In Case You Hadn’t Heard…PwC’s Study on Daubert Challenges
June 22, 2011
PriceWaterhouse Coopers (PwC) recently issued “Daubert Challenges to Financial Experts: An 11-year study of trends and outcomes.” The study analyzes post-Khumo Tire challenges to financial expert witnesses under the Daubert standard and identifies observable trends in the frequency and outcome of the challenges based on the written opinions in the courts.
The study identifies and discusses eight trends over the past 11 years.
- The number of challenges have risen over the past 11 year; however, the success rate has remained the same. There were 253 challenges in 2000 and 879 in 2010. In 2010 431 experts were excluded in whole or in part as a result of Daubert challenges (up from 305 in 2008 and 389 in 2009).
- The number of challenges in 2010 actually decreased but the percentage of success was at its highest since 2005. Of the 6,141 challenges studied, 1,108 were targeted at financial experts. In 2010, for the first time in 11 years, the number of challenges to financial experts fell by 150 with a 50% success rate.
- Daubert challenges were concentrated in the Second, Third, Fifth, Sixth and Seventh circuits, which heard approximately 59% of all challenges during 2000-2010. The Sixth Circuit had the third highest number over the past 11 years and had the most challenges of any in 2010.
- The Plaintiff’s expert is challenged consistently two to three times more frequently than the defendant’s expert but the exclusion rates have been lower than defense experts.
- Economists, accountants and appraisers are the most frequently challenged experts (55% of challenges on financial experts) but are also the most likely to survive the challenge. Only 42% of challenges on accountants, 40% of economists and 34% of appraiser challenges were successful, lower than the 50% average.
- The type of case impacts the outcome of the Daubert challenge. Challenges were more frequently in disputes involving a breach of contract or fiduciary duty.
- Lack of reliability is the top reason experts are included, a consistent observation for the past 11 years. A still significant number of exclusions were related to the relevance of the testimony.
- Exclusions more typically result for the misuse of accepted methodologies rather than the introduction of unusual or untested analytical methods. The study highlights a couple of cases such as use of an improper method for calculating royalty rates, failure to consider other relevant data in a statistical analysis, and inappropriate selection of a growth rate in a business interruption loss.
As evidenced by the study, Daubert challenges to experts, and in particular financial experts, continue to be a regular part of litigation. Much can be gleaned from the study in understanding the court’s role as a gate keeper and the factors that they consider when determining whether to keep an expert in a case or not. Being well versed in Daubert and Khumo Tire, and understanding the factors the court considers, as well as applying sound methodology and analysis which is relevant to the matter at hand, is paramount to surviving a Daubert challenge, should one come your way…and the study shows, that if you are a financial expert, one will sooner or later.
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