The California Court of Appeal, Fourth District, recently affirmed a trial court's denial of a debt buyer's motion to compel arbitration, holding that an affidavit from the original creditor's employee, used by the debt buyer to prove that an arbitration agreement had been mailed to the borrower, lacked foundation and violated the secondary evidence rule.
The Fourth District also concluded that the business records exception to the hearsay rule did not apply.
A borrower filed a putative class action lawsuit against a debt buyer based on alleged violations of the California Fair Debt Buying Practices Act (CFDBPA). The debt buyer moved to compel arbitration. It relied on an affidavit from an employee of the borrower's original creditor, which stated in part that the original creditor's records showed a credit card account agreement containing an arbitration clause was mailed to the borrower.
The borrower objected to the affidavit on various evidentiary grounds. The trial court sustained the objections and denied the debt buyer's motion to compel arbitration. The debt buyer timely appealed.
On appeal, the debt buyer contended that the trial court erred by excluding the affidavit because it was admissible under the secondary evidence rule (Cal. Evid. Code §§ 1521, 1523) and the underlying documents qualified as business records (Cal. Evid. Code § 1271).
As you may recall, "[t]rial court rulings on the admissibility of evidence . . . are generally reviewed for abuse of discretion." Pannu v. Land Rover North America, Inc. (2011) 191 Cal.App.4th 1298, 1317; Christ v. Schwartz (2016) 2 Cal.App.5th 440, 446-447.
Section 1521(a) of the California Evidence Code provides that, "[t]he content of a writing may be proved by otherwise admissible secondary evidence. The court shall exclude secondary evidence of the content of [a] writing if the court determines either of the following: [¶] (1) A genuine dispute exists concerning material terms of the writing and justice requires the exclusion. [¶] (2) Admission of the secondary evidence would be unfair."
In addition, the California business records exception to the hearsay rule provides, "[e]vidence of a writing made as a record of an act, condition, or event is not made inadmissible by the hearsay rule when offered to prove the act, condition, or event if: [¶] (a) The writing was made in the regular course of a business; [¶] (b) The writing was made at or near the time of the act, condition, or event; [¶] (c) The custodian or other qualified witness testifies to its identity and the mode of its preparation; and [¶] (d) The sources of information and method and time of preparation were such as to indicate its trustworthiness." Cal. Evid. Code, § 1271.
Therefore, because the affidavit from the original creditor's employee expressly referenced company records as the basis for her statement that the credit card account agreement had been mailed to the borrower, the Fourth District reasoned that, in order for the statement to be admissible, the underlying company records would have to be admissible.
The debt buyer argued that the underlying company records were admissible as business records under section 1271 because the affidavit stated that the employee "regularly review[s] and analyze[s] account records and transaction histories, including communications to and from cardholders." The debt buyer asserted that this statement showed that the original creditor's "account records and transaction histories are made in the regular course of business." See Cal. Evid. Code § 1271(a).
However, the Fourth District held that the trial court could have reasonably found otherwise. The Appellate Court noted that, although the employee stated that she regularly reviewed and analyzed the records, she did not say anything about their preparation. Nor did she describe the specific company records she relied upon to state that the borrower had been mailed the account agreement.
For the same reasons, the Fourth District concluded that the trial court could have reasonably found that the affidavit was insufficient to establish that the unspecified records were "made at or near the time of the act, condition, or event" and "[t]he sources of information and method and time of preparation were such as to indicate its trustworthiness." Cal. Evid. Code § 1271(b) and (d).
The debt buyer also argued that the trial court erred by holding that the employee "had to attach" the account records and transaction histories she reviewed. However, the Fourth District found no such mandate in the trial court's decision and observed that the trial court only referenced the lack of records as the reason for its close examination of the affidavit, as that was the only evidence of mailing provided by the debt buyer. The Court held that the trial court was entitled to consider this circumstance when evaluating the affidavit.
In addition, the debt buyer argued that the employee's statements were admissible under section 1523(d) as a summary of a voluminous record. That statute provides that "[o]ral testimony of the content of a writing" may be admissible "if the writing consists of numerous accounts or other writings that cannot be examined in court without great loss of time, and the evidence sought from them is only the general result of the whole." Cal. Evid. Code § 1523(d).
Setting aside whether the affidavit was oral testimony, the Fourth District concluded that the debt buyer's argument did not justify reversal.
First, the Appellate Court noted that the debt buyer did not argue in the trial court that the statements were admissible under this statute and subdivision. See People v. Hines (1997) 15 Cal.4th 997, 1034, fn. 4. Second, according to the Appellate Court, the debt buyer also had not shown that the records of mailing were voluminous or otherwise satisfied the requirements of the statute.
Moreover, the Fourth District found that the employee's affidavit showed that she had no personal knowledge of the original creditor mailing the credit card agreement to the borrower outside what the "records show." As a result, the Appellate Court held that the contents of those records were hearsay, and the debt buyer had not shown that the trial court abused its discretion by finding the business record exception did not apply.
Lastly, in light of its conclusions, the Fourth District did not consider whether the trial court erred by excluding the employee's statements that she found no record of the borrower's objection to the arbitration agreement or its return as undeliverable.
Accordingly, the Fourth District affirmed the judgment of the trial court.
Ralph T. Wutscher
Maurice Wutscher LLP
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