Discover Bank v. Warren (In re Warren)
| Decision Date | 21 February 2013 |
| Docket Number | No. 4:12–cv–01541–RBH.,4:12–cv–01541–RBH. |
| Citation | 486 B.R. 704 |
| Parties | In re Sybil Smith WARREN, Debtor. Discover Bank, Appellant, v. Sybil Smith Warren, Appellee. |
| Court | U.S. District Court — District of South Carolina |
OPINION TEXT STARTS HERE
Kenneth Steven Jannette, Weinstein and Riley, New York, NY, for Appellant.
Henry Flynn Griffin, III, H. Flynn Griffin Law Office, Irmo, SC, for Appellee.
This matter comes before the Court on the appeal of Appellant Discover Bank (“Discover”) from an order issued by the United States Bankruptcy Court for the District of South Carolina. The parties briefed their arguments pursuant to the schedule issued by this Court. For the reasons set forth below, the Court hereby reverses the bankruptcy court's order dismissing Discover's Amended Complaint and remands this matter for further proceedings. 1
Appellee Sybil Smith Warren (“Ms. Warren”) filed her bankruptcy case on November 4, 2011. According to bankruptcy schedules filed by Ms. Warren, she had no disposable income.2 The schedules filed by Ms. Warren also reflected $188,272.00 of secured debt via two mortgages and $39,689.00 of unsecured debt comprised entirely of amounts owed on credit cards. Included in the credit card debt was a $5,401.00 debt to Discover.
Discover ultimately commenced an adversary proceeding in the bankruptcy court on January 4, 2012, seeking a determination that its debt was nondischargeable pursuant to the Bankruptcy Code. Ms. Warren initially moved to dismiss the adversary proceeding, and while the bankruptcy court granted her motion it allowed Discover to file an amended complaint. On March 15, 2012, Discover filed its Amended Complaint, prompting Ms. Warren to again file a Motion to Dismiss.
Discover's Amended Complaint alleges that Ms. Warren accumulated $4,036.00 in nondischargeable debts—purchases on her Discover credit card within the ninety-day period before Ms. Warren filed her bankruptcy petition. Discover alleged that the debt was obtained by false representation, and that the purchases were for luxury goods.
The bankruptcy court held that Discover's Amended Complaint failed to state a claim for nondischargeability. Specifically, the court held that the Amended Complaint did not sufficiently allege justifiable reliance by Discover on Ms. Warren's supposed false representation, and that the Amended Complaint did not sufficiently allege a luxury purchase. This appeal followed.
A district court has jurisdiction to hear appeals from final orders issued by a bankruptcy court. 28 U.S.C. § 158(a)(1) (2006). A bankruptcy court's findings of fact shall not be set aside unless clearly erroneous. Fed. R. Bankr.P. 8013. This Court reviews a bankruptcy court's conclusions of law, including dismissal under Rule 12(b)(6), de novo.See Goldman v. Capital City Mortg. Corp. (In re Nieves), 648 F.3d 232, 237 (4th Cir.2011) ); see also Kendall v. Balcerzak, 650 F.3d 515, 522 (4th Cir.2011).
Federal Rule of Civil Procedure 12(b)(6) governs motions to dismiss for “failure to state a claim upon which relief can be granted.” See alsoFed. R. Bankr.P. 7012 (). The purpose of such a motion is to test the sufficiency of the facts alleged in a claim set forth in a pleading. See Edwards v. City of Goldsboro, 178 F.3d 231, 243 (4th Cir.1999).
A complaint must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). While this standard “does not require ‘detailed factual allegations,’ ... [a] pleading that offers ‘labels and conclusions,’ or ‘a formulaic recitation of the elements of a cause of action will not do.’ ” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). Likewise, “a complaint [will not] suffice if it tenders ‘naked assertion[s]’ devoid of ‘further factual enhancement.’ ” Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (quoting Twombly, 550 U.S. at 557, 127 S.Ct. 1955). Rather, to survive a Rule 12(b)(6) motion to dismiss, the “[f]actual allegations must be enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555, 127 S.Ct. 1955.
The United States Supreme Court recently stated that
[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to “state a claim to relief that is plausible on its face.” A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.
Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955). When ruling on a motion to dismiss, the Court “must accept as true all of the factual allegations contained in the complaint.” Erickson v. Pardus, 551 U.S. 89, 94, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007).3
On appeal, Discover challenges the bankruptcy court's findings that the Second Amended Complaint did not sufficiently allege justifiable reliance or a luxury purchase.4
Under 11 U.S.C. § 523(a)(2), debt cannot be discharged in a bankruptcy proceeding if it was obtained by “false pretenses, a false representation, or actual fraud....” See Lind Waldock & Co. v. Morehead, 1 Fed.Appx. 104, 107 (4th Cir.2001). To establish a prima facie case of nondischargeability under § 523(a)(2)(A), a creditor must prove the following elements by a preponderance of the evidence: “ ‘(1) the debtor made representations; (2) knowing them to be false; (3) with the intent and purpose of deceiving [the creditor]; (4) upon which representations [the creditor] actually and justifiably relied; and (5) which proximately caused the alleged loss or damage sustained by [the creditor].’ ” Am. Gen. Fin. Servs., Inc. v. Rowell (In re Rowell), 440 B.R. 117, 119 (Bankr.D.S.C.2010) (quoting Am. Express Centurion Bank v. Truong (In re Thanh V. Truong), 271 B.R. 738, 742 (Bankr.D.Conn.2002)); see also Lind Waldock, 1 Fed.Appx. at 107.
A creditor can also create a rebuttable presumption of nondischargeability by showing that a debtor purchased luxury goods under certain circumstances. Under § 523(a)(2)(C), debts “aggregating more than $600 for luxury goods or services” are presumed nondischargeable if they are “owed to a single creditor and incurred by an individual debtor on or within 90 days before” filing for bankruptcy. 11 U.S.C. § 523(a)(2)(C)(i)(II); see also Lind Waldock, 1 Fed.Appx. at 107.
As to a prima facie case of fraud under § 523(a)(2)(A), the bankruptcy court held that the Amended Complaint failed to properly allege justifiable reliance—finding that Discover did not properly allege that it relied on Ms. Warren's representations that she intended to pay the incurred charges. This Court reverses the bankruptcy court on this issue, as it finds that the Amended Complaint sufficiently alleges justifiable reliance.
It is true that in one paragraph of the Amended Complaint, Discover alleges simply that it “justifiably relied on [Ms. Warren's] representations.” [R., Doc. # 2–5, at ¶ 12.] However, “a court must ‘consider the complaint in its entirety’ when ruling on a Rule 12(b)(6) motion to dismiss....” Harman v. Unisys Corp., 356 Fed.Appx. 638, 641 (4th Cir.2009) (quoting Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007)). As a whole, the Amended Complaint alleges that Ms. Warren represented an intent to repay amounts charged on the card [R., Doc. # 2–5, at ¶ 11]; that Ms. Warren made these representations falsely [ id. at ¶ 14]; that Ms. Warren had no ability or intent to repay the amounts charged [ id. at ¶¶ 9.8, 13]; and that Discover extended Ms. Warren credit during this time period [ id. at ¶¶ 6–11].
Accepting Discover's factual assertions as true, the Amended Complaint alleges that Ms. Warren falsely represented she planned to pay Discover, and that Discover, having no reason to believe Ms. Warren would not pay, extended her credit. The Amended Complaint not only alleges “[f]actual allegations ... rais [ing] a right to relief above the speculative level”, Twombly, 550 U.S. at 555, 127 S.Ct. 1955, it also states with particularity the circumstances constituting Discover's claim that it “justifiably relied on [Ms. Warren's] representations” [ id. at ¶ 12]. See alsoFed.R.Civ.P. 9(b).
In granting the Motion to Dismiss, the bankruptcy court relied on Field v. Mans, 516 U.S. 59, 116 S.Ct. 437, 133 L.Ed.2d 351 (1995), to hold that courts have held that to show reliance, a card issuer must present some evidence to show what information was available to the issuer at the time the charges were accepted. [R., Doc. # 2–8, at 5.] However, as the bankruptcy court itself explained, cases like Field also “deal with the evidence presented at trial, and the issue here is sufficiency of the pleading.” [ Id. (emphasis added).] See also FCC Nat'l Bank v. Willis (In re Willis), 190 B.R. 866, 870 (Bankr.W.D.Mo.1996) ().
Moreover, the Fourth Circuit has explained that Field emphasizes the “the minimal threshold presented by justifiable reliance....” Lardner v. Biondo (In re Biondo), 180 F.3d 126, 135 (4th Cir.1999) (citing Field, 516 U.S. at 70, 116 S.Ct. 437). In In re Biondo, the bankruptcy court found the plaintiff had proven justifiable reliance after a hearing on the matter. Id. at 134. The Fourth Circuit affirmed, relying on Field to hold that the plaintiff “was not required to inspect ... financial statements and was instead justified...
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