Direct
and Cross Examination of Financial Experts – Lessons from

the
Trenches

By Thomas Neches, CPA/ABV/CFF, CVA, CFE

aving testified at trial more than 75 times as an expert
on damages and other financial issues, I welcome the opportunity to pass
along some lessons I have learned.

Direct Examination

Nothing your expert does is more important than direct examination
trial testimony. This is where the tires hit the road. This is your expert’s
one chance to convince the jury that his findings and opinions, typically the
result of complex, tedious and obscure calculations, make more sense than the
opposing expert’s analysis.

Before trial, make sure you and your expert have the same understanding
about what opinions the expert will offer – and will not offer –and the bases
of these opinions. In a lost profit case, for example, your expert may have
calculated future damages based on a projection that your client (a company)
will require an additional five years to rebound to the level of profits it
would have achieved absent the opposing party’s alleged wrongful acts.
Perhaps unbeknownst to you, however, this projection was not the expert’s own
work; he merely accepted a projection made by your client’s Director of
Marketing. Or, perhaps your expert performed his own future sales projection,
unbeknownst to your marketing expert, whose own projection is different. In
every case, it is essential to clear up misunderstandings like these before
trial, and to make sure the foundation for all assumptions accepted by your
expert will be in evidence at trial.

Typically, direct testimony for a financial expert
lasts
one hour – or less. Your expert does not need to testify about
every detail of his analysis. He needs only to convince the jury: (1) he
knows what he is talking about (i.e., he qualifies as an expert), (2) he did
sufficient work to support his opinions, (3) he performed his work carefully
and competently, and (4) his resulting opinions make sense.

Attorneys differ regarding the sequence in which they want experts to
explain their analysis and opinions. Some attorneys prefer the following
sequence: (1) Summa-

rize expert opinions, then (2) Explain the rationale for
the opinions. Other attorneys instead prefer the expert to: (1) Explain the
steps performed in his analysis, then (2) Arrive at his expert opinions.

My personal preference is
the second approach. It makes the direct testimony more like a story, and it
reduces the need to flip

back and forth between summary and support-                          Thomas Neches

ing exhibits. Also, in my experience, when you attempt to
present expert opinions at the beginning of an expert’s testimony, the
opposing attorney sometimes objects on the basis the opinions lack
foundation, and these objections sometimes are sustained.

It
is well known that financial expert testimony is more persuasive, or at least
less boring, when it is accompanied with the use of charts and other
demonstrative exhibits. I believe financial expert testimony is best
presented not as a narrative supported by charts, but as a presentation of a
series of charts, each of which the expert explains to the jury.

Make
sure you have all exhibits and documents the expert will refer to in his
testimony organized and ready for immediate display to the judge and jury.
Whenever possible, have the expert explain the exhibits while standing in
front of them, rather than sitting in the witness chair.

Attorneys
are accustomed to preparing direct testimony outlines for their witnesses, be
it percipient or expert.  But for
expert witnesses, the expert should write the outline himself (at least the
first draft), not the attorney. Further, it should be more than an outline,
it should be a script. The advantages of having an expert prepare his own
direct testimony outline include these:

The
expert has the best understanding of the subject area of the testimony, and
therefore is in the best position to determine how to explain it clearly.

It is a relief to trial attorneys to have a least one task
lightened.

In
the off chance the outline is discovered by the opposing attorney, it is
better for the jury to learn the script was written by the witness than by
the attorney.

To
avoid disclosure, I always prepare my direct testimony outline after my
deposition, and I never bring the outline to the courtroom. If an attorney (who
perhaps read this article) were to try to impugn my testimony because it was

scripted, my response would be:

Q: You wrote a script for your testimony, right?

A: Of course. I didn’t want to waste the jury’s time making it up as I
went along
.

The effort to write a direct testimony
outline is significant – typically it requires one-to-two day’s work for each
hour of direct testimony. Why so long? Simple: it is hard to explain complex
things clearly.

Review the testimony outline prepared by
the expert from the perspective of your three audiences: (1) the jury, (2) the
judge, and (3) the court of appeal. A full rehearsal of your expert’s direct
testimony is ideal – if you have the time and budget. In my experience, this
almost never is the case. Either way, at trial itself it is important to listen
to the expert, exactly as if you and he were having a conversation. Did you
understand what your expert just said? If not, ask follow-up questions. Did the
expert say everything he was supposed to say? Be flexible. Direct examination
never goes exactly as planned at trial.

Cross Examination

Here is an amazing fact: frequently the
foundation of the opinions I am advocating as an expert is stronger at the end
of my cross examination than at the beginning. This remarkable phenomenon is
not the result of any extraordinary skill as a witness on my part. Rather, it
reflects two things:

An experienced expert witness can turn a
poor cross examination question into an opportunity to reemphasize and restate
the strongest portions of his testimony, or – worse yet – to bring up new
arguments or cite evidence not mentioned during his direct examination, and

A remarkably high percentage of trial
attorneys ask poor cross examination questions.

What is a poor cross examination question
for an expert? It is more than merely any question to which you did not know
the answer prior to asking. It is any question that fails to meet this
criterion: any answer other than “Yes” is false or non-responsive. Simply put,
ask only questions that end with the phrase, “…, correct?” and to which the
only possible answer is, “Yes.” This should not be a news flash to most trial
attorneys. Unfortunately, in my experience, too often it seems to be.

Be aware, however, that some experts seem
to be psychologically incapable of answering any question briefly, let alone
with a single word. Early in the cross-examination, admonish this witness to
answer only, “Yes,” but also listen carefully to the expert’s answers the first
few times this happens. Sometimes, the more non-stop talking the witness does,
the more boring, irrelevant, confusing, or exaggerated what he says becomes. In
such cases, let the expert talk.

Get the admissions you were seeking, and
allow the expert to destroy his own credibility.

In most cases, however, you will want to
limit the opposing expert’s answers to “Yes.” When cross examining an expert,
your goal is not to let the expert educate the jury by answering your
questions. Your goal is to educate the jury yourself by pointing out the
portions of the expert’s analysis you find useful, while the expert confirms
your points as you make them. Do not argue with the expert during cross
examination. Instead, guide the expert to verify the points about his analysis
you want to use in your closing statement, and make your arguments then. 

Creating wiggle-proof cross-examination
questions requires care and preparation. Rely on your own expert to assist you
in determining exactly what points you want to make. Be careful to avoid
phrasing questions for which the intended meaning of a “Yes” or “No” answer can
be unclear.

Many cross examinations of a financial
expert appropriately may start with the time-honored “garbage in, garbage out”
line of questioning:

As a financial expert, you are familiar
with the phrase “garbage in, garbage out,” correct? It means that, even when
the calculations are performed correctly, if the inputs to the calculations are
flawed, the outputs from the calculations may be flawed as well, correct? Your
opinions include calculations that have inputs and outputs, correct?

And then you can get into details. For example:

One of your inputs was using an 8.0%
discount rate to discount future lost profits to present value, correct?

In your calculations, plaintiff would not
have incurred a single penny of additional overhead expense to earn the lost
sales you projected, correct?

You calculated lost profits continuing
five years into the future, correct?

Be careful with these two
frequently-asked, seemingly-“Yes”-only questions,
which may not yield the hoped-for results:

You’re being paid for your testimony, correct?

No. I’m being paid for
my time.

You’re a professional witness, correct?

No.
I’m a professional business analyst. The time I spend testifying in court is a
small fraction of the hours I work.

Refrain from asking experts questions
that amount to, “You murdered your wife, correct?” In one cross-examination, my
response to such a question was both easy and satisfying:

              

                                                           
    Continued on page 31

 

Neches, continued
from page 11

You were told to come up with the highest possible damage
figure you could find, correct?

No.

Have every document you plan to use in
cross examination at your fingertips. Having prepared your cross-examination
outline, be flexible with how you use it at trial. Like direct examination,
cross examination at trial never goes exactly as planned.

 

Redirect Examination

Unless your expert needs major
rehabilitation, or you fear some of the opposing attorney’s cross-examination
questions of your expert have misled the jury, I recommend no redirect
examination. If your expert’s direct testimony went as planned, he already has
explained his findings and opinions as clearly and persuasively as you and he
could devise. Rehashing the support for the weak points in your expert’s work –
which should have been the only subject of cross-examination – may only
emphasize these weak points in the jury’s mind and provide opposing counsel
additional bites at these particular apples on
re-cross examination. The sweetest sound after the end of my cross-examination
testimony is when counsel says, “No redirect. We rest our case.”   

Thomas Neches, managing partner of Thomas Neches & Company LLP,
provides accounting, financial, business valuation, and statistical analyses to
assist attorneys involved in litigation. Mr. Neches has testified as an expert
in state and federal courts in Arizona, California, Florida, Kentucky,
Missouri, Nevada, New York, and Oregon.

Mr. Neches has testified to juries on behalf of both plaintiffs and
defendants in antitrust, breach of contract, fraud, intellectual property,
lender liability, personal injury, and wrongful termination cases. Examples of
the litigation issues he has addressed include lost profits, lost business
value, determining a reasonable royalty, and piercing the corporate veil.
Representative industries regarding which he has testified include banking,
entertainment, insurance, manufacturing, retail, securities, and wholesale.

He is a Certified Public Accountant, Accredited in Business Valuation,
a Certified Valuation Analyst, a Certified Fraud Examiner, and is Certified in
Financial Forensics. He received his BA in Mathematics and Literature from UC
San Diego and his MS in Operations Research from UCLA.

 

IF YOU HAVE ANY QUESTIONS, PLEASE CALL THOMAS NECHES DIRECTLY AT 213.624.8150.

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