The Calloway Conundrum: Exploring the Business Records Exception and Florida’s Evidence Code
Organizations are often forced to litigate their disputes through business records since the individuals who possess personal knowledge of disputed facts are often numerous and dispersed throughout the organization. Getting business records into evidence at trial now appears to be an easier, less rigid process as the result of recent interpretations of the business records exception to the hearsay rule. Much of the discussion surrounding these recent changes centers on the Fourth District Court of Appeal’s decision in Bank of New York v. Calloway, 157 So. 3d 1064 (Fla. 4th DCA 2015), rev. denied, 2015 WL 4886204 (Fla. 2015). Some argue that Calloway expands the business records exception and also allows corporate records obtained from other companies into evidence in a no-holds-barred fashion. These statements are not correct; Calloway is not an expansion of the law but instead a detailed explanation of the decade-old decision of WAMCO XXVIII, Ltd. v. Integrated Electronic Environments, Inc., 903 So. 2d 230 (Fla. 2d DCA 2005). As seen in this article, Calloway is not carte blanche permission to allow any and all business records into evidence without application of evidentiary protections.
I call these two cases and their progeny the WAMCO/Calloway doctrine because they are often cited together. Although the WAMCO/Calloway doctrine arose in the mortgage foreclosure context, lawyers seeking to introduce evidence under the business records exception should be familiar with the doctrine as it applies across the board to all litigation.
The Doctrine
The business records exception to the hearsay rule is found at F.S. §90.803(6) and is straightforward; analysis focuses on subsection 6(a):
Hearsay exceptions; availability of declarant immaterial.—The provision of s. 90.802 to the contrary notwithstanding, the following are not inadmissible as evidence, even though the declarant is available as a witness:…
(6) RECORDS OF REGULARLY CONDUCTED BUSINESS ACTIVITY.—
(a) 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 [§]90.902(11), unless the sources of information or other circumstances show lack of trustworthiness. The term “business” as used in this paragraph includes a business, institution, association, profession, occupation, and calling of every kind, whether or not conducted for profit.
The starting point for analysis of the doctrine is WAMCO, a Second District Court of Appeal opinion issued in 2005. Although the Second District did not go into great detail in its opinion, it clearly ruled a party seeking to introduce another business’ records did not have to bring a witness from the prior company, i.e., the company that created the prior business records, to testify in order to lay the foundation necessary to have the prior records admitted. WAMCO signaled a departure from the customary practice of requiring a records custodian from the prior company to satisfy the business records requirements of the hearsay rule. The touchstone, as the WAMCO court pointed out, was whether “the sources of information or other circumstances show lack of trustworthiness.”1 Of note is the court’s discussion that after the trial court properly admitted the records into evidence, the evidence was still subject to cross-examination and admission of contrary evidence.2The records in controversy in WAMCO consisted of financial records of a prior company that had received payment on guarantees, the accuracy of which the successor company and proponent of the evidence had independently verified.
The Calloway court took this principle, examined its legal foundation, and explained it in detail. First, the court explained that business records may be admitted three ways: by stipulation, by having a representative of the company that created the records testify as to their admissibility, or through a certification or declaration pursuant to F.S. §90.803. The Calloway court then discussed the Glarum v. LaSalle Bank Nat. Ass’n, 83 So. 3d 780, 782-83 (Fla. 4th DCA 2011), decision in detail since the trial court had excluded the business records evidence on the holdings of Glarum. The Calloway court pointed out the differences between the records custodian in its case and the records custodian in Glarum who “attested that he did not know 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.”3
Moreover, the witness in Glarum “had no knowledge of how his own company’s data was produced and he was not competent to authenticate that data,” and his reliance on a prior servicer’s records was problematic as “he was even less familiar” with how the prior servicer produced and maintained its business records.4 To contrast this lack of knowledge with a proper foundation, the Glarum court pointed to the witness in Weisenberg v. Deutsche Bank Nat’l Trust Co., 89 So. 3d 1111 (Fla. 4th DCA 2012).The witness in Weisenberg knew how the data was produced, was familiar with how the records were maintained, and was familiar with how data was uploaded into the company’s system.5 This portion of the Calloway opinion might lead a reader to surmise the only way to authenticate business records is to bring the witness who created the business records to testify. The Calloway court, however, referred back to Glarum and pointed out this is not the case:
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.6
A reader might understandably be confused at this point as the opinions dictate that the witness has to testify as to all the requirements of the business records exception, including how the records were made or inputted, but does not have to be the person who created or inputted the records. The Calloway court began the process of explaining this apparent contradiction by again referring back to WAMCO.
The Calloway court described how the witness in WAMCO testified as to “loan payment histories” in order to prove amounts due on promissory notes. The WAMCO company had purchased the notes from Bank of America, and was not the originator of the notes. Accordingly, the WAMCO witness had to rely on Bank of America records for at least a portion of the evidence necessary to prove the amounts due and did so by stating that “the beginning numbers on the outstanding balances were the numbers received from Bank of America.”7 While the WAMCO witness did not know the person at Bank of America who inputted the information, the witness testified as to personal knowledge of the systems used to generate the records and that they were “bank acceptable systems.” Furthermore, the witness testified as to the process he employed to verify the trustworthiness of the records by stating his employees reviewed the files of purchased loans, checked the files and the information for accuracy, and then contacted the customer.8
On the issue of whether the predicate for the business records exceptions was properly laid, the Calloway court pointed out the WAMCO court held the business records of the prior company were properly admitted because the records themselves did not show “lack of trustworthiness” under F.S. §90.803(6) and also because the party opposing introduction of the business records “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.”9
Comparing WAMCO with Glarum and Calloway, it becomes clear that the key to admission of business records is the reliability (or in the words of the Florida Evidence Code, trustworthiness) of the business records; not a talismanic recitation of the statutory factors to the business records exception. The Calloway court explained this concept by first discussing reliability. Applying federal cases interpreting the federal evidence code, the Calloway court explained that businesses need accurate records in order to stay in business and accordingly have a stronger incentive to keep accurate records. Or as more bluntly put in one of the cases discussed, “material contained in those [business] records [are] more likely to be truthful than the average hearsay.”10 In other words, it is not that business records are infallible or without error, it is that business records have a higher degree of reliability than other hearsay evidence due to the need to have accurate records to operate complex organizations successfully.
The Calloway court then discussed the issue of witnesses testifying to another business’ records. First, the Calloway court analyzed the incorporation of another business’ records into the testifying custodian business’ records. In particular, the court emphasized that those records created by the prior business are, upon acquisition by the successor business, treated as business records of the successor business so that there is only one “business record” at the end. How does the acquiring business demonstrate that the records of the prior business are trustworthy and, thus, capable of admission? reliance upon the accuracy of the acquired records in the acquiring business and — by implication — demonstrating that it is an acceptable practice of acquiring business to rely on these types of records.11 This can be done by either of two methods.
One method is to demonstrate that the acquiring business has a contract or other form of relationship with the business from which the records were acquired that “ensures a substantial incentive for accuracy.”12 While the phrase “substantial incentive for accuracy” is not explained, one can presume this means that the selling business will be sued or otherwise have its business relationship adversely affected if it doesn’t provide accurate information. Another method is to demonstrate that the acquiring business double-checked the records it acquired to ensure their accuracy before incorporating those records into its own business. While the key remains trustworthiness, the Calloway court made sure to mention that the sufficiency of either method was left to the trial court’s discretion.13 In other words, the threshold determination of whether a record or method is sufficiently reliable remains where it has always been: with the trial court.
Perhaps sensing its decision might be viewed by some as loosening the foundational requirements to the introduction of hearsay evidence, the Calloway court left the reader with a cautionary statement about the need to comply with the foundational requirements of the business records exception:
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. 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.”14
Several cases have followed Calloway, including Sas v. Federal Nat. Mortg. Ass’n, 165 So. 3d 849 (Fla. 2d DCA 2015); Channell v. Deutsche Bank Nat. Trust Co., 173 So. 3d 1017 (Fla. 2d DCA 2015); and Nationstar Mortg., LLC v. Berdecia, 169 So. 3d 209 (Fla. 5th DCA 2015). Of particular note is the Fifth District Court of Appeal’s opinion in Berdecia, including its analysis. Although it did not break new ground, Berdecia reemphasized that the person testifying about the business records need not be the person who created the business records, but did need to be familiar with the record-keeping practices of the original recordkeeper or have independently verified the accuracy of the records:
In the mortgage foreclosure context, proper authentication by a witness for the purposes of the business records exception “requires that the witness demonstrate familiarity with the record-keeping system of [the] business that prepared the document and knowledge of how the data was uploaded into the system.” However, “[t]he 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.” Indeed, oftentimes the plaintiff in a foreclosure suit is not the original party to the loan. As a result, the plaintiff must prove its foreclosure case with documents that were originally prepared by the previous note owner. Under these circumstances, an employee of the current note holder may be unfamiliar with the previous owner’s system for preparing its business records. In a perfect world, the foreclosure plaintiff would call an employee of the previous note owner to testify as to the documents. However, this is neither practical nor necessary in every situation, despite Borrowers’ argument to the contrary.
Indeed, Borrowers contention that a current note holder is always precluded from introducing the records of a previous note owner without the testimony of an employee of the previous note owner was recently rejected by this court in Le, 165 So. 3d 776. The borrower in Le argued that the trial court should not have allowed the bank’s witness to testify based on records from the prior servicer because the witness “did not work for the prior servicer and did not personally ‘board’ the records from the prior servicer.” Finding no merit in the borrower’s argument, we held the witness’s testimony met all the necessary foundational requirements for admission under the business records exception. Id. Like Willoughby, “[the witness] testified that she was familiar with industry standards in recording and maintaining the records and that the records received from the prior servicer were tested for accuracy and compliance with industry standards via a boarding process before the information was input into [the current servicer’s] system,” and she was familiar with the specifics of the current servicer’s verification process. Id. Citing WAMCO, we determined the witness’s testimony was sufficient to establish the record’s trustworthiness. Id.15
The doctrine is not, however, without its critics.
Criticism of the Doctrine
Professor Charles W. Ehrhardt has expressed significant concerns about the Calloway decision and criticized the foundational requirements as interpreted by Calloway:
[The Calloway] approach erodes the requirement of reliability upon which [§]90.803(6) and the other hearsay exceptions are premised. The presence of a contractual or business relationship does not insure that the records kept by the prior business are kept in accordance with the requirements of the business record exception and are reliable. So too, conclusory testimony that the acquired records were reviewed for accuracy and then relied on does not demonstrate the circumstances under which the acquired records are prepared that provides necessary foundation for a record to be admitted under [§]90.803(6).
This approach erodes the requirement of reliability upon which [§]90.803(6) and the other hearsay exceptions are premised. The presence of a contractual or business relationship does not insure that the records kept by the prior business are kept in accordance with the requirements of the business record exception and are reliable. So too, conclusory testimony that the acquired records were reviewed for accuracy and then relied on does not demonstrate the circumstances under which the acquired records are prepared that provides necessary foundation for a record to be admitted under [§]90.803(6).
While the decision seems to focus on records in the mortgage servicing industry, which are plagued by inaccuracies, its rationale extends to all records offered under 90.803(6) which are records of a prior business and are presently located in the records of the current business. While records acquired from another business and incorporated into the record of the acquiring business can fairly be treated as being made by the acquiring business, the acquired records should be admissible only if the other requirements of [§]90.803(6) are satisfied. The decision is a significant change in Florida law and inconsistent with many other Florida decisions.16
Professor Ehrhardt is concerned about shoddy record-keeping practices in the mortgage foreclosure industry, as well as about the method of introducing a prior business’ records by a successor business incorporating the records of a prior business. While the mortgage industry’s recordkeeping has been criticized, those criticisms have mostly dealt with assignment and ownership of instruments as opposed to what is due and owing on notes and mortgages. Ownership of instruments deals with the standing issue, a preliminary but important issue under Florida mortgage foreclosure law. The business records themselves, however, typically deal with the ultimate issue in a foreclosure, i.e., were the note and mortgage signed and was there a default under the note and mortgage? Accordingly, criticism regarding shoddy record-keeping practices for standing purposes should not affect a discussion regarding damages, i.e., the amount due as reflected by business records, and, by extension, damages proven through the business records exception. Again, the opponents of the admitted business records still gets to challenge the credibility or correctness of the records and get to introduce their own evidence in opposition.
Professor Ehrhardt is likewise correct that caselaw outside of the foreclosure context has declined to allow an acquiring business to testify as to a prior business’ business records. But as he points out in his treatise, those cases have violated Calloway’s requirements for sufficient predicate testimony as to the business practices of the prior business or of incorporation of the prior business’ records into the successor business’ records.17 Moreover, criticism of Calloway often neglects to mention that Calloway is based on well-established federal law regarding the procedures and methods for establishing the business records exception, and that Florida’s evidence code is based on and often interpreted in accordance with the federal evidence code. Finally, and as seen below, Calloway’s cautionary instruction has proven to be prescient in that courts themselves have limited the doctrine by requiring compliance with Calloway requirements.
Limitations to the Doctrine
While it is early in the development of the doctrine, recent opinions seem to indicate that the doctrine cannot be used as a rubber stamp to allow all business records into evidence. For example, Channell v. Deutsche Bank Nat. Trust Co, 173 So. 3d 1017 (Fla. 2d DCA 2015), pays homage to the doctrine, but makes it clear that a foreclosing lender’s mere reliance on a previous servicer’s records, without more, is not sufficient to establish the predicate for the business records exception to the hearsay rule. Specifically, the Channell court follows the doctrine by stating that a subsequent lender may lay the foundation by independently establishing the accuracy of the records per WAMCO or reviewing the records for accuracy prior to integrating the prior records into the lender’s own records per Calloway,but must still meet the foundational requirements of the statute:
In this case, no testimony was offered as to whether the loan transaction records sought to be introduced as business records had been checked or verified in any manner or whether the witness had any knowledge of the prior servicer’s record-keeping system. The record fails to demonstrate that an adequate foundational predicate was established, and the loan transaction records relied on to establish the outstanding debt constituted inadmissible hearsay. See §§90.802, 90.803(6); Kelsey v. SunTrust Mortg., Inc., 131 So. 3d 825, 826 (Fla. 3d DCA 2014). Because these documents were admitted in error, there is insufficient evidence to support the amount due and owing under the loan.18
Likewise, the Fourth District reaffirmed its support for the doctrine in its Ensler v. Aurora Loan Services, LLC, 2015 WL 6496304 (Fla. 4th DCA 2015) decision, but held that general testimony of a prior business’s record-keeping practices, without describing details, is not sufficient to lay the predicate for the business records exception. While the proponent of the evidence may testify as to the prior business records if the proponent has sufficient procedures in place to check the accuracy of the prior business’ records, the Ensler court held it was not done in that case:
In the instant case, Nationstar failed to satisfy the requirements of the business records exception. Janati, Nationstar’s sole witness, never worked for Aurora, never visited any Aurora office, and never spoke to any Aurora employee. She did not have personal knowledge as to how Aurora processed, compiled, or retained its records, including the breach letter. Although Janati felt Aurora’s records were accurate because “[t]hey’re a reputable big company,” she never identified any particular record-keeping system Aurora used. She also did not testify that Nationstar had any mechanisms for checking the accuracy of Aurora’s numbers. See Holt, 155 So. 3d at 504-05. Janati’s testimony was, therefore, “not enough to establish a foundation for the business records exception.” Id. at 505. Thus, the trial court erred when it permitted the introduction of the Aurora records into evidence.19
The doctrine was further clarified by the Fourth District in Deutsche Bank Trust Co. Americas v. Frias,2015 WL 6735332 (Fla. 4th DCA 2015), when the court held that a prior servicer’s business records are admissible so long as the witness has some knowledge of how the prior records were maintained and created. Again, the trial court retains discretion to determine how much evidence is necessary under the circumstances to admit the business records. In other words, the Fourth District reaffirmed that there must be sufficient evidence on the business records exceptions prongs notwithstanding its adoption of the doctrine.
Analysis
Upon reviewing the cases and commentary, several takeaways regarding the doctrine become apparent. First is that Glarum is clarified to clear up the misconception that slavish addiction to the requirements of the §90.803(6) is not required. As the Calloway court stated:
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.20
Second, the focus now properly seems to be on the reliability, i.e., the trustworthiness, of the evidence sought to be introduced under the hearsay exception, and not on an artificial argument that foundational evidence must be based on strict personal knowledge or be otherwise unimpeachable in order to be admitted. For example, F.S. §90.401 states that “[r]elevant evidence is evidence tending to prove or disprove a material fact.” Moreover, §90.402 states: “All relevant evidence is admissible, except as provided by law.” Under the doctrine, the trial court maintains discretion in determining how and whether the requirements have been met, and the party opposing the introduction can offer its own evidence as to reliability. The focus is now on admitting relevant evidence, and the proponents and the opponents of the evidence are in balance: The proponent is not held to an unattainable standard in order to admit evidence but both the foundational evidence and the ultimate evidence itself may be countered by the opponent of the evidence with their own evidence.
Third, the proponent of the evidence must demonstrate some familiarity with underlying facts showing compliance with the business records exception and may not merely parrot back the WAMCO and Calloway methods of reliance, incorporation, and double-checking of prior records. To put it simply, the proponent must show some familiarity with the foundational requirements, but need not have personal knowledge of the precise operation of the foundational requirements. Again, the trial court is the arbiter of what is sufficient. WAMCO and Calloway approach the admission of business records evidence from the perspective that so long as the evidence meets the preliminary requirement of trustworthiness, it should be admitted and the opposing party can then challenge the factual correctness of the evidence or introduce their own evidence.
Conclusion
Whether you are a fan or not, the WAMCO/Calloway doctrine appears to have gained general acceptance and has made the introduction of business records more of a straightforward path than a journey through an unpredictable minefield. While trial strategy in the past may have focused on keeping business records out of evidence, counsel should now anticipate the admission of business records evidence in most situations, and when appropriate, prepare for the introduction of evidence to counter the admitted business records evidence.
1 WAMCO, 903 So. 2d at 233.
2 Id.
3 Glarum¸ 83 So. 3d at 782-83.
4 Id. at 783.
5 Calloway, 157 So. 3d at 1070-71.
6 Id. at 1070 (quoting Glarum, 83 So. 3d at 78 n. 2).
7 WAMCO, 903 So. 3d at 233.
8 Id.
9 Id.
10 Calloway, 157 So. 3d at 1070 -71 (quoting United States v. Santos, 201 F.3d 953, 963 (7th Cir. 2000)).
11 Id. at 1071.
12 Id. at 1072.
13 Id.
14 Id. (internal quotation omitted).
15 Berdeci, 169 So. 3d at 209 (citations omitted).
16 Charles W. Ehrhardt, Ehrhardt’s Florida Evidence §803.6 (2015).
17 See Charles W. Ehrhardt, Ehrhardt’s Florida Evidence §803.6 n. 31 (2015 ed.) (“See Yang v. Sebastian Lakes Condominium Ass’n, Inc., 123 So. 3d 617 (Fla. 4th DCA 2013) (testimony of employee of current management company was not sufficient to lay foundation under 90.803(6) for the records of former business when the employee was not familiar with the manner of keeping the former business’ records.); Belber v. Lipson, 905 F.2d 549, 552 (1st Cir. 1990) (physician’s custody of medical records from another doctor does not incorporate them into physician’s business records. The physician in possession had no personal knowledge that any of the foundation requirements for the business record exception.)”).
18 Channell, 173 So. 3d at 1020.
19 Ensler, 2015 WL 6496304 at *2.
20 Calloway, 157 So. 3d at 1070 (emphasis added).
Manuel Farach is a member at McGlinchey Stafford in Ft. Lauderdale. Farach is board certified by The Florida Bar in real estate law and business litigation, and is the author of Florida Real Estate Law and the Case Law Update, a weekly summary of Florida real estate and business cases.
A version of this article was published on MyMotionCalendar.com and is reprinted with permission.
This column is submitted on behalf of the Business Law Section, Alan Howard, chair, and Stephanie C. Lieb, editor.
