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.

 

Illinois Business Records: Getting Them In at Trial

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I’ve learned from painful experience to always have evidentiary foundation and authenticity considerations at the forefront of my trial preparation plan. 

I’ve also found that having a working knowledge of Illinois Supreme Court Rule 236 (SCR 236), as well as Federal and Illinois Evidence Rules 803(6) and 902(11) (hearsay exception and self-authentication rules for business records, respectively) is essential to preparing for and proving my client’s breach of contract case at trial.

Bank of America v. Land, 2013 IL App (5th) 120283 serves as a good case law illustration of the business records rule.  

The plaintiff bank sued to foreclose a mortgage and later moved for summary judgment.  The bank supported its summary judgment motion with a bank officer’s affidavit who testified that she reviewed the bank’s books and records of the mortgage holders, reviewed the borrowers’ payment history and certified a payment history attached to the affidavit. Land, ¶ 5. 

The trial court granted the bank’s motion awarding it money damages of over $100,000 and a judgment of foreclosure.  Land, ¶ 6.  Defendant appealed.

Result: Trial Court affirmed.  The bank’s supporting affidavit meets the requirements of SCR 236.

Reasoning:  The defendant’s chief argument on appeal was that the bank officer’s supporting affidavit was inadmissible hearsay since the underlying mortgage didn’t originate with the plaintiff and because the affidavit relied on a third party’s (another mortgage company) loan records. 

The Court rejected the argument and held that the affidavit met the requirements of SCR 236, which codifies the hearsay exception for business records (a link to the Rule’s text follows this post).

SCR 236 provides that any record of a monetary transaction is admissible as evidence of that transaction if the record is made in the regular course of business and the business’s regular practice was to make a record of a transaction at or near the time of the transaction;

– The rationale for the rule is that business records exist to aid in the proper transaction of business and so records are “useless for that purpose unless accurate.” 

– Lack of personal knowledge by the maker may affect the evidence’s weight, but not its admissibility;

A third party’s records can also be admitted where that third party is authorized to generate the record on behalf of the offering party.

¶ 13.

Applying these rules, the Court found that plaintiff satisfied SCR 236 requirements where the affiant/bank officer testified

(i) that she was familiar with the bank’s business records creation and maintenance practices,

(ii) that the records pertaining to the defendants were made at or near the time of the occurrences giving rise to the records,

(iii) were made by individuals with personal knowledge of the information contained in the business record, and

(iv) the records were kept in the regular course of the bank’s business.  ¶ 13.

Take-aways: Illinois litigants now have a slew of evidence rules – SCR 236, IRE 803(6), IRE 902(11) – at their disposal that streamline the process of getting business records into evidence at trial and eliminate many of the logistical and hearsay headaches that trial practice formerly entailed.  

The case underscores the importance of knowing the rules for business record admissions at trial and on summary judgment.  A key holding of Land is that the business records relied on can be those of a third party; as long as the witness can testify to her familiarity with the records and can establish that the third party records were integral to the witness’s business.  This obviously obviates the need to subpoena a third party to testify concerning the third-party records.

 

Illinois Mechanics Lien Basics

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The Statute: The Illinois Mechanics’ Lien Act, 770 ILCS 60/1 et seq.

Purpose: to provide a remedy to a contractor who provides valuable improvements to real estate by allowing him to lien the property (place a hold on the property to secure payment).

Once the lien is in place (or perfected), the lien clouds the property’s title and the contractor can sue to foreclose his lien and force a sale of the property.

Without this lien remedy, the contractor is at the mercy of the general contractor or owner.  If either runs out of money, the contractor gets nothing for his labor, materials, time and effort.

Cast of characters:

Owner = developer, person or entity that owns real estate

General Contractor (or Prime Contractor or Original Contractor or “GC”) = party that contracts with Owner

Subcontractor = party that contracts with General Contractor

Sub-subcontractor = party that contracts with Subcontractor

Lender (Mortgagee, Incumbrancer) = mortgage lender that funds construction activities on real estate

Notice and Timing Rules

General Contractor: “4 months/2 year rule”.  770 ILCS 60/7.  The GC must record lien within 4 months of last date of performance and must file suit to foreclose his mechanics’ lien within 2 years of last performance on the project.

Subcontractor: “90 days/4 months/2 years”.  770 ILCS 60/24.  The Subcontractor must serve notice to Owner within 90 days of last performance, must record its lien within 4 months of last performance, and must file suit to foreclose within 2 years of last performance.

Subcontractor on owner-occupied, single-family residential property: “60 days/90 days/4 months/2 years”.  770 ILCS 60/5.  A subcontractor on this type of property must serve notice on owner within 60 days of his commencement of work that he is a subcontractor on the property.  He then must serve notice on the owner of his intent to lien within 90 days of his last performance, record his lien in the Recorder’s offices within 4 months of last performance and file suit within 2 years of his last performance.

Venue (where to file): the lien is filed in the Recorder of Deeds for county where property is located (e.g. Chicago property = Cook County Recorder of Deeds; Waukegan property = Lake County Recorder of Deeds; Wheaton = DuPage County Recorder of Deeds).  770 ILCS 60/9.

Elements of a Mechanics Lien Claim (the Complaint):

A general contractor mechanic’s lien claimant must establish: (1) a valid contract; (2) with the owner of the property or someone authorized to contract on behalf of the owner; (3) for the furnishing of services or materials; and (4) performance of the contract or a valid excuse for non-performance.

A contractor can enforce a mechanic’s lien by proving that he substantially performed the contract in a workmanlike manner.

To perfect a mechanics lien, the subcontractor must serve the 90-day notice and record his lien within 4 months while  a general contractor must record his lien within 4 months of last performance.

A properly perfected lien will “relate back” and attach as of the date of the owner-general contractor prime contract.  This is important when the issue of priorities arises (e.g. when two liens are recorded against the same property, what takes priority?)

The general contractor does not have to serve a 90-day notice because he has contracted directly with the owner and so the owner presumably knows the general contractor’s identity.

Filing Suit to Foreclose the Lien

While recording the lien will certainly blemish the owner’s title and make it difficult to sell or refinance the property, to really go for the jugular, the contractor must file suit to foreclose his lien.  This sets in motion an eventual judicial sale of the property and provide sales proceeds from which to compensate the lien claimant.

To that end, a contractor suing to foreclose his lien must allege (a) a brief statement of the contract, (b) the date of the contract, (c) the date of last performance under the contract, (d) the amount unpaid, (e) a description of the premises, and (f) any other necessary facts.  770 ILCS 60/11(a).

The  contractor should name as defendants the owner, general, all other lien claimants and mortgage lenders on the property.  My experience is the vast majority of mechanics’ lien cases settle before trial.  However, the end-game is a foreclosure sale of the property with the court divvying up the sale proceeds among the various competing claimants (typically, the mortgage lender, general contractor, and at least one subcontractor).’

If You Didn’t Record the Lien On Time

If you fail to record a lien (such as in a situation where a client doesn’t tell you about its claim until more than 4 months have passed – it happens), you can still sue for breach of contract and alternatively for quantum meruit/unjust enrichment.  The limitations period for written contracts is 10 years (measured from the date of breach); for oral contracts, 4 years and for quantum meruit – 5 years.  Obviously, with these remedies, you run the risk of an insolvent or judgment-proof defendant.