The U.S. Supreme Court’s Kumho Tire decision in 1999 extended the Daubert admissibility criteria to non-scientific expert testimony—and since then, Daubert challenges to all types of expert witnesses have increased almost 200%, according to the latest annual study by PricewaterhouseCoopers (PwC).  The 2000-2006 Financial Expert Witness Daubert Challenge Study examines nearly 3,000 federal and state court opinions and finds the following trends:

• The number of Daubert challenges to all expert witnesses increased by more than one third between 2005 and 2006—the second consecutive annual increase exceeding 30%.
• Despite increases in the number of challenges—and exclusions—in the past seven years, the percentage of expert exclusions is remaining fairly consistent, at around 47%.
• Approximately 519 Daubert challenges targeted financial experts; of these, 106 took place in 2006—an increase of 14% over 2005.
• Of the 519 challenges to financial experts, 30% were completely excluded, 18% were partially excluded, and 49% were admitted.
• Five federal circuits (2nd, 3rd, 5th, 6th, and 7th) together heard 60% of all financial expert challenges.  In the 9th Circuit, 68% of expert testimony was excluded in whole or in part, compared to only 24% in the 1st Circuit.
• Although plaintiffs’ experts are the most frequent targets, once defendants’ experts are challenged, exclusions are in equal proportion (47% plaintiffs vs. 48% defendants).
• Economists, accountants, and statisticians comprise 50% of all challenges—but they also survive Daubert attacks more successfully than other financial experts.

Notably, “lack of reliability has been the leading cause of a financial expert’s exclusion, followed by lack of relevance and lack of qualifications,” the study says.  In addition, “methodological flaws caused by the misuse of accepted financial/economic methods are a frequent cause of financial expert exclusion.”  Less common was a “maverick” use of novel or untested methods.  Failure to consider a discounted cash flow (DCF) analysis was the basis for expert exclusion in three BV cases, most recently in In re Med Diversified bankruptcy (2005) and Celebrity Cruise Inc. v. Essef Corp. (2006).   

2007 study due soon.  The 2006 study is currently available as a free download at PwC.  The 2007 annual update is slated for formal publication in March 2008, and we’ll keep you posted on its availability.