Certified Valuation Analysts: Update on the Discovery of Expert Draft Reports & Its Effect on Business Valuation Experts

A few months ago, we discussed the proposed amendments to Rule 26 of the Federal Rules of Civil Procedure that would shield draft expert reports from discovery.  These amendments were approved and became effective for all cases filed in Federal Court beginning December 1, 2010.  The impact of these changes, however, runs deeper than just protecting draft expert reports from discovery.  A number of other factors to consider in connection with the recent amendments to Rule 26 include:

  • Application to Other Areas of Expert/Attorney Communications: Not only are draft reports shared by a business valuation expert with counsel now privileged work product, but so are all expert/attorney communications unless they fall into one of the following categories:
    1. Relate to compensation for the expert’s study or testimony;
    2. Identify facts or data that the party’s attorney provided and that the expert considered in forming the opinions to be expressed; or
    3. Identify assumptions that the party’s attorney provided and that the expert relied on in forming the opinions to be expressed.
  • “Collaboration” No Longer a Bad Word: The days of “collaboration” being a four-letter word for experts and their retaining counsel may be over.  The limits on experts sharing draft reports with counsel used to severely hinder the natural development of expert reports.  Some think that collaboration between experts and counsel equates to counsel directing the expert’s opinion.  In reality, allowing experts to communicate preliminary analyses with counsel will only result in more factually sound opinions as the retaining attorneys can redirect experts if their analyses do not appropriately take into account all of the facts of the case.
  • Lower Fees for Clients: As a result of the increased level of collaboration that will now be permitted between business valuation experts and counsel, clients in certain situations may end up with more money in their pocket regardless of the outcome of a case.  In the past, it was not uncommon for counsel to hire two experts: 1) a consulting expert that would not be called on to testify at trial, but who would provide case analysis that would not be discoverable by the opposing party; and 2) a testifying expert who was shielded from everything but the information necessary for them to form the opinion that they would testify to.  Now that testifying experts will be able to share draft reports with counsel, the need for hiring a consulting expert in addition to a testifying expert has been greatly diminished, if not eliminated.  As a result, clients who may have hired both a consulting expert and a testifying expert can expect some level of savings since the use of a consulting expert may no longer be necessary.
  • More Efficient Discovery Process: A significant amount of time was often spent by opposing counsel in trying to unearth and discover previous drafts of an expert’s report.  As a result, substantial fees were often incurred by all parties related to the discovery of draft expert reports.  Now that such draft reports will be shielded from discovery, opposing counsel will no longer need to focus efforts on trying to obtain them, which should lead to a more efficient discovery process.
  • Application to Ohio and Other States: Unfortunately, the changes to Federal Rule 26 have not been incorporated into Ohio Rule 26 (and may not be incorporated for some time, if at all).  Therefore, the “old” rules still apply for non-Federal cases filed in Ohio, meaning that business valuation experts need to be careful in sharing draft reports with counsel in those cases.  It is important that experts and attorneys with cases in other states look into whether the changes to Federal Rule 26 have been, or will be, adopted into their state rules.
  • Application for Cases in Progress: The changes to Federal Rule 26 apply to all cases filed on or after December 1, 2010.  For cases filed prior to that date, the changes to Rule 26 may apply if such application is practical.  It is imperative that experts communicate with counsel and gain and understanding as to whether the “new” or the “old” Rule 26 will apply to their case.

To learn more about the proposed amendments to Rule 26 of the Federal Rules of Civil Procedure, post a comment below or please contact our Valuation & Litigation Advisory Services Group at 440-449-6800.

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