Case Number: A03-96116-PWB, Adversary Proceeding No. 03-6465.United States Bankruptcy Court, N.D. Georgia, Atlanta Division.
February 28, 2005

PAUL BONAPFEL, Bankruptcy Judge

Before the Court is the motion of FDS National Bank (“Plaintiff”) for default judgment against Mahabub Alam (“Debtor”) on its amended complaint. On June 24, 2004, the Court entered an Order denying Plaintiff’s first motion for default judgment based upon the Court’s determination that the Plaintiff’s complaint failed to allege facts sufficient to support a finding of nondischargeability of the debt pursuant to 11 U.S.C. § 523(a)(2)(A) or (C). The Court rejected Plaintiff’s contention that the Debtor’s use of a credit card represents an intent and ability to pay the debt. FDS Nat. Bank v. Alam (In re Alam), 314 B.R. 834 (Bankr. N.D. Ga. 2004). Instead, this Court held that, id. at 842-843:

In order to obtain relief on its § 523(a)(2)(A) claim based on false pretenses or false representation, Plaintiff must show an actual affirmative misrepresentation made by Debtor to Plaintiff (as well as all other elements of a false pretenses or false representation claim) or use of the credit card after clear communication of its revocation. To obtain a nondischargeability determination based on actual fraud, Plaintiff must make a showing of

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sufficient facts from which the Court can draw an inference of the Debtor’s actual, subjective fraudulent intent that is essential to an actual fraud claim.

In its amended complaint, Plaintiff makes the following factual allegations regarding the Debtor’s fraudulent intent (Amended Complaint, ¶¶ 5, 6, 8):

[Debtor] opened the account with Plaintiff in January of 2002. [Debtor] carried a zero balance on the account up until the charges in question. Forty-one (41) days prior to the date of [Debtor’s] bankruptcy filing, [Debtor] accumulated charges in the amount of $5,168.34. . . . No payments were made on the account after these charges were made.
[Debtor] made all charges within forty-one (41) days of filing bankruptcy. [Debtor] made twenty-four (24) separate charges, many of them on the same day. There was a drastic change in [Debtor’s] use of the account as the account carried a zero balance for a period of nearly eighteen (18) months prior to the charges in question.
[Debtor] was already insolvent at the time of the purchases, and did not have the present ability or realistic future possibility to repay the debt. [Debtor’s] statement of financial affairs would show that he made no money during the first six months of 2003, which is the time period in which the charges were made. [Debtor’s] schedule F also shows that he incurred all $46,849.90 of the scheduled debts within seven (7) months of filing bankruptcy. Again, [Debtor] was unemployed at the time all of the charges were made and had been for over a year.

Plaintiff duly served the amended complaint, and Debtor has again failed to answer. The allegations are, therefore, uncontroverted.

Because a debtor’s intent must often be discerned from circumstantial evidence, courts have identified factors to consider in determining whether a debtor had the intent to defraud, including: (1) the length of time between charges made and the filing of the bankruptcy petition; (2) whether an attorney was consulted regarding bankruptcy before the charges were made; (3) the number of charges made by the debtor; (4) the amount of the charges; (5) the debtor’s financial condition at the time the charges were incurred; (6) whether the charges exceeded the account’s credit

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limit; (7) whether multiple charges were made on the same day; (8) whether the debtor was employed; (9) the debtor’s employment prospects; (10) the debtor’s financial sophistication; (11) sudden changes in the debtor’s buying habits; and (12) whether the charges were made for luxuries or necessities. Citibank (South Dakota), N.A. v. Brobsten (In re Brobsten), 2001 WL 34076352 (Bankr. C.D. Ill. Nov. 20, 2001); see Chase Manhattan Bank (U.S.A.), N.A. v. Carpenter (In re Carpenter), 53 B.R. 724, 730 (Bankr. N.D. Ga. 1985) (listing the 12 factors, but finding analysis of intent unnecessary since plaintiff had failed to prove all elements of its case). Contra ATT Univ. Card Svcs. v. Alvi (In re Alvi), 191 B.R. 724, 733 (Bankr. N.D. Ill. 1996) (rejecting factors because they equate inability to pay with lack of intent to pay).

This Court agrees with the observation in Carpenter that “a determination of whether a particular debtor had no intention to repay the charges is, of course, a case by case decision, in which the above factors may or may not be helpful.” Carpenter, 53 B.R. at 730. While no one factor standing alone may prove that a debtor lacked the subjective intent to pay a debt, the examination of such factors, in view of the totality of the circumstances of the case, may provide guidance in determining whether a debtor had the actual, subjective intent to defraud the creditor.

The amended complaint’s allegations are that Debtor incurred charges totaling $5,168.34 within 41 days of filing after carrying a zero balance on the account at all previous times, and that the 24 separate charges, many of them made on the same day, were incurred while he was unemployed and insolvent. These allegations, if proved, show more than mere insolvency or inability to pay; they raise an inference that, at the time Debtor made the charges, he did not have the intent to pay. Uncontroverted, unrebutted, and unexplained, these facts are sufficient to establish the existence of Debtor’s actual, subjective intent to defraud, i.e., to obtain money or property by incurring charges with no intent to pay. Because Plaintiff has made specific factual allegations from which actual, subjective fraudulent intent may be inferred, the entry of default judgment based on

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those allegations and Debtor’s failure to answer is appropriate Alam, 314 B.R. at 841.

Although Plaintiff contends that its debt is also nondischargeable under § 523(a)(2)(C), the amended complaint still does not allege facts to show that the presumption of nondischargeablity under § 523(a)(2)(C) applies. The Court previously denied Plaintiff’s motion for default judgment on the § 523(a)(2)(C) claim because Plaintiff’s complaint did not allege facts to show that the presumption applied. Namely, the complaint failed to allege that any of the charges were for “luxury goods or services,” and there was no documentation attached to show the nature of any of the transactions. The amended complaint has the same deficiency. Although Plaintiff has attached account statements, which are essentially unreadable, that show the purchases made on the account, the amended complaint again fails to allege the essential element of a § 523(a)(2)(C) claim: that the charges were for “luxury goods or services.”

The deficiencies in the amended complaint are not cured by the allegations in the second motion for default judgment that identify items and assert that the charges were for luxury goods or services. A defendant cannot admit facts that are not well-pleaded or that are conclusions of law. Nishimatsu Construction Co. v. Houston Nat. Bank, 515 F.2d 1200, 1206
(5th Cir. 1975); see Chudasama v. Mazda Motor Corp., 123 F.3d 1353, 1370 n. 41 (11th Cir. 1997) (“a default judgment cannot stand on a complaint that fails to state a claim”). Because necessary elements of the § 523(a)(2)(C) claim have not been alleged, facts essential to application of its presumption cannot be admitted by Debtor. Consequently, the presumption of nondischargeability under § 523(a)(2)(C) is inapplicable.

Plaintiff has requested attorney’s fees and court costs in connection with bringing this adversary proceeding. In Transouth Financial Corp. of Florida v. Johnson, 931 F.2d 1505 (11th
Cir. 1991), the Eleventh Circuit held that a creditor who prevails in a dischargeability proceeding may recover attorney’s fees if the fees are provided for in a contract between the parties. Further, the

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Court held that the construction of a contract for attorney’s fees presents a “question of local law.” Id. at 1507. Under Georgia law, a contractual provision for attorney’s fees is enforceable only if the creditor gives ten days written notice of the principal and interest due and its intent to enforce the contractual attorney’s fee provision, and the debtor subsequently fails to pay. O.C.G.A. § 13-1-11(a)(3). Plaintiff alleges that Debtor is obligated to pay attorney’s fees under the terms of the cardholder agreement, but there is no evidence that Plaintiff complied with the requirements of O.C.G.A. § 13-1-11(a)(3) prior to the filing of this bankruptcy case. See American Express Travel Related Svcs., Inc. v. Jawish (In re Jawish), 260 B.R. 564 (Bankr. M.D. Ga. 2000) (plaintiff not entitled to attorney’s fees because no notice given under O.C.G.A. § 13-1-11(a)(3) prior to commencement of case). Accordingly, it is

ORDERED that Plaintiff’s motion for default judgment is GRANTED. Plaintiff’s claim in the amount of $5,168.34 is nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(A); and it is

FURTHER ORDERED that Plaintiff may file proof of its compliance with O.C.G.A. § 13-1-11(a)(3) and a statement of attorney’s fees and costs incurred for this action within 30 days of date of entry of this Order. Failure to file proof of compliance with O.C.G.A. § 13-1-11(a)(3) shall result in denial of Plaintiff’s request for fees and costs. A final judgment shall be entered following a determination of whether Plaintiff is entitled to attorney’s fees and costs.

The Clerk is directed to serve copies of this Order on the persons on the attached Distribution List.