R. GUY COLE, JR., Circuit Judge. Appellants
AT&T Universal Card Services, Inc. ("AT&T") and
Citibank South Dakota, N.A. ("Citibank") appeal
the district court's order that reversed a
judgment of the bankruptcy court and determined
that Appellee Benethel Rembert's debts to
Appellants were dischargeable pursuant to 11
U.S.C. § 523(a)(2)(A). For the following
reasons, we AFFIRM
the decision of the
Appellee Benethel Rembert has worked for
Chrysler Motors Corporation as an hourly-wage
factory inspector for over twenty-eight years.
In 1993, Rembert encountered financial
difficulties resulting from an automobile
accident, which caused her to miss work for
several months. Rembert's financial difficulties
were exacerbated when, between 1994 and 1995,
her income was reduced by one-third because she
was unable to work overtime. During this time,
Rembert had an established credit card account
with Citibank and opened two separate credit
card accounts with AT&T.
Rembert's financial woes continued.
Between June 1994 and January 1995, Rembert
incurred gambling losses of between $18,000 and
$24,000, primarily at the Windsor Casino in
Ontario, Canada. To finance her gambling, she
withdrew thousands of dollars in cash advances
from automated teller machines at the casino on
her credit card accounts, including those with
Citibank and AT&T. As a result of the heavy
debts she had incurred by virtue of these
withdrawals, Rembert obtained a second mortgage
on her home in November 1994, in the amount of
$28,000. Rembert used a significant portion of
the loan proceeds to pay her credit card debts;
on November 14, 1994, Rembert completely paid
her Citibank balance of $5,936, and also paid a
$3,051.86 balance on one of her AT&T accounts.
Despite her mounting losses and the
second mortgage on her home, Rembert continued
to gamble and withdraw cash advances. By January
1995, Rembert again owed substantial amounts on
her Citibank and AT&T accounts. During that
time, Rembert made additional payments of
approximately $2000 to Citibank and
approximately $1500 to AT&T.
On April 20, 1995, Rembert filed a
petition for relief under Chapter 7 of the
Bankruptcy Code, 11 U.S.C. § 701, et seq.
Thereafter, Citibank and AT&T initiated
adversary proceedings against her, seeking a
determination that Rembert's debts to them were
nondischargeable under 11 U.S.C. § 523(a)(2)(A).
The two adversary proceedings were consolidated
and tried together in the bankruptcy court.
At trial, Rembert testified that at the
time she was obtaining cash advances for
gambling, she believed that she would be able to
win enough money to repay her credit card debts.
There was no evidence indicating that she did
not intend to repay the cash advances from
Citibank and AT&T. Notwithstanding, the
bankruptcy court found that Citibank and AT&T
had established that, at the time Rembert
obtained the cash advances, she intended to
defraud Citibank and AT&T in connection with
these debts. Accordingly, the bankruptcy court
determined these debts to be nondischargeable
under § 523(a)(2)(A). The bankruptcy court based
its finding of fraudulent intent on an objective
analysis of both Rembert's intent and ability to
repay, concluding that Rembert: (1) did not
intend to repay the debt; and (2) had reason to
know that she would not be able to repay it.
In addition to determining that the debts
were nondischargeable, the bankruptcy court
entered judgment in favor of Citibank and AT&T
in the amount of $6299.71 and $5323.77,
The district court reversed, finding that
the bankruptcy court clearly erred because
Citibank and AT&T had failed to establish that
Rembert had the requisite fraudulent intent
under § 523(a)(2)(A) at the time she obtained
cash advances. Citibank and AT&T have timely
appealed the judgment of the district court.
"We review a bankruptcy appeal
differently than a typical appeal from the
district court. The bankruptcy court makes
initial findings of fact and conclusions of law.
The district court then reviews the bankruptcy
court's findings of fact for clear error and the
bankruptcy court's conclusions of law de novo."
Wesbanco Bank Barnesville v. Rafoth (In
re Baker & Getty Fin. Servs. Inc.), 106 F.3d
1255, 1259 (6th Cir.) (citing Bankr. Rule 8013),
cert. denied, 118 S. Ct. 65 (1997). We in
turn review the bankruptcy court's findings of
fact for clear error and the district court's
legal conclusions de novo. See id.
(citing First National Bank v. Rafoth (In
re Baker & Getty Fin. Servs., Inc.), 974
F.2d 712, 717 (6th Cir. 1992)). "A factual
finding will only be clearly erroneous when,
although there is evidence to support it, the
reviewing court on the entire evidence is left
with the definite and firm conviction that a
mistake has been committed." United States v.
Ayen, 997 F.2d 1150, 1152 (6th Cir. 1993)
(citations and quotation omitted).
Citibank and AT&T contend that Rembert's
debts to them should have been excepted from
discharge under § 523(a)(2)(A). That provision
of the bankruptcy code provides:
(a) A discharge under section 727 . . . of
this title does not discharge an individual
debtor from any debt_
. . . .
(2) for money, property, services, or any
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
In order to except a debt from discharge
under § 523(a)(2)(A), a creditor must prove the
following elements: (1) the debtor obtained
money through a material misrepresentation that,
at the time, the debtor knew was false or made
with gross recklessness as to its truth; (2) the
debtor intended to deceive the creditor; (3) the
See footnote 2
relied on the false representation; and (4)
its reliance was the proximate cause of loss.
See Longo v. McLaren (In re McLaren),
3 F.3d 958, 961 (6th Cir. 1993). In order to
except a debt from discharge, a creditor must
prove each of these elements by a preponderance
of the evidence. See Grogan v. Garner,
498 U.S. 279, 291 (1991). Further, exceptions to
discharge are to be strictly construed against
the creditor. See Manufacturer's
Hanover Trust v. Ward (In re Ward),
857 F.2d 1082, 1083 (6th Cir. 1988).
The focus in the present case is on the first
two elements of the McLaren test:
material misrepresentation and intent to
defraud. Whether a debtor possessed an intent to
defraud a creditor within the scope of
§ 523(a)(2)(A) is measured by a subjective
standard, see Field v. Mans, 516 U.S. 59,
116 S. Ct. 437, 444 (1995); thus, we must
determine whether Rembert had a subjective
fraudulent intent, based on her representations
to Citibank and AT&T. In so determining, we
first must consider the nature of those
The use of a credit card represents either
an actual or implied intent to repay the debt
incurred. See, e.g., Chevy Chase Bank, FSB v.
Briese (In re Briese), 196 B.R.
440, 449- 50 (Bankr. W.D. Wis. 1996); Chase
Manhattan Bank v. Murphy (In re Murphy),
190 B.R. 327, 332 (Bankr. N.D. Ill. 1995);
The GM Card v. Cox (In re Cox),
182 B.R. 626, 628 (Bankr. D. Mass. 1995).
Subject to more debate, however, is the issue of
whether the debtor's representation includes a
representation that she has an ability to
repay the debt. Compare Anastas v.
American Savings Bank (In re Anastas),
94 F.3d 1280, 1287 (9th Cir. 1996) (the
representation made by the card holder in a
credit card transaction is not that he has an
ability to repay the debt), and AT&T
Universal Card Serv. Corp. v. Feld (In re
Feld), 203 B.R. 360, 367 (Bankr. E.D. Pa.
1996) ("We therefore reject those cases that
measure a debtor's intention to repay by her
ability to pay."), with Mercantile Bank v.
Hoyle (In re Hoyle), 183 B.R. 635,
638 (Bankr. D. Kan. 1995) (debtor implied that
he had ability to repay when he took out cash
advances) and Bank One Columbus, N.A. v.
McDonald (In re McDonald), 177
B.R. 212, 216 (Bankr. E.D. Pa. 1994) (the act of
using a credit card carries the implied
representation that the debtor has the ability
to repay the debt).
We believe that "the representation made by
the cardholder in a credit card transaction is
not that he has an ability to repay the debt; it
is that he has an intention to repay."
Anastas, 94 F.3d at 1287. To measure a
debtor's intention to repay by her ability to do
so, without more, would be contrary to one of
the main reasons consumers use credit cards:
because they often lack the ability to pay in
full at the time they desire credit. See Feld,
203 B.R. at 368 (citing Briese, 196 B.R.
at 448). Further, the language of § 523(a)(2)(A)
expressly prohibits using a "statement
respecting the debtor's or an insider's
financial condition" as a basis for fraud. As
noted by the Ninth Circuit,
the focus should not be on whether the
debtor was hopelessly insolvent at the time he
made the credit card charges. A person on the
verge of bankruptcy may have been brought to
that point by a series of unwise financial
choices, such as spending beyond his means, and
if ability to repay were the focus of the fraud
inquiry, too often would there be an unfounded
judgment of non- dischargeability of credit card
debt. Rather, the express focus must be solely
on whether the debtor maliciously and in bad
faith incurred credit card debt with the
intention of petitioning for bankruptcy and
avoiding the debt. A finding that a debt is
non-dischargeable under 523(a)(2)(A) requires a
showing of actual or positive fraud, not merely
fraud implied by law. . . . While we recognize
that a view to the debtor's overall financial
condition is a necessary part of inferring
whether or not the debtor incurred the debt
maliciously and in bad faith, . . . the hopeless
state of a debtor's financial condition should
never become a substitute for an actual finding
of bad faith.
Anastas, 94 F.3d at 1285-86 (citations
omitted). Thus, we hold that the proper inquiry
to determine a debtor's fraudulent intent is
whether the debtor subjectively intended to
repay the debt.
We are not unsympathetic to Appellants'
claim that a subjective analysis of a debtor's
fraudulent intent is extremely difficult to
establish. Clearly, debtors have an incentive to
make self-serving statements and will rarely
admit an intent not to repay. In particular,
compulsive gamblers often will have a subjective
(albeit often baseless) intent to repay their
gambling debts with their "expected" winnings,
which is fueled by the very nature of their
addictions. Thus, a debtor's intention _ or lack
thereof _ must be ascertained by the totality of
the circumstances. See Feld, 203 B.R. at
Some courts have adopted a nonexclusive
list of twelve factors to consider when
determining whether a debtor intended to repay
See footnote 3
See, e.g., Ellingsworth v. AT&T Universal
Card Serv. (In re Ellingsworth), 212
B.R. 326, 334- 35 (Bankr. W.D. Mo. 1997).
Although we believe that "factor-counting" is
inappropriate when applying a subjective
standard, see Murphy, 190 B.R. at 334,
the enumerated factors could help to determine
the debtor's state of mind when she represented
her intention to repay. "What courts need to do
is determine whether all the evidence leads to
the conclusion that it is more probable than not
that the debtor had the requisite fraudulent
intent. This determination will require a review
of the circumstances of the case at hand, but
not a comparison with circumstances (a/k/a/
'factors') of other cases." Id.
Turning to the present case, we conclude
that the bankruptcy court erred by considering
Rembert's ability to repay, as well as her
intent to repay. Focusing on Rembert's intent to
repay, there was no evidence presented to the
bankruptcy court indicating that Rembert used
the credit cards without intending to repay the
Appellants. In response to questions from the
bankruptcy judge, Rembert asserted that, at the
time she took the cash advances from the
Appellants, she thought that she would win
enough money to pay her debts. Rembert did admit
in hindsight that her belief that she would win
enough to repay the Appellants was objectively
unreasonable; however, Rembert's admission would
be relevant only to the extent that it indicated
an intention on her part not to repay the
Looking at the totality of the
circumstances, Rembert's conduct was entirely
consistent with a subjective intent to repay
Appellants. She took out a second mortgage on
her home in the amount of $28,000 and used
almost all the loan proceeds to pay her credit
card debts. Thereafter, she continued to make
substantial payments on her credit card debts to
the plaintiffs during the time when she
continued to gamble and lose. Even after she
stopped obtaining cash advances on her Citibank
and AT&T credit cards, Rembert made additional
payments to them. These facts indicate that
Rembert subjectively intended to repay her
debts. The fact that Rembert later admitted that
it probably was not reasonable to believe that
she would win enough money to repay the
Appellants does not indicate a subjective intent
not to repay her debts in this case.
Accordingly, under the totality of the
circumstances, we conclude that the bankruptcy
court clearly erred in determining that Rembert
possessed the necessary fraudulent intent for
purposes of § 523(a)(2)(A).
We thus agree with the district court's
findings that at the time Rembert incurred the
debts at issue she intended to repay them and
believed that she would have the means to do so
from her gambling winnings. Accordingly, the
district court properly reversed the judgment of
the bankruptcy court.
Because there was no fraudulent intent in
this case, we need not consider the other
elements necessary to establish actual fraud.
Appellants failed to establish Rembert's intent
to defraud by a preponderance of the evidence;
we therefore conclude that Rembert's debts to
Appellants were not subject to exception from
discharge pursuant to § 523(a)(2)(A).
For the foregoing reasons, we AFFIRM
the district court's order reversing the
judgment of the bankruptcy court.
KRUPANSKY, Circuit Judge, concurring.
I concur in the majority's disposition in
the bankruptcy court focused myopically on the
objective unreasonableness of Rembert's
gambling, and then erroneously imputed an intent
to defraud Citibank and AT&T to Rembert despite
her acknowledged plan to win money _ enough
money to repay her credit card indebtedness _ by
continuing to gamble.
Cf. Milwaukee Auction Galleries Ltd. v. Chalk,
13 F.3d 1107, 1109 (7th Cir. 1994) ("[N]onperformance
is not enough to ground . . . an inference [of
fraudulent intent]; there must be additional
evidence of the defendant's intentions at the
time he made the promise.").
Nevertheless, I write separately to distinguish
between the analysis previously employed by this
court and the rationale impressed by the Ninth
Circuit in In re Anastas, 94 F.3d
1280 (9th Cir. 1996), upon which the majority
In In re Ward, 857 F.2d 1082 (6th
Cir. 1988), this court explained that the
"initial issuance of credit"
provides the critical moment at which a
potential credit card holder represents an
individual ability or intent to repay incurred
indebtedness and the relevant lending
institution elects to rely upon or reject such
. Id. at 1085; see id. at 1087
(Merritt, J., dissenting) (criticizing the
majority for arriving at its conclusion). The
court in Ward affirmed a bankruptcy
court's judgment that a debtor's obligation to a
credit card company was properly dischargeable
absent any evidence that the company "conducted
even the most superficial credit investigation"
when the debtor applied for and received a
credit card based upon false and fraudulent
statements. Id. at 1084. Although the
discussed the probability that "each credit card
charge [could] constitut[e] a 'representation,'"
independently capable of giving rise to an
allegation of fraud, it discounted that
probability by observing that "credit card
companies . . . profit from extending
[revolving] consumer credit at the risk of
non-payment, which risk is factored into finance
charges which are higher than the rates charged
by other lenders." Id. While not
foreclosing the possibility that a credit card
holder could impliedly represent to a lending
institution his intent and ability "to
pay the incurred indebtedness each time
he uses the card," rather than only when he
initially applies for the card, the court
explained that "a credit check must be
conducted at some point; otherwise an exception
to discharge is unavailable." Id. at
In the instant case, the majority has
adopted the rationale articulated in Anastas
and elected to recognize the kind of credit card
fraud urged by the dissent and tentatively
rejected by the majority in Ward. See
Maj. op. at 6. Consequently, when Rembert
engaged in each, individual transaction using
her cards, she necessarily and concomitantly
manifested "either an actual or implied intent
to repay the debt incurred." Maj. op. at 6. This
acknowledgment, in itself, is not objectionable
to precedent. See Ward
857 F.2d at 1085 (leaving open the possibility
that such a cause of action could exist).
Nevertheless, the majority's silence with
respect to the balance of the fraud inquiry
implicitly calls the remainder of the Ward
mandate into question.
The fundamental pronouncement of Ward
required that "[a] lender must investigate
creditworthiness and ferret out ordinary credit
information" as a precondition to preventing the
discharge of debts allegedly procured by fraud.
Id. at 1086. Accordingly, Ward
would require a lending institution to show
justified reliance on any alleged
misrepresentation by the card holder
in her individual transactions only by
demonstrating that it had made routine or
periodic credit investigations of her continued
credit-worthiness following the initial,
pre-approved extension of her credit line.
This analysis comports with the law of this
circuit regarding the elements of fraud. See
In re Phillips, 804 F.2d 930, 932-33
(6th Cir. 1986) (recognizing the need for
reasonable reliance on the part of the lender),
overruled in part by Field v. Mans, 516
U.S. 59, 72-75 (1995)
(substituting "justifiable" for "reasonable"
Moreover, it serves as a prudential rule that
does not usurp the autonomy of lending
institutions, which may elect to assume "the
risk of non-payment, which risk is factored into
finance charges which are higher than the rates
charged by other lenders." Ward, 857 F.2d
at 1085; see First Nat'l Bank of Mobile v.
Roddenberry, 701 F.2d 927, 932 (11th Cir.
1983) ("[O]nce credit is extended, the bank
must decide when and if credit will be revoked.
It is not the function of the courts to
determine when a bank ought to revoke credit.")
Although these principles enjoy
continuing vitality in this forum, the circuit
that decided Anastas _ the case which
provides the substantive anchor for the
majority's rationale _ does not require a
creditor to investigate the credit-worthiness of
its credit card holder beyond the initial review
conducted at the time it extended credit to
demonstrate justified reliance upon the implied
representations made for the each subsequent
transaction of the customer. See In re
Eashai, 87 F.3d 1082, 1091-2 (9th Cir.
1996). But see id. at 1093 (O'Scannlain,
J., concurring) ("[T]he credit card issuer is
not entirely blameless . . . ."). Because the
majority resolved the instant controversy by
approving of the district court's conclusion
that Rembert made no misrepresentation, it did
not need to address the justification for her
creditors' reliance on her representations.
Although this omission constitutes a proper
exercise in prudential adjudication, I write
separately to emphasize that the majority's
silence should not be read to embrace the Ninth
Circuit's analysis of reliance in cases of
alleged credit card fraud. The view articulated
in Eashai conflicts with the decree of
Ward, which remains the controlling
precedent in this court.
The bankruptcy court
[t]he Debtor testified here today that at
the time she incurred the debts at issue, using
these credit cards primarily for gambling
purposes_she expected and knew that the only way
she would be able to repay them was through
gambling winnings. She also recognizes now, and
it is, of course, objectively true, that there
is not a reasonable expectation [of repaying the
debts through gambling].
. . . .
She may have hoped in her heart of
hearts that she would be able to repay, but she
knew that it was not objectively realistic, or
real [,]or reasonable to have such an
expectation, and therefore, that she would not
have the ability or intent to repay.
J.A. at 673-74.
Under the Supreme Court's
decision in Field v. Mans, 516 U.S. 59
(1995), this subjective "justifiable" reliance
standard was incorporated into the test for
fraudulent intent under § 523(a)(2)(A).
Previously, in the Sixth Circuit, creditors had
to satisfy an objective "reasonable" reliance
standard under § 523(a)(2)(A).
These factors are: (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
are 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)
financial sophistication of the debtor; (11)
whether there was a sudden change in the
debtor's buying habits; and (12) whether the
purchases were made for luxuries or necessities.
See Citibank South Dakota, N.A. v. Dougherty
(In re Dougherty), 84 B.R. 653, 657 (9th
Cir. B.A.P. 1988) (citing Sears Roebuck and
Co. v. Faulk (In re Faulk), 69 B.R.
743, 757 (Bankr. N.D. Ind. 1986)), abrogated
on other grounds, Grogan v. Garner, 498 U.S.
279 (1991). It should be noted that even the
Ninth Circuit, which decided Dougherty,
has recognized that the twelve-factor test has
"been criticized because it does not consider
all the common law elements of fraud,
particularly misrepresentation and reliance."
Citibank (South Dakota), N.A. v.
Eashai (In re Eshai), 87 F.3d 1082,
1088 (9th Cir. 1996) (citing The GM Card v.
Cox (In re Cox), 182 B.R. 626, 637 (Bankr.
D. Mass. 1995)).
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