Opinion
20608-18 7097-19 7703-19
12-21-2022
EXCELSIOR AGGREGATES, LLC, BIG ESCAMBIA VENTURES, LLC, TAX MATTERS PARTNER, ET AL., Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Albert G. Lauber Judge
Trial of these cases commenced on December 5, 2022, in Atlanta, Georgia. The cases involve charitable contribution deductions claimed for the donation of conservation easements and a fee simple interest in another property. Pursuant to our Pretrial Scheduling Order, served March 16, 2022, and subsequently modified at the parties' request, expert witnesses were required to be disclosed, and opening expert witness reports were required to be filed with the Court and exchanged with the opposing party, by October 17, 2022.
On November 25, 2022, petitioners filed a Motion in Limine to admit into evidence 13 reports prepared by various professionals during 2012-2014. All of these reports were attached as exhibits to Stipulations of Facts. Petitioners' Motion is moot as to three of the exhibits the Motion covers. Kristina Sorensen, a wildlife habitat expert, authored in 2014 a "Baseline Documentation Report" (Exhibit 148-P), which was recorded in conjunction with the easements at issue. Respondent has not objected to admission into evidence of that report, and Exhibit 148-P has been admitted into evidence. William Noland, a mining expert, authored in 2014 a pair of "Mineral Remoteness Evaluation" reports (Exhibits 134-P and 1010-P). Mr. Noland was timely identified by petitioners as an expert and was recognized as such at trial. He attached to his expert reports, filed October 17, 2022, copies of his 2014 reports, upon which his trial testimony elaborated. Exhibits 134-P and 1010-P have thus been admitted into evidence as components of his expert testimony.
The remaining ten reports include five reports prepared by other mining experts and five appraisals prepared by Clayton M. Weibel, a professional real estate appraiser. All of these reports were prepared in 2014 or earlier and were attached to petitioners' Forms 1065, U.S. Return of Partnership Income, for 2014. These reports have been admitted into evidence as documents that were attached to the partnership tax returns, i.e., as authentic documents that petitioners timely secured and supplied to the IRS. In stipulating to the authenticity of these documents, however, respondent has not stipulated to their accuracy or to the truth of the matters asserted therein.
In their Pretrial Memorandum petitioners list the authors of these ten reports as "fact witnesses" who "may be called to testify." Petitioners did not disclose or identify any of these individuals as expert witnesses by October 17, 2022, the deadline specified for such disclosures in our Pretrial Scheduling Order. Nor did petitioners file or exchange by that date expert witness reports authored by these individuals, as required for expert testimony by Tax Court Rule 143(g). And petitioners have not otherwise attempted to qualify the authors of these ten reports as experts under Federal Rule of Evidence (FRE) 702.
Unless otherwise indicated, all statutory references are to the Internal Revenue Code, Title 26 U.S.C., in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure.
Petitioners' Motion in Limine seeks to have the 2012-2014 reports prepared by these professionals admitted into evidence for their accuracy and the truth of the matters asserted therein. On December 2, 2022, we heard argument on the Motion during a pre-trial hearing conducted remotely via Zoomgov. For the reasons stated during that hearing and more fully explained below, we will deny petitioners' Motion.
I. General Rules for Admitting Expert Testimony
Proceedings in the Tax Court are conducted in accordance with the FRE. See § 7453; Rule 143. Testimony by expert witnesses is governed by FRE 702 and 703. FRE 702 provides that a witness who is "qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of an opinion" if (1) he has "scientific technical, or other specialized knowledge" that will help the trier of fact; (2) "the testimony based on sufficient facts or data"; (3) "the testimony is the product of reliable principles and methods"; and (4) the expert "has reliably applied the principles and methods to the facts of the case."
In the Tax Court, a party who calls an expert witness must cause that witness to prepare a written report, which is served on the opposing party and lodged with the Court before trial. See Rule 143(g)(1). Because the written report serves as the direct testimony of the expert witness, the report must comply with the requirements for expert testimony set forth in FRE 702. See Purple Heart Patient Ctr., Inc. v. Commissioner, T.C. Memo. 2021-38, 121 T.C.M. (CCH) 1260, 1264; Estate of Tanenblatt v. Commissioner, T.C. Memo. 2013-263, 106 T.C.M. (CCH) 579, 581-82. Rule 143(g)(1) accordingly requires that an expert witness report "shall contain" (among other things) the following: (1) a complete statement of all opinions the witness expresses and the basis and reasons for them, (2) the facts or data considered by the witness in forming his or her opinions, and (3) any exhibits used to summarize or support his or her opinions. Rule 143(g)(2) provides that the Court will exclude a witness's testimony altogether if the report fails to comply with the Rule.
II. Analysis
Hearsay evidence is inadmissible unless an exception applies. Fed.R.Evid. 802. A statement is hearsay if the declarant made the statement outside of the current trial or hearing and a party offers the statement to prove the truth of the matter asserted. Fed.R.Evid. 801(c).
The ten reports prepared during 2012-2014 are hearsay because they are out-of-court statements that petitioners seek to have admitted for the truth of the matters asserted therein. See Fed. R. Evid. 801(c). Petitioners have not cited any exception to the hearsay rule that would plausibly allow these reports to come into evidence. During the December 2 pre-trial hearing petitioners suggested that they could call the author of each 2012-2014 report and have that person authenticate the document as a "business record." See Fed. R. Evid. 803(6)(D). But none of these individuals was timely disclosed as an expert and none filed an expert witness report by the deadline set in our Pretrial Order. Allowing these individuals to "adopt" their 2014 reports as "business records," without being qualified as experts, would be an obvious end-run around Rule 143(g) and this Court's expert witness rules.
FRE 701(c) explicitly states that a non-expert may not testify "based on scientific, technical, or other specialized knowledge within the scope of [FRE] 702." This subsection was added in 2000 in an effort to "rein in the admission of expert testimony under the guise of lay opinion." United States v. Henderson, 408 F.3d 1293, 1300 (11th Cir. 2005) (noting that the 2000 amendment was aimed at "eliminat[ing] the risk that the reliability requirements set forth in Rule 702 will be evaded through the simple expedient of proffering an expert in lay witness clothing.")
Petitioners do not dispute that the authors of the ten reports cannot testify as experts under Rule 143(g)(1). However, they characterize these authors as "percipient witnesses" who need not provide expert reports because they were "not retained . . . to provide expert testimony." Petitioners liken each author to a "treating physician," noting that courts in the Eleventh Circuit, to which this case is appealable, allow treating physicians to testify as non-retained experts about a patient's treatment, on the basis of their medical experience, without any requirement for a written report.
Cases dealing with "percipient witnesses" typically involve doctors or other healthcare providers who treated a patient or victim at the time of the illness or injury. See Fed. R. Civ. P. 26(a)(2)(C), Advisory Comm. Note to 2010 amendment ("A witness who is not required to provide a report under Rule 26(a)(2)(B) may both testify as a fact witness and also provide expert testimony under Evidence Rule 702, 703, 705. Frequent examples include physicians or other health professionals . . ."). As the Ninth Circuit has explained, treating physicians "are a species of percipient witness . . . not specially hired to provide expert testimony; rather, they are hired to treat the patient and may testify to and opine on what they saw and did without the necessity of the proponent of the testimony furnishing a written report." Goodman v. Staples The Off. Superstore, LLC, 664 F.3d 817, 819 (9th Cir. 2011).
Treating physicians present "special evidentiary problems that require great care and circumspection by the trial court" because their testimony can go beyond the physician's specific treatment of a patient and digress into matters "not grounded in their own observations." Williams v. Mast Biosurgery USA, Inc., 644 F.3d 1312, 1317 (11th Cir. 2011). Courts have allowed physicians to provide fact testimony based on contemporaneously formed opinions, so long as the testimony is clearly tied to a patient's specific treatment. Ibid. "The admission of that kind of expanded lay testimony rests on the fact that the physician treats the patient, a process involving a detailed examination of the facts of the patient's condition and history." Harbin v. Roundpoint Mortg. Co., No. 2:15-CV-01069-SLB, 2020 U.S. Dist. LEXIS 227588, at *12, 2020 WL 7129933 (N.D. Ala., Dec. 4, 2020). Treating physicians have been permitted to testify as fact witnesses if their testimony recounts their contemporaneous observations ("perceptions") during the course of treatment or if it is offered to explain the physician's decision-making process or the treatment he or she recommended or provided. See Pierre v. Intuitive Surgical, Inc., 476 F.Supp.3d 1260, 1275 (S.D. Fla. 2020) (ruling that a treating physician "may only offer an opinion based on personal observations made while treating the plaintiff").
Professionals outside the healthcare field have occasionally been allowed to testify as "percipient witnesses" if they made contemporaneous observations about a problem and provided a diagnosis. See, e.g., Downey v. Bob's Discount Furniture Holdings, Inc., 633 F.3d 1, 3-4 (1st Cir. 2011) (holding that an exterminator who had inspected the plaintiffs' home for bedbugs following furniture delivery could testify about his contemporaneously formed opinions as to the cause of bedbug infestation without providing an expert report); Architects Collective v. Pucciano & English, Inc., 247 F.Supp. 1322, 1333 (N.D.Ga. 2017) (ruling that an architect could testify as a "percipient witness" where his testimony was based on direct personal knowledge and familiarity with his own copyrighted architectural plans and the defendant's architectural plans); DHI Group Inc. v. Kent, 397 F.Supp.3d 904, 936 (S.D. Tex. 2019) (ruling that an FBI agent who was personally involved in defendant's criminal investigation was a non-retained expert who could testify without an expert report). These cases involved witnesses who made contemporaneous on-site observations about factual issues involved in the litigation, akin to a physician's observations made during the course of treating a patient.
The "percipient witness" cases are inapplicable here for several reasons. First, the mining experts and real estate appraiser who authored the 2012-2014 reports are not remotely similar to treating physicians. These authors made no contemporaneous observations about a physical condition in the course of examining a person. Rather, they drafted abstract documents in the privacy of their offices, using geological, economic, and real estate data, often coupled with complex technical formulas, and elaborating their conclusions as experts in their fields.
Nor is there any policy rationale for allowing these individuals to testify without written reports. Permitting doctors to testify as "percipient witnesses" has been justified on the ground that requiring a physician "to prepare a written report before testifying would take time that he could spend treating his patients and might deter the physician from testifying in litigation." William P. Lynch, Doctoring the Testimony: Treating Physicians, Rule 26, and the Challenges of Causation Testimony, 33 Rev. Litig. 249, 272-73 (2014); see Watson v. United States, 485 F.3d 1100, 1107 (10th Cir. 2007) ("Resources might be diverted from patient care if treating physicians were required to issue expert reports as a precondition to testifying."). The mining experts and appraiser who authored the 2012-2014 reports are professional consultants who make their living drafting such documents. Requiring them to prepare an expert report, for which their client would pay, would not "deter [them] from testifying in litigation."
Finally, cases involving "percipient witnesses" generally involve the question whether a treating physician can testify as a fact witness at trial. See Rangel v. Anderson, 202 F.Supp.3d 1361, 1364 (S.D. Ga. 2016) ("Treating physicians not disclosed as experts are limited to testimony based on personal knowledge and may not testify beyond their treatment of a patient.") Petitioners' Motion does not address the question whether their mining or appraisal experts can testify as fact witnesses at trial. Rather, their Motion is directed solely to documentary exhibits included in Stipulations of Fact. Petitioners seek to have ten hearsay documents prepared 8-10 years ago admitted into evidence for the truth of their contents. The "percipient witness" doctrine is not directed to this scenario.
Petitioners' Motion in Limine would be unconvincing even if it were directed to proposed testimony rather than to historical documents. In their Pretrial Memorandum petitioners disclosed the authors of the 2012-2014 reports as fact witnesses. The courts have held that, where a fact witness's testimony (as here) necessarily involves expert testimony, the witness must be disclosed as an expert as required by FRCP 26(a)(2), even if he played a personal role in the events at issue. See Karum Holdings LLC v. Lowe's Cos., 895 F.3d 944, 951 (7th Cir. 2018) (testimony of corporate officers, who were disclosed as fact witnesses, was excluded because their testimony was expert in nature and they had not been disclosed as "unretained experts" under FRCP 26(a)(2)(C)). It is not permissible to disclose a person as a fact witness and then use that person as an expert witness. See Karum Holdings, 895 F.3d at 951 ("There is a significant distinction between disclosing an individual as a fact witness under [FRCP] 26(a)(1)(A) and disclosing an expert witness under [FRCP] 26(a)(2)."); Musser v. Gentiva Health Servs., 356 F.3d 751, 757 (7th Cir. 2004) (sustaining exclusion of expert testimony from a witness who was identified as a fact rather than an expert witness, reasoning that opposing party could not be made to guess in what capacity the witness was being offered).
Petitioners were perfectly free to call the authors of the 2012-2014 reports as expert witnesses in these cases. Had petitioners done that, those professionals could have explained the contents of their earlier reports and elaborated upon those reports as they saw fit. Mr. Noland, one of those authors, did exactly that: He submitted timely expert witness reports, attached his 2014 reports to them, and elaborated upon certain of his prior conclusions.
Petitioners could have called as experts the other professionals who prepared the 2012-2014 reports-subject to the Rule 143(g) requirements for expert testimony-and asked them to do the same. Petitioners declined to do this. Allowing them to submit the 2012-2014 reports as prior testimony of "percipient witnesses" would enable them to evade our well-established standards governing expert witness reports and secure the admission of "expert testimony under the guise of lay opinion." See Henderson, 408 F.3d at 1300 (citing Fed. R. Evid., 701, Advisory Comm. Note to 2000 amendment). On petitioners' theory, any expert who had previously worked on a case could have his prior work admitted into evidence, without being disclosed as an expert or meeting the requirements of Rule 143(g), on the theory that he was a "percipient witness." Petitioners have cited no authority for that proposition, and we know of none.
For these reasons and those appearing more fully in the transcript of the pre-trial hearing, it is
ORDERED that petitioner's Motion in Limine to Admit Reports of Petitioner's Percipient Witnesses, filed November 25, 2022, is denied.