You find some of the most interesting people in the world of business valuation. But,…
By John Borrowman, CPC
Borrowman Baker, LLC, BV Staffing + Consulting
Unless you’re fortunate enough to have worked with a particular litigator over a long period of time, your relationship with that attorney may not have given you much opportunity to learn what’s beneath the exterior.
Maybe if you knew, you could be a better expert witness.
We managed to connect with three litigators who individually have many years in the courtroom, and who regularly use expert witness professionals. Despite their busy schedules, they were willing to take time to share their experience with us. To protect them from an avalanche of marketing calls, we will identify them as Attorney F, Attorney P and Attorney S.
Borrowman: In your practice, there must be some case threshold that warrants using an expert witness. How do you measure that? Do you prefer to bring the expert in before discovery – or during?
Attorney F: There’s a couple things, actually. Sometimes the operating agreement of a closely-held business will require that an appraiser come in to appraise the business. We also recently had a minority-shareholder dispute where there was over a million at stake. In that case, we brought the expert in at discovery because, as an expert, they are going to be subject to discovery requests. Basically, anytime there’s a dispute over the value of a business, I’d recommend an expert. Still, you have to make a cost-benefit for the client.
Attorney P: My cases are typically tax valuation cases or breach of fiduciary duty cases. With respect to the valuation cases, I can’t think of a case where I don’t have a valuation expert. The first expert is often hired when the tax return is filed. If I need to get a second expert, I make that decision as the case professes through IRS appeals and into litigation. Regarding breach of fiduciary duty cases, the expert is brought in after the case is filed and thus, during the discovery process.
Attorney S: In my practice, the decision to utilize an expert typically is driven by the nature of the issue involved. For example, in a case involving complex financial analysis, the decisions of the Court all but mandate the use of an expert witness. If the amount in controversy is large enough to justify the cost of using an expert in connection with the discovery process, I welcome the opportunity to do so. More often than not, however, I find that experts are employed near the end of the discovery process, or after the fact discovery phase is completed.
Borrowman: What are the top three qualities you look for in an expert witness, and why?
Attorney P: Credentials, reliability and ability to communicate. The expert must first have the credentials to impress a finder of fact. That includes both the appropriate certifications and relevant hands-on experience. Reliability is key because finders of fact are looking for testimony from an expert they can trust. And ability to communicate is key because if the finder of fact does not understand the basis for the expert’s opinion, they may well ignore it.
Attorney S: My first criteria is that the expert have “real-world” expertise, and not simply academic or forensic experience. For example, in a valuation dispute, I look to hire an expert who currently works, or has previously worked, as an investment banker, and not simply a finance expert from a university or think-tank. Secondly, I need someone who writes well, and will be able to provide an intelligible, logical and thorough written report. Finally, I am looking for someone who will be articulate on the witness stand and able to hold up to cross examination without being combative.
Attorney F: First, would be education. I have a preference for CPA’s who are certified as a business valuation expert. Secondly, I need someone who at least has experience in the matter. Thirdly, I need someone who I can put on the stand who actually has good communication skills. They’re the one who will be teaching the judge or the jury what the business is worth.
Borrowman: If you haven’t worked with a particular expert witness before, what would he/she have to do to convince you to take the chance?
Attorney S: Aside from needing to have a strong background and good references, the prospective expert witness needs to demonstrate his or her ability to satisfy my three criteria at the initial interview. It’s that simple.
Attorney P: I need to see their level of experience, as well as some references from lawyers I trust. For valuation experts, or other cases where a written report is required, I like to see examples of their written work product.
Attorney F: It would be helpful to give me some references, if they’ve testified before; whether it’s depositions or in court. I’m interested in their view of the method they would apply. Beyond that, it’s a matter of meeting with the person. Rates are important for my clients, of course.
Borrowman: A large part of an expert witness’s job is to educate the trier of fact. What differences do you notice between having a judge and a jury as “students”?
Attorney F: A judge is much more attuned, I think. I prefer judge trials because jurors can be unpredictable. Even the best expert witness gets lost in the swirl of emotion in the jury room. I used six experts in a four-day jury trial arising from a dispute involving the neighbors of my client who had a large Lake Michigan shoreline estate. We had engineering testimony and all kinds of evidence about the improvements he had made to the area. Still, after finding against my client, the jury reported they “thought he should have been a better neighbor”.
Attorney S: I am very fortunate in that my practice is limited to bench trials. Having a judge as a student is like teaching at the post graduate level. The fundamentals are a given, and the role of the expert is to drill down into the intricate details of the dispute.
Attorney P: Not too much, other than the judges tend to be more sophisticated. The three keys are still the same: credentials, reliability and ability to communicate.
Borrowman: Tell us about a time when an expert witness really went above and beyond the call of duty for your client.
Attorney S: In a fairly large valuation dispute a few years ago, our client decided to spend the money necessary to hire a practicing investment banker, who specialized in our client’s industry, to serve as an expert witness. The expert took on the assignment like he would for any transactional client, and viewed it to be his mission to see to it that the Court was persuaded of the merits of our position – with which the expert fully agreed from the outset. The expert became so interested in the litigation, that he attended the entire trial – even after he was finished testifying, and took it upon himself to learn about the litigation process.
The punch line of this story is that we obtained a resounding victory.
Attorney F: There’s an expert I use with a specialty in golf courses. He did everything imaginable to fully understand my client, a country club. He reviewed all the financial statements and talked to all the managers. He really worked with me to get flat on his testimony. When we went to trial, I’ve never seen evidence come in better. It was just like we were having a very nice conversation. It made me look good. That’s the hard part that people typically don’t get. The attorney and the expert need to work hand-in-hand so there are no surprises. You don’t want your expert telling you something on the witness stand that you’ve never heard him talk about before.
Attorney P: I can’t think of one in that context. We have a number of experts who, when necessary, will turn on the afterburners to produce a product. Like lawyers, it’s a part of the profession.