Expert witnesses are commonly used in all types of federal civil litigation, and bankruptcy court is no exception. However, according to one bankruptcy attorney, “[t]he rules and best practices applicable to expert witnesses in bankruptcy court differ in a number of respects from those in district court.” Philip Bentley, “United States: Expert Witnesses In Bankruptcy Court: Some Legal And Practice Points For Litigators,” Mondaq, May 10, 2017, at http://www.mondaq.com/unitedstates/x/592796/Insolvency+Bankruptcy/Expert+Witnesses+In+Bankruptcy+Court+Some+Legal+And+Practice+Points+For+Litigators (last visited Jan. 10, 2018). This article provides guidance for legal practitioners as to the best practices and tips to use expert witnesses in bankruptcy cases and examines some of the differences between typical federal cases and bankruptcy actions.
As a longtime bankruptcy litigator explains, some key differences between using experts in ordinary federal cases, versus bankruptcy cases are as follows:
Much bankruptcy litigation takes place not in a full-fledged lawsuit but instead in a less formal variant known as a contested matter, in which many of the Federal Rules of Civil Procedure, including those governing expert disclosure, do not apply unless the court so orders.
- In large bankruptcies, expert testimony is often given by financial professionals who have participated as advisors in the underlying events, and who give both fact and expert testimony about those transactions.
- The great majority of evidentiary hearings in bankruptcy cases are bench trials, rather than jury trials.
Each of these characteristics of bankruptcy litigation affects the legal rules governing expert witnesses, as well as the practices best suited to handling one’s own and the other side’s experts. Id.
There are two focal points of this discussion: (1). Whether or not a written report is required when an expert will be testifying in a bankruptcy case, and (2). When and how Daubert applies to bankruptcy experts. See id. These two matters suggest key differences in how to approach an expert in a bankruptcy case, as opposed to other types of federal civil practice.
(1). Written Reports & Bankruptcy Experts: In an ordinary federal case, the circumstances in which an expert witness is required to furnish a written report are provided for in Federal Rule of Civil Procedure (FRCP) 26(a)(2) See id. According to Rule 26(a)(2)(B), witnesses who are “‘retained or specially employed to provide expert testimony in the case’ [are] required to furnish a report, setting forth not only the opinions to which [they are] expected to testify, but also the basis for each opinion, the facts or data [they have] considered, and a variety of information relating to [their] experience and credentials. In contrast, a witness who will be giving expert testimony but was not ‘retained or specially employed’ to do so is not required to furnish a report.” Id., citing FRCP 26(a)(2)(B). In other words, those initially designated as testifying experts must typically provide a report, while consulting experts or expert witnesses who were not specifically retained for the purpose of giving testimony do not have to make such a report available. In the latter case, “the party presenting such a witness is required to disclose the expected subject matter of the witness’s testimony, and a summary of the facts and opinions to which [the expert] is expected to testify – but not the data supporting those opinions or any information relating to the expert’s experience or credentials.” Philip Bentley, supra, citing FRCP 26(a)(2)(C).
Bankruptcy court is a bit more complex than in other federal litigation, with respect to when and whether advance reports are required. One such complexity is that bankruptcy experts frequently play a dual role. In other words, such experts may initially be consulted for a specific reason, and at a later time, attorneys may decide that they wish to use a consulting expert to testify to a certain matter in bankruptcy court. As a seasoned bankruptcy litigator explains, “This dual role complicates the question whether the expert has been “retained or specially employed to provide expert testimony in the case” and is therefore required by Rule 26(a)(2)(B) to file a report.” Id.
To further complicate the issue, the question arises in a bankruptcy action as to which rule is applicable, based upon whether the action is an adversary proceeding or a contested matter. See id. To distinguish between the two, “Adversary proceedings – the more formal of the two types – are discrete lawsuits within the bankruptcy case. An adversary proceeding is required when relief of certain specified sorts (e.g., injunctive relief, a declaratory judgment, or an order affecting a lien or subordinating a claim) is sought.” Id. This is important, because in an adversary proceeding, the Federal Rules apply, specifically Rule 26(a)(2), and the protocols guiding expert reports are applicable in bankruptcy actions of this nature. See id.
However, the more common type of bankruptcy case is a contested matter. See id. Such cases include “objections to asset sales, other non-ordinary course transactions, settlements, and confirmation of plans of reorganization.4 While less formal than adversary proceedings, contested matters can be just as hard-fought and can involve extensive pre-trial proceedings and a lengthy trial.” Id. If the action is a contested matter, Rule 26(a)(2) does not automatically apply; it is up to the court’s discretion as to whether the rule governing disclosure of expert reports will pertain to a given action or not. See id.
In contested matters, one legal analyst offers bankruptcy litigators a tip to obtain advance information about opposing experts: “in a contested matter, if you expect that expert testimony is likely to be presented and think you will benefit from a mutual exchange of expert disclosures, you should consider asking your adversary to stipulate, or alternatively asking the court to order, that Rule 26(a)(2) applies. If neither a stipulation nor a court order is feasible, you are not without recourse. You still have the option of serving document requests and interrogatories, as well as a deposition notice, on the other side’s expert. While discovery of this sort is no substitute for an expert report, it should enable you to obtain a good deal of the information that a report would contain.” Id.
(2). Daubert Applicability in Bankruptcy Cases: The Daubert Rule, which is codified in Federal Rule of Evidence (FRE) 702, applies to all federal cases, and it places certain standards on the admissibility of expert witness testimony. See, e.g., id. However, what is of interest in bankruptcy cases is that because bankruptcy actions are decided by a judge, rather than a jury, the gatekeeping function and arguably stringent Daubert standards may be relaxed. See id. According to one bankruptcy judge, ‘”th[e] Court’s ‘chief role when determining the admissibility of expert testimony under Daubert is that of a gatekeeper,’ and there is little need for the Court to serve as a gatekeeper for itself.”’ Id.
The bankruptcy courts seem less likely to grant Daubert challenges, so there are tactical considerations for litigators in this field when dealing with expert witnesses. See id. Because of this, pre-trial challenges on Daubert grounds may be of a poor choice for litigators wishing to discredit opposing experts for several reasons. See id. First, such motions are likely to be denied and may engender protracted discussions that can alienate a court. See id. Second, the denial of such pre-trial motions may “be a boon to the other side, alerting the expert to weaknesses in his analysis that he may not have fully appreciated. The educated expert may be able to cure these weaknesses prior to trial, or at least to defend his analysis more effectively during cross-examination.” Id. Finally, “even a successful pre-trial Daubert motion can turn into a long-term defeat if the other side has time, and is permitted by the court, to cure the deficiencies of the expert’s analysis or to retain a new expert. And a Daubert challenge that limits, but does not entirely exclude, an expert’s testimony will by definition have eliminated some of your best cross-examination material.” Id.
Instead of making such pre-trial motions, the wiser course in bankruptcy cases may be to wait until an opposing expert takes the stand, at which time savvy cross-examination and objections to the testimony as it occurs may be more likely to be successful. See id.
A bankruptcy attorney’s choice “among these tactical options will be highly context-specific. Consider the grounds for your Daubert objection: Are they sufficiently clear-cut that the court would likely grant your motion despite the prudential reasons favoring denial? Consider the judge: Is she sufficiently experienced and confident on evidentiary matters that she will not be deterred by the possibility of reversal? Consider the prospects for settlement before trial: Is there a meaningful chance that a successful Daubert motion would help achieve a favorable settlement? If the answer to each, or most, of these questions is Yes, a pre-trial motion to exclude the witness’s testimony may be worth pursuing. But the downsides of such a motion can be substantial. The experienced bankruptcy litigator will carefully weigh the potential risks and rewards before choosing which course to pursue.” Id.
Depending on the nature of a proceeding and the type of witness involved, some bankruptcy cases will be treated like other federal litigation and be subject to the same or similar rules. However, attorneys in the field should be familiar with the instances in which the federal rules do not apply, or in which the applicability is in question with respect to bankruptcy actions, and they should frame their approaches to their own and opposing expert witnesses in ways that are specific to each action to best accomplish their clients’ objectives.