Citibank USA, NA v. Penner

UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
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06/10/06
Citibank USA, NA v. Paulette Penner
04-01184
Memorandum Opinion re: [18-1] Motion For Summary Judgment by Citibank USA, NA
Received on: 2005-08-16 14:06:04.000
2005-08-16 00:00:00.000
2005-08-17 00:00:00.000
James Burke
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UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW MEXICO
In re:
PAULETTE PENNER,
Debtor. No. 7-04-11823 SA
CITIBANK USA, N.A., SUCCESSOR IN
INTEREST TO SEARS, ROEBUCK AND CO.,
Plaintiff,
v. Adv. No. 04-1184
PAULETTE PENNER,
Defendant.
MEMORANDUM OPINION ON PLAINTIFF’S MOTION
FOR SUMMARY JUDGMENT AGAINST DEFENDANT PAULETTE PENNER
Plaintiff Citibank USA, N.A. filed an Amended
Complaint (doc. 2) to determine the dischargeability of a
debt incurred by Defendant Paulette Penner. The Amended
Complaint asks the Court to find the debt nondischargeable
pursuant to 11 U.S.C. § 523(a)(2)(A).
This matter is before the Court on Plaintiff’s Motion
for Summary Judgment Against Defendant Paulette Penner
(doc. 18) (“Motion”), Defendant’s Response (doc. 21), and
Plaintiff’ Reply (doc. 23). Plaintiff is represented by
Paul M. Kienzle III. Defendant is represented by Walter L.
Reardon, Jr. For the reasons recited below, the motion is
denied.
New Mexico Local Bankruptcy Rule 7056-1 sets forth the
requirements in regards to both filing and responding to a
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motion for summary judgment. As it pertains to a party’s
response, that Local Rule states:
A memorandum in opposition to the motion shall contain
a concise statement of the material facts as to which
the party contends a genuine issues does exist. Each
fact in dispute shall be numbered, shall refer with
particularity to those portions of the record upon
which the opposing party relies, and shall state the
number of the movant’s fact that is disputed. All
material facts set forth in the statement of the
movant shall be deemed admitted unless specifically
controverted.
The Response to Plaintiff’s Motion did not follow the
requirements of Local Rule 7056-1. The Response (1) failed
to provide a concise statement of the material facts as to
which Defendant contends a genuine issue exists; (2) failed
to number the facts; (3) failed to refer with particularity
to the portions of the record upon which Defendant relied;
(4) and failed to state the number of the movant’s fact
that were disputed.
Summary judgment cannot be granted simply because a
party fails to properly oppose a motion, even if that
failure violates a local rule. See Hibernia Nat’l Bank v.
Adminstracion Central Sociedad Anonima, 776 F.2d 1277, 1279
(5th Cir. 1985). The court may only grant the motion once
the movant has met its burden by establishing the absence
of a genuine issue of material fact. Id. The Court must
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therefore consider the motion based on the merits, rather
than merely on procedural grounds.
Undisputed facts
The following facts are undisputed, based on the
Amended Complaint and Answer:
1. The Court has jurisdiction over the parties and
subject matter of the complaint, pursuant to 28 U.S.C.
§ 1334. This is a core proceeding, pursuant to 28
U.S.C. § 157(b)(2).
2. Defendant filed a petition under Chapter 7 on March
15, 2004.
3. On June 8, 2004, Plaintiff Citibank USA, N.A. filed a
Motion to Extend Deadline to File Complaint to
Determine Dischargeability of Debt.
4. The Court extended the deadline to determine
dischargeability of certain debts until September 10,
2004.
5. The complaint was timely filed.
6. Defendant made an initial charge of $11,537.55 on
Account Number 5121071780648519. The initial charge
and all subsequent charges were incurred for business
purposes.
7. Defendant’s balance limit on Account Number
5121071780648519 was $11,900.
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8. Defendant currently owes Plaintiff $12,758.38 on
Account Number 5121071780648519.
9. All unsecured credit card debts listed on Defendant’s
schedules are in the nature of business debts,
incurred for Defendant’s business, Santa Fe Purified
Water/Water to Go.
10. In the second quarter of 2003, Defendant’s business
was “scrambling” to pay it debts.
11. Defendant’s business ceased in July 2003 due to a
lack of operating funds.
12. Defendant’s business had ceased operations prior to
making charges on Account Number 5121071780648519.
The following facts are deemed admitted pursuant to NM
LBR 7056-1:
13. Defendant has a master’s degree in organizational
management.
14. Defendant has owned and operated two separate
businesses.
15. On August 27, 2003, Defendant made an initial charge
to Account Number 5121071780648519 in the amount of
$11,537.55. In October 2003, two additional charges
totaling $234.40 were made to the account.
16. The Citibank USA, N.A. Sears Mastercard Card Account
Cardholder Agreement states: “You promise to use your
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Account only if you have the intent and financial
capacity when the transaction occurs to repay the
amount in full pursuant to the terms of this
agreement.”
17. Defendant’s business was unable to ever generate a
profit.
18. Defendant’s business never reached the break-even
point.
19. In July 2003, Defendant had certain knowledge that
the Defendant’s business was facing financial
difficulties.
20. In the second quarter of 2003, Defendant considered
filing bankruptcy.
21. Prior to the debts incurred on Account Number
5121071780648519, Defendant had ten existing credit
card accounts with other creditors.
22. Prior to incurring her debt with Plaintiff Citibank
USA, N.A., Defendant owed approximately $119,000 in
credit card debt.
23. Defendant applied for the credit card with Plaintiff
Citibank USA, N.A. after Defendant had incurred all
other credit card debts listed in Defendant’s
bankruptcy schedules.
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24. At the time that Defendant incurred debts on Account
Number 5121071780648519, all of Defendant’s other
credit cards had maximum balances.
25. Defendant incurred total charges on Account Number
5121071780648519 in the amount of $11,780.95.
26. Defendant did not make any payments to Plaintiff
Citibank USA, N.A. on Account Number
5121071780648519.
27. The interest rate for Account Number 5121071780648519
is 23.7%.
28. The Cardholder Agreement provides that Plaintiff
Citibank USA, N.A. may recover reasonable attorney’s
fees if it succeeds in this action.
DISCUSSION
Summary judgment motions are guided by Federal Rule of
Civil Procedure 56. In part, that rule states:
The judgment sought shall be rendered forthwith if the
pleadings, depositions, answers to interrogatories,
and admissions on file, together with affidavits, if
any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to
a judgment as a matter of law.
Fed. R. Civ. P. 56(c).
A party that moves for summary judgment has the burden
of showing the absence of a genuine issue as to any
material fact. Adickes v. S.H. Kress & Co., 398 U.S. 144,
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157 (1970). The material presented by the movant must be
viewed in the light most favorable to the opposing party.
Id. A moving party must present evidence that forecloses
the possibility that a genuine issue exists. Id. at 158. A
movant that does not present such evidence will be denied
summary judgment. Id.
The standard by which a judge is to consider a motion
for summary judgment mirrors the standard for a directed
verdict under Federal Rule of Civil Procedure 50(a).
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986).
A verdict will be directed when governing law permits but
one reasonable conclusion based on the evidence. Id. The
inquiry by the judge, in regards to either a motion for
summary judgment or directed verdict, is whether sufficient
evidence has been produced to declare that the moving party
must prevail as a matter of law. See id. at 251-52.
Dischargeability Under § 523(a)(2)(A)
Viewing the evidence in the light most favorable to
Defendant Paulette Penner, summary judgment should not be
granted at this time.
Section 523(a)(2)(A) states:
(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—
…
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(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;
A creditor must prove five elements by a preponderance
of evidence in order to prevail on a claim of
nondischargeability under § 523(a)(2)(A). See Lang v. Lang
(In re Lang), 293 B.R. 501, 514 (10th Cir. B.A.P. 2003).
The five elements are:
1) the debtor made a false representation;
2) the debtor made the representation with the intent
to deceive the creditor;
3) the creditor relied on the representation;
4) the creditor’s reliance must have been justifiable;
and
5) the creditor must have sustained a loss as a result.
Id.
In Chevy Chase Bank FSB v. Kukuk, 225 B.R. 778, 785
(10th Cir. B.A.P. 1998), the court held that for the
purposes of dischargeability under § 523(a)(2)(A), the use
of a credit card creates an implied representation that the
debtor intends to repay the debt, but does not create an
implication of ability to repay.
A. Ability to Repay
A consumer will use a credit card for the specific
reason that he or she is unable to repay the debt at that
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time. Id.1 The proper inquiry by the court is to determine
whether the debtor had the ability to pay the debt within
the terms of the credit card agreement. Id. at 787. This
may simply be the ability to make minimum monthly payments.
Id. At the time that Defendant Pauline Penner incurred the
charges, she was employed by Bernard Holding & Associates
in Albuquerque. Motion Ex. A, Dep. of Paulette Penner at 5;
see also Statement of Affairs, Question 1. Defendant earned
$75,000 at this position in 2003. Id. It is reasonable to
assume that these circumstances would have permitted
Defendant to make the minimum monthly payments for the
years or decades it would have taken her to pay the debt at
that rate. Therefore, Plaintiff has not proved an inability
to repay the debt within the terms of the credit card
agreement.
B. Intent to Repay
When considering a claim of nondischargeability based
on § 523(a)(2)(A), a court must determine whether the
implied intent of the credit card user involved a
fraudulent representation. Id. at 786. A debt will be found
1 For purposes of this decision, the statement is accurate
enough. Credit cards are also increasingly used when the
user could easily pay in cash but wants to accumulate
“rewards” such as airline miles or, as was initially the
case with the Diner Club card, wants to pay for a meal at a
restaurant without using cash or a checkbook.
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nondischargeable under 523(a)(2)(A) only if there has been
a showing of actual or positive fraud. Anastas v. American
Sav. Bank (In re Anastas), 94 F.3d 1280, 1286 (9th Cir.
1996)(reversing a finding of liability because the trial
court relied too heavily on the financial condition of the
debtor as evidence of intent to repay). Actual fraud will
exist only if the court finds moral turpitude or
intentional wrong. Id.; see also Kukuk, 225 B.R. at 787
(citing Driggs v. Black (In re Black), 787 F.2d 503, 505
(10th Cir. 1986)). The court should consider whether the
debtor maliciously and in bad faith incurred a debt with
the hope of avoiding that debt by petitioning for
bankruptcy. Id.; Anastas at 1286. While the Tenth Circuit
permits a court to find fraud if the debtor showed a
reckless disregard for the truth of a representation,
Kukuk, 225 B.R. at 787, a finding of reckless disregard
“should be very narrowly interpreted.” Id. In other words,
“a line is to be drawn between an intent to mislead and
mere negligence. An honest belief, however unreasonable,
that the representation is true and the speaker has
information to justify it has been held to be no sufficient
basis for deceit.” Id. at 788 (citing Prosser and Keeton
on Torts, p. 742 (5th ed. 1984)). (Internal quotation marks
and punctuation omitted.)
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In Citibank South Dakota v. Dougherty (In re
Dougherty), 84 B.R. 653, 657 (9th Cir. B.A.P. 1988), the
court laid out twelve factors that may be used to aid in
the determination of whether a debtor lacked an intent to
repay. These twelve factors are as follows:
1) the length of time between the charges made and the
filing of the bankruptcy;
2) whether the debtor consulted an attorney regarding
bankruptcy prior to the charges being made;
3) the number of charges made;
4) the amount of the charges;
5) the financial condition of the debtor at the time the
charges were made;
6) whether the charges were above the credit limit of the
account;
7) whether the debtor made multiple charges on any given
day;
8) whether or not the debtor was employed;
9) the debtor’s employment prospects;
10) the debtor’s financial sophistication;
11) whether there was a sudden change in the debtor’s
buying habits; and
12) whether the purchases were made for luxuries or
necessities.
Id.
A number of courts have adopted these factors when
determining dischargeability under § 523(a)(2)(A). See,
e.g., Household Credit Servs. v. Ettell (In re Ettell), 188
F.3d 1141, 1144 (9th Cir. 1999); Kukuk, 225 B.R. at 786.
Although the factors may be helpful in determining whether
a debtor possessed a fraudulent intent, these factors are
neither exhaustive, nor is any one factor dispositive. See
id. The demeanor and credibility of the witness will play a
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large role when a court assesses whether or not a debtor
possessed a fraudulent intent. Id.
In the present case, a number of the Dougherty factors
weigh in favor of finding that the Defendant possessed a
fraudulent intent, while others suggest that the debt
should be found dischargeable. The issue of
dischargeability under 523(a)(2)(A) is not one that can be
resolved by simple “factor counting.” See Bank One
Columbus, N.A. v. Schad (In re Kountry Korner Store), 221
B.R. 265, 273 (Bankr. N.D. Okla. 1998). The Dougherty
factors provide a helpful objective test, but the burden is
on the creditor to prove the debtor’s subjective intent.
Id. at 272. For these reasons, it is necessary to look
beyond the Dougherty factors when determining whether or
not the debt incurred by Defendant Paulette Penner should
be discharged.
Plaintiff’s Motion recites specific reasons it
believes that the debt should be found nondischargeable.
Plaintiff suggests that Defendant’s lack of payment is
indicative of a fraudulent intent. Lack of payment is
merely breach of contract and not proof of fraud. See id.;
see also Kukuk, 225 B.R. at 786 (“[D]ebtor’s intent cannot
be inferred solely by the fact that the debtor does not
repay the credit card used and seeks bankruptcy
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protection.”). Therefore, this factor alone is not
dispositive on the issue of fraudulent intent.
The Motion also states that the Court should find
fraudulent intent based on the fact that Defendant’s
business was in financial distress at the time that the
charges were incurred. A debtor’s poor financial condition
should never become a substitute for a finding of
fraudulent intent. See Kukuk, 225 B.R. at 786 (citing
Anastas, 94 F.3d at 1286). A debtor’s unreasonably
optimistic view about his or her ability to repay will not
on its own constitute a fraudulent representation. Id. at
788. The fact that Defendant Penner may have had
unrealistic hopes about repaying the debts does not
necessarily dictate that she had no intention of repaying
the debts at the time they were incurred.
The burden on a party moving for summary judgment is
to foreclose the possibility that a genuine issue of
material fact exists. Adickes, 398 U.S. at 158. The facts
and arguments set forth in the Motion do not meet this
burden. While a number of the facts presented may weigh in
favor of finding a fraudulent intent, the Court has not yet
been able to consider the credibility of the witness. The
court in Kukuk suggested that demeanor and credibility play
a large role in the determination of whether a debt should
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be found nondischargeable under 523(a)(2)(A). Kukuk, 225
B.R. at 786. Summary judgment must granted cautiously when
a person’s intent is at issue, as this will usually raise
questions that require a factfinder’s determination. See
United States v. One 1989 Jeep Wagoneer, 976 F.2d 1172,
1176 (8th Cir. 1992). For these reasons, summary judgment
is not appropriate and the determination of
dischargeability is better left for trial.2
The Court will enter an Order denying Plaintiff’s
Motion for Summary Judgment.
Honorable James S. Starzynski
United States Bankruptcy Judge
2 The case of Signet Bank v. Keyes, No. 91-8039, 1992 WL
66723 (10th Cir. Apr. 3, 1992), states that “Debtors’ use
of the credit cards to charge purchases and to obtain cash
advances implied a representation by the Debtors to the
Bank that Debtors had the ability and the intention to pay
the obligations incurred.” (Citation omitted.) Id. at
**3. That language suggests that summary judgment would be
appropriate based on the facts of this case. However, as an
unpublished opinion, Signet Bank has no precedential value
and therefore does not bind the Court. 10th Cir. R.
36.3(A).
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I hereby certify that a true and correct copy of the
foregoing was electronically transmitted, faxed, delivered,
or mailed to the listed counsel and/or parties on August
16, 2005.
Paul M Kienzle, III
PO Box 587
Albuquerque, NM 87103-0587
Walter L Reardon, Jr
3733 Eubank Blvd NE
Albuquerque, NM 87111-3536
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