Written Materials for Presentation on Expert Testimony and Evidence in Bankruptcy

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1 THE UNIVERSITY OF TEXAS SCHOOL OF LAW Written Materials for Presentation on Expert Testimony and Evidence in Bankruptcy Author Contact Information: 1 Mark E. Andrews 1201 Elm Street, Suite 3300 Dallas, Texas mandrews@coxsmith.com (214) The author thanks Meghan Bishop and Aaron Kaufman for their assistance in preparing these materials. For an excellent source of bankruptcy case annotations applying to the Federal Rules of Evidence, the author also refers readers to review the Bankruptcy Evidence Manual, as prepared by the Honorable Barry Russell, U.S. Bankruptcy Judge, Central District of California, available on Westlaw. Continuing Legal Education

2 Bankruptcy lawyers frequently employ experts in order to assist the Court on issues of value. Bankruptcy courts routinely take evidence from accountants, appraisers and financial advisors. Less frequently, the Court will hear from investment bankers, forensic accountants and, occasionally, from all manner of experts on matters associated with a debtor s business. 2 Notwithstanding the common use of experts, in this practitioner s opinion, there is considerable misunderstanding among members of the Bar, and some inconsistency among the judiciary, on the role of experts. THE BASICS The use of experts and admissibility of their testimony are controlled under the Federal Rules of Evidence (FRE), the Federal Rules of Civil Procedure (FRCP), certain local rules and a sizeable body of case law. The Federal Rules of Evidence begin with the premise that all relevant evidence is admissible, except as otherwise provided by the Constitution of the United States, by Act of Congress or by these Rules or other rules prescribed by the Supreme Court. FRE 402. Witnesses generally are permitted to testify regarding matters within their personal knowledge. As a general rule, witnesses are precluded from offering opinions, except for two general circumstances: (i) as a lay witness in compliance with FRE 701 i.e., rationally based on perception; helpful to understand the witness s testimony or determine a fact in issue; and not based on scientific, technical, or other specialized knowledge; or (ii) as an expert in compliance with FRE 702 (discussed below). HOW RULE 701 (LAY WITNESS TESTIMONY) COMES UP IN BANKRUPTCY Very often in consumer and small business cases, the only witness available on the question of value is the debtor/owner of the property. Owners are certainly competent to give testimony regarding the value of property. See South Central Livestock v. Security State Bank 2 The author s favorite expert was a gentleman who edited Splash Magazine, an industry publication for water park operators. 2

3 of Hedley, 614 F2d 1056, 1061 (5 th Cir. 1980). However, there are some traps. See, e.g., In re Westwood Plaza Apts, 147 B.R. 692, (Bankr. E.D. Tex. 1992) (giving less weight to the owner s testimony on value of the debtor s assets, finding that the owner was not an accredited appraiser, but finding that his testimony did have some probative value ). Suppose your witness testifies as to his property and then in rebuttal wants to testify about the other side s comparables the testimony may not be admitted. The reason is that the testimony as to the value of his or her own property is deemed within his or her knowledge, while the testimony regarding value of the property of another becomes a matter of expert opinion requiring qualification as an expert. FRE 702. (This presumes that the owner witness is not otherwise an expert). The contours of FRE 701 and the equivalent Texas Rule of Evidence have narrowed. In 2012, the Texas Supreme Court held that the landowner s testimony must refer to market, rather than intrinsic or some other value. In essence, the Court requires a predicate showing some familiarity with market value. See Natural Gas Pipeline v. Justiss, 397 S.W.3d 150 (Tex. 2012). Another common application of FRE 701 in a bankruptcy context is where witness is the owner or officer of a business, usually the debtor. Rule 701 of the Federal Rules of Evidence permits a lay witness to give opinion testimony provided the opinions are (a) rationally based on the perception of the witness, (b) helpful to a clear understanding of the witness testimony or the determination of a fact in issue, and (c) not based on scientific, technical, or other specialized knowledge within the scope of Rule 702. Fed. R. Evid Rule 702 permits opinion testimony by expert witnesses. Fed. R. Evid [R]ule 701 does not preclude testimony by business owners or officers on matters that relate to their business affairs. Indeed, an officer or employee of a corporation may testify to industry practices... without qualifying as an expert. Texas A&M Research Found. v. Magna Transp., Inc., 338 F.3d 394, 403 (5th Cir. 2003) (footnote omitted); see National Hispanic 3

4 Circus, Inc. v. Rex Trucking, Inc., 414 F.3d 546, (5th Cir. 2005); U.S. v. Valencia, 600 F.3d 389, 416 (5th Cir. 2010) (recognizing opinion testimony by company s former risk officer as lay testimony). The Fifth Circuit has also held that a witness s position as company president permitted her a broader range of testimony than a traditional lay witness would possess when testifying to matters concerning [the] business. Versai Mgmt. Corp. v. Clarendon America Ins. Co., 597 F.3d 729, 737 (5th Cir. 2010) (company president testifying to business-interruption losses). While the outcome seems reasonable, the line drawing can be tricky. How does one know precisely when the Court will require expert testimony? How can one obtain an early ruling or guidance from the Court on the issue? EXPERT TESTIMONY Expert testimony is governed by FRE 702, if scientific, technical or other specialized knowledge will assist the Trier of Fact to understand the evidence or determine a fact issue, a witness qualified as an expert by knowledge, skill, experience, training or education, may testify thereto in the form of an opinion or otherwise. A body of case law developed surrounding the rule which held that in order for expert scientific testimony to be admitted, courts held that such testimony must be generally accepted. See Frye v. United States, 293 F (1923). In 1993, the U.S. Supreme Court in William Daubert v. Merrell Dow Pharmaceuticals, 509 U.S. 579 (1993) rejected prior holdings and instead held that scientific evidence must be (1) relevant, and (2) reliable. Generally, the court is to serve as a gatekeeper to prevent both irrelevant and unreliable evidence from being admitted. The majority of the Court then went on to set out standards that it expects Trial Judges to consider when faced with a proffer of expert testimony to which an objection has been lodged. Referring to 104A of FRE which governs proffers, the Supreme Court held that the Trial Judge ought to consider: (1) Whether a scientific theory can be or has been tested; 4

5 (2) Whether the theory or technique has been subjected to peer review and publication (although the Court clarifies that publication is not a sine qua non of admissibility); (3) In the case of a particular scientific technique, the Court ordinarily should consider the known or potential rate of error; and (4) Finally, in a harkening back to Frye, the Court held that general acceptance within the relevant scientific community also plays a role. The Supreme Court made it quite clear that the standard is flexible. The focus, said the Court, must be solely on principles and methodology, not on the conclusion generated. Among other suggestions, the Court expressly adverts to FRE 703 (that expert opinions based on otherwise inadmissible hearsay are to be admitted only if facts or data are of a type reasonably relied upon by experts in a field in forming an opinion.) Finally, the Court admonishes us to remember that FRE 403 prohibits the introduction of evidence which, while relevant, is outweighed by the damage of unfair prejudice, confusion of the issues, or misleading the jury. 3 Who can be an expert? Rule 702 suggests that to be an expert, one must have scientific, technical or other specialized knowledge that will assist the Trier of Fact. In bankruptcy cases in the 5 th Circuit, as elsewhere, it is clear that a witness can be qualified as an expert based on experience. See Southern Cement Co. Division of Martin Mariotta Corp. v. Sproul, 378 F2d 48, 49 (5 th Cir. 1967). There is no requirement that a witness hold a specific degree, certification or membership in a professional organization. Hammond v. International Harvester, 691 F2d 646 (3 rd Cir. 1982). 3 There was some controversy at the time Daubert was issued concerning its scope. Clearly, scientific opinions were subject to its rules, but what about other matters considered appropriate for expert testimony? Five years later, Kumho, 526 U.S. 137 (1999) was issued extending the holdings of Daubert to matters of expertise which are not scientific in nature. Kumho, also makes clear that the four part Daubert checklist is not exclusive and that failure to meet some aspect of the test may not result in exclusion. 5

6 What type of experts are excluded? (1) Experts who purport to give opinions, but are really making argument are excluded. See Lippe v. Bairnco Corp. 288 BK 678 (S.D. NY 2003). In that matter, an expert opinion related to a party s likely motivations as part of a challenge to an alleged fraudulent transfer. The Court found that subject was not a matter which could be the subject of expert opinion. (2) Likewise, experts offering opinions on legal matters are excluded. Determining the law is a matter for the Trial Judge. See U.S. v. Scop, 846 F2d 135 (2 nd Cir. 1908). This does not preclude witnesses from ever appearing in relation to a pure legal issue. For example, in the Inverworld cases, 4 the court on its own engaged Professor Westbrook to assist in determining certain aspects of international law. (The matter involved a bankruptcy in San Antonio, a receivership in the Cayman Islands and in the United Kingdom, as well as investors who mostly resided in Latin America). Other examples in our Circuit include lawyers who testify on foreign law. In re Cyprus II Partnership, 392 BR 248 (Bankr. S.D. Tex. 2008). IS THE COURT BOUND TO FOLLOW AN EXPERT S OPINION, IF THERE IS NO OTHER EVIDENCE? The answer is no. In several opinions, Courts have declined to follow testimony of an expert. See, e.g., In re 3DFX Interactive, Inc., 389 BR 842 (Bankr. N.D. Cal 2008) where a Court rejected the evidence, even though the expert was duly qualified. This suggests, at least to the author, that a Judge is not stuck with an outcome forced by an expert whose opinion the Judge does not believe. 4 See Case Nos , , , (Bankr. W.D. Tex.). 6

7 DAUBERT CHALLENGES IN BANKRUPTCY Daubert challenges are not as common in Bankruptcy Courts. Such challenges go both to the qualification of the expert and to his opinion. Why is this? Although commentators have no consensus, there are a number of possible reasons. The primary reason is that there is usually no jury and the Court can decide for itself what weight to give the evidence. Daubert challenges drive up expenses and many cases are resource short. Also, many bankruptcy lawyers are not trial lawyers and may lack familiarity with rules for allowing experts. When do Daubert challenges occur, and what do they dispute? Below are some examples. (a) Investment bankers who failed to use discounted cash flow method, which failed to offer a range of value, and demonstrated a lack of familiarity with academic writings on business valuation, made many errors and failed to explain them was rejected. See Lippe v. Bairnco Corp, 288 BR 678 (S.D.N.Y. 2003); (b) Challenges to testimony of accountants who testified that debtors book value should be accepted and who failed to demonstrate any basis for value of inventory and good will and who failed to engage in any independent testimony of underlying data were successful. The Court excluded the expert testimony. See Katz v. Wells (In re Wallace s Bookstores, Inc.), 316 BR 254 (Bankr. E.D. Ky 2004); (c) Frequent challenges to real estate appraisers. See In re Linc Capital, Inc. 312 BR 368 (Bankr. N.D. Ill 2004) (excluding testimony from an appraiser who had only five residential appraisals in his experience); see also In re Spatz, 222 BR 157 (N.D. Ill 1998) (challenging expert who had performed 7

8 130 valuations, two-thirds of which were business valuations, not real estate appraisals). Oddly, some courts have taken the position that real estate brokers may not qualify as experts on valuation of real estate. See In re Donoway, 139 BR 156 (Bankr. D. Md 1992). This would appear to be inconsistent with the Supreme Court decision in Daubert. Why doesn t a broker have sufficient training, skills and/or experience to help assess value? After all, brokers undertake that exact role for clients routinely. Why is an experienced broker with knowledge of a particular geographic area not just as good as an appraiser? (d) See Dunn v. Sears Roebuck, 639 F2d 1171 (5 th Cir. 1981) where the Court concluded that an expert is not disqualified even though his sole employment is by the party calling him. A last impediment to qualify an expert in some states is the existence of laws which prohibit a person from giving an opinion on financial statements without a certificate from the issuing state usually controlled by an accounting review board. In Texas, brokers price opinions are also subject to a state statute (see discussion of In re LMR LLC at pp below). EXPERTS IN BANKRUPTCY VALUATION, ESTIMATION & CRAMDOWN Every day bankruptcy courts across the country determine value value of property, value of businesses, and the time value of money. This comes up in the context of first day cash collateral hearings and in subsequent lift stay hearings, claims disputes and confirmation. Bankruptcy courts commonly rely on experts to determine such value. Experts are also 8

9 commonly used at confirmation for a variety of issues, including claim estimation 5 and cramdown interest rates. The evidence necessary to determine the latter issue cramdown interest rates has become a hotly debated issue in recent years. Standard practice for many courts seems to begin with a baseline rate prime rate or the United States Treasury Bill and make adjustments upward or downward depending upon the degree of risk involved in the particular transaction. But if all of the relevant risk-factors are factual, can t the court simply hear that factual testimony, weigh them, make a determination of the relative risk, and determine the proper rate without requiring expert opinions? In a relatively recent case, originating out of the Northern District of Texas, Judge Lynn heard a 3-day confirmation hearing which was contested, in part, based on insufficiency of the proposed cramdown interest rate. In re Village at Camp Bowie I, L.P., 454 B.R. 702, (Bankr. N.D. Tex. 2011), appealed on other grounds. The objecting secured creditor was not in the lending business, but had purchased the loan at a deeply discounted rate with the intention of foreclosing on the property. Id. The debtor s plan of reorganization proposed to repay the loan at an interest rate of 5.83%, with interest-only payments for three years, followed by two years of payments of interest and principal amortized over 30 years. Id. At the end of five years, the secured creditor s debt would be paid in full. Id. 5 Claims estimation may be efficient where a large claim has been asserted, its allowance could affect feasibility of the plan, but the parties agree that a full-blown hearing on the merits of the claim could take weeks. See, e.g., Nickels Midway Pier, LLC v. Wild Waves, LLC (In re Nickels Midway Pier, LLC), 450 B.R. 58 (D.N.J. 2011) (court held an estimation hearing with confirmation to consider parties experts on lost profits and other damages incurred by the debtor s alleged breach of contract). 9 Judge Lynn heard testimony regarding interest rates from a principal of the debtor, a principal of the objecting creditor, and the debtor s and creditor s interest rate experts, in addition to experts offering opinions as to the appraisal value of the property at issue. Id. at 706. In addressing the interest rate determination, the court first looked to the United States

10 Supreme Court case in Till v. SCS Credit Corporation, in which the nation s highest court opined as to the interest rate necessary to meet the requirements of section 1129(b)(2)(A)(i). Till v. SCS Credit Corporation, 541 U.S. 465, 124 S. Ct. 1951, 158 L. Ed. 2d 787 (2007). Till was a chapter 13 case dealing with various approaches to establishing a cramdown interest rate, ultimately settling on a formula approach. Till, 541 U.S. at 465. However, Till suggested that in a chapter 11 case there might be an efficient market that would establish a proper rate for cramdown. Till, 541 U.S. 465, n. 14. Post-Till, there are two areas in an interest rate fight that appear to raise the question of expert testimony (1) whether or not an efficient market exists for a loan substantially identical to the cramdown loan and, if so, (2) a determination of the appropriate market rate or, if not, (2) a determination of the proper interest rate under Till. In such a situation, is an expert needed to make the first determination? Arguably not, although in most cases the practical answer is, yes. The existence of a market could be determined through fact testimony from representatives of the debtor addressing the debtor s efforts taken to obtain financing and the terms of such financing, if any was available. Likewise, representative(s) of the objecting creditor could offer testimony about its standard lending practices and whether a market exists to create a proper rate. This line of testimony is, arguably, purely factual. The judge could then determine whether, based on the factual evidence, there is a market to create a proper rate for cramdown. As to the second determination, a review of relevant case law reveals that experts are almost always retained to provide an opinion or dissertation or exposition of scientific or other principles as to the determination of the appropriate interest rate, as such is scientific, technical, or other specialized knowledge that is not purely factual. Fed. R. Evid. 702(a), Adv. Cmte. Notes. 10

11 The use of interest rate analyses other than the Till approach, such as the coerced loan, presumptive contract rate, and cost of funds approaches, requires bankruptcy courts to consider evidence about the market for comparable loans to similar (though nonbankrupt) debtors an inquiry far removed from such courts usual task of evaluating debtors financial circumstances and the feasibility of their debt adjustment plans. Till, 541 U.S. at 477. This evidence almost always will require a retained expert. Under the Till analysis, the determination of the appropriate interest rate requires arriving at a supplemental risk adjustment to be added to the prime rate or other appropriate baseline rate, such as the T-bill. This risk adjustment accounts for such factors as the circumstances of the estate, the nature of the security, and the duration and feasibility of the reorganization plan. See, Till, 541 U.S. at 465. For example, one court in applying these Till factors discussed (1) how well maintained the property was, (2) how well managed the property was, (3) whether revenues met or exceeded projections, and (4) whether the debtor s owners were or were not committed to the business. Wells Fargo Bank Nt l Ass n. v. Texas Grand Prairie Hotel Realty, L.L.C. et al. (In re Texas Grand Prairie Hotel Realty, L.L.C.), 710 F.3d 324, 334 (5th Cir. 2013). All of these factors are factual. So, are experts needed? Most of the time, yes, though the issue may have less to do with whether particular testimony falls under Federal Rule of Evidence 701 or 702 and more to do with credibility. As a practical matter, the debtor will always try to prove up a lower interest rate and the creditor will always try to prove up a higher interest rate. Retained experts usually are needed to bridge the credibility gap as much as they are for their substantive expertise. In Grand Prairie, the court heard testimony from the debtor s and creditor s experts, ultimately applying the Till prime-plus formula to arrive at a cramdown interest rate of 5% (or, 1.75% above prime), and adopting the debtor s expert s analysis. The secured creditor objected, arguing (and presenting competing expert testimony) that the proper rate should have 11

12 been 8.8% (or prime-plus 5.55%). The secured creditor also moved to strike the debtor s expert testimony under Daubert, alleging flaws in the expert s methodology. The Fifth Circuit Court of Appeals pointed out that the bank s procedural Daubert motion (seeking to strike expert testimony due to flawed methodology) and its arguments on the merits (suggesting that the debtor s expert ignored risk factors that would demand a higher rate of return to the lender) were indistinguishable. Thus, the Fifth Circuit held that the bankruptcy court properly deferred its ruling on the bank s Daubert motion to the confirmation hearing and ruled on the merits of the evidence presented. On the merits, the debtor s expert supported a 1.75% upward adjustment based factors relating to the debtor s business operations and assessed the risk of future default was just to the left of the middle of the risk scale. Because risk adjustments under the Till approach generally range from 1% to 3%, the Court of Appeals found the upward adjustment of 1.75% to be appropriate under the circumstances. The bank s expert followed a slightly different comparable loan approach. The bank s expert testified that the debtor could go out into the market and cobble together multi-tiered financing with a blended interest rate of 9.3%. The bank s expert then gave the debtor a 1.5% downward adjustment for sterling performance during the bankruptcy case, but a 1% upward adjustment for the plan s tight feasibility, arriving at a final interest rate of 8.8%. The Fifth Circuit explained that the comparable loan approach may provide a relevant analysis, but held that it was precisely the kind of approach that the Till plurality encouraged bankruptcy courts to avoid. By the bank s own admission, there was no single lender in the market willing to provide the single-tiered equivalent of the financing proposed under the plan. Thus, the Till comment that in a chapter 11 an efficient market may exist to justify an approach outside of the Till formula was inapplicable in this case. The Court of Appeals found the primeplus approach to be more persuasive and better tailored to addresses the debtor s actual 12

13 finances and the plan actually proposed. Accordingly, the Fifth Circuit concluded that the bankruptcy court did not clearly err by confirming the plan at 5% interest, based on the Till formula applied by the debtor s expert. One Court utilized this standard but did not rely on expert testimony. In In re LMR, LLC, Judge Mott confirmed a debtor s chapter 11 cramdown plan at 6% without the debtor presenting a true interest rate expert. In re LMR, LLC, 496 B.R. 410, 416 (Bankr. W.D. Tex. 2013). In that case, the debtor presented witness testimony from its manager and a local hotel broker, who had experience with selling and refinancing hotels in the region and had substantial knowledge of the local economy. Id. at The testimony included facts about the debtor s financial status and likely future performance, as well as facts regarding the Austin, Texas economy and hotel market. Id. at 418. Judge Mott found the testimony to be very credible. Id. In addition, the local hotel broker testified as to value of the hotel. Id. at 420. The testimony raised an objection from the secured creditor s counsel that the broker did not comply with the Texas Real Estate Commission Rules regarding broker price opinions. Id. Because Mr. Weir was not a licensed real estate appraiser, Judge Mott sustained the objection and disregarded his testimony as to value. Id. The objecting secured creditor did present retained expert testimony, however the court found his opinion to be somewhat dated. Id. at 421. The result was that there was no true interest rate expert. But Judge Mott held that there was sufficient lay witness testimony covering the factors outlined in Texas Grand Prairie to enable him to make a ruling. Based on the record before him, Judge Mott held that, there was no efficient market for exit financing, and that he could apply Till s prime-plus formula to reach an interest rate of prime, plus 1-3%, depending on the applicable risk factors. Again, while there was no true interest rate expert as there had been in Texas Grand Prairie, Judge Mott held that he had a sufficient factual record and expert -like evidence from lay witnesses from which he could assess the risk according to the Fifth Circuit s five-point test: 13

14 (1) the quality of the debtor s management in this case, excellent; (2) the commitment of the debtor s owners evident in this case from the equity infusion proposed under the plan; (3) health and future prospects of the business bright in this case due to the location of the hotel near the airport and a newly constructed, nationally acclaimed race track; (4) the quality of the lender s collateral improving due to the rising market for local hotels in Austin; and (5) the feasibility of the plan as in Texas Grand, tight but feasible. Based on the evidence presented, Judge Mott confirmed that plan with a 6% interest rate (i.e., 2.25% above prime). EXPERTS AND RELIANCE ON INADMISSIBLE EVIDENCE Experts are allowed to rely upon evidence which is otherwise inadmissible. FRE 703. An expert may base an opinion on facts or data in the case that the expert has been made aware of or personally observed. If experts in the particular field would reasonably rely on those kinds of facts or data in forming an opinion on the subject, they need not be admissible for the opinion to be admitted. But if the facts or data would otherwise be inadmissible, the proponent of the opinion may disclose them to the jury only if their probative value in helping the jury evaluate the opinion substantially outweighs their prejudicial effect. While FRE 703 is less frequently cited in Bankruptcy Court opinions, it nonetheless applies. The primary example is when appraisal evidence is based on comparable sales data. That data may not be in admissible form, but can be used because the Rule permits it. However, the facts or data must be of a type reasonably relied upon, a matter requiring proof. The most common use in Bankruptcy Court is when the appraiser has evidence of the price generated by comparable sales from sources he may believe reliable; discussions with real 14

15 estate agents, copies of closing statements, but there is no sponsoring witness to put in the evidence. Unless the court orders otherwise, an expert may state an opinion and give the reasons for it without first testifying to the underlying facts or data. But the expert may be required to disclose those facts or data on cross-examination. This Rule really goes to the method of presentation. If the proponent were required to laboriously detail each of the components of an opinion offered, there could be considerable waste of time. This leads to a question considered below. How can or should a court deal with expert reports required under Federal Rule of Civil Procedure 26? losing party. Finally, FRE 706 permits the Court to appoint an expert and tax the cost against the (a) Appointment Process. On a party s motion or on its own, the court may order the parties to show cause why expert witnesses should not be appointed and may ask the parties to submit nominations. The court may appoint any expert that the parties agree on and any of its own choosing. But the court may only appoint someone who consents to act. (b) Expert s Role. The court must inform the expert of the expert s duties. The court may do so in writing and have a copy filed with the clerk or may do so orally at a conference in which the parties have an opportunity to participate. The expert: (1) must advise the parties of any findings the expert makes; (2) may be deposed by any party; (3) may be called to testify by the court or any party; and (4) may be cross-examined by any party, including the party that called the expert. (c) Compensation. The expert is entitled to a reasonable compensation, as set by the court. The compensation is payable as follows: (1) in a criminal case or in a civil case involving just compensation under the Fifth Amendment, from any funds that are provided by law; and 15

16 (2) in any other civil case, by the parties in the proportion and at the time that the court directs and the compensation is then charged like other costs. (d) Disclosing the Appointment to the Jury. The court may authorize disclosure to the jury that the court appointed the expert. (e) Parties Choice of Their Own Experts. This rule does not limit a party in calling its own experts. This Rule has been invoked in Bankruptcy Court and used when the Court is uncomfortable with either expert or lack of experts. For an interesting discussion of this use, see In re Gainey Corp., 400 BK 576 (Bankr. W.D. Mich. 2008) where the Court took nominations from the bank and Committee and appointed an expert. As you might expect, a fight arose over who pays the expert. The Court simply found it was an appropriate use of cash collateral. It is imperative that the terms of the retention be spelled out if a 706 appointment occurs. An unfortunate example is the appointment of an accounting firm under Rule 706 in a Delaware case. FRE 706 ties to 28 U.S.C and, by itself, only permits a witness fee of $30.00 a day. Imagine the surprise of an accounting firm which presented a bill for $101,000.00, only to be informed that the $30.00 a day cap applied. See In re Philadelphia Mortgage, 930 F2d 306. The appointment of an expert is within the discretion of the Trial Court and is not an obligation. Quiet Tech DC-8, Inc. v. Hurel-DuBois UK Ld., 326 F3d 1333, 1348 (11 th Cir. 2003). EXPERTS AND RULE 26 Rule 26 of the Federal Rules of Civil Procedure contains provisions governing the disclosures required by experts in discovery. Essentially, the Rule requires full disclosures from so-called testifying experts, requires a report from those experts and contains other rules pertaining to non-testifying or consulting experts. Rule 26(a)(2)(A), (B): Disclosure of Expert Testimony. 16

17 (A) In General. In addition to the disclosures required by Rule 26(a)(1), a party must disclose to the other parties the identity of any witness it may use at trial to present evidence under Federal Rule of Evidence 702, 703, or 705; (B) Written Report. Unless otherwise stipulated or ordered by the court, this disclosure must be accompanied by a written report prepared and signed by the witness if the witness is one retained or specially employed to provide expert testimony in the case or one whose duties as the party s employee regularly involve giving expert testimony. The report must contain: (i) (ii) (iii) (iv) (v) (vi) A complete statement of all opinions the witness will express and the basis and reasons for them; The data or other information considered by the witness in forming them; Any exhibits that will be used to summarize or support them; The witness s qualifications, including a list of all publications authored in the previous 10 years; A list of all other cases in which, during the previous four years, the witness testified as an expert at trial or by deposition; and A statement of the compensation to be paid for the study and testimony in the case. Rule 26(b)(5)(e)(2): Expert Witness. For an expert whose report must be disclosed under Rule 26(a)(2)(B), the party s duty to supplement extends both to information included in the report and to information given during the expert s deposition. Any additions or changes to this information must be disclosed by the time the party s pretrial disclosure under Rule 26(a)(3) are due. Rule 26 explicitly is made applicable in bankruptcy adversary proceedings. See Bankruptcy Rule For contested matters where the issue will often arise, Bankruptcy Rule 7026 is made applicable by Bankruptcy Rule As always, practitioners are advised to review 17

18 applicable standing orders, local rules and, in the event the matter is not in your local jurisdiction, consult with local counsel on practice before the particular court. 18