spend $240 or $400 on one handbag.”

Importantly, the court noted that Brighton could not meet its burden of proving that Wunderlich’s opinion satisfied Rule 702 because the methodology he used to determine lost profits—based solely on the number of defendants’ sales rather than grounded in plaintiff’s own sales—was not reliable or based on an accepted methodology.

The majority of the defendants settled before or during trial. A verdict in the amount of $1million was recently entered against AIF Corporation, the sole remaining defendant.

Keywords: litigation, expert witnesses, methodology, lost profits, calculations, actual damages, testimony, Daubert

Jeffery G. Mote, Greenberg Traurig, Chicago, IL


July 2, 2013

Transmitting Data Ethically 2.0


Lawyers often rely on retained experts to fulfill and protect the interests of the lawyers’ clients. Lawyers and experts regularly exchange data for expert review during the various stages of litigation, including data containing the client’s information, information that lawyers have an ethical duty to protect and keep confidential. Lawyers and experts must remember to remain vigilant in the protection of client information when transmitting data between the lawyer and expert. Nonlawyer technological assistance is governed by the ABA Model Rules of Professional Conduct, and lawyers are responsible for reasonable efforts to ensure that third-party services protect the confidentiality of any client information transmitted with the same vigilance that the lawyer would protect the client information.

The twenty-first century technology explosion has brought with it convenience, expanded data size, and increased computing power. Technology allows for faster transmission of larger amounts of information. What once had to be sent by mail, fax, or diskette now can be sent over cable lines and Wi-Fi. Lawyers and experts can exchange electronic data over the Internet using many methods, including email, secure-access websites, and third-party storage and transmission services. 

These new methods of exchange raise new concerns under the ABA Model Rules of Professional Conduct regarding the protection of client information. The ABA’s adoption of Model Rules amendments and clarifications proposed by the Commission on Ethics 20/20 reflects the ABA’s recent efforts to ensure the Model Rules keep up with lawyers’ use of modern technology. 

Model Rule 5.3 experienced only an amendment to its title, but it is a change that potentially applies to the information transfers between lawyers and experts. The ABA changed the title of Model Rule 5.3 from “Responsibilities Regarding Nonlawyer Assitant” to “Responsibilities Regarding Nonlawyer Assistance.” The change reflects the ABA’s increased focus on nonlawyers (and technology) outside the firm that provide assistance to a lawyer. 

Model Rule 5.3 states that “[w]ith respect to a nonlawyer employed or retained by or associated with a lawyer . . . a lawyer having direct supervisory authority over the nonlawyer shall make reasonable efforts to ensure that the person’s conduct is compatible with the professional obligations of the lawyer” and the lawyer can be “responsible for conduct of [the nonlawyer] that would be a violation of the Rules of Professional Conduct . . . ”  See Model Rule 5.3 (b), (c). 

Comment 3 to Model Rule 5.3 specifically reminds lawyers that when using third parties to send and receive client documents or store client information, the lawyer must make the reasonable efforts necessary to ensure that use of the third- party services conform with the lawyer’s professional obligations under the Model Rules. Therefore, lawyers and experts must now actively review and vet the safety of third-party services used to exchange client information between the lawyer and the expert. Failure to do so could result in a violation of Model Rule 5.3.

Most large law firms and expert consulting firms can safely rely on proprietary and internally administered secure electronic mail systems to communicate, transmit, and discuss confidential client information. However, those lawyers and experts utilizing third-party electronic mail systems must ensure that the security protocols of the third party e-mail services adequately protect any client information transmitted between the lawyer and expert. Lawyers should also consider a third-party vendor’s protocols for responses to outside data breaches or responses to subpoenas or document requests.

Likewise, any third-party electronic storage systems used to transmit client information should also be approached with Model Rule 5.3 in mind. There are an expanding number of free services that offer the ability to distribute large amounts of data over the Internet. These services can be appealing for their low costs and/or abilities to package large amounts of data in a single transmission that electronic mail could not transmit in the same amount of time. Lawyers must remember Rule 5.3 and work to make sure that the third-party service will adequately protect any client information sent to or received from experts. The dangers of using these services—such as insufficient security protection, inability to access and delete data, or an assertion by the third party of ownership of any data transmitted—counsel thoughtful use of these third-party services. Whether originated by a lawyer or an expert, the Model Rules demand that any client information in a data transmission be kept safe, and place the responsibility on the lawyer to ensure that information’s safety.

Keywords: litigation, expert witnesses, client information, data transmission, technology, ABA Model Rules of Professional Conduct, third party, nonlawyers

Paul Bateman, Jr., Schiff Hardin LLP, Chicago, IL


July 2, 2013

For Young Lawyers: Discount Rates in Valuations


One of the approaches used to valuing a business or asset is the discounted cash flow (DCF) approach.  The DCF is a widely used and accepted approach in arriving at a value conclusion.

There are two primary components to a DCF. First is a set of projections, which forecasts future revenues and expenses and the resulting operating income. The second component is a discount rate which is applied to those future cash flows, in this case, operating income to arrive at a present value amount. This article will provide a very basic overview on discount rates.

The discount rate is the expected or anticipated rate of return for a specific asset or company used to convert future amounts into a present value. We are all familiar with the concept that “a dollar today is worth more than a dollar tomorrow.” This concept reflects the certainty of holding a dollar today versus the risks associated with collecting future dollars. The discount rate is the component of a DCF which brings those future amounts to “today’s” dollars.

The discount rate should reflect the risk associated with a particular asset or business as the risks of receiving future dollars are not the same for all asset classes and businesses. 

Risk is another word for uncertainty.  The more uncertainty in receiving those future dollars, the higher the risk, the higher the risk, the higher the discount rate.  For example, the rate of interest paid on a 10-year Treasury bond is approximately 1.9 percent. This low interest rate is a result of Treasury bonds being viewed as being “risk free,” in other words, no risk of default, thus certainty of repayment. The risk-free rate accounts for both inflationary expectation and a real return on the investment assuming no risk of default. The more certain the repayment, the lower the discount rate. Conversely, the higher the risk of repayment, such as below investment grade debt, the higher the discount rate.

The current value of a company’s future cash flow is inversely related to the discount rate. The higher the discount rate, the lower the present value, the lower the discount rate, the higher the value. The following example reflects this relationship.


Year One

Year Two

Year Three

Year Four








Annual Cash Flow












Discount Rate 5%












Present Value Amount  5%












Discount Rate 10%












Present Value Amount












As can be seen from the example, the projected four-year cash flow totals $1,000. However, the present value of that future cash flow (today’s dollars not future dollars) ranges from $865 using a 5 percent discount rate to $754.60 using a 10 percent discount rate. In other words, if an investor requires a 5 percent return on his investment he would pay $865 today in order to receive $1,000 over the four year period as noted or $754.60 if he requires a 10 percent return on his investment. The difference between the present value and the projected amounts reflect the uncertainty of repayment, plus a real return and premium for expected inflation.

Discount rates are determined by the market and vary by time based on market forces. Accordingly, an appropriate discount rate for a business in 2009 may not be appropriate for 2013.

To calculate a discount rate for a company the cost of capital must be analyzed.

The cost of capital represents the price a company pays for the financial resources needed to operate its business—in the most simplified case, its cost of equity (investor funds) and cost of debt (borrowed funds). This cost, whether calculated using a weighted average cost of capital (WACC) or another generally accepted metric, represents the return that investors require depending on the associated risk.  The company must generate sufficient profit from its assets in order to pay the cost on the debt and equity invested in the company.

The WACC is a formula based on the percentage of the equity investment and interest bearing debt being borrowed and the related cost. For example, assume a company has borrowed $500,000 from the bank at 5 percent interest and the owners have invested $250,000, with the expectation of earning 15 percent on the investment. The WACC would be calculated as follows:





Debt [1]
















[1] Typically the debt is tax affected to account for the ability to take an interest deduction for tax purposes.

The WACC for this company would be equal to 8.3 percent ($62,500/750,000).  Accordingly, all future cash flows would be discounted at 8.3 percent.

Arriving at the cost of debt is a relatively straightforward formula exercise and can be calculated based on either the company, or the industry’s average or incremental cost to borrow.

The cost of equity involves a somewhat more intricate analysis. The cost of equity is higher than the cost of debt as equity is paid after debt. As such, equity has a higher risk of repayment, leading to more uncertainty and a higher cost. 

There are several methods available to calculate the cost of equity including the capital asset pricing model (CAPM), build-up approach and other methods. However, at their core they are all measuring the return necessary to satisfy the equity returns required in the market plan.

The CAPM is one method used to calculate the cost of equity. In its simplest form the CAPM is a build-up method which arrives at a cost of equity by adding various components. A complete explanation of the capital asset pricing model is beyond the scope of this article.  However, the CAPM uses the following input to arrive at a cost or equity:

  • Risk-Free Rate
  • BETA
  • Equity Risk Premium
  • Size Premium

All of these inputs are market driven and are found in reliable, third-party sources.

In summary a discount rate converts future dollars into today’s dollars by measuring the risk associated with a particular asset or company and is derived from market data associated with assets or companies with similar risk characteristics.

Keywords: litigation, expert witnesses, discount rates, valuations, discounted cash flow, capital asset pricing model

Ed McDonough, Alvarez & Marsal Global Forensic and Dispute Services, LLC, Phoenix, AZ


May 15, 2013

Working More Effectively with Expert Witnesses


When 392 in-house attorneys were recently asked the question, “Do you expect the number of legal disputes your company will face in the next year to increase, decrease, or stay the same?” 92 percent of them responded that they anticipate the same amount of disputes or more, which is up from 89 percent in 2011, according to Fulbright & Jaworski’s  9th Annual Litigation Trends Survey Report. In the context of today’s cost-sensitive business environment and increasing number of legal disputes, controlling all aspects of litigation, including expert costs, is imperative. 

It goes without saying that identifying and hiring an expert with the proper background and experience will frequently provide the most cost-effective outcome over the life of a case. This article provides valuable tips for working more efficiently with expert witnesses and controlling their costs after selection.

Early Retention
Getting an expert involved early in the case—earlier than you might feel necessary—allows the expert to provide value in an orderly and efficient way. Last-minute retentions and the resultant fire drills are never efficient.

Early retention of an expert also allows the expert to provide guidance in different aspects of the case including discovery, liability determinations, as well as damages.

In particular, early expert retention in the discovery phase of litigation frequently contributes to efficiency in all phases of litigation. Spending time up-front with your expert on what discovery is needed frequently streamlines the discovery process by refining and focusing discovery requests to the issues upon which the expert will opine.

Explore Alternative Billing Arrangements
Instead of simply paying an “hourly rate x hours worked” for the expert and each team member, consider proposing alternative billing arrangements.

  • Daily rates ($x/day). Efficient in situations where the amount of time per-day to do the work is difficult to predict and there is pressure to strictly control the expert's fees.

  • Blended rates (a single, blended hourly rate for all billing team members). Provides an easy way to compare expert firms’ hourly costs; encourages the expert to delegate work when feasible.

  • Fixed fee ($x for all services). Appropriate in situations where you and the expert are comfortable with the scope of work and the amount of time necessary to complete the work.

  • Retainer (up-front payment of $x, paid out to expert as work is performed). Useful when the expert's services are needed on demand and you are uncertain as to the amount of time necessary to complete the project; provides a milestone for measuring the expert’s progress.

Request Plans and Budgets, Then Hold the Expert Accountable

Plan, budget, monitor, control—repeat. Parse tasks into definable phases and work steps and ask the expert to provide a budget and explanation for each phase. A simplistic four-phase plan and budget may include the following activities:  discovery, analysis and report writing, depositions, and trial. 

Even if you have a great plan and an acceptable budget, be prepared to add additional budget items for unanticipated events such as motion responses.

Request the Use of Lower-Cost People Where Appropriate       
Junior members of the expert’s team can provide value by attending client meetings and opposing expert or other key fact witness depositions.  Utilizing lower billing rate team members will reduce cost.  Similar to many law firms, the second chair team members are as versed on the case issues as the testifier.

In certain situations, nominating client personnel to the consultant’s team can promote efficiency for the expert and thereby reduce costs.  Client accounting staff, for instance, can gather and summarize data into formats defined and outlined by the expert without increasing the client’s out-of-pocket costs. 

Keep in close contact with the expert
Regular check-ins with the expert will do more than simply keep the lines of communication open. Discuss what they are doing in relation to your activities to determine if there are duplicative efforts or opportunities to share non-work product activities or materials. The current Federal Rules broadly protect from discovery attorney communications with experts, which allows for much freer communication. Check your local rules to determine how to best use this concept in state court settings.

Efficiency, started during the discovery process and maintained through close contact with the expert during the engagement, will frequently provide the most cost-effective solution for working with an expert witness. Similarly, the lawyer who is tasked with managing the expert will likely be more satisfied with their relationship with the expert and the ultimate testimony and opinions provided.

Keywords: litigation, expert witnesses, costs, testimony, discovery, early retention, rates, testimony, legal disputes, efficiency, budget

William B. Metzdorff, Plante Moran, Chicago, IL


May 15, 2013

Pennsylvania May Limit Communications Privileges with Experts


In Pennsylvania state court, the discussions between counsel and a testifying expert witness are generally protected by the work product doctrine as set forth in the Pennsylvania Rules of Civil Procedure. A case now pending before the Supreme Court of Pennsylvania, Barrick v. Holy Spirit Hosp. of the Sisters of the Christian Charity, could change that understanding in Pennsylvania. 

The underlying case arose out of a personal injury lawsuit in which the plaintiff, Carl Barrick, suffered spinal injuries when a seat on which he was sitting at the Holy Spirit Hospital collapsed.  Counsel for defendants served Dr. Thomas Green, one of plaintiff’s treating physicians, with a subpoena pursuant to Pa. R.C.P. 4009.21 requesting a complete copy of all documents relating to Barrick. Green was also designated to testify as an expert witness on the Barricks’ behalf.  Green’s office produced all medical records, but declined to produce any records that had not been created for treatment purposes, including communications between Green and the Barricks’ counsel. The trial court issued an order compelling production of the withheld communications, concluding that when an expert is called to “advance a plaintiff’s case in chief and the nature of the expert’s testimony may have been materially impacted by correspondence with counsel, such correspondence is discoverable.” 

A panel of the superior court initially affirmed the trial court order. But, after a nine-judge en banc panel reheard the case, the superior court, in an 8-1 decision, reversed the trial court order.  The majority concluded that “a discovery request for the content of any correspondence between an opposing party’s attorney and the expert witness retained by that party falls outside the express language of Pa.R.C.P. 4003.5(a)(1).” This conclusion was also grounded on Pa.R.C.P 4003.3, which states, in part, “[t]he discovery shall not include disclosure of the mental impressions of a party’s attorney or his or her conclusions, opinions, memoranda, notes or summaries, legal research or legal theories.” 

Judge Mary Jane Bowes of the Superior Court filed a concurring and dissenting opinion, agreeing the subpoena violated Rule 4003.5, but dissenting to the majority’s work product analysis. In Judge Bowes’ view “blanket protection of all correspondence between the attorney and his expert[,]” including all properly discoverable material included therein,” fails to serve “both the letter and the spirit” of Rule 4003.3.

The obvious next question is whether the Pennsylvania Supreme Court will follow suit with the majority or reverse course? The answer is difficult to predict given the continual flux in Pennsylvania courts over the past few years. But, rest assured, the Supreme Court’s anticipated ruling will shape future boundaries of discoverability under Pa.R.C.P. 4003.3 and 4003.5, and may be instructive on the scope of a party’s ability to subpoena records from the opposing party’s treating and expert physician. 

Keywords: litigation, expert witnesses, communication, work product doctrine, privileges, Pennsylvania Rules of Civil Procedure, discovery request, Rule 4003.5, Rule 4003.3

Christina D. Riggs, Saul Ewing LLP, Philadelphia, PA


April 8, 2013

Seventh Circuit Affirms Order Striking Expert Report


In a dispute regarding the breach of a commercial lease for failure to pay rent and illegal assignment, a Seventh Circuit panel affirmed the Northern District of Indiana’s opinion and order striking that portion of plaintiff’s expert report concerning calculation of damages and the fair market value of the rental property.   Lock Realty Corp. IX v. U.S. Health, LP, Nos. 11-3477 et al. Cons. (February 12, 2013).

In Lock, plaintiff nursing home lessor sought damages from its lessee and the lessee’s assignee, including the value of future rent payments due for the remaining duration of the lease term after plaintiff had repossessed the property.  The district court determined that damages should be calculated, as provided for in the lease, by subtracting the lease’s fair market value (for the remaining lease period) from the discounted present value of the remaining net rent owed by defendants under the lease.  To calculate the fair market value, the district court suggested that one of three valuation methods (or a combination thereof) would be permissible under Indiana law: (1) the comparable sales method, (2) the income method, and (3) the cost method.

But plaintiff’s expert failed to follow any of these approaches in determining the fair market value of the future rent owed under the lease.  Instead, plaintiff’s expert relied upon evidence of two rental offers: (1) an email from one defendant to plaintiff offering to renegotiate the lease at a reduced monthly rent, and (2) an email from a third party to plaintiff offering to lease the facility at an annual rate.  Plaintiff’s expert corroborated this evidence by calculating the fair market value of the rent applying an Indiana statutory formula used in compensating Medicaid providers in nursing homes.  Based upon the two rental offers and the Medicaid formula, plaintiff’s expert determined that the present value of the remaining rent owed by defendants was $14,937,182, while the fair market present value of the rent owed for the same remaining period was only $8,845,030, resulting in damages of $6,092,153.

The Seventh Circuit affirmed the district court’s holding that plaintiff’s expert’s methodology failed to meet the Daubert standard.  First, plaintiff’s expert failed to employ the accepted valuation methods—she did not review comparable lease values and did not perform a cost or income approach analysis.  Second, plaintiff’s expert’s reliance upon attempts by defendants or other parties to renegotiate the lease proved nothing because plaintiff flatly rejected those offers and no evidence existed to show that those rejected offers represented fair rental value.  Likewise, plaintiff’s expert also failed to demonstrate why the Indiana statute regarding Medicaid providers should apply in these circumstances where private parties had negotiated a lease.  Accordingly, the Seventh Circuit held that the district court did not abuse its discretion in striking plaintiff’s expert report.

In addition to that holding, the Seventh Circuit also affirmed the district court’s denial of plaintiff’s motion to supplement the record with additional evidence including audit rates on the fair market value of the rental property, because that proposed evidence was submitted six months after discovery closed and was therefore untimely.  Consequently, plaintiff could not prove its claimed damages for future rental payments.

Keywords: litigation, expert witnesses, fair market value, rental property, damages, Daubert, valuation methods

–Joseph D. Keller, commercial litigation attorney, Chicago, IL


April 3, 2013

Supreme Court Overturns Class Certification in Comcast Case

The United States Supreme Court issued an opinion on March 27, 2013 overturning a class certification in a Comcast Corporation antitrust litigation. The vote was 5-4 to reverse the district court’s and Third Circuit Court of Appeals’ prior class certification, specific to Federal Rules of Civil Procedure: Rule 23(b)(3) (“… questions of law or fact common to class members predominate over any questions affecting only individual members … ”).  There was a dissenting opinion criticizing the majority, including whether the Court addressed the appropriate question, or whether it should have even heard the case at all.

This article is not a legal analysis, and is written by a damages expert.  The basic question the Court was addressing is whether a class was appropriately certified, and centered on a damages expert’s model for estimating damages. This case was about allegations that Comcast violated antitrust law by entering into swap agreements with other cable providers to gain a majority market share in the Philadelphia area.  Allegedly, as an example, Comcast sold some if its business in other markets (Los Angeles and Palm Beach) to a competitor, in exchange for the competitor’s business in Philadelphia, thereby gaining market share in Philadelphia and creating anticompetitive prices, and injuring class members.

The plaintiffs had four different claims, and its damages expert estimated damages for the class considering all four claims. However, the district court allowed only one of the claims (over-builders are other providers elected not to enter the market due to Comcast’s majority market share).  The District Court held (and it was not challenged) that the predominance requirement of Rule 23(b)(3) required (i) that the existence of individual injury resulting from the alleged antitrust violation was capable of proof at trial through evidence that was common to the class rather than individual to its members; and (ii) that the damages resulting from that injury were measurable on a class-wide basis through use of a common methodology.  During testimony, the damages expert stated that his model, and estimated damages of $875 million, was not specific to the over-builder claim, but accounted for all four claims. The question was whether the damages model met the predominance requirement of Rule 23(b)(3).

The majority opinion and dissenting opinion both address this question. The majority opinion quotes the Federal Judicial Center’s Reference Manual on Scientific Evidence, stating that “[t]he first step in a damages is the translation of the legal theory of the harmful event into an analysis of the economic impact of that event.”  The majority opinion stated “[t]here is no question that the model failed to measure damages resulting from the particular antitrust injury … ”  Conversely, the dissenting opinion noted that since “Comcast argued that the three other theories, i.e., the three rejected theories, had no impact on prices.  If Comcast was right, then the damages…must have stemmed exclusively from conduct that deterred new entry, say from ‘over-builders’.”  The dissenting opinion further notes that the damages “… model does not purport to show precisely how Comcast’s conduct led to higher prices in the Philadelphia area.  It simply shows that Comcast’s conduct brought about higher prices. And it measures the amount of subsequent harm.”

In addition to addressing Rule 23(b)(3), the opinions touch on damages considerations in general, including the often debated issues of reasonable certainty and loss causation. On one hand, the opinions could suggest that litigants may need to make clear and direct linkage of the specific claims to the specific damages calculation.  In other words, if numerous claims are sought in the same action (fraud, fiduciary duty, breach of contract, unfair business practices, etc.), one damages methodology may not fit the needs of all the claims.  Therefore, multiple damages scenarios based on a specific set of legal claims, facts and assumptions may be necessary in some cases.  Conversely, the opinions might suggest that a damages calculation may include multiple elements or claims, some of which may become moot, but the calculation could still satisfy some evidentiary or procedural needs.  While it is not possible to address all the matters of the opinions in this article, the opinions do remind us to be mindful of a few things in the damages expert arena.

Litigants, litigation counsel, and damages experts should take care in:

  • Discussing loss causation
  • Developing damages theories
  • Under or over building the adaptability of a damages model
  • Creating claim specific damages models
  • Recognizing that reasonable certainty in damages calculations can be in the eye of the beholder

Keywords: litigation, expert witnesses, Supreme Court opinion, class certification, damages expert, swap agreements, Comcast Corp.

Mike Fahlman, Grant Thornton LLP, Phoenix, AZ


April 3, 2013

"The Subspecialty Itself Is a Specialty"

Last month, the Arizona Supreme Court clarified what qualifications an expert witness must possess in order to testify regarding the appropriate standard of care in medical malpractice actions.  Baker v. University Physicians Healthcare, CV-12-0102-PR (Ariz. 2013) (analyzing and interpreting A.R.S. § 12-2604). 

In Baker, Plaintiff Robert Baker sued Dr. Whittman, a board-certified pediatrician with a subspecialty in pediatric hematology-oncology,  for wrongful death after Baker’s teenage daughter died following treatment by Dr. Whittman for blood clots.  Baker intended to call Dr. Brouillard, a board-certified internal-medicine doctor with a subspecialty in hematology and medical oncology, to testify regarding the applicable standard of care.

After Baker disclosed Brouillard as his standard-of-care expert, Whittman moved for summary judgment, arguing that Brouillard was not a qualified expert under A.R.S. § 12-2604.  Generally speaking, that statute forbids a licensed health professional from giving expert testimony on the appropriate standard of care in a medical malpractice action unless that health professional (1) is an expert in the same specialty as the defendant—including being board certified if the defendant is board certified; and (2) devoted a majority of his/her professional time in the year preceding the alleged malpractice to either active clinical practice in the same specialty as the defendant, or  instructing students in an accredited program regarding the same.

The trial court granted Whittman’s motion for summary judgment, determining first that the relevant “specialty” was pediatric hematology-oncology, and then holding that Brouillard could not testify as to the applicable standard of care because he was not certified in that specialty.  The court of appeals, while agreeing that Brouillard could not testify, held that the relevant specialty was pediatrics, not the subspecialty of pediatric hematology-oncology.  The court of appeals reasoned that only the 24 specialties recognized by the American Board of Medical Specialties could be considered as “specialties” under the statute, not subspecialties like pediatric hematology-oncology.

The Supreme Court ultimately sided with the trial court’s analysis. The clear intent behind A.R.S. § 12-2604, reasoned the court, was to ensure that only physicians who possess comparable training and expertise to the defendant are allowed to provide expert testimony regarding whether the defendant provided appropriate care.  To that end, the court held that the term “specialty” refers to any area in which physicians can obtain certification, including subspecialties.  After all, held the court, subspecialties, while more focused areas of practice encompassed by broader specialties, are really specialties in and of themselves.

The court concluded that to be qualified to testify regarding the appropriate standard of care in a medical malpractice action, an expert witness must be a specialist in the same specialty that the defendant was practicing in at the time of the alleged malpractice. This case makes clear that in Arizona, the relevant “specialty” may in fact be a subspecialty, dependent on the particular facts of the case.

Practically, this decision will likely make it more difficult for plaintiffs to secure proper expert testimony in medical malpractice actions.

Keywords: litigation, expert witnesses, subspecialty, medical malpractice, standard of care, testimony, qualifications

Benjamin C. Nielsen, Quarles & Brady, Phoenix, AZ


March 11, 2013

Daubert for Drug-Sniffing Dogs

The U.S. Supreme Court ruled in Florida v. Harris on February 19, 2013 that evidence of a drug-detection dog’s satisfactory performance in a training program by itself can sufficiently establish the reliability of the dog’s alerts as probable cause under the Fourth Amendment. Florida v. Harris, ____ S. Ct.____ , No. 11-817, 2013 WL 598440, at *6 (Feb. 19, 2013). In its decision, the Court overruled an opinion of the Florida Supreme Court, which had held no probable cause existed to conduct a search of a stopped vehicle where the state produced no evidence of the canine’s reliable performance in traffic stops and other field work. While the case substantively deals with criminal procedure and probable cause determinations, viewed from another angle, it demonstrates what is required of a particular category of expert— the drug-sniffing dog— before a court should allow reliance on that expert’s determinations.  The decision may be considered a sort of “Daubert for drug-sniffing dogs.”

The Supreme Court considered when a canine can be deemed reliable and expressly rejected the Florida Supreme Court’s holding that a dog’s reliability can be established only by providing his training records, field performance records, and any other evidence of reliability. The Supreme Court concluded that if a drug-sniffing dog has been independently certified for reliability, then “a court can presume . . . that the dog’s alert provides probable cause.”  Id.

The central question was not just how to determine the reliability of a dog’s alerts but also when the court should permit reliance on the dog’s expertise.  Here a court is faced with an expert—the dog— who cannot be cross-examined on his qualifications, past training and work experience, or why he alerted in a particular case. Only the expert’s handlers or trainers can be cross-examined.  Certainly those individuals may be recognized as experts under Daubert and Federal Rule of Evidence 702.  See Fed. R. Evid. 702; Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137, 148 (1999); United States v. $49,790 in U.S. Currency, 763 F. Supp. 2d 1160, 1166 (N.D. Cal. 2010).  Yet the reliance on other experts to argue the dog’s expertise may obstruct the court’s gatekeeping function in assessing the reliability of the dog’s alerts. However, one important distinction (among numerous obvious differences) between drug-detecting dogs and Rule 702 experts was underscored in the Court’s opinion and perhaps counterbalances the gatekeeping concern: law enforcement departments have robust incentives to train canines to alert reliably.

The Supreme Court’s holding that the absence of a certification does not preclude a finding of the dog’s reliability echoes established principles of expert testimony under Rule 702.  For example, numerous courts have held that witnesses may give expert medical testimony even if they have no advanced degree or are not licensed in the relevant specialty or jurisdiction.  See, e.g., Grindstaff v. Coleman, 681 F.2d 740, 743 (11th Cir. 1982); United States v. Bilson, 648 F.2d 1238, 1239 (9th Cir. 1981); Alvarado v. Weinberger, 511 F.2d 1046, 1049 (1st Cir. 1975).  Also, a drug-detecting dog’s reliability must be determined by considering all of the circumstances and evidence presented, so experience and certifications are not dispositive of reliability for Fourth Amendment probable cause determinations.  Again, this parallels expert witness determinations under Rule 702, where extensive qualifications may bear on reliability, but reliability does not automatically follow from qualifications.  United States v. Frazier, 387 F.3d 1244, 1261 (11th Cir. 2004), cert. denied, 544 U.S. 1063.      

Florida v. Harris, viewed as a sort of “Daubert for Drug-Sniffing Dogs,” gives judges great latitude to consider a dog’s (and its handler’s) training and experience when determining reliability.

Keywords: litigation, expert witnesses, reliability, Daubert, drug dogs, probable cause, Fourth Amendment

Molly L. Wiltshire is an associate with Schiff Hardin, LLP in Chicago, IL.


January 14, 2013

Arizona Court of Appeals Adopts "Cat is out of the Bag" Approach

Examining a legal question of first impression in Arizona, the Arizona Court of Appeals recently held that a party may not reinstate the privileges and discovery protections that apply to consulting experts by redesignating a testifying expert as a consultant after the expert's opinions have been disclosed. Para v. Anderson ex rel. County of Maricopa, 1 CA-SA 12-0086, 2012 WL 5362201 (Ariz. Ct. App. Nov. 1, 2012). The court also held that while the opposing party may therefore depose such an expert, the trial judge retains broad discretion under Arizona Rule of Civil Procedure 403 to regulate the use, and admissibility, of the expert's testimony at trial.

In Para, the plaintiff sued Dr. Khoury and Dr. Para for negligence and wrongful death. As part of that suit, the plaintiff disclosed his medical expert, Dr. Pantilat, who would testify at trial that Dr. Khoury's treatment of the decedent fell below the applicable standard of care. A few months later, however, the plaintiff and Dr. Khoury settled.

Dr. Para, still a codefendant, designated Dr. Khoury as a non-party at fault and gave notice that he intended to rely on plaintiff's previous disclosure of Dr. Pantilat's opinions. At that point, plaintiff attempted, by motion, to redesignate Dr. Pantilat as a consulting expert to prevent Dr. Pantilat from being deposed. Plaintiff argued, and the superior court agreed, that the redesignation of Dr. Pantilat from a testifying expert to a consulting expert would reinstate the privileges and discovery protections that apply only to consulting experts.

While a matter of first impression in Arizona state court, the court of appeals noted that this issue has been examined by various federal courts, resulting in a split of authority. Some courts have held that the redesignation of an expert does work to prevent discovery from that expert, even after that expert's reports or opinions have been disclosed. Other courts have applied the “cat is out of the bag”approach —once the expert's opinions are disclosed the privileges applicable to consultants are lost and cannot be revived by a change in title.

The Arizona Court of Appeals sided with this approach. Otherwise, wrote the court, form would triumph over substance and the effectiveness of discovery rules as tools for efficient and fair resolution of disputes would be blunted.

Importantly, the court also held that in order to adequately protect the party who initially retained the expert from unfair prejudice, the trial court retains discretion, pursuant to Arizona Rule of Evidence 403, to evaluate and control the use of such testimony.

The plaintiff has filed a petition for review of this decision with the Arizona Supreme Court. If review is accepted, we will provide an update.

Keywords: litigation, expert witnesses, redesignation, discovery protection, testifying expert, consulting expert, priviliges, opinions

Edward A. Salanga and Benjamin C. Nielsen, Quarles & Brady, Phoenix, Arizona


July 10, 2012

Supreme Court Clarifies Confrontation Clause in DNA Case

In Williams v. Illinois, No. 10-8505, 2012 U.S. LEXIS 4658 (June 18, 2012), the Supreme Court confronted the issue of whether an expert’s testimony based on facts made known to the expert, but for which the expert does not have firsthand knowledge, violates the Sixth Amendment Confrontation Clause as interpreted in Crawford v. Washington, 541 U.S. 36, 50 (2004) (finding that testimonial statements of witnesses absent from trial can be admitted only where the declarant is unavailable and only where the defendant has had a prior opportunity to cross-examine). In a 5–4 decision, the Court found that it did not—at least not in this DNA-evidence-related case. Notably, however, one of the five justices for the majority disposition concurred in the judgment only, disavowing the plurality’s reasoning.

Williams involved a defendant convicted of rape following a bench trial. After the victim was abducted, robbed, and raped, she was taken by ambulance to the hospital, where doctors took a blood sample and vaginal swabs for a sexual-assault kit. The kit was then collected by the police and sent to the police lab for testing, where the presence of semen on the swabs was confirmed. Later, the swabs were sent to an outside lab (Cellmark) for DNA testing, and that lab produced a report containing a DNA profile. From there, a forensic specialist at the police lab (Sandra Lombatos) matched the Cellmark DNA profile to an individual in the state DNA database. That individual was later identified by the victim in a lineup and at trial as her assailant.

During trial, the prosecution presented three forensic experts: one regarding the presence of semen on the victim’s vaginal swabs, one regarding the defendant’s blood sample in the state DNA database, and Lambatos, who presented the testimony at issue. In particular, Lambatos answered “yes” to a question regarding whether there was a match between the DNA profile “found in semen from the victim’s vaginal swabs” and the DNA profile identified from the defendant’s blood sample. While Lambatos conducted her own independent testing, such testing was based on data received from Cellmark. To that end, Lambatos testified that it was common practice for one DNA expert to rely on the records of another DNA expert and that Cellmark was an accredited lab. No one from Cellmark testified, and the Cellmark report was not admitted into evidence.

In a plurality opinion, the Court concluded that Lambatos’ testimony did not violate the petitioner’s confrontation rights based on two independent determinations: The statements were not offered to prove the truth of the matter asserted (in other words, that the DNA profile Cellmark reported was actually found in the semen from the victim’s swabs), and even if the Cellmark report had been introduced for its truth, it was different from the types of extrajudicial statements (such as affidavits or confessions) the Confrontation Clause was originally understood to reach. It further noted that, if DNA evidence could not be introduced without calling the various technicians who participated in the preparation of the profile, economic pressures would encourage prosecutors to forgo DNA testing and rely instead on less dependable forms of evidence, such as eyewitness testimony.

With regard to its first determination, the plurality found that Lambatos related Cellmark’s out-of-court statements solely to explain the assumptions on which her expert opinions rested (in other words, it was basis testimony allowable under modern evidentiary rules). However, the plurality emphasized that the underlying case involved a bench trial, noting that, had the case been tried to a jury, there might have been concerns that the jury would take the testimony as proof of the matter asserted.

With regard to the second determination, the plurality stressed that Cellmark’s report was produced before any suspect was identified and did not have the primary purpose of accusing a targeted individual.

The dissent, relying on Melendez-Diaz v. Massachusetts, 557 U.S. 305 (2009), and Bullcoming v. New Mexico, 131 S. Ct. 2705 (2011), would have found that the petitioner’s confrontation rights were violated because Cellmark’s out-of-court statements were testimonial, were offered for their truth (truthfulness had to be assessed to determine the validity of the conclusion), and were therefore subject to cross-examination.

While Justice Clarence Thomas concurred in the judgment, he found the plurality’s analysis flawed. He opined that the out-of-court statements were offered for their truth but were not testimonial. For his part, he suggested that the clause should be limited to those statements bearing “indicia of solemnity” (for example, affidavits or depositions). No other justice ascribed to his opinion or test.

Keywords: litigation, expert witnesses, Supreme Court, Confrontation Clause

—Angeleque Linville, Wick, Phillips Gould & Martin, LLP, Dallas, Texas


May 30, 2012

Texas Medical Malpractice Expert Reports Insufficient—Again

The Houston Court of Appeals recently found that healthcare liability experts must specify the standards of care for each defendant in multi-party suits, or where applicable, specify that the standard of care is a general one that applies to all defendants. In Univ. of Tex. Med. Branch at Galveston v. Qi, No. 14-11-00704-CV, 2012 Tex. App. LEXIS 3156 (Tex. App.-Houston [14th Dist.] Apr. 24, 2012), a mother (Qi) claimed that individuals employed by the University of Texas Medical Branch at Galveston (UTMBG) were negligent in providing her medical care, and that their negligence resulted in the death of her unborn child. The allegedly negligent employees included both the doctor and the nurse who provided prenatal care to Qi during the week before the fetal demise.

In connection with her claims, Qi provided an expert report stating, among other things, that the standard of care was violated by the clinicians by not further evaluating Qi during her prenatal visit, which most likely would have resulted in the diagnosis of preeclampsia (a pregnancy complication involving high blood pressure and excess protein in urine) and treatments that would have saved the baby. Because the report was provided in connection with a healthcare liability claim, it was subject by statute to specific requirements, including a sufficient explanation of the applicable standard of care, the manner in which each defendant failed to meet that standard, and the causal relationship between that failure and the injuries sustained.

In this case, UTMBG sought a dismissal based on its perceived inadequacies of the expert report, which the trial court denied. The appellate court, however, found that the expert’s report was indeed inadequate, as it (1) failed to sufficiently describe the standard of care applicable to and breached by each defendant, and (2) failed to specify whether that standard applied to the doctor, the nurse, or both. Ultimately, the court reversed and remanded for further proceedings to include a determination of whether to allow Qi additional time to cure the deficiencies.

Keywords: litigation, expert witnesses, products liability litigation, healthcare liability, UTMBG

Angeleque Linville, Wick, Phillips, Gould & Martin, LLP, Dallas, TX


May 1, 2012

Texas Court Examines Expert Valuation and Income Potential

The State of Texas and Tarrant County, Texas v. Ledrec, Inc., No. 02-11-00267, 2012 Tex. App. LEXIS 2895 (Tex. App.—Fort Worth April 12, 2012), a recent condemnation case out of the Second District Court of Appeals, tackled the question of whether an expert can testify as to a damage amount based on the expert’s opinion that remainder property loses some or all of its income-producing potential, and thus market value, as of the date of taking due to the mere potential of future annexation.

The case involved the condemnation of a 10-foot strip of land from Ledrec, Inc.’s property that abuts F.M. 1187 in the extraterritorial jurisdiction of Mansfield. Ledrec argued that the condemnation would render the property noncompliant with Mansfield’s 30-foot-setback requirements. The rub comes from the fact that while the property could be annexed by Mansfield and then subject to (and noncompliant with) the setback regulations, the property was not currently bound by those regulations. The dispute between the parties therefore centered on the appropriate damage award for the remainder of the property because of the taking.

Ledrec’s expert testified that, as of the date of the taking, a buyer would not attribute any value to the two buildings because they would be unleaseable based on the uncertainty of the annexation, and he opined that the resulting lost income from the two buildings would be $248,000. In other words, if the taking had not occurred, the two buildings would be valued at $39.97 per square foot or $248,000. The opinion that the buildings would be rendered unleaseable focused on the assumption that a willing buyer would presume that the front two buildings would not generate any income as of the date of taking because of the possibility that an annexation would force a change in use of the buildings and would therefore assign no value to those buildings in a purchase.

Texas and Tarrant County alleged that Ledrec’s expert’s testimony is inadmissible as a matter of law because it is remote, speculative, and based on conjecture in that it is based on the mere possibility that the buildings will become functionally obsolete and no longer generate income as of the day of the taking, even though Mansfield has not yet annexed the property and there is no evidence as to when Mansfield will annex it.

The court ultimately determined that the expert’s testimony was not based on a speculative or remote possibility (the property’s market value at the time of a future annexation) but is instead based on an assessment of the current value a willing buyer and seller would place on the remainder property as of the date of taking because of the perception that annexation could limit the property’s use. Whether the expert’s opinion is correct is not for the court to determine.

Keywords: litigation, expert witnesses, condemnation, income potential, market value, annexation

—Rob Wills, Wick, Phillips, Gould & Martin, LLP


May 1, 2012

Expert Retractions Threaten Scientific Community

As the number of retracted scientific publications steadily rises, the scientific community braces itself for the impact of a profound problem. In a New York Times article published on April 16, 2012, Carl Zimmer recounts the dire situation facing scientists today—rising retractions are threatening the integrity of scientific publications worldwide. Bolstered by the heightening concerns of Dr. Ferric C. Fang, editor in chief of the journal Infection and Immunity, and Dr. Arturo Casadevall of the Albert Einstein College of Medicine in New York, Zimmer makes it clear that this sharp rise in retractions is prompting a call for reform.

In the fall of 2010, Fang discovered that Naoki Mori, an author for Infection and Immunity, had doctored several papers. This finding led to the retraction of nearly three dozen of Mori’s publications. This unsettling discovery revealed the breadth of this problem—published retractions have increased tenfold in the past decade. Fang attributes this shocking number of retractions to the fiercely competitive nature of the scientific community. As new Ph.D.’s compete for a small number of jobs each year, cutthroat tactics and insidious falsification replace concerns about the quality of research as scientists vie to win the race for prestigious publication. It seems, as Fang suggests, that a high-profile paper in a high-profile journal is “becoming the price of admission.”

In this increasingly competitive scientific community, Fang and Casadevall believe that the system of scientific publication must be fundamentally changed. The two editors suggest furthering this goal of reform by:

  • giving graduate students a better understanding of science’s ground rules;
  • putting a cap on the grants that any one lab can receive;
  • changing the rules for scientific prizes; and
  • urging universities to adopt a collaborative promotion process.


By turning the focus of scientific publication to the enrichment of the community and away from the advancement of the individual, Fang and Casadevall hope to thwart what Casadevall refers to as the “tremendous threat” of rising retractions.

Keywords: litigation, expert witnesses, retractions, scientific community

—Meredith Perry, Wick Phillips, Gould & Martin, LLP, Dallas, Texas


March 22, 2012

Opposing Party Bears Burden of Showing Expert Is Unreliable

Fair v. Allen, No. 11-30467, 2012 U.S. App. LEXIS 2091 (5th Cir. Feb. 3, 2012), involved battling expert-witness testimony with regard to the assessment of damages sustained as a result of a vehicular accident. While the plaintiffs’ expert opined that the plaintiffs were disabled and severely injured as a result of the accident and offered positive diagnostic tests in support thereof, the defendants’ expert testified that the plaintiffs only suffered soft-tissue damage and that the medical diagnostic tests relied on by the plaintiffs were unreliable. Ultimately, the jury found the defense expert more credible and only awarded damages consistent with soft-tissue damage.

On appeal, the plaintiffs essentially contended that the jury should not have been allowed to find the defendants’ expert more credible. The Fifth Circuit disagreed and affirmed the judgment. In particular, the court found that the jury was properly entitled to consider the defense expert’s testimony because there was no documented pattern of bias or one-sided advocacy (in other words, the expert was not a hired gun), the expert provided sufficient underlying support for his opinion, and the validity and appropriateness of medical diagnostic tests is not absolute—it is an issue of fact for the jury’s determination after considering and weighing each side’s evidence.

Courts do not easily disregard an expert’s credentials and find him so biased that his testimony cannot be considered. After reiterating the rule that the basis of an expert’s opinion goes to weight and not admissibility—unless, of course, the opinion is so useless that it would not actually assist the jury—the court noted that the onus is on the opposing party to explore the factual bases of an expert’s opinion. In this case, the plaintiffs did nothing to demonstrate that sufficient support for the expert’s opinion was lacking.

Keywords: litigation, expert witnesses, reliability, Fifth Circuit

—Angeleque P. Linville, Wick Phillips Gould & Martin LLP, Dallas, Texas


October 27, 2011

Antitrust Litigation and Experts

Experts play an unusually large and essential role in antitrust matters, whether in private and class-action litigation or in litigation with the Federal Trade Commission or the Department of Justice. Experts are needed to support claims about the nature of the relevant market, the existence of effective competition, and so on. Selecting and examining experts then raises issues at the heart of any antitrust case. Given the importance of experts to antitrust cases, it is not a surprise that the antitrust community has much to say about experts in litigation.

The Summer 2011 issue of Antitrust (a publication of the ABA’s Section of Antitrust Law) is devoted to expert testimony in antitrust matters. While the experts in antitrust matters are mostly economists, the problems and possible solutions in dealing with experts in highly technical and complex topics carry over to other areas of law and experts in other specialized and academic disciplines.

While antitrust law is the background frame, so to speak, for the articles, they are not just for antitrust lawyers or economics wonks—there are valuable discussions of and advice for anyone whose cases involve expert testimony. The articles cover the cross-examination of experts, challenges under Daubert, judicial gatekeeping, and complex testimony, none of which are limited to the antitrust world, and the advice useful in dealing with most sorts of experts. There is also an interview with Judge Vaughn Walker of the Northern District of California. There is even an introduction to econometrics aimed at lawyers. Even if you never handle an antitrust case, this issue will prove useful.

Keywords: litigation, expert witnesses, antitrust cases

—John H. Bogart, Telos VG, PLLC, Salt Lake City, Utah


October 19, 2011

Washington Clarifies the Frye and Daubert Standards

The Washington Supreme Court recently entered a decision that significantly clarifies the admissibility of expert testimony that relies on scientific evidence. In Anderson v. Akzo Nobel Coatings, Inc., No. 8226406, 2011 Wash. LEXIS 669 (Wash. Sept. 8, 2011), the court recognized tension between the Frye “general acceptance” and Daubert “reliability” tests for admitting expert testimony and noted that Washington courts had yet to definitively adopt one standard for civil cases. The court ultimately held that the “Frye test is only implicated where the opinion offered is based upon novel science,” and does not apply to opinions, theories, or methods that are generally accepted in the scientific community.

In Anderson, the plaintiff worked for Akzo Novel Coatings for five years as, among other things, the health, safety, and environmental coordinator at her facility. As part of her job responsibilities, the plaintiff regularly mixed paint. While the company had a policy requiring employees to wear respirators when mixing paint, the policy was evidently not enforced and even undermined. While employed at the company, the plaintiff gave birth to a son with multiple birth defects, including neuronal migration defect, congenital hemiplegia, microcephalus, and multicystic dystplastic kidney. One of plaintiff’s physicians concluded that her son’s birth defects were likely caused by exposure to paint chemicals. After being laid off for allegedly complaining about the company’s safety conditions, the plaintiff sued for negligence and wrongful discharge. As part of her case, the plaintiff retained various experts who were prepared to testify that the birth defects were caused by the organic solvent exposure.

The company sought to exclude the experts, arguing that their testimony did not meet the “generally accepted” standard under Frye, and the trial court agreed. The Washington Supreme Court reversed, holding that the Frye test is not implicated when the theory and methodology used by the expert is “generally accepted” in the relevant scientific community. The court rejected the trial court’s conclusion that “there must be consensus of scientific opinion on the issue of specific causation,” and instead held that “if the science and methods are widely accepted in the relevant scientific community, the evidence is admissible under Frye, without separately requiring widespread acceptance of the plaintiff's theory of causation.” Thus, Frye “does not require that the specific conclusions drawn from the scientific data . . . be generally accepted,” so long as the underlying theories and methods are generally accepted. Further, the court explained that the Frye test—and its more stringent admissibility standard—applies only when the opinion is based on experimental or “novel” science. In this case, the court noted that “there is nothing novel about the theory that organic solvent exposure may cause brain damage,” and reversed the trial court’s ruling that had excluded the testimony of the plaintiff’s experts.

As a result of the Anderson decision, Washington litigants will have an easier time submitting expert testimony based on new or developing scientific theories and methods. Attorneys should pay careful attention to the case law governing their state and stay attuned to whether this decision is followed by other state appellate courts.

Keywords: litigation, expert witnesses, Daubert, Frye, Washington, admissability

—Joseph Callister, Wick, Phillips, Gould & Martin, LLP


October 4, 2011

How Should Courts Handle Evolving Science?

Shaken baby syndrome is one area where changes in science may affect both civil and criminal proceedings. Changes like these can be unsettling when they cast doubt on judgments and/or criminal convictions. There is relatively little commentary on the problem and even less from the courts.

Prof. Sandeep Narang’s paper, A Daubert Analysis of Abusive Head Trauma/Shaken Baby Syndrome, discusses changing science and how courts should respond, looking at the example of science relating to shaken baby syndrome.

In recent years, there have been challenges to the science for diagnosing shaken baby syndrome resulting in legal commentary arguing that judgments, civil or criminal, are unsupported. Prof. Narang reviews the leading current salient science literature and considers that work in the context of Daubert standards. He offers some options for judges dealing with the admissibility of complex medical expert testimony.

Keywords: litigation, expert witnesses, Daubert, shaken baby syndrome, admissability

—John H. Bogart, Telos VG, PLLC, Salt Lake City, Utah


September 27, 2011

USCIS to Use FY2011 Visa Allocations through September

Although the Department of the State has distributed all employment-based immigrant visas for fiscal year 2011, U.S. Citizenship and Immigration Services (USCIS) will continue accepting the adjustment of status applications based on the September visa bulletin through the entire month of September.

Keywords: litigation, immigration, U.S. Citizenship and Immigration Services, visas

—Rajan O. Dhungana, UNLV Boyd School of Law J.D. Candidate 2013


September 27, 2011

USCIS Begins First Phase of EB-5 Enhancements

U.S. Citizenship and Immigration Services (USCIS) is implementing the first phase in a series of proposed enhancements to the EB-5 program [PDF]. Form I-924 applicants can now communicate directly with USCIS adjudicators via email, helping to streamline the process and to quickly raise and resolve issues and questions that arise during the adjudication process. The Form I-924 is the Application for Regional Center Under the Immigrant Investor Pilot Program. Information on how direct email communication will work can be found in the USCIS Questions and Answers document.

Keywords: litigation, immigration, U.S. Citizenship and Immigration Services, EB-5

—Rajan O. Dhungana, UNLV Boyd School of Law J.D. Candidate 2013


September 27, 2011

USCIS Seeks Comments on SIJ Classification

U.S. Citizenship and Immigration Services (USCIS) is seeking public comment on a proposed rule governing the Special Immigrant Juvenile (SIJ) classification. The proposed rule, if promulgated as a final rule, would allow USCIS to grant SIJ classification to petitioners whose reunification with one or both parents is not possible because of abuse, neglect, abandonment, or a similar basis found under state law. USCIS will accept public comments until November 7, 2011.

Keywords: litigation, immigration, U.S. Citizenship and Immigration Services, Special Immigrant Juvenile

—Rajan O. Dhungana, UNLV Boyd School of Law J.D. Candidate 2013


September 27, 2011

FAQ Provides Details on DHS Case Closures

U.S. Immigration and Customs Enforcement (ICE) has issued a Frequently Asked Questions (FAQ) document addressing the Department of Homeland Security’s (DHS) new policy of exercising discretion to close removal cases that are not high enforcement priorities. In a memorandum dated June 17, 2011, ICE provided guidance to agency personnel on exercising prosecutorial discretion to ensure that the agency’s immigration enforcement resources are focused on the agency’s enforcement priorities. The new FAQ provides further details on the reasons and goals for the new process.

Keywords: litigation, immigration, U.S. Immigration and Customs Enforcement, Department of Homeland Security

—Rajan O. Dhungana, UNLV Boyd School of Law J.D. Candidate 2013


February 3, 2011

Tenth Circuit Excludes "Human Factors" Expert

In Graves v. Mazda Motor Corp., the Tenth Circuit affirmed the trial court’s decision to exclude “human factors” expert testimony. Exclusion of the expert’s testimony mandated summary judgment. The Tenth Circuit found that the witness did not meet the standards of Rule 702, as his proposed testimony was not based on any data, industry standard, or testing, and instead “rests on no more than his say so,” which is far short of what is required for admission.

Keywords: litigation, expert witnesses, human factors, Tenth Circuit, Rule 702

— John H. Bogart, Telos VG, PLLC, Salt Lake City, Utah


Expert Witnesses under State Law

The Trial Evidence Committee has published a 50-State Survey of the standards applied to admissibility of expert testimony. The survey identifies the standard under which the testimony may be received in each state. The 50-State Survey of Daubert/Frye Applicability is available on the Trial Evidence Committee webpage.


Expert Testimony Excluded Because Revised Strategic Business Plan Was Unreliable

In ZF Meritor LLC v. Eaton Corp., 2009 U.S., Judge Robinson of the U.S. District Court for the District of Delaware, granted a motion to exclude the plaintiffs' expert testimony on the grounds that, while the expert employed a reasonable methodology, he had relied on data or information which was not reasonably reliable. In this case, the expert had relied on financial information (a portion of the plaintiffs' Revised Strategic Business Plan) without testing the data reflected or summarized in the financial document. As a result, he could not attest to the reliability of the underlying data or show that it was reasonable to rely on such data. See ZF Meritor LLC v. Eaton Corp., 2009 U.S. Dist. LEXIS 74180.


Update on Proposed Amendments to Rule 26 of the Federal Rules of Civil Procedure

The Judicial Conference has proposed significant amendments to Federal Rule of Civil Procedure 26 and recently closed the public comment period.  An article summarizing the proposed amendments, which were largely proposed by the ABA, may be found here.

The Judicial Conference received close to 80 comments on its Proposed Amendments to FRCP 26, including numerous requests to testify. After three public hearings, during which the Advisory Committee on Civil Rules heard testimony from a range of practitioners and scholars, the Committee voted in its April 20-21, 2009 meeting to approve the proposed amended FRCP 26 with slight modifications. The Advisory Committee forwarded its recommendation to the Committee on Rules of Practice and Procedure for consideration at its June 2009 meeting.

At its June 1-2, 2009 meeting, the Committee on Rules of Practice and Procedure adopted the recommendations of the Advisory Committee that the proposed rules amendments be transmitted to the Judicial Conference for consideration at its September 2009 session. If approved by the Judicial Conference, Supreme Court, and if Congress does not act otherwise, the proposed amendments are scheduled to take effect on December 1, 2010.

Other important resources:


Giving a Work Product Document to a Testifying Expert Can Waive Privilege

When providing documents to your testifying experts be mindful not to provide work product documents. If you do, you may be forced to either lose your protection or your expert – even if you gave the protected document to the expert by mistake. In late April 2007, the Texas Supreme Court held that a litigant who inadvertently provides a work product document to a testifying expert waives protection over the document unless that expert’s designation is withdrawn. In re Christus Spohn Hospital Kleberg, No. 04-0914, 2007 WL 1225351, at *5, (Tex. Apr. 27, 2007).

In reaching its conclusion, the Texas Supreme Court had to harmonize two competing statutes. Specifically, the Court decided that Texas Rule of Civil Procedure 192.3(e)(6), which permits discovery of all documents provided to a testifying expert trumps Texas Rule of Civil Procedure 193.3(d), the “snap-back” or “claw back” rule that allows a party to retract privileged or otherwise protected documents mistakenly produced during discovery. Id.

The Christus case involved documents that were generated in the course of a hospital’s internal investigation of medical malpractice claims. Id. at *1-2. By mistake, a paralegal provided investigation documents and other protected correspondence to the hospital’s testifying expert. Although she received the documents, the expert only “glanced” at them and did not rely on them in preparing her report. Id. The documents were later produced to opposing counsel in response to a subpoena duces tecum served on the expert. Upon realizing its mistake, the hospital sought to recover the documents by asserting the work product privilege and invoking Rule 193.3(d)’s snap-back provision. The trial court overruled the hospital’s claim of protection and the court of appeals denied it mandamus relief. Id.

After granting mandamus review, the Texas Supreme Court considered whether the snap-back provision preserved protection over Rule 192.3’s mandate that documents provided to a testifying expert are discoverable. Id. Noting that the snap-back provision is usually applied when protected documents are produced directly to opposing counsel, the Court recognized that under the circumstances presented here, the fact that the documents went to the expert thus implicated the “overlapping directive” from Rule 192.3 that all material given to a testifying expert must be produced. Id. at *4. The tension between the two rules created an issue of first impression for the Court. Id.

The Court first held that, despite the fact that the expert had not read or relied on the documents, they were subject to Rule 192’s mandate for production and unprotected by the work product privilege. Id. at *3-4. The Court noted Rule 192’s expansive language, stating that the rule requires production of all documents “provided to” an expert, “whether or not the documents were actually read by or prepared for” the expert. Id.

The Court then analyzed whether the snap-back provision might preserve the documents’ protected status or require their return. Id. at *4-5. It recognized that while Rule 193.3(d) focuses on intent by protecting a party when it does not intend a waiver, Rule 192.3(e)(6) requires that “documents and tangible things provided to a testifying expert lose their work-product designation irrespective of the intent that accompanied their production.” Id. at *5.

The Court also acknowledged significant policy concerns surrounding the use of expert witnesses, including their “vast potential for influence” and their ability to testify “unfettered by first-hand knowledge requirements that constrain the ordinary witness.” Id. at 5. Because of this potential, the Court reasoned that a jury should have full knowledge of all information provided to an expert, regardless of whether that information is ultimately relied upon. It thus concluded that Rule 192.3(e)(6) prevails over Rule 193.3(d) “so long as the expert intends to testify at trial despite the inadvertent document production.” Id. at 8.

However, the Court noted that a “producing party in such a situation is not without a remedy” and can choose to withdraw its expert designation and name another. Id. at 10. In so choosing, the party can recover its privileged documents upon realizing its mistake. Id.

— Wendie Childress, Yetter & Warden, LLP, Houston, Texas


ABA House of Delegates Adopts Proposed Policy on Discoverability of Expert Reports

At the ABA Annual Meeting, the House of Delegates adopted a Policy proposed by the Section of Litigation that urges the adoption of consistent rules governing the discoverability of expert reports.


Expert Witness Fees Are Not Recoverable to Prevailing Parents in an IDEA Action

In Arlington Central School District Board of Education v. Murphy, the U.S. Supreme Court held that parents of disabled children that prevail in proceedings under the Individuals with Disabilities Education Act (IDEA) are not entitled to reimbursement for funds expended on experts. The applicable provision of the IDEA, 20 U.S.C. 1415(i)(3)(B), states that “[i]n an action or proceeding brought under this section, the court, in its discretion, may award reasonable attorneys’ fees as part of the costs to the parents of a child with a disability who is the prevailing party.”

Finding the Circuits split as to “whether Congress authorized the compensation of expert fees to prevailing parents in IDEA actions,” the Supreme Court granted certiorari. The majority ruled that such expenses are not recoverable by prevailing parents. Justice Alito, writing the majority opinion, stated the IDEA’s text “makes no mention of expert fees.” In reaching this conclusion, the majority held that the term “costs” as it appears in the statute is a “term of art” that did not include expert expenses. The majority recognized various reports and studies supported finding that expert costs were recoverable by prevailing parents, but ruled that “legislative history is simply not enough” to change the actual statutory language used. The majority also found that requiring school districts to reimburse prevailing parents for expert fees runs afoul of the Constitution’s Spending Clause, which permits Congress to set the terms and conditions on which it disburses Federal funds, because it does not “unambiguously authorize prevailing parents to recover expert fees.”


Expert Witness Sued by Client Can Assert Equitable Indemnity Claim Against Retaining Law Firm

A California appellate court recently held that an expert witness who was sued by its client for professional negligence for providing inadequate testimony in the client's unsuccessful products liability case could assert an equitable indemnity claim against the client's trial attorney, who had not been similarly sued by the client for malpractice but had retained and insufficiently prepared the expert in the underlying case.

In Forensis Group, Inc.v. Frantz, Townsend & Foldenauer, 29 Cal.Rptr.3d 622, 624-25 (Cal. Ct. App. 2005), a testifying expert sought to bring an equitable indemnity claim against the law firm that had retained it as a testifying expert in an underlying wrongful death/products liability case. In the underlying suit, the expert's failure to properly account for certain safety standards in his report and deposition resulted in an adverse summary judgment against the client. The client later sued the expert for professional malpractice, although it did not also bring malpractice claims against its former law firm. In response, the expert asserted a cross-claim against the former law firm, arguing that it was entitled to equitable indemnity for the law firm's failure to adequately inform, prepare, and rehabilitate the expert in the underlying suit. The trial court granted summary judgment against the equitable indemnity claim, holding that the public policies protecting attorney-client loyalty and the confidentiality of client communications prohibited the claim.

The court of appeals reversed. The court noted that while there was in fact a general prohibition on claims for equitable indemnity when a client sues a former attorney for malpractice and the former attorney seeks equitable indemnity from a successor attorney, the policy considerations underlying that rule did not prevent the equitable indemnity claim in the present case. The court held that allowing the equitable indemnity claim between the expert and the law firm would not create a conflict of interest between the law firm and its former client because there was no danger that the law firm, in defending against the equitable indemnity claim, would have to breach either its duty of loyalty or confidentiality to the client. The law firm would not be required to show that the former client's case lacked merit or divulge any confidential client communications; rather, the law firm would only have to show that it provided proper information to the client and satisfied the relevant standards of care in preparing and utilizing the expert.

— Omar Kilany, Carrington, Coleman, Sloman & Blumenthal, LLP, Dallas, Texas