Court Opinion

ID: 2799774
Source: CourtListenerOpinion
Date Created: 2015-05-11 15:02:21.446502+00
Date Added: 2024-06-11T11:29:33.610841
License: Public Domain

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                          File Name: 15a0350n.06

                                      Case No. 14-5663                             FILED
                                                                             May 11, 2015
                         UNITED STATES COURT OF APPEALS                  DEBORAH S. HUNT, Clerk
                              FOR THE SIXTH CIRCUIT

ALAN FAMBROUGH, et al.,                            )
                                                   )
       Plaintiffs-Appellants,                      )
                                                   )     ON APPEAL FROM THE UNITED
v.                                                 )     STATES DISTRICT COURT FOR
                                                   )     THE WESTERN DISTRICT OF
WAL-MART STORES, INC., et al.,                     )     TENNESSEE
                                                   )
       Defendants-Appellees.                       )
                                                   )
                                                   )

Before: SILER, ROGERS, and COOK, Circuit Judges.

       SILER, Circuit Judge.       Six individual automated teller machine (ATM) users

(collectively, the ATM Users) appeal the district court’s grant of summary judgment on their

claims asserted under 15 U.S.C. § 1693 in favor of defendants Wal-Mart Stores, Inc. (Wal-Mart)

and Satellite Receivers, LTD, d/b/a Cash Depot (Cash Depot). For the reasons explained below,

we REVERSE.

                                              I.

       This case arises out of six separate ATM transactions in Tennessee and Mississippi. The

individual ATM Users filed an amended consolidated complaint on behalf of themselves and

others similarly situated in the Western District of Tennessee.    The six ATM Users each

individually alleged that either Wal-Mart or Cash Depot violated 15 U.S.C. § 1693 et seq.,

known as the Electronic Fund Transfer Act (EFTA), when the defendants failed to place exterior

fee notices on the ATMs used by the ATM Users.
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         Although the relevant portion of the EFTA was subsequently amended,1 at the time this

cause of action arose, it required ATM operators to post both an “on-machine” fee notice and an

“on-screen” fee notice. 15 U.S.C. § 1693b(d)(3)(B)(i) & (ii) (2010); 12 C.F.R. § 205.16(c)

(2001).2 A fee notice alerts ATM users who withdraw cash that a fee will be charged. Under the

EFTA, the safe harbor defense relieves defendants of liability if they posted the required notice

and if the notice was later removed, damaged, or altered by a third party. 15 U.S.C. § 1693h(d).

                                        a. The Wal-Mart ATM Users

         Wal-Mart is a major retailer of consumer goods, and in some of its locations, it has

Money Center Express machines (MCX machines), which offer ATM and other financial

services to its customers. In their complaint, three individual ATM Users alleged that they each

used Wal-Mart MCX machines that lacked an external fee notice at the time. Individuals who

use Wal-Mart MCX machines to withdraw cash are charged a $1.50 ATM fee. The ATM Users

do not dispute that the Wal-Mart MCX machines may have provided them with an on-screen

notice that they would be charged a $1.50 fee for a cash withdrawal. Notably, Wal-Mart often

engages vendors such as National Cash Register (NCR) to service its MCX machines.

         Wal-Mart moved for summary judgment and alleged that it was entitled to the safe harbor

defense.3 In support of this defense, Wal-Mart submitted the declaration of Kam Lam, the

Senior Manager of Innovations, Delivery, and Technology at Wal-Mart, and a number of

purported business records attached to Lam’s declaration, which contained crucial records to

support Wal-Mart’s safe harbor defense. Wal-Mart also submitted Lam’s deposition in support

1
  See 15 U.S.C. § 1693b(d)(3)(B) (2012) (“The notice . . . shall appear on the screen of the automated teller machine,
or on a paper notice issued from such machine . . . .”) (emphasis added).
2
  “Regulation E, issued by the Board of Governors of the Federal Reserve System, implemented the EFTA and
provided additional details” in 12 C.F.R. § 205.16 (2001), which combined with the EFTA, resulted in the
requirement of both an on-screen notice and an external notice.
3
  In their summary judgment motion, Wal-Mart also asserted the “unintentional error defense,” claiming that the
notices were missing due to unintentional error. 15 U.S.C. § 1693m(c).

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of its motion. Collectively, this evidence would establish that the three MCX machines in

question were originally equipped with the external fee notices and that Wal-Mart employees did

not remove the notices. The ATM Users moved to strike Lam’s declaration and depositions for

having been made in the absence of personal knowledge and argued that the purported business

records were hearsay and were not properly authenticated. The district court denied the ATM

Users’ motion to strike, but indicated it would consider the ATM Users’ arguments in resolving

the summary judgment motion.

                                b. The Cash Depot ATM Users

       Along a nearly identical narrative, Cash Depot provides financial services through

ownership and operation of ATMs. Cash Depot leases space from Wal-Mart and Sam’s Club

stores to provide its ATMs at those locations. Three individual ATM Users alleged that they

each used Cash Depot ATMs that lacked external fee notices at that time. Cash Depot imposed a

$1.75 ATM fee on customers who withdrew cash. Notably, Cash Depot regularly engages

subcontractors, including a company called Diebold, to service Cash Depot’s ATMs.

       Cash Depot moved for summary judgment and argued it was entitled to the safe harbor

defense. In support of its motion, Cash Depot submitted a declaration of Rocky Heiser, the

Operations Manager of Cash Depot. Cash Depot also attached a number of purported business

records to Heiser’s declaration, and such records are crucial to establishing Cash Depot’s

defense. The records show that the ATMs in question were originally affixed with external fee

notices and that Cash Depot employees were never directed to remove the stickers. Cash Depot

also submitted Heiser’s deposition in support of its position. The ATM Users moved to strike

Cash Depot’s summary judgment evidence because they argued that Heiser lacked personal

knowledge to make certain statements in his declaration and deposition and because the

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purported business records were hearsay and were not properly authenticated. The district court

denied the ATM Users’ motion to strike, but indicated it would consider the ATM Users’

arguments in its summary judgment order.

                                     c. Summary Judgment

       The district court ultimately granted summary judgment in favor of Wal-Mart and Cash

Depot and concluded that: (1) the records fell within the business records exception of Fed. R.

Evid. 803(6); (2) Lam and Heiser qualified as “other required witnesses” to authenticate the

business records; (3) Lam and Heiser testified with personal knowledge by virtue of their

positions in the defendant companies; and (4) Wal-Mart and Cash Depot established the safe

harbor defense based on the business records and Lam’s and Heiser’s declarations and

depositions, particularly since the ATM Users failed to point to any material facts to negate such

evidence.

       The ATM Users now appeal and argue that the district court erred by: (1) considering the

records produced by Wal-Mart and Cash Depot as business records without proper

authentication; (2) relying on Lam’s and Heiser’s declarations and depositions that were not

based on personal knowledge; (3) granting summary judgment in favor of the defendants based

on the safe harbor defense in the absence of evidence affirmatively proving vandalism of the

ATMs in question; (4) purportedly drawing inferences in favor of the defendants on summary

judgment; and (5) allowing the defendants to assert both the safe harbor defense and the “bona

fide error” defense.

                                                II.

       We review the district court’s evidentiary rulings for an abuse of discretion and will

reverse only if the district court relied on clearly erroneous findings of fact, improperly applied

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the law, or employed an erroneous legal standard. Griffin v. Finkbeiner, 689 F.3d 584, 592 (6th

Cir. 2012).4 We review the district court’s grant of summary judgment de novo. Eastham v.

Chesapeake Appalachia, LLC, 754 F.3d 356, 360 (6th Cir. 2014).

                                                       III.

        Today is a lesson that the Rules of Evidence must be followed, even––and perhaps

especially––when the rule encompasses a historically low standard.

                          i. Business Records of Wal-Mart and Cash Depot

        The ATM Users maintain that certain documents attached to Lam’s and Heiser’s

declarations––which show that the ATMs at issue each originally was equipped with the proper

notice and were later maintained––were inadmissible hearsay. They argue that, under Fed. R.

Civ. P. 56(c)(2), the defendants should not have relied on those documents. In response, Wal-

Mart and Cash Depot maintain that the documents were self-authenticating business records,

which were admissible in accordance with Fed. R. Evid. 803(6).

        To be admissible under Fed. R. Evid. 803(6), a record must meet the following four

requirements:

        (1) it must have been made in the course of a regularly conducted business
        activity; (2) it must have been kept in the regular course of that business; (3) the
        regular practice of that business must have been to have made the memorandum;
        and (4) the memorandum must have been made by a person with knowledge of
        the transaction or from information transmitted by a person with knowledge.

Cobbins v. Tenn. Dep’t of Transp., 566 F.3d 582, 588 (6th Cir. 2009). “This information must

be presented through ‘the testimony of the custodian or other qualified witness[.]’” United

States v. Jenkins, 345 F.3d 928, 935 (6th Cir. 2003) (quoting Fed. R. Evid. 803(6)). We have

also held:
4
 The parties only refer to the de novo standard of review applied to our review of a grant of summary judgment but
do not address the evidentiary considerations under a separate standard of review.

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       Rule 803(6) does not require that the custodian personally gather, input, and
       compile the information memorialized in a business record. The custodian of the
       records need not be in control of or have individual knowledge of the particular
       corporate records, but need only be familiar with the company’s recordkeeping
       practices . . . . [I]t is not necessary that the [custodian] have personal knowledge
       of their preparation.

Id. (emphasis added) (internal quotation marks and citations omitted).

       The ATM Users maintain that the records do not satisfy any of the requirements under

the business records exception. In determining whether the records attached to Lam’s and

Heiser’s declarations were business records, the district court properly cited our precedent,

requiring that a custodian or other qualified witness authenticate business records by establishing

four requirements of admissibility under Rule 803(6).       However, the district court did not

provide any explanation as to how the records satisfied these requirements through the

declarations, or even the depositions, of Lam and Heiser.         In so doing, the district court

misapplied the law to the facts of this case.

       In their declarations, Lam and Heiser submitted an identical statement that their

declarations were based, in part, on the attached “business records made at or near the time of

recorded events and regularly maintained in the ordinary course of [each individual defendant’s]

business.” At best, this conclusory statement lays the foundation for the first two requirements

under Rule 803(6). Put differently, a liberal reading of such statements establishes that the

records were: (1) “made . . . in the ordinary course of” a regularly conducted business activity;

and (2) were kept, i.e., “maintained in the ordinary course of” Wal-Mart’s and Cash Depot’s

business.   See United States v. Weinstock, 153 F.3d 272, 276 (6th Cir. 1998) (noting the

requirements to qualify as a business record).

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       However, nowhere in either declaration do Lam and Heiser refer to the final two

requirements under the business records exception. For example, in his declaration Lam states:

“attached hereto as collective Exhibit D are true and correct copies of Remedy Updates received

from NCR for the three (3) Wal-Mart MCX machines showing that the ‘on -machine’ fee notices

were affixed to the machine at the time of installation.” This piece of evidence is crucial to Wal-

Mart’s safe harbor defense. Neither Lam’s declaration nor his deposition indicates whether the

regular practice of Wal-Mart was to ask for and/or receive and rely upon NCR’s documents in

the ordinary course of business, or whether NCR simply sent the records to Wal-Mart at the

onset of this litigation. Lam also never testified that the memorandum was made by someone at

NCR with knowledge of the transaction or from information transmitted by a person with

knowledge. Lam stated in his declaration: “attached hereto as Exhibit E is a true and correct

copy from the files of Wal-Mart of a April 10, 2009 memorandum provided to Wal-Mart stores

regarding the placement of the new, updated fee onto the older Wal-Mart machines.” Yet, was it

in Wal-Mart’s regular practice to make such a memorandum? Was the memorandum made by a

person with knowledge of the transactions or from information transmitted by a person with

knowledge? Although we have little doubt that Exhibit E might satisfy the requirements under

the business records exception, such requirements must be “shown by the testimony of the

custodian or another qualified witness . . . .” Fed. R. Evid. 803(6)(D). If Rule 803(6) means

anything, it must mean that the custodian or “other qualified witness” at least attests to the

business records requirements. Lam need not use magic words to establish the requirements

under the business records exception, but he must at least convey that he has a baseline level of

knowledge that the records meet the admissibility requirements.

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        Even Lam’s deposition testimony fails to establish all the requirements to authenticate the

documents attached to Lam’s declaration.       For example, Lam stated in his deposition that

National Cash Register notifies him once the notice is put on the ATM and even agreed that

NCR takes a photograph and sends it to him. But even this statement is unconnected to any

particular exhibit or group of exhibits and fails to state that such photos were made by NCR

employees with personal knowledge of the ATMs in question. Moreover, the statement does not

reflect that Wal-Mart received and kept such records in the ordinary course of its business.

        Similarly, Heiser’s declaration does not establish the requirements to authenticate the

attached documents under the business records exception to the hearsay rule. For example,

Heiser states: “Cash Depot has photographs of the Savannah, TN ATM with an ‘on-machine’

ATM fee notice affixed to it that were taken before November 21, 2005 . . . .” However, was

this Cash Depot’s regular practice? Was the photo taken by a Cash Depot employee with

personal knowledge, or perhaps by one of Cash Depot’s subcontractors? While any number of

brief statements could have authenticated such documents, Heiser simply did not make them.

His deposition is closer to authenticating the records. He testified that Cash Depot is notified by

the subcontractor who did the installation that the stickers were on the machines. Again, Heiser

did not even specify which subcontractor it used, or how Cash Depot is notified. Are regular

reports sent by an individual with knowledge? Or were these records sent from the subcontractor

after the onset of litigation?

        The defendants state in their brief:

        For Lam, with respect to each of the 10 exhibits attached to his Declaration, he
        clearly identified each document and the document’s purpose. Each of the
        documents was created by Wal-Mart or at Wal-Mart’s request by agents Wal-
        Mart engaged to perform work related to Wal-Mart’s MCX machines, and each
        document was maintained in Wal-Mart’s business files.

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The defendants similarly avow:

        For Heiser, with respect to each of the six exhibits attached to his Declaration he
        also plainly identified each document and the document’s purpose. Each of the
        documents was created by Cash Depot or at Cash Depot’s request by
        subcontractors Cash Depot engaged to perform work related to its ATMs, and
        each was maintained in Cash Depot’s business files.

Notably, the defendants do not cite the record. Nor do they indicate that Lam or Heiser testified

or declared that “[e]ach of the documents were created by Wal-Mart [or Cash Depot] or at Wal-

Mart’s [or Cash Depot’s] request by agents Wal-Mart [or Cash Depot] engaged . . . and each

document was maintained in Wal-Mart’s [or Cash Depot’s] business files.” This is likely

because we have been unable to locate anywhere in the record that Lam or Heiser made such

statements. Through these statements, Wal-Mart and Cash Depot attempt to authenticate records

on appeal that should have been authenticated by Lam and Heiser in their declarations submitted

to the district court.

        Even assuming that loosely patching Lam’s and Heiser’s declarations and depositions

together could lay a sufficient foundation to authenticate the records, the defendants fail to cite to

any specific portion of the record for us to conclude that Lam and Heiser could be deemed “other

qualified witnesses” under Rule 803(6). Although the standard to be an “other qualified witness”

is low, the defendants have failed to point to any evidence in the record to indicate that Lam and

Heiser had any knowledge about the recordkeeping practices of Wal-Mart and Cash Depot,

respectively.

        Rule 803(6) does not require Lam and Heiser to have personal knowledge of the records

to qualify as “other qualified witnesses,” but they must at least be familiar with the company’s

recordkeeping practices. Jenkins, 345 F.3d at 936. The defendants maintain that Lam and

Heiser had personal knowledge regarding Wal-Mart’s and Cash Depot’s business activities

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solely on the basis that they were upper-level management, and “[i]t naturally follows that they

also had personal knowledge sufficient to enable them to testify regarding the business

documents generated and maintained in the course of those activities and to establish the

admissibility of such documents.”

       There was thus no basis for the district court to conclude that: “Heiser and Lam’s

positions and responsibilities include the requirement that they be familiar with the record-

keeping practices of the respective Defendants,” such that they fall under the “other qualified

persons” portion of Rule 803(6) of the Federal Rules of Evidence. Lam and Heiser never aver

that they are generally knowledgeable, informed, or involved in Wal-Mart or Cash Depot record-

keeping.

       Just because Heiser and Lam are members of upper level management does not

automatically qualify them to be remotely knowledgeable about the record keeping practices of

Wal-Mart and Cash Depot, respectively. We have held that a person outside the organization,

whose records were at issue, could lay the foundation to admit business records under Rule

803(6) because “all that is required is that the witness be familiar with the record keeping

system.” United States v. Hathaway, 798 F.2d 902, 906 (6th Cir. 1986). We likewise decline to

admit business records under Rule 803(6) based on declarations of upper management

employees who never claim to be a “witness . . . familiar with the record keeping system.” See

id. Lam and Heiser never hinted at the record-keeping system of Wal-Mart or Cash Depot,

except to say that some of the exhibits were taken from company records. Statements by Lam

and Heiser, such as “attached hereto as collective Exhibit H are true and correct copies from the

files of Wal-Mart” (Emphasis added) and “[t]rue and correct copies of these photographs from

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the files of Cash Depot are attached hereto as Exhibit D” (Emphasis added), do not establish

familiarity with the record-keeping system.

       Finally, Wal-Mart and Cash Depot could logically incorporate documents prepared by

third-party subcontractors, such as NIC, into their business records. Courts have generally

agreed that “Rule 803(6) does not require that the document actually be prepared by the business

entity proffering the document . . . [and] would allow an incorporated document to be admitted

based upon the foundation testimony of a witness with first-hand knowledge of the record

keeping procedures of the incorporating business, even though the business did not actually

prepare the document.” Air Land Forwarders, Inc. v. United States, 172 F.3d 1338, 1343 (Fed.

Cir. 1999) (collecting cases). Courts have also stressed that the documents should have “other

assurances of reliability.” Id. However, Wal-Mart and Cash Depot can incorporate documents

prepared by third-party subcontractors into their business records, only through foundation

testimony of the record keeping practices that establish such incorporation and reliance. See id.

The record does not indicate that Wal-Mart and Cash Depot regularly kept and relied upon

records form third-party businesses or that Lam or Heiser had any knowledge about how such

record keeping was done.

                     ii. Declarations and Depositions of Lam and Heiser

       The ATM Users argue that, under Fed. R. Civ. P. 56(c)(4), Lam and Heiser’s declarations

were not made with personal knowledge and, therefore, the district court erred by overruling the

ATM Users’ objection to the defendants’ reliance on such declarations. While certain statements

made in Lam’s and Heiser’s depositions were likely made with personal knowledge, the vast

majority of their testimony crucial to the safe harbor defense was made based on Lam’s and

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Heiser’s review of the purported business records. Furthermore, the district court agreed that the

“Declarations alone fail to provide a basis for personal knowledge for Lam and Heiser.”

       The defendants argue that Lam’s and Heiser’s deposition testimony was based on

personal knowledge because: (1) an employee’s knowledge can be based upon a review of a

company’s business records; and (2) through their status as upper level management, Lam and

Heiser could establish personal knowledge of the organization’s operations. The defendants also

argue that Lam and Heiser’s experience with ATM and MCX machines provide evidence of

personal knowledge. We agree that portions of Lam’s and Heiser’s depositions reflect general

knowledge about day-to-day operations of their jobs and knowledge about ATM policies and

procedures. Accordingly, such evidence is admissible.

       However, the evidence relating specifically to whether the particular ATMs in question

were equipped with the exterior notice requirements was not based on Lam’s and Heiser’s

personal knowledge, but rather Lam’s and Heiser’s review of the unauthenticated business

records. As already indicated, the purported business records were not properly authenticated,

and thus, testimony based upon them was not admissible.

       Relying on Otterbein College v. Cont’l Ins. Co., No. 2:08-cv-1048, 2010 WL 2196450, at

*1 (S.D. Ohio June 1, 2010), the defendants next argue that “[p]ersonal knowledge of an

organization’s operations can be inferred from an affiant’s position with a company or other

organization.” However, this argument derives from precedent that pre-dates the 2010 revisions

to the Federal Rules of Civil Procedure and is limited to testimony by corporate officers. In a

1996 unpublished case, we held: “[c]orporate officers are considered to have personal knowledge

of the acts of their corporations and an affidavit setting forth those facts is sufficient for summary

judgment.” AGI Realty Serv. Grp., Inc. v. Red Robin Intern., Inc., 81 F.3d 160 (6th Cir. 1996)

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(unpublished). In AGI, we cited Catawba Indian Tribe of South Carolina v. South Carolina,

978 F.2d 1334, 1342 (4th Cir. 1992), which held that “ordinarily, officers would have personal

knowledge of the acts of their corporations” sufficient to satisfy the personal knowledge

requirement in Fed. R. Civ. P. 56.          AGI and Catawba were based on “Rule 56(c)(4)’s

predecessor, Rule 56(e).” See El-Seblani v. IndyMac Mortg. Servs., 510 F. App’x 425, n.1 (6th

Cir. 2013). Since the “personal knowledge” requirement was simply moved from Rule 56(e) to

Rule 56(c)(4), the holdings of AGI and Catawba are relevant.

       However, Lam and Heiser have conceded that they are not corporate officers. Instead,

they argue that the general principle from AGI and Catawba should apply to them because the

reasoning of the rule applies “equally to them as employees testifying about matters within their

‘sphere of responsibility.’” There is no precedent to support extending such a rule to persons

who are not corporate officers. The cases cited by the defendants refer to testimony of corporate

officers, not general managerial positions. See Catawba, 978 F.2d at 1342 (applying the rule to

“corporate officers on behalf of the corporation”); AGI, 81 F.3d 160 (applying the rule to a vice-

president of the corporation); WYCQ, Inc. v. Nat’l Music Mktg., No: 3:05-cv-0979, 2008 WL
56027, at *4 (M.D. Tenn. Jan. 3, 2008) (applying the rule to the president of a company).

       In sum, the district court could not find that Lam and Heiser had personal knowledge to

testify based on the review of unauthenticated business records and solely by virtue of their

positions in the corporation.

       The judgment of the district court is REVERSED and REMANDED for further

proceedings consistent with this opinion.

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