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Are “calculations” of value admissible in court?

Posted by Meaden & Moore on Aug 29, 2022 10:30:00 AM

Legal documents and gavel on a wood deskThe development and reporting requirements for a calculation are generally far less stringent than those that apply to a valuation. However, budget-conscious clients may request a calculation rather than a full-blown valuation. A recent Arizona divorce case — Larchick v. Pollock — demonstrates that, although calculation reports aren’t necessarily inadmissible, caution still is warranted.

Lower court excludes expert’s report, testimony

The couple separated only 10 months after they married. The husband claimed a community interest in the increase in the value of a business the wife started before the marriage. 

The husband hired an expert to prepare a calculation of value, which found that the business’s value had increased by $546,000. The wife’s expert submitted a “full appraisal” report, which concluded that the value had increased by $93,000.

The wife objected to admission of the report and testimony of the husband’s expert. She argued that the calculation report wasn’t as reliable as more complete valuation reports. The Superior Court in Maricopa County sustained her objection, noting that the husband’s expert didn’t follow “all possible methods that an expert should be using, all reliable methodology.” The court also excluded the expert’s testimony because he conceded that he didn’t expect his report to be admissible.

Appellate court vacates, remands

The Arizona Court of Appeals began its review by stating that Rule 702 of the Arizona Rules of Evidence doesn’t require expert opinion evidence to account for “all possible methods” of assessment. However, the lower court didn’t base its exclusion solely on that rule. It excluded the evidence based on deference to the expert’s “self-imposed cautionary views regarding admissibility.”

The appellate court dismissed this reasoning. The expert wasn’t put forth to offer legal opinions on the admissibility of the evidence. The husband, as the proponent of the evidence, was entitled to have the family court evaluate it under Rule 702.

The appellate court acknowledged that the calculation evidence may have been questionable and, if admissible, vulnerable to effective cross-examination. It explained that the family court could give it little or no weight at trial. But it couldn’t simply declare the evidence inadmissible without the proper analysis.

Calculated risk

Although calculations may sometimes be admissible, relying on them in litigation can be risky. A calculation report will generally contain cautionary language, stating that 1) the expert didn’t perform all necessary procedures required for a valuation engagement, and 2) the results may have differed if a comprehensive valuation had been conducted. These admissions may discredit an expert’s analysis and testimony in the eyes of fact finders. When in doubt, a full conclusion of value generally is a safer bet.

Topics: Forensic Edge, Investigative & Forensic Accounting

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