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The Business Records Exception: A Division Among Texas Appellate Courts Over Third-Party Records

The Business Records Exception: A Division Among Texas Appellate Courts Over Third-Party Records

Almost anyone who has seen even a few episodes of Law & Order understands at least the basic principle of the rule against hearsay. And, most Texas lawyers know how to use the business records exception to that rule. Under that exception, certain business records are admissible as an exception to the general rule barring hearsay.

But what happens when one company’s business records include the business records of a different company? This question is likely to arise with ever greater frequency given the proliferation of companies that purchase large books of consumer debt from other companies, and then file suits to collect the debts from consumers. Almost all of these cases involve proving the debt by the use of the acquiring company’s business records—which necessarily include the records from the original holder of the debt. And, believe it or not, our firm had this issue arise in the context of a divorce appeal a couple of years ago.

So what is the answer? Are the other company’s records admissible under the business-records exception? Well, reminiscent of what they taught us in law school, the answer in Texas—at least for now—is: It depends. This question has divided the intermediate appellate courts in Texas. The Dallas Court of Appeals has held that personal knowledge of the original company’s record-keeping is required to invoke the business records exception as to that company’s records. Powell v. Vavro, McDonald & Assocs., L.L.C., 136 S.W.3d 762, 764–65 (Tex. App.—Dallas 2004, no pet.). The El Paso Court of Appeals also has applied this rule. Riddle v. Unifund CCR Partners, 298 S.W.3d 780, 783 (Tex. App.—El Paso 2009, no pet.).

In our case, the Dallas court applied the rule to a divorce appeal. Castillon v. Morgan, No. 05-13-00872-CV, 2015 WL 1650782 (Tex. App.—Dallas Apr. 14, 2015, no pet.). One of the parties attempted to introduce financial statements claiming that he—as the account holder—maintained those statements as his own business records. The Dallas court applied its earlier holding concerning personal knowledge of the original creator’s record-keeping practices. Id. at *5 (citations omitted).

But a Houston appeals court has reached the opposite conclusion, following the federal court approach and holding that the records of another business are admissible so long as (1) the document is incorporated and kept in the course of the testifying witness’s business; (2) that business typically relies upon the accuracy of the contents of the document; and (3) the circumstances otherwise indicate the trustworthiness of the document. Simien v. CCR Unifund Partners, 321 S.W.3d 235, 240–41 (Tex. App.—Houston [1st Dist.] 2010, no pet.) (citation omitted). And the Austin Court of Appeals has followed the Houston holding. Educap, Inc. v. Mendoza, No. 03-18-00686-CV, 2019 WL 4727071, at *3 (Tex. App.—Austin Sept. 27, 2019, no pet.).

So the answer is that the admissibility of these records depends on the jurisdiction in which a Texas lawyer is practicing. In Dallas and El Paso, they are inadmissible. In Houston and Austin, they are if certain requirements are met. And everywhere else, it is up in the air—at least until the Texas Supreme Court decides to step in and resolve the conflict.