Opinion
Case No. 00-10422, Adversary Case No. 00-1048
March 15, 2001
MEMORANDUM OF DECISION
This adversary proceeding is before the Court following a trial on a complaint to determine the dischargeability of a debt. Linda Numrich ("Mrs. Numrich") negotiated an $817.00 check to Greater Cincinnati School Employees Credit Union ("GCSECU") as final payment on one of multiple loans with GCSECU. The check was returned to GCSECU for insufficient funds. The issue before the Court is whether $817.00 of the total debt owed by the Debtors to GCSECU is nondischargeable, pursuant to 11 U.S.C. § 523(a)(2)(A), because the check bounced. The Court holds that the $817.00 debt is subject to discharge given that GCSECU failed to prove: (1) it relied on a representation, if any, made by Mrs. Numrich; and (2) Mrs. Numrich intended to deceive GCSECU. For these reasons, judgment will be awarded in favor of the Debtors and the complaint of GCSECU will be dismissed.
To prevail under § 523(a)(2)(A), a creditor must establish the following elements: (1) the debtor obtained money, property, services, or an extension, renewal, or refinancing of credit; (2) through a material misrepresentation that, at the time, the debtor knew was false or made with gross recklessness as to its truth; (3) the debtor intended to deceive the creditor; (4) the creditor justifiably relied on the false representation; and (5) its reliance was the proximate cause of loss. Rembert v. ATT Universal Card Servs., Inc. (In re Rembert), 141 F.3d 277, 280-81 (6th Cir. 1998), cert. denied, 525 U.S. 978 (1998). The creditor must prove these elements by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 291 (1991). As courts weigh the evidence, the exceptions to discharge are to be strictly construed against the creditor. Manufacturer's Hanover Trust Co. v. Ward (In re Ward), 857 F.2d 1082, 1083 (6th Cir. 1988).
When a § 523(a)(2)(A) action is predicated upon an NSF check, courts have split as to whether the check, by itself, constitutes a misrepresentation. See Tusco Grocers, Inc. v. Coatney (In re Coatney), 185 B.R. 546 (Bankr. N.D. Ohio 1995) (holding that the issuance of an NSF check, by itself, is insufficient proof of a misrepresentation under § 523(a)(2)(A)). This court has previously followed the Coatney line of decisions. See Baldwin Oil and Tire v. Poole (In re Poole), Ch. 7 Case No. 96-11806, Adv. No. 97-1041, slip op. (Bankr. S.D. Ohio Oct. 20, 1998); accord Buckeye Candy Co. v. Ritzer (In re Ritzer), 105 B.R. 424 (Bankr. S.D. Ohio 1989) (Cole, J.).
The Debtors financed the purchase of a 1998 Isuzu Trooper through GCSECU. Thereafter, the vehicle was totaled in an accident. The vehicle was insured by Nationwide Mutual Insurance Company ("Nationwide"). Nationwide sent a "Letter of Guarantee" to GCSECU, stating that Nationwide would tender a $20,500.00 check to GCSECU on the condition that GCSECU release its lien and forward the title to Nationwide. At that time, the outstanding balance on the loan was $21,700.75. As a policy, GCSECU does not release a lien until the entire balance on the loan is paid. To pay off the loan, the Debtors obtained a $1,000.00 advance on a credit card account with GCSECU and Mrs. Numrich negotiated the $817.00 check at issue. The following day, GCSECU signed the "Letter of Guarantee," agreeing to release its lien. The check was later returned for insufficient funds. The sole witness at trial, GCSECU collectionsofficer MikeNewburger ("Mr. Newburger"), testified that the Debtors made no representations, oral or otherwise, that induced GCSECU to take any action.
The total funds paid by the Debtors ($1,817.00) exceeds the outstanding balance on the Trooper loan after insurance ($1,200.75) because a portion of the funds were applied to a separate auto loan with GCSECU. The memo line on the check contains the following: "$321.92 to loan 143" and "paid in full." Loan 143 is the Isuzu Trooper auto loan.
Based upon the record, the Court concludes that GCSECU failed to sustain its burden of proof concerning, at the very least, the elements of reliance and intent. Before addressing the reliance element, however, it is necessary to isolate the alleged representation. This Court follows the majority position that some form of representation beyond the mere existence of an NSF check is necessary under § 523(a)(2)(A). See supra note 1. The only proof in the record of a possible representation by the Debtors beyond the standard components of the $817.00 check is the notation on the memo line that provides: "$321.92 to loan 143" and "paid in full." Even if the notation constitutes a representation under § 523(a)(2)(A), a determination the Court need not and does not make, GCSECU did not rely on the notation.
Mr. Newburger testified on direct examination that GCSECU would not have released its lien unless the auto loan was paid in full. This testimony, however, does not necessarily persuade the Court that GCSECU relied upon the memo line of the check. It is quite possible that GCSECU relied upon the amount of the check only, which does not constitute a representation under the majority of decisions construing § 523(a)(2)(A) within the context of an NSF check. The record contains no express proof that GCSECU relied upon the memo line of the check when it decided to release the lien. To the contrary, Mr. Newburger testified on cross-examination that the Debtors made no representations, oral or otherwise, that induced GCSECU to take any action. This testimony was not countered on redirect. Construing the evidence of reliance strictly against GCSECU, the Court concludes that it did not sustain its burden with respect to this element.
As to the element of intent, GCSECU was required to prove that the Debtors possessed a subjective intent to deceive. See Rembert, 141 F.3d at 281. Because debtors are not likely to admit an intent to deceive, subjective intent may be inferred from the totality of the circumstances. Id. at 282. However, if there is room for an inference of honest intent, the issue of intent must be resolved in favor of the debtor. Rembert v. Citibank South Dakota, N.A., 219 B.R. 763, 767 (E.D. Mich. 1996), aff'd, Rembert, 141 F.3d 277; Ritzer, 105 B.R. at 428. The Debtors were not called to testify at trial. The only circumstantial evidence of intent proffered by GCSECU is the mere fact that the check was returned for insufficient funds. On the other hand, there exists persuasive circumstantial evidence of a lack of intent to deceive. If the Debtors intended to deceive GCSECU by passing a bad check to obtain a release of the lien, then why did the Debtors incur $1,000.00 of debt on a credit card advance to finance part of the payoff instead of negotiating a check for $1,817.00? Moreover, Mr. Newburger testified that the Debtors never bounced a check on prior payments to GCSECU. Given that the record leaves room for an inference of honest intent and exceptions to discharge are to be strictly construed against the creditor, the Court concludes that GCSECU failed to sustain its burden of proof on the element of intent.
For the foregoing reasons, the debt of Grant W. Numrich and Linda M. Numrich to Greater Cincinnati School Employees Credit Union is subject to discharge. The complaint (Doc. 1) filed by Greater Cincinnati School Employees Credit Union on April 7, 2000, will be DISMISSED. A judgment to this effect will be entered.