Florida Supreme Court Resolves Conflict on Business Records Exception to the Hearsay Rule and Clarifies Standard for Qualified Witness Testimony

Wayne Streibich, Edward W. Chang, Nicole R. Topper, Anthony R. Yanez

On July 2, 2020, the Florida Supreme Court issued its written opinion[i] in Jackson v. Household Finance Corporation, III, 236 So. 3d 1170 (Fla. 2d DCA 2016) to resolve a conflict with a case decided by the Fourth District Court of Appeal (Maslak v. Wells Fargo Bank, N.A., 190 So. 3d 656 (Fla. 4th DCA 2016). Specifically, the issue concerned whether the predicates were met for admissions of records into evidence under the business records exception to the hearsay rule during the course of a bench trial in a residential foreclosure case. The Florida Supreme Court held that the proper predicate for admission can be laid by a qualified witness testifying to the foundation elements of the exception set forth in Section 90.803(6) of the Florida Evidence Code.

Background

On June 23, 2014, the originating lender, Household Finance Corporation III (“HFC”), filed a foreclosure complaint alleging a default under the note and mortgage. Before the loan was originated, HFC was purchased by HSBC Holdings (“HSBC”) and became a wholly-owned subsidiary of HSBC. The borrower did not challenge the default, but opted to challenge whether the lender could establish its case in chief at trial.

At trial, HFC called an assistant vice president at HSBC, with 25 years’ experience at the company, to establish the foundation for admission of records under the business records exception to the hearsay rule. The borrower objected to the witnesses’ testimony on hearsay grounds and the original note, mortgage, and payment history were received into evidence over the borrower’s objections. The borrower elected not to introduce any evidence of her own and the trial court entered final judgment of foreclosure. The borrower appealed to the Second District Court of Appeal, which affirmed the final judgment of foreclosure.

The Jackson case conflicted with the Maslak decision from the Fourth District Court of Appeal, which reached the opposite conclusion regarding the sufficiency of the bank witness’ testimony. In Maslak, despite the bank employee’s testimony describing her job duties and familiarity with the bank’s loan servicing practices, the court held that the witness was not qualified to lay a foundation for the admission of the loan servicing documents that were offered into evidence at that trial. As a direct conflict of two intermediate appellate court decisions on the same issue of law, the Florida Supreme Court had jurisdiction to resolve the issue.

Florida Supreme Court’s Decision

In examining the business records exception to the hearsay rule, the Florida Supreme Court noted that a party has three options to lay the foundation to meet that exception: (1) offering testimony of a records custodian, (2) presenting a certification that or declaration that the elements have been established, or (3) obtaining a stipulation of admissibility. If the party elects to present testimony, the applicable case law explains that it does not need to be the person who created the business records. The witness may be any qualified person with knowledge of each of the elements.

Patterned closely after the federal rule, Section 90.803 of the Florida Evidence Code[ii] lists the following foundational elements of the business records exception: (1) that the record was made at or near the time of the event, (2) that it was made by or from information transmitted by a person with knowledge, (3) that it was kept in the ordinary course of a regularly conducted business activity, and (4) that it was a regular practice of that business to make such a record.

Turning to the testimony of the HFC trial witness, the majority opinion determined that the foundational elements were met and that no additional foundation was required by the business records exception language of the Section 90.803(6). The majority rejected the notion that the witness was required to detail the basis for his or her familiarity with the relevant business practices of the company, or give additional details about those practices in order to lay the foundation for the admission of those records. Since no such requirements were in the statute, any requirement imposed by the trial court or the appellate court would be inconsistent with the plain language of the statute. The majority explained that once the proponent lays the predicate for admission, the burden shifts to the opposing party to prove that the records were untrustworthy or should not be admitted for some other reason. According to the majority, the Jackson borrower failed to do that in this case and only waited until after the documents were received into evidence to question the witness about the basis for his knowledge.

The dissenting opinion posited that the majority’s ruling “[took away] the proponent’s burden to lay a proper foundation for admission” and focused on whether the proper foundation was met in the Jackson case. The dissent argued that the testimony at the Jackson trial was merely “general statements” that recited the elements of the statute but did not explain how the business records at issue were generated, what they were used for, or how they were maintained. For that reason, the dissenting judges maintained that the burden never shifted to the borrower to prove the untrustworthiness of those records, and concluded that the majority’s treatment of the business records exception as a “magic words” test would only increase the likelihood of inadmissible documents being admitted into evidence.

Conclusion

Compliance with the business records exception to the hearsay rule will almost always be a hotly contested issue at a foreclosure non-jury trial in Florida. The Jackson opinion, and the arguments raised in the dissenting opinion, will remind the trial courts to pay careful attention to the foundational requirements of the business records exception to the hearsay rule when timely objections are made to the evidence on those grounds. Despite competing opinions on the issue, the Florida Supreme Court agrees that the proponent’s witness should demonstrate personal knowledge and establish that the offered exhibits are reliable business records. To remove all doubt, a witness’ testimony should demonstrate a working knowledge of the company’s business record practices and systems. As a result of the Jackson opinion, it is important to effectively prepare the business records custodian witness to withstand any increased scrutiny as to the foundation requirements of the business records exception to the hearsay rule.

[i] The Florida Supreme Court decided the case by a 4 to 2 margin. Newly appointed justice, Renatha Francis, did not participate in the opinion. This decision is not final until the disposition of a timely-filed rehearing motion.

[ii] This section was last revised in 2003, adding language that a certification or declaration is an acceptable means of authenticating a business record under the business records exception to the hearsay rule. See ch. 2003–259, § 2, at 1299, Laws of Fla.; see also Fla. Stat. § 90.803(6) (2003) (providing for admission of business records upon testimony of the custodian of the records, “or as shown by a certification or declaration that complies with paragraph (c) and s. 90.902(11)”).

New Jersey Supreme Court Confirms Assignee’s Right to Enforce Note Lost by Predecessor in Interest

Wayne Streibich, Edward W. Chang, Jonathan F. Ball

On July 1, 2020, the Supreme Court of New Jersey issued its unanimous opinion in Investors Bank v. Torres confirming that an assignee of a note lost by a predecessor in interest can enforce the lost note.[1] The Supreme Court affirmed the Appellate Division, which had affirmed the trial court’s grant of summary judgment to the assignee.[2] The Supreme Court’s decision clarifies that an assignee seeking to enforce a note lost by its predecessor in interest must present: (1) an admissible and sufficient Lost Note Affidavit; and (2) competent proof of the terms of the lost note. The Supreme Court expressly declined to adopt the Appellate Division’s reasoning that the equitable principle of unjust enrichment required allowing the assignee to enforce the note lost by its predecessor in interest to prevent a borrower from keeping a home for which they are not paying the mortgage.

The borrower, Torres, executed a promissory note in favor of AMRO Mortgage Group, Inc. (“ABN”), which was secured by a residential mortgage in 2005. ABN subsequently merged into CitiMortgage, Inc. (“CitiMortgage”). Torres defaulted on the note in 2010. CitiMortgage instituted a foreclosure action, which it voluntarily dismissed without prejudice after discovering that it could not locate the original note.

In 2013, CitiMortgage executed a Lost Note Affidavit explaining that it was the “lawful owner of the note,” and had not “cancelled, altered, assigned, or hypothecated the note,” but was unable to locate the original note despite a “thorough and diligent search.” CitiMortgage attached a digital copy of the note to the Lost Note Affidavit. The digital copy was not endorsed, but CitiMortgage explained in the Lost Note Affidavit that the digital version was a true and correct copy of the original note that Torres had executed after the digital copy had been made.

CitiMortgage served a Notice of Default and Intention to Foreclose in 2014. After doing so, CitiMortgage assigned the mortgage to Investors Bank, thereby conveying to Investors Bank the right to enforce the note and mortgage executed by Torres. Investors Bank then brought the foreclosure action at issue in opposition to which Torres asserted that Investors Bank could not enforce the note due to the loss of the original.

The trial court granted summary judgment in favor of Investors Bank. The Appellate Division affirmed based upon its interpretation of N.J.S.A. 12A:3-309 (New Jersey’s version of Section 3-309 of the Uniform Commercial Code pertaining to enforcement of lost instruments) and based on the equitable doctrine of unjust enrichment. The Supreme Court granted Torres’ request for review on certification.

The Supreme Court concluded that N.J.S.A. 12A:3-309 does not limit the right to enforce a lost instrument exclusively to the possessor of the instrument at the time it is lost. Rather, Investors Bank’s right to enforce the assigned mortgage and the transferred lost note were supported by New Jersey’s statutes addressing assignments, N.J.S.A. 2A:25-1 and N.J.S.A. 46:9-9, as well as New Jersey’s common law principles regarding assignments. Because the Supreme Court concluded that New Jersey’s statutory and common law dictated the conclusion that Investors Bank could enforce the lost note, the Supreme Court expressly declined to rely on the equitable doctrine of unjust enrichment that the Appellate Division had invoked in support of its decision.

With this threshold legal issue having been resolved in Investors Bank’s favor, the Supreme Court turned to Torres’ challenges to the admissibility of the Lost Note Affidavit. The Supreme Court, like the Appellate Division, concluded that the trial court did not abuse its discretion in admitting and relying on the Lost Note Affidavit. The Supreme Court reasoned that: (1) the Lost Note Affidavit was properly authenticated under N.J.R.E. 901, and it qualified as a business record, an exception to the hearsay rule, under N.J.R.E. 803(c)(6); (2) a business record is admissible even if it was not created by the proponent of the report at trial (i.e., Investors Bank could introduce the Lost Note Affidavit as a business record even though it had been prepared by CitiMortgage); (3) the passage of unknown amount of time between the loss of the original note and execution of the Lost Note Affidavit did not render the Affidavit inadmissible; and (4) the Lost Note Affidavit was not inherently untrustworthy because: (a) it had been prepared more than a year before CitiMortgage assigned the mortgage to Investors Bank; (b) there was no incentive for CitiMortgage to fabricate a claim that it lost the original note and could not locate it despite diligent efforts; and (c) the digital copy of the note set forth the terms that Investors Bank was seeking to enforce.

In summary, an assignee has the same rights to enforce a lost promissory note that the possessor of the note at the time of its loss would have had. However, the assignee must present a sufficient Lost Note Affidavit and competent proof of the terms of the lost note.

Wayne Streibich would like to thank Edward W. Chang and Jonathan F. Ball for their assistance in developing this alert.

[1] Investors Bank v. Torres, ___ N.J. ___ (July 1, 2020). The slip opinion is available on the Court’s website here.

[2] Investors Bank v. Torres, 457 N.J. Super. 23 (App. Div. 2018), certif. granted, 236 N.J. 594 (2019).

U.S. Supreme Court Rules Statute of Limitations for FDCPA Claim Runs One Year from Alleged Violation, Not Discovery

Wayne Streibich, Diana M. Eng, Jonathan M. Robbin, Scott E. Wortman, and William L. Purtell

The Supreme Court of the United States (“Supreme Court”) recently affirmed the Third Circuit’s decision holding Fair Debt Collection Practices Act (“FDCPA”) claims are subject to a one-year statute of limitations from the date of an alleged violation and rejecting the Fourth and Ninth Circuit’s adoption of a broad “discovery rule.” However, debt collectors should take note that equitable tolling principles may still apply in certain circumstances. 

On December 10, 2019, in Rotkiske v. Klemm, — S. Ct. — (2019), the Supreme Court issued an opinion holding that the one-year statute of limitations under the FDCPA accrues when a violation of the FDCPA occurs, not when that violation is discovered by the consumer. The Justices ruled 8-1 in the case, with Justice Thomas writing the opinion and Justice Sotomayor concurring. Justice Ginsburg filed a dissent, which would have remanded the case back to the district court to re-review the consumer’s separate allegations of equitable tolling of the statute of limitations.

Summary of Facts

In 2009, respondent Klemm & Associates (“Klemm”) sued petitioner Kevin Rotkiske (“Rotkiske”) in state court to enforce a credit card debt, which was allegedly beyond Pennsylvania’s statute of limitations for enforcement (“2009 Action”). Klemm issued service of process to an address where Rotkiske did not live, which Klemm allegedly had reason to know was inaccurate. An unknown individual accepted service on behalf of Rotkiske. Ultimately, Klemm obtained a default judgment against Rotkiske based on this return of service. Rotkiske was unaware of the default judgment against him until 2014, when his mortgage loan application was denied based on this default judgment.

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CFPB Proposes Regulations to Clarify, Modernize, and Implement the Fair Debt Collection Practices Act

Wayne Streibich, Diana M. Eng, Jonathan M. Robbin, Nicole R. Topper, Scott E. Wortman, and Paul Messina Jr.

Financial institutions and debt collectors should take note of, and provide comments on, the CFPB’s recent Notice of Proposed Rulemaking, which attempts to provide consumers with “clear protections against harassment by debt collectors and straightforward options to address or dispute debts.”      

On May 7, 2019, the Consumer Financial Protection Bureau (“CFPB”) released its long-awaited Notice of Proposed Rulemaking (“NPRM”), aiming to clarify and modernize the Fair Debt Collections Practices Act (“FDCPA”). The over 500-page NPRM marks the CFPB’s latest half-decade long effort to issue the first set of substantive rules interpreting the FDCPA since its passage in 1977.

Background

Seeking to curb abuses in the debt collection industry, Congress enacted the FDCPA in 1977. However, with the passage of time and the creation of new technologies, ambiguities and uncertainties in the industry developed. Without any federal agency delegated authority to write substantive rules interpreting the FDCPA, the courts were left with the sole burden of doing so. That changed in 2010, when Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) delegating authority to the CFPB.

Citing the ongoing and abundance of consumer complaints, as well as the need to adapt the FDCPA for modern technologies, the CFPB called for public input on potential new regulations in 2013, and again in 2016, releasing an outline of proposals under consideration. This week’s NPRM incorporates many of those ideas with some adjustments. The NPRM will be open for 90 days for public comment following its publication in the Federal Register.

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Second Circuit Holds No Need to Identify Components of Debt Where Collection Letter Provides Exact Amount Owed and Reaffirms Use of Safe Harbor in Holding Debt Collector’s Letter Did Not Violate the FDCPA

Jonathan M. Robbin, Diana M. Eng, and Namrata Loomba

In Kolbasyuk v. Capital Management Services, LP, No. 18-1260 (2d Cir. 2019), the Second Circuit recently held that a debt collector’s letters informing a consumer of the total present amount of debt owed satisfies Fair Debt Collection Practices Act (“FDCPA”) requirements. The Second Circuit’s decision clarified that, under the FDCPA, collection letters are not required to inform consumers of the debt’s constituent components, or the rates by which the debt may later increase.

Summary of Facts and Background

In July 27, 2017, Capital Management Services, LP (“CMS”) sent Plaintiff a collection letter stating “[a]s of the date of this letter, you owe $5918.69.” The letter further stated, “[b]ecause of interest, late charges, and other charges that may vary from day to day, the amount due on the day you pay may be greater.” Continue reading

U.S. Supreme Court Holds Foreclosure Firms Conducting Nonjudicial Foreclosures Are Not Debt Collectors Under the FDCPA

By: Wayne Streibich, Diana M. Eng, Cheryl S. Chang, Jonathan M. Robbin, and Namrata Loomba

The United States Supreme Court holds businesses conducting nonjudicial foreclosures are not “debt collectors” under the FDCPA, but lenders and foreclosure firms should take note that the Court specifically chose to leave open the question of whether businesses that conduct judicial foreclosures are “debt collectors” under the statute. 

On March 20, 2019, in Obduskey v. McCarthy, the Supreme Court of the United States issued an opinion holding businesses conducting nonjudicial foreclosures are not “debt collectors” under the Fair Debt Collection Practices Act (“FDCPA”). The Supreme Court limited its decision to nonjudicial foreclosures.1 The Justices ruled 9-0 in the case, with Justice Breyer writing the opinion and Justice Sotomayor concurring.

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Third Circuit Broadens Definition of “Debt Collector” under FDCPA to Include Entities That Acquire Debt but Outsource Collection of That Debt

By: Jonathan M. Robbin, Diana M. Eng, and Maria K. Vigilante

In Barbato v. Greystone Alliance, LLC et al., a recent precedential decision, the Third Circuit Court of Appeals held an entity whose business is the purchasing of defaulted debts for the purpose of collecting on them falls squarely within the “principal purpose” definition of the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692(a), even where the entity does not collect the debt and a third party is retained to do so. No. 18-1042, __ F.3d __ (3d Cir. 2019).

Specifically, Barbato expanded the Supreme Court’s holding in Henson v. Santander Consumer USA, 137 S. Ct. 1718 (2017) and rejected the defendant’s argument that Henson renders it a creditor rather than a debt collector because “its principal purpose is the acquisition—not the collection” of debt. Thus, the Barbato court held that where an entity meets the “principal purpose” definition, it cannot avoid the FDCPA’s requirements by retaining a third party to collect the debt.

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Second Circuit Holds That Debt Collector’s Inquiry Regarding Nature of Consumer’s Verbal Dispute of Debt Did Not Violate the FDCPA

By: Diana M. Eng, Jonathan M. Robbin, and Andrea M. Roberts

In Levi Huebner v. Midland Credit Management, Inc., Nos. 16-2363-cv, 16-2367-cv (2d Cir. July 19, 2018), the Second Circuit affirmed the Eastern District of New York’s (“Lower Court”) order granting defendant Midland Credit Management, Inc.’s (“Midland”) summary judgment motion and dismissing the complaint on the grounds that plaintiff Levi Huebner (“Plaintiff”) failed to state a claim under Sections 1692e(5), (8), and (10) of the FDCPA. The Second Circuit held Midland’s follow-up questions about the nature of Plaintiff’s dispute cannot be interpreted as threatening, or conveying false information about the consumer’s debt. Rather, Midland’s questions were an endeavor to learn more about Plaintiff’s dispute, so Midland could properly resolve the dispute. The Second Circuit also affirmed the Lower Court’s imposition of sanctions against Plaintiff and his counsel on the grounds they intentionally misled the court and Midland as to Plaintiff’s theory of the case, breached the protective order entered into amongst the parties, acted in bad faith by “unreasonably and vexatiously” multiplying the proceedings in the action, and commencing a frivolous action and filing several frivolous motions in bad faith. As such, the Lower Court properly granted summary judgment in favor of Midland.

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California District Court Holds that a Debt Collector’s Retention of a Portion of a Transactional Fee Voluntarily Paid by the Consumer for Purposes of Convenience Was a Violation of the Rosenthal Fair Debt Collections Practices Act

By:  Nadia D. Adams

In April Lindblom v. Santander Consumer USA Inc., No. 15-cv-0990 (E.D. Cal. January 22, 2018), the United States District Court for the Eastern District of California held that the plaintiffs’ voluntary payment of a transactional fee that was not expressly authorized in the contract between the parties or by California state law was concrete injury sufficient to confer Article III standing.

The Court also held that where the underlying contract between the parties was silent on the debt collector’s retention of a transactional fee for online and telephone payments, the parties could not subsequently orally modify that contract to allow for the fee; the fee must be contemplated at the time the debt is created. Therefore, the debt collector’s portion of the fee violated the Rosenthal Fair Debt Collection Practices Act (the “Rosenthal Act”). Continue reading

Eleventh Circuit Holds that Voicemails Are “Communications” and Clarifies “Meaningful Disclosure” Under the FDCPA

By:  Diana M. Eng and Paul Messina, Jr.

In Stacey Hart v. Credit Control, LLC, No. 16-17126 (11th Cir. Sept. 22, 2017), the United States Court of Appeals for the Eleventh Circuit clarified two significant definitions under the Fair Debt Collection Practices Act (“FDCPA”), one of which was a novel issue for the Court.  First, the Eleventh Circuit ruled that the first voicemail that Credit Control LLC (“Credit Control”) left for Stacey Hart (“Hart”) qualified as a “communication” within the meaning of 15 U.S.C. § 1692a(2).  Because the voicemail was the initial communication between the parties, Credit Control had to provide the required disclosures under 15 U.S.C. § 1692e(11), commonly known as the “mini Miranda” warning.

Second, the Eleventh Circuit determined the novel issue of what constitutes a “meaningful disclosure” under the FDCPA by ruling that an individual caller is not required to disclose his/her identity as long the caller discloses that the call is being made on behalf of a debt collection company and the debtor collection company’s name.

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