2007 Corporate And Business Organization Case Law Developments, Part 3

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  1. The Business Records Exception to the Hearsay Rule: Ishak v. First Flag Bank, 283 Ga. App. 517, 642 S.E.2d 143 (2007); Walter R. Thomas Assocs., Inc. v. Media Dynamite, Inc., 284 Ga. App. 413, 643 S.E.2d 883 (2007); Boyd v. Calvary Portfolio Services, Inc., 285 Ga. App. 390, 646 S.E.2d 496 (2007); Jenkins v. Sallie Mae, Inc., 286 Ga. App. 502, 649 S.E.2d 802 (2007)

    Last year saw several useful, although not ground-breaking, decisions on the use of business records as evidence.

    In Ishak v. First Flag Bank, 283 Ga. App. 517, 642 S.E.2d 143 (2007), the Georgia Court of Appeals upheld a trial court's decision to allow a plaintiff bank to enter a defendant debtor's loan history report into evidence under O.C.G.A. ß 24-3-14, Georgia's Business Records Act (the "Act").

    First Flag Bank (the "Bank") issued a construction loan to Ishak's company, and Ishak personally guaranteed the loan. When the company defaulted and Ishak refused to pay the balance, the Bank sued both Ishak and his company. To prove damages, the Bank sought to introduce a copy of the loan history report on of the construction loan. The trial court granted summary judgment for the Bank, and Ishak appealed, arguing that the Bank failed to lay the proper foundation for the admission of the loan history report.

    The Act creates an exception to the hearsay rule permitting qualified business writings or recordings to be admitted into evidence. A party seeking to introduce business records under the Act must establish two foundational requirements through the testimony of a person familiar with the business' method of keeping records: that the record was kept in the regular course of business and that it was the regular course of the business to make the record at or reasonably near the time of the event recorded. The purpose of the exception is to "allow the determination of records without the necessity of producing all the various clerical personnel who made the entries." Dowling v. Jones-Logan Co., 123 Ga. App. 380, 381, 181 S.E.2d 75, 77 (1971). Additionally, O.C.G.A. ß 24-3-14(d) mandates that the exception be liberally interpreted and applied.

    In Ishak, the Court of Appeals held that the Bank satisfied the Act's foundational requirements for the admission of the loan history reports through the affidavits attached to its motion for summary judgment. The Bank president testified that the Bank kept "the loan history reports in its ordinary course of business," satisfying the first foundational requirement. Also, because the reports themselves contained each transaction's entry and effective date, the Bank satisfied the second requirement.

    The Act creates a hearsay exception for trustworthy documents and recordings used regularly in the course of a business. The rationale for the exception is that where businesses rely on the accuracy of their records in the conduct of their business, the records should be considered trustworthy. Because loan history reports are critical to the operation of banks and financial institutions, they are considered reliable and also admissible at trial when the proper foundation is laid. Ishak is an important decision for banks seeking to recover unpaid balances on defaulted loans because it explicitly authorizes the admission of loan history reports into evidence as proof of damages.

    In Walter R. Thomas Assocs., Inc. v. Media Dynamite, Inc., 284 Ga. App. 413, 643 S.E.2d 883 (2007), the Georgia Court of Appeals held that invoices from a third-party company can be admissible as business records when kept in the regular course of business of the invoiced company and when an appropriate foundation is laid even though the invoiced company did not itself prepare the invoices. Media Dynamite, Inc. ("MD") sued Walter R. Thomas Associates, Inc. ("WRT"), alleging that MD had not been paid for its services in accordance with an oral contract. According to MD, the contract had provided for MD to arrange for the placement of WRT advertisements with different television stations. In support of its motion for summary judgment, MD presented invoices it received from certain television stations, arguing that these invoices showed the amount of payment owed to MD by WRT. WRT argued that the invoices were not admissible as business records because they were generated by the television stations and not MD itself. WRT claimed, therefore, that MD's witness did not lay a proper foundation for their admissibility.

    The Court of Appeals disagreed and held that the invoices were admissible as business records of MD because they were prepared by the television stations for the purpose of billing MD and in accordance with the agreement between the stations and MD. MD then stored them as its own business records, making an affidavit from MD's president an appropriate foundation for the invoices to be admissible as business records. The Court held that summaries of the invoices were admissible, too, even though prepared after litigation began, because summaries of business records are admissible even if the summaries are not business records themselves.

    In Boyd v. Calvary Portfolio Services, Inc., 285 Ga. App. 390, 646 S.E.2d 496 (2007), the Court of Appeals, based on business records evidence obtained from a predecessor in interest, affirmed the lower court's grant of creditor's motion for summary judgment in a suit to recover the deficiency on a finance contract for a vehicle that was repossessed and sold at auction.

    The borrower's finance contract was assigned to AmeriCredit Financial Services, Inc., who then sold the account to Calvary Portfolio Services, Inc. Calvary sought to recover the deficiency balance. Calvary filed a motion for summary judgment, supported by affidavits from two of its employees. The affidavits attached documents reflecting various transactions among Boyd, AmeriCredit and Calvary. Defendant contended that the affidavits were based on hearsay. Citing Jackson v. State, 209 Ga. App. 217, 219(1), 433 S.E.2d 655 (1993) and Walter R. Thomas Assoc. v. Media Dynamite, 284 Ga. App. 413, 416, 643 S.E.2d 883 (2007), supra, the Court held that the "routine, factual documents" that the plaintiff acquired from a predecessor became its own business records and were thus admissible under the Business Record Act (O.C.G.A. ß 24-3-14(b)). It does not appear from the opinion that the defendant challenged the authenticity of the records, the plaintiff's acquisition of the records, its treatment of the records as part of its own business records after acquiring them or the accuracy of their contents.

    As in the Boyd case, in Jenkins v. Sallie Mae, Inc., 286 Ga. App. 502, 649 S.E.2d 802 (2007), the Georgia Court of Appeals addressed application of the business records exception to the hearsay rule to a transferred credit obligation and found that loan records received and maintained by a company that purchased a loan from the loan originator were admissible as loan purchaser's business records.

    The defendant had executed six promissory notes between 1984 and 1987 to secure student loans to finance his law school education. After paying off some of the consolidated loans by 1991, he defaulted on the remaining loans, which had been purchased from the original lenders by Sallie Mae, Inc. ("Sallie Mae").

    The defendant argued that the trial court erred in allowing a Sallie Mae witness who maintained the lender's records to lay the foundation for the admissibility of loan records, claiming that because the loans did not originate with Sallie Mae, the witness lacked personal knowledge. The Court of Appeals held that the loan records were admissible and a proper foundation had been laid because the Sallie Mae witness testified that she maintained the loan files, she was familiar with the records and the record-keeping procedures, that they were kept in the regular course of business and that they were made at or near the time that Sallie Mae received the documents. She also testified as to how the records of Sallie Mae's predecessors in interest became Sallie Mae business records. Therefore, the loan documents were admissible as business records of Sallie Mae, and a proper foundation for their admission was laid by the witness.

  2. Piercing the Corporate Veil; Aiding and Abetting Fraud; Joint Venture Liability: The Powell Co., Inc. v. McGarey Group, LLC, 2007 WL 951759 (N.D. Ga., Mar. 28, 2007); BMC-The Benchmark Mgmt. Co. v. Ceebraid-Signal Corp., 2007 WL 2126272 (N.D. Ga., July 23, 2007); Adams v. Unum Life Ins. Co. of America, 2007 WL 2681729 (N.D. Ga. Sept. 10, 2007); Matson v. Noble Investment Group, LLC, ___ S.E.2d ___, 2007 WL 4200950 (Ga. App., Nov. 29, 2007); Horton Homes, Inc. v. Bandy, 2007 WL 4571251 (M.D. Ala., Dec. 26, 2007); Lollis v. Turner, ___ Ga. App. ___, 654 S.E.2d 229 (2007)

    In The Powell Co., Inc. v. McGarey Group, LLC, 2007 WL 951759 (N.D. Ga., March 28, 2007) the United States District Court for the Northern District of Georgia found that it would be inappropriate to pierce the corporate veil of a company when there is no evidence that the shareholders disregarded the corporate entity, that the company was an "alter ego" of the shareholders, or that honoring the separate existence of the corporate entity would promote injustice or perpetrate fraud.

    The suit arose from a subcontract between leasing agents with regard to the Atlantic Station project in Atlanta. After the project terminated, the subcontractor filed suit against the primary leasing agent, an LLC, claiming, inter alia, breach of the compensation terms of the contract, fraud, misrepresentation, and seeking to pierce the LLC's "corporate" veil. The District Court held that to pierce the corporate veil, the plaintiff must prove either that: (1) the shareholders disregarded the corporate entity, (2) there is a lack of separate personality between the shareholders and the corporation due to unified...

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