Use of 3rd party appraisals challenged under Daubert

BVWireIssue #52-5
January 31, 2007

In a new twist to a long-standing bankruptcy case—In re Greater Southeast Community Hospital Corp. (Dist. of Columbia, January 2, 2007), defendants mounted a Daubert challenge against the Trustee’s valuation expert, in part for his reliance on third party real estate and equipment appraisals in performing a net asset valuation (NAV). In considering the motion to preclude his testimony under the federal standard, the Court reviewed the extensive credentials of the Trustee’s expert, Neil Demchick, CPA, CBA, CIRA, CVA (Invotex Group), and concluded he (and other similarly qualified experts) are entitled to rely on third party appraisals, so long as these are “the type experts in the field of business valuation would rely on.”

The defendants also challenged Demchick’s NAV analysis for its alleged “self-serving” exclusion of the one appraisal report which ran counter to the Trustee’s position. Specifically, they argued:

[his] decision to pick and choose from amongst the various appraisals, accepting parts of them and rejecting others without any discernible methodology, requires that he be precluded from testifying at trial.

The Court denied this element of the motion as well, but warned the parties that any “selective reliance on data favorable to the Trust’s litigation position requires close scrutiny.” For a copy of the full-text opinion, click here.

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