Hello
Welcome to the latest issue of Valuation and Litigation Insights!
Our mission is to bring you hand-picked content related to business valuation and litigation that will help you and your clients get better results.
On December 1, 2023, the Federal Rules of Evidence governing expert testimony — Rule 702 — saw its most significant change in almost 25 years. We explore what that will mean for expert opinions.
On a related note, we revisit a recent court decision where an expert's valuation opinion was categorically denied, and why it happened.
Exit and succession planning is hitting a perfect storm where many current owners seek to exit from their business in a short period of time, but also need help to balance the complex goals of retiring comfortably while transitioning the business to the next generation. A recent Los Angeles area owner survey lays out the issues facing owners and their advisors.
A written business valuation report is merely the tip of the iceberg when it comes to the effort expended in developing an opinion of value. But as it usually the only thing the end-user sees, what an important tip it is. We share an article that outlines what to expect from a well-communicated valuation opinion.
When trying to resolve a litigation, it sometimes makes sense to "kick the can," especially when future outcomes and damages are uncertain. We discuss how reserving the determination of loss of goodwill in a condemnation case to a later date might make sense.
On to this issue. Hope you find it useful and interesting!
Valuation and Litigation Insights
News and Trends
Important Changes to Rule 702 and Expert Testimony
From a Turnstile to a Gatekeeper: How Revised Rule 702 Changes the Game for Expert Admissibility
On December 1, 2023, the Federal Rules of Evidence governing expert testimony — Rule 702 — just saw its most significant change in almost 25 years.
In the past, the rules set the admissibility bar rather low, with courts excluding only the most obviously flawed expert testimony. This in effect allowed the courts to "punt" and make juries deal with how to weigh a questionable expert opinion.
Now, in order to be admissible, one must demonstrate that an expert’s methods are “more likely than not” reliable. This means the courts will serve as an actual gate, not a turnstile.
The change won't be immediately apparent, but expect fewer experts to make it through the new Rule 702 gate.
mcguirewoods.com
Things to Know
Expert Certification and the Courts
Denied!!
In a recent tax court decision (Hoensheid v. Commissioner), the Tax Court rejected the appraisal by an investment banker with no professional appraisal certification and who only performed valuations sporadically.
This decision emphasized three key areas to be considered for an appraiser to be accepted by the courts: certification, continuing education, and compliance. It did not help that the appraiser in question made several mistakes in his report that further indicated the appraiser lacked the education, training, and experience to work as a qualified appraiser.
Read more about this case in the article below.
quickreadbuzz.com
State of Owner Readiness
The 2023 Los Angeles State of Owner Readiness Report was completed at the end of last year by the Los Angeles Business Journal, in partnership with The Exit Planning Institute, Morton Wealth, Withum, Palm Tree, and MSK. Over 300 owners of small and large firms in the greater Los Angeles area completed the survey.
A few key takeaways:
** Over one in three respondents said an exit strategy was a top priority.
** Family transition was the top choice as an exit option. Historically, however, less than a third of companies make a successful transition to the 2nd generation, and just over 10% to the 3rd generation.
** Only 1 in 3 owners surveyed have sought advice from an estate attorney.
** Nearly 70% of respondents need to draw upon value from the business to support their retirement.
** 70% of those surveyed started their business from scratch - implying key emotional and psychological considerations in an ownership transition.
** Almost 70% of respondents plan to transition their business in the next 1-5 years. However, only 50% have a formal exit planning team in place.
Given the above, trusted advisors have their work cut out to help balance the goal of providing a comfortable retirement for the 1st generation with successfully transitioning the business to the 2nd generation.
Read more details in the report below.
exit-planning-institute.org
Tools and Tips
The Well-Written Business Valuation Report
The valuation report is often the tip of the iceberg -- representing a mere fraction of the time and effort that goes into an expert opinion.
And yet, for better or worse, the report is often the one thing the client or court sees. And sometimes it is the only opportunity for the expert to get his/her points across.
Below is an article that provides examples of what should go into a well-written report.
Good to know for those who regularly review valuations.
quickreadbuzz.com
Eminent Domain Corner
Reserving Goodwill Claims
In condemnation matters, a loss of goodwill claim is typically measured by comparing business goodwill value in the "before" condition -- that is, prior to the impact of eminent domain -- and the value of business goodwill in the "after" condition -- that is, taking into account the impacts of the eminent domain. The difference, if any, would be the compensable loss of business goodwill.
But an eminent domain project can sometimes take years to finish. And thus its full impact on a business might not be known when expert valuation opinions are exchanged. This can result in significant differences in the parties' respective goodwill loss opinions -- creating a seemingly insurmountable barrier to resolving the dispute between property owner and public agency.
In such situations, it might make sense for the parties to settle on certain aspects of the case but to "reserve" the resolution of goodwill loss to a later date when more information regarding project impacts becomes available.
The article below shows what this process might look like.
californiaeminentdomainreport.com
In Closing
That's it for now. If you found this issue of Valuation and Litigation Insights useful, please forward it to a friend or colleague.
And if you have a valuation or damages-related issue you would like to discuss, let me know! Our team at at Grobstein Teeple, LLP are here to help.
You can reach me one of the ways below.
Talk to you soon!
Will
William W. Thomsen
Director of Valuation and Litigation Services
Grobstein Teeple, LLP
www.gtllp.com
Call me at 818-502-4950
Valuation and Litigation Insights