Diamond Credit Union v. Ulrich

UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
Case No. 05-22733REF
Chapter 7
Adv. No, 05-2300
In re:
MERLIN E. ULRICH,
t/a ULRICH TRUCKING,
Debtor
DIAMOND CREDIT UNION,
Plaintiff
v.
MERLIN E. ULRICH,
Defendant
M E M O R A N D U M O P I N I O N
Plaintiff filed this adversary complaint seeking to have the debt owed to it by Defendant
found nondischargeable under 11 U.S.C. §523(a)(2)(A) and (B). For the reasons that follow, I
find that Plaintiff did not meet its burden of proof under either Section 523(a)(2)(A) or (B), and I
therefore find the debt in issue to be dischargeable. Judgment on the Complaint, therefore, will
be entered in favor of Defendant and against Plaintiff.
Section 523(a)(2)(A) and (B) of the Bankruptcy Code state as follows:
(A) A discharge under section 727,1141,1228(a), 1228(b), or 1328(b) of
this title does not discharge an individual 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; [or]
(B) use of a statement in writing -
(i) that is materially false;
(ii) respecting the debtor's or an insider's financial condition;
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(iii) on which the creditor to whom the debtor is liable for such money,
property, services, or credit reasonably relied; and
(iv) that the debtor caused to be made or published with intent to
deceive.. , ,
11 U.S.C. §523(a)(2)(A), (B). It is well settled that, as with all exceptions to discharge, section
523(a)(2) must be construed liberally in favor of the debtor and strictly against the creditor,
Grogan v. Garner. 498 U.S. 279, 287-88 (1991); Ins. Co. of North America v. Cohn fin re Cohn).
54 F.3d 1108, 1113 (3d Cir. 1995); AT&T Univeral Card Serv. Corp. v Wong fin re Wong). 207
B.R. 822, 826 (Bankr. E.D. Pa. 1997); AT&T Universal Card Serv. Corp. v. Feld (In re Feld).
203 B.R. 360, 364-65 (Bankr. E.D. Pa. 1996). Furthermore, the burden of proving that a debt is
nondischargeable is on the creditor who must prove his case by a preponderance of the evidence.
Cohn. 54 F.3d at 1114; Wong. 207 B.R. at 826; Feld. 203 B.R. at 365.
Here, Plaintiff is challenging the dischargeability of the debt under both Section
523(a)(2)(A) and Section 523(a)(2)(B). To successfully challenge the dischargeability of the
debt in issue under Section 523(a)(2)(A), Plaintiff must prove the following elements by a
preponderance of the evidence: (1) Defendant made a representation; (2) Defendant knew the
representation was false at the time it was made; (3) Defendant made the representation with the
intention and purpose of deceiving Plaintiff; (4) Plaintiff justifiably relied upon the
representation; and (5) Plaintiff sustained the alleged loss as a proximate result of the false
representation having been made. Wong. 207 B.R. at 826. Alternatively, to successfully
challenge the dischargeability of the debt in issue under Section 523(a)(2)(B), Plaintiff must
prove, by a preponderance of the evidence, that Defendant used a statement in writing: (1)
respecting his financial condition; (2) that was materially false; (3) upon which Plaintiff
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reasonably relied; and (4) that Defendant caused to be made or published with intent to deceive
Plaintiff. Cohn. 54 F.3d at 1113-14. I now turn to an application of these standards to the facts
of this case.
On September 10, 2004, Defendant applied for a MasterCard with Plaintiff by
completing a Credit Line Account and Personal Loan Application ("Credit Application"). In this
Credit Application, Defendant represented that he had monthly gross income of $14,400.00 and
requested a credit limit of $50,000.00. Defendant's Credit Application was approved by Plaintiff
on September 17, 2004, and Plaintiff then issued Defendant a MasterCard with a credit limit of
$50,000.00, Upon the solicitation of Plaintiff, Defendant thereafter transferred balances from
other credit cards to the MasterCard issued by Plaintiff. The total amount transferred was
$39,748.06. The outstanding balance on the MasterCard at the time this adversary complaint was
filed was $35,391.41.
Plaintiff first maintains that the debt owed to it by Defendant should be found
nondischargeable under Section 523(a)(2)(A) and (B) because Defendant allegedly made a
number of false statements in his Credit Application concerning his income and debts.
Specifically, Plaintiff argues that Defendant misrepresented the following items on the Credit
Application he submitted to Plaintiff: (1) The amount of his monthly gross income; and (2) the
fact that the 2004 Western Star Vehicle listed by Defendant as an asset with a value of
$110,000.00 was not encumbered.
Turning to the Credit Application, I note that Defendant listed his gross monthly income
as $14,400.00. Although Defendant alone earned less than this amount on an annual basis, his
monthly gross earnings at times approximated this amount when he worked overtime and
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weekends. In addition, Defendant may have included his wife's monthly social security and
pension income when he completed this portion of the Credit Application. I therefore find that
Plaintiff failed to meet its burden of proving that Defendant made the representation concerning
the amount of his monthly gross income with intent to deceive Plaintiff. This representation,
therefore, is not actionable under either Section 523(a)(2)(A) or Section 523(a)(2)(B), both of
which require that Plaintiff prove that Defendant made the false representation with the intent to
deceive Plaintiff.
Plaintiff also complains that Defendant's Credit Application lists the 2004 Western Star
Vehicle as an asset worth $110,000.00, but fails to list the indebtedness Defendant owed on this
vehicle. A review of the Credit Application, however, reveals that although it includes a space to
list the value of assets, it does not include a space for the applicant to list the indebtedness owed
on each specific asset listed. Given this deficiency on Plaintiffs Credit Application form, I find
that Plaintiff failed to prove that Defendant intentionally failed to list the indebtedness owed on
the 2004 Western Star Vehicle on the Credit Application, or that Defendant omitted this
information with the intent of deceiving Plaintiff. I also find that Plaintiff failed to prove the
reasonableness of its reliance on the apparent representation that the 2004 Western Star Vehicle
was unencumbered, given the deficiency of Plaintiff s Credit Application form and because
Plaintiff could have taken a lien against the 2004 Western Star Vehicle if it wanted to ensure that
it could rely upon this asset as collateral for the line of credit it was extending to Defendant. For
all of these reasons, I find that Defendant's failure to list the indebtedness owed on the 2004
Western Star Vehicle on the Credit Application is not actionable under either Section
523(a)(2)(A) or Section 523(a)(2)(B).
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Plaintiff next argues that the debt should be found nondischargeable under Section
523(a)(2)(A) because Defendant's intent to deceive Plaintiff can be inferred by the facts that
Defendant applied for disability benefits both several months before he made the Credit
Application with Plaintiff and six weeks thereafter, and then decided to sell his truck, which he
presumably needed to continue his livelihood as a truck driver, two weeks after his Credit
Application was approved by Plaintiff. Defendant, however, maintains that he never intended to
deceive Plaintiff and that his intent was always to repay the debt he owed to Plaintiff, In fact,
Defendant continued making payments to Plaintiff for four months after he filed this bankruptcy
petition until his counsel learned that he was making post-petition payments to Plaintiff and
instructed him to stop. In addition, Defendant credibly testified that at the time he made the
Credit Application with Plaintiff, he fully intended to continue working as a truck driver, but that
his deteriorating health eventually made it impossible for him to do so, at which point he
attempted to work several jobs to support his family and avoid filing bankruptcy. Defendant also
attempted to work out a payment arrangement with Plaintiff, but was forced to file this
bankruptcy petition when the negotiations proved unsuccessful. Based upon Defendant's
credible testimony, 1 find that Defendant did not obtain the extension of credit from Plaintiff
through false pretenses, a false representation or actual fraud and that Plaintiff failed to meet its
burden of proof under 11 U.S.C. §523(a)(2)(A).
For all of these reasons, I find that Plaintiff failed to meet its burden of proof under either
Section 523(a)(2)(A) or Section 523(a)(2)(B) and I therefore find the debt to be dischargeable.
I will enter an appropriate Order.
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UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
Case No. 05-22733REF
Chapter 7
Adv. No. 05-2300
In re:
MERLIN E. ULRICH,
t/a ULRICH TRUCKING,
Debtor
DIAMOND CREDIT UNION,
Plaintiff
v.
MERLIN E. ULRICH,
Defendant
O R D E R
AND NOW, this "7 day of February, 2007, based upon the foregoing
Memorandum Opinion, it is hereby ORDERED that JUDGMENT ON THE COMPLAINT IS
HEREBY ENTERED IN FAVOR OF DEFENDANT AND AGAINST PLAINTIFF and the debt
in issue is hereby found to be DISCHARGEABLE.
BY THE COURT
r
RICHARD E. FEHLING
United States Bankruptcy Judge
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