Factors Affecting Juror Perceptions in Liability Cases

By Duane Brandon, Jennifer Mueller, and Richard Tabor

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CPAs involved in litigation face a number of practical questions that must be answered correctly. Being informed will assist CPA defendants, as well as provide an opportunity for meaningful consultation with legal counsel during the litigation process.

CPAs and Juror Perception

CPA-Client Relationship. When a CPA becomes a defendant, it is often because of a decision made while performing work for a client. It is important to consider how jurors will comprehend and interpret the relationship between the CPA and the client. Jurors may assume that a CPA had motive to act a certain way because of the client’s importance relative to other clients. If the CPA was performing work that required independence under the professional standards, such as a financial statement audit or review, plaintiff’s counsel will likely bring the relationship to light.

Research shows that when a CPA earned significant revenue on the engagement in question, jurors perceive that the CPA must have been acting in her own best interest. (See D.M Brandon and J.M. Mueller, “The Effect of Client Importance on Juror Evaluations of Auditor Liability,” Behavioral Research in Accounting forthcoming). That is, they assume that the CPA had lost her objectivity and independence. The jurors are then apt to find a CPA more liable and deserving of punishment when receiving high fees.

Because this issue is predominantly about fees being earned from a client, it should be evaluated at several levels. Consider the proportion of the fees allocated to an individual CPA, to his local office, and to the firm itself. A jury may respond negatively if a client represents a large portion of an individual CPA’s work (or of the local office’s work), even if the fees are relatively insignificant to the firm as a whole.

Hindsight bias. Hindsight is not always 20/20. A natural human tendency called “hindsight bias” can alter jurors’ perceptions of a past event because they know the outcome. Without realizing it, they tend to assume that the defendant would have known the future outcome at the time the incident was occurring. This happens because jurors, attempting to recreate the scenario, cannot separate information that was known at the time of the incident from information that could not have been known at the time of the incident. Research in accounting-related litigation has specifically shown this bias to occur with both jurors and judges [see D.J. Lowe and P.M.J. Reckers, “The Effects of Hindsight Bias on Juror Evaluations of Auditor Decisions,” Decision Sciences, vol. 25(3), 1994, and J.C. Anderson et al., “The Mitigation of Hindsight Bias in Judges’ Evaluation of Auditor Decisions,” Auditing—A Journal of Practice & Theory, vol. 16(2), 1997].

Researchers have designed and tested techniques to mitigate this bias in hopes of developing a way for CPAs and their counsel to combat it. One method that has proved effective, for jurors in particular, is for the jurors to consider alternative outcomes. With this method, jurors are asked to consider other, more positive, potential outcomes and how likely those outcomes would have been, given only the facts known at the time of the incident. The jurors can even be asked to create their own ideas of other outcomes that would have been reasonable to believe at the time of the incident. In studies, jurors asked to do this have viewed the actions of a CPA defendant much less negatively. The technique has not been effective with judges. Appealing to judges to consider alternative stakeholders, however, has been effective, and this type of appeal might be an alternative technique for jurors as well. This technique asks the judge or jury to consider parties other than the plaintiff (e.g., management, employees, customers) that might have been negatively affected had the CPA defendant acted differently. The technique is particularly useful when the defendant was responsible to more than one party, because it helps the judge or juror understand the thought process required of the CPA defendant at that time.

“Deep pockets.” Another significant issue for CPAs is that their perceived wealth may negatively influence how they will be treated by jurors. Large corporations, professionals, and other wealthy targets of civil litigation have historically claimed juror bias against them. Jurors are often viewed as modern-day Robin Hoods, ready to enrich undeserving plaintiffs in civil lawsuits at the expense of wealthy defendants with “deep pockets.” This fear leads some people to conclude that jurors may ignore the strength of a defendant’s case, making settlement the most viable alternative.

A recent study investigated the assumed deep-pocket bias in an accounting-related liability context [see D.J. Lowe, P.M.J. Reckers, and S.M. Whitecotton, “The Effects of Decision-Aid Use and Reliability on Jurors’ Evaluations of Auditor Liability,” The Accounting Review, vol. 77(1), 2002]. The researchers found that jurors were not more likely to find for the plaintiff when a case was against a larger (and presumably wealthier) accounting firm. The study did show, however, that jurors tended to award larger damages against a presumed wealthier defendant.

Juror demographics. Attorneys and legal scholars have long struggled with the issue of how juror demographics and predispositions can affect trial outcomes. The relationship between juror demographics (e.g., gender, age, socioeconomic status) and how jurors decide civil disputes, appears to be minor at best. One study found no relationship between juror demographics and decisions in accountants’ liability cases (D.J. Lowe and K. Pany, “Expectations of the Audit Function,” The CPA Journal, August 1993). In the aforementioned study by Lowe, Reckers, and Whitecotton, however, certain demographics affected some juror decisions but not others. These conflicting studies illustrate what legal scholars have historically experienced in mock juror studies: Demographics are unreliable predictors of juror decisions about civil liability.

On the other hand, juror attitudes seem much more promising in predicting how a juror may view a civil case. Research consistently shows that preexisting attitudes tend to bias the interpretation of evidence. This bias appears to be so pervasive that jurors may even interpret evidence that contradicts their presuppositions to support a preexisting attitude. If attitudes can be ascertained, it is useful to know that jurors in favor of tort reform are less likely to find for the plaintiff and tend to award less in damages (G. Moran, B.L. Cutler, and A. De Lisa, “Attitudes Toward Tort Reform, Scientific Jury Selection, and Juror Bias: Verdict Inclination in Criminal and Civil Trials,” Law and Psychology Review, vol. 18, 1994). Similarly, jurors that believe there is a “litigation crisis” support smaller damage awards (E. Greene, J. Goodman, and E.F. Loftus, “Jurors’ Attitudes About Civil Litigation and the Size of Damage Awards,” American University Law Review, vol. 40, 1991).

Empathy. Long-standing legal lore posits that jurors often empathize with the damaged party in a lawsuit. The recent financial-reporting scandals may make this lore even stronger because of a general disapproval of corporations and the accounting profession. At the American Corporate Counsel Association, however, research by Montgomery, Lisko, and Gendaszek found a “desensitization effect” among jurors. The effect occurs as jurors become less surprised, over time, about a particular type of damage. Essentially, the shock value of the incident declines.

In the case of Enron, for example, researchers found an initial reaction of astonishment by jurors at the role played by Arthur Andersen. Shortly thereafter, however, survey results showed the accounting profession bouncing back from jurors’ initial disfavor. In fact, mock-trial research suggested that, after a certain point, jurors were desensitized enough to hold the plaintiff responsible for not having known better.

Work quality and outcomes. Research shows that jurors consider the severity of the consequences associated with the defendant’s actions. That is, jurors may disregard the reasons behind the defendant’s action or the overall quality of the work that was performed if the outcome was severe.

Consider, for example, an alleged audit failure where the company either eventually goes bankrupt or is bought out. The former is a more severe consequence of the auditor’s alleged failure to properly report on the financial statements. In a research study, jurors evaluated such an audit failure [K. Kadous, “The Effects of Audit Quality and Consequence Severity on Juror Evaluations of Auditor Responsibility for Plaintiff Losses,” The Accounting Review, vol. 75(3), 2000]. Auditors that provided a higher-quality audit were viewed just as negatively by jurors as those that provided a lower-quality audit, but only when the consequences were severe, that is, the client went bankrupt. In the situation where the client was bought out and continued to operate, jurors distinguished between high-quality auditors and low-quality auditors, and evaluated the former much more favorably.