Case Study

A group of investors identified OLDCO, a privately held company, as an attractive investment.  The group negotiated to purchase OLDCO from its owner, reviewed the records of OLDCO, completed the transaction with certain bank financing, and renamed the company NEWCO.  Paper-based financial records from OLDCO were stored in an unused portion of NEWCO’s facilities.

Two years later, NEWCO was in deep trouble.  Sales had dropped, margins were falling, and the bank was threatening to seize the assets of the company.  In desperation, NEWCO’s owners allowed the bank to take over management of NEWCO.  After consulting with their attorney, NEWCO’s owners filed suit against the seller, alleging that the seller had provided fraudulent financial statements and had misrepresented critical financial information about OLDCO.

NEWCO’s owners and their attorney believed that general ledger and financial statement information obtained during their original records review were sufficient to prove their allegations.  Because they believed that the case could be settled without going to trial, they delayed retaining a forensic accounting expert.  As the case proceeded, they eventually determined that they did need an expert analysis and report, and therefore retained the expert to produce the required analysis and report.

The forensic accounting expert quickly determined that more detailed financial information, including customer invoices, vendor bills, and detailed inventory cost reports, was necessary.  NEWCO’s attorney then requested the records from the bank-appointed manager.  Unfortunately, the manager reported that the records had been discarded when the storage location was sublet in an effort to generate additional income.

Without the missing information, the forensic accounting expert’s analysis was unable to fully support NEWCO’s owners’ allegations.  NEWCO’s owners were forced to settle the case for far less than they had expected.  “If only we had known we needed those records, we could have gotten them before they were discarded,” lamented one of the owners.

The Role of the Litigation Expert

Attorneys use litigation experts to provide critical advice about the facts, issues and strategy of a case. Such experts frequently are asked to produce reports and provide testimony that is useful to both judges and juries in determining casualty, liability and damages.  In such cases, litigation experts must remain objective and avoid any perception of advocacy so that judges and juries can feel comfortable in relying upon their reports and testimony.

Why You Should Engage the Litigation Expert Early in the Case

There are five key reasons for engaging the litigation expert early in the case. They are:

1. The litigation expert can provide critical advice about overall strategy. Because of the expert’s specialized knowledge, the expert’s advice is crucial to deciding both the validity and the potential value of the litigation. In addition, the litigation expert’s insights into the facts and circumstances of the case can be invaluable in assisting the attorney in determining case direction from the beginning.
2. Engaging a sought-after litigation expert early, even if you don’t intend to extensively use that expert’s services, precludes the opposing side from using that expert. 
3. The litigation expert’s advice can help ensure more comprehensive early discovery. As in the case study above, the litigation expert can help identify key information that should be requested early in discovery motions.
4. Participation of the litigation expert during depositions can assist in eliciting key testimony. Often, the litigation expert can identify key questions or follow-up questions that the attorney should ask.
5. Early engagement allows the litigation expert to obtain, to the extent possible, the necessary information to properly analyze the matter, produce a comprehensive report and properly review the report. In addition, the litigation expert is able to to deliver more effective and reliable testimony.

Early engagement of the litigation expert can provide immense benefits to and aid in the success of litigation matters.

If you have questions concerning the issues discussed here or any related questions, please call us at (610) 667-6250 and ask to speak to one of our Litigation Support Specialists or contact us at info@marg.com.