Municipal Revenue Service v. Xspand

United States District Court for the Middle District of Pennsylvania · Evidence

EvidencehearsayRule 803(3)state of mindcustomer motivesummary judgmentexpert testimonyRule 702

Facts

MRS and Xspand competed in Pennsylvania in the business of delinquent tax-lien transactions. MRS alleged that Xspand distributed marketing materials falsely stating, among other things, that MRS-facilitated transactions produced debt rather than revenue and could negatively affect credit ratings. To oppose summary judgment on causation, MRS relied in part on Herron's testimony recounting what school-district representatives told him about why they delayed or declined to do business with MRS. MRS also relied on Herron's accounting-based testimony that Xspand's statements were false, while Xspand argued that falsity on that point required expert testimony.

Issue

At summary judgment, could MRS rely on Herron's testimony recounting statements by government-customer representatives to show causation, or was that testimony inadmissible hearsay? Also, where Xspand's statements concerned how tax-lien proceeds should properly be booked, did proving falsity require expert testimony rather than lay testimony or a literal-falsity theory?

Rule

Out-of-court statements by customer representatives explaining why their entity did or did not deal with a plaintiff are admissible under Federal Rule of Evidence 803(3) when offered to prove the customer's motive, not the truth of the underlying facts asserted. Rule 803(3) applies to statements by authorized representatives of corporate or governmental entities regarding the motives underlying the entity's business decisions. When alleged falsity turns on a technical accounting question outside the ken of laypersons—such as how proceeds should properly be booked—proof of falsity requires expert testimony under Rule 702.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

A software vendor in Columbus, Ohio sues a competitor for false advertising after several county offices stopped negotiating service contracts. To oppose summary judgment on causation, the vendor offers its sales director's testimony that a county procurement manager told him, "We're delaying this purchase because your rival's brochure made our office worry your platform will expose us to audit risk."

If the testimony is offered only to show why the county delayed the contract, how should the court rule?

Explanation. The majority held that out-of-court statements by customer representatives explaining why their entity delayed or declined to deal with the plaintiff are admissible under Rule 803(3) when offered to prove customer motive, not the truth of the underlying accusation. That same reasoning applies here: the statement tends to show why the county delayed contracting, which is relevant to causation.