Bank’s Business Records and Supporting Affidavit Satisfy Evidence Rules – IL 2nd Dist.

Because they’re so integral to commercial litigation, business records and the myriad evidentiary concerns intertwined with them, are a perennial favorite topic of this blog.

In earlier posts (here and here, I’ve featured US Bank, NA v. Avdic, 2014 IL App (1st) 121759 and Bank of America v. Land, 2013 IL App (5th) 120283, two cases that examine the foundation and authenticity requirements for admitting business records in evidence and probe the interplay between Illinois Supreme Court Rule 236 and Illinois Evidence Rule 803(6).

We now can add Bayview Loan Servicing, LLC v. Szpara, 2015 IL App (2d) 140331 to the Illinois business records cannon.  Harmonized, Avdic, Land and Bayview form a trilogy of key business records cases that are useful (if not required) reading for any commercial litigator.

Bayview’s facts parallel those of so many other business records cases: a mortgage foreclosing plaintiff tries to offer business records into evidence at trial or as support for a summary judgment motion and the defendant opposes the records’ admission.

Bayview’s bank plaintiff tried to get damages in evidence via a prove-up affidavit signed by a bank Vice President who didn’t actually create the records in the first place.  The defendant moved to strike the affidavit as lacking foundation.

Affirming summary judgment for the bank, the First District provides a cogent summary of the governing standards for summary judgment affidavits that are employed to get business records into evidence.

First, the court affirmed dismissal of the defendant’s fraud in the inducement affirmative defense – premised on the claim that a mortgage broker allied with the plaintiff made false statements concerning the defendant’s creditworthiness and value of the underlying property.

Fraud in the inducement is a species of common law fraud.  A fraud plaintiff in Illinois must show (1) a false statement of material fact, (2) knowledge or belief that the statement is false, (3) intent to induce the plaintiff to act or refrain from acting on the statement, (4) the plaintiff reasonably relied on the false statement, and (5) damage to the plaintiff resulting from the reliance.  A colorable fraud claim must be specific with the plaintiff establishing the who, what, and when of the challenged statement.

The Court agreed with the trial court that the defendant’s fraud in the inducement defense was too vague and lacked the heightened specificity required under the law.  The defendant failed to sufficiently plead the misrepresentation and didn’t allege facts showing when the misstatement was made.  As a result, the defense was properly stricken on the bank’s motion. (¶¶ 34-35)

The court then found that the plaintiff’s business records – appended to a bank employee’s affidavit in support of the bank’s summary judgment motion –  were properly admitted into evidence and affirmed summary judgment for the bank.

Illinois Supreme Court Rule 236 and Illinois Evidence Rule 803(6)(“Records of Regularly Conducted Activity”) provide that a business record can be admitted into evidence as an exception to the hearsay rule if (1) the record was made in the regular course of business and (2) was made at or near the time of the events documented in the records.

In  the context of a prove-up affidavit based on business records, the affiant doesn’t have to be the one who personally prepared the record; it’s enough that the affiant has basic familiarity with the records and the business processes used by the party relying on them.

Under Evidence Rule 803(6), the lack of personal knowledge of someone signing an affidavit does not affect the admissibility of a given document, although it could affect the (evidentiary) weight given to that document.   (¶42).

The bank’s Vice President in Bayview testified in her prove-up affidavit that she had access to the business records relating to defendant’s loan, that she reviewed the records, had personal knowledge of how the plaintiff kept and prepared them and that the plaintiff’s regular practice was to keep loan records like the ones attached to the affidavit.

The court rejected the defendant’s argument that the affidavit was deficient since the bank agent wasn’t who created the attached loan records.  Citing to Avdic and Land, the Court found that, in the aggregate, the bank agent affidavit testimony sufficiently met the foundation and authenticity requirements to get the business records in evidence. (¶¶ 41-46)

Afterwords:

This case contains salutary discussion and rulings for plaintiff creditors as it streamlines the process of getting business records into evidence at the summary judgment stage and later, at trial.

Bayview reaffirms the key holdings from Avdic, Land and business records cases like them that an agent who had nothing to do with preparing underlying business records can still attest to the records’ validity and authenticity provided she can vouch for their validity and is familiar with the mode of the records’ creation.

Process Server’s Return of Service Qualifies As Public Records and ‘Regularly Conducted Business Activity’ Hearsay Exceptions – Florida Appeals Court

My experience with the hearsay evidence rules usually involves trying to get a business record like an invoice or spreadsheet into evidence at trial or on summary judgment.  The business records hearsay exception is found at Illinois Evidence Rule 803(6) and mirrors the Federal counterpart.  “Exception” in the context of hearsay evidence means a document is hearsay (an out-of-court statement used to prove the truth of the matter asserted) and would normally be excluded but still gets in evidence because the document (or other piece of evidence) has an element of reliability that satisfies the court that the document is what it appears to be.

Occasionally though, I’ve found that a working knowledge of some of the more obscure (to me at least) hearsay exceptions can in some cases lead to a victory or at least resurrect a rapidly flagging case.

Davidian v. JP Morgan Chase Bank, NA, 2015 WL 5827124 (Fla. 4th DCA 2015) (http://www.4dca.org/opinions/Oct.%202015/10-7-15/4D14-2431.op.pdf) a recent Florida appeals court decision, examines some hearsay exceptions as they apply to a process server’s sworn return of service and the persons served are challenging service.

Chase Bank filed a foreclosure suit against defendants/appellants (a husband and wife) and filed returns of service signed by Chase’s process server who certified that he served both appellants at the same time on the same date. The appellants moved to quash service of process on the grounds they were never served. The trial court denied the motion leading to this appeal.

The appeals court affirmed.  It held the appellants failed to show by clear and convincing proof that the returns of service were deficient.

In Florida, the burden of proving proper service of process is on the suing party and the return of service is evidence of whether service was validly made.  A return of service is presumed to be valid and the party contesting service must overcome the presumption by clear and convincing evidence.  A return of service is technically hearsay since it’s an out-of-court statement used to show its truth – that service of summons was in fact made on a party.

Two hearsay rule exceptions recognized not only by Florida courts but various state and Federal courts include the public records and the “regularly conducted business activity” exceptions.  Fla. Stat. s. 90.801, 803(6), (8).

Here, the court found the service return admissible under both exceptions.  The return was a public record – presumably because it was filed as part of the case record.  The return also qualified as evidence of regularly conducted business activity since the process server stated in his affidavit that was his regular practice to prepare such an affidavit detailing the date, time and manner of service.

The appeals court also rejected appellants’ argument that the service returns were defeated by their counter-affidavits in which they denied receiving the summons and complaint.  When faced with a service return and a defendant claiming he/she wasn’t served, the court makes a credibility determination after an evidentiary hearing.   Factual determinations are typically not disturbed on appeal.  The court found that the trial court was in a better position to judge the credibility of the witnesses and upheld the motion to quash’s denial.

Take-aways:

This case presents application of hearsay exceptions in an unorthodox factual setting.  The court expanded the scope of the public records and regularly-conducted-business-activity exceptions to encompass a process server’s return of service.  This case and others  like it validate process servers’ sworn returns and make it easier for plaintiffs to clear service of process hurdles where a defendant claims to have never been served.

 

 

 

Summary of Business Records Allowed Into Evidence In Ponzi Scheme Claw-back Hearing – 11th Cir.

The interplay between Federal Rules of Evidence 1006 (summaries) and 803(6)(business records) is examined by the 11th Circuit Court of Appeals in In re International Management Associates, LLC, 2015 WL 1245503 (C.A.11 Ga.), a case where a trustee was able to admit a summary of bulky business records into evidence and avoid a $200K transfer from the debtor and Ponzi scheme operator (IMA) to the investor defendants.

(A Ponzi scheme typically involves a business entity that doesn’t really operate any legitimate business and that uses the principal investments of newer investors to pay older investors.  In reality though, the investors are being paid their own principal or that of other investors.)

The defendants in the IMA case received over $600K in payouts from IMA over a several-year period.  IMA’s trustee sought to avoid (recover) the most recent $200K payment to the defendants.

At the hearing, the trustee offered summaries of the debtor’s business records in evidence to support the avoidance claim.  The bankruptcy court allowed the summaries into evidence and entered judgment for the trustee.  The Georgia district court affirmed and the defendants appealed to the 11th Circuit on the basis that the summaries should have been excluded since the underlying records weren’t authenticated or offered into evidence at the hearing.

Held: affirmed

Q: Why?

A: Federal Rule of Evidence 1006 allows a “summary, chart or calculation” to be used in evidence to prove the content of voluminous writing (or photographs or recordings) that can’t be conveniently reviewed by the court.

The main qualification is that the actual records underlying the summary must be made available to the opponent for copying and examination.  The summary evidence proponent doesn’t have to offer the underlying documents into evidence but he must establish that those documents would have been admissible in evidence if he did offer them.  FRE 1006.

To make the requisite showing for admissibility under Rule 1006, the person offering the summary must establish that the underlying documents are authentic and meet the requirements for admissibility as business records under FRE 803(6) – the business records rule.

The authenticity burden is light.  All the proponent must show is that the documents are what they appear to be and he can do this through the testimony of a witness who is knowledgeable about the documents.

To meet the business record admissibility test under FRE 803(6), the offering party must show (1) that the record was made at or near the time by – or from information transmitted by someone with knowledge; and (2) the record was kept in the course of a regularly conducted activity, and (3) making the record was a regular practice of a given business.  FRE 803(6)(A)-(C).

A qualified witness to testify on business records is one who can explain the system of record keeping utilized by a business.  He does not have to have firsthand knowledge or be the author of the records, though. As long as the movant establishes enough circumstantial evidence to show the documents are trustworthy, the record can be admitted in evidence.

Here, the court found that the trustee’s evidence summary was supported by trustworthy business records.  While the trustee didn’t author or maintain IMA’s records in the first instance, he engaged in thorough examination and investigation into the records’ preparation and storage and interviewed multiple witnesses who played integral roles in the creation of the underlying records.  The trustee also cross-referenced IMA’s records with those of various financial institutions that did business with IMA.

Considered cumulatively, this was enough circumstantial evidence for the court’s avoidance judgment for the trustee.

Take-aways:

– Summaries of business records are admissible where the underlying documents are voluminous and are themselves admissible as business records under FRE 803(6);

– A witness testifying as to business records doesn’t have to be the creator of a given record.  It’s enough that the witness is familiar with a company’s process utilized to create and store the records in question;

– the more meticulous a third party’s (like a trustee or receiver) efforts are to verify the accuracy of business records, the more likely that third party can defeat a hearsay objection at trial or hearing.