Bank of New York v. Andrew Calloway

DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA
FOURTH DISTRICT
BANK OF NEW YORK, AS TRUSTEE FOR THE NOTEHOLDERS
CWABS INC., ASSET BACKED NOTES SERIES 2006-SD4006-SD4,
Appellant,
v.
ANDREW CALLOWAY,
Appellee.
No. 4D13-2224
[January 7, 2015]
Appeal from the Circuit Court for the Fifteenth Judicial Circuit, Palm
Beach County; Edward H. Fine, Judge; L.T. Case No.
502008CA004784AW.
Erin M. Berger of Kelley Kronenberg, Tampa, for appellant.
Donna Greenspan Solomon of Solomon Appeals, Mediation &
Arbitration, Fort Lauderdale and Roy D. Oppenheim, Geoffrey E. Sherman
and Jacquelyn K. Trask of Oppenheim & Pilelsky, Weston, for appellee.
GILLESPIE, KENNETH, Associate Judge.
Appellant Bank of New York, as trustee for the Noteholders CWABS
Inc., Asset Backed Notes Series 2006-SD4006-SD4 (“Bank of New York”),
appeals the trial court’s order involuntarily dismissing its foreclosure
action. Bank of New York maintains that the trial court abused its
discretion in excluding the Borrower’s payment history since its witness
laid a proper foundation under the business record exception. We agree
and reverse.
I. FACTS
In February 2008, Bank of New York filed a complaint seeking to
foreclose upon a real property mortgage executed by the Borrower. The
matter proceeded to a non-jury trial on May 8, 2013, during which Bank
of New York centered its case around one witness—Jean Knowles—a
litigation foreclosure specialist for its servicer, Resurgent Capital Services
LP (“Resurgent”). The vital purpose of calling Knowles was to lay a
predicate for admitting Resurgent’s business records pertinent to the case.
Knowles testified that Resurgent became the fourth servicer1 of the
subject loan on November 16, 2012, more than five years after the
Borrower’s alleged July 1, 2007 default. To effectuate the ownership
change, the prior servicer—Bank of America—transferred to Resurgent the
Borrower’s original loan documents along with its business records
chronicling his complete payment history. Upon receipt, Resurgent
reviewed the documents for accuracy before scanning them and inputting
the payment information into its records system.
Alongside this backdrop, Bank of New York attempted to introduce into
evidence the Borrower’s “payment history”—a printed tabulation from
Resurgent’s records laying out the Borrower’s monthly payments from the
date the loan was executed. To lay a foundation to the business record,
Knowles testified that: (1) the proffered document was “a true and accurate
representation of the payment history for th[e] loan,” (2) it was “kept during
the regular course of regularly-conducted activities by a person with
knowledge of the event or activity,” (3) the “person making the record ha[d]
a duty to accurately compile [the] information for th[e] record,” and (4) it
is “the regular practice of the servicer to make such a record.” In addition,
Bank of New York sought to introduce a document entitled “transaction
dates,” which contained “the dates that the mortgage [wa]s first due, the
maturity date, transaction dates,” and “what date [Resurgent] acquired it.”
As to both documents, the Borrower’s counsel objected upon lack of
foundation grounds and requested to voir dire the witness. During
questioning, Knowles admitted that since Resurgent acquired the loan’s
servicing rights five years after the Borrower’s alleged default, the payment
history contained in its records derived from the documents transferred to
it by Bank of America. Notwithstanding, Knowles conceded she never
worked for Bank of America and thus did not know how Bank of America
recorded its payment information, who at Bank of America input the
records, whether that information was entered in the regular course of
Bank of America’s business activity, and whether the person who inputted
that information did so with knowledge of its contents.
Relying upon this testimony, the Borrower’s counsel argued the two
proffered documents constituted inadmissible hearsay since Knowles
1The previous three servicers which made up this relay team were US Money
Source, Countrywide, and Bank of America
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lacked personal knowledge regarding Bank of America’s processes for
obtaining and recording loan information. Bank of New York responded
that Knowles laid a sufficient predicate under the business records
hearsay exception by establishing her familiarity with Resurgent’s
business records and testifying that Resurgent reviews the accuracy of all
information transferred to it upon acquiring a loan.
The trial court sustained the Borrower’s hearsay objection, barring
Bank of New York from introducing any evidence. In so ruling, the trial
court found that although Knowles established that the records acquired
from Bank of America were “accurate insofar as they [we]re the records
she got from the prior servicer,” Bank of New York failed to provide a
witness with knowledge of Bank of America’s record-making processes.
Since Knowles lacked such knowledge, the trial court found it was
incumbent upon Bank of New York to have “somebody who is
knowledgeable about the prior servicers . . . come and explain . . . their
records.”
Thereafter, Bank of New York called the Borrower to establish his
payment history. The Borrower testified that he did not feel obligated to
pay his outstanding indebtedness because Bank of New York’s “paperwork
is awful.” Furthermore, the Borrower testified that the payment history
report was inaccurate, since he made several payments between June
2006—the date he executed the loan—and November 1, 2006—his first
listed payment date. At the conclusion of the testimony, the Borrower
moved for a motion for involuntary dismissal with prejudice due to Bank
of New York’s inability to prove the amounts due under the loan. The trial
court granted the Borrower’s motion for involuntary dismissal noting that
it could not “figure out what the balance is.”
Two weeks later, on May 21, 2013, the trial court entered a written
order memorializing its ruling that Knowles’ “testimony concerning the
subject loan prior to November 18, 2012, constituted . . . inadmissible
hearsay.” As justification, the trial court’s order noted that Knowles “was
not familiar with the prior servicer’s business practices or procedures,”
that she “was unable to testify as to the accuracy of the prior servicer’s
business records,” and that she “did not know who, how or when the data
entries were made into the prior servicer’s business records.” The trial
court found that Knowles “could not provide the requisite evidentiary
foundation for any business records of the prior servicers with respect to
the subject loan.” Following the denial of Bank of New York’s motion for
rehearing, this appeal ensued.
II. ANALYSIS
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The standard of review for evidentiary rulings is abuse of discretion,
limited by the rules of evidence. See Yang v. Sebastian Lakes Condo. Ass’n,
123 So. 3d 617, 620 (Fla. 4th DCA 2013). The trial court’s granting of a
motion for involuntary dismissal is reviewed de novo. See Deutsche Bank
Nat’l Trust Co. v. Huber, 137 So. 3d 562, 563 (Fla. 4th DCA 2014)
Section 90.803(6), Florida Statutes (2008), “provides a hearsay
exception for records of regularly conducted business activity.” A.S. v.
State, 91 So. 3d 270, 271 (Fla. 4th DCA 2012). To admit business record
evidence under this subsection, the proponent must demonstrate: (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. See Yisrael v. State, 993 So. 2d 952, 956 (Fla. 2008). Such
foundation may be established 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.
Cayea v. CitiMortgage, Inc., 138 So. 3d 1214, 1217 (Fla. 4th DCA 2014).
When employing this first option, “it is not necessary to call the individual
who prepared the document”; however, “the witness through whom [the]
document is being offered must be able to show each of the requirements
for establishing a proper foundation.” Mazine v. M & I Bank, 67 So. 3d
1129, 1132 (Fla. 1st DCA 2011) (citation omitted); see also Hunter v.
Aurora Loan Servs., LLC, 137 So. 3d 570, 573 (Fla. 1st DCA 2014).
In reaching its decision, the trial court relied heavily on Glarum v. La
Salle Bank National Association, 83 So. 3d 780 (Fla. 4th DCA 2011). In
Glarum, this Court held that an affidavit of a loan servicing specialist was
inadmissible under the business records exception because the specialist
“had no knowledge of how his own company’s data was produced and he
was not competent to authenticate that data.” Id. at 783 (emphasis
added). Notably, the specialist in Glarum attested that he did not know
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whether his business’s records were made in the regular course of
business, whether the business made the data entries into its computer
system, or who made the entries when the borrowers made payments. Id.
at 782-83. Furthermore, the specialist relied upon data supplied by a prior
servicer, “with whose procedures he was even less familiar.” Id. at 783.
While this latter fact was relevant, the takeaway was that the “specialist
had a total lack of knowledge as to how his company’s own data was
produced.” Weisenberg v. Deutsche Bank Nat’l Trust Co., 89 So. 3d 1111,
1112 (Fla. 4th DCA 2012) (distinguishing Glarum where the supervisor at
the bank’s servicing agent’s deposition showed that she “knew how the
data was produced” and “demonstrated that she was familiar with the
bank’s record-keeping system and had knowledge of how the data was
uploaded into the system”).
In a footnote, the Glarum court addressed concerns its holding could
be interpreted as a blanket prohibition on lending institutions relying upon
prior servicers’ loan records, stating:
The law does not require an affiant who relies on
computerized bank records to be the records custodian who
entered or created the data, nor must the affiant identify who
entered the data into the computer. The law is also clear
there is no per se rule precluding the admission of
computerized business records acquired from a prior
loan servicer.
83 So. 3d at 782 n.2 (emphasis added).
While Glarum failed to set forth those circumstances justifying the
admission of “computerized business records acquired from a prior loan
servicer,” an illustration materialized in WAMCO XXVIII, Ltd. v. Integrated
Electronic Environments, Inc., 903 So. 2d 230 (Fla. 2d DCA 2005), a case
factually similar to this one. In that case, WAMCO presented “loan
payment histories” to prove the amount due by corporate debtors under
promissory notes. Id. at 233. Confronting a hearsay challenge, WAMCO’s
vice president testified that the loans had been purchased from Bank of
America, and that the “beginning numbers on the outstanding balances
were the numbers received from Bank of America.” Id. While the vice
president conceded that he did not know the specific person at Bank of
America who inputted the information, he explained that “he knew how
bank loan accounting systems worked and that the procedures were
‘bank-acceptable accounting systems.’” Id. Further, the vice president
described the process WAMCO used “to verify the accuracy of information
received in connection with [the] loan purchases,” stating that employees
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“go through the files, check [them] for . . . accuracy, . . . and then make
an initial contact with the customer.” Id.
The Second District held WAMCO’s records were properly admitted
under the business records exception, noting that, although documents
may be excluded under section 90.803(6) if “the sources of information or
other circumstances show lack of trustworthiness,” the debtors “did not
demonstrate, and nothing in the record establishe[d], that the loan
information WAMCO received from Bank of America was suspect or
untrustworthy or that the balances that WAMCO claimed as due were
incorrect.” Id. (emphasis added).
There has been confusion among litigants and jurists alike as to the
applicability of the WAMCO decision. For example, one court has
interpreted WAMCO as standing for the broad proposition that a lending
institution may “lawfully rely on the records and loan transaction history
of a prior loan servicer.” In re Sagamore Partners, Ltd., No. 11-37867-BKC-
AJC, 2012 WL 3564014, at *4 (Bankr. S.D. Fla. Aug. 17, 2012). Others
seem to hold that WAMCO’s process of verifying the accuracy of the
received records independently established the exception’s foundational
elements. See Holt v. Calchas, LLC, 39 Fla. L. Weekly D2305 (Fla. 4th DCA
Nov. 5, 2014). It is our intention to shed some light on the subject.
“The rationale behind the business records exception is that such
documents have a high degree of reliability because businesses have
incentives to keep accurate records.” Timberlake Constr. Co. v. U.S. Fid. &
Guar. Co., 71 F.3d 335, 341 (10th Cir. 1995); see also United States v.
Veytia-Bravo, 603 F.2d 1187, 1189 (5th Cir. 1979) (explaining that the
justification for the business records exception lies in “the reliability or
trustworthiness of the records sought to be introduced”). Businesses rely
upon their records “in the conduct of [their] daily affairs” and “customarily
check[ them] for correctness during the course of the business activities.”
Charles W. Ehrhardt, Florida Evidence § 803.6 (2014 ed.)2; see also Bean
v. Montana Bd. of Labor Appeals, 965 P.2d 256, 262 (Mont. 1998). Thus,
courts view the “material contained in those records [a]s more likely to be
truthful than the average hearsay.” United States v. Santos, 201 F.3d 953,
963 (7th Cir. 2000).
2“Florida case law has recognized Professor Charles Ehrhardt’s discussion of
controlling law regarding the business record exception.” Shorter v. State, 98 So.
3d 685, 690 (Fla. 4th DCA 2012), rev. denied, 133 So. 3d 528 (Fla. 2014).
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Where a business takes custody of another business’s records and
integrates them within its own records, the acquired records are treated
as having been “made” by the successor business, such that both records
constitute the successor business’s singular “business record.” United
States v. Adefehinti, 510 F.3d 319, 326 (D.C. Cir. 2007), as amended (Feb.
13, 2008).3 However, since records crafted by a separate business lack
the hallmarks of reliability inherent in a business’s self-generated records,
proponents must demonstrate not only that “the other requirements of
[the business records exception rule] are met” but also that the successor
business relies upon those records and “the circumstances indicate the
records are trustworthy.” United States v. Childs, 5 F.3d 1328, 1333 (9th
Cir. 1993); see also Brawner v. Allstate Indem. Co., 591 F.3d 984, 987 (8th
Cir. 2010) (“[A] record created by a third party and integrated into another
entity’s records is admissible as the record of the custodian entity, so long
as the custodian entity relied upon the accuracy of the record and the
other requirements of Rule 803(6) are satisfied.”); United States v. Duncan,
3Where, as here, a Florida evidentiary rule is patterned after its federal
counterpart, “federal cases interpreting comparable provisions are persuasive
and routinely looked to for interpretive guidance.” Carriage Hills Condo., Inc. v.
JBH Roofing & Constructors, Inc., 109 So. 3d 329, 334 n.1 (Fla. 4th DCA) rev.
dismissed, 130 So. 3d 692 (Fla. 2013). In that regard, Federal Rule of Evidence
803(6) provides as follows:
(6) Records of a Regularly Conducted Activity. A record of an act,
event, condition, opinion, or diagnosis if:
(A) the record was made at or near the time by--or from
information transmitted by--someone with knowledge;
(B) the record was kept in the course of a regularly conducted
activity of a business, organization, occupation, or calling,
whether or not for profit;
(C) making the record was a regular practice of that activity;
(D) all these conditions are shown by the testimony of the
custodian or another qualified witness, or by a certification
that complies with Rule 902(11) or (12) or with a statute
permitting certification; and
(E) the opponent does not show that the source of
information or the method or circumstances of preparation
indicate a lack of trustworthiness.
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919 F.2d 981, 986-87 (5th Cir. 1990); Air Land Forwarders, Inc. v. United
States, 172 F.3d 1338, 1342-44 (Fed. Cir. 1999); United States v. Bueno-
Sierra, 99 F.3d 375 (11th Cir. 1996). This principle is codified within
section 90.803(6) itself, which provides trial courts the ability to exclude
documents otherwise fitting the business records exception where “the
sources of information or other circumstances show lack of
trustworthiness.” § 90.803(6)(a), Fla. Stat. (2008).
Given this trustworthiness threshold, mere “‘reliance by the
[incorporating business] on records created by others, although an
important part of establishing trustworthiness, without more is’”
insufficient. State v. Fitzwater, 227 P.3d 520, 532 (Haw. 2010) (quoting 2
Kenneth S. Broun et al., McCormick on Evidence § 292, at 318 (6th ed.
2006)). In most instances, a proponent will clear this hurdle by providing
evidence of a business relationship or contractual obligation between the
parties that ensures a substantial incentive for accuracy. See, e.g., Matter
of Ollag Constr. Equip. Corp., 665 F.2d 43, 46 (2d Cir. 1981) (“[B]usiness
records are admissible if witnesses testify that the records are integrated
into a company’s records and relied upon in its day-to-day operations.”
(citations omitted)); White Indus., Inc. v. Cessna Aircraft Co., 611 F. Supp.
1049, 1061 (W.D. Mo. 1985) (finding the “indicia of trustworthiness”
apparent “where the reporting duty arises by way of a continuing business
relationship between two independent business entities”). In the
alternative—as tacitly applied in WAMCO—the successor business itself
may establish trustworthiness by independently confirming the accuracy
of the third-party’s business records upon receipt. See, e.g., Simien v.
Unifund CCR Partners, 321 S.W.3d 235, 243 (Tex. App. Houston [1 Dist.]
2010) (“[A] document created by one business may become the records of
a second business if the second business ‘determines the accuracy of the
information generated by the first business.’” (quoting Martinez v. Midland
Credit Mgmt., Inc., 250 S.W.3d 481, 485 (Tex. App.-El Paso 2008, no pet.)).
In any of the abovementioned circumstances, the sufficiency of the
evidence is left to the trial court’s discretion.
In the case at bar, Knowles confirmed the trustworthiness of the relied-
upon third-party business records by testifying that Resurgent “reviewed”
Bank of America’s supplied payment histories “for accuracy” before
integrating them into its own records. See WAMCO, 903 So. 2d at 233;
Simien, 321 S.W.3d at 243. Particularly, Knowles testified that Resurgent
became the fourth servicer of the subject loan on November 16, 2012, more
than five years after the Borrower’s alleged July 1, 2007 default. To
facilitate the ownership change, Bank of America transferred to Resurgent
the Borrower’s original loan documents along with its business records
chronicling his complete payment history, which Resurgent reviewed for
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accuracy before scanning them and inputting the payment information
into its records system.
Nevertheless, even had Knowles not so testified, the circumstances of
the loan transfer itself would have been sufficient to establish
trustworthiness given the business relationships and common practices
inherent among lending institutions acquiring and selling loans. As the
Supreme Court of Massachusetts has explained:
“[T]he problem of proving a debt that has been assigned
several times is of great importance to mortgage lenders and
financial institutions.” New England Sav. Bank v. Bedford
Realty Corp., 246 Conn. 594, 607, 717 A.2d 713 (1998). Given
the common practice of banks buying and selling loans, we
conclude that it is normal business practice to maintain
accurate business records regarding such loans and to
provide them to those acquiring the loan. See Wingate v.
Emery Air Freight Corp., [432 N.E.2d 474 (Mass. 1982)]. See
also United States v. Samaniego, 187 F.3d 1222, 1224 n.1
(10th Cir. 1999) (including bank records in “class of records
commonly viewed as particularly trustworthy”); Federal
Deposit Ins. Corp. v. Staudinger, 797 F.2d 908, 910 (10th Cir.
1986), quoting Weinstein’s Evidence at 803–178 (1985)
(“foundation for admissibility may at times be predicated on
judicial notice of the nature of the business and the nature of
the records . . . particularly in the case of bank and similar
statements”). Therefore, the bank need not provide testimony
from a witness with personal knowledge regarding the
maintenance of the predecessors’ business records. The
bank’s reliance on this type of record keeping by others
renders the records the equivalent of the bank’s own records.
To hold otherwise would severely impair the ability of
assignees of debt to collect the debt due because the
assignee’s business records of the debt are necessarily
premised on the payment records of its predecessors.
Beal Bank, SSB v. Eurich, 831 N.E.2d 909, 914 (Mass. 2005).
As applied to this case, the Borrower urges this Court to find
Resurgent’s payment history records presumptively untrustworthy since
he testified some of his payments were unaccounted for. For the reasons
noted above, this discrepancy should not bar foreclosure. Here, the
Borrower is not contending that he is not in default, but only that some of
his payments were not accounted for—mainly payments between June
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2006, the date he executed the loan, and November 1, 2006, his first listed
payment date. Giving the Borrower the benefit of the doubt and utilizing
December 2006 as the date the Borrower defaulted on his loan does not
change the fact that the Borrower is in default. This foreclosure action
was brought in February of 2008, some 18 months after the Borrower
executed the loan; trial commenced on May 8, 2013, some 83 months
following the execution of the loan by the Borrower. As such, the trial
court has broad discretion to reconcile any discrepancies, if warranted,
based on the evidence presented. Minor discrepancies in calculations,
given the volumes of records transferred from one business entity to
another, should not render business records of a successor servicer
untrustworthy for purposes of laying a foundation for the business record
exception given that the trustworthiness of the records has been
established.
Our decision in this case, and on this record, should not be construed
as a “green light” for lenders to present a “robo” witness to establish the
business record exception. As discussed previously, admission of a
business record is predicated on the proponent demonstrating (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. See Yisrael, 993 So. 2d at 956. The requirements of reliance and
trustworthiness do not supplant this rule’s provisions; “rather, we view
them as necessary in these circumstances to satisfy the rule’s requirement
that the records were made in the course of a regularly conducted activity
of the incorporating entity.” Fitzwater, 227 P.3d at 534 (internal quotation
omitted).
III. CONCLUSION
It is well-settled that a record custodian who has been called to testify
under oath need not be the actual person who prepared the document,
but he or she must demonstrate knowledge of each requirement for
establishing the business record foundation. Here, Bank of New York
attempted to introduce into evidence the Borrower’s payment history.
Knowles was called as the records custodian and established the requisite
knowledge and foundation for the admission of Resurgent’s business
records pursuant to the business record exception contemplated by Rule
90.803(6). Specifically, Knowles testified to the transmittal of the
Borrower’s records from Bank of America to Resurgent which included the
Borrower’s original loan documents along with its business records
chronicling his complete payment history. Knowles testified that these
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documents were reviewed for accuracy before Resurgent scanned them
and inputted the payment information into its records system. Further,
Knowles laid a foundation to the business record exception by testifying
(1) that the proffered document was “a true and accurate representation
of the payment history for th[e] loan,” (2) that it was “kept during the
regular course of regularly-conducted activities by a person with
knowledge of the event or activity,” (3) that the “person making the record
ha[d] a duty to accurately compile [the] information for th[e] record,” and
(4) that it is “the regular practice of the servicer to make such a record.”
Knowles’s testimony, in and of itself, was sufficient to clear the
Borrower’s lack of foundation and hearsay objections. Notably, the
Borrower argues that Resurgent’s payment history relating to payments
made by him is inaccurate and, therefore, untrustworthy since he testified
some of his payments were unaccounted-for. In the circumstances
presented, as long as a business entity’s records obtained from prior
servicers establish trustworthiness—i.e., that the records are what they
purport to be and were subject to the business’ internal practices and
procedures to ensure accuracy of the records—the records are cleared for
admission and satisfy the business record exception to hearsay.
This Court is cognizant of the trial court’s diligence in attempting to
synthesize the various cases decided among the district courts in
foreclosure litigation in so ruling; however, because Knowles satisfied the
business records requirements under 90.806(6), and demonstrated
knowledge of the accuracy of the records as espoused in Holt, 39 Fla. L.
Weekly at D2305, a recent case decided by this Court, we reverse and
remand for a new trial.
Reversed and Remanded.
DAMOORGIAN, C.J., and STEVENSON, J., concur.
* * *
Not final until disposition of timely filed motion for rehearing.
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