Credit Card Companies Beware, California Appellate Court Finds That Their Evidence of Debt May Not Be Admissible

This is a summary of Sierra Managed Asset Plan, LLC, vs. Hale which was published by the California Court of Appeals on August 20, 2015. You can find the case here.

Consumer opened a credit card account with Citibank, N.A. He accumulated an unpaid balance of $10,138.41. Through a series of assignments, Sierra acquired Citibank’s rights as creditor. Sierra sought to enforce those rights through a lawsuit. Consumer did not deny the account, but he testified that he did not recall any of the details of the purchases on or the accrued balance of the account.

To prove that the defendant owed the money, Sierra had its agent testify and attach exhibits which substantiated the assignments leading to Sierra’s acquisition of rights as creditor on the account in question, the account agreement, and the account statements reflecting all of the charges culminating in the unpaid balance due. The account statements reflect purchases by a “David C. Hale,” with a listed address the same as that acknowledged by appellant at trial.

Consumer objected to receipt of the credit account exhibits attached to Sierra’s agent’s declaration on a variety of grounds, including hearsay and the lack of any foundation which would support their admission under the business records exception. (Evid. Code, § 1271.)

The Appellate Court agreed with Consumer, finding that the testimony did not provide substantial evidence of the foundation necessary for admission of the records pursuant to the business records exception to the hearsay rule.

Evidence Code, section 1271 provides as follows:

“Evidence of a writing made as a record of an act, condition, or event is not made inadmissible by the hearsay rule when offered to prove the act, condition, or event if:
(a) The writing was made in the regular course of a business;
(b) The writing was made at or near the time of the act, condition, or event;
(c) The custodian or other qualified witness testifies to its identity and the mode of its preparation; and
(d) The sources of information and method and time of preparation were such as to indicate its trustworthiness.”

In order for business records to meet the above elements for admission as an exception to the hearsay rule, either the person who created the documents, or an authorized custodian of the documents, or some “other qualified witness” must testify “as to the identity and mode of preparation of the documents.” The trial court has wide discretion in determining whether a “qualified witness” possesses sufficient personal knowledge of the “identity and mode of preparation” of documents for purposes of the business records exception. – This foundation requirement may be met by any “qualified witness,” meaning the witness need not be the custodian or the person who created the record.

Finally, based on the above, the Appellate Court found that there was no way for the particular declarant to know about Citibank’s business practice to form the foundation of the evidence presented!

Author’s comments: This is going to help a lot of pro se people fight credit card debt because most of the time, it is pursued by third parties similarly situated with Sierra but how does it affect bankruptcy practice?

The key here is that the Consumer’s testimony that he did not deny the account, but he testified that he did not recall any of the details of the purchases on or the accrued balance of the account was sufficient for the Appellate Court to shift the burden onto the creditor to prove the claim. So we should be able to file claim objections on the basis that our clients do not recall the particular purchases (assuming this is actually true). This would shift the burden onto the creditor thereby allowing us to successfully object to these claims.