What must a litigator do to ensure that economic damages will be presented effectively at trial? That is a very important question.
Consider the following: your case hasn’t settled and you are going to trial. You have retained an economist to prepare an estimate of the present value of economic damages in the case. How do you and your economist effectively prepare for testimony and potential cross-examination of the opinion of the pecuniary value of the damages?
One of the most important first steps is to retain an economic expert as early as possible. Early contact allows the economist to discuss the salient facts of the case with the attorney and to begin to mentally construct the appropriate approach to follow to estimate damages.
Two-way communication between attorney and expert is essential. The economist can answer any questions that the attorney may have, especially if the attorney has been referred by another of his/her colleagues. In turn, the economist can ask about background facts and any unusual characteristics of the case. In addition to detailed information such as earnings, salary, benefits, profits before and after the date of injury, there is a high probability that the attorney will provide the economist with information such as depositions and interrogatories. In addition, there may be binders of income tax returns, balance sheets, and income statements. While these sources are relevant information for the analysis of damages, the economist should be able to also communicate directly with the client to gather clarification and to clear up any questions that arise while reviewing the relevant documents. Communication with the client is very important and one telephone call can save time and effort for the economist as he/she is preparing the report of economic damages.
After the economist has estimated the present value of economic loss, these results and the salient facts and assumptions behind the results need to be discussed between the attorney and the economist. The facts and assumptions provide the basis for the economist’s opinion. So it is vital for the attorney to understand why certain growth rates are used to project future earnings and to understand the discount rates used by the economist.
Given the uncertain economic environment of the last several years, with bond yields at historic lows, and with stated Federal Reserve policies predicated on keeping bond rates low for several more years, the structure of discount rates used to calculate present value amounts are very low relative to pre-recession bond yields. This is significant, because with lower discount rates the present value amounts will be higher. It is important that the attorney understand this fundamental relationship. It is also important for the economist to use economic assumptions reflective of today’s economy and to be able to explain the results for the attorney.
On the day of trial, it is the economist’s oral testimony that is provided to the jury. It will be crucial for the economist to convey the results of the economic damages in a way that is engaging and credible to the jury. There are basically two important rules for the attorney and economist to remember at this point:
1) to choose a visual medium that projects the tables of results most clearly; and, (2) keep the tables relatively uncluttered; keep a lot of white space between important facts and results. The economist then proceeds to communicate the results, to engage eye-to-eye with the jury and to make sure that all twelve jurors feel included, even if numbers aren’t their strong suit.
From experience, cross-examination usually centers around the fact that the present value result is only an estimate. While that is true, the opinion is determined to within a reasonable degree of economic certainty which is the standard acceptable to the courts and which should be reinforced with the jury. Other areas of cross-examination include the choice of discount rates and growth rates of income, earnings or profits. From experience, most jurors understand the concept of present value of a future sum especially when it is pointed out that most lottery winners choose the lump sum rather than an annual payout into the future; the winners are choosing the present value of the future sum of the lottery.
This is a simple example but one that I’ve found almost everyone understands. Growth rates used to project values into the future are really convincing when they reflect the percentage magnitudes that the client has actually experienced; It is hard to argue with values that reflect actual experience. If actuals aren’t available, a second source for data is government sources such as the U.S. Department of Labor or Economic Report of the President. These secondary sources are well-received by jurors.
This is a brief overview of how the attorney and economist can work together to ensure that economic damages are effectively presented at trial. If the process was to be described in one word, that word would be “communication”; the communication between attorney and economist, as well as between the economist with the client and the trier of fact.