Chapter III Testimonial Evidence

• Jurisdiction: United States

III. Testimonial Evidence

A. Declarations and Proffers

Civil Rule 43(a) (made applicable to bankruptcy cases by Bankruptcy Rule 9017) provides that "[i]n all trials the testimony of witnesses shall be taken orally in open court, unless otherwise provided by an Act of Congress or by these rules, the Federal Rules of Evidence, or other rules adopted by the Supreme Court."¹²⁵

Rule 611 provides that the ultimate responsibility for an effective process of accepting testimony rests with the trial judge:

(a) Control by the Court; Purposes. The court should exercise reasonable control over the mode and order of examining witnesses and presenting evidence so as to:

(1) make those procedures effective for determining the truth;
(2) avoid wasting time; and
(3) protect witnesses from harassment or undue embarrassment.¹²⁶

Courts have generally concluded that taking direct testimony through witness affidavit or declaration in bench trials does not violate due process and is consistent with the requirements of the Bankruptcy Rules and the Federal Rules of Evidence. Indeed, the use of written testimony for direct examination "is an accepted and encouraged technique for shortening bench trials."¹²⁷ This written testimony is usually provided in the form of a declaration under penalty of perjury.¹²⁸

In addition, for many routine evidentiary hearings, such as "first day" motions in larger chapter 11 cases, relief from stay, confirmation or claim objections, the use of an attorney proffer is an effective tool to streamline a proceeding. A proffer is an offer of a witness's testimony by an attorney in lieu of the witness testifying (live or by declaration). While there is no specific Bankruptcy Rule authorizing the use of a proffer, Federal Rule of Evidence 611 provides support for the liberal use of attorney proffers, and bankruptcy courts routinely accept proffers "regarding undisputed matters so as to expedite proceedings."¹²⁹

Direct-testimony declarations and attorney proffers should be prepared similar to a direct examination. They should focus the court's attention on essential facts in support of the relief requested. The bankruptcy court's local rules may provide guidance on the scope and use of proffered testimony and direct-testimony declarations.¹³⁰ While declarations and proffers may be used in lieu of direct testimony, the witness must be present in the courtroom and must be made available for cross-examination and any redirect testimony. In addition, an attorney seeking to proffer testimony or offer direct testimony through declaration may face an objection from the court or opposing counsel and should be prepared to proceed through live testimony.¹³¹

i. Offering a Proffer in Lieu of Testimonial Evidence

Debtors' Counsel: Your Honor, the debtors request to present their case in chief on the debtor's motion by a proffer of Ms. X, the debtors' CEO. Ms. X is here in the courtroom, and she is available for cross-examination. I have conferred with parties that have filed objections to the motion and they have consented to proceeding by attorney proffer of Ms. X's testimony.

Court: Counsel may proceed in this manner subject to any other parties in interest having an objection [i.e., beyond motion objectors that have consented to the proffer]. Do any parties in interest object to proceeding by attorney proffer? Hearing no objections, you may proceed.

Debtors' Counsel: The debtors proffer Ms. X, who is present in the courtroom and available for cross-examination. If called to the stand under oath, Ms. X would testify as follows....

B. Specific Testimonial Issues

1. Refreshing Witness's Recollection

When examining a witness, she or he may respond to a question with "I don't know" or "I don't remember." It is impossible to refresh the witness's recollection if he or she truly never knew the answer. But an "I don't know" response likely warrants further clarifying questions to determine (a) the credibility of the witness and (b) whether the witness did in fact know the answer at one point (such that his or her memory can be refreshed).

If a witness continues to assert that she or he does not know the answer to a question and a record exists that demonstrates otherwise, counsel may impeach the witness through use of a past recollection recorded under Rule 803(5) (see Section V.D.4).

In addition, an adverse party may use a writing to refresh the witness's memory. Rule 612(a) sets forth how counsel may use writings to refresh a witness's recollection:

(a) Scope. This rule gives an adverse party certain options when a witness uses a writing to refresh memory:

(1) while testifying; or

(2) before testifying, if the court decides that justice requires the party to have those op-tions.¹³²

In using a writing to refresh a recollection, the party must produce the writing at the hearing, permit its inspection, and allow the witness to be cross-examined on the writing.¹³³ It is not necessary that the document used to refresh the witness's recollection itself be admissible. It is the recollection that is being offered, not the reminder. As a result, it is proper practice to take the writing away from the witness before she or he continues to testify.

i. Follow-Up Questions to "I don't know."

Q: You were the chief financial officer of Acme Corp.

Q: As CFO, you were responsible for deciding which creditors to pay in the months preceding the bankruptcy filing?

Q: XYZ Corporation is a creditor of Acme Corp.?

Q: Given the liquidity needs of the company in the month before the bankruptcy filing, you personally signed off on which creditors to pay and which creditors would go unpaid?

Q: And you don't know whether you signed-off on the payment to XYZ Corp.?

ii. Refreshing Witness's Recollection: Option 1

Q: Do you now recall [fact to be recalled] ?

A: No, I do not.

Q: Is there anything that would refresh your recollection?

A: Yes.

Q: What would that be?

A: [Witness identifies.]

iii. Refreshing Witness's Recollection: Option 2

Q: Would looking at __________ refresh your recollection?

A: Yes. [Give to witness and copy to court.]

Q: Let me put this before you and ask you when you have had a chance to review it.

A: [After reviewing] I have. [Take from witness.]

Q: Did looking at X refresh your recollection?

A: It did.

Q: Can you now please tell me about [the fact].

2. Ordinary Course of Business: Habit; Routine Practice

Establishing a person's habit or an entity's routine business practice is often important in bankruptcy cases. For example, evidence of a routine practice may establish an ordinary-course-of-business defense to a preference action, the historical cash-management system of the company as part of a "first day" cash-management motion or employee wage motion, or feasibility of a plan at the confirmation hearing.

The admissibility of evidence establishing a routine business practices is set forth in Rule 406, which provides:

Evidence of a person's habit or an organization's routine practice may be admitted to prove that on a particular occasion the person or organization acted in accordance with the habit or routine practice. The court may admit this evidence regardless of whether it is corroborated or whether there was an eyewitness.

According to the Advisory Committee Notes, habit is understood to be a person's "regular response to a specific situation."¹³⁴ To establish that a particular conduct has become a defendant's habit, counsel should submit evidence establishing a "degree of specificity and frequency of uniform response that ensures more than a mere 'tendency' to act in a given manner, but rather, conduct that is 'semi-automatic' in nature."¹³⁵ Thus, use of testimonial evidence to establish a routine practice would be significantly bolstered by the introduction of documentary evidence to support the testimony, such as evidence showing routine precision in accounts payable ledgers, check registers and other business records.

The essential function of Rule 406 is to permit testimony from the witness that the company engaged in the activity in question as customary practice. Typical objections to such testimony are:

• The matter at issue did not occur when such routine was in place.
• The evidence already shows that the company was not following its routine at the relevant time, in which case the testimony is not probative concerning the relevant time period.
• The evidence already shows that the transaction in question was not handled according to typical practice.

i. Establishing a Company's Routine in Payment of Accounts: Option 1

Q: Are you familiar with the procedures of Company X in connection with payment of its accounts?

A: Yes.

Q: What is the basis for your knowledge?

A: [Witness explains.]

Q: Were these procedures regular and routine for Company X?

A: Yes.

Q: In what way?

A: [Witness either describes basis for procedures, including checklists, official directives, office manuals, etc., or provides evidence of sufficient specific instances or both to demonstrate the regularity.]

ii. Establishing a Company's Routine in Payment of Accounts: Option 2

Q: What were Company X's practices with respect to payment of accounts?

A: In general, they were routinely paid about ___ days from the date due.

Q: I notice that the majority of the invoices are net ___; is that correct?

A: Yes.

Q: What were the Company's practices with respect to those invoices?

A: They were routinely paid ___ days after that due date.

3. Challenging Secured Party's Lien: Parol Evidence

The extent, validity and priority of a secured party's interest in property of the debtor's estate can be a critical issue in a bankruptcy case. Parties challenging or defending the secured party's interest may seek to introduce evidence beyond the four corners of a note, security agreement or deed of trust (i.e., parol evidence).

The parol evidence rule "is a rule of substantive contract law and not a rule of evidence."¹³⁶ Accordingly, when making a state law determination...