Litigation Services Handbook E-Book

Roman L. Weil

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 3148

Veröffentlichungsjahr: 2017

Beschreibung

The comprehensive "bible" for financial experts providing litigation support The Litigation Services Handbook is the definitive guide for financial experts engaged in litigation services. Attorneys require financial experts now more than ever, and this book provides the guidance you need to provide a high level of service as witness and consultant. Enhance your litigation skills as you delve into the fine points of trial preparation, deposition, and testimony; project authority under examination, and hold up to tough questions under cross-examination. Fraud investigations are a major component of litigation support services, and this book delves deep into Sarbanes-Oxley compliance and other relevant topics to give you a foundational understanding of how these cases are prosecuted, and your role as the financial services expert. This updated sixth edition includes new coverage of technology's role in the financial expert's practice, and the focus on investigations provides practical insight from leading experts in the field. From the process itself to proving damages, this indispensable reference covers all aspects of litigation services. Providing litigation support requires more than just your financial expertise; you also need a working knowledge of relevant case law, and a deep understanding of both the litigation process and the finer points of courtroom appearances. This book provides the insight and perspective you need to provide superior service to attorneys and their clients. * Understand your role in trial preparation and testimony presentation * Provide authoritative responses to direct and cross examination * Examine and analyze Sarbanes-Oxley rulings * Lend financial expertise to fraud investigations The growing demand for financial expert litigation services has created a niche market for CPAs, creating a lucrative opportunity for qualified accountants who also possess the specialized knowledge the role requires. The Litigation Services Handbook is THE essential guide for anyone involved in financial litigation.

Leseprobe

LITIGATION SERVICES HANDBOOK

The Role of the Financial Expert

SIXTH EDITION

Edited by

Roman L. Weil

Daniel G. Lentz

Elizabeth A. Evans

Cover design: Wiley

Copyright © 2017 by John Wiley & Sons, Inc. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:

ISBN 978-1-119-16632-0 (Hardcover)ISBN 978-1-119-36316-3 (ePDF)ISBN 978-1-119-36318-7 (ePub)

CONTENTS

Preface

Part I: The Litigation Environment

Chapter 1 A Dispute Resolution Primer

1.1 Introduction

1.2 The Civil Court System

1.3 The Legal Process

1.4 The Alternative Dispute Resolution Process

1.5 Forms of Alternative Dispute Resolution

1.6 Domestic ADR

1.7 International Arbitration

1.8 Conclusion

Notes

References

Chapter 2 Serving as a Financial Expert in Litigation

2.1 Introduction

2.2 Expert Services

2.3 Qualifications of Experts

2.4 Professional Guidance and Standards

2.5 Logistics

2.6 Conclusion

Notes

Chapter 3 Testimony Considerations

3.1 Introduction

3.2 Standards of Admissibility

3.3 Trends in

Daubert

Challenges to Financial Experts

3.4 Reliability

3.5 Relevance

3.6 Qualification

3.7 Conclusion

3.8 The Art of the Testimony

Notes

List of Cases

Part II: Developing a Damages Analysis

Chapter 4 Damages Theories and Causation Issues

4.1 Introduction

4.2 Fundamentals of Causation

4.3 Other Legal Standards

4.4 Damages Theory

4.5 Modeling Considerations

4.6 Developing an Effective Damages Claim

4.7 Practical Aspects of Expert Testimony on Damage Causation

4.8 Conclusion

Notes

List of Cases

References

Chapter 5

Ex Ante

versus

Ex Post

Damages Calculations

5.1 Introduction

5.2 Expectancy versus Outcome Damages

5.3 Application of the

Ex Ante

Approach in Litigation

5.4 Application of the

Ex Post

Approach in Litigation

5.5 Hybrid Approach

5.6 The Book of Wisdom

5.7 The Wrongdoer’s Rule

5.8 Conclusion

Appendix: Case Law Supporting

Ex Ante

and

Ex Post Analyses

Notes

List of Cases

References

Chapter 6 Use of Statistical Sampling in Litigation

6.1 Introduction

6.2 Sampling Theory

6.3 Use of Sampling by Courts

Notes

List of Cases

References

Chapter 7 Survey Research in Litigation

7.1 Introduction

7.2 Planning the Survey and Identifying Its Purpose

7.3 Sample Design and Selection

7.4 Additional Considerations for Sampling Design

7.5 Questionnaire Design

7.6 Survey Mode (Data Collection)

7.7 Postsurvey Adjustments

7.8 Survey Analysis

7.9 Conclusion

Notes

Chapter 8 Statistical Estimation of Incremental Cost from Accounting Data

8.1 Introduction

8.2 Basics

8.3 Illustrative Examples

8.4 Impediments to Incremental Cost Measurement Caused by Idiosyncrasies of Accounting Data

8.5 Measurement Issues Arising in Regression Analysis of Accounting Data

8.6 Detecting Flaws in a Regression Analysis of Accounting Data

8.7 Other Methods for Estimating Incremental Cost

8.8 Conclusion

Appendix: Cost Terminology Distinctions Among Terms Containing the Word

Cost

Notes

Chapter 9 Econometric Analysis

9.1 Introduction

9.2 The Role of Econometrics in Litigation

9.3 A Regression Model

9.4 Violation of Assumptions and Data Problems

9.5 Choice of Explanatory Variables

9.6 Choice of Functional Form

9.7 Sensitivity Testing of Estimated Results

9.8 Attributes of a Good Model

9.9 Choosing the Correct Significance Level

9.10 Statistical versus Practical Significance

9.11

R

-Squared (

R

2

)

9.12 Forecasting and Residual Analysis

9.13 Conclusion

Appendix

Notes

List of Cases

References

Chapter 10 Estimating the Cost of Capital

10.1 Introduction

10.2 Opportunity Cost of Capital

10.3 Theoretical Models of the Cost of Capital

10.4 Estimating the Cost of Capital

10.5 Conclusion

Notes

References

Chapter 11 Business Valuation

11.1 Business Valuation in Litigation Matters

11.2 Business Valuation Standards

11.3 Understanding the Concept of Value

11.4 Valuation Date

11.5 Overview of Valuation Approaches

11.6 Income Approach

11.7 Market Approach

11.8 Asset-Based (or Cost) Approach

11.9 Valuation Adjustments

11.10 Lost Profits versus Lost Business Value

11.11 Specialty Certifications and Applicable Standards in Valuation

Appendix: International Glossary of Business Valuation Terms

Notes

References

Chapter 12 Business Interruption Insurance Claims

12.1 Introduction

12.2 Overview of Business Interruption Insurance

12.3 The Loss Adjustment and Claim Development Processes

12.4 Dispute Resolution in the Business Interruption Claim Process

12.5 Further Considerations for Experts

12.6 Common Areas of Disputes Addressed by Financial Experts

12.7 Unique Issues in the Litigated Claim

Notes

Chapter 13 Lost Earnings of Persons

13.1 Introduction

13.2 Information Needed for Analysis

13.3 Components of a Claim

13.4 Mitigating Factors and Offsets

13.5 Other Considerations

13.6 Conclusion

Notes

References

Chapter 14 Expert Analysis of Class Certification Issues

14.1 Introduction

14.2 Rule 23 Requirements of a Class Action

14.3 Legal Standards Governing Use of Expert Testimony during Class Certification

14.4 Expert Witness Roles Related to Class Certification

14.5 Conclusion

Notes

List of Cases

References

Part III: Litigation Tools and Techniques

Chapter 15 Data Management

15.1 Introduction

15.2 Data Preservation

15.3 Data Collection

15.4 Data Normalization and Processing

15.5 Analysis of Email and Electronic Documents

15.6 Analysis of Databases and Enterprise Applications

15.7 Productions

15.8 Final Steps

Notes

Part IV: Ancillary Issues in Damages Matters

Chapter 16 Prejudgment Interest

16.1 Introduction

16.2 The Problem

16.3 Which Interest Rate? The Defendant’s Cost of Unsecured Borrowing

16.4 Awarding Prejudgment Interest at a Floating Interest Rate

16.5 Estimating the Defendant’s Unsecured Floating Borrowing Rate

16.6 Computing the Multiplier

16.7 A Note on Delaware Law

16.8 Other Issues in the Calculation of Prejudgment Interest

16.9 Close Corporations and Individual Plaintiffs

16.10 Conclusion

Notes

List of Cases

References

Chapter 17 Punitive Damages

17.1 Introduction

17.2 Basic Issues Arising in a Punitive Damages Action

17.3 The Expert’s Role

17.4 Legal Guidance on Punitive Damages

17.5 Conclusion

Notes

List of Cases

References

Chapter 18 Tax Treatment of Damages Awards

18.1 Introduction

18.2 Origin of the Claim Test

18.3 Substantiating Tax Treatment

18.4 Tax Treatment by Type of Claim

18.5 Structured Settlements

18.6 Tax Treatment of Payments by Payor

18.7 Deduction of Legal Fees

18.8 Conclusion

Notes

List of Cases

References

Part V: Civil Litigation

Intellectual Property

Chapter 19 Economic Analysis of Nonpatent Intellectual Property Rights and Damages Measures

19.1 Introduction

19.2 Main Forms of Nonpatent Intellectual Property Rights

19.3 General Damages Measurement Issues in Nonpatent Intellectual Property Cases

19.4 How Nonpatent Intellectual Property Damages Differ from Patent Damages

19.5 Damages Issues Specific to Copyright Infringement

19.6 Damages Issues Specific to Trademark Infringement and False Advertising

19.7 Damages Issues Specific to Trade Secrets

19.8 Conclusion

Appendix: Comparison of Intellectual Property Remedies

Notes

List of Cases

References

Chapter 20 Patent Infringement Damages

20.1 Patents

20.2 Patent Damages

20.3 Causation

20.4 Current Patent Infringement Damages Environment

20.5 Lost Profits Damages

20.6 Reasonable Royalty

20.7 Royalty Base

20.8 Dual Awards

20.9 Entire Market Value Rule (EMVR)

20.10 Fair, Reasonable, and Non-Discriminatory (FRAND)

20.11 Process or Method Patents

20.12 Design Patents

20.13 Interest on Damages

20.14 Injunctive Relief

20.15 Guidance

Chapter 21 Role of Financial Experts in ITC Section 337 Investigations

21.1 Introduction

21.2 Basis for a Section 337 Violation

21.3 Types of Remedies Available

21.4 Establishing the Correct Remedy

21.5 Conclusion

Notes

Chapter 22 Calculating Infringer’s Profits in Trademark, Copyright, and Design Patent Cases

22.1 Introduction

22.2 The Relevant Profit Component of Economic Damages

22.3 Costs and Cost Behavior

22.4 Different Measures of Profit

22.5 Case Law Related to Profit Calculations

22.6 Nexus Requirements

22.7 Conclusion

Notes

Chapter 23 Royalty Audits and Contract Compliance Investigations

23.1 Introduction

23.2 Rights Commonly Subjected to Contract Compliance Investigations

23.3 Reasons for Contract Compliance Investigations

23.4 Comparing Contract Compliance Investigations and Financial Statement Audits

23.5 Overview of Stages of Contract Compliance

23.6 Planning

23.7 Fieldwork

23.8 Reporting

23.9 Conclusion

Notes

Ownership and Business Failure

Chapter 24 Merger and Acquisition Transaction Disputes

24.1 Introduction

24.2 Overview of the Merger and Acquisition Transaction Life Cycle

24.3 Current Transaction Market Perspectives

24.4 Contract Provisions with Potential Accounting, Financial Reporting, and Purchase Price Significance

24.5 Common Merger and Acquisition Transaction Disputes

24.6 Typical Dispute Resolution Process

24.7 Role of Accountants in Merger and Acquisition Transactions and Disputes

24.8 Conclusion

Notes

Chapter 25 The Troubled Business and Bankruptcy

25.1 Introduction

25.2 Bankruptcy: An Overview

25.3 Typical Roles of a Financial Expert in Bankruptcy Litigation

25.4 Bankruptcy Court Litigation versus Civil Litigation

25.5 Conclusion

Notes

References

Chapter 26 Alter Ego

26.1 Definition of Alter Ego

26.2 Typical Scenarios Involving Alter Ego

26.3 Indicia of Alter Ego

26.4 Limited Liability Entities (Limited Liability Corporations and S Corporations)

26.5 Role of the Financial Expert in Alter Ego Analysis

Notes

List of Cases

References

Regulatory Litigation

Chapter 27 Federal Securities Acts and Areas of Expert Analysis

27.1 Introduction

27.2 Federal Securities Acts

27.3 Alternative Damages Measures

27.4 The Expert’s Role

Appendix A: Statistical Approach to the Event Study

Appendix B: Trading Model Discussion

Notes

List of Cases

References

Chapter 28 Economic Analysis in Securities Class Certification

28.1 Introduction

28.2 Predominance of Individual versus Common Issues

28.3 Intraclass Conflicts

28.4 Recent Supreme Court Decisions

28.5 Conclusion

Notes

List of Cases

References

Chapter 29 Monitorships and Deferred Prosecution Agreements: History, Process, and Recent Trends

29.1 Introduction

29.2 Antecedents to the Modern Monitorship

29.3 DOJ and SEC Agreements Involving Monitors and ICCs

29.4 Initial Monitorship and ICC Cases

29.5 DPAs and Monitorships/ICCs, 2010–2015: Overview and Reflections

29.6 Conclusion

Notes

Appendix A:

Restoring Trust

: Summary of Corporate Monitor’s Governance Recommendations for Post-Emergence MCI Corp.

Appendix B: Summary of Bonny Island FCPA DPAs

Appendix C: Selected FCPA DPAs: 2010–2015

Appendix D: Selected NON-FCPA DPAs: 2010–2015

Chapter 30 Securities Finance Disputes

30.1 Introduction

30 2 Overview of Securities Finance Litigation

30.3 Types of Securities Lending Litigation Cases

30.4 Conclusion

Notes

Glossary

Chapter 31 Antitrust

31.1 Introduction

31.2 Antitrust Statutes

31.3 Antitrust and Transactions

31.4 Antitrust and Intellectual Property

31.5 Statutory Authority for Damages and Injunctions

31.6 Prerequisites for Antitrust Damages

31.7 Antitrust Injury

31.8 Quantifying Damages

31.9 The Role of Experts in Antitrust Matters

Notes

Chapter 32 Federal Contract Disputes

32.1 Introduction

32.2 Federal Contracts and Nature of Disputes

32.3 Laws, Regulations, and Guidance

32.4 The Financial Expert

32.5 Protests and Pre-Award Disputes

32.6 Contractor Claims

32.7 Contract Pricing and Changes

32.8 False Claims Act (FCA)

32.9

Qui Tam

Actions

32.10 Financial Accounting Disputes

32.11 The Dispute and Litigation Process

Appendix A: Selected Financial Acronyms

Appendix B: Uniform Contract Format

Appendix C: Positive Law Codification

Appendix D: Completed Dcaa FY 2015 Audit Reports

Notes

List of Cases

Construction and Real Property Disputes

Chapter 33 Construction Claims

33.1 Introduction

33.2 Cost Pools

33.3 Damages Models

33.4 Delay Claim Calculations

33.5 Claims Avoidance

33.6 Conclusion

Notes

List of Cases

Chapter 34 Real Estate Litigation

34.1 Introduction

34.2 Damages Related to Lender Liability and Economic Transitions

34.3 Damages Related to Environmental Disputes, Residential Market

34.4 Damages Related to Environmental Disputes, Commercial Real Estate

Notes

References

Other Civil Litigation

Chapter 35 Accountant Liability

35.1 Introduction

35.2 Types of Accounting Services

35.3 An Overview of the Law

35.4 The Plaintiff’s Strategies

35.5 The Strategies of the Defendant Auditor

35.6 The Role of the Financial Expert in Accountants’ Liability Litigation

35.7 Know Your Audience

Notes

Chapter 36 Executive Compensation in the Litigation Setting

36.1 Introduction

36.2 Executive Compensation Issues in Disputes and Investigations

36.3 Executive and Director Compensation: Theory and Practice

36.4 Trends in Stock-Based Compensation Regulatory Reporting and Practice

36.5 Issues Regarding the Nature and Amount of Compensation

36.6 Challenges in Presenting Executive Compensation in Litigation Proceedings

36.7 Conclusion

Notes

References

Chapter 37 Covenants Not to Compete (“Noncompete Agreements”or “NCAs”)

37.1 Introduction

37.2 Do States Favor or Disfavor NCAs?

37.3 State Issues

37.4 Analysis of NCAs Ancillary to Employee Contracts

37.5 Analysis of NCAs Ancillary to the Sale of Business/Goodwill

Bibliography

Notes

Appendix: Analysis of Noncompete Agreements by State

Chapter 38 Employment Litigation

38.1 Introduction

38.2 The Economics of Discrimination

38.3 Legal Background

38.4 Categories of Discrimination: Adverse Treatment and Disparate Impact

38.5 Statistical Background

38.6 Forms of Data Used in Employment Litigation

38.7 Recruitment and Hiring

38.8 Promotion Practices

38.9 Termination

38.10 Compensation and Pay

38.11 Wage and Hour Litigation

38.12 Conclusion

Notes

List of Cases

References

Chapter 39 Fair Lending Litigation

39.1 Introduction

39.2 Legal Background

39.3 Categories of Discrimination: Disparate Treatment and Disparate Impact

39.4 Statistical Background

39.5 Forms of Data Used in Fair Lending Litigation

39.6 Underwriting

39.7 Pricing

39.8 Redlining

39.9 Fair Servicing

39.10 Conclusion

Notes

Part VI: Criminal Matters and Investigations

Chapter 40 Tax Fraud: Criminal Cases

40.1 Avoidance versus Evasion and Civil versus Criminal

40.2 Four Most Common Tax Crimes

40.3 Proof Beyond a Reasonable Doubt in a Tax Prosecution

40.4 Shorthand Formula for a Criminal Tax Case

40.5 Methods of Proving Tax Deficiency

40.6 Proving Intent: Badges of Fraud

40.7 Government’s Sources for Criminal and Civil Tax Fraud Cases

40.8 Investigation by CI: Administrative versus Grand Jury Investigations

40.9 Government’s Standard of Review for a Criminal Tax Case

40.10 Role of the Accountant

40.11 Conclusion: Parting Advice Regarding Criminal and Civil Tax Fraud

Notes

List of Cases

Chapter 41 Financial Statement Investigations

41.1 Introduction

41.2 What Is Fraud?

41.3 Sources and Triggers of Investigations

41.4 Investigation Life Cycle

41.5 Understanding Intent

41.6 Communicating

41.7 Trends in Regulation

41.8 Selected Examples of Financial Statement Fraud

Notes

List of Cases

References

Chapter 42 Health Care Fraud and False Claims Act Damages

42.1 Introduction

42.2 The Health Care Reimbursement System

42.3 Background and Purpose of the FCA

42.4 Approaches to Damages Calculations

42.5 Practical Considerations for the Expert Witness

42.6 Conclusion

Notes

Chapter 43 International Investigations: Successful Planning and Execution

43.1 Introduction

43.2 Planning

43.3 Logistical Planning

43.4 Workspace and Environment

43.5 Gathering Electronic Evidence

43.6 Conducting Interviews

43.7 Reporting the Findings

43.8 Conclusion

Notes

Part VII: Family Law

Chapter 44 Family Law Services

44.1 Introduction

44.2 Family Law Process

44.3 Support

44.4 Character of Property

44.5 Commingling, Tracing, and Apportionment

44.6 Tracing

44.7 Transmutations

44.8 Apportionment

44.9 Business Valuations

44.10 Marital Fraud

Notes

List of Cases

About the Editors

About the Contributors

Index

End User License Agreement

List of Illustrations

Chapter 1

Exhibit 1-1.

Common Elements of a Commercial Dispute Resolution Clause

Chapter 4

Exhibit 4-1.

Actual versus Legal Cause

Exhibit 4-2.

Intervening Cause

Exhibit 4-3.

Standards of Proof from Least to Most Onerous

Exhibit 4-4.

Damages Categories

Exhibit 4-5.

Cash Flows

Chapter 5

Exhibit 5-1.

Differences between

Ex Ante

and

Ex Post

Calculations

Chapter 6

Exhibit 6-1.

Basic Components of Sampling

Chapter 7

Exhibit 7-1.

Major Stages and Components in Conducting a Sample Survey

Exhibit 7-2.

Total Survey Error Framework

Chapter 8

Exhibit 8-1.

Relation between Total Cost and Quantity Produced

Exhibit 8-2.

Total Cost Data Conforming Precisely to the Assumed Linear Relation

Exhibit 8-3.

Total Cost Data Conforming Approximately to the Assumed Linear Relation

Exhibit 8-4.

Regression Estimate of Total Cost Line Based on Available Cost Data

Exhibit 8-5.

Simple Regression Input Data from the Company’s Past Records

Exhibit 8-6.

Multiple Regression Input Data from the Company’s Past Records

Exhibit 8-7.

Long-Run and Short-Run Cost Behavior

Exhibit 8-8.

Monthly Total Costs versus Units Produced—Straight-Line Relation

Exhibit 8-9.

Monthly Total Costs versus Units Produced—Curved Relation

Exhibit 8-10.

Monthly Total Costs Including Accounting Adjustments versus Units Produced

Exhibit 8-11.

Monthly Total Costs versus Units Produced

Chapter 9

Exhibit 9-1.

Results of Regression Analysis for Supplier Price for Ball Bearings

Exhibit 9-2.

Variation in Price of Ball Bearings by U.S. Automobile Expenditures

Exhibit 9-3.

Evidence of Heteroscedasticity

Exhibit 9-4.

Regression Analysis for Supplier Price of Ball Bearings, Correcting for Heteroscedasticity

Exhibit 9-5.

Evidence of Autocorrelated Errors

Exhibit 9-6.

Regression Analysis for Supplier Price for Ball Bearings, Correcting for Serial Correlation

Exhibit 9-7.

Graphs of Some Common Nonlinear Forms

Exhibit 9-8.

Results of Regression Analysis for Supplier Price for Ball Bearings, Chow Test for Structural Breaks

Exhibit 9-9.

Model with Alternative Specifications

Chapter 10

Exhibit 10-1.

Average Annual Returns in the United States, 1926–2014

Exhibit 10-2.

Historical Equity Risk Premiums

Exhibit 10-3.

Wal-Mart versus S&P 500, 2010–2014

Exhibit 10-4.

Retail Company Betas

Exhibit 10-5.

Retail Companies—Cost of Equity

Exhibit 10-6.

Retail Companies—Cost of Equity Using CAPM Adjusted for Size

Exhibit 10-7.

Calculation of Weighted Average Cost of Capital (WACC)

Chapter 11

Exhibit 11-1.

Valuation Methods

Exhibit 11-2.

Components of a Firm’s Business Enterprise Value and Invested Capital

Exhibit 11-3.

Comparison of Invested Capital and Direct Equity Methods

Exhibit 11-4.

Free Cash Flow to Equity

Exhibit 11-5.

Free Cash Flow to the Firm

Exhibit 11-6.

Comparison of Calculations under Free Cash Flow to Equity versus Free Cash Flow to the Firm

Exhibit 11-7.

Statistics and Trendline Plot

Exhibit 11-8.

Impacts of Discounts and Premiums on Value

Exhibit 11-9.

Lost Profits versus Lost Business Value - Double Recovery Example

Chapter 13

Exhibit 13-1.

Components of Damages Claims in Lost Earnings Cases

Exhibit 13-2.

Lost Earnings Methodology in Personal Injury Case

Exhibit 13-3.

Net Lost Earnings Methodology in Wrongful Death Case

Chapter 15

Exhibit 15-1.

Discovery Management Process

Exhibit 15-2.

AICPA’s Code of Professional Conduct, General Standards Rule

Exhibit 15-3.

Sample ABC Application System Profile

Exhibit 15-4.

System-Generated Report Extract Requiring Transformation Prior to Loading

Exhibit 15-5.

Transformed System Report Displayed in Exhibit 15-4 Utilizing Data Parsing Tools

Exhibit 15-6.

Documents per Month by Custodian

Exhibit 15-7.

Email Analytics—Keyword Hit Summary

Exhibit 15-8.

Email Analytics—Custodian Communication Patterns

Exhibit 15-9.

Fraud Triangle Analytics

Exhibit 15-10.

Telephone Communication Frequency Analysis

Chapter 16

Exhibit 16-1.

U.S. Treasury Yield Curve for July 22, 2016

Chapter 24

Exhibit 24-1(a).

Collar of $20–$25 Million for Net Working Capital (NWC)

Exhibit 24-1(b).

Peg of $22.5 Million for Net Working Capital

Chapter 26

Exhibit 26-1.

Alter Ego Indicia (Relation of the Owners and the Corporation)

Chapter 27

Exhibit 27-1.

Daily Closing Stock Price and Returns for Period of 51 Trading Days Surrounding Announcement Events for Firm S

Exhibit 27-2.

Firm S Returns versus Market Index Returns

Exhibit 27-3.

Share Price Reactions to Announcements

Exhibit 27-4A.

Share Price Reaction to Announcements

Exhibit 27-4B.

Illustration of Inflation per Share

Chapter 28

Exhibit 28-1.

Seller/Purchaser Class Conflicts

Exhibit 28-2.

Equity Conflict

Chapter 30

Exhibit 30-1.

Typical Lending Transaction

Chapter 31

Exhibit 31-1.

Horizontal Merger Guidelines

Exhibit 31-2.

Hypothetical Monopolist Test

Exhibit 31-3.

Overpayment Amount

Chapter 32

Exhibit 32-1.

Government Contract Cost Rules

Exhibit 32-2.

Differences between Government Contracting and Financial Reporting

Chapter 33

Exhibit 33-1.

Sample Differences in Common English Contracting Terms

Exhibit 33-2.

Common Construction Claims

Exhibit 33-3.

Contractual Relation of Parties in Traditional Contract Arrangement

Exhibit 33-4.

Contract Clauses

Exhibit 33-5.

Key Project Documents

Exhibit 33-6.

The Job Costing Hierarchy

Exhibit 33-7.

Documents Used to Verify Costs Recorded in Job Cost Ledger

Exhibit 33-8.

Sample Hierarchy of Cost Pools

Exhibit 33-9.

Relation between Claim Type and Specific Cost Pool

Exhibit 33-10.

Delay Claims and Related Damages Calculations

Exhibit 33-11.

Sample Calculation of Disruption Damages Using Measured Mile

Exhibit 33-12.

Productivity Loss Factors

Chapter 34

Exhibit 34-1.

Catalysts to Real Estate Litigation

Exhibit 34-2.

Green Street CPPI: All Property Index

Exhibit 34-3.

Stages in the Development Cycle

Exhibit 34-4.

Cumulative Development Profit

Exhibit 34-5.

Concentric Study Area Price Trends

a

Exhibit 34-6.

Sale-Price-to-List-Price Ratio

Exhibit 34-7.

Subject Property Sales and Retrospective Appraisal Summary, 10 Selected Transactions

Exhibit 34-8.

Difference between Sale Price and Retrospectively Appraised Value, 10 Selected Transactions

Exhibit 34-9.

Direct Capitalization Analysis, Property Value Diminution Due to NOI Reduction

Exhibit 34-10.

Direct Capitalization Analysis, Property Value Diminution Due to NOI Reduction and Increased Capitalization Rate

Exhibit 34-11.

Discounted Cash Flow Analysis, Property Value Diminution Due to Yield Rate Adjustment

Exhibit 36-1.

Trends in Stock-Based Compensation: Percentage of Stock Option Grants to Total Compensation and Restricted Stock Grants to Total Compensation for a Sample of S&P 1500 Companies, 1996–2014

Chapter 38

Exhibit 38-1.

Standard Normal Distribution

Exhibit 38-2.

Actual Instances of an Employment Practice Do Not Significantly Differ from Expected If the Actual Number Is within the Randomness Range of the Expected Number

Exhibit 38-3.

Analysis of Termination

Exhibit 38-4.

Analysis of Recruiting Discrimination

Exhibit 38-5.

Analysis of Promotion Discrimination, Model I—No Explanatory Controls

Exhibit 38.6.

Analysis of Promotion Discrimination, Model II—Divided into Job Feeders

Exhibit 38.7.

Analysis of Promotion Discrimination, Model III—Divided into Job Feeders and Performance Ratings Groups

Exhibit 38-8.

Graphical Depiction of Statistical Analysis of Promotion

Exhibit 38-9.

Analysis of Differences in Male and Female Pay-Scales Representatives

Chapter 39

Exhibit 39-1.

HMDA Reporting Requirements

Exhibit 39-2.

Denial Percentages for Home-Improvement Loan Applications

Exhibit 39-3.

Odds Ratios for Conventional-Purchase, Owner-Occupied Mortgage Loan Applications

Exhibit 39-4.

Explanatory Variables Used in Underwriting Regression Models

Exhibit 39-5.

APR Regression Analysis of Federal Housing Administration and Veterans Administration Owner-Occupied Mortgage Loan Originations

Exhibit 39-6.

A Review of HMDA Applications in MSA for All HMDA Reporters

Exhibit 39-7.

Review of HMDA Applications in MSA with Revised Peer Group

Chapter 41

Exhibit 41-1.

The Fraud Tree

Exhibit 41-2.

SEC Criteria for Recognizing Revenue from Bill and Hold Transactions

Pages

iii

iv

xi

xii

xiii

p1.1

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8

1.9

1.10

1.11

1.12

1.14

1.15

1.16

1.17

1.18

1.19

1.20

1.21

1.22

1.23

1.24

1.25

1.26

1.27

1.28

1.29

1.30

1.31

1.32

2.1

2.2

2.3

2.4

2.5

2.6

2.7

2.8

2.9

2.10

2.11

2.12

2.13

2.14

2.15

2.16

3.1

3.2

3.3

3.4

3.5

3.6

3.7

3.8

3.9

3.10

3.11

3.12

3.13

3.14

3.15

3.16

3.17

3.18

3.19

3.20

3.21

3.22

3.23

3.24

p2.1

4.1

4.2

4.3

4.4

4.5

4.6

4.7

4.8

4.9

4.10

4.11

4.12

4.13

4.14

4.15

4.16

4.17

4.18

4.19

4.20

4.21

4.22

4.23

4.24

4.25

4.26

4.27

4.28

4.29

4.30

4.31

4.32

4.33

4.34

4.35

4.36

4.37

4.38

4.39

4.40

4.41

4.42

4.43

4.44

4.45

4.46

4.47

4.48

4.49

4.50

4.51

4.52

4.53

4.54

5.1

5.2

5.3

5.4

5.5

5.6

5.7

5.8

5.9

5.10

5.11

5.12

5.13

5.14

5.15

5.16

5.17

5.18

5.19

5.20

5.21

5.22

5.23

5.24

6.1

6.2

6.3

6.4

6.5

6.6

6.7

6.8

6.9

6.10

6.11

6.12

6.13

6.14

6.15

6.16

6.17

6.18

6.19

6.20

6.21

6.22

6.23

6.24

6.25

6.26

6.27

6.28

7.1

7.2

7.3

7.4

7.5

7.6

7.7

7.8

7.9

7.10

7.11

7.12

7.13

7.14

7.15

7.16

7.17

7.18

7.19

7.20

7.21

7.22

7.23

7.24

7.25

7.26

7.27

7.28

7.29

7.30

7.31

7.32

7.33

7.34

7.35

7.36

7.37

7.38

7.39

7.40

7.41

7.42

7.43

7.44

7.45

7.46

7.47

7.48

7.49

7.50

7.51

7.52

8.1

8.2

8.3

8.4

8.5

8.6

8.7

8.8

8.9

8.10

8.11

8.12

8.13

8.14

8.15

8.16

8.17

8.18

8.19

8.20

8.21

8.22

8.23

8.24

8.25

8.26

9.1

9.2

9.3

9.4

9.5

9.6

9.7

9.8

9.9

9.10

9.11

9.12

9.13

9.14

9.15

9.16

9.17

9.18

9.19

9.20

9.21

9.22

9.23

9.24

9.25

9.26

9.27

9.28

9.29

9.30

9.31

9.32

9.33

9.34

9.35

9.36

9.37

9.38

9.39

9.40

9.41

9.42

9.43

9.44

9.45

9.46

9.47

9.48

9.49

9.50

9.51

9.52

9.53

9.54

9.55

9.56

9.57

9.58

9.59

9.60

9.61

9.62

10.1

10.2

10.3

10.4

10.5

10.6

10.7

10.8

10.9

10.13

10.14

10.15

10.16

10.17

10.18

10.19

10.20

10.21

10.22

10.23

10.24

10.25

11.1

11.2

11.3

11.4

11.5

11.6

11.7

11.8

11.9

11.10

11.11

11.12

11.13

11.14

11.15

11.16

11.17

11.18

11.19

11.20

11.21

11.22

11.23

11.24

11.25

11.26

11.27

11.28

11.29

11.30

11.31

11.32

11.33

11.34

11.35

11.36

11.37

11.38

12.1

12.2

12.3

12.4

12.5

12.6

12.7

12.8

12.9

12.10

12.11

12.12

12.13

12.14

12.15

12.16

12.17

12.18

12.19

13.1

13.2

13.3

13.4

13.5

13.6

13.7

13.8

13.9

13.10

13.11

13.12

13.13

13.14

13.15

13.16

13.17

13.18

13.19

13.20

14.1

14.2

14.3

14.4

14.5

14.6

14.7

14.8

14.9

14.10

14.11

14.12

14.13

14.14

14.15

14.16

14.17

14.18

14.19

14.20

14.21

14.22

14.23

14.24

p3.1

15.1

15.2

15.3

15.4

15.5

15.6

15.7

15.8

15.9

15.10

15.11

15.12

15.13

15.14

15.15

15.16

15.17

15.18

15.19

15.20

15.21

15.22

15.23

15.24

15.25

15.26

15.27

15.28

15.29

15.30

15.31

15.32

15.33

p4.1

16.1

16.2

16.3

16.4

16.5

16.6

16.7

16.8

16.9

16.10

16.11

16.12

16.13

16.14

16.15

16.16

16.17

16.18

16.19

16.20

16.21

17.1

17.2

17.3

17.4

17.5

17.6

17.7

17.8

17.9

17.10

17.11

17.12

17.13

17.14

17.15

17.16

17.17

17.18

17.19

17.20

17.21

17.22

17.23

17.24

17.25

17.26

17.27

18.1

18.2

18.3

18.4

18.5

18.6

18.7

18.8

18.9

18.10

18.11

18.12

18.13

18.14

18.15

p5.1

19.1

19.2

19.3

19.4

19.5

19.6

19.7

19.8

19.9

19.10

19.11

19.12

19.13

19.14

19.15

19.16

19.17

19.18

19.19

19.20

19.21

19.22

19.23

19.24

19.25

19.26

19.27

19.28

19.29

19.30

19.31

19.32

19.33

19.34

19.35

19.36

19.37

19.38

19.39

19.40

19.41

19.42

19.43

19.44

19.45

19.46

19.47

19.48

19.49

19.50

19.51

19.52

19.53

19.54

19.55

19.56

19.57

20.1

20.2

20.3

20.4

20.5

20.6

20.7

20.8

20.9

20.10

20.11

20.12

20.13

20.14

20.15

20.16

20.17

20.18

20.19

20.20

20.21

20.22

20.23

20.24

20.25

20.26

20.27

20.28

20.29

20.30

20.31

20.32

20.33

20.34

20.35

20.36

20.37

20.38

20.39

20.40

20.41

20.42

20.43

20.44

20.45

20.46

20.47

20.48

20.49

21.1

21.2

21.3

21.4

21.5

21.6

21.7

21.8

21.9

21.10

21.11

21.12

21.13

21.14

21.15

21.16

21.17

21.18

21.19

21.20

22.1

22.2

22.3

22.4

22.5

22.6

22.7

22.8

22.9

22.10

22.11

22.12

22.13

22.14

23.1

23.2

23.3

23.4

23.5

23.6

23.7

23.8

23.9

23.10

23.11

23.12

23.13

23.14

23.15

23.16

23.17

23.18

23.19

23.20

23.21

23.22

23.23

23.24

23.25

23.26

23.27

23.28

p5a.1

24.1

24.2

24.3

24.4

24.5

24.6

24.7

24.8

24.9

24.10

24.11

24.12

24.13

24.14

24.15

24.16

24.17

24.18

24.19

24.20

24.21

24.22

24.23

24.24

24.25

24.26

24.27

24.28

24.29

24.30

24.31

24.32

24.33

24.34

24.35

25.1

25.2

25.3

25.4

25.5

25.6

25.7

25.8

25.9

25.10

25.11

25.12

25.13

25.14

25.15

25.16

25.17

25.18

25.19

25.20

25.21

25.22

25.23

25.24

25.25

25.26

25.27

25.28

25.29

25.30

25.31

25.32

25.33

25.34

26.1

26.2

26.3

26.4

26.5

26.6

26.7

26.8

26.9

26.10

26.11

26.12

26.13

26.14

26.15

26.16

26.17

26.18

26.19

26.20

26.21

p5b.1

27.1

27.2

27.3

27.4

27.5

27.6

27.7

27.8

27.9

27.10

27.11

27.12

27.13

27.14

27.15

27.16

27.17

28.1

28.2

28.3

28.4

28.5

28.6

28.7

28.8

28.9

28.10

28.11

28.13

28.12

28.14

28.15

28.16

28.17

29.1

29.2

29.3

29.4

29.5

29.6

29.7

29.8

29.9

29.10

29.11

29.12

29.13

29.14

29.15

29.16

29.17

29.18

29.19

29.20

29.21

29.22

29.23

29.24

29.25

29.26

29.27

29.28

29.29

29.30

29.31

29.32

29.33

29.34

29.35

29.36

30.1

30.2

30.3

30.4

30.5

30.6

30.7

30.8

30.9

30.10

30.11

30.12

30.13

30.14

30.15

30.16

30.17

30.18

30.19

30.20

31.1

31.2

31.3

31.4

31.5

31.6

31.7

31.8

31.9

31.10

31.11

31.12

31.13

31.14

31.15

31.16

31.17

31.18

31.19

31.20

31.21

31.22

31.23

31.24

31.25

31.26

31.27

31.28

32.1

32.2

32.3

32.4

32.5

32.6

32.7

32.8

32.9

32.10

32.11

32.12

32.13

32.14

32.15

32.16

32.17

32.18

32.19

32.20

32.21

32.22

32.23

32.24

32.25

32.26

32.27

32.28

32.29

32.30

32.31

32.32

32.33

32.34

32.35

32.36

32.37

32.38

p5c.1

33.1

33.2

33.3

33.4

33.5

33.6

33.7

33.8

33.9

33.10

33.11

33.12

33.13

33.14

33.15

33.16

33.17

33.18

33.19

33.20

33.21

33.22

33.23

33.24

34.1

34.2

34.3

34.4

34.5

34.6

34.7

34.8

34.9

34.10

34.11

34.12

34.13

34.14

34.15

34.16

34.17

34.18

34.19

34.20

34.21

34.22

34.23

34.24

34.25

34.26

34.27

34.28

34.29

34.30

p5d.1

35.1

35.2

35.3

35.4

35.5

35.6

35.7

35.8

35.9

35.10

35.11

35.12

35.13

35.14

35.15

35.16

35.17

35.18

35.19

35.20

35.21

35.22

35.23

36.1

36.2

36.3

36.4

36.5

36.6

36.7

36.8

36.9

36.10

36.11

36.12

36.13

36.14

36.15

36.16

36.17

36.18

36.19

36.20

36.21

36.22

36.23

36.24

36.25

36.26

36.27

36.28

36.29

36.30

36.31

36.32

36.33

36.34

37.1

37.2

37.3

37.4

37.5

37.6

37.7

37.8

37.9

37.10

37.11

37.12

37.13

37.14

37.15

37.16

37.17

37.18

37.19

37.20

37.21

37.22

37.23

37.24

37.25

37.26

37.27

37.28

37.29

37.30

37.31

37.32

37.33

37.34

37.35

37.36

37.37

37.38

37.39

37.40

37.41

37.42

37.43

37.44

37.45

37.46

37.47

37.48

37.49

37.50

37.51

37.52

37.53

37.54

37.55

37.56

37.57

37.58

37.59

37.60

37.61

37.62

38.1

38.2

38.3

38.4

38.5

38.6

38.7

38.8

38.9

38.10

38.11

38.12

38.13

38.14

38.15

38.16

38.17

38.18

38.19

38.20

38.22

38.23

38.21

38.24

38.25

38.26

38.27

38.28

38.29

38.30

38.31

38.32

38.33

38.34

38.35

38.36

38.37

38.38

39.1

39.2

39.3

39.4

39.5

39.6

39.7

39.8

39.9

39.10

39.11

39.12

39.13

39.14

39.15

39.16

39.17

39.18

39.19

39.20

39.21

39.22

39.23

39.24

39.25

39.26

39.27

39.28

39.29

39.30

39.31

39.32

39.33

39.34

39.35

39.36

39.37

39.38

39.39

p6.1

40.1

40.2

40.3

40.4

40.5

40.6

40.7

40.8

40.9

40.10

40.11

40.12

rc40fn54

40.14

40.15

40.16

40.17

40.18

40.19

40.20

40.21

40.22

40.23

40.24

40.25

40.26

40.27

41.1

41.2

41.3

41.4

41.5

41.6

41.7

41.8

41.9

41.10

41.11

41.12

41.13

41.14

41.15

41.16

41.17

41.18

41.19

41.20

41.21

41.22

41.23

41.24

41.25

41.26

42.1

42.2

42.3

42.4

42.5

42.6

42.7

42.8

42.9

42.10

42.11

42.12

42.13

42.14

42.15

42.16

42.17

42.18

42.19

42.20

42.21

42.42

42.23

42.24

43.1

43.2

43.3

43.4

43.5

43.6

43.7

43.8

43.9

43.10

43.11

43.12

43.13

43.14

43.15

43.16

43.17

43.18

43.19

43.20

p7.1

44.1

44.2

44.3

44.4

44.5

44.6

44.7

44.8

44.9

44.10

44.11

44.12

44.13

44.14

44.15

44.16

44.17

44.18

44.19

44.20

44.21

E.1

E.2

E.3

C.1

C.2

C.3

C.4

C.5

C.6

C.7

C.8

C.9

C.10

C.11

C.12

C.13

C.14

C.15

C.16

C.17

C.18

C.19

C.20

C.21

C.22

C.23

C.24

I.1

I.2

I.3

I.4

I.5

I.6

I.7

I.8

I.9

I.10

I.11

I.12

I.13

I.14

I.15

I.16

I.17

I.18

I.19

I.20

I.21

I.22

I.23

1385

PREFACE

A real patriot is the fellow who gets a parking ticket and rejoices that the system works.

—Bill Vaughan (columnist and author, 1946–1977)

In the world of American business, few may feel the patriotic spirit in the face of a litigation and enforcement environment that increasingly saps the financial and human resources of the unfortunates that find themselves embroiled in the process. The debate over whether the system really works, and for whom, would likely be a long one, colored by the individual experience of the debaters. Corporations in America find themselves constantly participating in the process.

The litigation services practice remains a growth business for financial experts as the complexity and the global nature of business disputes continue to expand. TheLitigation Services Handbook has for more than 25 years, through five previous editions and more than 20 annual supplements, offered a comprehensive guide for economists, accountants, and litigators involved with the analytic and damages issues in commercial litigation. It has enjoyed critical success as its revised editions have served to guide readers and practitioners in the litigation services industry.

We note several milestones wrapped into the sixth edition: Elizabeth A. Evans of FTI Consulting has joined our editorial team; her academic training and many years of experience have contributed to the quality of earlier editions as author and to this edition, as well, as editor. This is the final edition for editor Daniel G. Lentz, who has coauthored or shepherded many chapters through the last two editions. We extend special thanks to his firm, Ernst & Young, LLP, for underwriting the costs involved to bring the handbook from submitted drafts to published volume (a long and winding road). Last, we extend a (possible) fond farewell and our gratitude to Roman L. Weil, who plans to retire from the helm of lead editor for theLitigation Services Handbook. He joined Peter Frank and Michael Wagner, who conceived of this book, more than 25 years ago. Throughout every edition, he has driven the authors and his fellow editors to ensure clarity, accuracy, completeness, and avoidance of his pet peeves: passive verbs, the word “may,” and certain qualifying “-ly” adverbs.

This edition includes new chapters that reflect the changing business environment and related litigation, incorporates a fresh look at existing content to this edition, and retains the highest-quality work from predecessor authors and editions to ensure inclusion of the most current and relevant information on each topic. Each of the 44 chapters in the sixth edition has authors—accountants, economists, academics, and litigators—expert in their fields. Together, these chapters explain the financial theory behind the demonstrated practical application and clarify the relevant case law, regulation, and statutes.

Organization and Writing. This edition comprises seven sections, each addressing a different practice area or set of functional tools.

Part I

, The Litigation Environment

(3 chapters), discusses the civil court system, principles and techniques of alternative dispute resolution, and how CPAs and economists function in the litigation environment, including a discussion on

Daubert

challenges and the art of testifying.

Part II

, Developing a Damages Analysis

(11 chapters), addresses the components of damages calculations: damages theories and modeling, estimating the cost of capital, business valuation, business interruption claims, lost earnings of

individuals

, and class certification issues.

Part III

, Litigation Tools and Techniques

(1 chapter), explains data management in regulatory and litigation environments in an entirely revised chapter incorporating the latest information from a rapidly changing subject area.

Part IV

, Ancillary Issues in Damages Matters

(3 chapters), discusses prejudgment interest, punitive damages, and tax treatment of damages—all issues that are ancillary to the underlying damages claims and litigation.

Part V

, Civil Litigation

(21 chapters), addresses specific types of commercial cases, categorized into five subsections:

Intellectual Property

(5 chapters) discusses the complexities of this vexing area of litigation, and describes the process of conducting royalty audits.

Ownership and Business Failure

(3 chapters) guides practitioners in how financial experts contribute to matters involving growth and decline or failure of businesses.

Regulatory Litigation

(6 chapters) deals with a variety of matters related to securities, monitorships, antitrust, and federal contracts.

Construction and Real Property Disputes

(2 chapters) provides insights on

litigation

dealing with property issues.

Other Civil Litigation

(5 chapters) addresses accountant liability, executive compensation, non-compete covenants, employment litigation, and fair lending litigation.

Part VI

, Criminal Matters and Investigations

(4 chapters), helps practitioners understand the unique issues and skill sets required to serve as an expert in the investigations environment.

Part VII

, Family Law

(1 chapter), gives readers broad-based insight into this common area of litigation.

Note on Writing Style. Many chapters contain a variety of statements of the form, “The expert will measure cash flows and discount them to present value.” Often, the authors originally wrote, and meant, “The expert will usually measure cash flows and then, typically, discount them to present value.”

Rather than qualify every positive or absolute statement with “typically” or “usually” or “generally,” we have omitted those qualifiers. The reader should understand that unless the statement says something like “always do X,” the writer intended to qualify the statement with “typically” or “generally” or the like, not to assert a prescriptive formula. As a result of this style simplification, we think the reader will comprehend the message more easily.

Relation between Authors and Editors. We acknowledge the cooperation and patience that our contributing authors have shown. We do not agree with everything they say and sometimes so indicate in the notes. We prefer to have experts give their own opinions, even when controversial, rather than less specificguidance—like bland committee reports—on which we can all agree. Note to litigators cross-examining us: just because the author of the chapter said it doesn’t mean we agree with it.

Acknowledgments. We thank Debbie Asakawa for her work in managing, editing, and adding consistency and clarity to the manuscript, and for her assistance in encouraging authors, in addition to the other tasks that helped bring the book to fruition. We acknowledge the diligent work of our liaisons at John Wiley & Sons: Sheck Cho, Judy Howarth, Kimberly Monroe-Hill, and Vincent Nordhaus.

We invite readers and practitioners to submit proposals for chapters to include in the Litigation Services Handbook’s annual cumulative supplements. Contact Elizabeth Evans at [email protected] for more information.

Roman L. Weil

Daniel G. Lentz

Elizabeth A. Evans

PART I

THE LITIGATION ENVIRONMENT

CHAPTER

1

A Dispute Resolution Primer

CHAPTER

2

Serving as a Financial Expert in Litigation

CHAPTER

3

Testimony Considerations

CHAPTER 1A DISPUTE RESOLUTION PRIMER*

Elizabeth A. Evans

Daniel G. Lentz

Roman L. Weil

CONTENTS

1.1 Introduction

(a) Rationale for the Book

(b) Expert Opinions and Admissibility: The Rules of the Road

(c) Role of the Financial Expert in Litigation

(d) Tasks Undertaken by Financial Experts

1.2 The Civil Court System

(a) General Process

(b) Experts’ Involvement in a Case

(c) Federal District Court System

(d) Federal Courts of Appeals

(e) U.S. Supreme Court

(f) Special Federal Courts

(g) State Courts

(h) Choice of Courts

(i) Applicable Rules Governing Litigation

(j) Alternative Dispute Resolution (ADR)

1.3 The Legal Process

(a) Overview of a Lawsuit

(b) Legal Pleadings

(c) Discovery—Introduction

(d) Discovery—Written Reports

(e) Discovery—Interrogatories

(f) Discovery—Requests for Production of Documents

(g) Discovery—Requests for Admissions

(h) Discovery—Depositions

(i) Discovery—Subpoenas

(j) Trial

(k) Types of Outcomes

(l) Appeal

1.4 The Alternative Dispute Resolution Process

(a) Definition and Overview

(b) Advantages and Disadvantages of ADR

1.5 Forms of Alternative Dispute Resolution

(a) Arbitration

(b) Mediation

(c) Other Forms of ADR

1.6 Domestic ADR

(a) Rules Governing the Use of ADR

(b) The Neutral

(c) The Role of Experts

1.7 International Arbitration

(a) Differences from Domestic Arbitration

(b) Rules Governing International Arbitration

(c) Arbitral Institutions

(d) Arbitration with a State or Parastatal Entity

(e) The Tribunal

(f) The Role of Experts

1.8 Conclusion

NOTES

REFERENCES

1.1 INTRODUCTION

(a) Rationale for the Book

Anyone who considers undertaking the role of an expert will find this book valuable. It will help novice and experienced practitioners stay abreast of current methods and case law and will guide them in other areas in which they can apply their experience.

This book is a current reference for certified public accountants (CPAs) and other experts involved in typical litigation cases and includes technical approaches and case-specific tools in use today. Although not exhaustive on any topic, it addresses the roles that experts play in litigation in commonly encountered cases. We incorporate advice from practitioners with extensive experience in litigation services.

(b) Expert Opinions and Admissibility: The Rules of the Road

Over time, the role of experts has expanded in the American legal system. Originally, courts allowed expert testimony only when the facts became too complex for an average juror to understand, and no expert could express an opinion on the ultimate issue. The Federal Rules of Evidence have liberalized this and other rules applying toexperts, thereby increasing their roles. Rule 702, Testimony by Experts, states:

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, if (1) the testimony is based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has applied the principles and methods reliably to the facts of the case.1

Rules 703 through 705 of the Federal Rules of Evidence also relate to expert testimony. Rule 703 allows experts in reaching their opinion to rely on otherwise inadmissible facts or data if they are “of a type reasonably relied upon by experts in the particular field in forming opinions or inferences upon the subject.” Experts can, for example, rely on hearsay evidence, posing the risk that their testimony will expose jurors to evidence from which the Rules of Evidence aim to insulate them. For this reason, Rule 703 requires judges to guard against the expert acting as a “smuggler of hearsay” to the jury: “Facts or data that are otherwise inadmissible shall not be disclosed to the jury by the proponent of the opinion or inference unless the court determines that their probative value in assisting the jury to evaluate the expert’s opinion substantially outweighs their prejudicial effect.”

Rule 704 allows experts to give an opinion on the issue that the trier of fact will ultimately decide. (The only exception relates to an alleged criminal’s mental state.) Thus, an expert can give an opinion on such issues as liability or the amount of damages.

The U.S. Supreme Court guided federal trial court judges as to the admissibility of expert testimony inDaubert v. Merrell Dow Pharmaceuticals, 113 S. Ct. 2796 (1993). The trial judge has broad discretion to act as a gatekeeper to forbid expert testimony based on mere subjective belief or unsupported speculation. Although the Court decidedDaubert in the context of scientific expert testimony, the decision applies to any expert testimony, including financial, economic, and accounting testimony; the Court provided this clarity inKumho Tire Co. v. Carmichael, 526 U.S. 137 (1999). For an in-depth discussion of the effects of theDaubert case, see Chapter 3.

AlthoughDaubert and its progeny provide no exclusive list or set of tests that the expert’s testimony must meet to be admissible—and thus survive the judge’s gatekeeping function—one does well to consider the factors that the decision enumerates:

Is the theory or technique testable? Has it been tested?

Has it been subjected to peer review or publication?

Is the potential rate of error known?

Is it generally accepted within the relevant community of experts?

These Daubert-originated factors, bowing to the scientific method, reflect the scientific nature of the expert evidence at issue in that case. We reiterate that these are only examples; they are neither mandatory tests nor a checklist, and one’s testimony can flunk a given test yet be judged admissible by the court. Similarly, a court will exclude testimony that meets all the factors if it lacks relevance, doesn’t relate to the facts of the case, or otherwise proves unreliable. The Advisory Committee’s Note to Amendment (to Rule 702) effective December 1, 2000, includes some bases for excluding testimony, as well as good standards to apply when evaluating one’s own prospective testimony (Chapter 3 includes an extended discussion of this topic and related court cases):

Whether testimony is based on research conducted independent of the litigation or was expressly undertaken for the purpose of the testimony;

Whether the expert has unjustifiably extrapolated from an accepted premise to an unfounded conclusion;

Whether the expert has adequately accounted for obvious alternative explanations;

Whether the expert applies the same degree of intellectual rigor within the courtroom as without;

Whether the field of expertise claimed by the expert is known to reach reliable results (for example, astrologers observe some principles generally accepted within their community but not accepted, per the Advisory Committee, within the courtroom).

Diligent, experienced attorneys with adequate time and funding will take the time and care needed to maximize the likelihood of the testimony’s admissibility. Many cases lack such resources, and the experts must then apply care and thoughtfulness to avoid exclusion. In the short term, admissibility will avoid the prejudice to the client (and embarrassment to the expert) of a testimony’s exclusion. Excluded testimony will also have long-run repercussions: The misfortune will become a topic of discussion in future depositions andvoir dire2 proceedings. It will also require a “yes” answer to one of the first questions that most attorneys will ask an expert whom they consider retaining: “Has a court ever excluded your testimony?”

Before one can confront the perils of qualifying to testify in the courtroom, the court must allow the expert to enter. Federal Rules of Civil Procedure Rule 26(a)(2) provides the requirements for federal cases:

(2) Disclosure of Expert Testimony.

(A) In addition to the disclosures required by paragraph (1), a party shall disclose to other parties the identity of any person who may be used at trial to present evidence under Rules 702, 703, or 705 of the Federal Rules of Evidence.

(B) Except as otherwise stipulated or directed by the court, this disclosure shall, with respect to 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, be accompanied by a written report prepared and signed by the witness. The report shall contain a complete statement of all opinions to be expressed and the basis and reasons therefor; the data or other information considered by the witness in forming the opinions; any exhibits to be used as a summary of or support for the opinions; the qualifications of the witness, including a list of all publications authored by the witness within the preceding ten years; the compensation to be paid for the study and testimony; and a listing of any other cases in which the witness has testified as an expert at trial or by deposition within the preceding four years.

(C) These disclosures shall be made at the times and in the sequence directed by the court. . . . [The expert should consult with the retaining attorney regarding the specific provisions that follow.]

Section 1.3(d) of this chapter discusses the nature and content of expert disclosures, including the report substance. Note that the states’ requirements for expert disclosure and discovery have more variation than do the federal standards for admission of expert testimony. Some states have little or no discovery of evidence from the parties, resulting in “trial by ambush.”

(c) Role of the Financial Expert in Litigation

Lawyers use experts in litigation for the same reasons that businesses retain experts as advisors: Lawyers need quality advice when litigating, and experts offer this service because they give advice in the real world to real companies with real problems. Juries understand and respect this practical experience. Because accounting is the language of business, accountants can often clarify business transactions and explain the records reflecting them to lawyers, judges, and the jury. Because economists help companies apply the principles of market definition, price theory, economic modeling, and market risk, they can help interpret the effects of a firm’s behavior on competitors or other related entities. Various experts have the quantitative skills required to undertake and perform the analyses necessary to interpret the technical evidence required in complex commercial cases.

The ideal expert (1) has never testified before and has no relationship with the hiring attorney, firm, or client, so that the jury will be disinclined to regard him as a hired gun, but (2) has substantial experience in litigation analyses, testimony, and response to cross-examination. This prospective expert does not exist. The lawyer must weigh the risks and rewards each case presents in making the selection.

This book focuses on the role of an expert witness (rather than a fact witness) because litigation practitioners most often serve in this comprehensive role. Experts frequently play a behind-the-scenes role as consultant to the legal team or, occasionally, as arbitrator.

(d) Tasks Undertaken by Financial Experts