Providing clients with litigation support is a core function of a forensic accounting firm like HSNO. One component of litigation support is preparing analysis and testimony that will satisfy the rules of evidence at trial. In the evidentiary landscape created by the Supreme Court’s decision in Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579 (1993), and the cases that have followed, courts have articulated a range of important rules that forensic accountants must consider as they prepare for trial. Here are four of the most important rules:
- The “fact and amount” rule.
In cases where a plaintiff’s damages can be proven with reasonable certainty, what level of precision is required to calculate the amount of loss? The fact and amount rule provides that so long as the plaintiff suffered some loss, the exact figure needn’t be proven with reasonable certainty. The key requirement is that a higher degree of certainty is needed to determine whether or not the plaintiff suffered some loss.
- The “wrongdoer” rule.
A key question in any financial litigation is the extent to which the defendant’s wrongdoing should factor into the plaintiff’s ability to recover damages. Under the wrongdoer rule, a defendant who is liable for lost profits or other financial damages cannot demand that the plaintiff’s losses be proven with reasonable certainty. The object of this rule is to ensure that once a defendant is shown to be the wrongdoer, it cannot escape liability by asking the court to impose a standard that the plaintiff can’t meet.
- The “best evidence” rule.
The best evidence rule requires parties to submit original versions of any documentary evidence, on grounds that the originals are the most reliable form of documentary information. Only if originals are unavailable can a party introduce “secondary” sources, such as copies of the original, by first providing an acceptable excuse as to why the original is unavailable.“In complex financial litigation, the best evidence rule can create problems for expert witnesses who would like to base their testimony on documentary evidence that isn’t available in original versions,” said HSNO Partner, Chris Money. “For example, if the analysis hinges on thousands of invoices that originally were issued on paper but now are available only in electronic form, the best evidence rule will apply. A forensic accountant can provide a client’s attorneys with valuable insights into forms of evidence that will satisfy the best evidence rule.”
- The “new business” rule.
Under the new business rule, a business that is not established could not recover lost profits. Most states have thrown out the new business rule in its original, strict form. However, courts have generally given greater scrutiny to plaintiffs’ claims when their businesses lack a sufficient track record upon which to base projections. The highly contingent nature of a new business’s success or failure leaves open serious questions that the plaintiffs will need to address to recover lost profits in these cases.
At HSNO, our team is highly qualified in litigation support other forensic accounting services. We work closely with our clients and their attorneys to prepare testimony that will pass the admissibility test. To learn more about our legal services, click here.