Alert March 18, 2014

New Jersey Appeals Court Rules on Debt Buyer’s Right to Collect Debt Based on Electronic Business Records

The Appellate Division of the Superior Court of New Jersey ruled in two consolidated appeals from summary judgment rulings issued in favor of plaintiffs, debt buyers, affirming one and reversing the other based largely on the detail provided within affidavits explaining transfer of debt ownership. Plaintiffs filed collection actions against defendants, borrowers of charged-off credit debt. After the lower court granted summary judgment to plaintiffs, defendants appealed arguing that the summary judgment was improper because plaintiffs did not submit sufficient proof of their ownership of the debts and did not offer admissible evidence of the amounts allegedly owed.

The Court made four essential holdings: (1) “lack of notice to the debtor of the sale of the debt does not affect the validity of the assignment;” (2) “the assignment need not specifically reference defendant’s name or account number and instead may refer to an electronic data file containing that information;” (3) “plaintiff need not procure an affidavit from each transferor in its chain of assignments and may instead establish prima facie proof of ownership on the basis of business records documenting its ownership;” and (4) “that an electronic copy of the periodic billing statement for the last billing cycle is prima facie proof of the amount due on the account at charge off.”

The Court addressed a number of sub-issues in reaching the above conclusions. First, it rejected borrower-defendants’ request that the court ascertain plaintiff’s debt ownership preliminarily, before borrowers were required to participate in discovery. And, concerning proof requirements for establishing assignment of a debt, the Court ruled that “[a]ll that is required is evidence of the intent to transfer one’s rights and a description of the intangible right being assigned sufficient to make it readily identifiable.” Borrowers could not claim “lack of notice” of the assignment as a defense when they showed no prejudice from it. Further, in assessing the record in each of the two cases before it, both of which involved multiple debt transfers, the Court found one creditor’s proof sufficient and the other’s inadequate. The latter creditor, while providing adequate electronic records to support many of the debt transfers, did not prove “the first link in [the] assignment chain: the transfer of [borrower]’s account from the card issuer to” the party that obtained the debt directly from the card issuer. Though the creditor had an affidavit from an employee of the original debt purchaser, the employee’s affidavit “neither revealed his position, if any, with [the original debt purchaser], nor the source of his knowledge.” However, in upholding the award of summary judgment in favor of the other creditor, the Court “reject[ed] the claim that a separate affidavit is required from each transferor authenticating each assignment in the chain,” as “long as the proponent of the documents can satisfactorily attest to the circumstances under which it acquired the documents on which it relies.” And, under the business records exception, electronic records reflect the day-to-day realities of modern business operations, and an affiant who is familiar with the record-keeping system and associated business practices can establish the records’ foundation.