Rules governing discovery of expert witnesses have evolved considerably in recent years. One of the most significant changes involves the discoverability of attorney communications with expert witnesses, including draft expert reports. In 2010, the U.S. Supreme Court adopted amendments to the federal rules of civil procedure clarifying that these items are protected work product and generally immune from discovery.
These changes have proven to be influential at the state level as well. Over the last decade, a growing list of states have amended their own rules to adopt restrictions similar or identical to the federal rule. On Jan. 1, 2022, Hawaii will become the latest state to adopt the federal rule, joining Texas, which adopted the rule earlier this year.
All told, at least 23 jurisdictions have adopted the federal standard or some close cousin of it. The trend is important to tax practitioners, since expert witnesses are a frequent fixture in state tax litigation, spanning such divergent fields as economics, valuation, transfer pricing, and tax policy. In those states that have adopted it, the federal rule brings certainty and predictability to an area that historically has been a subject of considerable controversy.
Background—the 2010 Federal Rule Amendment
The impetus for these new rules dates to amendments made to the federal rules of civil procedure in 1993. A number of groundbreaking changes were introduced to federal practice at that time. Some of the most important changes concerned expert witnesses. For the first time, parties were required to produce an expert report, and to disclose all “data or other information considered” by the expert. Federal Rules of Civil Procedure 26(a)(2)(B) (1993). This new disclosure mandate was potentially very broad, applying to all material “considered” by the expert, from whatever source, whether actually used or relied upon by the expert or not.
Despite the confidentiality normally accorded to work product, particularly work product of attorneys, “many courts read the disclosure provision to authorize discovery of all communications between counsel and expert witnesses and all draft reports.” Fed. R. Civ. P. 26 (2010 Advisory Committee Note); see, e.g., Reg’l Airport Auth. v. LFG, LLC (holding that Rule 26 creates a bright-line rule mandating disclosure of all documents, including attorney opinion work product, given to testifying experts).
Although this broad view was not universally shared by all courts, it became sufficiently prevalent that it caused substantial uncertainty and inefficiency in the way parties litigated cases involving experts. It meant that attorneys and experts could not communicate in writing without risking the creation of a discoverable document.
As the rules advisory committee explained, the result was that “attorneys often [felt] compelled to adopt a guarded attitude toward their interaction with testifying experts that impede[d] effective communication, and experts adopt[ed] strategies that protect[ed] against discovery but also interfere[d] with their work.” Fed. R. Civ. P. 26 (2010 Advisory Committee Note). In some cases, attorneys were forced to employ two sets of experts—one for purposes of consultation and another to testify at trial.
The situation finally reached a breaking point in 2010, when the rules advisory committee recommended changes to the federal rules of civil procedure to “address concerns about expert discovery.” Fed. R. Civ. P. 26 (2010 Advisory Committee Note). Rule 26 was amended at that time to “provide work-product protection against discovery regarding draft expert disclosures or reports and—with three specific exceptions—communications between expert witnesses and counsel.” The three exceptions are limited. They allow discovery of attorney-expert communications only insofar as the communications (1) relate to compensation for the expert’s study or testimony, (2) identify facts or data for the expert to consider, or (3) identify assumptions that the party’s attorney provided and that the expert relied on in forming the opinions to be expressed.
In all other respects, expert-attorney communications are exempt from discovery “regardless of the form of the communications, whether oral, written, electronic, or otherwise.” As the rules advisory committee explained, the amended rule was “designed to protect counsel’s work product and ensure that lawyers may interact with retained experts without fear of exposing those communications to searching discovery.”
State Adoption of the Federal Standard
The federal amendments have generally been well-received by commentators and practitioners alike, providing a dose of certainty and efficiency to complex litigation. As is often the case when a change to a federal rule of civil procedure is made, states have begun to adopt similar rules at the state level. Adoption of the updated rules is unlike automatic state conformity in the tax code. Each state must individually make changes to its rules. States tend to follow the course of federal changes, but do so periodically, whenever they feel there has been enough significant movement in the federal rules of civil procedure to warrant the process of making updates to the states’ rules.
As of July 1, 2021, at least 23 jurisdictions have adopted a rule identical or analogous to the federal one, barring discovery of attorney-expert communications and draft expert reports. The list now includes the following jurisdictions: Arizona, Colorado, Delaware, District of Columbia, Hawaii, Idaho, Iowa, Kansas, Louisiana, Maine, Michigan, Mississippi, Nevada, North Carolina, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Dakota, Texas, Utah, Vermont, and Wyoming. Oklahoma bars discovery of attorney-expert communications, but does not specifically bar discovery of draft expert reports. All other jurisdictions bar discovery of both attorney-expert communications and draft expert reports.
The two most recent states to adopt the updated rule are Hawaii and Texas.
Texas’ version of the adopted rule went into effect on Jan. 1, 2021. Rule 195.5 of the Texas Rules of Civil Procedure provides, in part, as follows:
“(c) Expert Communications Protected. – Communications between the party’s attorney and any testifying expert witness in the case are protected from discovery, regardless of the form of the communications, except to the extent that the communications:
(1) relate to compensation for the expert’s study or testimony;
(2) identify facts or data that the party’s attorney provided and that the expert considered in forming the opinions to be expressed; or
(3) identify assumptions that the party’s attorney provided and that the expert relied on in forming the opinions to be expressed.
(d) Draft Expert Reports and Disclosures Protected. — A draft expert report or draft disclosure required under this rule is protected from discovery, regardless of the form in which the draft is recorded.”
Hawaii’s version of the adopted rule goes into effect Jan. 1, 2022. Rule 26 of the Hawaii Rules of Civil Procedure provides, in part, as follows:
“(B) Trial-preparation protection for draft reports or disclosures. Rule 26(b)(4) of this Rule protects drafts of any report or disclosure required under Rule 26(a)(2) of this Rule, regardless of the form in which the draft is recorded.
(C) Trial-preparation protection for communications between a party’s attorney and expert witnesses. Rule 26(b)(4) of this Rule protects communications between the party’s attorney and any witness required to provide a report under Rule 26(a)(2)(A) of this Rule, regardless of the form of the communications, except to the extent that the communications:
(i) relate to compensation for the expert’s study or testimony;
(ii) identify facts or data that the party’s attorney provided and that the expert considered in forming the opinions to be expressed; or
(iii) identify assumptions that the party’s attorney provided and that the expert relied on in forming the opinions to be expressed.”
Implications in Tax Cases
In those states that have adopted the new federal limitations, several questions remain, particularly in tax cases:
Tax Tribunal Rules. Because some states provide for tax cases to be heard by specialized tax courts, rather than state courts of general jurisdiction, there is a threshold question whether rules adopted for the state’s courts of general jurisdiction apply in cases before the state’s tax court. While states differ in their approaches, it is common for state tax tribunals to adopt or cross-reference rules applicable in the state’s courts of general jurisdiction.
In Hawaii, for example, Rule 1 of the Hawaii Tax Appeals Court provides that the Hawaii Rules of Civil Procedure apply unless an issue is addressed by the tax appeals court’s own rules. Because expert discovery is not addressed in the Hawaii Tax Appeals Court’s rules, one would reasonably expect the Tax Appeals Court to apply newly adopted Rule 26 of the Hawaii Rules of Civil Procedure.
The question is easier where tax cases are heard in state courts of general jurisdiction. In those states, there is no question that state court rules of general applicability, including any rule governing expert discovery, will apply. Texas is a case in point. In the Lone Star State, tax cases are heard in the Texas trial courts, where the Texas Rules of Civil Procedure—including newly amended Rule 195.5—unquestionably apply.
Scope of Exceptions. As described previously, the federal rule excepts three categories of attorney-expert communications from work product protection. States have generally adopted the same three exceptions. For example, there is an exception for “facts or data that the party’s attorney provided and that the expert considered in forming the opinions to be expressed.” Fed. R. Civ. P. 26(b)(4)(C)(ii) (2010).
Often, what constitutes “facts or data” will be clear. As the federal advisory committee explained: “The exception applies only to communications ‘identifying’ the facts or data provided by counsel; further communications about the potential relevance of the facts or data are protected.” Fed. R. Civ. P. 26 (2010 Advisory Committee Note). However, the absence of a specific definition of “facts or data” has led to some litigated controversies at the federal level, and one can probably expect the same in the states. See, e.g., Carrion v. For the Issuance of a Subpoena Under 28 U.S.C. Section 1782(a) (In re Republic of Ecuador); U.S. Commodity Futures Trading Comm’n v. Newell; D.G. v Henry.
States that have not enacted the federal rule. Finally, there is the issue of those states that have not adopted the new federal standards. The situation in those states arguably resembles the one existing at the federal level prior to 2010—with one important difference. Prior to 2010, the federal rules provided for mandatory disclosure of “data and other information” considered by a party’s expert witnesses. That affirmative disclosure obligation was central to the reasoning of those courts that held attorney-expert communications were discoverable.
Because the rule affirmatively mandated disclosure of all “information” considered by an expert, the courts reasoned that it would be anomalous to conclude that certain “information” (communications from attorneys) was work product exempt from discovery. See, e.g., Regional Airport Auth. v. LFG, LLC. In those states that have no analogous affirmative disclosure obligation, no such comparable rationale exists, and thus there is considerably more opportunity to conclude that work product protection applies, even in the absence of a specific rule saying so.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Dan Schlueter is a partner in Eversheds Sutherland’s Washington office and litigates state and federal tax cases.
Fahad Mithavayani is an associate in the New York office and counsels multi-national corporations in all aspects of state and local tax controversies, tax planning, and compliance matters.
Bloomberg Tax Insights articles are written by experienced practitioners, academics, and policy experts discussing developments and current issues in taxation. To contribute, please contact us at TaxInsights@bloombergindustry.com.