This is an action for exception to discharge for fraud. It is a core proceeding under 28 U.S.C. § 157(b)(2)(I). This court has jurisdiction pursuant to 28 U.S.C. § 1334(b) and the district court's order of reference. I find for the defendant.⁽¹⁾

Background

The defendant, Charles Oliver Raney is a 71 year old retired businessman residing in Wasilla. He suffers from Parkinson's disease, back problems, high blood pressure and heart attacks. At the time of filing his bankruptcy petition, he       6 ABR 138   and his wife were living on social security of $822.00 per month, along with longevity payments from the State of Alaska of $250.00 per month and interest income of $120.00 monthly. He retired from his music business about two years ago.

Raney rented space in a Wasilla shopping center from Anchorage developer Pete Zamarello for his business. During the economic slowdown of the mid-1980s, Zamarello lost virtually all of his tenants. Raney had trouble paying the rent and offered to move. Zamarello refused and told him to pay what he could. Zamarello's successor, Avanti Corporation, sued Raney in 1994. Raney first defended the suit through two separate attorneys. He eventually represented himself in the litigation.

On March 6, 1998, Raney initiated the refinance process for his home with Home First Financial. On May 1, 1998, he received an unsolicited offer for a pre-approved credit line from U.S. Bank. Raney accepted the offer and directed U.S. Bank to make payments totaling $5,426.57 to Associates Credit Card Services, AARP Credit Card Services, and First USA. U.S. Bank paid these payments on May 12, 1998. On May 15th Raney prepared loan documents for the Home First Financial refinance. Raney received a statement from U.S. Bank shortly after June 3, 1998. He made a minimum payment of $135.00 on June 18, 1998. About the same time his attempted refinance with Home First Federal failed. Avanti had obtained a judgment against him for over $36,000.00. Raney didn't have marketable title to his home. On June 19, 1998, he consulted with bankruptcy attorney, Jeff Carney. He paid Carney       6 ABR 139   fees totaling $1,500.00 on June 26th and July 17th, 1998. His Chapter 7 petition was filed on July 17, 1998.

Analysis

11 U.S.C. § 523(a)(2)(A) excepts debts from discharge when incurred by fraud. The elements necessary to establish fraud are:

(1) [that] the debtor made the representations;

(2) that at the time he knew they were false;

(3) that he made them with the intention and purpose of deceiving the creditor;

(4) that the creditor relied on such representations;

(5) that the creditor sustained the alleged loss and damage as the proximate result of the representations having been made.⁽²⁾

A creditor's reliance on the debtor's representations must be justifiable.⁽³⁾ The plaintiff must prove the elements of its nondischargeability claim by a preponderance of the evidence.⁽⁴⁾

The plaintiff contends that Charles Raney's failure to inform it of his intention not to repay his charges constitutes fraud. Silence or a failure to inform can       6 ABR 140   constitute a fraudulent representation.⁽⁵⁾ An omission can satisfy the misrepresentation element of actual fraud.⁽⁶⁾

To determine whether Raney fraudulently failed to disclose his intent not to repay the credit card debt, I will apply the twelve factor test from In re Dougherty.⁽⁷⁾ This test was adopted by the Ninth Circuit in In re Eashai⁽⁸⁾ for the purpose of establishing the element of intent to deceive.

The following chart illustrates application of the Dougherty criteria to the facts of this case.

FACTOR	APPLICATION
The length of time between charges made and the filing of bankruptcy;	65 days prior to filing.
Whether or not an attorney had been consulted concerning the filing of bankruptcy before the charges were made;	No.
The number of charges made;	Three.
The amount of the charges;	$5,426.57.
The financial condition of the debtor at the time the charges were made;	$17,518.00 in miscellaneous unsecured debt; $36,000.00 owed the IRS for tax debts; $36,000.00 owed Avanti Corp. for rent; $91,600.00 due on first and second deeds of trust against home worth $120,000.00; income of approximately $1,200.00 per month with average expenses of $1,440.00 per month.
Whether the charges were above the credit limit of the account;	No.
6 ABR 141
FACTOR	APPLICATION
Whether the debtor made multiple charges on the same day;	Yes, but charges were solicited by U.S. Bank.
Whether or not the debtor was employed;	Retired.
The debtor's prospects for employment;	None.
Financial sophistication of the debtor;	When running his music business, debtor may have been financially sophisticated. Currently, due to poor health and memory problems, the debtor appears unsophisticated.
Sudden change in debtor's buying habits;	No. Simple refinance of old credit card.
Purchases made for luxuries or necessities;	Neither -- refinance credit card debt.

My review of the Dougherty factors and the other circumstances of this case lead me to conclude that Mr. Raney did not intend to deceive U.S. Bank. Mr. Raney received an unsolicited pre-approved credit line from U.S. Bank. At the time he was trying to refinance his house to pay down debts and had never missed a credit card payment. Raney received no great advantage from the charges. He simply refinanced a portion of his existing credit card debt at a lower interest rate. While Raney, ill and unemployed, was in poor financial condition when the charges were incurred, he did not have a malicious and bad faith intent not to repay.⁽⁹⁾ He was not "loading up" for a planned bankruptcy. The fact that his ability to repay was impaired is less significant than his subjective intent. Raney even made a payment on the credit line for $135.00 and only when his attempted refinance fell through, filed for Chapter 7 bankruptcy. Raney made no false representations to U.S. Bank.

      6 ABR 142   Nor did U.S. Bank justifiably rely on any representation of Raney. U.S. Bank has failed to submit any evidence to substantiate this element of fraud. The Supreme Court requires that a creditor prove justifiable reliance.⁽¹⁰⁾ Raney simply responded to an unsolicited pre-approved offer from U.S. Bank. Raney did not submit a financial statement, income tax return or any other financial data before receiving U.S. Bank's offer. The weight of authority has found that claims of reliance or "justifiable reliance" fail when credit has been pre-approved.⁽¹¹⁾ Here, U.S. Bank chose to offer credit to Raney when it knew or should have known that he could not repay it. A disabled, retired 71 year old man living on social security is a poor credit risk. U.S. Bank, through reasonable inquiry, could and should have ascertained that fact.

11 U.S.C. § 523(d) provides:

If a creditor requests a determination of dischargeability of a consumer debt under subsection (a)(2) of this section, and such debt is discharged, the court shall grant judgment in favor of the debtor for the costs of, and a reasonable attorney's fee for, the proceeding if the court finds that the position of the creditor was not substantially justified, except that the court shall not award such costs and fees if special circumstances would make the award unjust.

      6 ABR 143   Here I find that U.S. Bank's position was not substantially justified. U.S. Bank had no basis to allege reliance when it issued an unsolicited, pre-approved credit line to Mr. Raney. Their position had no substantial justification and there are no special circumstances here that would make an award unjust. I find that the defendant is entitled to reasonable attorney's fees for seven hours of time at $130.00 an hour totaling $910.00, together with costs.

Conclusion

U.S. Bank's claim for fraud will be dismissed with prejudice. The defendant will be awarded attorney's fees of $910.00, together with costs. An appropriate order and judgment will be entered.

DATED: August 5, 1999.

BY THE COURT
DONALD MacDONALD IV
United States Bankruptcy Judge

1.       6 ABR 137   This court's factual findings are based on the stipulations of the parties, the evidence presented at trial and the debtor's Chapter 7 case file. The court has taken judicial notice of the debtor's Chapter 7 case file.

2.       6 ABR 139   In re Kirsh, 973 F.2d 1454, 1457 (9th Cir. 1992).

3.       6 ABR 139   Field v. Mans, 516 U.S. 59 (1995).

4.       6 ABR 139   Grogan v. Garner, 498 U.S. 279 (1991).

5.       6 ABR 140   In re Chryst, 177 B.R. 486, 493 (Bankr. E.D.Pa. 1994).

6.       6 ABR 140   In re Eashai, 87 F.3d 1082, 1088-1089 (9th Cir. 1996).

7.       6 ABR 140   84 B.R. 653 (9th Cir. B.A.P. 1988).

8.       6 ABR 140   87 F.3d 1082, 1087-1088 (9th Cir. 1996)

9.       6 ABR 141   Anastas v. American Savings Bank (In re Anastas), 94 F.3d 1280, 1286 (9th Cir. 1996).

10.       6 ABR 142   Field v. Mans, supra.

11.       6 ABR 142   AT&T Universal Card Services, Inc. v. Nguyen (In re Nguyen), 235 B.R. 76 (Bankr. N.D. Cal. 1999); First Deposit National Bank v. Cameron (In re Cameron), 219 B.R. 531 (Bankr. W.D. Mo. 1998); AT&T Universal Card Services, Inc. v. Mercer (In re Mercer), 220 B.R. 315 (Bankr. S.D. Miss. 1998); Household Credit Services v. Walters, 208 B.R. 651 (Bankr. W.D. La. 1997); AT&T Universal Card Services Corp. v. Arroyo (In re Arroyo), 205 B.R. 984 (Bankr. S.D. Fla. 1997); AT&T Universal Card Services Corp. v. Akdogan (In re Akdogan), 204 B.R. 90 (Bankr. E.D. N.Y. 1997); Southeast Bank v. Delisle (In re Delisle), 125 B.R. 310 (Bankr. M.D. Fla. 1991).