12 Jan Daubert Challenge – What You Need to Know as an Expert Witness
By: George D. Abraham
CEO & Chief Appraiser
Business Evaluation Systems
The United States Supreme Court issued a landmark ruling in 1993 in the case of Daubert v. Merrill Dow. In that decision, the Supreme Court changed 70 years of case precedent for the admission of expert testimony.
Daubert changed the w ay in which federal courts are required to evaluate scientific and technical evidence. Prior to Daubert, federal courts admitted scientific and technical evidence only if the principle upon which it was based was sufficiently established to have general acceptance in the field to which it belonged. In Daubert, the Supreme Court invalidated the “general acceptance” standard, and instead held that, according to Rule 702 of the Federal Rules of Evidence, scientific and technical evidence is admissible only if: (1) the 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 the case. In addition, the Supreme Court expanded the measure of reliability. The court created a new standard based upon a broader analysis of the evidence. The Daubert decision outlined a series of inquiries to be considered, including:
1) Has the theory or technique been tested, under appropriate standards and controls?
2) Has the theory or technique been subjected to peer review?
3) Does the theory or technique have a known or potential rate of error?
4) Has the theory or technique gained “general acceptance” in the field or profession?
Daubert was also significant because the Supreme Court held that federal judges are required to ensure that scientific and technical evidence is both relevant and reliable. Although the trial judge’s inquiry is flexible, the Supreme Court recognized that the judge must make a “preliminary assessment of whether the reasoning or methodology underlying the testimony is scientifically valid and of whether that reasoning or methodology properly can be applied to the facts in issue.”
The 2000-2007 Financial Expert Witness Daubert Challenge Study, by PriceWaterhouseCoopers, examines more than 2,354 federal and state court opinions from 2000 through 2007 in which Daubert challenges arose. The analysts identified 3,681 individual expert witness challenges, of which 635 were addressed to financial experts. Some interesting results of the study are the following:
- The number of Daubert challenges to financial experts has been rising every year since 2001. In 2007, 116 financial experts were challenged, an increase of 9% over 2006.
- The percentage of Daubert challenges of financial experts which have been successful has varied widely over the past eight years, ranging from 29% in 2002 to 59% in 2005. The rate was 41% in 2007.
- Of all the financial experts challenged during 2000-2007, 29% were completely excluded, 18% were partially excluded and 50% were admitted. In the remaining 3% of cases, no decision was made. This breakdown was similar to that for experts of all types.
- Plaintiff-side financial experts were challenged much more frequently than defendant-side financial experts. Among all challenges to financial experts during 2000-2007, 70% were targeted at the plaintiff side.
- Over the 2000-2007 period, challenged plaintiff-side and defendant-side financial experts were excluded from testifying in almost equal proportion: 47% on the plaintiff side versus 46% on the defendant side.
In summary, it has changed the way appraisers write their reports. In a recent Business Valuation Resource webinar, Robert M. Lloyd (University of Tennessee College of Law) and Jonathan Dunitz (Friedman Gaythwaite Wolf & Leavitt) offered several suggestions for writing a report that will reduce vulnerability to Daubert challenges.
“The first thing is to use the Daubert factors in your report,” said Professor Lloyd. Second, show your work. “I sound like a middle school teacher in an arithmetic or an algebra class, but it’s really important to let the court know exactly what you did – all the steps, show what you did, explain the reasoning step by step in detail – and write it in a language that the judge can understand. Define and explain technical terms.”
“The other thing you need to remember is that ultimately, if the case is tried, you’ll be speaking to jurors who will probably have even less understanding than the judge does, added Dunitz. “So it’s really important to think in those terms and, from the very beginning in writing your report, to remember that you’re ultimately going to have to explain this to complete novices and be able to explain it in a way that they will understand and accept as being accurate.”
George D. Abraham is the specialist for business appraisals at Business Evaluation Systems, Inc.
Since 1973, Business Evaluation Systems has been involved in the appraisal of over 16,000 companies, covering almost every industry on a national and international basis, ranging in value from $50,000 to over $7 billion.
Our experience has qualified us to meet the requirements of the Appraisal Foundation, the Internal Revenue Service, lending institutions, and courts of law around the country. Two of the appraisals the company was involved in have passed the scrutiny of the World Bank.