Chapter I Overview of Evidence

• Jurisdiction: United States

I. Overview of Evidence

A. Introduction

Bankruptcy cases span a wide range. There are consumer cases and business cases. Some cases are routine and present few, if any, disputes for determination by a court. Others are significantly more complex and require judicial intervention at multiple steps along the way. Parties litigate issues involving a few hundred dollars, or a few hundred million dollars. From a litigation perspective, however, there is one common thread running through all bankruptcy cases: Courts need evidence to decide disputes. Evidence may come in the form of testimony and exhibits admitted at trial or hearing. It may come in the form of allegations that are expressly admitted or not properly controverted. It may come in the form of affidavits or stipulations. Regardless of the form, some evidence needs to be presented to the court.

Contrary to a popular myth, the rules of evidence do, in fact, apply in bankruptcy cases.¹ A bankruptcy practitioner who does not have a working command of the Rules² and the foundational principles of evidence is at a distinct disadvantage. Conversely, a practitioner who has mastered the Rules may have a marked advantage in a hotly contested matter. This Handbook provides a narrative discussion of the most common evidentiary issues encountered in a bankruptcy case and a practical guide for how to navigate those issues in a hearing or trial.

The Rules are complicated, and as a result, methodical preparation for any evidentiary presentation is required. On one hand, counsel must have considered evidentiary issues well in advance and planned for how to address them. On the other hand, counsel must often make real-time decisions about evidentiary matters, including whether to object and, if so, how to object.

The first part of the Handbook is a textual narrative covering evidentiary topics, with citations to the applicable Rules and to illustrative cases. The Handbook is not an exhaustive evidence treatise. Instead, it aims to point the reader to leading cases interpreting various parts of the Rules. While the Rules apply uniformly in all judicial districts in all bankruptcy cases, judicial interpretations of the Rules can vary. Thus, counsel should check for controlling case law in the appropriate district. Additionally, judges have different preferences on how evidence is presented and how objections should be raised. Counsel is well-advised to determine, in advance of trial, the judge's preferences.

The second part of the Handbook contains sample examinations designed to aid counsel's trial preparation. That preparation will, of course, need to be tailored to the facts of each case. But the sample examinations will help focus counsel's attention on the evidentiary steps that need to be taken to get evidence admitted or excluded. Because of this marriage of theoretical and practical utility, the authors hope this Handbook will be helpful to both the novice lawyer approaching his or her first hearing or trial and the experienced bankruptcy litigator.

B. Direct Examination

The object of direct examination is to establish the factual basis of a claim or defense. Cases are rarely won on cross-examination. Thus, as a general rule, a significant amount of attention should be devoted to preparing and executing an effective direct examination. When preparing the examination, the questioning counsel must stand in as the surrogate for the fact-finder and develop questions that are necessary to elicit the necessary facts. Quite frequently, the journalist's traditional "who, what, when, where, why, and how" questions are most effective in this context (and have the benefit of not leading the witness on direct). Asking short, basic questions on direct examination helps keep the focus where it belongs during direct: on the testimony of the witness.

This section generally addresses direct examination of a live witness. Keep in mind, however, that direct testimony in bankruptcy cases is often provided by declaration or proffer in lieu of live testimony (as discussed in Section III.A).

1. Preparing Your Direct Examination

Breaking this down, there are three categories of information. First is information that the fact-finder needs to know. The essential evidence proves or disproves the elements of the cause of action. The party with the burden of proof must focus on evidence that supports the allegations; the defending party's direct case must incorporate evidence that contradicts the elements or establishes an affirmative defense. Additionally, in preparing for direct examination, counsel should pay attention to what evidence is not disputed by examining the pleadings and discovery materials. Undisputed facts may often be dealt with using pre-trial stipulations, leaving the focus of direct examination on important disputed issues.

Second is information that the fact-finder would like to know — not essential but contextual. For example, the motives behind a particular transaction may not be necessary information for the fact-finder, but they are often of interest. Such context makes a direct case compelling and interesting. Further, even in the driest of cases, there is always some emotional component that inevitably affects the fact-finder.

Finally, there may be information that would normally be part of the narrative but that, for some reason or another, will not be introduced. Rather than simply pretend that this omission does not exist, counsel should plan for direct testimony that explains or minimizes the impact of such a hole in the narrative.

With each of these categories of information, counsel should anticipate the cross-examination. In doing so, counsel may enhance and add credibility to counsel's own case and simultaneously mitigate the opposition's ability to control the narrative. Counsel should likewise be prepared to respond to any reasonable objection. A witness outline should provide counsel with the tools to address an objection. For example, if testimony will likely elicit a hearsay objection, the outline should arm counsel with the relevant hearsay exception and supporting case law. Preparation for cross and objections will help focus the direct examination.

For key witnesses, counsel's preparation should also include preparing the witness by going over the questions counsel intends to ask on direct, anticipated cross-examination questions, answers and objections.

2. Witness Competency

In considering potential witnesses, counsel must understand the limitations imposed by the Rules. Each witness must be competent to testify, and, except for expert witnesses, the witness's testimony must be based on personal knowledge.³

The issue of competency is rarely disputed, because Rule 601 provides that "[e]very person is competent to be a witness unless these rules provide otherwise." However, there may be instances where the witness is a minor or the mental health of a witness is questioned. If a competency dispute exists and it is a civil case involving a state law claim, state law governs whether a witness is competent to testify.⁴

Rule 602 is similarly direct. A witness may not testify to a matter unless foundational evidence is introduced sufficient to support a finding that the witness has personal knowledge of the matter. The purpose of "laying a foundation" before addressing substantive points of testimony is to ensure that the witness has firsthand knowledge of the matter and did not gain his or her knowledge through a source other than that firsthand knowledge or experience. Rule 602 does not, however, apply to expert testimony provided under Rule 703.

3. Form of Questions

In crafting direct-examination questions, counsel should consider not only whether the questions will result in the introduction of admissible facts, but also how they will affect the shape and rhythm of the testimony. Counsel should endeavor to keep the attention on the witness. Accordingly, not only are leading questions generally impermissible, they are also ill-advised.⁵

The most common structure of direct examination is chronological. Not only is it simple from the point of view of the witness, it also makes it easy for the fact-finder to comprehend. Another common approach, particularly in business cases, is to first break the testimony down by topic, then proceed chronologically within each topic. As long as counsel makes clear when a new topic is taken up, this approach is also relatively easy for witnesses and fact-finders.

There are other possible approaches. In deciding how to structure testimony, however, counsel must always keep an eye on two things: (a) the legal issues, such as proving elements and complying with the Rules; and (b) the need to make the testimony comprehensible, persuasive, and credible to the fact-finder.

4. Practice Pointers

Before turning to specific issues of technique, one final structural point should be addressed. It is a common tendency for counsel to focus on the strengths of their case rather than the weaknesses. It is difficult to focus on the parts of a case that create fear or anxiety. Nonetheless, as part of a direct case, counsel must confront and, if possible, defuse such weaknesses by (a) minimizing the problem, (b) explaining the problem away, or (c) challenging the credibility of the witnesses supporting that weakness. These strategies require counsel to determine whether it is best to address the weaknesses in direct examination, prepare the witness to handle the topics during cross-examination, and/or conduct follow-up in redirect that clarifies or minimizes the effect.

The purpose of technique in direct examination is to facilitate the substantive goals of counsel; it is not a goal in itself. Thus, while counsel can always improve technique, it should be a byproduct of the effort to build and present a persuasive case.

The starting point, therefore, is simplicity. Counsel must eliminate anything that unnecessarily complicates the...