Unimpeachably Unauthoritative Authority

Citation Omitted

What makes the world of expert witness services so daunting at times is the fact that so much goes unsaid, untaught, or undefined. For example, the most recent international glossary used by valuation and appraisal professionals across the globe does not define what a conclusion or opinion is. Since saying the silent part out loud seems to be the popular thing to do, this tenth article of the Unimpeachable Neutrality series will attempt to cover the most pertinent unspoken rules of being a financial expert that you might not find issued, published, promulgated, or cited as authoritative.

As the world grasps at remnants of the legal and economic normalcy once taken for granted, an entirely new set of risks, pressures, and uncertainties pervade the already complex world that financial experts must now operate within. What makes the world of expert witness services so daunting at times is the fact that so much goes unsaid, untaught, or undefined. For example, the most recent international glossary used by valuation and appraisal professionals across the globe does not define what a conclusion or opinion is. Since saying the silent part out loud seems to be the popular thing to do, this tenth article of the Unimpeachable Neutrality series will attempt to cover the most pertinent unspoken rules of being a financial expert that you will not find issued, published, promulgated, or cited as authoritative.

You Are Responsible for the Inappropriateness of Agreed Upon Procedures

Whether a report is written, or oral, or a hybrid of both, the form of any report should be appropriate for the engagement, its purpose, its findings, and the needs of the decision-makers who receive and rely upon it.^[1] This point is often overlooked, as many NACVA members falsely believe that the litigation exemption contained within the NACVA reporting standards equates to a total absence of rules or parameters. While the litigation exemption enables an expert report done within a litigation setting to take many unspecified forms, the fact remains that any expert report, deliverable, or disclosure submitted before a court, tribunal, or administrative body must, without waiver, always be appropriate for the engagement, its purpose, its findings, and the needs of the decision-makers who receive and rely upon it. So, what does this mean and why is this relevant in a post-COVID-19 environment? To put it bluntly, this means that the decision to perform a calculation cannot be used as a safe harbor allowing a member to agree to ignore relevant data in a litigation setting. A member’s election to perform a calculation engagement does not provide a safe harbor allowing a member not to take responsibility for the appropriateness of the agreed upon procedures or use professional judgement. No safe harbor exists that would allow a member to disregard approaches and/or methods outside of the agreed procedures that best indicate the value or ignore professional judgment.

If Professional Judgment Is Not Used, You Are Not Estimating Value

For professional services that do not involve the application of professional judgment, such engagements may not be represented as valuation services, fall short of estimating value, and must be classified under the “Other Services” category of services per the NACVA professional standards. This may come as news to some, as a fair number of appraisers perform engagements that do not result in an estimate of value that they determine but rather require that the analyst perform procedures that are ancillary to the value estimate without estimating value. You may recall, a member is required by the standards to: (1) obtain sufficient relevant data to afford a reasonable basis for conclusions, recommendations, or positions, (2) consider scope limitations which affect the level of reliance on the information, and (3) exercise due professional care in the performance of services, including completing sufficient research and obtaining adequate documentation. Fun fact: all three of these requirements can be met with or without applying professional judgment. In fact, it is almost impossible to tell the difference between an engagement where professional judgment was used and one where no professional judgment was used, as the reports look, read, and can be worded identically the same.

It May Be Necessary to Perform and Disclose the Results of a Calculation in a Litigatory Setting

It may be necessary to perform and disclose the results of a calculation engagement via written and/or oral testimony expressed as an opinion of calculated value or otherwise in instances where a(n) estimate or determination of value is needed or required but performing a full valuation is unavoidably problematic due to uncontrollable limitations or restrictions of data, time, or financial resources that effectively prohibit the performance of some but not all procedures necessary to produce a conclusion of value under a valuation engagement. When a NACVA member is retained, employed, and/or appointed as a neutral and/or testifying business valuation expert in an engagement where (a)n estimate or determination of value is needed to assist a trier of fact but limitations or restrictions of data, time, or financial resources, outside of the NACVA member’s control or influence, preclude a members ability to perform and disclose the results of a valuation engagement, it may be necessary and/or appropriate to perform and disclose the results of a calculation engagement. Those who disagree with this reality need to ask themselves whether their last appraisal or valuation done before a court was really a calculation dressed in valuation or appraisal clothing.

It May Not Be Appropriate to Perform and Disclose the Results of a Calculation in a Litigatory Setting

The decision to perform and disclose the results of a calculation engagement via written and/or oral testimony expressed as an opinion of calculated value may not be appropriate in a contested dispute/litigation setting, as a court may attribute less weight to a calculation of value as compared to a conclusion of value for the same business. A unilateral decision to disclose the results of a calculation engagement in a contested dispute/litigation setting may not be appropriate, absent legitimate restrictions preventing both the member and opposing expert from performing a valuation. Even though a member must avoid bias in the development of a conclusion of value or a calculated value, the application of a self-imposed scope limitation, even by agreement, may be perceived by the court as bias(ed) if the self-imposed scope limitation is seen as preventing a member from objectively considering an approach or relevant data. This unbiased approach must be both factual and perception based. So even if a member does avoid bias in the development of a calculated value or a conclusion of value, the adoption of a client-imposed scope limitation, even by agreement, may be perceived by the court as bias(ed) if the self-imposed scope limitation is seen as preventing a member from objectively considering an approach or relevant data.

The Word “Considered” Means Something Broader Than “Relied Upon”

The word “considered” means something broader than “relied upon” but something less than material simply in the background knowledge of the expert. A proper application of Rule 26(a)(2) must “provide an adversary with sufficient information to engage in meaningful cross-examination” of an opposing expert. An objective test that defines “considered” in Rule 26(a)(2)(B)(ii) as anything received, reviewed, read, or authored by the expert, before or in connection with the forming of [her] opinion if the subject matter relates to the facts or opinions expressed. For facts or data to be relied upon they must first be considered. However, not all facts and data considered must or will be relied upon. Federal Rule 26(a)(2) notes that an expert’s written report must contain “the facts or data considered by the witness in forming” all opinions the witness will express. Rule 26(a)(2)(B)(ii) states that an expert’s written report must contain “the facts or data considered by the witness in forming” (emphasis added) all opinions the witness will express. The intention is that “facts or data” be interpreted broadly to require disclosure of any material considered by the expert, from whatever source, that contains factual ingredients. The disclosure obligation extends to any facts or data “considered” by the expert in forming the opinions to be expressed, not only those relied upon by the expert. For those wondering if they complied with the Federal Rules in their last report, you may want to reconsider agreeing to ignore a piece of evidence. As this agreement technically means you considered said ignored evidence and should list it to comply.

A Reliable Expert Opinion May Have No Evidentiary Value

A reliable expert opinion may have no evidentiary value. Put differently, the fact that an expert’s opinion is reliable does not equate to that opinion having evidentiary value if unaccompanied by explanations of facts. This is because an expert’s testimony is only valuable due to the expert’s ability to draw an inference from facts and evidence. Therefore, an expert opinion that is not supported by the facts and evidence falls short under all evidentiary standards regardless of the venue. Such unsupported testimony will eventually be challenged as being non-probative or conclusory by even the greenest law school graduate. Conclusory statements by an expert witness are ones that do not provide the underlying facts to support the conclusion. An expert opinion is conclusory when the opinion has no basis or when the basis provides no support. In other words, facts and evidence must help explain the conclusions reached. Without connecting these dots, the Court will likely find an expert’s opinions to be conclusory, that is, lacking in factual support. Emphasis not added.

[1] NACVA Professional Standards V. Reporting Standards § B. Form of Report.

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Zachary Meyers, CPA, CVA, who has been retained in over 2,000 engagements since 2011. Mr. Meyers has provided expert testimony and been qualified in Federal District Courts, Circuit Courts, Family Law Courts, and the West Virginia Human Rights Commission as an expert in business valuation, forensic accounting, pension valuation, and taxation. Mr. Meyers was elected to the National Association of Certified Valuators and Analysts (NACVA) Standards Board in 2016, appointed Vice-Chair in 2017, elected Chair in 2018, and re-elected as Chair in 2019, which promulgates professional standards for financial professionals, analysts, and experts. Mr. Meyers was appointed to the Global Association of Certified Valuators and Analysts (GACVA) Advisory Council in 2020, which liaises with NACVA’s international chapters in Africa, Canada, Europe, India, Taiwan, and Southeast Asia. In 2021, Mr. Meyers was elected to the Business Valuation Resource Panel of The Appraisal Foundation (TAF), whose purpose is preserving and improving the public trust in valuation.

Mr. Meyers can be contacted at (304) 690-2619 or by e-mail to czmcpacva@CZMeyers.com