Expert’s ‘hyberbole’ comes back to haunt in Daubert hearing

Experienced litigation experts know that their published articles and statements (even on a blog or in a professional discussion group) can be used against them in a courtroom. That’s what happened in a recent bankruptcy case, when the expert conducted an insolvency analysis without interviewing management or visiting the subject properties, yet claimed in a prior family law article that “it was malpractice” to omit these steps when conducting a business valuation.

Fortunately, the federal district court realized that the expert’s article was directed specifically to divorce lawyers. Moreover, the expert had to value the debtor in this case as of a past date, for which a present site visit would not have been relevant. Likewise, talking to the owners wouldn’t have been fruitful or informative, since they were largely responsible for the debtor’s downfall. Nothing in Daubert excluded the expert’s report “merely because he made some hyperbolic statements in an article that was exploring valuation issues in a context entirely different than the present one,” the court held. It also used the expert’s insolvency analysis, under a balance sheet test and a DCF, to recover $2.75 million as fraudulent conveyance, despite some “professional disagreement” among the experts as to the reliability of the 10b versus 10a size category data and the calculation of a company-specific risk premium. Look for the complete digest of Nelson v. Walnut Investment Partners, Ltd., 2011 WL 2711318 (S.D. Ohio)(July 13, 2011) in a future Business Valuation Update; the court’s opinion will be posted soon at BVLaw.