Attorney-at-Law

HORSEFEATHERS

In Uncategorized on 06/03/2019 at 16:06

The slang term, not the 1932 Marx Bros. extravaganza, figures in Mitchel Skolnick and Leslie Skolnick, et al., 2019 T. C. Memo. 64, filed 6/3/19. Mitch and Les and the als stand accused by IRS of hobbyhorsing around with Bluestone Farms, Inc.

Word to a colleague: Peter Reilly, CPA, here’s another Section 183 hobby loss case for ya.

It falls to Judge Albert G (“Scholar Al”) Lauber, one-time schoolmate of Mr. Reilly’s at a distinguished boys’ high school in Our Fair City, to decide whether Mitch’s and Les’ expert can expound his expertise on their behalf at trial.

Mitch’s and Les’ (and the als’) expert is R (name omitted), supposedly the North American continent’s leading bloodstock valuation expert.

“Mr. R’s proposed testimony consists of a 3-1/2-page report with a pair of attached spreadsheets.  The substance of his report (putting aside paragraphs devoted to formal aspects and his qualifications) consists of three paragraphs that take up less than two pages.  He opines that ‘the appraisal of horses is not an exact science and is greatly influenced by numerous economic and social factors.’  In particular, he states that the valuation of horses ‘can be affected in a volatile way as a result of any natural disaster, disease  outbreaks, global crisis or governmental actions.’”  Order, at p. 3.

And R has two (count ‘em, two) spreadsheets, valuing 153 (count ‘em, 153) ponies Bluestone owned at one or another material time.  These list just name, rank, serial number and valuation.

“Because the written report serves as the direct testimony of the expert witness, the report must comply with the requirements for expert testimony set forth in Fed. R. Evid. 702.  Rule 143(g)(1) accordingly requires that an expert witness report ‘shall contain” (among other things) the following:  “(A) a complete statement of all opinions the witness expresses and the basis and reasons for them; (B) the facts or data considered by the witness in forming * * * [his opinions]; [and] (C) any exhibits used to summarize or support * * * [his opinions.]’

“We conclude that [R’s] report does not satisfy the requirements of the Federal Rules of Evidence or this Court’s Rules.  His report does not set forth any ‘facts or data’ on which he relied.  Fed. R. Evid. 702(b); Rule 143(g)(1)(B).  Although he avers that he consulted an in-house database, his report includes no data from that database, and he does not attach a printout of the database as an exhibit to his report.  He does not identify the valuation ‘principles and methods’ that he employed in performing his appraisal.  See Fed. R. Evid. 702(c).  Although his ‘brief guidelines’ list nine factors that he believes affect valuation, he does not explain how he applied or weighted those factors when attaching a dollar figure to each horse.  His report thus fails to establish that he ‘reliably applied the principles and methods to the facts of the case.’  See Fed. R. Evid. 702(d).” 2019 T. C. Memo. 64, at pp. 6-7.

True, Mitch and Les handed over a thumbdrive with R’s database, which included thousands of horses. But which of those was owned by Bluestone when was left for IRS’ counsel to sort out four days before trial. No go with that. Can’t provide evidence so close to trial that effective cross-examination isn’t possible.

But experts can testify based on their experience, can’t they? Sure, says Judge Scholar Al. But “While an expert can be qualified on the basis of his experience, he cannot cite his experience as the sole basis for putting a dollar value on a horse.  He must show his work, viz., the data he considered and the methodology he applied to produce his results.” Order, at p. 11. (Citation omitted).

Unlike Sylvia Plath’s “Mad Girl,” the expert can’t testify “I must have made it up within my head.”

Mitch and Les say R “…regularly used spreadsheets resembling those attached to his expert report to supply information to clients of his bloodstock agency.  But what is acceptable in a commercial context is not necessarily reliable as expert testimony in Federal court.  A person intending to bid on a horse may rely on a dollar estimate supplied by his blood stock agent, much as a person intending to bid on a house may rely on a dollar estimate supplied by his realtor.  In neither case may the customer be interested in how his agent came up with that number.  But under our adversarial system, the Federal Rules of Evidence impose higher standards for expert witness testimony in Federal court.  See Fed. R. Evid. 702, Adv. Comm. Note to 2000 Amendment (‘The trial court’s gatekeeping function requires more than simply “taking the expert’s word for it.”’ (Citation omitted). Order, at p. 11-12.

Finally, the immortal aphorism of the late Justice Potter Stewart, which appeared on this site just a couple weeks ago (hi, Judge Holmes), gets a play. But it doesn’t get it for Judge Scholar Al.

“Finally, petitioners assert that the valuation of horses is more art than science, citing Justice Stewart’s famous apothegm from a different context: ‘I know it when I see it.’.  This may be a practical approach to identifying pornography, but it is not, for the reasons we have stated, an acceptable approach to formulating expert appraisal testimony under the Federal Rules.  We accept petitioners’ point that an expert appraising a herd of horses need not necessarily supply, for each horse, the massive volume of data that courts customarily receive from experts appraising real estate.  But the horse appraiser must still explain how he got to his results, which requires that he show the data he considered, the methodology he applied, and the manner in which he applied his methodology to reach his valuation outcomes.  Without that information, the Court has no means of examining whether the report ‘rests on a reliable foundation and is relevant to the task at hand.’” Order, at pp. 12-13 (Citations omitted).

R gets left at the starting gate.

 

 

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