UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

TOKIO MARINE & FIRE INSURANCE
COMPANY, LTD.,
Plaintiff-Appellant,

v.
                                                                 No. 98-1050
NORFOLK & WESTERN RAILWAY
COMPANY; NORFOLK SOUTHERN
RAILWAY COMPANY,
Defendants-Appellees.

TOKIO MARINE & FIRE INSURANCE
COMPANY, LTD.,
Plaintiff-Appellee,

v.
                                                                 No. 98-1077
NORFOLK & WESTERN RAILWAY
COMPANY; NORFOLK SOUTHERN
RAILWAY COMPANY,
Defendants-Appellants.

Appeals from the United States District Court
for the Middle District of North Carolina, at Winston-Salem.
Frank W. Bullock, Jr., Chief District Judge.
(CA-94-535-6)

Argued: October 28, 1998

Decided: January 14, 1999

Before NIEMEYER and MICHAEL, Circuit Judges, and BOYLE,
Chief United States District Judge for the Eastern District of
North Carolina, sitting by designation.

_________________________________________________________________
Reversed in part and affirmed in part by unpublished per curiam opin-
ion.

_________________________________________________________________

COUNSEL

ARGUED: Michael Wayne Lodwick, PORTER, GROFF & LOD-
WICK, L.C., Long Beach, California, for Appellant. James Richard
Saintsing, BROOKS, PIERCE, MCLENDON, HUMPHREY &
LEONARD, L.L.P., Greensboro, North Carolina, for Appellees. ON
BRIEF: Ellis B. Drew, III, WOMBLE, CARLYLE, SANDRIDGE &
RICE, P.L.C., Winston-Salem, North Carolina, for Appellant. Lennox
Polk McLendon, Jr., Reid L. Phillips, BROOKS, PIERCE, MCLEN-
DON, HUMPHREY & LEONARD, L.L.P., Greensboro, North Caro-
lina, for Appellees.

_________________________________________________________________

Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

_________________________________________________________________

OPINION

PER CURIAM:

Tokio Marine & Fire Insurance Co., Ltd. ("Tokio Marine") insured
shipments of Honda automobiles that were transported from the fac-
tory by Norfolk & Western Railway Co. and Norfolk Southern Rail-
way Co. (collectively "Norfolk"). A number of cars were damaged in
transit, and Tokio Marine paid Honda's claim for the damaged cars.
Norfolk partially reimbursed Tokio Marine but claimed an offset for
the salvage value of the damaged cars. The insurance company then
sued to recover the amount that Norfolk withheld. At trial Norfolk
offered evidence regarding an appraisal of scrapped cars, and a jury
ruled against Tokio Marine based on that evidence. We now hold that
this appraisal evidence was inadmissible. Finding no other evidence
of the value of these cars, we reverse.

                    2
Norfolk asserts a cross-appeal regarding damage to a separate ship-
ment of cars. On that claim, the district court excluded another
appraisal report and granted judgment as a matter of law for Tokio
Marine. We agree with the exclusion of that report and affirm on the
cross-appeal.

I.

Norfolk transports new cars by rail for American Honda Motor
Co., Inc. ("Honda"). On four separate occasions (referred to as Claims
1, 2, 3, and 4), Norfolk damaged Honda cars while shipping them. On
Claim 1, only one car was damaged. Eleven and 16 cars respectively
were damaged on Claims 2 and 3. Claim 4 was by far the most seri-
ous; 180 cars were damaged when the train carrying them derailed.
Of these 180 cars, 45 could be repaired but 135 were declared con-
structive total losses due to severe structural damage. Honda
destroyed the 135 constructive total losses from Claim 4 and all of the
damaged cars from the other three accidents. It then filed a claim with
Tokio Marine, its insurance company.

Tokio Marine paid Honda's claim for the damaged cars, covering
90 percent of the actual dealer cost for each car that was declared a
constructive total loss. Tokio Marine, through subrogation, then
sought to recover this loss from Norfolk. Norfolk admitted liability,
but disputed the amount of damages. It contended that Honda could
have mitigated its damages by releasing for salvage usable parts that
could be stripped from the scrapped cars.1 Norfolk therefore obtained
appraisals of the damaged cars from two auto salvage companies and
reduced its payment to Tokio Marine by the average value of the two
appraisals. Tokio Marine thereafter sued Norfolk for the amount of
this offset.

At trial the district court granted judgment as a matter of law for
Tokio Marine on Claim 2, pursuant to Fed. R. Civ. P. 50(a). It sent
the remaining claims to a jury, which returned verdicts for Norfolk on
Claims 1, 3, and 4. However, the court set aside the jury verdicts on
_________________________________________________________________
1 We express no opinion as to whether Norfolk is entitled to mitigate
damages in this way. In any event, it was Norfolk's burden to prove the
value of salvageable parts.

                    3
Claims 1 and 3, ordering a new trial.2 It let stand the jury verdict for
Norfolk on Claim 4, which Tokio Marine now appeals. Norfolk cross-
appeals from the directed verdict on Claim 2.

Tokio Marine's appeal on Claim 4 focuses on the admissibility of
evidence regarding the appraised value of the damaged cars. At trial
a Norfolk employee testified that the railroad obtained two appraisals,
from Deer Creek Auto & Truck Parts ("Deer Creek") and GAL Auto.
He explained that Norfolk derived its asserted salvage value for the
cars by calculating the average of the totals submitted by the two
appraisers. This average salvage value, which Norfolk claimed should
be offset as mitigation of Tokio Marine's damages, totaled
$644,222.80.

The district court excluded as hearsay Norfolk's calculation of the
salvage value average. Furthermore, Norfolk failed to offer into evi-
dence the appraisal by GAL Auto. Thus, the only evidence as to the
salvage values of the cars was the appraisal by Deer Creek. Jack
Clark, the owner of Deer Creek, prepared this appraisal with the assis-
tance of his grandson, Brian Wisecup. Because Clark was unable to
appear at trial, Wisecup testified about the preparation of the
appraisal. Based on this testimony, the court admitted into evidence
Deer Creek's appraisal report, rejecting a hearsay objection by Tokio
Marine. The court held that the Deer Creek report could be admitted
under either of two theories: (1) that the appraisal was prepared
jointly by Clark and Wisecup and thus represented Wisecup's own
expert opinion or (2) that the report was a business record of Deer
Creek falling within the hearsay exception of Fed. R. Evid. 803(6).
We reject both grounds for admitting the Deer Creek appraisal into
evidence and believe that this report should have been excluded at
trial. Since there was no other evidence of the possible salvage value
of the cars, the district court erred in sending the case to a jury. The
court should have granted Tokio Marine's motion for judgment as a
matter of law.
_________________________________________________________________

2 The district court stayed the new trial, pending the outcome of this
appeal.

                    4
II.

First, we reject, as clearly erroneous, the district court's factual
finding that the Deer Creek appraisal report represented the opinion
of Wisecup. Because the appraisal represented the opinion of Clark,
who did not testify at trial, the report was hearsay.

A careful review of the evidence conclusively reveals that the
report represented only the opinion of Jack Clark. It is apparent that
although Wisecup assisted Clark in the preparation of the appraisal
and occasionally offered his input, the ultimate conclusions as to the
salvage value of the cars represented the views of Clark alone. In his
deposition, which was read to the jury, Wisecup was asked who
appraised the vehicles, and he answered as follows:

          My grandfather and I did both. It was basically - he was
          basically the one that was doing it. And basically what I
          was, he was asking me my opinion on a few things. But
          these were basically his bids. You know, I would say that
          they were both of our bids, but, you know, he was the one
          who had the say-so on the bid itself.

Another exchange during the deposition concerned the handwritten
notes taken by Clark as he examined the cars:

          Q: "Yeah. Well, the handwritten notes on Pages 2, 3 and
          4 of Exhibit 1---"

          A: "Oh, who wrote those?"

          Q: "Yeah."

          A: "My grandfather, Jack Clark."

***

          Q: "So, now did he prepare these handwritten notes, Pages
          2, 3 and 4 of Exhibit 1, based on information you gave him
          ---"

                    5
         A: "No. This was---"

         Q: "---on your appraisal of the cars?"

         A: "This was his information."

When Wisecup testified at trial, Tokio Marine's questioning
returned to this point:

         Q: Mr. Wisecup, if you will look at Defendant's Exhibit
         12, Pages 2, 3 and 4 - it's a four-page document, I believe.
         If you'll look at Pages 2, 3 and 4, sir, isn't it true that these
         numbers were not written on these pages by you?

         A: Right.

         Q: You did not write them?

         A: Exactly.

         Q: And isn't it also true that these numbers are not bids
         that you have decided on?

         A: That I decided on?

         Q: Yes.

         A: My grandfather and I did.

          Isn't it true that your grandfather decided on these num-
         bers, and that he only occasionally asked you for your input
         on them?

         A: Yes, yes.

         Q: So these numbers, in fact, are the ones decided by your
         grandfather?

         A: Yes.

                     6
Wisecup's position in his deposition and at trial was the same. He
began by saying that the appraisal numbers were his grandfather's and
also his own. Each time he backed down completely when pressed.
In the end, he admitted that his grandfather (Clark) was the one who
decided the appraisal numbers. Thus, the appraisal value listed on the
report was only the opinion of Clark and did not represent Wisecup's
opinion as to the value of the cars. We recognize that Wisecup occa-
sionally offered input during the appraisal process and that Clark
might have considered Wisecup's views with regard to a few of the
135 damaged cars. However, it cannot be said that the appraisal report
as a whole represents Wisecup's opinion. It does not.

Since the report presents the opinion of someone who did not tes-
tify at trial, and it was offered as evidence of the appraisal value of
the damaged cars, it was hearsay. Turning to the question of whether
the report was still admissible into evidence, we reject both theories
relied upon by the district court. We conclude that the report should
not have been admitted as an expert opinion. We also disagree with
the district court's alternative theory for admitting it under the busi-
ness records exception to the hearsay rule.

A.

Rule 702 of the Federal Rules of Evidence provides that if special-
ized 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." The Supreme Court
has noted, in the context of scientific experts, that a trial judge must
"ensur[e] that an expert's testimony both rests on a reliable founda-
tion and is relevant to the task at hand." Daubert v. Merrell Dow
Pharmaceuticals, Inc., 

, 597 (1993); see also Berry v.
City of Detroit, 

, 1349, 1351 (6th Cir. 1994). No such
"reliable foundation" was offered for the appraisal report in this case.
The report undoubtedly presents the opinions of Jack Clark in the
form of his appraisal of the damaged cars. However, Norfolk failed
to offer any evidence to qualify Clark as an expert, despite the
requirement of Rule 702 that an expert must be qualified based on
"knowledge, skill, experience, training, or education." Fed. R. Evid.

                     7
702. Norfolk therefore failed to lay the necessary foundation for the
use of expert opinion evidence.

Even if Clark were qualified as an expert, the report was inadmissi-
ble hearsay. Reports stating an expert opinion "are not admissible
without the preparer being present in court to testify as to his qualifi-
cations as an expert and to be cross-examined on the substance."
Forward Communications Corp. v. United States, 

, 511
(Ct. Cl. 1979). Because Clark did not testify, Tokio Marine had no
opportunity to question him about either his methodology for apprais-
ing the cars or the factual basis for his opinions. It did question Wise-
cup as to what he saw Clark doing when the two men examined the
cars. However, since the final valuation opinion was exclusively
Clark's, the cross-examination of Wisecup could reveal nothing about
the mental processes by which Clark reached his opinion.

The district court, through its own questioning, tried to determine
whether Wisecup concurred in Clark's appraisal. After Wisecup was
cross-examined, the court questioned him further:

          THE COURT: Did the two of you agree on these figures
          that are on this Exhibit 12 on all four of these pages?

          THE WITNESS: Right. He got my opinion on some of
          them, but it's basically his opinion.

          THE COURT: All right. Do you agree with his opinion?

          THE WITNESS: Yes. I mean, I - I would have to look at
          every car again, but yes. I mean, if they are documented
          here, yes.

          THE COURT: Did you agree with him at the time?

          THE WITNESS: Yes, yes.

Wisecup thus conceded that the opinion was Clark's and said that
he agreed with that opinion. However, one expert may not give the
opinion of another expert who does not testify. Weaver v. Phoenix

                     8
Home Life Mut. Ins. Co., 

, 159 (4th Cir. 1993); 6816.5
Acres of Land v. United States, 

, 839-40 (10th Cir.
1969). The hearsay quality of a report may not be cured merely by
having another expert testify that he agrees with its conclusions.
Wisecup may have been an expert in his own right who could have
made his own, independent, assessment of the values of the cars.
However, Clark's hearsay opinion could not be admitted on the basis
of Wisecup's statement that he agreed with its conclusions. The dis-
trict court therefore erred in allowing Norfolk to introduce Clark's
appraisal report via Wisecup's testimony.

B.

The district court held in the alternative that the Deer Creek
(Clark's) appraisal report was admissible under the business records
exception to the hearsay rule. The business records exception pro-
vides that a report, although hearsay, is admissible if it was "made at
or near the time by, or from information transmitted by, a person with
knowledge, if kept in the course of a regularly conducted business
activity, and if it was the regular practice of that business activity to
make [the report]." Fed. R. Evid. 803(6). This rule recognizes the
"probability of trustworthiness of records because they were routine
reflections of the day to day operations of a business." Palmer v.
Hoffman, 

, 113-14 (1943). In determining admissibility,
courts must look to "the character of the records and their earmarks
of reliability acquired from their source and origin and the nature of
their compilation." 

omitted).

The Deer Creek appraisal report was not a record of"regularly con-
ducted business activity" and lacks the indicia of reliability necessary
for admission under the business records exception. Deer Creek's
business was buying wrecked motor vehicles and dealing in used auto
parts. Although Deer Creek may examine wrecked vehicles and make
decisions as to their value on a regular basis, it does so in the context
of making bids to buy those vehicles. Here, however, Deer Creek was
simply giving an appraisal opinion for a fee and had no expectation
of actually buying the damaged Hondas. Wisecup explained in his
deposition (read at trial):

          Q: "Okay. So it was your understanding, in any event, you
          were going to bid the cars, but that you weren't going to be

                     9
          able to take title to the cars; that someone, presumably the
          manufacturer, I guess, was not going to let title out to either
          Norfolk Southern or you, correct?"

          A: "Right, which makes it basically an appraisal at that
          time."

***

          Q: "You understood when you were appraising these vehi-
          cles that you weren't going to be able to acquire them even
          though you - you were going to put a bid in perhaps, but that
          you weren't going to be able to actually buy the cars, cor-
          rect?"

          A: "Right."

The appraisals or "bids" submitted by Deer Creek therefore were
not bona fide offers to buy the damaged cars for a stated price.
Instead, they were merely estimates of the cars' value. As such, they
lacked the inherent reliability of a real bid that reflects what a market
actor is actually willing to pay. Because the appraisal lacked this
inherent reliability, there was no way to evaluate it on its face. It was
necessary for the opposing side to have the opportunity to cross-
examine the person who actually made the appraisal. The appraisal
therefore could not be admitted under the business records exception
to the hearsay rule.

III.

Norfolk cross-appeals the district court's grant of judgment as a
matter of law for Tokio Marine on Claim 2. The court had excluded
an appraisal report for those damaged cars (prepared by Gray & Tay-
lor, Inc.), holding it to be inadmissible hearsay. Finding no other evi-
dence as to the salvage value of those cars, the court directed a verdict
for Tokio Marine on that claim. The person who prepared the
appraisal for Claim 2 was also unavailable to testify at trial. Norfolk
therefore attempted to introduce his report through the testimony of
his supervisor. The supervisor testified that the appraisal was made

                     10
and kept in the ordinary course of business. Norfolk asserted that,
although hearsay, this report should be admitted under the business
records exception. See Fed. R. Evid. 803(6). The district court prop-
erly excluded this appraisal as hearsay. We therefore affirm on the
cross-appeal, adopting the reasoning of the district court. See Tokio
Marine & Fire Ins. Co., Ltd. v. Norfolk and Western Ry. Co., No.
6:94CV535, Trial Tr. at III-50 (M.D. N.C. Sept. 6, 1996).

IV.

In conclusion, Norfolk's only evidence of the salvage value of the
vehicles in Claim 4 was Deer Creek's appraisal report. Without that
report, there was a complete failure of proof at trial by Norfolk, and
the district court erred in denying judgment as a matter of law for
Tokio Marine. See Stastny v. Southern Bell Tel. and Tel. Co., 

, 281 (4th Cir. 1980). We therefore reverse as to Claim 4.

The appraisal report on Claim 2 was properly excluded. The dis-
trict court was correct to grant judgment as a matter of law for Tokio
Marine on Claim 2 because there was no evidence of the salvage
value of those cars. Thus, on Norfolk's cross-appeal on Claim 2, we
affirm the judgment of the district court.

REVERSED IN PART AND AFFIRMED IN PART

                    11