Arrowood Indem. Co. v. Fasching

• Decision Date: 10 February 2022
• Docket Number: CC 17CV37770 (SC S067964)
• Citation: 369 Or. 214,503 P.3d 1233
• Parties: ARROWOOD INDEMNITY COMPANY, Respondent on Review, v. Douglas Dean FASCHING, Petitioner on Review.
• Court: Oregon Supreme Court

369 Or. 214

503 P.3d 1233

ARROWOOD INDEMNITY COMPANY, Respondent on Review,

v.Douglas Dean FASCHING, Petitioner on Review.

CC 17CV37770 (SC S067964)

Supreme Court of Oregon.

Argued and submitted May 6, 2021.

February 10, 2022

Jonathan M. Radmacher, McEwen Gisvold LLP, Portland, argued the cause and filed the briefs for petitioner on review.

Kelly F. Huedepohl, Gordon Rees Scully Mansukhani, LLP, Portland, argued the cause and filed the brief for respondent on review.

Nadia H. Dahab, Sugerman Law Office, Portland, filed the brief for amicus curiae Oregon Trial Lawyers Association. Also on the brief was Phil Goldsmith, Law Office of Phil Goldsmith, Portland.

Before Walters, Chief Justice, and Balmer, Flynn, Duncan, Nelson, and Garrett, Justices, and Nakamoto, Senior Judge, Justice pro tempore.^**

DUNCAN, J.

This case concerns Oregon Evidence Code (OEC) 803(6), the "business records" exception to the hearsay rule.¹ In the trial court, the parties filed cross-motions for summary judgment, each of which focused on whether documents plaintiff had received from a third party were admissible. Plaintiff argued that the documents qualified for the business records exception. Defendant disagreed, arguing that, in order for the documents to qualify for the exception, plaintiff had to present evidence, through a qualified witness, about the record-making practices of the businesses that had created the documents, and that plaintiff had failed to do so. The trial court agreed with plaintiff, ruling that, "as long as the documents [were] received, incorporated, and relied upon" by plaintiff, they were "admissible as business records." Following that ruling, the trial court granted plaintiff's motion for summary judgment, denied defendant's motion for summary judgment, and entered a judgment in plaintiff's favor. Defendant appealed the trial court's judgment, and the Court of Appeals affirmed. Arrowood Indemnity Co. v. Fasching , 304 Or. App 749, 469 P.3d 271 (2020).

On defendant's petition, we allowed review to address what evidence a party must present to establish that documents created by a third party qualify for the business records exception. For the reasons explained below, we conclude that the party proffering the documents must present evidence of the third party's record-making practices sufficient to establish, as required by the text of OEC 803(6), that the documents were made close in time to the acts they describe, by—or from information transmitted by—a person with knowledge, as part of a regularly conducted business activity, and pursuant to a regular record-making practice. Because plaintiff failed to present such evidence, the trial court erred in ruling that the documents at issue qualified for the exception. Because that error affected the trial court's rulings on the parties' cross-motions for summary judgment, which the Court of Appeals affirmed, we reverse the decision of the Court of Appeals and the judgment of the trial court, and we remand the case to the trial court for further proceedings.

I. BACKGROUND

Plaintiff initiated this civil action by filing a complaint asserting a breach of contract claim against defendant. In the complaint, plaintiff alleged that defendant had entered into a student loan contract with Citibank. Plaintiff further alleged that it had insured the loan and that, after defendant defaulted on the loan, it had paid a claim to Citibank. Based on its payment of the claim, plaintiff alleged that it was entitled to a judgment against defendant for the amount due under the contract.

Plaintiff later filed a motion for summary judgment and a supporting affidavit containing some different facts than plaintiff had alleged in its complaint— specifically, that defendant had obtained three student loans from Citibank, that Citibank had transferred the loans to Discover, and that Discover had filed the insurance claim that plaintiff had paid. Based on those facts, plaintiff asserted that it stood "in the shoes of" Discover.

To support its motion for summary judgment, plaintiff submitted documents it had received from Discover. The documents included a bill of sale and "loan transmittal summary" detailing loans transferred from Citibank to Discover. They also included, for each of three loans, (1) a copy of a loan application, (2) a copy of a disclosure form, (3) a summary of the history of disbursements, payments, and fees, and (4) a copy of a document transferring ownership of the loan from Discover to plaintiff.²

The documents contain hearsay, that is, out-of-court statements offered to prove the truth of the matters asserted. As a general rule, hearsay is inadmissible. OEC 802. But plaintiff asserted that the documents were admissible under OEC 803(6), which establishes an exception to that general rule for certain business records.³

To lay a foundation for the documents, plaintiff relied on an affidavit by one of its employees, McGough. In the affidavit, McGough averred:

"All documents attached hereto are either produced and maintained directly by Plaintiff or are documents from [Discover's] proof of claim which are adopted by the Plaintiff and relied upon in the ordinary course of Plaintiff['s] business. These records were made at or near the time of the occurrence or transaction, recorded by a person with knowledge, and as the Plaintiff's qualified custodian of records I affirm that the attachments are true and correct copies of documents maintained by and relied upon by Plaintiff in the ordinary course of its regular business functions."

McGough averred that the documents plaintiff had received from Discover showed that defendant had obtained loans in 1999, 2000, and 2001, and that his last payment on the loans was made in 2013. The documents themselves state that defendant made payments beginning in 2003 and that Citibank sold the loans to Discover in 2011.

McGough did not aver that she had knowledge of the record-making or record-keeping practices of either Citibank or Discover. And nothing in the affidavit addresses whether the documents were made and kept in the regular course of either Citibank's or Discover's business or whether it was the regular practice of either Citibank or Discover to make and keep such documents.

The summaries of the loan histories appear to be computer-generated reports. They cover activities from 1999 to 2013, a period that, according to the documents, includes years when Citibank owned the loans and years when Discover owned them. The summaries do not indicate when, by whom, or how the information they contain was initially reported and recorded. The summaries state that they were generated in 2013, but they do not state who generated them.

Defendant filed a cross-motion for summary judgment. He asserted that plaintiff's motion for summary judgment was dependent on the documents plaintiff had attached to its motion and that McGough's affidavit failed to lay the foundation required for the business records exception. He further asserted that, without the documents, plaintiff could not make out a prima facie case, and, therefore, the trial court had to deny plaintiff's motion for summary judgment and dismiss plaintiff's claims.⁴

After a hearing on the parties' motions, the trial court ruled that the documents plaintiff had received from Discover were admissible, stating that, "as long as the documents [were] received, incorporated, and relied upon by the assignee, they're still admissible as business records." Following that ruling, the trial court granted plaintiff's motion for summary judgment and denied defendant's motion for summary judgment.

Defendant appealed, and the Court of Appeals affirmed, ruling that documents created by one business and received by another business can qualify for the business records exception even if the proponent of the documents does not present evidence of the record-making practices of the business that created the documents. Arrowood Indemnity Co. , 304 Or. App. at 760-61, 469 P.3d 271. The Court of Appeals acknowledged that,

"[w]here, as here, business records are offered through the testimony of one business's custodian of records and they include copies of another business's records, the other business's records are not entitled to the same presumption of reliability as those prepared directly by the business whose records are presented by its records custodian in court. That is because the proponent of the records is often unable to procure testimony regarding the third party's business process and is, therefore, not able to independently establish the reliability of that process. "

Id. at 757, 469 P.3d 271 (emphases added). Nevertheless, the Court of Appeals concluded,

"like ‘hearsay within hearsay,’ which is not excluded if ‘each part of the combined statements’ fits within a proper hearsay exception, OEC 805, third-party business records contained within other business records satisfying OEC 803(6) may themselves be admitted if they are shown to possess comparable indicia of reliability or trustworthiness ."

Id. (emphasis added). Thus, the Court of Appeals announced a rule that allows third-party records to qualify for the business records exception even if the proponent of the records cannot establish that the records were made and kept in the manner described in OEC 803(6).

On defendant's petition, we allowed review to determine the eligibility requirements for the business records exception, in particular, the eligibility requirements for documents created by one business but proffered by another business.

On review, defendant argues that records can qualify for the business records exception only if the proponent of the records presents testimony from a witness who has knowledge of the record-making practices of the business that originally created the record. In defendant's view, the trial court erred in admitting the records at issue because McGough lacked sufficient knowledge to lay a proper foundation to qualify...