Quad City Bank & Trust v. Jim Kircher & Associates, P.C.

IN THE SUPREME COURT OF IOWA
No. 09–1151
Filed September 23, 2011
QUAD CITY BANK & TRUST,
Appellant,
vs.
JIM KIRCHER & ASSOCIATES, P.C.,
Appellee.
On review from the Iowa Court of Appeals.
Appeal from the Iowa District Court for Dubuque County,
Lawrence H. Fautsch, Judge.
An accounting firm seeks further review of a court of appeals
decision granting a bank a new trial. DECISION OF COURT OF
APPEALS VACATED; DISTRICT COURT JUDGMENT AFFIRMED.
Robert V.P. Waterman, Jr., and Thomas D. Waterman (until
withdrawal) of Lane & Waterman LLP, Davenport, for appellant.
Les V. Reddick of Kane, Norby & Reddick, P.C., Dubuque, for
appellee.
2
WIGGINS, Justice.
A bank attempted to prove an accounting negligence claim by
using an expert witness to testify regarding the accountant’s audit of a
company. The district court refused to allow the expert to testify as to
generally accepted Certified Public Accountant (CPA) auditing standards,
whether the accountant breached those standards, and causation. The
district court left open the question of whether the expert could testify as
to the accountant’s work papers. At trial, the bank made an offer of
proof as to the work papers, but did not move to introduce them, so the
court never ruled on their admissibility. The bank received an adverse
jury verdict and appealed. We transferred the case to the court of
appeals. The court of appeals reversed the district court and remanded
for a new trial. On further review, we hold the bank failed to preserve
error on the work-paper issue. Additionally, we hold the expert was not
qualified to testify as to generally accepted CPA auditing standards,
whether the accountant breached those standards, and causation.
Therefore, we vacate the decision of the court of appeals and affirm the
judgment of the district court.
I. Background Facts and Proceedings.
Keith Chapman owned Chapman Lumber Company, Inc., a lumber
business located in Hopkinton. In February 2003 Quad City Bank &
Trust (QCBT) provided Chapman Lumber with a $500,000 line of credit.
In July QCBT loaned Chapman Lumber $1,935,000. The United States
Department of Agriculture (USDA) guaranteed eighty percent of this loan.
In September QCBT increased Chapman Lumber’s line of credit to
$750,000. As of October QCBT was aware Chapman Lumber defaulted
on the $1,935,000 loan. Nevertheless, QCBT decided not to foreclose on
the loan at that time.
3
As a condition of its guarantee, the USDA required a general audit
of Chapman Lumber. Accordingly, on October 1 Chapman Lumber hired
Jim Kircher & Associates, P.C. to perform a general audit for its fiscal
year ending on June 30, 2003. According to Kircher, the objective of the
audit was to express “an opinion about whether [Chapman Lumber’s]
financial statements [were] fairly presented in all material respects, in
conformity with U.S. generally accepted accounting principles.” Brian
Feltes, a CPA and employee of Kircher, performed the audit. QCBT relied
on the audit to validate Chapman Lumber’s financial performance and to
decide whether to keep working with Chapman Lumber. In late
December QCBT saw a preliminary version of the audit report. Kircher
did not issue the final report until late January 2004. The audit showed
that, for fiscal year 2003, Chapman Lumber had overdrafts of $59,474
and a deficit cash flow of $85,306.
By the end of January, Chapman Lumber was also in default on
the $750,000 line of credit. Subsequently, QCBT informed Chapman
Lumber that they had thirty days to acquire an infusion of venture
capital or QCBT would foreclose on the loans. However, rather than
foreclosing on the loans after the thirty days expired, QCBT entered into
a forbearance agreement with Chapman Lumber. The agreement
provided that QCBT would not foreclose on its loans as long as Chapman
Lumber procured an injection of venture capital.
In April Chapman Lumber suffered a substantial fire that
destroyed its kilns, which were central to its operations. These events
left QCBT with a decision. It could either recoup the insurance proceeds
and liquidate Chapman Lumber or reinvest the proceeds into the
business and keep Chapman Lumber operational. QCBT chose to keep
Chapman Lumber operational due to the increased efficiency from newly
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installed kilns and the expectation that Chapman Lumber would receive
a substantial venture capital investment. While it was waiting for the
insurance proceeds, Chapman Lumber procured a short-term loan of
$150,000 from QCBT to be paid back in ninety days.
In January 2005 the forbearance agreement expired. Chapman
Lumber had not yet secured a venture capital investment. Thus, QCBT
called its loans with Chapman Lumber due. Subsequently, Chapman
Lumber filed for bankruptcy protection. In March QCBT went to
Chapman Lumber’s premises to check on its collateral. During this
check, QCBT discovered that Chapman Lumber had been defrauding the
bank. QCBT found inventory at the facility, but Chapman Lumber did
not own the inventory. Following this discovery, QCBT made a concerted
effort to investigate Chapman Lumber’s finances. QCBT learned that
Keith Chapman had a personal Wells Fargo bank account through which
he funneled approximately $600,000 of the company’s money for his own
personal expenses. Ultimately, QCBT netted $1,289,213 from Chapman
Lumber’s liquidation.
QCBT filed an accounting negligence claim against Kircher. QCBT
alleged that Kircher negligently performed its fiscal-year-2003 audit of
Chapman Lumber because it failed to discover and accurately convey the
true financial condition of Chapman Lumber. QCBT claimed it relied on
Kircher’s audit when it delayed foreclosure on its loans with Chapman
Lumber and, if it had known of the company’s lack of inventory and
fraud, it would have liquidated the company at the time of the fire.
Furthermore, QCBT asserted that, had it liquidated in 2004 at the time
of the fire, it would have netted $912,270.10 more than the $1,289,213 it
netted in the 2005 liquidation.
5
QCBT identified Kerry Bolt as an expert witness. Bolt was a
certified fraud examiner, but not a CPA. Bolt began his career as a
revenue agent for the Internal Revenue Service (IRS), where he conducted
field audits of income tax returns of individuals and businesses. Bolt
then became an IRS special agent and conducted criminal investigations
of income tax fraud, money laundering, and terrorist financing.
Subsequently, he retired from the IRS and started a forensic accounting
business. In relation to this case, Bolt reviewed all of Feltes’s work
papers, as well as other records, to determine whether Feltes sufficiently
examined Chapman Lumber’s internal controls, inventory, and risk of
fraud.
Thirteen days before trial, Kircher filed a motion in limine seeking
to prohibit QCBT from introducing “any evidence from plaintiff’s
designated expert Kerry Bolt with respect to standards of care applicable
to certified public accountants, whether that standard was breached, or
causation” and “any evidence from Kerry Bolt based upon his perceived
errors in [Feltes’s] work papers.” Kircher pointed to Bolt’s deposition
testimony as proof that he was unqualified to opine on whether Kircher
performed the audit according to generally accepted auditing standards.
In his deposition, Bolt testified he was not a CPA, had never performed a
general audit of a business, and was not familiar with CPA auditing
standards.
QCBT resisted the motion, arguing Bolt was qualified to opine that
Feltes failed to meet generally accepted auditing standards by failing to
adhere to the work papers. QCBT claimed that because Feltes admitted
in his deposition that the generally accepted auditing standards required
him to complete the work papers, Bolt could analyze Feltes’s work
6
contained in the work papers to assure he did everything the work
papers required.
The district court held a hearing on the motion in limine on the
first morning of the trial. QCBT argued that Feltes and Kircher’s expert
stated that the way you comply with the applicable professional CPA
standards of care is to do as the work papers direct. Thus, QCBT
argued:
Bolt is not coming in as a typical expert to say the standard
of care for a certified public accountant doing an audit is the
following GAAP and GAAS standard was violated. He’s
coming in to say, I’m assuming that you have to do what
your work papers told you to do and here’s why that can’t
have been the case, and he is qualified to do that because
he’s a certified fraud examiner and he’s been running down
situations somewhat similar to this for a long time.
Accordingly, while QCBT agreed that Bolt was not qualified to testify as
to whether Kircher performed the audit negligently, it claimed Bolt could
testify as to whether Feltes did what the work papers required, assuming
the audit was supposed to be conducted pursuant to the work papers.
Kircher claimed this was a backdoor attempt to prove an auditor’s
professional negligence with an unqualified expert.
The court then ruled on Kircher’s motion in limine:
Plaintiff must still prove a violation of some generally
accepted auditing standard, and from what I’m able to read
from what has been given to me thus far in depositions of
Mr. Bolt, he is not an expert who can determine whether or
not an audit has been performed pursuant to some generally
accepted auditing standard because he’s not a CPA . . . . So
I don’t think that you can take a statement that was made
by a CPA and then bring Mr. Bolt into the picture and say,
well, based upon what he told me and then based upon
other investigations that I made, I’m of the opinion that . . .
this audit was not performed negligently . . . . I’m not saying
right off the top of my head, I guess, that Mr. Bolt cannot
testify period, but I’m just saying that he can’t testify to this
ultimate fact. And I really can’t say . . . at this stage what
my opinion would be in that regard because I just—with the
7
fluidity of the trial process, it’s very hard for me to try to
figure out how this is all going to come out.
After this statement, Kircher asked for clarification on the court’s ruling,
to which the court replied, “Your motion is granted as to Bolt.” QCBT
then stated the court’s ruling left in doubt whether it could ask Bolt
about the contents of the work papers and whether the work papers
accurately reflected what actually happened. QCBT suggested the
parties could resolve this issue with an offer of proof of Bolt’s testimony
outside the presence of the jury. QCBT never made a pretrial offer of
proof, and the trial commenced.
At the close of its case, QCBT called Bolt to testify in an offer of
proof. Bolt stated he was prepared to testify about his credentials and
his review of Feltes’s work papers. He was further prepared to testify as
to whether the tasks outlined by the work papers had actually been
performed by Feltes and the inadequacies of Feltes’s inquiries and
conclusions as to Chapman Lumber’s internal controls, inventory, and
potential fraud. At the close of the offer of proof, QCBT stated, “That’s all
I have at this time . . . . I think that’s it. Thank you.” QCBT did not
renew its request to present Bolt’s testimony or elicit a further ruling
from the court as to the admissibility of Bolt’s proffered testimony.
Subsequently, the jury returned a verdict finding Kircher did not
negligently perform the fiscal-year-2003 audit of Chapman Lumber.
QCBT moved for a new trial, arguing the court improperly excluded
its sole expert witness, Bolt, from testifying at trial. The court denied the
motion, stating that it did not completely exclude Bolt from testifying at
trial, “but rather determined that Mr. Bolt was not qualified to give an
opinion as to the standard of care applicable to accountants performing
8
general audits.” QCBT filed a notice of appeal. 1 We transferred the case
to the court of appeals.
The court of appeals reversed the judgment of the district court
and remanded the case for a new trial. The court held QCBT properly
preserved error because the court’s ruling on the motion in limine was
definitive. As for the merits, the court held Bolt was qualified to testify
that Feltes failed to follow the work papers and perform all of the
required interviews and inventory checks.
II. Issues.
Kircher raises two issues on appeal. The first deals with error
preservation while the second deals with whether Bolt was qualified to
testify as to generally accepted CPA auditing standards, whether the
accountant breached those standards, and causation.
III. Error Preservation.
A ruling sustaining a motion in limine is generally not an
evidentiary ruling. Twyford v. Weber, 220 N.W.2d 919, 923 (Iowa 1974).
Rather, a ruling sustaining a motion in limine simply adds a procedural
step to the introduction of allegedly objectionable evidence. Id.; accord
Johnson v. Interstate Power Co., 481 N.W.2d 310, 317 (Iowa 1992)
(recognizing a ruling sustaining a motion in limine “merely adds a
procedural step to the offer of evidence [and that i]f the evidence is not
offered, there is nothing preserved to review on appeal”). Thus, a motion
in limine “serves the useful purpose of raising and pointing out before
trial certain evidentiary rulings the court may be called upon to make
during the course of the trial” and, if sustained, excludes reference or
introduction of this evidence until its admissibility is determined by the
trial court, outside the presence of a jury, in an offer of proof. Twyford,
1We note that appellate counsel did not serve as trial counsel.
9
220 N.W.2d at 922–23 (recognizing further that the offer of proof allows
the aggrieved party to present a proper record for review on appeal and,
in the absence of such an offer, error may not be preserved).
The abovementioned rules regarding a motion in limine serve as
the basis for the rule that “error claimed in a court’s ruling on a motion
in limine is waived unless a timely objection is made when the evidence
is offered at trial.” State v. Alberts, 722 N.W.2d 402, 406 (Iowa 2006)
(quoting State v. Tangie, 616 N.W.2d 564, 568 (Iowa 2000)) (internal
quotation marks omitted); accord Simkins v. City of Davenport, 232
N.W.2d 561, 565 (Iowa 1975). This is because the error only occurs, if at
all, when the evidence is offered at trial and is either admitted or refused.
State v. Langley, 265 N.W.2d 718, 720 (Iowa 1978) (recognizing further,
normally “the ruling is not a final one; it is a red flag to counsel that the
evidence is not to be brought before the jury unless and until it is
separately taken up with the court . . . at trial”). There is, however, an
exception to this general rule. When the court’s ruling on a motion in
limine leaves no question that the challenged evidence will or will not be
admitted at trial, counsel need not renew its objection to the evidence at
trial to preserve error. Alberts, 722 N.W.2d at 406; State v. Miller, 229
N.W.2d 762, 768 (Iowa 1975). “In such a situation, the decision on the
motion has the effect of [an evidentiary] ruling.” Tangie, 616 N.W.2d at
569 (quoting Miller, 229 N.W.2d at 768) (internal quotation marks
omitted).
The key to deciding whether the general rule or the exception
applies in a given case is determining what the trial court purported to
do in its ruling. Alberts, 722 N.W.2d at 406. As we have recognized:
“A ruling only granting or denying protection from prejudicial
references to challenged evidence cannot preserve the
inadmissibility issue for appellate review.” However, “if the
10
ruling reaches the ultimate issue [of admissibility] and
declares the evidence admissible or inadmissible, it is
ordinarily a final ruling and need not be questioned again
during trial [to preserve error].”
Id. (quoting State v. O’Connell, 275 N.W.2d 197, 202 (Iowa 1979)).
Compare State v. Daly, 623 N.W.2d 799, 800 (Iowa 2001) (holding that an
exception to the general rule applied when counsel asked the court
whether its ruling was the final order of the court and the court
responded, “yes”), with Johnson, 481 N.W.2d at 316–17 (holding the
general rule applied, and error was not preserved, when the court’s
ruling merely prohibited a party from mentioning the challenged evidence
without first obtaining permission from the court outside the presence of
the jury). Accordingly, to determine whether QCBT properly preserved
error on the issue of the admissibility of Bolt’s testimony, we first must
determine the intent of the district court ruling on Kircher’s motion in
limine.
Kircher’s motion in limine sought to prohibit Bolt from giving
testimony concerning the standards of care applicable to certified public
accountants, whether Kircher breached those standards, and causation,
as well as any perceived errors in the audit’s work papers. In ruling on
the motion, the district court concluded Bolt was not qualified to testify
as to whether Kircher performed the audit pursuant to generally
accepted auditing standards. The court then ruled, “Your motion is
granted as to Bolt.” Subsequently, QCBT inquired whether the court’s
ruling precluded Bolt from testifying about the work papers. The court
did not explicitly make a ruling on Bolt’s testimony concerning the work
papers. The court stated it was not prepared to rule on Bolt’s analysis of
the work papers at the beginning of the trial. The court also stated it
11
had no problem with QCBT mentioning inconsistencies and inaccuracies
in the work papers in its opening statement.
The record clearly establishes the court’s ruling on the motion in
limine declared that Bolt’s testimony concerning generally accepted CPA
auditing standards, whether Kircher breached those standards, and
causation, was inadmissible. The court did not equivocate or state it
would reconsider its ruling at trial. Cf. Holst v. Countryside Enters., Inc.,
14 F.3d 1319, 1323 (8th Cir. 1994) (holding that a party failed to
preserve error by not pursuing a ruling at trial where the court’s motion
in limine ruling invited the party to attempt to admit the evidence during
trial). Thus, as to this testimony, we conclude the exception to the
general rule applies. See, e.g., Alberts, 722 N.W.2d at 407 (holding that
the exception to the general rule applied even though the court did not
specifically rule the evidence was inadmissible because the ruling was
definitive and reached the ultimate issue of admissibility). Accordingly,
the court’s ruling had the effect of a definitive evidentiary ruling. Thus,
there was no need for QCBT to renew its request to present Bolt’s
testimony concerning generally accepted CPA auditing standards,
whether Kircher breached those standards, and causation at trial to
preserve error on this testimony.
A question remains: what is the scope of the district court’s
definitive evidentiary ruling on Bolt’s proposed expert testimony
regarding the work papers? QCBT argues the court’s definitive ruling
broadly prohibited Bolt from giving any meaningful testimony, including
any testimony concerning the inaccuracy and inadequacy of the work
papers. Therefore, QCBT claims it properly preserved error on the
court’s ruling as to any of Bolt’s testimony. Conversely, Kircher claims
the court’s definitive ruling was limited to Bolt’s testimony concerning
12
generally accepted CPA auditing standards, whether Kircher breached
those standards, and causation. Kircher asserts the court’s ruling did
not reach other issues to which Bolt may have testified, including the
work papers. Accordingly, Kircher claims QCBT failed to preserve error
on the areas of Bolt’s testimony that were outside the scope of the court’s
ruling because QCBT never renewed its request to present Bolt’s
testimony on these other issues at trial.
In its ruling on the motion in limine, the court appeared to
equivocate on the all-encompassing nature of its ruling on the
admissibility of Bolt’s testimony. After the court’s ruling, QCBT asked
the court whether its ruling precluded Bolt from testifying about the
work papers, and stated, “We might address that when Mr. Bolt’s here
outside the jury’s presence and make a decision.” The court failed to
definitively rule on the admissibility of Bolt’s testimony concerning the
work papers, or other matters, at that time.
This exchange clearly establishes the court left open the question
of whether QCBT could introduce Bolt’s testimony as to other issues,
including his analysis of the work papers, at trial. To preserve error on
these issues, apart from the ultimate issues definitively ruled on by the
court, QCBT was required to renew its request to present Bolt’s
testimony at trial and obtain a definitive ruling from the court.
At trial, the work papers were introduced into evidence without
objection. At the close of its case, QCBT called Bolt to testify in an offer
of proof. Following the offer of proof, QCBT did not renew its request to
present Bolt’s testimony or elicit a further ruling from the court as to the
admissibility of Bolt’s testimony on the work papers. When QCBT did
not offer the testimony, Kircher did not lodge an objection to the
13
testimony contained in the offer of proof and the court never issued a
final ruling on the admissibility of this testimony.
Thus, the general rule regarding error preservation for a motion in
limine applies. Because QCBT did not offer the testimony contained in
the offer of proof, the court never had a chance to rule on the
admissibility of the evidence; therefore, QCBT failed to preserve error as
to the admissibility of Bolt’s testimony on the work papers and other
issues unrelated to the ultimate issue of negligence. See, e.g., Johnson,
481 N.W.2d at 317 (“If the evidence is not offered, there is nothing
preserved to review on appeal.”); State v. Delaney, 526 N.W.2d 170, 177
(Iowa Ct. App. 1994) (holding error was not preserved where the court’s
ruling was not unequivocal and “whether the evidence offered by the
State fell within the parameters of the ruling was uncertain”).
IV. The District Court’s Ruling Concerning Generally Accepted
CPA Auditing Standards, Whether Kircher Breached Those
Standards, and Causation.
QCBT properly preserved error on whether Bolt could testify as to
generally accepted CPA auditing standards, whether Kircher breached
those standards, and causation.
A. Scope of Review. We review the district court’s determination
of whether a witness may testify as an expert on a particular topic for an
abuse of discretion. Ranes v. Adams Labs., Inc., 778 N.W.2d 677, 685
(Iowa 2010). An abuse of discretion occurs when the district court
exercises its discretion on grounds or for reasons that are clearly
untenable, or to an extent clearly unreasonable. State v. Nelson, 791
N.W.2d 414, 419 (Iowa 2010); Graber v. City of Ankeny, 616 N.W.2d 633,
638 (Iowa 2000). “A ground or reason is untenable when it is not
supported by substantial evidence or when it is based on an erroneous
application of the law.” Graber, 616 N.W.2d at 638.
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B. Analysis. We hold a liberal view on the admissibility of expert
testimony in this state. Ranes, 778 N.W.2d at 685; Leaf v. Goodyear Tire
& Rubber Co., 590 N.W.2d 525, 531–32 (Iowa 1999). Iowa Rule of
Evidence 5.702 provides:
If scientific, technical, or other specialized knowledge will
assist the trier of fact to understand the evidence or to
determine a fact in issue, a witness qualified as an expert by
knowledge, skill, experience, training, or education may
testify thereto in the form of an opinion or otherwise.
Iowa R. Evid. 5.702. The party seeking to introduce the expert testimony
has the burden of demonstrating to the court, as a preliminary question
of law, that the expert is qualified and will present reliable opinion
testimony. Ranes, 778 N.W.2d at 686; see also Iowa R. Evid. 5.104(a).
Rule 5.702 presents preliminary areas a court must consider
before admitting expert testimony. Ranes, 778 N.W.2d at 685. First, the
court must consider whether the expert’s proposed testimony will “assist
the trier of fact” in understanding “the evidence or to determine a fact in
issue.” Iowa R. Evid. 5.702.
Second, the court must determine whether the witness is qualified
to testify as an expert “by knowledge, skill, experience, training, or
education” on the subject matter in question. Id. “All expert witnesses
must be qualified in the area of their testimony based on one of the five
areas of qualification.” Ranes, 778 N.W.2d at 687. However, the witness
need not have a particular degree, license, or education. Id.; Leaf, 590
N.W.2d at 535 (“[N]o particular education is required; experience is
sufficient to qualify a witness as an expert.”); Hutchison v. Am. Family
Mut. Ins. Co., 514 N.W.2d 882, 886 (Iowa 1994) (“Although licensing
carries a presumption of qualification to testify in the given field,
‘learning and experience may provide the essential elements of
15
qualification.’ ” (quoting Ganrud v. Smith, 206 N.W.2d 311, 315 (Iowa
1973))).
Rule 5.702 does not impose a requirement for how an expert is to
become qualified and does not distinguish between whether an expert is
qualified or unqualified based on whether he or she belongs to a
particular profession or has a particular degree. Ranes, 778 N.W.2d at
689; see also Hutchison, 514 N.W.2d at 888 (recognizing expertise
acquired through experience is every bit as good as expertise acquired
academically). Moreover, the witness does not need to be a specialist in
the area of the testimony so long as the testimony is within the witness’s
general area of expertise. Ranes, 778 N.W.2d at 687. Finally, a court
can only determine whether an expert is qualified by considering the
expert’s qualifications in the context of the issues to be determined by
the trier of fact. Id.; see also Hutchison, 514 N.W.2d at 889 (recognizing
that those who fail to meet the standards of rule 5.702 should not be
allowed to testify even if they profess expertise on a subject).
Accordingly, we must determine whether Bolt was qualified to testify as
an expert in the areas concerning generally accepted CPA auditing
standards, whether Kircher breached those standards, and causation.
An application of these principles is illustrated in Garnac Grain Co.
v. Blackley, 932 F.2d 1563 (8th Cir. 1991). There, a grain company
sought to introduce the opinion testimony of three expert witnesses that
an accounting firm violated generally accepted auditing standards due to
its failure to discover embezzlement. Garnac Grain Co., 932 F.2d at
1565–66. The first proposed expert, the grain company’s director of
accounting, attended only one year of college, took only a few noncredit
courses in auditing and accounting, and was not a CPA. Id. at 1566.
The second proposed expert was the grain company’s current president,
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who possessed a business degree. Id. He also was not a CPA and had
never taken a course in auditing or internal controls. Id. The final
proposed expert was a retired professor who taught auditing courses for
almost forty years, but had an expired CPA license. Id. at 1567. Under
these facts, the Eighth Circuit held the first two proposed experts were
unqualified to testify. Id. at 1566. The court acknowledged that
practical knowledge and experience alone could provide an adequate
basis for expert testimony. Id. However, the court held the “deposition
testimony of these witnesses . . . indicates that their practical knowledge
does not provide them with the requisite expertise in auditing or
accounting” to opine on whether the accounting firm violated generally
accepted auditing standards. Id. As for the third proposed expert, the
court held his knowledge and experience “crosses the threshold of
admissibility.” Id. at 1567. Accordingly, the court found that any
weaknesses in the third expert’s opinion and expertise went to the weight
of his testimony, not its admissibility. Id.
From Bolt’s depositions and QCBT’s arguments, the district court
concluded Bolt “is not an expert who can determine whether or not an
audit has been performed pursuant to some generally accepted auditing
standard because he’s not a CPA.” While the district court’s reasoning
was flawed, its conclusion was correct. The fact that Bolt was not a CPA
did not disqualify him from testifying on the ultimate issue of whether
Kircher violated generally accepted accounting standards. See, e.g.,
Hutchison, 514 N.W.2d at 886 (recognizing if a person is qualified by
learning and experience, the lack of board certification or licensure goes
to the weight of the expert’s testimony, not its admissibility). Rather,
Bolt was unqualified to testify on this issue because he lacked the
17
knowledge, skill, experience, training, or education to provide an
adequate basis for this testimony.
Although Bolt had experience as an IRS revenue and special agent,
Bolt did not have an accounting degree and was not a CPA. Even though
Bolt was a certified fraud examiner, Bolt had never performed a certified
audit. Moreover, while he claimed to be generally familiar with the
standards applicable to CPAs and the auditing process, he stated his
opinions with regard to Feltes’s work were not based upon whether Feltes
complied with generally accepted auditing standards. Instead, Bolt
described his proposed testimony as follows:
I looked at the work papers that [Feltes] prepared, which are
the standardized forms that I can only assume he was
required to fill out in every certified audit. I looked at those
forms and the information that he put on there, compared
them to the actual facts and what was going on at . . .
Chapman Lumber Company.
Bolt confirmed he was not planning to testify that Feltes violated
certain auditing standards because he did not specifically know each
standard that was applied in the audit. Although Bolt believed Feltes
should have conducted the audit differently, he could not testify that
such conduct was required under generally accepted auditing standards.
Bolt stated that he was not familiar with any of the standards developed
for general application by the American Institute of Certified Public
Accountants. Moreover, when asked how he would generally define the
standard of care owed by CPA accounting firms in the practice of
accounting, he stated, “Specifically, I don’t know that answer.”
At the hearing on the motion in limine, QCBT agreed that Bolt was
not qualified to testify on the ultimate issue of whether Kircher
performed the audit negligently. QCBT claimed Bolt would not testify
about the appropriate standard of care for a CPA doing an audit or
18
explain that certain generally accepted accounting standards were
violated. Rather, QCBT asserted Bolt would only testify as to his
analysis of Feltes’s work papers and how they varied from the actual
facts in the case.
Just as in Garnac Grain Co., Bolt’s knowledge, skill, experience,
training, or education did not provide him with the requisite expertise in
auditing or accounting to opine on the ultimate issue of whether Kircher
breached any generally accepted auditing standards. Accordingly, we
conclude Bolt was unqualified to testify on this issue and the court did
not abuse its discretion when it failed to allow his testimony.
V. Disposition.
We vacate the decision of the court of appeals and affirm the
judgment of the district court because QCBT failed to preserve error on
the issue as to whether its expert witness could testify concerning the
accountant’s work papers and the court did not abuse its discretion in
ruling that QCBT’s expert could not testify as to generally accepted CPA
auditing standards, whether Kircher breached those standards, and
causation.
DECISION OF COURT OF APPEALS VACATED; DISTRICT
COURT JUDGMENT AFFIRMED.
All justices concur except Waterman and Mansfield, JJ., who take
no part.