LITIGATING ON A BUDGET: Panel: Stephen Berken, Esq., Honorable Joseph Rosania, D. Colo., Cynthia Kennedy, Esq. I. Analyzing Your Case A. Research Your Claims and Defenses 1. Is there a State Court or Administrative Judgment/Ruling/Determination which may bar your claim/defense? Or give you a basis for a Motion to Dismiss? People (and entities) come to bankruptcy court with creditors in tow. Often there are proceedings elsewhere which will define your offensive/defensive options: a) Rooker-Feldman. If there is truly a state court judgment which has ruled on the matter at hand, it is determinative. This is jurisdictional. b) Res Judicata. Both offensive and defensive res judicata claims can be waived. Use it or lose it. This is one circumstance where YOU MUST bring the pre-trial motion. c) Collateral Estoppel. Same as res judicata above. Don’t wait until trial or closing to add this issue. See full article included in materials. 2. Does the Complaint State a Cause of Action? a. Motion for Judgment on the Pleadings - Fed.R.Bankr.P. 7012(c) i. A Motion for Judgment on the Pleadings can be a cost-effective strategy for a plaintiff to the extent that, based upon the pleadings alone, plaintiff is entitled to judgment as a matter of law; the process provides for a shortcut to judgment if a judgment can be rendered based upon the allegations in the pleadings alone.
Transcript
LITIGATING ON A BUDGET:
Panel: Stephen Berken, Esq., Honorable Joseph Rosania, D. Colo.,
Cynthia Kennedy, Esq.
I. Analyzing Your Case
A. Research Your Claims and Defenses
1. Is there a State Court or Administrative Judgment/Ruling/Determination which
may bar your claim/defense? Or give you a basis for a Motion to Dismiss? People (and entities)
come to bankruptcy court with creditors in tow. Often there are proceedings elsewhere which
will define your offensive/defensive options:
a) Rooker-Feldman. If there is truly a state court judgment which has ruled on the
matter at hand, it is determinative. This is jurisdictional.
b) Res Judicata. Both offensive and defensive res judicata claims can be waived. Use it
or lose it. This is one circumstance where YOU MUST bring the pre-trial motion.
c) Collateral Estoppel. Same as res judicata above. Don’t wait until trial or closing to
add this issue.
See full article included in materials.
2. Does the Complaint State a Cause of Action?
a. Motion for Judgment on the Pleadings - Fed.R.Bankr.P. 7012(c)
i. A Motion for Judgment on the Pleadings can be a cost-effective strategy for a
plaintiff to the extent that, based upon the pleadings alone, plaintiff is entitled to judgment as a
matter of law; the process provides for a shortcut to judgment if a judgment can be rendered
based upon the allegations in the pleadings alone.
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ii. A Motion for Judgment on the Pleadings should be filed after the case is at-
issue and must be filed early enough not to delay trial.
iii. A Motion for Judgment on the Pleadings is treated as a request for
summary judgment if the court is to consider matters outside of the pleadings. See
Fed.R.Bankr.P. 7012(d). However, if the matter is referenced in the pleadings (i.e., a contract) or
is external to the claims (i.e., jurisdictional), the “outside the pleadings” rule may not apply.
iv. Special matters (e.g., fraud) must be pled with specificity under
Fed.R.Bankr.Proc. 7009. If not pled properly, consider a motion for failure to state a claim or for
judgment on the pleadings. Fraud is one area where it may be better to raise the issue earlier
rather than must litigate the issue at trial.
b. Vague Claims. Some claims have traditionally been so vague they were hard to get a
court to dispose of early, such as alter ego cases. The cases of Bell Atlantic Corp. v. Twombly,
550 U.S. 544, 561 (2007) and Ashcroft v. Iqbal, 129 S. Ct. 1949 (2009) created a new standard
for assertion of claims—the complaint must state a facially plausible set of facts meeting the
elements of the claim.
Since Twombly and Iqbal, courts routinely reject attempts to pierce the corporate veil
when the complaint contains only conclusory allegations. See Madison Cnty. Commc’ns Dist. v.
Century Link, Inc., 2012 WL 6685672 (N.D. Ala. Dec. 20, 2012); Mark IV Transp. & Logistics,
Inc. v. Lightning Logistics, LLC, 2012 WL 4506470 (D.N.J. Sept. 28, 2012); Landmark
Ventures, Inc. v. Wave Systems Corp., 2012 WL 3822624 (S.D.N.Y. Sept. 4, 2012); Legal
Additions LLC v. Kowalski, 2010 WL 335789, at *6 (N.D. Cal. 2010); Partners Coffee Co., LLC
v. Oceana Servs. & Prods. Co., 700 F. Supp. 2d 720, 736 (W.D. Pa. 2010).
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State courts are beginning to adopt this higher standard of pleading. See e.g., Warne v.
Hall, 2016 CO 50, 373 P.3d 588, 590 (Colo. 2016).
3. Know the Elements. You Need to Prove/Defend Against—this will help you tailor
your discovery and focus your efforts.
4. Burden of Proof. Which side has the initial burden of going forward and which the
ultimate burden of persuasion? See e.g., In re Anthem Communities/ RBG, LLC, 267 B.R. 867
(Bankr. D. Colo. 2001) (Bank’s insufficient evidence to meet burden of going forward
determinative; Debtor’s reciprocal burden to show adequate protection not invoked). Is there a
possibility of shifting the burden? Are any rebuttable presumptions involved?
B. What Evidence Will It Take to Prove/Defend Your Case.
1. Think up Front. Figure out early what kind of evidence you need to prove or
disprove each element and whether you will need expert testimony to get there.
2. Think About Expert Testimony. Now is time to think about what elements require
expert testimony. Accountants may not be required (a judge can do math) but may make the
presentation of damages much easier; whereas you may absolutely need them for monetary
conversion figures or historical stock prices, for example. Experts can be anyone from the
computer repair person who can testify the debtor’s records were destroyed in a computer failure
(relevant re 727 claim of lost records), to an auctioneer rendering a liquidation value, to an
economist projecting farm yields and interest rates, to a medical doctor testifying on a student
loan hardship discharge case.
C. Can You Win? Try to be objective. All our clients are morally outraged at their
circumstances and although our position is to be advocates, bankruptcy attorneys are pragmatists
and we best represent our clients when we have the appropriate distance from the issues.
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D. Prepare a Budget
1. Think it Through. Think through the entire case and attempt and prepare a reasonable
outline of fees and costs anticipated and allowances for contingencies.
2. Talk to the Client. Sit down and discuss the budget with the client so that any
determinations to increase or adjust expenditures are made with the client knowing the exposure
and risk of, for example, going without an expert.
3. Consider Settlement. Consider the value of settlement as opposed to the cost and
uncertainty of trial. Advise client of all non-litigation alternatives. This is where long experience
and creativity come in.
II. Preparing Your Case
A. Discovery
1. Proportional Discovery is now the expectation. Cull those “kitchen sink”
interrogatories and requests and focus on the documents you need to prove/disprove the elements
of the case.
2. Narrowly Tailored discovery requests accomplish two things. First, the opposing
side is more likely to respond to them instead of devise blanket objections. Second, when you go
before the judge (if necessary) on a discovery issue, you look reasonable and are more likely to
get what you need.
3. Know Your Court/Judge. LOOK UP THE WEB SITE FOR YOUR
JUDGE/COURT. Most courts/judges now have streamlined methods for resolving discovery
disputes.
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4. Investigate. You can call those witnesses on the other side’s list. You can do internet
searches, property searches, etc.
B. Document Subpoenas
1. Third Party Subpoenas. Get documents directly from the source, i.e., serve the bank
directly for the bank’s records relating to the debtor’s checking account. Getting documents
directly from the source assures they are complete and accurate.
2. Under Fed.R.Civ.P. Rule 45, a subpoena must:
(i) state the court from which it is issued;
(ii) state the title of the action and civil action number;
(iii) command each person to whom it is directed to do the following at
the specified time and place: attend and testify; (and/or)produce
designated documents, electronically stored information, or
tangible things in that person’s possession, custody, or control; or
permit the inspection of premises; and
(iv) set out the text of Rule 45(d) and (e).
3. Issuance. A subpoena may be issued by the court clerk or an attorney who is
authorized to practice in the issuing court. Fed.R.Civ.P. 45(a)(3). A copy of the notice of
subpoena must be served on all parties prior to the subpoena being served on the party to
whom the subpoena is directed. Fed.R.Civ.P. 45(a)(4).
4. Limitations. When serving a subpoena for documents, keep in mind that the rules
impose limitations on where the subpoena may command production of documents.
Specifically, a subpoena may only be issued within 100 miles of where the person resides, is
employed, or regularly transacts business in person. Fed.R.Civ.P. 45(c)(2).
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C. Depositions
1. Depositions May or May Not be Necessary.
a. Experts. See the attached article on Real Property Valuations regarding depositions of
appraisers. There are times when the best strategy is not to depose the other side’s experts,
particularly if the deposition might expose the weakness in their theories.
b. Fact Witnesses. Regarding fact witnesses, it rarely hurts to know what the other side
is going to say ahead of time and a deposition pins them down and avoids surprises at trial. If
the deposed party does not testify as expected at trial, you can use the deposition to refresh a
witness’s recollection or for impeachment purposes. Impeaching witnesses reduces their
credibility. Remember the golden rule: If you don’t know the answer, don’t ask the question.
Depositions are also very useful to determine which exhibits you will need help authenticating.
2. Deposition Strategies. This is not the time to prove your case to the other side. It is
the time to obtain information and narrow issues. Use a circular technique where you move
through a subject, let the deponent breathe a sigh of relief that you are done with that area, and
then circle around to the killer questions latter when he/she is off guard. You can always cut and
paste for trial prep.
3. Uses of the Deposition. Pursuant to Rule 7032, Fed. R. Bankr. P., at a hearing or trial,
generally, all or part of a deposition may be used against a party if the party was present or
represented at the deposition and had reasonable notice of it, if it would be admissible under the
Federal Rules of Evidence if the deponent were present and testifying, and the use is otherwise
allowed under the Federal Rules. Fed. R. Bankr. P. 7032(1). Additionally, deposition testimony
can be used for impeachment purposes or for any purpose if the court finds that the witness is
dead, the witness lives more than 100 miles away from the hearing or trial, the witness cannot
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testify because of age, illness or incarceration or the witness’s attendance could not be procured
at the hearing or trial through use of a subpoena. Fed. R. Bankr. P. 7032(2) and (4).
4. Budget Considerations. For Out of State Witnesses consider telephonic depositions.
III. Post-Discovery/Pre-Trial Matters
A. Motion for Summary Judgment – Fed. R. Bank. P. 7056
1. Undisputed Facts. A Motion for Summary Judgment can be cost effective if the
disputed issue is solely a legal issue and the parties agree to stipulate to all issues of fact.
2. Factual Issues. If factual issues exist for the trier of fact, a Motion for Summary
Judgment is generally not the most cost-effective approach as courts routinely deny these
motions on the basis that there are material facts in dispute which prohibit entry of summary
judgment.
3. Reasons to File It Anyway. However, a Motion for Summary Judgment results in
each party presenting its best case—you are forced to really analyze and apply the legal elements
to your evidence. You get to know what evidence the other side must create the “question of
fact”. This information can be invaluable both to let you know the weaknesses in your own case
and those of the opponent. The resulting analysis can lead to meaningful settlement discussions.
B. Motion to Strike
1. Redundant or Scandalous Material. A Motion to Strike can also be a cost-effective
way to eliminate evidentiary issues related to an insufficient defense or any “redundant,
immaterial, impertinent, or scandalous matter.” However, in a trial to court one may presume the
judge is ignoring such improper filings.
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2. Timing. A Motion to Strike may be raised by the court or by a party before responding
to the pleading. Consider a Motion to Strike for pleadings or filings that are not timely filed.
3. Failures to Disclose Witnesses or Exhibits
a. Pursuant to Fed.R.Civ.P. 37(c), in the event a party fails to provide information or
identify a witness as required by Fed.R.Civ.P.26(a), the party is “not allowed to use that
information or witness to supply evidence on a motion, at a hearing, or at a trial, unless the
failure was substantially justified or is harmless.” Fed.R.Civ.P. 37(c)(1), Fed.R.Bankr.P. 7037.
b. “The determination of whether a Rule 26(a) violation is justified or harmless is entrusted
to the broad discretion of the district court.” Woodworker’s Supply, Inc. v. Principal Mut. Life
Ins. Co., 170 F.3d 985, 993 (10th Cir.1999).
c. A Motion to Strike based on timeliness can be a cost-effective way to narrow issues for
trial and limit time spent at trial.
C. Motion in Limine. Such motions are used primarily in jury trials where preventing
the trier of fact from seeing the evidence is important because of its prejudicial nature. Most
bankruptcy related trials are in front of judges; however, if the elimination of large amounts of
evidence can be accomplished by motion, it may save time and cost at trial.
IV. Presenting Your Case—General Tips
A. Testimony
1. Owner Testimony. "A person may testify as a lay witness only if his opinions or
inferences do not require any specialized knowledge and could be reached by any ordinary
person." LifeWise Master Funding v. Telebank, 374 F.3d 917 (10th Cir. 2004); Doddy v. Oxy
USA, 101 F.3d 448 (5th Cir. 1996). "Admittedly, the law permits the owner of a business to give
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his lay opinion as to the business' value.” James River Ins. Co. v. Rapid Funding, LLC, 658 F.3d
1207, 1216 (10th Cir. 2011). But see In re Behrends, 2017 Bankr. LEXIS 3674 (Bankr. D. Colo.
Apr. 10, 2017). “[T]he Court determines the weight and credibility of [debtor’s] testimony.
Based on the surrounding circumstances, the Court does not find Debtor's valuation testimony
credible."
2. Prepare Your Witnesses. This should be obvious, but is time consuming. You need
to take the time. See Witness Demeanor below.
B. Getting Documents into Evidence
1. Request for Judicial Notice – F.R.E. 201: If a fact of your case is not subject to
reasonable dispute and generally known or capable of determination through sources that cannot
reasonably be disputed, a request for judicial notice of a fact can be a cost-effective way to get
evidence before the court.
2. Self-Authenticating Documents – F.R.E. 902: If you are using a document under
seal, a certified document or acknowledged document, etc. (see F.R.E. 902(1-12)), it is important
to note that extrinsic evidence of authenticity is not required to admit certain documents into
evidence. Therefore, the use of these documents can be cost effective in lieu of a witness to
authenticate the document.
3. Authentication. The first objection may be that the document has not been
authenticated. Federal Rules of Evidence (FRE) 901 and 902 govern authentication.
a. FRE 901 (a) states that evidence is authenticated if there is “evidence sufficient to
support a finding that the matter in question is what its proponent claims.” FRE 901 (b) then
provides a list of potential ways that a litigant can satisfy this standard. Perhaps the easiest way
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to authenticate a document or data is under FRE 901(b)(1), which simply stares that a witness
with personal knowledge testifies that the document is what it is claimed to be.
b. An alternative is 90l (b)(4), which refers to distinctive characteristics. This rule states
that evidence may be authenticated by appearance, content, substance, internal patterns, or
other distinctive characteristics, taken in conjunction with circumstances.
4. Internet Materials. A website posting found at a distinctive Web address might be
enough to satisfy the evidentiary burden of showing authenticity. The burden then shifts to the
other side to challenge the authenticity. You may be able to forgo this examination of your client
if the document you wish to admit is “self-authenticating” under FRE 902. Rule 902 says that
extrinsic evidence of authenticity as a condition precedent to admissibility is not required with
respect to the following:
(4) Certified copies of public records.
(5) Official publications. Books, pamphlets, or other publications purporting to be issued
by public authority.
(6) Newspapers and periodicals. Printed materials purporting to be newspapers or
periodicals.
You may also apply FRE 201 (b), Judicial Notice, to authenticate internet materials. The rule
allows a fact to be introduced into evidence if the truth of that fact is so notorious or well known,
or so authoritatively arrested, that it cannot reasonably be doubted. The source does not
necessarily have to be produced in court, but just identified by the witness as the website used to
find the evidence of value for the property-although a printout of the website data is more
helpful.
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5. Hearsay. Most of the evidence presented on property will be based on out-of-court
statements offered to prove value. There are some exceptions that will help get around the
hearsay objection.
a. FRE 803(8) Public Records, etc. addresses public records or reports: records, reports,
statements or data compilations for a public office on matters as to which there was a duty to
report. This rule could apply to tax assessor statements for real property or other government
records.
b. FRE 803(17) is an exception for market reports (think MLS for realtors) and
commercial publications. If the evidence you wish to present is a marker quotation, tabulation,
directory, or other published compilation and is generally used or relied upon by the public or
persons professions, you will get by the hearsay objection. Many of the forms of data discussed
below for real estate, automobiles, and stock fir nicely into the hearsay exception FRE 803(17).
6. Relevance FRE 401, 402. You will not draw an objection if you make sure the
information in the documents you intend to use bears on the issues before the court.
7. Original Document/Best Evidence FRE 1002. To prove the content of a writing, the
original is required with some exceptions, most notably, duplicates (FRE 1003) and public
records (FRE 1005). This rule applies most commonly to contracts, wills, leases, and things of
that nature where the actual terms of the document itself are debated. You can expect that a copy
of a buy-sell agreement for a business and a purchase agreement for an automobile or home may
be objected to under FRE 1003. Have originals of those types of documents available.
C. Objections
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1. Well Placed Objection is Priceless. Even a veteran litigator can lose their train of
thought at an evidentiary objection and never get back to the essential question. You don’t want
to annoy the judge, but objections can be very effective. The secret is to know ahead of time
which battles you are prepared to take on.
2. But Don’t You Let an Objection Fluster You. Because you have thought out the
evidentiary basis for every exhibit you have, you will not be caught off guard. The secret both to
well-placed objections and to addressing those tossed out at you, are in the Rules of Evidence.
Take the time to read through and find the basis for your exhibit.
3. Know How to Build A Foundation. By the time of trial most exhibits are stipulated
to as to authenticity and foundation. If opposing counsel is not stipulating, that’s a red flag to
make sure you have your foundational witnesses.
V. Applications
A. Valuation Hearings.
1. Real Property Valuations. See Presenting and Defending Real Property Valuation
Evidence in Bankruptcy in materials.
B. Relief from Automatic Stay
1. Relief “For Cause” Under 11 U.S.C. Section 362 (d)(1)
a. Burden of Moving Forward. A party can bear the initial burden of going forward
even if it does not bear the ultimate burden of persuasion. If a party fails to carry its initial
burden, the court will dismiss its application without requiring the party that bears the ultimate
burden of persuasion to offer any evidence. For the court to shift the burden to the debtor, the
creditor must make a showing that there is a lack of adequate protection, meaning there is
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insufficient equity for the benefit of the estate. See In re Anthem, 267 B.R. 867 (Bankr. D. Colo.
2001).
b. Adequate Protection Issues. The United States Supreme Court has defined the
secured creditor's right to adequate protection as including the right to have the security applied
in payment of the debt upon completion of the reorganization; and that that interest is not
adequately protected if the security is depreciating during the term of the stay. Evidence of the
erosion of the creditor's position or of a threatened erosion satisfies this initial burden. The
erosion may be shown through evidence of declining property values, the increasing amount of
the secured debt through interest accruals or otherwise, the non-payment of taxes or other senior
liens, failure to insure the property, failure to maintain the property, or other factors that may
jeopardize the creditor's present position. It may be necessary to show a combination of these
factors and/or to show that the circumstances are sufficient to jeopardize the creditor's interest in
the property. See In re Anthem Communities/RBG, LLC, 267 B.R. 867 (Bankr. D. Colo. 2001).
c. Post-Petition Default. An ongoing post-petition default in a debtor's payment of the
regular mortgage payments can constitute sufficient cause for relief from the automatic stay. See
In re Binder, 224 B.R. 483 (Bankr. D. Colo. 1998); In re Ellis, 60 B.R. 432 at 435 (9th Cir. BAP
1985). However, generally, it is also necessary to show there is no equity in the property for the
benefit of the estate. See 11 U.S.C. § 362(d).
2. Relief Under 11 U.S.C. Section 362 (d)(2)
a. Property Not Necessary for Reorganization. As opposed to there being no equity in
the property for the benefit of the creditor, here, the court must find that the debtor has no equity
in the property and/or the stay is contributing to a decline or erosion of the lien holder’s position.
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In addition, the court must find that the property is not necessary for an effective reorganization.
See In re Anthem, 267 B.R. 867 (Bankr. D. Colo. 2001).
b. Stipulations. Stipulation to Cure Arrearage or a Stipulation Granting Relief from Stay
as to Property Alone may be the most economical to the debtor in certain circumstances. If it
appears that there is no equity in the property for the benefit of the estate and the property is not
necessary for an effective reorganization, then, a stipulation to cure the arrearages or a stipulation
granting relief from stay to the creditor may be the most cost-effective legal option for the
debtor.
C. Motion to Dismiss or Convert
1. Bad Faith—Any Chapter/Consumer Cases
a. 11 U.S.C. 707(b)(1)— court may dismiss a Chapter 7 case (or convert it with the
debtor’s consent) if it finds that the “granting of relief would be an abuse of the provisions of this
chapter…” must be filed within 60 days after the meeting of creditors.
b. 707(b)(2)(A)(i) Presumption of Abuse—if presumption arises, may only be rebutted
by special circumstances such as serious medical condition… Note: Expert testimony may be
required to show such circumstances.
c. 707(b)(3) Other Abuses: Bad Faith Filing & Totality of Circumstances
See Discussion below.
Fed. R. Bankr. Pro. 1017(e) requires 707(b)(1) Motions be pled with particularity, which
may give rise to an opportunity for judgment on the pleadings.
2. Chapter 13: 11 U.S.C. Section 1307(c).
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a. Delay. Grounds 1307(c)(1): unreasonable delay by the debtor that is prejudicial to
creditors; i.e. failure to commence making timely payments under 11 U.S.C. § 1326. If a plan is
pre-confirmation or there is equity in a property, the creditor may find a request for dismissal a
more economical approach as opposed to waiting until all equity is depleted for purposes of
relief from stay. However, the likelihood of success should be considered considering the
court’s inclination to provide the debtor with a meaningful opportunity to reorganize.
b. Default. Grounds 1307 (c)(6): material default by the debtor with respect to a term of
a confirmed plan, including failure to make payments to a creditor. If a plan is post-
confirmation, provides for the creditor, but there is sufficient equity in a property, the creditor
may find a request for dismissal a more economical approach as opposed to waiting until all
equity is depleted for purposes of relief from stay.
c. Cause; Good Faith/Bad Faith.
Good faith is a pre-requisite to plan confirmation. Bad faith is a basis for conversion. The
“totality of the circumstances,” approach leads to an analysis of the same factors for both. Can be
basis for finding bad faith. See Marrama v. Citizens Bank of Mass., 549 U.S. 365 (2007)(finding
statutory support in 11 U.S.C. §105 for including review of prepetition bad-faith conduct in
analysis.) See e.g., In re Little Creek Develop. Co., 779 F.2d 1068, 1071-72 (5th Cir. 1986). This
good-faith requirement exists (1) to prevent the "abuse of the bankruptcy process by debtors
whose overriding motive is to delay creditors without benefiting them in any way" and (2) as a
means to protect "the jurisdictional integrity of the bankruptcy courts" by making the Code only
available to debtors with "clean hands." Id. at 1072. In determining whether to dismiss a
bankruptcy for lack of good faith, most courts apply a totality-of-the-circumstances inquiry.
3. Litigating the Bad Faith Issues
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The very nature of these allegations is so diverse and amorphous it is difficult to make
any generalizations.
a. Burden of moving forward. Is on the party seeking to dismiss a Chapter 13 for lack
of good faith. But then the burden shifts to the debtor to prove his or her good faith. In re
Tameck, 229 F.3d 205, 207 (3d Cir. 2000).
b. Focus on Positive Aspects of the Case. Although the focus on the totality of the
circumstances inquiry is fundamental fairness, Matter of Love, 957 F.2d 1350, 1355 (7th Cir.
1992), two inquiries are particularly relevant: whether there is a valid bankruptcy purpose such
as maximizing value and whether the debtor seeks to obtain a tactical advantage. In re Integrated
Objections prior to testimony: Because all bankruptcy matters are before a judge, I state to the
court that I am not objecting to the witness’s credentials as an expert but have grave concerns
over their methodology and/or data or application of the method to the data. With that
reservation, I am free to ask post-trial that the testimony be entirely excluded.
3. Lay Opinion Witness—Rule 701
Federal Rule of Evidence 701.
If a witness is not testifying as an expert, testimony in the form of an opinion is limited to
one that is:
(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.
E. Evidentiary Issues
1. The Appraisal Report as Hearsay or Demonstrative Evidence
Typically, valuation cases in bankruptcy are in front of a judge and both sides agree to let the
judge have access to the appraisal report (as demonstrative evidence) or even to admit the reports
into evidence. But you should know the rules and the difference so when you offer your
appraisal and get an objection, you know what language to invoke. Most notably, if your cross is
all about tearing apart the report analysis, it is very difficult without the report before the judge,
to lead the judge through its annihilation.
a. Appraisal reports are hearsay, and therefore inadmissible absent some exception in
the rules. There is a misconception that because the witness is qualified to give the opinion set
forth in the expert report, that the expert’s written report is admissible. To the contrary, opposing
counsel should object to the admission of the expert report on the following grounds:
(i) The facts or data contained in the expert’s written report need not be
admissible in evidence in order for the expert’s opinion testimony to be admissible.
Consequently, the expert’s written report will contain inadmissible evidence. If the written report
is admitted into evidence without any reservations, then inadmissible evidence relied upon by the
expert will then become part of the record.
(ii) As with self-serving letters, written reports prepared by experts fall within the
definition of hearsay as written statements offered in evidence to prove the truth of the matter
asserted. There is no exception to the hearsay rule contained in either Rule 803 or 804 for expert
reports.
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b. Scope of the Testimony. The opposing attorney should also be vigilant in objecting to
the expert’s testimony to ensure that it does not go beyond the opinions set forth in the written
report. In this respect, the written report must contain a complete statement of all opinions the
witness will express, the basis for the reasons for the opinions, and the data or other information
considered by the witness in forming them. Any testimony beyond the areas covered in the
expert’s written report should be objected to.
c. Report as Demonstrative Evidence. Even though the expert written report should not
be admitted into evidence, it is nevertheless useful to have the report marked as an exhibit and
received as a demonstrative aid to assist in following the expert’s testimony. In this fashion, the
inadmissible evidence contained in the report does not come into evidence. However, the report
will be part of the record for reference purposes when considering the expert’s testimony.
d. Business Records Exception. Some courts are finding appraisal reports fall within the
exception of Federal Rule of Evidence 803(6) for “business records,” i.e., documents kept in the
course of regularly conducted business activities. Rule 803(6) explicitly states that such
memoranda, reports and data compilations may contain “opinions.” Such documents are
admissible if they are contemporaneous in time, made by a person with knowledge, and it was
the regular practice of that business activity to make that type of report. To exclude such a
document from evidence, pursuant to Rule 803(6), the opponent must show that the source of
information or the circumstances of its preparation indicate a “lack of trustworthiness.” In
United States v. Licavoli, 604 F.2d 613, 622 (9th Cir. 1979) (expert appraisal report admitted as
business record), the Court explained that there are “circumstantial guarantees of trustworthiness
in a record contemporaneously prepared by one who acts under a business duty of care and
accuracy, particularly when the business entity for which the record is made relies on it.”
2. Lay Testimony Evidence Issues
a. Authentication. The first objection may be that the document has not been
authenticated. Federal Rules of Evidence (FRE) 90 I and 902 govern authentication. FRE 90 I (a)
states that evidence is authenticated if there is “evidence sufficient to support a finding that the
matter in question is what its proponent claims.” FRE 901 (b) then provides a list of potential
ways that a litigant can satisfy this standard. Perhaps the easiest way to authenticate a document
or data is under FRE 901(b)(1), which simply stares that a witness with personal knowledge
testifies that the document is what it is claimed to be.
An alternative is 90l (b)(4), which refers to distinctive characteristics. This rule states that
evidence may be authenticated by appearance, content, substance, internal patterns, or other
distinctive characteristics, taken in conjunction with circumstances.
A website posting found at a distinctive Web address might be enough to satisfy the evidentiary
burden of showing authenticity. The burden then shifts to the other side to challenge the
authenticity. You may be able to forgo this examination of your client if the document you wish
to admit is “self-authenticating” under FRE 902. Rule 902 says that extrinsic evidence of
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authenticity as a condition precedent to admissibility is not required with respect to the
following:
(4) Certified copies of public records.
(5) Official publications. Books, pamphlets, or other publications purporting to be issued
by public authority.
(6) Newspapers and periodicals. Printed materials purporting to be newspapers or
periodicals.
You may also apply FRE 201 (b), Judicial Notice, to authenticate the kind of evidence discussed
in this article. The rule allows a fact to be introduced into evidence if the truth of that fact is so
notorious or well known, or so authoritatively arrested, that it cannot reasonably be doubted. The
source does not necessarily have to be produced in court, but just identified by the witness as the
website used to find the evidence of value for the property-although a printout of the website
data is more helpful.
b. Hearsay. Most of the evidence presented on property will be based on out-of-court
statements offered to prove value. There are some exceptions that will help get around the
hearsay objection. FRE 803(8)8 addresses public records or reports: records, reports, statements
or data compilations for a public office on matters as to which there was a duty to report. This
rule could apply to tax assessor statements for real property or other government records.
FRE 803(17) is an exception for market reports (think MLS for realtors) and commercial
publications. If the evidence you wish to present is a marker quotation, tabulation, directory, or
other published compilation and is generally used or relied upon by the public or persons in
particular professions, you will get by the hearsay objection. Many of the forms of data discussed
below for real estate, automobiles, and stock fir nicely into the hearsay exception FRE 803(17).
c. Relevance FRE 401, 402. You will not draw an objection if you make sure the
information in the documents you intend to use bears on the value of the property at issue.
d. Original document/best evidence FRE 1002. To prove the content of a writing, the
original is required with some exceptions, most notably, duplicates (FRE 1003) and public
records (FRE 1005). This rule applies most commonly to contracts, wills, leases, and things of
that nature where the actual terms of the document itself are debated. You can expect that a copy
of a buy-sell agreement for a business and a purchase agreement for an automobile or home may
be objected to under FRE 1003. Have originals of those types of documents available.
e. Specific Document Types for Realtor or Owner Testimony
(i) Comps. FRE 803(17) or 701 and 704(a)2. Aside from paying for an appraisal,
the best way to show the value of a residential property is to look at what similar homes have
sold for in your client’s neighborhood during the previous six to eight months. Comparable home
sales or “comps” are strong indicators of what the client’s home is likely worth on the marker.
Comps are the basis for setting a listing price. Moreover, a large part of the appraisal process
2 F.R.E. 704 is the rule allowing an opinion on the ultimate issue, i.e., value.
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consists of looking at comps. Ultimately, there may not be a big difference between the values
through an appraisal versus a comp.
Many websites provide sales data for residential housing. Two of the most reliable places to find
home sales prices in your client’s community are Realtor.com, hosted by the National
Association of Realtors (NAR), and any local real estate company website. Real estate
brokerages and the NAR share property data through membership in a multiple listing service
(MLS). The information provided through the MLS is submitted directly by Realtors®, is current
and accurate, and is the primary means by which people research the real estate market today.
The client can pick our three comps from a website of choice and print out the results for use as
an exhibit. Authenticating website data under 901(b)13 can be done by showing that (l) the
witness typed in the Web address, (2) logged into the sire, (3) reviewed what was there, and (4)
testified that the printout or other exhibit fairly and accurately reflects it.
Testimony by the client as to the characteristics of the home, the range of prices for comparable
sold homes, and the client’s opinion as to estimated market price of the marital home, based on
those sold properties, is reasonable proof of value of that property. A hearsay objection can be
overcome with FRE 803(17) for market reports.
(ii) Property tax statements. FRE 901(7), 902(4), 803(8) and (14). Property tax
statements sent out each year to homeowners state the fair market value (FMV) of a residential
property. Assessors monitor local sales activity as a means to establish market values for
neighborhood properties. Considerations include square footage, number of rooms, and the
presence of any pools or garages. If your county uses FMV as the assessed value, a property tax
statement will be solid evidence for your client.
The drawback with a tax assessor statement is that in some counties it can be very different from
the market value. There may be no inspection made of the property to determine features of the
home that may affect the market price up or down.
Also, exemptions can reduce the assessed value. Examples of exemptions include the
homeowner’s being a widow or widower, senior citizen, handicapped, blind, a veteran, or that
the property is homesteaded.
Use of a property tax statement as an exhibit would necessarily be accompanied by testimony
from the client as to any exemptions that artificially reduce the market value or any improvement
that increases the value above that assessed to the property. Though an appraisal is usually better,
absent one, the assessment might be quite valuable. Use FRE 901(7), and 902(4), to authenticate,
and FRE 803(8) and (14) as the exceptions to hearsay. An original won’t be necessary under
FRE 1003 and 1005.
3 F.R.E. 901(a). In General. To satisfy the requirement of authenticating or identifying an item of evidence, the
proponent must produce evidence to support a finding that the item is what the proponent claims it is.
(b) Examples…(1) Testimony of a Witness with Knowledge. Testimony that the item is what it is claimed to be.
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f. Timeshares. Applicable federal rules are FRE 803(17) and 902(8). Timeshares are
notoriously difficult to value and even harder to sell. There are hundreds of websites that claim
to be able to sell your timeshare for the highest price. For purposes of gathering admissible
evidence of property value, there are a couple of popular websites that will provide information
as to what a timeshare might be worth.
Timeshares are auctioned on eBay. Browse the site, www.ebay.com, for the category real estate.
Then choose timeshares. On the timeshares page, there is a tab for sold listings. If your client can
find two or three recently sold timeshares in the same resort, of comparable size, location on the
resort, and week of availability, that would be akin to a residential home comp and would be
decent evidence of value of the timeshare. Present the exhibits and testimony in the same manner
as you would real estate comps. Also, most timeshare resorts have their own website with
inventory for sale listed, or the timeshare resort resale office may be able to provide a market
price estimate for the particular property.
FRE 902(8) may work to authenticate a letter from the timeshare resort if it is notarized and
acknowledged. The eBay printouts may qualify as a market report under FRE 803(17) for the
hearsay exception.
F. Presenting Your Case to the Court
The subject matter of the direct examination of a valuation witness should cover:
• The expert’s qualifications;
• A description of the appraisal process;
• A description of the specific work the appraiser undertook to value the subject property;
• A description of the property at issue;
• The highest and best use of the property;
• A discussion and explanation of each approach to value used by the appraiser (e.g. income
approach, comparable sales approach, cost approach); and
• A final reconciliation of value. As each subject area is covered, the opportunity should be taken
to educate the fact finder and convince them of the merits of your position.
II. Cross-Examination of the Opposing Expert
A. Preparing for the Opposing Side’s Expert
1. Watch Your Enemy. If possible, attend the opposing appraiser’s viewing. I have had
occasion to notice they were measuring outside wall to outside wall in a condominium. In a
condo, the owner doesn’t own the walls. This reduced square footage to bring the opposing
side’s numbers in line with ours. You should be able to see from the opponent’s appraisal what
methods they used.
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2. Become an Expert on the Opposing Expert. One should learn everything one can about the
other side’s expert. Perhaps they operate solely in one area and are out of their comfort zone in
your neighborhood or city. Perhaps the Judge you are in front of has discounted their testimony
before. Although it is typically better to attack the message rather than the messenger, there may
be instances where a deposition has revealed that a successful attack can be made against the
messenger. Thus, a witness can be shown to be biased, and therefore not credible, where he/she
has worked for the same client numerous times in the past; he/she is regularly employed by
opposing counsel; charges are excessive, suggesting this is a witness who can be bought; the
expert earns a majority, or a substantial part, of his/her income through paid testimony; and the
expert's report was essentially prepared by counsel rather than the expert.
It is also quite effective to challenge the expert's qualifications during voir dire, where a
deposition has established that the expert is merely an accountant or real estate broker rather than
a valuation expert, or where the expert's experience in the real world is not extensive.
3. Apply Logic/ Bring in the People that Know. You know water rights are valuable. When
the opposing side values property as dry land, bring in whomever you need to in order to prove
the availability. In one case for me that was the Water Resources Engineer for the Colorado
Division of Water Resources in Alamosa. Despite a seriously complicated situation involving the
creation of water districts to govern well-use, I was able to prove that the land would maintain its
value and water rights.
4. Check the Math4. You can’t believe how often appraiser’s math is off. They engage in
fractional discounts and numbers move from chart to chart. A sloppy appraisal is easy to tear
apart just on the inconsistencies. See sample cross below where appraiser deducted the
outstanding taxes from market value, both showing he didn’t understand the concept of market
value and showing his bias to the lender/client by valuing only the equity.
5. Knocking out the Comps/Adjustments. The more unique the property, the more the
appraisal depends on “adjustments,” or taking sales that aren’t really comparable and discounting
or crediting for differences. I have seen over 100% “adjustments” which, at some point, means
the property used is simply not “comparable.” This is VERY fertile ground for second-guessing
the appraiser’s biases. I had one appraiser give a $300,000 value to a mountain view on my
client’s Boulder condominium. I had pictures to prove that the actual view was obstructed by
angle and trees.
6. Depositions. Whether to take a deposition or not is dependent upon: (1) the amount at issue;
(2) the ability of your client to bear the cost; and (3) how confident you are about being able to
attack the appraisal with what you have. There are many times when taking a deposition will
4 The undersigned has seen appraisers before using their own “math” to lower numbers claiming that they
can divide rather than figure a 10% deduction and then subtract. It is a USPAP fallacy. If they engage in this creative math, they must acknowledge in their report that they are not, for example, using 10%
adjustment to mean 10%, but rather, a different number.
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only alert the opposing side as to the weakness of their case, or overly educate them about your
case.
Your goals are: (a) To obtain information; (b) to learn the expert’s methodology, facts and basis
for the opinion (Remember Daubert—if the methodology is not reliable the testimony may be
excluded; (c) to attempt to limit the expert with respect to the opinions and basis for those
opinion; (d) to elicit admissions, if possible with respect to unsupported assumptions,
weaknesses, the lack of adequate factual basis and the like; (d) to find out about the expert’s
background, training, qualifications and prior affiliations or retentions, and/or biases; and (e) to
assess their demeanor.
If you do depose, require the deponent to bring their entire file, although the communications
with the attorney are now out of bounds.
• Educational background, and any particular areas of academic concentration.
• Professional designations, awards or other indicia of standing in the field.
• Relevant post-college academic work.
• Initial general statement of subject matters in which the expert has been engaged to render
opinion. Is the expert prepared to render an opinion in those subject matters?
• Has expert been engaged to render an opinion in any subject matter where the expert has not
yet formed an opinion?
• Recitation of work experience generally, but with particular attention to subject matters of
testimony.
• Professional society or industry association work in the relevant areas. Papers written, books
published, articles, speeches, or other contribution to professional literature and/or programs.
• Chronological recitation of prior expert engagements (and testimony) as an appraiser. Other
expert consultation or engagements that did not lead to testimony. Press for particulars
regarding clients, subject matters, opinions, opposing counsel, etc.
• When engaged in this case? What were you asked to do? What documents were given to
you? What subject matters were you asked to opine on?
• Have you brought all relevant documents and files with you as requested? Identify on record
all documents brought by expert to avoid confusion. If expert or counsel refuses to produce
documents, develop sufficient record to take to the court.
• With respect to the documents brought to the deposition, how were they utilized? What has
the expert read and not read? What was relied on and not relied on?
• Identify the specific documents that were relied on in forming opinions. Identify documents
used as background or for informational purposes.
• Identify each opinion reached by the expert. Try to get as concise a statement as possible of
each such opinion.
• With respect to each opinion,
– On what professional standard is the opinion based?
– On what professional experience is the opinion based?
– On what professional literature is the expert relying in forming the opinion?
– On what facts is expert relying in forming the opinion?
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Having gathered the relevant materials, prepared as thoroughly as possible for trial, developed
trial and cross examination themes, and hopefully having taken a useful deposition, it is time
now to turn to cross examination at trial.
7. Talk to Your Own Appraiser. Hopefully you have a good appraiser, who can direct you to
the infirmities in the other side’s approach. But do not rely entirely on them. Your own
familiarity with USPAP may prevent serious problems with your own appraiser.
8. Read USPAP5. Appraisers are supposed to follow guidelines in their valuations. These are
promulgated as Uniform Standards of Professional Appraisal Practice. The appraisal will most
likely state that it is USPAP compliant. If you can prove it is not, you have an excellent cross.
These are just a couple examples of looking to USPAP:
a. Market Value
“Value” itself is defined in USPAP as:
The monetary relationship between properties and those who buy, sell, or use those
properties.
Comment: Value expresses an economic concept. As such, it is never a fact, but always
an opinion of the worth of the property at a given time in accordance with a specific
definition of value. In appraisal practice, value must always be qualified—for example,
market value, liquidation value, or investment value.
“Market Value6” is defined as:
a type of value, stated as an opinion, that presumes the transfer of property (i.e. a right of
ownership or a bundle of rights) as of a certain date, under specific conditions set forth in
the definition of the term identified by the appraiser as applicable to the appraisal.
b. Marketing Time. One of my first Chapter 11s I lost a relief from stay hearing based
on my appraiser using a six-month marketing time period. Another time I avoided the opposing
experts 15% “discount” for imposing such a marketing time:
USPAP STATEMENT 6:
Reasonable exposure time is one of a series of conditions in most market value
definitions. Exposure time is always presumed to precede the effective date of the
appraisal.
5 The Standards are always changing. Make sure you are using the most recent. The 2018 edition
is available on line at https://nrpab-appraiserce.ne.gov/apparaser/public/USPAP_current.pdf. 6 Note Market Value is defined differently than the court definition, leaving you room to talk
about the “date”, the “conditions” applicable to the particular appraisal and to emphasize the
“opinion” nature of the expert’s conclusions.
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Exposure time may be defined as: the estimated length of time the property interest being
appraised would have been offered on the market prior to the hypothetical
consummation of a sale at market value on the effective date of the appraisal, a
retrospective opinion based on an analysis of past events assuming a competitive and
open market.
….it is not intended to be a prediction of a date of sale…
STMT 7
ADVISORY OPINIONS
Applications to Client Uses of an Appraisal (AO-7)
Clients concerned with marketing real or personal properties who obtain a market value
appraisal as part of their decision-making process should be aware that it may be
inappropriate to assume that the value remains stable during the marketing period.
Therefore, it is technically incorrect for the user of an appraisal to take a current
value opinion, carry it forward to the end of a concluded marketing period, and
then discount back to the present.
Some clients attempt to solve their problem by order a “120-day market value”, a “six-
month market value,” or a “one-year market value from the appraiser. Unless the
opinion of reasonable exposure time made by the appraiser in the course of such an
assignment coincides with the precondition imposed by the client, the answer to this
assignment cannot be stated as market value under a typical definition of the term.
In such situations, the appraiser must clearly distinguish between a market value opinion
allowing for reasonable exposure time and any alternative, appropriately defined, value
opinion(s) subject to a special limiting condition resulting from the client-imposed
marketing time.
Market time occurs after the effective date of the market value opinion and the marketing
time opinion is related to, yet apart from the appraisal process. …The request to provide
a reasonable market time opinion exceeds the information required for the
appraisal process and should be treated separately from that process.
USPAP is full on interesting definitions and guides as to proper appraisal practice. Catching an
opponent’s appraiser on just one or two can defeat their credibility and serve your purpose.
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B. The Cross Examination
1. More is Not Always Better
If you have an effective way to destroy an expert’s position, don’t doddle around and
hope that in the aftermath of a long cross the judge remembers the core issue. A short cross-
examination can be very effective if it goes to the heart of the matter.
2. Start Strong. You can get into the details later. The expert is feeling good after their direct—
feeling invincible. Your first question should call that invincibility into question. Practice
pointer: An expert is not supposed to be an advocate. Just how much they are crossing this line
can often be told by the manner in which their demeanor changes from friendly and complaint to
hostile upon cross-examination. Don’t let it bother you that they are avoiding questions. Stick to
your guns. Ask it seven ways until the judge makes them answer. Their change in attitude will
not go unnoticed by the judge and will come across as bias.
3. Concessions Have the appraiser on the other side admit appraisal is an art, not a science, and
that they are highly subjective and reasonable people can differ regarding valuation conclusions
4. The Property. Then get their concessions on the property itself. Did they go inside the
property? If not, how do they know there are not gold-handled fixtures? Or fixtures at all for that
matter?
.
5. Ask Only Questions That Will Elicit Yes or No Answers. This is always true in
conducting cross examination, but it is particularly critical in the cross examination of an expert
appraiser. No matter how well prepared or trained a lawyer is, the appraiser will necessarily
know his/her subject matter better than the lawyer. Accordingly, one cannot ask open-ended
questions that will permit the expert to essentially repeat his direct examination or otherwise
demonstrate to the judge the depth and scope of his knowledge and expertise.
6. Ask Short and Simple Questions. Valuation cases are complicated and dry. There is no
more lethal a combination than boring and hard. Questions must be short, simple, expressed in
layman's terms, and easy to follow and understand.
7. Know the Answer to Every Question You Ask. Only the most skilled (and lucky) trial
lawyers can get away with "winging it" at trial. It is the far better practice to use the deposition
that you have taken, or any other materials that you can use to lock the witness in and ask
questions to which you know the answer. Judges can usually tell when a lawyer has been sand
bagged by an answer that he/she did not expect
.8. Identify and Attack Only Areas of Vulnerability. You do not have to, nor should you,
attack every aspect of an expert's opinion. You must select those aspects that are most important
and as to which you have a reasonable prospect of success. The case is not supposed to be won
or lost through cross examination; rather, you will have your own expert and evidence, and
should, within the overall context of your trial strategy, look to win your case there. Be
conservative and concentrate on those areas where there are legitimate points that can be made
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quickly and effectively.
9. Go for the Jugular. It is important to get to the point as quickly as you can, while of course
setting the proper background and laying whatever legal foundation is required. One must know
where one is going in a cross examination and how one is going to get there.
10. Be Entertaining. Keep your pace at a crisp level, alternate your voice to the extent you can,
move around a little bit if that is permitted, and make sure that no one can accuse you of
speaking too softly for anyone to hear.
11. Use Exhibits. Again, the subject matter is difficult to understand and intrinsically not the
most interesting. An expert can be cross examined most effectively with appropriate documents,
maps, aerial photographs, tax map blow-ups, and other visibly interesting and irrefutable
evidence. Abstract questioning, without props, is difficult to follow and typically boring.
12. End at the Right Time and End Big. Remind yourself over and over again that cross
examination is but a piece, albeit an important one, of the overall mosaic of trial. There is a lot
more to be done after cross examination is complete. Do not feel that you must continue to
drone on after you have made the essential points. Do not ask one question too many. Finally, it
is particularly effective to end on an important or big note, with an effective question and answer
that scores one of your best points. When you do that, sit down and congratulate yourself.
13. Specific Strategies of Impeachment.
The following is an outline of impeachment points that trial counsel should strive for. This list is
certainly not exhaustive:
• The expert is wrong about important facts.
• The expert does not know certain important facts.
• The expert's valuation techniques and judgment are contrary to written authority or
inconsistent with accepted theories and methodologies of valuation.
• The expert has relied on unreliable hearsay or assumptions that are invalid or subject to
question.
• The expert's opinion is contrary to his/her prior reports, testimony, speeches, articles or other
writings.
• The expert has not seen important documents or exhibits.
• The opposing expert agrees with as much as possible of your expert's methodology and
approach; at a minimum, opposing expert acknowledges credibility of such approach.
• Opposing expert has not spent much time or effort on the engagement.
• Opposing expert has made mistakes in calculations (e.g., simple mathematical errors and/or
errors based upon incorrect assumptions or forecasts).
• The expert's conclusion is impractical or unbelievable, as it results in a value that makes no
economic sense.
III. Sample Questions on Direct
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A. Expert Qualifications. In bankruptcy court one is almost always in front of a judge. You
will usually be asked to truncate any qualifications arguments. Pick your battles. You may wish
to ask one or two questions just to warm the judge up to the extent of your expert’s expertise:
Q: Please tell us your name.
Q: What is your profession?
Q: How long have you been engaged in that occupation?
Q: Please explain to us what the profession of real estate appraising entails.
Q: What is your educational background?
Q: What field was your undergraduate degree in?
Q: Did you work in that field before pursuing your profession in real estate?
Q: Is the profession licensed by any government body?
Q: What is entailed in achieving State certification and license as a professional real estate
appraiser? : (Details, not just “education and pass test”)
Q: When did you become certified and licensed by the State?
Q: Did you practice in the field prior to becoming licensed, and, if so, in what capacity?
Q: What is the nature of your firm?
Q:Let me direct your attention again to the State certification and licensing process, does the
State require any continuing professional education in order to retain your license?
Q: Are there any professional organizations or associations in the field?
Q: Are you a member of any of this organization (Am. Appraisal Inst.)?
Q: How long have you been a member? . . .
Q: Have you been an active member? . . .
Q: Does the Appraisal Institute provide continuing professional education and recognize
advanced study in the field?
Q: What additional courses have you taken through the Appraisal Institute?
Q: What has been the nature of your involvement in the Appraisal Institute?
Q: In addition to your study and membership and participation in the Appraisal Institute, and
your teaching of appraisal principles…, what has been the nature of your professional practice?
Q: Have you ever been offered as an expert in real estate appraisal in any court? Q: What other
types of cases have you been retained to value real property in?
Q: Has your expertise ever been successfully challenged in any case?
Q: Has any court ever not accepted you as an expert in the appraisal of real property when you
have been offered as such?
B. Developing the Opinion
Q: Let me direct your attention back to your earlier comment concerning what the profession of
appraising real property entails and ask if you may explain to us what the process of appraising
any particular piece of property requires.
A: Certainly. As you know every piece of real property is different and unique. Consequently,
the market value of any piece of real property will depend on the unique characteristics of the
property, its location, its zoning, its geography, potential yield and many other factors….
Q: You mentioned that location is important in a property’s value. Why is that so?
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Q: What is the impact of zoning on a property’s value?
This portion of the testimony should address every characteristic of the subject property that the
attorney knows will be relevant to determining its market value. By addressing each element
initially with respect to the appraisal of real property generally, you will be able to capitalize on
the importance of frequency to a jury by reviewing each of these characteristics again later in the
witness’ direct testimony with respect to the specific property at issue in the case. For example:
Q: Mr. Expert, you mentioned earlier in your testimony that a property’s location is an important
factor to consider in determining the market value of that property. Please explain to us how the
location of X’s property impacts it’s value.
Q: You also explained that a property’s value is dependent on what the owner may do with the
property and that that is controlled by various zoning and land use regulations. What is the
zoning of X’s property and how does that affect its value?
A: . . .
C. The Specific Work Undertaken by the Appraiser in the Subject Case.
Have your witness explain just what he did to collect comparables, confirm property
characteristics, measuring, visiting the site, etc.
D. The Particular Characteristics of the Subject Property.
After the witness has discussed everything that he did to perform his assignment and accurately
appraise the market value of the property, you should have the witness discuss the subject
property in detail. This is another opportunity for the attorney to emphasize and highlight the
critical characteristics of the subject property that bear on its market value. And here again, detail
is important.
Q: Mr. Expert, will you please describe Mr. and Mrs. X’s property for us.
What are the critical characteristics of the property that the jury must know to understand the
basis of the expert’s opinion? The way to make sure critical information is not missed is to break
it down into “bite-sized” morsels that may be easily absorbed. And then after you have elicited
all of the details concerning the property through testimony, you may go over the details again
through the use of a demonstrative exhibit such as a photograph.
Note how an attorney may emphasize whatever may be the particular critical characteristics or
issues in the case by controlling the witness through skillful questioning. Each of the remaining
subject areas for a valuation witness’ testimony (highest and best use, discussion and explanation
of each valuation method applied, and a final reconciliation of value) provides a skillful trial
attorney with additional opportunities to emphasize and discuss the critical factors enhancing the
value of the subject property. For example, each adjustment to a comparable sale property
provides the attorney and witness the opportunity not only to emphasize critical factors
enhancing the value of the subject property, but also an opportunity to bolster the expert’s
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credibility by demonstrating that the expert made both negative and positive adjustments and
thoroughly considered every relevant factor, i.e. the witness was diligent. The attorney should
take the time necessary to fully address each subject area and not rush through the testimony or
allow it to be presented in a summary fashion.
E. Sample Cross Notes:
Sample of my notes on cross for vacant land zoned commercial:
DEFINITION OF MARKET VALUE
What is the definition of market value?
On page 6 of your report.
You agree the liens on a property don’t change its fair market value, don’t you?
Turn to page 42.
You say there that the appraised value would be FMV minus taxes due, that’s what it says, right?
But that is not correct is it? Outstanding taxes do not change the fair market value.
They only change what might be available to, for example, a foreclosing lender.
So, your concern with the impact of taxes reflect your interest in determining, not FMV, but how
much the Bank might get, correct?
Otherwise it is not relevant, is it?
And then, again on p. 42, you offset the devaluation for taxes with a positive of $25,000 for the
value of entitlements, correct?
And you talked to a Mr. Wolffath about that cost, correct?
Have you ever developed commercial property?
Did you speak with the developer, Helman Group, LLC about what they actually spent to obtain
the entitlements?
ENTITLEMENTS
To obtain the entitlements, one must present the city with certain reports, designs, engineering
studies, obtain zoning, etc., correct?
So, would it alter your opinion of value if you knew that between 3 and 400,000 was the actual
cost of meeting the requirements for entitlements?
Isn’t it true that the $25,000 represents just the fees paid to the Town of Superior?
You do recognize that the highest and best use is for the property to make use of those
entitlements and for its use as a medical building site, correct?
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On Page 16 at the bottom and on page 17, you note that a major new interchange is to be built at
Highway 36 and McCaslin Blvd, that Superior Market place is the premier retain power center in
Boulder County, and that that Town of Superior has major future development plans. On Page 22
you indicate the subject front McCaslin Blvd, a major arterial street and the area is experiencing
stable growth. These are all very positive characteristics.
VALUE
Now, you don’t mention the contract prices on the property in late 2007 and early 2008 at $2 m
and 2.49 million.
But the two comps you agree on are Sales 1 and 3 (within 1.6 and 2.2 miles). These two sales
transacted at 9.00 and 9.96 per square foot.
You both agree there are 257,021 sq. feet here.
If you do the math, the higher contract price was 9.69 per square ft. So even if that didn’t sell, it
was priced competitively with sales of the time, correct?
$1,070,000 is 42% of 2.49 M. It is your opinion that commercial property in Boulder County has
fallen by 58%?
DISCOUNT
On page 42 you also take a 15% discount for “holding”.
Go back to page 6. Is not the definition of FMV include an assumption that the property has
already had a reasonable exposure in the open market?
You are to determine the value of a sale today?
OTHER COMPS
Sales 2,4 and 5 are between 5.5 to 8.2 miles from the site. None are in Broomfield.
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Rooker-Feldman & Other Preclusion Doctrines
Issues of preclusion arise very often in bankruptcy proceedings in several contexts, most
notably nondischargeability adversary proceedings, but also potentially in claims
litigation, relief from stay motions, valuation hearings, etc. These matters may arise
whenever a proceeding in State court, or even an administrative hearing of some type
precedes the bankruptcy litigation. Bankruptcy courts are often anxious to employ any
mechanism to avoid having to litigate matters and there has been a trend toward applying
these doctrines liberally to avoid any re-litigation. One must be cognizant of the issues
from the beginning of a case, because there is little point in litigating an issue that will
later be found against you on one of these preclusion issues. While other preclusion
doctrines are not jurisdictional, Rooker-Feldman is; therefore, it may not be waived and
may be brought up, sua sponte, by a court.
I. Rooker-Feldman
A. What is Rooker-Feldman?
In Rooker v. Fidelity Trust Company, 44 S.Ct. 149, 263 U.S. 413, 68 L.Ed. 362,
(1923), the United States Supreme Court held that where a judgment has been rendered,
after due hearing, by a state trial court, with jurisdiction of the subject matter and parties,
and affirmed by the state supreme court, the only resort under the legislation of Congress
for correction of errors in deciding questions involving the Constitution is to the appellate
jurisdiction of this Court. District of Columbia Court of Appeals v. Feldman, 460 U.S.
462 (1983) expanded the concept to any issue “inextricably entwined” with a State court
determination.
Thus, the Rooker-Feldman doctrine has been applied to prevent collateral attack of
State court judgments in federal courts in many differing scenario. Since the issue goes to
subject matter jurisdiction it may be raised at any time, by any party to the proceeding or
sua sponte by the court. Ritter v. Ross, 922 F.2d 750, 752 (7th Cir. 1993) cert denied 510
U.S. 1.
In Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 284, 125 S. Ct.
1517, 161 L.Ed.2d 454 (2005), the Supreme Court, finding an excess of purported
applications of the so called Rooker-Feldman doctrine, clarified its limits, noting that the
doctrine is confined to "cases brought by state-court losers complaining of injuries caused
by state-court judgments rendered before the district court proceedings commenced and
inviting district court review and rejection of those judgments."
In Great Western, 615 F.3d , the Third Circuit explained, a federal court can
address the same issue “and reach a conclusion contrary to a judgment by the first court”
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as long as the federal court does not reconsider the legal conclusion reached by the state
court. Id. at 169.
But other courts are more result-oriented. See In re Kline, 472 B.R. 98, (Cir.
BAP 2012) “The relevant inquiry is " whether the state-court judgment caused,
actually and proximately, the injury for which the federal-court plaintiff seeks
redress," paying " close attention to the relief sought." citing Mo's Express, LLC v. Sopkin, 441 F.3d 1229, 1233 (10th Cir.2006).If success on the claims alleged in federal
court would necessarily require the federal court to review and reject the state court's
judgment, Rooker-Feldman applies.
B. Examples of Application/Non-Application of Preclusion Issues
1. Claims. The doctrine can be used as a shield by a creditor in the defense of
objections to a claim, in attempts to estimate a claim, and in attempts to determine that
the debt underlying a claim has been discharged.
2. Enforcement of State Court Judgments and Orders . It can be used as a
sword by an attorney attempting to enforce a state court judgment in his/her clients favor
and in efforts to seek an injunction.
a) Divorce. Rooker-Feldman has been described as an “important jurisdictional
tool in bankruptcy adversary practice to prevent parties from having to re-litigate dispute
involving marital debts.” Alexander, Peter C. Bankruptcy, Divorce, and the Rooker-
Feldman Doctrine: A Potential Marriage of Convenience, Journal of Law & Family
Studies (2011).
b) Foreclosure. In re Hall, 497 B.R. 167, (Cir. BAP 2013)(“Although [Debtors]
do not ask directly for reversal of the Judgment, they seek damages based on alleged
injuries incurred as a result of the state foreclosure action. They repeat contentions and
arguments rejected by the state court; specifically, whether their payments were
misapplied, whether they defaulted on the Note, and whether State Street had standing to
enforce the Note.”
c) Reasonableness of Attorney’s Fees. any liability resulting from a debt that is
found to be nondischargeable is also nondischargeable. See In re Stokes, 150 B.R. 388
(W.D.Tex.1992) (all debts including punitive damages, legal fees and interest).
In re Smith, 321 B.R. 542, (Bankr. D. Colo. 2005)
3. Automatic Stay. Because state courts have concurrent jurisdiction to
determine applicability of automatic stay, bankruptcy court did not have jurisdiction to
invoke automatic stay determined to be inapplicable by state court in foreclosure
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proceedings. Singleton v. Fifth Third Bank of Western Ohio (In re Singleton), 230 B.R.
533 (Bankr. 6th Cir. 1999).
4. Violation of Discharge Proceedings. In re Kline, 472 B.R. 98, (Cir. BAP
2012).
5. 727 Discharge Adversaries.
6. Fraudulent Conveyances (548 and 544)
PEDP paid $50 million fee to Commonwealth of Pennsylvania for a slot machine
license but revoked the license for failure to maintain the machines. The revocation was
appealed to the highest State court. PEDP commenced a bankruptcy and brought an
adversary alleging that the license revocation should be avoided as a fraudulent transfer.
The bankruptcy court refused to hear the adversary on the basis of Rooker-Feldman. In re
Phila. Entm’t & Dev. Partners, L.P., 549 B.R. 103 (Bankr. D. Pa, 2016), the District
Court agreed. 569 B.R. 394 (E.D. Pa. 2017). The Third Circuit reversed in holding that
the analysis of the fraudulent transfer claims did not require the bankruptcy court to
“review or reject the Commonwealth Court’s judgment...” and thus, the claims were not
barred. In doing so it held the license revocation itself could not be revisited; however,
the rights transferred back to the State by the revocation, were in fact a transfer, which
could be for “less than reasonably equivalent value.” Phila. Entm’t & Dev. Partners v.
C’wealth of Penn., No. 17-1954 (Third Circuit Dec. 12, 2017).The court refused to accept
the theory that just because a bankruptcy finding could “as a practical matter undermine
the valid state court order” did not invoke the Rooker-Feldman bar. Allowing the
revocation to stand did not mean that the State of Pennsylvania could not be found liable
for the value of the license. Accord, In re Chinin, 327 B.R. ___, (Bankr. N.D. Ill 2005)
(State court settlement could be challenged as fraudulent for less than adequate
consideration despite approval by state court.)
C. Inapplicability to Actions under 11 U.S.C. §523 for Nondischargeability of
Debt
Where the federal plaintiff was the plaintiff in the state court action, the doctrine is
simply inapplicable. See In re Ryan, 408 B.R. 143 (Bankr. N.D. Ill. 2009) citing
Kamilewicz v. Bank of Boston Corp., 92 F 3d 506, 510 (7th Cir. 1996). (“[Plaintiffs] are
not "state-court losers" attempting to have this bankruptcy court reexamine the Illinois
state court judgment. See Exxon, 544 U.S. at 284, 125 S. Ct. 1517. Rather, the Plaintiffs
are presenting an independent claim-the § 523(a)(2)(A) claim-over which this Court has
jurisdiction under 28 U.S.C. § 157(b)(2)(I). The Plaintiffs were not able to raise the
§523(a)(2)(A) claim in the state court because such claim can only be raised in a
bankruptcy case under 11 U.S.C. § 523(c)(1) and Bankruptcy Rule 4007(c). Thus, the
invocation of the Rooker - Feldman doctrine is inappropriate…the doctrine the defendant
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must contend with is res judicata, not Rooker-Feldman.” In re Ryan, 408 B.R. 143
(Bankr. N.D. Ill. 2009).
D. Rooker-Feldman Does Not Apply to Judicial Review of State Agency
Decisions
Many cases include debts for overpayment of benefits (Unemployment, Food
Stamps, etc.) or other debts determined to be claim by administrative processes. The
Supreme Court has held that the Rooker-Feldman doctrine “has no application to judicial
review of executive action, including determinations made by a state administrative
agency.” Verizon Md., Inc. v. Public Servs.' Comm'n of Md., 535 U.S. 635 at 644 n. 3.
(2002). Applying Verizon, the Tenth Circuit has held that the Rooker-Feldman doctrine
does not apply to determinations made by a property valuations protest board, whose
authority was defined under New Mexico statute. See Jicarilla Apache Nation v. Rio
Arriba County, 440 F.3d 1202, 1206 (10th Cir. 2006). In so holding, the Tenth Circuit
stated unequivocally that “Rooker-Feldman does not apply to judicial review of state
agency decisions”. Id. at 1207-08.
In Simon v. Taylor, 981 F. Supp. 2d 1020 (D. N.M. 2013), the District Court for
New Mexico held the New Mexico state Racing Commission’s (Agency) decision, could
only be made “final” by a state district court’s decision. Rooker-Feldman did not apply to
“matters only the Racing Commission decided.”
II. Res Judicata and Collateral Estoppel
Burden of proof is on the proponent of any doctrine of preclusion. In re Lopez,
367 B.R. 99 (9th Cir. BAP. 2007)(“It is consistent with the rule that preclusion is an
affirmative matter as to which the proponent of preclusion has the burden of persuasion
and bears the correlative risk of nonpersuasion.”) citing Exxon-Mobil, 544 U.S. at 293,
125 S.Ct. 1517; Christopher Klein et al., Principles of Preclusion & Estoppel in
determination; [the debtor’s] sole right with regard to which was to appeal it within 30
days…of receiving notice,” was not entitled to preclusive effect. As in this case, debtor
was not “given an opportunity to appear and contest the Agency’s findings prior to the
issuance of the determination.”
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CONSIDERATIONS AS A BANKRUPTCY LITIGATOR
A VIEW FROM THE TRENCHES
1. Expert Witness. Do I need one? What will the testimony be? How much will it cost? Who do I know who can help on the cheap?
2. Deposition. Is it necessary? Is it worth showing the other side where I am going with the case, or should I just surprise them at trial?
3. Deposition of the corporate representative (i.e., Rule 30.b.6.) Button down the corporate folly with the deposition, or surprise the witness at trial?
4. Fact Witness who is also an Expert. Better than hired gun. And cheaper. Disclose per Rule 26, but not needed.
5. Draft closing argument on a laptop—easy to edit as trial proceeds.
6. Out of time to disclose a witness? Argue no prejudice, offer to extend discovery.
7. File the List of Witnesses and Exhibits early if you are worried about missing a deadline.
8. If there is a mutual deadline, like the List of Witnesses and Exhibits, and the other side is not competent, consider filing at 11:55 PM the evening it is due.
9. Read all state court pleadings and orders prior to filing a bankruptcy, especially those dealing with divorce or a potentially non-dischargeable debt (i.e., fraud, conversion). Get a sense, a prediction, of where the bankruptcy case is going. Send letter to client with a predication of possible litigation.
10. Not easy to win with motions for judgment on the pleadings, or failure to state without specificity the fraud elements. It’s more a way of wearing down the other side, pointing out amateur status.
11. Questionable debtors with questionable facts and questionable conduct belong in Chapter 13—not Chapter 7.
12. In discovery, get the documents. Maybe ask for admissions. Interrogatories are a waste of time.
13. When ferreting out the truth, ask your client “what is the worst the other side will say about you?”
14. The best cross-examination asks only short questions that call for a “yes” response, breaks out topics like chapters, and avoids asking anything you don’t know the answer to.
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15. Frame your own issues. Read the statute and the case law and that becomes your road map. Do not go down the other side’s rabbit hole.
16. Two schools of thought with depositions—going in strong to prove your case and facilitate settlement or play the “curious friend” of the deponent so that we can all discover the truth together. I prefer the latter.
17. During cross-examination, listen to the answers. It’s okay to go off script. Ask follow ups when the witness opens an unexpected door.
18. Ask opposing counsel to stipulate to exhibits before trial. Judges like that, and it makes the case go a bit smoother.
19. Acknowledge the rough facts of your case during opening and minimize them.
20. Tell the story in chapter format, one topic at a time, chronologically.
21. Draft Closing Argument on your laptop—easy to edit as trial proceeds.
22. While you should always argue the equities, some judges are more swayed than others by passionate arguments. Some prefer just the numbers. Thus, know your audience.
23. During cross-examination, avoid the “so” question. Save it for closing argument. 24. Judges are busy. They do not have time to sift through adverbs, adjectives and
purple prose. We call them legal “briefs” for good reason. When drafting any motion or pleading, imagine yourself composing a telegraph, not describing the flower arrangement at your cousin’s wedding. Do not be the airline pilot who announces that he “is presently anticipating the possibility of considerable precipitation.” Be the co-pilot who says, “it may rain.”
25. If the facts are complicated, or there are mathematical calculations involved, use
demonstrative evidence. Make the task of understanding the facts as easy as possible for
the court.
Final word--it’s a hard thing we do. Our clients have few resources to pay counsel. Matters are often not worth the expense of fighting, given what is at stake. And only other attorneys know and appreciate the stress.
“We, the unwilling, led by the unknowing, are doing the impossible for the ungrateful. We have done so much, for so long, with so little, we are now qualified to do anything with nothing.” Konstantin Jireček
This matter comes before the court on the chapter 13 plan that was filed on January 15,
2018, and the objection to confirmation filed by the chapter 13 trustee. The trustee has
raised three concerns in his objection. Those are:
1. the debtor is not committing all his disposable income to the chapter 13 plan, and
specifically, that disposable income based on form 22 requires the debtor to pay a
minimum of $30,000 to class IV unsecured creditors;
2. that the debtor’s proposal to maintain payments on two vehicles outside the plan
is excessive, that he should surrender one of the vehicles, and commit that money
to plan payments;
3. that part of the debtor’s disposable income, and specifically, the calculation of
“projected disposable income” he should include monies received by his non-
filing spouse from the Social Security Administration.
In response, the evidence will show:
1. debtor’s circumstances have changed since the filing of the case. Within the
six months prior to the filing of the bankruptcy case, the debtor’s well-paying
job was lost. He remains in the same industry, however with a decrease of
approximately five dollars per hour, or approximately $866 gross less per
month. In that regard, Debtor maintains that the Supreme Court case of
Hamilton v. Lanning offers direction, specifically, that the debtor’s changed
circumstances should move our focus from Form 22 to schedules I and J;
2. the debtor maintains that the two vehicles are necessary for reorganization in
that the debtor operates the 2014 Ford pick-up truck to commute to work and
to perform tasks related to his maintaining the home, which is presently in
disrepair. The 2013 Harley-Davidson motorcycle is also used by the debtor to
save gas when the truck is not needed. The debtor would also point out that
the total monthly payments for the two vehicles equals $950 per month, and
would argue that for a family of two, these amounts are reasonable and are
contemplated by the IRS standards as to average monthly vehicle loan
payments.
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3. With regard to social security benefits, debtor relies upon the 10th circuit
opinion of In re Cranmer. In that case, the 10th circuit concluded that social
security income need not be included in the calculation of projected
disposable income. Admittedly, Cranmer was focused on the debtor
receiving Social Security benefits. However, the reasoning contained in
Cranmer—that is, Social Security benefits are not available for collection by
third-party creditors -- should also apply in this case.
The evidence will also show that the debtor is a full-time electrician with Piper Electric.
His take-home income is approximately $4100 per month. His wife has been disabled
since 2012 with rheumatoid arthritis and heart disease. The budget, the evidence will
show, is about as frugal as people can live when half the income goes to housing. There
is no entry for recreation. The debtor’s wife, while covered by Medicare, spends an
additional $245 a month for over-the-counter medicine which is not covered by
Medicare. The couple has no pets, has not had a vacation in four years. If the focus
today is on Schedules I and J, the court will conclude that this is hardly a couple which
deserves excessive scrutiny with what they earn and get by on.
The parties have exchanged exhibits. Some of the exhibits are duplicates. If it would
assist the court, I can go over those duplicates at this time. Otherwise, we have two
witnesses and are ready to proceed.
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CROSS EXAMINATION OF LOAN OFFICER IN A “CRAM DOWN” Background: Debtor financed expensive pickup truck for use in his business. Debtor crammed down truck in plan. Credit Union objected, arguing had Debtor been honest and told creditor that the truck would be used for business, the loan would not have been made. In discovery, creditor did not produce the loan application that was completed at the dealership. Only the loan application that was completed on-line was produced. Although the debtor did not “check the box” on the on-line application that the truck was for business purposes, he did check that box at the dealership with that second loan application. Whether the dealership sent the second loan application to the credit union is unclear. The loan nevertheless was made. Cross examination on Credit Union’s representative Counsel: Good morning Mr. Hamlin, my name is Steve Berken and I represent the debtor. You are familiar with this loan? Hamlin: Yes. Counsel: But you were not the loan officer responsible for making a loan? The loan was made by a Mr. Mark Cousins with the credit union. Hamlin: Correct. Counsel: Why is he not here? Hamlin: I don’t know. Counsel: Mr. Cousins is not your attorney? [Asked to establish no privilege between Hamlin and Cousins]. Hamlin: No. Counsel: Doesn’t it make sense that the person who made the loan would be more helpful to the court to understand why the loan was made? Hamlin: I don’t know. Counsel: Does Mr. Cousins have a conflict today? Hamlin: I don’t know. Counsel: Did you talk to Mr. Cousins about your appearance today? Hamlin: Briefly. Counsel: Tell me in detail, what did Mr. Cousins tell you and what did you tell him? Hamlin: We discussed that your client did not tell us he was going to use the truck for business. We talked about some family matters involving his son. Counsel: In the loan making process for the credit union, is it fair to say that your company has an application to fill out by the potential customer? Hamlin: Yes. Counsel: The customer typically fills out the loan application at the dealership? Hamlin: We have an application that can be filled in on-line. Counsel: Yes, but a loan application can also be filled out at the dealership correct? Hamlin: Yes. Counsel: And that loan application is sent to the credit union for review? Hamlin: Yes, but in this case, your client filled out a loan application out on-line. Counsel: The credit union relies on the accuracy of the information provided on the loan application? Hamlin: Yes.
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Counsel: Additionally, in connection with the loan making process, the credit union does the standard checking on credit worthiness? It pulls a credit report? Hamlin: Yes. Counsel: It may ask for additional documents, such as tax returns? Recent wage statements? Maybe bank statements? And the decision to make loan is based on that information? Hamlin: From a high level, yes. Counsel: I don’t know what that means? What have I missed. Hamlin: we also look at “loan to value,” the conditions of the vehicle, what it will be sued for. Counsel: The credit union regularly finances cars from this dealership? Hamlin: Yes. Counsel: And the credit union relies on the information it receives from the dealership, usually the finance manager? Hamlin: Yes. Counsel: Okay, and all these factors are considered in making a loan. Hamlin: Yes. Counsel: Turn to exhibit book please. Turn to Exhibit G. Let me know when you are there? Hamlin: Yes, I’m there. Counsel: Do you recognize that document? What is it? Hamlin: it’s an application for credit. Counsel: that is the form that you typically use and rely upon in making a loan? Hamlin: Yes. Counsel: On the application, there’s a question that asks the primary purpose of the vehicle? What it will be used for? Do you see that? Hamlin: Yes. Counsel: in the box asking whether the primary purpose would be for “personal or family use,” that box has been checked. Hamlin: Yes. Counsel: the credit union was not present for the closing of the loan? In other words, all the paperwork was signed at the dealership. Hamlin: Yes. Counsel: please turn to Exhibit H. Let me know when you’re there? Hamlin: Yes, I’m there. Counsel: Do you recognize that document? Hamlin: It is the credit application your client filled out. Counsel: And he filled that out at the dealership? Hamlin: It appears so. Counsel: And we know that because it has the dealership’s name at the top of the application. There are then two applications, one on-line and one at the dealership? Hamlin: Yes. Counsel: I will represent to you that we asked for discovery in this case. And that the credit union did not produce this second credit application. That I had to go to the dealer with a subpoena to get these documents.
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Mr. Hamlin, please note that Exhibit H has a similar question to Exhibit G. That asks about whether the vehicle to be financed will be used for personal or business use. Hamlin: Yes. Counsel: Please read that question and how the debtor responded. Hamlin: It says, “are you using the vehicle for personal/family use or for business use?” Counsel: There are boxes next to that question. Which box is checked? Hamlin: Business. Counsel: We know in the normal course that the dealership sends you the application. Did the dealer not send you this application, the one where my client says the truck was to be used for business? Hamlin: I do not see that application in the file I brought today. It may be in the file at the office. Counsel: And for reasons that are unclear to me, that exhibit was not disclosed for today’s hearing. Hamlin: I don’t know. Counsel: Pass the witness Your Honor.
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CLOSING ARGUMENT
Have in mind your closing when writing your opening. You want to be able to say in closing all the things you promise to deliver in opening. Writing your closing will give case its “theme.” Be mindful of “conclusory” statements such as “there was no fraud because they did not prove fraud.” Prepare the outline of your closing argument before trial begins. Keep it on your laptop during trial, which makes it easy to edit instead of lines and arrows on a legal pad. Break the elements into “prongs” and argue each prong if appropriate. When defending, if you can kill one prong (i.e., no provable damages, lack of intent), you win. Humanize the clients but always stick to the facts.
Spend time hitting your strongest arguments. Skip the insignificant. Acknowledge the weaknesses in the case, but do not spend much time doing so.
Go through the salient exhibits and explain their importance. (“Exhibit C is the contract between
the parties. Nowhere does it prohibit the debtor from taking a draw.”)
Cast yourself as the court’s helper. You are there to help guide the court to the right conclusion.
Do not read your closing. Write it with bullet points, not long sentences. Take your time. No
need to rush. A pause will seem much longer to you than to the court.
Finish with something punching, but no humor. (“The debtor in this case took on a project most
sane contractors would have run from. Instead of being commended for doing what he did, with
what he had to work with, he was sued.)
SAMPLE CLOSING ARGUMENT
This matter came before the court on the plaintiff’s complaint, in which she alleged that her debt
should be excluded from discharge per sections 523(a)(2) and 523(a)(4).
As we know, the plaintiff bears the burden of proof of each required element and that exceptions
to discharge are to be narrowly construed, says the case law. The objectives of bankruptcy to
give a debtor a fresh start, according to the 10th circuit, says that “doubt should be resolved in the
debtor’s favor.”
Section 523(a)(2)(A) provides that exception to discharge for debts obtained by false pretenses
false representation or actual fraud, has varying elements of proof which overlap one another.
False representation has five elements: the creditor must establish all these elements by a
preponderance of evidence to prevail.
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One. That the debtors made a false representation
Two. representation was made with the intent to deceive the plaintiff
Three. the plaintiff relied on the representation
Four. her reliance on the representation was justifiable
Five. that she was damaged.
The court has before it evidence that there were communications between the parties over
approximately 6 months. However, in the context of false representation, the court is limited to
focusing on the representations that were made prior to or in conjunction with the execution
of the contract. The back and forth between the parties after the money was paid cannot be the
basis of a false representation.
And what of that contract? There was no evidence presented that the debtor did not intend to
complete and deliver the promised goods for the bargain for amount when the agreement was
consummated. Just the opposite. The evidence shows that the debtor, upon receiving payment,
immediately ordered supplies and materials to start the project. Someone intending to not deliver
on a promise does not immediately incur expenses in connection with the project.
Plaintiff argues that the defendant was prohibited from taking a draw as the project progressed.
However, there’s nothing in the contract that prohibits the debtor from reimbursing himself for
costs incurred or the labor that he provided.
And what of that draw? He took $2500 for himself of the $60,000 paid for the project.
523(a)(4) excludes from the order of discharge debts incurred by “fraud or defalcation while
acting in a fiduciary capacity, embezzlement or larceny.”
The curve ball in this equation comes from the Colorado Trust Fund statute. It imposes a
fiduciary obligation upon contractors. Formerly in Colorado, it was not particularly difficult to
find a contractor had breached his fiduciary duty under the trust fund statute when any funds
were taken as a “draw” prior to full payment to any material suppliers, laborers or
subcontractors. But the landscape changed with the Supreme Court’s rulings in Storie and
Bullock v. BankChampaign.
With those decisions, we now have direction, and specifically, a definition, of the word
defalcation. Defalcation is defined as a “reckless conduct of the kind of the criminal law often
treats as the equivalent” or a conscious disregard or willful blindness to a substantial and
unjustifiable risk.
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A tough standard indeed for a creditor to prove. And this creditor did not prove defalcation
within the meaning of section 523(a)(4) for two principal reasons.
The debtor testified he was unaware of the existence of the trust fund statute and the various
duties placed upon him. The plaintiff offered no evidence, credible or otherwise, that the
debtor was aware of the trust fund statute. As Judge Brown held in In re Cupit, “a debtor
cannot consciously disregard or risk of violating a fiduciary duty if he or she is wholly
unaware of that duty. There must be some evidence that the debtor was aware of the fiduciary
duty and of the risk that his conduct would violate that duty.”
Second, plaintiff put on no evidence that the debtor was “willfully blind to the possibility” that
there would be delays in the project due to weather, unforeseen expenses and the like. Indeed,
the evidence was that the skid steer broke during excavation, replacement was not readily
available, the complications of obtaining several permits, additional engineering work and the
attendant cost.
Although it is not quite clear from the arguments presented during trial that the plaintiff seeks a
judgment for embezzlement, we will address it in this closing.
The 10th Circuit has defined embezzlement as the “fraudulent appropriation of property by
person to whom such property has been entrusted or into whose hands it has lawfully come.”
A claim for embezzlement under 523(a)(4) has five elements:
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