In re Akdogan

• Decision Date: 15 January 1997
• Docket Number: Adv. No. 196-1135-353.,Bankruptcy No. 195-18940-353
• Citation: 204 BR 90
• Parties: In re Melih Akdogan, Debtor. AT & T UNIVERSAL CARD SERVICES CORP., Plaintiff, v. Melih AKDOGAN, Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of New York

204 B.R. 90 (1997)

In re Melih Akdogan, Debtor.

AT & T UNIVERSAL CARD SERVICES CORP., Plaintiff, v. Melih AKDOGAN, Defendant.

Bankruptcy No. 195-18940-353, Adv. No. 196-1135-353.

United States Bankruptcy Court, E.D. New York.

January 15, 1997.

Teitelbaum, Braverman & Borges P.C., by Leslie Scharf, New Hyde Park, New York, for Plaintiff AT & T Universal Card Services Corp.

Law Office of Richard G. Gertler, L.L.P. by Richard V. Kanter, Garden City, New York, for Debtor.

DECISION ON DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

JEROME FELLER, Bankruptcy Judge.

INTRODUCTION

Before the court for decision is defendant's motion for summary judgment in an adversary proceeding commenced by AT & T Universal Card Services Corp. ("AT & T" or "Plaintiff") against the debtor, Melih Akdogan ("Debtor" or "Defendant"), seeking to have the Debtor's debt to it declared nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(A). The subject debt, in the amount of $7,636.36, arose from the Debtor's use of Plaintiff's unsolicited and pre-approved credit card and included $6,000.00 of obligations incurred by the Debtor a few months before his filing this chapter 7 case. The Debtor contends that Plaintiff cannot prove certain elements essential to its lawsuit, namely, that the Debtor made any misrepresentation to the Plaintiff upon which it relied, thus warranting summary judgment in his favor pursuant to Fed.R.Civ.P. 56(c). The Debtor also moves for summary judgment on his counterclaim seeking costs and attorney's fees in defense of this lawsuit pursuant to 11 U.S.C. § 523(d), a lawsuit he insists was not "substantially justified". In response, Plaintiff seems to argue that it is entitled to proceed to trial based solely on the issue of the Debtor's intent and that it has otherwise set forth sufficient evidence of those elements of its claim which the Debtor contends are absent.

Upon consideration of the facts before us as well as applicable law, we find the Debtor has set forth a cognizable basis for summary judgment in his favor pursuant to Fed. R.Civ.P. 56(c) with respect to Plaintiff's nondischargeability lawsuit, to which Plaintiff has failed to adequately respond. Accordingly, and for the reasons set forth below, that portion of his summary judgment motion is granted. However, the Debtor's request for summary judgment with respect to his counterclaim is denied.

FACTS

The debtor-creditor relationship at issue in this adversary proceeding began in April of 1991, when AT & T informed the Debtor, by mail, that his use of the AT & T Universal Card had been "pre-approved" up to a credit limit of $5,000.00. This mailing by AT & T was unsolicited by the Debtor. According to the transmittal, all the Debtor need do to take advantage of this credit opportunity was provide AT & T with certain minimal information. For the most part the Debtor complied, providing AT & T with his name, annual income ($28,000.00), home and work phone numbers, mother's maiden name and signature.¹ AT & T did not request any information relating to the Debtor's expenses, assets, nature of employment or business, health, home ownership, credit references or general financial condition. On or about September 1, 1991, the Debtor received his AT & T Universal Card (the "Credit Card").

During the next three (3) years the Debtor regularly used the Credit Card, making at least the minimum monthly payments and often paying in full bills amounting to several hundred dollars or more. Again unsolicited, the Debtor's credit limit was increased to $8,500.00 from the original $5,000.00. In or around December of 1994, the Debtor's usage of the Credit Card and payment patterns began to change. Between that time and August of 1995, the Debtor made six (6) purchases with his Credit Card totaling $1,566.00, while at the same time making only minimal payments to the Plaintiff. In August of 1995, the Debtor on two separate occasions requested of the Plaintiff and was granted convenience checks in the amount of $3,000.00 each, virtually exhausting his credit. An additional request that month for a convenience check in the amount of $4,000.00 was denied by AT & T. The Debtor made minimum payments in August and September and filed his chapter 7 case on October 19, 1995. Apart from the request only for the Debtor's income at the time of the issuance of the unsolicited and pre-approved Credit Card, there is no cognizable evidence whatsoever that any inquiry was made by AT & T to establish the creditworthiness or financial condition of the Debtor, either before or at any time after the Credit Card was initially issued. Schedule F, annexed to the Debtor's chapter 7 petition listed unsecured debt of over $70,000.00, consisting entirely and exclusively of credit card debt incurred in the use of eighteen (18) different credit cards.

THE LAWSUIT AND THE POSITIONS OF THE PARTIES

On January 30, 1996, Plaintiff commenced this adversary proceeding by filing a complaint seeking to have the $7,636.36 debt owing it declared nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(A). Section 523(a)(2)(A) provides that:

(a) a discharge under section 727 . . . of this title does not discharge an individual debtor from any debt —

* * * * * *

(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by —

(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor\'s or an insider\'s financial condition. . . .

Typical of the generic allegations contained in AT & T's complaint are that the Debtor incurred the subject debt to Plaintiff with no intent and no realistic future possibility to repay it (Compl. ¶¶ 7, 8), that the Debtor specifically intended to defraud Plaintiff and that the Debtor's actions constituted a material misrepresentation that the charges would be repaid, upon which Plaintiff reasonably relied. (Compl. ¶¶ 5, 9-11). In his answer, filed May 17, 1996, the Debtor admitted incurring the charges at issue, but denied the other essential substantive allegations in the complaint. The Debtor also counterclaimed under 11 U.S.C. § 523(d) for costs and attorney's fees in defending the litigation, claiming the lawsuit was not "substantially justified." (Ans. ¶ 13).²

A brief period of discovery ensued during which both sides exchanged documents and interrogatories were served and answered, but Debtor was never deposed. On September 18, 1996, the Debtor moved for summary judgment pursuant to Fed.R.Civ.P. 56, made applicable hereto by Fed.R.Bankr.P. 7056 (the "Summary Judgment Motion").

The Summary Judgment Motion is based on the proposition that Plaintiff cannot prove certain elements necessary to prevail in a nondischargeability lawsuit under § 523(a)(2)(A). First, the Debtor argues that it is undisputed he made no express misrepresentation to Plaintiff and, for various reasons, Plaintiff's theory of implied misrepresentation by the Debtor of intent and/or ability to repay the charges when incurred should be rejected. Further, assuming the court does find that the Debtor made an implied misrepresentation, Debtor contends that Plaintiff's failure to conduct a credit check prior to or after issuing the card, or to otherwise monitor his account, precludes a finding of any reliance thereon, let alone reliance that is justifiable or reasonable.

Plaintiff's opposition to the Summary Judgment Motion is somewhat garbled and difficult to decipher and makes much of the Debtor's intent which, it argues, is an inherently factual issue unsuitable for summary judgment. Plaintiff also takes umbrage with certain of the Debtor's factual assertions, specifically, that Plaintiff never inquired into the Debtor's creditworthiness or otherwise monitored his account.

DISCUSSION

We observe at the outset that there is a dispute between the parties as to what elements are necessary to sustain a credit card nondischargeability lawsuit under § 523(a)(2)(A). However, there can be no dispute as to which party bears the burden of proving those elements. A fundamental objective of bankruptcy law is to provide a fresh start for the honest but unfortunate debtor which is manifested by the general policy of discharge of a debtor's indebtedness. See Grogan v. Garner, 498 U.S. 279, 286-87, 111 S.Ct. 654, 659-60, 112 L.Ed.2d 755 (1991) (citing Local Loan Co. v. Hunt, 292 U.S. 234, 244, 54 S.Ct. 695, 699, 78 L.Ed. 1230 (1934)). Accordingly, while certain categories of debt are excepted from discharge (see 11 U.S.C. § 523), the burden of proving by a preponderance of the evidence facts constituting such an exception falls on the party alleging it. Grogan, 498 U.S. at 283, 287, 111 S.Ct. at 657, 659-60; see also First Am. Bank of N.Y. v. Bodenstein (In re Bodenstein), 168 B.R. 23, 28 (Bankr.E.D.N.Y. 1994); Hudson Valley Water Resources, Inc. v. Boice (In re Boice), 149 B.R. 40, 43-44 (Bankr.S.D.N.Y.1992); Schwalbe v. Gans (In re Gans), 75 B.R. 474, 482 (Bankr.S.D.N.Y. 1987). In this case that party is the Plaintiff, AT & T.

This allocation of the underlying burden of proof is crucial to our analysis of the Debtor's Summary Judgment Motion. Fed. R.Civ.P. 56, made applicable to adversary proceedings by Fed.R.Bankr.P. 7056 provides, in pertinent part:

The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.

Fed.R.Civ.P. (c) (emphasis added). Where, as here, the party moving for summary judgment does not bear the underlying burden of proof, all he need do to properly formulate his motion is demonstrate the absence of evidence with respect to any essential element of the non-moving party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986). It is...