Tag: business records

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.

 

Single-Page Spreadsheet Doesn’t Satisfy Business Records Rule (Illinois 2nd Dist.)

In In Re Estate of Good, 2013 IL App (2d) 120875-U,  the Second District strictly construed the business records hearsay exception and held that a single-page spreadsheet (the “Spreadsheet”), prepared specifically for litigation by one of the parties from various print and electronic sources, didn’t satisfy the business records admissibility rules.

Facts: The plaintiff real estate auction company sued its deceased founder’s estate alleging the founder misappropriated company funds totalling about $1.5M over a multi-year period.  Good, ¶ 4.  The Plaintiff’s key piece of evidence – the Spreadsheet – was prepared specifically for the  litigation and supposedly summarized various company financial records and itemized the amounts decedent allegedly took from the  company.

The trial court granted the defendant estate’s summary judgment motion on all complaint counts.

Held: Affirmed.

Q: Why?

A: The Spreadsheet was inadmissible hearsay under the prevailing business records rules:

– Evidence which is inadmissible at trial is not admissible in support of or opposition to summary judgment motion;

– Illinois Evidence Rule 803(6) provides that “records of regularly conducted activity” are exceptions to the hearsay rule as long as they consist of a record or data compilation in any form made at or near the time from information transmitted by someone with knowledge if (a) kept in course of regularly conducted business activity and (b) if it was the regular practice of that business activity to make the record or data compilation;

– A business records proponent must also lay a foundation for the records.  To authenticate a document, the party must offer evidence that shows the document is what the party claims it to be;

– A business record’s evidence foundation requires proof that the record (1) was made in regular course of business and (2) made at or near the time of the event or occurrence;

– The foundation for admitting business records can come via affidavit or trial testimony of a records custodian or other person familiar with the business and its mode of operation;

– A summary print-out prepared specifically for trial can satisfy business records rule (and be admissible) IF the underlying data on which the summary is based are (i) kept in regular course of business, (ii) the data was entered contemporaneous to the event, and (iii) there’s nothing to indicate the source of the information is untrustworthy.

Application:

The Spreadsheet didn’t satisfy the  business records exception.  First, it was mathematically inaccurate: the numbers didn’t match up.  Also, plaintiff’s witnesses admitted in depositions that Spreadsheet was cobbled together from different electronic and printed sources – but they couldn’t specifically identify the sources.  ¶¶ 67-70.

Also, the Spreadsheet wasn’t itself a business record: it was a “one-shot” summary document prepared for the summary judgment motion at the direction of a plaintiff  and was “essentially created from scratch.” ¶ 70.

The Court also held that plaintiff failed to lay a proper foundation for the other financial documents (aside from the Spreadsheet) to support its claims.

The Court pointed to the records custodian’s deposition testimony where he couldn’t specifically identify any documents that supported plaintiff’s damage claims and offered only vague testimony about check requests and invoices that he supposedly reviewed. ¶ 74.

Take-aways:

Good illustrates that numerical accuracy is important when seeking summary judgment on damage claims.

A summary of damages document can meet the business records test – but only if the underlying data is regularly recorded and entered by someone with knowledge of the recorded event.

Good also shows that it’s vital for a deponent (or affiant) to sufficiently identify and explain the underlying data that underlies a damages summary.  It’s clear that the conflicting testimony from plaintiff’s agents concerning the underlying Spreadsheet information played an important rule in the Court excluding plaintiff’s evidence.