In re Alvi
| Decision Date | 10 January 1996 |
| Docket Number | Bankruptcy No. 95 B 3378,95 A 505 and 95 A 365. |
| Citation | 191 BR 724 |
| Parties | In re Tanvir ALVI, Debtor. AT & T UNIVERSAL CARD SERVICES, Plaintiff, v. Tanvir ALVI, Defendant. FCC NATIONAL BANK, Plaintiff, v. Tanvir ALVI, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
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Lawrence Friedman, Chicago, IL, for AT & T Universal Card Services and FCC Nat. Bank.
Edward Joseph Varga, Ruddy & Varga, Aurora, IL, for Tanvir Alvi.
Roy Safanda, Trustee, St. Charles, IL.
This matter is before the Court on the complaints of two creditors to determine whether certain credit card debts incurred by the Debtor, Tanvir Alvi, are nondischargeable under 11 U.S.C. § 523(a)(2)(A).1 The Plaintiffs presented their cases in full at a trial held December 7, 1995. After the Plaintiffs rested and before presenting his case in chief, the Debtor moved for a judgment on partial findings pursuant to Fed. R.Civ.P. 52. It is that motion which is now before the Court for determination.
The basis for the instant dischargeability proceedings is not unique. Credit card issuers routinely file adversary proceedings against individual debtors in bankruptcy cases seeking a determination that a debtor's obligations to the credit card lenders are nondischargeable due to alleged fraudulent conduct in using the credit cards. Such is the case here. After considering the legal standards now applicable to the determination of the dischargeability of credit card debt, the Court now finds: 1) Creditors who bring section 523(a)(2)(A) actions in consumer bankruptcy cases must prove that they "justifiably relied" on representations of a debtor when they extended credit; 2) the use of a credit card, in itself, does not constitute a representation or statement which is capable of being true or false; 3) Creditors must prove that a debtor had the requisite scienter. In this case, the Plaintiffs have failed to meet their burdens of proof on all elements. The Court makes a judgment on partial findings that the debts owed by the Debtor to the Plaintiffs at issue in these adversary proceedings are dischargeable in this Chapter 7 case.
The Court has jurisdiction over these matters under 28 U.S.C. § 1334(b) as matters arising under section 523(a)(2)(A) of the Bankruptcy Code. These matters are core proceedings under 28 U.S.C. § 157(b)(2)(I) relating to the dischargeability of debts. These matters are before the Court pursuant to Local Rule 2.33 of the United States District Court for the Northern District of Illinois automatically referring bankruptcy cases and proceedings to this Court for hearing and determination.2
Federal Rule of Civil Procedure 52(c),3 made applicable to bankruptcy proceedings by Federal Rule of Bankruptcy Procedure 7052, provides that the Court can enter a judgment as a matter of law at any time that the Court appropriately can make a dispositive finding. If a party has been heard fully on an issue and failed to sustain its burden of proof on that issue, the Court may find against that party on that issue, and, assuming the issue is necessary to the maintenance of the cause of action, the Court can enter judgment against that party. In making this determination, the Court should "weigh the evidence, resolve any conflicts in it, and decide for itself where the preponderance lies." Von Zuckerstein v. Argonne Nat'l Lab., 984 F.2d 1467, 1475 (7th Cir. 1993), cert. denied, ___ U.S. ___, 114 S.Ct. 419, 126 L.Ed.2d 365 (1993), citing Sanders v. General Serv. Admin., 707 F.2d 969, 971 (7th Cir.1983). If the Court denies a defendant's motion for judgment on partial findings and declines to render a judgment until the close of all of the evidence, the presentation of the case will continue. It is within the discretion of the bankruptcy court, as the trial court, to decline to render a judgment until the Court has heard all of the evidence. Internat'l Union of Operating Engineers, Local Union 103 v. Indiana Construction Corp., 13 F.3d 253 (7th Cir.1994).
The parties do not dispute the material facts. These proceedings involve two credit cards, one issued by AT & T Universal Card Services and one issued by FCC National Bank. The Debtor had credit limits of $7,500 on his AT & T credit card and $3,500 on his FCC credit card.
After paying the $1,088.18 balance on his AT & T credit card in full, the Debtor used the AT & T credit card between August 22, 1994 and October 24, 1994 to obtain cash advances at the Hollywood Casino in Aurora, Illinois, accruing $7,956.90 in debt for advances and related fees. He made one payment of $130 to AT & T on September 26, 1994.4
After paying the $1,259.98 balance on his FCC credit card in full, from October 26, 1994 through October 31, 1994 the Debtor used the FCC credit card to obtain cash advances at the Hollywood Casino in Aurora, Illinois, incurring a total of $3,776.64 in cash advances and fees.
The Debtor marginally exceeded the available limits on both credit cards. AT & T reminded the Debtor on his November 13, 1994 statement that his "minimum payment includes over limit and past due amounts" and requested immediate payment. (Plaintiff's exhibit E). While the Debtor did not remit an immediate payment as AT & T demanded, he made no further charges on his AT & T card.
The Debtor's FCC statement for the month of October, 1994 contained the following warning: (Plaintiff's Exhibit H). The Debtor did not pay FCC, nor did he make any additional charges on his FCC credit card. FCC's bill dated January 3, 1995 stated: (Plaintiff's exhibit J).
On February 21, 1995, the Debtor filed a petition under Chapter 7 of the Bankruptcy Code, listing a total of $54,202.19 in unsecured debt. It is undisputed that at least 75% of this amount was taken in the form of cash advances at casinos.
While the Debtor's gambling losses certainly were a major contributing factor to his financial problems, they were not the only source of his economic woes. The Debtor had been employed as a security officer at Central DuPage Hospital since December of 1990. He earned approximately $1,000 per month in gross wages. Transcript, p. 23. However, the Debtor was laid off from his job on September 3, 1994. Despite the layoff, the hospital continued to pay him for the next two months. The Debtor believed that he would be placed in a new position at the hospital after a paid layoff period which would last no longer than two months. He testified that he understood this to be the standard practice at the hospital. Transcript, p. 17. Unfortunately, his understanding was incorrect. He was not rehired by Central DuPage Hospital during his two month "layoff." As soon as he was aware that he would not be returning to work as he expected, he also stopped gambling.5
In December of 1994, the Debtor obtained a part time security officer position with Glen Oaks Hospital, but he still was unable to secure full-time employment. The Debtor filed a Chapter 7 petition in February of 1995. The Debtor attributed his bankruptcy to the delay in his expected reinstatement at Central DuPage Hospital. In March of 1995, J.C. Penney hired the Debtor as a full-time security guard. On May 5, 1995, Central DuPage Hospital rehired the Debtor as a van delivery driver at the same salary he had received as a security guard prior to his layoff.
The policies underlying the Bankruptcy Code require that exceptions to discharge be strictly construed against creditors and in favor of a fresh start for debtors. See Goldberg v. Scarlata, 979 F.2d 521 (7th Cir. 1992); In the Matter of Paeplow, 972 F.2d 730 (7th Cir.1992). The discharge is an essential feature to this notion of a "fresh start." In the Matter of Marchiando, 13 F.3d 1111, 1115 (7th Cir.1994), cert. denied, ___ U.S. ___, 114 S.Ct. 2675, 129 L.Ed.2d 810 (1994). In order to prevail, AT & T and FCC in their cases in chief must have established by a fair preponderance of the evidence all of the requirements of section 523(a)(2)(A). Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991).
Section 523(a)(2)(A) provides that a Chapter 7 discharge will not discharge the Debtor from any debt "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." 11 U.S.C. § 523(a)(2)(A). Section 523(a)(2)(A) lists three separate grounds for dischargeability: actual fraud, false pretenses, and false representation. However, like most other Circuit Courts of Appeals, the Seventh Circuit requires this Court to apply a single test to actions alleging actual fraud, false representation and false pretenses even though the elements of each were different under common law. See Mayer v. Spanel Internat'l Ltd., 51 F.3d 670, 674 (7th Cir.1995), cert. denied, ___ U.S. ___, 116 S.Ct. 563, 133 L.Ed.2d 488 (1995); see also Banner Oil Co v. Bryson, 187 B.R. 939 (Bankr.N.D.Ill.1995). In the early days of the Bankruptcy Code, First Nat'l Bank of Red Bud v. Kimzey, 761 F.2d 421 (7th Cir. 1985) originally provided the basis for the Seventh Circuit's single section 523(a)(2)(A) test:
First, the creditor must prove that the debtor obtained the money through representations which the debtor either knew to be false or made with such reckless disregard for the truth as to constitute...
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