AT&T Universal Card v. Deison

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_______________
m 99-50704
Summary Calendar
_______________
In the Matter of: MARSHA LYNN DEISON,
Debtor.
AT&T UNIVERSAL CARD SERVICES CORPORATION,
Appellant,
VERSUS
MARSHA LYNN DEISON,
Appellee.
_________________________
Appeal from the United States District Court
for the Western District of Texas
(A-99-CV-267)
_________________________
January 18, 2000
Before SMITH, BARKSDALE, and
PARKER, Circuit Judges.
JERRY E. SMITH, Circuit Judge:*
Marsha Deison accumulated $3,971.05 in
cash-advance credit-card debt only a few days
before declaring bankruptcy.1 The bankruptcy
court found that her testimony rebutted the
statutory presumption that debt acquired in
this manner was accumulated without the
necessary intent to repay it, and it thus found
the debt dischargeable. AT&T Universal Card
Services Corporation (“Universal”) appealed
to the district court, which affirmed. We
affirm the decision of the district court.
I.
* Pursuant to 5TH CIR. R. 47.5, the court has
determined that this opinion should not be
published and is not precedent except under the
limited circumstances set forth in 5TH CIR.
R. 47.5.4.
1 We present disputed facts in the light most
favorable to the verdict.

-- 1 of 7 --

2
Deison held a credit card issued by
Universal, with a credit line of $4,500.00, from
July 26, 1994, until the beginning of 1998.
She made regular use of the card during most
of that period. In a four-day period from
December 30, 1997, through January 2, 1998,
however, she made four cash-advance
withdrawals, totaling $3,903.50. On
December 30, 1997, she took $400.00 through
two cash-advance transactions of $200.00.
The following day, she took $3,200.00 in cash
through an advance at a bank. On January 2,
1998, she took an additional $300.00 in cash.
This spree represented a substantial
increase in activity from previous months and
a change in Deison’s buying and spending
habits. Although her income had declined in
1996 by $7,000 from the prior year, it
remained constant in 1996, 1997, and during
the first month of 1998. As of the filing date,
her net monthly income was $1,806.78.
From 1996 through January 1998, Deison
made $21,423.80 in merchandise purchases
and cash advances on her various credit cards
“to help make ends meet.” As of the filing
date, her monthly expenses were $1,924.46
without regard to her credit card obligations,
and her liabilities were $36,668.80.
Deison testified that she used the cash-
advance funds primarily to pay off other bills,
bills that she had previously been servicing by
drawing down her savings and a small
inheritance. She claimed never to have
realized the extent of her financial problems
and said she intended, at the time she took the
$3,900 in cash advances, to repay it.
Deison met with a professional credit
counselor on or about January 17 to discuss
her financial situation, and, on January 19, she
met with her bankruptcy attorney. On January
26, 1998, she filed a petition for relief under
chapter 7.
II.
The bankruptcy court stated the following:
If you look at this case on paper, it
definitely strikes one, and I can
understand why it would strike Ms.
Metz [the witness called by Universal],
as being a case that should be
investigated and pursued, because within
30 days of bankruptcy you have $3900
being taken in cash advances when that,
one, never happened before and, two, it
was out of line with what one would
expect in view of the debtor’s income.
Nonetheless, the court entered judgment for
Deison and dismissed the complaint, finding
that she intended to pay off the cash-advance
withdrawals, thus rebutting the presumption
that her withdrawals were fraudulent and
defeating Universal’s attempt to prove actual
fraud.
III.
The bankruptcy court’s conclusions of law
are reviewed de novo. Young v. National
Union Fire Ins. Co., 995 F.2d 547 (5th Cir.
1993) (citing Allison v. Roberts, 960 F.2d 481
(5th Cir. 1992)). The bankruptcy court’s
findings of fact are binding on the district court
and this court unless clearly erroneous. When
the bankruptcy court’s determination has been
approved by the district court, we do not
disturb it except for the most cogent reasons.
See Boydston v. Sears, Roebuck & Co. (In re
Boydston), 520 F.2d 1098, 1100 (5th Cir.
1975). Harmless error does not constitute a
valid basis for reversal. FED. R. CIV. P. 61.

-- 2 of 7 --

3
IV.
Section 523 of the Bankruptcy Code details
the circumstances in which certain debts will
not be discharged in bankruptcy, among them
being debt accrued “for money, property,
services, or an extension, renewal or
refinancing of credit, to the extent obtained by
false pretenses, a false representation, or actual
fraud, other than a statement respecting the
debtor’s or an insider’s financial condition.”
11 U.S.C. § 523 (a)(2)(A). With regard to
certain types of credit card debt, the Code
makes a special provision:
[F]or purposes of [11 U.S.C.
§ 523(a)(2)(A)], consumer debts owed
to a single creditor and aggregating
more than [$1,075] for “luxury goods or
services” incurred by an individual
debtor on or within 60 days before the
order for relief under this title, or cash
advances aggregating more than
[$1,075] that are extensions of
consumer credit under an open end
credit plan obtained by an individual
debtor on or within 60 days before the
order for relief under this title, are
presumed to be nondischargeable.
11 U.S.C. § 523(a)(2)(C).
It is undisputed that the debt Deison
accrued through her cash-advance withdrawals
qualified, under this section, as presumptively
nondischargeable. The bankruptcy court,
however, found that the evidence in the record
overcame the presumption.
As Universal admits, no published circuit
court opinion has discussed the presumption
created by § 523(a)(2)(C) or the quantum of
proof necessary to rebut it. In an unpublished
opinion, however, in Signet Bank/Va. v.
Rawoot, 1993 U.S. App. LEXIS 32091 (4th
Cir. Dec. 10, 1993) (citing FCC Nat’l Bank
Card v. Orecchio (In re Orecchio), 109 B.R.
285 (Bankr. S.D. Ohio 1989)), the court held
that “[t]o rebut this presumption, Mr. Rawoot
was required to ‘raise [] a substantial doubt in
the mind of the [bankruptcy judge] as to the
existence of the presumed intent [to defraud
his creditors].’” Rawoot, id. at *4 (brackets in
original).
A number of bankruptcy courts have dealt
with this question. In Orecchio, the court
analyzed the legislative history of
§ 523(a)(2)(C) and concluded that it
seems to indicate that a debtor needs to
do much more than simply present
evidence which could support a contrary
result. Rather, the debtor must
demonstrate non-fraudulent intent in
connection with that obligation. Such
evidence need not be of the same clear
and convincing nature as the creditor is
required to show to invoke the
presumption, but the Debtor’s rebuttal
evidence must raise a substantial doubt
in the mind of the trier of fact as to the
existence of the presumed intent.
Orecchio, 109 B.R. at 289-90. Similarly, in
J.C. Penney Co. v. Leaird (In re Leaird),
106 B.R. 177, 180 (Bankr. W.D. Wis. 1989),
the court said, “To rebut a presumption of
fraudulent intent under 11 U.S.C.
§523(a)(2)(C), the debtor must directly attack
the presumed fact with sufficient evidence to
support a finding that the fraudulent intent did
not exist.”2
2 See also Chase Manhattan Bank v. Sparks (In
re Sparks), 154 B.R. 766 (N.D. Ala. 1993);
Central Fidelity Nat’l Bank v. Powell, 213 B.R.
306 (Bankr. W.D. Va. 1997); Bank One Lafayette,
N.A. v. Larisey (In re Larisey), 185 B.R. 877, 881
(Bankr. M.D. Fla. 1995).

-- 3 of 7 --

4
In AT&T Universal Card Servs. v.
Ellingsworth (In re Ellingsworth), 212 B.R.
326 (Bankr. W.D. Mo. 1997), the court used
language of particular relevance to this case:
The legislative history of section
523(a)(2)(C), however, indicates that
Congress intended for a debtor to do
more than simply present evidence that
could support a contrary result.
Congress was concerned with what it
considered egregious conduct on the
part of debtors who incurred debt at a
point when their insolvency should have
been obvious. In Orecchio the Court,
therefore, held that a debtor must offer
substantial and believable evidence
contrary to the presumed intent in order
to demonstrate non-fraudulent intent.
Otherwise, the usefullness [sic] of the
presumption in section 523(a)(2)(C) is
destroyed.
Ellingsworth, 212 B.R. at 340-41 (footnotes
omitted). Courts have also recognized that in
attempting to ascertain a debtor’s subjective
intent, the debtor’s testimony is of no
probative value. “[S]ince a debtor will rarely
admit a lack of intention to repay, such intent
must be inferred from the totality of the
circumstances of the case at hand.” Chevy
Chase Bank FSB v. Kukuk (In re Kukuk), 225
B.R. 778, 786 (B.A.P., 10th Cir. 1998).3 As
the court said in LA Capitol Fed. Credit Union
v. Melançon (In re Melançon), 223 B.R. 300
(Bankr. M.D. La. 1998),
no debtor is going to take the stand and
testify against himself. Every debtor in
a Section 523(a)(2)(A) action involving
cash advances is going to say that he
intended to repay the money. Given that
this is an inflexible rule of nature, the
fact that one particular debtor in one
particular case adheres to the rule
doesn’t establish the debtor’s intent . . . .
It is insufficient for a debtor to simply
state that he always planned to pay the
money back “somehow” (we have a
mental image of cash suddenly falling
from the skies, like manna from heaven).
If the debtor has no idea how the money
will get paid back, or if it will get paid
back, then he may hope to repaySShe
may even want to repaySSbut he
certainly does not intend to repay.
Melançon, 223 B.R. at 318, 321.
Taken together, these cases suggest that the
bankruptcy court should have looked for
“substantial evidence” that the debtor did not
intend to defraud by her cash-advance
withdrawals in the sixty days before filing
bankruptcy and that a completely unsupported
assertion of lack of intent will not suffice. We
then review the bankruptcy court’s finding of
substantial evidence for clear error.
Deison did aver that she did not intend to
fail to pay back the cash advances; the
bankruptcy court believed her. Facts in the
record support that belief.
3 See also Citibank (S.D), N.A. v. Eashai (In re
Eashai), 87 F. 3d 1082, 1087 (9th Cir. 1996)
(“Since a debtor will rarely admit to his fraudulent
intentions . . . .”); AT&T Universal Card Servs.
Corp. v. Rembert, 14 F. 3d 277, 282 (6th Cir.
1998).

-- 4 of 7 --

5
Reading the record in the light most
favorable to the finding, we conclude that
Deison, a relatively unsophisticated consumer,
had always paid at least the minimum balance
on her credit cards before her bankruptcy,
even as she accrued over $21,000 in debt in a
little more than a year. This evidences her
intention to continue servicing her debt
without fail and suggests that she might have
been totally unaware that she had “run out of
rope.” Too, Deison was employed; she was
not entirely bereft of income. Moreover, her
uncontroverted testimony was that she used
the funds withdrawn to satisfy other
liabilitiesSSnot to purchase luxury goods or
make other frivolous uses of the funds.
Finally, it appears that the transactions had
been completed for three weeks before Deison
consulted a consumer-credit specialist, who
apparently alerted her to the precariousness of
her position.
In Anastas v. American Sav. Bank, 94 F.3d
1280, 1284 n.1 (9th Cir. 1996), one of the
cases to which Universal points in support of
its position, the court notes a list of non-
exclusive factors that might be considered in
determining whether there is intent to repay:
(1) the length of time between the
charges made and the filing of
bankruptcy; (2) whether or not an
attorney has been consulted concerning
the filing of bankruptcy before the
charges were 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 the same day; (8) whether or
not the debtor was employed; (9) the
debtor’s prospects for employment; (10)
the financial sophistication of the debtor;
and (12) whether the purchases were
made for luxuries or necessities.
Id. (citing Eashai, 87 F.3d at 1087-88). While
we have no intention of adopting this twelve-
part test as determinative, we do note that
many of the ways in which others have
attempted to determine whether fraudulent
intent exists suggest that Deison has shown
none. Even with reference to these factors, we
might, de novo, have come to a different
decision than did the bankruptcy court about
whether Deison’s story created substantial
doubt of intent. That court, however, did not
clearly err.
V.
Universal also argues that, even if Deison is
found to have rebutted the presumption that
her cash-advances worked fraud, it made, as a
matter of law, the case for fraud, which would
still render the debt undischarged under
§ 523(a)(2)(A). A showing of fraud requires
a showing of intentSSthe same intent that the
bankruptcy court found lacking when it found
that Deison had rebutted the § 523(a)(2)(C)
presumption. For the same reasons, we
conclude the bankruptcy court did not clearly
err in finding that Deison lacked the requisite
intent necessary to have committed fraud
under § 523(a)(2)(A).
VI.
Universal contends that the bankruptcy
court applied the wrong law in determining
whether Deison committed fraud against
Universal, and the wrong finding of intent in
analyzing the fraud. To the extent that
Universal has demonstrated error, however, it
has not established harm.
In the beginning of its review of applicable
law, the bankruptcy court stated that "[t]he
state law definition of fraud generally is a
representation knowingly made, knowingly
false, with the intent that the other party rely
upon it and that they are damaged as a result
of that reliance." In determining the
nondischargeability of a debt, federal common
law, not state law, controls. In Field, the
Court stated that “[w]e construe the terms in
§ 523(a)(2)(A) to incorporate the general
common law of torts, the dominant consensus
of common-law jurisdictions, rather than the
law of any particular State.” Field, 516 U.S.
at 70 n.9. The Court then explained that "the
most widely accepted distillation of the

-- 5 of 7 --

6
common law of torts was the Restatement
(Second) of Torts (1976) . . . ." Id. at 70.
Universal then points us to Melançon, in
which the bankruptcy court reviewed the
application of the Restatement to
§ 523(a)(2)(A).
Section 525 of the Restatement
provides: One who fraudulently makes
a misrepresentation of fact, opinion,
intention, or law for the purpose of
inducing another to act or to refrain
from action in reliance upon it, is subject
to liability to the other in deceit for
pecuniary loss caused to him by his
justifiable reliance upon the
misrepresentation . . . . [T]hat the use
of a credit card to obtain a cash advance
included with it a promise that the party
obtaining the cash advance would pay
the money back . . . .
According to the Restatement
(Second) of Contracts, a promise is a
manifestation of an intention to act or
refrain from acting. The Restatement of
Torts states that a promise automatically
includes an assertion that the party
making the promise intends to fulfill it.
The credit card agreement, then, can be
viewed as a contract that sets forth
certain agreed terms for future contracts
that are contemplated by the parties. If
a credit card holder decides to exercise
his rights under the agreement and
borrow some money, he can do so
without waiting for bank approval, and
without paperwork. He simply goes to
the nearest ATM, puts in this card,
pushes a few buttons, and takes his cash
. . . . .
But a loan is still a loan . . . . When
the card holder inserts the card into an
ATM, he is, in one step, asking for a
loan and promising to repay it if it is
obtained . . . . Inherent in any request
for a loan, in any making of a loan by
two parties, is a promise by the
borrower to repay the money borrowed.
This is no legal fiction.
Melançon, 223 B.R. at 307-08, 311, 316.
Thus, in conformity with the Restatement, the
use of the credit card, be it for a cash advance
or a purchase, is conduct that constitutes a
representation that "I will repay the loan."
All of this is true, but all of it illustrates why
the bankruptcy court’s application of the
wrong law of frauds worked no harm.
Universal points us to Melançon to
demonstrate that, had the bankruptcy court
employed the Restatement standard, it would
have realized that taking a cash advance
implicitly makes the “I will repay”
representation. Of course, the bankruptcy
court noted that
I believe the credit card agreement
makes it clear that the credit card holder
makes an express . . . statement they will
in fact repay the debt, and that what
courts have said is that in order to curb
real abuses . . . there should be layered a
presumed intention that the party is
acting in good faith, that is, that not only
do you have an express statement that “I
intend to repay it,” but that on top of
that the facts and circumstances of that
particular debtor are such at that time
that that is a reasonable belief. I think
that’s pretty much where the law sits.
Thus, though the bankruptcy court applied the
wrong law of fraud, that error was harmless,
because the court performed the same
functional analysis that Universal would have
had it apply under the Restatement’s definition
of fraud.
Universal also argues that the bankruptcy
court erred in that it mentioned that “I do
think that . . . . Ms. Deison did not have any
contemplation of filing a bankruptcy petition
until after this transaction took place.”
Universal points out that the intent analysis to
be undertaken is whether the debtor intended
to repay the loan, not whether he intended to
file bankruptcy. The cases cited above support
this position. The bankruptcy court’s error

-- 6 of 7 --

7
was one of locution rather than analysisSSit
simply misspoke.
This is shown by the court’s statement that
“there should be layered a presumed intention
that the party is acting in good faith, that is,
that . . . you have an express statement that
‘I intend to repay it.’” This passage illustrates
that the court was well aware of the proper
standard when it explicated the relevant legal
analysis.
Finally, Universal points to the
Restatement, § 530, Comment d, and to
Boydston, which acknowledge that, in the
words of the Restatement, “[f]radulent intent
may, however, be proved by circumstantial
evidence. Thus, an intent not to pay for goods
purchased may be shown by the promisor’s
insolvency.” RESTATEMENT (SECOND) OF
TORTS § 530, cmt. d. (1976); see Boydston,
520 F.2d at 1101. From this, Universal
concludes that “as Ms. Deison could not
afford to repay her debts the trial court should
have, as a matter of law under the Restatement
of Torts, inferred that she did not intend to
repay the debt.”
We disagree with this logic; that insolvency
may be used to demonstrate intent not to
repay certainly does not require the
conclusion, as a matter of law, that a consumer
debtor who borrows when insolvent has
committed fraud. Such a requirement would
in fact render the § 523(a)(2)(C) presumption
unrebuttable, because almost all consumer
debtors are going to be technically insolvent in
the days before their declaration of
bankruptcy. This is not the law.
AFFIRMED.

-- 7 of 7 --