January 22, 2015 Practice Points

Know Your Experts: Financial Interests Can Undermine Credibility

A surprising development in a case highlighting an important lesson for parties offering experts and for opposing parties.

By Todd N. Hutchison

Since 2009, the proposed class in Rail Freight had relied on an economist, Dr. Gordon Rausser, as both their class certification and merits expert. Just before a second class certification hearing, first the defendants and then the plaintiffs received information that Dr. Rausser may have had a financial interest in the litigation and, therefore, could have been operating under a conflict of interest. Dr. Rausser denied any conflict, and the parties agreed that although there was no need to disqualify him, the information raised a serious credibility issue.

The defendants learned, in an email from an employee of Cascade Settlement Services (a company that purchases the claims of potential class members), that Dr. Rausser held a non-voting ownership stake in the company and had been providing information to the company regarding case developments. After denying any financial interest in Cascade during a deposition, Dr. Rausser submitted an errata sheet that changed the answer and effectively confirmed the relationship among himself, his majority-owned company, and Cascade. Subsequent discovery confirmed that Dr. Rausser, both individually and through his company, had entered into consulting and services contracts with Cascade. The discovery also confirmed that Dr. Rausser had invested more than $1 million in a Cascade fund, which included potential class claims in the Rail Freight litigation in which Dr. Rausser was a testifying expert.

Notably, the defendants did not move to disqualify Dr. Rausser. Instead, the plaintiffs moved to file a supplemental expert report attesting to the reliability and integrity of Dr. Rausser's opinions. That is, notwithstanding Dr. Rausser's credibility as a witness, the plaintiffs wanted to continue to rely on his opinions and analysis and, therefore, sought to verify the credibility and accuracy of the analysis and methodologies. Judge Paul Friedman of the United States District Court for the District of Columbia treated the motion as a request to modify a scheduling order under Federal Rule of Civil Procedure 16(b) and considered whether good cause existed to alter the scheduling order and reopen discovery.

Judge Friedman concluded that the plaintiffs would be "significantly prejudiced" due to the "potentially grave damage" to Dr. Rausser's credibility if the plaintiffs were not permitted to provide the proposed supplemental report. The prejudice to the plaintiffs outweighed any prejudice to the defendants as a result of delaying the class certification hearing. Judge Friedman determined that modifying the scheduling order would be appropriate because the plaintiffs exercised reasonable diligence, and there was no suggestion that they acted in bad faith.

Judge Friedman concluded that the plaintiffs exercised diligence once they learned about their expert's potential conflict of interest, but it remains an important lesson for all lawyers to be aware of potential conflicts when retaining an expert or investigating an opponent's expert. It is also an important lesson for expert witnesses when considering other professional or personal opportunities. Dr. Rausser's conflict arose approximately three years into the Rail Freight litigation and involved an investment in a broad fund, not a direct purchase of the claim. Expert witnesses must stay apprised of ongoing engagements and avoid potential conflicts before they arise. Counsel should ensure that their experts remain conflict-free throughout the litigation—no matter how long its duration.

Todd N. Hutchison is an associate at Drinker Biddle & Reath, LLP, in Philadelphia, Pennsylvania. The views or opinions expressed herein are the author's alone and do not reflect the views or opinions of the firm or its clients.

Keywords: expert witnesses, litigation, conflict of interest, expert, prejudice, bias


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