Question

Scott E. Miller, CPA, CVA has given an example of an expert witness in his article entitled “You Got the Litigation Engagement, So Now What,” in The Value Examiner. Read his example and then prepare a list of mistakes that the expert made in his expert witnessing engagement.

Let’s assume there is a CPA, Calvin P. Anderson. Calvin has been a practicing CPA for 15 years. He has a successful CPA firm providing a full range of traditional accounting and tax services but does no litigation support or business appraisal services. Neither Calvin nor his staff have any experience in litigation support or business valuation.

Calvin learns from another CPA that litigation support and business valuation can provide profitable growth areas for CPA firms. He remembers hearing and reading about these practice areas being growth areas for CPA firms and decides that he is interested and wants to consider providing this type of work. His friend informs him of an upcoming three-day seminar on litigation support that he should attend. Calvin takes the class and gets fired up about the prospects of entering this new and exciting practice area.

When he gets back to his office, he immediately calls all his attorney prospects and lets them know he can provide these services. He develops marketing literature that he sends to his attorney contacts and many other attorneys in his local area.

It’s now mid-July and he gets a call from an attorney with a large firm in his hometown. Calvin is excited. Working for such a large firm like this one could really help his litigation practice grow. The attorney, Justin C. Esquire, with Peterson, Jones, Haskins and Dingle, LLP asks him about his current practice, education, experience, and whether he has any experience with economic analysis. Calvin says, “Of course, I have been doing financial analysis for over 15 years as a part of assisting my clients and besides, you have to analyze financial statements when you do financial statement work.” When Esquire asks if he has any experience testifying before, Calvin says yes, knowing that the only time he did was when a client was getting divorced and they asked him to comment on the income reported on his client’s tax returns. He thinks, “It was so easy, this can’t be much different.” Esquire asks his fees and Calvin tells him $150 per hour. Calvin had heard that you could get premium rates for litigation work, so he quoted 20 percent above his normal rate of $125 per hour. Esquire tells Calvin he is willing to pay $135 per hour. Calvin, thinking he is getting a $10 per hour premium, jumps at the chance. Esquire realizes $135 per hour is cheap and that Calvin is not asking for a retainer. Esquire thinks he is getting a great deal for his client.

Mr. Esquire says, “Okay. Let me talk to my client, and I will call you in a couple of weeks.” Calvin is excited but nervous. He can’t wait to start, but realizes this is new territory for him. Two weeks go by, and he doesn’t hear from Esquire. Three weeks later, he gets the call from Esquire. His client has approved the cost of hiring Calvin. Esquire says he will prepare the engagement letter and mail it to Calvin for signature.

Calvin waits for the engagement letter. It is now late August and the engagement letter hasn’t come. He sends Esquire an email about the status of the engagement letter, and Esquire responds that he is busy now but will get to it. In late September, the engagement letter comes; Calvin signs it and immediately returns it to Mr. Esquire without carefully reviewing it first.

Esquire calls him in the first week of October and discusses the engagement. It is a wrongful termination action and Esquire represents the employer. He explains to Calvin that he needs to make sure the damages figure is low, because he thinks his client could lose. Calvin tells Esquire that he will do the best that he can but can’t guarantee the result will be what his client wants. Esquire ignores the comment and says he will be sending over a package of information for Calvin.

In the third week of October, the package arrives. The package contains a copy of the plaintiff’s (Emily Broke) last three paychecks showing she earned a salary of $4,000 per month, a copy of her last two years’ tax returns, a typed list of her benefits, and a brief letter stating that Emily Broke was a senior training manager at a manufacturing company. She started in May 1991 and was terminated on December 23, 2001, after complaining about her manager’s sexual advances.

Calvin reviews the information and begins to calculate her potential damages. The benefits listed are medical and dental insurance, three weeks of vacation, and two weeks of sick pay per year. He includes in his analysis her lost wages, lost medical and dental benefits, lost vacation, and lost sick pay. There is no information about the actual employer cost of her medical and dental insurance. Calvin thinks about it and decides that since it is only an estimate, he could use a “reasonable” proxy for the cost, so he looks at his own medical and dental insurance bill and uses his cost of $450 per month to project her lost benefits.

Calvin calls a friend of his who is an account executive at a temporary placement firm to find out how long it normally takes someone to find a job like Ms. Broke’s. His friend tells him that most people find a job in three to six months. Thinking he is being generous, Calvin calculates six months of wages and medical and dental benefits and the accrued vacation and sick pay she would have received had she remained with the company.

Calvin adds it all up and emails the amount to Mr. Esquire in the first week of November. His analysis is as follows:

Lost wages (6 x $4,000)	$24,000
Lost benefits (6 x $450)	2,700
Lost vacation (3/4 x $4,000)	3,000
Lost sick pay (2/4 x $4,000)	2,000
Total lost wages & benefits	$31,700

List the mistakes that Calvin made. The response can be in essay form, numbered, or bulleted.

Answer 1

The following are the mistakes that Calvin made in the above mentioned question:

1. Taking the class and geting fired up about the prospects of entering this new and exciting practice area
2. Developing marketing literature and sending to his attorney contacts and many other attorneys in his local area.
3. Including in his analysis; Emily's lost wages, lost medical and dental benefits, lost vacation, and lost sick pay.

There are many other mistakes that Calvin did but the above three mistakes are major mistakes according to me.