When a Business Case Needs an Expert Witness

Why some facts need an expert

A judge or jury can read a contract, weigh conflicting accounts of a meeting and decide who is telling the truth. They cannot be expected to know how to project a company's profits over five years, value a minority interest in an LLC, judge whether a foundation was engineered to standard, or trace funds through a dozen accounts. Where a fact that decides the case requires specialized knowledge, the rules of evidence allow, and in practice require, a qualified witness to supply it.

Texas Rule of Evidence 702 permits a witness qualified as an expert by knowledge, skill, experience, training or education to testify in the form of an opinion if the expert's scientific, technical or other specialized knowledge will help the trier of fact understand the evidence or determine a fact in issue. Federal Rule 702 is worded similarly and adds, since its 2023 amendment, that the proponent must show by a preponderance that the testimony is based on sufficient facts, is the product of reliable principles and methods, and reflects a reliable application of them.

The business disputes that usually need one

Damages beyond the invoice

A claim for an unpaid balance can be proven with the contract, the invoices and a records custodian. A claim for lost profits cannot. Texas law requires lost profits to be proven with reasonable certainty, by competent evidence and objective facts, figures and data rather than speculation. Projections of what a business would have earned, the effect of a lost customer on future years, or the diminished value of a business after a breach are expert territory. What damages a business can recover for breach of contract covers the categories.

Business valuation

Buyout disputes, shareholder oppression claims, dissolution and divorce-related transfers of ownership interests all turn on what a company or an interest in it is worth. Valuation requires a method (income, market or asset approaches), discounts for lack of control or marketability, and judgment about normalizing the financials. Each side usually retains its own valuation expert, and how valuation disputes are decided explains why the two numbers can be far apart.

Forensic accounting

When money has gone missing or been diverted, a forensic accountant reconstructs the flow: which accounts, which transfers, which entries were altered, what the company's records should have shown. The same expert can quantify the loss and often testifies to the methods used to conceal it. How forensic accountants are used in fraud litigation describes the work.

Industry standards and technical performance

Construction defect claims need an engineer or architect to say what the standard of care required and how the work fell short; claims against licensed architects and engineers in Texas also require a certificate of merit from a qualified professional at filing. Software and technology disputes need someone who can explain what the system was supposed to do, whether it did it, and whether code was copied. Insurance, lending, brokerage and medical practice disputes each carry their own standards that a lay jury cannot assess unaided.

Attorney's fees

Where fees are recoverable, they must be proven, and the proof comes from a lawyer testifying as an expert on the reasonableness and necessity of the hours and rates. This is routine, but it is expert testimony and subject to the same rules.

Cases that usually do not

Many business disputes are decided without any expert. The meaning of an unambiguous contract is a question of law for the judge. Whether a payment was made, whether a notice was sent, what a witness said in a meeting, and what the company's own records show are matters for documents and fact witnesses. A sworn account claim for goods delivered and unpaid can be proven with business records. Adding an expert where the facts speak for themselves adds cost without adding proof.

Retained, non-retained and consulting experts

Texas practice distinguishes three roles.

• Retained testifying experts are hired for the case to form and give opinions. They must be designated, their opinions and the bases for them disclosed, and they may be deposed. Their reports, working papers and communications about the opinions are discoverable.
• Non-retained testifying experts are people who have specialized knowledge from their own involvement: the company's controller who prepared the financials, the project engineer who inspected the work, an officer with industry experience. They must still be designated and their opinions disclosed, but the disclosure obligations are lighter.
• Consulting experts advise the lawyer and do not testify. Under Rule 192.3(e) their identity, mental impressions and opinions are protected from discovery unless a testifying expert relies on them. Consulting experts let a party test a theory before committing to it.

Designation deadlines and disclosures

Texas Rule of Civil Procedure 195 governs. Unless the court orders otherwise, a party seeking affirmative relief must designate its testifying experts 90 days before the end of the discovery period, and all other parties 60 days before the end of the discovery period. Designation is made through the expert disclosures required by Rule 194.2 and 195.5: the expert's name and contact information, the subject matter, the general substance of the opinions and a brief summary of their bases. For a retained expert the disclosure also includes all documents and data provided to or reviewed by the expert, the expert's current résumé and bibliography, and, if ordered or if the expert prepared one, a written report. Compensation is also discoverable.

A party that fails to designate on time risks exclusion of the expert under Rule 193.6 unless it shows good cause or that the other side will not be unfairly surprised or prejudiced. Because many business claims cannot be proven without the expert, a missed designation deadline can end the claim at summary judgment.

In federal court, Fed. R. Civ. P. 26(a)(2) requires a retained expert to sign a written report containing a complete statement of all opinions and their bases, the facts and data considered, exhibits, qualifications, a list of publications from the last ten years, a list of cases in which the expert testified in the last four years, and the compensation to be paid. The default deadline is 90 days before trial, and the court's scheduling order usually sets an earlier one.

Challenging an expert: gatekeeping

An expert's testimony is admitted only if the court finds it reliable and relevant. In federal court the standard comes from the Supreme Court's 1993 decision in Daubert v. Merrell Dow Pharmaceuticals, which assigned the trial judge a gatekeeping role under Rule 702 and listed factors such as whether a theory can be tested, has been peer reviewed, has a known error rate and is generally accepted. Texas adopted a parallel standard in 1995 and applies it to every kind of expert testimony, scientific or not, in what Texas lawyers call a Robinson challenge. The attack is made by a motion to exclude, often heard before trial, and asks whether the methodology is sound, whether it was applied correctly to the facts, and whether the opinion fits the question the jury must decide.

Losing an expert is not a technicality. If the damages model is excluded and nothing else proves the amount, a no-evidence summary judgment can follow. How summary judgment ends a case before trial explains that mechanism. Choosing an expert whose method will survive scrutiny matters more than choosing one with the most favorable number.

What experts add to the budget

Experts bill for their time, and the time has predictable components: reviewing the documents and data, analysis, a written report, preparation for and attendance at a deposition, responding to the other side's expert, and trial testimony. The cost rises with the volume of records, the number of opinions, and the number of experts on each side; a valuation case with a damages expert and a rebuttal expert on each side has four professionals to pay. Under Rule 190, each side in a Level 2 case also receives additional deposition hours for each expert beyond two, which reflects how much deposition time experts consume.

Ways a litigator keeps the expert line in proportion: using a consulting expert first to test whether the opinion is worth building; narrowing the engagement to the questions that actually decide the case; agreeing with the other side on data so the experts argue about method rather than inputs; and using a company insider as a non-retained expert where the rules allow.

Example

Suppose a Dallas logistics company claims a software vendor's defective system caused it to lose two major accounts. The contract claim for the license fee needs no expert. The lost profits claim needs two: a technical expert to show the system failed to perform as specified, and a damages expert to project the lost accounts' profits with reasonable certainty, using the company's historical margins and the accounts' actual departure. The vendor will designate rebuttal experts on both and move to exclude the damages model as speculative. Whether the case is worth the fees paid to four experts is a question the owner and the litigator should answer before the first one is hired.

Tina Wysk works with damages, valuation, forensic accounting and technical experts in commercial cases in Dallas state and federal courts, and plans the expert strategy at the start of a case rather than at the designation deadline.