The case I've just finished reading is Central Prairie Financial v. Yang, and it is a "Palisades" case, but one that unlike many of the Palisades cases guys like me (primarily debtor-side work) have to work with, this one looks likely to be published, and that's both good and bad.
It's good, no matter how you look at it because unpublished opinions are stupid. Everything a court says should be able to be relied on by other courts, and everything an appellate court says should be a directive to lower courts and able to be cited.
It's bad, though, for debtors in that it seems to kind of undermine Palisades, or at least limit the holding of Palisades.
The issue in Yang is the same as in Palisades: whether an affidavit is sufficient to get business records into evidence on summary judgment. But this opinion takes a dimmer view of the reach of Palisades:
Yang’s reliance on Palisades is unavailing. Palisades stands for the extremely narrow proposition that the hearsay exception for business records is not established when the only affiant concerning the records in question lacks personal knowledge of how the records were made. See Palisades, 324 Wis. 2d 180, ¶22
Anytime a court describes a case as "extremely narrow," you're not going to win an argument premised on that case's holding, I'd say, and Yang fares no better -- but the Court appears to have (maybe almost) gotten it right, if I understand the way things worked out.
Central Prairie is a debt buyer, and they bought Chase's credit debts, including Yang's. On summary judgment, though, unlike Palisades, Central Prairie had other affidavits. It had one from its own employee:
The affidavit of Central Prairie’s own record custodian confirms his personal knowledge of Central Prairie’s regular practice of purchasing defaulted Chase accounts and receiving transmission of “electronic account information at the time the accounts are assigned,” along with the terms and conditions and account statements, which records are regularly “integrated … from Chase Bank USA, N.A. into [Central Prairie’s] own business records.” This aspect alone, the custodian’s explanation of the regular processes by which Chase’s electronic account records are transmitted to its assignees, already differentiates this case from Palisades, where the affiant had no apparent knowledge of how Chase prepared its accounts
OK, you say, but what about how Chase prepared its accounts? Can a Central Prairie employee validate the Chase accounts it received? It sounds to me kind of like -- electronic transmission aside, as the means of transmission do nothing to validate records -- that what Central Prairie said is "Yeah, Chase sent us some records."
That's where things get a bit... twisty. There was a bill of sale from Chase to another company (Global) to Central Prairie, and the Central Prairie said that those all are business records, etc. (actually they are contracts and contracts are probably not admissible under the business records exception but rather are not hearsay at all, but that's for another day), and the bill of sale... I'll let the Court tell you:
That documentation of the Bill of Sale, moreover, includes a statement from Chase’s authorized representative that Chase’s own records “made at or near the time” of the material events and “kept in the ordinary course” of Chase’s business reflect the existence of Yang’s account and the amount of his indebtedness, as well as the affidavit of the records custodian for the intermediary assignee, Global Acceptance, stating that the records of Yang’s account reflect the account data furnished by Chase to Global Acceptance at the time of that assignment.
So really what you seem to have here is an unsworn, out-of-court statement from Chase (aka hearsay) about the creation of the business records, a statement that appears to simply parrot the lines of the statute rather than say how they were created. Whether that's enough is up to debate -- I say no, some courts say yes. (It probably shouldn't be enough: what should happen is the way the records are created ought to be detailed , e.g. "then we enter the data and press "tab"" and the like, something that's especially important given revelations that Bank of America employees often couldn't access varying computer systems that were used in their workplace).
That unsworn, out-of-court statement is admitted into evidence via the "Bill of Sale," which itself is maybe not hearsay -- contracts are not hearsay -- which is maybe compounded by the record custodian testifying in his affidavit that based on his review of the records Yang had a contract with Chase:
The same affiant further confirms that “based on his review of those records,” Yang was issued a Chase credit card account, agreed to be bound by the Cardmember Agreement, and incurred charges as reflected in the monthly billing statements; “true and correct” copies of the Cardmember Agreement and billing statements are attached. The same affiant also swore that the documentation of the Bill of Sale of the account from Chase to Global Acceptance and the subsequent assignment from Global Acceptance to Central Prairie were a “true and correct” copy of the documentation of those events held in Central Prairie’s records.So, to track it now, Yang has been sued and the proof of Yang's responsibility for the charges is:
1. A statement from a Chase representative contained in a bill of sale, which is
2. A bill of sale from Chase to Global Acceptance and then to Central Prairie, whose
3. Employee testified that the Chase records looked to be okay to him.
That's a pretty big extension of Palisades' requirement that a custodian be qualified to testify to the records. Even assuming that a Central Prairie employee can authenticate the Bill of Sale, how do you get around the fact that the Chase statements in the Bill of Sale are hearsay?
Answer: Ignore it. Oh, and cite to a 1943 case:
The key documents here—the Cardmember Agreement, billing statements, and documentation of the sale and assignment of Yang’s account—fall under this exception, because affidavits establish the affiants’ personal knowledge that those documents record events that occurred at the times recorded, in the course of regularly conducted business activity. As Central Prairie pointed out in its summary judgment argument:
The routine of modern affairs, mercantile, financial and industrial, is conducted with so extreme a division of labor that the transactions cannot be proved at first hand without the concurrence of persons, each of whom can contribute no more than a slight part, and that part not dependent on his memory of the event. Records, and records alone, are their adequate repository, and are in practice accepted as accurate upon the faith of the routine itself, and of the selfconsistency of their contents. Unless they can be used in court without the task of calling those who at all stages had a part in the transactions recorded, nobody need ever pay a debt, if only his creditor does a large enough business. Palmer v. Hoffman, 318 U.S. 109, 112 n.2 (1943).
I mean, a footnote to a 1943 case. All of that footnote is true, of course, but none of it matters when it comes to admitting things into evidence, which the Yang decision doesn't address. Yes, records are the substance of a business' memory, which is why we have to have a custodian testify as to how they were made -- because records can be created in a variety of ways, and at a variety of times, and a record created contemporaneously in accordance with routines is deemed reliable, whereas a record created months later and relying on hearsay may not be.
The good, in the case? As an aside, the Court of Appeals hits at the continued vitality of one of the most wrong-headed decisions in recent years, the Rsidue case which exempted some assignees from complying with section 425.109. Answering an argument about whether Central had to comply with that statute, the Court noted
that in Wisconsin the assignee of a consumer debt is not a “creditor” under Wisconsin’s consumer credit statutes, provided that the assignee does not regularly lend money directly to consumers. Rsidue, L.L.C. v. Michaud, 2006 WI App 164, ¶14, 295 Wis. 2d 585, 721 N.W.2d 718.
Which is another way of saying that only assignees who are not themselves merchants get out of pleading in compliance with section 425.109, Stats., which is another way of saying that assignees now may be required to prove that even if they were assigned this debt they do not qualify as a merchant for other debts, which is another way of saying that even with the continued vitality of Palisades being slowly eroded away, other defenses may spring up for debtors.