In 2005, I wrote an article for the Monitor about a case called In re Vinhnee (2005 Bankr. Lexus 2602) or (2005 Westlaw 3609376) (9th Cir. BAP). In the Vinhnee case, the court decided that in order to introduce computer records, such as an account history or payment ledger, the following foundational evidence must be presented to the court: 1.) the business uses a computer, 2.) the computer is reliable, 3.) the business has developed a procedure for inserting data into the computer, 4.) the procedure has built-in safeguards to ensure accuracy and identify errors, 5.) the business keeps the computer in a good state of repair, 6.) the witness had the computer read out certain data, 7.) the witness used the proper procedures to obtain the read outs, 8.) the computer was in working order at the time the witness obtained the read outs, 9.) the witness recognizes the exhibit as the read outs, 10.) the witness explained how he or she recognizes the read out, and 11.) if the read out contains strange symbols or terms, the witness explains the meaning of these symbols or terms for the trier-of-fact.

In Vinhnee, the defendant did not answer a complaint for nondischargeability, the defendant’s default was entered, and the plaintiff (American Express) was attempting to prove up its case to get the judgment. The plaintiff’s employee testified that he was the custodian of records for the monthly statements evidencing the debt due to plaintiff, that entries made in the monthly statements were made at or about the time of the transactions, that the records of the monthly statement were kept in the regular course of plaintiff’s business, and that the regular practice of the plaintiff was to retain these records. The witness testified that the records were maintained electronically on plaintiff’s computers.

The court then explained that because of the fact that they were maintained electronically, in addition to the basic foundation to be laid for the introduction of business records, additional authentication foundation was necessary explaining the computer and software utilized in order to assure the continuing accuracy of the records. The witness knew little about the computer hardware and software, and the court deferred admitting the exhibits giving the plaintiff an opportunity to present testimony by declaration post-trial as to the inner workings of the computer system.

The plaintiff presented a further declaration from an employee in support of the judgment who testified that he was personally familiar with the hardware and software used by plaintiff and also was personally familiar with the computer record systems used in the industry. The declaration identified the make and model of the computer equipment, named the software, noted that some of the software was customized, stated that it was standard in the industry, and that the computer was reliable and periodically updated. The declaration did not state such minutia such as plaintiff’s computer policy and policy system controls procedures, including control of access to the databases, controller access to the pertinent programs, recording and logging of changes to the data, backup practices and auto procedures to assure the continuing integrity of the records.

The court in the case In re Vinhnee applied the 11-step criteria set forth above to the testimony and the post-trial declaration and concluded that there was insufficient evidence to set forth facts discussing the retention and retrieval of the information contained in the documents. The Bankruptcy Appellate Panel (BAP) also believed that the post-trial declaration was insufficient to establish that the computer witness was qualified because he did not state anything about his training or experience that would “import an aura of verisimilitude” to his assertions. Thus, the BAP stated that without such evidence establishing the employee’s qualifications, it did not know whether the witness was a “professional manager of computer records or a janitor.” As a result, plaintiff could not obtain a judgment.

So why I am writing about something that happened in 2005? This brings me to a case that I recently had in the U.S. Bankruptcy Court for the Central District of California. In this case, my client was a lender that had a lien on real property. The debtor had filed a Chapter 7 bankruptcy petition. The Chapter 7 trustee had abandoned the property because it had no equity.

The debtor filed non-opposition to the my client’s Motion for Relief from the Automatic Stay. The debtor’s Bankruptcy Schedules stated that the debt was $490,000. The Bankruptcy Schedules further stated the debt was not disputed, contingent or unliquidated. The evidence submitted in support of the Motion for Relief from the Stay showed that the property had no equity either for my client or the estate. It was undisputed. The debtor’s Bankruptcy Schedules likewise stated that there was no equity in the property. The declaration submitted in support of the Motion for Relief from the bankruptcy stay authenticated all of the records, attached a copy of the computer account history and ledger, indicated the amount due, the payments made and the payments not made, and stated the amount of the debt with accrued interest, which was about $510,000.

Much to my surprise, the court issued an order indicating that it wanted evidence in connection with the hearing on the Motion for Relief from the Automatic Stay and the original documents presented at the hearing. I was absolutely dumbfounded as to why the court wanted evidence on this matter given the abandonment by the trustee, the non-opposition filed by the debtor and the admissions in the schedules.

So I brought my witness 500 miles in order to testify and prove up the debt and the lack of equity with all of the original documents. I put the witness on the stand, proved up the case, the judge asked a few questions and I rested. The court stated that we had proved up all elements except damages. The court, relying on In re Vinhnee above, stated that there were a few elements in the case In re Vinhnee that were not testified to by the witness. The witness was my client’s problem loan officer and had knowledge of the underlying loan and facts. He had spoken to the debtor prior to the filing of bankruptcy. However, he was not a computer expert. He was able to testify to all of the In re Vinhnee elements but could not testify to exactly how the computer operated. He basically testified to all of the elements except possibly item 4. He did not testify about his training or experience that would “import an aura of verisimilitude.”

Essentially, the court held that without a computer expert who could testify as to the inner workings of the computer, the motion would be denied. When I advised the court that because we did not have a computer expert present (especially because we had no idea why the court was setting this for oral argument and I had called the clerk who would not tell me) if the court would not accept my client’s testimony then we would rely on the debtor’s schedules as to the amount of the debt since it did not matter in this motion given that the property had no equity if the debt was $20,000 less. The court refused to allow the schedules in as evidence even though the debtor had signed them under penalty of perjury because, like In re Vinhnee, the court indicated that the debtor really had no knowledge of the underlying debt at the time the debtor filed the schedules. This was another ruling, which defied logic and the law.

Pursuant to 11 U.S.C. §727, a debtor’s discharge can be denied for presenting false oaths or accounts, which include filing false Bankruptcy Statements and Schedules. However, now the debtor’s schedules signed under penalty of perjury could not be used to introduce as evidence to prove up the debt? This was a party admission. Being totally frustrated, I then asked the court to continue the hearing on the Motion for Relief so that, like In re Vinhnee, I could present a declaration from a computer expert or present further testimony if the court believes it was necessary. The court refused to do so and instead denied the motion without prejudice.

On the heels of this brush with the court that took Vinhnee one step further as to having to prove up computer evidence, the U.S. Court of Appeals for the Ninth Circuit just held in U-Haul International, Inc. v. Lumbermens Mutual Casualty Company (2009) DJDAR 11940) (9th Cir. 2009) a much more relaxed standard for introducing evidence. The court stated that if a business meets the criteria of Federal Rules of Evidence, Rule 803(6) the records could be introduced as evidence. This Rule provides that records of regularly conducted business activity meeting the following criteria constitute an exception to the prohibition against hearsay evidence: “A … report, record, or data compilation, in any form, of acts, events, condition, opinions, or diagnoses, made at or near the time by, or from information transmitted by, a person with knowledge, if kept in the course of a regularly conducted business activity, and if it was the regular practice of that business activity to make the … report, record or data compilation, all as shown by the testimony of the custodian or other qualified witness … unless the source of information or the method or circumstances of preparation indicate lack of trustworthiness.”

The court stated that it was clear for the purpose of Rule 803(6), “it is immaterial that the business record is maintained in a computer rather than in company books.” See Sea-Land Serv., Inc. v. Lozen Int’l., LLC, 285 F.3d 808, 819 (9th Cir. 2002) quoting United States v. Catabran, 836 F.2d 453, 457 (9th Cir. 1988). In this case, the exhibit summarized loss adjustment expense payments for each claim fit squarely within the business records exception of Rule 803(6).

The District Court found 1.) the underlying data was entered into the database at or near the time of each payment event, 2.) the persons who entered the data had knowledge of the payment event, 3.) the data was kept in the course of the insurance company’s regularly conducted business activity, and 4.) the witness was qualified and testified as to this information. The defendant argued that the witness was not qualified to testify to the data entered into the database because he did not input each piece of data that underlines the summaries. The court said he did not have to input this information himself. The defendant then attacked the witness because the witness did not authenticate the computer summaries pursuant to Federal Rules of Evidence, Rule 901. The court stated, “We have held that [i]t is not necessary that the computer programmer testify in order to authenticate computer-generated records.” United States v. Miller, 771 F.2d 1219, 1237 (9th Cir. 1985). A computer printout may be authenticated by “one who has knowledge of the particular record system… Similarly, a party need not produce expert testimony as to [the] mechanical accuracy of [a] computer where it presented evidence that [the] computer was sufficiently accurate [so that the] company relied upon it in conducting its business.” United States v. De Georgia, 420 F.2d 889, 893 n. 11 (9th Cir. 1969). In this case, the witness testified to less foundational evidence than in my case and the Court of Appeals upheld the introduction of this evidence.

Hopefully, creditors, lenders and lessors will not have to endure the problems my client had when it introduced evidence in an unopposed Motion for Relief from the Automatic Stay. However, should creditors, lenders and lessors run into computer records issues again, and if the declaration submitted in support of the motion for relief from the automatic stay, for summary judgment, or at a trial do not comply with all of the In re Vinhnee criteria discussed above, all is not lost given this recent U-Haul case, which relaxed the necessity of having a computer expert prove up computer records.

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Andrew K. Alper is a partner with the law firm of Frandzel Robins Bloom & Csato, LC in Los Angeles. Alper has been representing equipment lessors, funding sources and other financial institutions since 1978. Alper obtained his Bachelor of Arts degree in Political Science, magna cum laude, from the University of California at Santa Barbara, and received his Juris Doctor from Loyola Marymount University School of Law making the Dean’s List. Alper’s practice emphasizes the representation of equipment lessors and funding sources in all aspects of equipment leasing including litigation, documentation, bankruptcy and transactional matters. Besides representing equipment lessors and funding sources, Alper represents banks and other financial institutions in the area of commercial litigation, insolvency, secured transactions, banking law, real estate and business litigation.