Creditors seeking a court judgment against defaulting debtors almost always must rely on the business records exception to the hearsay rule of evidence to prove the amount due on the defaulted loan, mortgage or other obligation. The business records rule allows the creditor to show the amount of the original loan, the payments made by the borrower, the default by the borrower and the amount due by presenting an affidavit in support of a summary judgment motion showing that the creditor’s business records were kept in the ordinary course of its business and that such records show the account debits and credits and the balance then due and owing. Where the creditor is the original lender or loan servicer, such an affidavit by the creditor’s records custodian is ordinarily sufficient.
However, the Ohio Court of Appeals for the Second Appellate District last month rejected a creditor’s attempt to prove its predecessor’s business records by asserting it had “adopted” or incorporated the predecessor’s records as its own at the time it brought suit. The case is Ohio Receivables, LLC v. Williams, 2013-Ohio-960. The plaintiff-creditor had purchased a portfolio of delinquent credit card accounts of Chase Bank and was suing to collect on the balance due from the defendant-account debtor. The appellate court reversed the trial court’s summary judgment in favor of the plaintiff-creditor for the amount claimed on the account. In doing so, the court held that the predecessor’s account records (i.e., Chase Bank’s account records) could not be admitted in evidence as being incorporated into and becoming part of the successor’s business records.
The probable effect of this ruling, at least in the six Ohio counties in the Second Appellate District if not changed or reversed by the Ohio Supreme Court, is that an assignee of a debt may need to prove its predecessor’s business records by presenting a witness (by either his/her affidavit or if there is a trial by a live witness) who can verify and authenticate the predecessor’s business records on personal knowledge. Such a requirement would likely require that an assignee secure such evidence from all of its predecessors in order to recover a judgment in contested cases on its claim on account. And, if a predecessor is no longer in business and its records custodian is not available to testify, this ruling could pose a serious complication impairing the successor’s ability to recover a judgment on the debt at all.
Three other Ohio Courts of Appeals have rejected the Second District’s position and endorsed application of the “adoptive business records” doctrine. Great Senica Financial v. Felty, (70 Ohio App.3d 737 (1st Dist. 2006); Shawnee Assoc. LP v. Shawnee Hills, 2010- Ohio-1183 (5th Dist.); and State Farm Mut. Auto. Ins. Co. v. Anders, 197 Ohio App.3d 22, 965 N.E.2d 1056 (10th Dist. 2012). See also, Ohio Receivables, L.L.C. v. Dallariva, 2012- Ohio-3165 (10th Dist.). Under this doctrine, the assignee may prove it predecessor’s business records as it they were its own, provided that the predecessor’s records were relied on by the assignee in the ordinary course of the assignee’s business. At this writing, the creditor in the current Second District case has not decided whether it will appeal to the Ohio Supreme Court. An appeal must be filed by April 29, along with any amicus filing in support of high court review.
Pending a definitive ruling by the Ohio Supreme Court on the “adoptive business records” doctrine, parties taking assignments of debts or accepting loan servicing transfers should consider requiring a “business records” affidavit that as part of the assignment or transfer of accounts it or, if an affidavit is not practical, require that it be provided with a detailed payment history for each assigned account and a written certification that the entries on the account history were regularly kept and maintained in accordance with the assignor’s or transferor’s regularly kept business records.