Choose Expertly: Expert Witness Was No Expert

Stowe v. Stowe, ___ N.C. App. ___ (2020).

In North Carolina, Equitable Distribution (ED) is one of the mechanisms by which former spouses separate their personal and real property. What if the during the marriage one party opens a business? Unlike other forms of property, businesses have reputations that are carefully cultivated, patrons, and other intangibles that make the business more valuable than what can be accounted for on paper. Courts call this factor Goodwill. An expert witness may testify as to how to arrive at a value for Goodwill. In the case below, we explore how one court handled expert witnesses for Goodwill for an insurance company.

(a) Facts: Plaintiff wife and Defendant husband separated in September of 2017. During the course of their marriage, the parties had opened and operated an insurance agency (Madison), registered in North Carolina as a Sub-S Corporation. Madison was an independent insurance agency that sold over 30 vendor’s policies, but roughly 30% of the business was selling Allstate. Madison became subject to ED in 2018, and as part of the evidence Plaintiff’s expert witness in valuation had assigned to Madison a value of $532,985.00 in Goodwill. Defendant tendered Tom Franks as an expert witness in certified public accounting, business valuation, and forensic accounting. He testified that he had experience in the insurance business because he had owned an insurance agency for ten years. But he only had minimal business valuation experience, only having completed two valuations for insurance agencies. Defendant’s expert’s valuation was not used. Along with many other issues, Defendant appealed the trial court’s refusal to accept his expert witness.

 

(b) Issue: Did the trial court err in refusing to accept Defendant’s witness as an expert in the field of business valuation?

 

(c) Holding: No.

 

(d) Rationale: Defendant wanted Franks as an expert in business valuations. Plaintiff requested a voir dire, questioning Franks’ qualifications as such an expert. They asked how many continuing educations course he took in business valuation, if he had specializations, certifications, or accreditations; Franks did not. In North Carolina, the proffered expert witness must have enough expertise to be in a better position that the trier of fact. Education and certifications can play a role in determining the witnesses’ expertise. The Court found that the trial court did not abuse their discretion when they decided not to admit Franks as an expert in business valuations.

 

(e) Lessons and Observations:

a. Pick an expert that will be admitted as an expert. While the expert that Defendant chose was admitted as an expert in certified public accounting, he was not adequately educated or specialized enough for business valuations, which is a separate field from accounting. That field has its own certifications, specializations, and accreditations that help quantify an individual’s level of expertise to qualify as an expert. This may have been a costly mistake in the case, as Defendant’s expert was unable to testify as to his opinion on the value of the business, and the value of the Goodwill of the business.