Americash Loans, LLC v. Marquardt (In re Marquardt), Case No. 15–71944

• Decision Date: 29 December 2016
• Docket Number: Adversary No. 16–07008,Case No. 16–70161,Adversary No. 16–07012,Case No. 15–71944
• Citation: 561 B.R. 715
• Parties: In re David C. Marquardt, Debtor. Americash Loans, LLC d/b/a AmeriCashLoans.net, Plaintiff, v. David C. Marquardt, Defendant. In re Tanika M. McCool and Carlos K. Jones, Debtors. AmeriCash Loans, LLC, Plaintiff, v. Carlos K. Jones, Defendant.
• Court: U.S. Bankruptcy Court — Central District of Illinois

561 B.R. 715

In re David C. Marquardt, Debtor.

Americash Loans, LLC d/b/a AmeriCashLoans.net, Plaintiff,

v.David C. Marquardt, Defendant.

In re Tanika M. McCool and Carlos K. Jones, Debtors.

AmeriCash Loans, LLC, Plaintiff,

v.Carlos K. Jones, Defendant.

Case No. 15–71944

Adversary No. 16–07008

Case No. 16–70161

Adversary No. 16–07012

United States Bankruptcy Court, C.D. Illinois.

Signed December 29, 2016

Perry Perelman, Chicago, IL, for Plaintiff.

David C. Marquardt, Carlos K. Jones, Springfield, IL, pro se.

OPINION

Mary P. Gorman, United States Chief Bankruptcy Judge

Before the Court are complaints to determine the dischargeability of debts in two separate adversary proceedings brought by AmeriCash Loans, LLC ("AmeriCash"), against unrelated debtors, David C. Marquardt and Carlos K. Jones. AmeriCash claims that the loans made to Mr. Marquardt and Mr. Jones (together "Debtors") before their bankruptcy filings should be excepted from each of their discharges because of misrepresentations made by each Debtor in obtaining the loans. Because AmeriCash failed to meet its burden of proof as to either Debtor, judgment will be entered against it and in favor of the Debtors in each proceeding.

I. Factual and Procedural Background

Because the same legal issues were raised in each of these proceedings, they have been consolidated for purposes of this Opinion. Each proceeding, however, arises from a distinct bankruptcy case and involves an independent set of facts.

A. David C. Marquardt

David Marquardt signed and filed his voluntary Chapter 7 petition on December 31, 2015. According to his Statement of Financial Affairs ("SOFA") filed with his bankruptcy petition, Mr. Marquardt paid his bankruptcy attorney $1038 on June 26, 2015. In amended schedules, Mr. Marquardt listed an unsecured debt owed to AmeriCash in the amount of $1200 for what he reported was an October 2015 installment loan.

AmeriCash filed a Complaint Objecting to the Dischargeability of Indebtedness asserting that the debt owed to it by Mr. Marquardt was obtained by fraud and was therefore nondischargeable. Specifically, AmeriCash alleged that on November 14, 2015, Mr. Marquardt applied for and entered into a consumer loan agreement ("Agreement") in the amount of $1200, which was paid out to Mr. Marquardt on December 7, 2015. AmeriCash claimed that by entering into the Agreement, Mr. Marquardt represented that he intended to repay the loan. AmeriCash further claimed that it justifiably relied on Mr. Marquardt's representation and incurred damages when Mr. Marquardt failed to make any payment on the loan prior to filing bankruptcy. Attached to the complaint was the purported Agreement dated December 4, 2015, containing the typewritten name of "David Marquardt" in the signature line.

Mr. Marquardt did not respond to the complaint and AmeriCash moved for an entry of default and default judgment, which was followed by its Amended Motion for Default Judgment, Entry of Default Order and Entry of Default Judgment Order ("Default Motion"). At a hearing on the Default Motion, the Court informed AmeriCash that it would not rubberstamp a default judgment, explaining that it had a duty to independently review the sufficiency of the evidence in support of the complaint. Noting that the only alleged misrepresentation AmeriCash claimed it relied on was Mr. Marquardt's promise to repay the loan, the Court set an evidentiary hearing for August 9, 2016.

Less than a week before the scheduled evidentiary hearing, AmeriCash filed an Amended Complaint Objecting to the Dischargeability of Indebtedness ("Marquardt Amended Complaint"), again alleging that by entering into the Agreement, Mr. Marquardt represented that he would repay the loan. The Amended Complaint also asserted that Mr. Marquardt made a false representation to AmeriCash regarding his intention to file bankruptcy, which AmeriCash claims made the debt nondischargeable under § 523(a)(2)(A). In an additional count, the Amended Complaint alleged that the debt was presumed to be nondischargeable under § 523(a)(2)(C)(II) because the loan was a cash advance aggregating more than $750 that was an extension of consumer credit under an open end credit plan obtained on or within 70 days before the order for relief under the Code.¹ Attached to the Amended Complaint was a copy of the Agreement.

At the August 9th hearing, counsel for AmeriCash informed the Court that he was not prepared to put on evidence, stating instead that the Amended Complaint and attached documents spoke for themselves. The Court reminded counsel that it would not rubberstamp a default judgment and that he would need to present evidence to support AmeriCash's allegations, including evidence of how AmeriCash justifiably relied on any representations made by Mr. Marquardt. The Court also questioned whether AmeriCash could proceed on its new claim made pursuant to § 523(a)(2)(C), as debts on payday loans are not included in the definition of an "open end credit plan" that would be entitled to a presumption under the subsection. AmeriCash was given an opportunity to brief the issue and all matters were reset for evidentiary hearing on October 11, 2016.

AmeriCash subsequently filed its Memorandum of Law in Support of Plaintiff's Motion for Default Judgment, conceding that the debt in question did not meet the statutory definition of an extension of credit under an open end credit plan as is required by § 523(a)(2)(C). AmeriCash maintained, however, that the elements of § 523(a)(2)(A) were met, arguing that Mr. Marquardt misrepresented his intention to file bankruptcy in applying for and entering into the Agreement.

At the October 11th evidentiary hearing on the Default Motion and Amended Complaint, AmeriCash offered testimony from Brenda Ferguson, AmeriCash's branch manager in Springfield, Illinois. Ms. Ferguson testified that she is familiar with the application procedures for potential AmeriCash customers, and that as part of that process, such customers are required to make certain representations to AmeriCash, including whether they have filed or intend to file for bankruptcy protection. Information regarding whether an applicant has filed bankruptcy is confirmed by a search of the public records. Ms. Ferguson further testified that she had access to the customer files maintained by AmeriCash and she identified the Agreement related to Mr. Marquardt's loan. She testified that, when a loan is made, the terms and conditions are reviewed with the borrower and that she had no reason to believe that the required procedures were not followed with respect to Mr. Marquardt. One term of the Agreement is a representation that the borrower has no intention of filing a bankruptcy petition.

Although she stated that she has access to AmeriCash files, Ms. Ferguson did not testify that she had reviewed Mr. Marquardt's customer file or that she had personal knowledge of the circumstances of his loan application and approval. To the contrary, she admitted that her testimony was limited to what is normally done in the application process and not based on any knowledge whatsoever of what actually occurred in Mr. Marquardt's case.

Ms. Ferguson was asked by the Court whether she had a copy of the Agreement with Mr. Marquardt's actual signature on it. In response, she stated that he had applied online and that a customer service representative would have called Mr. Marquardt as part of the loan process and read the terms of the Agreement to him. AmeriCash's attorney asserted that under Illinois law, electronic signatures are valid. When asked for any evidence that Mr. Marquardt had, in fact, signed the Agreement electronically, however, he produced no further documents or testimony.

At the close of testimony, the Agreement was admitted into evidence. AmeriCash's attorney stated that he would rely on his previously filed memorandum of law and submitted no closing argument. Mr. Marquardt was present in the courtroom during the hearing but did not participate in the hearing.

B. Carlos K. Jones

Carlos K. Jones and Tanika M. McCool filed their voluntary Chapter 7 petition on February 10, 2016. According to the SOFA filed with their petition, Mr. Jones and Ms. McCool had paid their bankruptcy attorney $365 within one year before filing for bankruptcy, although the date of the payment was not indicated. They also listed an unsecured nonpriority debt owed to AmeriCash in the amount of $720, which was described as a payday loan. Their schedules do not indicate when the debt was incurred.

AmeriCash filed a Complaint Objecting to the Dischargeability of Indebtedness against Mr. Jones ("Jones Complaint"). In the Jones Complaint, AmeriCash alleged that the debt owed to it by Mr. Jones was obtained by fraud and was therefore nondischargeable under § 523(a)(2)(A) and (C). Specifically, AmeriCash alleged that, on December 21, 2015, Mr. Jones applied for and entered into a consumer loan agreement ("Agreement") in the amount of $2500, representing to AmeriCash that he intended and was able to repay the loan. AmeriCash further claimed that it justifiably relied on Mr. Jones' representations and incurred damages when Mr. Jones failed to make any payment on the loan prior to filing for bankruptcy. In addition to claiming that the debt was nondischargeable under § 523(a)(2)(A), AmeriCash also asserted that the debt was presumptively nondischargeable under § 523(a)(2)(C)(II) because it was a cash advance aggregating more than $750 that was an extension of consumer credit under an open end credit plan obtained on or within 70 days before the order for relief under the Code.² Mr. Jones did not respond to the Complaint.

At an August 9, 2016 status hearing, the Court expressed the same concerns raised in the Marquardt proceeding about AmeriCash's status as a payday lender and whether it would be able to proceed on a cause of action under § 523(a)(2)(C). The Court questioned whether a payday loan could be an "open end credit plan" as...