Court of Appeal (Cal.) Says Credit Card Issue Properly Sued for Account Stated; Billing Statements Met Exception to Hearsay Rule

In Bank of Am., N.A. v. Byrd, No. G056792, 2019 Cal. App. Unpub. LEXIS 7176 (Oct. 28, 2019), Bank of America, N.A. (the Bank) sued Pamela K. Byrd to recover over $32,000 in credit card debt. The trial court found the Bank’s last credit card statement to Byrd constituted a final rendering of the account, and Byrd impliedly agreed to pay the amount claimed by failing to dispute the statement or charges. Byrd asserted the last credit card statement cannot create an account stated because a “least sophisticated debtor” would not understand it was a final rendering of the account. She also asserted the trial court erred in admitting the Bank’s monthly credit card statements under the business records exception to the hearsay rule.  The Court of Appeal rejected both arguments.  As to the Account Stated issue, the Court of Appeal held:

The essential elements of an account stated are: (1) previous transactions between the parties establishing the relationship of debtor and creditor; (2) an agreement between the parties, express or implied, on the amount due from the debtor to the creditor; [and] (3) a promise by the debtor, express or implied, to pay the amount due.'” (Leighton v. Forster (2017) 8 Cal.App.5th 467, 491 (Leighton).) “When an account stated is ‘”assented to, either expressly or impliedly, it becomes a new contract.”‘ [Citation.] ‘The theory of an account stated is that it becomes a contract between the parties for payment of the amount computed to be due without proof of the specific items included therein.’ [Citation.] Accordingly, an action on an account stated is not based on the parties’ original transactions, but on the new contract under which the parties have agreed to the balance due.” (Lauron, supra, 8 Cal.App.5th at p. 968.) “‘[T]he assent of the party sought to be charged may be implied from his conduct.’ [Citation.] For example, ‘[w]hen a statement is rendered to a debtor and no reply is made in a reasonable time, the law implies an agreement that the account is correct as rendered.’ [Citation.] A number of jurisdictions have applied this principle in the context of credit card debt, concluding that where a debtor receives and does not object to a credit card statement, an agreement to the amount due can be inferred.” (Lauron, supra, 8 Cal.App.5th at p. 968.) We agree with that approach. Substantial evidence supports the trial court’s finding that the parties created an account stated. Byrd incurred over $30,000 in credit card debt by February 2016. She made no further charges using the credit card, and after March 2016, she failed to make any payments toward her debt. The Bank continued to send Byrd monthly statements until October 2016. Byrd admittedly received at least some of these statements, and she never disputed the amount the Bank claimed was due. Collectively, these facts support the court’s findings that the Bank’s October 2016 statement was a final rendering of the account and Byrd impliedly agreed to pay the amount claimed. Byrd contends “a least sophisticated debtor would not understand a regular received monthly billing statement was to be the last and final rendering of their account,” so there could “be no new agreement to a sum due, and no promise to pay.” We are not persuaded. Byrd’s argument draws on state and federal statutes governing debt collection practices – namely, the Fair Debt Collection Practices Act (FDCPA) (15 U.S.C. § 1692 et seq.), which is incorporated by reference into California’s Rosenthal Fair Debt Collection Practices Act (Civ. Code, §§ 1788, 1788.17). “The FDCPA generally prohibits a ‘debt collector’ from ‘us[ing] any false, deceptive, or misleading.  Although California courts have not yet weighed in on the issue, “federal courts applying California law have concluded that monthly credit card statements may form the basis for an account stated,” notwithstanding the existence of a written cardholder agreement. (Lauron, supra, 8 Cal.App.5th at pp. 970, 971 fn. 4 & 5.) “‘[A] debt which is predicated upon the breach of the terms of an express contract [normally] cannot be the basis of an account stated'” because the express contract is “the best evidence of the amount due.” (Id. at p. 971 fn. 5.) Because a credit card agreement does not bind the debtor to pay a specified sum, however, the mere existence of the credit card agreement should not preclude the parties from subsequently forming an account stated concerning the amount due on the credit card. 6 representation or means in connection with the collection of any debt’ (15 U.S.C. § 1692e), and as is pertinent here, specifically prohibits ‘[t]he false representation of . . . [¶] . . . the character, amount or legal status of any debt.'” (Alborzian v. JPMorgan ChaseBank, N.A. (2015) 235 Cal.App.4th 29, 36.) “Whether a debt collection effort entails false representations, threats, or deception is judged objectively from the perspective of the ‘”least sophisticated debtor.”‘ [Citations.] This unsavvy consumer is charged with a ‘”basic level of understanding and willingness to read with care,” [citation]’ but is of ‘”below average sophistication or intelligence,”‘ and is ‘”uninformed or naive.”‘” (Id. at p. 37.) A debt collection effort that employs false representations that would mislead a least sophisticated debtor is actionable under the FDCPA and California law. (Ibid.) Byrd asserted no FDCPA claim against the Bank, but she nevertheless contends the “least sophisticated debtor” standard should apply in evaluating the Bank’s claim against her for an account stated. Byrd does not cite – and we are not aware of – any binding authority applying the “least sophisticated debtor” standard in determining whether the parties formed an account stated, and we have concerns about modifying the elements of an account stated, a concept developed through the common law, to incorporate a standard appearing in debt collection statutes. Thus, in the absence of binding authority compelling the application of the standard in this context, we conclude the analysis should instead focus on the presence of the three traditional elements for an account stated: (1) previous transactions between the parties establishing the relationship of debtor and creditor, (2) an express or implied agreement between the parties on the amount due, and (3) an express or implied promise by the debtor to pay the amount due. (See Leighton, supra, 8 Cal.App.5th at p. 491.) Cf. Alaan v. Asset Acceptance LLC (S.D.Cal., Aug. 8, 2011, No. 10CV328-WQH- BLM) 2011 WL 3475378, at *10 [finding genuine issue of material fact on whether credit card statement created an account stated where the statement did not clearly inform the “least sophisticated debtor” it was a final statement]. Under this test, what the least sophisticated debtor understands or does not understand is irrelevant; a reviewing court should instead focus on what this particular debtor understood and agreed to. Even if we were to apply the “least sophisticated debtor” standard in this context, however, we would affirm the judgment. Byrd contends a least sophisticated debtor would not understand the October 2016 statement constituted a final rendering of the account. Given the lack of activity on the account, we disagree. No payments or charges had been made in the six months before the Bank issued its October 2016 statement, or in the five months after the Bank issued its October 2016 statement and before the Bank filed its complaint. Under these circumstances, even an unsophisticated debtor would understand the amount claimed in the October 2016 statement was the final amount the Bank believed was due. This would be a different case if Byrd had made ongoing charges to the credit card, if she had made partial payments toward the amount due, or if she had disputed any of the charges or the Bank’s calculation of the amount owed at some point before the Bank filed its complaint. In any of those instances, the parties would be transacting ongoing business, which would call into question what amount was owed at any given time and negate the element of finality. (See American Fruit Growers, Inc. v.Jackson (1928) 203 Cal. 748, 751-752 [finding no account stated was created because “the parties were still transacting business,” “statements were sent periodically[,] and business was continued between them as before”].) Here, however, the parties had not transacted business for an entire year before the Bank filed its complaint. Even an unsophisticated debtor would understand the Bank’s last statement, sent six months into that year-long period, reflected the final amount the Bank believed was due. (See Tourgeman v. Collins Financial Services, Inc. (9th Cir. 2014) 755 F.3d 1109, 1119 [“‘although the least sophisticated debtor may be uninformed, naive, and gullible, nonetheless her interpretation of a collection notice cannot be bizarre or unreasonable'”].) Byrd also contends the Bank’s conduct was inconsistent with the credit card agreement. We disagree. The credit card agreement clearly advised Byrd:  “[y]ou will be in default of this Agreement if . . . you fail to make any required Total Minimum Payment Due by its Payment Due Date”; “[i]f you are in default, . . . we can require immediate payment of your total outstanding balance”; and “[w]e may suspend or close your account or otherwise terminate your right to use your account . . . at any time and for any reason.” Thus, the Bank acted within its rights when it closed her account in October 2016 and demanded payment of the entire debt.

The Court of Appeal also held that the billing statements were properly admissible:.

Byrd makes a series of arguments based on the testimony of the Bank’s custodian, Katie Hickey, asserting Hickey was not qualified to testify and the records lacked indicia of trustworthiness. Hickey’s testimony, however, is not part of the record. Byrd relies on her trial counsel’s description of that testimony in Byrd’s posttrial brief, but statements in briefs are not evidence. (In re Zeth S. (2003) 31 Cal.4th 396, 414, fn. 7.) In the absence of a reporter’s transcript, we must rely solely on the trial court’s description of Hickey’s testimony in the statement of decision. That description discloses no abuse of discretion in the court’s decision to admit the Bank’s monthly statements. According to the court, “Hickey’s testimony about her work at Bank of America demonstrated she was a qualified witness to testify to the identity of Exhibit 4 and its mode of preparation, and she adequately laid the foundation for the admission of Exhibit 4 as business records, including through her testimony about the electronic creation of the documents, the printing of the documents, her recognition of the documents, and the preparation of the documents in the regular course of business. Cal. Evid. Code § 1271; see also Jazayeri v. Ma (2009) 174 Cal.App.4th 301, 322 (‘The witness need not have been present at every transaction to establish the business records exception; he or she need only be familiar with the procedures followed . . . .’).” On this limited record, we have no grounds to question the trial court’s findings on Hickey’s qualifications or the trustworthiness of the monthly statements. We also note “[a] qualified witness need not be the custodian, the person who created the record, or one with personal knowledge in order for a business record to be admissible under the hearsay exception. [Citations.] [¶] We are especially mindful that ‘[a] trial judge has broad discretion in admitting business records under Evidence Code section 4 Byrd’s briefs also improperly cited to unpublished California Court of Appeal cases, referenced facts not in the record, and failed to provide record citations. 10 1271.’ [Citation.] Moreover, the criteria for establishing that a document is subject to the business records exception to the hearsay rule may be inferred from the circumstances. [Citation.] ‘Indeed, it is presumed in the preparation of the records not only that the regular course of business is followed but that the books and papers of the business truly reflect the facts set forth in the records brought to court.'” (Unifund,supra, 243 Cal.App.4th Supp. at p. 8.) Credit card statements are prepared daily, and even if a credit card statement includes mistakes, “‘such matters may be developed on cross-examination and should not affect the admissibility of the statement itself.'” (Id. at p. 9) On this limited record, and with these authorities in mind, we find no abuse of discretion in the court’s ruling on the admissibility of the monthly statements.