October 4, 2004 -- The case involving the expert testimony of two purported business valuation experts was ruled inadmissible by a New York District Court Judge who determined that their work did not meet the Daubert standard.

The case was Lippe v. Bairnco Corp., in which plaintiffs sought to prove that Bairnco and other defendants engaged in fraudulent conveyances to protect assets from the reach of asbestos claimants.  Two experts, an investment banker and a finance professor, were hired by the plaintiffs to prove that newly created subsidiaries did not pay “fair consideration” for the assets they purchased from Bairnco.

Defendants filed a motion to exclude the testimony of the valuation experts.  After reviewing the reports and depositions, the court ruled that the testimony of the experts was inadmissible under the Daubert standard.  The Daubert standard requires expert testimony to be both reliable and relevant.

The Court found that the testimony of the investment banker was unreliable for a number of reasons.  First, he didn’t use the discounted cash flow method, even though the court said that it is recognized as “the most reliable method for determining the value of a business.”  Second, he offered his opinion as a single number rather than a range of values, prompting the Court to cite several examples in support of its conclusion that a range of values is more appropriate because “fairness is a range, not a point.”  Thirdly, the banker did not rely on accepted valuation principles and methods.  According to his testimony he did not keep up with business valuation literature or educate himself regarding what others in the valuation field were doing.  The Court also had a number of other criticisms of his work, relating to a lack of a concrete basis for certain ratios and premiums.

The Court also found the testimony of the finance professor to be unreliable.  First, the Court determined that she was using control premiums selectively which appeared “designed to support the desired results.”  Second, she used a list of comparable companies supplied by the plaintiff’s attorneys rather than developing her own.  Third, she testified that she had no business valuation experience and was found to be uncertain about her conclusions and analysis.

The Court concluded that the reports of the two experts were unreliable and irrelevant and would not assist a trier of fact.  Accordingly, the testimony of both experts was excluded.

This case exemplifies the importance of using a property qualified and experience valuation expert, especially in cases where there is the likelihood that the valuation work will be tested in court.

For more information, call an Asher professional at 215- 564-1900.

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