In today's litigation environment, experts play an increasingly important role, particularly when the amount of damages is disputed.
Experts are invaluable for explaining complicated and technical evidence - but there is also a risk they could mislead the trier of fact if they offer opinion testimony based on improper techniques and methods.
More than 50 years ago, Second Circuit Judge Henry Friendly, drawing on earlier precedent, recognized that " 'a judge, in his efforts to prevent the jury from being satisfied by matters of slight value, capable of being exaggerated by prejudice and hasty reasoning ..., [must] exclude matter which does not rise to a clearly sufficient degree of value. ...' These comments are especially pertinent to an array of figures conveying a delusive impression of exactness in an area where a jury's common sense is less available than usual to protect it." (Herman Schwabe, Inc. v. United Shoe Mach. Corp.
, 297 F.2d 906, 912 (2d Cir. 1962).)
Two years ago, the California Supreme Court considered this very issue and empowered the state's trial court judges to serve as "gatekeepers" to exclude expert evidence that is improper, unreasonable, or speculative. (See Sargon Enters., Inc. v. Univ. of S. Cal.
, 55 Cal. 4th 747 (2012).)
A federal appellate court first addressed the admissibility of novel scientific evidence in 1923. The Federal Circuit held that such evidence was inadmissible until the proponent established that the methodology, technique, or device had "general acceptance" in the relevant field. (Frye v. United States
, 293 F. 1013 (D.C. Cir. 1923).) The Frye
test became the standard for admissibility of novel scientific technique and methodology - including related expert testimony - throughout the United States.
California eventually followed suit, adopting what became known as the Kelly-Frye
test. (See People v. Kelly
, 17 Cal. 3d 24 (1976).) In doing so, the California Supreme Court expressly recognized the Frye
test's low bar to admissibility, requiring only that the proponent of the novel scientific evidence demonstrate a consensus within the relevant scientific community. The Kelly
ruling, like the Frye
decision before it, was limited to evidence based on novel scientific techniques and methods. In contrast, expert opinion testimony that did not involve a new scientific technique or method continued to be governed by general rules of evidence. (See People v. Stoll
, 49 Cal. 3d 1136 (1989).)
These rules remained the law until the U.S. Supreme Court decided Daubert v. Merrell Dow Pharmaceuticals, Inc.
(509 U.S. 579 (1993)), holding that the Federal Rules of Evidence supersede the Frye
standard. The Daubert
court concluded that the trial judge has an obligation to act as a gatekeeper to ensure that the expert's testimony is reliable based on three nonexclusive factors: whether the opinion was being developed solely for litigation; whether it had been independently tested in the scientific community; and the potential for error. (Daubert
, 509 U.S. at 592-93.)
The high court later clarified that the gatekeeper standard provides a single admissibility rule controlling the admissibility of all expert testimony, regardless of whether it is based on new scientific technique or methods. (See Gen. Elec. Co. v. Joiner
, 522 U.S. 136 (1997) and Kumho Tire Co., Ltd. v. Carmichael
, 526 U.S. 137 (1999).)
case was a watershed, but it governed only proceedings in federal courts because it was decided under the Federal Rules of Evidence. California lawyers and judges began to ponder whether the same approach should govern expert testimony in state court. Indeed, after Daubert
a variety of approaches appeared in published decisions. (See People v. Leahy
, 8 Cal. 4th 587 (1994); Roberti v. Andy's Termite and Pest Control, Inc.
, 113 Cal. App. 4th 893 (2003); and In re Lockheed Litig. Cases
, 115 Cal. App. 4th 558 (2004).)
Eventually, a dispute between a dental implant company and the University of Southern California brought the issue to the California Supreme Court. Sargon Enterprises had patented a dental implant for use in reconstructive surgery. In 1996 Sargon contracted with USC's School of Dentistry to conduct a five-year clinical study of the implant. In 1999 Sargon sued, claiming that USC had botched the clinical trial, thereby preventing the company from reaping up to a billion dollars in profits. (Sargon
, 55 Cal. 4th at 753.) A jury found that USC had indeed breached its contract with Sargon, but when it came time to determine damages, the trial judge granted USC's motion to exclude testimony by Sargon's damages expert because the claimed lost profits were not sufficiently foreseeable. Unable to consider that evidence, the jury awarded Sargon $433,000 in compensatory damages. Sargon appealed, and the court of appeal reversed, finding that the trial court should not have excluded the expert testimony on the ground of foreseeability. The case was remanded for a new determination of the company's lost profits. (55 Cal. 4th at 754-55.)
At the retrial, USC again moved to exclude the company's expert testimony. After an eight-day evidentiary hearing, the trial court once again excluded the evidence. The judge determined that the information used by the expert in calculating Sargon's lost profits was not of the kind reasonably relied upon by experts in the field. The judge also noted that the expert's methodology was fundamentally unreliable. (55 Cal. 4th at 755-67.)
Sargon appealed again, and won another reversal. This time the court of appeal found that the trial judge had abused his discretion in excluding the expert testimony. The considerations expressed by the trial judge, said the appellate justices, should have gone to the weight of the expert opinion rather than to its admissibility; the issues of reasonableness and reliability were properly for the jury, not the trial judge. (55 Cal. 4th at 767-68.) The university petitioned the California Supreme Court for review. The petition was granted in 2011, setting the stage for a definitive ruling on the standard to be applied in state court for the admissibility of expert opinion.
In a unanimous ruling in November 2012 authored by Justice Ming Chin, the state Supreme Court undertook a detailed examination of the expert's testimony and his underlying methodology. Holding that the trial court properly excluded the testimony, Justice Chin concluded: "[T]he trial court has the duty to act as a gatekeeper to exclude speculative expert testimony. Lost profits need not be proven with mathematical precision, but they must also not be unduly speculative." (Sargon
, 55 Cal. 4th at 753.)
In support of that conclusion, the justices first examined section 801(b) of the California Evidence Code, which states that an expert's opinion testimony must be based on matter "that is of a type that reasonably may be relied upon by an expert in forming an opinion upon the subject to which his testimony relates." The court said that an expert's opinion may not be based on assumptions of fact without evidentiary support, or on "speculative or conjectural factors." The court further noted that "[e]xclusion of expert opinions that rest on guess, surmise or conjecture ... is an inherent corollary to the foundational predicate for admission of the expert testimony: Will the testimony assist the trier of fact to evaluate the issues it must decide?" (55 Cal. 4th at 770.) Turning its attention to Evidence Code section 802, the court found that the code "expressly permits the court to examine experts concerning the matter on which they base their opinion before admitting their testimony." (55 Cal. 4th at 771.)
Read together, sections 801 and 802 empower a trial court to vet expert testimony. Trial judges can exclude expert opinion testimony if it is:
- based on material that cannot reasonably be relied on;
- grounded in reasons that are unsupported by the material on which the expert relies; or
(See 55 Cal. 4th at 771-72.)
Cognizant that the newly pronounced gatekeeping function might lead trial judges to unreasonably restrict the admission of expert testimony, the Sargon
court articulated certain limits, drawing directly on Daubert
and its progeny. Justice Chin warned that "courts must also be cautious in excluding expert testimony." The trial court's role, he wrote, "does not involve choosing between competing expert opinions." Referring to Daubert
itself, Chin explained that the gatekeeper's focus "must be solely on principles and methodology, not on the conclusions that they generate." (55 Cal. 4th at 771.)
Moreover, "the gatekeeper's role is to make certain that an expert, whether basing testimony upon professional studies or personal experience, employs in the courtroom the same level of intellectual rigor that characterizes the practice of an expert in the relevant field." (55 Cal. 4th at 772 (citing Kumho Tire
, 526 U.S. at 152).)
Finally, the court made clear that the new gatekeeper function did not totally displace the "general acceptance" test for expert testimony based on new scientific techniques. (55 Cal. 4th at 772 & n. 6.)
Although it can be argued that Sargon
's impact was limited to the precise issues at hand, the California Supreme Court's reasoning suggests a far broader application. By citing federal authority to support its ruling, the state high court implied that the extensive federal jurisprudence addressing admissibility of expert testimony is relevant to interpreting California Evidence Code sections 801(b) and 802. Not surprisingly, in the wake of the Sargon
decision state trial judges have seen an influx of motions targeting a wide array of expert opinion testimony, particularly at the summary judgment stage. California's appellate courts, however, appear to have heeded Justice Chin's caution not to make the evidentiary gate too difficult to open.
Indeed, a trio of decisions from the second appellate district illustrates how lower courts are applying the Sargon
ruling. In one instance, the court reversed a trial judge's exclusion of the plaintiff's expert declaration, submitted in opposition to a summary judgment motion filed by the defense in a medical-device defect case. The ruling emphasized that evidence submitted to oppose a summary judgment motion must be liberally construed, and that an expert's statement of reasons for his opinions need not be as detailed or extensive as a declaration in support of the motion, nor as detailed as might be required at trial. (Garrett v. Howmedica Osteonics Corp.
, 214 Cal. App. 4th 173 (2013).)
Similar direction - albeit in an unpublished ruling - came from another panel in a caustic-chemical burn case; the court stated that an expert declaration "filed in opposition to a summary judgment motion need not be as detailed or extensive as that required in expert testimony presented in support of a summary judgment motion or at trial." (Kim v. Pacifica Chem.
, Inc., 2014 WL 470334 at *6 (Cal. Ct. App).)
However, a third case (also unpublished) produced a different result when the court used the gatekeeping rubric to deny a writ seeking to vacate a summary adjudication ruling in a wrongful death action against a nursing home. The trial court had stricken the plaintiff's expert declaration, and the appellate court agreed. It noted that the expert's declaration neither specified the conditions, individually or collectively, that caused the decedent's death nor identified any evidence that the decedent manifested particular symptoms when she died. Citing the "analytical gap between the data and the opinion proffered," the court wrote that the expert's concluding statements about the cause of death were "nothing more than speculation." (See Graham v. Superior Court
, 2013 WL 4766838 at *6 (Cal. Ct. App.).)
These decisions illustrate that Sargon
allows parties to be aggressive in challenging expert testimony at the summary judgment stage. At the same time, appellate judges have obeyed the state Supreme Court's admonition to not erect too high a barrier, especially at the summary judgment stage.
Forensic Accounting Concerns
Although the limits of Sargon
's influence continue to be defined, little has changed for counsel and for forensic accountants. The American Institute of CPAs' Standards for Consulting Services state that an expert or consultant must "obtain sufficient relevant data to afford a reasonable basis for conclusions or recommendations. ..." This was true before Sargon
, and remains true afterward.
However, with California trial judges acting as gatekeepers, counsel and experts must now anticipate a Sargon
challenge in state courts and arbitrations; and counsel should expect that experts' opinions will be challenged as frequently as they are in federal courts under Daubert
. This development has had three practical effects.
Prepare to defend.
The first concerns the new responsibilities of an expert in state court. Because Sargon
challenges are increasingly common, counsel should ensure that experts are prepared to defend the foundations of their opinions earlier in the process. After all, Sargon
greatly empowers trial courts to exclude expert opinion at the summary judgment stage.
Get help with strategy.
The second effect of Sargon
is the expanded role experts are playing in state court cases. More and more, attorneys are using experts as consultants to help them develop strategies to exclude the opposing expert opinions.
Mind your assumptions.
heightens the challenges that forensic accountants face in developing acceptable calculations of lost profits - particularly for emerging businesses. By their very nature, lost-profits damage models require assumptions about what would have occurred "but for" the events at issue in the litigation. Under Sargon
, it is imperative that experts projecting damages make sure their assumptions are based on information that is supported by relevant data - for example, by contemporaneous sales forecasts or projections. Building this foundation is especially important when the case involves a new business, certainly those with transformative business models, services, or products. Those assumptions, moreover, must use methodology consistent with accepted approaches.
teaches us one thing, it is that trial courts acting as gatekeepers will be reluctant to admit damages calculations based on a speculative assumption that lacks an objectively sound basis.
decision changed the rules for expert testimony in California. An expert's opinion must rest on sound research and factual analysis if it is to withstand a motion to exclude. Although the admissibility hurdle is not insurmountable, under Sargon
it's a different game.
Robert A. Bleicher and J. Craig Crawford are business litigators at Carr, McClellan, Ingersoll, Thompson and Horn in Burlingame. David Grisham is a partner in the forensic and financial consulting group in the San Mateo office of Hemming Morse.