In Re Kelli Williams, Bankruptcy No. 09-11009.

431 B.R. 150

In re Kelli WILLIAMS, DebtorTower Credit, Inc., Plaintiffv.Kelli Williams, Defendant.

Bankruptcy No. 09-11009.

Adversary No. 09-1083.

United States Bankruptcy Court M.D. Louisiana.

July 7, 2010.

COPYRIGHT MATERIAL OMITTED

Richard D. Bankston, Baton Rouge, LA, for Plaintiff.

Kelli Williams, Baton Rouge, LA, pro se.

MEMORANDUM OPINION

DOUGLAS D. DODD, Bankruptcy Judge.

This lawsuit turns on debtor Kelli Williams's alleged misstatements and omissions on her Tower Credit, Inc. (“Tower”) loan application and whether Tower relied on those alleged misstatements and omissions in deciding to extend the loan.

Tower contends that its claim against Williams is not dischargeable under 11 U.S.C. § 523(a)(2)(A) and (B). Because the evidence established that Tower did not reasonably rely on Williams's misrepresentations during the application process, the obligation is dischargeable.

FACTS

The Tower Loan Application

Kelli Williams visited Millennium Auto planning to buy an automobile on February 10, 2003. Because the Ford Probe she settled on was priced at $3,500 and Ms. Williams had only $1000 to apply to the purchase, a Millennium employee contacted Tower about making a loan to enable the sale. Ms. Williams, who had not previously done business with Tower Credit, accompanied the Millennium employee to Tower shortly afterward and applied to borrow $2,500 to pay the balance of the purchase price.¹ The next day Ms. Williams returned to Tower's office where she signed a promissory note as well as a two-page loan application. Her signature on the application fell below printed language vouching for the truth of all information on the application.² Ms. Williams later defaulted on the Tower loan and eventually filed chapter 7.

The Debtor's Alleged Misstatements and Omissions

The debtor's application listed a single creditor, Hibernia National Bank (“Hibernia”); Ms. Williams had two unpaid loans at Hibernia. Williams did not dispute at trial that she omitted three other debts from the application: a $21,000 debt to Bank One; a $3,000 obligation to the United States Attorney; ³ and an $800 debt to Enterprise Rent-a-Car (“Enterprise”). The debtor incurred all three of these debts before she borrowed from Tower. ⁴ Ms. Williams testified that she did not reveal the Bank One, U.S. Attorney or Enterprise debts to Tower because no one there asked her to list all her debts. She stated that she only spent perhaps fifteen minutes with Stephen Binning, Tower's president, when she went to the office to apply for the loan. She believed that the loan was a “done deal” and that she went to Tower's office after her first visit only to sign the loan documents.

Tower's loan application form included a section for calculating a customer's monthly budget, which Tower used to assess the borrower's ability to repay the loan. Williams's application reflected total net monthly income of $1,645, comprising $800 per month from K & B Construction (“K & B”) and $200 she earned each week from free-lance landscaping. Ms. Williams's budget had no provision for rent or a house payment, nor did it include an automobile loan payment although the debtor testified that one of her Hibernia loans was for an automobile. Her budget did include a “revolving debit” payment (for a purpose not identified at trial), “other monthly payments,” estimates for monthly utility and grocery bills, and a “miscellaneous” entry of ten percent of the debtor's monthly income.⁵ These budget items totaled $1,088, leaving Williams $557 to repay the Tower loan. Binning testified that Ms. Williams reviewed the completed budget and the rest of the loan application before signing it.⁶

Mr. Binning testified that he followed Tower's practice and obtained Ms. Williams's credit report when she applied for the loan but that it did not reflect that she owed any money to Bank One.⁷

Binning testified that because Ms. Williams's budget determined whether she would be able to repay Tower, the debtor's failure to list all her debts influenced his decision to lend her money. He specifically insisted that he would not have made the loan to the debtor had he known about the Bank One ⁸ debt or Ms. Williams's obligation to the U.S. Attorney.⁹

Binning acknowledged that the debtor told him she was separated from her husband-a detail her loan application disclosed. He testified that he could not specifically recall whether he asked her if she was paying rent or other housing expenses, though he believed he may have questioned Williams about that when she applied for the loan. Adjusting Ms. Williams's budget to include funds for housing also would have reduced the money available to pay Tower and to meet the debtor's other obligations. The debtor testified at trial that she was not paying any rent when she applied for the Tower loan.

Finally, Binning stated that he had no reason to believe that Williams was not actually making $200 per week from landscaping as she had represented. According to Binning, had he known that Ms. Williams did not earn $200 a week from landscaping, he would have concluded that her available income would have been inadequate to repay Tower and so he would not have made the loan to her.

The Debtor's Chapter 7 Petition

Ms. Williams filed chapter 7 on July 7, 2009. At the September 13, 2009 meeting of creditors she acknowledged signing the schedules and verifying their accuracy.¹⁰ Under questioning at the meeting, the debtor admitted that she borrowed money from Bank One in February 2002 ¹¹ and that she had incurred debts to Enterprise and the U.S. Attorney before she borrowed from Tower in 2003.¹² Ms. Williams also stated at the 341 meeting that in 2003 she was working only at K & B and not doing landscaping.¹³ Additionally, she testified that she was paying rent in 2003.¹⁴

ANALYSIS

A. Tower Failed to Prove That its Debt is Nondischargeable Under 11 U.S.C. § 523(a)(2)(A)

Tower's complaint alleges that the debtor's actions render her debt to Tower nondischargeable under 11 U.S.C. § 523(a)(2)(A) which excepts from discharge any debt:

“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 ... financial condition....”

Section 523(a)(2)(A) applies to debts obtained by fraud “involving moral turpitude or intentional wrong, and any misrepresentations must be knowingly and fraudulently made.” Gen. Elec. Cap. Corp. v. Acosta, 406 F.3d 367 (5th Cir.2005), citing In re Martin, 963 F.2d 809, 813 (5th Cir.1992).

To prevail under 11 U.S.C. § 523(a)(2)(A), Tower must prove that: (1) the debtor made representations; (2) the debtor knew the representations were false when they were made; (3) the debtor made the representations with the intention and purpose to deceive the creditor; (4) it relied on the representations; and (5) it sustained losses as a proximate result of the representations. RecoverEdge L.P. v. Pentecost, 44 F.3d 1284, 1293 (5th Cir.1995), citing In re Bercier, 934 F.2d 689, 692 (5th Cir.1991). Tower did not meet this burden.

The evidence established that the debtor falsely represented to Tower that her only debts were the two loans from Hibernia, that she was making $200 per week doing landscaping work when she applied for the loan and that she was paying no rent at that time. Moreover, she knowingly signed the loan application giving Tower the false information to get the loan and knowingly warranted its truthfulness when the application was materially incorrect. “ ‘When it is not disputed that a loan application was signed by the [d]ebtor, then the contents of the application should, in general, be attributed to the [d]ebtor and entitled at least to great weight, and perhaps decisive effect.’ ” In re Butski, 184 B.R. 193, 195 (Bankr.W.D.N.Y.1993), citing In re Kabel, 184 B.R. 422, 425 (Bankr.W.D.N.Y.1992). The debtor's indifference to the accuracy of the application does not protect her because lack of care when signing loan documents indicates a reckless disregard for the accuracy of the information in the documents for purposes of 11 U.S.C. § 523(a)(2)(A) and supports a finding that the debtor intended to deceive Tower. Butski at 195.

The debtor admitted under oath at the meeting of creditors that she borrowed money from Bank One in February 2002 and that she had incurred the debts to Enterprise and the U.S. Attorney before she applied for the Tower loan. She also admitted that she was only working at K & B and not landscaping freelance in her spare time when she applied to Tower. Finally, Ms. Williams confirmed she was paying rent when she did business with Tower. None of this information was disclosed on the debtor's loan application or to any Tower employee when she applied for credit. In fact, Ms. Williams's trial testimony about her landscaping work and her payment of rent directly contradicted her earlier testimony at the 341 meeting. All of this evidence supports a finding that Ms. Williams intended to deceive Tower. Moreover, the debtor's claim that she did not give Tower the omitted information because no one from Tower asked her and because she thought that the loan was a “done deal” and she needed only to sign the loan documents where instructed to, is not credible, especially in light of her signed verification warranting the accuracy of the loan application.

Merely establishing that the debtor misled it is insufficient to entitle Tower to a declaration that Williams's debt to it is nondischargeable. To render its claim non-dischargeable under section 523(a)(2)(A), Tower also must prove that it justifiably relied on the debtor's misrepresentations in deciding to extend credit. Field v. Mans, 516 U.S. 59, 116 S.Ct. 437, 133 L.Ed.2d 351 (1995). Justifiable reliance is gauged by “ ‘an individual standard of the plaintiff's own capacity and the knowledge which he has, or which may fairly be...