In re Mercer

• Decision Date: 26 February 1998
• Docket Number: Adversary No. 960950SEG.,Bankruptcy No. 9608310SEG
• Citation: 220 BR 315
• Court: U.S. Bankruptcy Court — Southern District of Mississippi
• Parties: In re Constance P. MERCER, Debtor. AT & T UNIVERSAL CARD SERVICES, Plaintiff, v. Constance P. MERCER, Defendant.

220 B.R. 315 (1998)

In re Constance P. MERCER, Debtor AT & T UNIVERSAL CARD SERVICES, Plaintiff, v. Constance P. MERCER, Defendant.

Bankruptcy No. 9608310SEG, Adversary No. 960950SEG.

United States Bankruptcy Court, S.D. Mississippi, Southern Division.

February 26, 1998.

J. Mark Franklin, III, Bennett, Lotterhos, Sulser & Wilson, Jackson, MS, for Plaintiff.

Michael B. McDermott, Biloxi, MS, for Defendant.

OPINION

EDWARD R. GAINES, Bankruptcy Judge.

Before the court for consideration is the complaint to determine dischargeability of debt filed by AT & T Universal Card Services seeking exception from discharge pursuant to 11 U.S.C. § 523(a)(2)(A) an indebtedness owed by the debtor, Constance P. Mercer, for credit card charges. Having considered the pleadings, the memoranda submitted on behalf of the parties and the evidence presented at trial, the court concludes that the relief sought should be denied and the debt should not be excepted from discharge.

I. FINDINGS OF FACT

On April 23, 1996, Constance P. Mercer filed a petition for relief under Chapter 7 of the United States Code. AT & T Universal Card Services ("AT & T") subsequently filed its complaint to determine dischargeability of debt seeking an exception from discharge for credit card indebtedness in the amount of $3,284.64 plus interest, attorney's fees and costs.

In its complaint, AT & T alleged that the debtor, Constance P. Mercer, incurred charges on her credit card account with AT & T when she had no intention of repaying the indebtedness and with knowledge that she lacked the ability to repay, and that the charges were incurred with the intent to deceive the plaintiff. AT & T further alleged that the debtor opened her account on November 10, 1995, and within thirty-one days obtained fourteen cash advances totaling $2,829.23 including finance charges thereby using substantially all of the $3,000 credit limit.¹ The plaintiff further alleged that the debtor made only one payment on the account on January 30, 1996, in the amount of $25.00, and that finance charges caused the account balance to exceed the credit limit. Furthermore, the plaintiff alleged that the debtor's statement of financial affairs in her bankruptcy petition reflected gambling losses of $25,000 during the time in which the debtor obtained and used the credit account, and that the debtor had no income during the two years preceding the petition date. AT & T requested that the court except from discharge the indebtedness owed the plaintiff pursuant to 11 U.S.C. § 523(a)(2)(A) and that judgment be entered. The debtor answered the complaint denying that the plaintiff was entitled to relief sought.

The parties submitted legal memoranda to the court on the issues and the matter was set for trial on October 24, 1997. A stipulation, dated October 24, 1997, was entered into between AT & T Universal Card Services and Constance P. Mercer and introduced as Exhibit C-1 at the trial and included the following stipulations:

1. The Plaintiff is a creditor of the Defendant and is the holder of an unsecured claim against the Defendant.

2. The Defendant filed a voluntary petition for relief under Chapter 7 of the United States Bankruptcy Code on April 23, 1996.

3. This adversary proceeding is brought in connection with the Defendant\'s case under Chapter 7 of Title 11 in case number 96-08310-SEG now pending in this Court.

4. This Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 157, § 1334, and 11 U.S.C. § 523.

5. This is a core proceeding under 28 U.S.C. § 157(b)(2)(I).

6. The Defendant previously held a credit card issued by the Plaintiff.

7. The Defendant\'s credit card account with Plaintiff was opened on November 10, 1995, pursuant to a pre-approved credit application mailed to Defendant who completed, and signed it on or about September 25, 1995.

8. The Defendant received and used the credit card.

9. omitted.

10. The Debtor made all credit purchases and obtained all case sic advances within thirty-one (31) days after the account was opened.

11. The foregoing items were the only charges ever incurred on the account. The debtor made no further charges to the account after December 11, 1995. Prior to incurring the charges, the previous balance owed on the account was zero.

12. The Debtor\'s credit limit on this account was $3,000.00. According to the Plaintiff\'s records, cash advances and finance charges, the Debtor exceeded the credit limit by $186.82. On the monthly statement of account for the billing period beginning January 16, 1996, AT & T instructed the Debtor to "refrain from using your AT & T Universal Card."

13. The Debtor made on sic payment of $25.00 on this account on January 29, 1996. The minimum payment due on or before January 9, 1996 was $253.82.

14. According to the Debtor\'s Statement of Financial Affairs on file with this Court, the Defendant lost approximately $25,000.00. The Debtor has further testified that her gambling losses were approximately $35,000.00 to $37,000.00 during the two years prior to the commencement of this case.

15. The Debtor was employed full-time during the year prior to commencement of this case. The Debtor reported gross annual income of $23,931.66 for 1995. In or about August 1995, the Debtor obtained additional part-time employment. On September 29, 1995, the Debtor\'s savings account had a balance of $151.04 which she withdrew, closing the account in or about October 1995.

16. According to the Debtor\'s Schedule of Affairs on file herein, at the commencement of this case, the Debtor was obligated to nine (9) credit issuers for $31,504.50, comprised in part of cash advances obtained for gambling within eighteen (18) months prior to commencement of this case.

17. The Debtor is familiar with credit card accounts and how obligations arise in connection therewith.

. . . .

At the trial on the matter, Ronald Lewis testified on behalf of AT & T Universal Card Services, stating that his job title at AT & T is "Bankruptcy Specialist." He stated that he acted as the liaison between 12 attorneys in 12 states in reviewing accounts on their cardmember base where bankruptcy had been filed to determine whether or not there might be anything on the account history that would indicate the possible need for more extensive review for adversarial type action. He also testified that he handled avoidable preference requests from trustees and other functions, and that he agreed that it was part of his duties to be familiar with the credit history of the customers who file bankruptcy.

Lewis testified that in 1996 approximately 87,000 AT & T cardholders filed for bankruptcy under Chapter 7 out of a total number of cardholders in 1996, the year this bankruptcy case was commenced, of approximately 18 million. He further testified that out of the 87,000 cardholders who filed bankruptcy in 1996, AT & T filed Section 523 actions in at least 3%, or about 2,700.

Lewis indicated that he was familiar with the process by which cardholders such as Mercer are screened for purposes of receiving the credit card solicitation. He stated that a solicitation is an offer of credit made to a prospective customer and that for a card to be issued the customer has to accept that offer and that the application is the offer. He further stated that they are required to solicit under the Fair Credit Reporting Act and that they are required to make a bona-fide offer of credit to anybody who has come through the screening in the solicitation process. Lewis then described the prescreening process undertaken by AT & T before a solicitation is sent out. He stated that the solicitation process runs 6 to 7 months before they actually mail the solicitation and that marketing determines what type of solicitation they are going to offer. He stated that they send a request to one of the three credit bureaus they utilize (Experion which is the old TRW, Equifax which is the old CBI and Trans Union) for a list of names meeting the criteria and the names are screened with the criteria established and sent back. He testified that the list of names is then referred to an outside vendor who processes against those people that have requested not to be solicited and also for duplicates names they may already have on the cardmember base. He also stated they check to see if any of the areas are in what they have learned to be high fraud areas where people are attempting to obtain cards under false pretenses. He testified that the names are matched against the internal risk and scoring models that AT & T uses and names that do not make "the cut" are dropped from the list, and those retained are sent back to the credit bureau for a second screening to make sure there has been no change in the credit standing or credit history since the first review was done. Lewis testified that after the second screening the solicitation is sent out to the customer with the offering, and that if the customer returns it, it goes through a third screening or back end screen to determine there has been no deterioration in the credit history and risk scoring. He stated that at that time they would determine whether they will allow the original offer or whether there has been some type of deterioration in their credit history in which case they would offer a lower line or withdraw the offer. He said that the first screening for Mercer, the debtor here, was done through Trans Union. Lewis' testimony indicated that he would not be able to provide the information from the screening that was done in Mercer's case pointing out that it was done two years ago. He indicated that if a credit screening were to be done today through the credit bureau and another creditor wanted to make a report within a minute after the screening, the credit profile would change. Lewis testified that prior to the solicitation offer being sent to Mercer, the credit bureau information was reviewed. He stated that they rely...