Daubert Challenge

End of Life or Another Day at the Office?

One of the most concerning communications for experts to receive from a hiring attorney is the opposing attorney has filed a Daubert motion to exclude their opinion. Going through a Daubert challenge is stressful for even experienced experts. This article will discuss the Daubert decision and its impact on experts. It will also address questions considered by courts regarding an expert and their work. Finally, the author will discuss his experience with Daubert challenges, the process, and working with the hiring attorney in defending the expert’s opinions.

One of the most concerning communications for experts to receive from a hiring attorney is the opposing attorney has filed a Daubert motion to exclude their opinion. The name of a motion to exclude an expert’s opinion in state court may be something different from state to state. In Texas, the state in which provides most of my practice, such a motion is called a Robinson challenge.[1] This is because it was in the Robinson case that the Texas Supreme Court adopted the Daubert standards. Regardless of its name, the meaning of the action is the same. Opposing counsel has filed a motion with the court to exclude or limit the testimony of the other side’s expert.

So, just what is a Daubert challenge?

In the Daubert decision, the United States Supreme Court made the trial court judge the gate keeper for determining whether an expert is qualified to present his or her opinions and whether the information to be provided by the expert will benefit or mislead the trier-of-fact. A Daubert challenge is the motion seeking to have an expert’s testimony limited or excluded.

The Daubert Decision

“In 1993, the United States Supreme Court delivered a detailed and important decision that affects the application of the Federal Rules of Evidence to all expert testimony: Daubert v. Merrill Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). This decision was applied to expert testimony to lost profits damages for the first time by a federal appellant court in 1998.”[2]

Rule 702 of the Federal Rules of Evidence had been inconsistent with varying preexisting rules governing expert testimony. “Nothing in the text of this Rule establishes ‘general acceptance’ as an absolute prerequisite to admissibility. Nor does respondent present any clear indication that Rule 702 or the Rules were intended to incorporate a ‘general acceptance’ standard.”[3]

Daubert attempted to clarify standards and applicable tests for assessing experts providing scientific evidence. “The primary locus of this obligation is Rule 702, which clearly contemplates some degree of regulation of the subject and theories about which an expert may testify. ‘If scientific, technical, or other specialized knowledge will assist the trier-of-fact to understand the evidence or to determine a fact in issue’ an expert ‘may testify thereto.’ … But, in order to qualify as ‘scientific knowledge,’ an inference or assertion must be derived by the scientific method. Proposed testimony must be supported by appropriate validation—i.e., ‘good grounds,’ based on what is known. In short, the requirement that an expert’s testimony pertain to ‘scientific knowledge’ establishes a standard of evidentiary reliability.”[4]

The Supreme Court provided four nonexclusive factors lower courts should consider for allowing an expert to testify. They were testing, peer review, known or potential rate of error, and general acceptance.

Testing—The court must determine whether the theory or technique is scientific knowledge that will assist the trier of fact and can be or has been tested.

Peer review and publication—Another consideration is whether the theory or technique has been subject to peer review and publication. Publication does not necessarily correlate with reliability. “The fact of publication (or lack thereof) in a peer reviewed journal thus will be a relevant, though not dispositive, consideration in assessing the scientific validity of a particular technique or methodology on which an opinion is premised.”

Known or potential rate of error—The court should consider the known or potential error rate.

General acceptance—“Widespread acceptance can be an important factor in ruling particular evidence admissible, and a known technique that can been able to attract only minimal support within the community, may be properly viewed with skepticism.”[5]

Two later decisions helped “clear up” questions regarding Daubert. “General Electric Co. v. Joiner, 522 U.S. 136 (1997), held abuse of discretion is the appropriate standard for an appellant court to apply in reviewing the trial court’s determination to admit or exclude testimony under Daubert.”[6]

The Kumho Tire Co. v. Carmichael decision (526 U.S. 137 [1999]) confirmed that the Daubert decision applied to non-scientific testimony as well. “Resolving conflicting lower-court decisions, the Court held Daubert applies to all expert testimony. The court then reasoned that some or all of the Daubert factors may apply in evaluating the expert testimony in a given case. There may be other relevant factors. The trial court has the same discretion in determining how to test the expert’s reliability as it has in determining the expert’s testimony is reliable. The appellant court must apply an abuse of discretion standard to both questions.”[7]

Experts Facing a Daubert Challenge

Experts facing a Daubert challenge should be aware that financial literature generally highlight a series of questions the trial court will be asking about the expert and his or her work.

1. Is the expert qualified for this analysis? This seems straight forward. However, often experts will take assignments for which the expert is not qualified. This opens them to be seen as “stepping outside their lane.” An expert must be able to show how the analysis provided is based on the expert’s education, training, and experience.
2. How reliable is the underlying data? It is important that any analysis is based on the facts of the specific case tied to the expert’s assignment. However, there are times when the data provided by the injured party is dubious at best. An expert must filter the data to determine what is reliable and what is not. This may lead to a greater discount rate based on additional risk premia for the concerning data. To offset this, an expert may provide multiple scenarios based on varying levels of acceptance of the underlying data.
3. Are the expert’s assumptions supported by the data? An expert may rely on interviews with management from the injured business.[8] The expert must compare the data and opinions provided by management with his or her own research and knowledge of current market and general economic trends. Management is almost always optimistic; therefore, an expert must not be drawn into their optimism unless the expert’s research supports such optimism. Ultimately, the assumptions made in any analysis must be the one’s an expert can support. So, the expert must be prepared to provide an explanation as to why such assumptions are supported by his or her research.
4. Does the expert deal adequately with facts inconsistent with the expert’s theory? This question goes directly to proximate cause. The court will want to know if there are other factors that would have caused the injured business to lose profits and if so, how did the expert consider this information. During the current economic period, the court will want to know how the COIVD-19 pandemic, supply chain limitations, and/or inflation impacted the industry of the injured business and the injured business itself. This is because external impacts cannot be held against the alleged wrongdoer. These factors must be considered while completing an analysis. If so, this question may be easily addressed by the expert.
5. Has the expert considered alternative scenarios? This question poses a deeper question, “How many alternative scenarios should be considered?” As noted earlier, an analysis may require two or three scenarios to address data or causation problems. Other analyses may appear straight forward with no need for alternative scenarios. This question does not require experts to provide more than one scenario, but wants them to consider additional scenarios. Again, an expert should consider alternatives during the analysis and be able to discuss the process of arriving at the loss figures with the court.

A review of lost profits literature provided a number of decisions about experts and Daubert challenges. The following is a smattering of that information.

“Under Daubert, the proper analysis is not whether some of the inputs can be questioned, but whether the expert’s testimony is relevant and reliable, and whether the methods and principles upon which he has relied in forming his opinions have a sound basis in science.”[9]

“Plaintiff’s lost profits based on past profit history extrapolated for the life expectancy of the individual principal in plaintiff’s business would not be excluded under Daubert but expert’s extrapolation for the further life expectancy of the principal’s son was speculative and would be inadmissible.”[10]

The trial court did not abuse its discretion to “admit expert testimony under Daubert, jury was free to evaluate expert’s shaky but admissible evidence, where expert based lost profits projections on past performance and limited future expectations, and where reliance on gross profits was addressed during cross examination.”[11]

Personal Experience with Daubert Challenges

When I began working in this field (some 25 years ago), it was believed that if you were excluded from testifying in a litigation, law firms would not hire you again. This thinking came from a pre-Daubert environment when the rules for allowing expert testimony were few and less strict. Therefore, if the court found an expert’s conclusions unacceptable, the expert’s opinions were probably not well supported by the facts of the assignment.

This thinking has changed over the years. It is never positive to be excluded from being able to testify, but it is not career ending. While not all my assignments face a Daubert challenge, almost all of my commercial damages’ assignments include one. I believe challenging the opposing experts is the current thinking among attorneys and that means Daubert motions against experts now come with the territory.

This opinion was confirmed when I surveyed five defense firms to determine what caused them to file a Daubert motion against opposing experts. I asked, “What causes you to file a motion to exclude an opposing expert?” One firm responded, “We file a Daubert challenge against all of the experts for the opposing side.” It made no difference as to the quality of the expert’s work. They did not expect to win their motion very often, but “sometimes you get lucky.”

In my career, my testimony has been excluded three times. Never have I been excluded for not being qualified. I believe that is the easiest hurdle to clear. An early mentor of mine constantly reminded me, “Stay in your lane.” If an expert does that, the question of whether the expert is qualified for the assignment will not be in doubt.

In all three matters, the court found my analysis either did not have legal foundation or was not the analysis acceptable to the court. One assignment the court ruled a contract was not a contract. In this case there was a claim for breach of contract and fraud. Because there was no breach of contract, there was no need for a lost profits analysis. Even though the fraud claim continued, my analysis could not be used because it was based on a false premise. The next challenge related to an assignment where I needed to develop one model for a class action suit and my model was too individualistic. The final matter involved my providing a valuation letter as opposed to a certified appraisal on a minority ownership. The judge would not accept testimony regarding a valuation letter as opposed to a certified valuation.

These three matters provide plenty of fodder for deposition questions and occasional cross examination questions at trial, but they have not kept my phone from ringing. My business has grown and continues to thrive.

Of course, experts must learn from their mistakes. I learned from each of these events. I have strived to strengthen my work and provide better supporting data. Most importantly, I have sought to improve my communication with the retaining attorney. My lack of communication with the retaining attorney led to many of my problems in the breach of contract litigation.

The Hearing to Exclude or Limit an Expert’s Testimony

Judges have varying ways of handling Daubert hearings, so do attorneys. A few judges want to hear from the expert. During these hearings, the expert is allowed to testify and explain their methodology and analysis. The questions at this hearing are different from those at trial because they are limited as to “Daubert” related questions. The expert should prepare with the retaining attorney to make sure all the criticisms made by the opposing side are addressed. Judges may rule at the end of the hearing or take the motion under advisement.

Other judges only want the attorneys to argue the motion. Therefore, the expert does not get to explain his or her work. However, the expert’s retaining attorney may ask the expert to provide an affidavit or declaration explaining the analysis and addressing the opposing side’s criticism. These documents may be lengthy but are very important. It is advisable for the expert to ask the retaining attorney to put the affidavit or declaration into its proper format for filing with the court.

It is possible an attorney may decide to argue a Daubert motion without input from the expert. This is not good because it leaves the expert out of explaining his or her work. If possible, an expert should provide as much information as possible to the attorney. This assists the attorney in defending the expert’s conclusions and hopefully laying the foundation for the expert to testify at trial.

Conclusion

Going through a Daubert challenge is stressful, even for experienced experts. Experts may lay the foundation for successfully defending themselves against such a challenge by making sure they are qualified for the assignment taken, making sure the analysis follows the facts of the case, relies on supportable data, includes beneficial and detrimental facts regarding the parties and economy, and considers alternative solutions.

Judges dislike excluding experts because they are important in helping the trier-of-fact understand complicated issues in litigation. However, the courts have no alternative but to exclude experts who try to bend facts and data to reach a desired result. Experts who avoid this temptation and stay in their lane will find that a Daubert challenge can be survived and become just part of another day at the office.

[1] E.I. du Pont de Nemours & Co. v. Robinson, 923 S.W.2d 549, (Tex. 1996).

[2] Recovery of Damages for Lost Profits, Vol. 2, 6^th Ed., Robert Dunn, 2005, p. 627.

[3] Daubert v. Merrill Dow Pharmaceuticals, Inc., supra, 509 U.S. 579, 588 (1993).

[4] 509 U.S. at 589.

[5] 509 U.S. at 593–594.

[6] Dunn, p. 633.

[7] Dunn, pp. 633–634.

[8] Experts may not be able to interview management for the opposing parties in litigation. Therefore, interviews with plaintiff’s management may only be available to the plaintiff’s expert. The defense expert may only be able to interview management from the defendant.

[9] Recovery of Damages for Lost Profits, 6^th Ed., Vol 1-2, Supplement March 2022, Editors Sharon Rutberg, Wendy Malkin, p. 505.

[10] Rutberg, Malkin, p. 505.

[11] Rutberg, Malkin, p. 506.

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Allyn Needham, PhD, CEA, is a partner at Shipp Needham Economic Analysis, LLC, a Fort Worth-based litigation support consulting expert services and economic research firm. Prior to joining Shipp Needham Economic Analysis, he was in the banking, finance, and insurance industries for over twenty years. As an expert, he has testified on various matters relating to commercial damages, personal damages, business bankruptcy, and business valuation. Dr. Needham has published articles in the area of financial and forensic economics and provided continuing education presentations at professional economic, vocational rehabilitation, and bar association meetings. Dr. Needham is a member of NACVA’s QuickRead Editorial Board.

Dr. Needham can be contacted at (817) 348-0213 or by e-mail to aneedham@shippneedham.com.