In re No. 97-35137SCDM MARY JEW LEUNG, Debtor(s). ___________________________________/ AT&T UNIVERSAL CARD SERVICES CORP., Plaintiff, A.P.No. 98-3047DM v. MARY JEW LEUNG, Defendant. __________________________________/ MEMORANDUM DECISION
A trial was held on the complaint of AT&T Universal Card Services Corp. ("Plaintiff") against defendant Mary Jew Leung ("Defendant") on January 15, 1999. Plaintiff appeared and was represented by Anne L. Keck, Esq.; Defendant appeared in propria persona, and was joined during the trial by counsel Daniel Bosis, Esq.
After presentation of oral testimony and documentary evidence, and the arguments of counsel, the court took the matter under submission. For the reasons set forth below, the court has determined that Defendant's obligations to Plaintiff are dischargeable in her Chapter 7 case and will enter judgment in her favor.
This is one of many cases that come before the court brought by Plaintiff and other major credit card issuers, seeking a determination of nondischargeability for credit card obligations incurred by Chapter 7 debtors prior to their filing bankruptcy. Once again in this case the court has been called upon to consider the controlling authorities on point and to apply the principles set forth in those authorities to the facts presented.
Currently the law regarding credit card dischargeability issues in the Ninth Circuit appears to be governed by a trio of circuit court decisions, supplemented by a decision of the Bankruptcy Appellate Panel. The critical cases are the following. In re Eashai, 87 F.3d 1082 (9th Cir. 1996), which dealt specifically with credit card kiting, but as a general rule adopted a "totality of the circumstances" theory whereby the bankruptcy court should infer the existence of an intention not to pay a credit card debt if the facts and circumstances of a particular case present a picture of deceptive conduct by the debtor. 87 F.3d at 1087.
In Eashai the court relied heavily on the seminal Bankruptcy Appellate Panel decision In re Dougherty, 84 B.R. 653 (9th Cir. BAP 1988). From the Dougherty case comes a nonexclusive list of twelve factors to be considered in determining the debtor's intent.(1)  Eashai involved a credit card kiter with a duty to disclose his intention not to pay. Despite the specifics of the case before it, the court stressed that it was not actual fraud simply to make a minimum payment with a cash advance from another credit card. Instead, such conduct on the part of the debtor must be coupled with lack of intent to repay the debt; that lack of intent is determinable from consideration of the Dougherty factors. 87 F. 3d at 1087.
Following Eashai, the Ninth Circuit decided Anastas v. American Savings Bank (In re Anastas), 94 F.3d 1280 (9th Cir. 1996). There the court directed three essential inquiries to determine whether credit card debt would be nondischargeable:
1. Did the cardholder fraudulently fail to disclose his intent not to repay the credit card debt;
2. Did the card issuer justifiably rely on a representation by the debtor; and
3. Was the debt sought to be discharged proximately caused by the first two elements. 94 F.3d at 1283, citing Eashai 87 F.3d at 1088. Thus the bankruptcy court is directed to consider whether the debtor intentionally or with recklessness as to its truth or falsity, made a representation that he intended to repay the debt. The Dougherty factors should be considered, but from an overall point of view, the debtor's good faith must be examined. The "hopeless state of a debtor's financial condition should never become a substitute for an actual finding of bad faith." 94 F.3d at 1286.
Finally, in American Express Travel Related Services Company v. Hashemi (In re Hashemi), 104 F.3d 1122 (9th Cir. 1996), the court referred to Anastas and stressed that each time a credit card holder uses the credit card, a representation of intention to repay the debt is made. Intent to repay is a fact question based upon the Dougherty analysis. 104 F.3d at 1126, fn. 2.
As to justifiable reliance, the credit card issuer justifiably relies on a representation of intent to repay as long as the account is not in default and initial investigations into the credit report do not raise red flags that would make reliance unjustifiable. Id.
III. Facts(2) 
With the foregoing in mind the court turns to the facts of this case.
Defendant applied for credit from Plaintiff in August, 1992, at a time when she was not in default on any other credit cards. She had an income of approximately $15,000 per year and was granted preapproved credit of $3,500.
By February of 1997, Defendant's credit line with Plaintiff had increased to $8,500 and in that month she incurred 14 charges for a total of $272.50. In the following several months she made charges every month, the most of which (both in dollar amount and total number of charges) were during March and April, 1997 and which included a total of four $1,000 convenience checks. As of May, 1997, Defendant's credit line with Plaintiff was increased from $8,500 to $10,200, and in that month she incurred an additional $1,456 of charges, including $1,000 convenience check. Beginning in June, 1997, her charges dropped below $1,000 per month, except during July when they totaled $1,197, including a $1,000 convenience check.
During every month until October, 1997, Defendant paid the minimum amount due to Plaintiff per month. At least some of the minimum payments were made by cash advances from other credit cards; some of the cash advances made to her were used to make minimum payments on one or the other of two credit card accounts she maintained with other issuers. None of the charges Defendant made on Plaintiff's card were for extravagances or significant luxuries. In general the purchases were for necessities, educational materials, miscellaneous personal expenses, necessary repairs and medical expenses or veterinarian or pet related charges.
Defendant, who was experienced in bookkeeping matters and other office work, was employed on a contract basis from time to time during the subject months, and obtained full-time employment in August, 1997. Although she expected that employment to be permanent, it terminated by October of 1997. By then she had no further credit available to her and was forced to file Chapter 7 bankruptcy on November 7, 1997.
First the court must determine if Defendant's conduct resembles that of Mr. Eashai, a consummate credit card kiter. There the court distinguished the kiter from someone trying to make ends meet (including minimum credit card payments), through use of an another card:
Clearly it is not actual fraud simply to make a minimum payment with a cash advance from another credit card. This action on the part of the debtor must also be coupled with a lack of intent to repay the debt.
87 F.3d at 1089-1090. The court pointed out that "... a credit card kiter is easily distinguishable from a bad luck debtor. A credit card kiter manipulates the system to gain money, property, and services with no intention of ever paying for them." 87 F.3d at 1090.
In order to consider intent to deceive, the Dougherty factors are considered. Here those factors weigh in favor of the Defendant. Taking several of them together, although the Defendant made a fair number of charges and some of them on the same day, in general they were small and for normal, non-luxurious or non-extravagant purposes. They were all made within credit card limits and at a time when the debtor was making minimum payments. There is no pattern of credit card kiting.
Although some smaller charges were made as bankruptcy became more imminent, the bulk of Defendant's charges on Plaintiff's cards were made several months prior to bankruptcy. There is no evidence that Defendant consulted with any attorney in connection with these charges. While her employment prospects were questionable at times, she was actively looking for employment and the fact that she did obtain a job believed to be permanent operates in her favor. Finally, the Defendant did not make any sudden change in her buying habits nor, as stated above, purchase luxurious items.
Plaintiff is entitled to some balancing of the Dougherty factors in its favor, including the financial sophistication of the Defendant and the fact that she was clearly living on her credit cards during 1997. Nevertheless, the bulk of the Dougherty factors lead the court to find that there was no lack of intent to pay nor did the debtor Defendant demonstrate any bad faith as required by the Anastas court. To paraphrase from Hashemi, she did not try "... to have a last hurrah at [Plaintiff's] expense." 104 F. 3d at 1126.
Neither was the Defendant reckless in her behavior. Although there were no "red flags" to alert Plaintiff to a problem (see Hashemi, 104 F.3d at 1126) and Plaintiff justifiably relied on the implied representation of intent to repay when the charges were made, there was no inherent falsehood in the representations. Defendant intended in good faith to pay her debts to Plaintiff when she incurred them.
Plaintiff has not sustained its burden under 11 U.S.C. § 523(a)(2)(A) as required a preponderance of the evidence under Grogan v. Garner, 498 U.S. 279 (1991).
In view of the foregoing, Defendant is entitled to a judgment of dischargeability of all her obligations to Plaintiff, and is entitled to her costs. Counsel for Defendant should prepare a judgment consistent with this disposition and should comply with B.L.R. 9021-1 and B.L.R. 9022-1.Dated: January 25, 1999 ______________________________ Dennis Montali United States Bankruptcy Judge
1. The factors will be discussed in detail, infra.
2. The following discussion constitutes the court's findings of fact and conclusions of law. Fed. R. Bankr. P. 7052(a).