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Univ. of South Carolina School of Law

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Friday, January 9, 2009

What's My Purpose?: Fifth Circuit Upholds Hearsay Ruling In Fen Phen Fraud Appeal

The Fifth Circuit's recent opinion in United States v. Arledge, 2008 WL 5295103 (5th Cir. 2008), contains an odd business records ruling that I have never seen before.

In Arledge, Robert Arledge challenged his conviction for conspiracy and fraud for his involvement in filing fraudulent claims to recover from the Diet Drug Qualified Settlement Funds I and II, funds set up to compensate victims of the diet drug Fen Phen.  According to the Fifth Circuit's opinion:

     "Arledge was a lawyer in the law firm of Schwartz & Associates (“S&A”) and head of the mass torts section of the firm. Arledge was one of several attorneys across the country who entered into a fee-splitting and referral-fee agreement to recruit clients for both Fen Phen settlements. The settlement agreements provided for a contingency fee of 40%. After deducting expenses and other costs, [Michael] Gallagher, the lead attorney in the Fen Phen settlement cases, received 37.5% of the attorneys' fees, another law firm, Langston, Frazier, Sweet & Freese, received 37.5%, and S&A received 25%."

After Arlegde was convicted, he appealed, contending, inter alia, that the district court improperly precluded him from introducing Defense Exhibit 32, a multi-page list of names, phone numbers, and addresses titled "Arledge Accepted Cases."  Arledge claimed that this exhibit should have been admissible under Federal Rule of Evidence 803(6), which provides an exception to the rule against hearsay for:

     "A memorandum, report, record, or data compilation, in any form, of acts, events, conditions, opinions, or diagnoses, made at or near the time by, or from information transmitted by, a person with knowledge, if kept in the course of a regularly conducted business activity, and if it was the regular practice of that business activity to make the memorandum, report, record or data compilation, all as shown by the testimony of the custodian or other qualified witness."

And indeed, Arledge partially complied with this Rule by presenting the testimony of David Gaylon, an employee of S&A, who "verified that the document was a record of regularly conducted activity."  Bizarrely, however, neither Gaylon nor any other defense witness was able to "testify to the purpose of the document."

Upon reading this, I immediately wondered how Gaylon was able to conclude that the document was a record of regularly conducted activity but was unable to identify its purpose.  I also wondered how the district court could have been expected to admit the document without knowing its purpose (Arledge claimed on appeal that the document "could have shown that Arledge had refused clients because they failed to provide sufficient proof of usage").

And indeed, the Fifth Circuit shared these concerns.  According to the court,

     "[c]ontrary to Arledge's argument,...the district court did not abuse its discretion when it refused to admit Defense Exhibit 32. The district court is permitted to exclude documents that 'indicate a lack of trustworthiness.' FED.R.EVID. 803(6). The document showed only names on a page, and without more testimony, the significance of the document was mere conjecture....Arledge submitted no reason why he failed to present evidence at trial that would have relieved the district court's concerns about trustworthiness, nor has he given us reason to believe that the evidence was inherently trustworthy."

Based upon the concerns I raised above, this seems to have been the only conclusion that the Fifth Circuit could have reached.

-CM

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