Akerly Law

resources

Publications and speeches

Can A Member Of An LLC Testify To The Value Of His/Her Ownership Interest?

In general, "an owner is competent to give his opinion on the value of his property." Kestenbaum v. Falstaff Brewing Corporation, 514 F.2d 690, 698-99 (5th Cir. 1975).  However, such testimony cannot be based on naked conjecture or solely speculative factors. Cf. Dietz v. Consolidated Oil & Gas, Inc., 643 F.2d 1088, 1094 (5th Cir. 1981) (approving owner's testimony on the value of his crops given his personal knowledge and articulated basis for determining value). See also King v. Ames, 179 F.3d 370, 376 (5th Cir. 1999) (permitting plaintiff to give valuation of her father (Freddie King)’s name and likeness); see also Kestenbaum, 514 F.2d at 698-99 (permitting an owner to testify about the “good will” value of his distributorship forms).

[Owner]’s estimation of the sum of the above valuation elements will be admissible since under both [the present or new Federal Rules of Evidence] an owner is competent to give his opinion on the value of his property.  This rule, established by the weight of present authority, [e.g., Berkshire Mutual Ins. Co. v. Moffett, 378 F.2d 1007 (5th Cir. 1967); Lee Shops, Inc. v. Schatten-Cypress Co., 350 F.2d 12 (4th Cir.), cert. denied, 382 U.S. 980 (1965); Hartford Fire Ins. Co. v. Cagle, 249 F.2d 241 (10th Cir. 1957); Lawton v. Strong, 249 F.2d 299, 302 (6th Cir. 1957); Universal Pictures Co. v. Harold Lloyd Corp., 162 F.2d 354 (9th Cir. 1947) ] has now been codified in Rule 702 of the new Federal Rules of Evidence.  Rule 702 provides: "a witness qualified as an expert by knowledge, skill, experience, training, or education, may testify [to specialized knowledge] in the form of opinion or otherwise."

An owner's opinion on value, however, is subject to attack through cross-examination or independent evidence refuting the owner's estimate [Hillin v. Hagler, 286 S.W.2d 661 (Tex.Civ.App.1956)], with the jury as fact-finder shouldering the responsibility of judging the credibility of the witness, resolving the conflicting evidence, and assessing the weight of opinion testimony. Terrell, supra at 24; Hobart Brothers Co. v. Malcolm T. Gilliland, Inc., supra at 903.  Under certain circumstances, however, for instance where the owner bases his estimation solely on speculative factors, the owner's testimony may be of such minimal probative force to warrant a judge's refusal even to submit the issue to the jury. Klapmeier v. Telecheck International, Inc., 482 F.2d 247 (8th Cir. 1973); United States v. Nall, 437 F.2d 1177, 1187 (5th Cir. 1971).

Kestenbaum, 514 F.2d at 698-99.

Both King and Kestenbaum concerned “intangible property interest which is not susceptible of proof with mathematical exactitude.” King, 179 F.3d at 376-77.  There does not appear to be any cases in which an owner/member testifies about the value of ownership/membership interest in federal court. 

Rule 701 of the Federal Rules of Evidence permits opinion testimony, as opposed to expert testimony, with the qualification that the testimony is:

  1. Rationally based on the witness’s perception;

  2. Helpful to clearly understanding the witness’s testimony or to determining a fact in issue; and

  3. Not based on scientific, technical, or other specialized knowledge within the scope of Rule 702.

Fed. R. Evid. 701; see also id. cmt. (“For example, most courts have permitted the owner or officer of a business to testify to the value or projected profits of the business, without the necessity of qualifying the witness as an accountant, appraiser, or similar expert. See, e.g., Lightning Lube, Inc. v. Witco Corp. 4 F.3d 1153 (3d Cir. 1993) (no abuse of discretion in permitting the plaintiff's owner to give lay opinion testimony as to damages, as it was based on his knowledge and participation in the day-to-day affairs of the business).  Such opinion testimony is admitted not because of experience, training or specialized knowledge within the realm of an expert, but because of the particularized knowledge that the witness has by virtue of his or her position in the business.  The amendment does not purport to change this analysis. Similarly, courts have permitted lay witnesses to testify that a substance appeared to be a narcotic, so long as a foundation of familiarity with the substance is established. See, e.g., United States v. Westbrook, 896 F.2d 330 (8th Cir. 1990) (two lay witnesses who were heavy amphetamine users were properly permitted to testify that a substance was amphetamine; but it was error to permit another witness to make such an identification where she had no experience with amphetamines).  Such testimony is not based on specialized knowledge within the scope of Rule 702, but rather is based upon a layperson's personal knowledge.  If, however, that witness were to describe how a narcotic was manufactured, or to describe the intricate workings of a narcotic distribution network, then the witness would have to qualify as an expert under Rule 702. United States v. Figueroa-Lopez, supra.”).  In Texas state court, that doctrine is established under the so called, “Property Owner Rule” articulated in Reid Rd. Mun. Util. Dist. No. 2 v. Speedy Stop Food Stores, Ltd., 337 S.W.3d 846 (Tex. 2011).

Sarah Grace Chastain