Opinion
No. 96-3311-BKC-3P7
May 12, 1997
FINDINGS OF FACT AND CONCLUSIONS OF LAW
This proceeding came before the Court upon ATT Universal Card Services, Corporation's complaint to determine dischargeability of credit card debt, pursuant to 11 U.S.C. § 523(a)(2)(A). Upon the evidence presented at trial on March 5, 1997, the Court enters the following Findings of Fact and Conclusions of Law:
FINDINGS OF FACT
1. Defendant is thirty-three years old and single. (Adv. Rec. 30, at 1). She has an eighth grade education, and has been employed as a medical assistant for the past eight years. (Id.). Her net income is approximately $1,220 per month. (Def.'s Ex. 1). Defendant's current monthly expenses total $1,295.41, and she has no other source of income besides her work. (Pl.'s Ex. 1).
2. In September 1995, Plaintiff issued to Defendant a pre-approved credit card with a $3,000 credit limit. (Adv. Rec. 30, at 1). Between September 1995 and February 1996, Defendant's credit card activities were as follows:
Billing Cycle Charges Cash Advances 09/22/95 $491.59 $ 0 10/22/95 $921.95 $ 29.50 11/22/95 $732.58 $364.83 12/22/95 $400.00 $ 70.00 01/22/96 $260.65 $ 30.00 (Pl.'s Ex. 3).3. On October 2, 1995, Defendant was involved in an auto accident. (Def.'s Ex. 2-3). At that time, she owned a 1988 Chevrolet Coupe which was free and clear of liens. (Adv. Rec. 30, at 10). The accident destroyed her car and she had to purchase a replacement vehicle. (Id.) She bought a 1994 Chevrolet Camero on Oct. 27, 1997, and the monthly payments of $241.56 were to begin in December 1995. (Id. at 10-11).
4. In November 1995, Defendant consulted with a bankruptcy attorney, but after discussing her financial problems with her father, decided against filing bankruptcy at that point. (Id. at 9).
5. On June 3, 1996, Defendant filed for relief under Chapter 7 of the Bankruptcy Code. (Main Case Doc. 1). Plaintiff filed this adversary on September 17, 1996, and trial was held on March 5, 1997. (Adv. Rec. 1, 29).
6. At, the trial, Mr. Merritt, Defendant's father, testified at trial that he dissuaded his daughter from filing bankruptcy. He felt he could help her with his retirement benefits.
7. At trial, ATT's representative testified that the company did not revoke Defendant's credit card privileges. Plaintiff produced no evidence showing that it had researched Defendant's financial status before issuing the credit card. Also, Plaintiff presented no evidence that it monitored Defendant's financial status or her credit condition at the time the charges and cash advances were being made. Plaintiff neither attended the 341 meeting nor requested a 2004 examination before filing the complaint. As a result, Defendant feels it is appropriate to award attorney's fees and cost in the amount of $1,957.50 for 13.05 hours of work at $150 per hour pursuant to 11 U.S.C. § 523(d).
CONCLUSIONS OF LAW
This proceeding addresses two issues. The first issue is whether Defendant's credit card debt should be excepted from her discharge under subsection 523(a)(2)(A). Secondly, is whether reasonable attorney's fees and costs should be award to Defendant's counsel pursuant to Subsection 523(d). This Court has recently addressed these issues in AT T v. Acker (In re Acker), Case No. 96-655-BKC-3P7, Adv. No. 96-288, 1997 WL 92108 (Bankr.M.D.Fla. Feb. 24, 1997) and AT T v. Stansel (In re Stansel), 203 B.R. 339 (Bankr.M.D.Fla. 1996), and this proceeding will following the same analysis.
1. Subsection 523(a)(2)(A)
Plaintiff relies on subsection 523(a)(2)(A) to support its contention that Defendant's credit card debt should be excepted from her discharge. Subsection 523(a)(2)(A) provides, in pertinent part, that:
(a) A discharge under section 727 . . . this title does not discharge an individual debtor from debt —
. . .
(2) for money, property, or services, or an extension, renewal, or refinancing of credit, to the extent obtained by —
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or insider's financial condition[.]
11 U.S.C. § 523(a)(2)(A) (1994). The purpose of bankruptcy is to give the debtor a fresh start, and exceptions to the discharge are strictly construed in favor of the debtor. See Stansel, 203 B.R. at 341 (citingHousehold Credit Serv. v. Rivera (In re Rivera), 151 B.R. 602, 605 (Bankr.M.D.Fla. 1993); Manufacturers Hanover Trust Co. v. Abercrombie (In re Abercrombie), 148 B.R. 964, 965-66 (Bankr.M.D.Fla. 1992); First Fed. of Jacksonville v. Landen (In re Landen), 95 B.R. 826, 829 (Bankr.M.D.Fla. 1989)).
First, the Court concludes that Plaintiff cannot rely on implied misrepresentation or fraud to except the credit card debt from debtor's discharge. The Eleventh Circuit addressed the dischargeability of credit card debt under section 17a(2) of the Bankruptcy Act of 1898 inFirst Nat. Bank v. Roddenberry, 701 F.2d 927 (11th Cir. 1983). The debtors in that case exceeded their credit limit on a Visa card, but the issuing institution had not revoked their credit privileges. Id. at 928-29. The Court of Appeals held that "only after such clear revocation has been communicated to the card holder, will further use of the card result in liabilities obtained by `false pretenses or false representation.'" Id. at 932. Thus, the Court of Appeals rejected the "implied misrepresentation" concept and concluded that the bank assumed the risk of non-payment, despite the debtors' apparent inability to pay, until the credit privileges were unequivocally revoked. Id. at 932-33. Accordingly, only the debts incurred subsequent to the revocation were obtained by false pretenses or false representation and non-dischargeable under section 17a(2). Id. This Court is bound by Roddenberry and has consistently applied its holding in prior cases dealing with dischargeability of credit card debts under subsection 523(a)(2). See, e.g., Rivera, 151 B.R. at 605; Abercrombie, 148 B.R. at 965-66; Landen, 95 B.R. at 829.
Section 17a of the former statute reads in pertinent part:
a. A discharge in bankruptcy shall release a bankrupt from all of his provable debts, whether allowable in full or in part, except such as
. . .
(2) are liabilities for obtaining money or property by false pretenses or false representations.
The Roddenberry case was decided under the old Bankruptcy Act and left unresolved the question of whether the addition of the phrase "actual fraud" in § 523(a)(2)(A) of the Bankruptcy Code altered the ultimate result. Id. 929-30 n. 3. However, the case does retain its precedential value and binds this Court. See Birmingham Trust Nat'l Bank v. Case, 755 F.2d 1474, 1476 (11th Cir. 1985) (stating that the differences between 11 U.S.C. § 523(a)(2)(A) and section 17a(2) of Bankruptcy Act of 1898 are negligible, so case law construing the Act provides guidance in applying the Code).
In this proceeding, Plaintiff did not revoke Defendant's credit card privileges before or after the charges and cash advances were made. Therefore, under Roddenberry, the Court cannot imply a misrepresentation merely based on alleged inability to pay.
Next, the Court concludes that the Plaintiff falls short in showing that actual fraud exists under subsection 523(a)(2)(A). In order to prevail on a claim of actual fraud, the Plaintiff must establish that:
(1) The defendant made materially false representations;
(2) At the time defendant made them, the defendant knew the representations were false;
(3) Defendant made them with the intention of deceiving the other party;
(4) The other party relied upon those representations; and
(5) The other party sustained damages as the proximate result of those misrepresentations.
See Stansel, 203 B.R. at 342. The plaintiff has the burden of proving that the debt is nondischargeable. Fed.R.Bankr.P. 4005. The standard of proof for the dischargeability exception under subsection 523(a) is preponderance of the evidence. See Grogan v. Garner, 498 U.S. 279, 291 111 S.Ct. 654, 661 112 L.Ed.2d 755 (1991).
In this proceeding, Plaintiff cannot prove that the five elements exist. There is no showing that Defendant knowingly made false representations with the intention of deceiving the Plaintiff. Nor did the Plaintiff show that it relied the Defendant's false representation, and sustained damages as a result of such reliance.
The Plaintiff, nevertheless, contends that Defendant knew or had reason to believe the she was unable to repay her credit card debt. This Court has outlined the factors to be considered in assessing a Defendant's intention to repay a credit card debt:
(1) The length of time between the making of the charges and the filing of bankruptcy;
(2) Whether or not an attorney had been consulted concerning the filing of bankruptcy before the charges were made;
(3) The number of charges made;
(4) The amount of the charges;
(5) The financial condition of the debtor at the time the charges are made;
(6) Whether the charges were above the credit limit of the account;
(7) Were there multiple charges on the same day;
(8) Whether or not the debtor was employed;
(9) The financial sophistication of the debtor;
(10) Whether there was sudden change in the debtor's spending habits; and
(11) Whether the purchases were made for luxuries or necessities.
Rivera, 151 B.R. at 605; Abercrombie, 148 B.R. at 966. The Court must consider all the evidence, and assess the Defendant's intent on a case-by-case basis. Id. No one factor is determinative. Id.
In this proceeding, the length of time between the charges and the filing of bankruptcy is approximately five months. Defendant consulted a bankruptcy attorney in November 1995, after some of the charges were made. Approximately thirty-nine (39) charges were made, including about seven (7) cash advances, between September 1995 and February 1996. The amount of each charge ranged from $5 to $250. Defendant's financial condition remained the same, with the exception of her incurring an additional monthly expense because she replaced her vehicle that was destroyed in a auto accident. The actual charges were not above the credit limit, but the finance charges missed the amount owed above the credit limit. There were a negligible amount of multiple charges on the same day. Defendant was consistently employed. There were no sudden changes in Defendant's spending habit. Defendant consulted with a bankruptcy attorney in November 1995, but decided not to file for bankruptcy after taking with her father. The majority of her charges on the account were for necessities, not luxuries.
This Court concludes that the evidence presented is insufficient to establish that the defendant committed actual fraud. Consequently, Defendant's debt of $3,187.81 is dischargeable.
2. Subsection 523(d)
Although the Defendant's counsel has moved for attorney's fees pursuant to 11 U.S.C. § 523(d) and has offered supporting exhibit, the Court will reserve jurisdiction on this portion of the complaint and will hold a hearing on the date specified in the judgment to consider the issue.
Section 523(d), provides, in part, that:
If a creditor requests a determination of dischargeability of a consumer debt under subsection (a)(2) of this section, and such debt is discharged, the court shall grant judgment in favor of the debtor for the costs of, and a reasonable attorney's fee for, the proceeding if the court finds that the position of the creditor was not substantially justified, except that the court shall not award such costs and fees if special circumstances would make the award unjust.
11 U.S.C. § 523 (d) (1994).
CONCLUSION
Plaintiff has not established by preponderance of the evidence that the Defendant's credit card debt is nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(A) because it cannot prove Defendant committed false pretenses, false representation or actual fraud in using her credit card. The Court will enter a separate judgment consistent with these findings of fact and conclusions of law.
JUDGMENT
This proceeding came before the Court upon ATT Universal Card Services, Corp., a Delaware corporation's complaint to determine dischargeability of credit card debt pursuant to 11 U.S.C. § 523(a)(2)(A). Upon the Findings of Fact and Conclusions of Law separately entered, it is
ORDERED:
1. Judgment is entered in favor of Defendant, Cheryl Ann Merritt, and against the Plaintiff, AT T Universal Card Services Corp., a Delaware corporation.
2. Pursuant to 11 U.S.C. § 523(a)(2)(A), Defendant's Credit Card debt in the amount of $3,137.81 under Account Number 5398 4200 0163 8757 is not excepted from Defendant's discharge, and is dischargeable pursuant to 11 U.S.C. § 727.
3. The Court has reserved jurisdiction on Defendant's Motion for Attorney's fees pursuant to 11 U.S.C. § 523(d), and a hearing to consider the issue of attorney's fees is scheduled for June 5, 1997, at 9 a.m. in Room 240, United States Courthouse and Post Office Building, 311 West Monroe Street, Jacksonville, Florida.