Opinion
14273-17
11-07-2022
BUCKELEW FARM, LLC F.K.A. BIG K FARMS LLC, BIG K LLC, TAX MATTERS PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Christian N. Weiler Judge
Trial for this case commenced on October 17, 2022, at a special session of the Court in Atlanta, Georgia. This case concerns a syndicated conservation easement transaction and various penalties. Respondent notes that "[o]ne of the main issues for trial is the proper valuation of the subject property."
On September 16, 2022, petitioner filed a Motion for Leave to File Report (motion for leave) and lodged a single report prepared by Belinda Sward (Ms. Sward) of Strategic Solutions Alliance. In its motion for leave, petitioner stated that it "may introduce testimony from a number of percipient expert witnesses i.e., individuals who have been not 'retained or specially employed to provide expert testimony in this case' . . . but who did opine about the various aspects of the conservation easement or real property at issue during the pertinent time period."
On September 16, 2022, respondent filed a Motion for Leave to File Report and lodged a single report prepared by Zach E. Ryan (Mr. Ryan) of Zach Ryan Appraisal Services, Inc. Additionally, on September 16, 2022, respondent filed a Motion for Leave to File Report and lodged a single report prepared by Raymond H. Krasinski (Mr. Krasinski), a senior appraiser with the Internal Revenue Service, Large Business & International.
On September 30, 2022, respondent filed two Motions in Limine. In his first Motion in Limine (Dkt. No. 212), respondent moved pursuant to Rules 50 and 143(g) and Rules 401, 402, 403, and 702 of the Federal Rules of Evidence, that the Court enter an order excluding the document submitted by petitioner purporting to be the expert witness report of Ms. Sward and excluding the testimony of Ms. Sward as the purported expert report does not include the data and exhibits used to summarize or support the opinions set forth in the report in contravention of Rules 143(g)(1)(B) and 143(g)(1)(C). Respondent further averred that any data Ms. Sward relied upon is unreliable and inadmissible.
Unless otherwise indicated, all Rule references are to the Tax Court Rules of Practice and Procedure.
In his second Motion in Limine (Dkt. No. 213), respondent moved pursuant to Rules 50 and 143(g) and Federal Rule of Evidence 702, that the Court enter an order excluding the appraisal by Dale W. Hayter, Jr. (Mr. Hayter) insofar as it purports to be an expert witness report and any testimony of Mr. Hayter insofar as petitioner proffers his testimony to be that of an expert witness. Respondent argued that petitioner failed to comply with Rule 143(g) by not disclosing that it intended to call Mr. Hayter as an expert witness and by failing to provide to respondent and lodge with this Court a copy of his intended testimony.
On October 5, 2022, respondent filed an additional Motion in Limine. In this third Motion in Limine (Dkt. No. 216), respondent moved pursuant to Rules 50 and 143(g) and Rule 702 of the Federal Rules of Evidence, that the Court enter an order excluding the testimony of Mr. Jim Clower, Ms. Karin Heiman, Mr. Spencer Tunnell, and Mr. Mark Reavis (other percipient experts) insofar as petitioner proffers the testimony to be that of an expert witness. Prior to trial, petitioner informed the Court and respondent that it no longer plans to call Mr. Clower or Ms. Heiman as a witness and that it will only call Mr. Tunnel to testify that he created a land plan showing the proposed community being considered for development. Petitioner also informed the Court that it would not call Mr. Reavis since respondent planned to call him as a witness in their case in chief.
In written responses to the Motions in Limine filed on October 11, 2022, petitioner forcefully disagreed with respondent's contention that Ms. Sward's report fails to comply with Rule 143(g)(1)(B) by "not explain[ing] where she obtained any market intelligence or how it has been used to reach her conclusions" since "Ms. Sward obtained this market intelligence through her own efforts, to which she can testify." With respect to Mr. Hayter, petitioner contended that he is not a retained witness as contemplated by Rule 143(g), admission of a contemporaneous appraisal report into evidence is standard practice by this Court, and respondent is not prejudiced by the appraisal's admission into evidence. Petitioner argued that the other percipient experts be allowed to testify for similar reasons as Mr. Hayter.
At the start of trial, arguments were heard on the Motions in Limine. For the reasons stated at trial and more fully explained below, we deny all three of respondent's Motions in Limine.
I. Legal Background
Tax Court proceedings are conducted in accordance with the Federal Rules of Evidence. See I.R.C. § 7453; Rule 143(a). Expert testimony is admissible under Federal Rule of Evidence 702 if it assists the Court in understanding the evidence or determining a fact in issue. See, e.g., Sunoco, Inc.& Subs. v. Commissioner, 118 T.C. 181, 183 (2002). The admissibility of expert witness testimony is within the discretion of the trial judge. Boltar, LLC v. Commissioner, 136 T.C. 326 (2011); Fed.R.Evid. 104. In Daubert v. Merrell Dow Pharms., Inc., the Supreme Court stressed the trial court's role as "gatekeeper" in excluding, at the outset, evidence that is unreliable or irrelevant. 509 U.S. 579, 592-93 (1993). The reliability and relevance standards are embodied in Federal Rule of Evidence 702, and they apply equally to expert testimony that is not "scientific." Kumho Tire Co. v. Carmichael, 526 U.S. 137, 148 (1999). Federal Rule of Evidence 702 states:
A witness who is qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of an opinion or otherwise if: (a) the expert's scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue; (b) the testimony is based on sufficient facts or data; (c) the testimony is the product of reliable principles and methods; and (d) the expert has reliably applied the principles and methods to the facts of the case.
The party who calls an expert witness shall cause that witness to prepare a written report, which must be served on the opposing party and lodged with the Court before trial. See Rule 143(g)(1). Rule 143(g)(1) provides that an expert report shall contain, among other things, a complete statement of all opinions the witness expresses and the basis and reasons for them, the facts or data considered by the witness in forming them, and any exhibits used to summarize or support them. Rule 143(g)(2) provides that an expert witness's testimony will be excluded altogether for failure to comply with these provisions, unless the failure is shown to be due to good cause and unless the failure does not unduly prejudice the opposing party, such as by significantly impairing the opposing party's ability to cross-examine the expert or by denying the opposing part the reasonable opportunity to obtain evidence in rebuttal to the expert witness's testimony.
Rule 143(g)(1) is modeled after and contains identical language found in Federal Rule of Civil Procedure 26(a)(2)(B). Furthermore, Rule 1 notes how we are to give weight to the Federal Rules of Civil Procedure in instances where there is no applicable rule of procedure. If a party fails to properly disclose an expert witness under Federal Rule of Civil Procedure 26(a), the party may not use the witness "unless the failure was substantially justified or is harmless" Fed.R.Civ.P. 37(c)(1). Furthermore, Federal Rule of Civil Procedure 37 affords trial courts "discretion to decide how best to respond to a litigant's failure to make a required disclosure under [Federal] Rule [of Civil Procedure] 26. See Fed. R. Civ. P. 37(c)(1), Taylor v. Mentor Worldwide LLC, 940 F.3d 582, 593 (11th Cir. 2019).
The U.S. Court of Appeals for the Eleventh Circuit, to which this case is appealable, has determined factors relevant to the determination of whether exclusion of a witness is warranted to include the party's explanation for the failure to disclose the witness, the importance of the testimony, and the prejudice to the opposing party if the witness is allowed to testify. Romero v. Drummond Co. Inc., 552 F.3d 1303, 1321 (11th Cir. 2008); see also, Izquierdo v. Certain Underwriters at Lloyd's London, 2021 WL 3197008, at *4 (11th Cir. 2021).
In evaluating the admissibility requirements of Federal Rule of Evidence 702, the Supreme Court has held that an expert's opinion must be relevant and reliable, rather than based on subjective belief or unsupported speculation. Daubert., 509 U.S. at 590; see also Kumho Tire Co., 526 U.S. at 141. Although the factual basis of an expert opinion generally goes to the credibility of the testimony and not its admissibility, an expert's opinion must be sufficiently supported, relevant, reliable, and more than "wholly speculative opinion," "patent speculation," "pure conjecture," or "vague theorizing based upon general principles" to be admitted. Klingenberg v. Vulcan Ladder USA, LLC, 936 F.3d 824, 829-30 (8th Cir. 2019) (internal citations omitted).
Moreover, federal courts are to acknowledge the differences between percipient witnesses who happen to be experts from those experts who, without prior knowledge of the facts giving rise to litigation, are recruited to provide expert opinion testimony. See Downey v. Bob's Disc. Furniture Holdings, Inc., 633 F.3d 1, 6 (1st Cir. 2011) (interpreting Federal Rule of Civil Procedure 26(a)(2)(B)).
The Eleventh Circuit, in an unreported decision, has also addressed the issues raised by respondent. In a matter involving the testimony of a medical examiner that performed an autopsy, the Eleventh Circuit held that disclosure requirement of Rule 26(a)(2)(B) only "appl[ies] to witnesses 'retained or specially employed to provide expert testimony in the case.'" See Greer v. Ivey, 2022 WL 2914471, at *4 (11th Cir. 2022) (citing Fed.R.Civ.P. 26(a)(2)(B)). As a result, in Greer, the Eleventh Circuit upheld the district court's decision to permit a medical examiner "who had not submitted an expert's report" and "was neither a retained expert nor specifically employed within the meaning of the rule" to testify about an "autopsy report [produced] in the normal course of his medical examiner job duties, not specifically for th[e] litigation." See id. Further, the Court held that the medical examiner was not a retained or specially hired expert witness even though he "formed his opinion when he was testifying during th[e] litigation, based on material produced or gathered before th[e] litigation." See id. at 5.
II. Analysis
We reviewed petitioner's expert report prepared by Ms. Sward in addition to respondent's Motions in Limine. With respect to Ms. Sward's expert report, we are neither persuaded that it is irrelevant, unhelpful to the trier of fact, or unreliable, nor do we agree with respondent that Ms. Sward's report "does not satisfy the express requirements of Rule 143(g)." Whether or not (and to what extent) Ms. Sward's report and testimony rely on data "collected . . . after 2013, the tax year at issue," was an issue properly addressed at trial. Since this issue effected the credibility of Ms. Sward's expert report and the extent to which it is "supported by relevant and reliable data and reflect[s] sound and objective reasoning," we were not inclined to discount Ms. Sward's report or testimony without first giving her the opportunity to be heard. See Schmidt v. Commissioner, T.C. Memo. 2014-159, at *10.
Similarly, we were not inclined to exclude Mr. Hayter's appraisal nor limit his testimony prior to trial. It should be noted that respondent had been in possession of Mr. Hayter's appraisal of the subject property since Big K Farms LLC filed its 2013 Form 1065, U.S. Return of Partnership Income, and that the appraisal is included in the parties' First Stipulation of Facts filed on September 30, 2022. Moreover, Mr. Hayter's 2013 appraisal of the subject property is fundamentally important to petitioner's case since the fair market value of the conservation easement is at issue.
We fail to see respondent's prejudice by allowing Mr. Hayter's testimony and admission of his appraisal and do not find that such actions would significantly impair respondent's ability to cross-examine him. Nor does our ruling preclude respondent a reasonable opportunity to obtain evidence in rebuttal to Mr. Hayter's expert witness testimony. Further with respect to the issue of rebuttal, respondent lodged an expert witness report from Mr. Krasinski consisting of approximately 800 pages rebutting the appraisal of Mr. Hayter.
Based on discussions with the parties, trial is expected to take up to three weeks, with only the first week being set and scheduled at this point. Accordingly, respondent will have ample time to prepare for any necessary rebuttal evidence or testimony to either Mr. Hayter's testimony or his appraisal.
Mr. Hayter was not retained or specifically employed for the purpose of offering expert opinion testimony. Downey, 633 F.3d at 6. Rather, Mr. Hayter was a key actor within the occurrences of petitioner's position taken on its tax return giving rise to the litigation. Put another way, his opinion does not arise from his enlistment as an expert, but rather, from his ground level involvement in the events giving rise to the instant case. Mr. Hayter prepared his 2013 appraisal in the normal course of his job duties as an appraiser, "not specifically for this litigation." As well stated by the U.S. Court of Appeals for the First Circuit, he is an "actor with regard to the occurrences from which the tapestry of the lawsuit was woven." Downey, 633 F.3d at 6.
Since we find that Mr. Hayter was not retained or specifically employed to provide expert witness testimony, he was not required to provide a written report, and the disclosure by petitioner must simply state the subject matter of Mr. Hayter's expected testimony and a summary of the facts and opinions to which he is expected to testify. See Fed. R. Civ. P. 26(a)(2)(C). Petitioner satisfied this requirement by listing Mr. Hatyer in its pretrial memorandum filed October 3, 2022, as a "may call witness" and by noting that his testimony will pertain to the "preparation of his appraisal report dated January 31, 2013," which was "attached to the [p]artnership's 2013 Form 1065."
Additionally, respondent's reliance on Estate of Tanenblatt v. Commissioner, T.C. Memo. 2013-263, is misplaced. The Estate of Tanenblatt is distinguishable in that the case neither dealt with the issue of percipient witnesses nor the offering of appraisals attached to a petitioner's originally filed tax return.
As with any expert witness, the Court will limit Mr. Hayter's testimony to his opinion(s) found in his written appraisal and to other percipient witness testimony. Rule 143(g)(2). Moreover, we remind the parties that this Court "may accept or reject the findings and conclusions of these experts, according to our own judgement." See Gerdau Macsteel, Inc. v. Commissioner, 139 T.C. 67, 158 (2012). And "we may be selective in deciding what part (if any) of their opinions to accept." See id.
Lastly, we denied respondent's third Motion in Limine concerning the other percipient expert witnesses, for the same reasons we denied respondent's Motion in Limine concerning Mr. Hayter to the extent that their testimony was being offered as expert testimony. See Downey, 633 F.3d at 6. At trial, Mr. Tunnel's testimony was that of a fact witness, and respondent's motion intending to limit his testimony before trial was premature and unwarranted in this case.
III. Conclusion
In summary, "[e]ach case . . . will involve exercise of the discretion of the trial judge to admit or exclude evidence," which is intended to "increase the efficiency of trials and the objectivity of judgments." Boltar, LLC, 136 T.C. at 335-36. Therefore, due to "the importance of the issues raised and the substantial effect on the case of eliminating petitioner's primary evidence," this Court does not believe that either goal is furthered by granting the Motions in Limine. Id. at 333.
Upon due consideration of the foregoing, and for the reasons appearing in the transcript of the proceedings, it is hereby
ORDERED that respondent's Motions in Limine (Dkt. Nos. 212 and 213) filed on September 30, 2022, and respondent's Motion in Limine (Dkt. No. 216) filed October 5, 2022, are denied.