In re Hostetter

• Decision Date: 23 February 2005
• Docket Number: No. 04-60973 JPK. Adversary No. 04-6084.,04-60973 JPK. Adversary No. 04-6084.
• Citation: 320 B.R. 674
• Parties: In re Deborah Anne HOSTETTER, Debtor. MBNA America Bank, N.A., Plaintiff, v. Deborah Anne Hostetter, Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Indiana

320 B.R. 674

In re Deborah Anne HOSTETTER, Debtor MBNA America Bank, N.A., Plaintiff, v. Deborah Anne Hostetter, Defendant.

No. 04-60973 JPK. Adversary No. 04-6084.

United States Bankruptcy Court, N.D. Indiana, Hammond Division.

February 23, 2005.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

W. Randall Kammeyer, Hawk, Haynie, Kammeyer & Chickedantz, LLP, Fort Wayne, IN, for Plaintiff.

JUDGMENT DETERMINING DISCHARGEABILITY OF INDEBTEDNESS

J. PHILIP KLINGEBERGER, Bankruptcy Judge.

This adversary proceeding was commenced by a complaint filed by the plaintiff MBNA America Bank, N.A. ("MBNA") against Deborah Anne Hostetter ("Hostetter") on May 17, 2004. Hostetter is the debtor in a Chapter 7 case filed under case number 04-60973 in the United States Bankruptcy Court for the Northern District of Indiana, Hammond Division. The record establishes that a copy of both the summons and complaint was served upon both Deborah Anne Hostetter and upon her Chapter 7 counsel Walter E. Melion, as evidenced by the returns of service of process filed on May 27, 2004 and June 28, 2004. The record also establishes that no appearance has been filed on behalf of Hostetter, and that Hostetter has not filed an answer or other response to the complaint.

The Court entered an order on August 8, 2004 directing MBNA to file a motion for default judgment. Entry of default was made by the Clerk of the Court on the same date, and on October 15, 2004, MBNA, by counsel, filed a motion for default judgment. On December 8, 2004, pursuant to Fed.R.Bankr.P. 7055/Fed. R. Civ. P. 55(b)(2), the Court held a telephonic conference with MBNA's counsel to discuss the nature of proof required in order to make certain that the allegations of the complaint and the motion for default judgment were established by appropriate evidence. On December 9, 2004, MBNA filed a Memorandum in Support of Motion for Entry of Default. The case is now before the Court for review of the motion for default judgment.

MBNA asserts that Hostetter's debt to it is excepted from discharge pursuant to 11 U.S.C. § 523(a)(2)(A).

The Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 1334(a), 28 U.S.C. § 157(a) and N.D.Ind. L!R. 200.1. This adversary proceeding is a "core proceeding" as defined by 28 U.S.C. § 157(b)(2)(I), and thus this Court has jurisdiction to enter a final judgment on the complaint.

I. Standards for Review of Motions for Default Judgment

The basic procedural provision with respect to judgment by default is provided by Fed.R.Civ.P. 55(b)(2), made applicable to adversary proceedings by Fed.R.Bankr.P. 7055. That provision in pertinent part states:

(b) Judgment. Judgment by default may be entered as follows:

...

(2) By the Court. In all other cases the party entitled to a judgment by default shall apply to the court therefor:... If, in order to enable the court to enter judgment or to carry it into effect, it is necessary to take an account or to determine the amount of damages or to establish the truth of any averment by evidence or to make an investigation of any other matter, the court may conduct such hearings or order such references as it deems necessary and proper ...

The fact that a plaintiff is entitled to an entry of default does not entitle the plaintiff to the entry of judgment by default. As explained in In re Sanchez, 277 B.R. 904, 907 (Bankr.N.D.Ill.2002):

Rule 7055(b)(2) Fed.R.Bankr.P. governs default judgments entered by a bankruptcy court. A movant is not entitled to default judgment as a matter of right even though the debtor is in default under Rule 55(a) Fed. R.Bankr.P. 7055(a). Lewis v. Lynn, 236 F.3d 766, 767 (5th Cir.2001). Panels in this Circuit have eschewed traditional notions disfavoring default judgments. Stafford v. Mesnik, 63 F.3d 1445, 1450 (7th Cir.1995); Profile Gear Corp. v. Foundry Allied Industries, Inc., 937 F.2d 351, 354 (7th Cir. 1991); Matter of State Exchange Finance Co., 896 F.2d 1104, 1106 (7th Cir.1990). However, in the bankruptcy context, where a debtor has a presumptive right to a discharge, default judgment motions should not be granted unless the movant shows that its debt is nondischargeable as a matter of law. Valley Oak Credit Union v. Villegas, 132 B.R. 742, 746 (9th Cir. BAP 1991) (court must determine whether plaintiff is entitled to judgment); In re McArthur, 258 B.R. 741, 746 (Bankr.W.D.Ark.2001) (noting that bankruptcy courts have taken a conservative approach and sometimes refrain from granting default judgment motions which deprive debtor of discharge).

Thus, the issue here is whether Plaintiff has shown at least prima facie facts meeting the legal requirements to except a debt from discharge under § 523(a)(2)(A).

As explained by the Bankruptcy Appellate Panel of the Ninth Circuit in Valley Oak Credit Union v. Villegas, 132 B.R. 742, 746 (9th Cir. BAP 1991):

The court has wide discretion in determining whether to enter a default judgment under Rule 55. See generally 10 C. Wright, A. Miller and M. Kane, Federal Practice and Procedure Civil 2d § 2685 (1983). Similarly, a trial court has broad discretion as to the nature of the hearing that it will hold pursuant to Rule 55(b)(2) in determining whether to enter a default judgment. This language of the rule itself confirms the discretion of the trial court to hold such hearings "as it deems necessary and proper." Fed. R.Civ.P. 55(b). This provides the trial court with discretion to require, at a hearing under Rule 55(b)(2), some proof of the facts that are necessary to a valid cause of action or to determine liability. See Peerless Industries, Inc. v. Herrin Illinois Cafe, Inc., 593 F.Supp. 1339, 1341 (E.D.Mo. 1984), aff'd without opinion 774 F.2d 1172 (8th Cir.1985); Wright, Miller and Kane, at § 2688.

Because of the impact of a nondischargeability action on the "fresh start" arising from the entry of an order of discharge pursuant to 11 U.S.C. § 727(a), bankruptcy courts are particularly reluctant to "rubber stamp" motions for default judgments in adversary proceedings filed to determine dischargeability of indebtedness, particularly in circumstances where averments of the complaint are largely conclusory; In re Sziel, 206 B.R. 490, 492-493 (Bankr. N.D.Ill.1997).

In establishing the basic facts of record upon which the Court is to review a motion for default judgment, the United States Court of Appeals for the Seventh Circuit follows the rule that "upon default, the well-pleaded allegations of a complaint relating to liability are taken as true, but allegations in a complaint relating to the amount of damages suffered ordinarily are not," US v. Di Mucci, 879 F.2d 1488, 1497 (7th Cir.1989); Dundee Cement Company v. Howard Pipe & Concrete Products, Inc., 722 F.2d 1319,1323 (7th Cir.1983); Merrill Lynch Mortgage Corp. v. Narayan, 908 F.2d 246, 253 (7th Cir.1990).

II. Status of the Record

Hostetter filed her Chapter 7 case on March 3, 2004, which the Trustee determined to be a no asset case. On May 27, 2004, MBNA filed its complaint, alleging that the debtor falsely represented that she intended to repay the charge account with which she purchased goods and obtained a cash advance. The creditor requested that the credit card debt be found nondischargeable under § 523(a)(2)(A).¹ The Court's order discharging the debtor was issued on June 21, 2004.

Accepted as true under the well pleaded complaint rule, Section II of the complaint establishes that Hostetter had a charge account with MBNA. "Exhibit A", an Account Holder Information, provided by the creditor with its Memorandum in Support of Motion for Entry of Default, establishes that Hostetter had a credit limit of $5,000.00. That document also establishes that between September 29, 2003 and November 4, 2003, Hostetter accumulated $179.85² in retail charges. Further, between September 29, 2003 and November 4, 2003, via a convenience check, she incurred a charge of $4,800.00, in addition to a $50.00 transaction fee Complaint ¶ 9 and Exhibit A. All charges were incurred during a period beginning 160, and ending 124, days prior to the initiation of Hostetter's bankruptcy. On December 31, 2003, Hostetter made a payment of $30.00, the only payment she ever made on MBNA's account. As of March 10, 2004, Hostetter's balance on the charge card was $5,574.70, which, in addition to the above charges, included late fees, over-limit fees, and interest³. Exhibit A.

Hostetter's Statement of Financial Affairs states that her income in 2003, the year prior the filing of the chapter 7 petition, was $400.00, and that her income in 2002 was $3,000.00. On Schedule J, Hostetter stated that her current monthly expenditures included a rent or home mortgage payment of $400.00; a payment for utilities of $100.00; and expenditures for food of $200.00. Based on the information contained in the schedules, and the lack of information that would indicate to the Court to the contrary, it is to be assumed that Hostetter had the same or similar expenses in 2003, the year in which she incurred her debt to MBNA. More importantly, Schedule F of Hostetter's schedules establishes that credit card debt constituted 89% of her total debt on the date of the filing of the petition. Although this figure is based on debtor's schedules filed not less than 124 days after the charges in questions were incurred, the Court infers that a substantial amount of the $169,478.00 in credit card debt stated in Schedule F, if not all of it, was due and owing between September 29, 2003 and November 4, 2003, the time of the accrual of the MBNA debt.

III. Legal Analysis

The issue in this case is whether Hostetter's obligation to MBNA is excepted from her discharge under § 523(a)(2)(A) of the Bankruptcy Code. That section provides that an individual debtor is not discharged from any debt—

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

(A) false pretenses,

...