Witnesses: do they have to keep draft reports?

In November 2001, Judge Robert E. Payne of the U.S. District Court for the Eastern District of Virginia made a decision in Trigon Insurance Co. v. United States of America, 204 F.R.D. 277 (5th Cir. 2001) that may impact the way CPAs in California practice litigation consulting.

The judge concluded that draft expert reports exchanged between the experts and consultants working for counsel for the United States were required to have been retained and produced to counsel for Trigon Insurance.

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It also was determined during the course of this dispute that draft expert reports exchanged between experts for the United States and third parties were not produced to Trigon's counsel and that such draft expert reports had been deleted from the experts' hard drives and network files.

The judge directed computer forensics personnel from Deloitte & Touche to search the network files and hard disks of the experts and consultants for the United States to recover the draft reports that had been exchanged to and from the experts. The judge also allowed Trigon to recover the cost of this computer forensics work, $179,725, from the defendant.

BACKGROUND

The United States had retained Analysis Group/Economics to perform litigation consulting services to assist in defending against Trigon's action to recover federal income taxes and interest assessed and collected in prior years. In addition, certain "academic affiliates" of AGE had been designated as testifying experts for the United States.

On March 19, 2001, counsel for Trigon requested drafts of the reports from the United States' testifying experts because they had not been produced with the final reports, even though:

* Trigon's previous document requests included draft reports;

* Rule 26(a)(2) of the Federal Rules of Civil Procedure requires production of all documents reviewed by testifying experts; and

* AGE's business--litigation consulting--requires it to know the requirements of Rule 26.

However, by the time of Trigon's request, many of the draft reports had been deleted as a result of AGE's document retention policy--and the document retention policies of the individual practices of the testifying experts--which did not call for the retention of draft expert reports.

LITIGATION CONSULTANTS ARE HELD TO A HIGH STANDARD

Judge Payne took notice of AGE's expertise in litigation consulting and held it to a high standard:

"AGE holds itself out to have expertise in litigation consulting. AGE is the agent of the United States in arranging for the expert testimony to be given in their action on behalf of the United States. As such, AGE is charged with knowing that materials reviewed by a testifying expert must be preserved and eventually produced to the opposing party. The document retention policies of AGE do not trump the Federal Rules of Civil Procedure or requests by opposing counsel, even if the requests primarily are informal. Moreover, AGE's execution of a document retention policy that is at odds with the rules governing the conduct of litigation does not protect the United States from a finding of intentional destruction.

"In this case, documents and communications were willfully and intentionally destroyed by the United States' not-testifying experts. The documents destroyed should have been produced and would have been admissible at trial for cross-examination and Daubert purposes."

WHAT JUDGE PAYNE HELD

Although the computer forensic team at Deloitte & Touche recovered many of the deleted draft expert reports, Trigon asked the judge to foreclose AGE from further communication with the experts or to preclude the experts from further participation in the trial. On these issues, the judge ruled:

"Although preclusion might well have been an appropriate sanction for the conduct described above, it is not appropriate in perspective of the remedial measures that recovered significant segments of the spoliated (willful destruction of evidence or the failure to preserve potential evidence for another's use in pending or future litigation) evidence. Furthermore, this case is one of first impression under a new statute that ought to be resolved on its merits and that cannot be decided without expert evidence, Hence, it would be necessary to allow the United States to retain new experts if its current experts were precluded from testifying. Trigon asserts that the delay, expense and tactical disadvantages that would ensue if the United States were allowed to start over would constitute an even greater prejudice than currently exists. Therefore, on the facts of this case, preclusion of testimony is not an appropriate sanction.

"However, it is appropriate to draw adverse inferences respecting the substantive testimony and credibility of the experts. That will be done based on the evidence presented at trial.

"Furthermore, it is necessary to assure that AGE does not further complicate the process of evaluating the expert evidence to be offered by the United States. Considering the actions taken by AGE that caused the present spoliation and its uncooperative attitude in attempting remediation when asked to do so by Trigon, that result can be accomplished only by foreclosing AGE's further participation in any aspect of the development and presentation of the expert testimony to be offered by the United States."

The Trigon case did not hold that experts are required to retain and produce all drafts of their expert reports. In fact, in a footnote to his opinion, the judge stated:

"There is no need to decide in this case whether a testifying expert is required to retain, and a party is required to disclose, the drafts prepared solely by that expert while formulating the proper language in which to articulate that experts' own, ultimate opinion arrived at by the expert's own work or those working at the expert's personal direction. There are cogent reasons which militate against such a requirement, but the issue is not presented here because the testifying experts worked, not alone, but cooperatively with other experts and under the auspices of AGE."

WILL TRIGON APPLY TO EXPERT WITNESSES IN CALIFORNIA?

The Trigon case is a federal case and does not apply to matters being tried in California courts. Many California courts have recognized and not found objectionable the practice of experts not keeping drafts as they are superceded. In addition, the Trigon case is not in the same federal circuit as California and therefore may not be applied within the Ninth Circuit.

However, federal judges in California may adopt Judge Payne's opinion. For example, Judge William Alsup, a Ninth Circuit judge in San Francisco, has adopted Case Management Orders that includes the following language:

"Counsel shall preserve all drafts of expert reports and evidence of communications with experts (or with any intermediaries between counsel and the expert) on the subject of their actual or potential testimony and shall instruct their experts and any intermediaries to do likewise. All such materials shall be produced for inspection and copying upon expert designation."

It should be noted that it is Judge Alsup's practice to allow all parties to the dispute to agree, in writing, that drafts of expert reports will not be requested and they need not be retained.

CONCLUSION

AGE's practice, and that of its academic affiliates, of not retaining copies of draft expert reports that had been shared between them resulted in decisions by the judge that were detrimental to its client and itself. These included:

* A finding of spoliation (Spoliators should not be able to benefit from their wrongdoing, which means that all things are presumed against a despoiler or wrongdoer);

* The cost of the work done by the forensic computer personnel at Deloitte & Touche to recover as much of these draft expert reports as possible;

* Limitations on the services AGE performed as a litigation consultant for the United States; and

* The risk to the client of the preclusion of its experts' testimony. Fortunately, at trial, the experts did testify effectively and the United States did prevail against Trigon's efforts to recover taxes and interest.

It should be noted that AGE's practice, and those of its academic affiliates, of not retaining drafts of expert report was--and is not--unusual among litigation consultants. However, as a result of this decision, firms may wish to retain these draft reports so that they are able to produce them if required during the course of discovery.

RELATED ARTICLE: A Practice Tip for Expert Witnesses

For engagements in which it is likely that employees of Hemming Morse, Inc., CPAs may be designated as an expert witness, our standard engagement letter includes the following language:

"It is not our practice to retain superseded work papers, e-mails or data files that have been updated or superceded, unless shared with you or a third party working with you. However, we will retain copies of e-mail, analyses, draft reports or other materials provided by you or any third party, or provided by us to you or any third party.

"If you wish us to follow a retention practice that differs from those described in the above paragraph, please indicate your specific request(s) in writing when returning a copy of this engagement letter. We reserve the right to decline the engagement depending upon the nature of your request(s). At the close of this engagement, we will require your instruction for the disposition of documents that we have accumulated."

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Our engagement letters are usually addressed to counsel for the litigant. However, the terms of the letter are agreed to by the litigant(s) as evidenced by their signature on the letter.

BY D. PAUL REGAN, CPA 

D. Paul Regan, CPA, CFE is president and chair of Hemming Morse, Inc., CPAs Litigation and Forensic Consultants in San Francisco. You can reach him at [e-mail].