Helping Judge and Jury Understand Valuation Testimony

If your valuation case is tried before a judge, a great deal of information is available to guide you with your presentation. Remember that not all judges are created equal. Learning about a judge can provide valuable insight into how valuation testimony should be presented. In order to better understand the judge, consider the following questions:

' Does he or she have experience in business valuation cases?

' Has he or she dealt with cases with this level of complexity? If so, how often?

' Does the judge have a track record that would suggest what you should focus on or avoid?

' Have any of the experts in your case testified in front of this particular judge? If so, what were the results of the case?

The Jury

If your case is tried before a jury, it is equally helpful to understand the individuals who will decide the case. The following are examples of questions you should consider asking the members of your jury:

' Are they from an urban or a more rural area?

' What is their general socio-economic background?

' Do they have a business or accounting background?

Answers to these questions can be helpful in determining how to connect with the jury. Specifically, they may provide valuable insight into what examples to use in conveying your message. For instance, using the illustration of buying a house to explain the Market Approach may not be appropriate in an area where most jurors rent. As discussed below, the more relevant and identifiable your examples are, the more likely you will be to get your point across to the jury.

Keep It Simple

' Use 'everyday' language if at all possible. This is not business school, and the judge and/or jury members are not working at becoming accountants. While it is important to tailor your presentation to the level of sophistication of your audience, you should always strive to make valuation testimony as easy to understand as possible. This is important to keep in mind when preparing your valuation report as well. Always speak and write in language that can be understood by a mass audience, not in jargon that only fellow practitioners will comprehend.

' Avoid being enmeshed in the details. The audience does not need to understand fully all the intricacies and nuances of business valuation. Give them something they can sink their teeth into, but if you overwhelm them, your message will get lost, even if it is technically sound. This is not to say that the details are not important. In fact, they can be critical, especially in attacking or defending a valuation opinion on cross-examination. However, the presentation of your expert's opinion through direct examination should be done in an organized and straightforward manner.

' Assume the listener has no background in the area. Even if all your jurors have business degrees, you need to start with the basics. If you lose them at the beginning, you may never be able to recover.

' Do not speak in a condescending tone. Keep it simple, but do not talk down to your audience. This can be a very fine line to walk. Often, the difference is not so much in the content of the valuation testimony as it is in the presentation. This is something to consider when selecting your expert. A valuation expert might have impeccable qualifications, yet he or she might not be the best choice for your particular case. For example, an expert from New York might not 'play' well in a rural Southern town. On the other hand, the same expert might be a perfect fit for a case on the East Coast.

' Always be respectful ' never arrogant. It is important to focus on an expert's qualifications, especially if he or she is imminently more qualified than the opposing expert. However, this should not be done in a 'showy' or pretentious way. If the judge or jury does not like you, they may not listen to you, or worse, they may punish the client because of how you present yourself.

' Use 'real world' examples. When explaining a complex and relatively unknown subject like valuation, one of the best ways to connect with the audience is through the use of examples that the audience members can easily understand and identify. If you can compare your valuation approach to an experience with which they are familiar, the odds that they will understand and, more importantly, accept your valuation opinion increase significantly. One such example is the purchase of a home. This common experience can be used to demonstrate all three of the traditional valuation approaches. While they are obviously oversimplifications of each approach, the following examples can be a valuable tool in forming a basic understanding of each approach in the minds of your audience. The Income Approach: If in individual is purchasing a rental home, he or she would value the property based on the income that can be derived from future rentals. In other words, how much would a buyer pay today for the right to receive rental payments in the future? The Cost/Asset Approach: Another approach to valuing a home is to determine what it would cost to replace the house. In other words, the house is worth whatever it would cost to purchase the various materials necessary to build it. The Market Approach: Finally, one could determine the value of a home by looking at the prices of comparable homes. While adjustments must be made for certain factors (ie, the house is the biggest in the neighborhood), the value of the house will probably not vary significantly from the relevant market.

Give Your Audience Something to Look At

People are visual learners. While the statistics vary from study to study, there is no question that learning is significantly helped by visual aids. If the visual component of your presentation is ignored, you run the risk of not fully conveying your message to the audience. Furthermore, you may fail to connect at all with those members of the audience whose primary learning style is visual. Include charts and graphs whenever possible.

If it all possible, use charts, graphs, or other visual aids to support your argument. These aids will be particularly helpful if they are admitted into evidence so that the jury can review them during deliberation. Even if they are not admissible, visual aids can be a powerful and effective demonstrative tool.

Conclusion

Playing to your audience is the best way to help your audience understand valuation testimony ' and to win your case.

Mike McCurley, is managing partner with McCurley, Orsinger, McCurley & Nelson, LLP, Dallas. He is a former president of the American Academy of Matrimonial Lawyers; board certified in Family Law; winner of the Sam Emison Award, Texas Academy of Family Law Specialists, 2001; and a member of this newsletter's Board of Editors. Brian Sziklay is a managing member of the accounting and consulting firm of Cipolla Sziklay Zak & Co., LLC, West Orange, NJ. His primary practice emphasis is in the areas of matrimonial dissolution, estate and trust administration, and more. Brian W. Clark is an associate with Kane, Russell, Coleman & Logan, Dallas. The authors wish to thank Jim Penn for his valuable input in the preparation of this paper.

Most lawyers possess little more than a basic understanding of valuation approaches and techniques. If you have tried a complex valuation case, you may have found that some 'experts' know very little more. If professionals who regularly deal with complicated valuation problems have difficulty understanding how to value a business or other entity, one can imagine how challenging it is for a layperson to grapple with such a difficult subject. The purpose of this article is to provide attorneys and expert witnesses with the information and knowledge necessary to help a judge or jury understand valuation testimony.

Know Your Audience

The Judge

If your valuation case is tried before a judge, a great deal of information is available to guide you with your presentation. Remember that not all judges are created equal. Learning about a judge can provide valuable insight into how valuation testimony should be presented. In order to better understand the judge, consider the following questions:

' Does he or she have experience in business valuation cases?

' Has he or she dealt with cases with this level of complexity? If so, how often?

' Does the judge have a track record that would suggest what you should focus on or avoid?

' Have any of the experts in your case testified in front of this particular judge? If so, what were the results of the case?

The Jury

If your case is tried before a jury, it is equally helpful to understand the individuals who will decide the case. The following are examples of questions you should consider asking the members of your jury:

' Are they from an urban or a more rural area?

' What is their general socio-economic background?

' Do they have a business or accounting background?

Answers to these questions can be helpful in determining how to connect with the jury. Specifically, they may provide valuable insight into what examples to use in conveying your message. For instance, using the illustration of buying a house to explain the Market Approach may not be appropriate in an area where most jurors rent. As discussed below, the more relevant and identifiable your examples are, the more likely you will be to get your point across to the jury.

Keep It Simple

' Use 'everyday' language if at all possible. This is not business school, and the judge and/or jury members are not working at becoming accountants. While it is important to tailor your presentation to the level of sophistication of your audience, you should always strive to make valuation testimony as easy to understand as possible. This is important to keep in mind when preparing your valuation report as well. Always speak and write in language that can be understood by a mass audience, not in jargon that only fellow practitioners will comprehend.

' Avoid being enmeshed in the details. The audience does not need to understand fully all the intricacies and nuances of business valuation. Give them something they can sink their teeth into, but if you overwhelm them, your message will get lost, even if it is technically sound. This is not to say that the details are not important. In fact, they can be critical, especially in attacking or defending a valuation opinion on cross-examination. However, the presentation of your expert's opinion through direct examination should be done in an organized and straightforward manner.

' Assume the listener has no background in the area. Even if all your jurors have business degrees, you need to start with the basics. If you lose them at the beginning, you may never be able to recover.

' Do not speak in a condescending tone. Keep it simple, but do not talk down to your audience. This can be a very fine line to walk. Often, the difference is not so much in the content of the valuation testimony as it is in the presentation. This is something to consider when selecting your expert. A valuation expert might have impeccable qualifications, yet he or she might not be the best choice for your particular case. For example, an expert from New York might not 'play' well in a rural Southern town. On the other hand, the same expert might be a perfect fit for a case on the East Coast.

' Always be respectful ' never arrogant. It is important to focus on an expert's qualifications, especially if he or she is imminently more qualified than the opposing expert. However, this should not be done in a 'showy' or pretentious way. If the judge or jury does not like you, they may not listen to you, or worse, they may punish the client because of how you present yourself.

' Use 'real world' examples. When explaining a complex and relatively unknown subject like valuation, one of the best ways to connect with the audience is through the use of examples that the audience members can easily understand and identify. If you can compare your valuation approach to an experience with which they are familiar, the odds that they will understand and, more importantly, accept your valuation opinion increase significantly. One such example is the purchase of a home. This common experience can be used to demonstrate all three of the traditional valuation approaches. While they are obviously oversimplifications of each approach, the following examples can be a valuable tool in forming a basic understanding of each approach in the minds of your audience. The Income Approach: If in individual is purchasing a rental home, he or she would value the property based on the income that can be derived from future rentals. In other words, how much would a buyer pay today for the right to receive rental payments in the future? The Cost/Asset Approach: Another approach to valuing a home is to determine what it would cost to replace the house. In other words, the house is worth whatever it would cost to purchase the various materials necessary to build it. The Market Approach: Finally, one could determine the value of a home by looking at the prices of comparable homes. While adjustments must be made for certain factors (ie, the house is the biggest in the neighborhood), the value of the house will probably not vary significantly from the relevant market.

Give Your Audience Something to Look At

People are visual learners. While the statistics vary from study to study, there is no question that learning is significantly helped by visual aids. If the visual component of your presentation is ignored, you run the risk of not fully conveying your message to the audience. Furthermore, you may fail to connect at all with those members of the audience whose primary learning style is visual. Include charts and graphs whenever possible.

If it all possible, use charts, graphs, or other visual aids to support your argument. These aids will be particularly helpful if they are admitted into evidence so that the jury can review them during deliberation. Even if they are not admissible, visual aids can be a powerful and effective demonstrative tool.

Conclusion

Playing to your audience is the best way to help your audience understand valuation testimony ' and to win your case.

Mike McCurley, is managing partner with McCurley, Orsinger, McCurley & Nelson, LLP, Dallas. He is a former president of the American Academy of Matrimonial Lawyers; board certified in Family Law; winner of the Sam Emison Award, Texas Academy of Family Law Specialists, 2001; and a member of this newsletter's Board of Editors. Brian Sziklay is a managing member of the accounting and consulting firm of Cipolla Sziklay Zak & Co., LLC, West Orange, NJ. His primary practice emphasis is in the areas of matrimonial dissolution, estate and trust administration, and more. Brian W. Clark is an associate with Kane, Russell, Coleman & Logan, Dallas. The authors wish to thank Jim Penn for his valuable input in the preparation of this paper.