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A ppraisals – The Nitty Gritty In Preparation and Presentation

This informative session explores the key aspects of appraisals, including their admissibility and ethical considerations. Topics covered include appraisal methodologies, characteristics of a good appraisal, admissibility of appraisals, and ethical limitations on communications with appraisers.

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A ppraisals – The Nitty Gritty In Preparation and Presentation

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  1. Appraisals – The Nitty Gritty In Preparation and Presentation Robert Bruner – Norton Rose Fulbright US LLP Brendon Singh – Corral Tran Singh LLP

  2. Topics for Discussion • Does the Appraisal Make Sense? • Are Appraisals Admissible? • Ethical Issues with Appraiser/Attorney Communications • Privilege Issues

  3. Does the Appraisal Make Sense? • From a Business Perspective, Does the Appraisal Make Sense? • International Bank of Commerce v. Davis (In re Diamond Beach VP, LP), 506 B.R. 701 (Bankr. S.D. Tex. 2014) (J. Isgur) • Basic Valuation Methodologies • Comparable Sales • Cost Method • Income Method

  4. Does the Appraisal Make Sense? • Characteristics of a Good Appraisal • Keep it Current • Appraiser should always do a thorough inspection of the interior and exterior of the property and take pictures • Avoid appraisals related to a mortgage • Use good comparables • Explain the subject bankruptcy valuation assignment • Describe the subject asset, property, or business interest and the subject bundle of legal rights • Explain the selection or rejection of all generally accepted valuation approaches and methods • Explain the selection and application of all specific analysis procedures

  5. Does the Appraisal Make Sense? • Characteristics of a Good Appraisal • Describe the analyst’s data gathering and due diligence procedures • List all of the documents and data considered • Include copies of all documents that were specifically relied on • Summarize the qualitative valuation analyses performed • Include schedules and exhibits documenting all of the quantitative valuation analyses performed • Avoid any unexplained or unsourced valuation variables or analysis assumptions • Allow the expert to be able to replicate all of the valuation analyses performed

  6. Appraisals – Are They Admissible? • Is an Appraisal an Out of Court Statement Offered for the Truth of the Matter Asserted? – Rule 801 • Can an Appraisal Fit Under a Hearsay Exception? • Business Records Exception? – Rule 803(6) • Statements in Documents that Affect an Interest in Property? – Rule 803(15) • Public Record with Respect HCAD Appraisal? – Rule 803(8) • Prior Statement with Respect to Opposing Party’s Appraisal? – Rule 801(d)(2)

  7. Appraisals – Are They Admissible? • Appraisals are Admissible if Opposing Party does not Object to Admission • Practical and Strategic Considerations • Situations where you may not want to offer your appraisal for admission • Situations when you might not object to admission of the opposing party’s appraisal

  8. Ethical Limitations on Communications with Appraisers • Can Counsel Tell the Expert the Number the Client Needs? • Ethical Rule Limitations on Appraiser/Expert Communications: • Rule 3.04(b) – Payment Contingent on Outcome • Rule 3.04(b) – Falsify Evidence or Counsel or Assist False Testimony • Rule 3.03(a)(1)&(5) – Make a False Statement or Use False Evidence

  9. Ethical Limitations on Communications with Appraisers • Cannot Make Payment Contingent Upon Conclusion “A lawyer shall not: “falsify evidence, counsel or assist a witness to testify falsely, or pay, offer to pay, or acquiesce in the offer or payment of compensation to a witness or other entity contingent upon the content of the testimony of the witness or the outcome of the case. But a lawyer may advance, guarantee, or acquiesce in the payment of: (1) expenses reasonably incurred by a witness in attending or testifying; (2) reasonable compensation to a witness for his loss of time in attending or testifying; or (3) a reasonable fee for the professional services of an expert witness.” Rule 3.04(b) of the Texas Rules.

  10. Ethical Limitations on Appraiser Communications • Violation of Ethical Rule Regarding Contingent Payment Is Not Necessarily Grounds for Excluding Report or Testimony Tagatz v. Marquette Univ., 861 F.2d 1040, 1042 (7th Cir. 1988) (“[Although it] is unethical for a lawyer to employ an expert witness on a contingent-fee basis, . . . it does not follow that evidence obtained in violation of the rule is inadmissible . . . It is a rule of professional conduct rather than the admissibility of evidence . . . The trier of fact should be able to discount for so obvious a conflict of interest.”). U.S. v. Cervantes-Pacheco, 826 F.2d 310, 315 (5th Cir. 1987) (“an informant who is promised a contingent fee by the government is not disqualified from testifying in a federal criminal trial. As in the case of the witness who has been promised a reduced sentence, it is up to the jury to evaluate the credibility of the compensated witness.”); concurrence (“No court, so far as I have been able to find, now excludes contingent-fee t testimony.”).

  11. Ethical Limitations on Appraiser Communications • Cannot Solicit False Testimony A lawyer shall not: “falsify evidence, counsel or assist a witness to testify falsely. . .” Rule 3.04(b) of the Texas Disciplinary Rules of Professional Conduct. • Cannot Knowingly Make or Use a False Statement “A lawyer shall not knowingly: (1) make a false statement of material fact or law to a tribunal . . . (5) offer or use evidence that the lawyer knows to be false.” Rule 3.03(a)(1) & (5) of the Texas Rules. • Does Counsel Have a Duty to Independently Verify the Expert’s Report? Comment 8 to Rule 3.3 of the Model Rules: Knowledge of falsity can be inferred from the circumstances.

  12. Ethical Limitations on Appraiser Communications • Is There a Tension With the Duty to be a Zealous Advocate? “A lawyer must also act with commitment and dedication to the interests of the client and with zeal in advocacy upon the client’s behalf.” – Comment 1 to Model Rule 1.3 Wyeth v. Blackwell, 408 Md. 575 (Md. Ct. App. 2009) (implies that attorneys may have a duty to retain the best “hired gun” expert to comply with their obligation to zealously advocate their client’s interest). You don’t know if an argument is “good or bad till the judge determines it . . . An argument, which does not convince yourself, may convince the judge to whom you urge it: and if it does convince him, why, then Sir, you are wrong and he is right.” - James Boswell, The Life of Samuel Johnson 47 (1887)

  13. Rule 26 Limitations on Appraiser Communications • What are the Permissible Bounds of Attorney Involvement in Drafting Expert Reports? • Federal Rule of Civil Procedure 26 Provides that Reports Must be “preparedand signed by the witness”

  14. Rule 26 Limitations on Appraiser Communications • Attorneys Can Assist with Drafting Expert Reports “Rule 26(a)(2)(B) does not preclude counsel from providing assistance to experts in preparing the reports, and indeed . . . this assistance may be needed. Nevertheless, the report, which is intended to set forth the substance of the direct examination, should be written in a manner that reflects the testimony to be given by the witness . . .” • But Opinions and Analysis Within Report Should be the Expert’s Own “An expert witness who is merely a party’s lawyer’s avator contributes nothing useful to the decisional process.” Numatics, Inc. v. Balluff, Inc., 66 F. Supp. 3d 934 (E.D. Mich. 2014); Compare StoneEagle Services, Inc. v. Pay-Plus Solutions, Inc., 2015 WL 3824170, at *6-7 (M.D. Fla. 2015) (declining to strike expert report although the report was written by counsel where expert provided counsel with his opinions to transcribe within the report, and the expert made “extensive corrections to ensure that his opinion was conveyed.”)

  15. Rule 26 Limitations on Appraiser Communications • Practice Points - Expert should write the first draft - Expert should spend an appropriate amount of time reviewing material - Expert should be given unfettered discretion to revise the report

  16. Privilege Issues – Draft Reports • Draft Expert Reports are Privileged Under the Federal Rules • Federal Rule 26(b)(4)(B): “Rules 26(b)(3)(A) and (B) protect drafts of any report or disclosure required under Rule 26(a)(2)(B), regardless of the form in which the draft is recorded.” • But What Constitutes a Draft Report?

  17. Privilege Issues – Communications with Experts • Communications Between Attorney and Expert are Privileged, Subject to Exceptions. • Federal Rule 26(b)(4)(c): “Rule 26(b)(3)(A) and (B) protect communications between the party’s attorney and any witness required to provide a report under Rule 26(a)(2)(B), regardless of the form of the communications, except to the extent that the communications: • relate to compensation for the expert’s study or testimony; • Identify facts or data that the party’s attorney provided and that the expert considered in forming the opinions to be expressed; or • Identify assumptions that the party’s attorney provided and that the expert relied on in forming the opinions to be expressed

  18. Privilege Issues – Communications with Experts • Beware of Expert communications with non-attorneys In re Republic of Ecuador, 735 F.3d 1179, 1187 (10th Cir. 2013); Republic of Ecuador v. Hinchee, 741 F.3d 1185 (11th Cir. 2013); Republic of Ecuador v. Mackay, 742 F.3d 860 (9th Cir. 2014). • Practice Points: - Encourage experts to keep working thoughts within draft reports - Separate fact/data attorney communication from other work- product communications - Limit expert communication with non-attorneys

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