Aggressive Daubert attack on veteran valuation expert

BVWireIssue #145-2
October 8, 2014

Litigation is a contact sport, as many appraisers serving as experts quickly learn. Even so, a recent case stands out for a litigant’s pit bull attack on a highly qualified expert.

Property tax dispute: The taxpayers owned a real estate company that developed a strip mall in Michigan, which turned out to have problems attracting tenants. Based on the city’s original tax assessment, the property had a true cash value of over $6.1 million in 2009 and $5.9 million in 2010. In contrast, the taxpayers claimed the property was worth $3.8 million in 2009 and $3.2 million in 2010. They appealed the city’s assessment to the Michigan Tax Tribunal (MTT).

During the MTT hearing, which was subject to the state’s Rule 702, both sides offered expert testimony. The taxpayers’ expert had worked as a real estate appraiser for nearly 40 years and had extensive experience with this type of property. Both he and the city’s expert agreed the property should be valued under the sales comparison and capitalization of income approaches, and both concluded the income approach was the more consequential method. The taxpayers’ expert found that the character of the property and its location resulted in a low valuation. The city’s expert disagreed, claiming the problem was poor management.

‘Lowball defective appraisal’? Before the hearing even got underway, the city urged the MTT to exclude the taxpayer expert’s “junk appraisal.” The issue was reliability, not the expert’s qualifications, said the city, insisting that the MTT had an obligation to review “the content of the particular opinion.” The city wanted “a full and throaty announcement to the tax bar that reliability standards will be actively enforced by the MTT as a pre-condition for expert opinions being admitted in evidence.” Such a statement would reduce the “perverse incentive for petitioners to submit ‘lowball’ defective appraisals,” the city claimed.

Later, the city claimed that in a third of the cases in which the expert had provided opinions his appraisals were found unreliable, and it accused him of advocacy. On cross-examination, the city attorney wanted assurances from the appraiser that under his methodology any qualified appraiser—no matter who—would come up “with the same result rather than a range of results.”

Attack fizzles: The trial court rejected the city’s arguments. There was no question that the taxpayers’ appraiser was qualified to value the property and did so using reliable principles and methodologies, the court said. It adopted the expert’s valuation. On appeal, the city contended that the MTT had abdicated its role as gatekeeper. The appeals court disagreed. The city, it said, wanted the trial court to scrutinize the expert’s testimony before he was even able to give it. But all of the city’s objections went to weight not admissibility. For the purpose of admissibility, the taxpayers did not have to show their expert’s opinion was absolutely true and uncontested. The MTT was quite capable of deciding how relevant and credible the proffered valuations were, the appeals court concluded.

Takeaway: The appeals court confirmed that, under Rule 702, the trial court, in its role as gatekeeper, had no obligation to make a “searching” inquiry into the expert’s underlying data once it found he was qualified and used a reliable method.

Find an expanded discussion of B & L Development LLC v. City of Norton Shores, 2014 Mich. App. LEXIS 1488 (Aug. 14, 2014), in the November issue of Business Valuation Update; the court opinion will be available soon at BVLaw.

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