The Appraiser as an Expert Witness: Courtroom Do's and Don'ts

By: G. Dennis Bingham, William C. Herber and Robert J. Strachota

Appraisal Engagement
The valuation of property, partnerships and business interests is somewhat subjective; five independent appraisers may arrive at five different values, depending upon the information gathered and used, or the methodology applied by a given appraiser. When an assessed value is disputed, or a shareholder has been abused (as in a dissenting shareholder action), the parties involved may seek legal counsel. The attorney may then engage the services of an appraiser to provide expert testimony regarding the controversial value.

Before accepting a litigation assignment, you, as the seasoned appraiser, will want to review the purpose of the assignment and the facts uncovered to date. This includes investigating the various aspects of the case and clarifying any assumptions. You will also attempt to become familiar with the relevant players on both sides of the litigation. The appraiser must check for conflicts of interest or past appraisals completed for the other side or for the same business. Finally, it is important to determine whether the client has a pre-established valuation agenda - if so, you may not want to deal with the case at all. If you must work hard to justify a value position to your client, you will find it even more difficult to be persuasive on the witness stand.

As the appraiser in a litigation case, remember that even if you choose the side with the best hand, you will never hold all of the aces. If one side were totally "pure", the matter would not be in court! Assure your potential client that you intend to follow proper appraisal principles and that you will come to your own valuation conclusions. Be mentally prepared to decline the assignment, if necessary. After many years of appraising, we find that we obtain the best results for our clients when we use a solid valuation methodology supported by a well documented analysis rather than extreme valuations which are not well supported.

Once you decide to join the litigation team, prepare an engagement letter outlining the scope of the assignment, the fee structure and the estimated completion date(s). As a practical matter, no matter how high the fee, it is unlikely that you will ever be fully reimbursed for the actual time and effort you put into a litigation assignment. Be candid about your qualifications and your limitations. If possible, strategically select team members who are qualified for this assignment and who could testify, if needed.

Preparation of Phase I - The Verbal Report
Why do a Phase I? It is during the Phase I process that the appraiser makes sure that he or she is completely up to speed on all aspects of the assignment. If you are unsure, allow yourself ample time to familiarize yourself with all of the issues at hand. This will also ensure that you fulfill the competency requirements of the Uniform Standards of Professional Appraisal Practice (USPAP). Securing a sufficient fee for Phase I allows you to accomplish the proper due diligence to come to a valid, supportable value conclusion. Take this opportunity to hone in on your methodology and the key issues, as well as the opposing side's positions and claims. Ideally, the appraiser will be able to interview both sides involved in the litigation. Remain balanced and impartial while gathering information. Make certain that your valuation does not contradict any facts of the case.

The completion of a Phase I report gives you and your client a chance to get to know each other and the valuation issues. It also gives you a second chance to walk away from an assignment if you cannot find the data necessary to support your conclusions. Finally, it is essential to have a clear understanding of the court system and how the procedures differ from venue to venue. Tailor your work product to fit the respective court system (i.e., Federal Tax Court, County Court, Divorce Court, Arbitration, etc.) from Phase I all the way through Post Trial Briefs.

Presentation of Phase I Results
Understand that no matter how many times you stress that a Phase I analysis is a preliminary value, your client will remember this value and, to a large degree, will hold you accountable for your original valuation assessment. During the presentation process, make sure that your client is fully informed of any non-traditional valuation methods being used. Never assume that the client understands the valuation process itself. It is advisable to present your Phase I results as a value range, rather than a specific dollar amount. While it may be helpful to have a preliminary written draft for your own internal purposes, take care not to release any copies of your draft until you are sure of its contents. You will have to live with any written documentation that you release. Justify the critical elements of your analysis with facts; use your opinion as a guide, not a foundation.

Present both the strong and the weak points of your valuation. You are not ready for litigation if you are not able to clearly identify and address the weak spots of your valuation. If you don't find them, the opposing team will find them for you! Always present a solid valuation position; a negotiation position is one of doubt, not confidence. Present your Phase I valuation position with the conviction that, if tried in a court of law, your valuation or damage estimate will be defensible beyond a reasonable doubt. Do not fall into the trap of thinking that:

"I do not need to worry because this will settle", or

"I will only need to figure out how to solve my appraisal inconsistencies if this case goes to court", or

"I can always raise or lower my value if this goes to court".

A Phase I Preliminary Verbal report seems to work well for the client, as the Phase I not only ferrets out the various key issues, but it also crystallizes the potential changes in value. Lastly, a Phase I report, if done properly, can be used as a negotiating tool to get the case settled.

Preparation of Phase II - Written Report
In recent years, the introduction of a solid valuation report has become a critical element in the litigation process. Many times, high-quality market evidence, formatted into a good, written report, is more powerful than verbal testimony. This is primarily true because the potential for inaccuracies to occur in the record is far greater during actual testimony. Once a report is admitted into evidence, however, it remains there, as is. Solidify your own valuation position first; worry about the other side's report after you have reached your own, independent conclusion and sorted out any internal inconsistencies.

For almost all litigation related assignments, it is necessary to prepare a complete, self-contained narrative report (per USPAP requirements). Use facts, not opinion, to justify your position. Then, verify, verify and verify the facts, again! It goes without saying that each report you write must be mathematically accurate and grammatically correct. The report should be user friendly, with plenty of graphs, charts and pictures to aid in the presentation of what can sometimes be very large quantities of data. Each page should be somewhat self-contained; do not force the reader to flip back and forth to locate relevant data. The most successful litigation reports include well-developed themes which are referred to constantly throughout the analysis. Be consistent; do not contradict yourself in the report.

Remember that you are not an advocate for the client; that is the attorney's job. Present your data as you found it and state your conclusion(s). Do not highlight or underline what you consider to be critical points in your report. If the report becomes too large and/or the facts are simply too complicated, take the time to write an Executive Summary outlining the key issues. Save a few "goodies" or "zingers" for use later in the trial. A word of caution, however: never leave anything material out of your report, and never withhold information.

Deposition Preparation and Examination
Show the report file to your attorney before you appear for the deposition (the entire file is discoverable at the deposition). Even though depositions are generally taken in a relaxed atmosphere, it is important to remember that you are still under oath. You must be just as well prepared for a deposition as you would be for a trial. Do not, however, memorize your answers in advance. The purpose of the deposition is to gather information. Your audience is the attorney for the opposing side (and, possibly, other litigation team members) and the court reporter. Verbal responses are recorded (pauses, facial expressions and head movements are not), producing a written account of the deposition.

After your deposition, size up the opposing counsel (i.e., ability, technique, personality), review the opposing side's deposition(s) and re-read the transcript of your own deposition. It is critical that you always get a copy of your deposition, read it and correct any factual errors or inconsistencies before you sign off on it. Do this before you go to trial; if you make a contradictory statement during the trial, your deposition may be used to impeach your credibility.

Pretrial Preparation
All documents given to the attorney (i.e., newspaper or magazine articles) should have the date, page number and the name of the publication clearly identified. During testimony, as new facts and issues arise, be flexible, but not easily swayed. You may or may not want to use this information to adjust your valuation approach. If weak spots are uncovered in your report, be willing to do additional work and/or research to support your position. The attorney may or may not want your involvement during the strategy phase of the assignment. Respect whatever decision he/she makes. It is crucial, however, to thoroughly go over your testimony with the attorney. Be especially wary of any attorney who feels that this step is unnecessary. Failing to complete a "dry run" is a recipe for disaster. If the attorney wants or prefers, prepare a script for him/her to follow. Do the same for cross-examination. It bears repeating that you must apprise yourself of the rules governing the particular court system in which you will be testifying - prior to the day of testimony.

Testimony
The following guidelines may be useful when preparing for testimony. It is critical to be rested before you testify. Know your report inside and out. If you haven't found any mistakes in your report, you haven't studied it hard enough. Know and be prepared to clearly state your personal qualifications. Always expect the unexpected; mentally prepare yourself to be challenged. If you will be using or quoting from a book, or if you plan to use exhibits during your testimony, have everything readily available and organized before testimony begins. If you are the one testifying, have someone, other than yourself, in attendance during the testimony of the other side's appraiser, if at all possible. Again, you are not an advocate, and you do not want to be perceived as one. The goal is to be as objective as possible. Simply state the facts during your time on the stand, then leave.

As a witness, choose your words carefully to avoid misinterpretations (i.e., " is the glass half empty or half full?"). Maintain eye contact, even if you do not know the answer to a question. Know the fee schedule and the time spent on this assignment; be knowledgeable and confident, not tentative. It helps to know the backgrounds of your litigation team members: such as how many years of experience each has and why each is qualified to participate in this particular assignment. Resist the temptation to help the cross examining attorneys by assuming to clarify their questions - answer the questions asked, but do not volunteer information. If the attorney asks a question about a specific document, ask to see it before answering. If you do not have the document in front of you, request a complete copy and read it all, even the fine print; do not guess or speculate. Do not carelessly adopt a hypothetical circumstance proposed during cross- examination. Avoid using words such as: all, ever, always and never when testifying. Such absolute statements require only one exception to become false. Be yourself; this is not the time to vary your personal style.

The opposing attorney is only performing his/her duty during the cross examination - he/she is required to present any negative sides to your testimony. It is important to remember that this is not a personal attack. Do not become defensive or angry. Answer the questions asked, but do not offer long, detailed explanations or justifications. It is the judge (or jury) who needs to hear and react to your testimony. Be firm, confident and polite. Never "take on" the attorney or become sarcastic. This is viewed as arrogance by the judges and jurors. When answering questions, do not stop and start over. Think about your response, then answer. Speak clearly and be brief, but complete. Answer all questions with words: nods, shakes and other gestures are not recorded. The only duty you have as a witness is to provide information that will help the judge or jury to understand the facts in order to reach a fair verdict. Your goal is to answer all questions as concisely, yet completely as possible. Try to keep each response to three or four sentences. Explain sophisticated financial techniques in simple terms; use charts or graphs to help the judge or jury follow your testimony.

Know your rights as a witness! You have the right to have a question repeated or rephrased, if you request it. You have the right to be wrong, and if you make an error, to concede it. You have the right to not know the answer to a question - if you do, indeed, not know it. You have the right to be confused, if you really are confused; again, you may have the question repeated or rephrased. You even have the right to be emotional, if emotion is warranted. Assert your rights as a witness while being professional, truthful and courteous.

Appraiser's Role v. Attorney's Role
Your attorney is the advocate for the case. It is his/her job to champion the position of the client. As a witness, do not take on the attorney's duty by trying to be an advocate for the client. This will only interfere with the process, dismay and/or confuse the judge (or jury) and lead you into answers that sound defensive as opposed to factual. Advocacy, on the part of the appraiser, will be perceived negatively.

Some attorneys like to have their experts seated at the counsel table during the cross examination of the opposing expert. Careful consideration should be given to the potential appearance of advocacy that may occur if you choose to do this. We believe that sufficient preparation could eliminate the need to have the expert present at the counsel table, and thus, advise against this practice in all but the most unusual circumstances.

Post Trial Briefs
If you are asked to provide assistance in drafting the post trial brief, keep these guidelines in mind:

• Stick to the main issues of the case - stay away from the petty details.
  
• The brief is often more important than the direct testimony.
  
• Treat your contribution to the brief very seriously.

Generally, the attorney will control your involvement in this phase of the assignment. Depending upon the venue and the type of case, the appraiser may have substantial input into the drafting of the brief or the rebuttal, or no involvement at all.

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