Reassessing The FRE 701 Lay Witness And FRE 702 Expert Testimony Dichotomy

In prosecution for a mortgage fraud conspiracy scheme, admitting testimony by "a former attorney who had engaged in fraudulent real estate closings," as a lay witness on the part of the government under FRE 701; the witness' "own personal knowledge of mortgage fraud, which he had acquired through his experience as a former real estate closing attorney who had engaged in fraudulent transactions of that nature" was an adequate foundation for admission under FRE 701 and his testimony did not need to be qualified as expert under FRE 702, in United States v. Graham, __ F.3d __ (11th Cir. June 14, 2011) (No. 08-24736)

In 2000, the Supreme Court amended FRE 701 hoping to preclude lay witness testimony that was “based on scientific, technical, or other specialized knowledge.” According to the amendment, that type of lay testimony is authorized only be a witness whose testimony would be qualified as expert testimony. The amendment aimed at the possibilities that a party would surreptitiously circumvent “the reliability requirements set forth in Rule 702 ... through the simple expedient of proffering an expert in lay witness clothing.” The 2000 change was designed to “ensure[ ] that a party will not evade the expert witness disclosure requirements set forth in ... Fed.R.Crim.P. 16 by simply calling an expert witness in the guise of a layperson.” ACN 701 (2000). In a case published yesterday, the Eleventh Circuit probed the difficult nature of distinguishing lay from expert opinion and the ease with which the court mus distinguish between a witness' lay knowledge, based on everyday experiences in life, and expert testimony, based only on a specialized knowledge.

In the case, defendant Graham was indicted with seventeen others for conspiracy involving a mortgage fraud scheme. Although the defendant initially proceeded pro se, on the first day of his four-day trial, he accepted representation by counsel and was convicted on all charges, ranging from conspiracy to commit wire fraud, mail fraud, and money laundering transactions. The jury rendered a verdict of guilty of all charges and the defendant appealed raising a variety of issues, including that "his right to a fair trial was violated because the district court admitted 'expert' testimony by lay witness William Key, a former closing attorney who had pleaded guilty to participating in fraudulent mortgage transactions." Graham, __ F.3d at __.

As explained by the circuit, the defendant did object to testimony by Key,

"a former real estate attorney who was serving time in prison, was called as a witness for the government, and he testified about mortgage fraud. After Graham objected to Key's testimony on lack of foundation grounds, the government established that Key had personal knowledge based on his participation in fraudulent real estate closings. Key testified that he had already pleaded guilty to mortgage fraud in a case in Savannah and was serving time in prison. He testified that he also “did” fraudulent loans for one of Graham's co-conspirators, Phillip Hill, in Atlanta."
Graham, __ F.3d at __ (footnote omitted).

In addition, while the witness testified "in more general terms about what was involved in processing loans ... he did that in order to explain his actual conduct" in certain specific transactions, often without objection from the defendant. For example, the witness answered the defendant's cross-examination questions regarding "how the loan transactions worked," in the various transactions for which the witness stood convicted, including "that he [Key] knew those loans were fraudulent at the time he was helping others obtain them," as well as "about specific transactions he did for [defendant's co-conspirator] Phillip Hill with the knowledge that those deals were also fraudulent. Key also testified about other specific fraudulent loan transactions, in which he claimed that the defendant was involved and where he "had engaged in discussions with Graham about the payments.... Key also testified about a [transaction] closing" that the witness and the defendant attended. Graham, __ F.3d at __ .

The Eleventh Circuit found no error in the admission of the witness' lay testimony, explaining:

We have held that a witness who has particularized knowledge by virtue of his position in a certain company can give an opinion about the manner in which that company conducts its business, even if the witness is not qualified as an expert under Fed.R.Evid. 702. Key provided some testimony about the kind of conduct he engaged in or personally witnessed during fraudulent mortgage transactions, and he testified about his personal knowledge concerning the conduct of other participants in the mortgage fraud scheme. He did so based on his own experience. The most general question Key answered was one posed by Graham's counsel on cross-examination about the definition of an option to purchase real estate. Graham cannot complain about that testimony given that he asked for it, and in his own testimony he expounded upon how he believed options worked.
Graham, __ F.3d at __ (footnote omitted) (citing Tampa Bay Shipbuilding & Repair Co. v. Cedar Shipping Co., 320 F.3d 1213, 1223 (11th Cir. 2003) (“Tampa Bay's witnesses testified based upon their particularized knowledge garnered from years of experience within the field.”)).

There was no error in allowing former attorney Key to testify outside of FRE 702. This was despite the fact that in appellate argument, the government apparently conceded that the witness Key "provid[ed] expert testimony even though he was a lay witness" because he "was testifying based on his own personal knowledge as a former attorney who had engaged in fraudulent real estate closings." (citing United States v. Hansen, 262 F.3d 1217, 1233–34 (11th Cir. 2001). If anything, the circuit seemed to suggest that some of evidentiary errors that defendant objected to, even if erroneous, would constitute invited error. The circuit noted that some of the more general questions asked of the witness were propounded by the defendant. "[O]n cross-examination Graham's counsel asked Key some general questions about how the loan transactions worked. ... Counsel for Graham also asked Key a '[t]echnical question: What is an option to purchase real estate?' Key provided an answer." Graham, __ F.3d at __. Apparently the defendant was hard-pressed to object to a witness' testimony, even if it could be seen in the nature of specialized knowledge for which expert testimony is admissible, when it was the defendant who probed the various issues which on appeal he claimed should have been excluded as beyond its proper scope and foundation.

Opinion evidence is treated as a dichotomy. It is either lay testimony under FRE 701, or it is expert testimony under FRE 702. The critical distinction is the types of testimony, rather than the witness. United States v. Graham, Certain circuits, such as the Seventh or Ninth Circuits carefully assess whether a witness' testimony embraces lay or expert fields, as in the case of testimony by a police officer as a fact and expert witness at trial or to provide "overview" testimony. This dichotomy places the courts in the difficult position. They continue to grapple with applying the porous categories suggested by the ACN -- that lay testimony be received only if it the product of “‘reasoning familiar in everyday life’ (lay under FRE 701) where as under FRE 702 expert testimony is the "result[ ] from a process of reasoning which can be mastered only by specialists in the field.” Boiled down to this essential distinction, the courts continue to struggle with whether opinion testimony was the result of ideas and experiences generally shared within the community. Or is it founded in rather specialized knowledge that develops for a witness who will provide expert opinion testimony.

Federal Rules of Evidence