Chapter 3 Procedural Rules Preceding the Daubert Determination

• Jurisdiction: United States

Chapter 3 Procedural Rules Preceding the Daubert Determination

A. Federal Rules of Civil Procedure

Many of the Federal Rules of Civil Procedure are made applicable to bankruptcy adversary proceedings and, in certain circumstances, contested matters pursuant to the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules").⁴⁸ Generally, the Bankruptcy Rules are found in Section VII and assigned numbers equivalent to the Federal Rules, preceded by the prefix "70." Bankruptcy Rule 7026, for example, simply states "Rule 26 Fed. R. Civ. P. applies in adversary proceedings." For this reason, procedures triggered in a Daubert analysis are referred to herein as they are enumerated under the Federal Rules, with a footnote citation to their Bankruptcy Rule counterpart.⁴⁹

B. Federal Rule 26

Federal Rule of Civil Procedure 26⁵⁰ addresses the discovery requirements for expert opinion testimony and sets forth a systematic process for the identification of experts, as well as the preparation, contents and the exchange of expert reports.

1. The Identification of Expert Witnesses

Federal Rule of Civil Procedure 26(a) requires attorneys to identify every witness, both lay and expert, who may be called to testify. Identification must occur during the pretrial phase of litigation, which is usually governed by pretrial orders. Federal Rule of Civil Procedure 37⁵¹ requires that a court exclude any witness not properly identified pursuant to Federal Rule of Civil Procedure 26(a) if the failure to disclose was "without substantial justification," unless the failure was a harmless error.

2. The Preparation and Exchange of Expert Witness Reports

Federal Rule of Civil Procedure 26(a)(2) requires that the expert prepare a written, signed report to be shared with the opposition, and dictates the timing of disclosures regarding experts and their reports. In Noel v. Martin,⁵² the Tenth Circuit Court of Appeals observed that Federal Rule of Civil Procedure 26(a)(2) requires the delivery of written reports for all expert witnesses "at the times and in the sequence directed by the court."⁵³ The report must:

1. contain a complete statement of all opinions;
2. state the basis and reason for each opinion;
3. identify the facts or data considered in formulating each opinion;
4. include all exhibits that support or summarize the findings and opinions of the expert and that may be relied on in testimony or in the preparation of the report;
5. state the qualifications of the witness, including any publications authored within the past 10 years;
6. state the terms of compensation regarding the preparation of the report and forthcoming testimony; and
7. contain a list of cases in which the expert has testified as an expert at trial or deposition within four years of trial.⁵⁴

Because opposing parties justifiably rely on the report as foundational discovery for upcoming opinion evidence, expert testimony varying materially from the report may be excluded upon motion. For example, in Robert Billet Promotions Inc. v. IMI Cornelius Inc.,⁵⁵ the court held that an expert must disclose all of the things she relied on in forming her opinion, or risk exclusion of the report. This requirement includes the disclosure of not only data, but also any treatises upon which the expert relied.⁵⁶

One bankruptcy court opined, however, that reports are only required respecting experts who are specifically retained to testify. In that case, the bankruptcy court drew the inference that a report does not need to be prepared and delivered when the expert is employed primarily for another purpose (e.g., a turnaround manager hired by the debtor to help it mange the reorganization process).⁵⁷ Another bankruptcy court found that Federal Rule of Civil Procedure 26(a)(2) specifically notes two categories of experts required to provide a report: "a witness who is retained or specially employed to provide expert testimony in the case or whose duties as an employee of the party regularly involve giving expert testimony."⁵⁸In that case, an employee not receiving additional compensation and who did not regularly testify was not within the specified categories and was not required to produce a report.⁵⁹

According to the Advisory Committee Notes to Rule 26, requiring experts to submit and exchange written reports was intended to avoid any surprise or prejudice to the opposing party when the expert was called as a witness. This implies that it is not always necessary to depose an expert when his report is made available. In typical bankruptcy practice, however, parties routinely depose opposing experts, with their own expert assisting in the deposition and/or closely reviewing the transcripts of those depositions in final preparation for trial.⁶⁰ This is not only done to help prepare for trial; the deposition often presents an opportunity to expose to opposing counsel weaknesses in his case, either substantive or due to the ineffectiveness of his expert in conveying his opinion in an understandable manner, which may in turn aid in pre-trial settlement talks.

There are, however, risks to deposing an opponent's proposed expert. The deposition may give the opposing expert an opportunity to revise his report and testimony to overcome issues brought up in a probing deposition. Further, asking questions outside the scope of the expert's report may give opposing counsel an opportunity to ask the expert to testify to that broadened scope at trial. Indeed, seasoned bankruptcy litigators will, at times, buck conventional wisdom and refrain from taking the deposition of an opponent's expert; they do this when they are confident in their understanding of the facts and applicable valuation methodologies, their expert's ability to convey thought effectively and persuasively, and their belief that their trial strategy is best served by retaining the "element of surprise."

The decision to depose an expert was rendered more complicated by the 2010 changes to Federal Rule of Civil Procedure 26. Prior to 2010, it was arguable that other forms of expert discovery were available, such as demanding production of all prior drafts of the final expert report, correspondence with counsel, hard drives, e-mails and memoranda that were generated before the submission of the expert's report. In 2010, the Federal Rules of Civil Procedure were amended to add Federal Rule of Civil Procedure 26(b)(4),⁶¹ which largely prohibits discovery of or into any of these items.⁶² The report is, in sum, the primary, if not exclusive, discovery device besides taking the expert's deposition.

C. Federal Rules of Evidence 104 and 702

1. Motions in Limine

In hotly contested matters and adversary proceedings, litigants increasingly exploit motions in limine as a procedural construction of Federal Rule of Evidence 104(a).⁶³ Under Federal Rule of Evidence 104(a), a court may evaluate the quality of evidence for admissibility before it considers that evidence at trial or in ruling on a summary judgment motion.⁶⁴ Such a motion in limine is often referred to as a Daubert motion, with a pretrial hearing to consider the admissibility of a proposed expert opinion often referred to as a Daubert hearing. In connection with the Daubert motion, the proponent must establish the admissibility of the expert's opinion by a preponderance of the evidence.⁶⁵ Courts have discretion to rule on a Daubert motion on the pleadings, reports, affidavits and memoranda of law without actually conducting an evidentiary hearing.⁶⁶ However, when the competence of one or more individuals who are to be called as experts is raised, the majority of the reported decisions suggest that the norm is for the court to schedule at least a nonevidentiary hearing, if not a full-blown evidentiary hearing, to consider motions in limine. ⁶⁷ This hearing may occur as part of the court's pretrial status conference.

Further, courts generally hold that this kind of hearing is "highly desirable" because it allows parties to present expert evidence and conduct cross-examination of a proposed expert, thus assisting the court in its gatekeeping function.⁶⁸ The Third Circuit Court of Appeals has held, in fact, that a lower court's failure to hold a Daubert hearing, especially at the summary judgment stage, may be an abuse of discretion, especially when the ruling on admissibility turns on factual issues.⁶⁹ Obviously, courts apply Daubert in a manner that fits the tempo and reasonable needs of the process at hand. For simple matters, a Daubert motion might be resolved without the need for extensive live testimony; for more complex matters, such as the enterprise value of a large business, an extended evidentiary hearing might be needed.

Once past the threshold requirement under Federal Rule of Evidence 104, the process of determining the admissibility of expert testimony...