Other types of litigation support in which the appraiser might become involved include:

• Contract disputes.
• Commercial torts.
• Business interruption claims.
• Bankruptcy/insolvency/reorganization situations.

In litigation settings, the appraiser is generally asked to determine the amount of economic damages. The quantification of economic damages may involve (1) determining the loss in value of the plaintiffs business, which was adversely affected by the alleged acts of the defendant, (2) determining the plaintiffs loss of profits caused by defendant's conduct, or (3) both. Depending on whether the defendant is liable in a breach-of-contract claim or tort, the plaintiffs lost profits may be past, present, and/or future.

A fundamental difference between determination of loss in value and loss of profits is that, in business valuation, hindsight is inadmissible. However, in quantifying loss of profits, the underlying basis of the damage claim may very well be the plaintiffs business plan and/or projections. That is, if the business plan and/or projections is/are credible, they would be a key source of information for quantifying the loss of profits, particularly if the plaintiff historically had a good track record in making projections. In business valuation, while value is prospective, the firm's projections are only one of numerous factors.

Contract Disputes

As in the case of a bankruptcy valuation, a valuation for a contract dispute can actually have a number of different purposes. Shareholders or partners might have a dispute as to the terms of contract in which one party claims damages against the other. In determining the damages, it might be necessary to value the busin.ess at one or more dates.

Key Aspects of the Appraiser's Role in Litigation Support

• Non-advocacy
• Legal documentation - An important part of the litigation process involves the careful preparation of workpapers, and documentation of all information received and created from the point of expert witness designation. All such workpapers are "discoverable" by the opposing side, so particular care should be taken in their preparation.
• Discovery - Discovery is one of the most important phases in which the appraiser can assist the attorney. Early involvement in the case on behalf of the appraiser assists in collection of the necessary information prior to the commencement of the valuation. Discovery typically involves deposition of witnesses and assists in ensuring the witnesses are committed to the extent possible to the factual testimony to be made.
• Testimony - Testimony involves the trial phase of the litigation process in which the witness expresses his/her expert opinion based on the collection of information obtained.

Federal Rules of Civil Procedure

Rule 26 of the Federal Rules of Civil Procedure addresses the expert witness testimony disclosure requirements. This rule became effective December 1, 1993, in an attempt to avoid "trial by ambush" by requiring full disclosure of the expert forming an opinion. Highlights of Rule 26 include the following:

• Each party must disclose all parties that may be used at trial.
• Disclosure must be supported by a written report prepared and signed by the witness and contain the following information:
  • A complete statement of all opinions expressed
  • Data used or considered by the witness in forming an opinion
  • Exhibits to be used in trial as a summary of opinions
  • Qualifications of the witness, including a listing of all publications authored by the witness in the last ten years
  • Compensation to be paid for the analysis and testimony
  • A listing of any other cases in which the witness has testified as an expert in trial or in deposition within the last four years
• Disclosures are to be made at the times and sequence as directed by the court.
• Absent court direction, disclosures are to be made 90 days before trial, or, for rebuttal evidence, 30 days after disclosure by the other party.
• Any incorrect or incomplete information in a written report must be supplemented by the witness if the correct information has not been made known to the other partied during the discovery process or in writing.
• These supplements may be made as appropriate, but no later than 30 days prior to trial.

Federal Rules of Evidence

The appraiser should be familiar with the Federal Rules of Evidence, on which most states base their Evidence Code. These rules govern relevant evidence, hearsay, and testimony by experts.

Federal Rules of Evidence deals with rules to which an expert witness must adhere in testifying in federal or state court. The expert is subject to the rules of the jurisdiction in which he is testifying. The following highlights the particular rules:

• Rule 701 - Opinion Testimony by Lay Witness - If the witness testifying is not an expert, that testimony is limited to clarifying the understanding of information and opinions rationally based on perception of the witness.
• Rule 702 - Testimony by Expert - An expert witness is allowed to testify in the form of an opinion, if certain specialized knowledge will aid the trier of fact to understand evidence.
• Rule 703 - Bases of Opinion Testimony by Experts - This rule basically states that an expert witness can base an opinion only on information known to him or her at or before the time of hearing. However, if it is information typically relied on by experts, then it does not need to be admissible as evidence.
• Rule 704 - Opinion on Ultimate Issue - Expert witness testimony is no longer subject to objection merely because the opinion is directed towards an "ultimate issue" (e.g., an issue that must ultimately be decided by the trier of fact such as causation or negligence). The expert witness should work with legal counsel in the case to determine how Rule 704 is interpreted and applied in the f)articular jurisdiction.
• Rule 705 - Disclosure of Facts or Data Underlying Expert Opinion - An expert can give his opinion without first testifying to the underlying facts or data that support it.
• Rule 706 - Court-Appointed Experts - This rule addresses appointment of experts, compensation, disclosure of appointment and parties' experts of their own selection. Basically, a court can ultimately appoint its own expert or order that parties state why a particular expert should not be appointed. Expert witnesses are entitled to reasonable compensation as allowed by the court. A court may authorize disclosure of a court- appointed witness to the jury. Finally, there is nothing that limits the parties in selecting their own expert witness.

Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993), General Electric v. Joiner, 522 U.S. 136 (1997), and Kumho Tire Co. v. Carmichael, 119 S.Ct. 1167 (1999)

Daubert and Kumho Tire involve two recent court cases that have extended the focus of the trier or fact from the expert's qualifications to the expert's methodology and the reliability of that methodology. The Daubert case allows the trial court to consider the following four factors in the court's determination of the reliability and relevance of expert testimony:

1. Testing -Does the theory set forth a hypothesis that is capable of being proven false through observation and experimentation, and is the data produced by the theory capable of replication?
2. Peer reviews or publication - Has the theory been subject to peer review or publication, both of which aid in determining flaws in the method?
3. Error rates - Does the theory have known or potential rates of error?
4. Acceptability - Has the theory been accepted in the expert's field of study?

The General Electric case resolved a disagreement among the circuits concerning the standard for reviewing a district court's exclusion of expert testimony, holding that a stringent standard of "abuse of discretion" should be applied. Accordingly, district court judges have significant discretion in decisions concerning the admissibility of expert testimony.

The Kumho Tire case went on to say that these four factors may be considered in determining the reliability and relevance of expert testimony but that they must be applied flexibly rather than rigidly. As such, the judge has much leeway in deciding whether or not an expert testimony is reliable.