Daubert Challenges to Financial Experts: An 11-year study of trends and outcomes

March 2011
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Daubert Challenges to Financial Experts: An 11-year study of trends and outcomes

At a glance

This study analyzes post-Kumho Tire (2000-2010) challenges to financial expert witnesses under the Daubert standards. We identify observable trends in the frequency and outcome of these challenges based on written opinions in federal and state courts. The study examines the challenges to provide insight into the reasons experts were challenged and excluded and to delve more analytically into the causes of exclusions based on the qualifications of the experts and the relevance and reliability of the expert testimony. The study also summarizes some of the specific financial, statistical, economic, and valuation methods that courts have found inadmissible.

In 1993, the US Supreme Court’s opinion in Daubert v. Merrell Dow Pharmaceuticals Inc. addressed the admissibility of expert scientific testimony in federal trials, affirming a gatekeeping role for judges in determining the reliability and relevance of the testimony.

In 1999, the Supreme Court’s decision in Kumho Tire Co. v. Carmichael clarified that the Daubert criteria were applicable to all types of expert testimony, not merely testimony relating to science.

2010 marked the 11th anniversary of the Kumho Tire decision. This study analyzes post-Kumho Tire (2000-2010) challenges to financial expert witnesses under the Daubert standards. We identify observable trends in the frequency and outcome of these challenges based on written opinions in federal and state courts. The study examines the challenges to provide insight into the reasons experts were challenged and excluded and to delve more analytically into the causes of exclusions based on the qualifications of the experts and the relevance and reliability of the expert testimony. The study also summarizes some of the specific financial, statistical, economic, and valuation methods that courts have found inadmissible.

Even as we were completing this year’s study, a recent decision in the Seventh Circuit likely will expand the domain of proceedings in which Daubert criteria apply. In American Honda Motor Co. Inc. v. Allen, (7th Cir. 2010), the Seventh Circuit held that district courts "must perform a full Daubert analysis" based on a "rigorous analysis" of whether the Federal Rule of Civil Procedure 23 class certification prerequisites have been met before a case is considered a class action. In order to satisfy the requirement of a "rigorous analysis," courts are no longer accepting expert testimonies that are crucial to class certification under historically more lenient standards, but instead will be relying on a full Daubert analysis of the expert to resolve any question of the expert’s reliability, relevance and qualifications before ruling on class certification.