Use of forensic economists in commercial litigation: a defense perspective.

• Author: Day, Samuel A.

Forensic economic experts are essential in some business litigation, and the sooner defense counsel retain a qualified expert, the better for the case

FORENSIC economists apply the general theories and methodologies of economics and statistics to the proof of liability and the measurement of damages in civil litigation.(1) Traditionally, their use in commercial litigation has been in two areas--causation and the calculation of damages. Although forensic economists have been involved in commercial litigation since before the 20th century, only in the past several decades have they recognized their profession as a unique discipline, forming their own associations and debating their regulatory needs.

In 1985, the National Association of Forensic Economics (NAFE) was founded. It publishes the Journal of Forensic Economics and Litigation Economics Digest, conducts national and regional meetings, serves as a forum for professional development and has adopted a code of ethical standards. Other associations are the American College of Forensic Examiners and the American Academy of Economic and Financial Experts, which publishes of the Journal of Legal Economics.

Although forensic economics can be a highly technical discipline, anyone, regardless of education or training, may promote himself or herself as a forensic economist. Professional associations such as NAFE and AAEFE neither regulate nor certify those wishing to practice in this field.(2) The lack of regulation raises ethical concerns for attorneys and for the experts themselves.

A 1988 survey by Steven T. Riley found that most forensic economists (92 percent) held a Ph.D. degree and were affiliated with a university (71 percent). Practices were confined to their local area or state (86 percent), and they derived nearly half (42 percent) of their income from consulting. The average forensic economist spent most on time in personal injury/wrongful death litigation (68 percent), averaged 40 cases a year, did little advertising (81 percent reported no advertising), and relied on repeat business (67 percent).(3)

A follow-up study by Michael Brookshire and Frank Slesnick in 1990 confirmed these trends and concluded that the ratio of plaintiff to defense work income for the "typical" forensic economist was 2:1.(4)

DEFENSE EMPLOYMENT

1. Decision to Use

   The defense decision to use a forensic economist is critical in terms of the potential impact on a jury's verdict. A solid, well-reasoned analysis from a forensic economist can be the saber that strikes the fatal blow to a plaintiff's damage claim. An untested analysis based primarily on theory and assumption from a forensic economist can be the express elevator to a substantial plaintiff's verdict.

   In view of the impact the analysis of a forensic economist may have on a jury's verdict, the ultimate decision to employ a forensic economist and the selection of that person are often the most important strategic decisions defense counsel makes in a commercial damages case. At least from the consulting standpoint, an economic expert should be employed in each case involving sizable commercial losses in order to evaluate the potential of the claims and to make appropriate recommendations.

   But the mere employment of an economic expert by the plaintiff's counsel does not mean that defense counsel should rush out and grab one. A determination must be made initially as to the best approach to counter the plaintiff's expert. If the plaintiff's economic expert's analysis is absurd and should not be considered by the jury as credible evidence, testimony by a defense economic expert may not be advisable because of the possibility that the defense expert may assist the plaintiff's case. In most cases where substantial damages are involved, however, the defense will need to employ the forensic economist as a trial expert to neutralize the plaintiff's expert' s testimony.

   One of the major problems with forensic economists is that they tend to consider only things that can be quantified. If something cannot be quantified, the tend to ignore other information, even though it is pertinent to the over-all analysis for the particular loss in question. Any analysis that omits significant information that affects the performance of a company because that information cannot be quantified is vulnerable to attack on cross-examination. Thus, if the plaintiff's economic expert fails to include critical information because it cannot be quantified, defense counsel may want to rely on their own consultant to assist in preparing a devastating cross-examination of plaintiff's witness.

2. Selecting the Expert

   In selecting the economic expert to assist either for consulting purposes or as a trial witness, the most critical factor is the quality of the analysis of the particular expert. If the selection is approached in the same manner as a cross-examination of the plaintiff's expert, the result should be the selection of an economic expert who withstands defense counsel's scrutiny and will provide a valuable and quality analysis to assist in the defense of any given case.

   Although a forensic economist may be the only economic expert necessary to defend a case, the type of business loss claimed may require the expertise of a certified public accountant or experts in sales, purchasing, or management. The roles of the experts generally are complementary, especially in cases that involve substantial data gathering and synthesis in response to an economic theory of damages. Although the type of data and its implications--for example, accounting and tax--will dictate the type of expert to be retained, it is prudent to consult with an economic expert to determine which types to use.

   No matter what type is employed, it cannot be overstressed that experts should have a terminal degree or certification, such as a Ph.D. or CPA. They should have experience in the commercial damages field beyond trial testimony. Of course, trial experience also should be a prerequisite, as those experts would be better prepared to explain their calculations in a manner that will be understood by the judge or jury.

   The average juror, for instance, comes to the courtroom with little or no practical experience in the field of economics and must rely on the expert or experts who testify to make judgments regarding complex economic issues. The point to calling an expert is to put a teacher on the stand, an explainer who brings another set of eyes into the room through which the trier of fact can see the facts and understand the case.

   Other qualifications to consider include the expert's exposure via publications and speaking, as well as his or her record for testifying for a particular class of litigants.

   Probably the most important factor is the expert's approach to the task for which you are considering the expert's employment. A quality analysis is critical to withstanding cross-examination and positively projecting a case to a jury. In the initial selection process, it is important that the prospective economic experts be questioned regarding their approach to the specific situation presented by the case at hand. Do not be afraid to question the experts in a specific manner, specific enough to be able to eliminate any who are merely bantering in an attempt to obtain the employment.

   Question the prospective experts about the approach they would take in analyzing the economic damage issues. If they do not have a good feel for the method or approach needed in specific situation involved in your case, they are not going to do an adequate job...