Ge Money Bank v. Morales

Decision Date25 September 2009
Docket NumberNo. 08-0427.,08-0427.
Citation773 N.W.2d 533
PartiesGE MONEY BANK, Appellee, v. Maria MORALES, Appellant.
CourtIowa Supreme Court

William J. Niebel of Iowa Legal Aid, Sioux City, for appellant.

Timothy J. Van Vliet of Wetsch & Abbott, P.L.C., Des Moines, for appellee.

WIGGINS, Justice.

A debtor appeals a judgment entered against her on a credit card account in a small claims proceeding. The district court affirmed the judgment on appeal. On discretionary review, we find the small claims court correctly considered the billing statements faxed to the court on the morning of the proceeding in making its decision. Accordingly, we affirm the judgment of the district court affirming the judgment in the small claims proceeding.

I. Background Facts and Proceedings.

GE Money Bank commenced a small claims action against Maria Morales by filing its original notice. The bank claimed Morales owed a balance on a store credit card for $2,084.76. At the same time the bank filed its original notice, it filed a verified account. Morales filed her answer, denying the claim. The clerk set the matter for trial on September 24, 2007.

On the morning of the trial, the bank's attorney sent a letter by fax informing the judge it would be appearing at the trial by the verified account. The bank's attorney attached Morales's credit card billing statements to his letter.

At the trial, the bank appeared by the verified account and Morales appeared by her attorney. Neither party appeared in person. Morales's attorney moved for a dismissal stating the verified account did not meet the bank's burden of proof and the billing statements were inadmissible because they lacked foundation and were hearsay. The court found it could admit the billing statements to prove the bank's claim. Further, the court entered judgment in the bank's favor for the amount claimed because there was no evidence in the record to contradict the amount claimed by the bank.

Morales appealed to the district court. In the appeal, she argued the billing statements were not admissible because, without the proper foundation, they were hearsay and the verified account was not enough to satisfy the plaintiff's burden of proof in this case.

The district court stated the verified account alone did not satisfy the plaintiff's burden of proof; however, the affidavit included in the verified account provided sufficient evidence to establish the foundation for the admissibility of the billing statements and proof of the claim. The district court affirmed the judgment.

Morales applied for discretionary review, and we granted the application.

II. Issues.

In this appeal, we must determine whether the verified account constituted the bank's appearance at the small claims trial and if the court correctly admitted the billing statements.

III. Scope of Review.

In a discretionary review of a small claims decision, the nature of the case determines the standard of review. Midwest Check Cashing, Inc. v. Richey, 728 N.W.2d 396, 399 (Iowa 2007). Small claims actions that are tried at law are reviewed for correction of errors at law. Conkey v. Hoak Motors, Inc., 637 N.W.2d 170, 172 (Iowa 2001). A review of statutory construction is at law. Rowan v. Everhard, 554 N.W.2d 548, 549 (Iowa 1996). We are bound, however, by a court's finding of fact if supported by substantial evidence. Barnhill v. Iowa Dist. Ct., 765 N.W.2d 267, 272 (Iowa 2009).

In this discretionary review, we must also decide an issue of the admissibility of evidence. Normally, rulings on admissibility of evidence are reviewed for an abuse of discretion. State v. Helmers, 753 N.W.2d 565, 567 (Iowa 2008). However, a ruling on hearsay, despite being an admissibility-of-evidence issue, is reviewed for errors at law. State v. Reynolds, 746 N.W.2d 837, 841 (Iowa 2008).

IV. The Effect of a Plaintiff Filing a Verified Account.

The Code refers to a verified account only one time in chapter 631. Iowa Code § 631.10 (2007). It provides,

Unless good cause to the contrary is shown, if the parties fail to appear at the time of hearing the claim shall be dismissed without prejudice by the court; if the plaintiff fails to appear but the defendant appears, the claim shall be dismissed with prejudice by the court with costs assessed to the plaintiff; and if the plaintiff appears but the defendant fails to appear, judgment may be rendered against the defendant by the court. The filing by the plaintiff of a verified account, or an instrument in writing for the payment of money with an affidavit the same is genuine, shall constitute an appearance by plaintiff for the purpose of this section.

Id. Morales argues the last sentence of the statute only applies when both the plaintiff and the defendant fail to appear. We disagree with Morales's contention.

Iowa Code section 631.10 explicitly states that a plaintiff who files a verified account has appeared for the purposes of "this section." Id. This all-encompassing statement does not differentiate based on the appearance of the defendant. Id. The legislature designed the trial to be simple and informal. Id. § 631.11(1). The legislature intended small claims suits to be simpler, easier, and less expensive than a district court action. Barnes Beauty Coll. v. McCoy, 279 N.W.2d 258, 259 (Iowa 1979). Based on a plain reading of the statute and the legislative intent underlying small claims actions, we conclude when a plaintiff files a verified account under section 631.10, the court must consider the verified account as if the plaintiff appeared personally at the trial and deem the matters presented in the verification as evidence offered by the plaintiff. If the defendant fails to appear at the trial and the evidence presented in the verified account substantiates the plaintiff's claim, the court should enter judgment against the defendant. Iowa Code § 631.10; see also ITT Fin. Servs. v. Zimmerman, 464 N.W.2d 486, 489-90 (Iowa Ct.App.1990) (holding the original notice and verified account did not substantiate plaintiff's claim and was insufficient for the court to enter a default judgment against the plaintiffs). If the defendant does appear at the trial, the court must then exercise its function as the trier of fact by weighing the evidence contained in the verified account and any evidence produced at trial, and render its verdict upon the "applicable law and upon a preponderance of the evidence." Iowa Code § 631.11(4).

V. Admissibility of the Faxed Billing Statements under the Iowa Rules of Evidence.

The district court affirmed the small claims court's decision finding the billing statements admissible. The district court found the billing statements admissible on the basis of the business record exception to the hearsay rule, concluding the verified account established the necessary foundation to admit the statements as business records. Morales contends the bank failed to establish the proper foundation and the billing statements were hearsay. The bank answers this contention by first arguing the statements are not hearsay. The bank next argues that the verified account lays the foundation for the admissibility of the statements. Finally, the bank claims, even if the rules of evidence are applicable in a small claims proceeding, the court should apply the hearsay rules less rigidly in the context of a small claims proceeding.

A. Whether the Billing Statements are Hearsay. The bank first argues that the billing statements are not hearsay because a fully automated and reliable process, not involving any statements by a declarant, created the statements. It is true that some courts have held self-generated computer records are not hearsay at all. 2 Kenneth S. Broun, McCormick on Evidence § 294, at 326 n. 21 (6th ed. 2006) [hereinafter McCormick on Evidence]; see Reynolds, 746 N.W.2d at 843 (discussing some courts' holdings that self-generated computer records are not hearsay). An example of such a record is a record made by an electronic device placed on a phone line known as a "trap" whereby a computer automatically records the telephone numbers of calls made to the "trapped" phone. People v. Holowko, 109 Ill.2d 187, 93 Ill.Dec. 344, 486 N.E.2d 877, 877 (1985). These records are not hearsay because such records are not the counterpart of a statement by a human declarant who litigants can test the reliability of through cross-examination. 2 McCormick on Evidence § 294, at 326. Rather, the admissibility of these records is determined by an evaluation of the reliability and accuracy of the process involved in making the record. Id.

There was no evidence introduced in this case showing that the billing statements are self-generated computer records. See William Andrew McNeal, Admissibility of Credit Card Account Statements, Am Bankr. Inst. J., July-Aug. 2007, at 12, 12 (arguing credit card purchases are self-generated computer records). To the contrary, the bank in its verified account states that individuals with personal knowledge gained from examining the account documentation make entries that form the computer records of the bank. Thus under this record, any computerized records of the bank are computer-stored data rather than computer-generated data. See State v. Armstead, 432 So.2d 837, 839-40 & n. 3 (La.1983) (discussing the distinction between computer-stored data, which is hearsay and computer-generated data, which is not hearsay). We conclude, therefore, that the court properly found the billing statements constitute hearsay.

B. Whether the Verified Account Establishes the Foundation for the Admissibility of the Billing Statements as Business Records. The bank next argues the verified account established the foundation for the admissibility of the billing statements as business records. Hearsay is an out-of-court statement offered in court by a person other than the declarant to prove the truth of the matter asserted. Iowa R. Evid. 5.801(c...

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