In re Cirineo

• Decision Date: 22 February 1990
• Docket Number: Adv. No. 89-1168S.,Bankruptcy No. 89-12964S
• Citation: 110 BR 754
• Parties: In re William Joseph CIRINEO and Heidi J. Cirineo, a/k/a Heidi Weinberg, Debtors. MANUFACTURERS HANOVER TRUST COMPANY, Plaintiff, v. Heidi J. CIRINEO a/k/a Heidi Weinberg, Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

110 B.R. 754 (1990)

In re William Joseph CIRINEO and Heidi J. Cirineo, a/k/a Heidi Weinberg, Debtors MANUFACTURERS HANOVER TRUST COMPANY, Plaintiff, v. Heidi J. CIRINEO a/k/a Heidi Weinberg, Defendant.

Bankruptcy No. 89-12964S, Adv. No. 89-1168S.

United States Bankruptcy Court, E.D. Pennsylvania.

February 22, 1990.

Noah Gorson, Gorson & Gorson, P.C., Philadelphia, Pa., for plaintiff.

Arthur P. Liebersohn, Philadelphia, Pa., trustee.

Matthew H. Krekstein, Schwartz & Krekstein, Philadelphia, Pa., for debtors.

OPINION

DAVID A. SCHOLL, Bankruptcy Judge.

A. INTRODUCTION

The instant proceeding requires us to address the issue of dischargeability of a large (over $5,000) indebtedness accumulated by a debtor on the account of an unsolicited but accepted credit card in a very short period (16 days). We hold that, only if the lack of intention of the debtor to repay is proven by clear and convincing evidence or indebtednesses were accumulated after the debtor knew or should have known that the limit of the credit line was exceeded are debts on such a credit card non-dischargeable.

Applied to the instant facts, we find a lack of proof of an intention of the Wife-Debtor not to repay the indebtedness in issue in light of the efforts of her and her husband to obtain an equity loan to repay their credit-card debt before consulting bankruptcy counsel to file their instant bankruptcy case. We also find that only a $23.72 purchase was made after the Wife-Debtor knew or should have known that her credit-line was exhausted. Therefore, only $23.72 of the debt in issue is determined to be non-dischargeable.

B. PROCEDURAL HISTORY

The Debtors, WILLIAM JOSEPH CIRINEO (hereinafter "the Husband") and HEIDI J. CIRINEO (hereinafter "the Wife") (collectively the Husband and the Wife shall be referred to as "the Debtors"), filed a joint voluntary Chapter 7 bankruptcy case on August 11, 1989. The only matter of consequence filed in the case to date has been the instant adversary proceeding, filed on December 19, 1989, by MANUFACTURERS HANOVER TRUST CO. (hereinafter "the Plaintiff), against the Wife only.

The matter was listed for trial on February 6, 1990. The Plaintiff appeared with a witness from Long Island, New York. The Husband appeared and stated that the Wife was presently hospitalized and unavailable until the following week. We gave the Plaintiff the option of returning to try the entire matter in the next week or commencing its case with the understanding that the Wife would be available in a supplement to the trial in the next week. The Plaintiff chose to proceed by calling its witness, Anthony Galluzzi (hereinafter "Galluzzi"), and, to the surprise of the Debtors and their counsel, the Husband, as its own witness.

At the conclusion of the testimony on February 6, 1990, the Debtors moved for an involuntary dismissal of the proceeding pursuant to Bankruptcy Rule (hereinafter "B.Rule") 7041 and Federal Rule of Civil Procedure (hereinafter "F.R.Civ.P.") 41(b). See In re Fitzgerald, 73 B.R. 923, 924 (Bankr.E.D.Pa.1987). The motion was denied. The matter was relisted on February 15, 1990, at which time the Wife testified. The Plaintiff's opportunity to call the Husband by complete surprise and then the Wife separately, resulted, we think, in an unusually good opportunity for the court to assess the Debtors' credibility. The dictates of B.Rule 7052 and F.R.Civ.P. 52(a) mandate that we deliver our decision in the form of Findings of Fact and Conclusions of Law. The latter will include discussions of relevant authorities.

C. FINDINGS OF FACT

1. In early May, 1989, the Plaintiff sent an unsolicited offer to the Wife to obtain a credit line of $5,000 on "Grand Elite Gold MasterCard." The Wife was only obliged to sign the application form to receive the card, which she did.

2. The Wife had been unemployed since she bore the Debtors' child in December, 1988, and, due to her loss of employment and the lingering effects of an injury to the Husband, the Debtors' income had been reduced and they had become in arrears on their mortgage and other charge accounts at the time that the Plaintiff's offer was received. The Wife, without advising the Husband, accepted the Plaintiff's offer.

3. Galluzzi testified that the Plaintiff "hires an organization" to investigate the records of payments of persons to whom it sends solicitations for its cards, which he believed entailed a "stringent" check of credit reports. It is apparent to the court, however, that, due to the fact that such data may be inconclusive or obsolete and that no questions regarding the prospective cardholder's present status are asked, the Plaintiff's means for investigating prospective cardholders is superficial, and the Plaintiff is willing to take considerable risks to receive the perceived benefit of obtaining a large number of users of its card.

4. The Wife, without the knowledge of the Husband, began using the card shortly after its arrival on June 7, 1989. She made not only numerous small purchases of apparently, medications, clothes, and toys for the Debtors' baby, but also used the card for cash advances totalling $4,650 between June 7, 1989, and June 23, 1989. These sums were used, at least in part, to cure arrearages on the Debtors' mortgage.

5. A statement of the account issued on July 13, 1989, recited the balance due on the account as $5,295.85. The use of the card which raised the balance over the $5,000 credit-line limit was an $800 cash advance, which Galluzzi testified should have been approved by the Plaintiff before it was permitted. After July 13, 1989, the Wife's only use of the card was to make a $23.72 purchase on July 18, 1989.

6. The Plaintiff's statements first contained the recitation that the Wife's account was cancelled on the statement of September 13, 1989. The balance due had at that time risen to $5,477.50, including post-petition finance charges.

7. The Wife testified that she intended to repay the sums advanced to her by the Plaintiff. The Debtors both testified that they had applied for home-equity loans with several lending institutions, in June, 1989, for, inter alia, this purpose.

8. The Debtors both testified that their aforesaid applications for home-equity loans were not rejected until July, 1989, and the Wife produced a letter from Core-States Bank, dated July 5, 1989, which rejected an application with that lending institution on that date.

9. The Debtors both testified that they did not contemplate bankruptcy nor contact counsel to do so until late July, 1989, after their applications for home-equity loans were rejected.

10. Although the Wife was a hesitant witness, reflecting a sense of embarrassment and extreme nervousness, her testimony was not inconsistent with that of the Husband, who was quite forthright when called as a surprise witness at the hearing of February 6, 1990, and was supported in part by documentation. We therefore find credible the Wife's claim that she intended to repay all of the charges made on the Plaintiff's charge card. However, we find that she knew or clearly had reason to know that the final $23.72 charge was in excess of her credit-line limit.

D. CONCLUSIONS OF LAW/DISCUSSION

1. AS IN ANY PROCEEDING BASED UPON 11 U.S.C. § 523(a)(2)(A), THE PLAINTIFF WAS OBLIGED TO PROVE, BY CLEAR AND CONVINCING EVIDENCE, THAT ALL FIVE CONSTITUENT ELEMENTS ARE PRESENT.

The Plaintiff's cause of action is based solely upon 11 U.S.C. § 523(a)(2)(A), which provides as follows:

§ 523. Exceptions to discharge

(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) 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; . . .

It is well-established that

in order to succeed in a claim under § 523(a)(2)(A), the Plaintiffs were obliged to

"establish all of the following elements by the demanding standard of `clear and convincing evidence:\'

(1) that the debtor made the representation;

(2) that at the time he knew they were false;

(3) that he made them with the intention and purpose of deceiving the creditor;

(4) that the creditor relief relied on such representations;

(5) that the creditor sustained the alleged loss and damages as a proximate result of the representations having been made."

In re Bergman, 103 B.R. 660, 671 (Bankr. E.D.Pa.1989), quoting In re Stelweck, 86 B.R. 833, 846 (Bankr.E.D.Pa.1988), aff'd, sub nom. United States v. Stelweck, 108 B.R. 488 (E.D.Pa.1989); and Fitzgerald, supra, 73 B.R. at 926. See also In re Woods, 66 B.R. 984, 988 (Bankr.E.D.Pa. 1986); In re Gelfand, 47 B.R. 876, 879 (Bankr.E.D.Pa.1985); and In re Brackin, 23 B.R. 984, 985 (Bankr.E.D.Pa.1982).

Analyzing whether each of the above-referenced five elements have been proven by "clear and convincing evidence" is the basis for resolution of any § 523(a)(2)(A) proceeding, including proceedings involving a debtor's misuse of credit cards.

2. WE AGREE WITH THE GENERALLY-HELD PRINCIPLE THAT USE OF A CREDIT CARD CONSTITUTES A REPRESENTATION THAT THE USER WILL PAY FOR THE CHARGES MADE ON A CREDIT CARD.

The first three of the five elements which the creditor must establish in order to prevail in a proceeding brought under § 523(a)(2)(A) focus on the conduct of the debtor.

As the Plaintiff here argues, it is well-established, in this jurisdiction and elsewhere, that a debtor's use of a credit card is a representation that the debtor will pay for purchases made through use of the card when billed for same. See In re Lipsey, 41 B.R. 255, 257 (Bankr.E.D.Pa.1984); In re Petrini, 23 B.R. 981, 982-83 (Bankr.E.D. Pa.1982); and In re Ciavarelli, 16 B.R. 369, 370 (Bankr.E.D.Pa.1982). Accord, e.g., In re Schmidt, 36 B.R. 459, 460 (E.D. Mo....