AI Usage in Valuation: A View From the Bench
Judges are increasingly concerned about artificial intelligence (AI) and its implications for the legal system and its use by testifying experts. Programs are being developed internally to educate the courts and lawyers on AI’s role in legal processes, and the valuation profession can play a key role in this effort, according to judges who spoke during a session at a recent conference.
Worried judges grapple with AI, ask for help
Judges are increasingly concerned about artificial intelligence (AI) and its implications for the legal system and its use by testifying experts.
Court KO’s AI-assisted damages analysis
The featured case in the January issue of Business Valuation Update is a New York matter in which a damages expert used an artificial intelligence tool to help with his analysis.
Wife foregoes valuation expert to her dismay
Here’s another case where one party in a divorce matter does not offer a competing valuation and then appeals the outcome.
BV News and Trends October 2024
A monthly roundup of key developments of interest to business valuation experts.
Court-appointed attorney can’t testify on stock gift valuation
In a Hawaii estate matter, one of the founders of the Foodland grocery chain made lifetime gifts of company stock to some of her children.
Marouk v. Marouk
The wife argued that the husband’s business valuation expert was not credible or reliable even though she was Accredited in Business Valuation (ABV) and used methods of business valuation common to appraisers. However, the wife did not provide an expert, and the trial court refused to speculate on the value and adopted the value of the husband’s expert. The appellate court found that appropriate and not an abuse of discretion.
Arizona Appellate Court Affirms Business Value When Only One Party Submits a Valuation
The wife argued that the husband’s business valuation expert was not credible or reliable even though she was Accredited in Business Valuation (ABV) and used methods of business valuation common to appraisers. However, the wife did not provide an expert, and the trial court refused to speculate on the value and adopted the value of the husband’s expert. The appellate court found that appropriate and not an abuse of discretion.
Matter of Weber
The Surrogate Court of New York (i.e., essentially a probate court), in a case of first impression, determined the testimony of an expert witness to be unreliable and set standards for admission of testimony and reports based in part on the use of AI, including disclosure of the use of AI and the conduct of a Frye (similar to Daubert) hearing.
New York Surrogate Court Finds Testimony Based on AI as Unreliable and Sets Standards for Admission of AI-Based Testimony
The Surrogate Court of New York (i.e., essentially a probate court), in a case of first impression, determined the testimony of an expert witness to be unreliable and set standards for admission of testimony and reports based in part on the use of AI, including disclosure of the use of AI and the conduct of a Frye (similar to Daubert) hearing.
TAKTL, LLC v. IWR, N. Am., LLC
This case, a breach of construction contract case, again provided a tutorial on the application of FRE 702 and the Daubert rules as to whether a witness qualified to testify. This case was post-Dec. 1, 2023, so the rule application was subject to the clarification of FRE 702 that became effective on that date. The court went in depth into the “fit” requirement, which was: Did the expert adequately apply testimony and a report that “fit” the case at hand, a requirement clarified by the Dec. 1, 2023, changes?
Court Decides on Motions to Exclude Under Post-Dec. 1, 2023, FRE 702
This case, a breach of construction contract case, again provided a tutorial on the application of FRE 702 and the Daubert rules as to whether a witness qualified to testify. This case was post-Dec. 1, 2023, so the rule application was subject to the clarification of FRE 702 that became effective on that date. The court went in depth into the “fit” requirement, which was: Did the expert adequately apply testimony and a report that “fit” the case at hand, a requirement clarified by the Dec. 1, 2023, changes?
Sullivan v. Loden (II)
The U.S. District Court in this case excluded the value of an attorney who was appointed in a related state probate case and testified that the defendant’s valuations were unreliable. The district court determined that the proposed witness was not qualified to testify as to the efficacy of valuations. This case concluded that just because a proposed witness was an “attorney” “respected” as an estate expert did not make him or her qualified under Rule 702 to testify about business valuations when the proposed witness was not qualified in business valuation.
U.S. District Court (Hawaii) Excludes Testimony on Business Value From an Attorney Who Has No Valuation Skills
The U.S. District Court in this case excluded the value of an attorney who was appointed in a related state probate case and testified that the defendant’s valuations were unreliable. The district court determined that the proposed witness was not qualified to testify as to the efficacy of valuations. This case concluded that just because a proposed witness was an “attorney” “respected” as an estate expert did not make him or her qualified under Rule 702 to testify about business valuations when the proposed witness was not qualified in business valuation.
Hetrick v. iink
The FRE 702 rules were modified in December 2023 to strengthen the qualifications for admittance of expert testimony. In this case, the Virginia U.S. District Court allowed the expert to testify and denied the Daubert motion to exclude the testimony. Among other things, the court found that the testimony was relevant to the case at hand.
U.S. District Court (Virginia) Denies Daubert Motion to Exclude Under New (2023) FRE 702
The FRE 702 rules were modified in December 2023 to strengthen the qualifications for admittance of expert testimony. In this case, the Virginia U.S. District Court allowed the expert to testify and denied the Daubert motion to exclude the testimony. Among other things, the court found that the testimony was relevant to the case at hand.
Bombshell ruling on exclusion of damages experts in NFL case
“The Court agrees that [the experts’] testimonies based on their flawed methodologies should be excluded.” So wrote a federal judge in overturning the $4.7 billion verdict against the NFL in the Sunday Ticket antitrust case.
In re NFL “Sunday Ticket” Antitrust Litig.
This case was important because: (1) the court rejected a jury award because the jury did not follow the judge’s instructions and the award could not be derived from the evidence; and (2) the judge, post-trial, excluded two witnesses under Rule 702, finding their methodologies to be unreliable.
U.S. District Court (California) Overturns Jury’s $4.7 Billion Award in a Post-Trial Motion and Excludes Witnesses Under Rule 702
This case was important because: (1) the court rejected a jury award because the jury did not follow the judge’s instructions and the award could not be derived from the evidence; and (2) the judge, post-trial, excluded two witnesses under Rule 702, finding their methodologies to be unreliable.
Expert partially excluded in damages case
In Nevada, an expert was to testify in the Las Vegas Sun’s antitrust lawsuit against the Las Vegas Review-Journal.
Las Vegas Sun, Inc. v. Adelson
In this dispute between media companies, the court here ruled on some discovery issues and allowed the testimony of the defendant’s expert in part. Testimony related to methodology was allowed for a jury to decide, but the expert was not allowed to testify on any interpretation of a 2005 joint operating agreement or opine on the plaintiff’s intent to degrade the quality of the printed newspaper. These were legal conclusions or opinions as to the plaintiff’s state of mind.
Federal District Court (Nevada) Partially Excludes Expert’s Testimony and Also Limits Discovery in Damages Case
In this dispute between media companies, the court here ruled on some discovery issues and allowed the testimony of the defendant’s expert in part. Testimony related to methodology was allowed for a jury to decide, but the expert was not allowed to testify on any interpretation of a 2005 joint operating agreement or opine on the plaintiff’s intent to degrade the quality of the printed newspaper. These were legal conclusions or opinions as to the plaintiff’s state of mind.
Expert’s critique of opposing valuation gets excluded
In a Tennessee damages case, the defense engaged a valuation expert to do two things: (1) critique the valuation report of the opposing side; and (2) offer his own estimate of damages.
Business as usual (so far) under tougher Rule 702
The first reported appellate decision to cite the new Rule 702 changes has appeared, but there’s no sea change to report.
Another expert ‘Dauberted’ out of a damages case
In last week’s issue, we reported on a damages case in which a valuation expert’s testimony was excluded because of the methodology used in the analysis. In this week’s case (also a damages matter), the expert didn’t even get that far before being excluded.