So you’ve just learned that your opponent has designated as a testifying expert one of the leading economists in the nation. It’s your job to prepare and take her testimony. If you’re in federal court and have her expert report, do you need to do more than read the report and ask about her assumptions and background? How difficult can it be?
If you’ve ever tried to cross-examine a good expert at trial, especially an economist or accountant, you most certainly know the devastating harm an opposing expert can wreak on your case, especially if you lack a robust deposition. While some old-school litigators still espouse a minimalist approach to expert discovery — to avoid giving away your best cross-examination before trial — the wiser course in most instances will be a comprehensive deposition. Expert witnesses present both tremendous opportunities and nasty pitfalls for the underprepared.
Here are 10 essentials for effective cross-examination of financial experts.
1. Learn the subject matter. Before diving into the nuances of the particular issues presented in the opposing expert’s opinion, work with your own expert or consultant to understand the basics. Too often we lawyers tend to get ahead of the evidence and rely on our own interpretation of what we think makes for sound science or expert analysis. And it never makes sense to learn the subject matter by asking basic questions of the opposing expert.
The initial barrier to entry of most disciplines will be terminology, so learn the lingo early. Difficult concepts, even of quantum physics, can be simplified by focusing on essential principles. For financial experts, depending on your case, you may need to learn the difference between a cash flow statement and an income statement, or the meaning of EBITDA (earnings before interest, tax, depreciation and amortization). For an economist, you’ll want to understand the pieces of the proffered model.
For example, if faced with a regression analysis, you’ll need to understand the purpose and limitations of the model. Once you understand that the expert is trying to predict behavior by isolating a single variable, you’ll understand the inherent difficulties and speculation involved, usually beginning with the data.
If an expert boldly opines that a small change of x in a single component of a digital camera will cause consumers to pay y more or less for the camera, the expert will have to admit a host of assumptions. Before challenging the assumptions, you’ll need a good command of the technical vocabulary. And you may be surprised by the opposing expert who cannot articulate the meaning of basic concepts (including EBITDA!).
2. Distinguish mainstream views from the fringe or extreme, and explore other substantive weaknesses. This can be one of the most difficult tasks facing the lawyer, as well as the judge or jury: How can we tell the difference between a well-spoken charlatan and Albert Einstein, between Warren Buffet and Jimmy Buffet?
"It has become a matter of common observation that not only can the honest opinions of different experts be obtained upon opposite sides of the same question, but also that dishonest opinions may be obtained upon different sides of the same question." (The Art of Cross-Examination, Francis L. Wellman (1903))
Sometimes the expert provides the seeds of his own undoing, as occurred recently in the IndyMac trial. One of the defendants’ experts opined that no one could reasonably know that a housing "bubble" existed in 2005 and 2006; but he cited and acknowledged as an expert professor Robert Shiller of Yale University, well-published at the time on the subject. "Sir, did professor Shiller have a nickname?" "Yes, ‘Mr. Bubble.’"
But be warned: Unless you can make the point obvious to a jury, you run the risk of appearing overly technical, or worse, simply allowing the opponent’s expert to reiterate her opinion.
3. Examine the witness’ qualifications to offer the precise opinion given. The expert may be qualified to offer one type of opinion, but not another: "In considering whether a person qualifies as an expert, the field of expertise must be carefully distinguished and limited." People v. Dillinger, 163 Cal.App.3d 284 (1984).
Identify the accepted authoritative treatises, both before and during the deposition. If the witness claims an expertise in finance, you may wish to consult Brealey & Myers on Corporate Finance: Capital Investment and Valuation. One recent expert listed the reference in his expert report and acknowledged that it was an "authoritative treatise." But confronted with an actual hard copy and hypothetical questions taken directly from the source at his deposition, he became quite nervous and contradictory.
4. Blanket the expert’s publications and prior testimony. Seasoned experts, especially tenured professors, usually have a robust body of published work. A single sentence may be enough to challenge the witness’ credibility if their paid testimony strays too far from prior opinions.
5. Review the current law as to admissibility. While we’re all familiar with FRE 702 and Daubert standards of reliability, the rules of admissibility are often expert-specific. The leading case applying the scientific reliability and gatekeeper standards of Daubert to financial experts is Kumho Tire Company v. Carmichael, 119 S.Ct. 1167 (1999). The key focus, of course, is whether the "methodology" of the expert meets generally accepted standards. But there may be other grounds to explore, including causation, foundation and whether the expert is merely repeating the opinions of others. The careful practitioner needs to know these nuances before the expert deposition.
Whether to kill or simply wound is a common tactical consideration. In one case, the trial judge reconsidered his earlier in limine ruling after cross-examination and instructed the jury to disregard the expert’s testimony. Amtower v. Photon, 158 Cal.App.4th 1582 (2008). Unfortunately, that ruling also precluded the rebuttal expert and his excellent testimony and graphics. On the other hand, interrupting the direct examination of the opponent’s expert with a short voir dire may dramatically undercut the force of that testimony, even if not excluded.
6. Revisit the role of the expert in your particular case. An attorney testifying as to corporate governance may just be quoting cases (and therefore inadmissible as just offering an opinion on the law); an accountant may be offering legal opinions; an economist may be offering an irrelevant opinion. Tailored in limine motions may prevent an expert’s expansive opinions.
7. Organize your cross-examination to serve multiple purposes. Now that you understand the subject, the expert’s opinions and admissibility issues, you’re ready to prepare the cross-examination. Organize an efficient cross-examination — well before the deposition or trial — that addresses both admissibility issues and credibility at trial.
8. Common opportunities for effective cross questions.
a) Look for ways to narrow the expert’s opinions. For example, "You’re not saying that a financial restatement always causes a material change in the stock price, are you?"
b) Points of agreement with your expert. Sometimes the best use of the opponent’s expert will be a list of points of agreement, usually some of your expert’s key assumptions.
c) Distinguish measurable from qualitative testimony. Because economics purports to be something of a science, many economists are fond of models that rely on numerical inputs and outputs. Any financial expert, however, can and should be quizzed as to whether any aspect of their opinion can be measured.
For example, for the economist who claims the financial crisis was not foreseeable, a series of questions may establish that no metrics support that conclusion. "Can you quantify what degree of economic change that constitutes a ‘crisis?’ Can you quantify the percentage likelihood that makes an event foreseeable? What if there is a 49 percent chance of rain tomorrow — does that make it reasonably foreseeable?"
d) Develop the questions to show the expert is extreme. "So any other damages calculation, even if a penny different, would be wrong?" Or "It’s your opinion that every penny of alleged overcharge [in an antitrust case] was passed on to the plaintiff?"
e) Explore areas outside their expertise — e.g., ask the accountant legal definitions and the economist liability questions.
f) Develop a variety of hypotheticals, including technical examples that you’ve worked out in advance with your own expert or consultant. Good hypotheticals will help define the scope of the expert’s opinion and may provide another opportunity to make the expert look unbelievable.
g) Bias. Explore the witness’ relationship to counsel, the parties and the sources and amounts of compensation. Some witnesses have a political bias reflected in their professional societies or publications.
9. Graphics — theirs, yours and admissibility issues. Too many attorneys and judges assume that "demonstrative" evidence, such as an expert’s summary or model, is simply inadmissible. While courts do enjoy broad discretion to exclude graphics that illustrate the expert’s testimony, be familiar with authority recognizing the admissibility of these materials in appropriate cases.
10. Arrange for a dry run cross-examination with your own expert or consultant. Experts are very good at giving reasonable sounding responses that tend to hide the gaps in their work. If you can’t tell your exogenous change from your endogenous factors in a practice session, you’re likely to miss quite a few opportunities with the other side’s expert. And let’s face it, it’s more fun when you know the material and can score a few points for your client.
Patrick J. Richard is a partner and chair of the litigation department at Nossaman in San Francisco. He can be reached at email@example.com or 415-438-7278. He thanks his colleagues, Thomas Long and Kurt Melchior, for their expert suggestions.