{"id":983,"date":"2012-11-08T11:08:35","date_gmt":"2012-11-08T18:08:35","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=983"},"modified":"2012-11-08T11:08:35","modified_gmt":"2012-11-08T18:08:35","slug":"expert-mistake-not-a-problem-in-9-million-reversal-bullseye-blog","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/expert-mistake-not-a-problem-in-9-million-reversal-bullseye-blog\/","title":{"rendered":"Expert Mistake? Not a Problem in $9 Million Reversal | BullsEye Blog"},"content":{"rendered":"<p style=\"margin: 0px 0px 1.5em; padding: 0px; border: 0px; outline: 0px; font-size: 14px; text-align: justify; font-family: Arial, Helvetica, sans-serif; line-height: 22.266666412353516px; background-color: #ffffff;\">Maggie Tamburro &#8211; November 6, 2012<\/p>\n<p style=\"margin: 0px 0px 1.5em; padding: 0px; border: 0px; outline: 0px; font-size: 14px; text-align: justify; font-family: Arial, Helvetica, sans-serif; line-height: 22.266666412353516px; background-color: #ffffff;\">We all make mistakes. No matter how careful you are, how well prepared you are, mistakes happen to the best of us, even experts.<\/p>\n<p style=\"margin: 0px 0px 1.5em; padding: 0px; border: 0px; outline: 0px; font-size: 14px; text-align: justify; font-family: Arial, Helvetica, sans-serif; line-height: 22.266666412353516px; background-color: #ffffff;\">Does an expert\u2019s mistake spell disaster for your case?\u00a0 Not necessarily, according to a surprising reversal by the 5<sup style=\"margin: 0px; padding: 0px; border: 0px; outline: 0px; font-size: 0.7em; height: 0px; line-height: 1; vertical-align: baseline; position: relative; bottom: 1ex;\">th<\/sup>\u00a0Circuit Court of Appeals.<\/p>\n<p style=\"margin: 0px 0px 1.5em; padding: 0px; border: 0px; outline: 0px; font-size: 14px; text-align: justify; font-family: Arial, Helvetica, sans-serif; line-height: 22.266666412353516px; background-color: #ffffff;\">In this recent securities case involving a mistake in expert testimony, the 5<sup style=\"margin: 0px; padding: 0px; border: 0px; outline: 0px; font-size: 0.7em; height: 0px; line-height: 1; vertical-align: baseline; position: relative; bottom: 1ex;\">th<\/sup>\u00a0Circuit ordered a lower court to \u201cundo\u201d its decision to vacate a multi-million dollar arbitration award against securities broker defendant Morgan Keegan.<\/p>\n<p style=\"margin: 0px 0px 1.5em; padding: 0px; border: 0px; outline: 0px; font-size: 14px; text-align: justify; font-family: Arial, Helvetica, sans-serif; line-height: 22.266666412353516px; background-color: #ffffff;\">The reason? \u00a0Although acknowledging the expert in the case relied on erroneous numbers, the appellate court determined that the mistake, without more, did not mean the arbitration award was procured by fraud.<\/p>\n<p style=\"margin: 0px 0px 1.5em; padding: 0px; border: 0px; outline: 0px; font-size: 14px; text-align: justify; font-family: Arial, Helvetica, sans-serif; line-height: 22.266666412353516px; background-color: #ffffff;\">What\u2019s the difference between an expert mistake and fraud?\u00a0\u00a0 More than $9 million, according to this case.<\/p>\n<p style=\"margin: 0px 0px 1.5em; padding: 0px; border: 0px; outline: 0px; font-size: 14px; text-align: justify; font-family: Arial, Helvetica, sans-serif; line-height: 22.266666412353516px; background-color: #ffffff;\"><strong style=\"margin: 0px; padding: 0px; border: 0px; outline: 0px;\">A $9 Million Mistake?<\/strong><\/p>\n<p style=\"margin: 0px 0px 1.5em; padding: 0px; border: 0px; outline: 0px; font-size: 14px; text-align: justify; font-family: Arial, Helvetica, sans-serif; line-height: 22.266666412353516px; background-color: #ffffff;\">The case arose when 18 investors claimed that securities broker Morgan Keegan allegedly engaged in an improper scheme inducing them to invest in \u201chighly risky\u201d bond funds between 1998 and 2008. The investors\u2019 claims were heard by an arbitration panel of the Financial Industry Regulatory Authority (FINRA), in which the investors\u2019 securities analyst expert gave allegedly false testimony.\u00a0 The testimony resulted in an arbitration award for the investors of more than $9 million.<\/p>\n<p style=\"margin: 0px 0px 1.5em; padding: 0px; border: 0px; outline: 0px; font-size: 14px; text-align: justify; font-family: Arial, Helvetica, sans-serif; line-height: 22.266666412353516px; background-color: #ffffff;\">Morgan Keegan persuaded the U.S. District Court for the S.D. of Texas to vacate the award. \u00a0In vacating the award, the district court found in part that the arbitration panel based its damages calculations on knowingly false expert witness testimony.<\/p>\n<p style=\"margin: 0px 0px 1.5em; padding: 0px; border: 0px; outline: 0px; font-size: 14px; text-align: justify; font-family: Arial, Helvetica, sans-serif; line-height: 22.266666412353516px; background-color: #ffffff;\">The investors appealed the lower court\u2019s decision to vacate the award, and the 5th Circuit sided with the investors \u2013 reversing, remanding, and ordering the entry of a judgment enforcing the arbitration award against Morgan Keegan.<\/p>\n<p style=\"margin: 0px 0px 1.5em; padding: 0px; border: 0px; outline: 0px; font-size: 14px; text-align: justify; font-family: Arial, Helvetica, sans-serif; line-height: 22.266666412353516px; background-color: #ffffff;\"><strong style=\"margin: 0px; padding: 0px; border: 0px; outline: 0px;\">The Mistake<\/strong><\/p>\n<p style=\"margin: 0px 0px 1.5em; padding: 0px; border: 0px; outline: 0px; font-size: 14px; text-align: justify; font-family: Arial, Helvetica, sans-serif; line-height: 22.266666412353516px; background-color: #ffffff;\">At the arbitration, the investors\u2019 technical expert witness, a securities analyst, provided testimony on the issue of damages.\u00a0 However, approximately one week later, during a different arbitration involving other claimants (but the same defendant), the same expert provided revised calculations that revealed an error. \u00a0In explaining the reason for the differing numbers, the expert explained that one of his staff members had, quite simply, made a mistake. The expert stated that he hadn\u2019t been aware of the errors when he testified in the arbitration at issue here.<strong style=\"margin: 0px; padding: 0px; border: 0px; outline: 0px;\"><\/strong><\/p>\n<p style=\"margin: 0px 0px 1.5em; padding: 0px; border: 0px; outline: 0px; font-size: 14px; text-align: justify; font-family: Arial, Helvetica, sans-serif; line-height: 22.266666412353516px; background-color: #ffffff;\">Although\u00a0acknowledging\u00a0the expert\u2019s testimony during the arbitration was based upon a mistake, the 5<sup style=\"margin: 0px; padding: 0px; border: 0px; outline: 0px; font-size: 0.7em; height: 0px; line-height: 1; vertical-align: baseline; position: relative; bottom: 1ex;\">th\u00a0<\/sup>Circuit reversed the district court\u2019s decision to vacate the arbitration award in favor of the investors.\u00a0 The 5t<span style=\"margin: 0px; padding: 0px; border: 0px; outline: 0px; font-size: 11.199999809265137px;\">h\u00a0<\/span>Circuit reasoned that, despite the error in the expert\u2019s testimony, the award was not procured by fraud.<\/p>\n<p style=\"margin: 0px 0px 1.5em; padding: 0px; border: 0px; outline: 0px; font-size: 14px; text-align: justify; font-family: Arial, Helvetica, sans-serif; line-height: 22.266666412353516px; background-color: #ffffff;\"><strong style=\"margin: 0px; padding: 0px; border: 0px; outline: 0px;\">Agree to Disagree\u2026<\/strong><\/p>\n<p style=\"margin: 0px 0px 1.5em; padding: 0px; border: 0px; outline: 0px; font-size: 14px; text-align: justify; font-family: Arial, Helvetica, sans-serif; line-height: 22.266666412353516px; background-color: #ffffff;\">Both the district court and the appellate court agreed on the rule:\u00a0 \u00a0A court may refuse to enforce an arbitration award where the award was procured by fraud. \u00a0From there, however, they parted ways.<\/p>\n<p style=\"margin: 0px 0px 1.5em; padding: 0px; border: 0px; outline: 0px; font-size: 14px; text-align: justify; font-family: Arial, Helvetica, sans-serif; line-height: 22.266666412353516px; background-color: #ffffff;\"><strong style=\"margin: 0px; padding: 0px; border: 0px; outline: 0px;\">Fraud Defined<\/strong><\/p>\n<p style=\"margin: 0px 0px 1.5em; padding: 0px; border: 0px; outline: 0px; font-size: 14px; text-align: justify; font-family: Arial, Helvetica, sans-serif; line-height: 22.266666412353516px; background-color: #ffffff;\">The appellate court first determined that fraud requires a showing of bad faith. \u00a0The circuit gave concrete examples, none of which were involved in this instance, including bribery, undisclosed bias of an arbitrator, willfully destroying or withholding evidence, and perjury. The expert\u2019s false testimony simply didn\u2019t amount to fraud under the meaning discussed by the court.<\/p>\n<p style=\"margin: 0px 0px 1.5em; padding: 0px; border: 0px; outline: 0px; font-size: 14px; text-align: justify; font-family: Arial, Helvetica, sans-serif; line-height: 22.266666412353516px; background-color: #ffffff;\"><strong style=\"margin: 0px; padding: 0px; border: 0px; outline: 0px;\">Requirements to Show an Arbitration Award was Procured by Fraud<\/strong><\/p>\n<p style=\"margin: 0px 0px 1.5em; padding: 0px; border: 0px; outline: 0px; font-size: 14px; text-align: justify; font-family: Arial, Helvetica, sans-serif; line-height: 22.266666412353516px; background-color: #ffffff;\">Under the Federal Arbitration Act (FAA), in order to show an arbitration award was procured by fraud, a party has a burden of proof that requires meeting\u00a0<em style=\"margin: 0px; padding: 0px; border: 0px; outline: 0px;\">all<\/em>\u00a0the elements of a three part test.<\/p>\n<p style=\"margin: 0px 0px 1.5em; padding: 0px; border: 0px; outline: 0px; font-size: 14px; text-align: justify; font-family: Arial, Helvetica, sans-serif; line-height: 22.266666412353516px; background-color: #ffffff;\">A party must show:<\/p>\n<blockquote style=\"margin: 0px 3em 1em; padding: 10px 15px; border: 0px; outline: 0px; font-size: 14px; background-image: url('http:\/\/www.ims-expertservices.com\/blog\/wp-content\/themes\/suffusion\/images\/blockquote-l.png'); background-color: #ffffff; text-indent: 2em; border-top-left-radius: 5px; border-top-right-radius: 5px; border-bottom-right-radius: 5px; border-bottom-left-radius: 5px; font-family: Arial, Helvetica, sans-serif; line-height: 22.266666412353516px; background-position: 0% 0%; background-repeat: no-repeat no-repeat;\">\n<p style=\"margin: 0px 0px 1.5em; padding: 0px; border: 0px; outline: 0px; text-align: justify;\">(1) that the fraud occurred by clear and convincing evidence;<\/p>\n<p style=\"margin: 0px 0px 1.5em; padding: 0px; border: 0px; outline: 0px; text-align: justify;\">(2) that the fraud was not discoverable by due diligence\u00a0<em style=\"margin: 0px; padding: 0px; border: 0px; outline: 0px;\">before\u00a0<\/em>or<em style=\"margin: 0px; padding: 0px; border: 0px; outline: 0px;\">\u00a0during<\/em>\u00a0the arbitration hearing [emphasis added]; and<\/p>\n<p style=\"margin: 0px 0px 1.5em; padding: 0px; border: 0px; outline: 0px; text-align: justify;\">(3) the fraud materially related to an issue in the arbitration.<\/p>\n<\/blockquote>\n<p style=\"margin: 0px 0px 1.5em; padding: 0px; border: 0px; outline: 0px; font-size: 14px; text-align: justify; font-family: Arial, Helvetica, sans-serif; line-height: 22.266666412353516px; background-color: #ffffff;\">Because the defendant failed to meet the second element of the test, the court never addressed the other two.<\/p>\n<p style=\"margin: 0px 0px 1.5em; padding: 0px; border: 0px; outline: 0px; font-size: 14px; text-align: justify; font-family: Arial, Helvetica, sans-serif; line-height: 22.266666412353516px; background-color: #ffffff;\">Focusing solely on the second element, the circuit court determined the dispositive factor was one of timing and due diligence. The circuit court concluded that the error was discovered by the expert\u00a0<em style=\"margin: 0px; padding: 0px; border: 0px; outline: 0px;\">after<\/em>\u00a0the expert gave his testimony, but that opposing counsel was made aware of the error and provided corrected numbers \u2013 in conjunction with the separate arbitration, interestingly \u2013 almost two weeks\u00a0<em style=\"margin: 0px; padding: 0px; border: 0px; outline: 0px;\">before<\/em>\u00a0the arbitration award was issued.<\/p>\n<p style=\"margin: 0px 0px 1.5em; padding: 0px; border: 0px; outline: 0px; font-size: 14px; text-align: justify; font-family: Arial, Helvetica, sans-serif; line-height: 22.266666412353516px; background-color: #ffffff;\">The court stated, \u201cHad Morgan Keegan performed its due diligence, the fact that [the investors\u2019 expert\u2019s] calculations failed to include some internally-priced securities would have been discovered even before [the expert] testified in the [instant] arbitration, thus obviating any concern that the arbitration panel would rely on erroneous calculations in issuing the award.\u201d<\/p>\n<p style=\"margin: 0px 0px 1.5em; padding: 0px; border: 0px; outline: 0px; font-size: 14px; text-align: justify; font-family: Arial, Helvetica, sans-serif; line-height: 22.266666412353516px; background-color: #ffffff;\">Thus, the circuit held that the brokerage company couldn\u2019t meet its burden of proof.<\/p>\n<p style=\"margin: 0px 0px 1.5em; padding: 0px; border: 0px; outline: 0px; font-size: 14px; text-align: justify; font-family: Arial, Helvetica, sans-serif; line-height: 22.266666412353516px; background-color: #ffffff;\"><strong style=\"margin: 0px; padding: 0px; border: 0px; outline: 0px;\">Arbitration<\/strong><\/p>\n<p style=\"margin: 0px 0px 1.5em; padding: 0px; border: 0px; outline: 0px; font-size: 14px; text-align: justify; font-family: Arial, Helvetica, sans-serif; line-height: 22.266666412353516px; background-color: #ffffff;\">Another important factor in the circuit court decision involved the circumstances under which the expert testimony was given \u2013 that of arbitration.\u00a0 The 5<sup style=\"margin: 0px; padding: 0px; border: 0px; outline: 0px; font-size: 0.7em; height: 0px; line-height: 1; vertical-align: baseline; position: relative; bottom: 1ex;\">th<\/sup>\u00a0Circuit noted that judicial review of arbitration decisions should not be undertaken lightly. \u00a0Quoting the U.S. Supreme Court, the 5<sup style=\"margin: 0px; padding: 0px; border: 0px; outline: 0px; font-size: 0.7em; height: 0px; line-height: 1; vertical-align: baseline; position: relative; bottom: 1ex;\">th<\/sup>\u00a0Circuit noted, \u201cCourts\u2026do not sit to hear claims of factual or legal error by an arbitrator as an appellate court does in reviewing decisions of lower courts.\u201d<\/p>\n<p style=\"margin: 0px 0px 1.5em; padding: 0px; border: 0px; outline: 0px; font-size: 14px; text-align: justify; font-family: Arial, Helvetica, sans-serif; line-height: 22.266666412353516px; background-color: #ffffff;\">Although a party has the right to ask a court to review the arbitrator\u2019s decision, if a party has agreed to arbitrate, by virtue of that decision the party gives up much of that right\u2019s practical value. \u00a0As a result, a reviewing court may only set aside an arbitrator\u2019s decision in \u201cvery unusual circumstances.\u201d<\/p>\n<p style=\"margin: 0px 0px 1.5em; padding: 0px; border: 0px; outline: 0px; font-size: 14px; text-align: justify; font-family: Arial, Helvetica, sans-serif; line-height: 22.266666412353516px; background-color: #ffffff;\"><strong style=\"margin: 0px; padding: 0px; border: 0px; outline: 0px;\">The Bottom Line<\/strong><\/p>\n<p style=\"margin: 0px 0px 1.5em; padding: 0px; border: 0px; outline: 0px; font-size: 14px; text-align: justify; font-family: Arial, Helvetica, sans-serif; line-height: 22.266666412353516px; background-color: #ffffff;\">In this important reversal and remand of a district\u2019s court\u2019s decision to vacate an award made before an arbitration panel of the Financial Industry Regulatory Authority (FIRNA), the Circuit Court pointed out that mistakes can happen to the best of us, even experts, and don\u2019t necessarily spell doom for your case.<\/p>\n<p style=\"margin: 0px 0px 1.5em; padding: 0px; border: 0px; outline: 0px; font-size: 14px; text-align: justify; font-family: Arial, Helvetica, sans-serif; line-height: 22.266666412353516px; background-color: #ffffff;\">This reversal leaves a few simple lessons for securities defendants and experts:<\/p>\n<ol style=\"margin: 0.5em 0px 1.5em 1.5em; padding: 0px 0px 0px 20px; border: 0px; outline: 0px; font-size: 14px; font-family: Arial, Helvetica, sans-serif; line-height: 22.266666412353516px; background-color: #ffffff;\">\n<li style=\"margin: 0px; padding: 0px; border: 0px; outline: 0px;\">An expert mistake, without more, doesn\u2019t equal fraud.<\/li>\n<li style=\"margin: 0px; padding: 0px; border: 0px; outline: 0px;\">Timing and due diligence are critical, and sometimes knowledge can be imputed.<\/li>\n<li style=\"margin: 0px; padding: 0px; border: 0px; outline: 0px;\">If you agree to something ahead of time, it\u2019s tough to change the rules mid-game (for example, an agreement to arbitrate).<\/li>\n<\/ol>\n<p style=\"margin: 0px 0px 1.5em; padding: 0px; border: 0px; outline: 0px; font-size: 14px; text-align: justify; font-family: Arial, Helvetica, sans-serif; line-height: 22.266666412353516px; background-color: #ffffff;\">Do you think this will be the end of the line for this case?\u00a0 Or is this expert issue, like\u00a0<a style=\"margin: 0px; padding: 0px; border: 0px; outline: 0px; color: #7f007f;\" href=\"http:\/\/www.ims-expertservices.com\/blog\/2012\/experts-class-actions-daubert\/\" target=\"_blank\">another I recently addressed<\/a>, (and incidentally argued just yesterday before the U.S. Supreme Court), ripe for review?<\/p>\n<p><a href=\"http:\/\/www.ims-expertservices.com\/blog\/2012\/expert-mistake-not-a-problem\/?utm_source=feedburner&amp;utm_medium=email&amp;utm_campaign=Feed%3A+BullseyeBlog+%28BullsEye+Blog%29\">Expert Mistake? Not a Problem in $9 Million Reversal | BullsEye Blog<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Maggie Tamburro &#8211; November 6, 2012 We all make mistakes. No matter how careful you are, how well prepared you are, mistakes happen to the best of us, even experts. Does an expert\u2019s mistake spell disaster for your case?\u00a0 Not necessarily, according to a surprising reversal by the 5th\u00a0Circuit Court of Appeals. In this recent&hellip; <a class=\"more-link\" href=\"https:\/\/www.myconstructionexpert.com\/blog\/expert-mistake-not-a-problem-in-9-million-reversal-bullseye-blog\/\">Continue reading <span class=\"screen-reader-text\">Expert Mistake? Not a Problem in $9 Million Reversal | BullsEye Blog<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[7],"tags":[99,17],"class_list":["post-983","post","type-post","status-publish","format-standard","hentry","category-expert-witness","tag-expert-testimony","tag-expert-witness-2","entry"],"jetpack_publicize_connections":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v25.0 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Expert Mistake? 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