A Business Owner May Testify as to the Company’s Value as a Fact Witness

Reprinted from the October 23, 2014 Mongoose newsletter.

A business owner, including a shareholder of a closely held corporation, can testify as to the company’s value and does not have to be designated as an expert witness.

Red Sea Gaming, Inc. v. Block Investments (Nevada) Co., 338 S.W.3d 562 (Tex. App. – El Paso 2010, pet. denied) is an opinion by Justice Anne McClure, which mostly quotes cases from the Houston 14th Court of Appeals and states in part:

A property owner is qualified to testify to the market value of his property. Redman Homes, Inc. v. Ivy, 920 S.W.2d 664, 669 (Tex.1996). The testimony must indicate that the owner’s assessment is based on the market and not on the intrinsic value of the property to him. Jabri v. Alsayyed, 145 S.W.3d 660, 667 (Tex. App. – Houston [14th Dist.] 2004, no pet.). Most recently, the 14th Court of Appeals concluded that the property owner rule applies to corporate entities owning property and that a representative of the corporate owner who is familiar with the market value of the property in question may testify under this rule as to the market value of the property, without being designated as an expert witness. Speedy Stop Food Stores, Ltd. v. Reid Road Municipal Utility District No. 2., 282 S.W.3d 652, 659 (Tex. App. – Houston [14th Dist.] 2009, pet. filed). That court has also held that the sole shareholder and president of a closely held corporation can testify as to the value of property of a corporation. Bower v. Processor and Chemical Service, Inc., 672 S.W.2d 30, 32 (Tex.App.-Houston [14th Dist.] 1984, no writ).
….

Here, Papachado [a shareholder in the corporation] testified as a lay witness, not as an expert. His testimony was rationally based upon his perception of the partnership’s market value and was helpful to a determination of a fact issue. See TEX.R.EVID. 701. We thus disagree with Block’s reliance upon Collins [v. Collins, 904 S.W.2d 792 (Tex.App.- Houston [1st Dist.] 1995, writ denied)], in which the court focused on expert opinion testimony. Papachado was not required to be designated as an expert in order to give lay opinion testimony of value. We find no error in the admission of his opinions.

The business owner must be able to explain the basis for her opinion as to value for her opinion to be admissible.

Natural Gas Pipeline Co. of America v. Justiss, 397 S.W.3d 150 (Tex. 2012), was a nuisance suit for damages, not a divorce. However, the rule articulated by the Texas Supreme Court should apply in divorce cases when a spouse testifies what the family business. In such a situation, the spouse must also explain what that opinion is based on. The Supreme Court stated:

Because property owner testimony is the functional equivalent of expert testimony, it must be judged by the same standards. Thus, as with expert testimony, property valuations may not be based solely on a property owner’s ipse dixit [bare assertion]. An owner may not simply echo the phrase “market value” and state a number to substantiate his diminished value claim; he must provide the factual basis on which his opinion rests. This burden is not onerous, particularly in light of the resources available today. Evidence of price paid, nearby sales, tax valuations, appraisals, online resources, and any other relevant factors may be offered to support the claim. But the valuation must be substantiated; a naked assertion of “market value” is not enough. Of course, the owner’s testimony may be challenged on cross-examination or refuted with independent evidence. But even if unchallenged, the testimony must support a verdict, and conclusory or speculative statements do not.

Thus, the spouse who testifies his auto repair business is worth $200,000 should be asked what that opinion is based on and he should say he checked with a business broker, his banker and owners of several other similar businesses. The spouse cannot simply just say his business is worth $200,000 without an explanation.