Header graphic for print
Hodgson Russ's Clean and Green Law

Lesson to the Wise: Know Your Expert

Posted in Investing, Litigation, Renewable Energy, Tax Incentives

In a recent Court of Claims decision, attorneys for the United States Department of Justice (DOJ) learned a hard lesson regarding the importance of vetting experts prior to proffering them. In Alta Wind I Owner-Lessor C, and Alta Wind I Owner-Lessor D, et al v. United States, 128 Fed. Cl. 702 (Ct. Claims Oct. 31, 2016), a dispute existed where the owners of six (6) wind-power facilities in the Alta Wind Energy Center near Los Angeles, California alleged that the Federal government underpaid them by over $206 million dollars when it made certain grant payments to the owners pursuant to Section 1603 of the American Recovery and Reinvestment Act of 2009 (ARRA). Section 1603 of the ARRA allows for certain renewable energy facility owners the ability to apply for, and to receive, cash grants equal to thirty percent of the “basis of such property.”

Plaintiffs and the Federal government disagreed over how to calculate the “basis” of the wind farm facilities at issue.  Plaintiffs argued that “basis” meant the purchase price of the facilities, minus ineligible property, such as land and energy transmission lines.  The Federal government asserted that basis “should be calculated from the value of each wind farm’s grant-eligible constituent parts and their respective development and construction costs,” arguing that numerous factors made the purchase prices an unfair measure of each wind farm’s value.  The dispute led to litigation initiated in the Court of Claims, given its subject matter, which resulted in a nine-day trial. The government offered a single expert to support its position on “basis,” Dr. John Parsons, a Senior Lecturer at the Massachusetts Institute of Technology (MIT) Sloan School of Management, whom it noted as an expert in the areas of economics, finance and valuation, with an extensive background in consulting work and teaching.

During voir dire examination, Plaintiffs’ counsel questioned Dr. Parsons about his Curriculum Vitae (CV), which listed forty-seven articles and publications that he authored or co-authored from 1985 to the present.  Rule 26(a)(2)(B)(iv) of the Court of Federal Claims requires expert witnesses to list all publications authored in the previous ten years.  Dr. Parsons testified that he had provided a complete listing of his articles and publications—not only for the last ten years, but also from 1985 to the present.  Plaintiffs’ counsel also questioned Dr. Parsons about an expert report used in another case in 1997, which included a similar list of his articles and publications from 1985-1995.  Dr. Parsons again confirmed this was a complete list of his writings.  Unfortunately for the government, Dr. Parsons’ affirmations were not true.  Plaintiffs’ counsel pointed out that Dr. Parsons was attempting to conceal articles he had written for Marxist and East German publications from 1986-1989. Dr. Parsons had even served as an Editorial Board member of the “Science & Society” publication, which is a self-described “Journal of Marxist Thought and Analysis.”

Based on Dr. Parsons’ omissions, and twice having falsely testified about the completeness of his expert witness disclosures, the Court found that Dr. Parsons had intentionally provided untruthful testimony under oath, and held it had “no choice but to exclude Dr. Parsons’ testimony.”  The Court noted it “simply could not rely on the substantive expert testimony of a witness who was untruthful in describing his background and qualifications.” And as further noted by the Court, this “outcome was especially dispositive here because Dr. Parsons’ untruthfulness related to his writing on economic topics, which was the area in which he was called to testify as an expert.”

The exclusion of Dr. Parsons’ testimony was devastating to the government’s case.  Government attorneys had not identified any other experts on its pretrial list of witnesses, and therefore, could not rebut the testimony of Plaintiffs’ experts, and likewise had no expert testimony to support its counterclaims.  Given the lopsided evidentiary presentation, the Court found in Plaintiffs’ favor, adopted Plaintiffs’ position that “basis” was essentially equal to the purchase price of the facilities, and awarded the Plaintiffs damages between the difference of Plaintiffs’ calculation and what had been paid to date.

From a practical standpoint, this outcome could have been entirely avoided had the DOJ attorneys properly vetted their own witness and completed their “due diligence,” like Plaintiffs’ counsel did. The completeness of Dr. Parsons’ publications lists were completely irrelevant to the substantive tax issues in the case, but having placed itself in the position where there were no other experts available, the government bungled what ended up being a nine-figure issue. By reviewing his publication list in detail, this issue could have been completely avoided by the use of another qualified and knowledgeable expert. And even if Dr. Parsons were the only available witness to testify as to this issue, Dr. Parsons’ acknowledgment of being involved in Marxist publications two decades ago would have only affected the weight of his testimony and/or his credibility; it would not have been determinative. His decision to lie about having made those writings left the government in a no-win situation in the middle of a case.

The bottom line: even lies by omission regarding non-substantive issues can torpedo a solid case.  Thoroughly investigate the experts you need to support your claims, and make sure their disclosures are complete and accurate.  And where nine figure dollar amounts are at stake, it wouldn’t hurt to have a second expert lined up either and disclosed.