Rule 701— The Scope of Permissible Lay Opinion Testimony

As amended effective December 1, 2000, Federal Rule of Evidence 701 contemplates that lay witnesses may testify to opinions that are "(a) rationally based on the perception of the witness, (b) helpful to a clear understanding of the witness' testimony or the determination of a fact in issue, and (c) not based on scientific, technical, or other specialized knowledge within the scope of Rule 702." Subdivision (c) was the signal innovation in 2000, designed to avoid end runs around Daubert through lay witnesses who happened to have expert credentials as well. The question in United States v. Ferguson, 2007 U.S. Dist. LEXIS 93355 (D. Conn. Dec. 20, 2007), was whether securities analysts could — in a criminal case arising out of AIG’s celebrated financial statement restatement(s) and issues — testify under Rule 701 as to their opinions “about how their reports and recommendations to clients would have been different if they had known of the allegedly fraudulent nature of the loss portfolio transfer (‘LPT’) at issue in this case at the time they advised their clients-that is, the significance of the previously withheld information.” According to the opinion, “[t]he defendants concede that testimony from these analysts on the following subjects would constitute proper lay opinion: the importance of loss reserves to their understanding of AIG's financial condition, the importance of receiving accurate financial information about AIG to their understanding of how to advise clients, and their reliance on AIG's financial disclosures in writing their reports and making recommendations to clients.” Based on those concessions, District Judge Christopher F. Droney concluded that: “Assuming that the government elicits such foundational testimony, which it represents it will do, the analysts' additional proposed testimony explaining how their understanding of AIG's financial condition-and hence the reports they wrote and their advice to clients-would have been different if they had known the withheld information requires no specialized or technical knowledge, but rather would permit the witnesses to reach logical conclusions based upon facts they observed.”

It is a unfair to second guess lawyers running a case knowing nothing more than what is stated in an opinion, and I don’t do it. In the abstract, one can wonder why the conceded opinions were appropriate under Rule 701. One can postulate that they were really in the nature of facts, and they no doubt were coming in anyway, but it is hard to see how they comprised 701 lay opinion, which, according to the 2000 Advisory Committee Note, “results from a process of reasoning familiar in everyday life,” as opposed to expert opinion, which “results from a process of reasoning which can be mastered only by specialists in the field.” It is highly doubtful that the concession affected the outcome, but the opinion is a reminder of how concessions (perhaps extracted by an insistent Court) can have consequences.

The other important aspect of the case is its imprimatur on subjunctive testimony -- what the analysts' advice to their clients would have been, had they known X. Usually, that sort of testimony triggers a "conjectural" or "speculative" objection. The opinion is a useful antidote to that objection.

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