Providing Effective Litigation Services (Part 3 of 4)

An overview of the Federal Rules of Evidence, Federal Rules of Civil Procedure and leading pre- and post-Daubert cases

In this third part of a four-part series, the focus turns to the rules of evidence and standards used to admit the testimony of expert witnesses. While a minority of jurisdictions follows the Frye standard, the majority has adopted the Daubert standard. Objective testimony is critical, which means the expert must not merely accept representations from the client.

Rules of Evidence

The Federal Rules of Evidence (Fed.R.Evid.) have been the proxy for state articles of evidence, which often adopt the Fed.R.Evid. verbatim. Therefore, a review of the Fed.R.Evid. assists in complying with an individual state’s evidentiary statutes.

Expert testimony is permitted under Rule 702- Testimony by Expert Witnesses, which provides:

A witness who is qualified as an expert by knowledge, skill, experience, training or education may testify in the form of an opinion or otherwise if: the expert’s scientific, technical or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue; the testimony is based on sufficient facts or data; the testimony is the product of reliable principles and methods; and the expert has reliably applied the principles and methods to the facts of the case.

The witness must first qualify as an expert in the subject area and the proffered opinion testimony must be related to an area outside the understanding of the average lay person. Proffered opinion testimony must be both relevant and reliable to be admissible.

The U.S. Supreme Court opinion in Daubert requires the trial court to perform a “gatekeeper” responsibility in determining the admissibility of proffered expert opinion testimony based on relevance and reliability.

The Fed.R.Evid. 702 was amended in 2000 incorporating the judicial interpretations of Daubert.

“…the testimony is based on sufficient facts or data; the testimony is the product of reliable principles and methods; and the expert has reliably applied the principles and methods to the facts of the case.”

The amendment is best expressed as a simple formula:

A + B = C

Where:

A = sufficient relevant data

B = reliable principles and methods

C = conclusion based of the proper application of the principles and methods to the data

The Fed.R.Evid. addresses the foundation of an expert’s opinion at Rule 703–Basis of Opinion Testimony by Experts. 

An expert may base an opinion on facts or data in the case that the expert has been made aware of or personally observed. If experts in the particular field would reasonably rely on those kinds of facts or data in forming an opinion on the subject, they need not be admissible for the opinion to be admitted. But if the facts or data would otherwise be inadmissible, the proponent of the opinion may disclose them to the jury only if their probative value in helping the jury evaluate the opinion substantially outweighs their prejudicial effect.

The sources of information an expert may rely upon:

• Firsthand knowledge
• Information admitted into evidence during the trial
• Information made known to the expert before the trial
• Learned treatises
• Information normally relied upon by expert’s in the particular field

The AICPA Statements on Standards, codified in the UAA, issued technical practice aids and accreditation training materials are demonstrative of peer reviewed and generally accepted procedures and practice standards relied upon by licensed public accountants in the 50 states and U.S. territories.

A testifying expert is not barred, in civil litigation, from expressing an opinion on the ultimate issue.¹ The ultimate issue is that which is pivotal for the defendant or the plaintiff and determines the outcome

In General — Not Automatically Objectionable. An opinion is not objectionable just because it embraces an ultimate issue.

Exception. In a criminal case, an expert witness must not state an opinion about whether the defendant did or did not have a mental state or condition that constitutes an element of the crime charged or of a defense. Those matters are for the trier of fact alone.

A testifying expert witness has some discretion in the presenting opinion testimony without first identifying and discussing the data, approaches and methods applied.

“Unless the court orders otherwise, an expert may state an opinion — and give the reasons for it — without first testifying to the underlying facts or data. But the expert may be required to disclose those facts or data on cross-examination.”² 

Both the Fed.R.Evid. and correspondent state statutes address the appointment of special masters, i.e. the court’s expert witness. 

On a party’s motion or on its own, the court may order the parties to show cause why an expert witness should not be appointed and may request the parties to submit nominations. The court may appoint any expert that the parties agree on and any of its own choosing. But the court may only appoint someone who consents to act.³

The court must inform the expert of his/her duties and may do so in writing with a copy filed with the clerk of court. Alternatively, the appointment may be communicated orally at a conference in which the parties have an opportunity to participate. The appointed expert is obligated to:

• Advise the parties of any findings the expert makes
• Consent to being deposed by any party
• Consent to being called to testify by the court or any party
• Consent to cross-examination by any party, including the party that called the expert

The expert is entitled to a reasonable compensation, as set by the court. The compensation is payable as follows:

• In a criminal case or in a civil case involving just compensation under the Fifth Amendment, from any funds that are provided by law; and
• In any other civil case, by the parties in the proportion and at the time that the court directs — and the compensation is then charged like other costs.

The court may authorize disclosure to the jury that the court itself appointed the expert. This rule does not limit a party in calling its own experts as rebuttal to the appointed expert’s opinion testimony. The statutory and judicial rules governing admissibility of proffered expert opinion testimony apply to the opinions proffered by an appointed expert.

The Fed.R.Evid. defines the term ”relevancy” and addresses the limits (evidence). Evidence is relevant if it tends to prove or disprove an alleged fact.⁴ It is the attorney’s responsibility to ensure that sufficient evidence is admitted at trial to support the expert’s opinion.⁵

Relevant evidence may be excluded if it is prejudicial, needlessly cumulative, threatens to confuse or mislead the jury or causes an unnecessary delay or waste of time.⁶

• Generally, hearsay is not admissible as evidence.⁷ Exceptions relate to expert testimony.  Business records such as memoranda, reports, records or data compilations kept on a regular basis by a person with knowledge.
• Public records such as records, reports, statements or data compilations kept by public offices or agencies;
• Market reports and commercial publications such as market quotations, lists, directories, etc. relied on by the public;
• Learned treatises such as almanacs of business information and technical literature;
• Missing business records—reports normally prepared daily or the fact that they were not prepared is admissible.

Experts are not required to prove that the information upon which they have relied is trustworthy. However, known deficiencies and error rates may be grounds for a Daubert challenge whether or not confirmation is required or recommended under the applicable standards of practice.

Originals of writings, recordings or photographs are generally preferred as evidence and may be required when proving the authenticity and accuracy of the content.⁸ Copies of routine documents and exhibits are generally allowed. There are exceptions to the requirement of originals.⁹ If a question is raised as to the authenticity of the original, it would be unfair to admit the duplicate in lieu of the original.

The Fed.R.Evid. allows evidence other than the original to be submitted in certain situations when the original is not available.¹⁰ Situations when the original might not be available include: 

• The original has been lost or destroyed
• The original cannot be obtained by any available judicial process or procedure
• The original is located outside the court’s jurisdiction
• The information contained in the original is expected to harm the party’s case and is withheld by the party
• The party has been instructed to bring the original to court but has failed to do so
• The item isn’t closely related to the controlling issue

To reduce the burden on public agencies for producing original records, preference is provided for certified or confirmed copies of public records in lieu of requiring original.¹¹ 

Streamlined presentations, such as summaries, graphs, charts or calculations of voluminous and tedious detail may be used as long as the originals or duplicates are available for examination or copying at a reasonable time and place.¹² The court may order production of the supporting documents.

Admissibility of Expert Opinion Testimony; Judicial Standards

Federal and state jurisprudence have established judicial standards to evaluate the admissibility of proffered expert opinion testimony. The judicial (common law) standard of general acceptance was introduced in 1923.

Frye v. United States¹³ introduced the common law “general acceptance” standard for determining the admissibility of novel scientific evidence, including expert testimony.

Just when a scientific principle or discovery crosses the line between the experimental and demonstrable stages is difficult to define. Somewhere in this twilight zone the evidential forces of the principle must be recognized, and while the courts will go a long way in admitting expert testimony deduced from well recognized scientific principle or discovery, the thing from which the deduction is made must be sufficiently established to have gained general acceptance in the particular field in which it belongs.

The judicial opinion in Christophersen v. Allied Signal Corp.¹⁴ was an early attempt to provide specific guidance to the trial court in evaluating the admissibility of proffered expert testimony.

Fact that expert has a MD degree is not enough to qualify him to give an opinion on every conceivable medical question.

Inquiry into the types of facts and data underlying expert’s testimony is not limited to the admissibility of that data and the court may reject opinions founded on critical facts that are plainly untrustworthy, as such an opinion cannot be helpful to the jury. Fed. R. Evid. Rule 703, 28 U.S.C.A.

…if the expert is qualified are the facts and data that serves as a basis for the expert’s opinion the same type of facts as other experts in the same field reasonably rely upon in forming their opinions. Fed. R. Evid. 703.

We ask whether in reaching his conclusion, the witness used a well-founded methodology or mode of reasoning, one sufficiently established to have gained general acceptance in the particular field in which it belongs. Frye, 293 F.2d 1014.”

If taking all considerations into account, a court finds that the potential for prejudice substantially outweighs the probable value; the court may opt to exclude the testimony.

The Fifth Circuit Federal Court of Appeals elaborated on its previous opinion in Christophersen v. Allied Signal Corp. in Adams v. Chevron U.S.A., Inc.¹⁵ The court accepted and expanded the criteria established in Christophersen and equated experience to formal education under Fed.R.Evid. Rule 702.

Formal education in area of expertise is not required for witness to be qualified as expert; experience alone is enough.

This acknowledges the tempering effect experience has on academic achievement. Experience provides the foundation for professional judgment based on real word circumstances. As Texas Bix Bender, whimsically observes in Don’t Squat With Yer Spurs On, “Good judgment comes from experience, and a lot of that comes from bad judgment.” 

The U.S. Supreme Court addressed and attempted to reconcile the perceived legal conflicts dividing the Judiciary and legal scholars regarding Fed.R.Evid. Rule 702 and the Frye’s general acceptance standard in Daubert v. Merrell Dow Pharmaceutical, Inc.¹⁶ 

The court concluded that “general acceptance” was not the singular standard and was superseded by the statutory authority of the Fed.R.Evid. not particularly limited to Fed.R.Evid. Rule 702, citing Fed.R.Evid. Rule 401 et seq.

Nothing in the text of this Rule [Rule 702] establishes “general acceptance” as an absolute prerequisite to admissibility.”

“The drafting history makes no mention of Frye, and a rigid “general acceptance” requirement would be at odds with the “liberal thrust” of the Federal Rules and their general approach of relaxing the traditional barriers to ‘opinion’ testimony.

The statutory tenet established by Fed.R.Evid. Rule 702 instructs the trial court to assure that all scientific testimony or evidence admitted is not only relevant, but also reliable.  The term “gatekeeper” was introduced to describe the obligation of the trial court regarding admissible opinion testimony.

This [gatekeeper obligation] entails 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 at issue.

The court was reticent to establish an explicit standard to replace that subordinated by the court.

Many factors will bear on the inquiry, and we do not presume to set out any definitive checklist or test.

However, despite this disclaimer, the Court advanced the following “general observations”: 

• Whether the theory or technique can be and has been tested
• Whether the theory or technique has been subjected to peer review and publication
• Whether there is a known or potential rate of error, the existence and maintenance of standards controlling the technique’s operations
• The theory is “generally accepted” by the relevant scientific community

In his dissenting opinion, Chief Justice Rehnquist affirmed the court’s conclusion as to the propriety of the Fed.R.Evid. and the subrogation of the Frye standard to those rules. Exception was taken with the court’s “general observations” and dicta criticizing the court’s abstraction and predicting the future judicial uncertainty would ensue from the import, historically, afforded the high court’s “general observations.”

The “general observations” were elevated to the status of judicial standard by both trial and appellant courts, with indifference to the court’s disclaimer. Trial courts adopted the “general observations,” particularly where the Fed.R.Evid were a proxy for state evidence statutes.

The dissenting opinion of Judge Rehnquist proved prophetic and the Supreme Court was required to clarify the extent to which the general observations were relied upon by the trial courts as judicial precedent in Kumho Tire v. Carmichael¹⁷ (Kumho) and General Electric Co. v. Joiner¹⁸ (Joiner).

In Kumho, the Supreme Court addressed and resolved two of the controversial interpretations ensuing from the Daubert dicta:

• Does the general holding in Daubert, setting forth the trial courts “gatekeeping” obligation, apply to testimony based on “technical and other specialized knowledge”?

• Is the trial court incontrovertibly bound to the “general observations” in discharge of the “gatekeeping” responsibility 

The court clarified the divergent legal and judicial commentary, with extensive reference to the Daubert dicta that a distinction does not exist between experts of different disciplines within the construct of Fed.R.Evid. Rule 702. All scientific and non-scientific experts are subject to the trial court’s “gatekeeping” obligation.

The court, again extensively citing the Daubert dicta, addressed the stringent adherence to the Daubert court’s reference to general observation;

“Daubert makes clear the “general observations” do not constitute a “definitive checklist or test”. The “gatekeeping” inquiry must be “tied to the facts” of the particular case.

…the test of reliability is “flexible,” and Daubert’s list of specific factors neither necessarily nor exclusively applies to all experts or in every case.

The law grants a district court the same broad latitude when it decides how to determine reliability as it enjoys in respect to its ultimate reliability determination.

Post-Daubert Motions

The trial court has broad discretion in determining the admissibility of evidence, including proffered expert opinion testimony. The trial court has ultimate discretion to bar, limit or merely disregard proffered expert opinion testimony. However, the gatekeeper obligation affirms that:

We are not bound by the formulas and opinions proffered by an expert witness and will accept or reject expert testimony in the exercise of sound judgment¹⁹

… [T]he district court must ensure that it is dealing with an expert, not just a hired gun.²⁰

 … Rule 702 grants the District Judge discretionary authority, reviewable for its abuse, to determine reliability in light of the particular facts and circumstances of the particular case.²¹

 Courts of Appeal are to apply ‘abuse of discretion’ standard when reviewing District Court’s reliability determination.²²

 … finding of admissibility bears no relation to the weight to be given this evidence…²³

The Objectivity of Expert Witness Testimony

The courts have reinforced the objectivity requirement for proffered expert opinion testimony. Expert testimony is not useful when the expert is merely an advocate for the position argued by one of the parties. 

 The Tax Court in this case found that appellant’s expert testimony was not objective; it therefore did not abuse its discretion in deeming testimony unreliable.²⁴

Plaintiff’s expert “…has failed to demonstrate any impartiality in formulating his opinions and he should be precluded from testifying. “Plaintiff’s expert “…performed no independent analysis of the numbers given him by JRL [client]; in fact, his report is devoid of any analysis of figures other than those provided by JRL. He has failed to show that reasonable accountants would simply and blindly accept such numbers in formulating opinions.²⁵ 

Affirmed district court’s exclusion of proposed experts where witnesses’ conclusions were based only on plaintiff’s self-representations, and calling such information unreliable.²⁶

Reliance on client’s declarations and representations, absent independent analysis, was grounds for excluding expert’s testimony.²⁷

¹ Fed.R.Evid. Rule 704 – Opinion on Ultimate Issue

² Fed.R.Evid. Rule 705 – Disclosure of Facts or Data Underlying Expert Opinion

³ Fed.R.Evid. Rule 706 – Court-Appointed Experts

⁴ Fed.R.Evid. Rule 401 – Definition of “Relevant Evidence

⁵ Fed.R.Evid. Rule 402 – Relevant Evidence Generally Admissible; Irrelevant Evidence Inadmissible

⁶ Fed.R.Evid. Rule 403 – Exclusion of Relevant Evidence on Grounds of Prejudice, Confusion or Waste of Time

⁷ Fed.R.Evid. Rule 803 – Hearsay Exceptions; Availability of Declarant Immaterial

⁸ Fed.R.Evid. Rule 1002 – Requirement of Original

⁹ Fed.R.Evid. Rule 1003 – Admissibility of Duplicates

¹⁰ Fed.R.Evid. Rule 1004 – Admissibility of Other Evidence of Contents

¹¹ Fed.R.Evid. Rule 1005 – Public Records

¹² Fed.R.Evid. Rule 1006 – Summaries

¹³ Frye v. United States, 54 App.D.C.46, 293 F.1013 (1923)

¹⁴ Christophersen v. Allied Signal Corp., 939 F.2d 1106 (5th Cir. 1991)

¹⁵ Adams v. Chevron U.S.A., Inc., 589 So.2d 219 (La.App. 5th Cir. 1991)

¹⁶ Daubert v. Merrell Dow Pharmaceutical, Inc., 509 U.S. 572, 579 (1993)

¹⁷ Kumho Tire v. Carmichael, 119 S.Ct. 1167 (1999)

¹⁸ General Electric Co. v. Joiner, 522 U.S. 136, 143, 118 S.Ct. 512, 139 L.Ed.2d 508 (1997);

¹⁹ Estate of Jameson v. Comr., T.C. Memo 1999-43; Helvering v. National Grocery Co., 304 U.S. 282, 295 (1938); Anderson v. Comr., 250 F.2nd 242, 249 (5th Cir.1957) aff’d in part and remanded in part T.C. Memo 1956-178; Newhouse v. Comr., 94 T.C. 193, 217 (1990)

²⁰ Tyus v. Urban Search Management,102 F.3d 256, 263 (7^th Cir. 1996) reh’g en banc denied

²¹ Kumho Tire v. Carmichael, 119 S.Ct. 1167 (1999)

²² General Electric Co. v. Joiner, 522 U.S. 136, 143, 118 S.Ct. 512, 139 L.Ed.2d 508 (1997)

²³ Gross v. Commissioner, 272 P2d. 333 6th Cir. 2001

²⁴ Robertson v. Commissioner of Internal Revenue, No. 99-71368 (9^th Cir. Mar. 5,  2001)

²⁵ JRL Enterprises, Inc. v. Procorp Assoc., Inc. et al, 2003 US Dist Lexis 9397

²⁶ In re Paoli Railroad Yard PCB Litig. V. Southeastern Pennsylvania Transp. Auth., 35 F.3d 717, 762 (3^rd Cir. 1994)

²⁷ JRL Enterprises, Inc. v. Procorp Assoc., Inc. et al, 2003 US Dist Lexis 9397; Walsh v. City Mortgage Services, Inc., 102 B.R. 502 (M.D. La. 1989); Autrey v. Williams and Dunlap, 343 F.2d 730, 742 (5^th Cir. 1965)

Mark Shirley, CPA.ABV, CVA, CFFA, CFE is partner at V & L Consulting of Baton Rouge, LA.  He has concentrated on the disciplines of business valuation, forensic accounting, and financial analysis/modeling. He has provided contributions to a wide range of respected publishers and periodicals including Wiley Law Publications, Aspen Legal Press, The Valuation Examiner, The Practical Accountant, CPA Litigation Services Counselor, The Gatekeeper Quarterly and The Journal of Forensic Accounting among others.

Mr. Shirley has authored courses for NACVA’s Fundamental, Techniques & Theory; Forensic Institute and Consultant’s Training Institute and is a charter member of the LCPA’s Litigation Services Committee. He has been an adjunct faculty member at the National Judicial College, University of Nevada Reno since 1998 and serves on the Advisory Panel for Mdex Online; The Daubert Tracker, an on-line Daubert research data base and on the Ethics Oversight Board for NACVA.