A recent ruling in a complex bankruptcy case teaches that Daubert can accommodate differing views on determining solvency for multiple debtor entities.
Consolidated vs. stand-alone basis: A group of related family-run consumer lending and retail businesses filed for Chapter 11 bankruptcy. The plaintiff, representing the debtor enterprises, sued the defendants, alleging certain transactions were avoidable fraudulent transfers.
For recovery purposes, the ultimate question was whether the debtors were insolvent at the time of the transfers. Both parties retained experienced experts who held strong, opposing views on how to find the answer. They disagreed on whether to determine solvency on a consolidated basis or on a stand-alone, subsidiary-level basis; whether GAAP-based financials were an appropriate basis for the determination; and whether upward balance sheet adjustments were defensible under the facts of the case. Both sides filed Daubert motions.
In discussing admissibility under Daubert, the court refused to delve too much into which expert was right on substance. “Thus, the Court’s focus will strictly be on the reliability of the expert’s testimony and not persuasiveness of arguments or whether it fits within the narrow confines of lawyer-urged litmus tests.”
And the court was willing to take a generous view of reliability. It let in most of the expert testimony, leaving it to the adversarial process to discover which solvency opinion was more credible in terms of the ultimate question.
The case is Post-Confirmation Comm. for Small Loans, Inc. v. Martin, 2016 U.S. Dist. LEXIS 44270 (March 31, 2016). A case digest and the court’s opinion are available at BVLaw.
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