Commercial damages: selecting a financial expert

Whether working for the plaintiff or the defendant, selecting a forensic CPA and commercial damages expert is normally a crucial decision an attorney needs to make in a complex commercial litigation matter.

In most cases, the jury — and even the trier of fact — will not be very well versed in the financial issues. Consequently, the damages expert needs to be a person who can explain complex accounting and financial concepts in a clear, concise and easily understood manner.

A capable expert will be able to explain how these concepts relate to the economic damage model and supporting calculations. As many attorneys recognize, finding a suitable expert can be a challenging process.

Several factors must be taken into consideration before selecting the right expert, particularly if the prospects for deposition or trial testimony are significant. Engaging an experienced and knowledgeable expert who has previously testified in a deposition or trial can be very valuable for the attorney and the client.

The following are some specific factors that should be considered when selecting a commercial damages expert.

Relevant and current training: The expert should have formal forensic training specific to the calculation and presentation of commercial damage analyses in litigation or in a similar environment.

Many organizations that grant supporting forensic credentials require that minimum continuing educational requirements be met to maintain their designations. A typical requirement is 120 hours over a three-year period, or 40 hours per year on average.

Related forensic experience: Attorneys should evaluate the commercial damage expert’s amount of relevant experience. Look for a damage expert who has worked on comparable cases. Though lack of prior industry experience in most cases is not a deal-breaker, having it may be preferable in certain instances.

Previous testimony experience: Attorneys should look into previous cases to see the opinions and reports the damage expert has issued in the past for deposition or trial.
Counsel also should find out whether an expert has been subject to Daubert challenges or had his or her opinion excluded at trial. This is a critical part of the selection process.

Supporting credentials: The damage expert’s credentials are an important factor in the decision-making process. The attorney should look for a damage expert with relevant credentials governed by the American Institute of Public Accountants (AICPA), the National Association of Certified Valuation Analysts (NACVA), and other relevant organizations.

Some of the more pertinent credentials are the following: Certified Public Accountant (CPA), Master Analyst in Financial Forensics (MAFF), Certified Business Appraiser (CBA), Chartered Financial Analyst (CFA), Accredited in Business Valuation (ABV), Certified in Financial Forensics (CFF), and Certified Valuation Analyst (CVA).
The damage expert also should be an active participant in the organizations that monitor his relevant designations.

Communication skills: It’s important that the attorney evaluate the damage expert’s communication skills. The attorney should consider how the expert will communicate his findings during testimony and determine if that communication style will be effective.

Positive references: Attorneys also should ask for prior case references from the expert and contact his colleagues to see if they have any experience working with or against the expert. There are many instances in which attorneys’ partners or colleagues have had prior dealings with a damage expert and can offer insight into whether he or she will be a good fit for a case.

Once the attorney has selected a commercial damages expert, it’s important to keep the following in mind when working with the expert and preparing for the case:
Scope and timing of work: The damage expert should understand the scheduling order and work to develop the expert report and prepare for potential deposition and trial testimony. The attorney should understand the time it will take for the expert to prepare the report based on the scope of the assignment.

Damage theory: Explore and debate various damage theories with the damage expert and decide together which damage theory best matches the facts of the case.
Document requests: Whenever possible, the damage expert should make a formal document request well before discovery closes. This allows for an initial review of preliminary documents and a follow-up document request, if necessary.

It’s imperative to provide the expert with all the necessary documentation for his analysis to enable him to prepare a sound expert opinion or rebuttal report.

The expert report: Discuss the requirements of the expert opinion or rebuttal report and the level of detail that needs to be included.

Deposition and direct and cross-examination: Work with the damage expert to prepare him for direct and cross-examination. Prior to deposition and trial, the attorney and damage expert should evaluate the opinions issued and information used in the expert report in order to anticipate the questions that might be asked in deposition and cross-examination.

It is critical for the attorney to communicate questions or topics that may be asked by opposing counsel so the damage expert can be adequately prepared.

Attorneys who understand the process for selecting and working with a commercial damage expert can improve their chances of successful outcomes. Once engaged, the expert and counsel should work together to make sure that they both understand the scope of the assignment for the report and deposition and trial preparation.
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Stephen L. Ferraro is a partner at Ferraro, Amodio & Zarecki CPAs, based in Saratoga Springs, New York. He can be contacted at sferraro@fazcpas. com.