## Facts

- Potamkin Cadillac Corporation and related automobile-dealer entities (Potamkin) used B.R.I. Coverage Corporation and affiliated brokers and individuals (BRI) as their insurance broker.
- Potamkin sued BRI in the Southern District of New York, alleging fraudulent practices connected to insurance placement and billing.
- BRI denied wrongdoing and asserted counterclaims seeking about \$776,368, claiming it had prepaid (advanced) insurance premiums to insurers on Potamkin’s behalf and was entitled to reimbursement.
- The district court appointed a special master to receive evidence and make recommendations regarding the remaining disputes, including BRI’s counterclaims.
- To support its counterclaims, BRI generated a computer-produced “history” from its database that purported to show the premium advances and resulting balances.
- During discovery, Potamkin sought production of the history and requested the underlying computer tapes/data from which the history was said to be compiled. BRI withheld the history, asserting attorney work-product protection, and refused to produce the computer tapes.
- After proceedings before the special master began, BRI attempted to introduce the history as evidence, arguing it was admissible under the business-records exception to hearsay (Federal Rule of Evidence 803(6)).
- BRI conceded that the history contained problems in some instances, including keypunch errors, cash or billings applied to the wrong policies, and mislabeled policies.
- The special master ruled the history did not qualify as a business record and was inadmissible hearsay when offered by BRI to prove its counterclaims, but allowed Potamkin to use portions as admissions attributable to BRI.
- The district court adopted the special master’s rulings and recommendations, found for Potamkin on the counterclaims, and dismissed BRI’s claim for reimbursement of alleged premium advances.
- BRI appealed to the Second Circuit, challenging the exclusion of the history and arguing Potamkin had admitted the advances. Potamkin sought appellate sanctions under Federal Rule of Appellate Procedure 38.

## Issues

1. Did the district court abuse its discretion by excluding BRI’s computer-generated “history” because it did not qualify as a business record under Federal Rule of Evidence 803(6)?
2. Did Potamkin make a binding admission that BRI advanced the premiums, eliminating the need for BRI to prove the advances?
3. Should the Second Circuit impose sanctions under Federal Rule of Appellate Procedure 38 on the ground that BRI’s appeal was frivolous?

## Decision

- The Second Circuit affirmed the judgment dismissing BRI’s counterclaims for alleged premium advances.
- The court held the district court acted within its discretion in refusing to admit the history under Rule 803(6) given the weak foundation and the document’s demonstrated accuracy and reliability problems.
- The court agreed that the record did not compel a finding that Potamkin admitted BRI’s alleged advances and that the district court’s findings on BRI’s failure of proof were not clearly erroneous.
- The court denied Potamkin’s motion for Rule 38 sanctions.

## Legal Principles

- A record is admissible under Federal Rule of Evidence 803(6) only if the proponent establishes a proper foundation that it was made at or near the time by (or from information from) someone with knowledge, kept in the ordinary course of regularly conducted business activity, and made as a regular practice of that activity; a court may exclude a record if the circumstances show a lack of trustworthiness.
- Computer-generated outputs are not automatically admissible as business records; the proponent must show the underlying data-entry and recordkeeping process was routine and reliable, and that the compilation was not simply produced for litigation.
- A party asserting a reimbursement counterclaim for alleged payments bears the burden to prove the payments; a factfinder may reject a claim when support consists mainly of a contested summary and the proponent lacks reliable, ordinary transactional proof.
- A writing may be inadmissible for one purpose (e.g., to prove the truth of asserted payments under a hearsay exception) yet still be usable in part as an admission against the party that created or adopted it.
- Evidentiary rulings are reviewed for abuse of discretion; factual findings adopted by the district court from a special master are reviewed for clear error.
- Appellate sanctions under Federal Rule of Appellate Procedure 38 are reserved for appeals that are wholly without merit; an unsuccessful appeal does not alone justify sanctions.

## Conclusion

Potamkin Cadillac Corp. v. B.R.I. Coverage Corp. holds that the district court did not abuse its discretion in excluding BRI’s computer-generated “history” as a business record where BRI failed to establish reliable, regular recordkeeping and admitted errors in the document, and the Second Circuit affirmed dismissal of BRI’s counterclaims for alleged premium advances because BRI did not carry its burden of proof and Potamkin had not made a binding admission; the court also denied Rule 38 sanctions.


Potamkin Cadillac Corp. v. B.R.I. Coverage Corp., 38 F.3d 627 (1994)