• Hearsay - The Business Records Exception to the Hearsay Rule
  • March 22, 2011
  • Law Firm: The Clinton Law Firm - Chicago Office
  • %%30%% General comments:

         Obtaining the admission of business records is a often a critical component of any trial.  Under Rule 803(6) if a document qualifies as a business record, it is not hearsay.  The rule applies whether or not the declarant is available as a witness.  The Rule presupposes that a business will have strong incentives to keep accurate records.  Timberlake Construction Co. v. U.S. Fidelity and Guaranty Co., 71 F.3d 335 (10th Cir. 1995).  I will discuss several recent decisions discussing the admission of business records.


    I.     The Rule


          The Rule defines a business record as "a memorandum, report, record, or data compilations, in any form, of acts, events, conditions, opinions, or diagnoses, made at or near the time by, or from information transmitted by, a person with knowledge."  Rule 803(6) is not limited to businesses.  The Rule specifies that "the term 'business' as used in this paragraph includes business, institution, association, profession, occupation, and calling of every kind, whether or not conducted for profit."  Rule 803(6).


         A business record is admissible if it is "kept in the course of a regularly conducted business activity, and if it was the regular practice of that business activity to make the [record]."  Id.  A business record is not admissible where "the source of information or the method of circumstances of preparation indicate lack of trustworthiness."  Rule 803(6). 


         The Ninth Circuit summarizes the Rule's requirements as follows:  "a business record is admissible when (1) it is made or based on information transmitted by a person with knowledge at or near the time of the transaction; (2) in the ordinary course of business; and (3) is trustworthy, with neither the source of information nor method or circumstances of preparation indicating a lack of trustworthiness."  The Monotype Corporation PLC v. Int'l Typeface Corp., 43 F.3d 443, 449 n.6 (9th Cir. 1994). 


    II.     Regularly Conducted Business Activity


         The key foundational inquiry is whether the document was prepared in the course of "a regularly conducted business activity." The document must concern business activity.  In Hargett v. National Westminster Bank, 78 F.3d 836 (2d Cir. 1996), plaintiff, an african-american, was terminated from his position as an executive of the defendant bank after he allegedly retained a stripper to perform at an office meeting. Plaintiff alleged that he was terminated by reason of his race.  At trial, he sought to introduce a handwritten note allegedly prepared by a co-employee of the defendant bank in which the co-employee admitted that he had procured the services of the stripper.  The note was unsigned.  The district court denied plaintiff's offer of admission because plaintiff could not establish a foundation for its admissibility as a business record.  Indeed, it is hard to imagine that the letter was "a record of regularly conducted activity."  Moreover, plaintiff could not offer testimony concerning when and where the handwritten letter was prepared.


         The business activity must also be regular.  In The Monotype Corporation, the defendant and plaintiff entered into a licensing agreement to allow plaintiff to distribute several of defendant's typefaces.  Plaintiff developed several typefaces independently and began selling them to purchasers.  Defendant claimed that plaintiff's typefaces were copies of its typefaces. Plaintiff sued to bar defendant from making such claims to plaintiff's customers, including Microsoft.  At trial, defendant sought to admit a report prepared by an employee of plaintiff's customer Microsoft concerning the similarities in several typefaces sold by plaintiff and defendant. The report was not a business record because it was not Microsoft's regular practice to prepare such reports. Id. at 449-50 (also excluding an electronic mail message which was a one-time event). 


    III.     The Chain Of Knowledge


         The proponent must establish a chain of knowledge. According to Weinstein's Evidence, "Each participant in the chain producing the record -- from the initial observer-reporter to the final entrant -- must be acting in the course of the regularly conducted business."  4 Jack B Weinstein & Margaret A. Berger, Weinstein's Evidence P803(6) [04] (1994).  In United States v. Warren, 42 F.3d 647 (D.C. Cir. 1994), the defendant was found in a room containing drugs and a handgun.  The defendant sought to introduce a statement from a police report that two other occupants of the apartment were dealing drugs and carried handguns. The police report did not qualify as a business record because the defendant could not show that the report's author had personal knowledge concerning the activity of the other occupants of the apartment or had based the statement on information provided to him by a person with personal knowledge acting in the regular course of business.  Id. at 656.


    IV.  The Custodian's Knowledge


         The custodian of business records need not have detailed knowledge concerning who prepared a particular business record.  The custodian need only show that he is "sufficiently familiar with the business practice" of the business and show that the record was made pursuant to that practice.  Phoenix Associates III v. Stone, 60 F.3d 95 (2d Cir. 1995).  In Phoenix Associates, the plaintiffs claimed that they had an oral contract with defendant.  At trial, plaintiffs sought to introduce a record of a wire transfer to substantiate the claimed oral contract.  Plaintiff's witness, its records custodian, testified that plaintiff's accounting department regularly compiled records of every wire transfer it received or issued.  The district court denied plaintiff's offer of the exhibit on the ground that the records custodian worked for both the plaintiff and another company which made the wire transfer.  The Court of appeals reversed.  The custodian's source of employment was irrelevant "as long as his testimony can supply a sufficient foundation."  Id. at 101.  Moreover, the custodian was not required to demonstrate personal knowledge of the actual creation of the document.  Nor was he required to identify the specific employee who prepared the document.  The Rule required only that the proponent prove that the business entity's regular practice was to obtain the information from the person who created the document.  Id.


    V.      Is The Document Trustworthy?


         The Rule requires the court to determine whether the source of the information or the method or circumstances of the preparation of a document cast doubt on its trustworthiness.  In Hoselton v. Metz Banking Co., 48 F.3d 1056 (8th Cir. 1995), plaintiffs, minority shareholders in defendant's business, claimed that defendants breached their fiduciary duties when they were excluded from a sale of the business to a third party.  Notes taken by plaintiffs' accountant were properly admissible because they were prepared in the regular course of the accountant's activity. The notes appeared to be trustworthy because the accountant had professional duties to his clients which would give him strong motivation to make accurate notes.  Id. at 1061.


         Information provided by the customers of a business can create problems under the Rule because many businesses do not verify information received from customers.  Such information may be admissible under Rule 803(6) if the proponent can show that "the business entity has adequate verification or other assurance of accuracy of the information provided by the outside person." United States v. McIntyre, 997 F.2d 687 (10th Cir. 1993), cert. denied, 114 S.Ct. 736 (1994). In McIntyre, the court listed two ways to demonstrate reliability:  (1) proof that the business has a policy of verifying patrons' identities by examining their credit cards and other forms of identification; or (2) "proof that the business possesses 'sufficient self-interest in the accuracy of the [record]' to justify an inference of trustworthiness."  United States v. Cestnik, 36 F.3d 904, 908 (10th Cir. 1994) (quoting McIntyre, 997 F.2d 687, 700 (10th Cir. 1993).  In McIntyre, the court held it was improper to admit a hotel's guest registration cards because it was unclear whether the hotel had procedures to verify the accuracy of the cards.  997 F.2d at 701.


    VI.     Documents Prepared In Anticipation of Litigation    


         Documents prepared in anticipation of litigation are usually not admissible because they were not prepared in the regular course of business.  Timberlake Construction Co., 71 F.3d 335; Fed. R. Evid. 803(6) Advisory Committee Note. In Timberlake Construction, the plaintiff claimed that the defendant insurer wrongfully denied insurance coverage.  At trial, plaintiff introduced several letters written by plaintiff's president and by plaintiff's attorney containing legal conclusions claiming the existence of insurance coverage.  The court of appeals reversed on the ground that the letters were written in anticipation of litigation and therefore did not fall within Rule 803(6).


         However, an auditor's report prepared in anticipation of litigation may also qualify as a business record.  In United States v. Frazier, 53 F.3d 1105 (10th Cir. 1995), the defendant was convicted of falsely describing his use of government funds on official forms.  At trial, the Government admitted the report of a government auditor as a business record.  The defendant objected that the report was prepared in anticipation of litigation.  The court found that the report was trustworthy because the auditor prepared it pursuant to a contract with the government, the auditor had ten years experience in preparing that type of audit report and the auditor was a "neutral party" who had "nothing to gain" from litigation against the defendant.  Id. at 1110.


    VII.     Laying A Foundation


         The lawyer seeking to admit the business record must, however, lay a foundation that the record was, in fact a business record.  A recent Seventh Circuit case discusses the requirement that a foundation be laid.  In United States v. Adrianoros, 578 F.3d 703 (7th Cir. 2009), the Government obtained the admission of a summary of telephone and bank records of the illegal activity.  The Government called a policeman to testify that he obtained records by serving a subpoena.  The Government sought to admit the records under FRE 1006, which allows a party to present, and enter into evidence, a summary of voluminous writings, recordings or photographs.  However, the Seventh Circuit held that the records were improperly admitted because there was no testimony to establish that the records were kept in the course of regularly conducted business activity and there was no certification by the custodian of the records.  Thus, no foundation was laid. 


         A foundation must even be laid in the summary judgment context. The party seeking admission of the business record need not have secured the deposition testimony of the records custodian.  The proponent of the document must establish sufficient indicia of reliability.  Thanongsinh v. Board of Education, 462 F.3d 762 (7th Cir. 2006).


    VIII.     Specific Types of Documents


         1.     Laboratory Reports

         It is well established that a laboratory report identifying a substance as a narcotic is admissible as a business record because such reports are routinely prepared by government lab technicians.  United States v. Roulette, 75 F.3d 418 (8th Cir. 1996).  Additionally, in Roulette, the defendant argued that under the Confrontation Clause, the government should be required to provide proof of the unavailability of the lab technician when admitting the report.  The court disagreed reasoning that the exception to the hearsay rule was "firmly rooted."  Id. See also Sherman v. Scott, 62 F.3d 136, 140-41 (5th Cir. 1995).


         2.     Computer Records

         Computer business records are admissible if (1) they are kept pursuant to a routine procedure designed to assure their accuracy, (2) they are created for motives that tend to assure accuracy (e.g., not including those prepared for litigation), and (3) they are not themselves mere accumulations of hearsay."  United States v. Hernandez, 913 F.2d 1506, 1512 (10th Cir. 1990), cert. denied, 499 U.S. 908 (1991).  Computer records are thus treated no differently than other business records.


    VIII.  Conclusion


         The business records exception is commonly used to admit documents which contain hearsay declarations.  The rule presupposes that a business has strong incentives to keep accurate records.  Thus, it is difficult to resist the admission of a business record, unless the record was prepared in anticipation of litigation or its trustworthiness can be legitimately questioned.