Expert Testimony and the Changes to FRCP Rule 26

Federal rules will soon be changing to apply the work-product protections of Federal Rules of Civil Procedure Rule 26(3)(A) and (B) to experts' draft reports and expert-attorney communications. According to the report that led to these rule changes (“Report of the Judicial Conference Committee on Rules of Practice and Procedure to the Chief Justice of the United States and Members of the Judicial Conference of the United States”), this means such documents will no longer be discoverable except for:

• those that relate to the expert's compensation;
• facts and data provided by counsel that the expert considered; and
• assumptions provided by counsel that the expert considered.

The amendments will be effective Dec. 1, 2010, pursuant to ratification of the proposals by the U.S. Supreme Court on July 15, 2010; however, care must be taken because the changes will not be applied retroactively. Thus, it may be wise for counsel to request discovery delays in the next few months to give their experts the protection of the upcoming changes.

The report notes that expert testimony has become critical to the litigation process and that the new rules will eliminate the “tortuous” procedures experts had to take to avoid preparing draft reports, taking notes, or making records of preliminary opinions.

The rationale for the changes was basically common sense. The Report of the Judicial Conference Committee states: “The advisory committee was satisfied that discovery into draft reports and all communications between the expert and retaining counsel was not an effective way to learn or expose the weaknesses of the expert's opinions; was time-consuming and expensive; and led to wasteful litigation practices to avoid creating such communications and drafts in the first place.”

The report also noted that the changes would remove the need to use two sets of experts ' consulting and testifying ' often the current practice. However, nothing in the Rule 26 changes affects the court's gate-keeping functions under Daubert.

The report makes clear that it was primarily law professors who had sought the total discovery regimen of the old Rule 26. But it was practitioners who argued strongly that the system was unworkable and caused litigators to resort to two sets of experts and a whole host of other specially designed procedures to get around the discovery rules. The new rules are an acceptance that practicality should trump egghead theories.

How the Rule Change Affects Experts

As someone who has provided expert and consulting services during the tenure of the old Rule 26, author Bruce S. Schaeffer can offer the following observations:

1. Cryptic billing. Under the old rules ' and continuing under the new rules because the financial arrangement with an expert is still subject to discovery ' experts have learned to use only the most generic language in preparing bills. Why? Because too much detail only opens the expert to more hostile questions from opposing counsel in the nature of “Aren't you being paid for this engagement?” and generates much heat but no light.
2. No e-mail correspondence. When working within Rule 26, experts have learned to use e-mail as infrequently as possible because it will become discoverable. This will change with the new rules and will reintroduce the efficiency of the electronic age into communications between expert and counsel.
3. Excessive phone discussions. Because of the general e-mail prohibitions, discussions between experts and counsel have been predominantly by phone. This removes the good-sense editing function that can be accomplished through written communication and may lead to misunderstandings among members of the same team. Under the new rules, I imagine there will be many and more-concise written memos exchanged between counsel and experts.
4. Working report only. Under the current Rule 26 regimen, experts have learned never to use drafts, but instead rely on a “working” report on which revisions simply overwrite prior paragraphs. Why? Again, it's to avoid monstrous cross-examinations that focus more on what experts considered cosmetic changes or rejected opinions than on the opinions they came to. This can cause disputes between counsel and the experts retained by them because nobody has a prior draft to show where the changes came from. But under the current (old) rules, it is a small price to pay to avoid senseless and often ad hominem attacks by opposing counsel on portions of a report that may be irrelevant, for example, if they were originally copied from a report for a prior engagement.
5. Internet-based review prior to delivery of final report. Another of the circumventions devised in the relationships between counsel and experts is the electronic review of working reports without delivery. This gets around the need to disclose “drafts” and allows some form of continuing update from both counsel and experts before delivery of the final report. This legal subterfuge will no longer be necessary under the new rules because “drafts” will no longer be discoverable.

How the Rule Change Affects e-Discovery

There are also changes to Illustrative Form 52 “Report of the Parties Planning Meeting” to be prepared after the Rule 26(f) conference. Particular note should be paid to Paragraph 3(b), which reads as follows: “(b) Disclosure or discovery of electronically stored information should be handled as follows: (briefly describe the parties' proposals including the form or forms for production).“

In author Henry Chan's experience as a computer forensics expert, he has found it is always better (and cheaper, in the long run) to engage e-discovery experts before there's trouble, rather than after. Only a fool ignores what should be learned from experience. Here are a few things Chan has learned.

Lesson #1: The day of the 26(f) conference is not the time to develop a party's proposals relating to the form or forms for production. It is always better to have company policies and procedures in place, such as implementing an archiving system, long before the 26(f) conference. Because of the vast amounts of data created in the course of doing business and the courts' imposition of stricter discovery requirements, a system for managing Electronically Stored Information (“ESI”) is critical.

Lesson #2: In a past engagement, a plaintiff decided that data from its backup tapes, not archived data, were enough to make the case a “slam dunk.” But such backup tapes are generally not admissible because the rules of evidence demand that parties use the correct forensic processes and procedures in collecting and copying ESI; and courts have begun to impose sanctions on counsel for failing to adequately supervise a client's collection and preservation of ESI. In a recent case, the court sanctioned both the client and its outside attorney, noting that although neither had acted in bad faith, sanctions were appropriate because outside counsel “simply did not understand the technical depths to which electronic discovery can sometimes go.” (In re A&M Florida Properties. No. 09-01162, 2010 WL 1418861, at *6-7 (S.D.N.Y. Apr. 7, 2010).

Backup data is not the same as archived data, and the methods for collecting evidence on drives must adhere to strict imaging procedures. A forensic examiner makes what's called a “raw” or “dd” (“data dump”) image of an evidence drive. In a dd image, the content of the evidence media is bit streamed directly to a file without adding any header information or Cyclical Redundancy Check (“CRC”) and hash values. The content of the drive being imaged is copied (by default) in data “blocks” of 32KB, and each block is subjected to a CRC, which mathematically verifies the accuracy of the data in the block. The CRC value for each block is stored after the block. When all of the data are imaged, an MD5 hash value for the acquired data is appended to the file. The important point here is that the content of the evidence drive being imaged is mirrored exactly in ones and zeros. If you take that data by itself and lay it out in a new file as a single continuous sequence, you'll have all the same ones and zeros as exist on the evidence drive in exactly the same sequence.

Lesson #3: To deal with what could easily amount to terabytes of ESI, all franchise companies are advised to implement an archiving system right now ' even if no litigation is currently anticipated. Then, in the event of a dispute, e-mail and file archiving will allow the company's legal, IT, and compliance teams to locate, preserve, and produce relevant ESI and will help with enforcement of the company's document retention and “legal hold” policies. Otherwise, a party is confronted with the dilemma of having to build a firetruck during the fire.

Lesson #4: The case law makes clear that issuing written “legal holds” is essential to comply with the new ESI rules. And the holds must be communicated appropriately to all department heads, IT personnel, and pertinent support staff. Internal automatic destruction must also be suspended, which includes halting defragmentation software and other forms of automatic or routine drive “cleanup” activities.

Conclusion

The new rules will bring good sense to discovery with respect to expert witnesses. They also serve to emphasize the need to properly organize and preserve ESI using e-discovery experts before and during litigation or arbitration.

Bruce S. Schaeffer is principal of Franchise Valuations, Ltd. (New York), which specializes in valuations and appraisals, succession planning, and estate planning for the franchise community, and he regularly acts as a damages expert in franchise litigation. He can be contacted at 212-689-0400 or [email protected]. Henry Chan is principal and co-founder with Schaeffer of Franchise Technology Risk Management, which helps firms improve their IT security. He can be contacted at [email protected] or 212-689-0400.

Federal rules will soon be changing to apply the work-product protections of Federal Rules of Civil Procedure Rule 26(3)(A) and (B) to experts' draft reports and expert-attorney communications. According to the report that led to these rule changes (“Report of the Judicial Conference Committee on Rules of Practice and Procedure to the Chief Justice of the United States and Members of the Judicial Conference of the United States”), this means such documents will no longer be discoverable except for:

• those that relate to the expert's compensation;
• facts and data provided by counsel that the expert considered; and
• assumptions provided by counsel that the expert considered.

The amendments will be effective Dec. 1, 2010, pursuant to ratification of the proposals by the U.S. Supreme Court on July 15, 2010; however, care must be taken because the changes will not be applied retroactively. Thus, it may be wise for counsel to request discovery delays in the next few months to give their experts the protection of the upcoming changes.

The report notes that expert testimony has become critical to the litigation process and that the new rules will eliminate the “tortuous” procedures experts had to take to avoid preparing draft reports, taking notes, or making records of preliminary opinions.

The rationale for the changes was basically common sense. The Report of the Judicial Conference Committee states: “The advisory committee was satisfied that discovery into draft reports and all communications between the expert and retaining counsel was not an effective way to learn or expose the weaknesses of the expert's opinions; was time-consuming and expensive; and led to wasteful litigation practices to avoid creating such communications and drafts in the first place.”

The report also noted that the changes would remove the need to use two sets of experts ' consulting and testifying ' often the current practice. However, nothing in the Rule 26 changes affects the court's gate-keeping functions under Daubert.

The report makes clear that it was primarily law professors who had sought the total discovery regimen of the old Rule 26. But it was practitioners who argued strongly that the system was unworkable and caused litigators to resort to two sets of experts and a whole host of other specially designed procedures to get around the discovery rules. The new rules are an acceptance that practicality should trump egghead theories.

How the Rule Change Affects Experts

As someone who has provided expert and consulting services during the tenure of the old Rule 26, author Bruce S. Schaeffer can offer the following observations:

1. Cryptic billing. Under the old rules ' and continuing under the new rules because the financial arrangement with an expert is still subject to discovery ' experts have learned to use only the most generic language in preparing bills. Why? Because too much detail only opens the expert to more hostile questions from opposing counsel in the nature of “Aren't you being paid for this engagement?” and generates much heat but no light.
2. No e-mail correspondence. When working within Rule 26, experts have learned to use e-mail as infrequently as possible because it will become discoverable. This will change with the new rules and will reintroduce the efficiency of the electronic age into communications between expert and counsel.
3. Excessive phone discussions. Because of the general e-mail prohibitions, discussions between experts and counsel have been predominantly by phone. This removes the good-sense editing function that can be accomplished through written communication and may lead to misunderstandings among members of the same team. Under the new rules, I imagine there will be many and more-concise written memos exchanged between counsel and experts.
4. Working report only. Under the current Rule 26 regimen, experts have learned never to use drafts, but instead rely on a “working” report on which revisions simply overwrite prior paragraphs. Why? Again, it's to avoid monstrous cross-examinations that focus more on what experts considered cosmetic changes or rejected opinions than on the opinions they came to. This can cause disputes between counsel and the experts retained by them because nobody has a prior draft to show where the changes came from. But under the current (old) rules, it is a small price to pay to avoid senseless and often ad hominem attacks by opposing counsel on portions of a report that may be irrelevant, for example, if they were originally copied from a report for a prior engagement.
5. Internet-based review prior to delivery of final report. Another of the circumventions devised in the relationships between counsel and experts is the electronic review of working reports without delivery. This gets around the need to disclose “drafts” and allows some form of continuing update from both counsel and experts before delivery of the final report. This legal subterfuge will no longer be necessary under the new rules because “drafts” will no longer be discoverable.

How the Rule Change Affects e-Discovery

There are also changes to Illustrative Form 52 “Report of the Parties Planning Meeting” to be prepared after the Rule 26(f) conference. Particular note should be paid to Paragraph 3(b), which reads as follows: “(b) Disclosure or discovery of electronically stored information should be handled as follows: (briefly describe the parties' proposals including the form or forms for production).“

In author Henry Chan's experience as a computer forensics expert, he has found it is always better (and cheaper, in the long run) to engage e-discovery experts before there's trouble, rather than after. Only a fool ignores what should be learned from experience. Here are a few things Chan has learned.

Lesson #1: The day of the 26(f) conference is not the time to develop a party's proposals relating to the form or forms for production. It is always better to have company policies and procedures in place, such as implementing an archiving system, long before the 26(f) conference. Because of the vast amounts of data created in the course of doing business and the courts' imposition of stricter discovery requirements, a system for managing Electronically Stored Information (“ESI”) is critical.

Lesson #2: In a past engagement, a plaintiff decided that data from its backup tapes, not archived data, were enough to make the case a “slam dunk.” But such backup tapes are generally not admissible because the rules of evidence demand that parties use the correct forensic processes and procedures in collecting and copying ESI; and courts have begun to impose sanctions on counsel for failing to adequately supervise a client's collection and preservation of ESI. In a recent case, the court sanctioned both the client and its outside attorney, noting that although neither had acted in bad faith, sanctions were appropriate because outside counsel “simply did not understand the technical depths to which electronic discovery can sometimes go.” (In re A&M Florida Properties. No. 09-01162, 2010 WL 1418861, at *6-7 (S.D.N.Y. Apr. 7, 2010).

Backup data is not the same as archived data, and the methods for collecting evidence on drives must adhere to strict imaging procedures. A forensic examiner makes what's called a “raw” or “dd” (“data dump”) image of an evidence drive. In a dd image, the content of the evidence media is bit streamed directly to a file without adding any header information or Cyclical Redundancy Check (“CRC”) and hash values. The content of the drive being imaged is copied (by default) in data “blocks” of 32KB, and each block is subjected to a CRC, which mathematically verifies the accuracy of the data in the block. The CRC value for each block is stored after the block. When all of the data are imaged, an MD5 hash value for the acquired data is appended to the file. The important point here is that the content of the evidence drive being imaged is mirrored exactly in ones and zeros. If you take that data by itself and lay it out in a new file as a single continuous sequence, you'll have all the same ones and zeros as exist on the evidence drive in exactly the same sequence.

Lesson #3: To deal with what could easily amount to terabytes of ESI, all franchise companies are advised to implement an archiving system right now ' even if no litigation is currently anticipated. Then, in the event of a dispute, e-mail and file archiving will allow the company's legal, IT, and compliance teams to locate, preserve, and produce relevant ESI and will help with enforcement of the company's document retention and “legal hold” policies. Otherwise, a party is confronted with the dilemma of having to build a firetruck during the fire.

Lesson #4: The case law makes clear that issuing written “legal holds” is essential to comply with the new ESI rules. And the holds must be communicated appropriately to all department heads, IT personnel, and pertinent support staff. Internal automatic destruction must also be suspended, which includes halting defragmentation software and other forms of automatic or routine drive “cleanup” activities.

Conclusion

The new rules will bring good sense to discovery with respect to expert witnesses. They also serve to emphasize the need to properly organize and preserve ESI using e-discovery experts before and during litigation or arbitration.

Bruce S. Schaeffer is principal of Franchise Valuations, Ltd. (New York), which specializes in valuations and appraisals, succession planning, and estate planning for the franchise community, and he regularly acts as a damages expert in franchise litigation. He can be contacted at 212-689-0400 or [email protected]. Henry Chan is principal and co-founder with Schaeffer of Franchise Technology Risk Management, which helps firms improve their IT security. He can be contacted at [email protected] or 212-689-0400.