Tuesday, March 03, 2015

Corporations Are Not People in Delaware Courts, Cannot Be Expert Witnesses

[This story previously appeared in Securities Regulation Daily.]

By Joanne Cursinella, J.D.

Only a biological person can be an expert witness in Delaware under its Rules of Evidence, so the defendants in a shareholder litigation could not designate a corporation as their expert witness on the subject of a company’s value at the time of the transaction in question (In re Dole Food Co. Inc. Securities Litigation, February 27, 2015, Laster, J.).

Background. This action stems from the ligation of a breach of fiduciary duty claim that was coordinated with an appraisal proceeding (see Securities Regulation Daily Wrap up for December 10, 2014 for more on the appraisal action). Both actions arose from a take-private transaction involving Dole Food Company, Inc.

The defendants identified Stifel, Nicolaus & Company, Incorporated (Stifel), as their “expert witness” on the subject of Dole’s valuation and served an opening expert report that identified the corporation as its author. They served a rebuttal expert report that also identified Stifel. The actual humans who signed the reports were Seth Ferguson, a Stifel managing director, and Michael Securro, another Stifel employee. Neither signed in his official capacity, the court said, but rather as an authorized representative of Stifel.

When the plaintiffs noticed a deposition of the corporation, Stifel produced Ferguson as the biological person most knowledgeable about the reports. During this deposition, the plaintiffs attempted to ascertain if the defendants were really attempting to designate the corporation as their expert. When Ferguson claimed to have written the reports, defense counsel objected, claiming that Ferguson was not the expert—Stifel was.

Expert witnesses. Under Delaware Rules of Evidence, an expert witness must first be capable of serving as a witness. Rule 601 says that “[e]very person is competent to be a witness except as otherwise provided in these rules.” The plaintiffs focused on the word “person” here to claim that only biological persons were meant.

The court noted that statutory construction under the Delaware Code would appear to mandate the opposite result, that is, when a provision refers to a “person,” the term presumptively includes “corporations,” among other entities. But notwithstanding this, the Rules of Evidence make it clear that a witness must be a biological person, the court said. The court provided several examples of this, such as rules requiring that a witness must be able to testify from personal knowledge and that that a witness must be able to take an oath or make an affirmation.

A corporation is an artificial being, the court said, and having no mind, it must rely on the facilities of natural persons. Lacking a voice, the court continued, a corporation cannot testify. Lacking a mind , it cannot possess personal knowledge. Without a conscience, it cannot take an oath. “And because of its incorporeal nature, it cannot even meet Delaware’s statutory requirement that a person taking an oath do so ‘with the uplifted hand,’” the court concluded.

The court went on to say that these deficiencies cannot be finessed by testifying through an agent, as Stifel tried to do here. The court also said, however, that the inability of a corporation itself to testify does not mean that the testimony of biological persons who are agents or decision-makers of the corporation will not bind the corporation. But, given the requirements of the rules of evidence, the court concluded that a corporation could not, itself, serve as an expert witness.

Result. The court said that since a corporation cannot serve as an expert witness, Stifel cannot testify at trial. But as long as Ferguson confirms that he has adopted Stifel’s expert reports, then he will be allowed to testify about their contents. Ferguson has a body and brain, the court said, and if he is otherwise qualified, he can serve as an expert witness. Stifel has neither and cannot.

The case is C.A. No. 8703-VCL.

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