CAFC reopens case for determination on fraudulent expert reports

Venture Industries v. Autoliv (Fed. Cir. 2006).

At trial, damages experts relied on Venture’s financial statements when calculating damages.  It turns out, however, that those statements were at least inaccurate and perhaps fraudulent. Autoliv unsuccessfully moved for relief under FRCP 60(b), then appealed.

60(b)(2): Under Rule 60(b)(2), relief may be granted when new evidence is discovered that clearly would have produced a different result.  This rule rightly presents a high hurdle — requiring prejudice — to reopening a closed case.  After reviewing the potential new numbers, however, the CAFC agreed that despite the original inaccurate information, the final result was not necessarily mistaken.  

60(b)(3): Rule 60(b)(3) relates to fraud, misrepresentation, or other misconduct.

Discovery Misconduct: “Failure to produce material in response to legitimate discovery requests can constitute misconduct under Rule 60(b)(3).”  Even though Venture battled against every discovery request, there was no allegation that it disobeyed the Special Master or district court as would be required.

Reliance on Fraudulent Financial Statements: Unlike its counterpart 60(b)(2), Rule 6(b)(3) does not require prejudice in the result. Rather, when there is fraudulent testimony, relief is appropriate where “a jury might have reached a different conclusion” without the false testimony. (6th Circuit law). Because the lower court had assumed the prejudice standard, it did not address whether the expert testimony relying upon the incorrect financial statements was, in fact, fraudulent.  Thus, the CAFC vacated and remanded for a more complete finding.

Notes:

• Read the opinion here.
• This case arose out of a 1995 settlement of a patent dispute that was, according to Autoliv, being breached by Venture.

 

 

Comments

[JHersh]

I haven't read the case, but how is it that production of a fraudulent financial statement is not disoeying the district court? They were ordered to produce a financial statement, and instead they produced... something else.

[Cliff Hutchinson]

This is an odd opinion, and I think wrong. A searching analysis of the underpinnings of expert testimony is nothing new. The Fifth Circuit, for example, has long recognized the problem of expert reliance on grossly inaccurate or even fraudulent data, especially in toxic tort cases. See, e.g., Slaughter v.Southern Talc,Co., 919 F.3d 304 (5th Cir. 1990)( Plaintiffs' experts based their causation opinions on examination reports that were replete with obvious errors and contradicted workplace questionnaires filled out by the workers themselves). In those cases, courts exclude the expert testimony as based on an unreliable foundation under Rule 703. I don't think I have seen another case turning on a distinction in the standard for relief under Rule 60(b)(2) and Rule 60(b)(3). That sure seems to be excessive hair splitting to overturn a hotly contested jury trial.

Unlike Slaughter, where the entire underlying framework of the liability opinion was wrong, this claim addressed some accounting details going to damages. Over a year after the jury verdict, a forensic accounting report issued, describing irregularities with plaintiff's accounting. There is no suggestion that the expert knew of the irregularities in the documents he reviewed or of actual fraud in his opinion. Instead the argument is that the expert relied on accounting data that was later proved inaccurate. In considering the problem, the trial judge was not cavalier. He conducted an evidentiary hearing, and the expert testified as to his analysis and use of the data. What was established at that hearing was that the expert used certain conservative assumptions, and even if he had used the updated number suggested by the forensic accountants, his opinion would not have changed. That should end the matter, and the Federal Circuit did not need to torture Rule 60 to send this back to the trial court. Take a look at Judge Cohn's careful analysis in the initial denial of the motion for new trial.