7. The witness's testimony is

The Federal Rules of Evidence (FRE) define hearsay as a statement, other than one made by the declarant while testifying at the current trial or hearing, offered into evidence to prove the truth of the matter asserted. Fed. R. Evid. 801(c). A statement that contains hearsay within hearsay (or «double hearsay») may be admissible as long as each part of the combined statement conforms to a hearsay exception. Fed. R. Evid. 805.

A statement of a person, now unavailable as a witness, can be admissible if it was against that person's pecuniary, proprietary, or penal interest when made. To be admissible under the statement against interest exception, the statement must have been so against the declarant's pecuniary or proprietary interest, or had so great a tendency to invalidate the declarant's claim against someone else or to expose the declarant to civil or criminal liability, that a reasonable person in the declarant's position would have made the statement only if she believed it to be true. Fed. R. Evid. 804(b)(3). The statement against interest differs most significantly from an opposing party's statement in that, under the statement against interest exception, the statement must be against interest when made, and the declarant whose statement is admitted may be a stranger to the litigation rather than a party.

To qualify as a statement against interest, the following requirements must be met: (i) the statement must have been against pecuniary, proprietary, or penal interest when made, such that a reasonable person in the declarant's position would have made it only if she believed it to be true; (ii) the declarant must have had personal knowledge of the facts; (iii) the declarant must have been aware that the statement was against her interest and she must have had no motive to misrepresent when she made the statement; and (iv) the declarant must be unavailable as a witness. Fed. R. Evid. 804(b)(3).

Under FRE 801(d)(2), a statement by an opposing party (traditionally known as an «admission by a party-opponent») is not hearsay. Under this Rule, when the opposing party's statement is offered against that same opposing party and was made in either an individual or representative capacity, it is admissible.

B is correct. When testimony involves two different out-of-court statements, there may be an issue of double hearsay, or hearsay within hearsay. For the testimony to be admissible, both statements must meet a separate hearsay exception or exemption. The testimony in this case involves two statements: (i) the statement made by the man (the defendant) to the friend; and (ii) the statement made by the friend to his girlfriend. The first statement by the man is admissible as an admission by a party-opponent because it was made by, and is being used against, the man. The second statement by the friend is admissible as a statement against interest. A statement against interest must be made: (i) against the declarant's pecuniary, proprietary, or penal interest; (ii) with knowledge of the facts; and (iii) by an unavailable declarant. The declarant does not have to be a party or a co-conspirator and may even be a stranger to the litigation. Here, the declarant made the statement against his financial and penal interest, with knowledge of the facts, and he is now unavailable. Therefore, the statement is admissible.

A is incorrect. This answer reaches the correct answer with the wrong reasoning. Statements made by a co-conspirator in furtherance of a conspiracy may be admitted against a defendant as an admission by a party-opponent. These statements must be made in furtherance of the conspiracy at a time when the declarant was still participating in the conspiracy. In this case, the statement the friend made to his girlfriend was not made in furtherance of the conspiracy or at a time when the conspiracy was still occurring. The friend is also not on trial in this case, which is solely against the man. Therefore, the friend's statement is not admissible as an admission by a co-conspirator.

C is incorrect. It is true that the friend's statement was not made in furtherance of the conspiracy, which means that exemption would not apply as to this specific statement. However, it is still admissible as a statement against the friend's interest. The declarant does not have to be a co-conspirator to meet the exception for statements against interest.

D is incorrect. It is not required that the declarant have knowledge that the necklace was stolen. A statement against interest requires the declarant to have personal knowledge of the facts, such that a reasonable person in the declarant's position would not have made the statement unless he believed it was true. In this case, the declarant has knowledge that he and the man are involved in exchanging money for the necklace. This is a statement the friend would not have made unless it was true because the man's accusation that the friend owes him money from selling the necklace could implicate the friend in a crime, and is also against his pecuniary interest.