Well-rounded analysis: application of Kumho Tire to expert economic testimony

Business Economics, Oct, 1999 by James A. Hurdle

Opportunities for economists to offer consulting services in litigation and public service have been previously reviewed in this journal (Polhemus, 1999). Here, the discussion turns to another critical aspect of offering economic testimony in litigation: What are the requirements that must be met for the economic testimony to be introduced as evidence for consideration by a jury?

This question was answered in the recent Supreme Court decision regarding Kumho Tire Co. v. Carmichael (No. 97-1709, March 23, 1999). This case determined that judges must act as gatekeepers to ensure that the proposed testimony of economists and all other types of expert witnesses is both relevant and reliable. Overseeing relevance is an established judicial role, as all testimony must be germane to the issues that are awaiting decision. Reliability is a more difficult problem, enhanced by the proliferation of experts in modern litigation. In its decision, the Supreme Court noted that "the trial judge must have considerable leeway in deciding in a particular case how to go about determining whether particular expert testimony is reliable." One inevitable result of Kumho Tire will be a period of disequilibrium in terms of both the methods employed for testing the reliability of proposed expert economic testimony and how stringently judges employ their tests to exclude or reduce the scope of economic testimony.

Economic experts are permitted to offer opinion evidence, i.e., the testimony incorporates information developed through academic study, research and/or experience that is presented to interpret the case at hand. For example, an economist may testify about the cost of capital or projected cash flows for a corporation, neither of which exists independently of the analysis conducted by the economist to derive an opinion as to their value. Merely being a highly accomplished economist is not sufficient for the presentation of credible expert testimony; in one recent decision a judge criticized a Nobel laureate in economics for his lack of knowledge of the industry about which he testified (Levey, 1999). Moreover, the opinions of an economic expert may introduce more confusion than enlightenment unless they are appropriately prepared for the issues in litigation.

As a central rule for how a judge may evaluate the reliability of the proposed opinion testimony of an economic expert, the Supreme Court stated in the Kumho opinion is that the judge should assure that "an expert, whether basing testimony upon professional studies or personal experience, employs in the courtroom the same level of intellectual rigor that characterizes the practice of an expert in the relevant field." This inquiry should be limited to the methodology employed, not a decision as to the merits of the conclusions derived. If the methodology is found reliable, then the expert may testify as to the conclusions, so that the jury can weigh the ultimate merit.

Kumho Tire follows from the Supreme Court's earlier decision in Daubert v. Merrill Dow Pharmaceuticals, Inc. (1993), which established the standard for reviewing the proposed testimony of "scientific" expert witnesses. Daubert intended to minimize the role of what is commonly called "junk science" in litigation by focusing the judicial analysis of the reliability of the proposed testimony upon four factors:

1. Whether the methodology relied upon has been or could be tested;

2. Whether the method has been subjected to peer review and publication;

3. Whether there is a known or potential rate of error and standards controlling the technique's operation that may be examined against the proposed testimony; and

4. Whether the theory or method enjoys general acceptance within a relevant scientific community.

Because Kumho Tire has extended the Daubert review process to experts of all types, including economists, judges probably will seek to apply these four factors, or reasonable approximations, as a foundation for forthcoming reviews.

For proposed economic testimony, the Daubert factors of testability, peer review and "general acceptance," should not be difficult to meet. Basically, an expert economist, under the general rule of presenting evidence consistent with one's everyday professional practices, should prepare written and oral testimony that is comparable to that presented in professional venues. Most economic testimony will be based on existing theory and literature (i.e., "applied" economics), so the economist can rely on the peer-reviewed literature as a foundation. If specific theoretical or empirical analyses are developed for the litigation, the economist will need to be prepared to defend that research, possibly by indicating how it is a logical extension of existing peer-reviewed literature. The Daubert factor regarding the "known error rate" or "controlling standards" fits somewhat more weakly with traditional economic research. As a nonexperimental social science, economics must adapt its testing to existing data, which often do not offer a framework for determining precise error rates. However, test criteria for statistical or econometric testimony may evolve as judges conduct more evaluations of that type of expert economic testimony.