Unusual FRE 702 ruling puts expert in ‘uncommon position’

BVWireIssue #153-1
June 3, 2015

May a court exclude an expert’s opinion (conclusions) but still admit his or her “non-opinion” testimony under Federal Rule of Evidence 702? This evidentiary issue recently came up in a case that, although not a valuation dispute, is instructive for any expert practicing in federal court.

When the plaintiff failed to repay the loan he had received from the defendant, a court said the defendant was entitled to a number of shares of the plaintiff’s company, which served as collateral for the loan. The stock traded on the over-the-counter QB Tier Market (OTCQB). The defendant subsequently sold the shares, prompting the plaintiff to allege wrongful disposal of the collateral. OTCQB was not a “recognized” market under state law and the sale was not commercially reasonable, the plaintiff claimed.

The defendant offered expert testimony on OTC securities trading. The testimony was in the form of an affidavit that included four opinions and eight factual statements. One of the expert’s conclusions was that OTCQB qualified as a “recognized market.”

Helpful to court: The plaintiff filed a pretrial motion to exclude the testimony under Rule 702. The magistrate judge found the witness qualified as an expert but said he could not testify about the four opinions because they were impermissible legal conclusions. At the same time, the judge ruled the expert had other “knowledge, skill, experience, training or education” that helped the judge understand the evidence and decide the legal issues. She determined that she could consider the expert’s factual statements as to “the operation, function, and trading of stocks on over-the-counter securities markets generally, as well as the OTCQB in particular and how it functions, operates, and how stocks trade on the OTCQB.” Ultimately, the judge recommended an outcome of the case that favored the defendant.

The plaintiff attacked the 702 ruling in federal court, arguing it was error to permit the expert “to testify about any ‘facts’ that support his properly excluded opinions.”

The federal court allowed that the magistrate judge’s decision “left [the witness] in a relatively uncommon position for an expert.”

But “the available authority on the issue” strongly suggested the magistrate judge’s ruling was correct, the court said. For one, Rule 702(a) provides that a witness who qualifies as an expert “may testify in the form of an opinion or otherwise if: (a) the expert’s … other specialized knowledge will help the trier of fact.” Further, the advisory committee notes to the rule state: “Most of the literature assumes that experts testify only in the form of opinions. The assumption is logically unfounded.” Here, the judge’s exclusion ruling did not nullify the expert’s qualifications to provide helpful background information on over-the-counter markets, including OTCQB.

Takeaway: There’s more to expert testimony than an expert’s opinion.

Find a discussion of Ross v. Rothstein, 2015 U.S. Dist. LEXIS 30180 (March 12, 2015), in the June edition of Business Valuation Update; the court’s opinion is available at BVLaw.

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