McClendon v. Challenge Financial Investors Corp., No. 1:08CV1189, Slip Copy, 2009 WL 589245 (N.D. Ohio, Mar 09, 2009).

A District Court in Ohio declined to remand this action to state court holding that the declaration of the defendants’ witness which stated that the amount in controversy exceeded $5 million fell within the business records exception of Fed. R. Evid. 803(6).

The plaintiff, a purchaser of mortgage loan services from the defendant, Challenge, brought a class action in state court alleging that the defendant violated the Ohio Mortgage Broker Act and breached common law fiduciary duties while selling loan services. 

The defendant removed the action to federal court under CAFA. The plaintiff moved to remand. 

The magistrate judge recommended denying the plaintiff’s motion finding that the declaration of Christopher Faoro, a representative of the defendant, which stated that the amount in controversy was over $9 million fell within the business records exception of Fed. R. Evid. 803(6). 

The plaintiff only objected to Faoro’s declaration arguing that it should not be considered because it was hearsay not within the exception for business records under Rule 803(6).

The declaration of Faoro, an employee in the finance department, showed that (1) he ran a Revenue Report from the Challenge electronic database to determine the amount of revenue associated with the loans related to this class action and (2) the Revenue Report itself, a spreadsheet reflecting the total revenue associated with the loans at issue as $9,394,640.00. In the declaration and at his deposition, Faoro explained that, in order to generate the Revenue Report, he accessed the Challenge database, established parameters based on the definition of the class in this case, and generated the attached report. Thus, the Revenue Report reflected the financial information in the Challenge database related to the loans at issue in this case.

The Court noted that the business record exception in Rule 803(6) sets forth the following four requirements for admissibility of documents that are otherwise hearsay: 1) the document must have been made in the course of a regularly conducted business activity; 2) the document must have been kept in the regular course of that business; 3) the regular practice of that business must have been to have made the document; and 4) the document must have been made by a person with knowledge of the transaction or from information transmitted by a person with knowledge. 

The Court observed that the plaintiff misidentified the “business record” at issue because the Challenge database was the business record, not the Revenue Report Faoro generated for the purpose of this case. The Court explained that a computer database is a business record when the data was entered into the computer in the regular course of business, and United States v. Moon, 513 F.3d 527, 545 (6th Cir. 2008) held that a “statistical run” from a computer database is a “business record” pursuant to Rule 803(6). Faoro’s deposition testimony clearly indicated that the Revenue Report was a statistical run based on data entered and preserved in the regular course of business. Accordingly, the Court found that the first two requirements of Rule 803(6) were satisfied.

Regarding the third requirement, the Court maintained that reliability is the basis of the business records exception and regularly prepared records are particularly reliable because the person creating the record has a strong incentive to be accurate.  Faoro explained that Challenge accountants regularly updated the Challenge database in connection with mortgage loans and downloaded financial information directly from banks. Thus, the Court concluded that as this information was clearly critical to Challenge’s core business–loan servicing–the accountants had every reason to be accurate and to regularly maintain and update the Challenge database.

Finally, Faoro explained that the Challenge database was created and maintained by Challenge accountants and populated with information downloaded directly from banks–individuals with personal knowledge of the information entered into the database. Because there was no evidence undermining Faoro’s testimony that the Challenge accountants had personal knowledge of the information in the database used to create the Revenue Report, the Court found that the fourth requirement of Rule 803(6) was satisfied.

In addition, the Court remarked that Faoro was a qualified witness under Rule 803(6) because he was familiar with the recordkeeping procedures of Challenge, and had ongoing access to the Challenge database and the expertise to input data parameters and generate the Revenue Report.

Accordingly, the Court overruled the plaintiff’s objection and adopted the magistrate judge’s recommendation.