[IMGCAP(1)]It is rare for an accountant to go through his or her career without being subpoenaed for a deposition.

And while a deposition might be considered one of the more mundane procedures of the judicial system, how you prepare for it and conduct yourself under questioning can have far-reaching effects on both you and your firm. Arrive unprepared or say the wrong thing and you may unwittingly provide ammunition for the plaintiff to use against you and your firm.

An unwary witness can make careless mistakes that have dire consequences, an outcome one of our CPA clients only narrowly avoided. The CPA performed a review of financial statements for a construction company client because the client’s bank required it before issuing a line of credit.

Soon thereafter, the construction company sold the business using the CPA’s line-of-credit review as part of its financial documentation in the transaction. The new owner used those financials to obtain bonding for a project on which it subsequently defaulted. The bonding company stepped in to finish the job and ultimately sued the new business owner for breach of contract.

The CPA was called to be deposed and appeared without an attorney. The attorney for the bonding company was able to confuse the CPA, got him to testify inaccurately about the nature of the services he conducted for the seller, leading the bonding company to then sue the CPA.

We were retained at that point and were able to obtain summary judgment (affirmed by the First Circuit Court of Appeals) showing the bonding company was not an intended beneficiary of the financials involved and therefore had no reasonable basis to rely on them. Had the CPA been properly represented by an attorney at the deposition, the suit might never have been filed

[IMGCAP(2)]Given the potential problems for CPAs in such situations, it is critical to have a general understanding of the deposition process as well as the steps that can be taken to reduce the risk of an untoward result. If a deposition is in your future, here’s some things to keep in mind.

A Deposition is not a "Normal" Conversation

A deposition is usually conducted at the office of the lawyer who schedules it, with a stenographer in attendance to transcribe everything said. Usually, lawyers for every party in the lawsuit attend. After the stenographer swears you in, the interrogating lawyer will ask a series of questions concerning your background, professional practice and the dispute at the heart of the lawsuit—with witnesses required to answer each question posed.

Accountants being deposed for the first time might erroneously assume that the pattern of questions and answers is similar to a normal conversation with a client. Nothing could be further from the truth. A deposition is a ritualized interrogation that bears no resemblance to a normal conversation. The interrogator has a not-so-hidden agenda, i.e., to elicit testimony that, taken in or out of context, will support a view of the issues involved in the dispute that skews in the claimant’s favor.

Lawyers take depositions to obtain information and to preserve testimony for trial purposes. Those in an information-gathering mode (sometimes the proverbial fishing expedition) will ask numerous questions to explore every possible nuance of your knowledge and memory of the issues in dispute. Often, the questions will appear to be repetitive, redundant and/or unnecessary. The best advice is to suffer through the questions with civility, professionalism and patience. If the lawyer oversteps, your counsel can and should step in to make sure that the deposition stays within appropriate parameters.

A deposition offers the deponent little upside, but it often presents significant downside risk. If you provide testimony that the deposing lawyer interprets as supporting the claimant’s claim, or if you are not a party to the suit but provide testimony that suggests to the lawyer that you or your firm should be a party, then the case will most likely accelerate, and the lawyer will amend the suit to add you or your firm as a party. On the other hand, if your testimony exculpates you or your firm, then the lawyer may feign disinterest and move quickly to the next question.

Come in Prepared, but…

It is advisable to meet with your counsel prior to the deposition to discuss the facts and claims at issue and review your file. The deposition is not an exam, and there is no need to memorize your file; it is sufficient to refresh your memory by reviewing it.

You can usually get a good idea from your counsel of the likely areas of inquiry. The interrogating lawyer will probably show you documents at the deposition that you have never seen before. If that happens, take your time reviewing the document, and be sure to look at all the pages. There is no time limit on how long you have to review any document.

Do not assume that a multiple-page document is in its original form or is even what the cover page purports it to be. When presented with a document, do not immediately begin talking; wait for a question. If you have forgotten a question asked before your review of the document, simply ask the lawyer to rephrase or repeat it.

Expert versus Fact Testimony

Witnesses generally come in two varieties: fact witnesses and expert witnesses. The fact witness can testify as to what he or she saw, felt, heard, sensed, etc. A fact witness is not allowed to provide opinion testimony. An expert witness, on the other hand, can offer his or her opinions.

Accountants are accustomed to providing opinions during the course of their work, but you should be careful not to fall into the trap of providing opinion testimony at deposition if you did not have an opinion of the question posed during the course of your assignment or if you do not have a sufficient basis to provide an opinion now.

Be particularly careful when lawyers ask whether or not a certain party "should" have done something different than what he or she did. If there is any doubt in your mind whatsoever, simply state that you do not have an opinion.

Understand the Question and Answer Only That Question

When you are asked a question, ponder and understand it, and then answer just the question posed. For example, if a lawyer asks if you have “reviewed” a company’s general ledger, but you have only read the document while doing a compilation, then your answer should be, “No.”

Resist the temptation to answer the question that you think the lawyer meant to ask. It is safer to treat questions literally and answer them specifically. Do not provide elaborate or creative answers that go beyond the question asked.

Provide Short, Succinct and Honest Answers

In most lawsuits involving accountants, depositions can occur months if not years after the events that gave rise to them. You may be asked questions about an audit you performed years ago.

Don’t be afraid to say that you do not recall the answer to a specific question. Such a response is perfectly legitimate and appropriate at a deposition, as there is no penalty for not remembering or not knowing something that occurred in the past. If there is something that you will need to know, your counsel can educate you during a break or after the deposition.

Do Not Guess, Assume or Speculate

It never pays to answer a question by guessing, speculating or assuming. If you start using words like “possibly” or “maybe,” realize that you are speculating and stop before it is too late.

Instead, simply state that you do not remember or do not know the answer to the question.

Handling Nonsensical Questions

Many lawyers asking questions at deposition do not have backgrounds in accounting. Consequently, they do not always understand the issues involved—often leading to questions that make no sense. If you receive such a question, feel free to ask the lawyer to rephrase or repeat the question.

Do the same if you are distracted or lose track of the question. If the lawyer has repeated his or her question at your request, and you still do not understand it or have a serious concern as to how you should answer it, it is appropriate for you to take a break to confer with your own lawyer outside the deposition room.

Handling Objections

Periodically, lawyers may object to the question being asked. However, unlike a courtroom, you are required to answer all questions in a deposition, even when lawyers put objections on the record. The only time you need not answer is when your lawyer specifically tells you, “I instruct you not to answer that question.” A lawyer at a deposition may ask you questions on any remotely relevant subject and is only precluded from asking questions which concern privileged information.

For example, a lawyer cannot ask you to divulge information concerning your communications with your own counsel, which are protected by attorney/client privilege. Lawyers often object to questions they consider technically deficient in some way to preserve their right to prevent the question and your response from being admitted in evidence at a subsequent trial.

Do Not Fight with a Lawyer

A deposition is not a battle of wits. While it is an adversarial process, you should not overtly challenge the interrogator. Adopt a professional demeanor and answer all questions forthrightly and cordially. The lawyer holds the trump card. If the lawyer perceives you as being uncooperative, he or she can suspend the deposition to seek a court order compelling you to answer a specific question or be more responsive.

That’s not to say you must accept as true everything the lawyer suggests. If the lawyer includes in a question a fact that is not accurate, you should correct the inaccuracy. If the lawyer asks you an ignorant or nonsensical question, it is much better to say, “I can’t answer that question as you posed it; it does not make any sense,” than to provide a substantive answer. Similarly, if you receive a question that includes an incorrect assumption, you should correct the lawyer before answering.

Some opposing counsel try to overcome the inherently adversarial nature of the deposition by appearing friendly. Regardless of how friendly or encouraging they may be, do not forget that they do not have your interest at heart. You should be courteous but simultaneously wary of their intentions.

Avoid Non-verbal Communication

Since the end product of a deposition is a transcript, it is important to make sure you answer all questions with verbal responses. Hand gestures and other non-verbal communications are not reflected in a transcript. Wait for the lawyer to finish the question before you begin your answer to avoid having two people speaking at once, then answer in full words and sentences.

Humor and charm do not translate well in transcripts. A droll response to a question in a deposition may sound anything but humorous when read by opposing counsel at a trial months or years later.

A Deposition is not Emotionally Satisfying

The deposition is not your opportunity to tell your side of the story with any realistic hope that it will have a beneficial impact on the life of the case. The lawyers present are paid to be poker-faced and not let on whether they believe you or think your testimony will hurt their clients.

Even if your testimony clearly and persuasively establishes your lack of culpability, the lawyers on the other side of the table will most likely display indifference, disbelief or boredom. Afterwards, they may report to their clients that the claim against the accountant is not as strong as they once believed, but they won’t tip their hand at the deposition.

Know the Logistics

Most depositions of accountants last several hours, often beginning at 10:00 a.m. and lasting until 4:00 p.m., with regular short breaks and a lunch break. If you need more frequent breaks, request them. Similarly, if it is 1:00 p.m. and the lawyers indicate they have only 45 minutes of questioning left, it is appropriate to suggest skipping lunch and finishing the deposition.

Be wary of lawyers’ estimates of time. They are notorious for underestimating how long it will take to complete their questioning. If a lawyer says he only has “a couple more questions,” assume he has at least 10 or 12.

Reading and Signing the Deposition Transcript

Within a few weeks of the deposition, the stenographer will prepare a verbatim transcript of everything that was said, and you have a right to read and review the transcript for accuracy. It is always advisable to take advantage of this right.

The deposition includes an errata sheet, which provides space for you to identify the page and line number of transcription errors and requests that you write in the corrected testimony. Once you have prepared the errata sheet, sign and date the signature page. You may be required to have your signature notarized.

Summing it All Up

Depositions are important events in the life of a lawsuit. While your deposition will not usually "win" the case for you, it can, at worst, convince opposing counsel to bring you into the case or, if you are already a party, greatly complicate your position in the case. It cannot be overstated how important it is always to have a lawyer representing you at the deposition.

Consider the case of a CPA who prepared tax returns for an elderly client referred to him by an estate planning attorney. The client appeared at the CPA’s office with her attorney and a financial planner. She gave the CPA the financial information needed to prepare the return and authorized the financial planner to be her representative, provide any additional information the CPA needed, and answer questions on her behalf.

When the financial planner embezzled more than $1 million from the client, her estate sued him and the estate planning attorney, and the CPA was subpoenaed for a deposition. Acting without legal representation, the CPA produced documents without first getting the estate’s authorization—a violation of the Internal Revenue Code and state law—and appeared alone at the deposition. The claimant’s attorney was able to elicit enough damaging testimony from the CPA that the estate subsequently sued him. Our firm defended the case, and we were able to get it dismissed on summary judgment, but the deposition testimony was not easy to get around.

While a lawyer cannot testify for you at a deposition, he or she can expedite the process and minimize the discomfort and frustration of the ordeal—and prevent you from ending up in the kind of situations described above.

Jay S. Gregory and Nancy M. Reimer are shareholders in LeClairRyan, based in the national law firm’s Boston office. Gregory focuses his practice on the defense of malpractice actions brought against professionals and on construction defect litigation. He has also acted as a mediator in professional malpractice cases. He can be reached at jay.gregory@leclairryan.com. Reimer focuses her practice on professional malpractice claims brought against accountants and other professionals; the defense of securities brokers in customer disputes in NYSE, NASD and AAA arbitrations; and Directors & Officers claims. She can be reached at nancy.reimer@leclairryan.com.

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