I appreciate this opportunity to discuss the role of the “Expert”
in the 21st Century profession of dispute resolution from the
perspective of what I now call myself, “a Recovering Judge.” I spent a total of
29 years from 1978 to 2007 on three different Trial courts. I was also assigned
to Maryland’s intermediate appellate court on multiple occasions. For the last
17 years, I have engaged in the world of private dispute resolution as an
arbitrator, mediator, neutral case evaluator, Special Magistrate and Consultant
on dispute resolution system design and implementation.
What I see is vastly different from what I saw from the Bench in the last quarter of the 20th Century, 1978-1999 and the first decade of the 21st Century, 2000-2007. Like every other institution of government, The Judiciary, as well as the private dispute resolution sector is rapidly changing. “Evolving” connotes too slow a process to be an accurate description of what is going on. Technology and globalization are rapidly transforming the forums and techniques of dispute resolution and with them the paradigms of the administration of civil justice.
These modifications of existing governmental institutions,
corporate organizations as well as new financial products and devices, result
from rapid technological development and globalization. These trends will,
notwithstanding some of the subliminal messages from our recent election, not
be reversed. So, therefore, the role of “The Expert” must necessarily expand
and diversify to accommodate these changes and trends.
I recognize, that it is ironic that almost contemporaneous
with these changes and my remarks, we just recently witnessed a not-significant
portion of the electorate in the country, and if you want to count “Brexit”,
indeed the world, revolting at the voting booths against “Elites.” “Experts” –
I submit are the very model of an “elite.”
CHANGES IN THE METHODS OF DISPUTE RESOLUTION:
Traditionally, our citizens have had their disputes (legal
and factual) resolved by a judge or jury in a courtroom. There, the role of the
“Expert” has historically focused on assisting the trier of fact, be it a judge
or jury, to understand the evidence. Traditionally, those experts have not
worked for the court and are not paid by the court. Rather, they work for and
are paid by the parties and therefore, in many instances, their opinions are,
at least initially, viewed by both judges and juries as suspect. I am sure that
almost everyone in this room has encountered that barrier if not overt cynicism
to your opinions being received and found persuasive.
That is changing. For one thing, the appointment by the
Court of its own Experts particularly in cases involving valuation issues is on
the rise. Most state courts have the authority to do that and more and more are
open to exercising it. That opens a new market for NACVA’s members’ services.
It is a market of Judges and Court Administrators who probably don’t know “who
you are, what you do, how you do it and why everyone who is a CPA can’t do it
as well as you can.” I encourage you to introduce yourselves to this new market
of judges and court administrators. In doing so, however, you musteducate this new market. As a caution, do not assume a basic knowledge
except among a very few experienced business court judges of terminology
including valuation techniques, particularly of intellectual property,
businesses (distressed and other) as well as intangibles and other forensic
Courts are also increasingly utilizing Financial Forensic
Experts as Receivers and Special Magistrate. Most state courts and all federal
courts give their Judges the authority and discretion to appoint whomever they
want including non-lawyers. The standard is “abuse of discretion.” Appointing
someone with knowledge of the issues and industry before the courts and who can
make informed and educated recommendations or even run a company for the Court,
having the experience to do so, is clearly not an “abuse of discretion.”
Finally, The Courts are increasingly utilizing Special Magistrate,
or as we now call them Magistrates, and Settlement Administrators a/k/a “Claims
Adjudicators” to administer and manage settlements of high stakes, multi-party
litigation particularly Class Action cases and Mass Tort cases. Court Appointed
Special Magistrates and Settlement Administrators are most of the time
authorized by Rule and/or Court Order to employ “such professionals, experts
and consultants as they deem necessary” to carry out their court ordered
duties, which likely will include recommending the allocation of damages,
expert fees, and attorney’s fees to The Court. That’s you – Members of NACVA.
Those Settlement Administrators, Special Magistrate, and Receivers are a market
which, if currently unexplored, should be on your marketing screen shortly.
The best-known example of this relatively recent phenomenon
and “The Man” is of course, Ken Feinberg of 9-11 Fund, BP Gulf Oil Spill, and
Virginia Tech fame, to name a few. In each of these cases, and others, the
roles of Financial Forensic Experts, which we will call you generically, has
been to perform among other functions:
1. Develop formulas and algorithms to determine the allocation of economic damages based on severity indexes established by the terms of the settlement agreement and data collected to support it.
2. Explain to the Special Magistrate, The Administrator, and/or The Court, those formulas and the allocation of damage awards based thereon,
3. Explain to the recipients of the different categories and amounts of damage the basis for the differentiations in the size of their distribution or award.
4. Supervise the transfer and application of data from investigations, interviews and records to the administrators formulating and implementing the settlement.
I, myself, have been involved in this process more than once
as a Special Magistrate and Settlement Administrator, and I can tell you that
the market for these Financial Forensic Experts who are qualified to, and
willing to perform these functions is growing, but the number of potential
experts who are qualified to do so by education and experience is not large or
at least not known.
This is fertile field for NACVA members to expand their
expertise and their marketing.
THE USE OF EXPERTS IN ADR:
Furthermore, the non-traditional use of Experts,
particularly Financial forensic experts in what is known as Alternative Dispute
Resolution (ADR) is growing. As I have said, these new roles derive from the
traditional role of assisting a judge or jury but are expanded to include or
substitute persuading other players in the dispute. For example, in Mediation,
the expert can be most effective by assisting the opposing party, opposing
counsel, or even the opposing expert in understanding the issues from your
client’s perspective or how a court would understand it. There’s an old saying
in the litigation world – “Don’t play in the other guys analytical ballpark.”
However, in a Mediation, you DO play in the other guy’s analytical
ballpark. That’s how you persuade him/her. If successful, it is likely that you
will have a winner.
In an Arbitration, explaining to a single arbitrator or a
three-arbitrator panel the methodology which is appropriate to value market
share in order to determine as in asbestos cases the percent of allocation of
damages, between defendants or in the newly emerging cannabis industry, with
which I am familiar, the percentage of revenue or profits to which a consultant
is entitled are examples. Here the success of the expert’s client will very
much depend on the expert’s ability to persuade the Arbitrator that the
methodology utilized is appropriate and individualized to the valuation of the
real, personal, or even intellectual property at issue in the case and not just
a one size fits all over formula developed by the industry particularly the
Finally, it is useful to understand that in the new
paradigm, the expert opinions that will be sought from you will, to a certain
extent, depend on the dispute resolution forum and technique being utilized by
the parties and Counsel. In litigation and arbitration, your opinion as to the
specific quantification of damages will be sought utilizing the theory of the
case, and the valuation theory selected by the hiring authority. In a Mediation
or Neutral Case Evaluation, your opinion is most likely to be sought to aid in
a risk analysis designed to leverage the possible settlement of the case.
I hope I have been helpful and have adequately described the
comparatively new world that you, as the premiere financial forensic experts,
have been or will shortly be operating in. As we look to the future of the
field of dispute resolution and the administration of justice and specifically
to your role as experts in that system, perhaps the best guidance that I can
provide in conclusion is the advice of Abraham Lincoln which we would all do
well to heed today, “The dogmas of the quiet past are inadequate for the
stormy present and future. As our circumstances are new, we must think anew and