Serving The Corporate Defendant – An IL Case Note

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(Photo credit: www.corbusimages.com)

This case piqued my interest since I recently spent an obscene amount of time trying to serve a defendant in a commercial lease dispute.  It wasn’t until after my process server gave sworn testimony for nearly an hour at an evidentiary hearing that the court finally (and mercifully) put the service issue to bed and allowed us to proceed with prosecuting the case.

A few weeks ago (late June 2014), the First District appeals court examined the importance of proper process service in the context of a petition to vacate a default judgment.  The commercial tenant in Essi v. Fiduccia, 2014 IL App (1st) 120203-U, sued her ex-landlord for wrongful eviction.  After serving the summons and complaint on who she thought was the defendant at his insurance agency office, the plaintiff got a default judgment of nearly $300,000 – a sum comprised of lost profits, lost equipment and punitive damages.  About four months later, the defendant filed a petition to vacate the default judgment.  The trial court granted the petition and plaintiff appealed.

Held: Affirmed.  Trial court properly granted defendant’s petition to vacate the default judgment.

Rules/Reasoning:

The defendant’s petition to vacate the default judgment was properly granted because the defendant was never served.  In Illinois a judgment entered without personal jurisdiction over a party is void and can be attacked at any time and the petitioner doesn’t have to show due diligence or a meritorious defense.  735 ILCS 5/2-1401(f), (¶¶ 28-29).

Code Section 2-203 (735 ILCS 5/2-203) governs service of process on individual and corporate defendants in Illinois.  Permissible service methods are (1) personal service – delivering a copy of process to the defendant personally; or (2) substitute or abode service: leaving a copy of process at defendant’s usual place of abode with someone living there over the age of 13, and informing the person of the contents of the summons.  A corporation can be served by leaving the process with its registered agent or any officer or agent of the corporation found anywhere in the state.  (¶45); 735 ILCS 5/2-203.

A sheriff or process server’s return of service that reflects personal service on a defendant is presumptively valid and can only be overturned by clear and convincing evidence.  Uncorroborated, self-serving testimony of a defendant who claims he wasn’t served is usually insufficient to challenge a sheriff’s or process server’s sworn return.  (¶¶ 29, 36-37).  Conversely, where a defendant does submit a properly supported affidavit contesting service, the plaintiff must have the process server testify at an evidentiary hearing concerning the circumstances surrounding the challenged process service.  (¶ 37).

Here, the sheriff deputy’s return stated that process was served on the defendant at his insurance agency’s office.  But this was only a business address.  The defendant didn’t live there.  Defendant supported his petition to vacate with two affidavits: one from him, the other from his brother who is also defendant’s business partner.  Defendant’s brother testified that he was the only one in the insurance officer at the date and time on the sheriff’s return and accepted the papers because he thought they were insurance documents. Defendant, for his part, testified in his affidavit that he was never served at home and that nobody who lived with him was served.  Plaintiff failed to challenge defendants’ affidavits and didn’t call the sheriff deputy to testify in support of his service return (that showed personal service on the defendant).  The Court held that because plaintiff failed to challenge defendants’ affidavits, defendant met the clear and convincing standard for vacating the default judgment.

Afterwords:

This case illustrates that a default judgment entered without proper service can be attacked at any time.  A sheriff’s return of service is prima facie valid but not inviolable.  If a defendant offers sworn testimony contesting service, the plaintiff should call the sheriff deputy or process server to testify at an evidentiary hearing and elicit testimony on the date, time and circumstances surrounding the service on the defendant.  Then, it’s up to the judge to decide based on whose testimony she finds more believable.

 

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.

Contractor Invoices Not Hearsay Where Offered to Show “Effect On Recipient”

In In re 3RC Mechanical & Contracting Services, LLC v. Climatemp, Inc., 2013 WL 6172673 (N.D.Ill. 2013), the Debtor’s trustee sued the defendant for breach of a construction contract.

The defendant moved for summary judgment and supported the motion with its project manager’s affidavit and over 30 exhibits  – mainly invoices and bills.  The Trustee moved to strike about half of the exhibits on hearsay grounds.

Ruling: Motion denied.  

 

Key Rules:

summary judgment evidence (either for or against) must be admissible at trial;

– copies of documents can’t simply be “slapped on the back of a party’s statement of facts or its response” with a statement that the documents are “true and correct”;

– a summary judgment affidavit which refers to documents must lay the necessary foundation for those documents;

– ‘hearsay within hearsay’ is not admissible unless each layer of hearsay is properly admitted under a hearsay exception;

documents generated by third parties can sometimes qualify as admissible business records where they are integrated into the proponent’s own business records and the business relies on those third party records**;

– a statement is hearsay only if offered to prove the truth of the matter asserted;

– a statement isn’t hearsay if it’s offered to show its effect on the witness;

– out-of-court invoices are not hearsay where they are offered to show their amount only (not for their contents’ truth)

¶¶ 2-3; FRE 801(c)(2), 803(6).

Applying these rules, the Court found that the bills and invoices appended to the defendant’s affidavit were not offered for their truth.  That is, the contractor didn’t offer the invoices to prove to the court that the third party vendors and contractors actually performed the work contained on the invoices. 

Instead, the invoices were offered to show their effect on the project manager and to illustrate why he charged certain the amounts in question.

The invoices substantiated the affidavit testimony that the defendant had to hire substitute subcontractors after the Debtor failed to perform and went out of business.  ¶¶ 2-3.

The Court also emphasized that the project manager had hands-on involvement with the projects in question and spoke from personal knowledge about what work was was completed on the jobs.  ¶ 3.

Comments: The hearsay (offered for the truth) vs. non-hearsay (to show effect on listener/witness) distinction is a fine-line one.  The effect-on-the-listener/witness rule seems amorphous in that whenever someone attaches a third party’s records to an affidavit, all he has to argue is that the invoices are offered purely to show there impact on the listener/witness.  

The evidence rules laid out in this case should prove helpful to business litigants who are trying to get a third party’s records before a court or jury over a hearsay objection.