Debt Buyer, Midland Funding, After Being Sued for Attempting to Collect Inflated Amounts, is Unable to Prove its Right to Enforce Citibank's Arbitration Clause

In this case,[1] Midland Funding, LLC and its affiliate companies, were sued under the Fair Debt Collection Practices Act ("FDCPA") for sending a consumer "pre-legal" notifications and "discount offers" demanding inflated payments to satisfy past-due debts.

Midland Funding moved to compel arbitration. The issue presented was Midland's right to enforce an arbitration agreement between the consumer plaintiff and Citibank, the alleged originating creditor. To do so, Midland needed to prove it was properly assigned the debt to enforce it in the first place.

Midland Funding is the 5^th debt buyer down the chain of custody. The preceding debt buyers were Sherman Originator III, LLC, Sherman Originator, LVNV Funding, LLC, and Sherman Acquisition, LLC.

Midland Funding, via an affidavit of one of its employees, attempted to authenticate (prove the genuineness of) the transfer of a consumer's debt down the whole chain by relying on documents created by these preceding debt buyers.

A simple review of the Federal Rules of Evidence (803(6)) relating to the admissibility of business records screams the conclusion that Midland's affidavit fails to authenticate the preceding debt buyers' "assignment" documentation.

The court stated, "to lay a proper foundation, a proponent must demonstrate through the testimony of a qualified witness that the records were kept in the course of a regularly conducted activity, and that it was the regular practice of that business to make such records." The court explained, "a qualified witness need not be the author of the document but must have personal knowledge of the procedure used to create and maintain the document."

The court found that Midland's employee not only lacked personal knowledge of the preceding debt buyers' record keeping practices – but also failed to establish the contemporaneousness of the records. Some documents were undated.

Midland argued that although different entities created the assignment documents, some courts permit entry of those documents if "integrated into its own records and relied upon in its own day-to-day operations." But this line of cases requires satisfaction of the other elements of the business records exception to hearsay: 1) contemporaneousness of record; 2) record kept in regular course of business; and 3) making the record was regular practice of business.