David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of forensic accounting and fraud investigation services in Philadelphia and the Delaware Valley.

In typical litigation involving economic damages, one or both sides will engage an economic damages expert.  Usually the plaintiff’s expert will analyze the available data and likely produce a written report concerning the calculated value of the damages.  Upon submission to the court, the opposing side’s expert may produce a rebuttal report challenging some or all the findings and conclusions in the submitted written report.  Each side’s expert may be deposed and may also offer testimony during the trial.

However, in certain instances, the opposing side may challenge the admissibility of the expert’s report.  In Federal court, this is known as a Daubert challenge (after the case, Daubert v. Merrell Dow Pharmaceuticals, 509 U.S. 579 (1993)).  In Pennsylvania, the Daubert case is not used.  Instead, an earlier case, Frye v. United States, 293 F. 1013 (D.C. Cir. 1923), is used (hence, in Pennsylvania, this is called a Frye challenge).  New Jersey uses a modified version based upon the Daubert case (this is sometimes called “Daubert-Lite”).  In Delaware, the Daubert case is used.

Under Daubert, the Court decided that:

• The trial judge has a duty to act as a “gatekeeper” to view evidence under stricter scrutiny to ensure that it meets the requirements of Rule 702 of the Federal Rules of Evidence. Rule 702 states that:
• “A witness who is qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of an opinion or otherwise if:

(a) the expert’s scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue;

(b) the testimony is based on sufficient facts or data;

(c) the testimony is the product of reliable principles and methods; and

(d) the expert has reliably applied the principles and methods to the facts of the case.”

• The trial judge is to ensure that the expert’s testimony is “relevant to the task at hand” and that it rests “on a reliable foundation;”
• A conclusion will qualify as “scientific knowledge”if the proponent can demonstrate that it is the product of sound “scientific methodology” derived from the scientific method; and
• For a “scientific methodology” to be considered reliable, it should meet the following criteria:
• Be generally accepted with the specific scientific community where the methodology is employed;
• Have been subjected to peer review and publication;
• Can be and has been tested;
• Have a known or potential rate of error which is acceptable.

By contrast, under Frye, the standard is less broad:  an expert opinion is admissible if the scientific technique on which the opinion is based is generally accepted as reliable in the specific scientific community.  Under Frye, the trial judge does not serve as a gatekeeper.

By way of example, the “valuation” method discussed in last week’s blog (Rules of Thumb) would not meet either the Daubert standard or the Frye standard since it is not generally accepted within the valuation community as a reliable scientific methodology.

In a recent Federal court case, Rover Pipeline, LLC v. 10.55 Acres of Land, More or Less, in Ashland County, Ohio, et al., United States District Court, Northern District of Ohio, Eastern Division, Case No. 5:17-cv-239 (September 14, 2018), the court rejected one expert’s valuation due to, among other things, that expert’s reliance on unsubstantiated information presented at a continuing education class rather than an authoritative guide generally accepted in the valuation community (although the opposing counsel did not initiate a Daubert challenge, the court’s decision supported the failure of the expert to meet the Daubert criteria).

Hence, for an expert’s report to successfully survive a Daubert challenge, the expert’s “scientific methodology” must meet the specific criteria discussed above.  Use of unsubstantiated and/or unreliable methodologies which are not generally accepted by the relevant community (such as the valuation community or economic damages community), can place an expert at risk for losing either a potential Daubert or Frye challenge, and having the expert’s report or testimony excluded.

If you require the services of a forensic accounting expert in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, fraud deterrence, litigation support, economic damage analysis, business consulting and outsourced CFO services.  Company principal David Anderson is a forensic accounting expert in Philadelphia with more than 30 years of experience in financial and operational leadership positions. He is a Certified Public Accountant, a Certified Fraud Examiner and a Certified Valuation Analyst.  Anderson also has provided expert witness testimony in the Greater Philadelphia area and served as a forensic consultant on both civil and criminal cases.

(NOTE: David Anderson will be on vacation Labor Day week, but his column will return to its regular weekly schedule on Monday, September 9.)