Expert Witness Beats Malpractice Claim in $30M Suit, But Not Fraud Claims

A Delaware federal judge has dismissed a claim of professional negligence against an expert witness in a $30 million suit, finding that it would be a precedent-setting new cause of action. The expert witness is not, however, immune from claims of fraud for allegedly lying to his clients and causing them to lose their case.

In Verition Partners Master Fund v. Cornell, (2020 Jun 3, D. Del., 1:19-cv-00377), the plaintiffs (two hedge funds) sued the business appraisal expert witness W. Bradford Cornell, PhD, San Marino Business Partners (which he worked through in order to work for Verition), and the firm he worked with, Coherent Economics, for fraudulent inducement, fraudulent concealment, breach of contract, aiding and abetting fraud, and professional malpractice.

The case stems from Verizon's purchase of AOL in 2015 for $4.4 billion ($50 a share), a price Verition found too low. The hedge funds retained Cornell for an appraisal action to get a better AOL share price.

In its suit against Cornell, Verition claims that it did not know Cornell had pitched his services to Verizon's attorneys and then directly to its in-house counsel, and in his pitch calling appraisal actions “a nuisance,” saying that "[t]hey generally have little merit” and called Verition's strategy “legal arbitrage.”

Verition alleges that Cornell agreed to take on its case because he begrudged Verizon selecting Daniel Fischel, a former University of Chicago economist. Cornell had worked for Fischel̈́'s firm, Compass Lexecon, and saw himself as the better expert for technology companies, emailing Fischel:

Dan,
 
Like you I tend to bear grudges. And though I see you as perhaps the best general expert witness in the country, when it comes to appraisal, particularly for tech companies, I think I am uniquely well qualified. So when V erizon/W achtell chose you without even talking to me further that leads to a grudge against them.
 
Consequently, I have had some conversations with plaintiffs. I don't know if it will go anywhere or if I like the case enough to take it. But if it looks OK, I plan to go forward. I don't want to make a habit of being adverse to [Compass Lexecon], but I see this as another special case. I will let you know if anything comes of it.

In a later email exchange with Fischel, Cornell stated that Verition had a “shitty case (that is not based on conversation just what I have read online) so I will have to be careful to avoid letting my grudge lead to a situation where I threaten my reputation.”

Verition alleges that “Cornell falsely represented that he had no conflicts working against Verizon and failed to disclose his prior communications with Verizon.”

When Cornell took the stand for Verition in the Delaware Chancery Court, Verizon's counsel cross-examined him about his “grudge” against Verizon and his negative assessment of Verition's case. Verition was “forced to capitulate,” in the words of the federal district court judge hearing Verition's claims against Cornell, Colm F. Connolly. The Chancery court accepted Fischel's model with minor adjustments.

After trial, Coherent Economics demanded payment of its $1.35 million bill. (Cornell charged at an hourly rate of $1,050 plus expenses). Verition balked. Coherent offered to discount its bill to $750,000 “as a gesture of goodwill.” Verition ultimately demanded $35.7 million from Coherent, the amount it calculates was lost, plus interest. Verition has accused Coherent of helping to cover up Cornell's comments.

Cornell's attorneys brief called Verition's claims “an affront to the court's … opinion to suggest that email statements made by Cornell played any role in the ultimate outcome of the case.” Cornell, an emeritus professor at UCLA and visiting professor at Caltech, has suggested there is more to the case.

In his opinion issued July 3rd, Justice Connolly seemed to find that the claims of fraud had merit, although the claim of professional malpractice was a step to far. As Justice Connoly wrote, no Delaware court has ever recognized a professional negligence cause of action against an expert witness, “They nonetheless ask me to be the first court to recognize such a claim under Delaware law.”

Justice Connoly rejected Verition's malpractice claim as judicial restraint, noting that the determination of whether new causes of action should be recognized is something for the state's legislative branch. He also rejected the claim because “[T]he parties against whom Delaware has recognized professional negligence causes of action — lawyers, doctors, accountants, architects, engineers, insurance agents, and massage therapists — require a license to practice,” but expert witnesses do not.

So, massage therapists can be sued for malpractice, but not expert witnesses. That fact may not be of much comfort to Cornell and Coherent Economics who still face fraud claims of $30 million.

Expert witnesses are generally expected to be biased, but not to put their bias in writing.