Midland Funding LLC v. Mark Walton , 2017 ME 24 ( 2017 )

MAINE SUPREME JUDICIAL COURT Reporter of Decisions
Decision: 2017 ME 24 Docket: Was-16-127
Submitted
On Briefs: November 29, 2016
Decided: February 2, 2017
Panel: SAUFLEY, C.J., and ALEXANDER, MEAD, JABAR, HJELM, and HUMPHREY, JJ.
MIDLAND FUNDING LLC
v.
MARK WALTON
MEAD, J.
[¶1] Mark Walton appeals from a judgment entered in the District Court
(Calais, Romei, J.) in favor of Midland Funding LLC in the amount of $5,684.72
plus costs of court. Walton argues that the District Court lacked jurisdiction
over the matter pursuant to language in the credit card agreement and asserts
that the court erred in admitting documentation of the assignment of his debt
to Midland Funding from Barclays Bank Delaware pursuant to the business
records exception to the hearsay rule. We affirm the judgment.
I. BACKGROUND
[¶2] On February 26, 2015, Midland Funding filed a complaint against
Walton alleging that he had entered into a credit card agreement with Barclays
Bank Delaware in April 2008, used the card to obtain extensions of credit, and
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failed to make payments on the account since March 2009. The complaint
asserted that “[a]ll of the rights, titles, and interest” in Walton’s account had
been “assigned, endorsed and set over” to Midland Funding, and it sought to
collect an outstanding balance of $5,684.72.
[¶3] On October 26, 2015, Walton filed a motion to dismiss alleging that
the District Court did not have jurisdiction over the matter. He argued that
pursuant to language in his credit card agreement, the matter should have
instead been brought in “small claims” court.1 The following day, the court
granted the motion. On October 30, Midland filed a motion for findings of fact
and conclusions of law and a motion for reconsideration, to which Walton filed
no response. Noting that no opposition had been filed, the court granted the
motion for reconsideration and denied Walton's motion to dismiss.
[¶4] The court held a bench trial on February 8, 2016. Walton asked the
court to reconsider his motion to dismiss based on lack of jurisdiction, but the
court reaffirmed its prior ruling denying the motion. In support of its
complaint, Midland called as a witness Cassandra Praught, an employee of
1
Midland Funding asserts that Walton's motion must be treated as a motion for summary
judgment because he attached exhibits to the motion, including an excerpt of the card agreement
terms and conditions. However, M.R. Civ. P. 12(b) provides that this principle applies only to a
motion to dismiss pursuant to Rule 12(b)(6), and Walton's motion to dismiss was based on lack of
jurisdiction pursuant to Rule 12(b)(1).
3
Midland Credit Management (MCM). Praught has worked for two years as a
“legal specialist and custodian of records” for MCM; her job duties require her
to “review legal documents and verify information contained within Midland’s
business records, as well as testify telephonically.”
[¶5] According to Praught, MCM is a debt servicer and affiliate company
of Midland Funding. She explained that Midland is in the business of purchasing
distressed debt, including from Barclays Bank. While Midland Funding, which
has no employees and is controlled by a board of directors, handles the debt
purchasing process, MCM incorporates pertinent documents into its business
records. Praught testified that when Midland purchases debt from Barclays,
records from the assignment are transferred electronically with an electronic
sale file and are uploaded to a secure website. MCM then pulls the records from
that website and loads them into its system. Praught has been trained in these
“on-boarding processes” and on the computer systems used to hold the records,
and she has access to the electronic records for defaulted accounts. She
explained that once the documents are integrated into Midland’s records, they
are password protected and not altered.
[¶6] Praught testified that part of her job is to verify that information in
relevant documents matches the information in Midland’s system that it
4
received from Barclays. Praught testified she does not have any particularized
knowledge of the internal policies or practices of any of the companies from
which Midland purchases debt, but that “Midland buys from reputable sellers
and we work with them on a regular basis.” She does have “an overview
training of the process” by which Midland purchases accounts.
[¶7] At the trial, Midland sought to introduce in evidence a bill of sale as
proof of the assignment of Walton’s debt from Barclays to Midland. Praught
identified the specific bill of sale between Barclays and Midland and explained
that this document was obtained from Barclays on or about the time of sale.
She noted that such bills of sale and assignment are always obtained when
Midland purchases debt and are transferred to Midland electronically and
incorporated into its business records. Praught testified that she knew
Walton’s account was included in the sale because each included account is
listed in the electronic sale file, and when the data is entered into Midland’s
system, a “field data sheet”2 is created that includes extracted, isolated account
information. A field data sheet for Walton’s account was proffered with the bill
2 At one point, Praught responded to a question about the redacted assignment by describing
what seemed to be the field data sheet. Considering her other testimony and the content of the
documents, we presume that the “bill of sale” is the same document as the “redacted assignment,”
while the field data sheet is a separate document, offered with the bill of sale, that contains the
summary of Walton’s account information.
5
of sale, and it indicates that it was printed by MCM from the electronic records
provided by Barclays in connection with the sale from Barclays to Midland.
Praught testified that she personally checked the documents that she testified
from at trial against the information in the electronic sale file to verify that the
information “matched.” Walton objected to the admission of these documents
on the basis that they lacked foundation, but the court admitted the records.
[¶8] Midland also introduced in evidence over Walton’s objection
Walton’s credit card application to Barclays and several of Walton’s credit card
statements. Praught testified that Midland’s regular business practice was to
send out a validation letter to each consumer stating the amount owed on the
account, the original account number, the original creditor, and a statement
that Midland has purchased the account and is attempting to collect the debt.
She testified that a copy of this document for Walton’s account was stored in
the electronic files, and that she had the ability to produce it if requested. She
testified that Midland received no reply disputing Walton’s account.
[¶9] Following Praught’s testimony, Midland offered in evidence a set of
admissions by Walton pursuant to M.R. Civ. P. 36. In the admissions, Walton
admitted that he was issued a credit card from Barclays, used the card to
purchase goods and services or make cash advances, failed to make payments
6
on the card, and breached the card agreement. He denied that Barclays mailed
him an account statement on November 16, 2009, stating the balance due on
his account, but he admitted that he had received the statement and that the
amount owed according to the statement was $5,684.72. He denied that the
rights to his account were transferred to Midland and that he owed the balance
on his account to Midland. Walton presented no witnesses or exhibits at the
trial.
[¶10] The court entered judgment in favor of Midland Funding for
$5,684.72 plus costs of court. Walton appeals. See M.R. App. P. 2.
II. DISCUSSION
A. Subject Matter Jurisdiction
[¶11] Walton challenges the court's jurisdiction in this matter, asserting
that the District Court does not have jurisdiction because the credit card
agreement states that the parties may only resolve conflicts via arbitration or
as a small claims proceeding in Maine.
[¶12] We review de novo whether a trial court has subject matter
jurisdiction. Windham Land Trust v. Jeffords, 2009 ME 29, ¶ 19, 967 A.2d 690.
“If the District Court lacked subject matter jurisdiction, we would have to vacate
its order.” Landmark Realty v. Leasure, 2004 ME 85, ¶ 6, 853 A.2d 749.
7
[¶13] The agreement on which Walton relies provides that in the event
of a dispute, the parties must submit to binding arbitration, or
[a]s an exception to arbitration you and we may pursue a Claim
within the jurisdiction of the Justice of the Peace Court in Delaware,
or the equivalent court in your home jurisdiction (each a “Small
Claims Court”) . . . .
[¶14] The Delaware Justice of the Peace Court has civil jurisdiction over,
inter alia, common law actions in contract when the amount of damages sought
is less than $15,000. Del. Code Ann. tit. 10, § 9301(1) (2016). The Justice of the
Peace Court is governed by procedural rules, which prescribe procedures for
matters such as discovery and motion practice, see Del. J.P. Ct. Civ. R. 1-112, and
the Rules of Evidence apply in its proceedings. Del. R. Evid. 1101(a)-(b).
[¶15] Similarly, the Maine District Court has original jurisdiction,
concurrent with the Maine Superior Court, over civil actions seeking money
damages. 4 M.R.S. § 152(2) (2016). It, too, is governed by comprehensive
procedural rules, see M.R. Civ. P. 1-140, and, with a few exceptions, the Maine
Rules of Evidence apply to District Court proceedings, M.R. Evid. 101(a)-(b).
[¶16] On the other hand, small claims proceedings in Maine share fewer
similarities with the Delaware Justice of the Peace Court. Small claims actions,
over which the District Court has exclusive jurisdiction, 4 M.R.S. § 152(4)
(2016), involve “a right of action cognizable by a court if the debt or damage
8
does not exceed $6,000 exclusive of interest and costs” that does not involve
title to real estate, 14 M.R.S. § 7482 (2016). Further, small claims proceedings
are governed by separate, succinct procedural rules, see M.R.S.C.P. 1-18, and the
Maine Rules of Evidence do not apply in small claims proceedings,
M.R. Evid. 101(b)(4).
[¶17] In light of the similarities of the civil jurisdiction and procedures
of the Delaware Justice of the Peace Court and the Maine District Court, we are
satisfied that the District Court is the “equivalent court” to the Delaware Justice
of the Peace Court. The reference to “small claims court” in the card agreement
was likely a generic reference to courts of specific civil jurisdiction and not a
limitation only to actions undertaken pursuant to the Small Claims Act,
14 M.R.S. §§ 7481-7487 (2016).3 Jurisdiction over this matter is properly
established in the Maine District Court.
B. Business Records Exception to Hearsay
[¶18] Because Walton does not dispute the existence or amount of his
credit card debt, we address only his argument that Praught was not a qualified
3 We note that Maine has no free-standing “small claims court.” The Small Claims Act establishes
only a "simple, speedy and informal" means for litigating claims in the District Court. 14 M.R.S. § 7481
(2016). We also note that the Rules of Evidence, upon which Walton relies to seek to exclude
evidence of the sale of the debt to Midland from Barclays, do not apply in small claims actions.
See M.R. Evid. 101(b)(4).
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witness to provide the foundation for the bill of sale and assignment between
Barclays and Midland as a business record. “When admission of evidence under
the business records exception to the hearsay rule is challenged, we review a
trial court's foundational findings to support admissibility for clear error and
its ultimate determination of admissibility for an abuse of discretion.”
Am. Express Bank FSB v. Deering, 2016 ME 117, ¶ 12, 145 A.3d 551 (quotation
marks omitted).
[¶19] Maine Rule of Evidence 803(6), which governs the admissibility of
business records, provides that the following are not excluded by the rule
against hearsay, regardless of whether the declarant is available as a witness:
(6) Records of a regularly conducted activity. A record of an
act, event, condition, opinion, or diagnosis if:
(A) The record was made at or near the time by—or from
information transmitted by—someone with knowledge;
(B) The record was kept in the course of a regularly conducted
activity of a business, organization, occupation, or calling, whether
or not for profit;
(C) Making the record was a regular practice of that activity;
(D) All these conditions are shown by the testimony of the
custodian or another qualified witness, or by a certification that
complies with Rule 902(11), Rule 902(12) or with a statute
permitting certification; and
(E) Neither the source of information nor the method or
10
circumstances of preparation indicate a lack of trustworthiness.
[¶20] Ordinarily these elements must be established by a “custodian or
other qualified witness—that is, a person who was intimately involved in the
daily operation of the business and whose testimony showed the firsthand
nature of his or her knowledge.” Bank of Am., N.A. v. Greenleaf, 2014 ME 89,
¶ 25, 96 A.3d 700 (citation and quotation marks omitted). The affiant
establishing the foundation for a business record need not personally prepare
or supervise preparation of the record to provide the foundation, State v. Abdi,
2015 ME 23, ¶ 17, 112 A.3d 360, and “need not be an employee of the record’s
creator,” Beneficial Maine Inc. v. Carter, 2011 ME 77, ¶ 13, 25 A.3d 96. If records
were “received and integrated into another business’s records and were relied
upon in that business’s day-to-day operations, an employee of the receiving
business may be a qualified witness.” Id. In those situations, “records will be
admissible pursuant to the business records exception . . . if the foundational
evidence from the receiving entity’s employee is adequate to demonstrate that
the employee had sufficient knowledge of both businesses’ regular practices to
demonstrate the reliability and trustworthiness of the information.” Id.
[¶21] Praught was qualified to lay the foundation for the record
documenting the assignment of Walton’s debt from Barclays to Midland
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Funding based upon her knowledge of Midland's and MCM’s practices in
purchasing debt from credit card issuers. Praught was not an employee of
Midland Funding LLC itself, but of MCM—a company affiliated with Midland.
Her job title at MCM is “legal specialist and custodian of records.” She is duly
authorized by Midland Funding’s board of directors to testify on behalf of
Midland. She testified that Midland has no employees—only a board of
directors—and that MCM is a company affiliated with Midland and undertakes
its debt collection efforts on its behalf. Her testimony demonstrated personal
knowledge of Midland’s business practices in purchasing debt and how the
records created pursuant to those purchases are transferred and maintained.
She also stated that records such as the bill of sale and assignment were always
produced when Midland purchased debt.4 Further, Praught testified that she
has been trained on the computer system that maintains these records, that she
has personal access to records, and that she personally reviewed the records
for Walton’s account before the trial and compared them with the information
in the electronically stored files. Accordingly, regarding the purchase of the
4 The fact that the bill of sale was created by Barclays does not disqualify Praught from testifying
as to its authenticity. When Midland Funding purchased the debt from Barclays, the purchase was
memorialized by a bill of sale as proof of the transaction. Even though the bill of sale was signed only
by Barclays, the sale was a two-party transaction in which Midland Funding was, for practical
purposes, a co-maker of the record. Accordingly, Praught’s lack of knowledge as to Barclays’s day-
to-day operations does not negate her ability to lay the record’s foundation.
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Walton credit card account from Barclays, Midland provided a witness “whose
knowledge of business practices for production and retention of the record is
sufficient to ensure the reliability and trustworthiness of the record.”5
Beneficial Maine Inc., 2011 ME 77, ¶ 12, 25 A.3d 96; see also Deering,
2016 ME 117, ¶ 14, 145 A.3d 551.
[¶22] We next consider whether Praught, as a qualified witness, laid the
proper foundation for admission of the documents in evidence.
1. The record was made at or near the time by—or from information
transmitted by—someone with knowledge.
[¶23] Praught testified that the record of the assignment was obtained
from Barclays at or near the time of the sale of the debt. Although Praught did
not specifically testify that the record was produced or transmitted by someone
with knowledge, the court could reasonably infer those facts from the
circumstances described by Praught.
2. The record was kept in the course of a regularly conducted activity
of a business, organization, occupation, or calling, whether or not
for profit.
[¶24] Praught testified, based upon her personal knowledge, that
Midland always obtained and maintained a record of the details of purchases of
5 These circumstances are markedly distinct from those where a third-party servicer with no
connection to the owner of a debt (other than loan servicing) attempts to offer testimony regarding
the owner's business practices.
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debt such as the transaction with Barclays Bank that included the Walton
account. That record, the bill of sale here, is part of the MCM records for which
Praught serves as custodian.
3. Making the record was a regular practice of that activity.
[¶25] Praught's testimony confirmed that Midland's procuring and
storing bills of sale reflecting purchases of accounts receivable was a regular
practice of its business of acquiring ownership of unpaid debt. An electronic
copy of that bill of sale is kept as a regular practice of MCM.
4. All these conditions are shown by the testimony of the custodian or
another qualified witness, or by a certification that complies with
Rule 902(11), Rule 902(12) or with a statute permitting
certification.
[¶26] Praught's testimony established that she is indeed a custodian of
the records sought to be admitted in this matter. She has personal knowledge
of how they came into existence and how they are stored.
5. Neither the source of information nor the method or circumstances
of preparation indicate a lack of trustworthiness.
[¶27] Nothing in the source of the documentation of the sale of the
accounts from Barclays to Midland suggests a lack of trustworthiness.
Praught's testimony indicated that Midland requires an explicit confirmation of
the sale of accounts receivable as part of its routine practice. The transactional
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records are clear upon their face. Walton's own admissions confirm the
accuracy of the records reflecting his particular indebtedness.
[¶28] Accordingly, upon these facts, we find no abuse of discretion by the
court in admitting the bill of sale in evidence pursuant to the business record
exception to the hearsay rule, thus establishing that Midland Funding LLC is the
sole owner of the credit card debt at issue in this matter.
The entry is:
Judgment affirmed.
Daniel L. Lacasse, Esq., Calais, for appellant Mark Walton
Ashley Janotta, Esq., Susan J. Szwed, P.A., Portland, for appellee Midland
Funding, LLC
Calais District Court docket number CV-2015-009
FOR CLERK REFERENCE ONLY