How broad is the business records exception to the hearsay rule under Florida Rule of Evidence 90.801 and Federal Rule of Evidence 801, and how is it applied to an affidavit based upon data entered by a third party? The classic definition of hearsay is a statement, other than one made by the declarant while testifying at trial or hearing, offered to prove the truth of the matter asserted. Certainly, an affidavit is hearsay, but it may be used to admit qualifying business records where the affiant has personal knowledge about those records and the process by which they are kept. Personal knowledge satisfies the purpose of the hearsay rule, which is to ensure the trustworthiness of statements made outside the presence of the jury, without the opportunity to observe the declarant’s demeanor at the time the statement was made. This article will compare and contrast the business records exception to the hearsay rule under the Florida and Federal Evidence Codes, and explore the outer bounds of the business records exception in the context of several recent cases involving affidavits submitted by financial institutions.
Application of the business records exception is commonplace in commercial litigation. It is even more common in financial institution litigation, where summary judgments may be granted based upon affidavits from loan servicers who swear to the authenticity of loan documents, correspondence, notices, payment and amortization schedules, and other internal documents prepared from data that was created years earlier by lenders or prior loan servicers who are no longer real parties in interest.
Ensuring that the proper foundation is laid, and that the business records exception is properly applied, is critical to lenders seeking to invoke the equitable remedy of foreclosure, to borrowers seeking to remain in their homesteads, and to a Florida economy wracked by foreclosures. The State of Florida has the highest inventory of foreclosed homes in the nation, the highest payment delinquency rate in the nation, and the slowest foreclosure system in the nation. Between 2008 and 2012, the FDIC closed over 465 failed banks, and the State of Florida had one of the highest number of total bank closings. During this time period, banks filed hundreds of thousands of residential foreclosures lawsuits in Florida. The onslaught was slowed briefly by evidence of pervasive and methodical abuses of the court systems through the submission of “robo-signed” affidavits, but a second wave of foreclosures hit with the passage of the $25 billion mortgage relief plan in February of 2012. The foreclosure crisis and bank failures led to increased foreclosure litigation, a massive backlog of cases, and the “fast tracking” of cases at abbreviated trials where the courts continue to push reluctant borrowers to court, and lenders push the limits of the business records exception.
The “robo-signing” scandal put Florida courts on notice of the need to scrutinize the substance of certain lenders’ affidavits, specifically, the affiants’ personal knowledge of the contents of their affidavits, notwithstanding the backlog of foreclosure cases impeded by variables having nothing to do with the rules of evidence.
In Florida, documents may be admitted into evidence as business records if the proponent of the evidence demonstrates the following through a records custodian or other qualified person:
(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) that it was a regular practice of that business to make such a record.
In support of their motions for summary judgment, lenders in foreclosure cases often rely on the business records exception as the basis for their affidavits of indebtedness to demonstrate the fact of default and the amount due. When moving for summary judgment, Florida Rule of Civil Procedure 1.510(c) requires the moving party to “identify any affidavits, answers to interrogatories, admissions, depositions, and other materials as would be admissible in evidence.” In Glarum, the Fourth District Court of Appeal reiterated that section 90.803(6)(a), Florida Statutes, requires an affidavit of indebtedness of a loan servicer to be based upon personal knowledge – and not hearsay in the form of data from a computer system about which the affiant was unfamiliar. In so finding, the court stated:
Orsini did not know who, how, or when the data entries were made into Home Loan Services’s computer system. He could not state if the records were made in the regular course of business…He relied on data supplied by Litton Loan Servicing, with whose procedures he was even less familiar. Orsini could state that the data in the affidavit was accurate only insofar as it replicated the numbers derived from the company’s computer system. Orsini had no knowledge of how his own company’s data was produced, and he was not competent to authenticate the data.
The court specifically noted that 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 court also noted there is no per se rule precluding the admission of computerized business records acquired from a loan servicer.  However, the affiant must have personal knowledge that the records were made in the regular course of business, and in Glarum, the affiant was unable to show even a rudimentary understanding of the servicer’s regular business practices regarding input, collection and use of the computer data on which the affidavit was based.
A similar holding was issued in another recent Florida case, Mazine v. M & I Bank, where the affidavit of indebtedness was signed by an affiant who lacked personal knowledge of the source of the information contained in the affidavit and the accuracy of that information. Distinguishing Glarum, the Fourth District Court of Appeal upheld the introduction of the business records under the business records exception where the affiant testified that he was familiar with information in the records, the bank’s record-keeping system, and he had personal knowledge of how the data was uploaded into the system.
These cases demonstrate the role that personal knowledge plays in the business records exception. Florida law has always required an affiant to have personal knowledge of the facts set forth in an affidavit, and this is no less true for affidavits that seek to admit records created from data stored in a computer. The affiant must have personal knowledge as to the company’s practice for inputting and keeping the data, and where the data came from.
The holding in Glarum is a particularly important reminder of the requirements to admit records under the business records exception, in light of the backlog of cases and the need to expeditiously resolve those cases. That the backlog of cases is large and harmful to the economy, or that homeowners may fail to respond to a complaint or lack the means to contest a foreclosure case, is not a reason to relax the requirement for personal knowledge under the rules of evidence.
While Glarum is a standard application of Section 90.803(6)(a), would the same result occur in federal court, where the definition of hearsay is narrower and where the catch all exception can be used to admit hearsay evidence that has the indicia of reliability?
The Federal Interpretation
Federal Rule of Evidence 803.6 provides for an exception to the hearsay rule 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 regularly conducted activity of a business, organization, occupation, or calling; (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; and (E) neither the source of information nor the method or circumstances of preparation indicate a lack of trustworthiness.
When applying Rule 803.6 in the context of an affidavit submitted by a financial institution, federal courts are often asked to determine the rights of a successor bank that has acquired the loan through a purchase from the FDIC. When that occurs, there is a body of case law and a federal statute that significantly restricts the defenses that may be applied to such a successor bank, known as the D’Oench doctrine. The D’Oench doctrine was originally created as a way to stabilize the banking industry and protect the FDIC under federal common law. D’Oench held that “in litigation between a bank customer and the FDIC, as successor in interest to a bank, the customer may not rely on agreements outside the documents contained in the bank’s records to defeat a claim of the FDIC.”The D’Oench doctrine was later codified and expanded, and it creates a significant bar to most defenses related to the predecessor bank’s misconduct or omissions.
The purpose behind the D’Oench doctrine – the protection of the banking system – has led Federal courts to weaken the evidentiary requirements for admitting failed bank records into evidence. During the bank failures of the 1980s and early 1990s, it was commonly heard that “12 U.S.C. § 1823(e) clearly manifests Congress’ directive that the FDIC must be entitled to rely upon the accuracy of the records of financial institutions. Therefore, FDIC employees … must be entitled to rely upon the accuracy and completeness of failed bank records.” This rationale is still applied today to bolster the successor bank’s ability to admit records obtained from a failed bank.
In Stringer, however, the borrower attempted to show that the FDIC’s affidavit was defective, and therefore, the FDIC’s motion for summary judgment was not properly supported because the affiant lacked personal knowledge. The affiant, a FDIC credit specialist, did not work for the failed bank and therefore could not have personal knowledge of the making of the notes or other loan documents attested to in her affidavit. The Fifth Circuit rejected this argument, relying instead on its recent holding in Dalton v. FDIC, where the court held that “an affiant of an FDIC account officer is not defective solely because the officer did not have personal knowledge of the loan transaction when it occurred, and only learned about the loan after the bank went into receivership.” “To decide otherwise would be to hold the receiver to such a strict standard that summary judgment would be all but impossible for plaintiffs in cases such as these.” Such a position would be contrary to “prior jurisprudence which provides that suits on promissory notes provide ‘fit grist for the summary judgment mill.’” Further, in accordance with the Fifth Circuit’s ruling in Camp, the borrowers needed to point “to evidence in the record to the effect that they had a legitimate fear that the [FDIC] was not the owner and holder of the note in question and that some other entity might later approach them demanding payment.” Because Stringer was unable to do so, the mere fact that the affiant, the FDIC account officer in charge of the documents, lacked personal knowledge, was insufficient to exclude the affidavit, and it was properly admitted pursuant to the business records exception.
In the wake of the new wave of bank failures, federal courts have continued to broadly apply the business records exception when examining affidavits attaching promissory notes. The policies underlying D’Oench and its progeny continue to apply in this economy.
Where failed banks are not involved, would a federal court be more willing to apply the requirements of Glarum in the context of the Fed. R. Evid. 803(6)? In U.S. v. Glasser, another case involving an affidavit submitted by a financial institution, the Eleventh Circuit, held that the computer records attached to the lender’s affidavit were admissible under the business records exception, even though the affiant apparently did not testify to how or when the computer data was input or stored. That case involved compilations of various transactions relating to the mortgage accounts which were the basis of a prosecution for embezzlement and making false entries into bank records.  The court stated that the computer records were admissible upon a showing that the records 1) were kept pursuant to some routine procedure; (2) were created for a motive that suggested accuracy, and not one that would create suspicion, and (3) must not themselves be mere accumulations of hearsay or uninformed opinion. Thus, the government did not need to show that the custodian had personal knowledge that the records were made at or near the time of the event depicted, or that the records were created as part of a regular business practice, or that the data was secure from manipulation, even in the context of a criminal prosecution where the defendant’s liberty was at stake. 
The Glarum Effect
While banks and lenders’ counsel may have feared a ripple effect fromGlarum on the hundreds of thousands of foreclosure cases pending in Florida, it appears that those fears are unfounded. The limited holding in Glarum is simply a reminder that the affiant must have personal knowledge of the basic business practice for making, keeping and storing financial records. It has had little effect on the actual outcome of cases when it comes to the issue of the admissibility of affidavits which are not based on personal knowledge, as demonstrated by more recent cases admitting affidavits based upon computer data or information from a predecessor lender or servicer. While Glarum may have encouraged borrowers to depose affiants in advance of the motion for summary judgment hearing, lenders are now forewarned about the need to locate and prepare the proper custodians. Glarum and Mazine are reminders that overwhelmed banks and underwater borrowers should pay close attention to affidavits that may be challenged even though the affiant has successfully testified as to similar records in many prior uncontested foreclosure cases.
With respect to the federal courts, the application of the business records exception will continue to be molded by the narrower definition of hearsay and public policy to protect the solvency of the banking industry. Both Congress and the courts have painstakingly sought to protect the FDIC from most, if not all, defenses for nonpayment, and it is unlikely that any heightened standard could be argued successfully. Even where the federal court is reviewing an affidavit from a bank employee outside the context of the D’Oench doctrine, the standard for personal knowledge appears to be applied with less vigor than the Florida standard.
|Scott Konopka is a Shareholder, specializing in complex commercial and business litigation at Mrachek Law in Stuart, Florida. Konopka is an AV Preeminent Peer Review Rated lawyer and is consistently chosen as one of Florida Trend’s Legal Elite. Konopka is a graduate of the University of Florida Levin College of Law.||Paige Gillman is the Co-Chair of the Young Lawyers Division of the Martin County Bar Association and a Member-Elect of the Young Lawyers Division of the Florida Bar Board of Governors. She is an associate, specializing in intellectual property and commercial litigation at Mrachek Law in Stuart, Florida. Gillman is a 2008 graduate of the University of Florida Levin College of Law.|
[1.] See Charles W. Ehrhardt, West’s Florida Practice Series, 1 Fla. Prac., Evidence §801.2 (2012 Ed.)
. It has been noted that “[t]he proper definition of hearsay has long been a matter of debate.” Id. Indeed, Florida chose not to adopt the catch-all exceptions that apply in federal court. “[T]he narrower definition of hearsay set forth by the Advisory Committee to the Federal Rules and adopted in Federal Rule 801 [and section 90.801(1)(c)] is much easier for practicing lawyers and judges to understand than the expansive definition.”). Id.
3. Brian Tackenberg, Instituting Nonjudicial Foreclosure In Florida: When It Comes To Instituting Nonjudicial Foreclosure In Florida: When It Comes To Foreclosure, Florida’s Judiciary Should Let Lenders Lead, 64 Fla. L. Rev. 1839 (2012).
. See Federal Deposit Insurance Corp., Failed Bank List. These figures apply to banks insured by FDIC, including banks chartered by the federal government as well as most banks chartered by the state governments.
5. Florida Supreme Court, Final Report And Recommendations On Residential Mortgage Foreclosure Cases; (No. AOSC09-54) (Fla. 2009).
(Robo-signing is “a practice under which someone signs many affidavits each day. The person signing the affidavit may have no personal knowledge of the case but swears to processes that may or may not have taken place.”).
. See Morgan Brennan, The Foreclosure Crisis Isn’t Over Just Yet, (Dec. 1, 2012)
. Supra note 6. (“Practitioners and judges cite variables that can separately or in convergence impede foreclosures. Examples include lending industry practices of assigning mortgages, which can complicate establishing who has authority to foreclose; failure on the part of some plaintiffs to produce documents or submit filings integral to adjudication of the matter; litigation strategies of some defendants which may be designed to forestall foreclosure for as long as possible; workload constraints that prevent judges from reviewing case files to identify problems in advance of hearings; and a depressed housing market that may create a disincentive for lenders to proceed with a foreclosure sale and assume ownership and responsibility for the property.”)
. Fla. Stat. ‘ 90.803(6) (2012).
. Glarum v. LaSalle Bank Nat. Ass’n, 83 So. 3d 780, 782 (Fla. 4th DCA 2011).
. See Thompson v. State, 795 So. 2d 1946, 1048 (Fla. 4th DCA 1998) (“While the business records exception to the hearsay rule allow the admission of a memorandum, report, record or data compilation, it does not authorize hearsay testimony concerning the contents of business records which have not been admitted into evidence.”) (internal quotations and citations omitted).
. Glarum, 83 So.3d at 783.
16. Id. at 782.
. See Mazine v. M & I Bank, 67 So. 3d 1129, 1131-32 (1st DCA 2011) (reversing the lower court’s decision to admit an affidavit of indebtedness due to the lack of foundation for the business records exception. “[N]one of the requirements for admission of a business record were met. As noted, Taxdal candidly admitted that he had no knowledge as to the preparation or maintenance of the documents offered by the bank, including the affidavit as to amounts due and owing. Taxdal did not testify, and indeed, could not testify, that the affidavit as to the amounts owed was actually kept in the regular course of business. Further, he did not know if the source of the information contained in the affidavit was correct. He did not know if the amounts reported in the affidavit were accurate. There was no attempt to admit the affidavit by certification or declaration pursuant to section 90.803(6)(c), Florida Statutes. Accordingly, because no foundation was laid, the admission of the affidavit was erroneous.”);see also United Auto. Ins. Co. v. Affiliated Healthcare Centers, Inc.,43 So. 3d 127, 130 (Fla. 3d DCA 2010) (“[An] affidavit in support of summary judgment which merely states that documents appear in the files and records of a business is not sufficient to meet the requirements of the business records exceptions to the hearsay rule.”)
. See id. at 782; see also Mazine, 67 So. 3d at 1131-32.
20. See Cynergy v. First American Title Ins. Co., 706 F. 3d 1321 (11th Cir. 2013)(finding the affidavit of a former Bank president properly admitted in a loan dispute over a land development project under Rule 807 of the Federal Rules of Evidence where the Bank officer was deceased prior to the start of the litigation, but had been the one who originated the subject loan. The 11th Circuit agreed with the district court finding that the affidavit speaks directly and comprehensively to a key issue for which very little alternative evidence exists, the need for the statements was great, and because the Bank’s knowledge “is the fulcrum upon which liability turns.”)
. See D’Oench, Duhme & Co. v. Federal Deposit Ins. Corp., 315 U.S. 447, 62 S. Ct. 676, 86 L. Ed. 956 (1942).
. See id.
. Baumann v. Savers Federal Sav. & Loan Ass’n., 934 F. 2d 1506, 1514-15 (11th Cir. 1991).
. See Langley v. Federal Deposit Ins. Corp., 484 U.S. 86, 108 S. Ct. 396, 98 L.Ed. 2d 340 (1987) (holding that even if the bank fraudulently induces a customer into signing a note, the customer is barred by section 1823(e) from relying on those misrepresentations as a defense to payment); Federal Sav. & Loan Ins. Corp. v. Gordy, 928 F. 2d 1558, 1566 (11th Cir. 1991) (holding that the D’Oench doctrine applies to bar defenses even where the customer is completely innocent of any bad faith, recklessness or negligence); Baumann, 934 F. 2d at 1515 (“In a suit over the enforcement of an agreement originally executed between an insured depository institution and a private party, a private party may not enforce against a federal deposit insurer any obligation not specifically memorialized in a written document such that the agency would be aware of the obligation when conducting an examination of the institution’s records.”)
. Talmo v. Federal Deposit Ins. Corp., 782 F. Supp. 1538, 1541 (S.D. Fla. 1991) (citation omitted).
. See F.D.I.C. v. Stringer, 46 F. 3d 66, No. 94-10668 (5th. Cir. January 13, 1995)
. Id. at 2.
. Id. (quoting Dalton v. FDIC, 987 F. 2d 1216, 1223 (5th Cir. 1993)
. Stringer, 46 F. 3d at 2 (quoting FDIC v. Cardinal Oil Well Servicing Co., 837 F. 2d 1369, 1372 (5th Cir. 1988))
. RTC v. Camp, 965 F. 2d 25, 29 (5th Cir. 1992)
. Stringer, 46 F. 3d at 2.
. See U.S. v. Herndon, 2012 WL 4718622, C.A. No. C-11-318 (S.D. Tex. 2012) (finding an affidavit of a loan specialist properly admitted because the affiant’s position and sphere of responsibility gave him sufficient personal knowledge to speak about the loans and the borrowers did not provide anything showing a “legitimate fear” that his testimony was untrue or unreliable).
. See Weisenberg v. Deutsche Bank Nat. Trust Co., 89 So. 3d 1111 (4th DCA 2012) (finding an affidavit properly admitted where the affiant demonstrated sufficient knowledge of how the data was produced, who was responsible for collecting payments, information regarding serving, and reliance on very specific figures); see also Slipkovich v. Deutsche Bank Nat. Trust Co., 94 So. 3d 703 (4th DCA 2012).