So a lay witness—the owner of the home, the owner of the business—may give her opinion on the value of that home or business, as long as the opinion is rationally based on that witness’s perception, helpful to the trier of fact, and not based on scientific, technical, or other specialized knowledge. Usually the first and last of these conditions are the hurdles that the offering party must clear.
Take the first condition—that the opinion must be “rationally based on the witness’s perception.” Imagine the owner of a business who wants to give his opinion that the business is worth $1.5 million. Whether that opinion is rationally based on his perception is going to depend on what basis he gives for the opinion. Perhaps he tells you that he believes the business to be worth that much because he paid $875,000 for it five years ago, and in the last five years, he’s invested $300,000 in capital improvements and increased production by 15 percent. All those facts are facts that the business owner, himself, has perceived and knows personally. True, he’s drawing conclusions from those facts, but it’s arguable that those conclusions are reasonable. Is his opinion rationally based on his perception? It may very well be.
Now change the basis for the opinion. Imagine, instead, that the witness tells you that he believes the business to be worth $1.5 million because he reads a lot of financial publications—Forbes, Fast Business, The Wall Street Journal—and he’s read that other companies, which he considers comparable to his, have been valued at that much. Is that opinion “rationally based on the witness’s perceptions”? This one is more problematic. First, while the witness has a “perception” of what he’s read, that “perception” is based on hearsay. Recall that Rule 703 says that an expert witness may base his opinions either on facts or data he’s “been made aware of” or facts and data that he’s personally observed. That isn’t true of a lay witness. The lay witness may give an opinion only if it is rationally based on what he’s observed. Thus, lay witnesses cannot rely on hearsay to form their opinions the way experts can. Further, drawing conclusions about the value of one company by looking at how other companies are valued may require “technical or other specialized knowledge.” If so, only an expert can give an opinion that requires such knowledge.
That takes us to the second conditional hurdle—the condition that a lay witness’s opinion cannot be based on scientific, technical, or specialized knowledge. When the Supreme Court decided Daubert v. Merrell Dow Pharmaceuticals, 509 U.S. 579 (1993), it was considering the standards for the admission of scientific evidence and the standards for qualifying witnesses to opine about such evidence. But the court expanded that decision to cover expert opinion testimony based on any specialized or technical knowledge in its decision in Kumho Tire Co. v. Carmichael, 526 U.S. 137 (1999). The Kumho decision involved a witness who was an expert in the causes of tire failure.
Thus, when you hope to obtain an opinion from a lay witness, you must ask yourself whether the witness’s opinion is based on technical or specialized knowledge. As bankruptcy lawyers know, valuation is something of an art and a science. There are recognized methods used by valuation experts—indeed, the fact that there is such a creature as a “valuation expert” tells us that the art of valuation requires some specialized knowledge and expertise. A valuation expert likely would argue that a layperson cannot deduce, from looking only at the values claimed by other businesses, the value of that person’s own business. There are questions surrounding whether the businesses are comparable, whether the environments are comparable, whether the markets are comparable, whether there are special factors that affect the valuation of the particular business in question—just to name a few. And if the lay witness attempts to wander into the territory of valuation methodologies, he clearly has strayed into expert-witness territory.
Because bankruptcy judges do not have to worry about tainting jurors who are not familiar with legal standards, they often will allow a lay witness to testify to his opinion of value, within reasonable bounds. Some judges conclude that it defies reason to act as if an owner of something—be it a business, a car, or a refrigerator—doesn’t have some opinion about what that thing is worth. Others reason that they can hardly get into trouble on appeal for letting evidence come in. Still others allow it because they know that they retain the discretion to determine how much weight to give that testimony.
Just because you think your judge might allow you to present your lay witness’s opinion, however, doesn’t mean you ought not to make sure that the opinion actually is admissible under Rule 701. First, you may be wrong about your judge. Second, you may be underestimating your opponent, who could raise an objection that would convince an otherwise unconcerned judge that there is reason for concern. Third, judges have the discretion to decide how much weight to give a lay witness’s testimony, and while you may succeed in getting your witness’s opinion out and on the record, it does you little good if the judge ignores it.
It pays to analyze your case carefully and to determine whether you need an expert’s opinion and on what issue you need her opinion. If you truly do need the expert opinion, do what you can to get the expert into the courtroom. If you can’t get the witness into the courtroom, talk to opposing counsel about stipulating, or admitting the deposition of the expert, or some other method of getting the expert’s opinion into evidence. If these methods fail, carefully analyze the basis for your lay witness’s opinion. Do what you can to make sure that you present a lay witness who can testify to her own personal observations and experience, and whose opinions are not based on specialized or technical knowledge. Then be prepared to defend the testimony if you draw an objection from savvy opposing counsel.
Keywords: bankruptcy and insolvency litigation, lay witnesses, evidence, expert, Federal Rule of Evidence 701, Daubert, Kumho, valuation