April 28, 2017

The Best Evidence Rule May Not Require the Actual Tape Recording

Category: Commercial Litigation, Indianapolis Law Club | Author: | Share:

When Waste Recovery became insolvent, Morris, Crain and others discussed taking over its business. Morris expected to have the biggest ownership interest in the new company but Crain and Redpath ended up owning the business 50/50. Morris sued and asserted several causes of action. In Morris v. Crain, the trial court granted Crain’s motion for summary judgment and Morris appealed.

The first issue addressed on this appeal was the trial court’s decision to strike a portion of Morris’s affidavit submitted in opposition to the summary judgment motion. This affidavit contained the transcript of a tape-recorded conversation between Morris and Crain in which they discussed the parties’ agreement to form the new business and in which they debated the current and prospective value of the business. Crain moved to strike on hearsay, relevancy, and best evidence grounds, and the trial court granted the motion.

[W]e are concerned primarily with the following statement made by Crain: “Right now, the company is worth about 6 million. That’s the way I look at it.” …Crain argues that this statement is inadmissible hearsay because it is an out-of-court statement made by Crain. However, a statement is not hearsay if it is a statement made by an opposing party that is offered into evidence against him. Ind. Evidence Rule 801(d)(2)(A).

Crain maintains that the statement violates the best evidence rule. The best evidence rule requires that the original writing, recording, or photograph be produced to prove the content of such unless otherwise provided by the rules or by statute. Ind. Evidence Rule 1002. Crain argues that the actual tape recording of the conversation should have been produced rather than Morris’s affidavit which includes a transcription of the conversation.

Crain makes no specific challenge regarding the accuracy of the transcription, nor does he claim that he did not make the relevant statement. An effective best evidence objection “must identify an actual dispute over the accuracy of the secondary evidence.” Under the circumstances, we decline Crain’s invitation to strike the statement on best evidence grounds.

The second issue concerned whether Crain was entitled to summary judgment based on his “no damages” argument.

Essentially, Crain’s “no damages” argument is this: BioSafe has been an unsuccessful business financially, so Plaintiffs cannot prove that they were harmed by being deprived of their ownership interests.

Specifically, Crain designated financial statements and evidence indicating that BioSafe has realized net losses rather than profits since its formation and therefore, Plaintiffs cannot prove that they suffered damages as a result of Crain’s breach of any contract or duty….

[I]t is Crain’s burden on summary judgment to establish that BioSafe was without value, not Plaintiffs’ burden to prove that BioSafe had value. Moreover, BioSafe’s profitability or lack thereof since its formation is not the same as value. While BioSafe’s lack of profitability would be relevant to the amount of damages suffered by Plaintiffs, the business’s lack of profitability does not per se preclude damages. We conclude that Crain has not established a prima facie case negating an element of Plaintiffs’ claims and thus, the burden never shifted to Plaintiffs to present evidence establishing the existence of a genuine issue of material fact.

[E]ven assuming that Crain met his burden of negating the damages element of Plaintiffs’ claims, Plaintiffs’ designated evidence in opposition to summary judgment is sufficient to create a genuine issue of material fact on the damages issue. As an owner of BioSafe, Crain presumably possessed sufficient acquaintance with the business to estimate its value. His statement that the value of the business in October 2007 was around six million dollars is “sufficient, though minimally so, to raise a factual issue to be resolved at trial….”

Lessons:

  1. The best evidence rule does not require the tape recording of oral statements by a party opponent in the absence of an actual dispute over the accuracy of the secondary evidence.
  2. A business owner can testify about the value of his business.
  3. Persistent net losses of a business do not satisfy a summary judgment movant’s initial burden of proving no value of a business.

P.S. Amazon showed no profit for many years and in 2015 surpassed Wal-Mart in market capitalization.

Read the full March 2017 Law Club Handout or listen to the recording here.