The following is a case update written by the Hon. Meredith Jury (U.S. Bankruptcy Judge, C.D. CA., Ret.), analyzing a recent decision of interest:
The Fifth Circuit Court of Appeals (the Court), in a case arising from the failure to perform by the successful online bidder at a bankruptcy auction, reversed the district court’s admission of online documents which provided a monetary limit for the bidder’s liability. Deciding evidentiary issues which had not been adequately addressed by precedent in the circuit, the Court found the documents had not been properly authenticated and were not excepted from the hearsay rule. Weinhoffer v. Davie Shoring, Inc., 2022 WL 188095 (5th Cir. January 20, 2022).
To view the opinion, click here.
David Weinhoffer was the liquidating trustee of the chapter 11 plan of Offshore Specialty Fabricators LLC (the Trustee) and contracted with Henderson Auctions to auction off a large housing module. Henderson advertised and hosted the auction on its website, but when potential bidders went to bid, they were linked to Proxibid, a third-party website, where they could view the auction terms. One of those terms was that bidders would be liable for only 20% of the bid price in the event of a breach of contract. Warren Davie, Davie Shoring’s principal, however placed the winning bid of $177,500 by phone call with Henderson, not online.
Davie Shoring (Shoring) breached the contract when it found it was too expensive to move the module. The Trustee sued Shoring for the full bid amount, which was resolved with a bench trial in district court. At trial Shoring introduced the auction term in two forms: (1) as an internet printout labeled “Exhibit 41” and (2) as an archived webpage from a website known as the Wayback Machine. Shoring attempted to authenticate Exhibit 41 with testimony from Henderson’s office manager, who admitted the terms were no longer up on the website and that she had found the exhibit through subpoena from Proxibid. The district court overruled the Trustee’s authentication and hearsay objections and admitted Exhibit 41. Shoring also asked the district court to take judicial notice of the same terms in an archived version of the Proxibid webpage, available on the Wayback Machine. The district court granted that request as well.
The trial resulted in a judgment against Shoring for the 20% limit in the terms, $35,500, rather than the bid price. Weinhoffer appealed to the Court, which reversed and remanded.
First, the Court rejected admission of Exhibit 41 because it was not properly authenticated. Where the document offered is from a website or electronic source, authentication may be by a witness with direct knowledge of the source, stating that the exhibit fairly and fully reproduces it. Such witness is unlikely to have the requisite direct knowledge where the content was created and maintained by a third party. Henderson’s office manager, who only could find Exhibit 41 by subpoenaing it from Proxibid, lacked the needed direct knowledge and could not authenticate the document. The Court suggested a better witness would have been someone with direct knowledge of Proxibid’s recordkeeping. In addition, the document was hearsay and the Henderson office manager was not a proper custodian to qualify it as an exception under the business record exception. Admission of Exhibit 41 was reversed.
The Court reversed the judgment and remanded for further proceedings consistent with its evidentiary rulings.
The admissibility of website materials and other virtual documents is a work in progress in the courts. Current technology has given us access to a myriad of documents, which may or may reflect true facts. The rules of evidence are gatekeepers, attempting to assure that any document admitted is authentic, any statement made has degrees of credibility, and that false facts or unsupported opinions do not become part of a court record. The Fifth Circuit’s lessons here should be considered by any practitioner who wants to introduce the content of a document available only online. Authentication without someone familiar with the source and recordkeeping practices should not be possible, as it is far too easy to fabricate documents. Perhaps there will be a time when the reliability of archive services such as Wayback Machine will be accepted, but per the Fifth Circuit, we are not there yet. And getting there will take tried and true testimony from those knowledgeable about the accuracy of the archiving process, something not possible so long as the archive service itself disclaims accuracy. Add to that the difficulty in finding a qualified custodian to give proper foundation for a business record exception to the hearsay rule, and the mountain becomes steeper. Lawyers are creative, so stay tuned.
This review was written by the Hon. Meredith Jury (U.S. Bankruptcy Judge, C.D. CA., Ret.), a member of the ad hoc group. Thomson Reuters holds the copyright to these materials and has permitted the Insolvency Law Committee to reprint them. This material may not be further transmitted without the consent of Thomson Reuters.