Contributed by Tracy Mann
The annual holiday-season ritual of amendments to the Federal Rules of Civil Procedure is upon us and this year the Judicial Conference and the Supreme Court delivered changes to Rule 26, which governs expert witness reports and the scope of discovery from experts in civil litigation.  Effective December 1, amendments to Rule 26(b) limit information subject to expert discovery.  The amendments will simplify the retention and use of experts in bankruptcy adversary proceedings, where they are automatically applicable, and also in contested matters like confirmation hearings, where they do not apply automatically but likely will be followed voluntarily or at the direction of bankruptcy judges.  The amendments particularly will facilitate the use of retained financial advisors as expert witnesses on topics like valuation, allowing them to share drafts of expert reports and other preliminary analyses with counsel without fear that those materials will be subject to discovery.
Specifically, the amendments extend work-product protection to draft reports prepared by testifying experts and, with certain exceptions, communications between testifying experts and counsel who retain them.  By extending work-product protection to these materials, the amendments create a presumption that no disclosure to the opponent will be required.  The amended rule does not alter disclosure requirements for so-called “reliance materials” – information the expert relied upon in reaching his or her conclusions.  The amended Rule 26 thus carves out three exceptions to otherwise protected attorney-expert communications, where such communications relate to (i) compensation for the expert’s work, (ii) facts and data provided by the attorney that the expert considered in forming opinions, and (iii) assumptions provided by the attorney that the expert relied upon in forming opinions.
You might ask why anyone cares about the discovery of drafts or notes, and it’s a good question because everyone, even judges, surely must recognize that it’s the final conclusion of an expert that matters, not a preliminary draft.  The reason we lawyers do care is because those preliminary analyses can be fodder for cross-examination and may suggest ways to attack an expert’s conclusions that the opponent may not have realized on its own.
The 2010 amendments to Rule 26 are intended to avoid costly and unnecessary steps that litigants have used to avoid the broad expert discovery requirements under the prior version of the rule.  To foreclose the risk that draft expert materials might be discovered, lawyers have required experts to avoid saving or creating notes, drafts or other materials.  So, rather than reviewing a draft and providing written comments, we often have resorted to mechanisms like WebX meetings to review preliminary versions of reports without creation of a physical copy of the document that would be subject to discovery.  In many instances, efforts to protect against disclosure of preliminary expert materials led to the retention of two separate consulting firms (or sometimes two teams within the same firm) – one to serve as a consultant whose work would be protected from disclosure and a second to serve as the testifying expert whose work was fully discoverable.
In many litigations, the parties would agree by stipulation to foreclose discovery of drafts and communications with counsel and the amended rule essentially writes these commonplace stipulations into the law.  But in bankruptcy cases, which move extraordinarily fast in comparison to ordinary civil litigation, it sometimes is not feasible to do a stipulation before the expert must begin work on a report.  The amended rule, if incorporated into bankruptcy practice as we expect it will be, should reduce the risk that preliminary valuation reports and other materials prepared by financial advisors for use in litigation will be subject to discovery.
Pursuant to Federal Rule of Bankruptcy Procedure 7026, the amended Rule 26 applies in adversary proceedings in bankruptcy courts beginning December 1, 2010.  It is applicable in every adversary proceeding after that date, even cases that were filed before December 1.  Although the Rule 26 requirements regarding expert disclosures do not apply automatically in disputed confirmation hearings or other contested matters absent agreement of the parties or a court order, in practice the amendments will likely become the standard applicable in bankruptcy cases because they will be incorporated into case management orders, ordered applicable on a case-by-case basis to major contested matters, or applied by agreement of the parties.
There remain, however, important considerations for bankruptcy practitioners operating under Rule 26 as amended.  The new rule does not shield all financial advisor activities from discovery.  Only draft expert reports and certain communications with counsel are protected from disclosure, while other routine activities of financial advisors such as providing business advice to clients, interaction with professionals retained by other parties, and valuation work not performed for purposes of litigation generally remain discoverable.  Accordingly, bankruptcy practitioners will have to continue to grapple with discovery demands for the work of financial advisors and other professionals serving in chapter 11 cases.
Text of the amendments to Rule 26(b)(4)(B) and (b)(4)(C) is as follows:
(B) Trial-Preparation Protection for Draft Reports or Disclosures.  Rules 26(b)(3)(A) and (B) protect drafts of any report or disclosure required under Rule 26(a)(2), regardless of the form in which the draft is recorded.
(C) Trial-Preparation Protection for Communications Between a Party’s Attorney and Expert Witnesses.  Rules 26(b)(3)(A) and (B) protect communications between the party’s attorney and any witness required to provide a report under Rule 26(a)(2)(B), 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.