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Handle Financial Testimony By Lay Witnesses With Care

Posted by Meaden & Moore on Aug 3, 2021 9:00:00 AM

Witness swearing on the Bible telling the truthA lay witness is a person who has observed certain events and testifies on what he or she saw. In commercial litigation, it’s not unusual for company owners, CFOs, or other executives to testify as so-called “lay witnesses.” But when these witnesses testify on complex financial or valuation issues, there’s a risk that their testimony will be found inadmissible as opinion that requires a qualified expert. 

Toeing a Fine Line

Typically, courts make a distinction between presenting financial data, which laypeople may do, and interpreting that data, which is reserved for expert witnesses. Layperson testimony that crosses over into expert witness territory is at risk of being excluded from evidence. 

Under Rule 701 of the Federal Rules of Evidence (FRE), a nonexpert’s opinion is limited to one that’s:

  • Rationally based on the perception of the witness
  • Helpful to a clear understanding of the witness’s testimony or the determination of a fact at issue
  • Not based on scientific, technical, or other specialized knowledge within the scope of Rule 702, which governs expert testimony.

The testimony of a layperson may be disallowed if he or she doesn’t possess the required knowledge to testify on the particular subject. Additionally, a witness’s testimony may be excluded if he or she qualifies as an expert – for example, the witness is a CPA or credentialed business valuation professional – but wasn’t disclosed as such. 

By contrast, expert witnesses may help the trier of fact understand complex scientific, technical, or other specialized matters. Their opinions are deemed reliable if they 1) are based on sufficient facts or data, and 2) stem from principles and methods that have been tried and tested over several years. Novel theories and techniques pose a problem because there’s limited research and data to support them.

Qualifying for an Exception

The opinions of lay witnesses on financial matters may be allowed in certain situations, however. According to the FRE Advisory Committee’s notes, “Most courts have permitted the owner or officer of a business to testify to the value or projected profits of the business, without the necessity of qualifying the witness as an accountant, appraiser, or similar expert. Such opinion testimony is admitted not because of experience, training, or specialized knowledge within the realm of an expert, but because of the particularized knowledge that the witness has by virtue of his or her position in the business.”

For example, in United States ex rel. Technica, LLC v. Carolina Cas. Ins. Co., the company’s CEO was allowed to testify as a lay witness regarding the reasonableness of re-rental charges for equipment. The federal court determined that the executive had “particularized knowledge gained from years of experience within his field.”

But when testimony requires more complex financial or valuation knowledge, courts are likely to require a qualified outside expert. For example, in Ruhr v. Immtech International, Inc., the court rejected testimony from the plaintiff’s president regarding lost profits because it involved a new product in a complex market. These financial matters were deemed to be outside of the president’s personal knowledge or perception.

Consider Outside Expertise

Exclusion of testimony related to financial matters can destroy your case in commercial litigation. So, err on the side of caution by hiring a credentialed financial expert to provide opinions on lost profits, economic damages, and value. These complex matters often require more specialized knowledge or perception than an owner or executive can provide.

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