So You Want To Be An Expert Witness? Make Sure You Know the Issues

Stan had been an accountant for about 10 years for several public companies. But now he was building his own fraud examination and forensic accounting firm and wanted to provide expert witness testimony. 

A local attorney hired Stan for his first case - an insurance fraud trial. To prepare for his testimony, Stan thoroughly studied expert witness techniques and exhaustively researched similar cases. During his testimony, he listed in detail his education and work credentials and thoroughly discussed several multiple precedent-setting cases in the area.

In his conclusion, Stan itemized similarities between the current and the precedent-setting cases. He thought he'd done a thorough job for his client. So Stan was shocked when the judge later ruled his testimony inadmissible because of excessive reliance on precedents and concluded that Stan had merely replicated the findings of prior cases, rather than drawing conclusions from the specific facts of the current case.

Had Stan more carefully studied the past and current standards for the admissibility of expert testimony, he would have been familiar with the rules and case law. And so he would have known that structuring his expert witness testimony to merely replicate findings from precedent-setting cases would possibly cause the judge to question his competence and objectivity.

This fictitious case shows that as more CFEs take the stand to testify in court, they need to know what will qualify them as credible expert witnesses. Over the last few decades as the U.S. Supreme Court has broadened the parameters to admit a somewhat wider range of expert testimony, it has become increasingly important for fraud examiners to stay abreast of trends in admissibility standards. (See sidebar below.)

In 1975, Congress enacted the Federal Rules of Evidence, establishing a set of rules to govern the admissibility of evidence in federal court cases. The Federal Rules included evidentiary rules for expert testimony, and among the new rules was Federal Rule of Evidence 702, which addresses the admissibility of expert testimony.

Rule 702 provided a more liberal approach to the admissibility of scientific evidence than the previous standard of "general acceptance" established in Frye v. United States, 293 F. 1013 (1923), encouraging admission of expert testimony that could "assist the trier of fact."

Federal courts struggled to interpret Rule 702 for almost 20 years. Then, in 1993, the Supreme Court provided guidance regarding the admissibility of expert testimony under Rule 702 in its Daubert v. Merrell Dow Pharmaceuticals Inc., 509 U.S. 579 (1993) decision. In Daubert, the Supreme Court interpreted Rule 702 as requiring the trial court to ensure that an expert's scientific testimony is both relevant to the issue at hand and rests on a reliable foundation.

Following the Daubert decision there was disagreement as to whether Daubert applied only to scientific testimony or whether it applied to all expert testimony. In 1999, the Court addressed this question and explicitly extended the Daubert analysis to all expert testimony (scientific, technical, and other specialized knowledge) in Kumho Tire Co. v Carmichael, 526 U.S. 137 (1999). Following this flurry of case activity, Congress amended Rule 702 to codify these decisions in 2000.

Daubert and its progeny broadened the acceptance of expert testimony beyond a hard-science orientation to include experts in softer fields of study such as economics, finance, accounting, fraud examination, sociology, real estate, etc.

This change was a logical outcome when legal, academic, and legislative authorities recognized that lay jurors had a difficult time understanding the complexities of cases, which negatively affected the fairness of litigation decisions. Fraud examiners who wanted to expand or diversify their practices now had a new potential source of revenue.

To best take advantage of this opportunity, however, fraud examiners should understand the surrounding legal environment and standards. For instance, Rule 702 began a debate about the admissibility of expert witness testimony. Even though the decisions in the Daubert and Kumho cases have provided guidance as to the admissibility of expert testimony, we still haven't reached equilibrium between the plaintiff's rights to state their cases and society's rights to a legal system structurally and conceptually oriented to produce equitable legal decisions. Consequently, fraud examiners providing expert witness testimony are surrounded by a shifting post-Daubert legal environment.

NAVIGATING POST-DAUBERT WATERS 

The expected fluctuations in how courts perceive expert witness testimony aren't of the same magnitude as the sea of changes that came from the Daubert decision. Instead, they are better characterized as fine tunings of judicial attitudes that don't alter the principle that adversaries typically have free rein to argue positions as they wish, with only egregious abuses of the use of expert witnesses curtailed by Daubert-related implications.

We'll analyze how judges in the post-Daubert environment tend to use their discretion in admitting or denying expert testimony and examine two principle conclusions. First, while the courts are willing to accept broader scientific fields of study, we see a clear judicial trend toward stricter requirements of acceptable expertise within each given field of study. That is, it's not sufficient for prospective expert witnesses to merely cite professional certification; they have to demonstrate precisely why and how their expertise is relevant to the issues.

Second, once an expert establishes relevance, the judiciary evaluates how closely his or her testimony adheres to basic principles of logic. In the current phase of post-Daubert evolution, prospective expert witnesses continue to be confronted with a somewhat amorphous legal setting in which their opinions will be evaluated. And fraud examiners trying to negotiate the path of admissible evidence face roadblocks of judges acting in their court-assigned role as "gatekeepers" of admissibility.

LOGICAL REASONING PREVAILS 

Most players in the legal system, of course, will try to use judicial reasoning and logic to resolve complex legal issues. Lawyers (and hence most judges), after all, have extensive educational and on-the-job training in inferential thought processes. A judge might not fully understand all the intricacies of a given expert witness testimony, but he or she likely will be able to identify logical flaws in the testimony.

Prospective expert witnesses should do their homework and avoid "logic fallacies" (errors in thought that provide poor reasoning in support of their conclusions) that have resulted in inadmissibility of expert witnesses in past cases; they should conduct their analyses and present their testimonies as logically as possible. Unfortunately, perhaps as many as several hundred such fallacies have been identified.

If detected, logical fallacies will make the judge and/or opposing side think the expert is biased, deceptive, or incompetent, which could lead the court to exclude the testimony.

In our research, we've found that logic fallacies routinely cause courts to rule testimonies of expert witnesses as inadmissible. The Supreme Court in the Daubert case alone identified four primary questions, which it considered particularly relevant:

Is the witness considered an expert based on either professional credentials or experience?  

Is the expert's testimony grounded in fact?  

Is the expert's testimony relevant?  

Are there other valid factors that render expert testimony admissible?  

Of these queries, three either directly or indirectly involve logic fallacies.

Appeal to authority fallacy: The court bestows unwarranted credence on an accepted expert's opinion based solely on that expert's qualifications rather than on the opinion itself. Conversely, the court might give insufficient credence to an individual's opinion solely as a result of that person's lack of formal credentials.

The converse possibility clearly figured in the Supreme Court's decision to extend expert status to some individuals and helped justify the broadened definition of expert witness, which now includes individuals whose authority is based primarily on experience.

Also, though the qualifications that define an expert witness has been broadened so that the mere possession of formal credentials virtually guarantees consideration, any argument or opinion an "expert" gives in testimony should be closely scrutinized by the post-Daubert judiciary. And implicit in that scrutiny is the principle that even widely accepted credentials won't suffice in the absence of a well-reasoned and documented argument.

Robert G. Badal and Edward J. Slizewski, in their article, "Economic Testimony Under Fire" in the November 2001 issue of the ABA Journal, discuss an extreme example of this in which a district court rejected portions of a Nobel Prize-winning economist's testimony after a "relentless" review identified numerous deficiencies in the individual's testimony. [In Re Brand Name Prescription Drugs Antitrust Litigation, 186 F.3d 781 (7th Cir. 1999)]

False premise fallacy: An expert witness' incorrect initial proposition leads to a flawed conclusion. Of course, any analysis based upon incorrect facts or data, even though the internal logic of the analysis might itself be valid, is doomed to produce a flawed conclusion.

False alternative fallacy: Occurs when an expert witness reaches a conclusion without considering all reasonable alternatives for a given phenomenon. Judges have the discretion under Daubert to determine if the expert has properly considered all relevant factors. This fallacy has obvious implications for litigation because it's often difficult to identify all possible explanations for complex phenomena. Experts should carefully explain factors underlying their analysis and all factors considered.

ADDITIONAL FALLACIES 

Here are other fallacies that go beyond the four primary Daubert case questions.

Appeal to tradition fallacy: An expert witness assumes a given approach is justifiable solely because others have used it for years. Fraud examiners should know the courts' reliance on legal precedents from prior cases is a time-honored practice. However, they should also know that reliance on precedents is not without some risk when trying to maintain a logical argument.

Expert witnesses, when preparing testimonies, should familiarize themselves with legal precedents. However, structuring testimony to merely replicate findings from a precedent-setting case, could lead judges to question their competence and their objectivity.

False analogy fallacy: An expert witness over-generalizes similarities between situations so the court reaches a false conclusion. Fraud examiners should avoid overstating implications stemming from similarities between circumstances in a precedent-setting case and the case in question. To avoid committing this fallacy, search for possible differences between the precedent and the issue at question because the existence of even one such difference, if sufficiently material, could be grounds for justifying a conclusion at odds with the conclusion found in the precedent.

Consider this statement: Just as in time gentle rain can wear down tall mountains, so, in human life, can all problems be solved by patience and quiet persistence. While this supposition sounds pleasant, it overstates similarities between the lives of mountains and humans, so it reaches an illogical conclusion. Similarly, an expert witness might focus too intently on similarities between a precedent and the current case and so overstate his or her conclusions.

Composition fallacy: Involves an illogical supposition that says what's true of a part is automatically true of the whole. For example, a car that gets great gas mileage doesn't make it a great car. It might, for example, suffer frequent breakdowns, which would negate its superior gas efficiency because reliability ultimately is likely a more important factor in a "great car." In Daubert, the Supreme Court didn't establish a "safe harbor" for techniques with a long-standing history. Rather, the Supreme Court limited itself to merely citing possible factors for use in assessing admissibility.

Given the court's unequivocal position on shunning a safe-harbor approach, prospective expert witnesses should be careful and flexibly apply the identified potentially relevant factors tailored to the exigencies of each case. Or, plainly speaking, just because a given factor is relevant in one case doesn't suggest it will be relevant in all cases.

Non sequitur fallacy: Applies whenever a conclusion reached from a given premise doesn't logically follow. For example, consider the statement Astrology needs to be taken more seriously. No doubt, stars and planets affect the earth. But this statement ignores the causality between gravitational and radiation forces that have influence but aren't connected at all to astrology.

This fallacy's implications to the expert witness admissibility issue are relatively straightforward. In General Electric v. Joiner 78 F.3d 524 at 531(11th cir.1996), for instance, the Supreme Court explicitly noted the possibility that courts "may conclude that there is simply too great an analytical gap between the data and the opinion proffered." So in addition to conducting their analysis in an intellectually rigorous and comprehensive manner, expert witnesses should also intelligently document their reasoning to the courts in great detail. If expert witnesses omit steps in the reasoning processes, judges might be unable to follow the complex ways in which the witnesses reached their conclusions.

Circular reasoning fallacy (or petitio principii - translated as "begging the question"): Involves reaching a conclusion in an argument, which is nothing more than a restatement of the initial premise. For instance, consider this statement: "All people have a right to political freedom because liberty is a universal right of mankind." If liberty truly is a universal right of mankind, then there's no need for the argument in the first place. So the statement isn't truly an argument but a restatement of the premise in the form of a conclusion.

The fraud examiner must avoid both the reality and appearance of structuring his or her analysis to make it conform with a preconceived conclusion favorable to the party that hired him or her. Testimony will almost certainly be more meaningful (and thus less likely to fail the admissibility test) if the research on which it was based objectively tested the issue in question and "the chips" were allowed to fall where they might.

KNOW YOUR HISTORY 

Learn from Stan's mistake; long before you become an expert witness you should thoroughly research the history of admissibility standards. And though the U.S. Supreme Court has expanded the criteria to admit a broader range of expert witnesses, you still need to know the current trends. It could mean the difference between success and failure. 

Michael DeCelles, Ph.D, is an assistant professor of accounting at Angelo State University in San Angelo, Texas. 

Howard Sparks, Ph.D., CPA, is associate professor of accounting at the University of Alaska in Fairbanks. 

History of Expert Witness Testimony  

Admissibility of expert witness testimony can be divided into three landmarks: the initial Frye Test standard, the Rule 702, and the Daubert standard.

THE FRYE TEST 

The Frye test, considered the judicial standard for court admissibility from the 1920s onward, constituted a hard-science approach in which the judiciary generally didn't accept professionals in fields such as accounting, economics, and related areas as experts for court testimony.

RULE 702 

In 1975, Congress enacted the Federal Rules of Evidence, establishing a set of rules to govern the admissibility of evidence in federal court cases. The Federal Rules included evidentiary rules for expert testimony; among the new rules was Federal Rule of Evidence 702, which addresses the admissibility of expert testimony.

Rule 702 superseded the Frye test and provided a more liberal approach to the admissibility of scientific evidence. As originally enacted, the rule provided:

"If scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may testify thereto in the form of an opinion or otherwise." Fed.R.Evid,702 (1975).

However, neither legislative nor judicial authorities provided much explicit guidance on the qualifications individuals needed in the expanded fields to be expert witnesses. Rather, admissibility was left to the discretion of individual courts, which tended to accept most certified professionals and even some noncertified individuals as experts.

This loose interpretation didn't always serve the legal system well. The intent of Rule 702 was to help jurors better understand complex issues. But often dueling expert witnesses would attempt to blunt each other's testimony by making the subject matter overly complex and unintelligible to jurors. Opposing counsels would also exacerbate inequities between wealthy and nonwealthy litigants to try to dissuade individuals from seeking legal redress because of anticipated excessive costs.

THE DAUBERT CASE  

In 1993, the Supreme Court acted in the Daubert case to provide guidance regarding the admissibility of expert testimony under Rule 702. In this case, and in several subsequent cases, the Supreme Court confirmed that expert testimony must be sufficiently related to the issues under trial so as to aid in their resolution. The court refused to adopt a rigid checklist to determine the admissibility of expert testimony, but in subsequent cases identified a number of factors that could be considered in deciding admissibility:

• General acceptability of techniques used by expert witnesses in their fields of expertise
• Qualifications of the expert witness (not limited just to credentials)
• Whether theories and techniques used by expert witnesses have been tested and the extent to which they have been tested
• Whether techniques used by expert witnesses have been subject to peer review
• Whether techniques used by expert witnesses have known rates of error
• General peer acceptance of techniques upon which expert witness testimony is based
• Publication records and other scholarly qualifications and activities of expert witnesses
• Sufficient factual basis for opinions
• Means of objectively testing conclusions
• Verifiability of conclusions from independent sources
• Establishment of the relevance of the testimony to the issues in question
• Demonstration of consistencies between testimony and real- world situations
• Whether techniques used by expert witnesses involve testable hypotheses
• Existence and maintenance of standards controlling such technique's operation
• Non-judicial uses to which expert witnesses' techniques have been applied

But even with these guidelines, the Supreme Court made it explicitly clear that judges must make decisions on admissibility based on their independent assessments of the evidence in each case.

THE KUMHO TIRE CASE 

While Rule 702 refers to "scientific, technical or other specialized knowledge," the Daubert decision focused on the admissibility of scientific evidence. As a result, there was disagreement as to whether the standards established in Daubert applied equally to expert testimony based on technical or other specialized knowledge. After much disparity, the Court addressed this question and explicitly extended the Daubert analysis to all expert testimony (scientific, technical, and other specialized knowledge) in Kumho Tire Co. v Carmichael.

AMENDMENT OF RULE 702
In response to Daubert and Kumho Tire, Rule 702 of the Federal Rules of Evidence was modified to specifically include the standards set forth by the Supreme Court in Daubert and Kumho Tire.

LEARN MORE
• Order the CD or online archive recording of the ACFE Webinar, "The Fraud Examiner as an Expert Witness," taught by D. Bruce Dorris, J.D., CFE, CPA, CVA, program director of the ACFE.

• Read "Expert Witnessing: The Changing Landscape," by Ralph Q. Summerford, CFE, CPA, in the ACFE Articles Archive on www.ACFE.com.

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