American Express Centurion Bank v. Pitz

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-1-	MEMORANDUM DECISION
UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
In re
DEBRA A. PITZ,
Debtor.
AMERICAN EXPRESS CENTURION BANK,
Plaintiff,
vs.
DEBRA A. PITZ,
Defendant.
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Case No. 08-30275 TEC
Chapter 7
Adv. Proc. No. 08-3053 TC
MEMORANDUM DECISION
The court held a trial in this action on May 12, 2009.
Joseph M. O’Donnell appeared for Plaintiff American Express. 	Drew
Henwood appeared for Defendant Debra A. Pitz. 	The court hereby
issues the following decision, which shall constitute its findings
of fact and conclusions of law.
FACTS
This case concerns Debra Pitz’s use of two American Express
Signed and Filed: June 08, 2009
________________________________________
THOMAS E. CARLSON
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
June 09, 2009
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 08-03053 Doc# 23 Filed: 06/08/09 Entered: 06/09/09 11:37:21 Page 1 of
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1 The Bankruptcy Code defines luxury goods by what they are
not. 	The “term ‘luxury goods or services’ does not include goods
or services reasonably necessary for the support or maintenance of
the debtor a dependent of the debtor.” 	11 U.S.C.
§ 523(a)(2)(C)(ii)(II).
2 Pitz testified that she lives in a one-bedroom apartment.
Between June 25th and August 14th, Pitz made 42 purchases that
appear to be for home furnishings.
3 Pitz testified that she had other home computers, and did
not need the additional hardware, software, and accessories that
she purchased.
4 This category includes gift cards, accessories other than
shoes, and items purchased from Amazon and Sephora.
-2-	MEMORANDUM DECISION
credit cards. 	Plaintiff seeks to have the resulting debt excepted
from discharge on the basis that Pitz made charges without intending
to repay.
Pitz used her Gold Card to make 156 charges totaling $120,324
(net), between June 25, 2007 and August 14, 2007. 	During that
period, Pitz used the Gold Card to purchase the following luxury
goods: 1 Louis Vuitton accessories totaling $62,151; shoes totaling
$16,346; watches totaling $4,844; other clothing totaling $13,021;
home furnishings totaling $9,778; 2 computers totaling $3,768; 3 and
miscellaneous 4 luxury items totaling $6,528. 	The combined amount of
the purchases just described is $113,249 (adjusted for returns).
On July 20, 2007, American Express mailed Pitz a statement showing a
$119,474 balance due on the Gold Card. 	Pitz never made any payment
on the debt shown in that statement.
Pitz used her Platinum Card to make charges totaling $22,848,
between June 25th and August 14th. 	Among those transactions was a
charge of $22,080, effectively using her Platinum Card to pay the
balance due on a credit card issued by Chase. 	On July 24, 2007,
American Express mailed Pitz a statement showing a $23,565 balance
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28 5 These payments are described in more detail on page 9,
below.
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due on the Platinum Card. 	Pitz never made any payment on the debt
shown in that statement.
Pitz had been an American Express cardholder for at least ten
years prior to June 2007. 	The exhibits introduced at trial include
statements for both the Gold and Platinum cards from November 2006
through early 2008. 	In the seven months before she made the charges
described above, Pitz had always paid at least the minimum required
payment following receipt of her monthly statement. 5
Pitz’s financial resources were clearly inadequate to repay the
the June-August 2007 charges. 	Pitz did not have a job in 2007. 	She
had worked as a information technology specialist for a major law
firm in 2006, but went on medical leave on August 1, 2006, and did
not work between that date and the filing of her chapter 7
bankruptcy petition on February 21, 2008. 	Pitz’s total income in
calendar year 2006 was $78,000. 	Her stated annual salary at the law
firm was likely higher than that, as she received salary for only
the first seven months of the year, and received disability payments
for the last five months of the year. 	During all of 2007, Pitz’s
only income consisted of disability payments that varied between
$4,100 and $4,550 per month, while her basic living expenses
averaged $4,400 per month. 	Pitz did not testify regarding her job
prospects. 	In her bankruptcy schedules, Pitz listed no significant
property from which her debts could be paid.
Pitz testified that she suffers from bipolar disorder. 	She has
been under the care of a psychiatrist since early 2006, was first
diagnosed as bipolar in September 2007, is currently under the care
of Dr. Roger Fried, and is currently taking several psychotropic
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drugs to control her disorder. 	Pitz testified that she was in a
manic stage when she made the June-August 2007 charges. 	She
remembers making the charges, but contends that she did not fully
understand what she was doing. 	Pitz stated that she was very
anxious, that she rarely slept, that she went into stores and bought
item after item, that her life was in chaos, that she was not
opening her mail, that her apartment was filled with unopened boxes
and shopping bags, that she gave away many of the items that she
purchased, and that at the end of her buying spree she “crashed.”
Pitz did not offer the testimony of Dr. Fried or any other mental
health expert, nor did she explain why she did not produce such
evidence. 	Her counsel marked for identification a few pages of
medical records, but did not attempt to introduce them when
Plaintiff objected to their introduction without proper
authentication as business records.
DISCUSSION
1. 	Legal Standard
A chapter 7 discharge does not provide relief from a debt that
results from a fraud perpetrated by the debtor. 	11 U.S.C. § 523
(a)(2)(A). 	To have a debt excepted from discharge, the creditor
must establish the following elements: (1) that debtor obtained
money by making a representation of fact; (2) that debtor’s
representation was false; (3) that debtor knew the representation
was false and made the representation with the intent to deceive;
(4) that the creditor was justified in relying upon the debtor’s
representation; and (5) that the creditor suffered damage as a
result. 	Am. Exp. Travel Related Svs. Co. Inc. v. Hashemi (In re
Hashemi), 104 F.3d 1122, 1125 (9th Cir. 1997).
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Where the alleged fraud is misuse of a credit card, the courts
have adopted two special rules as to how the elements of fraud can
be proved. 	First, use of a credit card constitutes an implied
representation that the debtor intends to repay the resulting debt.
Id. at 1126. 	Second, the creditor need not obtain an express
admission that the debtor did not intend to repay the charges; the
court may infer the debtor’s knowledge and intent from the
circumstances in which the charges were made. 	Id. at 1125.
The Ninth Circuit has identified twelve factors that the court
should consider in determining whether a debtor acted with intent to
defraud in using a credit card.
(1) the length of time between the charges and the
bankruptcy filing; (2) whether or not an attorney had 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 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; (11) whether there was a
sudden change in the debtor’s buying habits; and (12)
whether the purchases made were luxuries or necessities.
Hashemi, 104 F.3d at 1125 n.2. (citing Citibank South Dakota v.
Dougherty (In re Dougherty), 84 B.R. 653, 657 (9th Cir. BAP 1988)).
No one of these factors is controlling, nor does the creditor need
to prove any minimum number of factors. 	The evidence is sufficient
if, taken as a whole, it shows the debtor’s fraudulent intent. 	Id.
The courts have also recognized that they must act carefully in
inferring fraudulent intent from the acts of a debtor who is
suffering from bipolar disorder. 	Dutreix v. Fontenot (In re
Fontenot), 89 B.R. 575, 581 (Bankr. W.D.La. 1988). 	This is so,
because a person with bipolar disorder may suffer from an irrational
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6 Pitz made 156 charges on the Gold Card from June 25th
through August 14th.
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optimism causing her to believe that “whatever [s]he was doing was
going to work out.” 	Id. at 579.
In the present case, it is undisputed that Pitz made the
charges in question, that she did not have the ability to repay
those charges, and that American Express suffered loss as a result.
Pitz disputes that she acted with fraudulent intent, contending that
her acts were the product of her bipolar disorder. 	Pitz also
disputes that American Express acted justifiably in relying on her
implied representation that she would repay, in light of the large
amount and bizarre pattern of her charges.
2. 	Evidence of Intent to Defraud
Consideration of the surrounding circumstances suggests that
Debtor made the charges after June 25, 2007 with intent to defraud.
Pitz likely received the June statement for the Gold Card by June
25, 2007. 	At that time, she knew that she had a balance of $20,672
on the Gold Card, that she had no job, and that her disability
insurance payments provided no income in excess of her basic living
expenses. 	Yet between June 25th and August 14th, Debtor used the
Gold Card to purchase luxury items totaling $113,249, and used the
Platinum Card to pay the $22,080 balance on her Chase credit card.
Debtor made no payment on either card after July 5, 2007. 	The June-
August 2007 charges substantially exceeded her highest annual
income.
Consideration of the following Dougherty factors suggests that
Pitz made the post-June 25th charges with the intent to defraud
American Express: the large number of charges made, 6 the large total
amount of the charges, Pitz’s poor financial condition when she made
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7 Pitz made 15 charges totaling $27,758 on July 19th; 14
charges totaling $2,185 on June 26th; 13 charges totaling $8,009 on
July 3rd; and 13 charges totaling $4,501 on June 25th.
8 The Gold Card statement issued July 20, 2007 showed new
charges totaling $109,702. 	The largest amount of new charges shown
on the statements for any prior month was $17,756 (June 2007).
9 From June 25th to August 14th, Pitz’s net charges for luxury
goods were $113,249, while her total charges were $143,444
(including the $22,080 balance transfer).
-7-	MEMORANDUM DECISION
the charges, multiple charges on same day, 7 Pitz’s unemployment when
she made the charges, Pitz’s sudden change in buying habits, 8 and
the fact that approximately eighty percent of the amount charged was
for the purchase of luxury goods. 9 	The only factors weighing
against a finding of fraud are that Pitz did not exceed her credit
limit and that she did not file bankruptcy immediately after making
the charges (she filed about six and one-half months later). 	There
was no evidence as to when she first consulted a bankruptcy attorney
or her financial sophistication.
The evidence of Pitz’s medical condition introduced at trial
does not negate this strong evidence of intent to defraud. 	Pitz did
not offer the testimony of her psychiatrist or of any other medical
expert. 	This court understands in a general sense that a person
suffering from bipolar disorder, while in a manic phase, might
sincerely believe she could successfully execute a financial plan
that a healthy person would understand to be impossible. 	Fontenot,
89 B.R. at 579. 	But this court cannot determine without the help of
a medical expert whether Pitz suffered from such delusions at the
time she made the charges in question, and whether her illness
prevented her from forming the intent to defraud. 	See Mfrs. Hanover
Trust Co. v. Hutchinson (In re Hutchinson), 27 B.R. 247, 251-52
(Bankr. E.D.N.Y. 1983). 	I note that Pitz seems to have been able to
control her use of credit cards during much of the time she has been
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ill. 	I also note that although Pitz is apparently still ill, her
testimony at trial was very precise and revealed a strong
comprehension of the implications of her credit card use. 	In these
circumstances, the court is reluctant to rely upon hearsay evidence
regarding Pitz’s medical condition or her own self-diagnosis,
especially where Pitz offered no explanation of why her psychiatrist
was not called to testify. 	See Keena v. United R.R. of San
Francisco, 197 Cal. 148, 157-58 (1925) (court permitted to infer
from party’s failure to call a witness that the witness’s testimony
would be adverse); Navon v. Simon (In re Simon), 364 B.R. 850, 853-
54 (D.Conn. 2007) (same).
3. 	Evidence of Justifiable Reliance
The circumstances also suggest that American Express was
justified in relying upon Pitz’s representation that she would repay
the charges made between June 25th and August 14th. 	In the months
before the June-August 2007 charges, Pitz steadily increased the
amount of her charges on the Gold Card, then always paid more than
the required minimum repayment in the following month, creating an
impression that her resources were increasing. 	This impression was
punctured only when Pitz failed to make any payment in the month
following the abusive June 25-August 14 charges.
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-9-	MEMORANDUM DECISION
MONTH 	NEW C HARGES
MADE R ESULTING
BALANCE REQUIRED
P AYMENT
A MOUNT P AID
NEXT M ONTH
Nov. 2006 	$83 	$83 	$83 	$83
Dec. 2006 	$1,446 	$1,446 	$631 	$2,236
Jan. 2007 	$1,443 	$654 	$300 	$948
Feb. 2007 	$2,555 	$2,260 	$941 	$4,980
Mar. 2007 	$9,631 	$6,911 	$3,705 	$6,831
Apr. 2007 	$7,431 	$7,431 	$1,855 	$7,455
May 2007 	$3,951 	$3,915 	$959 	$1,000
June 2007 	$17,756 	$20,672 	$3,789 	$10,900
July 2007 	$109,702 	$119,474 	$8,660
due 8/14 $0
The following factors also suggest that Plaintiff’s reliance was
justifiable: Pitz never exceeded her credit limit, Plaintiff
telephoned Pitz in mid-July to confirm that the charges were
genuine, and Pitz made the bulk of the abusive charges over a short
period of time. 	See Hashemi, 104 F.3d at 1126.
Payment was due on the Gold Card on August 14, 2007; Pitz was
obligated to make a payment of at least $8,660 on a balance of
$119,474. 	American Express was no longer justified in assuming that
Pitz would repay subsequent charges when she failed to make any
payment on that date.
4. 	Prejudgment Interest and Attorneys Fees
Plaintiff did not provide evidence sufficient to enable the
court to calculate prejudgment interest on any basis other the
federal judgment rate. 	Plaintiff also failed to establish any basis
upon which the court can award attorneys fees.
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CONCLUSION
On the basis of the evidence introduced at trial, I find that
from June 25 to August 14, 2007, Pitz made charges on her American
Express Cards totaling $120,324 without intending to repay those
charges. 	I find that American Express was justified in relying on
Pitz’s implied representation of intent to repay with respect to the
charges made through August 14, 2007. 	I find that after August 14,
2007, American Express could not justifiably rely on Pitz’s implied
representation of intent to repay. 	I therefore determine that
Debtor’s obligation to Plaintiff is non-dischargeable in the amount
of $120,324, plus prejudgment interest from August 14, 2007 at the
federal judgment rate.
**END OF MEMORANDUM DECISION**
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Court Service List
Debra A. Pitz
1770 Broadway St. #206
San Francisco, CA 94109
Drew Henwood, Esq.
Law Offices of Drew Henwood
41 Sutter Street, Suite 621
San Francisco, CA 94104
John M. O'Donnell, Esq.
Law Offices of John M. O'Donnell
915 University Avenue
Sacramento, CA 95825
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