Daubert challenges to financial experts A yearly study of trends and outcomes 2000–2014

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Daubert challenges
to financial experts
A yearly study of trends and outcomes
2000–2014
Daubert challenges to financial experts
Table of contents
About the PwC Daubert Study3
Overview4
Observations from 15 Years of Daubert Challenges to Financial Experts 6
2014 Results
How have exclusion rates changed over time?
15
Why are financial experts being excluded?
16
What types of cases have higher exclusion rates?
18
Who experiences higher exclusion rates – Accountants, Appraisers, or Economists? 20
Who experiences higher exclusion rates – Plaintiff or Defendant-side experts?
22
Where are exclusion rates highest?
24
When lower court Daubert challenge rulings are appealed,
how often are they overturned?
26
Methodology28
Authors29
Appendix 30
1
2
Daubert challenges to financial experts
About the PwC Daubert Study
In 1993, the US Supreme Court’s opinion in Daubert v. Merrell Dow Pharmaceuticals Inc. addressed
the admissibility of expert scientific testimony in federal trials, affirming a gatekeeping role for
judges in determining the reliability and relevance of the testimony.
In 1999, the Supreme Court’s decision in Kumho Tire Co. v. Carmichael clarified that the Daubert
criteria were applicable to all types of expert testimony in federal jurisdictions, including financial
expert testimony. Subsequently, many state courts also adopted the Daubert standard.
In this study, we analyze post-Kumho Tire challenges to financial expert witnesses under the
Daubert standard. By examining 15 years of Daubert challenges to financial experts (2000 - 2014),
we seek to highlight trends in Daubert challenges to financial experts and to provide insight into
why experts were excluded.
Between 2000 and 2014, we identified 7,299 cases that cite Kumho Tire. From these cases, we evaluated 9,778 Daubert challenges to experts of all types in order to identify the type of expert being
challenged.1 We then further analyzed the 1,784 Daubert challenges related to financial experts
(see Figure 1).2 In this study, we present the results of our analysis and look at some key trends.
Figure 1: Cases citing Daubert and/or Kumho Tire
Cases citing Daubert and/or Kumho Tire (2000-2014)
7,990
Daubert only
6,747
Daubert & Kumho
552
Kumho
only
7,299 cases
9,778 challenges 1
7,994
Non-Financial expert challenges
1,784
Financial
expert
challenges
1 Some case opinions citing Kumho Tire cover challenges to more than one expert. In addition, some case opinions cite
Kumho Tire but do not specifically relate to a Daubert challenge.
2 Our study is limited to written opinions citing Kumho Tire. As such, the related results should not be presumed to represent
all possible financial expert challenges (e.g. opinions on financial experts that do not specifically cite Kumho Tire, bench
decisions, motions in limine, etc.)
About the PwC Daubert Study
3
Overview
15 year observations
Observations from analyzing fifteen years of Daubert challenges to financial experts.
In legal territory – Financial expert testimony is often excluded if the court considers it a
legal conclusion. Such legal conclusions are typically the domain of the trier of fact.
The hand on the gate – Daubert established judges as gatekeepers between
juries and testimony offered by experts. But how heavy should their hands be on
the gate? Often, rather than excluding financial expert testimony, judges prefer
that flaws in the testimony be exposed through cross-examination at trial.
Data dangers – The use and misuse of data is a common stumbling
block for financial experts. We’ve seen financial experts be excluded for
various reasons, including not providing sufficient support for calculations
and not performing due diligence on data received from clients.
Are you qualified? – Rule 702 states that experts may testify if they
are qualified based on their knowledge, skill, experience, education, or
training. However, the interpretation of what that requisite knowledge,
experience, and skill is can vary widely.
Better luck next time – In the past few years, we have seen several
instances where the court allowed the expert to remedy challengeable
issues in his or her original report by submitting a revised report.
A rule of thumb – In the landmark 2011 Uniloc decision, the Court described the royalty
rate rule of thumb in intellectual property cases as a “fundamentally flawed tool” that fails to
tie the royalty rate to the specific facts and circumstances of the case.
4
Daubert challenges to financial experts
2014 results
An analysis of data related to Daubert challenges to financial experts from 2000 to 2014.
How
How have exclusion rates changed over time? Financial expert Daubert challenges
increased again in 2014, to the highest level we have seen in our study. At 36%, the 2014
financial expert exclusion rate was the second lowest in the history of our study.
Why are financial experts being excluded? In both 2014 and over the
last 15 years, lack of reliability was the primary reason for the exclusion of
financial experts.
Why
What
What types of cases have higher exclusion rates? Financial expert
Daubert challenges most commonly occur in breach of contract/fiduciary
duty cases. Over the last 15 years, the exclusion rates of financial experts
have been highest in intellectual property, fraud, and bankruptcy cases.
Who
Who experiences higher exclusion rates? Of the three most common
financial expert types (accountants, economists, and appraisers),
economists faced the highest number of challenges in 2014 and appraisers
experienced the highest exclusion rate. In addition, plaintiff-side financial
experts experienced twice as many challenges as defendant-side experts
in 2014, but defendant-side experts had a slightly higher exclusion rate.
Where
When
Where are exclusion rates highest? In 2014, challenges most frequently
occurred in the Second, Fifth, Sixth, and Ninth circuits. Exclusion rates were
highest in the Fourth and Seventh circuits.
When Daubert rulings are appealed, how often are they overturned? Appellate courts
have agreed with lower courts on financial expert Daubert rulings approximately 70% of
the time. However, appellate court agree rates are lower in instances where the lower court
excluded the financial expert.
Overview
5
Observations from 15 Years of Daubert
Challenges to Financial Experts
6
Daubert challenges to financial experts
On the fifteenth anniversary of the Kumho Tire decision, we present some observations of recurring
themes we have seen in challenges to financial experts, as well as selected illustrative cases.
In legal
territory
The hand
on the gate
Data
dangers
Are you
qualified?
Better luck
next time
A rule of
thumb
In legal territory
In case decisions throughout the past 15 years, we have observed financial experts being excluded
or partially excluded for offering testimony that veered into the territory of legal conclusions. This
can often happen when financial experts opine on contractual obligations or conclude on the interpretation of disputed contracts in the context of their financial testimony. However, these questions
are typically the domain of the trier of fact, not of the expert.
Illustrative cases
• In this property damage matter, plaintiff sued
to recover “loss of use” damages. Defendant’s
expert, a Certified Public Accountant (CPA),
was retained to rebut plaintiff’s damages
calculations. Plaintiff challenged the CPA
partially on the grounds that the expert’s
opinions amounted to improper legal conclusions. The court agreed that “the proposed
testimony regarding the propriety of loss
of use damages amounts to the proposed
expert (incorrectly) providing the jury
with the applicable law,” and excluded that
portion of the expert’s testimony. (Level 3
Communications, LLC v. Floyd, 1:09-0082, 2011)
• In this breach of contract matter, the defendant challenged the plaintiff’s valuations
expert for relying “upon unqualified
speculation about contractual interpretation, the parties’ purported intent and
subjective interpretation of purported
facts and documents that are unreliable.” The expert conceded that he was not
an expert in “legal intent” or in interpreting
contractual intent. The court agreed and
excluded the portion of the expert’s report
regarding such intent. (Cincinnatus Partners
I, LP v. Farm Bureau Prop. & Cas. Ins. Co., 1:11cv-427, 2014)
• In this fraud matter related to a securities
class action, plaintiffs retained an accounting
expert to testify to the defendant’s alleged
channel stuffing. The court found that the
expert’s “pull in” opinion on the question
of whether the contracts at issue allowed
defendants to improperly ship products to customers resulted in “improper
legal conclusions.” (In re Novatel Wireless
Securities Litigation, 08-cv-1689, 2011)
Observations from 15 Years of Daubert Challenges to Financial Experts
7
Illustrative cases (Cont’d)
• In this fraud case, the plaintiff challenged
the rebuttal report and testimony of defendant’s finance expert. The expert’s testimony
was excluded for several reasons, including
that his report contained legal conclusions
related to the contractual obligations of
the defendant in disclosing payments to
the plaintiff. The court found these legal
conclusions by an expert to be inadmissible.
(American Hardware Mfrs. Ass’n v. Reed
Elsevier Inc., 03 C 9421, 2009)
• In this breach of contract case, the plaintiff
argued that defendant’s expert, a forensic
accountant, should not be permitted to
provide damages testimony at trial because
the expert’s opinions contained legal conclusions. The court ruled that it would “not
permit [the expert] to place his expertise
behind any conclusions that are properly
legal conclusions for the jury to reach after
applying the law to the facts of the case.”
(Leon v. Kelly, CIV. 07-0467, 2009)
• In this securities litigation matter, the plaintiff challenged the admissibility of one of
the defendant’s financial experts for several
reasons, including that the expert made inadmissible conclusions related to the plaintiff’s
conduct being “manipulative” and statements
about plaintiff’s “duties and responsibilities.”
The court agreed with the plaintiff and held
that “expert testimony as to legal conclusions
that will determine the outcome of the case is
inadmissible.” The court noted that the expert
“may present and analyze facts indicating
manipulation,” but “may not embrace the
ultimate issue of whether Defendant’s
acts were, indeed, manipulative.” (Hershey
v. Pacific Inv. Management Co. LLC, 05 C
4681, 2010)
The hand on the gate
The Supreme Court’s decision in the Daubert case provided judges a gatekeeping role in admitting
expert testimony. In performing this gatekeeping role, courts have generally been advised to not
keep “a heavy hand on the gate,” and to work under the presumption of admissibility.3 In 15 years
of court decisions related to financial experts, we have seen, on average, approximately 55% of
financial experts admitted by courts after being challenged.
Across this time span the most common reason for financial expert exclusions has been lack of reliability. However, evaluating reliability can be tricky. While an expert may use a generally accepted
methodology, does the poor application of the methodology make the expert’s testimony unreliable,
or is that a matter for the trier of fact to decide? Depending on the specific facts and circumstances
of the case, we have often seen the court admit a financial expert and allow for such issues to be
illuminated through rigorous cross-examination.
3 See MacDermid Printing Solutions, Inc. v. Cortron Corp.,
3:08cv1649 (MPS), June 12, 2014.
8
Daubert challenges to financial experts
Illustrative cases
• In this antitrust case, defendant challenged
the plaintiff’s expert economist and related
damages testimony. The district court denied
the challenge because the defendant’s arguments went to the weight, not the admissibility, of the expert’s testimony stating that
“the court must be sure not to exclude
an expert’s testimony on the ground
that the court believes one version of the
facts and not the other.” The court noted
that the defendant’s “many well-supported
attacks on the underlying data employed and
assumptions made by [the expert] in reaching
his assumed damage calculation...are best
reserved for cross-examination.” The court
also explained that the expert “provided
reasoned explanations for the assumptions”
made and presented “viable arguments to
support his data.” (In re Scrap Metal Antitrust
Litigation, 06-4511, 2008)
• In this bankruptcy matter, the debtor challenged the creditor’s damages expert, a
CPA and Certified Fraud Examiner (CFE),
because the expert lacked the knowledge
about the content and methodology of the
study on which the expert relied for his
analysis. The court stated concerns related
to lack of knowledge bear on the weight,
rather than the admissibility, of the expert’s
testimony. The court allowed the expert
to cure his lack of knowledge and answer
other questions during cross-examination. (In re Texans CUSO Ins. Group LLC,
09-35981-BJH-11, 2010)
• In this breach of contract case, the court
found that the issues raised by the defendant
did not go to the reliability of the proposed
testimony of the plaintiff’s appraisal expert,
but to its accuracy and weight. The parties
argued about specific numbers that had
been input into a formula, but the court
deemed this an improper basis upon
which to exclude expert testimony. The
court noted that the defendant would be free
to cross-examine the expert on these points
during trial. (Stuckey v. Online Resources
Corp., 2:08-cv-1188, 2012)
• In this breach of contract case, the court had
to decide whether the defendant’s valuations
expert reliably applied the “destruction of
business valuation method” to the case. The
court warned against “keeping a heavy hand
on the gate,” and indicated there should be
a presumption of admissibility of evidence.
Noting that the expert’s application of
the methodology found “enough support
in the facts to pass through the Daubert
gate,” the court denied plaintiff’s motion
to exclude the expert. (MacDermid Printing
Solutions, Inc. v. Cortron Corp., 3:08cv1649
(MPS), 2014)
• In this intellectual property dispute related
to copyright claims between two Spanishlanguage soap operas, defendants retained a
CPA as an expert to rebut the report of plaintiff’s expert related to amounts of copyrightinfringing profits attributable to plaintiff.
Specifically, the plaintiff attacked the expert’s
deduction of “unavoidable expenses or fixed
costs in his infringement damages calculation.” The court denied the motion, saying
that plaintiff’s challenge was “one which
relates to the weight of [the expert’s]
opinions, not admissibility.” (Latele TV,
C.A. v. Telemundo Communs. Group, LLC,
12-22539-CIV-GOODMAN, 2014)
Observations from 15 Years of Daubert Challenges to Financial Experts
9
Data dangers
Federal Rules of Evidence Rule No. 702, which incorporates precedent set by Daubert, Kumho Tire,
and other related cases, permits a qualified expert to testify if, among other factors, the testimony
“is based on sufficient facts or data.” This factor has been a common stumbling block for financial
experts, and is the most frequent reason for reliability exclusions. Indeed, whether the expert relied
on enough data to form an opinion, or failed to consider necessary information, can impact the
outcome of a Daubert challenge.
Illustrative cases
• In a tortious interference and breach of contract • In a fire-related insurance claim, defendant’s
case, the plaintiff filed an appeal against the
owner served as the financial expert and
district court’s decision to exclude its expert
calculated a building’s pre-damage value
witness. The district court stated that the
as its replacement cost less depreciation.
plaintiff’s expert witness had little to no
Because this calculation essentially relied
familiarity with how the damages presented
on only two figures, the court focused on
in his expert report were calculated, as they
determining the reliability of those two
were provided to him by the plaintiff and
figures. The expert was unable to provide
the expert did not undertake an analysis or
sufficient support for the two numbers
perform due diligence to verify the calculaused. In addition, the court found that the
tions. The district court determined that the
methodology used had not been reviewed or
expert’s opinion was not based on “sufficient
generally accepted in the relevant appraisal
facts and data” and, thus, could not be considcommunity. The expert’s opinion was thereered reliable. The appellate court affirmed
fore excluded from trial. (James River Ins. Co.
the district court’s decision to exclude. (Auto
v. Rapid Funding, LLC, 07-cv-01146C, 2009)
Industries Supplier Employee Stock Ownership
• In this racial discrimination case, defendant
Plan v. Ford Motor Co., 09-2126, 2011)
retained an expert statistician and director
• In a breach of contract case, the plaintiff’s
of an economics consulting firm to provide
expert aimed to calculate the premium paid
testimony based on statistical methodology.
by the plaintiff for defendant’s product based
Plaintiffs argued that a third-party economics
on it being labeled as “all natural.” However,
firm, not the expert himself, performed
the expert did not review or rely on all the
more of the work in creating the analysis and
relevant information in pleadings or testiwriting the report. The court allowed the
mony to calculate the premium. The court
expert to testify because the “rule does not
stated that the expert’s testimony was
suggest that an expert cannot appropribased on, “at most, a cursory review of
ately rely upon others to help, and it would
the underlying record in this action. His
be unrealistic to conclude otherwise.”
report shows that [the expert] reviewed the
(Brand v. Comcast Corp., 11 C 8471, 2014)
complaints, but no other pleadings or testimony. He did not read the plaintiffs’ depositions […]” Therefore, the court deemed the
expert’s testimony to be unreliable. (Weiner v.
Snapple Beverage Corp., 07-cv-8742, 2010)
10
Daubert challenges to financial experts
Are you qualified?
Another factor under Rule 702 is that an expert be qualified as such based on “knowledge, skill, experience, or education.” Over the course of our study, we have seen courts ascribe different weights
on each of these factors. For example, is industry experience necessary for a lost profits expert if
that expert has significant experience in performing lost profits calculations over a wide range of
industries? Or is a college level course in statistics sufficient qualification to incorporate statistical
analysis in a lost profits calculation? The cases below provide examples of the many nuances courts
have used in determining whether experts are “qualified” under the Daubert standard.
Illustrative cases
• In a breach of contract case, the court denied
a challenge that a CPA should be excluded
because he was not a statistics expert. The
court noted being qualified means the
expert “should have achieved a meaningful threshold of expertise in the given
area.” The court ruled that regardless of
the fact that the expert had taken only one
statistics course in college, the expert could
provide statistical analysis as part of his lost
profits calculation because he had “meaningful” experience in calculating lost profits.
(Packgen v. Berry Plastics Corp., 2:12-cv00080, 2014)
• In this breach of fiduciary duty matter, a
“supremely qualified” expert was excluded
for lack of reliability. The plaintiff hired
a professor of accounting and chair of an
accredited MBA program to provide testimony relating to the valuation of a business
based on information provided by counsel.
The expert had never completed a full
valuation of a closely held business, so the
court concluded that the expert did not
qualify as an expert in valuing the plaintiff’s closely held business. The court also
found “numerous other deficiencies” in the
expert’s report and concluded that the expert
was unreliable. (MDG International, Inc. v.
Australian Gold, Inc., 1:07-cv-1096, 2009)
• In this intellectual property matter, plaintiff
retained a CPA and certified forensics expert
with 23 years of experience in business
• In this breach of contract matter, plaintiff
valuation to provide testimony regarding
sued defendant related to an agreement to
lost profits related to copyright violations
use plaintiff’s logo on any album or recording
of novels and other works written by the
produced by defendant for the artist known
plaintiff that defendant made into films.
as “Meat Loaf.” Defendant challenged plainThe defendant challenged the expert,
tiff’s valuation expert as unqualified to testify
claiming that he did not have enough
on damages. The court disagreed and found
experience related to the film industry,
that “despite having minimal experience
but the court ruled that the expert’s broad
in evaluating a contract or logo right, ‘[the
business valuation experience qualified
expert’s] extensive experience in business
him to testify. However, the court ultimately
valuation, including valuation of business
excluded the expert’s testimony for a lack of
units and business assets, [was] sufficient
relevance and reliability. (Baisden v. I’m Ready
to qualify him as an expert on the value of
Productions Inc., Civil Action No. 4:08-CVthe contract right in this case.’” (Popovich
00451., 2010)
v. Sony Music Entertainment, Nos. 06-3463,
06-3464, 2007)
Observations from 15 Years of Daubert Challenges to Financial Experts
11
Better luck next time
While a Daubert exclusion typically means “game over” for an expert’s involvement in a case, we
have recently seen courts provide financial experts a chance to revise or update their testimony
before providing a final decision on the expert’s admissibility.
Illustrative cases
• In this wrongful death case, plaintiff’s expert
economist was challenged because his calculation was “based only on plaintiff’s counsel’s
narrative.” The court allowed the plaintiff
21 days to submit a full report from the
expert in which he could more fully explain
his assumptions used. The court required the
expert to identify the facts and any published
data on which he relied in making his assumptions and calculations. The court also allowed
14 days after the expert’s new submission for
the defendant to file objections. (Howell v.
Avante Services, LLC, CIV.A. 12-293, 2013)
• In this breach of contract case, plaintiff’s expert
opined on damages related to restaurants operated by the plaintiff. The court criticized the
expert’s use of a 4% growth rate without any
underlying data supporting that rate. However,
since the defendant failed to timely submit
the motion to exclude, the court allowed the
plaintiff’s expert to amend his testimony
and provided the defendants an opportunity
to question the expert by deposition or written
statement. (Meltzer/Austin Rest. Corp. v.
Benihana Nat’l Corp., A-11-CV-542-AWA, 2014)
• In an intellectual property case, the plaintiff
retained a music licensing expert to establish damages attributable to the defendant’s
use of plaintiff’s song in a video promoting
a defendant-sponsored event. The plaintiff
objected to the expert’s fair market valuation
of the license which was based on a perpetual
term of use. The court acknowledged that the
expert’s calculation of damages should have
been based on actual rather than perpetual
use, and this flaw was large enough that her
12
Daubert challenges to financial experts
report “lack[ed] good grounds for [its] conclusions.” However, the court deemed the flaw
to be “eminently correctable” and provided
the expert an opportunity to submit a
revised report. The expert submitted a
revised report and the defendant again moved
to preclude the expert’s testimony. However,
the court denied the challenge resulting in the
inclusion of the expert report. (Beastie Boys v.
Monster Energy Co., 12-cv-6065, 2014)
• In this intellectual property case, defendant
moved to exclude the reasonable royalty
calculation of the plaintiff’s expert. The court
ruled that the expert “employed impermissible
and arbitrary methodologies to determine
both the royalty base and the royalty rate in
his damages opinion.” Specifically, the expert
“improperly skipped” the task of apportioning
the royalty base to the allegedly infringing
product feature and did not “tailor the royalty
rate to the specific facts of this particular
case.” The court determined that “based on his
present damages report [the expert] cannot
be allowed to lead the jury into certain error.”
However, the court added that, “in consideration of its due process rights, the court
is loathe to leave [plaintiff] stripped of any
damages expert testimony whatsoever.”
Therefore, the court ruled that because the
plaintiff “would otherwise be left without
any real evidence of damages,” it would allow
“one more opportunity to offer a new expert
report on damages.” The court also allowed
the defendant to update its own damages
expert report. (Dynetix Design Solutions, Inc.
v. Synopsys, Inc., C 11-05973 PSG, 2013)
A rule of thumb
An intellectual property case from 2011 (Uniloc USA, Inc. v. Microsoft Corp.), which was included
in our 2011 study, was widely seen as a landmark decision in intellectual property cases dealing
with reasonable royalty calculations. In the case (described in detail below), the court rejected
a 25% “rule of thumb” to approximate a reasonable royalty rate. The court described the rule of
thumb as a “fundamentally flawed tool” because it fails to tie the royalty rate to the particular facts
of the dispute and does not differentiate between industries, technologies, or parties. In our study,
we have also seen other instances where expert testimony was excluded due to the use of rules of
thumb and generalizations that did not relate to the specific facts of the case.
Illustrative cases
• The Uniloc decision: The plaintiff-appellant’s
• In another intellectual property dispute,
expert witness, an accountant, used a 25%
originally before the Eastern District of Texas
rule of thumb to calculate an estimate of the
court then challenged on appeal, the appellate
damages to be awarded based on a reasoncourt excluded testimony from the plaintiff’s
able royalty. The district court allowed the
damages expert whose royalty rate relied on
expert’s testimony, since the rule of thumb
a 50/50 profit split. The 50/50 profit split,
was “widely accepted.” However, as part of
also known as the Nash Bargaining Solution,
appeal proceedings, the appellate court evalucalled for each bargainer to receive 50% of the
ated whether the rule of thumb was a legally
profits in any negotiation. Invoking the Nash
adequate methodology. Despite the fact that
Bargaining Solution, the expert assumed that
the 25% rule was a commonly referenced
each party would take 50% of the profits and
rule of thumb originally based on examithen adjusted that split based on the relative
nation of years of licensing and profit data
bargaining power of the two entities. However,
across multiple companies and industries,
the Federal Circuit excluded the expert’s
the appellate court found that “as a matter of
testimony because it failed to account for the
Federal Circuit law ... the rule of thumb is a
particular facts of the case. (VirnetX, Inc. v.
fundamentally flawed tool for determining a
Cisco Sys., 6:10-CV-417, 2013-1489, 2014)
baseline royalty rate in a hypothetical nego• In this intellectual property case, plaintiff
tiation” because it is too abstract and had no
hired a CPA as its expert to provide lost profits
relation to the specific facts of the case. The
testimony as well as opine on a reasonable
expert was unable to support his use of the
royalty. The defendant also retained a CPA
25% royalty rate beyond stating that it was
to rebut the damages testimony provided by
a generally accepted practice. The appellate
the plaintiff’s expert. The court excluded the
court ruled that the expert’s “starting point
testimony of the defendant’s expert because
of a 25% royalty had no relation to the facts
the expert used a 50% ceiling in calculating
of the case and as such, was arbitrary, unrelia reasonable royalty, which the court found
able, and irrelevant.” As a result, the defenwas “not tied to the specific facts of the case,”
dant-cross appellant was granted a new trial
referring to the Uniloc decision and the
on damages. (Uniloc v. Microsoft, 2010-1035,
similarities found in the VirnetX decision.
2010-1055, 03-CV-0440, 2011)
(Numatics, Inc. v. Balluff, Inc., 13-11049, 2014)
Observations from 15 Years of Daubert Challenges to Financial Experts
13
2014 Results
14
Daubert challenges to financial experts
?
How have exclusion
rates changed over time?
• In 2014, there were 209 challenges to
financial expert witnesses—an increase of
19% from the prior year (see Figure 2). This
is the highest number of challenges we
have seen in a single year since we started
collecting data on Daubert challenges.
• Of the 209 challenges against financial
experts in 2014, 75 were successful. That
is, 36% of financial expert witnesses were
excluded or partially excluded as a result
of Daubert challenges (see Figures 3 and
4). This exclusion rate is the second lowest
exclusion rate we have seen in our study.
Figure 2: Daubert challenges and exclusions to financial expert
witnesses, 2000–2014
200
150
209
challenges
Daubert challenges to
financial expert witnesses
100
75
exclusions
50
Daubert exclusions,
in whole or in part
0
2002
Figure 3: Outcome of Daubert challenges to
financial expert witnesses
Excluded
in whole or
in part
2014 Financial
expert challenges
15-year
average
2005
2008
2011
2014
Figure 4: Outcome of Daubert challenges to financial expert
witnesses, 2000–2014
No decision made
100%
80%
Included
36%
60%
44%
53%
61%
Included
40%
3%
Partially excluded
3%
No decision
made
20%
Lowest:
29%
Highest:
59%
Excluded
0%
2002
2005
2008
2011
2014 Results
2014
15
?
Why are financial
experts being excluded?
• Federal Rule of Evidence No. 702,
“Testimony by Experts,” governs the admissibility of expert witness testimony and incorporates the precedent set by Daubert, Kumho
Tire, and other rulings. Rule 702 provides
that a qualified expert’s testimony is
admissible if it is both relevant and reliable, and identifies criteria for evaluating
relevance and reliability. We used the criteria
from Rule 702 to evaluate the reasons for
financial expert witness exclusions.
• In 2014, financial experts were most
commonly excluded because their testimony was not considered reliable (see
Figure 6). Reliability, either on its own or in
combination with other factors, has consistently been the main reason for financial
expert witness exclusions over the course of
our study (see Figure 5).
Figure 5: Reasons cited in financial expert exclusions, 2000–2014
18 Missed deadline only
Reliability only
339
Reliability +
Relevance
108
Reliability +
Qualification
50
Reliability +
Relevance +
Qualification
23
Relevance only
181
Relevance +
Qualification
14
Qualification only
60
Figure 6: Reasons cited in financial expert exclusions, 2014
Reliability only
30
Relevance only
18
Qualification only
1
Reliability + Relevance
18
Reliability + Qualification
Relevance + Qualification
16
Daubert challenges to financial experts
4
0
Reliability + Relevance
+ Qualification
2
Missed deadline only
2
• When excluding testimony due to a lack of reliability, courts most
frequently cited a lack of sufficient data or the use of methods
that are not generally accepted as reasons for exclusion.
• The second most common reason for exclusion in 2014 was that
the testimony was not considered relevant to the case. This again
is consistent with historical trends. When a financial expert is
excluded for lack of relevance, it is often caused by testimony that
was beyond the scope of the financial expert’s role (e.g. testimony
related to legal matters) or testimony that will not help the trier of
fact (e.g., the opinion is not tied to the specific facts of the case).
• In 2014, we saw two cases where the financial expert was excluded
because the expert’s testimony was not submitted on a timely basis.
In one of these cases, the decision to delay submission may have
been a tactical move by counsel (see BRC Rubber v. Continental
Carbon case below).
Illustrative case
In this breach of contract case, plaintiff presented its Vice
President of Materials to testify on plaintiff’s damages, including
“future damages.” Defendant objected to the inclusion of the
damages testimony since plaintiff did not designate or qualify
the Vice President as an expert, but as a fact witness. The court
stated that it was not the case that the disclosure was late
“by a trivial amount of time” and suspected that plaintiff’s
choice not to disclose the Vice President as an expert
witness was “strategic.” The court opined that
by disclosing the witness as a fact witness rather
than an expert, plaintiff “denied [defendant] the
opportunity to take certain countermeasures…
such as attempting to disqualify the expert testimony
on the grounds set forth in Daubert.” The court granted
defendant’s motion to strike, concluding that the
damages testimony was based on information outside
of the witness’s personal knowledge and that plaintiff’s
failure to identify its witness as an expert was neither
“justifiable” nor “harmless.” (BRC Rubber & Plastics v.
Continental Carbon Co., 1:11-cv-190, 2014)
Illustrative case
In this breach of contract/fiduciary duty
case, plaintiff’s arguments related to
royalties owed to the 1970’s pop band, the
Bay City Rollers. The plaintiff’s expert, a
CPA, was excluded for inconsistencies
in his report and for not using “reliable
methods in arriving at his conclusions
regarding [defendant’s] records and the
release based damages estimate.” The
court also took issue with the mathematical
qualifications of plaintiff’s expert related
to the calculation of royalties because the
expert “could not explain the formula
his staff used and whether that formula
included a variable other than time” and
“admittedly relied on another’s expertise
to produce his opinion on this subject.”
(Faulkner v. Arista Records LLC, 07 CIV.
21318 (LAP), 2014)
2014 Results
17
?
What types of cases have
higher exclusion rates?
Figure 7: Daubert challenges to, and exclusions of, financial expert witnesses, by case type, 2000–2014
Excluded in whole
or in part
Included or no
decision made
Breach of contract/
fiduciary duty
472
Insurance
claim
51
Bankruptcy
60
61
39 %
%
50 %
50 %
57%
43%
Personal
injury
61
Securities
litigation
67
57%
43%
43%
52%
48%
57%
56%
Product
liability
81
4 4%
5 5%
%
51%
E xc
lu si o n / in clu sio n
e
rat
49%
33
%
67
%
45
Discrimination
103
Antitrust
129
51%
49%
Intellectual
property
244
Fraud
205
N u mb e r of c h a ll e n g e s
18
Daubert challenges to financial experts
Other case
types*
311
* Includes case types such as
asbestos claims, civil rights, criminal
proceedings, medical malpractice,
real estate, and wrongful death.
• Financial experts testify in a wide range of
disputes. The most common cases where we
see challenges to financial expert witness
testimony are cases arising from a breach of
contract or fiduciary duty (see Figure 7).
• For the 15 years captured in our study,
intellectual property, fraud, and
bankruptcy cases had the highest
rates of exclusion for financial expert
witness testimony (see Figure 7).
Illustrative case
In this intellectual property case, plaintiff sued defendant
for infringing upon certain patents that defendant used in its
Nintendo Wii gaming console. Plaintiff’s financial expert issued a
damages report regarding defendant’s alleged infringement. The
court excluded the expert citing a “lack of transparency” in the
methodology used in the expert’s report, and found the report to
be neither relevant nor reliable. Specifically, the court noted that
the expert’s “consideration of all the evidence ‘in totality’
is a poor substitute for the required analysis that parses an
alleged infringer’s profits for patented versus non-patented
features.” However, the court did give the expert the opportunity
to amend his report and recalculate a reasonable royalty. The
expert filed an amended report which was again challenged
by defendant, but the case settled before a written ruling on
the challenge could be issued.
(ThinkOptics, Inc. v. Nintendo of
Illustrative case
America, Inc., 6:11-cv-455, 2014)
In this breach of contract matter, plaintiff’s Winnebago motor home
experienced a number of breakdowns and component failures. The parties
entered into a settlement agreement to repair the motor home, but plaintiff
alleged the defendant breached the agreement. Defendant challenged the
reliability of the methodology used by the plaintiff’s expert, an appraiser,
to determine the diminished value resulting from the body damage and
repair attempts. The expert’s stated methodology included assessing the
vehicle’s book value, the amount and severity of damage based on
repair costs, the type of damage, and the nature of the vehicle. The
court ruled that the plaintiff failed to demonstrate the reliability of its
expert because 1) the expert conceded that his methodology had
not been subjected to peer review, 2) there were no applicable
industry standards, 3) the expert had not tested the accuracy of his
methodology, 4) the expert did not know his methodology’s rate of
error, and 5) the expert’s methodology was not generally accepted.
In addition, by not determining the severity of the damage, the expert
did not even follow his own stated methodology. (Deficcio v.
Winnebago Industries, 11-7406 (MLC), 2014)
2014 Results
19
?
Who experiences higher
exclusion rates – Accountants,
Appraisers, or Economists?
• The most common types of experts engaged
to provide financial expert witness testimony
are accountants, appraisers, and economists.
We also see other financial experts such
as statisticians, financial analysts, finance
professors, etc.
• In 2014, economists faced the highest
number of Daubert challenges (see Figure
8). Of the three most common financial
experts types, accountants and economists
have been the most frequently challenged
experts over the last 15 years.
Figure 8: Daubert challenges to financial expert witnesses,
by expert type, 2000–2014
100%
Appraiser
80%
Accountant
60%
Economist
40%
20%
Other
financial
0%
2002
2005
2008
2011
2014
Illustrative case
In this wrongful death case, plaintiff hired two “forensic economists” to provide
estimates of total economic loss resulting from the death. The defendant
challenged the opinions of plaintiff’s experts related to lost future earnings and lost
“household services” as being “speculative and based on unrealistic assumptions
that disregard important facts.” Specifically, the experts’ analysis was based on
national averages for the deceased’s age cohort and educational level, without
accounting for “personally identifiable information” such as criminal record and
employment history. The court excluded both plaintiff’s experts, stating that their
“analytical framework bears the same relationship to admissible expert
testimony as a paint-by-numbers kit bears to fine art.” (Lee v. City of Richmond,
3:12-cv-471, 2014)
20
Daubert challenges to financial experts
• When it comes to the exclusion of financial
expert witness testimony, economists and
accountants have typically been excluded
at the lowest rate (see Figure 9).
• In 2014, appraisers had the highest exclusion rate. However, consistent with the
general trend in exclusion rates, the exclusion rates in 2014 for all financial expert
types were lower than their historical averages (see Figure 9).
Figure 9: Exclusion rates for financial expert witnesses,
by expert type, 2014 vs 15 year average
Percentage excluded in whole or in part
41%
42%
46%
36%
35%
42%
Economist
Accountant
48%
32%
Other
financial
Appraiser
2014
15-year average
Illustrative case
In this product liability case, plaintiff hired a well-known fine art appraiser to examine and assess the
value of damaged artwork. The artwork was damaged due to a fire allegedly caused by defendant’s
product. Plaintiff’s expert prepared a report which contained photos of the destroyed artwork and
the values assigned to those works, but lacked “detailed and complete information elucidating
how the expert arrived at the damage figure.” Additionally, the expert did not provide insight into
how she applied industry appraisal standards to the case, and only made a “passing reference” to
those standards. The court ruled that the “opinion of a highly qualified expert witness using a wellaccepted methodology is nevertheless unreliable, and therefore inadmissible, if the expert fails
to explain how her opinion follows logically from the application of the methodology to the
specific facts of the case.” (Oleg Cassini, Inc. v. Electrolux Home Products, 11 Civ. 1237, 2014)
2014 Results
21
?
Who experiences higher
exclusion rates – Plaintiff
or Defendant-side experts?
• Over the course of our study, there have
consistently been twice as many Daubert
challenges to Plaintiff-side financial experts
as there have been to Defendant-side
financial experts. 2014 was no different
(see Figure 10).
Figure 10: Daubert challenges to financial expert witnesses,
plaintiff-side vs. defendant-side, 2000–2014
Defendant
Plaintiff
69%
31%
Defendant
2000-2014
Plaintiff
66%
34%
Illustrative case
In this antitrust case, plaintiff brought action against
defendants claiming violations of the Lanham Act and the
Sherman Antitrust Act. Plaintiff’s expert, an economist, offered
testimony to support the plaintiff’s damages theory. The expert
conducted statistical regression analyses of pricing and service
data, but the court found multiple problems with the expert’s
analyses. For example, “very minor changes in arbitrarily
selected model parameters” could “entirely alter the
model’s conclusions.” The court ruled that the expert’s
“choice of parameters was insufficiently methodological to
be admissible” under Daubert, and excluded the expert’s
testimony. (Reed Constr. Data, Inc. v. McGraw-Hill Cos, 09-CV8578, 2014)
22
Daubert challenges to financial experts
2014
• Interestingly however, Defendant-side financial experts experienced a marginally higher
exclusion rate than Plaintiff-side financial
experts, both in 2014 and on average over the
course of our study (see Figure 11).
Figure 11: Exclusion rates for financial expert witnesses,
plaintiff-side
vs. defendant-side, 2000–2014
100%
Exclusion rate for
defendant-side experts
80%
60%
2014
Exclusion
rate: 38%
40%
2014
Exclusion
rate: 35%
Exclusion rate for
plaintiff-side experts
20%
0%
2002
2005
2008
2011
2014
Illustrative case
In this breach of contract case, plaintiff alleged that defendants
breached the terms of a lease agreement. As its expert, plaintiff
hired as its expert a CPA who had been performing the plaintiff’s
accounting and tax work since 2007. Defendants argued that the
expert did not prove the damages for future lost profits “with
a reasonable degree of certainty and exactness.” The court
denied defendants’ motion to exclude the expert because
“challenges to the factual basis for an expert’s opinion
does not generally affect its admissibility,” and the court
determined that it was up to the defense to test, through
vigorous cross-examination, whether the expert’s conclusions
were accurate and should be accepted by the jury. (Soltesz v.
Rushmore Plaza Civic Ctr, 09-CV-8578, 2014)
2014 Results
23
?
Where are exclusion
rates highest?
• The Daubert criteria are the standard of review for the
admission of expert witness testimony in the federal
courts. Some states have also adopted Daubert factors
as their standard of review.
• Looking over the last 15 years, the Second, Tenth, and
Eleventh Circuits have, on average, had the highest
exclusion rates, while the Eighth Circuit has, on average,
had the lowest exclusion rate (see Figure 12).
Figure 12: Number of Daubert challenges and exclusions to financial expert witnesses, by Federal Circuit, 2000–2014
Ninth circuit
Tenth circuit
211
54%
Eighth circuit
46%
46%
Seventh circuit
114
130
54%
Second circuit
152
67% 33%
51%
257
49%
50%
50%
Third circuit
149
66%
WA
34%
ND
MT
MN
SD
OR
ID
WI
8
WY
9
MI
7
10
NV
UT
CO
NY
IL
KS
PA
OH
6
IN
MO
CA
MS
TX
Fifth circuit
LA
5
188
Fourth circuit
NC
Eleventh circuit
Other Federal
and State Courts
103
47%
43%
41%
90
GA
11
59%
52% 48%
SC
224
57%
Sixth circuit
MD
VA
4
AL
60% 40%
DE
AR
NM
43
ME
NH
NJ
TN
OK
VT
MA
CT RI
3
WV
KY
AZ
2
IA
NE
First circuit
1
123
53%
63%
37%
FL
Total number of challenges
for 2000–2014
Included or no
decision made
24
Daubert challenges to financial experts
Excluded in
whole or in part
Illustrative case
In this breach of contract case before
California’s Central District Court, the
plaintiffs were consumers from twelve
different states who purchased a cooking
product made by the defendant and
alleged that defendant “deceptively and
misleadingly marketed” its product as
“100% Natural.” As part of their class
certification motions, plaintiffs retained
an economist to opine on whether class
members suffered damages due to paying
a “price premium” for the product based
on the allegedly deceptive characteristic.
The expert opined that it was possible to
determine damages using two techniques
(hedonic regression and conjoint analysis)
but did not perform either analysis or
describe their specific application to the
case. While courts in the Ninth Circuit had
not historically considered Daubert factors
in evaluating expert testimony included
in class certification motions, recent
precedent called for at least some level
of Daubert analysis with respect to
experts at the class certification stage.
As such, the court evaluated the expert’s
testimony and opined that it “provided no
damages model at all,” leaving the court
with “only [the expert’s] assurance
that he can build a model to calculate
damages.” As a result, the expert’s
testimony was excluded. (In re Conagra
Foods, Inc., CV 11-05379, 2014)
• In 2014, as in prior years, Daubert challenges frequently occurred
in the Second, Fifth, and Ninth Circuits, perhaps unsurprising
given that these Circuits include New York, Texas, and California,
respectively. The Sixth Circuit also experienced a large number of
challenges in 2014, primarily in Ohio (see Figure 13).
Figure 13: Number of challenges by circuit in 2014
0
1st circuit 100% 2
2nd circuit
3rd circuit
4th circuit
40% 60%
44% 56%
56% 44% 9
5th circuit
44% 56%
6th circuit
7th circuit
30
16
25
32% 68%
50% 50%
8th circuit 14% 86%
31
10
14
9th circuit
35% 65%
10th circuit 25% 75%
43
8
11th circuit 15% 85%
State and
50% 50% 8
Other federal
13
Excluded in whole
or in part
Included or
no decision made
Number of
challenges
Figure 14: Most frequently challenged case types in jurisdictions with
the most challenges, 2014
2nd
5th
6th
9th
Antitrust
Intellectual
property
Breach of
contract/
fiduciary
duty
Intellectual
property
circuit
circuit
circuit
circuit
2014 Results
25
?
When lower court Daubert
challenge rulings are appealed,
how often are they overturned?
• In 2011, we began analyzing the approach
of appellate courts to lower court rulings on
financial expert Daubert challenges.
• Between 2011 and 2014, there were 50
appeals of lower court rulings on financial expert Daubert challenges. Over half
of the appeals related to financial experts
whose testimony had been accepted by the
lower court (see Figure 15).
Figure 15: Daubert challenges to financial witnesses in
appellate courts, 2011–2014
Agree
Disagree
Appellate
court ruling
50%
50%
• In the majority of appeals, the appellate court
agreed with the ruling of the lower court (see
Figure 15).
Lower
court ruling
Excluded
16
71%
29%
Partially
excluded
7
85%
Included
27
15%
26
Daubert challenges to financial experts
Illustrative case
In this breach of contract action before the 6th Circuit Court of Appeals, the district court
had previously found that the appellant’s expert, a CPA who was also Accredited in Business
Valuation (ABV), “based his calculations on fundamentally flawed data and impermissible
methods,” and extrapolated decade-old data to future lost profits. Specifically, the expert used
a marketing plan produced “a decade-and-a-half ago” which only covered the years 1998 to
2003 to extrapolate future lost profits during the years 2013 to 2022, “all without explaining his
methods or assumptions.” In this case, the “district court here did not balk at the witness’s
expert credentials, but only at his methods.” The appellate court agreed that the district court
did not abuse its discretion in excluding the appellant’s expert, in part due to “the lack
of independent verification or analysis of the revenue projections [which] rendered [the
expert’s] opinion unreliable.” (Ask Chems LP v. Computer Packages, Inc., 14-3041, 2014)
Illustrative case
In this breach of contract action before the Massachusetts Supreme Court,
the district court had previously partially excluded the lost profits testimony
of appellant’s expert, an economist. The basis for the exclusion was that
the expert’s lost profits analysis was “not based on a demonstrated reliable
methodology capable of being validated and tested.” In addition, the
expert’s opinion was “too speculative and conjectural as a matter of law.”
For example, the expert assumed that the appellant would be the market
leader in its market through 2038 and did not consider that its product had
not been approved by any regulators in the US or Asia. The appellant
argued that the methodology used by the expert, the discounted cash
flow method, was generally accepted, and therefore the “judge’s
gatekeeping role should have ended, and the matter given to the
jury to weigh upon.” However, the appellate court agreed with the
lower court’s conclusion that the “expert’s use of ‘first mover
advantage’ in his methodology rendered that methodology
incapable of being validated and tested,” and that the lower
court properly excluded the expert. (LightLab Imaging, Inc. v. Axsun
Technologies, Inc., SJC-11374, 2014)
2014 Results
27
Methodology
We searched written court opinions issued between January 1, 2000 and December 31, 2014 (i.e.,
post–Kumho Tire), using the citation search string “526 U.S. 137” (Kumho Tire v. Carmichael).
Our search identified 7,299 federal and state cases during 2000–2014 that involved 9,778 Daubert
challenges to expert witnesses of all types. In some instances, more than one Daubert motion was
filed in a case or several expert witnesses were challenged with one motion.
From each Daubert challenge, we extracted detailed information concerning the case, the characteristics of each challenged expert, the nature of the evidence challenged, and the outcome of each
challenge. We classified experts into two categories for this study: financial experts (accountants,
economists, statisticians, finance professors, financial analysts, appraisers, business consultants,
etc.) and non-financial experts (scientists, engineers, mechanics, physicians, police officers, fingerprint experts, psychologists, psychiatrists, etc.).
Our search showed that 1,784 Daubert challenges were aimed at financial experts during
2000–2014. In each instance where a challenge to a financial expert resulted in the full or partial
exclusion of the expert’s testimony by the court, we categorized the factor(s) that resulted in the
inadmissibility of the expert’s testimony, using as a basis for analysis Federal Rules of Evidence Rule
No. 702, “Testimony by Experts.”
Our methodology entailed searches on written opinions related to expert challenges and may not
encompass all challenges in all cases. Consequently, our analysis is focused on trends and comparative metrics rather than on the absolute number of challenges or exclusions.
Throughout the study, whenever we refer to the success rate of Daubert challenges or similar
phrases, we define “success” as the exclusion of expert witness testimony, in whole or in part.
Similarly, when we refer to the exclusion of an expert witness, we are referring to the testimony and
opinions the witness intended to proffer.
28
Daubert challenges to financial experts
Authors
PwC Forensic Services
Our Forensic Services practice can help you prevent,
investigate and remediate the issues arising from legal,
regulatory, and commercial minefields that can damage
your brand and bottom line if left unchecked. We
provide forensic accounting, financial analysis, advanced
technology and regulatory knowledge to companies
confronting litigation, corporate investigations, and
regulatory enforcement challenges.
We work with businesses and law firms around the world,
sharing our team of top local, national and global professionals who bring a wide range of special skills to your
door: accountants, appraisers, financial analysts, technology experts, cybersecurity experts, former regulators
and members of law enforcement, statisticians, economists, engineers, compliance officers, and fraud examiners.
We serve as expert witnesses, offer guidance and
assistance with complex technology challenges,
conduct fraud and forensic investigations, and develop
value-preserving solutions.
Our Authors
Charles Reddin is in PwC’s Forensic Services practice
in Dallas, Texas. Mr. Reddin has more than twenty-five
years of financial and investigative experience in the
consulting arena and provides forensic accounting, litigation and investigative consulting services to law firms and
companies. He regularly consults with counsel and Audit
Committees of public companies in regard to conducting
investigations and related issues stemming from the investigative findings. Mr. Reddin has extensive experience
with complex business issues as a financial consultant,
expert witness and auditor. His assignments have included
matters involving investigation, due diligence and litigation consulting for a wide range of industries including
technology, retail and consumer, financial services, energy
and real estate.
Doug Branch is in PwC’s Forensic Services practice in
Dallas, Texas. Mr. Branch is a Certified Public Accountant
(CPA), Accredited in Business Valuation (ABV), and
Certified in Financial Forensics (CFF). Mr. Branch
has been designated as an expert witness in matters
involving complex business valuations, accounting and
reporting, economic damages, auditor malpractice, and
forensic accounting investigations. Mr. Branch has been
involved in numerous disputes as an expert or consultant
involving damage claims in excess of $100 million and
valuations of large, middle-market and small business
enterprises. Specific assignments have included matters
involving commercial contract disputes, securities litigation, shareholder oppression, purchase price disputes,
intellectual property disputes, accounting and audit firm
professional malpractice, business interruption insurance
claims, lost profits analysis, marital dissolution, alter ego
analyses and forensic accounting investigations, including
FCPA investigations.
Saleema Damji is in PwC’s Forensic Services practice in
Dallas, Texas. Ms. Damji is a Certified Public Accountant
(CPA), Accredited in Business Valuation (ABV), Certified in
Financial Forensics (CFF), and a Certified Fraud Examiner
(CFE). Ms. Damji’s expertise includes damage quantifications, complex business valuations, construction claims,
forensic accounting investigations, and financial statement
restatements. Ms. Damji’s assignments have included clients
operating in a wide range of industries including financial
services, technology, consumer and industrial products,
telecommunications, energy and mining, and construction.
We appreciate the significant assistance of Joseph Devlin
and Regan Owen, as well as the following PwC team
members: Joston Benton, Amy Brunner, Hannah Choi,
Stefanie Dvorak, Emily Hull, Rachel Kamenir, Annie
Lam, Sarah Lee, Timothy Maldonado, Holly Mills, Dhara
Patel, Matthew Rao, Christopher Roush, Jennifer Stepina,
Carolyn Syer, Saumya Tayi, and Elliott Wagner. We also
recognize the significant contributions provided by Mr.
Lawrence F. Ranallo (PwC Partner, retired) to the development and advancement of this study from 2000 to 2012.
Authors
29
Appendix
Supporting Data for Daubert Study Figures
Supporting data for Figure 2: Daubert challenges and exclusions to financial expert witnesses
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Total
Challenges
56
44
68
71
81
93
106
116
155
168
150
100
192
175
Exclusions
30
18
20
37
41
55
47
47
61
75
76
54
86
71
209 1,784
75
793
Supporting data for Figures 3 & 4: Outcome of Daubert challenges to financial expert witnesses
All
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 years
Included
45%
59%
68%
45%
46%
34%
53%
57%
57%
52%
48%
43%
52%
58%
61%
53%
Excluded
41%
30%
19%
21%
38%
34%
28%
22%
23%
29%
23%
24%
23%
17%
19%
24%
Partially excluded
13%
11%
10%
31%
12%
25%
16%
19%
17%
15%
27%
30%
22%
23%
17%
20%
No decision made
2%
0%
3%
3%
4%
6%
3%
3%
3%
4%
1%
3%
4%
2%
3%
3%
Supporting data for Figures 5 & 6: Reasons cited in financial expert exclusions
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Total
Reliability
6
6
7
21
23
22
28
17
21
31
33
29
33
32
30
339
Relevance
5
3
2
6
8
11
3
9
20
24
21
10
28
13
18
181
Qualification
–
1
2
1
1
1
5
8
6
8
13
2
4
7
1
60
Reliability + Relevance
13
6
2
8
1
11
3
3
5
10
1
6
10
11
18
108
Reliability + Qualification
2
2
4
–
6
4
3
4
5
2
4
3
5
2
4
50
Relevance + Qualification
–
–
–
–
–
2
1
3
1
–
1
1
3
2
–
14
Reliability + Relevance
+ Qualification
4
–
3
–
1
2
3
3
–
–
–
–
3
2
2
23
30
Daubert challenges to financial experts
Supporting data for Figure 7: Daubert challenges to financial expert witnesses by case type
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Total
Breach of contract/
fiduciary duty
13
13
9
14
30
21
25
34
57
43
33
31
59
43
47
472
Other case types
9
10
18
6
12
12
12
27
38
29
26
15
22
34
41
311
Intellectual property
7
3
4
24
5
12
14
11
5
18
30
16
26
32
37
244
Fraud
1
3
13
5
4
14
14
7
17
15
15
14
38
24
21
205
Antitrust
9
6
12
11
1
8
9
9
10
10
3
–
12
11
18
129
Discrimination
9
4
4
3
17
2
9
8
3
4
10
8
3
4
15
103
Product liability
–
–
–
3
1
4
14
7
2
7
8
7
9
6
13
81
Securities litigation
3
2
1
2
2
12
–
5
1
10
12
1
3
7
6
67
Personal injury
2
1
2
–
–
2
3
3
11
5
7
5
14
4
2
61
Bankruptcy
3
2
5
3
6
4
4
3
3
7
1
3
6
7
3
60
Insurance claim
–
–
–
–
3
2
2
2
8
20
5
–
–
3
6
51
Supporting data for Figure 7: Exclusion rates for financial expert witnesses by case type
All
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 years
Breach of contract/
fiduciary duty
38%
54%
11%
29%
37%
62%
40%
41%
53%
44%
36%
58%
42%
35%
40%
43%
Other case types
44%
10%
33%
50%
67%
67%
75%
33%
24%
59%
50%
80%
41%
35%
32%
43%
Intellectual property
71% 100%
25%
63%
20%
33%
43%
45%
60%
50%
50%
63%
58%
44%
49%
51%
0%
67%
38%
80%
75%
79%
29%
71%
24%
47%
80%
57%
42%
58%
24%
49%
Antitrust
78%
33%
25%
36% 100%
88%
22%
11%
60%
10%
33%
N/A
17%
27%
17%
33%
Discrimination
56%
50%
50% 100%
47%
50%
22%
38%
33%
50%
40%
25% 100%
75%
33%
45%
Product liability
N/A
N/A
N/A
67% 100%
50%
57%
43%
50%
14%
50%
14%
67%
33%
38%
44%
Securities litigation
33%
0%
0%
50% 100%
50%
N/A
60% 100%
30%
67%
0%
33%
29%
67%
48%
Personal injury
50% 100%
0%
N/A
N/A
33%
27%
60%
71%
40%
43%
25%
0%
43%
Bankruptcy
67%
0%
40%
33%
83%
33%
33%
43%
0%
33%
50%
71%
67%
50%
N/A
N/A
N/A
N/A
0% 100%
25%
50%
40%
N/A
N/A
0%
17%
39%
Fraud
Insurance claim
0% 100%
25%
33% 100%
75%
Appendix
31
Supporting data for Figure 8: Proportion of total Daubert challenges by financial expert witnesses by expert type
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Appraiser
0%
2%
9%
3%
1%
5%
17%
9%
6%
13%
15%
10%
13%
19%
16%
Accountant
4%
7%
21%
13%
28%
15%
20%
28%
25%
28%
31%
39%
22%
27%
23%
Economist
23%
20%
28%
27%
17%
22%
30%
16%
25%
23%
25%
26%
30%
25%
33%
Other financial
73%
70%
43%
58%
53%
58%
33%
46%
45%
36%
29%
25%
35%
29%
28%
Supporting data for Figure 9: Exclusion rates for financial expert witnesses, by expert type
All
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 years
Accountant
50%
33%
7%
56%
61%
50%
38%
42%
29%
40%
51%
64%
45%
29%
35%
42%
Economist
69%
56%
37%
32%
43%
75%
25%
21%
26%
47%
43%
42%
49%
37%
36%
41%
Appraiser
N/A
0%
17%
50%
0%
20%
67%
45%
22%
55%
61%
70%
32%
45%
42%
46%
49%
39%
38%
61%
49%
59%
54%
45%
54%
43%
51%
44%
46%
51%
32%
48%
Other financial
Supporting data for Figure 10: Daubert challenges to financial expert witnesses, plaintiff-side vs. defendant-side
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Total
561
Defendant
14
15
18
20
27
31
30
34
49
48
52
30
70
51
Plaintiff
42
29
50
51
54
62
76
82
106
120
98
70
122
124
Defendant %
25%
34%
26%
28%
33%
33%
28%
29%
32%
29%
35%
30%
36%
29%
34%
31%
Plaintiff %
75%
66%
74%
72%
67%
67%
72%
71%
68%
71%
65%
70%
64%
71%
66%
69%
72
137 1,223
Supporting data for Figure 11: Exclusion rates for financial expert witnesses, plaintiff-side vs. defendant-side
All
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 years
Defendant
43%
20%
11%
40%
70%
61%
53%
44%
33%
58%
60%
47%
50%
49%
38%
47%
Plaintiff
57%
52%
36%
57%
41%
58%
41%
39%
42%
39%
46%
57%
42%
37%
35%
43%
32
Daubert challenges to financial experts
Supporting data for Figures 12 & 13: Daubert challenges to financial expert witnesses, by jurisdiction
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Total
1st circuit
2
2
2
3
4
3
1
2
5
3
2
0
7
5
2
43
2nd circuit
9
7
9
17
16
20
27
8
19
15
20
11
28
21
30
257
3rd circuit
2
4
4
4
10
7
19
13
22
13
4
7
11
13
16
149
4th circuit
3
3
4
3
2
6
3
11
3
7
9
6
6
15
9
90
5th circuit
8
2
8
5
5
10
4
21
33
25
22
12
16
28
25
224
6th circuit
1
3
12
11
7
3
6
13
17
17
24
14
12
17
31
188
7th circuit
7
5
13
3
6
15
8
14
2
24
11
4
25
5
10
152
8th circuit
4
3
5
8
8
4
5
8
2
8
8
5
17
15
14
114
9th circuit
1
2
2
4
5
7
7
7
15
15
23
19
34
27
43
211
10th circuit
5
5
0
1
7
3
13
13
16
16
9
5
22
7
8
130
11th circuit
5
2
1
0
2
5
10
4
11
17
5
10
10
8
13
103
Other federal &
state courts
9
6
8
12
9
10
3
2
10
8
13
7
4
14
8
123
Supporting data for Figures 12 & 13: Exclusion rates for financial expert witnesses, by jurisdiction
All
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 years
1st circuit
50%
0%
50%
33%
0%
33%
0%
0%
80%
33% 100%
2nd circuit
33%
57%
33%
47%
50%
75%
52%
63%
68%
40%
3rd circuit
50%
25%
25%
50%
40%
57%
26%
15%
41%
4th circuit
67%
67%
25%
0%
0%
50%
33%
64%
5th circuit
88% 100%
38%
40%
40%
50%
25%
N/A
29%
80%
0%
40%
50%
45%
46%
43%
40%
50%
38%
0%
43%
18%
31%
44%
34%
33%
43%
44%
50%
50%
53%
56%
48%
52%
15%
52%
45%
58%
25%
50%
44%
43%
6th circuit
0%
0%
8%
82%
71% 100%
50%
23%
41%
24%
71%
50%
25%
35%
32%
41%
7th circuit
43%
40%
38%
67%
33%
40%
38%
21%
0%
46%
73%
75%
72%
60%
50%
49%
8th circuit
75%
0%
40%
50%
50%
25%
20%
25%
0%
50%
38%
80%
18%
33%
14%
33%
50% 100%
80%
57%
43%
29%
27%
13%
57%
37%
62%
52%
35%
46%
N/A 100%
71%
33%
54%
54%
63%
88%
44%
60%
41%
14%
25%
54%
N/A 100%
80%
60% 100%
55%
59%
60%
60%
60%
25%
15%
53%
20%
25%
15%
86%
50%
7%
50%
37%
9th circuit
100% 100%
10th circuit
60%
60%
11th circuit
40%
50% 100%
Other federal &
state courts
44%
17%
13%
33%
56%
80% 100%
50%
Appendix
33
Supporting data for Figure 15: Outcomes of financial expert Daubert challenge appeals
2011
2012
2013
2014
Total
%
Appellate court agreed with lower court
0
6
13
4
23
85%
Appellate court disagreed with lower court
1
0
2
1
4
15%
27
100%
Financial expert was included by lower court
Total
Financial expert was excluded by lower court
Appellate court agreed with lower court
4
2
0
2
8
50%
Appellate court disagreed with lower court
0
2
3
3
8
50%
16
100%
Total
Financial expert was partially excluded by lower court
Appellate court agreed with lower court
0
0
3
2
5
71%
Appellate court disagreed with lower court
1
0
1
0
2
29%
7
100%
Total
Overall
Appellate court agreed with lower court
4
8
16
8
36
72%
Appellate court disagreed with lower court
2
2
6
4
14
28%
Total
6
10
22
12
50
100%
34
Daubert challenges to financial experts
Contacts
To have a deeper conversation about how this
subject may affect your business, please contact:
Charles Reddin
214 754 5173
[email protected]
Douglas E. Branch
214 754 7278
[email protected]
pwc.com/us/forensics
If you wish to cite the information included in this report,
please contact the individuals listed above.
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