Changes were proposed last year to address the idea – supported by a study – that evidence standards are inconsistently applied by federal courts. The Federal Judiciary’s Advisory Committee on Evidence Rules approved a proposal to amend Rule 702, part of the Federal Rules of Evidence that covers testimony by expert witnesses, including those who testify in valuation litigation.

In effect since 2000, Rule 702 states that “a witness who is qualified as an expert by knowledge, skill, experience, training or education may testify in the form of an opinion” by meeting several criteria. The baseline rules regarding expert qualification were established by two court cases: Daubert v. Merrell Dow Pharmaceuticals and Kumho Tire v. Carmichael.

First, the “proponent of the expert testimony must show admissibility of the testimony by a preponderance of the evidence.” Expressly adding “preponderance of the evidence” as the standard clarifies that proponents have the burden of admissibility—they must actively demonstrate admissibility—and as gatekeepers, judges (not juries) must decide on admissibility based on this standard.

Second, the expert’s opinion must “reflect a reliable application of the principles and methods” relative to the facts of the case. This change dictates that judges determine whether the expert’s opinion is properly derived.

A study by the nonprofit Lawyers for Civil Justice (LCJ) reviewed 1,059 federal court decisions in 2020 regarding expert testimony and found that only 35 percent of the opinions applied the preponderance of evidence standard. In 65 percent of the cases, the judge didn’t mention the standard at all. The LCJ also found that in 135 decisions, the court indicated a presumption of admissibility, but no such presumption exists.

The amended Rule 702 is expected to take effect on December 1, 2023, following the public comment period, which ended in February 2022.

Expert testimony can be a critical element in business valuation. The team at Dembo Jones has the knowledge and relationships for identifying a compelling and qualified expert. We’re ready to help you add this vital resource.