In re Miller

Decision Date26 June 2000
Docket NumberBankruptcy No. 00-50064. Adversary No. 00-5014.
Citation250 BR 294
PartiesIn re Walter J. MILLER, Debtor. Bank of America, Plaintiff, v. Walter J. Miller, Defendant.
CourtU.S. Bankruptcy Court — Eastern District of Kentucky

Linda J. West, Frankfort, KY, for plaintiff.

Sidney N. White, Lexington, KY, for defendant.


WILLIAM S. HOWARD, Bankruptcy Judge.

This matter has come before the Court for a ruling on the defendant's Motion to Amend Judgment (Doc. # 14). The defendant seeks to have the Court amend the Order Sustaining Motion for Summary Judgment of May 4, 2000 (Doc. # 12) to grant him a reasonable attorney fee in the amount of $1,000.00 pursuant to 11 U.S.C. § 523(d). This section allows attorney fees to a debtor who prevails in a nondischargeability action initiated by a creditor, when the creditor was not "substantially justified" in its position. This Court has jurisdiction of this matter pursuant to 28 U.S.C. § 1334(b); it is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(I).

The plaintiff filed a Complaint to Determine Dischargeability of Debt (Doc. # 1) on February 25, 2000, seeking to have the defendant's debt to it declared nondischargeable pursuant to 11 U.S.C. §§ 523(a)(2)(A) and 523(a)(2)(C), alleging that the debt in the amount of $1,181.58 was incurred by false pretenses, false representation and fraud. The defendant filed a Motion for Summary Judgment (Doc. # 5) on March 22, 2000 seeking dismissal of the Complaint and discharge of the subject debt. The plaintiff filed a Response (Doc. # 9) on April 12, 2000. A hearing on the Motion and Response was held on May 4, 2000, and the defendant's Motion was sustained. The Order Sustaining Motion for Summary Judgment was entered that same day as set out above. The Order set out that the Court reserved for future determination the allowance of costs and attorney fees.

The defendant now seeks attorney fees pursuant to 11 U.S.C. § 523(d) which provides:

If a creditor requests a determination of dischargeability of a consumer debt under subsection (a)(2) of this section, and such debt is discharged, the court shall grant judgment in favor of the debtor for the costs of, and a reasonable attorney\'s fee for, the proceeding if the court finds that the position of the creditor was not substantially justified, except that the court shall not award such costs and fees if special circumstances would make the award unjust.

The issue before the Court is therefore whether the plaintiff was "substantially justified" in its position. As the plaintiff points out in its Response to Defendant's Motion to Amend Judgment (Doc. # 15), the concept of substantial justification arose in the Equal Access to Justice Act, 28 U.S.C. § 2412(d)(1)(A). The Supreme Court (in a context other than bankruptcy) has interpreted the term to mean "justified in substance or in the main-that is, justified to a degree that could satisfy a reasonable person." Pierce v. Underwood, 487 U.S. 552, 565-66, 108 S.Ct. 2541, 2550, 101 L.Ed.2d 490 (1988).

Some courts have articulated this standard as one of reasonableness, i.e., to be substantially justified a creditor's position must be reasonable in both law and fact. This has been expressed as a three-part test: (1) a reasonable basis in law for the theory propounded; (2) a reasonable basis in truth for the facts alleged; and (3) a reasonable connection between the facts alleged and the legal theory advanced. See In re Napier, 205 B.R. 900 (Bkrtcy. N.D.Ill.1997), inter alia. Further, a determination of substantial justification

should turn on a totality of the circumstances. This analysis permits a trial court to examine a number of factors, including, but not limited to, whether the creditor attended the 341 meeting or conducted an examination under Rule 2004, as well as the extent of its pre-trial investigation.

In re Williams, 224 B.R. 523, 531 (2nd Cir. BAP 1998).

The legal theory propounded by the plaintiff was that the defendant obtained the sums represented by the subject debt by false pretenses, false representation or actual fraud. As set out in In re Rembert, 141 F.3d 277 (6th Cir.1998), a creditor may, pursuant to 11 U.S.C. § 523(a)(2)(A), establish that the debtor did so by proving the following elements:

(1) the debtor obtained money through a material misrepresentation that, at the time, the debtor knew was false or made with gross recklessness as to its truth; (2) the debtor intended to deceive the creditor; (3) the creditor justifiably relied on the false misrepresentation; and (4) its reliance was the proximate cause of loss..... In order to except a debt from discharge, a creditor must prove each of these elements by a preponderance of the evidence..... Further, exceptions to discharge are to be strictly construed against the creditor..... (Cites omitted.)

Id. at 280-81. As the plaintiff correctly points out, Rembert is "the premier Sixth Circuit case addressing § 523(a)(2)(A) claims and known to every attorney practicing in the field of bankruptcy."

The Rembert court made it clear that the element of intent can only be determined by an inquiry into "whether the debtor subjectively intended to repay the debt." Id., at 281. Based on the affidavit tendered by the defendant in support of his Motion for Summary Judgment, and the failure of the plaintiff to provide any facts which disproved those set out in the affidavit, this Court determined that the defendant subjectively intended to pay the subject debt.

The companion legal theory propounded by the plaintiff was that it could avail itself of the presumption of nondischargeability provided by 11 U.S.C. § 523(a)(2)(C). That section provides that if a debtor has consumer debts owed to a single creditor and aggregating more than $1075 for "luxury goods and services" or has taken cash advances aggregating more than $1075 on an open-end account on or within 60 days of filing his bankruptcy petition, such debts are presumed to be nondischargeable. The facts alleged could not support this theory, either. The plaintiff's own records showed that there was only one cash advance taken in the amount of $1000 on November 12, 1999. The $156.48 payment to U.K. Patient Accounts was made directly, and was not in the nature of a cash advance...

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