Tag: 803(6)

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.

 

 

 

Bank’s Guaranty Claims Prevail Over Guarantor’s Estate (Part II of II)

In addition to affirming the trial court’s striking the Estate’s affirmative defenses, the First District in JPMorgan Chase Bank, N.A. v. East-West Logistics, LLC, 2014 IL App (1st) 121111 also upheld the Section 2-615 dismissal of the Estate’s fraud-based counterclaims and the summary judgment awarded the plaintiff bank on its breach of guaranty claim against the Estate.  

Fraud and Consumer Fraud

To state a common law fraud claim  in Illinois, a plaintiff must allege (1) a false statement of material fact; (2) by one who knows or believes it to be false; (3) made with the intent to induce action by another in reliance on the statement; (4) action by the other in reliance on the truthfulness of the statement; and (5) injury to the other resulting from that reliance.  Intentional concealment of a material fact is  the same as an express false statement under the law.  Where a person has a duty to speak, his failure to disclose material information constitutes fraudulent concealment.  (¶¶ 65-68).                                                                                                              

A colorable consumer fraud claim requires allegations of (1) a deceptive act or practice by defendant, (2) an intent on the defendant’s part that plaintiff rely on the deception, and (3) deception that occurs in the course of conduct involving trade or business.  The plaintiff must also show that the consumer fraud proximately caused his injury.

The Court rejected the Estate’s argument that the plaintiff committed fraud by not telling the deceased guarantor that the bank was increasing his risk by continuing to loan monies to a financially distressed corporate borrower.  The Estate argued that this amounted to deceptive conduct.  The Court disagreed.  Under the plain text of the guaranty, the plaintiff bank had no duty to give information to the guarantor that could increase his risk of liability under the guaranty.  In fact, it was just the opposite: the guaranty required the guarantor to actively monitor the borrower’s economic condition and loan status.  The guaranty didn’t saddle the plaintiff bank with a duty to continually update the guarantor on the loan or borrower. (¶¶ 69-70).

The Estate also failed to adequately plead reliance – another common law fraud element.  A fraud claimant must show he justifiably reliance on a material false statement.  To determine whether reliance is justified, the court considers the facts the party knew and those facts it could have learned through ordinary prudence. 

Since the Estate didn’t allege that the guarantor made any effort to obtain information about the loan he guaranteed, the Estate wasn’t able to plead that the bank deceived the guarantor.  The Court found the Estate also pled insufficient facts to back up its consumer fraud claims that the plaintiff planned to deceive the guarantor by hiding the corporate borrower’s precarious monetary condition from the guarantor.  Absent more factual specifics, the Estate’s fraud counterclaims failed. (¶¶ 73-78).

Summary Judgment Affidavits and Computerized Business Records – Supreme Court Rule 191, IRE 803(6)

Affirming summary judgment for the plaintiff on its breach of guaranty count, the Court sustained the plaintiff’s two supporting affidavits: one from a bank vice president, the other from a bank analyst. Both agents testified that they reviewed the loan documents, payment history and pay-off documents. They also swore that the supporting documents were prepared and kept in the regular course of plaintiff’s business. (¶¶ ‏86-93).

Supreme Court Rule 191 governs summary judgment affidavits.  It requires that affidavits be made on personal knowledge, to be based on admissible facts and to attach sworn or certified copies referenced in the affidavit. See Ill. S.Ct. R. 191(a).  In the context of business records, the author or creator of the record doesn’t have to testify. Instead, the custodian or other person familiar with the business and its mode of operation can provide the foundational testimony. A record author’s failure to testify affects only weight, not admissibility of the record.  (¶¶94-98).

Evidence Rule 803(6) – the business records rule – allows the introduction of computerized and paper “records of regularly conducted activity” 99-101. A computer-generated business record is admissible where it’s shown that(1) the computing equipment is recognized as standard; (2) the input is entered in the regular course of business reasonably close in time to the happening of the recorded event and (3) the source of the information, method and time of preparation are trustworthy.  (¶¶ 99-101).

The Estate’s main challenge to plaintiff’s summary judgment affidavit involved a “pay off calculator” document that itemized the loan payments and history.  The Court found that the “Calculator Document” complied with Rule 803(6).  The Court found that the payoff calculator document satisfied the admission standards for a computerized business records.  It was prepared at or near the time of the events recorded, it was kept in the regular course of the bank’s lending business and it was authenticated via affidavit by someone who qualified as a custodian because of her (the affiant) personal knowledge of the bank’s lending and record-keeping processes.  (¶¶104-105).

Take-aways: For commercial litigators, the case is a useful summary of computerized business records foundation rules and summary judgment affidavit requirements. The case also provides some needed clarity on (IL) Supreme Court Rule 236 – the rule that governed business records before Evidence Rule 803(6)’s adoption.  The Court makes it clear that the two rules can be viewed in tandem and that caselaw construing Rule 236 is still relevant to the business records admissibility question.  Finally, East-West Logistics cements the proposition that a fraud plaintiff must prove that the deceptive conduct or misrepresentation actually reached him.  Otherwise, he won’t be able to establish the reliance element.

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.