A series of recent Daubert cases illustrate how different courts may interpret the role of “gatekeeper,” which they perform under Rule 702 and Daubert. In assessing the admissibility of expert testimony, some courts believe the law requires them to be inclusive while others believe close scrutiny of the expert’s qualifications and the reliability of his or her testimony is warranted.

Rule 702 of the Federal Rules of Evidence allows a qualified expert to testify if his or her specialized knowledge would assist the trier of fact and the testimony is based on sufficient facts and reliable methods properly applied to the facts. Under Daubert, the evidence must be relevant and reliable.

Ferraro v. Convercent, a contract and tort case revolving around a company that provided software-based services, falls into the first category. The defendants claimed the plaintiff’s expert was unqualified because he lacked the necessary experience valuing that type of company, but the court found the applicable law did not require this degree of specialized knowledge. However, Weinman v. Crowley, a bankruptcy case turning on insolvency, is definitely on the other end of the spectrum. The Bankruptcy Court, on its own accord, examined the insolvency expert’s qualifications and found them wanting, notwithstanding the expert’s experience in international finance. Also, in Ferraro, the court said some degree of speculation is common in expert testimony. In contrast, in Cargotec v. Logan Industries, a Texas appeals court found the damages testimony was inadmissible because the expert relied on management projections that were based on some unfounded assumptions, notwithstanding the expert’s independent work on the case.

The takeaway is that, while valuators and attorneys should study a lot of Daubert cases for a particular court’s take on Rule 702 and Daubert, courts have a lot of leeway in how they come out on admissibility.

Find an extended discussion of this topic in the April Business Valuation Update. Digests of the referenced cases and the courts’ opinions are available at BVLaw.