Florida’s Unknown: Daubert v. Frye and the Effect on Financial Experts
By Sheri Fiske Schultz, CPA/ABV/CFF and Katie Gilden, CPA/CFF, CFE, CVA
Ever since the Florida Legislature adopted the so-called Daubert test for evaluating expert witness testimony at trial, tossing the Frye standard that preceded it, controversy has ensued. The Frye standard, which generally prevailed in Florida, stated that expert opinions based on a scientific technique are admissible only where the technique is “generally accepted” as reliable in the relevant scientific community. Frye v. United States, 293 F. 1013 (D.C. Cir. 1923). This standard differed from the standard for admitting expert testimony in federal courts, articulated by U.S. Supreme Court in Daubert v. Merrell Dow Pharmaceuticals, Inc. (509 U.S. 579, 1993), which effectively overturned the Frye standard.
Under Daubert, the trial judge’s role was expanded as the gatekeeper for expert testimony. The U.S. Supreme Court in Daubert ruled that the Federal Rules of Evidence displaced Frye’s “generally accepted” standard and set forth a two-pronged test. That is, courts must serve as gatekeepers to assure an expert’s testimony is (1) RELIABLE and (2) RELEVANT. Applicability of Daubert was expanded to include financial experts, according to the U.S. Supreme Court in the Khumo Tire Case.
The Daubert standard has since been adopted by a majority of the states, including Florida, albeit not until 2013. Effective July 1, 2013, Section 90.702 of the Florida Statute was amended to read:
90.702 Testimony by experts.—If scientific, technical, or other specialized knowledge will assist the trier of fact in understanding the evidence or in determining a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education may testify about it in the form of an opinion or otherwise, if:
- The testimony is based upon sufficient facts or data;
- The testimony is the product of reliable principles and methods; and
- The witness has applied the principles and methods reliably to the facts of the case.
Daubert is widely considered to be the stricter of the two standards related to expert testimony admissibility. The Daubert test requires consideration of sufficient facts or data, and application of reliable principles to such facts. But, according to some, the trial bar has long fought the adoption of Daubert since its effect can often be the exclusion of expert witnesses whose testimony is based purely on opinion.
In December 2015, the Florida Bar Board of Governors approved the Code and Rules of Evidence Committee’s (CREC) recommendation to the Bar that Florida abandon Daubert and return to Frye. The Florida Supreme Court heard oral arguments regarding the matter on September 1st. However, the court has yet to rule, and as of this publication, Daubert remains the law in Florida.
While the trial bar’s opposition may be understandable (particularly when it comes to medical or scientific testimony which the Daubert court was considering), does the prevailing rule affect the testimony of financial experts where scientific facts or data are not a significant components of the analysis? We would argue that any Certified Public Accountant worth their weight (or billing rate), should survive a challenge under either standard.
Unlike some other financial disciplines that may not have unifying professional standards, all CPAs are bound by the AICPA Code of Professional Conduct. Under Rule 201 (General Standards), CPAs are bound to:
- Undertake only those professional services that the member or the member’s firm can reasonably expect to be completed with professional competence;
- Exercise due professional care in the performance of professional services;
- Adequately plan and supervise the performance of professional services; and
- Obtain sufficient relevant data to afford a reasonable basis for conclusions or recommendations in relation to any professional services performed.
In addition to being a licensed CPA, many accountants serving as expert witnesses also carry credentials beyond their general license. For example, CPAs practicing in the forensic accounting and fraud arena can also be Certified in Financial Forensics (CFF from the American Institute of Certified Public Accountants) and/or Certified Fraud Examiners (CFE from the Association of Certified Fraud Examiners). Business valuation experts can be Accredited in Business Valuation (ABV from the AICPA), Certified Valuation Analysts (CVA from the National Association of Certified Valuation Analysts), or Accredited Senior Appraiser (ASA from the American Society of Appraisers).
Of course, we know that properly credentialed CPAs are not immune from a Daubert challenge. But, provided they are adhering to their own professional standards, credentialed CPAs serving as financial expert witnesses should arguably pass muster under Daubert. If a CPA does not survive a Daubert challenge, then it is possible that he or she may not have followed the AICPA’s general standards and be subject to attack without regard to the applicable evidentiary standard in force.