Building a successful trial strategy hinges on an attorney’s thorough understanding of the context and implications of the financial issues at stake. This is true whether the attorney is presenting damages for an injured plaintiff or attacking them on behalf of a defendant.
Retaining a forensic damages consultant in the nascent stages of discovery can make a significant difference in the cost as well as the outcome of a dispute. For example, one attorney facing a $10 million damage claim was overwhelmed by documents and uncertain about which were pertinent. He hired a forensic economic consultant, who identified the key documents and ascertained that the case was worth a fraction of the amount claimed.
Although the results aren’t always so dramatic, counsel on both sides benefit when they have an expert by their side at the outset. Allowing a forensic economic professional to assist in determining the true value of a case helps to pinpoint discovery and formulate follow-up queries.
A damages expert is a critical resource throughout the discovery phase. In the early stages, an expert can focus the case by drawing on experience specific to the industry in question—for example, confirming the type of documentation that typically should be available. Once documents have been produced, the expert can help ferret through the piles of paper in search of crucial information.
In a dispute about a doctor’s lost profits, for instance, an industry-specific expert will know to assess daily production reports, monthly collections, and billing reports—all in an effort to ascertain what happened during the relevant time frame.
THE BIG PICTURE
A damages expert can help counsel appreciate that a document request should have a broad sweep. An expansive inquiry that probes beyond the precise period of claimed loss may be needed to fully place the case in context. Such an inquiry may shed light on otherwise overlooked variables such as seasonality, growth periods, competition, and post-impairment loss recovery.
Moreover, a forensic consultant will help legal counsel determine whether the client’s (or an opponent’s) claimed damages are on target, and offer important insights as to the defensibility of a proposed methodology. In the $10 million case example above, the expert was able to show that the damages claimed were artificially inflated due to an incorrect focus on lost sales instead of lost profits.
IDENTIFYING OUTSIDE FACTORS
As a case progresses, an expert can help prepare for deposition by crafting questions, anticipating inquiries from opposing counsel, and being on hand during the deposition itself to suggest additional clarifying questions and to analyze deponents.
When attorneys rely on financial records alone, they shortchange both themselves and their clients. Documentation by itself does not tell the complete story. For instance, although financial records may show a decline in sales, they do not reveal whether the decline was due to an outside factor, such as bad weather or the coincidental end of a contract with a significant customer. An experienced expert can provide this larger perspective.
THE RIGHT TIME
Waiting until late in the case to retain an expert often results in wasted resources and backtracking. Attorneys may be forced to undertake additional discovery at the last minute to obtain information they could have unearthed long before. And if discovery is already closed when the expert is hired, he or she will be forced to work with the information provided—even if it’s insufficient.
Forensic economic analysis can be helpful to both sides. In fact, it may be productive to have the opposing experts confer between themselves to see if agreement can be reached regarding the economic effects at issue. Such a proactive approach will increase the likelihood that a case can be streamlined and resolved efficiently. It also minimizes the risk of that double whammy every client hates: expensive discovery battles followed by a lengthy trial.
But retaining an expert at the outset has advantages beyond cost control. It has the potential to turn a losing battle into a stunning victory. At the least, it will help a litigator make his or her case the best it can be.
Alan Lurie and Rich Holstrom are partners at RGL Forensics, an international forensic accounting firm. They are based in Los Angeles and San Diego, respectively.
As appeared in California Lawyer, October 2013.