Redemptio ex machina for Transworld Systems Inc.: TSI Affidavit Machine Receives Judicial Bailout in Texas; did not even have to pray for it, not being a party - Ladanta Foster v National Collegiate Student Loan Trust 2007-4

SHERRY RADACK ROBOSIGNER REDUX 

Chief Justice of one of many courts of appeal in Texas (14 intermediate COAs+2 high courts) takes swipe at 2017 CFPB enforcement action against Transworld Systems, Inc., "promulgates" TSI's affidavit template for NCSLT collection suits as a new standard to supplement the model BRA [business records affidavit] in the Texas Rules of Evidence: Cutting and pasting will do. Affidavit-signing operative of debt collection agency need not have knowledge of the record-keeping practices of the entity that created third-party records as long he can say he received them (Duh!) ... and that he relies on them in supporting litigation activities. Foster v National Collegiate Student Loan Trust 2007-4.

ALSO SEE -- > Appellate litigation involving National Collegiate Student Loan Trust in Texas as Appellant and Appellee (with table of cases and links to dockets) 

RADACK ON TAKING THIRD-PARTY BUSINESS RECORDS OUT OF HEARSAY 

BY RECEIVING THEM

[TSI Affiant Dudley] Turner testified that it is TSI's regularly-conducted business practice to incorporate prior loan records and documentation into TSI's business records, and he is familiar with the process by which TSI receives prior account records, including origination records from the time that loans are requested and disbursed. See Simien v. Unifund CCR Partners, 321 S.W.3d 235, 240-41 (Tex. App.-Houston [1st Dist.] 2010, no pet.). 

No. 01-17-00253-CV

IN THE COURT OF APPEALS FOR

THE FIRST APPELLATE DISTRICT OF TEXAS

AT HOUSTON, TEXAS

LADANTA D. FOSTER

Appellant

v.

NATIONAL COLLEGIATE STUDENT LOAN TRUST 2007-4

Appellee

On Appeal from District Court

412^th Judicial District - Brazoria County, Texas

Trial Court Cause No. 84872

 BRIEF IN SUPPORT OF

APPELLANT’S MOTION FOR PANEL REHEARING

POINTS PRESENTED

A.   There is now a conflict with respect to the TSI form affidavit

B. The Panel’s holding regarding the affidavit at issue in Foster also conflicts with local precedent, even though local precedent is already more lenient to assignees.  

C.   There is now an additional conflict with another Texas Court of Appeals

To the Honorable Court of Appeals Panel:

         On February 27, 2018, two days before the Court handed down the memorandum opinion resolving this appeal, in which the panel found TSI’s affidavit sufficient and properly admitted over hearsay objection,^[1] the Indiana Court of Appeals rejected, in a factually indistinguishable case, an affidavit signed by another Legal Case Manager at TSI that was – to all appearances – based on the same template with the same boilerplate verbiage. See Alexander Holmes, Appellant-Defendant, v. National Collegiate Student Loan Trust, Appellee-Plaintiff, No. 87A05-1711-CC-2517, Court of Appeals of Indiana, February 27, 2018.).

Click 87A05-1711-CC-2517 for Google Scholar version.^[2]

A.    There is now a conflict with respect to the TSI form affidavit

The Indiana high court found TSI’s affidavit faulty for summary judgment purposes because it contained no averments as to the affiant’s requisite personal knowledge to put the affiant in a position to authenticate records relating to loan origination and loan securitization, and to provide a proper predicate for their admission under the business record exception to hearsay. The Court accordingly concluded that two pieces of documentary evidence, the loan agreement and the document offered to prove the sale by the program lender to National Collegiate Funding LLC,^[3] were not admissible under the business records exception to hearsay, and reversed the summary judgment entered in the Trust’s favor by the trial court.

The Indiana court summarized TSI’s failures to lay a proper predicate as follows:

Here, the Jefferis affidavit provided no testimony to support the admission of the contract between Holmes and Charter One Bank or the schedule of pooled loans sold and assigned to National Collegiate Funding, LLC, and then to NCSLT, as business records pursuant to Evidence Rule 803(6). There was no testimony to indicate that Jefferis was familiar with or had personal knowledge of the regular business practices or record keeping of Charter One Bank, the loan originator, or that of NCSLT regarding the transfer of pooled loans, such that she could testify as to the reliability and authenticity of those documents. Indeed, Jefferis offered no evidence to indicate that those records were made at or near the time of the business activities in question by someone with knowledge, that the records were kept in the course of the regularly conducted activities of either Charter One or NCSLT, and that making the records was part of the regularly conducted business activities of those third-party businesses.

To be sure, as a general rule, out-of-state legal authority is not binding on this Court, but it is nevertheless highly relevant here for two reasons:

(1) The Indiana case involves the same litigation support company, the same boilerplate affidavit verbiage (with relevant portions quoted in the opinion), and the same categories of attachments in the same form.^[4]  

(2) The Texas Rules of Evidence are based on the Federal Rules of Evidence, as this Court pointed out in Simien v. Unifund,^[5] and the same is true of other states. While the holding in Simien may be sui generis in comparative multi-jurisdictional view, the underlying rules of evidence are certainly not unique.^[6]

            The Panel likely did not have the benefit of the Indiana court’s opinion because of its recency, and should have the opportunity to reconsider the soundness and wisdom of its opinion in Foster v NCSLT in light thereof, since it involves the very same evidentiary issues in relation to the very same evidence and the very same company that oversees the network of attorneys handling litigation on behalf any and all National Collegiate Student Loan Trusts, no matter which iteration.^[7]

B. The Panel’s holding regarding the affidavit at issue in Foster also conflicts with local precedent, even though local precedent is already more lenient to assignees.  

            The obvious counter-argument and basis for distinguishing the Indiana case would focus on divergent state-specific or district-specific judicial decisions construing the rules of evidence. But the Panel opinion at issue here does not merely conflict with out-of-state authority in a very similar case. It additionally departs from the most on-point case that can be cited for the proposition that other states’ judicial decisions on matters of evidence should be disregarded in favor of home-grown decisional law.

In Simien v. Unifund,^[8] this Courts established alternative criteria for admission of third-party records through the affidavit testimony of an employee of a purchaser of a portfolio of charged-off credit card debt suing as assignee. The alternative predicate centers on reasonable reliance on the accuracy of third-party hearsay records based on the type of third-party entity that created them (in Simien, Citibank), and the regulatory environment within which such entity conducts its business. According to the reasoning in Simien, the bank’s operating environment would discourage noncompliance with applicable law, and would create incentives for accuracy in record-keeping, lest the bank run into problems with regulators and its business suffer gravely.^[9]

But the reasonableness of such reliance by the testifying witness’s organization cannot said to have been established in a case where the affiant does not even identify by name the entity whose records are to be deemed inherently trustworthy based on the entity’s status, at least presumptively.  This is a far cry from a situation where the trial court could conclude that the affidavit was admissible because the representative conclusively established the trustworthiness of the third-party records. Simien, at 244-45; see also Gibbs v. Bureaus Inv. Grp. Portfolio No. 14, LLC, 441 S.W.3d 764, 777-78 (Tex. App.-El Paso 2014, no pet.)(distinguishing Simien).

            The TSI affidavit’s failure to identify the entity whose records were to be deemed and admitted as trustworthy extends to at least two of the entities involved in the private origination and securitization of student loans under the National Collegiate brand that most people have never heard of: (1) the First Marblehead Corporation, a signatory to the Pool Supplement and the underlying Note Purchase Agreement,^[10] and (2) the Servicer, Pennsylvania Higher Education Assistance Agency (PHEAA), doing commercial business as American Education Services (AES).

Additionally, in Simien, the third-party records were Citibank credit card statements that were in the nature of duplicates of the statements that were alleged to have been sent to the Defendant previously in exactly the same form in which they were later presented as exhibits in court. Because Citibank was required under federal law (TILA) to send such periodic statements to the cardholder,^[11] the cardholder would have had an opportunity to examine them for correctness in the first instance,^[12] and would have been in a position to detect error upon the Plaintiff’s offer of them as exhibits at trial (or in support of a summary judgment motion) in the collection action.

Here, by contrast, the third-party records at issue are not alleged or represented to be copies of billing statements previously sent to the Defendant. Instead, they consist of (1) portfolio transaction documents that were never meant to be shared with student loan borrowers or cosigners, and (2) printouts of internal accounting records that were either downloaded or otherwise retrieved from a computer system for the purpose of creating reports for use as exhibits for litigation. These documents were not in the nature of photocopies or images of statements previously shared with the Defendant in the same form and format in which they appear as litigation exhibits, and the source of the account-level data was not identified.  

Billing statements would be dated, and would thus meet the definition of records created close in time to the transactions appearing on them in the course of regularly conducted business activity.^[13] The same cannot be said of any of the loan history exhibits attached to the affidavit of TSI, which were created in the course of litigation and were sworn to by a person with the job title Legal Case Manager. Although TSI qualifies as a “Subservicer” under the Trust-related Agreements, it is a debt collector within the meaning of the FDCPA,^[14] and it also has a debt collector bond on file in Texas as a third-party debt collector within the meaning of the Texas Debt Collection Act. See Tex. Fin. Code Ann. § 392.101.

Section 392.101 provides that a "third-party debt collector or credit bureau may not engage in debt collection unless the third-party debt collector or credit bureau has obtained a surety bond," a copy of which "must be filed with the secretary of state." Id. For purposes of the bond requirement, "a debt collector does not include the consumer's creditors, a mortgage servicing company, or an assignee of a debt, as long as the debt was not in default at the time it was assigned." CA Partners v. Spears, 274 S.W.3d 51, 79 (Tex. App.-Houston [14th Dist.] 2008, pet. denied) (quoting Perry v. Stewart Title Co., 756 F.2d 1197, 1208 (5th Cir. 1985)).

Unlike Unifund CCR Partners in Simien, TSI does not claim to own the debt. It is not an assignee with respect to the debt that it collects. Nor is TSI a subsidiary of, or otherwise owned by, the Trust or by U.S. Bank, National Association, the Indenture Trustee and Special Servicer.

As a matter of public record, and therefore not subject to reasonable dispute, TSI is a wholly owned subsidiary of Aston Acquisitions Corp.

TSI’s Corporate Disclosure filed in the pending action by the CFPB against the Trusts in the U.S. District Court in Delaware

TSI hires attorneys to collect on defaulted accounts. It is merely a debt collector for the Trust, one that is not owned by the Trust, and answers to the Special Servicer and Indenture Trustee, U.S. Bank, National Association, rather than to the Owner Trustee, the Wilmington Trust Company, as also reflected in Plaintiff’s Exhibit A (assuming it is genuine).

Unlike the Citibank credit card billings statements in Simien, the Exhibits marked C through F here were created by a third-party servicer, rather than by the original creditor or its operating subsidiary.^[15]  Based on the reasoning articulated in Simien, Citibank was required to keep accurate records, lest its business suffer greatly.

The third-party servicer here is the Pennsylvania Higher Education Assistance Agency (PHEAA),^[16] a governmental agency that also acts as servicer under contract for private student loans.^[17]

To the extent the analogy with Citibank is apposite at all, PHEAA’s business may yet suffer greatly because Mr. Donald Uderitz, the (indirect) owner of the Trusts,^[18] seeks to oust PHEAA as Servicer of the securitized private student loans over PHEAA’s alleged failures in servicing,^[19] which include complaints of inadequate record-keeping and failure to properly account for the posting of credits on delinquent accounts.^[20] The latest development in that broiling dispute in Delaware Chancery Court is a move by the Trusts to shut down the current lawsuit mill altogether, at least temporarily.^[21]

If the Trusts had such great confidence in PHEAA’s servicing and associated record-keeping, they would not be suing PHEAA and seeking injunctive relief against the agency. If the Trusts cannot trust PHEAA and feel compelled to oust PHEAA and replace it as the (primary) servicer of trust assets, neither can TSI as the Trust’s authorized Subservicer place confidence in PHEAA’s record-keeping. This is yet another reason why the reliance element under Simien is not satisfied in this case with respect to the student loan servicing records created and maintained by PHEAA.

But even if the Court were to decline to take judicial notice of these development, which have been the subject of extensive reporting by the general media, the press covering the legal biz, and the financial press, TSI’s affidavit does not meet the alternative elements to bring it within the First Court exception as delineated in Simien.

Critically, TSI’s affidavit does not identify the Servicer, and does not even do as much as offer conclusory boilerplate testimony to the effect that the PHEAA records are free of error and therefore reliable, and that TSI has retrieved account-level data from PHEAA’s accounting system with proper controls for quality and accuracy. As such, TSI’s affidavit fails to satisfy the laxer criteria for admission of third-party records under the business records exception to the hearsay rule judicially crafted by the First Court of Appeal in Simien v Unifund to accommodate the proof problems experienced by debt-buyers with flimsy documentation, allowing them to make their case without an affidavit from the assignor.

PHEAA should be perfectly capable of producing its own affidavits, and would have a good chance of having them held to be sufficient in Texas.^[22]  PHEAA has neither filed an intervention in the trial court below, nor an amicus brief in this Court, to make a plea for special consideration of its interests, and for an expansion of existing law to allow a debt collector to sponsor admission of its business records.^[23]

Nor has TSI. Much rather, TSI has been caught committing robosigning abuses and has agreed to pay a nontrivial fine as part of a consent agreement with the CFPB, resolving the Bureau’s investigation and avoiding more severe repercussions of shoddy practices committed in the regular course of debt collection activities.^[24]

TSI also signed a Consent Order with the Connecticut Department of Banking over similar allegations.^[25]

The Connecticut Banking Department summarized the enforcement action as follows:

On October 11, 2017, the Commissioner entered into a Consent Order with licensed consumer collection agency Transworld Systems Inc. (NMLS # 950422) (“TSI”), Fort Washington, Pennsylvania. The Consent Order was based on an examination by the Consumer Credit Division.

As a result of such examination, the Commissioner alleged that TSI: failed to produce complete, accurate and timely responses to Department requests for information, in violation of Section 36a-17 of the Connecticut General Statutes; engaged in unfair or deceptive acts or practices in connection with its execution of affidavits in collection proceedings in Connecticut, in violation of Sections 36a-806 and 36a-808 of the Connecticut General Statutes; and made false or misleading statements in such affidavits, in violation of Section 36a-53b(2) of the Connecticut General Statutes.

To resolve the matter, TSI agreed, among other things, to pay a civil penalty of $200,000, to comply with Sections 36a-17, 36a-53b(2), 36a-806 and 36a 808 of the Connecticut General Statutes, and to implement various policies and procedures pertaining to its consumer collection operations in Connecticut.

Department of Banking News Bulletin, Bulletin # 2800, Week Ending October 20, 2017.^[26]  

C.     There is now an additional conflict with another Texas Court of Appeals

Foster v NCSLT is not the only case in which one or the other of the fifteen National Collegiate Trusts went to trial with nothing more than a business records affidavit from TSI, followed by an appeal. Three more such cases are pending in this Court, and two have already been decided by a sister court.

            In NCSLT v Ramirez,^[27]  the Fort Worth Court of Appeals upheld the trial court’s exclusion of portion of TSI’s affidavit and attached documentary exhibits, and affirmed the take-nothing judgment entered against the Trust at the conclusion of a bench trial, stating that the trial court reasonably could have concluded, among other things, that National had failed to demonstrate that it was the holder of the note that National’s exhibit purported to show had been made between Ramirez and Charter One Bank, N.A., of Albany, New York, as a “Next Student Undergraduate Loan.” Id., at 9.

The affidavit in that case, which was the only evidence offered in support of the Trust’s claim, had been signed by Graham Hord, identified as a “Legal Case Manager,” who stated that he was employed by Transworld Systems Inc., National’s designated custodian of records “pertaining to the Defendants’ education loan(s) forming the subject matter of the above-captioned Complaint.” Id, at 6.

In Gillespie v NCSLT,^[28] the trial court had entered judgment for Trust and the Fort Worth Court of Appeals was asked to address similar evidentiary issues as in this case. The appeals court did not even reach those issues, however, because it found that the Trust’s evidence insufficient to establish the Trust’s standing to sue based on adequate proof of the chain of assignments.

Specifically, the Court found that the Trust had not proven that the account at issue had been sold and assigned by the Program Lender.  The Court cautioned in dicta, that “our consideration of certain portions of the Trust's admitted evidence in our legal-sufficiency review should not be equated to a conclusion that such evidence was, in fact, properly admitted.” Id, at 12.

In this case, the Panel’s memorandum opinion does not even analyze the problem associated with the Pool Supplement and the absence of the underlying note-purchase agreement between the Program Lender and the First Marblehead Corporation noted by the Fort Worth Court of Appeals;^[29] nor did the Panel address the fact that TSI’s affiant did not even refer to the Deposit and Sale Agreement in paragraph 13 of the affidavit, in which the affiant makes vague and general statements to fudge the fact that it contains three distinct documents, each in need of its own predicate. Two of them are on file with the SEC, but the additional page in the middle is not.   

TSI’s affiant did not specifically identify the Deposit and Sale Agreement and did not therefore authenticate it, not to mention render it admissible as a business record. Further, the table labeled “Roster” appearing between the two portfolio-transaction documents is clearly not the Schedule 1 referred to in the Pool Supplement, and the Affiant shows no basis for personal knowledge to attest that the data appearing in this table was taken from Schedule 1, how he would have gained access to such schedule, and what process was used to create the “Roster” page, which – unlike Exhibits C through G, is not even dated, and is not identifiable as a servicing record of PHAEE/AES.    

The Panel made short shrift of the problems afflicting what the Fort Worth Court of Appeals labeled the “orphan page” which TSI placed between the Pool Supplement and the (unauthenticated) Deposit and Sale Agreement in an obvious bid to link the portfolio-level transaction documents to the specific loan contract or account, and in such manner  try to compensate for the absence an indorsement on the loan note, allonge, or other account-specific proof of assignment. 

The court in Gillespie aptly observed, albeit in dicta, that the orphan page “proves nothing by itself.” Id, at 11, n.15, citing Nat'l Collegiate Student Loan Trust 2006-2 v. Ramirez, No. 02-16-00059-CV, 2017 WL 929527, at *3-4 & n.8 (Tex. App.-Fort Worth Mar. 9, 2017, no pet.) (mem. op.). The court noted that “[t]he only information on the orphan page is that Padraic, identified by the last four digits of his social-security number, received a $13,368.98 loan from Bank One under its Education One loan program.” 

Nor does the Panel opinion even cite either Ramirez or Gillespie, so as to distinguish their holdings, should there exist any reasonable basis for doing so. As a result, unwittingly or otherwise, the Panel created a conflict not only with regard to admissibility of third-party business records of entities not even mentioned by the affiant purporting to lay a predicate for them, acting additionally as a
“Legal Case Manager” for what is – under applicable general law - a debt-collection agency that also performs litigation support for law firms; it also created a conflict with regard to the proof necessary to establish the link between loan origination involving the First Marblehead Corp. and the Program Lender and the subsequent loan transfer and securitization transaction, sponsored by First Marblehead and its wholly owned subsidiary, the National Collegiate Funding, LLC, as depositor. This conflict among appellate districts, which goes to legal sufficiency and is unaffected by waiver issues regarding hearsay objections in the trial court,^[30] provides yet another reason for the Panel to revisit its holding, and reassess its soundness.  

 CONCLUSION

The Panel’s opinion in this case is not in line with established authority concerning the requisites for admissibility of third-party records under the business records exception to hearsay, and blesses an affidavit of the kind that has made TSI the subject of enforcement action by both federal and state regulatory authorities.

A presumption of trustworthiness under the reasoning articulated in Simien is not warranted under such circumstances, much less a more expansive presumption of trustworthiness regarding TSI’s validation of third-party records kept by a loan servicer that the Trust is currently suing, -- a servicer the Trust is seeking to replace over shoddy record-keeping and accounting practices and noncompliant performance under the master servicing agreement.^[31]

Even if a judicially created presumption of trustworthiness were somehow defensible to help the financial sector squeeze more dollars from defaulting debtors, the presumption would have been rebutted in the case of NCSLT loan documentation passed on to attorneys in the various states with affidavits signed by employees who are the functional equivalent of paralegals, except that their role is outsourced to a third-party provider for greater efficiency, rather than being handled in-house.  

The part of the Panel opinion affirming the trial court’s admission of Plaintiff’s Exhibit 1 over Mr. Calili’s properly articulated hearsay objection to this exhibit in its entirety should accordingly be vacated.

---

^[1] TSI refers to Transworld Systems, Inc., denominated “Subservicer” for the National Collegiate Student Loan Trusts.

^[2] Opinion available in pdf at: http://www.in.gov/judiciary/opinions/pdf/02271803tac.pdf. Also see Olivia Covington, Judgment for lender in student loan case reversed. INDIANA LAWYER (Feb. 27, 2018).

https://www.theindianalawyer.com/articles/46281-judgment-for-lender-in-student-loan-case-reversed   

^[3] This document pertains to the first link in the multi-step transfer transaction in the securitization of private student loans.

^[4] Which is hardly surprising, given that the loans were originated and securitized in accordance with the same business model, and additionally share the same indenture trustee, the same owner trustee, the same administrator, and the same primary servicer.

^[5] Simien v Unifund CCR Partners, 321 S.W.3d 235, 242 (Tex. App.-Houston [1st Dist.] 2010, no pet.), citing the Texas Supreme Court for the proposition that considering federal precedent concerning rules of evidence is appropriate. Guevara v. Ferrer, 247 S.W.3d 662, 667 n. 3 (Tex.2007); Gammill v. Jack Williams Chevrolet, Inc., 972 S.W.2d 713, 727 (Tex.1998) ("[T]here is much to be said for maintaining as much uniformity in state and federal evidence rules as possible.").

^[6] Records may be admitted under Federal Rules of Evidence 806 (the business records exception) 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) or (12) or with a statute permitting certification; and (E) the opponent does not show that the source of information or the method or circumstances of preparation indicate a lack of trustworthiness." Fed. R. Evid. 803(6) (emphasis added).

^[7] All iterations of the Trust are listed on Plaintiff’s Exhibit A, the purported certification of TSI’s status as Subservicer of U.S. Bank, National Association.

^[8] Simien v.Unifund CCR Partners, 321 S.W.3d 235 (Tex. App.-Houston [1st Dist.] 2010, no pet.).

^[9] Texas Court of Appeals have observed on multiple occasions a bank's "failure to keep accurate records" may lead to liability under the Texas Debt Collection Act. See Dodeka, L.L.C. v.Campos, 377 S.W.3d 726, 733 (Tex.App.2012); Simien v. Unifund CCR Partners, 321 S.W.3d 235, 244 (Tex.App. 2010); accord Levy v. Cach, L.L.C., No. 14-12-00905-CV, 2013 WL 6237273, at *3 (Tex.App. Dec. 3, 2013) (unpublished) ("[A] failure by the Bank to keep accurate records of its customers' credit-card debt could result in ... civil penalties.") (citing Tex. Fin. Cod. § 392.304(a)(8)); Ainsworth v. CACH, LLC, No. 14-11-00502-CV, 2012 WL 1205525, at *5 (Tex.App. Apr. 10, 2012) (unpublished) (same).

^[10] The Trust is not a party to either one of these two contract documents pertaining to the first portfolio sale and transfer, to which the Program Lender, the First Marblehead Corporation, and its subsidiary, the National Collegiate Funding LLC are signatories. This also goes unmentioned by the Affiant. Also see Gillespie v National CollegiateStudent Loan Trust 2005-3, No. 02-16-00124-CV (Tex.App.- Fort Worth, Jun. 29, 2017, no pet.) (pointing to the role of the First Marblehead Corporation in relation to loans originated by the program lender and concluding that no evidence supported the trial court's finding that the Trust was a holder in due course of the Gillespies' note, and had received by assignment Bank One's right to recover under the note.).

^[11] The Act and Regulation Z require the creditor to furnish the consumer with a periodic statement for each billing cycle. 15 U.S.C.A. § 1637(b) and 12 C.F.R. § 226.7.

^[12] Irrespective of regulatory requirements, a credit card issuer has an obvious business reason to send regular statements because they are the means to inform the cardholder of the (variable) amount of monthly payment required, based on prior charge activity and interest accrual, and such mailing routinely includes a payment coupon and return envelope to facilitate automatic processing of payments, if payments are made by check.

^[13] TEX. R. EVID. 803(6). The business-records exception covers records kept in the course of a regularly conducted business activity, so long as the records were made at or near the time, based on personal knowledge, recording a regular practice of that activity, and the party opposing the evidence does not show that the document is otherwise untrustworthy.

^[14] See Memorandum Opinion in Richard Ferris v Transworld Systems, Inc., No. 16 C 3703 in the United States District Court, N.D. Illinois, Eastern Division, (Jan. 31, 2018) (motion for class certification granted in FDCPA action against TSI) (Google Scholar version).

^[15] See Damron v.Citibank (South Dakota), N.A., No. 03-09-00438-CV, 2010 WL 3377777 (Tex.App. – Austin, Aug. 25, 2010, pet. denied) (mem.op.) (Concluding that the affidavit of Ramona Aragon, who testified that she is a "litigation analyst" with Citicorp Credit Services, Inc., a Citibank affiliate that provides debt-collection services for Citibank and other affiliated companies, was adequate in that Aragon's testimony adequately demonstrated the basis for her personal knowledge of the manner in which Citibank kept its records and the other facts to which she testified. Aragon explained that both Citibank and Citicorp Credit Services, Inc. are subsidiaries of Citigroup, Inc.).

^[16] Identified by name in the Indenture, which was admitted without objection as Plaintiff’s Exhibit 2 in this case. (“Servicing Agreement” means (a) the Amended and Restated Private Student Loan Servicing Agreement, dated as of September 28, 2006, between the Pennsylvania Higher Education Assistance Agency and The First Marblehead Corporation.)

https://www.sec.gov/Archives/edgar/data/1223029/000088237707002305/d719497.htm

^[17] The relevant contract here is the Amended and Restated Private Student Loan Servicing Agreement, dated as of September 28, 2006, between the Pennsylvania Higher Education Assistance Agency and The First Marblehead Corporation.).

^[18] See Conference Order dated Nov 17, 2017 in National Collegiate Student Loan Master Trust, et al. v. Pennsylvania Higher Education Assistance Agency d/b/a American Educational Services, C.A. No. 12111-VCS (Del. Ch.) (“The beneficial interests in National Collegiate Student Loan Trust 2007-4 are owned by NC Owners LLC and Pathmark Associates, LLC.”).     

^[19] See Jeff Montgomery, Del. Court Wants More Talks On $15B Student Loan Trusts. LAW360, (October 30, 2017, 9:31 PM EDT).  

https://www.law360.com/articles/979479/del-court-wants-more-talks-on-15b-student-loan-trusts

^[20] Vantage Capital Group hired Boston Portfolio Advisors to audit P.H.E.A.A., the company that services National Collegiate's student loans. The New York Times has posted the report at the following URL:

https://www.nytimes.com/interactive/2017/07/17/business/dealbook/document-National-Collegiate-PHEAA-audit.html?mcubz=3

^[21] See Jeff Montgomery, $15B Student Loan Funds Group Sues For Control, Damages. LAW360 (Mar. 12, 2018 - 8:32 PM EDT) (reporting that the Trusts asked Delaware’s Chancery Court on March 9, 2018 to bar new lawsuits against 800,000 borrowers and award damages for costs incurred after key trust administrators and servicers allegedly hijacked and mismanaged the business; and that Trust sought replacement of key loan servicer and repayment of trust-funded legal fees paid to GSS Data Services Inc. and others).

https://www.law360.com/delaware/articles/1020744/-15b-student-loan-funds-group-sues-for-control-damages

^[22] See Greene v. Deutsche Bank Nat. Trust Co., No. 01-04-00483-CV, 2005 WL 1244604, at **1, 3 (Tex. App.-Houston [1st Dist.] May 26, 2005, pet. denied) (mem. op.) (accepting the affidavit of a manager for the "loan servicing agent" as a person sufficiently situated to testify on the balance owed, based on synthesis of eleven records related to the loan's account history).

^[23] PHEAA and TSI filed motions to intervene in the CFPB’s enforcement case against the Trusts in federal district court in Delaware.

^[24] http://files.consumerfinance.gov/f/documents/201709_cfpb_transworld-systems_consent-order.pdf

^[25] In the Matter of Transworld Systems Inc. (“TSI”) Consent Order, Connecticut Department of Banking. http://ct.gov/dob/cwp/view.asp?a=2246&q=597080 (visited 3/13/2018).

^[26] http://www.ct.gov/dob/cwp/view.asp?A=2229&Q=597274 (visited 3/13/2018).

^[27] National Collegiate Student Loan Trust 2006-2 v Pablo Ramirez, No. 02-16-00059-CV, 2017 WL 929527 (Tex. App. – Fort Worth, Mar. 9, 2017, no pet.) (mem. op.) (Google Scholar Version).

^[28] Gillespie v National Collegiate Student Loan Trust 2005-3, No. 02-16-00124-CV (Tex.App.- Fort Worth, Jun. 29, 2017, no pet.) (mem. op) (Google Scholar Version) (concluding that no evidence supported the trial court's finding that the Trust was a holder in due course of the Gillespies' note and had received by assignment Bank One's right to recover under the note.).

^[29] The Pool Supplement states in the first paragraph that it “is entered into pursuant to and forms a part of that certain Amended and Restated Note Purchase Agreement dated as of May 1, 2002, as amended or supplemented from the date of execution of the Agreement through the date of this Supplement (the “Agreement”), by and between The First Marblehead Corporation and JPMorgan Chase Bank, N.A., successor by merger to Bank One, N.A. (Columbus, Ohio) (the “Program Lender”). This Supplement is dated as of September 20, 2007. Capitalized terms used in this Supplement without definitions have the meanings set forth in the Agreement.”

Available on the SEC’s website at:

https://www.sec.gov/Archives/edgar/data/1223029/000088237707002305/d720157.htm

^[30] One other case pending in this appellate court, Mock v NCSLT 2007-4, No. 01-17-00216-CV, involves evidentiary waiver problems incurred by pro se litigants. A third one, Savoy v.NCSLT 2007-4, No. 01-17-00345-CV, contains detailed written objections in the trial court in addition to oral ones made by counsel and documented by the reporter’s record.  

^[31] The Court’s holding in Simien v. UnifundCCR Partners is itself is an outlier in multi-jurisdictional view. See Unifund CCR, LLC v Elyse, 382 P.3d 1090, 1093, n.14 (2016)(collecting cases on whether an unaffiliated debt buyer can provide an adequate foundation for admission of records created by the original creditor); Discover Bank v. Bridges, 154 Wash.App. 722, 726, 226 P.3d 191 (2010) (card agreement properly admitted under business records act when employees of an affiliated entity that collected obligations for Discover Bank "collectively stated" that they had access to the Bridges' account records in the course of employment and made their statements based on personal knowledge and review of records made in the ordinary course of business); State v. Weeks, 70 Wash.2d 951, 952, 425 P.2d 885 (1967) (third-party record of an out-of-state hospital inadmissible because records custodian lacked personal knowledge); see also Peter A. Holland, The One Hundred Billion Dollar Problem in Small Claims Court: Robo-Signing and Lack of Proof in Debt Buyer Cases, 6 J. Bus. & TECH. L. 259, 280 (2011) ("`A debt buyer's affidavit has no probative value when the affiant's claimed familiarity with the assignor's business records is derived solely from the affiant's review of those records after they came into the debt buyer's possession.'" (quoting NAT'L CONSUMER LAW CTR., COLLECTION ACTIONS 45 (1st ed. 2008 & Supp. 2010))); Midland Funding LLC v. Valentin, 40 Misc.3d 266, 966 N.Y.S.2d 656, 659 (2013) (An assignee's records custodian "almost always lacks the requisite knowledge to lay the proper foundation to establish the documents... are business records of the original creditor."); CACH, LLC v. Askew, 358 S.W.3d 58, 62-64 (Mo. 2012) (debt buyer's records custodian not qualified to lay foundation for business records rule when custodian had never worked for business that prepared the records and was not familiar with their preparation); Commonwealth Fin. Sys. v. Smith, 15 A.3d 492, 494-500 (Pa. Super. Ct. 2011) (affidavit of assignee debt buyer's employee held inadmissible because there was no foundation testimony that the employee had personal knowledge of the "preparation and maintenance" of the account statements and purported card agreement); Palisades Collection LLC v. Kalal, 324 Wis.2d 180, 781 N.W.2d 503, 509-10 (Wis. Ct. App. 2010) (affidavit of assignee debt buyer's authorized representative held inadmissible because she had no personal knowledge of how the account statements were prepared and whether they were prepared in the ordinary course of the original creditor's business); Asset Acceptance v. Lodge, 325 S.W.3d 525, 528-29 (Mo. Ct. App. 2010) (testimony from assignee debt buyer's legal director held inadmissible because the employee had no personal knowledge of how or when the records were prepared and if the records were prepared in the ordinary course of business); Martinez v. Midland Credit Mgmt., Inc., 250 S.W.3d 481, 485 (Tex. App. 2008) (affidavit of assignee debt buyer's custodian of records held inadmissible because employee had no personal knowledge of the predecessor's recordkeeping practices).

CHIEF RADACK'S PANEL OPINION 

IN FOSTER V. NCSLT 2007-4 

LADANTA D. FOSTER, Appellant,
v.
NATIONAL COLLEGIATE STUDENT LOAN TRUST 2007-4, Appellee.

01-17-00253-CV.

Court of Appeals of Texas, First District, Houston.

Opinion issued March 1, 2018.

Ranald Calili, James B. Heston, for Ladanta D. Foster, Appellant.

Michael Scott, Robbie Malone, Eugene Xerxes Martin, IV, for National Collegiate Student Loan Trust 2007-4, A Deleware Statutory Trust, Appellee.

On Appeal from the 412th District Court, Brazoria County, Texas, Trial Court Case No. 84872-CV.

Panel consists of Chief Justice Radack and Justices Massengale and Brown.On Appeal from the 412th District Court, Brazoria County, Texas, Trial Court Case No. 84872-CV.

Panel consists of Chief Justice Radack and Justices Massengale and Brown.

MEMORANDUM OPINION

SHERRY RADACK, Chief Justice.

Appellant, Ladanta D. Foster, appeals the trial court's judgment, entered after a bench trial, in favor of appellee, National Collegiate Student Loan Trust 2007-4 ("the Trust"), in its suit against Foster for breach of a student loan agreement. In two issues, Foster challenges the legal and factual sufficiency of the evidence and contends that the trial court erred in admitting evidence.

We suggest a remittitur of damages. Conditioned on the suggestion of remittitur, we affirm the trial court's judgment.

Background

In its original petition, the Trust^[1] alleged that, in 2007, Foster, a student at Texas Southern University, obtained a student loan from JPMorgan Chase Bank, N.A. ("Chase"). Prior to Foster's first payment date, and at a time while the loan was still in good standing, the note was assigned to the Trust. The Trust, as owner and holder of the note, asserted that Foster had defaulted by not paying as agreed. On December 9, 2015, the Trust sent Foster a letter demanding payment in full, however, Foster did not comply. Subsequently, the Trust brought a breach-of-contract claim against Foster, seeking damages of $45,277.02. Foster answered, generally denying the allegations, filed a verified denial, and asserted various affirmative defenses.

At trial, although no witnesses were called, the Trust moved to admit into evidence, as "Exhibit 1," the "Business Records Affidavit" of Dudley Turner, a Legal Case Manager for Transworld Systems Inc. ("TSI"), who testified, in pertinent part, as follows:

1. I am employed by [TSI], the subservicer for [the Trust] pertaining to the educational loan forming the subject matter of this action.

2. TSI has been contracted to perform the duties of the Subservicer for [the Trust] by U.S. Bank, National Association, the Special Servicer of [the Trust]. TSI, as the Subservicer of the [Trust], is the designated custodian of records for [Foster's] educational loan. Additionally, TSI maintains the dedicated system of record for electronic transactions pertaining to [Foster's] educational loan, including, but not necessarily limited to, payments, credits, interest accrual and any other transactions that could impact [Foster's] educational loan. . . .

3. . . . . As an employee of TSI, I am duly authorized by [the Trust] and U.S. Bank, National Association to make the representations contained in this Affidavit.

4. I have access and training on the system of record utilized by TSI to enter and maintain loan account records and documentation concerning [Foster's] educational loan for [the Trust].

5. I am familiar with the process by which TSI receives prior account records, including origination records from the time the loan was requested and/or disbursed to [Foster] and/or the student's school on their behalf.

6. As custodian of records it is TSI's regularly-conducted business practice to incorporate prior loan records and/or documentation into TSI's business records.

7. I am further competent and authorized to testify regarding this educational loan through personal knowledge of the business records maintained by TSI as custodian of records, including electronic data provided to TSI related to [Foster's] educational loan, and the business records attached to this Affidavit.

8. This lawsuit concerns an unpaid loan owed by [Foster] to [the Trust]. Specifically, [Foster] entered into an educational loan agreement at [Foster's] special instance and request. A loan was extended for [Foster] to use pursuant to the terms of the loan agreements. [Foster] has failed, refused, and/or neglected to pay the balance pursuant to the agreed terms.

9. Educational loan records are created, compiled and recorded as part of regularly conducted business activity at or near the time of the event and from information transmitted from a person with personal knowledge of said event and a business duty to report it, or from information transmitted by a person with personal knowledge of the accounts or events described within the business record. Such records are created, kept, maintained, and relied upon in the course of ordinary and regularly conducted business activity.

10. I have reviewed the educational loan records described in this affidavit regarding account number xxxxx7063-004-PHEA. No payment has been received on this account. After all payments, credits and offsets have been applied, [Foster] owes the principal sum of $45,277.02, together with accrued interest in the amount of $6,179.73, totaling the sum of $51,456.75 as of 11/30/2016. Attached hereto and incorporated within are 31 pages of [the Trust's] business records further described below.

11. Attached hereto and incorporated herein as Exhibits "B" through "G" are 31 pages of [the Trust's] business records. These records are created, compiled and recorded as part of regularly conducted business activity at or near the time of the event and from information transmitted from a person with personal knowledge or said event and a business duty to report it, or from information transmitted by a person with personal knowledge of the account or events described within the business record. Such records are created, kept, maintained, and relied upon in the course of ordinary and regularly conducted business activity . . . .

. . . .

13. [Foster] opened an educational loan with [Chase] and funds were disbursed on 5/31/2007. [Foster's] educational loan was then transferred, sold and assigned to National Collegiate Funding LLC, who in turn transferred, sold and assigned [Foster's] educational loan to [the Trust] on 9/20/2007 for valuable consideration, in the course of the securitization process. [Foster's] educational loan was in good standing and not in default on 9/20/2007.

To his affidavit, Turner attached 31 pages of documents, as follows:

Exhibit A is a November 13, 2014 letter from U.S. Bank, as special servicer for the Trust, "confirm[ing]" that TSI is the "dedicated records custodian with respect to all student loans owned by [the Trust]" and is "fully authorized to execute affidavits regarding account documents" and to "provide testimony on behalf of [the Trust]."

Exhibit B is a "Credit Agreement" signed by Foster and a "Note Disclosure Statement." The Credit Agreement, dated May 23, 2007, states that Foster applied for an educational loan of $25,000.00 from Chase. The Note Disclosure Statement reflects that a loan amount of $25,000.00 was disbursed to Foster, or on her behalf, and that she agreed to make 240 monthly payments of $381.45, beginning on July 12, 2009.

Exhibit C contains a "Pool Supplement," "Loan Transfer Schedule," and "Deposit & Sale Agreement," pertaining to Chase's assignment of loans through an intermediary to the Trust.

Exhibit D is a "Loan Financial Activity Report," which reflects the monthly balance and interest accrued on Foster's loan, that she did not make any payments, and a final "Principal Balance" of $43,560.51. Exhibit E is a "Deferment/Forbearance Summary," showing Foster's deferment and forbearance periods. Exhibit F is a "Repayment Schedule." Exhibit G is a "Loan Payment History Report."

Foster objected to the admission of the evidence, and the trial court overruled the objection and admitted the evidence, as follows:

THE COURT: . . . . Any objection to this business records affidavit?

[Foster]: Well, the only objection I will make, Your Honor, is that the affiant [Turner] asserts that he is the custodian of records for [TSI] whereas the Plaintiff is [the Trust]. So we would like to see how those are interrelated, if he is representing—if he's custodian of [TSI] what relationship does that bear to [the Trust]? In looking at the affidavit I'm not entirely sure if that's clear. If [the Trust's] counsel wants to point [to] something I may be missing out or that the Court may not see and present any evidence to that. Otherwise, we object to the entire submission of evidence as hearsay.

THE COURT: Well, of course that's what business records affidavit filed the requisite period of time [sic], it allows hearsay evidence. It's an exception to the hearsay rule.

. . . .

Now what connection does [TSI] have to this transaction?

[The Trust]: Your Honor, TSI, as you can see from the affidavit, is both [the Trust's] designated custodian of records and they also create and maintain the records pertaining to the loan. Proof and confirmation of TSI's capacity as sub servicer can actually be found in Exhibit A which starts on page 7. Actually it just is page 7. As you'll see, there is a letter from U.S. Bank who is the indentured trustee for National Collegiate Student Loan Trust which is a matter of public record and they state that [TSI] is also the record custodian with respect to all student loan accounts. . . .

[Foster]: We would like to see that entered as an exhibit if we could please, just to establish the standing issue. If U.S. Bank is bringing this lawsuit.

THE COURT: Okay.

. . . . Why don't you do them as Exhibit 2 and 2-A?

[The Trust]: All right. I will do that. So, Your Honor, [the Trust] would like to introduce Exhibit 2 which is the full indenture which is on file with the U.S. Securities and Exchange Commission. Exhibit 2-A as requested is a copy of the excerpt of both the trust agreement and the indenture with highlights that show that U.S. Bank is the indentured trustee for [the Trust].

. . . .

THE COURT: Okay. So you've [Foster] had previous access to this at some point?

[Foster]: I haven't seen it, Your Honor. That doesn't mean it wasn't provided.

THE COURT: I understand. Exhibit 2 and 2-A are admitted. And based upon 2 and 2-A your objection to [the Trust's] Exhibit 1 is overruled and [the Trust's] Exhibit 1 is admitted.

[The Trust]: Thank you, Your Honor. Your Honor, if counsel is not going to offer any evidence I would ask they state that fact for the record and then rest.

[Foster]: We do not have any contrary evidence at this time, Your Honor. So we do rest.

(Emphasis added.)

The trial court then rendered a judgment in favor of the Trust on its breach-of-contract claim, awarding it damages against Foster in the amount of $45,277.02, plus interest and costs. The trial court denied Foster's request for findings of fact and conclusions of law as untimely filed and denied her motion for new trial.

Admission of Evidence

In her first issue, Foster argues that the trial court erred in overruling her hearsay objection and admitting Exhibit 1 under the business-records exception to the hearsay rule because the business-record affiant, Turner, is "not properly qualified to testify as custodian of records." Foster also asserts that the "attached documentary exhibits do not meet the definition of business records." She asserts that the trial court's error resulted in an improper judgment because the Trust did not offer any other evidence to support its breach-of-contract claim.

A. Standard of Review

Evidentiary rulings are committed to the trial court's sound discretion. Bay Area Healthcare Grp., Ltd. v. McShane, 239 S.W.3d 231, 234 (Tex. 2007). A trial court abuses its discretion if it rules without regard to guiding rules or principles, and we must uphold a trial court's evidentiary ruling if it is supported on any legitimate basis. Owens-Corning Fiberglas Corp. v. Malone, 972 S.W.2d 35, 43 (Tex. 1998). We will not reverse a trial court for an erroneous evidentiary ruling unless the error probably caused the rendition of an improper judgment. Id.; see also TEX. R. APP. P. 44.1; Interstate Northborough P'ship v. State, 66 S.W.3d 213, 220 (Tex. 2001). In determining whether the excluded evidence resulted in the rendition of an improper judgment, we review the entire record. Interstate Northborough P'ship, 66 S.W.3d at 220. A successful challenge to a trial court's evidentiary ruling ordinarily requires the complaining party to demonstrate that the judgment turns on the particular evidence excluded or admitted. Id. We will not reverse a judgment on the basis of erroneously excluded evidence if the evidence is cumulative and not controlling on a material issue dispositive to the case. Id.

Hearsay is an out-of-court statement offered in evidence to prove the truth of the matter asserted and is inadmissible unless a statute or rule of exception applies. TEX. R. EVID. 801(d), 802. The proponent of hearsay has the burden to show that the testimony fits within an exception to the general rule. Volkswagen of Am., Inc. v. Ramirez, 159 S.W.3d 897, 908 n.5 (Tex. 2004).

Under the business-records exception, evidence that is otherwise inadmissible as hearsay may be admissible if the proponent of the evidence demonstrates that (1) the record was made at or near the time of the event by, or from information transmitted by, someone with knowledge; (2) the record was kept in the regular course of a regularly conducted business activity; and (3) making the record was a regular practice of that activity. TEX. R. EVID. 803(6); see In re E.A.K., 192 S.W.3d 133, 141 (Tex. App.-Houston [14th Dist.] 2006, pet. denied). These prerequisites to admissibility may be shown by the testimony of the custodian or other qualified witness or by an affidavit that complies with Rule 902(10). TEX. R. EVID. 803(6)(D), 902(10).

Rule 902(10) provides that certain items of evidence are self-authenticating and require no extrinsic evidence of authenticity in order to be admitted, including:

Business Records Accompanied by Affidavit. The original or a copy of a record that meets the requirements of Rule 803(6) or (7), if the record is accompanied by an affidavit that complies with subparagraph (B) of this rule and any other requirements of law. . . .

TEX. R. EVID. 902(10). Subparagraph (B) provides a sample form of a sufficient affidavit, which enumerates the elements of Rule 803(6), discussed above. Id.

B. Business-Records Affidavit

Turner, in his affidavit, testified that TSI is the subservicer of the Trust and is the designated custodian of records for Foster's educational loan. Turner states that he is an employee of TSI and is authorized by the Trust to testify regarding Foster's educational loan. Turner stated that he has personal knowledge of the business records maintained by TSI as custodian of records, including electronic data provided to TSI related to Foster's loan, and the business records attached to his affidavit. The loan records are created, compiled, and recorded as part of regularly conducted business activity, at or near the time of the event and from information transmitted from a person with personal knowledge of said event and a business duty to report it, or from information transmitted by a person with personal knowledge of the accounts or events described within the business record. See TEX. R. EVID. 803(6). He also stated that such records are created, kept, maintained, and relied upon in the course of ordinary and regularly conducted business activity. See id.

Further, Turner testified that it is TSI's regularly-conducted business practice to incorporate prior loan records and documentation into TSI's business records, and he is familiar with the process by which TSI receives prior account records, including origination records from the time that loans are requested and disbursed. See Simien v. Unifund CCR Partners, 321 S.W.3d 235, 240-41 (Tex. App.-Houston [1st Dist.] 2010, no pet.).

With respect to the attached business records, Turner testified that Exhibit A is a "true and correct copy of confirmation of TSI's capacity as Subservicer." Exhibit B is a "true copy of the underlying Credit Agreement/Promissory Note and Note Disclosure Statement" pertaining to Foster's Loan. Exhibit C is a "true and correct copy" of the agreement through which Foster's loan was sold to the Trust, and the exhibit contains a redacted copy of the Schedule of transferred loans referenced within the Pool Supplement. Exhibit D is a "true copy of the Loan Financial Activity demonstrating the loan balance from disbursement to charge off." Exhibits E is a "true copy of the Deferment/Forbearance Summary." Exhibit F is a "true copy of the Repayment Schedule" associated with Foster's loan. Finally, Exhibit G is a "true copy of the Loan Payment History Report," which demonstrates the damages.

Foster argues that Turner, as a "Legal Case Manager," is not a qualified sponsor of the documents as business-records because he did not testify as the corporate representative of the Trust and did not claim to be a custodian of records. Rather, Turner describes TSI as the subservicer of the Trust. Foster argues that a corporate entity, as opposed to a natural person, cannot qualify as a custodian of records in the context of a business records affidavit because an affidavit must be sworn to by a natural person and the affiant must represent that the facts disclosed therein are true and within the his personal knowledge.

Rule 803(6) does not, however, require that the witness laying the predicate for admission of a document be the creator of the document or even an employee of the same company as the creator. In re E.A.K., 192 S.W.3d at 142; see TEX. R. EVID. 803(6). The witness need not have personal knowledge of the information recorded in the document, but need only have knowledge of how the records were prepared, as Turner testified. In re E.A.K., 192 S.W.3d at 142. Rule 902(10) reflects an intent to allow the admission of an organization's business records without requiring testimony from all of the organization's employees who have personal knowledge of the content of the records. Kaldis v. U.S. Bank Nat. Ass'n,14-11-00607-CV, 2012 WL 3229135, at *3 & n.1 (Tex. App.-Houston [14th Dist.] Aug. 9, 2012, pet. dism'd w.o.j.) (mem. op.).

We conclude that Turner's affidavit complies with Rule 902(10)(B). See id.; see also TEX. R. EVID. 803(6), 902(10)(B). Thus, the Trust's business records are self-authenticating and require no extrinsic evidence of authenticity to be admitted. SeeTEX. R. EVID. 902.

C. Business Records

With respect to the business records attached to Turner's affidavit, Foster, on appeal, argues that "several of the records/documents at issue" and the "various loan origination and loan transfer documents" were not admissible under the business records exception because those documents were not generated by TSI. She asserts that Exhibit A, the Subservicer Certification, is "suspect" and has numerous "trustworthiness issues," i.e., it is not on letterhead, it is not addressed to TSI, it contains names that do not match the names on the governing documents, it conflicts with the indenture, and it is not notarized. She also asserts that "[a]uthentication is an issue with respect to several components of Exhibit 1, including all documents offered for chain-of-title purposes." She also complains about the admission of the "Numerical Data Exhibits" and "Data Box Exhibit" in Exhibit 1 as "not properly authenticated" and "did not satisfy the multiple requirements applicable to business records." The record does not reflect, however, that Foster raised any of these points in the trial court.

To preserve a complaint for appellate review, a party must state an objection clearly and with sufficient specificity to make the trial court aware of the particular grounds for the complaint. TEX. R. APP. P. 33.1(a); McKinney v. Nat'l Union Fire Ins. Co., 772 S.W.2d 72, 74 (Tex. 1989). A specific objection is one that enables the trial court to understand the precise grounds so as to make an informed ruling and affords the offering party an opportunity to remedy the defect, if possible. McKinney, 772 S.W.2d at 74.

As discussed above, the record shows that Foster made a general hearsay objection. "[A] general hearsay objection does not preserve for appeal a challenge to a proper predicate's being made to admit business records." Rogers v. Dep't of Family & Protective Servs., 175 S.W.3d 370, 376 (Tex. App.-Houston [1st Dist.] 2005, pet. dism'd w.o.j.) (holding general hearsay objection did not preserve for appeal challenge to predicate being made to admit business records and declining to address propriety of admitting file); Clark v. Walker-Kurth Lumber Co., 689 S.W.2d 275, 281 (Tex. App.-Houston [1st Dist.] 1985, writ ref'd n.r.e.) (holding that objection to personal knowledge of sponsoring witness to assert business records exception to hearsay rule did not preserve error asserted on appeal that invoices were not generated at or near the time of the transaction and that appellee failed to lay the proper predicate for introduction of a summary of business records); see, e.g., In re N.C.M., 66 S.W.3d 417, 420 (Tex. App.-Tyler 2001, no pet.) (holding that general hearsay objection to business records was insufficient to inform trial court of specific grounds of objection or to preserve error).

We hold that the trial court did not err in admitting the business-records affidavit.

We overrule the portion of Foster's first issue in which she challenges the affidavit. Foster has waived the remaining portions of her first issue.

Sufficiency of the Evidence

In her second issue, Foster asserts that the Trust lacks standing to assert its breach-of-contract claim, and she challenges the legal and factual sufficiency of the evidence to support the Trust's claim as to both liability and damages.

A. Standing

Foster first argues that the evidence does not support that the Trust has standing to assert its breach-of-contract claim.

"Standing is implicit in the concept of subject matter jurisdiction," which is never presumed, cannot be waived, and may be raised for the first time on appeal. Tex. Ass'n of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440, 443-46 (Tex. 1993); Brown v. Mesa Distribs., Inc., 414 S.W.3d 279, 284 (Tex. App.-Houston [1st Dist.] 2013, no pet.). Whether the trial court has subject matter jurisdiction is a question of law that we review de novo. Tex. Dep't of Parks & Wildlife v. Miranda, 133 S.W.3d 217, 226 (Tex. 2004). Without a breach of a legal right belonging to himself, a plaintiff has no standing to litigate. See Nobles v. Marcus, 533 S.W.2d 923, 927 (Tex. 1976).

To establish its standing to assert a breach of contract cause of action, a party must prove its privity to the agreement, or that it is a third-party beneficiary. OAIC Commercial Assets, L.L.C. v. Stonegate Village, L.P., 234 S.W.3d 726, 738 (Tex. App.-Dallas 2007, pet. denied). For standing purposes, privity is established if the plaintiff proves that the defendant was a party to an enforceable contract with either the plaintiff or a third party who assigned its cause of action to the plaintiff. Id. An assignee "stands in the shoes of his assignor." Sw. Bell Tel. Co. v. Mktg. on Hold Inc., 308 S.W.3d 909, 920 (Tex. 2010); see Bosch v. Frost Nat'l Bank, No. 01-14-00191-CV, 2015 WL 4463666, at *3 (Tex. App.-Houston [1st Dist.] July 21, 2015, no pet.) (mem. op.) ("It is well-settled that the assignee steps into the shoes of the assignor and may assert the same rights as the assignor.").

The record shows that on May 23, 2007, Foster signed a Credit Agreement, requesting from Chase an "Education One" undergraduate loan in the amount of $25,000.00. The Pool Supplement, dated September 20, 2007, shows that Chase transferred, sold, and assigned to National Collegiate Funding LLC each of the "Transferred Bank One Loans" referenced in the attached schedule and transferred each note and all records and rights relating thereto. The parties agreed that National Collegiate Funding LLC would "in turn . . . sell the Transferred Bank One Loans" to a purchaser trust. The Deposit and Sale Agreement, also dated September 20, 2007, shows that National Collegiate Funding LLC sold, and the Trust purchased, "the student loans listed on Schedule 1 or Schedule 2 to each of the Pool Supplements set forth on Schedule A." Schedule A references the Pool Supplement: "[Chase] (successor to Bank One, N.A.) dated September 20, 2007, for loans that were originated under . . . Education One Loan Program . . . ." A document attached to the Pool Supplement lists a loan originated by Chase, under the "Education One" loan program, in the amount of $25,000.00, disbursed on May 31, 2007 to, or on behalf of, Foster, who is identified by the last four digits of her social security number.

This evidence shows that Foster was a party to a contract with Chase that was later assigned to the Trust. Thus, the Trust, as an assignee, "stands in the shoes of" Chase with respect to Foster's loan and has standing to assert its breach-of-contract claim. See Sw. Bell Tel. Co., 308 S.W.3d at 920; Bosch, 2015 WL 4463666, at *3.

B. Breach of Contract

In a trial to the court in which no findings of fact or conclusions of law are filed, the trial court's judgment implies all findings of fact necessary to support it. Rosemond v. Al-Lahiq, 331 S.W.3d 764, 766-67 (Tex. 2011). When, as here, a reporter's record has been filed, the implied findings are not conclusive, and a party may challenge both the legal and factual sufficiency of the evidence supporting those findings. BMC Software Belg., N.V. v. Marchand, 83 S.W.3d 789, 795 (Tex. 2002). When legal- and factual-sufficiency issues are raised, the applicable standards of review are the same as those applied to review jury findings. Roberson v. Robinson, 768 S.W.2d 280, 281 (Tex. 1989). We affirm the trial court's judgment if it can be upheld on any theory finding support in the evidence. Rosemond, 331 S.W.3d at 767.

When a party challenges the legal sufficiency of an adverse finding on which she did not have the burden of proof, she must demonstrate that there is no evidence to support the adverse finding. Croucher v. Croucher, 660 S.W.2d 55, 58 (Tex. 1983). We will sustain a legal-sufficiency or no-evidence challenge if the record shows one of the following: (1) a complete absence of evidence of a vital fact, (2) rules of law or evidence bar the court from giving weight to the only evidence offered to prove a vital fact, (3) the evidence offered to prove a vital fact is no more than a scintilla, or (4) the evidence establishes conclusively the opposite of the vital fact. City of Keller v. Wilson, 168 S.W.3d 802, 810 (Tex. 2005). In conducting a legal-sufficiency review, a "court must consider evidence in the light most favorable to the verdict, and indulge every reasonable inference that would support it." Id. at 822.

If there is more than a scintilla of evidence to support the challenged finding, we must uphold it. Formosa Plastics Corp. USA v. Presidio Eng'rs & Contractors, Inc.,960 S.W.2d 41, 48 (Tex. 1998). "[W]hen the evidence offered to prove a vital fact is so weak as to do no more than create a mere surmise or suspicion of its existence, the evidence is no more than a scintilla and, in legal effect, is no evidence." Ford Motor Co. v. Ridgway, 135 S.W.3d 598, 601 (Tex. 2004). However, if the evidence at trial would enable reasonable and fair-minded people to differ in their conclusions, then factfinders must be allowed to do so. City of Keller, 168 S.W.3d at 822; see also King Ranch, Inc. v. Chapman, 118 S.W.3d 742, 751 (Tex. 2003). "A reviewing court cannot substitute its judgment for that of the trier-of-fact, so long as the evidence falls within this zone of reasonable disagreement." City of Keller, 168 S.W.3d at 822.

In conducting a factual-sufficiency review, we must consider, weigh, and examine all of the evidence that supports or contradicts the factfinder's determination. See Dow Chem. Co. v. Francis, 46 S.W.3d 237, 242 (Tex. 2001); Plas-Tex, Inc. v. U.S. Steel Corp., 772 S.W.2d 442, 445 (Tex. 1989). We may set aside the verdict only if the evidence is so weak or the finding is so against the great weight and preponderance of the evidence that it is clearly wrong or manifestly unjust. Pool v. Ford Motor Co., 715 S.W.2d 629, 635 (Tex. 1986).

"To prevail on a breach of contract claim, a party must establish the following elements: (1) a valid contract existed between the plaintiff and the defendant; (2) the plaintiff tendered performance or was excused from doing so; (3) the defendant breached the terms of the contract; and (4) the plaintiff sustained damages as a result of the defendant's breach." West v. Triple B Servs., LLP, 264 S.W.3d 440, 446 (Tex. App.-Houston [14th Dist.] 2008, no pet.). The elements of a valid contract are: (1) an offer, (2) an acceptance, (3) a meeting of the minds, (4) each party's consent to the terms, and (5) execution and delivery of the contract with the intent that it be mutual and binding. Beverick v. Koch Power, Inc., 186 S.W.3d 145, 150 (Tex. App.-Houston [1st Dist.] 2005, pet. denied). When an offer prescribes the manner of acceptance, compliance with those terms is required to create a contract. Padilla v. LaFrance, 907 S.W.2d 454, 460 (Tex. 1995). If one party signs a contract, the other party may accept by his acts, conduct, or acquiescence to the terms, making it binding on both parties. Jones v. Citibank (S.D.), N.A., 235 S.W.3d 333, 339 (Tex. App.-Fort Worth, no pet.). To be enforceable, a contract must be sufficiently certain to enable a court to determine the rights and responsibilities of the parties. Williams v. Unifund CCR Partners Assignee of Citibank, 264 S.W.3d 231, 236 (Tex. App.-Houston [1st Dist.] 2008, no pet.) (citing T.O. Stanley Boot Co. v. Bank of El Paso, 847 S.W.2d 218, 221 (Tex. 1992)).

Here, the record shows that on May 23, 2007, Foster signed a "Credit Agreement," requesting from Chase an undergraduate loan in the amount of $25,000.00, for the 2007-2008 academic year at Texas Southern University. The Credit Agreement states, in pertinent part:

A. Promise to Pay.

I promise to pay to your order, upon the terms and conditions of this Credit Agreement, the principal sum of the Loan Amount Requested shown on the first page of this Credit Agreement, to the extent that it is advanced to me or paid on my behalf, and any Loan Origination Fee added to my loan . . ., interest on any unpaid interest added to the Principal Sum, and other charges set forth herein.

B. Loan; Disclosure Statement:

1. By signing this Credit Agreement and submitting it to you [Chase], I am requesting that you make this loan to me in an amount equal to the Loan Amount Requested . . . .

2. If you agree to make a loan to me, you will mail me the disbursement check . . . and a statement disclosing certain information about the loan in accordance with the federal Truth-in-Lending Act ("Disclosure Statement"). You have the right to disburse my Disbursement Check through an agent . . . . [T]he Disclosure Statement is part of this Credit Agreement. Upon receipt of the Disclosure Statement, I will review the Disclosure Statement and notify you in writing if I have any questions. My endorsement of the Disbursement Check or allowing the loan proceeds to be sued by or on behalf of the student Borrower without objection will acknowledge receipt of the disclosure statement and my agreement to be legally bound by this Credit Agreement.

3. If I am not satisfied with the terms of my loan as disclosed in the Disclosure Statement, I may cancel my loan. . . .

The Credit Agreement also addresses deferment periods, terms of repayment, interest, and default, and acceleration.

Pursuant to the Note Disclosure Statement, Chase, on May 31, 2007, disbursed to Foster, or on her behalf, a loan in the amount of $25,000.00. The terms include an origination fee of $2,624.31, interest at 13.016 percent, and 240 payments of $381.34, due on the 12th of each month, beginning on July 12, 2009. As discussed above, Chase subsequently assigned the loan to the Trust.

The Loan Financial Activity record shows the monthly balance and interest accrued and that Foster did not make any payments on the loan. The final "Principal Balance" on November 20, 2013 was $43,560.51. Foster offered no evidence that she made any payments on the loan.

The evidence shows that a valid contract between the Trust and Foster, pursuant to which Chase loaned to Foster $25,000.00, on the terms stated, and Foster agreed to repay the loan on the terms stated. The evidence further shows that Foster breached the terms of the contract by not paying the loan as agreed, and the Trust sustained damages as a result of Foster's breach. See West, 264 S.W.3d at 446.

Foster argues that the evidence is insufficient to show a valid contract because, although the Credit Agreement contains a promise, the promise is qualified as follows: "I promise to pay to your order, upon the terms and conditions of this Credit Agreement, the principal sum of the Loan Amount Requested shown on the first page of the Credit Agreement, to the extent it is advanced to me or paid on my behalf. . . ." Foster asserts that her promise to pay is "contingent" upon the loan being approved and, because Chase had not yet acted on her application, there could not yet have been a meeting of the minds on the essential terms of the contract, including the amount of the loan and the cost-of-credit terms. She asserts that, although the terms do appear on the Note Disclosure Statement, it is dated May 31, 2007, which is one week after May 23, 2007, the date that the Credit Agreement was signed. She asserts that, although she did sign the Credit Agreement, this, without more, is insufficient to constitute a binding contract.

As discussed above, the Credit Agreement and Note Disclosure Statement, taken together, evidence the essential terms of the loan, including the amount of the loan, and Foster's assent to the terms. Foster's argument overlooks "well-established law that instruments pertaining to the same transaction may be read together to ascertain the parties' intent, even if the parties executed the instruments at different times and the instruments do not expressly refer to each other." Fort Worth Indep. Sch. Dist. v. City of Fort Worth, 22 S.W.3d 831, 840 (Tex. 2000). Courts may construe all the documents as if they were part of a single, unified instrument. Id.

Foster next argues that the evidence is insufficient to show that Chase disbursed the loan funds because there is not a cancelled check in evidence. As discussed above, the evidence shows that Chase disbursed $25,000.00 on Foster's behalf. To the extent that Foster claims a failure of consideration, such is an affirmative defense that is waived if not pled. See TEX. R. APP. P. 33.1; TEX. R. CIV. P. 94 (providing that "failure of consideration" constitutes affirmative defense that must be specifically pleaded). Because Foster did not plead an affirmative defense of failure of consideration, the issue is waived. DeClaire v. G & B Mcintosh Family Ltd. P'ship, 260 S.W.3d 34, 48 (Tex. App.-Houston [1st Dist.] 2008, no pet.)(holding that affirmative defenses not affirmatively pled are waived).

We conclude that there is some evidence to support the trial court's conclusion that Foster breached the student loan agreement and that the Trust suffered damages as a result of the breach. See Croucher, 660 S.W.2d at 58 (party challenging legal sufficiency of adverse finding on which she did not have the burden of proof must demonstrate that "no evidence" supports adverse finding); see also City of Keller, 168 S.W.3d at 827. We further conclude that the trial court's finding is not so contrary to the overwhelming weight of the evidence as to be clearly wrong and manifestly unjust. See Pool, 715 S.W.2d at 635. Accordingly, we hold that legally and factually sufficient evidence supports the trial court's finding as to Foster's liability.

C. Amount of Damages

Foster further argues that the evidence is insufficient to support the amount of damages awarded because (1) there is no evidence of the Trust's calculation of interest on the loan and (2) there is no evidence that the Trust provided Foster notice of its intent to accelerate the debt or of its actual acceleration of the debt. She asserts that, without evidence of a valid acceleration, the Trust can collect only her past due payments, and she requests a remittitur.

1. Interest

Foster asserts that there is no evidence or insufficient evidence of the Trust's calculation of interest during the term of the loan. In support of her argument, Foster relies on Williams. In Williams, this Court noted that the material terms of a contract must be agreed upon before a court can enforce the contract, and the interest rate is a material term. 264 S.W.3d at 236; see T.O. Stanley Boot, 847 S.W.2d at 221 (holding that interest rate is material term in context of contract to loan money). There, the plaintiff did not produce the parties' actual agreement or any other document establishing the agreed upon terms, including the applicable interest rate or the method for determining the finance charges. Williams, 264 S.W.3d at 236. Further, the interest rates in the statements provided by the plaintiff were inconsistent, varying from 5 percent to 22.4 percent, and there was no evidence as to how it calculated the interest rates and finance charges. Id.

Here, as discussed above, the evidence includes the Credit Agreement, which, at paragraph D, discusses in detail how interest on Foster's loan was to be calculated throughout the term of the loan and provides for capitalization of interest during deferment. Paragraph I also provides for capitalization of interest and fees upon default. The Note Disclosure Statement states an annual percentage rate of 13.016 percent, with a variable rate, based on the one-month London Interbank Offered Rate, or "LIBOR" index, published in the "Money Rates" section of the Wall Street Journal (Eastern Edition) on the first business day of the preceding calendar month. The Loan Financial Activity report lists the amount of "Interest Accrued" each month on Foster's loan, through November 20, 2013. Foster provides no authority for her assertion that the Trust was required to support its claim with calculations supporting each month's interest computation over the life of the loan.

2. Acceleration

With respect to her assertion that there is no evidence of acceleration, the Disclosure Statement reflects that the Foster agreed to pay the loan over a period of 20 years, beginning in July 2009. The Credit Agreement states that, in the event of a default on the loan, the Trust "will have the right to give [Foster] notice that the whole outstanding principal balance, accrued interest, and all other amounts payable to [the Trust] under the terms of th[e] Credit Agreement are due and payable at once."

"Where the holder of a promissory note has the option to accelerate maturity of the note upon the maker's default, equity demands notice be given of the intent to exercise the option." Ogden v. Gibraltar Sav. Ass'n, 640 S.W.2d 232, 233 (Tex. 1982). "The accelerated maturity of a note, which is initially contemplated to extend over a period of months or years, is an extremely harsh remedy." Allen Sales & Servicenter, Inc. v. Ryan, 525 S.W.2d 863, 866 (Tex. 1975). A creditor "must give the debtor an opportunity to pay the past due installments before acceleration of the entire indebtedness; therefore, demand for payment of past due installments must be made before exercising the option to accelerate." Williamson v. Dunlap, 693 S.W.2d 373, 374 (Tex. 1985). The note holder must also notify the maker both of its intent to accelerate and of the acceleration. Ogden, 640 S.W.2d at 233-34.

There is no evidence in the record before us that the Trust provided Foster with either of the required notices. See id. When acceleration is invalid, the plaintiff is entitled to judgment against the defendant only "for past due installments plus accumulated interest as provided in the note." Williamson, 693 S.W.2d at 374.

Foster requests that this Court

reform the judgment to an amount commensurate with the sum of missed installment payments through the date suit was filed, or enter an order providing for remittitur as an alternative vehicle to accomplish a proper adjustment of the amount of contract damages supported by the record as having been caused by breach of contractural duties.

Foster asserts that the sum of all monthly payments due, beginning on July 12, 2009, as stated in the Note Disclosure Statement, through the date of the filing of suit, January 21, 2016, is $30,134,55.^[2]

A court of appeals may suggest a remittitur when there is insufficient evidence to support the full amount of damages awarded but sufficient evidence to support a lesser award. Akin, Gump, Strauss, Hauer & Feld, L.L.P. v. Nat'l Dev. & Research Corp., 299 S.W.3d 106, 124 (Tex. 2009); see TEX. R. APP. P. 46.3. If part of a damage verdict lacks sufficient evidentiary support, the proper course is to suggest a remittitur of that part of the verdict, giving the party prevailing in the trial court the option of accepting the remittitur or having the case remanded for a new trial. Akin, Gump, Strauss, Hauer & Feld, L.L.P., 299 S.W.3d at 124.

As set out above, the record contains some evidence that breach-of-contract damages exist, but, without evidence of notice of acceleration, the evidence does not support the full amount awarded by the trial court. The evidence does, however, allow us to determine a lesser award. See ERI Consulting Eng'rs, Inc. v. Swinnea, 318 S.W.3d 867, 877-78, 880 (Tex. 2010) (holding that evidence was legally insufficient to support amount of lost profit damages awarded by trial court, but that there was "legally sufficient evidence to prove a lesser, ascertainable amount of lost profits with reasonable certainty," and remanding case to court of appeals to consider suggestion of remittitur). Based on the record, the evidence is legally and factually sufficient to support a lesser damages finding of $30,134.55, which represents the sum of all monthly payments due, beginning on July 12, 2009, as stated in the Note Disclosure Statement, through the filing of suit, on January 21, 2016. See PNS Stores, Inc. v. Munguia, 484 S.W.3d 503, 513 (Tex. App.-Houston [14th Dist.] 2016, no pet.) (suggesting remittitur to "the highest amount of actual damages supported by the evidence"). Although Foster suggests that an offset is necessary for "any payments made" or other credits, we note that, not only does the record reflect that she did not make any payments on the loan, she did not plead for an offset. See Zuniga v. Velasquez, 274 S.W.3d 770, 774 (Tex. App.-San Antonio 2008, no pet.) (holding that "[t]he right of offset is an affirmative defense which must be pleaded and proved by the party asserting it" or it is waived); see also TEX. R. APP. P. 94.

We hold that although there is legally and factually sufficient evidence that Foster breached the loan contract, the evidence is legally and factually insufficient to support the full amount of actual damages awarded.

Conclusion

We conclude that the evidence is insufficient to support the trial court's award of actual damages in the amount of $45,277.02, but the evidence is sufficient to support an award of actual damages in the amount of $30,134.55. Thus, we suggest a remittitur of the actual damages award to $30,134.55. In accordance with Rule 46.3 of the Texas Rules of Appellate Procedure, if the Trust files with this Court, within fifteen days of the date of this opinion, a remittitur to that amount, the trial court's judgment on damages will be modified and affirmed. See TEX. R. APP. P. 46.3. If the suggested remittitur is not timely filed, the trial court's judgment will be reversed and the cause will be remanded for a new trial on liability and damages. See Rancho La Valencia, Inc. v. Aquaplex, Inc., 383 S.W.3d 150, 152 (Tex. 2012) (holding that if party rejects remittitur, court of appeals must remand for new trial on liability and damages).

[1] We note that, ordinarily, a trust cannot sue in its own name; rather, a representative must assert claims on behalf of the trust. Ray Malooly Trust v. Juhl, 186 S.W.3d 568, 570 (Tex. 2006). Here, however, the Trust is a "Delaware Statutory Trust." A statutory trust is formed by the filing of a record, commonly referred to as a certificate of trust, in a public office pursuant to a statute. TEX. BUS. & COM. CODE ANN. § 9.102; see, e.g., Uniform Statutory Trust Entity Act § 201 (2009); Delaware Statutory Trust Act, DEL. CODE ANN. tit. 12, § 3801 et seq. A statutory trust is a juridical entity, separate from its trustee and beneficial owners, that may sue and be sued, own property, and transact business in its own name. TEX. BUS. & COM. CODE ANN. § 9.102.

[2] Calculated as $381.45 monthly for 79 months.

 INDIANA COURT OF APPEALS OPINION IN 

HOLMES V. NCSLT 

Alexander Holmes, Appellant-Defendant,
v.
National Collegiate Student Loan Trust, Appellee-Plaintiff.

No. 87A05-1711-CC-2517.

Court of Appeals of Indiana.

February 27, 2018.

Appeal from the Warrick Superior Court, Trial Court Cause No. 87D02-1608-CC-987, 

The Honorable Robert R. Aylsworth, Judge.

Thomas G. Bradburn, Bradburn Law Firm, Noblesville, Indiana, Attorney for Appellant.

Seth Row, Daniel Bogatz, Javitch Block LLC, Cleveland, Ohio, Attorneys for Appellee.

CRONE, Judge.

Case Summary

Alexander Holmes appeals the trial court's entry of summary judgment in favor of National Collegiate Student Loan Trust ("NCSLT"). Concluding that Holmes has met his burden to persuade us that the grant of summary judgment was erroneous, we reverse and remand.

Facts and Procedural History

On November 30, 2006, Holmes cosigned a Loan Request/Credit Agreement with Charter One Bank on behalf of his son, Nicholas Holmes. The loan was an education loan for Nicholas to attend the University of Southern Indiana from August 2006 through May 2007. In March 2007, Charter One Bank sold a pool of student loans to National Collegiate Funding LLC, which in turn sold the loans to NCSLT. This pool of loans allegedly contained Holmes's specific loan account.

On August 15, 2016, NCSLT filed a complaint against Holmes alleging that it was the owner of Holmes's account and that Holmes owed $16,578.60 plus accrued interest. Holmes filed his answer and affirmative defenses, including the defense that NCSLT lacked standing to bring its claim.

On March 22, 2017, NCSLT filed a motion for summary judgment and designation of evidence. In response, Holmes asserted that NCSLT failed to prove that it owned his account and further that much of NCSLT's designated evidence was inadmissible pursuant to Indiana Trial Rule 56(E). Following a hearing, the trial court entered summary judgment in favor of NCSLT. The court ordered Holmes to pay NCSLT $18,183.26 plus interest and costs. Holmes filed a motion to correct error, which the trial court denied. This appeal ensued.

Discussion and Decision

Holmes appeals the trial court's entry of summary judgment in favor of NCSLT. Summary judgment is appropriate only when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Wagner v. Yates, 912 N.E.2d 805, 808 (Ind. 2009). "The party moving for summary judgment has the burden of making a prima facie showing that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law." Goodwin v. Yeakle's Sports Bar & Grill, Inc., 62 N.E.3d 384, 386 (Ind. 2016). Once that showing is made, the burden shifts to the nonmovant to come forward with contrary evidence showing the existence of an issue for the trier of fact. Hughley v. State, 15 N.E.3d 1000, 1003 (Ind. 2014). In determining whether the moving party is entitled to summary judgment, "[w]e consider only those materials properly designated pursuant to Trial Rule 56 and construe all factual inferences and resolve all doubts ... in favor of the non-moving party." Young v. Hood's Gardens, Inc., 24 N.E.3d 421, 424 (Ind. 2015).

Holmes contends that NCSLT has failed to establish the absence of a genuine issue of material fact. Particularly, Holmes argues that much of NCSLT's designated evidence is inadmissible hearsay, and thus the evidence presented is insufficient to make a prima facie showing that NCSLT is entitled to summary judgment on its claim against Holmes. We agree.

To make its prima facie case in support of summary judgment, NCSLT was required to show that Holmes executed a contract for the student loan with Charter One Bank, that NCSLT was the assignee and is now the owner of that debt, and that Holmes owed the original lender, Charter One Bank, the amount alleged. See Seth v. Midland Funding, LLC, 997 N.E.2d 1139, 1140 (Ind. Ct. App. 2013)(discussing designated evidence necessary to make prima facie case in support of summary judgment in favor of creditor claiming breach of credit card contract). In support of summary judgment, NCSLT designated the affidavit of Jacqueline Jefferis, an employee of Transworld Systems, Inc. ("TSI"), the loan subservicer for U.S. Bank, National Association, the "Special Servicer" of NCSLT. Appellant's App. Vol. 2 at 14. Jefferis stated that she was the "designated custodian of records" for TSI. She stated that she was "familiar with the process by which TSI received prior account records," that it was "TSI's regularly-conducted business practice to incorporate prior loan records ... into TSI's business records," and therefore she was competent and authorized to testify regarding Holmes's specific loan and "the business records attached" to the affidavit. Id. The purpose of the Jefferis affidavit was to authenticate and lay the foundation for the admissibility of several attached documents, the most relevant for our review being the loan contract between Holmes and Charter One Bank, and the schedule of pooled loans transferred from Charter One Bank to National Collegiate Funding LLC, before then being sold and assigned to NCSLT.^[1]

Indiana Trial Rule 56(E) provides that supporting and opposing affidavits on summary judgment "shall be made on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify to the matters stated therein." The requirements of Trial Rule 56(E) are mandatory, and a court considering a motion for summary judgment should disregard inadmissible information contained in supporting or opposing affidavits. Seth, 997 N.E.2d at 1143. Inadmissible hearsay contained in an affidavit may not be considered in ruling on a motion for summary judgment. Breining v. Harkness, 872 N.E.2d 155, 158 (Ind. Ct. App. 2007), trans. denied(2008).

NCSLT admits that the Jefferis affidavit and supporting documents are hearsay.^[2]However, NCSLT argues that the material offered is admissible because it falls within the business records exception to the hearsay rule. Specifically, Indiana Evidence Rule 803(6) provides that records of a regularly conducted business activity are not excluded by the rule against hearsay if: the record was made at or near the time by—or from information transmitted by— someone with knowledge; the record was kept in the course of a regularly conducted activity of a business; making the record was a regular practice of that activity; all these conditions are shown by the testimony of the custodian or another qualified witness; and neither the source of information nor the method or circumstances of preparation indicate a lack of trustworthiness. To ensure reliability, the proponent of a business record must authenticate it, and Evidence Rule 803(6) permits authentication by affidavit. Speybroeck v. State, 875 N.E.2d 813, 819 (Ind. Ct. App. 2007). As an exception to the hearsay rule, the business record exception must be strictly construed. Id.

Here, the Jefferis affidavit provided no testimony to support the admission of the contract between Holmes and Charter One Bank or the schedule of pooled loans sold and assigned to National Collegiate Funding, LLC, and then to NCSLT, as business records pursuant to Evidence Rule 803(6). There was no testimony to indicate that Jefferis was familiar with or had personal knowledge of the regular business practices or record keeping of Charter One Bank, the loan originator, or that of NCSLT regarding the transfer of pooled loans, such that she could testify as to the reliability and authenticity of those documents. Indeed, Jefferis offered no evidence to indicate that those records were made at or near the time of the business activities in question by someone with knowledge, that the records were kept in the course of the regularly conducted activities of either Charter One or NCSLT, and that making the records was part of the regularly conducted business activities of those third-party businesses. In Speybroeck, this Court stated that, pursuant to Trial Rule 803(6), one business "could not lay the proper foundation to admit the records of another business because the requesting business lacked the personal knowledge required to ensure reliability." Id. at 821; accord Williams v. Unifund CCR, LLC, 70 N.E.3d 375, 379 (Ind. Ct. App. 2017) (affiant from one business who did not have personal knowledge of another business's regularly conducted business activities could not lay foundation for admission of exhibit).^[3]Because the Jefferis affidavit is insufficient to support the admission of two of the business records necessary for NCSLT to establish its prima facie case, summary judgment is inappropriate.

Under the circumstances, we conclude that NCSLT has failed to make a prima facie case in support of summary judgment. Accordingly, we reverse and remand for further proceedings.

Reversed and remanded.

Robb, J., and Bradford, J., concur.

[1] The additional attached documents included computer printouts of the loan financial activity, a deferment/forbearance summary, the loan repayment schedule, and the loan payment history report.

[2] Hearsay is an out of court assertion offered in court to prove the truth of the matter asserted. Ind. Evidence Rule 801(c). Absent an exception to the rule, hearsay is inadmissible as evidence. In re E.T.,808 N.E.2d 639, 641 (Ind. 2004); Ind. Evidence Rule 802.

[3] NCSLT argues that some federal circuit courts have allowed authentication of third-party business records pursuant to Federal Rule of Evidence 803(6), but Indiana courts have not applied Indiana Evidence Rule 803(6) in the same way. This would not be the only point regarding hearsay evidence upon which we diverge from our federal counterparts. Indiana has also never adopted a residual exception like Federal Rule of Evidence 807, which allows trial judges to exercise discretion to admit certain hearsay evidence. VanPatten v. State, 986 N.E.2d 255, 269 (Ind. 2013) (Massa, J., concurring in result).