Court Opinion

ID: 4250052
Source: CourtListenerOpinion
Date Created: 2018-02-28 21:22:51.940728+00
Date Added: 2024-06-11T14:44:12.326846
License: Public Domain

IN THE SUPREME COURT OF IOWA
                            No. 87 / 06-0344

                           Filed April 4, 2008

STATE OF IOWA,

      Appellee,

vs.

BRIAN EDWARD REYNOLDS,

      Appellant.

      On review from the Iowa Court of Appeals.

      Appeal from the Iowa District Court for Muscatine County, Nancy S.

Tabor, Judge.

      Appellant contends the district court erred in admitting hearsay

evidence, and claims trial counsel provided ineffective assistance.

DECISION OF COURT OF APPEALS VACATED; DISTRICT COURT

JUDGMENT REVERSED, AND CASE REMANDED.

      Mark C. Smith, State Appellate Defender, Greta A. Truman, Civil

Commitment Unit, and Jason B. Shaw, Assistant State Appellate Defender,

for appellant.

      Thomas J. Miller, Attorney General, Sharon K. Hall, Assistant

Attorney General, Gary Allison, County Attorney, and Kerrie L. Snyder,

Assistant County Attorney, for appellee.
                                         2

HECHT, Justice.

       Brian Reynolds seeks further review of an Iowa Court of Appeals

decision affirming his convictions for one count of theft in the first degree

and six counts of forgery. The court of appeals concluded the district court

properly admitted certain hearsay evidence under the business records

hearsay exception, Iowa Rule of Evidence 5.803(6). The decision of the

court of appeals also rejected Reynolds’s claim that defense counsel was

ineffective in failing to raise Confrontation Clause objections to some of the

hearsay evidence. We vacate the decision of the court of appeals, reverse

Reynolds’s convictions, and remand for a new trial.

       I.     Factual and Procedural Background.

       At approximately 9:00 a.m. on December 17, 2004, Brian Reynolds

entered a U.S. Bank branch in Muscatine and attempted to cash six United

States postal money orders in the amount of $950 each. Paige Bales, a

sales and service manager at U.S. Bank, recognized Reynolds as a customer

of the bank, knew he was employed as a mechanic, and was instantly
suspicious of the proposed transaction.            Although the money orders

appeared valid, Bales told Reynolds she would have to put “a hold” on them
because there was a possibility they might be fraudulent, and she wanted to

protect him and the bank by making sure they had value.1                  Reynolds

reluctantly agreed, and decided to deposit the proceeds of the money orders

in his bank account. Approximately one hour later, after finding another

bank that would cash the money orders immediately, Reynolds called Bales

and asked her to reverse the transaction and return the money orders to

him. Reynolds soon returned to the bank and retrieved the money orders.

       1As a consequence of the “hold,” Reynolds would not receive cash for the money

orders until the transaction cleared.
                                     3

        Approximately twenty minutes after retrieving the money orders from

U.S. Bank, Reynolds entered Central State Bank in Muscatine and

presented teller Julie Kissell with two United States postal money orders,

each in the amount of $950. At Reynolds’s request, Kissell cashed them,

applied $400 of the proceeds to a vehicle loan in the name of C. Geertz, and

handed to Reynolds the remaining $1500 in cash. Later the same day,

Reynolds returned to the same bank with four more United States postal

money orders, each in the amount of $950.         Teller Brannan Murphy

completed a transaction for Reynolds in which Reynolds paid $100 from the

proceeds of each money order on a loan under the names of Reynolds and

Geertz, and received the remainder in cash.

        On December 30, 2004, Reynolds returned to Central State Bank with

four more United States postal money orders, each in the amount of $950.

Per Reynolds’s request, the bank applied part of the proceeds to retire a

loan balance, and gave the remainder to Reynolds in cash. On January 31,

2005, Reynolds returned to Central State Bank, this time bearing two
Traveler’s Express international money orders, each with a face value of

$3000. Reynolds again approached teller Brannan Murphy, who cashed
them.

        On February 1, 2005, Stella Best, a proof operator and research

officer at Central State Bank, received e-mail communications known as

“error messages” from the Federal Reserve indicating the six money orders

cashed on December 17, 2004, were counterfeit. On February 8, 2005, Best

received similar communications from the Federal Reserve regarding the

four money orders presented by Reynolds to the bank on December 30,

2004.
                                      4

      After Central State Bank received notification of the problems with

Reynolds’s postal money order transactions, Charity Harmon, the head

teller at the bank, made inquiry as to the legitimacy of the two Traveler’s

Express international money orders. She called a Traveler’s Express “800”

telephone number, provided the relevant money order identification

numbers, and heard a “computerized recording” reporting the money orders

had no value.

      The State charged Reynolds with one count of first-degree theft and

six counts of forgery. Reynolds waived his right to a jury trial and a bench

trial was held. At trial, the State used Best’s testimony in an attempt to lay

a foundation for admission of ten exhibits under the business records

exception to the hearsay rule, Iowa Rule of Evidence 5.803(6). Each of

these exhibits included a copy of a money order involved in one of the

transactions, various documents created by Central State Bank such as a

transaction ticket, and a copy of the error message from the Federal Reserve

advising the bank of the counterfeit status of the subject money order. Best
testified the bank routinely receives error messages via e-mail from the

Federal Reserve in the course of the bank’s business. She also testified the
e-mail communications included in the proffered exhibits came from the

Federal Reserve, and verified the dates the notices were received by the

bank. Best testified that the reason each of the e-mail communications was

sent by the Federal Reserve to the bank was to notify the bank of a

“counterfeit postal money order.” Defense counsel did not object to this

testimony by Best, but later objected on hearsay grounds to the admission

of copies of the e-mail communications received by the bank from the

Federal Reserve. The district court admitted the ten exhibits over this

objection. No one from Central State Bank or the Federal Reserve gave
                                             5

testimony explaining how the Federal Reserve error reports are generated

and sent.

       Defense counsel also lodged, and the district court overruled, a

hearsay objection to Harmon’s testimony relating the information she

learned from the Traveler’s Express “800” number. Harmon testified that

the Traveler’s Express “computerized recording” informed her that the

international money orders cashed by Reynolds on January 31, 2005, were

without value. No one from Central State Bank or Traveler’s Express gave

testimony explaining how the data reported by the “computerized recording”

is generated.

       The district court found Reynolds guilty on all seven counts and

committed him to the custody of the department of corrections for a period

not to exceed ten years on count one, and for a period not to exceed five

years on counts two through seven, to be served concurrently. Reynolds’s

appeal was transferred to the court of appeals. That court affirmed the

district court’s ruling admitting the Federal Reserve error reports and
Harmon’s testimony under the business records exception, Iowa Rule of

Evidence 5.803(6). The court of appeals also denied Reynolds’s ineffective-
assistance-of-counsel claims and affirmed his convictions.2
       II.     Scope of Review.

       We review a defendant’s hearsay claims for correction of errors at law.

State v. Musser, 721 N.W.2d 734, 751 (Iowa 2006).

       2The  court of appeals declined to address the issues raised in Reynolds’s pro se
supplemental brief because it was not filed within fifteen days after appellate counsel filed
the proof brief. See Iowa R. App. P. 6.13(2). For the same reason, we do not address
Reynolds’s pro se arguments.
                                      6

      III.   Discussion.

      A.     Business Records Exception to the Hearsay Rule. A party

seeking to admit a record containing hearsay into evidence under Iowa Rule

of Evidence 5.803(6) must establish the following foundational elements:

      1)     That it is a business record;

      2)     That it was made at or near the time of an act;

      3)     That it was made by, or from information transmitted by,
             a person with knowledge;

      4)     That it was kept in the course of a regularly conducted
             business activity;

      5)     That it was the regular practice of that business activity
             to make such a business record.

Beachel v. Long, 420 N.W.2d 482, 484 (Iowa Ct. App. 1988) (citing 5A Iowa

Rules of Civil Procedure Annotated 581 (1984)). Reynolds contends the

testimony provided by the State’s witnesses as to the Federal Reserve error

reports and computerized recording from Traveler’s Express was insufficient

as to the third foundational requirement—that the record was made by, or

from information transmitted by, a person with knowledge. We agree.
      1.     Federal Reserve error reports. The State attempted to lay a

business records exception foundation for the ten exhibits containing the

Federal Reserve error reports through the testimony of Stella Best, a proof

operator and research officer at Central State Bank. Each of the exhibits

contained six separate documents. Best testified the first four documents

in each exhibit were generated by Central State Bank.          The last two

documents in each exhibit, however, were an e-mail and error report

created by the Federal Reserve and sent to Central State Bank, declaring

that each of the ten money orders cashed by Reynolds was counterfeit.
                                       7

Defense counsel objected to the admission of the last two pages in each

exhibit on hearsay grounds. The prosecutor responded:
      . . . I believe that Ms. Best has established the first parts of the
      transactional paperwork as generated by Central State Bank.
      Those are documents she commonly deals with in the proof
      department as they have to go through that department for
      verification. In regard to the actual money order, those are
      presented to the bank.

      She testified they are presented to Central State Bank. Copies
      are maintained within their system within the normal course of
      business. The records of the copy – the subsequent copy of the
      money order, the e-mail notification and the error reports are
      received by them in the normal course of business from the
      Federal Reserve to notify them if there was an error.

      She testified that there was an error and what the error
      consisted of. She also testified that they commonly rely on that
      in the normal course of their business. Although the record is
      generated by the Federal Reserve, it is received by Central State
      Bank in the normal course of their business. It’s something on
      which they commonly rely and once received, they maintain it
      within the normal course of their business, so for that reason
      the State feels that the hearsay objection should be overruled.

While the prosecutor arguably addressed four of the five rule 5.803(6)

foundation elements in her response to Reynolds’s hearsay objection, she

failed to address the requirement that the relevant records—the e-mails and

error messages created by the Federal Reserve—were made by a person with

knowledge, or from information transmitted by a person with knowledge.

      Best’s testimony established Central State Bank “received” the

documents from the Federal Reserve and “maintained” them in the normal

course of Central State Bank’s business. Rule 5.803(6), however, requires

that the record be made by, or from information transmitted by, a person

with knowledge. The hearsay objection raises an issue of “double hearsay,”

as the Federal Reserve generated the error report, not Central State Bank,

and Best did not testify that she had any knowledge as to how the error
                                      8

reports themselves were made. See Union Story Trust & Sav. Bank v. Sayer,

332 N.W.2d 316, 320–21 (Iowa 1983) (holding a party failed to lay a proper

business records exception foundation for hearsay evidence under Iowa

Code section 622.28 where party failed to demonstrate that the record

sought to be introduced was the business record of that party); State v. Lain,

246 N.W.2d 238, 242 (Iowa 1976) (holding a telephone subscriber was

unable to lay a business records exception foundation for telephone bill

because the subscriber had no knowledge of the method or circumstances

of the creation of the record); Polson v. Meredith Publ’g Co., 213 N.W.2d 520,

525 (Iowa 1973) (stating that admitting third-party hearsay statements

contained in a business record without a separate hearsay exception

foundation for the third-party hearsay “would constitute a complete

departure from the most elementary rules of evidence rather than obedience

to the statutory admonition that such rules should be liberally applied”); In

re Herron, 212 N.W.2d 474, 476 (Iowa 1973) (noting the statutory

counterpart to rule 5.803(6), Iowa Code section 622.28, “does not eliminate
proof of the reliability” of hearsay records contained within records

generated by the business).     These cases establish that a party must
establish the applicability of an exception to the hearsay rule authorizing

the admission of third-party hearsay statements contained in a business

record. The fact that third-party hearsay is contained in an otherwise-

admissible business record does not cleanse it of the “untrustworthy”

hearsay taint. Sayer, 332 N.W.2d at 320–21. While it is essential that the

record be kept in the course of regularly conducted business activity, that

fact alone is not dispositive; the record must also satisfy the other rule

5.803(6) conditions to establish admissibility of the hearsay statements in

the record.
                                      9

      Here, there is no testimony from anyone with knowledge of how the

Federal Reserve error reports were generated. From the testimony of Stella

Best, it appears Central State Bank employees were unable to, or at least

did not, independently determine that the money orders were counterfeit;

the bank relied exclusively on the Federal Reserve to make that

determination. There is no evidence in the record either as to how the

Federal Reserve determined the money orders were counterfeit, or how the

error reports were made. Although the specific person who created the

record in the course of business need not testify to lay the foundation for

the business records exception, see State v. Propps, 376 N.W.2d 619, 621

(Iowa 1985), the party offering the evidence must demonstrate the evidence

was made in the course of the Federal Reserve’s business, at or reasonably

near the time, using standard procedures that reasonably indicate the

trustworthiness of the information.

      We acknowledge the possibility the Federal Reserve records were

created through a fully automated and reliable process involving no human
declarant. If this is the case, the “statements” contained in the records are

arguably not hearsay at all, as they would not have been made by a human
declarant. See State v. Armstead, 432 So. 2d 837, 839 n.2 (La. 1983)

(discussing the distinction between computer-stored (hearsay) and

computer-generated (non-hearsay) data); State v. Carter, 762 So. 2d 662 (La.

Ct. App. 2000); State v. Dunn, 7 S.W.3d 427, 430–32 (Mo. Ct. App. 1999)

(holding telephone records were not hearsay where testimony of telephone

company security manager established the records were created by a fully

electronic process); State v. Hall, 976 S.W.2d 121, 147 (Tenn. 1998) (noting

computer-generated records are not hearsay, and their admissibility is

measured by the reliability of the system). But we simply cannot know this
                                     10

on the record of this case, as there is no evidence in the record from any

person with knowledge as to how the Federal Reserve error reports were

created or as to the reliability of the error reporting system in general. As

the Tennessee Supreme Court held in Hall, the foundational testimony for

non-hearsay evidence need only be provided by a person with “special

knowledge about the operation of the computer system.” Hall, 976 S.W.2d

at 147; see also Dunn, 7 S.W.3d at 432 (holding testimony of a

Southwestern Bell employee was sufficient to establish the reliability of

records from AT&T). Best’s testimony was insufficient to satisfy the State’s

burden to establish that the statements in the e-mails and error reports

from the Federal Reserve were made either “by a person with knowledge,” or

by a reliable, non-hearsay, computer-generated source. The district court

therefore erred in admitting the Federal Reserve error messages.

      Under Iowa Rule of Evidence 5.103(a), we presume prejudice arises

from nonconstitutional error and reverse unless the record affirmatively

establishes otherwise. State v. Sullivan, 679 N.W.2d 19, 30 (Iowa 2004).
Here, although defense counsel objected to admission of the inadmissible

hearsay contained in the exhibits, he did not object to Best’s earlier
testimony declaring the postal money orders were counterfeit. Because

Best’s testimony was already in the record when the exhibits were offered

and received in evidence, the error messages themselves were cumulative on

the issue of the counterfeit status of the money orders. State v. McGuire,

572 N.W.2d 545, 547–48 (Iowa 1997) (noting the court will not find

prejudice in the admission of hearsay evidence if “substantially the same

evidence has come into the record without objection”).         We therefore
                                          11

conclude the district court’s erroneous admission of the Federal Reserve

error reports did not result in reversible error.3

       2.     Harmon’s testimony based on the Traveler’s Express recording.

Reynolds contends Harmon’s testimony regarding the statements she heard

when she called the Traveler’s Express “800” number was improperly

admitted over his hearsay objection, and requests a reversal of his

conviction on count seven, one of the forgery counts. The State asserts the

district court properly admitted the testimony under the business records

exception. For several reasons, we conclude the district court erred in

admitting this evidence.         First, Harmon’s testimony is insufficient to

establish whether the information provided to the bank was computer-

stored hearsay or computer-generated non-hearsay. Harmon testified as to

how she accessed by telephone the Traveler’s Express information, but

there is no evidence in the record as to how Traveler’s Express acquired and

produced the data it provided to her. The record does not disclose whether

Traveler’s Express generated the information communicated on the

recording through a passive, mechanical process, or whether it was

generated through human perception and judgment. Cf. Dunn, 7 S.W.3d at

430–32 (reciting testimony of telephone company employee detailing how all

long distance carriers receive and maintain billing records from other

carriers and noting the process is entirely electronic with no direct human

input).

       Second, if we assume the statement Harmon heard when she called

the Traveler’s Express “800” number was hearsay, Harmon’s testimony

recounting it in court was not a business record. To fall within the rule

5.803(6) exception to the hearsay rule, the evidence must be “a

       3However, because we conclude below that Reynolds received ineffective assistance

of counsel, his convictions must nonetheless be reversed.
                                    12

memorandum, report, record, or data compilation, in any form . . . made at

or near the time . . . .”   While the record may be “in any form,” oral

statements related to the court by someone engaged in business do not fall

within the purview of the exception. Simply put, Harmon’s testimony based

on her memory of what she heard when she called Traveler’s Express is not

a “business record.” Moreover, Harmon’s in-court testimony also clearly

failed to satisfy the exception’s “made at or near the time” requirement.

Iowa R. Evid. 5.803(6). Because it was not a record made at or near the

time, Harmon’s testimony does not bear the indicia of reliability upon which

the business records hearsay exception is grounded. Propps, 376 N.W.2d at

620–21. Accordingly, the trial court erred in admitting Harmon’s hearsay

testimony as to what she heard when she called the Traveler’s Express

“800” number.

      Our prejudice analysis regarding the admission of Harmon’s

testimony as to the information supplied telephonically by Traveler’s

Express differs from our prejudice analysis with respect to the admission of
the Federal Reserve error reports. There is no other evidence in the record

tending to prove the Traveler’s Express money orders were counterfeit, other
than Harmon’s hearsay account of what she heard when she called

Traveler’s Express. With no admissible evidence that the Traveler’s Express

money orders were counterfeit, the State could not prove Reynolds uttered

an international money order he knew to be forged.         See Iowa Code

§ 715A.2(c). On this record, the presumption of prejudice with respect to

these money orders has not been rebutted, and we therefore reverse the

defendant’s conviction on count 7, and grant him a new trial on that

charge.
                                     13

      B.    Ineffective Assistance of Counsel.         Reynolds raises two

grounds of ineffective assistance of trial counsel: (1) failure to object to

Best’s hearsay testimony regarding the contents of the Federal Reserve error

reports; and (2) failure to object to the testimony of both Best and Harmon

based on the Sixth Amendment right of confrontation.           A defendant

claiming ineffective assistance of counsel has the burden to show “(1) the

attorney failed to perform an essential duty and (2) prejudice resulted.”

State v. Shanahan, 712 N.W.2d 121, 136 (Iowa 2006) (quoting Bowman v.

State, 710 N.W.2d 200, 203 (Iowa 2006)).       To establish prejudice, the

defendant must show “there is a reasonable probability that, but for the

counsel’s unprofessional errors, the result of the proceeding would have

been different.” Id. (citing State v. Hopkins, 576 N.W.2d 374, 378 (Iowa

1998); Strickland v. Washington, 466 U.S. 668, 694, 104 S. Ct. 2052, 2068,

80 L. Ed. 2d 674, 698 (1984)).

      1.    Failure to raise a hearsay objection.      We usually reserve

ineffective-assistance-of-counsel claims for postconviction proceedings, but
we will resolve such a claim on direct appeal “when the record adequately

presents the issues.” State v. Thornton, 498 N.W.2d 670, 675 (Iowa 1993).
The record must be sufficient for the court to determine both ineffectiveness

and the resulting prejudice. We conclude the record here is adequate to

determine whether the result of the trial would have been different if

defense counsel had objected to the hearsay evidence. Strickland, 466 U.S.

at 694, 104 S. Ct. at 2068, 80 L. Ed. 2d at 698.

      To establish prejudice, a defendant must show the probability of a

different result is “sufficient to undermine confidence in the outcome.” Id.

at 694, 104 S. Ct. at 2068, 80 L. Ed. 2d at 698. “In determining whether

this standard has been met, we must consider the totality of the evidence,
                                           14

what factual findings would have been affected by counsel’s errors, and

whether the effect was pervasive or isolated and trivial.” State v. Graves,

668 N.W.2d 860, 882–83 (Iowa 2003) (citing Strickland, 466 U.S. at 695–96,

104 S. Ct. at 2069, 80 L. Ed. 2d at 698). Unlike the situation in which error

has been preserved and the court presumes prejudice, see Sullivan, 679
N.W.2d at 30, in this case it is the defendant’s burden to demonstrate a

reasonable probability of a different result. Shanahan, 712 N.W.2d at 136.

        We conclude Reynolds did suffer prejudice as a consequence of his

trial counsel’s failure to object to Best’s hearsay testimony. As we have

noted, the Federal Reserve error messages—the only other evidence offered

by the State to establish the counterfeit status of the postal money orders—

were inadmissible. This left only Best’s testimony supporting a finding the

postal money orders were counterfeit. If Reynolds’s trial counsel had raised

the meritorious hearsay objection to Best’s testimony, there would have

been insufficient evidence in the record for the court to find Reynolds guilty

of the six forgery charges and the related theft charge. Accordingly, we
conclude Reynolds has established a reasonable probability that the result

of the trial would have been different but for his trial counsel’s breach of
duty.    See State v. Miller, 590 N.W.2d 724, 725 (Iowa 1999) (noting

Strickland prejudice is established if there is a reasonable probability that

but for counsel’s failure, the result of the trial would have been different).

We therefore reverse Reynolds’s conviction on all seven counts and remand

for a new trial.4

        4Reynolds was convicted of theft in the first degree (count one) and six counts of

forgery (counts two through seven). The theft count was based upon the total value of the
allegedly forged postal and Traveler’s Express money orders. Because the forgery
convictions must be reversed as a consequence of the ineffectiveness of Reynolds’s trial
counsel, the theft charge based upon the same inadmissible evidence must also be
reversed.
                                    15

      2.    Failure to raise Confrontation Clause objections. As we have

concluded Reynolds is entitled to a new trial on all charges, we need not

address his claim trial counsel was ineffective for failing to object to the

hearsay testimony on Confrontation Clause grounds.

      IV.   Conclusion.

      We reverse all of the convictions on the ground Reynolds received

ineffective assistance of counsel, and remand for a new trial.

      DECISION OF COURT OF APPEALS VACATED; DISTRICT COURT

JUDGMENT REVERSED, AND CASE REMANDED.