At the recent AAML/BVR divorce conference, held May 8-10 in Las Vegas, one of the sessions that best conveyed the advantages of an interdisciplinary discussion was on ethics. The topic was “Ethics Violations: How to Avoid the Letter No One Wants to Receive,” and the speakers were Marie Ebersbacher (CBIZ MHM LLC), an appraiser and financial forensics expert, and Lawrence Moskowitz (Perry, Johnson, Anderson, Miller & Moskowitz LLP), a family law attorney.
The goal was to explain how attorneys and financial experts must think about ethical issues that may arise while working on any (divorce or other) engagement so as to ensure they abide by their profession’s rules of ethics and work together in an effective and efficient way. From the get-go, the speakers made clear that experts and lawyers need to be familiar with the rules of ethics that apply in the state in which they practice. Different jurisdictions have different rules.
The conversation began with the basic questions: What is an expert? What is an attorney? In answering those, the speakers quickly established how different the role of an expert is from that of an attorney.
Moskowitz explained that an attorney is retained to apply legal theory to a case and advocate on the client’s behalf. Under the applicable Rules of Professional Conduct (RPC), the lawyer must be competent (RPC 1.1) and diligent. Diligence under RPC 1.3 means being committed to the interests of the client and being a zealous advocate for the client. In contrast, the expert, under Federal Rule of Evidence 702, is there to assist the trier of fact. Ebersbacher explained that doing so means educating the court and the jury by providing an analysis based on observable data and facts.
In a nutshell, while the attorney advocates for the client, the expert must only advocate for his or her opinion.
The speakers broached the tricky subject of expert-attorney interaction by way of a hypothetical. Assume a situation in which an expert does an analysis for an attorney representing the owner spouse. What happens if the expert arrives at a capitalization rate of 25% and the attorney, aiming for a low valuation (which benefits the owner-client), prods the expert to use a higher cap rate?
Ebersbacher emphasized that an expert must never take instructions from counsel on matters that normally require the skills and analysis of an expert. She also noted that, anytime the expert has evidence that contradicts the position the attorney has taken on behalf of the client, the expert needs to speak up. It is important to vet all discrepancies ahead of time, Ebersbacher noted. She added that, anytime an expert’s position on an issue was easily rebuttable by the opposing party, that expert’s testimony risked being dismissed in court as biased.
However, Ebersbacher also noted that an expert may quantify facts that support the attorney’s argument. For example, in providing a valuation opinion, an expert may consider changes to the company between the date of marriage and the date of separation or account for acquisitions that may have contributed to an increase in the value of the company.
Moskowitz, giving the attorney’s perspective, noted that, as an advocate on behalf of the client, the attorney will not offer an expert opinion that may hurt the client’s case. But Moskowitz also pointed out that, under the rules, the attorney has an obligation to show candor toward the court and be truthful in statements to others (RPC 3.3 and 4.1).
Who retains the expert?
The speakers made some important points as to who should retain the expert: the attorney or the attorney’s client (litigant)? Ebersbacher believed it was good practice for the attorney to retain the expert and for the litigant to pay expert fees directly. She cautioned experts about working for pro se litigants as those clients often wanted the expert to give legal advice—something the expert is not allowed to do. Moskowitz believed it was a good strategy for the attorney to hire the expert because doing so increased the chances that the expert’s work would be protected from discovery under the work product doctrine.
False tax return problem.
One problem area the speakers discussed was what to do when the attorney or the expert finds out that the client filed false joint tax returns in the past and the opposing spouse is not aware of this misdeed. According to Moskowitz, the rules are clear that an attorney must not make false representations to “the tribunal.” The term “tribunal,” under the rules, means “administrative agency” and includes the Internal Revenue Service. If the false tax return becomes an issue during trial, the attorney must “take reasonable remedial measures, including, if necessary, disclosure to the tribunal” (RPC 3.3), Moskowitz explained. The attorney likely will have to urge the client to amend the tax returns.
At the same time, the attorney need not do anything if he or she finds out about the tax return after the fact. Put differently, the attorney has no obligation to deal with past conduct where the issue is not in front of the tribunal. That said, the attorney should ensure the falsified return will not be used in the future, Moskowitz said.
Similarly, an expert may discover, after submitting her expert report, that the litigant filed a tax return that understated income and formed the basis of the expert’s analysis. What is the expert to do if the opposing spouse does not know about the falsification and the litigant plans to use the return during the upcoming trial?
Ebersbacher noted the expert would have to advise the retaining attorney that the expert would not testify. But if the expert was identified as a witness, the opposing side might try to call the expert, following the applicable state law on discovery of an expert not intended to be called as a witness. Ebersbacher said that, even if the expert merely suspected the litigant understated income, the expert would have to discuss the issue with the attorney.
And what if the expert only discovers the falsification of the tax return after the proceeding concluded? Ebersbacher was clear about what to do in this situation as well. “Fire the client. Reevaluate your forensic skills.” She added: “Fortunately or unfortunately, there is no affirmative obligation to bring it to the court’s attention.”
Experts and attorneys assume very different roles in litigation and, even though they work on the same case, their goals and performances may come into conflict. To avoid ethical missteps and a disastrous outcome in the case, it is vital that there is open communication between the expert and the retaining attorney and that both know, and are committed to, the rules of ethics and the professional standards.
To read more on the topic of divorce and business valuation, be sure to check out the Business Valuation Update, BVR’s monthly online and print newsletter. In addition, our BVLaw platform includes nearly 4,000 cases and digests concerning important business valuation issues such as divorce, estate and gift tax, lost profits, and more.
Sylvia Golden, Esq., is executive legal editor at Business Valuation Resources. She received her J.D. from the University of California at Berkeley, School of Law and is an active member of the State Bar of California.