May 23, 2022

Volume XII, Number 143

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May 23, 2022

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"All Knowledge Is Inferential": Is the Use of Qualifiers In An Affidavit Sufficient?

A recent decision by the United States Bankruptcy Court for the Southern District of Indiana highlights the importance of paying close attention to the use of qualifiers such as "upon information and belief," "to the best of my knowledge," or "based upon my own personal knowledge" in sworn statements. It is not uncommon for lawyers and their clients to include qualifiers in sworn statements to protect themselves from inadvertently making false statements under oath. The problem is that these inclusions can lead a court to find that the affiant does not have first-hand knowledge of the facts contained in the sworn statement and therefore is not competent to testify.

In Fredin Brothers, Inc. v. Bankers Bank, et al. (In re Eastern Livestock Co., LLC), Peoples Bank sought a determination that it was entitled to certain funds deposited with the court in an interpleader action brought by Fredin Brothers. The dispute centered around a transaction in which Eastern Livestock purchased 192 steers from various farmers. Peoples Bank provided financing to the various selling farmers. Eastern paid for the cattle with a check that was subsequently returned unpaid, but only after Eastern sold the steers to a third party who then sold the steers to Fredin Brothers. Fredin Brothers learned of the bounced check and, fearing the prospect of having to pay twice for the cattle it purchased, filed an interpleader action. They deposited the approximately $165,000 purchase price for the steers into the state court. When Eastern filed bankruptcy, the state court action was removed to the bankruptcy court and Peoples Bank filed a motion for summary judgment seeking a determination that it was entitled to the interpleaded funds.

In support of its motion, Peoples Bank included a sworn, notarized verification by the bank's president that the facts alleged in the motion are "true and correct to the best of my knowledge." Other competing claimants, including the Eastern Livestock Chapter 11 trustee, argued that the verified statement should be disregarded because it failed to meet the requirements of Rule 7056 of the Federal Rules of Bankruptcy Procedure. The Rule provides that an affidavit used to support a motion must be made "upon personal knowledge, set out facts that would be admissible in evidence, and show that the affiant or declarant is competent to testify on the matters stated."

In support of its argument, the Eastern Livestock trustee relied upon an opinion of the United States Court of Appeals for the Seventh Circuit (Price v. Rochford), in which the court held that where a litigant's verification is based upon "his own personal knowledge or upon his information and belief" it is insufficient because it does not show affirmatively that the affiant is competent to testify. The trustee argued that the use of the qualifier "to the best of my knowledge" was too broad to show that the bank president had personal knowledge.

The Bankruptcy Court rejected the trustee's argument finding that the verification at issue was not a "subjective escape clause like the one at issue in Price" and did not suggest that the statement was based upon second hand information. Rather, the court found that the use of "to the best of my knowledge" was of "no moment" since personal knowledge includes inferences and "all knowledge is inferential." Although the court denied the summary judgment motion on other grounds, it found that the factual allegations were properly supported by the bank president's verification.

The case highlights the importance of how one expresses the foundation for the facts asserted in a sworn statement. Although parties like to qualify their sworn statements out of an abundance of caution, parties should be careful to make clear that they have personal knowledge of the facts noted in their affidavit or declaration.

© 2022 Much Shelist, P.C.National Law Review, Volume II, Number 359
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About this Author

Jeff Schwartz, bankruptcy attorney, Much Shelist law firm
Principal

Jeffrey M. Schwartz, a Principal in the firm's Creditors' Rights, Insolvency & Bankruptcy group, focuses his practice on the representation of secured and unsecured creditors in business reorganizations under Chapter 11 of the Bankruptcy Code and in out-of-court restructurings. He also represents buyers and sellers of financially distressed companies and distressed debt, and regularly advises lenders, creditors' committees, indenture trustees, debtors and other parties involved in bankruptcy-related matters. 

312-521-2626
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