Chase Bank USA, N.A. v. Hampson (In re Hampson), 2009 Bankr. LEXIS 3412, Adv No. 09-4059 (Bankr. N.D. GA September 11, 2009) (Bonapfel).

Plaintiff Bank sought an order of nondischargeabilty for cash advances taken by the Debtor within 174 days of the filing of her Chapter 7 case. Debtor did not answer, and Plaintiff moved for default.  However, the Plaintiff failed to file the affidavit required by the Servicemembers Civil Relief Act.  Additionally, the Complaint did not allege that cash advances were taken within 70 days of the filing of the petition, as required by § 523(a)(2)(C).  The Complaint also failed to allege facts from which to conclude that the advances arose from false pretenses, false representations or actual fraud as required by § 523(a)(2)(A). 

In FDS National Bank v. Alam (In re Alam), 314 B.R. 834 (Bankr. N.D. Ga. 2004), this Court set forth the criteria for establishing nondischargeability under § 523(a)(2)(A). In Alam, the plaintiff, a credit card company, contended that each use of the debtor’s available credit line for a purchase or a cash advance was a representation that he had the ability and intent to repay the debts incurred (the "implied representation theory"). The Court rejected this implied representation theory and instead held that, in order for a Plaintiff to prevail on a false representation or false pretenses claim, the plaintiff must show an express, affirmative representation made by the debtor to the plaintiff or use of the card after clear communication of its revocation… With respect to actual fraud, the Court also rejected the implied representation theory and held that "a debtor commits actual fraud for purposes of § 523(a)(2)(A) if the debtor uses a credit card without the actual, subjective intent to pay the debt thereby incurred." Id. at 841. Such a claim is established by showing sufficient facts from which the Court may draw an inference of the debtor’s actual, subjective fraudulent intent. Id. at 843.

Based upon the above, the Court declined to enter a default against the Debtor.  Finally, Judge Bonapfel also expressed concerns about the lawyers for both parties:

The filing of this motion raises two troubling issues for the Court. First, five years after this Court’s Alam decision, the Plaintiff’s attorney has filed a complaint that ignores the holding of Alam. The Plaintiff’s law firm cannot plead ignorance; it was also the firm representing the plaintiff in the Alam decision and, thus, is well aware of this Court’s requirements for the pleading and proof of a § 523(a)(2)(A) and (a)(2)(C) claim. The continued reliance on the "implied representation theory" in such circumstances is a strategy that appears foolish at best (denial of motion for default judgment or dismissal of the claim), and reckless at worst (see 11 U.S.C. § 523(d)).

Just as troubling is the Debtor’s attorney’s disregard of this Court’s instruction in In re Egwim, 291 B.R. 559, 580 (Bankr. N.D. Ga. 2003). The failure to respond to a complaint and motion that so plainly fail to state a factual basis for relief is an abdication of responsibility to the client. The Court notes that the Debtor’s attorney has attempted to except representation in adversary proceedings from the scope of its representation of the Debtor. However, unless and until the Debtor’s attorney is permitted to withdraw from representation, the Debtor’s attorney has a responsibility  to the client to protect her interests. See In re Egwim, 291 B.R. 559, 580 (Bankr. N.D. Ga. 2003) ("A lawyer must represent the debtor in connection with all adversary proceedings and contested matters filed in the case which may affect the debtor’s rights and interests unless and until the lawyer withdraws in accordance with BLR [9010-5(b)]."). Here, failing to respond had the potential for entry of a judgment against the Debtor, a result directly adverse to one of the Debtor’s primary objectives – obtaining a discharge. Counsel for the Plaintiff and the Debtor are advised to govern themselves accordingly or face potential sanctions in this or any other future case.