Daubert challenges to financial experts

Transcription

1 Daubert challenges to financial experts A yearly study of trends and outcomes

2 Daubert challenges to financial experts

3 Table of contents About the PwC Daubert Study 3 Overview 4 Observations from 15 Years of Daubert Challenges to Financial Experts Results How have exclusion rates changed over time? 15 Why are financial experts being excluded? 16 What types of cases have higher exclusion rates? 18 Who experiences higher exclusion rates Accountants, Appraisers, or Economists? 20 Who experiences higher exclusion rates Plaintiff or Defendant-side experts? 22 Where are exclusion rates highest? 24 When lower court Daubert challenge rulings are appealed, 26 how often are they overturned? Methodology 28 Authors 29 Appendix 30 1

4 2 Daubert challenges to financial experts

5 About the PwC Daubert Study 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 in federal jurisdictions, including financial expert testimony. Subsequently, many state courts also adopted the Daubert standard. In this study, we analyze post-kumho Tire challenges to financial expert witnesses under the Daubert standard. By examining 15 years of Daubert challenges to financial experts ( ), we seek to highlight trends in Daubert challenges to financial experts and to provide insight into why experts were excluded. Between 2000 and 2014, we identified 7,299 cases that cite Kumho Tire. From these cases, we evaluated 9,778 Daubert challenges to experts of all types in order to identify the type of expert being challenged. 1 We then further analyzed the 1,784 Daubert challenges related to financial experts (see Figure 1). 2 In this study, we present the results of our analysis and look at some key trends. Figure 1: Cases citing Daubert and/or Kumho Tire Cases citing Daubert and/or Kumho Tire ( ) 7,990 Daubert only 6,747 Daubert & Kumho 7,299 cases 552 Kumho only 9,778 challenges 1 7,994 Non-Financial expert challenges 1,784 Financial expert challenges 1 Some case opinions citing Kumho Tire cover challenges to more than one expert. In addition, some case opinions cite Kumho Tire but do not specifically relate to a Daubert challenge. 2 Our study is limited to written opinions citing Kumho Tire. As such, the related results should not be presumed to represent all possible financial expert challenges (e.g. opinions on financial experts that do not specifically cite Kumho Tire, bench decisions, motions in limine, etc.) About the PwC Daubert Study 3

6 Overview 15 year observations Observations from analyzing fifteen years of Daubert challenges to financial experts. In legal territory Financial expert testimony is often excluded if the court considers it a legal conclusion. Such legal conclusions are typically the domain of the trier of fact. The hand on the gate Daubert established judges as gatekeepers between juries and testimony offered by experts. But how heavy should their hands be on the gate? Often, rather than excluding financial expert testimony, judges prefer that flaws in the testimony be exposed through cross-examination at trial. Data dangers The use and misuse of data is a common stumbling block for financial experts. We ve seen financial experts be excluded for various reasons, including not providing sufficient support for calculations and not performing due diligence on data received from clients. Are you qualified? Rule 702 states that experts may testify if they are qualified based on their knowledge, skill, experience, education, or training. However, the interpretation of what that requisite knowledge, experience, and skill is can vary widely. Better luck next time In the past few years, we have seen several instances where the court allowed the expert to remedy challengeable issues in his or her original report by submitting a revised report. A rule of thumb In the landmark 2011 Uniloc decision, the Court described the royalty rate rule of thumb in intellectual property cases as a fundamentally flawed tool that fails to tie the royalty rate to the specific facts and circumstances of the case. 4 Daubert challenges to financial experts

7 2014 results An analysis of data related to Daubert challenges to financial experts from 2000 to How How have exclusion rates changed over time? Financial expert Daubert challenges increased again in 2014, to the highest level we have seen in our study. At 36%, the 2014 financial expert exclusion rate was the second lowest in the history of our study. Why Why are financial experts being excluded? In both 2014 and over the last 15 years, lack of reliability was the primary reason for the exclusion of financial experts. What What types of cases have higher exclusion rates? Financial expert Daubert challenges most commonly occur in breach of contract/fiduciary duty cases. Over the last 15 years, the exclusion rates of financial experts have been highest in intellectual property, fraud, and bankruptcy cases. Who Who experiences higher exclusion rates? Of the three most common financial expert types (accountants, economists, and appraisers), economists faced the highest number of challenges in 2014 and appraisers experienced the highest exclusion rate. In addition, plaintiff-side financial experts experienced twice as many challenges as defendant-side experts in 2014, but defendant-side experts had a slightly higher exclusion rate. Where Where are exclusion rates highest? In 2014, challenges most frequently occurred in the Second, Fifth, Sixth, and Ninth circuits. Exclusion rates were highest in the Fourth and Seventh circuits. When When Daubert rulings are appealed, how often are they overturned? Appellate courts have agreed with lower courts on financial expert Daubert rulings approximately 70% of the time. However, appellate court agree rates are lower in instances where the lower court excluded the financial expert. Overview 5

8 Observations from 15 Years of Daubert Challenges to Financial Experts 6 Daubert challenges to financial experts

9 On the fifteenth anniversary of the Kumho Tire decision, we present some observations of recurring themes we have seen in challenges to financial experts, as well as selected illustrative cases. In legal territory The hand on the gate Data dangers Are you qualified? Better luck next time A rule of thumb In legal territory In case decisions throughout the past 15 years, we have observed financial experts being excluded or partially excluded for offering testimony that veered into the territory of legal conclusions. This can often happen when financial experts opine on contractual obligations or conclude on the interpretation of disputed contracts in the context of their financial testimony. However, these questions are typically the domain of the trier of fact, not of the expert. Illustrative cases In this property damage matter, plaintiff sued to recover loss of use damages. Defendant s expert, a Certified Public Accountant (CPA), was retained to rebut plaintiff s damages calculations. Plaintiff challenged the CPA partially on the grounds that the expert s opinions amounted to improper legal conclusions. The court agreed that the proposed testimony regarding the propriety of loss of use damages amounts to the proposed expert (incorrectly) providing the jury with the applicable law, and excluded that portion of the expert s testimony. (Level 3 Communications, LLC v. Floyd, 1: , 2011) In this breach of contract matter, the defendant challenged the plaintiff s valuations expert for relying upon unqualified speculation about contractual interpretation, the parties purported intent and subjective interpretation of purported facts and documents that are unreliable. The expert conceded that he was not an expert in legal intent or in interpreting contractual intent. The court agreed and excluded the portion of the expert s report regarding such intent. (Cincinnatus Partners I, LP v. Farm Bureau Prop. & Cas. Ins. Co., 1:11- cv-427, 2014) In this fraud matter related to a securities class action, plaintiffs retained an accounting expert to testify to the defendant s alleged channel stuffing. The court found that the expert s pull in opinion on the question of whether the contracts at issue allowed defendants to improperly ship products to customers resulted in improper legal conclusions. (In re Novatel Wireless Securities Litigation, 08-cv-1689, 2011) Observations from 15 Years of Daubert Challenges to Financial Experts 7

10 Illustrative cases (Cont d) In this fraud case, the plaintiff challenged the rebuttal report and testimony of defendant s finance expert. The expert s testimony was excluded for several reasons, including that his report contained legal conclusions related to the contractual obligations of the defendant in disclosing payments to the plaintiff. The court found these legal conclusions by an expert to be inadmissible. (American Hardware Mfrs. Ass n v. Reed Elsevier Inc., 03 C 9421, 2009) In this breach of contract case, the plaintiff argued that defendant s expert, a forensic accountant, should not be permitted to provide damages testimony at trial because the expert s opinions contained legal conclusions. The court ruled that it would not permit [the expert] to place his expertise behind any conclusions that are properly legal conclusions for the jury to reach after applying the law to the facts of the case. (Leon v. Kelly, CIV , 2009) In this securities litigation matter, the plaintiff challenged the admissibility of one of the defendant s financial experts for several reasons, including that the expert made inadmissible conclusions related to the plaintiff s conduct being manipulative and statements about plaintiff s duties and responsibilities. The court agreed with the plaintiff and held that expert testimony as to legal conclusions that will determine the outcome of the case is inadmissible. The court noted that the expert may present and analyze facts indicating manipulation, but may not embrace the ultimate issue of whether Defendant s acts were, indeed, manipulative. (Hershey v. Pacific Inv. Management Co. LLC, 05 C 4681, 2010) The hand on the gate The Supreme Court s decision in the Daubert case provided judges a gatekeeping role in admitting expert testimony. In performing this gatekeeping role, courts have generally been advised to not keep a heavy hand on the gate, and to work under the presumption of admissibility. 3 In 15 years of court decisions related to financial experts, we have seen, on average, approximately 55% of financial experts admitted by courts after being challenged. Across this time span the most common reason for financial expert exclusions has been lack of reliability. However, evaluating reliability can be tricky. While an expert may use a generally accepted methodology, does the poor application of the methodology make the expert s testimony unreliable, or is that a matter for the trier of fact to decide? Depending on the specific facts and circumstances of the case, we have often seen the court admit a financial expert and allow for such issues to be illuminated through rigorous cross-examination. 3 See MacDermid Printing Solutions, Inc. v. Cortron Corp., 3:08cv1649 (MPS), June 12, Daubert challenges to financial experts

11 Illustrative cases In this antitrust case, defendant challenged the plaintiff s expert economist and related damages testimony. The district court denied the challenge because the defendant s arguments went to the weight, not the admissibility, of the expert s testimony stating that the court must be sure not to exclude an expert s testimony on the ground that the court believes one version of the facts and not the other. The court noted that the defendant s many well-supported attacks on the underlying data employed and assumptions made by [the expert] in reaching his assumed damage calculation...are best reserved for cross-examination. The court also explained that the expert provided reasoned explanations for the assumptions made and presented viable arguments to support his data. (In re Scrap Metal Antitrust Litigation, , 2008) In this bankruptcy matter, the debtor challenged the creditor s damages expert, a CPA and Certified Fraud Examiner (CFE), because the expert lacked the knowledge about the content and methodology of the study on which the expert relied for his analysis. The court stated concerns related to lack of knowledge bear on the weight, rather than the admissibility, of the expert s testimony. The court allowed the expert to cure his lack of knowledge and answer other questions during cross-examination. (In re Texans CUSO Ins. Group LLC, BJH-11, 2010) In this breach of contract case, the court found that the issues raised by the defendant did not go to the reliability of the proposed testimony of the plaintiff s appraisal expert, but to its accuracy and weight. The parties argued about specific numbers that had been input into a formula, but the court deemed this an improper basis upon which to exclude expert testimony. The court noted that the defendant would be free to cross-examine the expert on these points during trial. (Stuckey v. Online Resources Corp., 2:08-cv-1188, 2012) In this breach of contract case, the court had to decide whether the defendant s valuations expert reliably applied the destruction of business valuation method to the case. The court warned against keeping a heavy hand on the gate, and indicated there should be a presumption of admissibility of evidence. Noting that the expert s application of the methodology found enough support in the facts to pass through the Daubert gate, the court denied plaintiff s motion to exclude the expert. (MacDermid Printing Solutions, Inc. v. Cortron Corp., 3:08cv1649 (MPS), 2014) In this intellectual property dispute related to copyright claims between two Spanishlanguage soap operas, defendants retained a CPA as an expert to rebut the report of plaintiff s expert related to amounts of copyrightinfringing profits attributable to plaintiff. Specifically, the plaintiff attacked the expert s deduction of unavoidable expenses or fixed costs in his infringement damages calculation. The court denied the motion, saying that plaintiff s challenge was one which relates to the weight of [the expert s] opinions, not admissibility. (Latele TV, C.A. v. Telemundo Communs. Group, LLC, CIV-GOODMAN, 2014) Observations from 15 Years of Daubert Challenges to Financial Experts 9

12 Data dangers Federal Rules of Evidence Rule No. 702, which incorporates precedent set by Daubert, Kumho Tire, and other related cases, permits a qualified expert to testify if, among other factors, the testimony is based on sufficient facts or data. This factor has been a common stumbling block for financial experts, and is the most frequent reason for reliability exclusions. Indeed, whether the expert relied on enough data to form an opinion, or failed to consider necessary information, can impact the outcome of a Daubert challenge. Illustrative cases In a tortious interference and breach of contract case, the plaintiff filed an appeal against the district court s decision to exclude its expert witness. The district court stated that the plaintiff s expert witness had little to no familiarity with how the damages presented in his expert report were calculated, as they were provided to him by the plaintiff and the expert did not undertake an analysis or perform due diligence to verify the calculations. The district court determined that the expert s opinion was not based on sufficient facts and data and, thus, could not be considered reliable. The appellate court affirmed the district court s decision to exclude. (Auto Industries Supplier Employee Stock Ownership Plan v. Ford Motor Co., , 2011) In a breach of contract case, the plaintiff s expert aimed to calculate the premium paid by the plaintiff for defendant s product based on it being labeled as all natural. However, the expert did not review or rely on all the relevant information in pleadings or testimony to calculate the premium. The court stated that the expert s testimony was based on, at most, a cursory review of the underlying record in this action. His report shows that [the expert] reviewed the complaints, but no other pleadings or testimony. He did not read the plaintiffs depositions [ ] Therefore, the court deemed the expert s testimony to be unreliable. (Weiner v. Snapple Beverage Corp., 07-cv-8742, 2010) In a fire-related insurance claim, defendant s owner served as the financial expert and calculated a building s pre-damage value as its replacement cost less depreciation. Because this calculation essentially relied on only two figures, the court focused on determining the reliability of those two figures. The expert was unable to provide sufficient support for the two numbers used. In addition, the court found that the methodology used had not been reviewed or generally accepted in the relevant appraisal community. The expert s opinion was therefore excluded from trial. (James River Ins. Co. v. Rapid Funding, LLC, 07-cv-01146C, 2009) In this racial discrimination case, defendant retained an expert statistician and director of an economics consulting firm to provide testimony based on statistical methodology. Plaintiffs argued that a third-party economics firm, not the expert himself, performed more of the work in creating the analysis and writing the report. The court allowed the expert to testify because the rule does not suggest that an expert cannot appropriately rely upon others to help, and it would be unrealistic to conclude otherwise. (Brand v. Comcast Corp., 11 C 8471, 2014) 10 Daubert challenges to financial experts

13 Are you qualified? Another factor under Rule 702 is that an expert be qualified as such based on knowledge, skill, experience, or education. Over the course of our study, we have seen courts ascribe different weights on each of these factors. For example, is industry experience necessary for a lost profits expert if that expert has significant experience in performing lost profits calculations over a wide range of industries? Or is a college level course in statistics sufficient qualification to incorporate statistical analysis in a lost profits calculation? The cases below provide examples of the many nuances courts have used in determining whether experts are qualified under the Daubert standard. Illustrative cases In a breach of contract case, the court denied a challenge that a CPA should be excluded because he was not a statistics expert. The court noted being qualified means the expert should have achieved a meaningful threshold of expertise in the given area. The court ruled that regardless of the fact that the expert had taken only one statistics course in college, the expert could provide statistical analysis as part of his lost profits calculation because he had meaningful experience in calculating lost profits. (Packgen v. Berry Plastics Corp., 2:12-cv , 2014) In this intellectual property matter, plaintiff retained a CPA and certified forensics expert with 23 years of experience in business valuation to provide testimony regarding lost profits related to copyright violations of novels and other works written by the plaintiff that defendant made into films. The defendant challenged the expert, claiming that he did not have enough experience related to the film industry, but the court ruled that the expert s broad business valuation experience qualified him to testify. However, the court ultimately excluded the expert s testimony for a lack of relevance and reliability. (Baisden v. I m Ready Productions Inc., Civil Action No. 4:08-CV , 2010) In this breach of fiduciary duty matter, a supremely qualified expert was excluded for lack of reliability. The plaintiff hired a professor of accounting and chair of an accredited MBA program to provide testimony relating to the valuation of a business based on information provided by counsel. The expert had never completed a full valuation of a closely held business, so the court concluded that the expert did not qualify as an expert in valuing the plaintiff s closely held business. The court also found numerous other deficiencies in the expert s report and concluded that the expert was unreliable. (MDG International, Inc. v. Australian Gold, Inc., 1:07-cv-1096, 2009) In this breach of contract matter, plaintiff sued defendant related to an agreement to use plaintiff s logo on any album or recording produced by defendant for the artist known as Meat Loaf. Defendant challenged plaintiff s valuation expert as unqualified to testify on damages. The court disagreed and found that despite having minimal experience in evaluating a contract or logo right, [the expert s] extensive experience in business valuation, including valuation of business units and business assets, [was] sufficient to qualify him as an expert on the value of the contract right in this case. (Popovich v. Sony Music Entertainment, Nos , , 2007) Observations from 15 Years of Daubert Challenges to Financial Experts 11

14 Better luck next time While a Daubert exclusion typically means game over for an expert s involvement in a case, we have recently seen courts provide financial experts a chance to revise or update their testimony before providing a final decision on the expert s admissibility. Illustrative cases In this wrongful death case, plaintiff s expert economist was challenged because his calculation was based only on plaintiff s counsel s narrative. The court allowed the plaintiff 21 days to submit a full report from the expert in which he could more fully explain his assumptions used. The court required the expert to identify the facts and any published data on which he relied in making his assumptions and calculations. The court also allowed 14 days after the expert s new submission for the defendant to file objections. (Howell v. Avante Services, LLC, CIV.A , 2013) In this breach of contract case, plaintiff s expert opined on damages related to restaurants operated by the plaintiff. The court criticized the expert s use of a 4% growth rate without any underlying data supporting that rate. However, since the defendant failed to timely submit the motion to exclude, the court allowed the plaintiff s expert to amend his testimony and provided the defendants an opportunity to question the expert by deposition or written statement. (Meltzer/Austin Rest. Corp. v. Benihana Nat l Corp., A-11-CV-542-AWA, 2014) In an intellectual property case, the plaintiff retained a music licensing expert to establish damages attributable to the defendant s use of plaintiff s song in a video promoting a defendant-sponsored event. The plaintiff objected to the expert s fair market valuation of the license which was based on a perpetual term of use. The court acknowledged that the expert s calculation of damages should have been based on actual rather than perpetual use, and this flaw was large enough that her report lack[ed] good grounds for [its] conclusions. However, the court deemed the flaw to be eminently correctable and provided the expert an opportunity to submit a revised report. The expert submitted a revised report and the defendant again moved to preclude the expert s testimony. However, the court denied the challenge resulting in the inclusion of the expert report. (Beastie Boys v. Monster Energy Co., 12-cv-6065, 2014) In this intellectual property case, defendant moved to exclude the reasonable royalty calculation of the plaintiff s expert. The court ruled that the expert employed impermissible and arbitrary methodologies to determine both the royalty base and the royalty rate in his damages opinion. Specifically, the expert improperly skipped the task of apportioning the royalty base to the allegedly infringing product feature and did not tailor the royalty rate to the specific facts of this particular case. The court determined that based on his present damages report [the expert] cannot be allowed to lead the jury into certain error. However, the court added that, in consideration of its due process rights, the court is loathe to leave [plaintiff] stripped of any damages expert testimony whatsoever. Therefore, the court ruled that because the plaintiff would otherwise be left without any real evidence of damages, it would allow one more opportunity to offer a new expert report on damages. The court also allowed the defendant to update its own damages expert report. (Dynetix Design Solutions, Inc. v. Synopsys, Inc., C PSG, 2013) 12 Daubert challenges to financial experts

15 A rule of thumb An intellectual property case from 2011 (Uniloc USA, Inc. v. Microsoft Corp.), which was included in our 2011 study, was widely seen as a landmark decision in intellectual property cases dealing with reasonable royalty calculations. In the case (described in detail below), the court rejected a 25% rule of thumb to approximate a reasonable royalty rate. The court described the rule of thumb as a fundamentally flawed tool because it fails to tie the royalty rate to the particular facts of the dispute and does not differentiate between industries, technologies, or parties. In our study, we have also seen other instances where expert testimony was excluded due to the use of rules of thumb and generalizations that did not relate to the specific facts of the case. Illustrative cases The Uniloc decision: The plaintiff-appellant s expert witness, an accountant, used a 25% rule of thumb to calculate an estimate of the damages to be awarded based on a reasonable royalty. The district court allowed the expert s testimony, since the rule of thumb was widely accepted. However, as part of appeal proceedings, the appellate court evaluated whether the rule of thumb was a legally adequate methodology. Despite the fact that the 25% rule was a commonly referenced rule of thumb originally based on examination of years of licensing and profit data across multiple companies and industries, the appellate court found that as a matter of Federal Circuit law... the rule of thumb is a fundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiation because it is too abstract and had no relation to the specific facts of the case. The expert was unable to support his use of the 25% royalty rate beyond stating that it was a generally accepted practice. The appellate court ruled that the expert s starting point of a 25% royalty had no relation to the facts of the case and as such, was arbitrary, unreliable, and irrelevant. As a result, the defendant-cross appellant was granted a new trial on damages. (Uniloc v. Microsoft, , , 03-CV-0440, 2011) In another intellectual property dispute, originally before the Eastern District of Texas court then challenged on appeal, the appellate court excluded testimony from the plaintiff s damages expert whose royalty rate relied on a 50/50 profit split. The 50/50 profit split, also known as the Nash Bargaining Solution, called for each bargainer to receive 50% of the profits in any negotiation. Invoking the Nash Bargaining Solution, the expert assumed that each party would take 50% of the profits and then adjusted that split based on the relative bargaining power of the two entities. However, the Federal Circuit excluded the expert s testimony because it failed to account for the particular facts of the case. (VirnetX, Inc. v. Cisco Sys., 6:10-CV-417, , 2014) In this intellectual property case, plaintiff hired a CPA as its expert to provide lost profits testimony as well as opine on a reasonable royalty. The defendant also retained a CPA to rebut the damages testimony provided by the plaintiff s expert. The court excluded the testimony of the defendant s expert because the expert used a 50% ceiling in calculating a reasonable royalty, which the court found was not tied to the specific facts of the case, referring to the Uniloc decision and the similarities found in the VirnetX decision. (Numatics, Inc. v. Balluff, Inc., , 2014) Observations from 15 Years of Daubert Challenges to Financial Experts 13

16 2014 Results 14 Daubert challenges to financial experts

17 ? How have exclusion rates changed over time? In 2014, there were 209 challenges to financial expert witnesses an increase of 19% from the prior year (see Figure 2). This is the highest number of challenges we have seen in a single year since we started collecting data on Daubert challenges. Figure 2: Daubert challenges and exclusions to financial expert witnesses, challenges Of the 209 challenges against financial experts in 2014, 75 were successful. That is, 36% of financial expert witnesses were excluded or partially excluded as a result of Daubert challenges (see Figures 3 and 4). This exclusion rate is the second lowest exclusion rate we have seen in our study Daubert challenges to financial expert witnesses Daubert exclusions, in whole or in part 75 exclusions Figure 3: Outcome of Daubert challenges to financial expert witnesses Figure 4: Outcome of Daubert challenges to financial expert witnesses, Financial expert challenges 15-year average 44% 36% Excluded in whole or in part 100% 80% 60% No decision made Included 53% Included 61% 3% 3% 40% Partially excluded No decision made 20% Lowest: 29% Highest: 59% Excluded 0% Results 15

18 ? Why are financial experts being excluded? Federal Rule of Evidence No. 702, Testimony by Experts, governs the admissibility of expert witness testimony and incorporates the precedent set by Daubert, Kumho Tire, and other rulings. Rule 702 provides that a qualified expert s testimony is admissible if it is both relevant and reliable, and identifies criteria for evaluating relevance and reliability. We used the criteria from Rule 702 to evaluate the reasons for financial expert witness exclusions. In 2014, financial experts were most commonly excluded because their testimony was not considered reliable (see Figure 6). Reliability, either on its own or in combination with other factors, has consistently been the main reason for financial expert witness exclusions over the course of our study (see Figure 5). Figure 5: Reasons cited in financial expert exclusions, Relevance only 181 Reliability + Relevance 108 Reliability only 339 Reliability + Relevance + Qualification 23 Relevance + Qualification 14 Reliability + Qualification Missed deadline only Qualification only 60 Figure 6: Reasons cited in financial expert exclusions, 2014 Reliability only Relevance only Qualification only Reliability + Relevance Reliability + Qualification Relevance + Qualification Reliability + Relevance + Qualification Missed deadline only Daubert challenges to financial experts

19 When excluding testimony due to a lack of reliability, courts most frequently cited a lack of sufficient data or the use of methods that are not generally accepted as reasons for exclusion. The second most common reason for exclusion in 2014 was that the testimony was not considered relevant to the case. This again is consistent with historical trends. When a financial expert is excluded for lack of relevance, it is often caused by testimony that was beyond the scope of the financial expert s role (e.g. testimony related to legal matters) or testimony that will not help the trier of fact (e.g., the opinion is not tied to the specific facts of the case). In 2014, we saw two cases where the financial expert was excluded because the expert s testimony was not submitted on a timely basis. In one of these cases, the decision to delay submission may have been a tactical move by counsel (see BRC Rubber v. Continental Carbon case below). Illustrative case In this breach of contract case, plaintiff presented its Vice President of Materials to testify on plaintiff s damages, including future damages. Defendant objected to the inclusion of the damages testimony since plaintiff did not designate or qualify the Vice President as an expert, but as a fact witness. The court stated that it was not the case that the disclosure was late by a trivial amount of time and suspected that plaintiff s choice not to disclose the Vice President as an expert witness was strategic. The court opined that by disclosing the witness as a fact witness rather than an expert, plaintiff denied [defendant] the opportunity to take certain countermeasures such as attempting to disqualify the expert testimony on the grounds set forth in Daubert. The court granted defendant s motion to strike, concluding that the damages testimony was based on information outside of the witness s personal knowledge and that plaintiff s failure to identify its witness as an expert was neither justifiable nor harmless. (BRC Rubber & Plastics v. Continental Carbon Co., 1:11-cv-190, 2014) Illustrative case In this breach of contract/fiduciary duty case, plaintiff s arguments related to royalties owed to the 1970 s pop band, the Bay City Rollers. The plaintiff s expert, a CPA, was excluded for inconsistencies in his report and for not using reliable methods in arriving at his conclusions regarding [defendant s] records and the release based damages estimate. The court also took issue with the mathematical qualifications of plaintiff s expert related to the calculation of royalties because the expert could not explain the formula his staff used and whether that formula included a variable other than time and admittedly relied on another s expertise to produce his opinion on this subject. (Faulkner v. Arista Records LLC, 07 CIV (LAP), 2014) 2014 Results 17

20 ? What types of cases have higher exclusion rates? Figure 7: Daubert challenges to, and exclusions of, financial expert witnesses, by case type, Excluded in whole or in part Included or no decision made Breach of contract/ fiduciary duty 472 Insurance claim 51 43% 57% Bankruptcy 60 61% Personal injury 61 Securities litigation 67 Product liability 81 57% 43% 52% 48% 56% 44% 50% 50% 39% 55% 43% 57% Other case types* 311 Discrimination % 67% 33% Exclusion/inclusion rate 51% 49% 49% 51% Antitrust 129 Fraud 205 Intellectual property Daubert challenges to financial experts Number of challenges * Includes case types such as asbestos claims, civil rights, criminal proceedings, medical malpractice, real estate, and wrongful death.

21 Financial experts testify in a wide range of disputes. The most common cases where we see challenges to financial expert witness testimony are cases arising from a breach of contract or fiduciary duty (see Figure 7). For the 15 years captured in our study, intellectual property, fraud, and bankruptcy cases had the highest rates of exclusion for financial expert witness testimony (see Figure 7). In this intellectual property case, plaintiff sued defendant for infringing upon certain patents that defendant used in its Nintendo Wii gaming console. Plaintiff s financial expert issued a damages report regarding defendant s alleged infringement. The court excluded the expert citing a lack of transparency in the methodology used in the expert s report, and found the report to be neither relevant nor reliable. Specifically, the court noted that the expert s consideration of all the evidence in totality is a poor substitute for the required analysis that parses an alleged infringer s profits for patented versus non-patented features. However, the court did give the expert the opportunity to amend his report and recalculate a reasonable royalty. The expert filed an amended report which was again challenged by defendant, but the case settled before a written ruling on the challenge could be issued. (ThinkOptics, Inc. v. Nintendo of America, Inc., 6:11-cv-455, 2014) Illustrative case Illustrative case In this breach of contract matter, plaintiff s Winnebago motor home experienced a number of breakdowns and component failures. The parties entered into a settlement agreement to repair the motor home, but plaintiff alleged the defendant breached the agreement. Defendant challenged the reliability of the methodology used by the plaintiff s expert, an appraiser, to determine the diminished value resulting from the body damage and repair attempts. The expert s stated methodology included assessing the vehicle s book value, the amount and severity of damage based on repair costs, the type of damage, and the nature of the vehicle. The court ruled that the plaintiff failed to demonstrate the reliability of its expert because 1) the expert conceded that his methodology had not been subjected to peer review, 2) there were no applicable industry standards, 3) the expert had not tested the accuracy of his methodology, 4) the expert did not know his methodology s rate of error, and 5) the expert s methodology was not generally accepted. In addition, by not determining the severity of the damage, the expert did not even follow his own stated methodology. (Deficcio v. Winnebago Industries, (MLC), 2014) 2014 Results 19

22 ? Who experiences higher exclusion rates Accountants, Appraisers, or Economists? The most common types of experts engaged to provide financial expert witness testimony are accountants, appraisers, and economists. We also see other financial experts such as statisticians, financial analysts, finance professors, etc. In 2014, economists faced the highest number of Daubert challenges (see Figure 8). Of the three most common financial experts types, accountants and economists have been the most frequently challenged experts over the last 15 years. Figure 8: Daubert challenges to financial expert witnesses, by expert type, % 80% 60% 40% 20% 0% Appraiser Accountant Economist Other financial Illustrative case In this wrongful death case, plaintiff hired two forensic economists to provide estimates of total economic loss resulting from the death. The defendant challenged the opinions of plaintiff s experts related to lost future earnings and lost household services as being speculative and based on unrealistic assumptions that disregard important facts. Specifically, the experts analysis was based on national averages for the deceased s age cohort and educational level, without accounting for personally identifiable information such as criminal record and employment history. The court excluded both plaintiff s experts, stating that their analytical framework bears the same relationship to admissible expert testimony as a paint-by-numbers kit bears to fine art. (Lee v. City of Richmond, 3:12-cv-471, 2014) 20 Daubert challenges to financial experts

23 When it comes to the exclusion of financial expert witness testimony, economists and accountants have typically been excluded at the lowest rate (see Figure 9). Figure 9: Exclusion rates for financial expert witnesses, by expert type, 2014 vs 15 year average Percentage excluded in whole or in part In 2014, appraisers had the highest exclusion rate. However, consistent with the general trend in exclusion rates, the exclusion rates in 2014 for all financial expert types were lower than their historical averages (see Figure 9). Economist 41% 36% Accountant 42% 35% 46% 48% 42% 32% Appraiser Other financial year average Illustrative case In this product liability case, plaintiff hired a well-known fine art appraiser to examine and assess the value of damaged artwork. The artwork was damaged due to a fire allegedly caused by defendant s product. Plaintiff s expert prepared a report which contained photos of the destroyed artwork and the values assigned to those works, but lacked detailed and complete information elucidating how the expert arrived at the damage figure. Additionally, the expert did not provide insight into how she applied industry appraisal standards to the case, and only made a passing reference to those standards. The court ruled that the opinion of a highly qualified expert witness using a wellaccepted methodology is nevertheless unreliable, and therefore inadmissible, if the expert fails to explain how her opinion follows logically from the application of the methodology to the specific facts of the case. (Oleg Cassini, Inc. v. Electrolux Home Products, 11 Civ. 1237, 2014) 2014 Results 21

24 ? Who experiences higher exclusion rates Plaintiff or Defendant-side experts? Over the course of our study, there have consistently been twice as many Daubert challenges to Plaintiff-side financial experts as there have been to Defendant-side financial experts was no different (see Figure 10). Figure 10: Daubert challenges to financial expert witnesses, plaintiff-side vs. defendant-side, Defendant Plaintiff 69% 31% Plaintiff 66% Defendant 34% Illustrative case In this antitrust case, plaintiff brought action against defendants claiming violations of the Lanham Act and the Sherman Antitrust Act. Plaintiff s expert, an economist, offered testimony to support the plaintiff s damages theory. The expert conducted statistical regression analyses of pricing and service data, but the court found multiple problems with the expert s analyses. For example, very minor changes in arbitrarily selected model parameters could entirely alter the model s conclusions. The court ruled that the expert s choice of parameters was insufficiently methodological to be admissible under Daubert, and excluded the expert s testimony. (Reed Constr. Data, Inc. v. McGraw-Hill Cos, 09-CV- 8578, 2014) Daubert challenges to financial experts

25 Interestingly however, Defendant-side financial experts experienced a marginally higher exclusion rate than Plaintiff-side financial experts, both in 2014 and on average over the course of our study (see Figure 11). Figure 11: Exclusion rates for financial expert witnesses, plaintiff-side vs. defendant-side, % 80% Exclusion rate for defendant-side experts 60% 40% 20% 0% Exclusion rate for plaintiff-side experts 2014 Exclusion rate: 38% 2014 Exclusion rate: 35% Illustrative case In this breach of contract case, plaintiff alleged that defendants breached the terms of a lease agreement. As its expert, plaintiff hired as its expert a CPA who had been performing the plaintiff s accounting and tax work since Defendants argued that the expert did not prove the damages for future lost profits with a reasonable degree of certainty and exactness. The court denied defendants motion to exclude the expert because challenges to the factual basis for an expert s opinion does not generally affect its admissibility, and the court determined that it was up to the defense to test, through vigorous cross-examination, whether the expert s conclusions were accurate and should be accepted by the jury. (Soltesz v. Rushmore Plaza Civic Ctr, 09-CV-8578, 2014) 2014 Results 23

26 ? Where are exclusion rates highest? The Daubert criteria are the standard of review for the admission of expert witness testimony in the federal courts. Some states have also adopted Daubert factors as their standard of review. Looking over the last 15 years, the Second, Tenth, and Eleventh Circuits have, on average, had the highest exclusion rates, while the Eighth Circuit has, on average, had the lowest exclusion rate (see Figure 12). Figure 12: Number of Daubert challenges and exclusions to financial expert witnesses, by Federal Circuit, Ninth circuit Tenth circuit Eighth circuit Seventh circuit Second circuit % 46% 46% 54% 67% 33% 51% 49% 50% % 66% 34% WA ND MT MN SD OR WI VT ME ID 2 NH WY 8 MI NY MA IA 9 CT NE RI PA 7 OH 3 10 NV NJ IL UT CO IN 6 KS MO WV DE KY VA MD CA Fourth circuit OK AZ NM TX Fifth circuit % 43% AR LA TN SC 52% 48% MS AL GA Eleventh circuit 5 11 Third circuit NC % 53% FL 1 First circuit 43 60% 40% 59% Sixth circuit 188 Other Federal and State Courts 63% 41% % Total number of challenges for Included or no decision made Excluded in whole or in part 24 Daubert challenges to financial experts

27 Illustrative case In this breach of contract case before California s Central District Court, the plaintiffs were consumers from twelve different states who purchased a cooking product made by the defendant and alleged that defendant deceptively and misleadingly marketed its product as 100% Natural. As part of their class certification motions, plaintiffs retained an economist to opine on whether class members suffered damages due to paying a price premium for the product based on the allegedly deceptive characteristic. The expert opined that it was possible to determine damages using two techniques (hedonic regression and conjoint analysis) but did not perform either analysis or describe their specific application to the case. While courts in the Ninth Circuit had not historically considered Daubert factors in evaluating expert testimony included in class certification motions, recent precedent called for at least some level of Daubert analysis with respect to experts at the class certification stage. As such, the court evaluated the expert s testimony and opined that it provided no damages model at all, leaving the court with only [the expert s] assurance that he can build a model to calculate damages. As a result, the expert s testimony was excluded. (In re Conagra Foods, Inc., CV , 2014) In 2014, as in prior years, Daubert challenges frequently occurred in the Second, Fifth, and Ninth Circuits, perhaps unsurprising given that these Circuits include New York, Texas, and California, respectively. The Sixth Circuit also experienced a large number of challenges in 2014, primarily in Ohio (see Figure 13). Figure 13: Number of challenges by circuit in st circuit 2nd circuit 3rd circuit 4th circuit 5th circuit 6th circuit 7th circuit 8th circuit 9th circuit 10th circuit 11th circuit State and Other federal 100% % 60% 44% 56% 16 56% 44% 9 44% 56% 32% 68% 50% 50% 10 14% 86% 14 35% 65% 25% 75% 8 15% 85% 13 50% 50% 8 Excluded in whole or in part Included or no decision made 43 Number of challenges Figure 14: Most frequently challenged case types in jurisdictions with the most challenges, nd circuit 5th circuit 6th circuit 9th circuit Antitrust Intellectual property Breach of contract/ fiduciary duty Intellectual property 2014 Results 25

28 ? When lower court Daubert challenge rulings are appealed, how often are they overturned? In 2011, we began analyzing the approach of appellate courts to lower court rulings on financial expert Daubert challenges. Figure 15: Daubert challenges to financial witnesses in appellate courts, Between 2011 and 2014, there were 50 appeals of lower court rulings on financial expert Daubert challenges. Over half of the appeals related to financial experts whose testimony had been accepted by the lower court (see Figure 15). In the majority of appeals, the appellate court agreed with the ruling of the lower court (see Figure 15). Agree Disagree 50% Excluded 16 50% Appellate court ruling Lower court ruling 71% 29% Partially excluded 7 85% Included 27 15% 26 Daubert challenges to financial experts

29 Illustrative case In this breach of contract action before the 6th Circuit Court of Appeals, the district court had previously found that the appellant s expert, a CPA who was also Accredited in Business Valuation (ABV), based his calculations on fundamentally flawed data and impermissible methods, and extrapolated decade-old data to future lost profits. Specifically, the expert used a marketing plan produced a decade-and-a-half ago which only covered the years 1998 to 2003 to extrapolate future lost profits during the years 2013 to 2022, all without explaining his methods or assumptions. In this case, the district court here did not balk at the witness s expert credentials, but only at his methods. The appellate court agreed that the district court did not abuse its discretion in excluding the appellant s expert, in part due to the lack of independent verification or analysis of the revenue projections [which] rendered [the expert s] opinion unreliable. (Ask Chems LP v. Computer Packages, Inc., , 2014) Illustrative case In this breach of contract action before the Massachusetts Supreme Court, the district court had previously partially excluded the lost profits testimony of appellant s expert, an economist. The basis for the exclusion was that the expert s lost profits analysis was not based on a demonstrated reliable methodology capable of being validated and tested. In addition, the expert s opinion was too speculative and conjectural as a matter of law. For example, the expert assumed that the appellant would be the market leader in its market through 2038 and did not consider that its product had not been approved by any regulators in the US or Asia. The appellant argued that the methodology used by the expert, the discounted cash flow method, was generally accepted, and therefore the judge s gatekeeping role should have ended, and the matter given to the jury to weigh upon. However, the appellate court agreed with the lower court s conclusion that the expert s use of first mover advantage in his methodology rendered that methodology incapable of being validated and tested, and that the lower court properly excluded the expert. (LightLab Imaging, Inc. v. Axsun Technologies, Inc., SJC-11374, 2014) 2014 Results 27

30 Methodology We searched written court opinions issued between January 1, 2000 and December 31, 2014 (i.e., post Kumho Tire), using the citation search string 526 U.S. 137 (Kumho Tire v. Carmichael). Our search identified 7,299 federal and state cases during that involved 9,778 Daubert challenges to expert witnesses of all types. In some instances, more than one Daubert motion was filed in a case or several expert witnesses were challenged with one motion. From each Daubert challenge, we extracted detailed information concerning the case, the characteristics of each challenged expert, the nature of the evidence challenged, and the outcome of each challenge. We classified experts into two categories for this study: financial experts (accountants, economists, statisticians, finance professors, financial analysts, appraisers, business consultants, etc.) and non-financial experts (scientists, engineers, mechanics, physicians, police officers, fingerprint experts, psychologists, psychiatrists, etc.). Our search showed that 1,784 Daubert challenges were aimed at financial experts during In each instance where a challenge to a financial expert resulted in the full or partial exclusion of the expert s testimony by the court, we categorized the factor(s) that resulted in the inadmissibility of the expert s testimony, using as a basis for analysis Federal Rules of Evidence Rule No. 702, Testimony by Experts. Our methodology entailed searches on written opinions related to expert challenges and may not encompass all challenges in all cases. Consequently, our analysis is focused on trends and comparative metrics rather than on the absolute number of challenges or exclusions. Throughout the study, whenever we refer to the success rate of Daubert challenges or similar phrases, we define success as the exclusion of expert witness testimony, in whole or in part. Similarly, when we refer to the exclusion of an expert witness, we are referring to the testimony and opinions the witness intended to proffer. 28 Daubert challenges to financial experts

31 Authors PwC Forensic Services Our Forensic Services practice can help you prevent, investigate and remediate the issues arising from legal, regulatory, and commercial minefields that can damage your brand and bottom line if left unchecked. We provide forensic accounting, financial analysis, advanced technology and regulatory knowledge to companies confronting litigation, corporate investigations, and regulatory enforcement challenges. We work with businesses and law firms around the world, sharing our team of top local, national and global professionals who bring a wide range of special skills to your door: accountants, appraisers, financial analysts, technology experts, cybersecurity experts, former regulators and members of law enforcement, statisticians, economists, engineers, compliance officers, and fraud examiners. We serve as expert witnesses, offer guidance and assistance with complex technology challenges, conduct fraud and forensic investigations, and develop value-preserving solutions. Our Authors Charles Reddin is in PwC s Forensic Services practice in Dallas, Texas. Mr. Reddin has more than twenty-five years of financial and investigative experience in the consulting arena and provides forensic accounting, litigation and investigative consulting services to law firms and companies. He regularly consults with counsel and Audit Committees of public companies in regard to conducting investigations and related issues stemming from the investigative findings. Mr. Reddin has extensive experience with complex business issues as a financial consultant, expert witness and auditor. His assignments have included matters involving investigation, due diligence and litigation consulting for a wide range of industries including technology, retail and consumer, financial services, energy and real estate. Doug Branch is in PwC s Forensic Services practice in Dallas, Texas. Mr. Branch is a Certified Public Accountant (CPA), Accredited in Business Valuation (ABV), and Certified in Financial Forensics (CFF). Mr. Branch has been designated as an expert witness in matters involving complex business valuations, accounting and reporting, economic damages, auditor malpractice, and forensic accounting investigations. Mr. Branch has been involved in numerous disputes as an expert or consultant involving damage claims in excess of $100 million and valuations of large, middle-market and small business enterprises. Specific assignments have included matters involving commercial contract disputes, securities litigation, shareholder oppression, purchase price disputes, intellectual property disputes, accounting and audit firm professional malpractice, business interruption insurance claims, lost profits analysis, marital dissolution, alter ego analyses and forensic accounting investigations, including FCPA investigations. Saleema Damji is in PwC s Forensic Services practice in Dallas, Texas. Ms. Damji is a Certified Public Accountant (CPA), Accredited in Business Valuation (ABV), Certified in Financial Forensics (CFF), and a Certified Fraud Examiner (CFE). Ms. Damji s expertise includes damage quantifications, complex business valuations, construction claims, forensic accounting investigations, and financial statement restatements. Ms. Damji s assignments have included clients operating in a wide range of industries including financial services, technology, consumer and industrial products, telecommunications, energy and mining, and construction. We appreciate the significant assistance of Joseph Devlin and Regan Owen, as well as the following PwC team members: Joston Benton, Amy Brunner, Hannah Choi, Stefanie Dvorak, Emily Hull, Rachel Kamenir, Annie Lam, Sarah Lee, Timothy Maldonado, Holly Mills, Dhara Patel, Matthew Rao, Christopher Roush, Jennifer Stepina, Carolyn Syer, Saumya Tayi, and Elliott Wagner. We also recognize the significant contributions provided by Mr. Lawrence F. Ranallo (PwC Partner, retired) to the development and advancement of this study from 2000 to Authors 29

32 Appendix Supporting Data for Daubert Study Figures Supporting data for Figure 2: Daubert challenges and exclusions to financial expert witnesses Total Challenges ,784 Exclusions Supporting data for Figures 3 & 4: Outcome of Daubert challenges to financial expert witnesses Included 45% 59% 68% 45% 46% 34% 53% 57% 57% 52% 48% 43% 52% 58% 61% 53% Excluded 41% 30% 19% 21% 38% 34% 28% 22% 23% 29% 23% 24% 23% 17% 19% 24% Partially excluded 13% 11% 10% 31% 12% 25% 16% 19% 17% 15% 27% 30% 22% 23% 17% 20% No decision made 2% 0% 3% 3% 4% 6% 3% 3% 3% 4% 1% 3% 4% 2% 3% 3% All years Supporting data for Figures 5 & 6: Reasons cited in financial expert exclusions Total Reliability Relevance Qualification Reliability + Relevance Reliability + Qualification Relevance + Qualification Reliability + Relevance + Qualification Daubert challenges to financial experts

33 Supporting data for Figure 7: Daubert challenges to financial expert witnesses by case type Total Breach of contract/ fiduciary duty Other case types Intellectual property Fraud Antitrust Discrimination Product liability Securities litigation Personal injury Bankruptcy Insurance claim Supporting data for Figure 7: Exclusion rates for financial expert witnesses by case type Breach of contract/ fiduciary duty All years 38% 54% 11% 29% 37% 62% 40% 41% 53% 44% 36% 58% 42% 35% 40% 43% Other case types 44% 10% 33% 50% 67% 67% 75% 33% 24% 59% 50% 80% 41% 35% 32% 43% Intellectual property 71% 100% 25% 63% 20% 33% 43% 45% 60% 50% 50% 63% 58% 44% 49% 51% Fraud 0% 67% 38% 80% 75% 79% 29% 71% 24% 47% 80% 57% 42% 58% 24% 49% Antitrust 78% 33% 25% 36% 100% 88% 22% 11% 60% 10% 33% N/A 17% 27% 17% 33% Discrimination 56% 50% 50% 100% 47% 50% 22% 38% 33% 50% 40% 25% 100% 75% 33% 45% Product liability N/A N/A N/A 67% 100% 50% 57% 43% 50% 14% 50% 14% 67% 33% 38% 44% Securities litigation 33% 0% 0% 50% 100% 50% N/A 60% 100% 30% 67% 0% 33% 29% 67% 48% Personal injury 50% 100% 0% N/A N/A 0% 100% 33% 27% 60% 71% 40% 43% 25% 0% 43% Bankruptcy 67% 0% 40% 33% 83% 25% 75% 33% 33% 43% 0% 33% 50% 71% 67% 50% Insurance claim N/A N/A N/A N/A 33% 100% 0% 100% 25% 50% 40% N/A N/A 0% 17% 39% Appendix 31

34 Supporting data for Figure 8: Proportion of total Daubert challenges by financial expert witnesses by expert type Appraiser 0% 2% 9% 3% 1% 5% 17% 9% 6% 13% 15% 10% 13% 19% 16% Accountant 4% 7% 21% 13% 28% 15% 20% 28% 25% 28% 31% 39% 22% 27% 23% Economist 23% 20% 28% 27% 17% 22% 30% 16% 25% 23% 25% 26% 30% 25% 33% Other financial 73% 70% 43% 58% 53% 58% 33% 46% 45% 36% 29% 25% 35% 29% 28% Supporting data for Figure 9: Exclusion rates for financial expert witnesses, by expert type Accountant 50% 33% 7% 56% 61% 50% 38% 42% 29% 40% 51% 64% 45% 29% 35% 42% Economist 69% 56% 37% 32% 43% 75% 25% 21% 26% 47% 43% 42% 49% 37% 36% 41% Appraiser N/A 0% 17% 50% 0% 20% 67% 45% 22% 55% 61% 70% 32% 45% 42% 46% Other financial 49% 39% 38% 61% 49% 59% 54% 45% 54% 43% 51% 44% 46% 51% 32% 48% All years Supporting data for Figure 10: Daubert challenges to financial expert witnesses, plaintiff-side vs. defendant-side Total Defendant Plaintiff ,223 Defendant % 25% 34% 26% 28% 33% 33% 28% 29% 32% 29% 35% 30% 36% 29% 34% 31% Plaintiff % 75% 66% 74% 72% 67% 67% 72% 71% 68% 71% 65% 70% 64% 71% 66% 69% Supporting data for Figure 11: Exclusion rates for financial expert witnesses, plaintiff-side vs. defendant-side Defendant 43% 20% 11% 40% 70% 61% 53% 44% 33% 58% 60% 47% 50% 49% 38% 47% All years Plaintiff 57% 52% 36% 57% 41% 58% 41% 39% 42% 39% 46% 57% 42% 37% 35% 43% 32 Daubert challenges to financial experts

35 Supporting data for Figures 12 & 13: Daubert challenges to financial expert witnesses, by jurisdiction Total 1st circuit nd circuit rd circuit th circuit th circuit th circuit th circuit th circuit th circuit th circuit th circuit Other federal & state courts Supporting data for Figures 12 & 13: Exclusion rates for financial expert witnesses, by jurisdiction st circuit 50% 0% 50% 33% 0% 33% 0% 0% 80% 33% 100% N/A 29% 80% 0% 40% 2nd circuit 33% 57% 33% 47% 50% 75% 52% 63% 68% 40% 50% 45% 46% 43% 40% 50% 3rd circuit 50% 25% 25% 50% 40% 57% 26% 15% 41% 38% 0% 43% 18% 31% 44% 34% 4th circuit 67% 67% 25% 0% 0% 50% 33% 64% 33% 43% 44% 50% 50% 53% 56% 48% 5th circuit 88% 100% 38% 40% 40% 50% 25% 52% 15% 52% 45% 58% 25% 50% 44% 43% 6th circuit 0% 0% 8% 82% 71% 100% 50% 23% 41% 24% 71% 50% 25% 35% 32% 41% 7th circuit 43% 40% 38% 67% 33% 40% 38% 21% 0% 46% 73% 75% 72% 60% 50% 49% 8th circuit 75% 0% 40% 50% 50% 25% 20% 25% 0% 50% 38% 80% 18% 33% 14% 33% 9th circuit 100% 100% 50% 100% 80% 57% 43% 29% 27% 13% 57% 37% 62% 52% 35% 46% 10th circuit 60% 60% N/A 100% 71% 33% 54% 54% 63% 88% 44% 60% 41% 14% 25% 54% 11th circuit 40% 50% 100% N/A 100% 80% 60% 100% 55% 59% 60% 60% 60% 25% 15% 53% All years Other federal & state courts 44% 17% 13% 33% 56% 80% 100% 50% 20% 25% 15% 86% 50% 7% 50% 37% Appendix 33

36 Supporting data for Figure 15: Outcomes of financial expert Daubert challenge appeals Total % Financial expert was included by lower court Appellate court agreed with lower court % Appellate court disagreed with lower court % Total % Financial expert was excluded by lower court Appellate court agreed with lower court % Appellate court disagreed with lower court % Total % Financial expert was partially excluded by lower court Appellate court agreed with lower court % Appellate court disagreed with lower court % Total 7 100% Overall Appellate court agreed with lower court % Appellate court disagreed with lower court % Total % 34 Daubert challenges to financial experts

37 Contacts To have a deeper conversation about how this subject may affect your business, please contact: Charles Reddin [email protected] Douglas E. Branch [email protected] pwc.com/us/forensics If you wish to cite the information included in this report, please contact the individuals listed above PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved. PwC refers to the US member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. MW