Hearsay Business Exception Updated August 2010

8/9/2019 Hearsay Business Exception Updated August 2010

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RULE 803(6) THE

BUSINESS RECORDS EXCEPTION TO THE HEARSAY RULE

By

Edward X. Clinton, Jr.

The Law Offices of Edward X. Clinton, P.C.30 North LaSalle Street, Suite 3400

Chicago, IL 60602

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).


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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


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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.


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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


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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.


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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.


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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.


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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


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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


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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.