The U.S. Court of Appeals for the Second Circuit recently affirmed a district court’s denial of a borrower’s post-verdict motions following the trial of federal Truth in Lending Act and common law fraud allegations.

In so ruling, the Second Circuit held that:

  1. the trial court properly admitted “habit and routine practice” evidence, over the borrower’s objection that this evidence was actually inadmissible “propensity evidence;” and
  2. the trial court properly admitted photocopies of various loan documents into evidence, over the borrower’s objections of lack of authentication and the “best evidence” rule.

A copy of the opinion is available at:  Link to Opinion.

A borrower sued her lender and two affiliated companies, alleging violations of the Truth in Lending Act (TILA), 15 U.S.C. § 1601 et seq., and common law fraud. The borrower had been solicited for a mortgage loan in November 2004 to refinance two existing mortgage loans. A meeting took place at JFK Airport, at which the borrower claims she signed blank pieces of paper, but the lender claimed she signed loan documents for a $504,000 mortgage, which was later foreclosed.

At the trial, the lender defendants introduced evidence showing that the borrower signed loan documents and the jury returned a verdict in defendants’ favor. The borrower moved for judgment as a matter of law pursuant to Fed. R. Civ. P. 50 or, alternatively, for a new trial under Fed. R. Civ. P. 59. The district court denied the motion, and the borrower appealed.

The Second Circuit first addressed the district court’s evidentiary rulings.

One of the defendants’ witnesses testified that he met with the borrower at JFK, denied that he asked her to sign blank sheets of paper, said that he handled more than 1,000 such closings, and explained the typical or routine procedure followed, which included a short explanation of each document.

The borrower argued that this testimony about how closings were routinely conducted constituted inadmissible propensity evidence under Fed. R. Civ. P. 404(a) because it was offered to prove that he acted in conformity with that practice on the day in question.

The Court disagreed, reasoning that evidence of a person’s character or character trait, barred under Rule 404(a), was not the same thing as evidence of habit or routine, which is admissible under Rule 406. “Character may be thought of as ‘a generalized description of one’s disposition,’ while habit ‘is more specific’: ‘[i]t describes one’s regular response to a repeated specific situation.’”

Because the witness’ testimony that he had conducted more than 1,000 closings like the plaintiff’s and that he always showed the borrowers at his closings each document and explained it before signing was “the sort of ‘regular response to a repeated specific situation’ contemplated by Rule 406,” the Court found that the district court did not abuse its discretion in admitting the testimony.

The Second Circuit then turned to the borrower’s argument that the district judge erroneously admitted copies of the loan documents into evidence in violation of Rule 802’s rule against hearsay. The district court admitted 34 loan documents, only three of which were originals—the note, mortgage and adjustable rate rider.

The Appellate Court again disagreed with the borrower, holding that this argument “is easily rejected” because “[t]he rule against hearsay bars introduction of an out-of-court statement only if it is offered to prove the truth of what it asserts. … Defendants offered the loan documents not to demonstrate the truth of any assertions contained therein, but for either of two permissible purposes. The first was to show the [borrower] entered into the loan agreement.” The “second purpose was simply to show that [borrower] had received the disclosures that TILA mandates. The presence of [borrower’s] signature on the pages containing those disclosures achieved that end quite apart from the truth of what the documents asserted.”

The Second Circuit explained that the borrower’s “argument in fact concerns authentication, not hearsay.”  The Court held that the lender defendants’ photocopied loan documents met the low threshold of Rule 901, which is “satisfied if sufficient proof has been introduced so that a reasonable juror could find in favor of authenticity or identification.” Several witnesses testified that the “documents were what defendants claimed they were (that is, true copies of originals signed by [borrower], rather than fakes).” The Court found that “[t]his evidence easily cleared the hurdle of Rule 901(a).”

The Second Circuit also rejected the borrower’s argument that the admission of photocopies violated the so-called “best evidence” rule, reasoning that while Federal Rule of Evidence 1002 requires an original in order to prove the content of a writing, there are “a handful of exceptions,” including when the original is unavailable because it has been lost or destroyed, as long as it was not done by the proponent in bad faith.

The Appellate Court concluded that the district court acted well within its discretion in admitting the photocopies, because three witnesses testified that the originals were sent to prior counsel, who returned only a few originals, such that it was reasonable to conclude they had been lost or destroyed without any bad faith on lender defendants’ part.

Turning to the borrower’s Rule 50 and Rule 59 post-trial motions, the Second Circuit found that the borrower “failed to seek judgment as a matter of law under Rule 50(a) before the case was submitted to the jury; thus, as the District Court correctly ruled, her motion could properly have been granted only if necessary ‘to prevent manifest injustice.’”

The Second Circuit had “no trouble concluding that [borrower’s] Rule 50 arguments fail” because the testimony from the three witnesses, “together with the loan documents, was more than adequate to warrant the jury in finding for defendants on the case’s central issue—that is, whether [borrower] had actually signed a loan agreement at JFK.”

The Appellate Court likewise found no error in the district court’s denial of the borrower’s Rule 59 motion for a new trial, reasoning that the district judge correctly restrained herself from second-guessing the jury’s decision on the witnesses’ credibility.

Accordingly, the district court’s judgment was affirmed.