On September 6, 2016, the Appellate Division of the Superior Court of Orange County, published not one, but two significant holdings in this debt collection case.
First, the Court determined that in Orange County, California Code of Civil Procedure “Section 98 requires the declarant to be available for personal service,” and Midland Funding, LLC’s failure to comply with this requirement rendered its Section 98 declaration inadmissible. (As of February 15 2019, the California Supreme Court has now sanctified this position in its Meza v. Portfolio Recovery Associates, LLC decision.)
Second, and perhaps more significantly, the Court held that debt buyer Midland Funding, LLC’s documentary evidence obtained by Midland from the original creditor, was inadmissible hearsay that was not properly authenticated and did not qualify for the business records exception to the hearsay rule.
The Issue in Context
a limited jurisdiction case and therefore under the California Code of Civil Procedure, the use at trial of CCP § 98 declaration in lieu of personal testimony was potentially available. As per usual in debt collection cases, Midland Funding, LLC opted to utilize the § 98 procedure instead of bringing a witness.
There are prerequisites for using a CCP § 98 declaration, one of which is a safeguard that allows the party against whom the declaration is to be used, to subpoena the declarant for cross-examination. For this purpose, the declarant has to provide an address within 150 miles of the courthouse, at which he or she can be served with process during the 20 days leading up to the trial.
The CCP § 98 declaration contained testimony concerning records that were originally created by the original creditor. Those records were also attached to the declaration. In considering objections of hearsay, secondary evidence and lack of authentication, the Court had to consider whether the testimony should come into evidence based on the business records exception.
1. Midland Funding, LLC’s CCP § 98 Declarant is Required to be Available for Personal Service
The CCP § 98 declaration submitted by Midland Funding, LLC in this case was signed by one “Kenny Smith” as an agent of Midland Funding. In it, he purported to identify a handful of addresses at which he could supposedly be served with process during the 20-days leading up to trial.
However, these addresses — at least the ones that were within the statutory limit of 150 miles — were for locations at which Mr. Smith was not physically present, but instead had supposedly authorized a proxy to accept service on his behalf. In fact, Romero attempted to have a subpoena served on Mr. Smith at one of the addresses, to compel his attendance at trial. The process server was unable to accomplish service, because Mr. Smith was not actually available at the given address.
Romero objected at trial that the declaration did not comply with CCP § 98’s requirement for availability of the declarant for service of process. However, the Orange County Superior Court trial judge, overruled the objection and admitted the declaration into evidence.
The Appellate Division deemed that the trial judge had erred, and reversed the decision.
2. The Testimony of a Midland Funding, LLC Witness Concerning the Records of an Original Creditor is Inadmissible Hearsay
The Appellate Division also found a second independent basis for reversal. Specifically, even if the § 98 declaration were not excluded for the procedural flaws discussed above, much of the evidence associated with the declarations, including attached original creditor paperwork (e.g., monthly statements), was inadmissible based on standard evidentiary objections.
Specifically, the testimony that was based upon those records was “secondary evidence” meaning that it was testimony concerning the content of records, and yet the records themselves were authenticated only by the hearsay testimony in the declaration. Therefore, everything hinged upon whether the testimony authenticating the records established the “business records exception” to the rule against hearsay pursuant to Evidence Code § 1271.
The court determined that, although the declarant now had “personal knowledge that the documents were part of Plaintiff’s business records” he “did not satisfactorily establish those documents were part of the prior creditor’s business records” insofar as he had no basis to testify as to the “mode of preparation” nor to the “trustworthiness” of the original creditor records.
Please visit the resource page on what to do if you have been sued by Midland Funding, LLC for more resources on that topic.