Excerpt from Chapter 10: Pre-Trial Tasks and Issues
Economic/Hedonic Damages: The Practice Book for Plaintiff and Defense Attorneys
by Michael L. Brookshire and Stan V. Smith
The manner in which the plaintiff’s attorney uses his economist and his economic analysis may be influenced by his evaluation of the probabilities of settlement versus trial.
If the attorney perceives a reasonable likelihood of settlement, he may want a prompt report from the economic expert to be forwarded to the defense early-on as part of a settlement package. He would lean toward a report which clearly states the assumptions and does not obscure the techniques of analysis.
Additionally, he might welcome a discovery deposition of his economic expert, especially if this expert has a solid reputation — hoping that the defense will understand the economic analysis and perceive it to be at least reasonably fair — and worry about the prospect of very effective trial testimony by the forensic economist if no settlement occurs.
A disadvantage of such a stance is that, if a settlement does not occur, the defense will be well prepared to counter any weaknesses in the economic analysis at trial.
Thus, some plaintiff’s attorneys, expecting little chance of settlement, will lean toward some degree of obscurity in the economic report. They will desire to save everything possible for trial, consistent with the rules of discovery.
The forensic economist, of course, may have his own consistent position on the level of detail provided in written reports. From our experience in reviewing the reports of other economists, a wide variation exists in the degree of clarity and specificity achieved in written reports by alternative economists.
Updates of Economic Analysis
Months and even years can elapse between the original production of economic loss estimates and the prospect of an imminent trial. The plaintiff’s attorney and his or her economist must, therefore, consider the need for an updated economic analysis for serious settlement negotiations and/or testimony at trial.
When a report is more than six months old, much of the data upon which the report is based begins to lose its “freshness,” and the plaintiff’s economist becomes increasingly vulnerable.
Another year of data, or more may have become available on inflation rates, productivity rates, interest rates, life expectancies, participation rates, employment rates, average employer contributions to fringe benefits, etc.
If a multi-year union contract has been signed, the years of wage and fringe benefit data can be added. An update generally will not substantially affect the bottom line, although this is possible, especially considering inflation.
The updated estimate may be either higher or lower than previously, but the single change of moving the present value date to a more current date can only increase a lump sum estimate of economic loss.
A major advantage of an update is that the economist needs to appear “state of the art” by using the latest in techniques and economic data. A particular problem may exist when the other side can show that the economist ignored new data which would have lowered his original estimates.
On the other hand, an updated analysis can produce disadvantages at trial.
Every new analysis adds to the complexity of the economist’s explanation of what he did, and a defense tactic it to make economic estimates seem so complex that they should be ignored. Furthermore, every update will result in a new bottom line, and the defense may ridicule the fact that the estimates change, perhaps significantly, depending on the day that the economist chooses to perform an analysis.
So, what is the jury to believe as a prediction of the future?
Given these pros and cons, our feeling is that the net advantage of an update increases as an original report becomes more than six months old. We typically insist upon an update after a written analysis under discussion is more than one year old.
Both the plaintiff’s attorney and the economist must also recheck the status of the law applying to economic damages in the relevant jurisdiction as the date of trial approaches. Legal parameters affecting how economic damages are calculated my have changed, and this could require a recalculation of, or addition to, the original economic analysis.
Some examples from our recent experience may be instructive.
In one state, deductions from earnings for personal consumption in wrongful death cases were not allowed. Before several of our testimonies in that state, the state supreme court ruled that at least a deduction for subsistence personal consumption must occur.
Each economic analysis was recalculated.
In another state, language in a court of appeals decision seemed to indicate that circuit court judges could require an economist to employ a total offset technique. Thus, a back-up analysis using a total offset technique was performed in every case coming to trial.
Finally, changing legal parameters regarding testimony on hedonic damages has been an important concern in many states. A review of jurisdiction-by-jurisdiction legal parameters affecting economic damages calculations is a focus of Chapter 12.
Additions to Economic Analysis
Generally, it is a good idea to decide upon all desirable versions and iterations of an economic loss report when the report is initially produced. If a specific iteration, based upon a certain set of assumptions, is worth doing, it usually is worth doing from the beginning.
In our experience, however, the plaintiff’s attorneys may only begin to ask the economist for additions to a basic report when a trial is approaching and/or settlement discussions are becoming more intense. This may be because information on the liability portion of the case makes the defense attorney wish to be ultraconservative because the attorney feels that a range of loss estimates may be more credible than a single estimate, or for a variety of other reasons.
Several examples may be cited. Where a deceased worker had only a few years of earning history, the economist might be asked to add a very conservative projection of a zero rate for future wage growth (actually a rate of annual real wage decline) to the projection-based upon all-U.S.-worker wage growth rate.
Again, with sparse data, economists have been asked to use only legally-required fringe benefits as an addition to estimates with average fringe benefits. Life, participation, and employment rate variation from work-life calculations of “average” persons have been added, as have been alternative calculations of personal consumption deductions.
An advantage of these types of calculations is that they provide a range for settlement negotiations or a range with which a jury may feel more comfortable.
Disadvantages include the need to comply with discovery rules, including the possibility that the credibility of the initial analysis (and perhaps of all versions) will be eroded, and the increasing complexity of testimony as any version is added.
Coordination with Related Experts
Coordination of the work of related experts on economic damages has often fallen upon the forensic economist. This remains, of course, a primary responsibility of the economist’s attorney client, but economists may serve a useful role in this area.
It is the economist who brings any chain of testimony on damages to a “bottom line,” and experienced forensic economists may have significant knowledge regarding related experts.
An emerging area of coordination is the psychologist and the forensic economist in hedonic damages calculations for personal injury cases.
The forensic economist should not dictate either methods or conclusions to other types of experts. However, he may contribute very effectively regarding the format of conclusions by related experts who precede him in a chain of testimony.
The necessary linkages toward a bottom line are interdisciplinary and involve experts who speak different “languages.” The forensic economist who can help in tightening these linkages may be a great asset.
The work of related experts should have been a primary concern as the experts were hired, and this continues as an important area as the attorney prepares for trial on issues of damages.
For More Information…
Read additional sections from Chapter 10 of The Practice Book for Plaintiff and Defense Attorneys:
- General Considerations on the Defense’s Side
- Structured Settlements and Settlement Negotiations
- Discovery Depositions
- Preparations for Trial: Plaintiff & Testimony