Tuesday, January 17, 2012

CACH, LLC v. Askew[1]

Opinion handed down January 17, 2012.

CACH, LLC acquired an outstanding credit card debt owed by Jon Askew and sued in St. Louis County Circuit Court to recover it.  The circuit court granted judgment to CACH.  On appeal, Askew argued that certain documents CACH used to prove the assignment should not have been admitted under the business records exception to the hearsay rule.  Without these documents, Askew claimed CACH could not establish standing to sue.  The Supreme Court of Missouri agreed with Askew and held that CACH had not satisfied the business records exception to the hearsay rule and, therefore, did not have standing to sue.
I. Facts and Holding
In 1998, Jon Askew opened a credit card account with Providian Bank.[2]   Askew fell behind on payments and eventually stopped paying altogether.[3]  Providian Bank was acquired by Washington Mutual who assigned Askew’s account to Worldwide Asset Purchasing II, LLC.[4] CACH acquired the account from Worldwide.[5]  CACH first contacted Askew and his wife to collect the money.[6]  The couple sent two checks to CACH although one was later cancelled.[7]  Finally, CACH filed a petition in St. Louis County Circuit Court to recover the $5,936.10 plus interest owed on the account.[8]
CACH offered seven documents at trial related to the account and sought to introduce these documents as business records under section 490.680.[9]  CACH introduced these documents through Diane Eakins, the records custodian for Square Two Financial, the company that owns CACH.[10] Eakins did not know the specific business practices of Providian or Washington Mutual but she testified that she had “bank training with most of the major banks” that CACH did business with.[11]
Askew argued that because Eakins was not qualified to lay the foundation needed to establish the documents as business records, they were inadmissible hearsay.[12]  The circuit court overruled Askew’s objections and granted judgment in favor of CACH for $6,691.91.[13]  The circuit court found that CACH was assigned all rights on Askew’s debt and that the payments Askew made admitted assignment of the debt to CACH.[14]  The Missouri Court of Appeals, Eastern District, affirmed the judgment.[15]
The Supreme Court of Missouri reversed the circuit court’s decision and held that the documents should have been excluded.[16]  For CACH to have standing to sue for collection of the debt, CACH needed to prove that Askew’s account had been assigned to Worldwide and then to CACH.[17]  Standing cannot be waived, the Court held, and Askew did not admit assignment of the debt through his payments.[18]  The larger issue before the Court was whether Eakins was qualified to lay the foundation for Exhibit Seven as a business record establishing CACH’s standing to sue.[19]
The Court found a similar case, Asset Acceptance v. Lodge,[20] to be controlling.[21]  Asset Acceptance held that a qualified witness must be able to specifically testify as to the “mode of the documents preparation or the time of their preparation.”[22]  The Court found that because Eakins had never worked for Washington Mutual or Worldwide nor did she testify as to having bank training with either of them, she  did not have “sufficient knowledge of the business operation and methods of keeping records to give the records probity” to establish her as a “qualified witness” under section 490.680.[23]  Because Eakins was not a qualified witness, the Court held, Exhibit Seven was erroneously admitted.[24]  And without Exhibit Seven, CACH did not establish standing to pursue the claim, thus the Court reversed the judgment.[25]
II. Legal Background
In Missouri, there are several requirements for a document to be admitted as an exception as a business record, which is an exception to the hearsay rule.[26]  First, the custodian or “other qualified witness” must testify about four qualities of the document.[27]   The witness must identify the document and testify to its “mode of preparation.”[28]  Then, the witness must testify that the document was made in the regular course of business and near the time of the action or event.[29]  Once the witness has testified as to these things, the court rules whether this information justifies the document’s admission.[30]
The statute governing the business records rule is simple and general, but case law has established the particular requirements.  The trial court has wide discretion in deciding whether the document should be admitted as an exception to the hearsay rule.[31]  However, the record must show evidence that each requirement was met.[32]  As for the witness, she must be able to testify as to how the document was prepared and that it was prepared in the regular course of business.[33]  Just because a document is found in a business’ files does not mean that it was made in the course of business, it could have been prepared elsewhere.[34]  Files received by the business and merely held in a file are not a business records exception.[35]
The custodian must be able to testify as to who created the documents and the mode of preparation.[36]  The custodian need not have personal knowledge of the preparation of the documents seeking to be admitted.[37]  But the witness must have a sufficient knowledge of the business and the methods used by the business to prepare and keep records.[38]
In Asset Acceptance v. Lodge[39] the witness, the legal director of a debt collection company, testified that the debt collection company purchased accounts from a lending company.[40] The company attempted to use the director to lay a foundation to establish a business record.[41] But, the appellate court reversed, holding that the legal director could not testify to the documents preparation so he was not a “qualified witness” to lay the proper foundation.[42]
In another case, State v. Carruth,[43] a records custodian laid the foundation for business records by testifying as to the standard procedures used in creating the records.[44] The appellate court upheld the witness as qualified because she was able to testify that she had knowledge of the standard procedures used at that specific place.[45] The key is whether the witness has specific knowledge of the procedures used at that business or entity, not whether she has general knowledge of procedures used in an industry.
III. Comment
The Supreme Court of Missouri seemingly reaffirmed what was already known in many areas of the law – every link in a chain must be proven.  The Court held that a debt-collector must prove each link in the chain of how they came to own the debt.
This decision gives consumers with debt, particularly older debt, a strong defense in debt-collection actions and may make it more difficult for a debt collector to prove standing to sue if they purchased the debt from another company. Previous practice allowed a debt collector to use one person from their agency to explain all of the previous owners of the debt.  Now, debt collectors will have to find a witness from each of the previous owner companies to prove each transaction. This may be just one person or it may require multiple people. If the witness is this case, Eakins, had training at each of these banks, she would have been a qualified witness and the debt collector would not have needed a separate witness for each transaction. This makes the debt collection process much harder and will make it much more difficult for a debt collector to pursue their claims in court.  This decision is a logical extension of current law and is another tool consumers can use in defending against debt collection.
- Melissa Cullmann
[1] No. SC 91780 (Mo. January 17, 2012) (en banc), available at http://www.courts.mo.gov/file.jsp?id=51954.  The West Reporter citation is CACH, LLC v. Askew, 358 S.W.3d 58 (Mo. 2012) (en banc).
[2] Id. at 1-2.
[3] CACH, LLC v. Askew, No. ED 94814, 2012 WL 135395 at *1 (Mo. Ct. App. March 20, 2011).
[4] CACH,  No. SC91780, slip op. at 2.
[5] Id.
[6] Id.
[7] Id.
[8] Id.
[9] Id.
[10] Id.
[11] Id.
[12] Id.
[13] Id.
[14] Id.
[15] Id.
[16] Id.
[17] Id.
[18] Id.
[19] Id.
[20] 325 S.W.3d 525 (Mo. App. 2010).
[21] CACH, No. SC91780, slip op. at 9.
[22] Id.
[23] Id.
[24] Id.
[25] Id.
[26] Mo. Rev. Stat § 490.680 (2010).
[27] Id.
[28] Id.
[29] Id.
[30] Id.
[31] State v. Graham, 641 S.W.2d 102, 106 (Mo. banc 1982).
[32] Id.
[33] State v. Anderson, 413 S.W.2d 161, 165 (1967).
[34] Id.
[35] Zundel v. Bommarito, 778 S.W.2d 954 (Mo. App. E.D. 1989).
[36] C&W Asset Acquisition, LLC v. Somogyi, 136 S.W.3d 134, 140 (Mo. App. S.D. 2004).
[37] Asset Acceptance v. Lodge, 325 S.W.3d 525, 528 (Mo. App. E.D. 2010).
[38] Id.
[39] 325 S.W.3d 525 (Mo. App. 2010).
[40] Id. at 527.
[41] Id.
[42] Id. at 528.
[43] 166 S.W.3d 589 (Mo.App. 2005).
[44] Id. at 591.
[45] Id.