To Cite or Not to Cite? That is the Question! Tips on Preparing Expert Reports

Should Valuators Give Citations to Specific Court Cases in Expert Reports?

Different expert witnesses subscribe to different schools of thought about whether it’s best to make frequent and specific citations in an expert report or not. Charles Lunden lists 12 reasons supporting one set of conclusions. Find out more!

This month we will examine a hotly debated point, where learned professionals are likely to have a broad spectrum of opinions. Many valuation specialists are firm believers that every expert report should contain as many specific references as possible to support the author’s position in a particular conclusion of value, including citations of relevant case law for methods employed. Other experienced valuators come to a far different conclusion, often the result of hard fought battles in courtrooms and deposition settings.

If Shakespeare had been a valuation expert, Hamlet’s soliloquy might have continued:

“Whether ‘tis nobler in the mind to suffer the slings and arrows of outrageous cross examination questions, or take arms against imperfect valuation theory…”

School of Thought Favoring Citation
The answer to the question may well hinge on the nature of the audience. Some valuation experienced Tax Court jurists, like Judge Laro, have publicly proclaimed their preference for a reasoned analysis supporting a valuation conclusion and their appreciation for authors’ use of citations to other court cases as a means to quickly ascertain the approach adopted by an expert, and the acceptance of other courts for that position.

Judge Laro has frequently appeared as a speaker at valuation conferences, but he has also appeared frequently as a student. He has made special efforts to become aware of valuation methods, and many valuation practitioners consider his opinion in the Mandelbaum v. Commissioner (TC Memo 1995-255) case to be the authoritative case on measuring discounts for lack of marketability. Many valuation reports prepared for gift and estate tax purposes will cite this case and its 10-factor analysis to justify a position taken. BV Resources reports that 83% of survey respondents indicate that they will routinely consider the Mandelbaum factors, even if not citing the case specifically.

School of Thought against Citation
I have often worked with litigators that are against having an expert cite court cases in the narrative of an expert report. They are concerned that the non-lawyer’s view of a case will only serve as ammunition to opposing counsel during cross examination:

“Well Mr. Valuation Expert, you are not a lawyer, am I correct? So how do you know what the case stands for if you’re not a lawyer? Isn’t it up to the judge to determine what the law is in this case?”

As I weigh the pros and cons of case citation in the narrative section of expert reports, I find the scale tips in the balance of “Not to Cite.”

1. Cases are fact specific. The results in one case are not likely to be indicative of an outcome in your case if the facts do not line up exactly in the case you are citing.
2. Laws differ from state to state. There are many examples where valuation principles vary from state to state. In Delaware, most shareholder oppression cases are based on fair value standards, but in Colorado, some shareholder oppressions cases are based on fair market value standards.
3. At an AICPA National Business Valuation Conference in Austin, Texas, Vice Chancellor Parsons of the Delaware Chancery Court added his perspective on this issue. He stated “We don’t look that frequently to the law in other states, because very few have developed the statutory scheme we have―and fair value is always dependent on statute particulars.
4. At the same conference, Vice Chancellor Parsons added another twist. He encouraged experts to be familiar with the judge’s prior decisions when appearing in Delaware courts. What happens when you cite an opinion from another judge that differs from the view of the judge in your case?
5. State law considerations may not be known when you prepare your report. I have worked on some cases where the question of which state law controlled was unclear. Suppose you cite a case from a Delaware decision, and the judge determines at trial that New York law controls the dispute?
6. Federal cases may not be relevant to state cases, and state cases may not be relevant to federal cases.
7. Many federal cases have different valuation results among the various circuits.
8. Some cases may get the valuation terminology wrong. Courts may not accurately state the standard of value.
9. Different valuation case outcomes can be the result of inconsistencies or confusion. In theory two cases with similar fact patterns should have the same outcome, but in practice this does not always happen.
10. This inconsistency may result from outcomes that are dependent on the abilities of counsel to effectively present their theory of the case. Two cases with similar fact patterns may have different outcomes because one attorney was more effective with his presentation of the theory of his case.
11. Outcomes may be different for similar cases because of the rules of evidence. Critical evidence may not always be admitted. The outcome of the case may be impacted by the incomplete nature of the record before the trier of fact, causing a valuation decision that is not meaningful to your case.
12. Experts have varying levels of persuasion, effecting case outcomes.

Many of these factors might explain the struggle that the valuation profession has endured with the issue of tax affecting S Corp minority interests. The 2006 Delaware Chancery Court decision in the Delaware Open MRI Radiology Associates case is thought by some to be the most reasoned court decision on the issue, but not all states, and not all federal courts, consider it to be authoritative.

Practice Pointer
So now you have decided not to cite the cases in your narrative section of the expert report. What is next?

I always list the cases I have read in the section summarizing information I have considered. I will discuss the cases with counsel. If asked during deposition or trial I will be in a position to respond:

“I have discussed the case with counsel, and I have been advised that they think the case says XYZ…”

Charles .S Lunden ABV/CFF, CFE, CLU, FLMI, and CMA  is a frequent speaker and provides consulting and expert support services to clients on a nationwide basis. He can be reached at (610) 283-9406 or by e-mail at clunden@bederson.com.