Business Records Evidence – Getting Them In: Reading List 2018

Today’s reading list highlights some recent civil and criminal cases from State and Federal jurisdictions across the country that address the admissibility of business records (with some public records and ‘residual’ rule cases sprinkled in) in diffuse fact settings.

The cases below examine evidentiary issues involving documents that range from the clandestine (top-secret State Department cables) to the pedestrian (credit card records, loan histories, Post-It ® notes) to the morbid (telephone records in a murder case).

The encapsulated rulings below illustrate that courts generally follows the same authenticity and hearsay rules but there is a marked difference in the in the intensity with which some courts put a plaintiff to its proofs. While some courts liberally allow business record evidence so long as there is a modicum of reliability, others more severely scrutinize the evidence admissibility process.

If nothing else, given the recency of these cases (they are all from this year), what follows will hopefully provide litigators a useful starting point for assessing what factors a court looks at when deciding whether business records evidence passes legal admissibility tests.


Records: Excel spreadsheets printed from a third-party’s servers

Type of Case: Fraud

Did They Get In? Yes

Case: U.S.A. v. Channon, 881 F.3d 806 (10th Cir. 2018)

Facts: Government sued defendants who operated a two-year scam where they cashed in OfficeMax rewards accounts to acquire over $100K in merchandise. Government offers OfficeMax spreadsheets authored and kept by an OM vendor into evidence.

Objections: hearsay, improper summaries

Applicable Rules and Holding:

FRE 1006 – a summary of documents are admissible where the underlying documents are voluminous and can’t be conveniently examined in court. Proponent must make original or duplicate available to the other party. Summary’s underlying documents don’t have to be admitted into evidence with the summary/ies but must still be admissible in evidence.

FRE 1001(d) – “original” electronic document means “any printout – or other output readable by sight – if it accurately reflects the information” housed in a host database.

Held: summary spreadsheet deemed an “original” where two witnesses testified the spreadsheets reflected same information in the database. Since government made the spreadsheets available to the defendants before trial, they were admissible.

FRE 801, 803(6): hearsay generally; business records exception

Hearsay presupposes a “statement” by a “declarant.” FRE 801. A declarant must be a human being. The Excel spreadsheets at issue here are computer data and not statements of a live person. The spreadsheets are not hearsay.

Even if the spreadsheets are considered hearsay, they are admissible under the business records exception since plaintiff testified that the records were prepared in normal course of business, made at or near the time of the events depicted, and were transmitted by someone who had a duty to accurately convey the information and where there are other badges of reliability.


Records: Credit card records

Type of Case: Breach of contract

Did They Get In? Yes.

Case: Lewis v. Absolute Resolutions VII, LLC, 2018 WL 3261197 (Tex. App. – SA 2018)

Facts: Plaintiff debt buyer of credit card account sues card holder defendant. After summary judgment for plaintiff, defendant appeals on basis that court credited a defective business records affidavit.

Objection: hearsay, plaintiff wasn’t originator of the records.

Applicable Rules and Holding:

Tex. R. Evid. 803(6) – a business record created by one entity that later becomes another entity’s primary record is admissible as a record of regularly conducted activity.

Personal knowledge by the third party of the procedures used in preparing the original documents is not required where the documents are incorporated into the business of a third party, relied on by that party, and there are other indicators of reliability.

Tex. R. Evid. 902(10) – business records are admissible if accompanied by affidavit that satisfies requirements of Rule 902(10).

To introduce business records created by a third party, the proponent must establish (1) the document is incorporated and kept in course of testifying witness’s business, (2) the business typically relies on accuracy of the contents of the document, and (3) the circumstances otherwise indicate the trustworthiness of the document. Summary judgment for successor card issuer affirmed.


Records: Medical Records, Police Reports

Type of Case: Manslaughter (criminal)

Case: People v. McVey, (2018) 24 Cal.App.5th 405

Did They Get In? No.

Facts: Defendant appeals conviction on manslaughter and vandalism charges based on trial court’s improper exclusion of victim’s medical records and police reports which Defendant believed had exculpatory information.

Objection: hearsay

Applicable Rules and Holding:

Cal. Code s. 1271 – business records hearsay rule.
Hospital records can be admitted as business records if custodian of records or other duly qualified witness provides proper authentication.

Cal. Code ss. 1560-1561 – compliance with subpoena for documents can dispense with need for live witness if records are attested to by custodian of records with a proper affidavit.

Records custodian affidavit must (1) describe mode of preparation of the records, (2) state that affiant is duly authorized custodian of the records and has authority to certify the records, and (3) state the records were prepared in the ordinary course of business at or near the time of the act, condition, or event recorded.

Police reports are generally not reliable enough for face-value admission at trial. While police reports can be kept in regular course of police “business,” they typically are not created to transact business. Instead, police reports are created primarily for later use at trial.

The hallmarks of reliability – contemporaneous creation, necessity of record’s accuracy for core purpose of business – are missing from police reports.


Records: Prior servicers’ mortgage loan records

Type of Case: Breach of contract, mortgage foreclosure

Did They Get In? Yes

Case: Deutsche Bank v. Sheward, 2018 WL 1832302 (Fla. 2018)

Facts: lender receives money judgment against borrower after bench trial. Borrower appeals on ground that loan payment history was inadmissible hearsay

Objection: hearsay – successor business incompetent to testify concerning predecessor’s records

Applicable Rules and Holding: where a business takes custody of and integrates another entity’s records and treats them as its (the integrating business) own, the acquired records are treated as “made” by acquiring business.

A witness can lay foundation for records of another company. There is no requirement that records custodian have personal knowledge of the manner in which prior servicer maintained and created records

A successor business can establish reliability of former business’s records by “independently confirming the accuracy of third-party’s business records.”

Plaintiff’s trial witness adequately described process that successor entity utilized to vet prior servicer documents.

Also, see Jackson v. Household Finance Corp., III, 236 So.3d 1170 (Fla. 2d DCA 2018)(foundation for prior mortgage loan servicer’s records can be laid by certification or affidavit under Rule 902(11))


Records: Third-Party’s vehicle inspection report containing vehicle ownership data

Did They Get In? No

Type of Case: Personal injury

Case: Larios v. Martinez, 239 So.3d 1041 (La. 2018)

Facts: plaintiff sues hit-and-run driver’s insurer under La. direct action statute. Insurer appeals bench trial verdict in favor of plaintiff.

Objection: hearsay

Applicable Rules and Holding:

A witness laying the foundation for admissibility of business records need not have been the preparer of records. Instead, the custodian or qualified witness need only be familiar with record-keeping system of the entity whose records are sought to be introduced.

Plaintiff failed to introduce the report through a qualified witness. Plaintiff had no knowledge of the inspection report company’s record-keeping practices or methods. The trial court errored by allowing the report into evidence.

Judgment for plaintiff affirmed on other grounds.


Records: Student loan records

Type of Case: Breach of contract

Did They Get In? Yes.

Case: National Collegiate Student Loan Trust v. Villalva, 2018 WL 2979358 (Az. 2018)

Facts: assignee of defaulted student loan sues borrower. Borrower defendant appeals bench trial judgment for plaintiff.

Objection: loan records are inadmissible hearsay and lack foundation

Applicable Rules and Holding: witness for an entity that did not create a loan record can still lay foundational predicate by testifying to creator’s transfer of the business record to custodial entity, and the transferee entity’s maintenance of the records and reliance on the record in the ordinary course of business.

Documents prepared solely for litigation are generally not business records. However, where the litigation documents are “mere reproductions” of regularly-kept records, they are admissible as business records to the same extent as the underlying records.

Plaintiff’s witness laid sufficient evidentiary foundation where witness testified that assignor/originator transferred loan documents to assignee/plaintiff, that the plaintiff integrated the records with its own and that plaintiff had historically purchased records from the assignor.

Documents created “with an eye toward litigation” were still admissible since they were culled from pre-existing loan records kept in the regular course of business. Judgment for plaintiff affirmed.


Records: Halfway house incident report

Type of Case: Criminal escape

Did They Get In? No

Case: Wassillie v. State of Alaska, 411 P.3d 595 (Alaska 2018)

Facts: Defendant charged and convicted of second degree escape for leaving halfway house in which he was sentenced to serve remaining prison term.

Objection: Jury considered inadmissible hearsay document – an incident report prepared by halfway house staff member

Applicable Rules and Holding:

Incident report is missing earmarks of trustworthiness and is inadmissible hearsay. An investigative report raises concerns about the report author’s “motivations to misrepresent.” There is potential for animosity between reporter and subject of report which could lead reporter to hide mistakes or “inflate evidence” in order to further the author’s agenda.

Whether a report is deemed to have been prepared in regular course of business involves a multi-factored analysis of (1) the purpose for which the record was prepared, (2) a possible motive to falsify the record, (3) whether the record is to be used in prospective litigation, (4) how routine or non-routine the challenged record is, and (5) how much reliance the business places on the record for business purposes.

Examples of documents found to be sufficiently routine under Alaska law to merit business records treatment include payroll records , bills of lading, account statements, and social security records are typically admissible as business records.

However, a more subjective document – like a police report or the incident report here – is too susceptible to author’s selective memory and subconscious bias. Conviction reversed.


Records: Cell phone records

Type of Case: Murder

Did They Get In? No.

Case: Baker v. Commonwealth of Kentucky, 545 S.W.3d 267 (Ky 2018)

Facts: Defendant convicted of murder. Prosecution relied in part on victim’s cell phone records to tie defendant to victim.

Objection: cell phone records were inadmissible hearsay

Applicable Rules and Holding: prosecution must establish that phone logs are (a) authentic and (b) non-hearsay (or subject to a hearsay exception). Kentucky Evidence Rule 901(b) provides that evidence can be authenticated via witness testimony from a qualified witness. Here, prosecution witness – a detective – established that phone records were authentic: they were what they purported to be.

Once the authenticity hurdle was cleared, prosecution had to defeat hearsay objection. While the call logs constituted regularly conducted activity under KRE 803(6), the prosecution didn’t offer the logs through a custodian or by way of a Rule 902(11) affidavit. As a result, the trial court erred by admitting the call logs.

Note: the admission of the hearsay call logs was “harmless” since there was copious other testimonial and documentary evidence of defendant’s guilt. Conviction affirmed.


Records: Home health nurse’s “sticky” note

Type of Case: Medical malpractice

Did It Get In? Yes.

Case: Arnold v. Grigsby, 417 P.3d 606 (Utah 2018)

Facts: Patient sues doctor and others for malpractice after colonoscopy goes bad. (Ouch.) Nurse and pharmacy employee’s handwritten note on post-it/sticky note on plaintiff’s medical chart introduced to show plaintiff’s knowledge of injury within two years of surgery. Post-it notes contents was basis for Defendant’s statute of limitations defense and jury’s ‘not guilty’ verdict.

Objection: sticky note has multiple levels of hearsay and is inadmissible.

Applicable Rules and Holding: hearsay within hearsay is not excluded where each part of combined statements meets exception to rule of exclusion.

Sticky note is classic hearsay: it is being offered to prove truth of matter asserted – that plaintiff had contacted an attorney within days of the surgery. Utah R. Evid. 801(c)(hearsay generally).

The court found the note admissible under Rule 803(6) business records exception as the note is a record of the pharmacy’s regularly conducted activity and was entered contemporaneously into plaintiff’s electronic medical records.

Note’s statement that “client has been told by her lawyer not to sign any papers indicating she’ll pay” is admissible under Rule 803(3) – the hearsay exception for out of court statements that show a declarant’s state of mind (i.e. his motive, intent, plan, etc.).

Jury verdict for doctor defendants affirmed.


Records: Government reports; state department cables

Type of Case: Statutory claim under Torture Victim Protection Act (TVPA) (filed by relatives of victims killed by Bolivian Gov”t)

Did They Get In? Yes and No.

Case: Mamani v. Berzain, 2018 WL 2013600 (S.D. Fla 2018)

Facts: relatives of victims killed during civil unrest in Bolivia sued country’s former president and minister of defense under TVPA which allows plaintiffs to sue foreign officials in U.S. courts for torture and killing of a plaintiff’s relatives. Defendants’ motion for summary judgment denied.

Objection: various governmental documents are inadmissible hearsay or unauthenticated.

Applicable Rules and Holding: Public records hearsay exception – FRE 803(8) – and “residual” hearsay exception. FRE 803(7).

The public records hearsay exception applies where (1) the record sets forth the office’s activities, (2) the record concerns a matter observed by someone with a legal duty to report it – but not including a matter observed by law enforcement personnel in a criminal case, or (3) in a civil case or against the government in a criminal case, the record consists of factual findings from a legally authorized investigation.

The party opposing admission of the public record must show the source of or circumstances generating the information lacks basic levels of reliability.

Here, an investigatory report prepared by three prosecutors fit the definition of a record of a public office prepared in conjunction with an authorized investigation.

Under the “residual” hearsay exception, a statement is not excluded if it (1) has equivalent circumstantial guarantees of trustworthiness, (2) is offered as evidence of a material fact, (3) is more probative on the point for which it is offered than any other evidence the proponent can obtain through reasonable efforts, and (4) admitting it (the statement) will serve the purposes of these rules and interests of justice. FRE 807(a).

The residual hearsay exception is sparingly used and applies only where exceptional guarantees of trustworthiness are present coupled with elevated levels of probativeness and necessity.

Here, military and police records lack indicia of trustworthiness in light of the volatile atmosphere in which the reports were made. And while challenged state department cables do have exceptional guaranties of trustworthiness as they were signed by the then-U.S. Ambassador to Bolivia, the defendants failed to establish that the cables were more probative on the point for which they were offered than any other evidence the defendants could have obtained through reasonable efforts.


Records: Accident report

Type of Case: Personal injury

Did It Get In? No.

Case: 76th and Broadway v. Consolidated Edison, 160 A.D.3d 447 (NY 2018)

Facts: plaintiff injured on construction site sues general contractor and owner for negligence. Appeals court reverses trial court and grants summary judgment for defendant.

Objection: accident report offered by plaintiff that stated platform “must have been moved during demolition or trench work by [defendant contractor] is inadmissible.

Applicable Rules and Holding: voluntary statements in accident report authored by someone who is not under a duty to prepare the report is inadmissible hearsay. The report was based on information supplied by unnamed third parties. Because of its speculative nature, the report is inadmissible to create genuine issue of material fact.


Records: Credit card records

Type of Case: Breach of contract

Did They Get In? Yes.

Case: Lewis v. Absolute Resolutions VII, LLC, 2018 WL 3261197 (Tx. App. – SA 2018)

Facts: plaintiff assignee of credit card debt sues to collect. Summary judgment for assignee plaintiff affirmed.

Objection: plaintiff failed to lay proper foundation for original credit card issuer’s (Citibank) business records.

Applicable Rules and Holding: Business records are admissible if accompanied by Rule 902(10) affidavit. A business record created by one entity that later becomes another entity’s primary record is admissible as record of regularly conducted activity. Rule 803(6).

A third party’s (e.g. an assignee, successor, account buyer, etc.) personal knowledge of the specific procedures used by the record creator is not required where the third party incorporates the documents into its own business and regularly relies on the records.

To introduce business records created by a third party predecessor or assignee, the proponent must establish (1) the document is incorporated and kept in the course of the offering party’s business, (2) the business typically relies on the accuracy of the contents of the document, and (3) the circumstances otherwise indicate trustworthiness of the document.

The plaintiff’s Rule 902(10) affidavit explained the manner and circumstances in which plaintiff acquired the defendant’s credit card account and further stated that the plaintiff regularly relies on and incorporates other debt sellers’ business records.

The court was especially swayed by the testimony that the assignor was under a duty to convey accurate information to the plaintiff and risked civil and criminal penalties for providing false information. According to the court, this last factor gave the records an extra layer of protection against falsification.

Lender’s Reliance on Predecessor Bank’s Loan Documents Satisfies Business Records Hearsay Rule – IL First Dist.

A commercial guaranty dispute provides the background for the First District’s recent discussion of some signature litigation issues including the voluntary (versus compulsory) payment rule and how that impacts an appeal, the business records hearsay exception, and governing standards for the recovery of attorneys fees.

The lender plaintiff in Northbrook Bank & Trust Co. v. Abbas, 2018 IL App (1st) 162972 sued commercial loan guarantors for about $2M after a loan default involving four properties.
On appeal, the lender argued that the guarantors’ appeal was moot since they paid the judgment. Under the mootness doctrine, courts will not review cases simply to establish precedent or guide future litigation. This rule ensures that an actual controversy exists and that a court can grant effective relief.

A debtor’s voluntary payment of a money judgment prevents the paying party from pursuing an appeal. Compulsory payment, however, will not moot an appeal.
The court found the guarantors’ payment compulsory in view of the lender’s aggressive post-judgment efforts including issuing multiple citations and a wage garnishment and moving to compel the guarantors’ production of documents in the citation proceeding. Faced with these post-judgment maneuvers, the Court found the payment compulsory and refused to void the appeal. (⁋⁋ 24-27)

The First District then affirmed the trial court’s admission of the lender’s business records into evidence over the defendant’s hearsay objection.  To admit business records into evidence, the proponent (here, the plaintiff) must lay a proper foundation by showing the records were made (1) in the regular course of business, and (2) at or near the time of the event or occurrence. Illinois Rule of Evidence 803(6) allows “records of regularly conducted activity” into evidence where (I) a record is made at or near the time, (ii) by or from information transmitted by a person with knowledge, (iii) if kept in the regular course of business and (iv) where it was the regular practice of that business activity to make the record as shown by the custodian’s or other qualified witness’s testimony.

The theory on which business records are generally admissible is that their purpose is to aid in the proper transaction of business and the records are useless unless accurate. Because the accuracy of business records is vital to any functioning commercial enterprise, “the motive for following a routine of accuracy is great and motive to falsify nonexistent.” [¶¶ 47-48]

With computer-generated business records, the evidence’s proponent must establish (i) the equipment used is industry standard, (ii) the entries were made in the regular course of business, (iii) at or near the time of the transaction, and (iv) the sources of information, method and time of preparation indicate the entries’ trustworthiness. Significantly, the person offering the business records into evidence (either at trial or via affidavit) isn’t required to have personally entered the data into the computer or even learn of the records before the litigation started. A witness’s lack of personal knowledge concerning the creation of business records affects the weight of the evidence; not its admissibility. [¶ 50]

Here, the plaintiff’s loan officer testified he oversaw defendants’ account, that he personally reviewed the entire loan history as part of his job duties and authenticated copies of the subject loan records. In its totality, the Court viewed the bank officer’s testimony as sufficient to admit the loan records into evidence.

Next, the Court affirmed the trial court’s award of attorneys’ fees to the lender plaintiff. Illinois follows the ‘American rule’: each party pays its own fees unless there is a contract or statutory provision providing for fee-shifting. If contractual fee language is unambiguous, the Court will enforce it as written.

A trial court’s attorneys’ fee award must be reasonable based on, among other things, (i) the nature and complexity of the case, (ii) an attorney’s skill and standing, (iii) degree of responsibility required, (iv) customary attorney charges in the locale of the petitioning party, and (v) nexus between litigation and fees charged. As long as the petitioner presents a detailed breakdown of fees and expenses, the opponent has a chance to present counter-evidence, and the court can make a reasonableness determination, an evidentiary hearing isn’t required.

Afterwords:

Abbas presents a useful, straightforward summary of the business records hearsay exception, attorneys’ fees standards and how payment of a judgment impacts a later right to appeal that judgment.

The case also illustrates how vital getting documents into evidence in breach of contract cases and the paramount importance of clear prevailing party fee provisions in written agreements.

 

Veil Piercing Claim Triable By Jury; Consumer Fraud Act Applies to Failed Gas Station Sale – IL 3rd Dist.

An Illinois appeals court recently affirmed a $700K money judgment for a gas station buyer in a fraud case against the seller.

The plaintiff gas station buyer in Benzakry v. Patel, 2017 IL App(3d) 160162 sued the seller when the station closed only a few months after the sale.

The plaintiff alleged he relied on the seller’s misrepresenting the financial health and trustworthiness of the station tenant which led the plaintiff to go forward with the station purchase.  Plaintiff sued for common law and statutory fraud and sought to pierce the corporate veil of the LLC seller.

Affirming judgment for the plaintiff, the Third District discusses, among other things, the piercing the corporate veil remedy, the required evidentiary foundation for business records, the reliance element of fraud and the scope of the consumer fraud statute.

Piercing the Corporate Veil: Triable By Bench or Jury?

The jury pierced the seller LLC’s corporate veil and imposed liability on the lone LLC member.

The Court addressed this issue of first impression on appeal: whether a piercing the corporate veil claim is one for the court or jury.  The Court noted a split in Federal authority on the point.  In FMC v. Murphree, 632 F.2d 413 (5th Cir. 1980), the 5th Circuit held that a jury could hear a piercing claim while the  7th Circuit reached the opposite result (only a court can try a piercing action) in IFSC v. Chromas Technologies, 356 F.3d 731 (7th Cir. 2004).

The Court declined to follow either case since they applied only Federal procedural law (they were diversity cases).  The Court instead looked to Illinois state substantive law for guidance.

Generally, there is no right to a jury trial in equitable claims and piercing the corporate veil is considered an equitable remedy.  However, Code Section 2-1111 vests a court with discretion to direct any issue(s) involved in an equitable proceeding to be tried by a jury.  The appeals court found that the trial court acted within its discretion in deciding that the piercing claim should be decided by a jury. (¶¶ 29-30)

Consumer fraud – Advertisement on Web = ‘Public Injury’

The Third District reversed the trial court’s directed verdict for the defendants on the plaintiff’s Consumer Fraud Act (CFA) count.  Consumer fraud predicated on deceptive practices requires the plaintiff to prove (1) a deceptive act or practice by a defendant, (2) defendant’s intent that the plaintiff rely on the deception, (3) the occurrence of the deception during a course of conduct involving trade or commerce, (4) actual damage to the plaintiff, and (5) damage proximately caused by the deception.

The trial court sided with the defendant on this count since the plaintiff didn’t prove that defendants conduct resulted in injury to the public generally.  CFA Section 10a (815 ILCS 505/10a) used to require a plaintiff to prove that a misrepresentation involved trade practice that addressed the market generally.  However, a 1990 amendment to the Act changed that.  The current version of the Act doesn’t require a plaintiff to show public injury except under limited circumstances.

Even so, the Court still held that the defendant’s misstating the gas station’s annual fuel and convenience store sales on a generally accessible website constituted a public injury under the CFA.

Going further, the Court construed the CFA broadly by pointing to the statutory inclusion of the works “trade” and “commerce.”  This evinced the legislative intent to expand the CFA’s scope.  Since defendant’s misrepresentations concerning the tenant were transmitted to the public via advertisements and to the plaintiff through e-mails, the Court viewed this as deceptive conduct involving trade or commerce under the CFA.  (¶¶ 81-82)

Computer-Generated Business Records: Document Retention vs. Creation

While it ultimately didn’t matter (the business records were cumulative evidence that didn’t impact the judgment amount), the Court found that bank statements offered into evidence did not meet the test for admissibility under Illinois evidence rules.

The proponent of computer-generated business records must show (1) the equipment that created a document is recognized as standard, and (2) the computer entries were made in the regular course of business at or reasonably near the happening of the event recorded.

Showing “mere retention” of a document isn’t enough: the offering party must produce evidence of a document’s creation to satisfy the business records admissibility standard.  Here, the plaintiff failed to offer foundational testimony concerning the creation of the seller’s bank statements and those statements shouldn’t have been admitted into evidence.

Take-aways:

1/ The Court has discretion to order that an equitable piercing the corporate veil claim be tried to a jury;

2/ Inadequate capitalization, non-functioning shareholders and commingling of funds are badges of fraud or injustice sufficient to support a piercing the corporate veil remedy;

3/ Computer-generated business records proponent must offer foundational testimony of a document’s creation to get the records in over a hearsay objection;

4/ False advertising data on a public website can constitute a deceptive practice under the consumer fraud statute.