The Chapter 7 trustee commenced an adversary proceeding to recover fraudulent transfers under the Colorado Uniform Fraudulent Transfer Act (“CUFTA”), Colo. Rev. Stat. §38-8-105, and 11 U.S.C. §544 and to obtain a declaratory judgment. A central issue in the adversary proceeding was the solvency of the Debtor at the time he made certain transfers alleged to be fraudulent.
Pursuant to Fed. R. Civ. P. 26(a)(2)(B), the Trustee disclosed that he intended to call an accountant as an expert to testify that the Debtor was insolvent on the date of a particular transfer. Just over a month before trial, the defendants moved to exclude the testimony of the accountant as unreliable and irrelevant under Fed. R. Evid. 702.
Thus, the Court was required to perform the “gatekeeping” role imposed by Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993), Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137 (1999) and Fed. R. Evid. 702. The Court convened an evidentiary Daubert hearing at which the Trustee offered the testimony of the accountant to establish the methodology he used in formulating his opinion on the Debtor’s solvency—particularly that the accountant used sufficient facts and data as required by the method he employed and properly applied the method.
The Court found that the accountant was sufficiently qualified by his “knowledge, skill, experience, training and education” to offer expert testimony about the Debtor’s solvency, and that he selected an appropriate methodology for determining the Debtor’s solvency: the fair value balance sheet method. The Court concluded, however, that the accountant did not have sufficient facts or data to reach a solvency determination and that he failed to reliably apply the facts and data in accordance with the methodology he used. Thus, the Court excluded the testimony of the accountant as unreliable and irrelevant under Fed. R. Evid. 702.