Rule 702 and the Daubert Standard


Auto Konnect, LLC v. BMW of North America, LLC; 2022 U.S. Dist. LEXIS 42345 

The April 2022 issue of Business Valuation Update featured a front-page article titled “Proposed Rule 702 Change Targets Unqualified Experts.” The advisory committee on FRE through the U.S. Supreme Court believes that experts are often being admitted to testify improperly because judges tend to lean toward the “weight of the evidence” rather than the qualifications of the expert’s report and testimony. 

Recently, another case has raised questions about what is and what is not admissible. In Auto Konnect, LLC v. BMW of North America, LLC; 2022 U.S. Dist. LEXIS 42345, the court allowed the testimony of a damages expert for the plaintiff who, according to the defendant, was not a CPA and did not hold any certifications or credentials in business valuation and was not a member of any national organizations in the area of business valuations.

Admittedly, this could be a close call. I checked with an attorney who handles significant litigation, and he indicated that, under the current Rule 702 and Daubert interpretations, he would admit the witness. He would also admit him under the proposed new rule.

So what is the beef?  Why, in my opinion, is this a close call? First, the fact that he is not a CPA is of no consequence, but the fact that he is not a member of any national organizations in the area of business valuations is of concern. That means that he is not governed by any business valuation standards. Courts have often looked the other way as to an expert’s qualifications, but recently they appear to be more concerned about the expert following some standards when testifying as to the value of a business. If they are not required to follow standards, then of what value are business valuation standards?  The professional organizations that have business valuation standards, including the AICPA, ASA, USPAP, and the International Valuation Standards Committee (IVSC), believe that they are very important to the vibrancy of the business valuation profession. In fact, the US Congress felt strongly enough about standards in the appraisal of real estate that it placed into law the statute and governance that resulted in the establishment of Uniform Standards of Professional Appraisal Practice (USPAP). While USPAP has the force of law in the real estate appraisal arena, the ASA nonetheless requires it in the area of business appraisal also. Perhaps judges should be more concerned with whether professional standards govern a business appraiser.

We take your feedback to heart and are interested in any comments you might have on this case. Please address them to me at info@bvresources.com.  

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