| Greetings! In this month’s newsletter, we include an article outlining PwC’s annual study of post-Kumho challenges to financial expert witnesses under the Daubert standard. We hope you enjoy our articles and like our website. We’d love your feedback. Please reply to this email and provide your comments. |
| Daubert Challenges to Financial Experts: A synopsis of PwC’s annual study Each year PwC conducts a study of the trends and outcomes of post-Kumho challenges to financial expert witnesses under the Daubert standard (study is linked here). This article provides a synopsis of those findings. An Overview of the Federal Rule of Evidence 702 Rule 702 of the Federal Rules of Evidence governs the admissibility of expert testimony: If scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may testify thereto in the form of an opinion or otherwise, if (1) testimony is based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has applied the principles and methods reliably to the facts of this case. The Court’s role in determining the admissibility of expert testimony is that of a gatekeeper. In performing this role, the Court must determine whether the expert testimony in question meets two essential requirements: (1) it must be based on scientific, technical, or other specialized knowledge and (2) it must assist the trier of fact in understanding the evidence or determining a fact in issue. In other words, the opinion must be reliable and relevant. Overview of the Four Daubert Factors to be Considered Daubert provides a list of four factors to be considered in determining the soundness of the expert’s methodology: (1) whether the proffered conclusion lends itself to verification by the scientific method through testing; (2) whether it has been subjected to peer review; (3) whether it has been evaluated in light of the potential rate of error of the scientific technique; and (4) whether it is consistent with the generally accepted method for gathering the relevant scientific evidence. The PwC study analyzed 2,200 financial expert challenges since 1999 (when Kumho Tire Co. v. Carmichael was decided), including the 186 decided in 2016. Gatekeepers In their role as gatekeepers, judges generally “work under the presumption of admissibility.” In the 16 year study, the average acceptance rate of challenged experts was 55%. The courts prefer to let the issue of “weight versus admissibility” be addressed through cross-examination of the expert witness and let the trier-of-fact make that ultimate decision of admissibility. A Second Bite Whereas, in the past, a Daubert exclusion normally meant a quick death for the expert, in today’s environment, the courts commonly allow the expert a chance to “revise or update their testimony. This may be to correct for issues and error identified during the Daubert challenge process, or to incorporate new information.” Most Common Reasons for Exclusion The most common reason for exclusion was a lack of reliability. This was either by itself or in combination with other reasons. This held true for 2016 as well. The second most common reason for exclusion, and this also held true in 2016, was that “the testimony was not considered relevant to the case.” Exclusion Rates in 2016 In 2016, intellectual property disputes had the most challenges, but cases involving securities litigation had the highest exclusion rate (many of which were partial exclusions). In 2016, accountants had the highest exclusion rates between – accountants, appraisers or economists (the three most common types of financial expert witnesses to provide testimony) – at a rate of 62% of Daubert challenges resulting in either full or partial exclusion. Interestingly, in this study, which covers the years 2000-2016, there have been twice as many Daubert challenges to plaintiff-side financial experts then to defendant-side experts (67% v. 33%). “In 2016, 58% of challenges were to plaintiff-side experts.” In sum, the PwC annual study provides a nice big-picture look at the post-Kumho federal court decisions regarding financial expert witness testimony. …………………………………………………………………………………………………………………………………………………………………. At Rosenfarb LLC we produce well-supported, well-reasoned and well-communicated damage calculations that withstand the rigors of litigation. We are a firm of forensic accounting and valuation experts. We understand business, have keen insights and always connect the dots. We understand the litigation process. We frame the issues simply and in alignment with the litigation strategy. We use logic to support our opinions, while creating compelling stories. We are sincere, professional, and credible. |