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Contents
SC&H Business Valuation & Support Leaders 
Michael J. Young, 
Nathan E. DiNatale,
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Valuations Insights, March, 2010 Credibility in Court—the View from the Bench At the recent Summit on Business Valuation in Divorce, the very first question posed to the panel of four judges was, "What makes a BV expert credible in court?" Credibility, by any standard definition, connotes the quality, capability, or power to elicit belief. The following are the qualities that convey credibility to a court: Flexibility. "I can tell you what makes an expert incredible: it's taking the defensive… saying ‘nothing will change, my valuation stands as it is,' then you become incredible," said Judge Jacqueline Silbermann (New York). Your experts should be adaptable and prepared to recalculate their values depending on what a judge or opposing attorney asks. "Show reasonableness," added Judge Moshe Jacobius (Illinois). Be careful your expert doesn't compare the small subject company to a Fortune 500 or omit an exceedingly obvious (even to a lawyer or judge) item from a valuation. Judge Howard Lipsey (Rhode Island) says he doesn't like the "wise-ass, defensive expert, who gets on the stand and says, ‘I know everything.'" Transparency. Judge Edward Jordan (Illinois) expects valuation experts to demonstrate "transparent objectivity." Should the witness come across as a "hired gun," then "that gets my attention quickly," he said. "And if that person's credibility goes, it's gone completely, no matter how hard counsel may work to rehabilitate." Real credentials, not just alphabet soup. "It really doesn't make any difference how many designations an expert has," Judge Jacobius said, perhaps summing up the panel's view. Of greater significance is how much work the expert has done in an area, and how knowledgeable and reasonable they are. "My experience has been that some experts are more interested in marketing their qualifications than offering sound, substantial opinions," said Jacobius. But you don't always have to hire the most experienced expert. Judges are also willing to give newly credentialed experts a break. "I like getting rookies in my courtroom," Judge Jordan said. "Everyone has to start somewhere," and as long as they offer transparent, objective, and inherent rationale opinions, they'll lay a foundation to lasting credibility. Wife's share in law license is limited. In contrast to the previous three cases, a New York court continued a trend toward limiting the equitable share of professional licenses and practices to spouses in divorce. In Fleischmann v. Fleischmann, 2009 WL 2217384 (N.Y. Sup.) (July 22, 2009) (unpublished), a husband's law license and 0.5% partnership interest in a high-powered law firm were respectively discounted to 10% and 25%, respectively, though the couple had been married for 26 years throughout his law school studies and rise to partner; while the graduate-degreed wife had left work to raise their three children. The case is non-binding unless reviewed and ratified on appeal. Industry vs. appraisal experience. "Remember the five P's," Judge Jordan said: "prior planning prevents poor performance." The more credible expert is the one who puts the most work into the valuation. In other words, "If you have more experience in industry, take the time to learn business valuation," Fishman said, "and vice versa." Written vs. oral. "An oral report is only as good as the paper it's written on," joked Judge Lipsey. Even written, technically, all valuation reports are hearsay. To expedite matters, consider asking whether the attorneys on the case will stipulate to the admissibility of the report. If they will, then the content is still open to cross-examination but the hearsay problem becomes moot. As for rebuttal reports, it's a better idea to use a chart to show the contrasting points between your expert's opinion and that of the opposing expert. This helps the court focus on the critical differences and the reasons behind them. Also, in the case of court-appointed experts, each side may retain its own expert to critique the neutral. Prior disqualifications or discredited opinions. What if opposing counsel argues that the expert was disqualified in a prior decision? That evidence is simply not admissible; it's highly prejudicial and irrelevant. "Your credibility is based on our report, the work you've done, your transparency, and your objectivity in this case," Jordan said. However, there are some exceptions. If an expert valued a company five years prior to trial, then that report is likely to be relevant. To be on the safe side, experts should always disclose to the lawyer anything in their past that might discredit their opinion—a rejected report, findings of incredibility by a certain judge, etc.—so they can prepare the issue for depositions and trial. Do judges give more credibility to court-appointed experts? "I vouch for the credentials of court-appointed experts, not their credibility," Judge Lipsey said. "We have to be open-mined; fair-minded," Judge Jacobius concurred. "We have to base our ultimate opinions on the requirements and results of testimony." |
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