Lead Opinion
OPINION
This case is before the Court on the motion for reconsideration of our opinion,
We assume the following facts, as submitted by the parties, for purposes of this ruling. Prior to 1981, the Chicago Bears (hereinafter Old Bears) was an Illinois
In December 1981, the Old Bears was recapitalized and reorganized into a Delaware corporation and named The Chicago Bears Football Club, Inc. (hereinafter Chicago Bears or Bears). Common stock of the Old Bears was exchanged pro rata for stock in the reorganized Chicago Bears. Halas, Sr., received class B common stock equal to 49.35 percent ownership of the Bears. The Estate of Halas, Jr., and Virginia McCaskey each received 183 shares of class C common stock and class D common stock respectively equal to 19.68 percent ownership of the Bears. The unrelated shareholders received class A common stock equal to 11.29 percent of the Bears. Each of the four classes of common stock has equal voting rights and different liquidation and dividend rights. Each class of stock receives a different share of a residual dividend pool. Classes D and C stock share the same dividend priorities, the same number of shares outstanding, and the same liquidation and dissolution rights. However, class C common stock is entitled to a per-share annual cash dividend of $1,256. Class D common stock is entitled to a per-share annual cash dividend of $612.
Immediately after the recapitalization, Halas, Sr., transferred his class B common stock in the Bears to a newly organized Delaware corporation, the Halas Family Holding Co. (HFHC), in exchange for 7,143 shares of preferred stock with a stated value of $7,143,000, and a $1 million debenture bearing an interest rate of 17.5 percent due in the year 2001. HFHC immediately issued 9,100 shares of its common stock to 13 separate corporations, each wholly owned by one of 13 trusts organized and maintained for the benefit of Halas, Sr.’s 13 grandchildren. Eleven of the grandchildren are Virginia McCaskey’s children, and two are Halas, Jr.’s children. A few days after these transactions,
As a consequence of these transactions, all of the outstanding shares of Chicago Bears class B common stock were held by HFHC, all of the outstanding shares of Bears class C common stock were held by the Estate of Halas, Jr., and all of the outstanding shares of the Bears class D common stock were held by MFHC.
Reorganized Chicago Bears Common Stock Ownership
Number of Percentage Class of shares of ownership stock
HFHC 459 49.35% B
MFHC 183 19.68 D
Estate of Halas, Jr. 183 19.68 C
Other Shareholders 105 11.29 A
930 100.00
Halas, Sr., died in 1983. Virginia McCaskey and Michael Notaro were duly authorized as executors of his estate.
Pursuant to the Bears’ certificate of incorporation, executed on October 19, 1981, the Bears was granted a right to purchase any shares that a shareholder proposed to transfer to parties other than existing shareholders, their spouses, descendants, or the trustee of a trust for the benefit of the same. In 1988, the Bears purchased shares of its class C common stock from the Estate of Halas, Jr. In accordance with the certificate of incorporation, the stock was appraised by three valuation experts chosen in the following manner: one was selected by the Chicago Bears, one was selected by the estate, and the third appraiser was chosen
On June 1, 1988, the treasurer of the Bears, Theodore P. Phillips, and Ellen Cleary of the accounting firm Price, Waterhouse & Co. met with Louis Paone of Willamette to assist Mr. Paone in his efforts to assign a fair market value to the Estate of Halas, Jr.’s class C common stock in the Bears as of the valuation date of May 31, 1988. Prior to this meeting, Mr. Paone had been given background financial information, including the Bears’ certified financial statements for the fiscal years ending February 29, 1984 through February 29, 1988. The conversation at the meeting involved a wide-ranging discussion of the Bears’ finances in general, the Bears’ financial statements, and the general financial operation of National Football League teams.
By separate statutory notices of deficiency, respondent determined deficiencies in estate tax for Halas, Sr., and in gift tax for Virginia McCaskey. Subsequent to argument on petitioner’s motion in limine, respondent also issued separate statutory notices of deficiency to the HFHC common stockholders and to the MFHC common stockholders as transferees of the gifts from Halas, Sr. and Virginia McCaskey to HFHC and MFHC respectively.
In response to the notices of deficiency, the three common shareholders of HFHC — MFHC, Stephen Halas, Inc., and Christine Halas, Inc. — filed separate petitions on May 15, 1989. The common shareholders of MFHC, the 11 corporations owned by trusts maintained for the benefit of Virginia McCaskey’s children, filed a single petition on June 30, 1989. Virginia McCaskey filed a petition on September 6, 1989.
Respondent seeks to use Willamette as its expert witness to appraise the fair market value of shares of HFHC as of the date of Halas, Sr.’s death. The primary assets of HFHC as of the valuation date were the shares of class B Bears common stock and the interest in the partnership formed to construct and own the skyboxes at Soldiers Field. In Estate of Halas v. Commissioner,
Motions in limine to disqualify Willamette as respondent’s expert witness were filed by the five new petitioners. Subsequently, all six cases were consolidated for trial. Petitioner filed this motion for reconsideration of our denial of petitioner’s motion in limine to disqualify Willamette as respondent’s expert witness in Estate of Halas v. Commissioner,
The only issue before the Court is whether to disqualify respondent’s expert witness. We note that the granting of a motion for reconsideration pursuant to Rule 161 rests within the discretion of the Court. Vaughn v. Commissioner,
In deciding whether to grant or deny the motion before us we apply the rules of evidence applicable to trials without a jury in the U.S. District Court for the District of Columbia. Thus, the Federal Rules of Evidence govern. In addition, to the extent that they may be appropriate, the rules of evidence contained in the Federal Rules of Civil Procedure will apply. Rule 143(a).
In Estate of Halas v. Commissioner,
Petitioners contend that the filing of the five other petitions involving related gift tax issues results in a
Petitioners argue that a confidential relationship between appraiser and client must be protected, noting that the proper inquiry is what confidential information an expert appraiser has obtained concerning the property to be valued. This argument invokes two distinct legal theories: conflict of interest and privileged communication. In our prior opinion, we considered and rejected petitioner’s claim that Willamette had acquired confidential information in the course of its appraisal for the Estate of Halas, Jr., and the Bears, resulting in a conflict of interest if Willamette were to testify for respondent.
We further note that there is no recognized testimonial privilege between appraisers and their clients. Testimonial privileges “contravene the fundamental principle that ‘the
Public policies underlying the privilege rules determine which professional relationships ought to be privileged. Federal courts have recognized privileges to protect communications made within the context of various professional relationships such as that of attorney and client, physician and patient, clergyman and penitent. E.g., Fisher v. United States,
(1) The communications must originate in a confidence that they will not be disclosed.
(2) This element of confidentiality must be essential to the full and satisfactory maintenance of the relation between the parties.
(3) The relation must be one which in the opinion of the community ought to be sedulously fostered.
(4) The injury that would inure to the relation by the disclosure of the communications must be greater than the benefit thereby gained for the correct disposal of litigation.
[8 J.Wigmore, Evidence, sec. 2285 (McNaughton rev. 1961); emphasis in original; footnote reference omitted.]
None of these well-established policy reasons support petitioners’ contention that the relationship between an appraiser and its clients should be regarded as a privileged or confidential one.
Petitioners assert that a professional appraiser is analogous to an attorney. Contrary to petitioners’ assertions, we
In an adversarial system of justice, the function of an attorney is to persuade a judge and jury to uphold his client’s position. An attorney’s undivided loyalty to his client is a prerequisite to effective and ethical advocacy. In sharp contrast, the ethical rules applicable to appraisers strictly forbid any form of client advocacy. Section 7.5, The Principles of Appraisal Practice and Code of Ethics, promulgated by the American Society of Appraisers (June 30, 1968) (hereinafter Appraisers’ Code), condemns advocacy as “unethical and unprofessional” and adverse to “the establishment and maintenance of trust and confidence in the results of professional appraisal practice.” Moreover, “advocacy” as proscribed in section 7.5, Appraisers’ Code, is defined quite broadly:
If an appraiser, in the writing of a report or in giving an exposition of it before third parties or in giving testimony in a court action, suppresses or minimizes any facts, data, or opinions which, if fully stated, might militate against the accomplishment of his client’s objective or, if he adds any irrelevant data or unwarranted favorable opinions or places an improper emphasis on any relevant facts for the purpose of aiding his client in accomplishing his objective, he is, in the opinion of the Society, an advocate. * * *
We note that appraisers who serve as expert witnesses have occasionally violated the above ethical rules by becoming advocates for their clients.
An appraiser is barred from presenting facts in a manner calculated to be favorable to his client’s position. Not only does the appraiser have “every obligation to avoid giving a false figure,” but the “appraiser’s primary obligation to his client is to reach complete, accurate, and pertinent conclusions and numerical results regardless of the client’s wishes or instructions in this regard.” Secs. 3.3, 4, Appraisers’ Code. Section 2.2, Appraisers’ Code, describes the level of accuracy and objectivity an appraiser must strive for in the appraisal; the numerical result is to be:
objective and unrelated to the desires, wishes, or needs of the client who engages the appraiser to perform the work. The amount of this figure is as independent of what someone desires it to be as a physicist’s measurement of the melting point of lead or an accountant’s statement of the amount of net profits of a corporation. All the principles of appraisal ethics stem from the central fact. [Sec. 2.2, Appraisers’ Code.]
An appraiser has a duty to the Court that exceeds his duty to his client. An appraisal may not:
suppress any facts, data, or opinions which are adverse to the case his client is trying to establish; or to over-emphasize any facts, data, or opinions which are favorable to his client’s case * * * . It is the appraiser’s obligation to present the data, analysis, and value without bias, regardless of the effect of such unbiased presentation on his client’s case. [Sec. 4.3, Appraisers’ Code.]
Thus, if Willamette were to be used as an expert by either party in this case, under the Appraisers’ Code, its testimony should be essentially the same.
Appraisers’ duty to the general public as a third party beneficiary of their work is even greater than their duty to private third parties or their clients. Sec. 3.6, Appraisers’ Code. Section 3.7, Appraisers’ Code, states that,
Since the general public welfare is often involved in the execution of valuation assignments, the appraiser has an obligation and responsibility to the general public that supersedes the appraiser’s obligation to his client.
The appraiser’s duty closely corresponds to the public duty of an auditor or certified public accountant. In United
We are not persuaded that the integrity of property valuation will suffer in the absence of a testimonial privilege for appraisers’ clients. To the contrary, such a privilege might encourage adversarial or result-oriented tendencies. We observe approvingly that, in the event an appraiser is denied access to pertinent data, either by the client or some other party, the appraiser may, at his option, properly decline to carry out the assignment. Sec. 6.6, Appraisers’ Code. Section 6.6, Appraisers’ Code, also states that an appraiser must cease the assignment if “he considers such data essential to the making of a valid appraisal.”
In light of these stringent code requirements, we find that the appraiser’s obligation to serve the public interest assures that the integrity of property valuations will be preserved, without the need for a testimonial privilege assertible by an appraiser’s clients.
For all of the above reasons, we must deny petitioners’ motion to reconsider and vacate our denial of the motion to disqualify Willamette as respondent’s expert witness. For the same reasons, the five most recently filed motions in limine to disqualify Willamette are also denied.
An appropriate order will he issued.
The Principles of Appraisal Practice and Code of Ethics (promulgated by the American Society of Appraisers) Authorized June 30, 1968, reprinted 1988
2.2 Objective Character of the Results of an Appraisal Underaking
The primary objective of a monetary appraisal, is the determination of a numerical result, either as a range of most probable point magnitude — the dollar amount of a value, the dollar amount of an estimated cost, the dollar amount of an estimated earning power. This numerical result is objective and unrelated to the desires, wishes, or needs of the client who engages the appraiser to perform the work. The amount of this figure is as independent of what someone desires it to be as a physicist’s measurement of the melting point of lead or an accountant’s statement of the amount of net profits of a corporation. All the principles of appraisal ethics stem from the central fact.
3.3 Appraiser’s Obligation to Avoid Giving a False Numerical Result
Obviously, the appraiser has every obligation to avoid giving a false figure. The numerical result of an appraisal could be false for one of two reasons: it could be false because it is a grossly inaccurate estimate of the apposite kind of value or cost estimate, or it could be false, even though numerically accurate, because it is an estimate of an inapposite kind of value or cost estimate.
3.6 Appraiser’s Fiduciary Relationship to Third Parties
It frequently happens that an appraisal report is given by the client to third parties for their use. These third parties may or may not be known to the appraiser but, regardless of this fact, they have as much right to rely on the validity and objectivity of the appraiser’s findings as does the client. Members of the Society recognize their fiduciary responsibility to those parties, other than the client, who make use of their reports.
Since the general public welfare is often involved in the execution of valuation assignments, the appraiser has an obligation and responsibility to the general public that supersedes the appraiser’s obligation to his client.
This fiduciary relationship to the public is the same as his fiduciary relationship to third parties (3.6). It applies to assignments involving depositors in a financial institution making loans, to taxpayers in a school district whose board is acquiring a new schoolsite, to taxpayers represented by government agencies who are acquiring property under eminent domain proceedings, and to publicly displayed values of real or personal property that are offered for sale to the public.
4 Appraiser’s Obligations to the Client
The appraiser’s primary obligation to his client is to reach complete, accurate, and pertinent conclusions and numerical results regardless of the client’s wishes or instructions in this regard. The relationship between client and appraiser is not one of principal and agent. However, the appraiser’s obligations to his client go somewhat beyond this primary obligation. These secondary obligations are set forth in the following sections.
4.3 Appraiser’s Obligation Relative to Giving Testimony
When an appraiser is engaged by one of the parties in a controversy, it is unethical for the appraiser to suppress any facts, data, or opinions which are adverse to the case his client is trying to establish; or to over-emphasize any facts, data, or opinions which are favorable to his client’s case; or in any other particulars to become an advocate. It is the appraiser’s obligation to present the data, analysis, and value without bias, regardless of the effect of such unbiased presentation on his client’s case. (Also, see Sec. 7.5)
If an appraiser, in the writing of a report or in giving an exposition of it before third parties or in giving testimony in a court action, suppresses or minimizes any facts, data, or opinions which, if fully stated, might militate against the
Notes
Unless otherwise indicated, Rule references are to the Tax Court Rules of Practice and Procedure.
See Jacobson v. Commissioner,