In my 20-plus years of assessing damages in personal and business disputes, I have been involved in many different types of cases. In some cases, discovery takes a scorched-earth approach, and in others, it takes "a scorched earth, and then some" approach. However, what I find is that while a significant amount of discovery is focused on liability, damages are almost an afterthought. And in some cases, there simply is not enough information or the right information to support and/or to refute a damage assessment. Making this situation worse, damages experts are sometimes not engaged until after discovery, and at that point they cannot assist in identifying and requesting important damages-related information.
In Jerry Maguire, Tom Cruise pleads with Cuba Gooding Jr., "Help me, help you." This rings true for economic experts and damages discovery. A well-thought-out approach to damages discovery with the assistance of a qualified and experienced forensic accountant or forensic economist can help counsel and their clients build or refute their damages case. For plaintiffs, this leads to damages that can better withstand the scrutiny of the defense and its experts. For defendants, this leads to insights about potential weaknesses of the plaintiff's damages case, and possibly irrefutable evidence that a claimed loss is not nearly as great as the plaintiff may claim or, more importantly, believe.
Knowledge is power, and information fuels the knowledge. The better and more thorough the information we have, the better we can help determine and support a proper damages analysis, or in some cases, refute a damages analysis that was built on a house of cards.
I have found that the best litigators often involve their experts first as consultants to assist them throughout the discovery process. This is initially done by helping counsel define the damages issues and components. Once such issues are defined, pointed interrogatories and requests for information are made with a focused lens on damages. As such information becomes available and is digested, further necessary details that likely exist can be requested. Often, this leads to identifying the right fact witnesses (including 30(b)(6) witnesses) and asking the right questions that can provide insight and important information about underlying damages issues.
Unfortunately, many practitioners take a somewhat linear approach to discovery, leading with general liability discovery and ending with, "OK, now we have everything. Let's think about damages." Others look at the damages expert as the finishing touch of all their prior work instead of a key component that should be part of the discovery fabric weaved throughout the entire process. After all, the monetary remedy is often the goal of the formal dispute. Certainly to make an injured party whole, the right damages number should be ascertained. And from a business standpoint, the potential reward to be gained by a plaintiff or lost by a defendant should justify the use of a company's financial and management resources accordingly. While winning a lawsuit on liability issues may speak to principles, being made whole economically pays the bills and remedies the wrongdoing, in theory at least. Back in 1986, the U.S. Football League won a landmark decision against the National Football League on antitrust issues in a highly publicized and well-fought legal battle. For its efforts, the jury awarded the USFL damages equal to $1. So who really won?
Some clients use damages experts to calculate preliminary loss amounts at the beginning of a dispute. While these initial damage calculations are often subject to material revisions, they nonetheless provide some basis from which tactical decisions can be made. Early damages (and liability) assessment and early dispute resolution are used by some companies to help proactively limit litigation costs. Again, information is key. Without effective discovery on damages, the early information may not be reliable.
So where is the right information for damages? It depends on the case and the disputed items. In most commercial disputes, the right information lies within the accounting and financial analysis of the company's performance. Determining the right measure of damages (lost gross profit, lost incremental profit, lost net profit, etc.) helps to discover the potential financial gain or exposure in such disputes. Thus, it is important to get the right financial and accounting records and related discovery. But attorneys do not always know what to ask for or what type of financial information might exist from contemporaneous sources. Financial statements, general ledgers, product line margin analysis reports, sales and expense reports, capital expenditure reports, market analyses, competitor analyses, shipping records, production records and product (line) profitability reports are just some of the information that may exist within a company that can provide insight regarding reasonable measures of past and future losses. Understanding the business and asking the right questions in interrogatories and depositions can help uncover a wealth of information that is helpful in establishing or refuting damages. Thus, an expert can be used as a discovery consultant, or potentially as a strategic consultant instead of an expert witness, in some disputes. In larger damages cases, using a separate damages expert and damages consultant can be of great value to either side.
In personal disputes related to earnings (capacity) loss claims, historic earnings are important and insightful. However, other information is worthy of consideration, such as work transitions and reasons for such transitions, availability of work and employer performance, employment gaps, resumes and their consistency with employment and educational records, and job performance records.
An individual's tax returns provide some earnings information. They may also provide information related to nonreimbursable expenses, unemployment compensation, disability compensation, self-employment earnings and other pertinent information. However, if an individual has pre-tax earnings for retirement saving programs or health care expense programs or other salary deferrals, tax returns may not tell the whole story on earnings. You should request all W-2 and 1099 statements to get that information. Simply asking for earnings information does not always provide the information needed. And when the injured party is a business owner or independent contractor, information specific to the business is more than helpful.
A request for pay stubs from employers is also helpful in identifying such things as employer-matching contributions, availability and cost of employer-sponsored health care benefits, and other potential compensation-related benefits issues that may not appear on tax returns. In addition, this information sometimes provides hourly rates and hours worked for periods of time that may be insightful.
General employee records are useful for identifying potential work performance issues, availability of fringe benefit programs and costs, work schedules, start and end dates and work applications. Requests for such documents should also include a summary plan description for any health care and retirement plans.
Education records are helpful for verifying education levels, dates of achievement and sometimes performance. These can be particularly useful for cases that involve minors or individuals with limited work experience due to age.
Often, a large monetary issue in injury-related claims is the cost of future medical and related care. Projections of costs are often made with disregard to actual costs being incurred. Discovery of actual costs can be helpful in verifying or refuting projected costs in such claims. In some cases, these projected costs can be several hundred thousand dollars per year for several decades, so a detailed review and actual-to-projected cost comparison can be insightful.
The takeaway message is this: A good expert with good information can provide more value to your case than a good expert with average information, if your goal is to determine a realistic measure of loss that can withstand the scrutiny of cross-examination. Taking a proactive approach to damages discovery sets you and your client on a more righteous path to determine that realistic and supportable measure.
William E. Harris is a shareholder in ForensicDamages LLC. Harris has 23 years of experience in damage-related disputes in the Delaware Valley area. He has taught economic damage-related issues locally, nationally and internationally. He can be reached at 215-720-1570 or at firstname.lastname@example.org.