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Following are examples of tactical mistakes made in cross-examining a business valuation expert.
To be effective on cross-examination, it is imperative that the lawyer be thoroughly educated as to the opposing expert's valuation theory, techniques, findings, and rationale for ultimate opinion of value.
Two areas of cross-examination that occur during trial are the voir dire of the expert and questioning relating to the report. Cases are rarely won or lost during voir dire. When preparing for trial, decide what you want to accomplish during voir dire. If the opposing expert has strong credentials, do not address them in voir dire if your questions will serve only to reinforce them.
You may wish to proceed with voir dire if your expert possesses stronger credentials. Use voir dire to stress your expert's positive attributes, identify the differences between the two experts' credentials, and ask the other expert questions to highlight weaknesses in his or her credentials.
The experts may differ in:
Before asking these questions, know how the expert will respond and be sure that the difference in qualifications is sufficient to distinguish your expert from the opposition's.
The second scenario where voir dire may be appropriate is when you perceive weaknesses in the opposing expert's credentials. By highlighting these weaknesses you hope to either disqualify the expert or impugn his credibility. "Google" the expert's name to discover pertinent background information, such as recent cases in which the expert rendered an opinion as to value.
Following are questions posed to an expert during voir dire based on a prior court appearance.
Use of the opinion from a prior case effectively plants a seed in the court's mind that the expert's opinion was rejected by another court.
Following are questions designed to undermine the opposing expert, but instead help to validate his credentials.
The answer to this question reinforces the expert's experience and thus credibility before the court.
Following is another line of questioning that backfired.
The first question established that there was a time when the witness was not qualified as an expert. By continuing the questioning, the attorney lost this advantage. The additional questions lessened the negative impact of the first question on the trier of fact. Follow-up questions demonstrated that this happened almost twenty years ago and since then every court has qualified the witness.
When cross-examining an expert on voir dire, develop a strategy as to what you want to accomplish. If you do not believe you can undermine the expert's credibility, limit your questions. Asking questions for which you do not know the answer can be harmful to your client and your case. Focus voir dire on areas in which you know you have a strong advantage.
When developing your cross-examination questions with your expert, identify specific weaknesses in the other expert's report and rank them in terms of how negatively they will impact the credibility of the report. Remember, it is not the quantity of topics explored, but the quality that will win the case. Too often attorneys try to address every weakness. The result is a cross-examination that lacks focus and allows the most important weakness to get lost in the shuffle. Work with your expert to select the most critical issues and focus on them.
Again the Internet can be a good source of articles written by the expert. Look for ones in which the expert took a position contrary to the one taken in this case. For example, in one case an expert used a key-man discount in valuing the husband's ownership interest in a company. During preparation for the case, the opposing attorney discovered an article written by the expert in which he stated that a key-man discount is never appropriate. The attorney used this article to impeach the expert's credibility and undermine his report.
Following is a sample line of questioning to exploit a weakness in a report.
The purpose of this cross-examination is to demonstrate to the court that husband's expert used selective transactions. The attorney was able to demonstrate through this line of questioning that the expert had omitted important transactions that met his criteria for inclusion. More importantly, the attorney showed that had the expert used these additional transactions his valuation would have been higher.
Following is another series of questions used by an attorney to address a critical issue in a valuation. The attorney had identified the reasonable compensation adjustment as having an important impact on valuation. The husband's expert made a sizable adjustment that reduced the company's profitability and resulted in a lower value. To undermine the expert's testimony, the following questions were asked.
The attorney demonstrates that the expert failed to perform independent research to ascertain the appropriate compensation for husband. Furthermore, by not doing this analysis and relying solely on information supplied by husband, the expert overstated the compensation adjustment and, therefore, understated the value of the company.
For any line of questioning, preparation is key. An unprepared attorney may incorrectly assume that his or her questions will spotlight a flaw in the expert's report. Instead, questioning may allow the expert to reinforce a critical component of the report. Following is an example of a counterproductive line of questioning.
The attorney was attempting to show that the expert's value was overstated because it was significantly greater than the net tangible value. The attorney asked questions to demonstrate that the expert overstated the value of the company. Instead, her questions allowed the expert to provide justification for his conclusion of value. By failing to recognize that there are many different forms of intangible assets, she incorrectly assumed there was no basis for the difference between the conclusions of value from the net tangible asset value.
The above examples are not intended to be all-inclusive but to provide some guidance in preparing for cross-examination of a business valuation expert. When developing questions, work with your expert to become educated regarding critical elements of your expert's and the opposing expert's report. And never forget the cardinal rule of cross-examination: before asking any question, be sure you know the answer.
Gary Friedlander, Esq., ASA, MBA engages in the valuation of closely held corporations and professional practices with Business and Professional Practice Valuations in Norristown, Pennsylvania. He has been engaged in the appraisal profession since 1987 and is a member of both the Pennsylvania Bar Association and the ABA Section of Family Law. Mr. Friedlander has appeared as an expert witness on valuation on numerous occasions. He can be reached at firstname.lastname@example.org.
Published in Family Advocate, Volume 29, No. 4, Spring 2007. © 2007 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.