Opinion
Case No. 04-69904-MHM, Adversary Proceeding No. 04-9166.
March 14, 2005
ORDER REGARDING PLAINTIFF'S MOTION FOR DEFAULT JUDGMENT
On January 11, 2005, Plaintiff filed a motion for default judgment. Default was entered by the Clerk November February 1, 2005. Plaintiff seeks entry of a default judgment in the amount of $8,386.69, plus interest, attorneys fees and costs. Plaintiff's claims that are the subject of its complaint arise from Debtor's use of a credit card issued to Debtor by Plaintiff.
Plaintiff alleges that during the 60-day period immediately preceding Debtor's filing of the bankruptcy petition, Debtor accumulated charges totaling $8,271.50 (the "60-Day Charges"). Of those charges, $6,700 were cash advances. Plaintiff alleges that charges totaling $1,571.50 were for luxury goods and services. Therefore, as to the 60 Day Charges, Plaintiff is entitled to the benefit of the presumption in § 523(a)(2)(C).
The allegations in Plaintiff's complaint are insufficient as to the remaining charges to establish that Plaintiff's credit card claims against Debtors are nondischargeable. A credit card debt is nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(A) to the extent that money, property, services, or an extension, renewal, or refinancing of credit, was obtained by
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or insider's financial condition[.]
The burden of proof is upon the creditor to show by a preponderance of evidence that the debt is nondischargeable. Grogan v. Garner, 111 S. Ct. 654, 659 (U.S. 1991).
In the Eleventh Circuit Court of Appeals, the seminal case on that issue is First National Bank of Mobile v. Roddenberry, 701 F. 2d 927 (11th Cir. 1983). Although Roddenberry was decided under § 17a(2) of the Bankruptcy Act, the similarities between § 17a(2) and § 523(a)(2)(A) give the case law construing § 17a(2) precedential value in § 523(a)(2)(A) cases. Birmingham Trust National Bank v. Case, 755 F. 2d 1474 (11th Cir. 1985); Chase Manhattan Bank v. Carpenter, 53 B.R. 724 (Bankr. N.D. Ga. 1985).
Roddenberry is a credit card case. In reaching its conclusion that mere use of a credit card without the ability or intent to repay did not constitute obtaining credit by false pretenses or false representation, the Roddenberry court noted that credit card companies routinely "encourage or willingly suffer credit extensions beyond contractual credit limits." Id. at 932. The court concluded that § 17a(2) "should not be construed to afford additional protection for those who unwisely permit or encourage debtors to exceed credit limits." Id. The court, therefore, held:
Voluntary assumption of risk on the part of a [credit card company] continues until it is clearly shown that the [credit card company] unequivocally and unconditionally revoked the right of the cardholder to further possession and use of the card, and until the cardholder is aware of this revocation.
Id. Plaintiff has shown no false representation by Debtor other than the use of the card itself, which is insufficient.
The Roddenberry court noted in footnote 3 the addition of actual fraud to § 523(a)(2)(A) [formerly § 17(a)2] and hypothesized that addition "may alter the outcome in certain cases where debtors obtain credit without a present intention of repayment." In bankruptcy courts in the Eleventh Circuit, the most frequently cited opinion on the "actual fraud" issue is Chase Manhattan Bank v. Carpenter, 53 B.R. 725 (Bankr. N.D. Ga. 1985). See, for example, Chase Manhattan Bank, NA v. Ford, 186 B.R. 312 (Bankr. N.D. Ga. 1995); American Express Travel Related Services Co., Inc. v. Rusu, 188 B.R. 325 (Bankr. N.D. Ga. 1995). The Carpenter case concludes that, in dischargeability proceedings involving credit cards, actual fraud may be shown by demonstrating the debtor used the credit card with no present intention to repay. The Carpenter case noted that an inability to pay — hopeless insolvency — does not support an inference that the debtor lacked an intent to repay. See also, Anastas v. American Savings Bank, 94 F. 3d 1280 (9th Cir. 1996); Chase Manhattan Bank, NA v. Ford, 186 B.R. 312 (Bankr. N.D. Ga. 1995); American Express Travel Related Services Co., Inc. v. McKinnon, 192 B.R. 768 (Bankr. N.D. Ala. 1996). But see, American Express Centurion Bank v. Hinshaw, 199 B.R. 786 (Bankr. M.D. Fla. 1995); Southtrust Bank of Alabama v. Moody, 203 B.R. 771 (Bankr. M.D. Fla. 1996). The Carpenter court also noted that mere violation of contractual provisions in the credit agreement did not establish actual fraud.
The McKinnon court departed from the "totality of the circumstances" analysis espoused by the Carpenter court and chose instead the Common Law/Subjective analysis which characterized the used of a credit card as a promise to pay in the future which is actionable as fraud only if the debtor lacked the subjective intent to repay. The McKinnon court relies upon the instructions of the U.S. Supreme Court in Field v. Mans, 116 S. Ct. 437 (U.S. 1995), that bankruptcy courts should apply common law principles to dischargeability issues.
The courts in Florida employ a standard that a credit card debt is nondischargeable pursuant to § 523(a)(2)(A) if the debtor had no intention to repay the debt or if the debtor knew he would be unable to repay the debt. Both prongs include a mens rea element but the knowing inability to repay the debt would obviously be proven primarily by evidence of the debtor's financial condition.
The court has wide discretion in determining whether to enter a default judgment. Riehm v. Park, 272 B.R. 323 (Bankr. D.N.J. 2001); Owens-Illinois, Inc. v. Garrett, 3 B.R. 557 (Bankr. N.D. Ga. 1980). In the instant case, except for the 60-Day Charges, for which Plaintiff is entitled to rely on the presumption in § 523(a)(2)(C), the allegations in Plaintiff's complaint are insufficient to establish that Debtors lacked the present intention to repay. Accordingly, it is hereby
ORDERED that Plaintiff's motion for default judgment is granted as to $8,271.50 in 60-Day Charges. As to the remaining charges, Plaintiff's motion for default judgment is denied.
The Clerk, U.S. Bankruptcy Court, is directed to serve a copy of this order upon Plaintiff's attorney, Defendant's attorney, and the Chapter 7 Trustee.
IT IS SO ORDERED.