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.[9]

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.[10] 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.”[11] 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.[12] 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.[13]

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.[14] The court also noted there is no per se rule precluding the admission of computerized business records acquired from a loan servicer. [15] 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.[16]

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.[17] 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.[18]

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.[19]

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?[20]

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.[21] The D’Oench doctrine was originally created as a way to stabilize the banking industry and protect the FDIC under federal common law.[22] 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.”[23]The D’Oench doctrine was later codified and expanded,[24] and it creates a significant bar to most defenses related to the predecessor bank’s misconduct or omissions.[25]

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.”[26] 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.[27] 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.[28] 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.”[29] “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.”[30] Such a position would be contrary to “prior jurisprudence which provides that suits on promissory notes provide ‘fit grist for the summary judgment mill.’”[31] 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.”[32] 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.[33]

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.[34] 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.[35] 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. [36] 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.[37] 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. [38]

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.[39] 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.