State v. Reynolds

• Decision Date: 04 April 2008
• Docket Number: No. 06-0344.,06-0344.
• Citation: 746 N.W.2d 837
• Parties: STATE of Iowa, Appellee, v. Brian Edward REYNOLDS, Appellant.
• Court: Iowa Supreme Court

746 N.W.2d 837

STATE of Iowa, Appellee, v. Brian Edward REYNOLDS, Appellant.

No. 06-0344.

Supreme Court of Iowa.

April 4, 2008.

Mark C. Smith, State Appellate Defender, Greta A. Truman, Civil Commitment Unit, and Jason B. Shaw, Assistant State Appellate Defender, for appellant.

Thomas J. Miller, Attorney General, Sharon K. Hall, Assistant Attorney General, Gary Allison, County Attorney, and Kerrie L. Snyder, Assistant County Attorney, for appellee.

HECHT, Justice.

Brian Reynolds seeks further review of an Iowa Court of Appeals decision affirming his convictions for one count of theft in the first degree and six counts of forgery. The court of appeals concluded the district court properly admitted certain hearsay evidence under the business records hearsay exception, Iowa Rule of Evidence 5.803(6). The decision of the court of appeals also rejected Reynolds's claim that defense counsel was ineffective in failing to raise Confrontation Clause objections to some of the hearsay evidence. We vacate the decision of the court of appeals, reverse Reynolds's convictions, and remand for a new trial.

I. Factual and Procedural Background.

At approximately 9:00 a.m. on December 17, 2004, Brian Reynolds entered a U.S. Bank branch in Muscatine and attempted to cash six United States postal money orders in the amount of $950 each. Paige Bales, a sales and service manager at U.S. Bank, recognized Reynolds as a customer of the bank, knew he was employed as a mechanic, and was instantly suspicious of the proposed transaction. Although the money orders appeared valid, Bales told Reynolds she would have to put "a hold" on them because there was a possibility they might be fraudulent, and she wanted to protect him and the bank by making sure they had value.¹ Reynolds reluctantly agreed, and decided to deposit the proceeds of the money orders in his bank account. Approximately one hour later, after finding another bank that would cash the money orders immediately, Reynolds called Bales and asked her to reverse the transaction and return the money orders to him. Reynolds soon returned to the bank and retrieved the money orders.

Approximately twenty minutes after retrieving the money orders from U.S. Bank, Reynolds entered Central State Bank in Muscatine and presented teller Julie Kissell with two United States postal money orders, each in the amount of $950. At Reynolds's request, Kissell cashed them, applied $400 of the proceeds to a vehicle loan in the name of C. Geertz, and handed to Reynolds the remaining $1,500 in cash. Later the same day, Reynolds returned to the same bank with four more United States postal money orders, each in the amount of $950. Teller Brannan Murphy completed a transaction for Reynolds in which Reynolds paid $100 from the proceeds of each money order on a loan under the names of Reynolds and Geertz, and received the remainder in cash.

On December 30, 2004, Reynolds returned to Central State Bank with four more United States postal money orders, each in the amount of $950. Per Reynolds's request, the bank applied part of the proceeds to retire a loan balance, and gave the remainder to Reynolds in cash. On January 31, 2005, Reynolds returned to Central State Bank, this time bearing two Traveler's Express international money orders, each with a face value of $3,000. Reynolds again approached teller Brannan Murphy, who cashed them.

On February 1, 2005, Stella Best, a proof operator and research officer at Central State Bank, received e-mail communications known as "error messages" from the Federal Reserve indicating the six money orders cashed on December 17, 2004, were counterfeit. On February 8, 2005, Best received similar communications from the Federal Reserve regarding the four money orders presented by Reynolds to the bank on December 30, 2004.

After Central State Bank received notification of the problems with Reynolds's postal money order transactions, Charity Harmon, the head teller at the bank, made inquiry as to the legitimacy of the two Traveler's Express international money orders. She called a Traveler's Express "800" telephone number, provided the relevant money order identification numbers, and heard a "computerized recording" reporting the money orders had no value.

The State charged Reynolds with one count of first-degree theft and six counts of forgery. Reynolds waived his right to a jury trial and a bench trial was held. At trial, the State used Best's testimony in an attempt to lay a foundation for admission of ten exhibits under the business records exception to the hearsay rule, Iowa Rule of Evidence 5.803(6). Each of these exhibits included a copy of a money order involved in one of the transactions, various documents created by Central State Bank such as a transaction ticket, and a copy of the error message from the Federal Reserve advising the bank of the counterfeit status of the subject money order. Best testified the bank routinely receives error messages via e-mail from the Federal Reserve in the course of the bank's business. She also testified the e-mail communications included in the proffered exhibits came from the Federal Reserve, and verified the dates the notices were received by the bank. Best testified that the reason each of the e-mail communications was sent by the Federal Reserve to the bank was to notify the bank of a "counterfeit postal money order." Defense counsel did not object to this testimony by Best, but later objected on hearsay grounds to the admission of copies of the e-mail communications received by the bank from the Federal Reserve. The district court admitted the ten exhibits over this objection. No one from Central State Bank or the Federal Reserve gave testimony explaining how the Federal Reserve error reports are generated and sent.

Defense counsel also lodged, and the district court overruled, a hearsay objection to Harmon's testimony relating the information she learned from the Traveler's Express "800" number. Harmon testified that the Traveler's Express "computerized recording" informed her that the international money orders cashed by Reynolds on January 31, 2005, were without value. No one from Central State Bank or Traveler's Express gave testimony explaining how the data reported by the "computerized recording" is generated.

The district court found Reynolds guilty on all seven counts and committed him to the custody of the department of corrections for a period not to exceed ten years on count one, and for a period not to exceed five years on counts two through seven, to be served concurrently. Reynolds's appeal was transferred to the court of appeals. That court affirmed the district court's ruling admitting the Federal Reserve error reports and Harmon's testimony under the business records exception, Iowa Rule of Evidence 5.803(6). The court of appeals also denied Reynolds's ineffective-assistance-of-counsel claims and affirmed his convictions.²

II. Scope of Review.

We review a defendant's hearsay claims for correction of errors at law. State v. Musser, 721 N.W.2d 734, 751 (Iowa 2006).

III. Discussion.

A. Business Records Exception to the Hearsay Rule. A party seeking to admit a record containing hearsay into evidence under Iowa Rule of Evidence 5.803(6) must establish the following foundational elements:

1) That it is a business record;

2) That it was made at or near the time of an act;

3) That it was made by, or from information transmitted by, a person with knowledge;

4) That it was kept in the course of a regularly conducted business activity;

5) That it was the regular practice of that business activity to make such a business record.

Beachel v. Long, 420 N.W.2d 482, 484 (Iowa Ct.App.1988) (citing 5A Iowa Rules of Civil Procedure Annotated 581 (1984)). Reynolds contends the testimony provided by the State's witnesses as to the Federal Reserve error reports and computerized recording from Traveler's Express was insufficient as to the third foundational requirement — that the record was made by, or from information transmitted by, a person with knowledge. We agree.

1. Federal Reserve error reports. The State attempted to lay a business records exception foundation for the ten exhibits containing the Federal Reserve error reports through the testimony of Stella Best, a proof operator and research officer at Central State Bank. Each of the exhibits contained six separate documents. Best testified the first four documents in each exhibit were generated by Central State Bank. The last two documents in each exhibit, however, were an e-mail and error report created by the Federal Reserve and sent to Central State Bank, declaring that each of the ten money orders cashed by Reynolds was counterfeit. Defense counsel objected to the admission of the last two pages in each exhibit on hearsay grounds. The prosecutor responded:

... I believe that Ms. Best has established the first parts of the transactional paperwork as generated by Central State Bank. Those are documents she commonly deals with in the proof department as they have to go through that department for verification. In regard to the actual money order, those are presented to the bank.

She testified they are presented to Central State Bank. Copies are maintained within their system within the normal course of business. The records of the copy — the subsequent copy of the money order, the e-mail notification and the error reports are received by them in the normal course of business from the Federal Reserve to notify them if there was an error.

She testified that there was an error and what the error consisted of. She also testified that they commonly rely on that in the normal course of their business. Although the record is generated by the Federal Reserve, it is received by Central State Bank in the normal course of their business. It's something on which they commonly rely and once received, they maintain it within the normal course of their...