WATERFALL VICTORIA GRANTOR TRUST II, SERIES G v. SARAH MCDONALD

DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA
FOURTH DISTRICT
WATERFALL VICTORIA GRANTOR TRUST II, SERIES G,
Appellant,
v.
SARAH MCDONALD,
Appellee.
No. 4D19-3536
[August 25, 2021]
Appeal from the Circuit Court for the Seventeenth Judicial Circuit,
Broward County; Barry Stone, Senior Judge; L.T. Case No. CACE11-
0022643.
Eddy Leal of Eddy Leal, P.A., Miami, for appellant.
Nicole R. Moskowitz of Neustein Law Group, P.A., Aventura, for
appellee.
FORST, J.
Following a non-jury trial, Appellant Waterfall Victoria Grantor Trust
II, Series G, successor owner of the mortgage and promissory note at issue,
appeals the portion of the trial court’s entry of final judgment of foreclosure
against appellee Sarah McDonald that awarded Appellant $314,000 as
unpaid principal on an underlying loan. Specifically, Appellant argues
that the trial court erred in entering a reduced final judgment of
foreclosure that reflected only one of two loan disbursements on which
McDonald defaulted, because the trial court concluded Appellant had
waived its argument as to the second disbursement by failing to plead a
reply to McDonald’s affirmative defenses.
While we agree that Appellant was required to file a reply to avoid
McDonald’s affirmative defenses, we hold that Appellant’s failure to do so
did not defeat its waiver argument because the issue was tried by consent.
We also agree with Appellant’s argument that the introduction of a letter
from the loan servicer was improper under the business record hearsay
exception because the witness could not lay the predicate foundation.
Thus, based on these errors, we hold that the trial court erred in entering
a reduced final judgment of foreclosure.
Background
In 2006, Sarah and Rick McDonald signed a home equity line of credit
agreement (“line of credit”) with Countrywide Home Loans (the original
lender), secured by a second mortgage on their home. The line of credit
provided a credit limit of $1,000,000 and obligated the McDonalds to repay
whatever they borrowed, up to that amount. When the McDonalds
subsequently defaulted on their repayment obligations, a foreclosure
complaint was filed against the McDonalds, alleging that they had made
two draws on the line of credit. Specifically, the complaint alleged that,
upon origination of the loan, the McDonalds made an initial draw of
$314,000 and, five months later, made an additional draw of $690,000.
In response, Sarah McDonald filed an answer and affirmative defenses.
Rick McDonald never responded and was ultimately judicially defaulted
(he is not a party to the instant appeal). Sarah McDonald’s answer did not
dispute either the original loan disbursement of $314,000 or the second
disbursement of $690,000. Nor did she dispute that in the loan agreement
both McDonalds “agree[d] that all borrowers who have executed the
Agreement are jointly and severally liable under the terms of the
Agreement[.]”
However, Sarah McDonald asserted that the second disbursement of
$690,000 was made solely at her husband’s request without her consent
or knowledge and after “the account had been closed[.]” She further
alleged that the lender knew or should have known that the account was
closed, and yet had allowed her husband to withdraw money from the
account without her consent. Sarah McDonald thus denied owing the
principal sum of $998,777.04, drawing the additional $690,000, and
retaining the benefit of the draws. Appellant did not plead a reply to Sarah
McDonald’s affirmative defenses, and the case proceeded to a non-jury
trial.
In support of her affirmative defense that at the time of the $690,000
draw, Rick McDonald had already requested that Appellant freeze the line
of credit account and that the account had, in fact, been frozen at this
time, Sarah McDonald called her husband’s former attorney as a witness.
Through the former attorney’s testimony, the court admitted three
documents into evidence under the business record hearsay exception: (1)
an email from the former attorney to a Countrywide Home Loans
representative asking to cancel the subject loan, dated July 18, 2006; (2)
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a letter from the former attorney to the same Countrywide representative,
dated July 18, 2006, again asking to cancel the loan and stating that “Mr.
McDonald does not authorize any further transactions on this loan or line
of credit”; and (3) an alleged letter from Countrywide confirming receipt of
the email, and stating that, per Rick McDonald’s request, the account had
been frozen.
Regarding the third document—the letter from Countrywide—the
former attorney testified: the letter sought to be placed into evidence was
an accurate copy of the letter which she maintained in her records; it was
made at or near the time indicated; it was made by a person with
knowledge; and it was her common business practice as an attorney to
maintain such records. However, when questioned by Appellant’s counsel,
the former attorney testified: she did not and had never worked for
Countrywide; she was not present when the letter was created; she did not
know if the purported author had actually drafted the letter; she did not
know why the two pages of the letter introduced at trial were written in
different font sizes and contained different margins; she did not know how
Countrywide had photocopied the letter; and she did not know if either of
the phone numbers on the letter matched up with those of Countrywide.
Over Appellant’s objection that the letter was not properly authenticated,
the trial court admitted the letter into evidence.
At the conclusion of trial, Appellant argued that Sarah McDonald had
waived her affirmative defenses related to the purportedly improper
$690,000 draw because of the “Billing Rights Statement” attached to the
original note. That statement provided that, in the event of a billing
statement error or dispute concerning the amount borrowed, the
McDonalds would have to provide a protest letter within sixty days. If such
a letter was not timely sent to Appellant, the McDonalds could not dispute
the amount. Appellant also introduced evidence that the McDonalds had
received billing statements noting the $690,000 disbursement, and Sarah
McDonald testified that she received a copy of the $690,000 check drawn
on the line of credit account made payable to her husband Rick McDonald.
Appellant argued that, because Sarah McDonald had not complied with
the Billing Rights Statement’s protest requirements and had made
payments with respect to the second disbursement, she had waived her
ability to contest the disbursement.
In turn, Sarah McDonald argued that Appellant could not contend she
had waived her affirmative defenses by failing to comply with the terms of
the Billing Rights Statement because Appellant had failed to plead a reply
in avoidance of her affirmative defense relating to the improper draw after
the account was allegedly frozen. In short, Sarah McDonald maintained
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that Appellant’s waiver argument was waived by failure to plead a reply on
the avoidance.
The trial court agreed that Appellant’s failure to properly avoid Sarah
McDonald’s affirmative defenses precluded the court from considering the
issue. Thus, while the court ultimately entered final judgment in
Appellant’s favor, the court awarded damages reflecting only the amount
of the initial $314,000 draw, plus interest, and did not award damages for
the $690,000 draw. Appellant timely appealed.
Analysis
1. Waiver of Appellant’s Argument Against Sarah McDonald’s
Affirmative Defenses
“[W]here a trial court’s conclusions following a non-jury trial are based
upon legal error, the standard of review is de novo.” Acoustic Innovations
v. Schafer, 976 So. 2d 1139, 1143 (Fla. 4th DCA 2008). Further, “the
standard of review of a trial court’s interpretation of the rules of civil
procedure is de novo.” Donado v. PennyMac Corp., 174 So. 3d 1041, 1042
(Fla. 4th DCA 2015) (quoting R.T.G. Furniture Corp. v. Coates, 93 So. 3d
1151, 1153 (Fla. 4th DCA 2012)).
When a plaintiff seeks to deny an affirmative defense, a “denial is
neither required nor permitted by the rules” of civil procedure. U.S. Bank
Nat’l Assoc. for Registered Holders of Citigroup Mortg. Loan Tr. v. Wilson,
252 So. 3d 306, 308 (Fla. 5th DCA 2018). Rather, Florida Rule Civil
Procedure 1.110(e) provides an automatic denial of every allegation of an
affirmative defense so that “[w]hen a defendant files affirmative defenses
and the plaintiff does not reply, the affirmative defenses are deemed denied
and therefore false.” Roman v. Bogle, 113 So. 3d 1011, 1014 (Fla. 5th DCA
2013); Fla. R. Civ. P. 1.110(e) (an averment in a pleading “to which no
responsive pleading is required or permitted shall be taken as denied or
avoided”); see also Moore Meats, Inc. v. Strawn, 313 So. 2d 660, 662 (Fla.
1975). Conversely, where an answer contains an affirmative defense and
the plaintiff seeks to avoid it, Rule 1.100(a) provides that the plaintiff must
file a reply on the avoidance. Fla. R. Civ. P. 1.110(a).
Thus, two classes of defensive pleas exist:
The first is a plea by way of traverse. This means a denial of
an ultimate fact pleaded in the preceding pleading. The
second class of defensive plea is one by way of confession and
avoidance. All affirmative defenses are pleas by way of
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confession and avoidance. They admit the allegations of the
plea to which they are directed and allege additional facts that
avoid the legal effect of the confession.
Moore Meats, Inc., 313 So. 2d at 661–62 (citation omitted). While a denial
rejects the facts alleged in the affirmative defense, an avoidance alleges a
new matter in opposition to a pleading that admits the facts alleged in the
pleading but shows cause as to why those facts should not have their
ordinary legal effect. A reply essentially pleads an affirmative defense to
an affirmative defense, so the requirement of filing a reply to assert an
avoidance lays a predicate so that the parties may prepare accordingly.
Hertz Commercial Leasing Corp. v. Seebeck, 399 So. 2d 1110, 1111 (Fla.
5th DCA 1981); Moore Meats, Inc., 313 So. 2d at 661.
Here, Sarah McDonald sufficiently alleged her affirmative defense that
the $690,000 loan disbursement was improper because the account had
been frozen. In response, Appellant did not attempt to deny the underlying
facts to argue that the account had not been frozen or that the funds had
been properly disbursed; rather, it argued that even if the second loan
disbursement was improper, Sarah McDonald had waived her right to
contest it because she had not complied with the terms of the Billing
Rights Statement. Because this essentially amounted to an affirmative
defense to McDonald’s affirmative defense, Appellant was required to file a
reply to assert the avoidance. See Fla. R. Civ. P. 1.100(a); Frisbie v.
Carolina Cas. Ins. Co., 162 So. 3d 1079, 1081 (Fla. 5th DCA 2015) (“Here,
because Appellee raised the issue of unclean hands as an avoidance of
Appellants’ two affirmative defenses, Appellee should have pleaded the
issue in a reply . . . .”).
However, “[a]n exception to the rule requiring relief to be pled is if the
issue is tried by consent of the parties.” Fed. Home Loan Mortg. Corp. v.
Beekman, 174 So. 3d 472, 475 (Fla. 4th DCA 2015). “An issue is tried by
consent ‘when there is no objection to the introduction of evidence on that
issue.’” Id. (quoting Scariti v. Sabillon, 16 So. 3d 144, 145-46 (Fla. 4th
DCA 2009)). “When issues not raised by the pleadings are tried by express
or implied consent, they shall be treated in all respects as if they had been
raised in the pleadings.” Id. (quoting Fla. R. Civ. P. 1.190(b)).
In Citigroup Mortgage Loan Trust, Inc. v. Scialabba, 238 So. 3d 317 (Fla.
4th DCA 2018), we explained the reasoning behind the general
requirement that a plaintiff plead an avoidance is that introducing
evidence that shifts the trial’s focus to the defendant’s conduct is a “blind
issue [that] veer[s] into the midst of the trial without warning and without
[allowing the defendant] an opportunity to negate” the allegations. Id. at
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324 (quoting N. Am. Philips Corp. v. Boles, 405 So. 2d 202, 203 (Fla. 4th
DCA 1981)). However, “because [the defendants in that case] never
objected to the evidence or argument . . . on grounds that the issue was
not framed in the pleadings,” we held that there was no such due process
problem and “the issue was tried by consent.” Id.Likewise, Sarah McDonald did not object to the introduction of waiver
evidence on the basis that waiver was not raised in a reply and was thus
outside the scope of the pleadings. Although Appellant was required to
plead a reply to assert its waiver argument, its failure to do so did not
defeat its waiver argument because, at trial, Sarah McDonald did not
object to the evidence or argument on grounds that the issue was not
framed in the pleadings. Thus, per Scialabba, the waiver issue was tried
by consent.
2. Introduction of the Countrywide Letter Through the Former Attorney
Appellant further argues that the trial court erred in allowing McDonald
to introduce into evidence the purported letter from Countrywide Home
Loans through the former attorney.
“This [c]ourt reviews a trial court’s ruling on the admissibility of
evidence for an abuse of discretion.” Cayea v. CitiMortgage, Inc., 138 So.
3d 1214, 1216 (Fla. 4th DCA 2014) (citing Hayes v. Wal-Mart Stores, Inc.,
933 So. 2d 124, 126 (Fla. 4th DCA 2006)). “However, a trial court’s
discretion is limited by the rules of evidence.” Id.No dispute exists that the Countrywide letter is an out-of-court
statement used to prove the truth of the matter asserted and, thus, is
hearsay as defined by section 90.801(1)(c), Florida Statutes (2018).
Hearsay is not admissible unless a statutory exception applies. § 90.802,
Fla. Stat. (2018) In this case, McDonald relies on the business record
hearsay exception as codified in section 90.803, Florida Statutes (2018),
which defines a business record as:
A memorandum, report, record, or data compilation, in any
form, of acts, events, conditions, opinion, or diagnosis, made
at or near the time by, or from information transmitted by, a
person with knowledge, if kept in the course of a regularly
conducted business activity and if it was the regular practice
of that business activity to make such memorandum, report,
record, or data compilation, all as shown by the testimony of
the custodian or other qualified witness, or as shown by a
certification or declaration that complies with paragraph (c) and
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s. 90.902(11), unless the sources of information or other
circumstances show lack of trustworthiness.
§ 90.803(6)(a), Fla. Stat. (2018) (emphasis added).
Thus, to secure admissibility of a business record, “the proponent must
show: (1) the record was made at or near the time of the event; (2) was
made by or from information transmitted by a person with knowledge; (3)
was kept in the ordinary course of a regularly conducted business activity;
and (4) . . . was a regular practice of that business to make such a record.”
Yisrael v. State, 993 So. 2d 952, 956 (Fla. 2008). A party seeking to admit
evidence under this exception may establish the requisite foundation in
one of three ways:
“First, the proponent may take the traditional route, which
requires that a records custodian take the stand and testify
under oath to the predicate requirements.” [Yisrael, 993 So.
2d at 956] (citing § 90.803(6)(a), Fla. Stat. (2004)). “Second,
the parties may stipulate to the admissibility of a document
as a business record.” Id. “Third and finally, since July 1,
2003, the proponent has been able to establish the business-
records predicate through a certification or declaration that
complies with sections 90.803(6)(c) and 90.902(11), Florida
Statutes (2004).” Id. at 957. It is important to note that the
authenticating witness need not be “the person who actually
prepared the business records.” Cooper v. State, 45 So. 3d
490, 492 (Fla. 4th DCA 2010). Rather, the witness just need
be well enough acquainted with the activity to provide
testimony. Id. at 493 (quoting Alexander v. Allstate Ins. Co.,
388 So. 2d 592, 593 (Fla. 5th DCA 1980)).
Cayea, 138 So. 3d at 1217 (emphasis added). “If evidence is to be admitted
under one of the exceptions to the hearsay rule, it must be offered in strict
compliance with the requirements of the particular exception.” Yisrael,
993 So. 2d at 957.
Here, a records custodian did not appear as a witness, the parties did
not stipulate to the letter’s admissibility, and a certification or declaration
complying with sections 90.803(6)(c) and 90.902(11), Florida Statutes, was
not provided. McDonald attempted to lay the predicate foundation
through the former attorney, who testified that she did not and had never
worked for Countrywide. To lay the foundation for the letter under the
business record exception, the former attorney did not need to be the
person who actually prepared the letter, but she needed to be sufficiently
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acquainted with Countrywide’s record-keeping procedures and activities
so that she could attest that the letter was: made at or near the purported
time; made by or from information transmitted by a person with
knowledge; and kept in the ordinary course of business. Yisrael, 993 So.
2d at 956. However, the former attorney could not do so.
Instead, the former attorney’s testimony amounted to admissions that
she did not work for and was not associated with Countrywide, which had
(allegedly) sent her this letter in response to an earlier email and phone
conversation, and that she was unfamiliar with how the letter had been
created. Moreover, the former attorney was unaware as to why the two
pages of the letter introduced into evidence at trial contained different font
sizes and margins. She further admitted that she was unfamiliar with
Countrywide’s record-keeping system and did not know how or when the
data was uploaded into the system or how and by whom the letter was
prepared. Thus, it is apparent the former attorney was not qualified to lay
a proper predicate for the letter.
As the former attorney did not have personal knowledge of the elements
necessary to establish a business record hearsay exception, she could not
lay the predicate foundation and, therefore, the letter’s admission into
evidence was error. See Lassonde v. State, 112 So. 3d 660, 663 (Fla. 4th
DCA 2013) (error to admit store receipt generated at the time goods were
stolen when there was no foundation from a witness who knew and
understood the business records sought to be introduced); Rodgers v.
State, 113 So. 3d 761, 765 (Fla. 2013) (if a party does not lay the necessary
foundation, the document is not admissible under section 90.803(6));
Brown v. State, 389 So. 2d 269, 270 (Fla. 1st DCA 1980) (doctor who was
unfamiliar with record-keeping could not lay foundation). We thus agree
with Appellant that, under the business records exception, the former
attorney was not a qualified witness to lay the requisite foundation for the
letter, and it should not have been admitted into evidence.
Conclusion
In entering its final judgment for Sarah McDonald, the trial court stated
that:
I’ll have to say, in all honesty . . . if I didn’t feel constrained by
the requirement for a reply and a reply in avoidance. And if I
didn’t . . . recognize that they stated in the letter that it was
frozen, I would have found, as argued by the Plaintiff. Both,
in terms of a waiver by making the payments for five years and
by the 60-day provision.
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As noted above, Sarah McDonald waived her procedural argument
regarding the $690,000 disbursement because the parties tried this issue
by consent. Thus, the trial court erred in denying Appellant’s waiver
argument. The admissible evidence adduced at trial demonstrated that
the Sarah McDonald and her husband jointly took out a loan, secured by
a mortgage against their home; the amounts disbursed on the loan were
$314,000 and $690,000; after disbursement of the $690,000; the
McDonalds (individually or collectively) did not comply with the Billing
Rights Statement and did not attempt to dispute the loan amount; instead,
Sarah McDonald continued to pay on the loan amount for five additional
years; and, the McDonalds eventually defaulted on the loan.
Sarah McDonald does not dispute these facts. Rather, she argued the
$690,000 disbursement was improper because the account was frozen at
the time. However, the only evidence supporting this contention was the
Countrywide letter sent to the former attorney. As that letter was
improperly admitted as hearsay because the former attorney failed to lay
the proper foundation to allow its admission, the trial court should not
have considered it in awarding the judgment, and the record thus lacked
evidence that the account was frozen. Moreover, as noted above, the
$690,000 was received, no attempt was made by either McDonald to cancel
the disbursement and, to the contrary, Sarah McDonald made monthly
loan repayments for five years.
The McDonalds were jointly and severally liable on the loan; thus, the
trial court erred in not entering a foreclosure judgment for the full amount
of the two disbursements made and secured under the line of credit. We
therefore reverse the trial court’s final judgment and remand for entry of a
final judgment reflecting the full amount due under the line of credit, plus
interest.
Reversed and remanded for further proceedings.
MAY and LEVINE, JJ., concur.
* * *
Not final until disposition of timely filed motion for rehearing.
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