A recent court case in Tennessee went all the way to the State Appeals Court. In this case the court ruled that debt collectors and secondary debt buyers need actual proof of the debt owed before they can recover it.
The case involved LVNV Funding, Resurgent Capital and Sherman Financial Group.
“In December 2009, Plaintiff/Appellee LVNV Funding, LLC, (“LVNV”) as assignee of Sears Gold MasterCard, filed a civil warrant in the General Sessions Court of Davidson County against Kevin J. Mastaw (“Mastaw”). The warrant asserted that Mastaw owed $15,101.23 plus pre- and post-judgment interest on his MasterCard credit card. The General Sessions Court conducted a trial in June 2010 and a judgment in favor of LVNV was entered in the amount of $16,406,77.
Mastaw filed an appeal to the Circuit Court of Davidson County (“trial court”). The de novo trial was held on March 21,2011. The record does not contain a transcript of the trial, but the trial court entered an approved Statement of the Evidence. Our recitation of the facts is taken from this Statement.
LVNV’s first witness was Kimberly W. Parks (“Parks”), an employee of Resurgent Capital Services (“Resurgent”) located in Nashville, Tennessee. Parks was the custodian of records for Resurgent. She testified that Resurgent is the attorney in fact for LVNV, and that Sherman Financial Group (“Sherman”), is the parent corporation for both Resurgent and LVNV. Parks said that Sherman purchased a number of Sears Gold MasterCard debt accounts from Citibank of South Dakota (“Citibank”).
Through Parks’ testimony, LVNV sought to introduce into evidence six exhibits regarding Mastaw’s alleged debt. Mastaw objected to all on the basis that the records contained hearsay. The six exhibits are:
Exhibit 1: “Limited Power of Attorney” between LVNV and Resurgent, dated
Exhibit 2: “Assignment and Assumption Agreement” between Citibank and Sherman dated July 2, 2008, and is signed by David L. Zimbeck, vice president and general counsel of Citibank.
Exhibit 3: “Sale and Assignment” between Sherman and LVNV, dated July 31, 2008, signed twice by Les Gutierrez as authorized representative of both Sherman and LVNV.
Exhibit 4: “Plaintiff’s Affidavit of Indebtedness and Ownership of Account,” signed by Tobie Griffin as authorized representative of LVNV, dated October 21, 2009. Griffin’s affidavit states that she has knowledge of LVNV’s creation and maintenance of its normal business records, and that the business records on Mastaw’s account include a “compilation of information provided upon acquisition and obtained since acquisition,” which indicate that Mastaw’s account is a result of Sears’ extension of credit to Mastaw on August 1, 1985. The affidavit then states that the account was owned by Citibank and then later sold to LVNV’s assignor on July 1, 2008. The affidavit asserts that the ownership rights were assigned to LVNV, including the right “to collect the purchased balance owing of $15,101.23 plus any additional accrued interest. Based on the business records maintained on Mastaw’s account, Griffin’s affidavit claims the balance of $15,101.23 is “duly owed” by Mastaw.
Exhibit 5: Affidavit of Tobie Griffin as authorized representative of Sherman, dated January 21, 2010, stating that LVNV now owns Mastaw’s account, and that the account was acquired from Sherman. The affidavit states that all of Sherman’s interest in the Account vested in LVNV when it was acquired from Sherman.
Exhibit 6: Compilation of Mastaw’s credit card Statements.
As indicated in the proffered exhibits, Parks explained that LVNV is an asset holding company, holding the Sears Gold MasterCard accounts purchased by Sherman, and Resurgent is the assignee of LVNV. Parks said that Citibank originally serviced Mastaw’s Sears Gold MasterCard account, until Sherman purchased it. As of July 2, 2008, Mastaw’s Sears Gold MasterCard account had an indebtedness of $15,101.23.
On cross-examination, Parks conceded thatshe had no knowledge of Citibank’srecords, how the Sears Gold MasterCard accounts were created, or what charges Mastaw made. Parks explained that LVNV purchased both the contract and the debt, but said that she did not have a copy of the original contract between Sears Gold MasterCard and Mastaw creating the account, and did not know whether Sears had accurately calculated Mastaw’s indebtedness in accordance with the terms of that contract. She said that Citibank originally purchased the Sears Gold MasterCard accounts before they were transferred to Sherman. Finally, Parks testified that her employer Resurgent was licensed to collect debts in Tennessee and recited the license number. She did not have a copy of Resurgent’s license.”
Here is What the Court Found
“In an action to collect a debt, the plaintiff creditor bears the burden of proving the existence of the debt and that the debtor is indebted to the creditor in a certain amount.
Documents prepared specifically for the subject litigation are “properly excluded because of motivational concerns arising from the fact that they were generated for litigation purposes,” as opposed to records generated for business purposes.
In the case at bar, the affidavits executed by Griffin were clearly prepared specifically for the instant litigation, to trace the assignments of Mastaw’s debt, establish LVNV’s ownership of the debt and the amount due from Mastaw. They do not incorporate by reference or otherwise summarize or interpret documents that are prepared in the normal course of regularly conducted business activity. We must conclude that Exhibits 4 and 5 do not properly fit within Rule 803(6), the business records exception to the hearsay rule, and that the trial court erred in admitting them into evidence pursuant to this exception. Having concluded that Exhibits 4 and 5 were erroneously admitted into evidence under Rule 803(6), we find the remaining evidence in the record insufficient to establish that Mastaw is indebted to LVNV and the amount of that debt.
You can read the full court document here.
Arizona On The Other Hand
Arizona was set to kill a bill that would have permitted debt collectors and debt buyers to go after consumers with little evidence. All they’d have to show was a final bill or unspecified electronic record to move ahead with their case.
Rather than see the bill die, Sen. Ron Gould made a motion for reconsideration, paving the way for another vote.
While Tennessee added some clarity to what was required, the proposed Arizona HB 2664 bill moving through the Arizona legislature only requires the following:
A CREDITOR MAY ESTABLISH A PRESUMPTION OF THE AMOUNT OF THE DEBT THAT IS OWED ON A CREDIT CARD ACCOUNT THROUGH A COPY OF THE ISSUER’S FINAL BILLING STATEMENT OR BY THE ELECTRONIC DATA THAT IS MAINTAINED BY THE ISSUER AND THAT REPRESENTS THE AMOUNT OWED. – Source
The Arizona bill is a stinker for consumers.
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It’s a long slow road to the bench coming to the realization that the computer and business records of large financial institutions are not as reliable as they think. I’m very pleased to see a consumer victory in TN as generally TN is not a good place to be a debtor. AZ only shows that the battle is in the legislature as well as the courts. I am always amazed at the special treatment banks get. Why do they need/get specific evidentiary rules? Why aren’t they forced to play by the same rules as any party in terms of admitting evidence? I really question if we are a “country of laws” anymore where everyone plays by the same rules. More like a country of special interests.