Post on 26-Aug-2021
©2011
COVERING YOUR BASES:
RISK ASSESSMENT AND LEGAL ISSUES
WHEN ATTORNEYS ATTACK:
ANALYZING STRATEGIES FOR DEFEATING EXPERT TESTIMONY
Want to walk into trial prepared to withstand cross examination? This session will
analyze typical areas of examination covered by opposing counsel and will offer tips on how
to present your testimony in clear and concise language. This presentation will also provide
you with a typical attorney examination blueprint for expert witness examinations, as well as
useful techniques to help you endure aggressive counsel.
FRANK WISEHART, CFE, CPA, ABV, CVA
Director of Business Advisory Services
Schneider Downs, Inc.
Columbus, Ohio
Frank Wisehart M.B.A, CFE, CPA, ABV, CVA is the Director of Business Advisory
Services for Schneider Downs, Inc., a regional accounting firm servicing the Ohio Valley.
Frank specializes in forensic accounting, fraud, business valuations, economic damages,
family law, financial due diligence, bankruptcy, expert testimony, management consulting,
and general commercial litigation. He is an instructor for the National Association of
Certified Valuation Analysts, teaching Economic Losses, Business Valuation and the
Fundamentals of Litigation Consulting. Frank received the honor of “Instructor of
Great/Exceptional Distinction” every year from 2004 to 2009 for his service to NACVA.
Frank has been a featured lecturer for the Ohio State, Columbus, and Toledo Bar
Associations. Topics have included business valuation, fraud, expert witness selection, expert
testimony, daubert challenges, and other topics. Further, Frank has been a national speaker
for the Association of Certified Fraud Examiners, teaching expert witness preparation, report
writing, and testimony techniques. He has testified as an expert witness in both Federal and
State courts, offering expertise on a wide range of subjects including bankruptcy, fraud, and
lost profit damages.
Prior to Schneider Downs, Frank served as President for the past 11 years of Wisehart &
Wisehart, Inc., a CPA firm specializing locally and nationally in business valuations,
litigation support, and forensic accounting. Frank received his master of business
administration from Cornell University, Ithaca, New York and Queen‟s University, Kingston,
Ontario, Canada.
“Association of Certified Fraud Examiners,” “Certified Fraud Examiner,” “CFE,” “ACFE,” and the
ACFE Logo are trademarks owned by the Association of Certified Fraud Examiners, Inc.
ANALYZING STRATEGIES FOR DEFEATING EXPERT TESTIMONY
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NOTES Introduction
In litigation, attorneys and judges follow two basic charges:
procedure and merits. Procedure relates to the steps
necessary to prosecute the case. This includes the order and
flow of testimony, admissibility of experts and evidence,
and the time frame in which the case will occur. Knowing
and understanding the gatekeepers, procedures, and
standards is an important aspect of expert witness work.
Merits relate to the case itself. These are the facts and
analysis that set forth the cause-and-effect arguments. Is the
plaintiff able to prove its case based on the facts? Or do the
facts get in the way of a good story?
As advocates, attorneys focus their attack initially on
disallowing damaging evidence from consideration by the
judge or jury. For example, failing to adhere to federal rules
might cause an expert‟s report to be rejected despite the
credible work product that was produced. New experts can
be caught in procedural issues by failing to understand
mandated timelines, discovery cutoff, and reporting
requirements. As an expert, it is important to understand
how and when you must submit your reports.
Only after passing through the maze of procedure and
standards can the merits of the case be heard. Attorneys
will frequently attack and alternatively defend four
principal areas of expert testimony: the evidence,
assumptions, methodology, and expert. Defending your
testimony relative to these four areas is critical to
establishing an expert‟s credibility.
Finally, there is no substitute for good preparation. Know
your report. Opposing counsel will have spent considerable
time dissecting its content. Know the case timeline. When
did you first become involved? When did you meet with
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NOTES the client and attorney? What information was provided to
you? When did you form your opinion? These answers are
important to displaying the logical approach taken in the
assignment and orderly steps that lead to your opinion.
“Gatekeeping Obligations” in Federal Courts
Prior to the adoption of the Federal Rules of Evidence in
1975, the federal court system relied on case law and the
discretion of the court to decide matters of evidence and
expert witness. Common law evidence rules were not
uniform. Evidence laws varied from state to state and
district to district. The common law rules were harsh in
some instances and made little sense in others. A single,
comprehensive set of rules was necessary to eliminate this
rather complicated variance.
In 1965, U.S. Supreme Court Chief Justice Earl Warren
appointed an advisory committee of 15 to draft the new
rules. The committee was chaired by trial lawyer Albert E.
Jenner from Chicago. Other trial lawyers included David
Berger of Philadelphia; Hicks Epton of Wewoka,
Oklahoma; Egbert Haywood of Durham, North Carolina;
Frank Raichle of Buffalo, New York; Herman Selvin of
Los Angeles; Craig Spangenberg of Cleveland; and Edward
Bennett Williams of Washington, D.C. Members from legal
academia included Thomas F. Green, Jr. of the University
of Georgia Law School, Charles W. Joiner of the
University of Michigan Law School, Jack Weinstein of
Columbia Law School, and Edward W. Cleary of the
University of Illinois College of Law. Representing the
judiciary were U.S. Circuit Judge Simon E. Sobeloff of
Maryland, U.S. District Judge Joe E. Estes of Texas, and
U.S. District Judge Robert Van Pelt of Nebraska1.
1 http://en.wikipedia.org/wiki/Federal_Rules_of_Evidence
ANALYZING STRATEGIES FOR DEFEATING EXPERT TESTIMONY
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NOTES The United States Supreme Court promulgated drafts of the
FRE in 1969, 1971, and 1972, but Congress then exercised
its right under the Rules Enabling Act to suspend
implementation of the FRE until it could study them
further. After a long delay blamed on the Watergate
scandal, Congress allowed the FRE to become federal law
in 1975, but only after enacting a series of modifications to
the rules proposed by the Supreme Court, particularly in the
area of privilege.2
As defined in FRE 102 Purpose and Construction, the
thrust of the FRE is to “secure fairness in administration,
elimination of unjustifiable expense and delay, and
promotion of growth and development of the law of
evidence to the end that the truth may be ascertained and
proceedings justly determined.”
An Overview of Selected Federal Rules of Evidence3
Rule 104 (Preliminary Questions)
A judge is assigned to preliminarily determine whether
or not to allow an expert‟s testimony.
Rule 401 (Definition of “Relevant Evidence”)
“Relevant evidence” means evidence having any
tendency to make the existence of any fact that is of
consequence to the determination of the action more
probable or less probable than it would be without the
evidence.4
2 http://en.wikipedia.org/wiki/Federal_Rules_of_Evidence
3 These summaries include text taken verbatim from the Federal Rules
of Evidence.
4 http://www.law.cornell.edu/rules/fre/rules.htm
ANALYZING STRATEGIES FOR DEFEATING EXPERT TESTIMONY
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NOTES Rule 402 (Relevant Evidence Generally Admissible;
Irrelevant Evidence Inadmissible)
All relevant evidence is admissible, except as otherwise
provided by the Constitution of the United States, by
Act of Congress, by these rules, or by other rules
prescribed by the Supreme Court pursuant to statutory
authority. Evidence that is not relevant is not
admissible.5
Rule 403 (Exclusion of Relevant Evidence on Growth
of Prejudice, Confusion, or Waste of Time)
A judge may exclude evidence if it is prejudicial, will
likely confuse or mislead a jury, or wastes time.
Rule 701 (Opinion Testimony by Lay Witnesses)
Opinion testimony is admissible by non-experts in the
form of opinions or inferences. Witnesses‟ rational
conclusions must prove useful in resolving issues and
must not be based in knowledge as defined in Rule 702.
Rule 702 (Testimony by Experts)
“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) the testimony is sufficiently based
upon reliable 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.”
Testimony must be based on scientific, technical, or
other specialized knowledge and reliable methods:
5 http://www.law.cornell.edu/rules/fre/rules.htm
ANALYZING STRATEGIES FOR DEFEATING EXPERT TESTIMONY
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NOTES Rule focuses on “scientific” and “knowledge”
meaning “only inferences that are derived by the
scientific method can be offered as expert opinion
testimony.”6
Hypothesis testing: Process of deriving some
proposition (or hypothesis) about an observable
group of events from accepted scientific principles,
and then investigating whether, upon observation of
data regarding the group of events, the hypothesis
seems true.7
Error Rate: Likelihood of being wrong. Type I error
(level of confidence) is the test‟s propensity for
false positives, while Type II error regards false
negatives.
Testimony must assist in understanding evidence or
determining a fact in issue.
Witness must be qualified by knowledge, skill,
experience, training, or education beyond
understanding of laypersons.
The Notes of Advisory Committee elaborate on Rule
702
“The rule [FRE 702] is broadly phrased. The fields of
knowledge which may be drawn upon are not limited
merely to the „scientific‟ and „technical‟ but extend to
all „specialized‟ knowledge. Similarly, the expert is
viewed, not in a narrow sense, but as a person qualified
by „knowledge, skill, experience, training, or
education.‟ Thus within the scope of the rule are not
only experts in the strictest sense of the word, e.g.,
physicians, physicists and architects, but also the large
6 Mahle, Stephen. “Daubert and the Law and Science of Expert
Testimony in Business Litigation An Introduction to Daubert v. Merrell
Dow.” The Florida Bar Journal, April 1999.
7 Kmenta, Jan. Elements of Econometrics. (1971) Pg 112.
ANALYZING STRATEGIES FOR DEFEATING EXPERT TESTIMONY
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NOTES group sometimes called „skilled‟ witnesses, such as
bankers or landowners testifying to land values.
The common-law standard for expert qualifications is
typically even more general than the statement in Rule
702. The courts state that no exact standards are
possible for fixing the qualifications of an expert
witness. An expert is generally considered qualified if
he or she possesses special skill or knowledge
respecting the subject matter, superior to the average
person, to make the expert‟s opinion of probative
value.”8
“The multifaceted test for expert qualifications stated
by Rule 702 has significant practical benefits for
litigants . . . The ratification of experience as the basis
for qualification in the cases permits a qualified party or
an employee of a corporate party to be the expert in
many circumstances. The search for an expert witness
is limited only by the trial lawyer‟s ingenuity.”9
Rule 703 (Bases of Opinion Testimony by Experts)
“The facts or data in the particular case upon which an
expert bases an opinion or inference may be those
perceived by or made known to him at or before the
hearing. If of a type reasonably relied upon by experts
in the particular field in forming opinions or inferences
upon the subject, the facts or data need not be
admissible in evidence in order for the opinion or
inference to be admitted. Facts or data that are
otherwise inadmissible shall not be disclosed to the jury
by the proponent of the opinion or inference unless the
8 Dunn, Expert Witnesses –Law and Practice §2.2 (Lawpress 1997).
9 Dunn, Robert L. “Standards for Qualifications of Experts,” Recovery
of Damages for Lost Profits, Volume 2, (Westport, CT:Lawpress,
1998), 533.
ANALYZING STRATEGIES FOR DEFEATING EXPERT TESTIMONY
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NOTES court determines that their probative value in assisting
the jury to evaluate the expert's opinion substantially
outweighs their prejudicial effect.”
Facts or data forming the basis of testimony may
include:
Firsthand observation,
Information presented at trial, and/or
Information received by the expert outside of court
and from outside sources.
Facts themselves need not be admitted if they are “of a
type reasonably relied upon by experts of a particular
field.”
Rule 705 (Disclosure of Facts or Data Underlying
Expert Opinion)
The expert may give his or her opinion before
disclosing the facts and data upon which the opinion is
based. The court may require the expert to reveal the
underlying facts or data during cross-examination.
Rule 1006 (Summaries)
The contents of voluminous writings, recordings, or
photographs that cannot conveniently be examined in
court may be presented in the form of a chart, summary,
or calculation. The originals, or duplicates, shall be
made available for examination or copying, or both, by
other parties at reasonable time and place. The court
may order that they be produced in court.
Frye v. United States
In 1923 in Frye v. United States, the court was faced with a
murder trial involving James Alfonzo Frye. Frye claimed
he was innocent of the charges and offered new, scientific
evidence to support his claim in the form of a blood
ANALYZING STRATEGIES FOR DEFEATING EXPERT TESTIMONY
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NOTES systolic pressure test. The court rejected this scientific
evidence because it had not been generally accepted by the
scientific community. This standard was adopted by courts
as the basis for including or excluding scientific evidence.
Interestingly, this proof of innocence test was relabeled as a
lie-detector test, and subsequently, gained general
acceptance among the scientific community.
General Electric Co. v. Joiner
The court‟s gatekeeping role was challenged as an “abuse
of discretion” in General Electric Co. v. Joiner. After
respondent Joiner was diagnosed with small-cell lung
cancer, in 1991 he sued in Georgia state court alleging his
disease was promoted by exposure to chemical toxins at his
place of work, General Electric Co. Petitioners removed the
case to federal court and moved for summary judgment.
Joiner responded with the depositions of expert witnesses,
who testified that exposure to the chemicals, PCBs, furans,
and dioxins was likely responsible for his cancer. The
District Court granted summary judgment based on the
testimony‟s failure to link exposure to PCBs and small-cell
lung cancer. The testimony was therefore inadmissible
because it did not rise above “subjective belief or
unsupported speculation.”
The Court of Appeals for the Eleventh Circuit reversed the
district court ruling. The Eleventh Circuit stated that the
Federal Rules of Evidence display a preference for
admissibility of expert testimony: “We apply a particularly
stringent standard of review to the trial judge‟s exclusion of
expert testimony.” In its ruling, the Eleventh Circuit cited
two District Court errors. First, it excluded the experts‟
testimony because it “drew different conclusions from the
research than did each of the experts.” The Court of
Appeals opined that a district court should limit its role to
ANALYZING STRATEGIES FOR DEFEATING EXPERT TESTIMONY
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NOTES determining the “legal reliability of proffered expert
testimony, leaving the jury to decide the correctness of
competing expert opinions.” Id. at 533. Second, the District
Court had held that there was no genuine issue of material
fact as to whether Joiner had been exposed to furans and
dioxins. This was also incorrect, said the Court of Appeals,
because testimony in the record supported the proposition
that there had been such exposure.
The Eleventh Circuit decision was appealed. The Supreme
Court affirmed that on appellate review of a district court‟s
decision to admit or to exclude expert testimony that it
would not initiate its own review of the basis for the court‟s
decision. Instead, appellate courts should leave in place the
trial judge‟s gatekeeper role to ensure that evidence is
relevant and reliable. Appellate courts were adjured to give
great deference to a trial court‟s admissibility decisions
unless it was an abuse of discretion. In other words, trial
judges may be quite arbitrary in ruling on expert
testimony.10
The Supreme Court affirmed that:
“Abuse of discretion” (standard ordinarily applied to
evidence review) is appropriate standard to review
district court‟s decision.
The trial judge is granted “gatekeeper” role in screening
expert testimony.
Daubert v. Merrell Dow Pharmaceuticals
Petitioners Jason Daubert and Eric Schuller are minor
children born with serious birth defects. They and their
parents sued, alleging that the birth defects were the result
of the mothers‟ ingestion of Benedectin, an antinausea drug
10
Slovenko, Ralph. “Daubert in Collapse.” International Journal of
Offender Therapy and Comparative Criminology. Vol. 2 No. 47, 2003.
pp. 240-243.
ANALYZING STRATEGIES FOR DEFEATING EXPERT TESTIMONY
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NOTES marketed by Merrell Dow Pharmaceuticals, Inc.
11 Plaintiffs
offered the testimony of eight experts who concluded that
Benedectin could cause birth defects. These experts cited
epidemiological evidence, including animal-cell studies,
live-animal studies, and chemical-structure analysis to
support their causation argument. Some of this analysis was
based on a reinterpretation of previously conducted studies
that concluded that Benedectin was not a cause of birth
defects.
Respondents employed Dr. Steven H. Lamm, a medical
expert, to refute the plaintiffs‟ claims. Dr. Lamm offered
testimony that there had been no published reports linking
Benedectin to malformations in fetuses. Dr. Lamm
concluded that, therefore, maternal use of Benedectin
during the first trimester of pregnancy had not been shown
to be a human birth defect risk factor. Based on Dr.
Lamm‟s affidavit, respondents moved for summary
judgment.
The District Court granted respondents motion for
summary judgment. The court relied upon the Frye
standard that scientific evidence is admissible only if the
principle upon which it is based is sufficiently established
to have “general acceptance in the field to which it
belongs.”12
Since the petitioners‟ studies were not
published and had not been subjected to peer review, the
court ruled that the evidence was inadmissible under the
general acceptance doctrine.
11
Daubert et ux., individually and as guardians As Litem For Daubert,
et al. v. Merrell Dow Pharmaceuticals, Inc., No. 92-102, United States
Supreme Court.
12 727 F. Supp. 570, 572 (SD Cal. 1989), quoting United States v.
Kilgus, 571 F. 2d508, 510 (CA9 1978)
ANALYZING STRATEGIES FOR DEFEATING EXPERT TESTIMONY
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NOTES The plaintiffs appealed to the United States Court of
Appeals, Ninth Circuit. The appeals court confirmed the
district court‟s ruling. Plaintiffs appealed this decision to
the Supreme Court, which reversed the lower court rulings.
The Supreme Court decided that Frye‟s general acceptance
requirement was not necessarily a precondition to the
admissibility of scientific evidence under the Federal Rules
of Evidence. The court recognized that many well-founded
theories are too new or of too limited interest to meet the
general acceptance requirement. Additionally, the Supreme
Court affirmed a judge‟s role of scientific expert testimony
gatekeeper under Federal Rule 702. Scientific testimony
must be relevant and reliable and be the product of sound
scientific methodology. The Daubert decision formulated
relevant factors to be considered relative to the validity of
the scientific process, methodology, and conclusion. These
are not, however, rigid requirements and are to be flexibly
applied:
1. Proof of testing of the basic underlying hypothesis upon
which the technique rests;
2. Whether the method has been subjected to peer review
and publications;
3. What is the known or potential error rate;
4. Whether the method used is accepted methodology; and
5. The general acceptance of the technique used in the
scientific community.
Method v. Conclusion
In Daubert, the court had written that the “focus, of
course, must be solely on principles and methodology,
not on the conclusions they generate.”13
In Joiner v.
General Electric Co., the plaintiff charged the district
court of disagreeing with the conclusions of the
testimony rather than the methods from which the
13
509 U.S. at 595.
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NOTES experts had drawn. The court responded in its first post-
Daubert decree: “[C]onclusions and methodology are
not entirely distinct from one another . . . A court may
conclude that there is simply too great an analytical gap
between the data and the opinion proffered.”14
Upholding a judge‟s right to exclude given expert
testimony on the basis of perceived analytical gaps in
the science is an unprecedented broadening of the
gatekeeper role.15
Joiner upheld a judge‟s right to exclude in the presence
of perceived analytical gaps between method and
outcome.
Peer Review
Peer review and the publication process are subject to
flaws and have their limitations. A former editor of the
Journal of the American Medical Association has
observed: “Peer review is far from being a „perfect
sausage machine for grinding out the truth‟ . . . Just
because peer review is about a review of scientific data
doesn‟t mean that it is itself a scientific process.”16
Reliability Requirement
In Kumho, the Supreme Court held that the trial judge‟s
gatekeeping obligation applies to “technical” and “other
specialized” knowledge. In addition, the court
recognized that “there is no clear line that divides the
one from the others.”17
14
118 S. Ct at 519.
15 Fridman, Daniel S. and J. Scott Janoe. “An Overview of Differing
Approaches to Judicial Gatekeeping in the United States.” Harvard
Law School, 1999 presented January 19, 1999 at State Supreme Court
Justices Conference in Washington D.C.
16 Giannelli and Imwinkleried from L.A. Times, May 22, 1989, pt. 11 at
3 (quoting Elizabeth Knoll).
17 119 S. Ct. at 1174.
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NOTES Once it was clear that the reliability requirement
applied to all expert testimony, the courts had to
determine whether “the factors cited in Daubert also
applied in this context.”18
While questioning how to
assess reliability within various forms of expertise, the
Court decided the test of reliability should be “flexible”
and Daubert‟s list of criteria must be used accordingly.
However, since “technical knowledge” involves the
application of well-established scientific principles and
procedures, it is unnecessary to subject it to the same
“full-scale reliability determination required for
scientific knowledge . . . Thus . . . its reliability may be
presumed.”19
In this way, the court effectively shifted
the burden of proof on the reliability requirement to the
opposing party.20
Rules of Thumb
An individual can qualify to render testimony in any
one of the five ways listed: knowledge, skill,
experience, training, or education (Knopf v. Skyrm, 993
F.2d 374, 377 (4th Cir. 1993)). An expert need not be
an “outstanding practitioner” in the field (United States
v. Barker, 553 F.2d 1013, 1024 (6th Cir. 1977)).
Qualification should be based on the nature and extent
of the witness‟s knowledge, not on the witness‟s “title”
(Jenkins v. United States, 307 F.2d 637, 643-44 (DC
Circuit 1962)).
18
Giannelli, Paul C. and Edward J. Imwinkleried, “Application of
Daubert to “Technical” Expert Evidence,” Scientific Evidence, Volume
1, (Charlottesville, VA: Lexis Law Publishing, 1999), 47.
19 State v. Fukusaku, 85 Haw. 462, 473, 946 P. 2d 32, 43 (1997).
20 Giannelli, Paul C. and Edward J. Imwinkleried, “Application of
Daubert to “Technical” Expert Evidence,” Scientific Evidence, Volume
1, (Charlottesville, VA: Lexis Law Publishing, 1999), 47.
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NOTES Beyond Qualifications
Expert testimony must relate to subject matter in which
the expert has been qualified and no other area. Offers
to stipulate opposing counsel‟s expert qualifications are
often rejected. Stipulations can deprive juries of
material that causes the testimony to be more
persuasive. State v. Colwell 246 Kan. 382, 790 P.2d 430
(1990): When defense was forced to accept the
prosecution‟s stipulations of their counsel‟s
qualifications, the jury did not learn the credentials of
the expert who had a “national reputation” in the field.21
ACFE Litigation Engagement Professional Standards
Opposing counsel frequently question experts as to the
applicable standards for conducting litigation services. This
is a procedural issue. If you do not know your professional
standards, how can you properly prepare a professional
report? Expect this line of questioning if you do not know
your standards.
Standards of Professional Conduct
INTEGRITY AND OBJECTIVITY
Members shall conduct themselves with integrity,
knowing that public trust is founded on integrity.
Members shall not sacrifice integrity to serve the
client, their employer, or the public interest.
Prior to accepting the fraud examination, members
shall investigate for potential conflicts of interest.
21
Giannelli, Paul C. and Edward J. Imwinkleried, “Qualifications of
Experts,” Scientific Evidence, Volume 1, (Charlottesville, VA: Lexis
Law Publishing, 1999), 269.
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NOTES Members shall disclose any potential conflicts of
interest to prospective clients who retain them or
their employer.
Members shall maintain objectivity in discharging
their professional responsibilities within the scope
of the engagement.
Members shall not commit discreditable acts, and
shall always conduct themselves in the best interests
of the reputation of the profession.
Members shall not knowingly make a false
statement when testifying in a court of law or other
dispute resolution forum. Members shall comply
with lawful orders of the courts or other dispute
resolution bodies. Members shall not commit
criminal acts or knowingly induce others to do so.
PROFESSIONAL COMPETENCE
Members shall be competent and shall not accept
assignments where this competence is lacking. In
some circumstances, it may be possible to meet the
requirement for professional competence by use of
consultation or referral.
DUE PROFESSIONAL CARE
Members shall exercise due professional care in the
performance of their services. Due professional care
requires diligence, critical analysis and professional
skepticism in discharging professional
responsibilities.
Conclusions shall be supported with evidence that is
relevant, competent, and sufficient.
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NOTES Members‟ professional services shall be adequately
planned. Planning controls the performance of a
fraud examination from inception through
completion and involves developing strategies and
objectives for performing the services.
Work performed by assistants on a fraud
examination shall be adequately supervised. The
extent of supervision required varies depending on
the complexities of the work and the qualifications
of the assistants.
CONFIDENTIALITY
Members shall not disclose confidential or
privileged information obtained during the course of
the fraud examination without the express
permission of proper authority or order of a court.
This requirement does not preclude professional
practice or investigative body reviews as long as the
reviewing organization agrees to abide by the
confidentiality restrictions.
Standards of Reporting
GENERAL
Members‟ reports may be oral or written, including
fact witness and/or expert witness testimony, and
may take many different forms. There is no single
structure or format that is prescribed for a member‟s
report; however, the report should not be
misleading.
REPORT CONTENT
Members‟ reports shall contain only information
based on data that are sufficient and relevant to
support the facts, conclusions, opinions, and/or
recommendations related to the fraud examination.
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NOTES The report shall be confined to subject matter,
principles, and methodologies within the member‟s
area of knowledge, skill, experience, training, or
education.
No opinion shall be expressed regarding the legal
guilt or innocence of any person or party.
AICPA Litigation Engagement Standards
The AICPA provides an excellent resource specifically for
litigation service engagements. Experts who are CPAs
should be familiar with these rules:
The Litigation Services and Applicable Professional
Standards publication 03-1 by the AICPA outlines its
expectations of professionals performing litigation services.
Specifically, AICPA publication 03-1 identifies the
following sections of the Code of Professional Conduct
applicable to members engaged in providing litigation
services:
Rule 101, Independence. The member should be
independent with respect to the parties.
Rule 102, Integrity and Objectivity (AICPA,
Professional Standards, vol. 2, ET sec. 102.01);
Rule 201, General Standards (AICPA, Professional
Standards, vol. 2, ET sec. 201.01);
Rule 202, Compliance With Standards (AICPA,
Professional Standards, vol. 2, ET sec. 202.01);
Rule 301, Confidential Client Information (AICPA,
Professional Standards, vol. 2, ET sec. 301.01);
Rule 302, Contingent Fees (AICPA, Professional
Standards, vol. 2, ET sec. 302.01); and,
Rule 501, Acts Discreditable (AICPA, Professional
Standards, vol. 2, ET sec. 501.01).
ANALYZING STRATEGIES FOR DEFEATING EXPERT TESTIMONY
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NOTES Of these aforementioned AICPA Codes of Conduct Rules,
102, 201, and 501 are particularly relevant. AICPA Code of
Professional Conduct Rule 102-6 provides guidance on
professional services involving client advocacy.
Specifically, 102-6 “requires (members to) maintain(ing)
objectivity and integrity and prohibits subordination of
judgment to others.”22
This is further discussed in the
Litigation Services and Applicable Professional Standards
publication 03-1 by the AICPA; “The expert does not serve
as an advocate for the client‟s position and, therefore
should not subordinate his or her judgment to the client.”23
“The expert‟s function is to assist the trier of fact in
understanding complex or unfamiliar concepts after having
applied reliable principles and methods to sufficient
relevant data.”24
Rule 201, General Standards, of the AICPA Code of
Professional Conduct requires that engagements be
conducted with due professional care using sufficient
relevant data. According to AICPA Publication 03-1, “Due
care requires diligence and critical analysis of all work
performed.”25
Furthermore, the AICPA requires that the
practitioner “obtain relevant data that is sufficient to
provide a reasonable basis for conclusions or
recommendations for any professional services
22
AICPA Code of Professional Conduct Rule 102-6, discussed in
§102.7, Page 4444.
23 Litigation Services and Applicable Professional Standards, American
Institute of Certified Public Accountants, Inc., Rule 102, Integrity and
Objectivity, Page 3, Paragraph 13.
24 [Litigation Services and Applicable Professional Standards,
American Institute of Certified Public Accountants, Inc., Rule 102,
Integrity and Objectivity, Page 3, Paragraph 13.
25 Litigation Services and Applicable Professional Standards, American
Institute of Certified Public Accountants, Inc., Rule 102, Integrity and
Objectivity, Page 4, Paragraph 18.
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NOTES performed.”
26 “The practitioner should consider analyzing
key assumptions to determine whether they are reasonable.
In several recent cases, experts had their testimony
excluded because their opinions were based on assumptions
that were deemed not reasonable.”27
When considering whether or not data is sufficient and
relevant, accountants should consider whether by including
or excluding the data a risk of material financial
misstatement is likely. “The evidential matter obtained
should be sufficient for the auditor to form conclusions
concerning the validity of the individual assertions
embodied in the components of financial statements.”28
Rule 501-01, Acts Discreditable of the AICPA Code of
Professional Conduct states that, a “member shall not
commit an act discreditable to the profession.”29
Rule 501-
04 states that a member shall be considered to have
committed an act discreditable to the profession when, by
virtue of his or her negligence, the member “signs, or
permits or directs another to sign, a document containing
materially false and misleading information.”30
The Four Pillars of Expert Opinions
Experts rely on four primary legs to support their opinions.
They are the evidence, assumptions, methodology, and the
26
AICPA Code of Professional Conduct, 2005 Rule 102, discussed in
§201.06 D, Page 4561.
27 Litigation Services and Applicable Professional Standards, American
Institute of Certified Public Accountants, Inc., Rule 102, Integrity and
Objectivity, Page 5, Paragraph 24b.
28 AICPA Professional Standards Volume 1, U.S. Auditing Standards,
American Institute of Certified Public Accountants, Inc., 2002,
discussed in §326.13, Page 447.
29 AICPA Code of Professional Conduct, 2005, Rule 501, discussed in
§501.01, Page 4831.
30 AICPA Code of Professional Conduct, 2005 Rule 501, discussed in
§501.04, Page 4832.
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NOTES expert him/herself. Each leg should be fundamentally solid.
The ability of the expert to defend and support each area
lends credibility to his/her testimony.
Evidence
Experts must consider many factors relating to
evidence. Who provided the evidence? Is the evidence
reliable? Is the evidence relevant? What did the expert
fail to consider? What was considered and ignored?
Attacking evidence can undermine an opinion‟s
foundation.
Proving the expert used the wrong information or failed
to consider new evidence can potentially have a
damaging effect on the expert‟s conclusion. Many
attorneys attempt to turn experts to their side based on
the consideration of altered facts or evidence. Experts
should be aware of all available data whether or not it
ultimately is used to support his or her conclusion.
Failing to arm an expert with all of the facts can harm
the expert under cross-examination.
Reliable evidence can be expressed on a continuum.
Unsupported facts and speculation are less reliable than
independent third-party facts.
Uncorroborated
Statements
Client Prepared
Financials/Tax
Returns
Audited Financials/
Bank Statements
More Reliable Less Reliable
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NOTES The following additional case excluded testimony based
on inaccurate facts.31
In re Scrap Metal Antitrust Litig., 527 F.3d 517 (6th
Cir. 2008)
Concord Boat Corp. v. Brunswick Corp., 207 F.3d
1039 (8th Cir. 2000)
Relevant application of reliable facts to the instant case
is an important a factor in expert testimony. In Concord
Boat Corp. v. Brunswick Corp., 207 F.3d 1039 (8th
Cir.
2000), litigation was commenced over the alleged
behavior of Brunswick through acquisitions and
discount programs, which led to monopolization of the
stern drive engine market in Brunswick‟s favor.
Brunswick owned about 75% of the stern drive engine
market. The boat builders (Concord Boat Corp) took
exception to Brunswick‟s acquisition of US Marine
(Bayliner) and Ray Industries (Sea Ray). Further,
Brunswick offered discounts to boat builders that
purchased 60% or more of their stern engines from
Brunswick. The boat builders contended that these
practices constituted an antitrust violation and allowed
Brunswick to charge supracompetitive prices for its
engines and led to an unfair barrier of entry to other
market participants.
The boat builders hired Dr. Robert Hall as their expert.
Dr. Hall relied on the Cournot model of economic
theory that posits that a firm “maximizes its profits by
assuming the observed output of other firms as a given,
and then equating its own marginal cost and marginal
revenue on that assumption.”32
Dr. Hall concluded that
31
Case selections in this section were provided by Gerry Kowalski,
attorney, Cooper & Wolinski, LPA, Toledo Ohio.
32 Phillip E. Areeda et al., Antitrust Law: An Analysis of Antitrust
Principles and Their Application P925a (rev. ed. 1998).
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NOTES any market share over 50% was evidence of
anticompetitive conduct. Further, he opined that the
discount program offered by Brunswick imposed a
“tax” on boat builders and dealers that chose to
purchase their stern engines from any firm other than
Brunswick.
Jury deliberations resulted in an award of $133,115,283
in favor of the boat builders. Brunswick appealed the
decision to the U.S. Court of Appeals for the Eighth
Circuit. The appeals court reversed and vacated the
$133M judgment. The appeals court reversed the jury
decision because Dr. Hall‟s expert opinion should not
have been admitted. Dr. Hall‟s analysis did not
incorporate all aspects of the economic reality of the
stern drive engine market and did not separate lawful
from unlawful conduct. These deficiencies led the court
to conclude that the expert‟s resulting conclusions were
“mere speculation.” Virgin Atlantic Airways Ltd. V.
British Airways PLC, 69 F. Supp. 2d 571, 580 (S.
D.N.Y. 1999) (summary judgment appropriate on
Section 1 and 2 claims because “an expert‟s opinion is
not a substitute for a plaintiff‟s obligation to provide
evidence of facts that support the applicability of the
expert‟s opinion to the case”) Expert testimony that is
speculative is not competent proof and contributes
“nothing to a „legally sufficient evidentiary basis‟”.
Weisgram v. Marley Co., U.S., 120 S. Ct 1011, 1015,
1020, 145 L. Ed 2d 958 (2000) (citing Brooke Group
Ltd. V. Brown & Williamson Tobacco Corp., 509 U.S.
209, 242, 125 L. Ed. 2d 168, 113, S. Ct. 2578 (1993)).
Although Brunswick did own more than 75% of the
stern engine market, this fact by itself did not lead to an
anticompetitive practices conclusion. Brunswick‟s
discount program was voluntary and could be
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NOTES terminated by any boat builder at any time. Further,
when other stern engine manufacturers offered
competitive discounts for their engines, boat makers
switched from Brunswick engines despite the existence
of the discount offering. Since the jury award was based
on unsupported experts‟ facts, the Court of Appeals
reversed the jury award.
Brand Name Prescription Drugs Anti-Trust Litig.,
1999 U.S. Dist. LEXIS 550
In the nationwide class action suit, the class plaintiffs
allege a price-fixing conspiracy to keep name brand
prescription drugs artificially high to retail pharmacies,
in violation of Section 1 of the Sherman Act.
Plaintiffs allege that defendants stratified their pricing
policies by favoring hospitals, health maintenance
organizations, managed care facilities and mail-order
pharmacies with lower rates for brand name
prescription drugs while imposing upon retail
pharmacies an inflated pricing structure for the same
drugs.
Defendants argue that they gave discounts to the
plaintiffs in certain instances and that market conditions
were the primary consideration in whether or not they
offered discounts to any particular purchasing group.
Defendants further asserted that they gave preferential
pricing to buyers whom they felt were able to “move
market share.” Defendants asserted that customers such
as managed care organizations and hospitals created
formularies, in which a restrictive list of drugs is
created. The ability of managed care organizations and
hospitals to exclude an individual manufacturer‟s
products from its requisite formularies induced
defendants to offer the favored buying groups rebates
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NOTES and discounts on brand name drugs. Pharmacies,
generally speaking, must carry a wide variety of
competing drugs. As a result, defendants argued that it
would be unethical for pharmacies to engage in steering
customers to one product over another by failing to
stock competing brands. Therefore, pharmacies do not
possess the same market power or the same ability to
include or exclude drugs based on a prescribed
formulary mix. Defendants argue that they treat
different customers differently, as any competitive
market would expect.
Plaintiffs offered the expert testimony of Dr. Robert
Lucas. In fact, the court noted Dr. Lucas‟s “eminent and
distinguished credentials. He is affiliated with the
University of Chicago, past recipient of the Nobel Prize
in Economics, an award without equal in recognition of
scholarship and contributions in his chosen discipline.”
Dr. Lucas testified that:
1. Retail pharmacies repeatedly applied to the defendant
drug manufacturers for discounted formulary pricing of
brand name prescription drugs;
2. Retail pharmacies had the same power to announce and
enforce formularies as any hospital, nursing home, or
mail-order pharmacy;
3. Retail pharmacies had the same ability as hospitals to
refuse to stock brand name prescription drugs;
4. No discounting of generic drugs to retail pharmacies
occurred;
5. Manufacturers refused to grant contract pricing options
to retail pharmacies;
6. This refusal was tantamount to collusion;
7. The formularies maintained by hospitals and HMOs
were not the reason manufacturers gave discounts to
those entities.
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NOTES The court found that, “sad to say, Dr. Lucas‟ testimony
did not measure up to his unique qualifications.”
Among other things, the court found that:
1. Dr. Lucas was ignorant of the material testimony and
other evidence;
2. His opinions were not only not based on the evidence,
they were inconsistent with the evidence;
3. His opinions had no scientific basis.
In short, the court found that Dr. Lucas was “wrong in
his beliefs about every one of [his assertions]. Perhaps
even more disturbing than the fact that the evidence so
overwhelmingly established the opposite of what Dr.
Lucas thought was characteristic of the industry, was
his ignorance of that very evidence.” Dr. Lucas failed to
make any effort to investigate Plaintiffs‟ claims as to
whether any manufacturers had offered contract pricing
plans to retail pharmacies. If he had done so, he would
have found that thousands of discounts had been
offered to retail pharmacies. Further, Dr. Lucas did not
study why manufacturers gave discounts to HMOs and
hospitals. Dr. Lucas gave a conclusion, but nothing
more.
Plaintiffs were able to offer only an opportunity to
conspire, but failed to present actual evidence of a
conspiracy. Unsurprisingly, judgment was entered for
defendants.
Other cases of interest discussing the necessity of
accurate facts:
Avery Dennison Corp. v. Four Pillars Enterprise
Co., 45 Fed. Appx. 479 (6th
Cir. 2002)
Pirolozzi v. Stanbro, 2009 U.S. Dist. LEXIS 42575
(N.D. Ohio 2009)
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NOTES Honeysett v. Williams, 2003 U.S. Dist. LEXIS
27595 (N.D. Ohio 2003)
United States v. Richard B. White – Fact Summary
Witnesses
Defendant Richard B. White was convicted by the
District Court of engaging in a complex scheme to
defraud Medicare of $7,290,202. Plaintiffs relied on
Federal Rule of Evidence 1006, and offered only fact
summary witnesses testimony. Under FRE 1006, an
expert witness may provide summary calculations when
the contents of the information are too voluminous to
be conveniently examined in court. Based on this
interpretation, the United States only produced
evidence before trial and did not list any expert
witnesses relative to the fact summary presentation.
These fact summary witnesses prepared summary
reports of the information, which pointed to the
defendant‟s fraudulent activity without offering any
opinions thereupon.
Defendants appealed the District Court‟s decision to the
United States Court of Appeals, Sixth Circuit, on the
basis that the expert, their testimony, and fact
summaries should have been subject to FRE 701 and
FRE 702 in the normal course of expert witness
examination.
The Court of Appeals denied the respondent‟s motion
and affirmed the lower court‟s decision to allow the fact
summary evidence in to the trial record. By offering
fact summary witness testimony, plaintiffs avoided
Daubert and other challenges normally afforded
respondents while allowing the jury to reach its own
conclusion based on the evidence, and not the expert‟s
opinion of the evidence.
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NOTES Assumptions
Experts make important assumptions about key facts,
data, and interpretations of the same. The client and/or
clients‟ attorneys advocate their version of the events
and facts. As an expert, filtering this bias helps
establish independence in thought processes. This
independence helps establish the credibility of the
expert in the eyes of the trier of fact. Changing these
assumptions may produce different conclusion
outcomes. For example, an expert may make key
assumptions concerning recurring benefit streams,
company viability, appreciation rates, growth rates, etc.
The expert should be able to articulate the key
assumptions in his or her opinion and defend the same
as reasonable under the circumstances.
The following cases that excluded testimony based on
improper assumptions:
Concord Boat Corp. v. Brunswick Corp., 207 F.3d
1039 (8th
Cir. 2000)
Blue Dane Simmental Corp. v. American Simmental
Ass‟n, 178 F.3d 1035 (8th
Cir. 1999)
In re Brand Name Prescription Drugs Anti-Trust
Litig., 1999 U.S. Dist. LEXIS 550 (N.D. Ill. 1999)
Blue Dane Simmental Corp. v. American Simmental
Ass‟n, (ASA) 178 F.3d 1035 (8th
Cir. 1999) involved the
registration of “percentage” and “purebred” Simmental
cattle. The purebred designation, as defined by the
ASA, is cattle with slightly less than 100% Simmental
blood. Initially, the ASA did not recognize a difference
between purebred domestic animals and purebred
Simmental from the original herds of Austria, France,
Germany, or Switzerland. Some breeders sought
official acknowledgment that some animals were
original or from European herds. In response, the ASA
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NOTES passed a foreign ancestry rule in 1988. As a result,
between 75,000 and 80,000 purebred animals were
given a foreign ancestry designation. Certain animals
that the ASA registered from defendant Risinger were
classified as full-blooded and purebred. Plaintiffs later
discovered that some of the Risinger cattle‟s pedigree
was 3% Angus, and the remaining 97% Simmental.
Plaintiffs sued to revoke the classification of the
Risinger animals as purebreds based on their layperson
definition that purebred cattle should be 100%
Simmental blooded.
Plaintiffs hired Dr. Alan Baquet, an agricultural
economist, who testified that following the inclusion of
the Risinger cattle as purebreds, both the Canadian and
American Simmental markets dropped by 26% and
53%, respectfully. Using a common damage method,
the before and after model, Dr. Baquet attributed 27%
of this market drop to the inclusion of the Risinger
cattle as purebreds.
The district court determined that Dr. Baquet‟s
testimony was not reliable. His assumption that the
market drop was attributable to the inclusion of the
Risinger cattle was not supported by the evidence. The
Risinger cattle made up only a tiny fraction of the
market, 19 out of 138,169 or 0.0138% of the total
Simmental head. Further, Dr. Baquet admitted that
various factors contribute to cattle breeds losing market
value and that generally, an economist would attempt to
identify and evaluate the various independent variables
affecting this change.
Accordingly, the district court ruled in favor of
defendants ASA and Risinger. Plaintiffs appealed. The
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NOTES U.S. Court of Appeals for the Eighth Circuit affirmed
the lower court‟s ruling.
Other cases of interest on the issue of assumptions:
Pirolozzi v. Stanbro, 2009 U.S. Dist. LEXIS 42575
(N.D. Ohio 2009)
Bouchard v. Am. Home Prods. Corp., 2002 U.S.
Dist. LEXIS 27517 (N.D. Ohio 2002)
Experts make assumptions in two key areas: core issues
and expert assumptions. Core issues involve legal
assumptions. Did the defendants‟ actions cause the loss
in income? For example, assume in the above example
that the prized cattle were poisoned allegedly by
defendants‟ negligence. Experts may reasonably
assume these facts will be proven in the court
proceeding. Obviously, if this core issue is lost, the
underlying analysis that follows is irrelevant (because
defendants are not responsible for the loss).
Predicated upon the core assumptions are the experts‟
assumptions about the value of the lost income
opportunity. Would those lost cattle have been able to
produce valuable offspring? If so, how do you calculate
the same? What are the costs involved in replacing
these cattle? Expert assumptions should be reasonable
and apply to the facts of the case.
Methodology
There is typically more than one way to reach a
conclusion based on the facts of the case. The important
consideration for an expert is why they chose the
particular method(s) to arrive at his or her conclusion.
Were there other methods available that the expert did
not use? Did the expert consider the other methods? If
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NOTES not, why? Although you need to know what you did do,
what you did not do may also be relevant.
Is the method used standard practice? In the famous
Daubert v. Merrell Dow Pharmaceuticals case, four
factors that district courts could take into account in
making the gatekeeping assessment are: whether a
theory has been tested, whether an idea has been
subjected to scientific peer review or published in
scientific journals, the rate of error involved in the
technique, and even general acceptance.33
If the expert
used a new theory in determining his or her conclusion,
this new science may be challenged under a Daubert
examination.
Cases that excluded testimony based on methodology:
Blue Dane Simmental Corp. v. American Simmental
Ass‟n, 178 F.3d 1035 (8th
Cir. 1999)
Virginia Vermiculite Ltd. v. W.R. Grace & Co. –
Conn., 98 F. Supp. 2d 729 (W.D. Va. 2000)
In Virginia Vermiculite Ltd. v. W.R. Grace & Co. –
Conn., 98 F. Supp. 2d 729 (W.D. Va. 2000), the expert
testimony of Seth Schwartz was not allowed. The court
found Schwartz‟s methodology to be unreliable. This
case involved the calculation of the vermiculate market
in an antitrust matter. Schwartz chose not to rely on
United States Geological Society (USGS) guideline
vermiculite calculations because he viewed these
statistics as “badly flawed” in the area of consumption
and production. Instead, Schwartz collected his own
data and opined that the other experts who relied on the
USGS were relying on improper data in forming their
definitions of a relevant market. Relying upon his
33
Daubert v. Merrell Dow Pharmaceuticals, Inc., 43 F.3d 1311 (9th
Cir. 1995).
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NOTES independently calculated vermiculite analysis in an
antitrust matter left substantial bias for error. Unlike
Schwartz‟s analysis, the USGS analysis provided
detailed surveys of the vermiculate industry. Further,
the USGS had substantial resources it employed to
calculate and observe the vermiculate industry.
Schwartz did not have, nor could he have employed,
similar resources to calculate the same. As such, the
court found Schwartz‟s methodology to be unreliable.
This fact combined with Schwartz‟s overall lack of
understanding of antitrust matters caused his testimony
and report to be excluded by the district court.
Other cases of interest on the issue of methodology:
Bouchard v. Am. Home Prods. Corp., 2002 U.S.
Dist. LEXIS 27517 (N.D. Ohio 2002)
McGarry v. Horlacher, 149 Ohio App.3d 33, (2nd
Dist. 2002)
Lewis v. Alfa Laval Separation, Inc., 128 Ohio
App.3d 200 (4th
Dist. 1998)
Expert
The final leg of expert testimony is the expert. Is the
expert qualified to form a meaningful, credible opinion?
Issues involved with the expert include:
What educational background does the expert have?
Is it enough? Should additional training
opportunities have been taken?
What credentials does the expert maintain? Has the
expert ever been disciplined by any of his or her
credentialing bodies?
Should the expert be certified in another more
suitable credential in order to better render his or
her opinion?
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NOTES Has the expert embellished his accomplishments?
How many times has he or she testified about a
particular topic?
Is the expert consistent in rendering his or her
opinion? Does he or she flip sides on issues
depending upon who hires him or her?
Experts may be qualified by “knowledge, skill,
experience training or education.”34
The operative word
in this list is “or”; it is not necessary to possess all five
requisites. By possessing one, the expert may be
deemed qualified.
Cases that excluded testimony based on qualifications:
In re Independent Serv. Orgs. Antitrust Litig., 114
F. Supp. 2d 1070 (D. Kan. 2000)
Virginia Vermiculite Ltd. v. W.R. Grace & Co. –
Conn., 98 F. Supp. 2d 729 (W.D. Va. 2000)
Seatrax, Inc. v. Sonbeck Int‟l, Inc., 200 F.3d 358
(5th
Cir. 2000)
In Seatrax, Inc. v. Sonbeck Int‟l, Inc., 200 F.3d 358 (5th
Cir. 2000), plaintiff Seatrax proffered the expert
testimony of Douglas Campbelll, who testified about
lost profits Seatrax incurred pursuant to Sonbeck‟s
infringement on Seatrax‟s trademark. Campbell
possessed 15 years of experience in the marine crane
industry. Sonbeck moved to have Campbell‟s testimony
excluded. The district court granted Sonbeck‟s request,
citing Campbell‟s lack of formal or professional
training in accounting. Further, Campbell did not
conduct any independent examination of Sonbeck‟s
gross sales figures, which were provided by Seatrax‟s
attorneys. Campbell‟s lack of formal training or
education in accounting and his failure to conduct an
34
Federal Rules of Evidence 702
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NOTES independent analysis of Sonbeck‟s sales figures were
insurmountable obstacles for Seatrax in its attempt to
qualify him as an expert.
The U.S. Court of Appeals for the Fifth Circuit upheld
the district court‟s ruling to exclude Campbell‟s
testimony.