Lead Opinion
Opinion for the court filed by Circuit Judge GAJARSA. Dissenting opinion filed by Circuit Judge BRYSON.
The appellants (“carriers”) appeal from a judgment of the United States Court of Federal Claims holding that the carriers were not entitled to a refund of certain setoffs taken by the United States in connection with transportation contracts between the carriers and the United States.
BACKGROUND
The appellants are common carriers and freight forwarders who transport household goods for military service members under contracts with the Military Traffic Management Command. Under these contracts, the carriers act as movers for military service members when they are transferred to a new post or separated from service. The carrier will prepare an inventory of the goods, pack, move, and then unpack the goods. At the new destination, the carrier will tender a joint statement of loss or damage at delivery to the service member to annotate which items, if any, have been damaged or are missing. The document is then endorsed by both parties. The service member then has seventy days to inspect the household goods and file additional claims with the appropriate military claims office. See Air Land Forwarders,
A service member initiates a claim against the United States for lost or damaged goods by filing DD Form 1840R (Notice of Loss or Damage) with the military claims office. The service member is then required to file DD Form 1842 (Claim for Personal Property Against the United States) and DD Form 1844 (Schedule of Property and Claim Analysis Chart) to perfect the claim. DD Form 1842 details the circumstances of the claim and assigns any claim the individual may have against the carrier to the United States. DD Form 1844 is used to itemize the lost or damaged property and to record the cost to replace or repair the damaged item(s). In support, the service member may also submit repair estimates prepared by third parties or proof of purchase for the property to prove the amount of the claim.
In some cases, a claims inspector will survey the property and file an independent report. An adjudicator for the Military Claims Office reviews the documents submitted by the service member to determine the appropriate reimbursement for claimed losses. If the service member is compensated, the United States will seek reimbursement from the carrier by sending DD Form 1843 together with the service member’s supporting documents to the carrier, which has 120 days to respond. If there is no response or the parties cannot reach a settlement, the Defense Finance and Accounting Service sets off the amount demanded against payments due the carrier for other shipments. See, e.g., Dalton v. Sherwood Van Lines, Inc.,
DISCUSSION
1. Standard of Review
We review a trial court’s decision in an evidentiary matter under an abuse of discretion standard and will only disturb the trial court’s ruling if it prejudiced substantial rights and was thus not harmless error. See Applied Med. Resources Corp. v. United States Surgical Corp.,
2. Admissibility of Repair Estimates Under Rule 803(6)
The carriers argue that the Court of Federal Claims abused its discretion by admitting into evidence under Rule 803(6) the repair estimates produced by third parties and submitted by the service members as “business records” of the military. The carriers argue that Rule 803(6) requires, as a prerequisite to admission, the production of a qualified witness to testify that the documents were prepared by a person regularly engaged in the production of such documents. The carriers argue that the requirements for admissibility under Rule 803(6) have not been met in this case because the government’s witnesses could not establish that: (1) the estimates had been prepared by persons with first hand knowledge of the damage; (2) the preparer of the estimate was engaged in the regular business of repairing damaged goods; and (3) the preparer provided estimates as part of a regular business activity.
The United States counters the basic premise of the carriers’ argument asserting that the documents were not admitted under Rule 803(6) as the “business records” of the repair shops making the estimates, but rather that the entire claims files were properly admitted under 803(6) as the “business records” of the military. As such, the United States argues that it must only establish that the claims files were the “business records” of the military and as a whole constituted records of the regularly conducted activity of adjudicating a service member’s claim. Thus, the United States argues that the only foundation testimony necessary to establish the admissibility of these records is that it was the military’s regular practice to obtain, integrate, and rely upon the estimates dim-ing the claims adjudication process.
The Court of Federal Claims agreed with the United States that the files as a whole, including the repair estimates from third-party repair shops contained therein, constituted records of regularly conducted activity of the military in adjudicating claims, and thus the files were admissible under Rule 803(6). See Air Land Forwarders,
Federal Rule of Evidence 802 is the general rule excluding hearsay: “Hearsay is not admissible except as provided by these rules or by other rules prescribed by the Supreme Court pursuant to statutory authority or by Act of Congress.” Federal Rule of Evidence 801(c) defines hearsay as “a statement, other than one made by the declarant while testifying at the trial or hearing, offered in evidence to prove the truth of the matter asserted.” The parties do not dispute that the repair estimates at issue fall within the definition of hearsay. Rule 803 enumerates twenty-three exceptions to the hearsay rule. In particular, Rule 803(6) provides an exception to the hearsay rule for records of regularly conducted activity. It states:
A memorandum, report, record or data compilation, 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, 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 memorandum, report, record, or data compilation, all as shown by testimony of the custodian or other qualified witness, unless the source of information or the method or circumstances of preparation indicate lack of trustworthiness [is not excluded by the hearsay rule, even though the declarant is available as a witness]. 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.
This court has not previously addressed the question of the foundation testimony necessary to admit documents produced by third parties not before the court under Rule 803(6) where those documents have been incorporated into another business entity’s records. Other courts of appeal have addressed this situation in a number of cases and have generally held that a document prepared by a third party is properly admitted as part of the business entity’s records if the business integrated the document into its records and relied upon it.
In United States v. Childs,
In United States v. Jakobetz,
Rule 803(6) allows business records to be admitted “if witnesses testify that the records are integrated into a company’s records and relied upon in its day to day operations.” Matter of Ollag Constr. Equip. Corp.,665 F.2d 43 , 46 (2d Cir. 1981). Even if the document is originally created by another entity, its creator need not testify when the document has been incorporated into the business records of the testifying entity.
Jakobetz,
The Eleventh Circuit, in United States v. Parker,
The above cases hold that Rule 803(6) does not require that the document actually be prepared by the business entity proffering the document. Rather, the cases stress two factors, indicating reliability, that would allow an incorporated document to be admitted based upon the foundation testimony of a witness with first-hand knowledge of the record keeping procedures of the incorporating business, even though the business did not actually prepare the document. The first factor is that the incorporating business rely upon the accuracy of the document incorporated and the second is that there are other circumstances indicating the trustworthiness of the document. See, e.g., Munoz v. Strahm Farms, Inc.,
The trial court found both reliance and additional assurances of credibility to be present in this case. First, the repair estimates at issue were clearly relied upon by the military during the claims adjudication process. See Air Land Forwarders,
Second, the trial court explained that there were other assurances of reliability. Military service members could be fined and/or imprisoned for submitting a false claim. See id. at 556. The claims submitted by the service members, which included the estimates, were filed with an accompanying statement acknowledging
The trial court also found that Military Claims Office personnel were responsible for becoming familiar with the competency of estimators in the local area and with the estimating process in general, thus enabling them to reject questionable estimates. See id. These additional guarantees of reliability further support the conclusion that the repair estimates at issue were properly admitted by the trial court even though the government did not produce a witness that could testify with first-hand knowledge as to the procedures used in the original preparation of each of the repair estimates. As the cases described above indicate, such testimony is not necessary where an organization incorporated the records of another entity into its own, relied upon those records in its day-to-day operations, and where there are other strong indicia of reliability.
In fact, given the significant additional assurances of reliability, the documents at issue may also be admissible pursuant to Rule 807, which is the residual exception to the hearsay rule.
The dissent is concerned that under our holding in this case, a law enforcement agency, such as the FBI, could collect statements and documents from unidentified informants and then introduce those statements and documents as business records of the agency as long as the agency could show that the records were retained and relied upon by the agency in the course of investigating federal crimes. Our holding certainly does not support such a broad theory of admissibility. Records kept in the course of a criminal investigation are generally maintained for the purpose of prosecuting a potential criminal defendant. Such records lack the other assurances of credibility and trustworthiness that our holding requires for admissibility of incorporated documents prepared by third parties. See, e.g., United States v. Bohrer,
Furthermore, some of our sister circuits have explicitly held that since Rule 803(8)(B)
CONCLUSION
Because the trial court did not abuse its discretion in admitting into evidence repair estimates prepared by third parties as “business records” of the military under Rule 803(6), the judgment of the Court of Federal Claims is hereby
AFFIRMED
Notes
. The litigation in the United States Court of Federal Claims consolidated twenty-one separate complaints for decision, Nos. 91-CV-922 through 91-CV-941, inclusive. Of those complaints in the original litigation, only the following ten complaints have been appealed to this court: 91-CV-924, 91-CV-926, 91-CV-927, 91-CV-929, 91-CV-930, 91-CV-933, 91-CV-934, 91-CV-938, 91-CV-940, and 91-CV-941.
. Former Federal Rule of Evidence 803(24), the so called "Residual Exception,” was replaced by Federal Rule of Evidence 807 on December 7, 1997. These two rules are substantively identical. Rule 807 provides that:
A statement not specifically covered by Rule 803 or 804 but having equivalent circumstantial guarantees of trustworthiness, is not excluded by the hearsay rule, if the court determines that
(A) the statement is offered as evidence of a material fact;
(B) the statement is more probative on the point for which it is offered than any other evidence which the proponent can procure through reasonable efforts; and
(C) the general purposes of these rules and the .interests of justice will best be served by admission of the statement into evidence. However, a statement may not be admitted under this exception unless the proponent of it makes known to the adverse party sufficiently in advance of the trial or hearing to provide the adverse party with a fair opportunity to prepare to meet it, the proponent's intention to offer the statement and the particulars of it, including the name and address of the declarant.
. Federal Rule of Evidence 803(8) states that:
The following are not excluded by the hearsay rule, even though the declarant is available as a witness.... Records, reports,*1345 statements, or data compilations, in any form, of public offices or agencies, setting forth (A) the activities of the office or agency, or (B) matters observed pursuant to duty imposed by law as to which matters there was a duty to report, excluding, however, in criminal cases matters observed by police officers and other law enforcement personnel, or (C) in civil actions and proceedings and against the Government in criminal cases, factual findings resulting from an investigation made pursuant to authority granted by law, unless the sources of information or other circumstances indicate lack of trustworthiness.
(emphasis added).
Dissenting Opinion
dissenting.
This case turns on a single point of evidence law, but an important one. At issue is the interpretation of what is probably the most commonly invoked exception to the federal hearsay rule, the “business records” exception.
The business records exception is embodied in Rule 803(6) of the Federal Rules of Evidence. Rule 803 provides, in pertinent part:
The following are not excluded by the hearsay rule, even though the declarant is available as a witness:
(6) A memorandum, report, record, or data compilation, 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, 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 memorandum, 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....
By its terms, the rule requires several conditions to be satisfied before a document can be admitted under the business records exception. A sponsoring witness, either the custodian of the records or another qualified witness, must testify (1) that the records in question were made contemporaneously with the recorded events, (2) that the records were made by, or from information transmitted by, someone with personal knowledge of the events, (3) that the records were kept in the course of a regularly conducted business activity j and (4) that it was the customary practice of that business activity to prepare such records. See 5 Jack B. Wein-stein & Margaret A. Berger, Weinstein’s Federal Evidence § 803.11 (Joseph M. McLaughlin ed., 2d ed.1998). The records “must be excluded if a witness cannot vouch that the requirements for admission have been met.” Id. § 803.11[1], at 803-61 (listing cases).
The documents at issue in this case cannot be admitted as the business records of the entities that prepared the estimates because none of the above prerequisites for admission has been satisfied. The documents consist of notations on various slips of paper purporting to reflect some unidentified person’s estimate of the cost
Apparently aware that the repair estimates could not be admitted on the basis of testimony about the circumstances of their preparation, the government argues that the documents are admissible as the business records of the government agency that collected them in the course of preparing for this litigation. The government’s theory is this: The documents were assembled by Department of Defense personnel responsible for paying service members’ claims for damage caused to their furniture by private carriers in the course of moving, and for subsequently making claims against those carriers. At trial, representatives from the Defense Department testified that they had collected the estimate records, and that they had relied on those records in paying the service members’ claims and in seeking reimbursement from carriers such as the appellants. Because the Defense Department retained the records and relied on them, the government argues, those records are admissible as business records of the Defense Department.
This theory, which the court today adopts, is squarely at odds with the text of Rule 803(6). The rule requires foundational evidence to establish the circumstances in which the record in question was made. The government’s witnesses, however, were unable to testify about any of those circumstances. Instead, the government’s witnesses testified about the circumstances under which the government received and retained the records. But that is not good enough, under Rule 803(6), to justify the admission of the records for the truth of their contents. Where, for example, is the evidence that any of the records were made at or near the time of the event recorded or that any of the records were made by or from information transmitted by a person with knowledge? It is missing. The government witnesses admitted they had no idea of the circumstances under which the records were prepared. Under the rule, that should have been the end of the matter, and the evidence should have been ruled inadmissible under Rule 803(6).
Both the government and the court emphasize what they perceive as the reliability of the records in this case, purportedly ensured by the government’s interest in obtaining accurate estimates of the damage to service members’ property. There are three problems with this focus on reliability.
First, a party’s general interest in obtaining reliable information from a source is not sufficient to render that information rehable, as that term is used in the hearsay rules. I may have every expectation and desire that the statements my bank sends me every month are accurate, but my assumptions and wishes do not make the statements reliable absent evidence about how the statements were prepared.
Second, the particular grounds recited by the government for concluding that the repair estimates are reliable are not convincing. The penalties to which service
Third, Rule 803(6) does not permit evidence that does not satisfy the rule to be admitted as long as it is considered reliable. To the contrary, the only role reliability plays in the Rule 803(6) calculus is to exclude evidence that otherwise qualifies for admission. Thus, even if particular records otherwise satisfy all the foundational requirements of the rule, the records must be excluded if the “source of information or the method or circumstances of the preparation [of the records] indicate lack of trustworthiness.” A finding of reliability, by itself, does not authorize admission under the rule.
At bottom, the government’s position is that even though it can offer no evidence regarding the circumstances under which the estimate documents were prepared, the documents can be admitted for their truth simply because the government collected the records, retained them, and relied on them. Under this theory, the government (or, for that matter, a private party) could presumably urge the admission of records collected from any source whatsoever, as long as the records were retained in a file and relied on in some way. Thus, the FBI could collect statements by unidentified informants and introduce those statements as business records, as long as it could show that the records were retained and relied upon in the course of the FBI’s business of investigating federal crimes. While such a proposition may seem hyperbolic, it appears to be consistent with the government’s theory of admissibility in this case. Significantly, the government’s counsel, upon being asked a question based on that hypothetical example, did not concede that such documents would be inadmissible. But the inadmissibility of such documents cannot be denied. See, e.g., Cameron v. Otto Bock Orthopedic Indus., Inc.,
[T]he police officer who made the recordings was acting in the regular course of business, but he had no knowledge of the truthfulness of the information being recorded, while the witnesses who gave the information which was recorded had personal knowledge but were under no business duty to report. The latter’s tape-recorded statements can not be given the presumption of reliability and regularity accorded a business record.
To be sure, Rule 803(6) does not require that the sponsoring witness be the maker of the documents, as long as the sponsoring witness can satisfy all the foundational requirements of the rule. See Weinstein’s Federal Evidence, supra, § 803.11[1], at 803-61 to 803-64; 2 Kenneth S. Broun et al., McCormick On Evidence § 292 (John William Strong ed., 4th ed.1992); United States v. Parker,
It is also true that in some circumstances records prepared by one entity may be introduced as the business records of another. Those circumstances are addressed in McCormick On Evidence:
Problems may arise when one business organization seeks to introduce records in its possession but actually prepared by another. It seems evident that mere possession or “custody” of records under these circumstances does not qualify employees of the possessing party to lay the requisite foundation, and that the transmittal of information by the custodian regarding the contents of records in the custodian’s possession does not qualify the recipient to lay the foundation. However, when the business offering the records of another has made an independent check of the records, or can establish accuracy by other means, the necessary foundation may be established.
McCormick On Evidence, supra, § 292.
Thus, a company in possession of documents prepared by another company may introduce the documents as its own business records, even if the sponsoring witness from the custodian company cannot vouch for the circumstances under which the documents were prepared, provided that the custodian company “has made an independent check of the records, or can establish accuracy by other means.” McCormick On Evidence, supra, § 292. The custodian company’s independent check of the documents acts as a proxy for the requirement that the records have been prepared by someone with personal knowledge of the recorded events. By verifying the documents, the custodian company is in essence acquiring personal knowledge of the recorded events, and thereby effectively adopting the entries in the documents as his own. See, e.g., Munoz v. Strahm, Farms, Inc.,
Several of the cases cited by the government fit this pattern, in which business records prepared by one entity have been admitted as the records of a second entity, because the first entity’s records were integrated into the record system of the second entity, which was able to confirm the accuracy of the records. For example, in United States v. Childs,
The same analysis has been applied to uphold the admission of a freight bill, which was initially prepared by another entity, but which was used by the custodi
The analysis applied in the above cases cannot be stretched to fit the facts of this case. This is not a case in which records made by one entity became the business records of another entity when the pertinent contents of the records were verified by the second entity. Instead, the. evidence showed that the repair estimate documents were placed into the military claims files, without further corroboration or verification, and used as the basis for paying the service members’ claims and litigating against the carriers. Although there was general testimony from two witnesses that the military attempted to find reliable estimators and would occasionally request a second estimate if the first seemed much too high in light of the damage report, the government offered no evidence that representatives of the agencies that received the estimates conducted any kind of audit to check their accuracy.
This case is therefore distinguishable from United States v. Sokolow,
An instructive case in light of the government’s argument is NLRB v. First Termite Control Co.,
The court explained that the provision in Rule 803(6) that requires records to be supported by “ ‘the testimony of the custodian or other qualified witness’ insures the presence of some individual at trial who can testify about the methods of keeping the information.”
A particularly close analogue to this case is provided by the Fifth Circuit’s decision in United States v. Davis,
Against this array of authority, the court today is able to find only two cases in which courts appear to have admitted evidence under Rule 803(6) without requiring full compliance with the foundational requirements of the rule: United States v. Jakobetz,
In holding that the toll receipt was admissible under Rule 803(6) based only on foundation evidence that toll receipts were regularly made part of trip expense reports and that the defendant had submitted the toll receipt to the company as part
The discussion of Rule 803(6) in the MRT Construction case is so cryptic that it is difficult to tell just what the court held. The court rejected an argument that certain attorney bills sent to Har-drives were improperly admitted as business records upon the testimony of Har-drives chief financial officer. In the course of its brief discussion of the issue, the court noted that Hardrives received the bills from the law firm, maintained the bills in their files, and relied upon the bills as statements of fees charged by the law firm. Based on that evidence, the court held the bills admissible under Rule 803(6).
* * * * *
In the end, the government’s argument comes down to a two-part policy-based plea. First, the government argues that because the military has chosen to make payments to service members based on estimates submitted by the service members, those estimates should be considered rehable enough to admit the estimates against the carriers as substantive evidence of loss. Second, the government argues that it would be unduly cumbersome and expensive to require foundational witnesses to attend trials such as the one in this case to give foundational evidence regarding documents involving relatively small amounts of money.
As to the second point, the rules of evidence sometimes create problems for litigants, but there is no principle that permits the rules to be avoided when their application seems inconvenient. If other ways cannot be found to ensure that documentary evidence of property damage in cases such as this one is admissible, the government may be better served by developing a contractual arrangement with its carriers to resolve disputes over damages by means other than court proceedings.
As to the first point, the answer is that the government has not shown that the military verified the estimates at issue in this case or confirmed their accuracy. The business records exception is therefore not available as a basis for avoiding the plaintiffs’ hearsay objection. To be sure, the military could have had good reasons for honoring the . service members’ claims without verifying their accuracy, such as a desire to expedite payment to service