Perception Requirement For Lay Testimony

Second Circuit finds error in allowing lay opinion testimony in civil fraud trial which was not based on perceptions of the witness, in Bank of China, New York Branch v. NBM LLC, 359 F.3d 171, 181 (2d Cir. 2004)

FRE 701 provides for lay opinion witness testimony where three requirements are met. The lay opinion must be: “(a) rationally based on the witness’s perception; (b) helpful to clearly understanding the witness’s testimony or to determining a fact in issue; and (c) not based on scientific, technical, or other specialized knowledge within the scope of Rule 702.” The Second Circuit underscored the role of the perception requirement for lay opinion testimony in a case decided several years ago.

In the case, the Bank of China brought a civil fraud action based on defaulted loan obligations and numerous misrepresentations. During the trial, a Bank of China employee (Huang Yangxin) testified: (1) that certain transactions between defendants NBM and GEG did not comport with the business community's understanding of normal, true, trade transactions between a buyer and seller; (2) the concept of a "trust receipt," and how it works in the context of an international commercial transaction; and (3) that it is considered fraud when an importer presents a trust receipt to a bank to obtain a loan knowing that there are no real goods involved. Bank of China, 359 F.3d at 180. The trial court allowed this evidence as lay opinion testimony under FRE 701 based on the witness’s “many years of experience in international banking and trade.” Bank of China, 359 F.3d at 180 (footnote omitted). The jury returned a verdict for the Bank of China, which included $35.4 million in compensatory damages and $96.4 million in punitive damages. One issue on appeal challenged the admission of the lay testimony.

The Second Circuit agreed that the lay testimony was inadmissible to the extent that it was not based on his perceptions. As the circuit explained:

To some extent, Huang's testimony was based on his perceptions. As a Bank of China employee, Huang was assigned to investigate defendants' activities at the tail-end of their scheme and after Bank of China stopped doing business with them. Huang's senior role at the Bank and his years of experience in international banking made him particularly well-suited to undertake such an investigation and was likely a factor in the Bank's decision to assign the task to him. The fact that Huang has specialized knowledge, or that he carried out the investigation because of that knowledge, does not preclude him from testifying pursuant to Rule 701, so long as the testimony was based on the investigation and reflected his investigatory findings and conclusions, and was not rooted exclusively in his expertise in international banking.

However, to the extent Huang's testimony was not a product of his investigation, but rather reflected specialized knowledge he has because of his extensive experience in international banking, its admission pursuant to Rule 701 was error. Thus, Huang's explanations regarding typical international banking transactions or definitions of banking terms, and any conclusions that he made that were not a result of his investigation, were improperly admitted. Of course, these opinions may, nonetheless, have been admissible pursuant to Rule 702 because "[c]ertainly it is possible for the same witness to provide lay and expert testimony in a single case." Fed. R. Evid. 701, advisory committee's note (citing United States v. Figueroa-Lopez, 125 F.3d 1241, 1246 (9th Cir. 1997)). But before such testimony could have been proffered pursuant to Rule 702, Bank of China was obligated to satisfy the reliability requirements set forth in that Rule, and disclose Huang as an expert pursuant to Rule 26(a)(2)(A) of the Federal Rules of Civil Procedure.
Bank of China, 359 F.3d at 181-82 (footnotes omitted).

As a result of instructional error, the circuit did not need to determine whether the introduction of the lay opinion testimony was harmless error under FRE 103(a).

The Bank of China case highlights the perception requirement for lay opinion testimony under FRE 701. The experience of the witness could be used for lay testimony so long as it was based on his perception. To the extent it was not grounded on witness perceptions, the evidence could have been admitted as expert testimony under FRE 702.


Photo Description: Bank of China Logo (2008)

Federal Rules of Evidence