FIA Card Services, NA v. Kimberly Anne Conant

Filing 24

Chief Judge Mark L. Wolf: ORDER entered finding as moot 17 Motion to Strike In view of the foregoing, it is hereby ORDERED that:1. The decision of the Bankruptcy Court is AFFIRMED.2. Defendant's request for sanctions pursuant to Federal Ruleof Appellate Procedure 38 is DENIED without prejudice.3. Appellee's Motion to Strike Exhibit of Appellant (DocketNo. 17) is MOOT.4. The hearing scheduled for August 28, 2012, is unnecessaryand is, therefore, CANCELLED.(Hohler, Daniel)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
FIA CARD SERVICES, N.A. (f.k.a. )
MBNA AMERICA BANK, N.A.),
)
Plaintiff/Appellant
)
)
v.
)
)
KIMBERLY ANNE CONANT,
)
Defendant/Appellee
)

Bankruptcy Appeal
C.A. No. 12-10116-MLW

MEMORANDUM AND ORDER
WOLF, D.J.

August 16, 2012

I. INTRODUCTION
Plaintiff/creditor FIA Card Services, N.A. ("FIA") appeals a
bankruptcy

court

ruling

awarding

attorney

fees

and

costs

to

defendant/debtor Kimberly Conant pursuant to 11 U.S.C. §523(d). See
FIA Card Servs., N.A. v. Conant (In re Conant), 464 B.R. 511
(Bankr.

D.

Mass.

2012).

In

the

underlying

action,

plaintiff

contended that a portion of Conant's debt was nondischargable in
bankruptcy pursuant to 11 U.S.C. §523(a)(2)(A) because it was
fraudulently incurred credit card debt. On a motion for summary
judgment, the bankruptcy court found in favor of Conant because the
disputed debt was, in fact, related to a checking account and had
been incurred by the defendant's former husband. The bankruptcy
court awarded the defendant attorney fees and costs pursuant to
§523(d), determining that the plaintiff was not substantially
justified in bringing the action because it had not properly
investigated its claims or performed due diligence, and also that

1

there were no special circumstances that would render the award
unjust.
For the reasons described in this Memorandum and Order, the
bankruptcy judge did not abuse her discretion in awarding attorney
fees and costs. Therefore, the decision of the bankruptcy court is
being affirmed. In addition, the defendant's request for sanctions
pursuant to Federal Rule of Appellate Procedure 38 is being denied
without prejudice.
II. FACTS AND PROCEDURAL HISTORY
Debtor Kimberly Conant filed a voluntary Chapter 7 bankruptcy
petition on October 18, 2010. She listed a debt to Bank of America,
N.A. in the amount of $19,908.00 on her bankruptcy schedules.
Plaintiff FIA Card Services, N.A. is owned by Bank of America.1 As
a subsidiary of Bank of America, FIA had access to Conant's Bank of
America records and documents.
On November 10, 2010, FIA's counsel sent Conant a letter
stating that she had "incurred $8,900.00 in cash advances and/or
convenience check charges" on her account between June 4, 2010, and
June

10,

2010,

and

that

it

was

investigating

whether

these

"charges" were nondischargeable debt under 11 U.S.C. §523(a). The
letter stated:

1

Plaintiff has filed a Motion to Strike Exhibit of Appellant
(Docket No. 17), which relates to Bank of America. The court has
not considered the document in this appeal and the motion is,
therefore, moot.
2

In lieu of Rule 2004 examination, please describe in
writing all developments and/or events-which contributed
directly to your client's decision to file the Chapter 7
Petition. For example, if your client became unemployed,
or there was any other adverse change in your client's
financial status, or the bankruptcy was caused by medical
problems or any other change in marital status or
support, please specify, advise of the date that your
client first became aware of the problem, and provide any
supporting documentation (such as any notice of a lay-off
or employment termination or any pertinent medical
records or bills).
FIA offered to resolve the matter either for a "[s]tipulation in
the sum of $8,900.00" or a "[o]ne time cash settlement in the sum
of $7,000."
Conant's attorney responded on November 22, 2010, disputing
the allegations and noting that the account was an "overdraft line
of credit that was attached to her primary checking account." The
letter

stated

that

"[c]ontrary

to

the

allegations

that

cash

advances or convenience checks were used by Ms. Conant, this line
of credit was applied to overdrawn balances on Ms. Conant's
checking account throughout her use of the checking account."
Conant's attorney further requested:
In order to review the merits of your client's demand,
please provide us with the following within 10 days of
this letter:
1. Copies of any signed convenience checks;
2. Evidence of any cash withdrawals, including
receipts;
3. Account statements for the period in which any
alleged withdrawals were made;
4. Any documents in which your client relied upon
in making a demand for $8,900 on Ms. Conant.
Plaintiff received defendant's November 22, 2010 letter, but

3

did not respond to it. Plaintiff also did not conduct a Rule 2004
examination of Conant,2 and plaintiff failed to attend the §341
meeting of creditors.3
On January 14, 2011, plaintiff filed a Complaint seeking a
determination that the $8,900.00 was nondischargeable pursuant to
11 U.S.C. §523(a)(2)(A). The Complaint asserted that: (1) Conant
had a charge account with FIA; (2) she had incurred total charges
and cash advances on the account totaling $20,743.99 by the time
the bankruptcy petition was filed on October 18, 2010; (3) $8,900
of this debt was incurred between June 4, 2010, and June 10, 2010;
and (4) Conant had incurred this debt fraudulently and with no
intent to repay it. The Complaint, however, did not provide any
meaningful additional factual detail. Attached to the Complaint was
a

statement

for

Conant's

account,

which

showed

$8,900.00

in

transactions on the relevant dates with the descriptions "Overdraft
Protection."
On February 17, 2011, Conant moved to dismiss the Complaint on

2

Federal Rule of Bankruptcy Procedure 2004 permits a
bankruptcy court to order the examination of "any entity" in a
bankruptcy proceeding, including the debtor, upon a motion by any
party in interest. The court may compel attendance and production
of documents. See Fed. R. Bankr. P. 2004.
3

Bankruptcy Code §341 provides that "[w]ithin a reasonable
time after the order for relief in a case under this title, the
United States trustee shall convene and preside at a meeting of
creditors." 11 U.S.C. §341. Bankruptcy Code §343 requires a debtor
to attend the meeting of creditors and to submit to examination
under oath at that meeting. See 11 U.S.C. §343.
4

grounds that plaintiff had failed to state a cause of action, had
failed to plead the fraudulent conduct with sufficient specificity,
and had filed the Complaint as a "strike suit" intending to
intimidate her into a "quick settlement."4 Conant's attorney also
sent plaintiff's counsel a demand letter pursuant to Federal Rule
of Civil Procedure 11, stating that unless the plaintiff withdrew
the Complaint, Conant would seek sanctions and legal expenses when
the case was dismissed.5
Plaintiff's counsel responded to the letter on March 2, 2011,
in essence asserting that the timing and amount of the disputed
"charges" on Conant's account made it "reasonable to infer" that
she

had

incurred

the

charges

shortly

before

she

filed

for

bankruptcy and thus had incurred the charges with no intention of
repayment. The letter also suggested that discovery might reveal "a
pattern of paying cards from cards and hence a kiting scheme."
Plaintiff opposed the Motion to Dismiss on March 31, 2011,

4

A "strike suit" is a lawsuit that has "no legal merit but
which a plaintiff hopes the defendant will settle by paying the
plaintiff something less than what it would cost to defend the
suit." Honey Dew Assocs., Inc. v. Monaco (In re Monaco), 347 B.R.
454, 457 n.3 (Bankr. D. Mass. 2006) (quoting Natasha, Inc. v. Evita
Marine Charters, Inc., 763 F.2d 468, 471 (1st Cir. 1985)).
5

Federal Rule of Civil Procedure 11 requires certification
that all documents submitted to the court are "not being presented
for any improper purpose," are "warranted by existing law or by a
nonfrivolous argument for extending [the law,]" and that factual
contentions or denials have evidentiary support or some reasonable
basis supporting them. It also provides for sanctions for
violations of the rule. See Fed. R. Civ. P. 11.
5

essentially reiterating the assertions contained in the March 2,
2011 letter and stating that "[t]he Complaint has a strong factual
basis which establishes a compelling cause of action for credit
card fraud under 11 U.S.C. §523(a)(2)(A) which must be determined
on its merits, not on a preliminary motion." Plaintiff noted that
"the strength of the facts and circumstances on which the claim is
based shows that this is not a frivolous suit" and that "the
response

requires

a

much

fuller

recitation

of

facts

and

circumstances which indicate the Defendant's fraud[.]" One day
later, on April 1, 2011, plaintiff filed a Request for Leave to
Amend the Complaint.
Conant filed an Opposition to the Request for Leave to Amend,
in which she referenced Federal Rule of Civil Procedure 9(b), which
requires that fraud be pled with particularity. She noted that the
plaintiff offered nothing but inferences to support its claim under
11 U.S.C. §523(a)(2)(A).
The bankruptcy court heard arguments on the Request for Leave
to Amend and the Motion to Dismiss on April 11, 2011. The court
denied the Motion to Dismiss and allowed the plaintiff leave to
file an amended complaint.
On April 29, 2011, plaintiff filed the Amended Complaint. In
it, plaintiff made assertions that were substantially the same as
those made in its March 2, 2011 letter and its opposition to
defendant's Motion to Dismiss. Those allegations were: that the

6

defendant had incurred the disputed $8,900 debt via "cash advance
and/or convenience check charges" on a "charge account" with FIA
between June 6, 2010, and June 10, 2010; that the charges, which
represented approximately 40% of defendant's income, were incurred
approximately 30 days before the defendant obtained her Certificate
of Credit Counseling on July 9, 2010; and that shortly before these
charges, defendant had paid $8,000 to her account on June 3, 2010,
as well as an additional $4,000 in April. Plaintiff further
asserted that because defendant had exhausted her allowable credit
and

made

no

bankruptcy;

attempt
and

to

because

repay

the

defendant's

debt

prior

scheduled

to
debt

filing

for

consisted

entirely of debts on "two credit cards" in the total amount of
$37,645; that it was therefore reasonable to infer that defendant
had incurred the $8,900 in charges in a "credit card kiting or
concealed income" scheme by using "her credit cards to pay other
credit cards" and to "exhaust the allowed credit limits on both
cards before her intended bankruptcy filing."
Defendant answered the Amended Complaint three days later,
again stating that the debt was related to an overdraft line of
credit attached to a checking account, and denying the credit card
and fraud related allegations. Defendant also asserted that the
Amended Complaint was frivolous, lacked evidentiary support, and
was filed for an improper purpose in violation of Federal Rule of

7

Civil Procedure 11 and Federal Rule of Bankruptcy Procedure 9011.6
The bankruptcy court issued a Pretrial Order on May 13, 2011,
establishing August 11, 2011, as the deadline for completion of
discovery and September 9, 2011, as the deadline for filing the
Joint Pretrial Memorandum.
On May 23, 2011, the attorneys for the parties conferred.
During these communications, Conant's attorney provided plaintiff's
counsel with copies of checks relating to the disputed debt. The
checks were signed by James Bradley, Conant's former husband, who
had been a joint signatory on the Bank of America checking account
even though the overdraft protection was in Conant's name. Conant
did not authorize the checks and was unaware that her former
husband had written them.7
On July 12, 2011, plaintiff's counsel offered to dismiss the
Amended

Complaint

if

defendant

paid

the

$250

filing

fee.

Plaintiff's counsel subsequently offered to dismiss the proceedings
with both parties bearing their own attorney fees and costs on July
17, 2012. These offers were not accepted.
Following

the

expiration

of

the

discovery

deadline,

on

6

Federal Rule of Bankruptcy Procedure 9011 mirrors Federal
Rule of Civil Procedure 11. See supra, note 5.
7

At the summary judgment hearing, counsel clarified that
there was a line of credit attached to the Bank of America checking
account as overdraft protection and that a charge card had been
issued at one point, but that the line of credit was solely used to
cover overdrawn checks.
8

September 9, 2011, Conant moved for summary judgment pursuant to
Federal Rule of Bankruptcy Procedure 7056 and sought attorney fees
and costs pursuant to 11 U.S.C. §523(d). At a hearing on November
22, 2011, the bankruptcy court determined that the defendant was
entitled

to

summary

judgment

because

the

plaintiff

had

not

established the elements of its claim under §523(a)(2)(a). The
court found that there was no evidence of fraud by Conant, and that
the evidence was clear that Conant's husband had written the checks
that gave rise to the liability.
The court also awarded attorney fees and costs to Conant
pursuant to §523(d), which provides that a debtor shall be granted
costs and reasonable attorney fees if the court finds that a
creditor's action under §523(a)(2) was not substantially justified
and that there are no special circumstances that would make the
award

unjust.

The

court

found

that

the

plaintiff

was

not

substantially justified in bringing the complaint because the
plaintiff's

allegations

were

conclusory

and

based

on

general

suspicions, and because the plaintiff had failed to conduct any
reasonable inquiry or due diligence into the claim even after
receiving the defendant's November 22, 2011 letter disputing the
allegations, and after being given leave to file the Amended
Complaint. The court also determined that there were no special
circumstances that would make the award of attorney fees unjust.
On January 23, 2012, the bankruptcy court awarded $9,629.73 in

9

fees and costs. See In re Conant, 464 B.R. at 519. In this
decision, the court further noted that the "Amended Complaint did
not substantially comply with Fed. R. Civ. P. 9(b) [and] Fed. R.
Bankr. P. 7009, and [that it] had the hallmarks of a 'strike suit'
intended to coerce a settlement." Id. at 513.
III. STANDARD OF REVIEW
On appeal from a final determination of the Bankruptcy Court,
legal conclusions are reviewed de novo while findings of fact are
reviewed

under

a

clearly

erroneous

standard.

See

LaRoche

v.

Amoskeag Bank (In re LaRoche), 969 F.2d 1299, 1301 (1st Cir. 1992);
In re Gonic Realty Trust, 909 F.2d 624, 626 (1st Cir. 1990).
Decisions on attorney fees pursuant to 11 U.S.C. §523(d), however,
are reviewed for abuse of discretion. See Bridgewater Credit Union
v. McCarthy (In re McCarthy), 243 B.R. 203, 207 (B.A.P. 1st Cir.
2000); see also Coutin v. Young & Rubicam Puerto Rico, Inc., 124
F.3d

331,

336

(1st

Cir.

1997)

(fee

awards

reviewed

under

deferential abuse of discretion standard); First Card v. Hunt (In
re Hunt), 238 F.3d 1098, 1101 (9th Cir. 2001) (fee awards under
§523(d) reviewed for abuse of discretion).8 "An abuse of discretion
occurs 'when a material factor deserving significant weight is
ignored, when an improper factor is relied upon, or when all proper

8

Plaintiff contends that the proper standard of review is de
novo. As noted in the text, however, the First Circuit Bankruptcy
Appellate Panel reviews awards of attorney fees under §523 for
abuse of discretion, which is the same standard that the First
Circuit uses to review awards of attorney fees.
10

and no improper factors are assessed, but the court makes a serious
mistake in weighing them.'" Coutin, 124 F.3d at 336 (quoting Foster
v. Mydas Assocs., Inc., 943 F.2d 139, 143 (1st Cir. 1991)).
IV. ANALYSIS
Plaintiff appeals the award of attorney fees pursuant to
§523(d). In essence, plaintiff contends that the bankruptcy judge
erred

by:

(a)

concluding

that

there

was

no

substantial

justification for bringing the adversarial proceedings, and, in so
doing,

erroneously

determination;

and

applying
(b)

"hindsight

finding

that

logic"
there

in
were

making
no

this

special

circumstances which would render the award of fees unjust.
A. Substantial Justification
Section 523(d) of Title 11 provides:
If
a
creditor
requests
a
determination
of
dischargeability of a consumer debt under [§523(a)(2)],
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.
This provision "was enacted to discourage creditors from filing
§523(a)(2) complaints without first carefully reviewing the legal
and

factual

bases

for

their

fraud-based

nondischargeability

claims." In re McCarthy, 243 B.R. at 208; see also AT&T Universal
Card Servs. Corp. v. Williams (In re Williams), 224 B.R. 523, 52930 (B.A.P. 2d Cir. 1998); AT&T Universal Card Servs. Corp. v.

11

Duplante (In re Duplante), 215 B.R. 444, 449 (B.A.P. 9th Cir.
1997). The award of fees is mandatory if the court finds that the
creditor's action was not substantially justified, unless special
circumstances would make the award unjust. See In re McCarthy, 243
B.R. at 208; Mercantile Bank v. Williamson (In re Williamson), 181
B.R. 403, 408 (Bankr. W.D. Mo. 1995). The burden is on the creditor
who commenced the nondischargability action to show that the
complaint was substantially justified. See In re Hunt, 238 F.3d at
1103; McDermott v. FIA Card Servs., N.A. (In re McDermott), No.
10-4085, 2010 WL 4638867, at 4 (Bankr. D. Mass. Nov. 8, 2010).
"The contours of 'substantial justification' are inexact" and
case specific. In re McCarthy, 243 B.R. at 208. The First Circuit
Bankruptcy

Appellate

Panel

applies

a

"totality

of

the

circumstances" test, which may include but is not limited to
consideration of whether there was: (1) a reasonable basis in truth
for the facts alleged; (2) a reasonable basis in law for the theory
propounded; and (3) reasonable support in the facts alleged for the
legal theory advanced. See id. (citing In re Williams, 224 B.R. at
531, and Brinker v. Guiffrida, 798 F.2d 661, 664 (3d Cir. 1986));
see also In re Duplante, 215 B.R. at 449-50 (discussing totality of
circumstances test employed by Ninth Circuit Bankruptcy Appellate
Panel). At a minimum, a "plaintiff must show that it reviewed its
legal

position

before

filing

suit

to

determine

if

it

[was]

substantially justified." In re McCarthy, 243 B.R. at 209; see also

12

In re Williams, 224 B.R. at 530. A trial court must also "assess
the

creditor's

justification

for

litigation

not

only

at

the

complaint's filing, but throughout the litigation until judgment is
entered." In re McCarthy, 243 B.R. at 210; see also In re Williams,
224 B.R. at 530.
In the instant case, the bankruptcy judge did not abuse her
discretion

in

determining

that

there

was

no

substantial

justification in bringing the adversarial proceedings. Although not
dispositive, failures to fully investigate a claim, to conduct a
Rule 2004 examination, or to attend the §341 meeting of creditors
are significant factors in determining whether a creditor had
substantial justification to file a §523(a)(2) complaint. See In re
McCarthy, 243 B.R. at 209 n.6; see also Congressional Federal
Credit Union v. Pusateri (In re Pusateri), 432 B.R. 181, 201
(Bankr. W.D.N.C. 2010); First Deposit Nat'l Bank v. Stahl (In re
Stahl), 222 B.R. 497, 505 (Bankr. W.D.N.C. 1998); Peoples Bank v.
Poirier (In re Poirier), 214 B.R. 53, 56-57 (Bankr. D. Conn. 1997);
AT&T Universal Card Servs. Corp. v. Grayson (In re Grayson), 199
B.R. 397, 402-03 (Bankr. W.D. Mo. 1996); In re Williamson, 181 B.R.
at 408-09. Here, the plaintiff failed to conduct a Rule 2004
examination or to attend the §341 meeting of creditors, either of
which would have given the plaintiff the opportunity to examine
Conant

about

investigate

the

its

disputed

own

records

debt.
to

13

Plaintiff

determine

if

also
its

failed

to

inferences

regarding Conant's alleged fraud and "credit card" scheme were, in
fact, accurate, even after being repeatedly notified that the
disputed debt was related to overdraft protection on a checking
account. The bankruptcy judge, therefore, properly determined that
the

plaintiff

had

performed

virtually

no

due

diligence

or

investigation in both bringing and pursuing its claims. In arriving
at this conclusion, she did not ignore "a material factor deserving
significant weight," rely on an improper factor, or "make[] a
serious mistake in weighing" the relevant evidence. Coutin, 124
F.3d at 336; In re McCarthy, 243 B.R. at 208-10. Given the totality
of the circumstances, there was, thus, no abuse of discretion in
determining that the plaintiff was not substantially justified in
maintaining the action. See id.
B. Special Circumstances
"The contours of the 'special circumstances' that might enable
a

creditor

to

escape

a

fee

award

when

its

action

was

not

substantially justified" are not well defined. In re McCarthy, 243
B.R. at 210; see also In re Hunt, 238 F.3d at 1104. A determination
that "special circumstances" exist, however, is a form of equitable
relief granted in the context of the totality of the circumstances
review. See In re McCarthy, 243 B.R. at 210; In re Hunt, 238 F.3d
at 1104-05.
In the instant case, plaintiff contends that the bankruptcy
judge abused her discretion in determining that there were no

14

special circumstances that would render an award of attorney fees
unjust. Plaintiff, in essence, contends that special circumstances
exist because Conant did not provide FIA with a clear statement of
her intended defense or evidence that her husband had written the
checks relating to the disputed debt until May 23, 2011.
As noted by the bankruptcy judge in her January 23, 2012
ruling, if Conant's counsel had "conveyed specific information
about the Defendant's defenses to the Complaint to the Plaintiff
prior to May 23, 2011, the litigation costs could, in fact, have
been mitigated." In re Conant, 464 B.R. at 518-19.9 However, as the
judge stated from the bench at the November 22, 2011 hearing, there
was no argument or evidence presented to the court showing that
special circumstances existed that would make an award of attorney
fees unjust. The judge, therefore, did not ignore a material factor
or made a mistake in weighing the relevant evidence. See Coutin,
124 F.3d at 336. Given the facts before the judge, there was no
abuse of discretion finding that special circumstances did not
exist and declining to exercise the court's equitable power. In re
McCarthy, 243 B.R. at 210.
In essence, there was no abuse of discretion in the bankruptcy
court's awarding of fees and costs under §523(d) because the judge
properly determined that the position of the creditor was not

9

In his filings before this court, Conant's counsel asserts
that he only obtained copies of the checks from Bank of America
after the filing of the amended complaint on April 29, 2011.
15

substantially

justified,

and

that

there

were

no

special

circumstances that would otherwise make the award unjust. The award
of fees and costs pursuant to §523(d) is therefore AFFIRMED.
V. FRIVOLOUS APPEAL
In appellee's brief, defendant contends that she should be
awarded sanctions pursuant to Federal Rule of Federal Procedure 38
because plaintiff's appeal is frivolous.
As set forth by the First Circuit, Rule 38 provides:
that if an appellate court "determines that an appeal is
frivolous, it may, after a separately filed motion or
notice from the court and reasonable opportunity to
respond, award just damages and single or double costs to
the appellee." Fed. R. App. P. 38. An appeal is frivolous
if the result is obvious or the arguments are "wholly
without merit." Westcott Constr. Corp. v. Firemen's Fund
of N.J., 996 F.2d 14, 17 (1st Cir. 1993) (internal
quotations omitted). "[I]t is enough that the appellants
and their attorney should have been aware that the appeal
had no chance of success." E.H. Ashley & Co., Inc. v.
Wells Fargo Alarm Servs., 907 F.2d 1274, 1280 (1st Cir.
1990) (emphasis omitted).
Cronin v. Town of Amesbury, 81 F.3d 257, 261 (1st Cir. 1996); see
also Pimentel v. Jacobsen Fishing Co., 102 F.3d 638, 640-41 (1st
Cir. 1996). Defendant has not filed a separate motion as required
by Rule 38. Defendant's request is, therefore, being denied without
prejudice. See Donato v. McCarthy, 28 Fed. Appx. 8, 8 (1st Cir.
2002); In re I Don't Trust, 143 F.3d 1, 4 (1st Cir. 1998).
VI. ORDER
In view of the foregoing, it is hereby ORDERED that:
1. The decision of the Bankruptcy Court is AFFIRMED.

16

2. Defendant's request for sanctions pursuant to Federal Rule
of Appellate Procedure 38 is DENIED without prejudice.
3. Appellee's Motion to Strike Exhibit of Appellant (Docket
No. 17) is MOOT.
4. The hearing scheduled for August 28, 2012, is unnecessary
and is, therefore, CANCELLED.
/s/ Mark L. Wolf
UNITED STATES DISTRICT JUDGE

17