Changing the Rules for Testifying Experts

Does a grievance justify commencement of litigation? How vigorously should a company defend against a claim? When does it make economic sense to simply settle a case? These are questions corporate counsel wrestle with at nearly every fork along the litigation decision road. As with any complex business decision, determining which path to pursue is rarely straightforward and there are many factors to be considered before taking the next step. Under most circumstances, a primary consideration is the costs of litigation. If the Judicial Conference of the United States Committee on Rules of Practice and Procedure (the Committee) recommended changes to the Federal Rules of Civil Procedure (FRCP) are adopted, one element of the litigation calculus ' the costs of expert testimony ' may lessen in significance. These proposed amendments have been presented to the United States Supreme Court, which is expected to approve and submit them to Congress. Barring rejection by Congress, the rule changes will go into effect in December 2010. In all likelihood, these changes
will be adopted because most practitioners recognize and have borne the burden of the inefficiencies current practice has brought to the litigation process.

Expert Testimony

In Federal Court, expert testimony, including written expert reports, is governed by FRCP 26 (a)(2), which reads as follows:

Unless otherwise limited by court order, the scope of discovery is as follows: Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense ' including the existence, description, nature, custody, condition, and location of any documents or other tangible things and the identity and location of persons who know of any discoverable matter. For good cause, the court may order discovery of any matter relevant to the subject matter involved in the action. Relevant information need not be admissible at the trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence.

The courts have liberally interpreted the requirements of this rule and consequently the discovery permitted thereunder has been broad and often onerous. As such, everything written, said or considered by the expert, including every note jotted down, every analysis performed, every communication specific to the matter and any draft of the expert report is potentially discoverable by the opposing side. In response, lawyers, in conjunction with experts, have developed methodologies that are effective at enabling them to understand and obtain advice on technical issues and yet avoid the production of documents that bear little on the fundamental premise of the expert's final opinion; however, these methodologies can be cumbersome and expensive.

The Confining Expert Box

Rarely, if ever, in undertaking a complex project, are participants expected to assimilate and organize information without the benefit of notations, nor is it assumed that the first idea or effort should also be the last. Architectural renderings are reworked, authors' transcripts are edited and engineering designs amended. Formulation of ideas and opinions is a process in which new information becomes available that clarifies understandings, changes perceptions, fosters new theories and thus, requires adjustment to initial thinking. It is a well accepted axiom that critical thinking should be challenged and, if necessary, adjusted to improve the soundness of an ultimate conclusion. It is a readily understood concept seemingly everywhere, that is, except in the court room.

Since everything the testifying expert touches is potentially subject to discovery, lawyers are loathe to have their experts generate notes or memoranda, regardless of the immensity of the volume of documents that may need to be sorted through in the case. Not only are notations viewed unfavorably, but experts are discouraged from drafting reports prior to arriving at a complete and full understanding of the facts. Exacerbating the situation is the “fits and starts” nature of the litigation process. Frequently, after doing extensive initial work, the expert is requested to cease activity on the case for a variety of reasons. Then, after a protracted period of time, the case once again becomes active and the expert must begin anew without the benefit of notes or drafts reports. Re-engaging on a large case after a lengthy hiatus under the current rules can be tantamount to starting afresh, leading to a duplication of costs for the litigants.

Also, it is common for experts to review documents and perform analyses which are ultimately discarded as having little value to their final conclusions. For example, suppose a damages expert, working on a breach of contract matter, spends an insignificant amount of time reviewing the growth of a competitive technology to assess damages and quickly concludes it is not relevant and ultimately adopts a different approach. Under the current rules, the expert must disclose the documentation and analysis performed, any notes taken of the analysis, as well as any communication regarding the analysis to the opposing side, if requested, and then face a battery of questions at a deposition as to why the work was performed and then disregarded.

The litigation rationale for attorneys to engage in a battle for such discovery is to demonstrate all or some of the following: 1) that the expert is not independent, but a “hired gun” willing to provide the engagement lawyers with whatever opinions they desire to win their case; 2) that early work product will reflect theories that were rejected because they were unsupportive of the opinion the lawyers sought; and/or 3) that early notes contain some unconsidered comment by a witness that can be turned against the expert's preferred opinion. Naturally, attorneys like to request ' and fight to obtain ' drafts of the opposing experts' analyses, notes and reports made by experts early in their involvement, but hate to provide their own experts' preliminary work product. Consequently, significant legal wrangling ensues over what is appropriately discoverable.

These preliminary skirmishes are the typical prelude to the expert deposition, at which the cross-examining lawyer devotes considerable time asking probing questions about notes, work product or the authorship of the report. Who actually wrote the report? How many drafts were there? How many drafts were given to the lawyer? Who is responsible for the changes between the current and prior drafts? Why was one theory or another considered and then discarded? What was meant by this comment in the notes? Under the existing approach, cross-examining lawyers typically feel compelled to pursue this line of questioning, even if they are of doubtful use, because they know that when their own experts are deposed, similar questions will inevitably be asked.

While there are no statistics to demonstrate whether these inquiries accomplish their intended purpose, it seems unlikely the cross examining lawyer would elicit anything useful from the testifying expert often enough to justify the time invested. As a result, valuable time is consumed that would be better used to understand the background, basis and concepts of the expert's opinion and underlying calculations and to identify weaknesses that could potentially be used to discredit the expert's opinion. After all, once an expert signs a report, it becomes his or her opinion and the expert must support it, regardless of who provided editorial changes to the report.

Working Outside the Box

Lawyers cannot be experts in all fields involved in litigation and, therefore, need the assistance of individuals possessing technical expertise to understand esoteric issues. Given the fact that any relevant conversations with, or analyses prepared by, someone who may testify are discoverable, lawyers have employed a legally effective, albeit costly, strategy to allow for work to be performed under the protection of the legal privilege. Whereas the testifying expert is subject to the discovery requirements of Rule 26, the work of a consulting expert is privileged. A litigation consultant can consider different approaches, communicate openly with client and counsel, and perform as many calculations as deemed necessary. Since none of it is discoverable unless shared with a testifying expert, all of it is outside the “earshot” of opposing counsel. While effective from the perspective of shielding discussions and work product from the opposition, this structure can significantly increase the cost of litigating a case.

Constructing a New Box

To alleviate some of the inefficiencies and burdens created by the overly broad interpretation of Rule 26, the Committee's proposed rule changes in substance confer work product protection for drafts of any expert reports and any communications between an expert and the attorney, except in the following three areas:

1. Those which relate to compensation of the expert;
2. Any information provided by the attorney to the expert that was considered in the formulation of the expert's opinions; and
3. Assumptions provided by the lawyer and upon which the expert relied in forming his or her opinions.

These proposed changes are long overdue and it is anticipated that the changes will impact:

The Cost of Litigation

Plaintiff and defense counsel agree that litigation costs increase dramatically because of the way they must manage the flow of information to the testifying experts. Use of both a testifying expert and an expert consultant entails providing both with separate sets of voluminous documentation, as well as having both of them sort through much of the same material to understand the pertinent facts. Then there is the need to restart testifying experts should a protracted delay occur without the benefit of any, or little, previous work product. Additionally, lawyers spend significant time filing and arguing motions in an effort to receive all documentation used or prepared by the opposing expert, and, in turn, arguing against motions filed by the opposing counsel to obtain all documentation used or prepared by their expert. It is impossible to quantify the extent of additional cost, but the duplication of efforts by the multiple experts necessary under the current interpretation significantly escalates the costs of litigation related to expert advice. The proposed changes to Rule 26 should help to eliminate most of these additional costs.

Discoverability Uncertainty

Plaintiff and defense counsel generally agree that the uncertainty of what courts will allow to be discovered causes them to be conservative in their approach, i.e., assume everything the expert sees or writes down may at some point become discoverable. Additionally, lawyers spend time distracted from the primary issues in the case to argue discoverability issues. The changes to Rule 26 will minimize the time spent on peripheral arguments in litigation and allow the parties to focus on the more important legal issues in the case.

Preliminary Analysis Often Not Considered

Both sides also concede that many times the documentation, notes, communication, or preliminary analyses performed early in a case may be done to test a theory or theories but eventually the work ends up on the cutting room floor because it is not critical to the final analysis. The proposed changes will unfetter the expert to consider and test theories without concern as to the final outcome, resulting in more thoughtful and intellectually sound expert opinions for both sides.

Conclusion

Imagine any other serious endeavor in life in which one is expected to review, assimilate, organize and ultimately make sense of, a prodigious volume of material involving complex issues, without the benefit of recorded notes or written preliminary analyses prior to reaching final conclusions. Working under the current interpretation of Rule 26 creates an unreasonable environment under which the testifying expert can not perform efficiently. It is easy to see why costs can quickly spiral out of control.

The changes to Rule 26 are long overdue and not only simplify the expert's role, but potentially benefit the litigants as well. These changes are practical, will bring efficiencies and thus reduce the cost of the litigation process that, in most cases, will benefit all participants. Reducing costs allows companies to bring cases that previously may not have been perceived as worthy of initiating and, conversely, defending cases that may have been settled earlier for larger amounts. If these changes come to pass, in-house counsel will need to reconsider the “cost to litigate” factor in determining which path to take along the decision road.

Roger Siefert is a managing director with the forensic accounting practice of LECG in New York, specializing in the financial services industry. He can be reached at 212-468-7844 or [email protected]. Benito Romano is a litigation partner with Freshfields Bruckhaus Deringer LLP. He can be reached at 212-277-4091 or [email protected]. The authors gratefully acknowledge the assistance of Christopher Brophy, a director with LECG's forensic accounting practice, in the preparation of this article.

Does a grievance justify commencement of litigation? How vigorously should a company defend against a claim? When does it make economic sense to simply settle a case? These are questions corporate counsel wrestle with at nearly every fork along the litigation decision road. As with any complex business decision, determining which path to pursue is rarely straightforward and there are many factors to be considered before taking the next step. Under most circumstances, a primary consideration is the costs of litigation. If the Judicial Conference of the United States Committee on Rules of Practice and Procedure (the Committee) recommended changes to the Federal Rules of Civil Procedure (FRCP) are adopted, one element of the litigation calculus ' the costs of expert testimony ' may lessen in significance. These proposed amendments have been presented to the United States Supreme Court, which is expected to approve and submit them to Congress. Barring rejection by Congress, the rule changes will go into effect in December 2010. In all likelihood, these changes
will be adopted because most practitioners recognize and have borne the burden of the inefficiencies current practice has brought to the litigation process.

Expert Testimony

In Federal Court, expert testimony, including written expert reports, is governed by FRCP 26 (a)(2), which reads as follows:

Unless otherwise limited by court order, the scope of discovery is as follows: Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense ' including the existence, description, nature, custody, condition, and location of any documents or other tangible things and the identity and location of persons who know of any discoverable matter. For good cause, the court may order discovery of any matter relevant to the subject matter involved in the action. Relevant information need not be admissible at the trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence.

The courts have liberally interpreted the requirements of this rule and consequently the discovery permitted thereunder has been broad and often onerous. As such, everything written, said or considered by the expert, including every note jotted down, every analysis performed, every communication specific to the matter and any draft of the expert report is potentially discoverable by the opposing side. In response, lawyers, in conjunction with experts, have developed methodologies that are effective at enabling them to understand and obtain advice on technical issues and yet avoid the production of documents that bear little on the fundamental premise of the expert's final opinion; however, these methodologies can be cumbersome and expensive.

The Confining Expert Box

Rarely, if ever, in undertaking a complex project, are participants expected to assimilate and organize information without the benefit of notations, nor is it assumed that the first idea or effort should also be the last. Architectural renderings are reworked, authors' transcripts are edited and engineering designs amended. Formulation of ideas and opinions is a process in which new information becomes available that clarifies understandings, changes perceptions, fosters new theories and thus, requires adjustment to initial thinking. It is a well accepted axiom that critical thinking should be challenged and, if necessary, adjusted to improve the soundness of an ultimate conclusion. It is a readily understood concept seemingly everywhere, that is, except in the court room.

Since everything the testifying expert touches is potentially subject to discovery, lawyers are loathe to have their experts generate notes or memoranda, regardless of the immensity of the volume of documents that may need to be sorted through in the case. Not only are notations viewed unfavorably, but experts are discouraged from drafting reports prior to arriving at a complete and full understanding of the facts. Exacerbating the situation is the “fits and starts” nature of the litigation process. Frequently, after doing extensive initial work, the expert is requested to cease activity on the case for a variety of reasons. Then, after a protracted period of time, the case once again becomes active and the expert must begin anew without the benefit of notes or drafts reports. Re-engaging on a large case after a lengthy hiatus under the current rules can be tantamount to starting afresh, leading to a duplication of costs for the litigants.

Also, it is common for experts to review documents and perform analyses which are ultimately discarded as having little value to their final conclusions. For example, suppose a damages expert, working on a breach of contract matter, spends an insignificant amount of time reviewing the growth of a competitive technology to assess damages and quickly concludes it is not relevant and ultimately adopts a different approach. Under the current rules, the expert must disclose the documentation and analysis performed, any notes taken of the analysis, as well as any communication regarding the analysis to the opposing side, if requested, and then face a battery of questions at a deposition as to why the work was performed and then disregarded.

The litigation rationale for attorneys to engage in a battle for such discovery is to demonstrate all or some of the following: 1) that the expert is not independent, but a “hired gun” willing to provide the engagement lawyers with whatever opinions they desire to win their case; 2) that early work product will reflect theories that were rejected because they were unsupportive of the opinion the lawyers sought; and/or 3) that early notes contain some unconsidered comment by a witness that can be turned against the expert's preferred opinion. Naturally, attorneys like to request ' and fight to obtain ' drafts of the opposing experts' analyses, notes and reports made by experts early in their involvement, but hate to provide their own experts' preliminary work product. Consequently, significant legal wrangling ensues over what is appropriately discoverable.

These preliminary skirmishes are the typical prelude to the expert deposition, at which the cross-examining lawyer devotes considerable time asking probing questions about notes, work product or the authorship of the report. Who actually wrote the report? How many drafts were there? How many drafts were given to the lawyer? Who is responsible for the changes between the current and prior drafts? Why was one theory or another considered and then discarded? What was meant by this comment in the notes? Under the existing approach, cross-examining lawyers typically feel compelled to pursue this line of questioning, even if they are of doubtful use, because they know that when their own experts are deposed, similar questions will inevitably be asked.

While there are no statistics to demonstrate whether these inquiries accomplish their intended purpose, it seems unlikely the cross examining lawyer would elicit anything useful from the testifying expert often enough to justify the time invested. As a result, valuable time is consumed that would be better used to understand the background, basis and concepts of the expert's opinion and underlying calculations and to identify weaknesses that could potentially be used to discredit the expert's opinion. After all, once an expert signs a report, it becomes his or her opinion and the expert must support it, regardless of who provided editorial changes to the report.

Working Outside the Box

Lawyers cannot be experts in all fields involved in litigation and, therefore, need the assistance of individuals possessing technical expertise to understand esoteric issues. Given the fact that any relevant conversations with, or analyses prepared by, someone who may testify are discoverable, lawyers have employed a legally effective, albeit costly, strategy to allow for work to be performed under the protection of the legal privilege. Whereas the testifying expert is subject to the discovery requirements of Rule 26, the work of a consulting expert is privileged. A litigation consultant can consider different approaches, communicate openly with client and counsel, and perform as many calculations as deemed necessary. Since none of it is discoverable unless shared with a testifying expert, all of it is outside the “earshot” of opposing counsel. While effective from the perspective of shielding discussions and work product from the opposition, this structure can significantly increase the cost of litigating a case.

Constructing a New Box

To alleviate some of the inefficiencies and burdens created by the overly broad interpretation of Rule 26, the Committee's proposed rule changes in substance confer work product protection for drafts of any expert reports and any communications between an expert and the attorney, except in the following three areas:

1. Those which relate to compensation of the expert;
2. Any information provided by the attorney to the expert that was considered in the formulation of the expert's opinions; and
3. Assumptions provided by the lawyer and upon which the expert relied in forming his or her opinions.

These proposed changes are long overdue and it is anticipated that the changes will impact:

The Cost of Litigation

Plaintiff and defense counsel agree that litigation costs increase dramatically because of the way they must manage the flow of information to the testifying experts. Use of both a testifying expert and an expert consultant entails providing both with separate sets of voluminous documentation, as well as having both of them sort through much of the same material to understand the pertinent facts. Then there is the need to restart testifying experts should a protracted delay occur without the benefit of any, or little, previous work product. Additionally, lawyers spend significant time filing and arguing motions in an effort to receive all documentation used or prepared by the opposing expert, and, in turn, arguing against motions filed by the opposing counsel to obtain all documentation used or prepared by their expert. It is impossible to quantify the extent of additional cost, but the duplication of efforts by the multiple experts necessary under the current interpretation significantly escalates the costs of litigation related to expert advice. The proposed changes to Rule 26 should help to eliminate most of these additional costs.

Discoverability Uncertainty

Plaintiff and defense counsel generally agree that the uncertainty of what courts will allow to be discovered causes them to be conservative in their approach, i.e., assume everything the expert sees or writes down may at some point become discoverable. Additionally, lawyers spend time distracted from the primary issues in the case to argue discoverability issues. The changes to Rule 26 will minimize the time spent on peripheral arguments in litigation and allow the parties to focus on the more important legal issues in the case.

Preliminary Analysis Often Not Considered

Both sides also concede that many times the documentation, notes, communication, or preliminary analyses performed early in a case may be done to test a theory or theories but eventually the work ends up on the cutting room floor because it is not critical to the final analysis. The proposed changes will unfetter the expert to consider and test theories without concern as to the final outcome, resulting in more thoughtful and intellectually sound expert opinions for both sides.

Conclusion

Imagine any other serious endeavor in life in which one is expected to review, assimilate, organize and ultimately make sense of, a prodigious volume of material involving complex issues, without the benefit of recorded notes or written preliminary analyses prior to reaching final conclusions. Working under the current interpretation of Rule 26 creates an unreasonable environment under which the testifying expert can not perform efficiently. It is easy to see why costs can quickly spiral out of control.

The changes to Rule 26 are long overdue and not only simplify the expert's role, but potentially benefit the litigants as well. These changes are practical, will bring efficiencies and thus reduce the cost of the litigation process that, in most cases, will benefit all participants. Reducing costs allows companies to bring cases that previously may not have been perceived as worthy of initiating and, conversely, defending cases that may have been settled earlier for larger amounts. If these changes come to pass, in-house counsel will need to reconsider the “cost to litigate” factor in determining which path to take along the decision road.

Roger Siefert is a managing director with the forensic accounting practice of LECG in New York, specializing in the financial services industry. He can be reached at 212-468-7844 or [email protected]. Benito Romano is a litigation partner with Freshfields Bruckhaus Deringer LLP. He can be reached at 212-277-4091 or [email protected]. The authors gratefully acknowledge the assistance of Christopher Brophy, a director with LECG's forensic accounting practice, in the preparation of this article.