9:30 AM --

No protests outside the federal courthouse this morning, but the long line packed with people was the security line getting inside the federal courthouse.

It is taking 15-20 minutes or more to get inside, thus the tardy start today with this blog.

Rod Meloni: Day 2 of Detroit's bankruptcy trial

Rod Meloni: Day 1 of Detroit's bankruptcy trial

The Detroit bankruptcy eligibility trial is on hold for the time being as a set of motions is being argued before Judge Stephen Rhodes.

The motions are from the objector unions who are looking to have the testimony heard yesterday by two city of Detroit financial analysts thrown out as hearsay.

Hearsay, in a legal setting, is someone testifying based on what they heard and did not personally witness.
AFSCME and the UAW are trying to have the testimony of Guarav Molhatra and Ken Buckfire thrown out because, even though they are financial analysts with considerable financial credentials, they were not qualified as “experts” in the legal sense for a trial and therefore they are merely bystanders testifying to the city of Detroit’s financial condition based on the reports and work product of others.

The objector unions are saying while these may be smart people, they know little more than anyone else in the eyes of these proceedings. In fact, an attorney for the United Auto Workers said the Jones Day attorneys working for the city of Detroit made a strategic and tactical decision not to have Malhotra and Buckfire qualified as experts. They are arguing that anything Malhotra or Buckfire testified to is pure opinion and nothing more.

The UAW lawyer went so far as to say for the purpose of this case “you could ask the taxi driver who drove Mr. Buckfire from the airport his opinion about the city’s financial condition and Mr. Buckfire is no more able to answer those questions than the taxi driver.”

The city’s attorney, Geoffrey Stewart from Jones, is now up responding.

He said this is a very simple case and the unions are wrong. He says the law says when it comes to using expert testimony there is a two tiered test for how an expert can testify:

1.) Having personal, particularized knowledge of the situation and then 2.) the expert would have to use that personal, particularized knowledge in the testimony. Steward says in the case of Mr. Malhotra was hired two years ago because the city of Detroit had laid off so many of its internal financial analysts he was brought in to do the job.

Stewart is now pleading that the law does allow for this testimony… did you have knowledge and did you use the knowledge?

He says Malhotra and Buckfire are coming from a place of that particularized knowledge. The particularized knowledge was the historical data about the city came from many publically available data, inside reports created by the city, the city’s analysts are using those reports so they know and have personal knowledge.

10:22 AM --

Stewart went on to say Ken Buckfire is a very well known, experienced, highly trained highly skilled, with an immense amount of knowledge about investment banking and was hired by the city of Detroit because of that expertise. He depended largely on the Malhotra reports about the city’s financial condition to form his decisions.

Buckfire testified about general obligation bonds and their impact on the city and Buckfire has intimate knowledge of the Wall Street bond market. He knows what will allow a city like Detroit to borrow on the bond market and the city was in no position to do so because the numbers he had to work with were all negative.

Steward added both Buckfire and Malhotra were making conclusions that were operative facts so the judge would be allowed to consider both men as giving qualified lay testimony.

Part of the reason this situation has arisen is that yesterday Judge Stephen Rhodes said during Ken Buckfire’s testimony “it’s hard for me to comprehend why you didn’t offer the Ernst and Young witnesses that prepared these projections as expert witnesses."

So what is at stake here is how much testimony from day two of this case will be allowed. If so the case carries on, but should the judge toss the city’s expert testimony then it is back to square one in the city’s case of demonstrating insolvency. It is entirely possible the Judge might just “split the baby” and say Molhatra can be considered experts as to what happened up until the bankruptcy filing as that has already happened. But Malhotra and Buckfire were also discussing future projections as how the city made the decision to take Detroit into Chapter 9.

We will see at 10:15 am when the judge returns to the bench for a ruling. We are now in recess.

You can tell time by Judge Stephen Rhodes, He was back on the bench at 10:15 a.m.

He gave his ruling in this way:  

Motion to strike Mr. Buckfire’s testimony opinion testimony based on his expertise… motion for reconsideration should be granted.