Archives for March 2014

Computer-Generated Business Records and Summary Judgment Affidavits – IL Law

bizrecordsIn US National Bank v. Avdic, 2014 IL App (1st) 121759-U, the First District provides a detailed analysis of both the evidentiary foundation requirements for computer-generated business records and the requirements of a valid summary judgment affidavit.

The plaintiff lender filed a foreclosure suit against the borrower defendant and moved for summary judgment.  The lender supported its motion with the affidavit of a bank officer who attached sworn copies of key loan documents, the promissory note and a computer-generated payment history for the defendant borrower’s account.

The defendant moved to strike the bank’s affidavit on the basis that it failed to lay a sufficient foundation for the attached loan and payment records and didn’t establish that the bank employee who signed the affidavit had first-hand knowledge of the defendant’s payment history.  The trial court entered summary judgment for the lender and denied the borrower’s motion to strike the affidavit.  The borrower appealed.

Result: Trial court affirmed. Plaintiff-lender wins.

Q: How Come?

A: The lender’s summary judgment affidavit complied with Illinois Supreme Court Rule 191 – the rule that governs summary judgment affidavits.  Rule 191 requires affidavit to state specific facts and to be based on personal knowledge instead of conclusions or guess-work.  Affidavits are substitutes for live trial testimony and because of that, must pass a stringent test for admission in evidence.  US Bank, ¶¶ 22-25.

To lay a foundation for admitting business records as a hearsay exception, the party must show that the records were (1) made in the regular course of business; and (2) at or near the time of the event or occurrence.  Rule 803(6) and Supreme Court Rule 236 work in tandem to codify the business records exception to the hearsay rule.  US Bank, ¶¶ 24-26.

Where computer-generated records are involved, the proponent must demonstrate (1) that the computer equipment is standard equipment, (2) the computerized entries were made in the regular course of business (3) at or reasonably near in time to the events recorded and (4) that the sources of information, the method of data entry and preparation are all trustworthy.  US Bank, ¶26.

The Court found that the lender’s affidavit met the relevant Rule 191 criteria.  The bank officer testified that she was familiar with the lender’s business practices, records and its manner of inputting, tracking and generating payment information.  She also testified in detail what steps the bank takes when creating, storing and printing loan and payment records.  The officer also said she reviewed the loan file, promissory note and related documents.  She also attached the key loan documents to the affidavit. ¶¶ 30-31.

The affidavit also met the admissibility standards for computer-generated payment records.  The bank officer described the computer software used by the bank to create and print out loan payment histories and testified that the software program used was standard and customary in the banking industry.  The officer even said that the computer equipment was periodically checked for accuracy. ¶¶ 29-30.

The court also found there was no requirement that the officer have first-hand knowledge of the borrower’s account or that she (the officer) personally made the payment entries into the bank’s computer for the affidavit to conform to Rule 191’s requirements.  Under Rule 236 and Illinois Evidence Rule 803(6), a lack of personal knowledge can affect the weight given to testimony; but it won’t bar that testimony outright.

Take-aways:  To get computer business records into evidence on summary judgment, the mo any should itemize each foundational requirement for those records.  A business entity plaintiff especially should establish that the person signing a summary judgment affidavit is familiar with the business’s record-keeping and billing processes and can testify to any unique billing and payment software used by the business.

When The Person You Have A Judgment Against Has His Property Tied Up In A Trust: What Then?

images (photo credit: www.dreamstime.com; Google images (visited 11.26.14)

In earlier posts, I’ve discussed how time-consuming and frustrating it can be to collect on a money judgment.  The primary creditor enforcement methods include freezing the debtor’s bank accounts, garnishing his wages, and liening his real estate by recording the judgment in the county where his land is located.  Recording a lien against a debtor’s real estate is an especially strong tactic.  Once a creditor records the judgment, he can sue to foreclose the property and force its sale.  But where a debtor has no assets or source of income, the judgment is worthless. 

Adding yet another layer of difficulty to the collection process is where a debtor’s property is sheltered in a trust.  The most common scenario I encounter this in my practice is with real estate held in a land trust.  Typically, the property will be owned by a trustee (usually a bank) and lived in by the debtor who most likely is the trust beneficiary. 

In Illinois, a debtor’s beneficial interest in a land trust is regarded as personal property: he (the debtor) doesn’t possess a direct ownership interest in the trust real estate.  The practical effect: you can’t lien the real estate by recording the judgment since the trust – not the debtor – owns the land.  The debtor’s beneficial interest in a land trust is considered intangible personal (not real) property.  

Illinois’ post-judgment statutory scheme expressly allows a creditor to impress a lien on a debtor’s intangible property via the citation to discover assets.  Once a citation is served on the debtor, the judgment becomes a lien on all of a debtor’s nonexempt personal property (including a beneficial interest in a land trust) on the date the citation is served. 

The citation results in the judgment binding the debtor’s personal property (everything that’s not land basically: cars, jewelry, stereo equipment, stocks, bonds, etc.) in his possession or which later comes into his possession before the citation expires.  735 ILCS 5/2-1402(m)(1). 

Code Section 2-1403 (735 ILCS 5/2-1403) provides that no court can order the satisfaction of any judgment out of property held in trust if (a) the trust was created in good faith; and (b) created by someone other than the debtor.  So, if the trust was created by a third party, the trust property is protected from creditors.  However, once any trust property is distributed “out of” the trust, the creditor can attach and lien the disbursement.

Creditor’s counsel should be leery of property held in trust for the debtor’s benefit and be cognizant of other standard exemptions (property that creditor’s can’t touch) like pension funds, retirement accounts, unemployment benefits, etc. 

Assuming there is no fraud or other suspicious circumstances surrounding the trust’s creation, the trust property will be shielded from creditors.  However, once the trust income is disbursed to the debtor, it’s fair game.  The creditor should then promptly move for a turnover order or ask the court to impress a judicial lien on the trust funds being distributed to the debtor. 

Contractor’s Failure to Provide Sworn Statement Dooms Mechanics Lien Suit

A contractor lost its nearly $400,000 mechanics’ lien when it failed to serve a “Section 5 statement”, which lists subcontractors and amounts owed and owing, after the property owner requested one.  770 ILCS 60/5 (the “Lien Act”).

In Cityline Construction v. Roberts, 2014 IL App (1st) 130730, the parties entered into an oral contract for fire restoration work.  The plaintiff contractor sued to foreclose a mechanics lien and for breach of contract and quantum meruit.  The owners, in turn, filed a declaratory judgment counterclaim seeking to invalidate the mechanics’ lien.  During discovery, the contractor admitted in response to the homeowner’s request to admit facts that it (the contractor) never provided a Section 5 statement despite the owner’s request for the statement.  The trial court granted summary judgment for the homeowners on their counterclaim.  The court held that the contractor’s failure to supply the statement was fatal to its lien claim.

Held: Affirmed.

Rules/reasoning:

The Lien Act is strictly construed and its provisions must be scrupulously followed.  Section 5 of the Lien Act requires a contractor to provide (and an owner to request) a sworn statement listing names and addresses of all parties furnishing labor and materials to a job and the amounts due or to become due each party.  770 ILCS 60/5.  The contractor admitted not providing a Section 5 statement but argued that strict compliance should be relaxed and that the failure to give the statement didn’t harm the owners.  Cityline, ¶¶ 11-12.

Rejecting this “no harm, no foul” argument, the Court provided a synopsis of several Illinois cases from the past several years that, in unison, have held that the technical requirements of Section 5 of the Lien Act must be strictly complied with for a lien to be valid.  Cityline, ¶¶ 13-17.  The Court refused to read any exceptions into or engraft any limitations on the Lien Act’s statutory language.  Since the evidence was clear that (a) the owners requested a Section 5 statement, and (b)  the contractor failed to supply the statement, the lien was invalid.

All is not lost for the contractor though.  The contractor still has valid breach of contract and quantum meruit claims.  The Cityline court stressed that a contractor’s failure to provide a Section 5 statement doesn’t defeat a breach of contract or alternative quantum meruit action.  But losing the lien claim is an obvious blow to the contractor though.  With no security for its claim, the contractor must now hope that if it wins a money judgment against the owners, they (the owners) will have non-real estate assets with which to satisfy a judgment.

Take-aways:

An example of strict statutory construction.  The contractor’s equitable (the purpose of the section was met) and policy arguments (the court shouldn’t vaunt form over substance) were discarded.  Lost in the analysis is that Section 5 also imposes a duty on the owner to specifically request a Section 5 statement.  The Court suggests that if the owner fails to ask for the statement, it possibly won’t defeat a contractor’s lien claim.  Cityline, ¶ 22.  But even so, the cases cited by the Court that hold that a Section 5 statement can be waived where the owner fails to request one, are more than 100 years old and involve an outdated version of the Lien Act.  Clearly, the prudent practice is for the owner to request a Section 5 statement and for the contractor to provide a Lien Act-compliant statement in response.