Household Credit Services, Inc. v. Walters
| Decision Date | 02 May 1997 |
| Docket Number | 96-2017.,Bankruptcy No. 96-50613,Adv. No. 96-5042,96-20434 |
| Citation | 208 BR 651 |
| Parties | HOUSEHOLD CREDIT SERVICES, INC., Plaintiff, v. John Haywood WALTERS, Angela C. Walters, Defendants. HOUSEHOLD CREDIT SERVICES, INC., Plaintiff, v. Winifred P. DAVIS, Defendant. |
| Court | U.S. Bankruptcy Court — Western District of Louisiana |
D. Patrick Keating, Opelousas, LA, for Household Credit.
Daniel Landry, Lafayette, LA, for John and Angela Walters.
Reuvan Rougeau, Lake Charles, LA, for Winifred Davis.
These two adversary proceedings contain virtually identical fact patterns and legal issues, and the court therefore determines that a joint opinion is appropriate.
The court has jurisdiction over each of these proceedings pursuant to the provisions of 28 U.S.C. § 1334. The cases have been referred to this court by the Standing Order of Reference entered in this district which is set forth as Rule 22.01 of the Local Rules of the United States District Court for the Western District of Louisiana. No party in interest has requested a withdrawal of the reference. The court finds that each case is a core proceeding pursuant to 28 U.S.C. § 157(b)(2).
These Reasons for Decision constitute the Court's findings of fact and conclusions of law pursuant to Rule 7052, Federal Rules of Bankruptcy Procedure ("FRBP").
On May 1, 1996, John Haywood Walters and Angela C. Walters ("Walters") filed a voluntary petition for relief under chapter 7 of the Bankruptcy Code, and on that day an order for relief was duly entered. This adversary proceeding was commenced by Household Finance Company, Inc. ("HFC"), a creditor of the Walters, who requested a determination of the dischargeability of Walters' debt to HFC in accordance with the provisions of 11 U.S.C. § 523(a)(2)(A).
Trial was held on March 26, 1997. After hearing the evidence and argument of counsel, and upon receiving post trial memorandum, the matter was deemed taken under advisement.
HFC, or its predecessor, issued a credit card to Mrs. Walters on or about October 4, 1992, which was prior to her marriage to Mr. Walters. There were normal charges and payments made on the account over the next several years. The credit limit established by HFC was never exceeded by Mrs. Walters and, until just before bankruptcy, the account was never in default.
The Walters began suffering financial difficulties in mid-1995, soon after Mrs. Walters stopped working in order to care for her newborn son. She testified that she used the HFC card to obtain cash advances in order to meet the living expenses of her family — this included making monthly payments on the HFC card as well as other credit cards.
The schedules filed by the Walters reflect that they owed money on 13 other credit cards in the approximate amount of $44,000.
Winifred P. Davis ("Davis") filed a voluntary petition for relief under chapter 7 of the Bankruptcy Code, on May 23, 1996, and on that day an order for relief was duly entered. HFC was also a creditor of Davis, and filed an adversary proceeding alleging that her debt to HFC should be held nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(A).
Trial was held on March 20, 1997. After hearing the evidence and argument of counsel, and upon receiving post trial memorandum, the matter was deemed taken under advisement.
The HFC credit card was issued to Davis on or about February 25, 1995. The card was issued based upon a pre-approved and unsolicited invitation sent to her by HFC. She made regular monthly payments on the account, usually in excess of the minimum payment due. Her credit limit was not exceeded until a cash advance was made in April of 1996.
She testified that the majority of the charges made on the card were made for the benefit of her two major children and grandchildren. Ms. Davis further testified that she had numerous other credit cards and used them in substantially the same manner in which she used the HFC card. The schedules filed in Davis' bankruptcy proceeding indicate that she owed balances on six other credit cards totaling approximately $31,000.
A substantial and uniform body of jurisprudence has established the following as the elements of proof a plaintiff/creditor must adduce in order to satisfy nondischargeability of debt under section 523(a)(2)(A):
In re Bercier, 934 F.2d 689 (5th Cir.1991); RecoverEdge L.P. v. Pentecost, 44 F.3d 1284 (5th Cir.1995).
In section 523(a)(2)(A) cases involving use of credit cards, the jurisprudence suggests that the debtor's misrepresentations occur at one of two points in time — when the card is initially obtained, as in In re Shaw, 172 B.R. 665 (Bkrtcy.M.D.Fla.1994), or when the card is used to make charges, as in In re Anastas, 94 F.3d 1280 (9th Cir.1996). If the former, the representation must have actually been made. Matter of Carpenter, 53 B.R. 724 (Bkrtcy.N.D.Ga.1985). If the latter, however, the representation is deemed to be implied —that is, each time the card is used, the debtor impliedly represents to the issuer that the user intends to pay for the charge and, in addition, has the present ability to make such payment. In re Hashemi, 104 F.3d 1122 (9th Cir.1996).
Having heard the testimony of Mesdames Walters and Davis, and in light of the current jurisprudence surrounding credit card cases under section 523(a)(2)(A), the court easily concludes that each1 made implied representations to HFC regarding repayment of the charges as they were being incurred, the representations were knowingly false when made, and that HFC incurred damages as a result thereof.
Unfortunately for HFC, however, proof of conduct on the part of the debtor is a case under section 523(a)(2)(A) is, standing alone, insufficient to carry the day. The statute and the jurisprudence thereunder require plaintiff to prove its reliance upon the debtor's misrepresentations. In these cases, HFC failed to introduce any evidence of such reliance, and no presumption exists which excuses this failure of proof.
Section 523(a)(2)(A) is not only silent with respect to the level of creditor reliance upon the debtor's representations, the statute makes no mention of any requirement of reliance whatsoever. Notwithstanding such silence, however, the Supreme Court held in Field v. Mans, ___ U.S. ___, 116 S.Ct. 437, 133 L.Ed.2d 351 (1995), that section 523(a)(2)(A) requires actual and justifiable reliance by the creditor on the misrepresentation. The Court went on to state that while a reasonable reliance standard is not required under section 523(a)(2)(A), the concept of reasonableness is relevant:
As for the reasonableness of reliance, our reading of the Act does not leave reasonableness irrelevant, for the greater the distance between the reliance claimed and the limits of the reasonable, the greater the doubt of reliance in fact. Naifs may recover, at common law and in bankruptcy, but lots of creditors are not at all naive. The subjectiveness of justifiability cuts both ways, and reasonableness goes to the probability of actual reliance.
___ U.S. at ___, 116 S.Ct. at 446.
Consequently, in credit card cases, the plaintiff must establish justifiable reliance upon the debtor's representations when such representation is made, which, as stated above, may occur either when the credit card was issued or when the particular charge was made. This proof, however, must be related to actions and conduct of the plaintiff, not of the defendant.
Proof of justifiable reliance on representations made when the card is issued may be satisfied when the plaintiff comes forth with proof of the circumstances surrounding the issuance of the card, such as, the issuer's procedures for reviewing the application, including the method of review of the applicant's creditworthiness. In instances where pre-approved cards are issued, however, card issuers apparently desire to avoid the considerable expense of determining creditworthiness prior to the issuance of the card, and spew the cards out basically upon getting the party's name, address, and some scant information about employment (if any is obtained at all). Issuers obviously have made a business decision regarding...
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