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Appraisers

Admissibility Rate: .800    (4/5)

Zachar v. Lee, 363 F.3d 70 (1st Cir. 2004).  Buyers back out of Nantucket real estate deal at last minute because of job offer on West coast.  To avert forfeiture of deposit, parties agree that sellers will relist property at higher asking price and apply any excess proceeds to deposit.  Property fails to sell within agreed period.  Buyer sue sellers, alleging lack of good-faith effort to resell property.  In support, buyers offer 45-page report from real estate appraiser Robert W. Saben, Jr., which includes statement, on final page, that marketing period of six to twelve months would be appropriate for subject property.  District court denies sellers' pretrial motion in limine seeking to exclude testimony, and later denies sellers' renewed objection at trial.  Jury finds for buyers and sellers appeal.  Admissibility affirmed.  Buyers say sellers' trial objection, which sought exclusion of expert's testimony in its entirety, failed to identify what testimonial statements were objectionable with sufficient particularity to preserve point for appeal, but even assuming that is true, sellers preserved point by securing definitive ruling on pretrial motion in limine.  As to merits of objection, however, any error was harmless, even if sellers were correct that expert lacked qualifications to opine on marketing period and employed unreliable methods.  Buyers did not refer to expert's statement re marketing period during closing to jury, and other evidence existed to support jury conclusion that sellers kept asking price artificially high to ward off prospective buyers.

Bragdon v. Davenport, No. 99-1643 (1st Cir. Apr. 18, 2000) (unpublished).  Realty trust purchases investor's shares for relative pittance after misleading investor re their true value.  In suit against trustees for securities fraud, common law fraud, and breach of fiduciary duty, investor offers testimony from two experts to estimate value of trust as of date of sale.  First, William Currey, real estate appraiser, values all holdings in which trust held interest, in toto.  Second, Stephen Grizey, accountant, reduces appraiser's figure to account for fact that trust had only partial interest in some holdings.  Jury finds for plaintiff.  Admissibility affirmed.  Trustees say plaintiffs' method of proof could have caused confusion and created impression that trust was worth more than it actually was.  But experts clearly and coherently explained their two-step approach.

Burns v. Anderson, No. 03-2162 (4th Cir. Dec. 15, 2004) (unpublished).  Thinly traded stock is pledged as collateral for loan.  When borrower defaults, lender sells stock and sues for balance due.  At bench trial, lender offers testimony from appraiser Russell Bregman to show commercial reasonableness of stock's sales price.  Trial court adopts appraiser's figure, subtracts it from amount due under note, and awards difference to lender, with interest and costs.  Admissibility affirmed.  Borrowers do not mount true Daubert challenge, because they do not argue that expert's methods have not been peer-reviewed or tested, have excessive rates of error, have no standards governing their application, or have not been accepted in field.  They instead fault appraiser for failing to consider certain documents and argue that his appraisal was based on unreliable data.  Those objections go to weight, not admissibility.  Nor do borrowers' objections to appraiser's qualifications pass muster.  Appraiser presented evidence showing he had substantial experience, education, and training in stock valuation analysis.

Gross v. Comm'r, 272 F.3d 333 (6th Cir. 2001), cert. denied, 537 U.S. 827 (2002).  Taxpayers challenge IRS valuation of gifts of stock in closely held subchapter S corporation.  At trial in U.S. Tax Court, experts for both sides agree on use of discounted future cash flow method, but disagree on how to factor in taxes, inasmuch as subchapter S corporations pay no federal income tax themselves, their income being passed through to shareholders.  Taxpayer experts favor "tax affecting" using assumed tax rate of 40%, arguing that this is required under Uniform Standards of Professional Appraisal Practice (USPAP).  IRS expert uses assumed tax rate of 0%, effectively not "tax affecting" at all.  IRS expert also concludes, based on challenged methodologies, that appraisal should apply "lack of marketability" discount of no more than 25%.  Trial court denies taxpayers' motion in limine.  Admissibility affirmed.  Taxpayers argue that "tax affecting" was generally accepted method as of date of gift in 1992, but record shows growing dispute in 1992 over validity of "tax affecting" for closely held corporations, and taxpayers' expert conceded that if valuing stock today, he would have to give further consideration to whether to tax affect at all.  Taxpayers' attack re "tax affecting" is more on correctness of IRS expert's valuation than on reliability of IRS expert's methodology.  As for marketability discount, taxpayers complain that IRS appraiser's empirical sample improperly included transactions occurring after gift, but those transactions occurred within one year of gift and could have been anticipated at time of gift.  Also, when IRS expert ran same analysis without post-gift transactions in his sample, he arrived at even smaller marketability discount.

Eckelkamp v. Beste, 315 F.3d 863 (8th Cir. 2002).  Employees sue company's employee stock ownership plan (ESOP) and certain of its officers under ERISA, alleging breach of fiduciary duty.  On defendants' motion for summary judgment, plaintiffs' appraisal expert, Daniel Callanan of ComStock Valuation Advisors, testifies that officers overcompensated themselves, and that annual appraisals consistently undervalued company.  District court discounts testimony and awards summary judgment.  Exclusion affirmed.  District court did not explicitly discuss Daubert but did assess expert's methodology and find it wanting.  Expert's overcompensation analysis did not work from truly comparable enterprises, involved no employee interviews, and skimped on other research.  Expert's valuation analysis included questionable control premium and other arguable methodological flaws.  Plaintiffs have counterarguments, but record does not reflect that district court abused its discretion.

Simek v. J.P. King Auction Co., No. 04-8109 (10th Cir. Dec. 8, 2005) (unpublished).  Simek hires auction firm to sell Simek's property.  Auction firm sells property in absolute (no reserve) auction for less than Simek thinks property is worth.  Simek sues auction house for breach of fiduciary duty.  At trial, over Simek's objection, district court admits tax assessment and permits auction firm to question experienced auctioneer (tendered as lay witness) on general relationship between appraisals and tax assessments versus actual market value on sale.  Jury finds for Simek but concludes he suffered no damages.  Simek appeals.  Admissibility affirmed.  Simek protests that admission of tax assessment was back-door admission of expert testimony without judicial gatekeeping.  But not all evidence of real estate value necessarily constitutes expert testimony.  Tax assessment was not analogous to factual findings from government investigations that courts have held subject to Daubert.  Because auctioneer did not hold himself out as presenting any appraisal of Simek's property, his qualifications as appraiser were irrelevant.

Rogers v. United States, 281 F.3d 1108 (10th Cir. 2002).  Individual purchases substantial interest in Kansas City Royals baseball team.  Hounded by creditors, same individual later borrows $34 million from Royals via nonrecourse note secured by his interest in team.  On repayment date, individual transfers his interest to team in lieu of foreclosure.  Come tax time, team's owner deducts $34 million as bad debt, claiming collateral to be without value.  IRS denies deduction, because it views repayment transaction as redemption of stock.  IRS offers testimony from four experts, including Andrew Zimbalist, who appraised value of team as of date of loan.  Owner moves to strike.  District court denies motion to strike and awards summary judgment to IRS.  Affirmed.  Because transaction was sale, not loan, Mr. Zimbalist's testimony is irrelevant, and its reliability need not be reached.  Were it to be reached, owner has not met burden of establishing that admitting testimony was abuse of discretion under Kumho Tire.

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