Practitioner Series: When Should You Retain an Economic Witness?

By Robert Carter¹

In the litigation arena, it’s more likely than not that a time will come when you need an economic expert. Even if pursuing mediation, arbitration or a collaborative approach, obtaining an expert may be essential for success. Even if a case is destined to settle, a report from an economic expert may speed the process along or give added weight to your argument. The key is to determine when an expert should be retained.

Many cases where an economic expert will be necessary fall under one of the following categories: valuation, forensic accounting, personal economic damages, and business economic damages.

There are numerous situations where a valuation expert will be required. For example, in most marital dissolutions, shareholder disputes, IRS challenges, bankruptcy, and insurance claims, an expert will need to opine as to the value or change in value of a business or interest in a business.

Many times when fraud is suspected, a forensic expert is engaged to determine how the fraud occurred, the extent of the fraud, who was involved, and how it can be prevented going forward. Cases involving fraud may include white-collar crimes, such as embezzlement, asset misappropriation, tax evasion, or financial statement misstatement. Another common forensic matter is determining how much cash flow is generated by a spouse during a marital dissolution for alimony and/or child support purposes.

Economic experts are oftentimes retained in labor disputes or personal injury litigation to analyze the earning potential before and after a significant event for determining damages. These cases generally fall under personal injury, workplace discrimination, wrongful termination, and wrongful death claims.

Claims for business damages are generally high-stakes and high-dollar cases. As a result, it is vital that an attorney does not overlook obtaining an economic expert. One requirement is to prove or disprove the damages the plaintiff is seeking. Economic experts are able to analyze the relevant information and prepare support for these arguments, especially in breach of contract (non-compete and nonfulfillment), business interruption, and intellectual property claims.

Once you determine whether an expert is necessary, it is important to understand the difference between the roles of a consulting expert and a testifying expert and which will best suit your needs. A consulting expert can provide a multitude of services—except for testifying—and these services are not discoverable as they are considered attorney work product. With a testifying expert, all work, notes, correspondence, and deliverables are discoverable, although the designated expert can testify to conclusions in depositions and trial. Most experts are comfortable with either role, but one of the major benefits of consulting experts is that they can become a testifying expert at any point. It is crucial to note that once a consulting expert becomes a testifying expert, everything the expert has and will provide is discoverable.

It is also important to hire your expert early. Although economic experts are required to remain independent, they can advise attorneys as to the most effective approaches to take in a case as well as provide valuable insight regarding potential damages or awards before significant time is spent. More importantly, it takes time for an expert to prepare opinions, so waiting until the last minute to engage the specialist can diminish the quality of work. Furthermore, your expert may require certain documents in order to form an opinion. You would be doing your client a disservice if you hire your expert after a discovery deadline, especially if the expert cannot be provided with the necessary documents. Additionally, providing services as an economic expert requires specialized knowledge and a unique skillset. Consequently, there are very few qualified economic experts available and even less with whom an attorney may be comfortable working. By waiting too long, your desired expert may have a conflict due to time constraints or may be hired by opposing counsel.

¹ Robert W. Carter, CPA, CVA, CFE
Manager – Valuations, Forensics, and Litigation Support
Hertzbach & Company, P.A.

Mr. Carter manages the Business Valuation, Forensic Accounting, and Litigation Support Department for the Baltimore area accounting firm of Hertzbach & Company, P.A. and specializes in valuation and expert witness services for marital dissolutions, gift and estate tax transactions, shareholder disputes, and lost profit claims. He also has extensive experience managing forensic accounting investigations involving misappropriation of assets, fraud, and embezzlement claims. In addition to his practical experience, Mr. Carter teaches for the National Business Institute and the Maryland Chapter of the National Association of Certified Valuators and Analysts and is currently a member of the Advisory Council for the Association of Certified Fraud Examiners.

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