IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

_______________

m 99-50704

Summary Calendar

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In the Matter of: MARSHA LYNN DEISON,

Debtor.

AT&T UNIVERSAL CARD SERVICES CORPORATION,

Appellant,

VERSUS

MARSHA LYNN DEISON,

Appellee.

_________________________

Appeal from the United States District Court

for the Western District of Texas

(A-99-CV-267)

_________________________

January 18, 2000

Before SMITH, BARKSDALE, and 

PARKER, Circuit Judges.

JERRY E. SMITH, Circuit Judge:*

Marsha Deison accumulated $3,971.05 in

cash-advance credit-card debt only a few days

before declaring bankruptcy.1 The bankruptcy

court found that her testimony rebutted the

statutory presumption that debt acquired in

this manner was accumulated without the

necessary intent to repay it, and it thus found

the debt dischargeable. AT&T Universal Card

Services Corporation (“Universal”) appealed

to the district court, which affirmed. We

affirm the decision of the district court.

I.

 

* Pursuant to 5TH CIR. R. 47.5, the court has

determined that this opinion should not be

published and is not precedent except under the

limited circumstances set forth in 5TH CIR.

R. 47.5.4.

 

1 We present disputed facts in the light most

favorable to the verdict.
2

Deison held a credit card issued by

Universal, with a credit line of $4,500.00, from

July 26, 1994, until the beginning of 1998.

She made regular use of the card during most

of that period. In a four-day period from

December 30, 1997, through January 2, 1998,

however, she made four cash-advance

withdrawals, totaling $3,903.50. On

December 30, 1997,she took $400.00 through

two cash-advance transactions of $200.00.

The following day, she took $3,200.00 in cash

through an advance at a bank. On January 2,

1998, she took an additional $300.00 in cash.

This spree represented a substantial

increase in activity from previous months and

a change in Deison’s buying and spending

habits. Although her income had declined in

1996 by $7,000 from the prior year, it

remained constant in 1996, 1997, and during

the first month of 1998. As of the filing date,

her net monthly income was $1,806.78. 

From 1996 through January 1998, Deison

made $21,423.80 in merchandise purchases

and cash advances on her various credit cards

“to help make ends meet.” As of the filing

date, her monthly expenses were $1,924.46

without regard to her credit card obligations,

and her liabilities were $36,668.80. 

Deison testified that she used the cashadvance funds primarily to pay off other bills,

bills that she had previously been servicing by

drawing down her savings and a small

inheritance. She claimed never to have

realized the extent of her financial problems

and said she intended, at the time she took the

$3,900 in cash advances, to repay it.

Deison met with a professional credit

counselor on or about January 17 to discuss

her financialsituation, and, on January 19, she

met with her bankruptcy attorney. On January

26, 1998, she filed a petition for relief under

chapter 7.

II.

The bankruptcy court stated the following:

If you look at this case on paper, it

definitely strikes one, and I can

understand why it would strike Ms.

Metz [the witness called by Universal],

as being a case that should be

investigated and pursued, because within

30 days of bankruptcy you have $3900

being taken in cash advances when that,

one, never happened before and, two, it

was out of line with what one would

expect in view of the debtor’s income.

Nonetheless, the court entered judgment for

Deison and dismissed the complaint, finding

that she intended to pay off the cash-advance

withdrawals, thus rebutting the presumption

that her withdrawals were fraudulent and

defeating Universal’s attempt to prove actual

fraud.

III.

The bankruptcy court’s conclusions of law

are reviewed de novo. Young v. National

Union Fire Ins. Co., 995 F.2d 547 (5th Cir.

1993) (citing Allison v. Roberts, 960 F.2d 481

(5th Cir. 1992)). The bankruptcy court’s

findings offact are binding on the district court

and this court unless clearly erroneous. When

the bankruptcy court’s determination has been

approved by the district court, we do not

disturb it except for the most cogent reasons.

See Boydston v. Sears, Roebuck & Co. (In re

Boydston), 520 F.2d 1098, 1100 (5th Cir.

1975). Harmless error does not constitute a

valid basis for reversal. FED. R. CIV. P. 61.
3

IV.

Section 523 oftheBankruptcyCode details

the circumstances in which certain debts will

not be discharged in bankruptcy, among them

being debt accrued “for money, property,

services, or an extension, renewal or

refinancing of credit, to the extent obtained by

false pretenses, a false representation, or actual

fraud, other than a statement respecting the

debtor’s or an insider’s financial condition.”

11 U.S.C. § 523 (a)(2)(A). With regard to

certain types of credit card debt, the Code

makes a special provision:

[F]or purposes of [11 U.S.C.

§ 523(a)(2)(A)], consumer debts owed

to a single creditor and aggregating

more than [$1,075] for “luxurygoods or

services” incurred by an individual

debtor on or within 60 days before the

order for relief under this title, or cash

advances aggregating more than

[$1,075] that are extensions of

consumer credit under an open end

credit plan obtained by an individual

debtor on or within 60 days before the

order for relief under this title, are

presumed to be nondischargeable.

11 U.S.C. § 523(a)(2)(C).

It is undisputed that the debt Deison

accrued throughher cash-advancewithdrawals

qualified, under this section, as presumptively

nondischargeable. The bankruptcy court,

however, found that the evidence in the record

overcame the presumption. 

As Universal admits, no published circuit

court opinion has discussed the presumption

created by § 523(a)(2)(C) or the quantum of

proof necessary to rebut it. In an unpublished

opinion, however, in Signet Bank/Va. v.

Rawoot, 1993 U.S. App. LEXIS 32091 (4th

Cir. Dec. 10, 1993) (citing FCC Nat’l Bank

Card v. Orecchio (In re Orecchio), 109 B.R.

285 (Bankr. S.D. Ohio 1989)), the court held

that “[t]o rebut this presumption, Mr. Rawoot

was required to ‘raise [] a substantial doubt in

the mind of the [bankruptcy judge] as to the

existence of the presumed intent [to defraud

his creditors].’” Rawoot, id. at *4 (bracketsin

original). 

A number of bankruptcy courts have dealt

with this question. In Orecchio, the court

analyzed the legislative history of

§ 523(a)(2)(C) and concluded that it

seems to indicate that a debtor needs to

do much more than simply present

evidence whichcould support a contrary

result. Rather, the debtor must

demonstrate non-fraudulent intent in

connection with that obligation. Such

evidence need not be of the same clear

and convincing nature as the creditor is

required to show to invoke the

presumption, but the Debtor’s rebuttal

evidence must raise a substantial doubt

in the mind of the trier of fact as to the

existence of the presumed intent.

Orecchio, 109 B.R. at 289-90. Similarly, in

J.C. Penney Co. v. Leaird (In re Leaird),

106 B.R. 177, 180 (Bankr. W.D. Wis. 1989),

the court said, “To rebut a presumption of

fraudulent intent under 11 U.S.C.

§523(a)(2)(C), the debtor must directly attack

the presumed fact with sufficient evidence to

support a finding that the fraudulent intent did

not exist.”2

 

2

See also Chase Manhattan Bank v. Sparks (In

re Sparks), 154 B.R. 766 (N.D. Ala. 1993);

Central Fidelity Nat’l Bank v. Powell, 213 B.R.

306 (Bankr. W.D. Va. 1997); BankOne Lafayette,

N.A. v. Larisey (In re Larisey), 185 B.R. 877, 881

(Bankr. M.D. Fla. 1995).
4

In AT&T Universal Card Servs. v.

Ellingsworth (In re Ellingsworth), 212 B.R.

326 (Bankr. W.D. Mo. 1997), the court used

language of particular relevance to this case:

The legislative history of section

523(a)(2)(C), however, indicates that

Congress intended for a debtor to do

more than simply present evidence that

could support a contrary result.

Congress was concerned with what it

considered egregious conduct on the

part of debtors who incurred debt at a

point when their insolvency should have

been obvious. In Orecchio the Court,

therefore, held that a debtor must offer

substantial and believable evidence

contrary to the presumed intent in order

to demonstrate non-fraudulent intent.

Otherwise, the usefullness [sic] of the

presumption in section 523(a)(2)(C) is

destroyed. 

Ellingsworth, 212 B.R. at 340-41 (footnotes

omitted). Courts have also recognized that in

attempting to ascertain a debtor’s subjective

intent, the debtor’s testimony is of no

probative value. “[S]ince a debtor will rarely

admit a lack of intention to repay, such intent

must be inferred from the totality of the

circumstances of the case at hand.” Chevy

Chase Bank FSB v. Kukuk (In re Kukuk), 225

B.R. 778, 786 (B.A.P., 10th Cir. 1998).3 As

the court said in LA Capitol Fed. Credit Union

v. Melançon (In re Melançon), 223 B.R. 300

(Bankr. M.D. La. 1998),

no debtor is going to take the stand and

testify against himself. Every debtor in

a Section 523(a)(2)(A) action involving

cash advances is going to say that he

intended to repaythe money. Given that

this is an inflexible rule of nature, the

fact that one particular debtor in one

particular case adheres to the rule

doesn’t establish the debtor’sintent . . . .

It is insufficient for a debtor to simply

state that he always planned to pay the

money back “somehow” (we have a

mental image of cash suddenly falling

fromthe skies, like manna fromheaven).

If the debtor has no idea how the money

will get paid back, or if it will get paid

back, then he may hope to repaySShe

may even want to repaySSbut he

certainly does not intend to repay.

Melançon, 223 B.R. at 318, 321.

Takentogether, these casessuggest that the

bankruptcy court should have looked for

“substantial evidence” that the debtor did not

intend to defraud by her cash-advance

withdrawals in the sixty days before filing

bankruptcy and that a completely unsupported

assertion of lack of intent will not suffice. We

then review the bankruptcy court’s finding of

substantial evidence for clear error.

Deison did aver that she did not intend to

fail to pay back the cash advances; the

bankruptcy court believed her. Facts in the

record support that belief. 

 

3

See also Citibank (S.D), N.A. v. Eashai (In re

Eashai), 87 F. 3d 1082, 1087 (9th Cir. 1996)

(“Since a debtor will rarely admit to his fraudulent

intentions . . . .”); AT&T Universal Card Servs.

Corp. v. Rembert, 14 F. 3d 277, 282 (6th Cir.

1998). 
5

Reading the record in the light most

favorable to the finding, we conclude that

Deison, a relativelyunsophisticated consumer,

had always paid at least the minimum balance

on her credit cards before her bankruptcy,

even as she accrued over $21,000 in debt in a

little more than a year. This evidences her

intention to continue servicing her debt

without fail and suggests that she might have

been totally unaware that she had “run out of

rope.” Too, Deison was employed; she was

not entirely bereft of income. Moreover, her

uncontroverted testimony was that she used

the funds withdrawn to satisfy other

liabilitiesSSnot to purchase luxury goods or

make other frivolous uses of the funds.

Finally, it appears that the transactions had

been completed for three weeks before Deison

consulted a consumer-credit specialist, who

apparently alerted her to the precariousness of

her position.

In Anastas v. American Sav. Bank, 94 F.3d

1280, 1284 n.1 (9th Cir. 1996), one of the

cases to which Universal points in support of

its position, the court notes a list of nonexclusive factors that might be considered in

determining whether there is intent to repay:

(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 were

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 prospectsfor employment;(10)

the financialsophisticationofthe debtor;

and (12) whether the purchases were

made for luxuries or necessities.

Id. (citing Eashai, 87 F.3d at 1087-88). While

we have no intention of adopting this twelvepart test as determinative, we do note that

many of the ways in which others have

attempted to determine whether fraudulent

intent exists suggest that Deison has shown

none. Even with reference to these factors, we

might, de novo, have come to a different

decision than did the bankruptcy court about

whether Deison’s story created substantial

doubt of intent. That court, however, did not

clearly err.

V.

Universal also arguesthat, even if Deison is

found to have rebutted the presumption that

her cash-advances worked fraud, it made, as a

matter of law, the case for fraud, which would

still render the debt undischarged under

§ 523(a)(2)(A). A showing of fraud requires

a showing of intentSSthe same intent that the

bankruptcy court found lacking when it found

that Deison had rebutted the § 523(a)(2)(C)

presumption. For the same reasons, we

conclude the bankruptcy court did not clearly

err in finding that Deison lacked the requisite

intent necessary to have committed fraud

under § 523(a)(2)(A).

VI.

Universal contends that the bankruptcy

court applied the wrong law in determining

whether Deison committed fraud against

Universal, and the wrong finding of intent in

analyzing the fraud. To the extent that

Universal has demonstrated error, however, it

has not established harm.

In the beginning of its review of applicable

law, the bankruptcy court stated that "[t]he

state law definition of fraud generally is a

representation knowingly made, knowingly

false, with the intent that the other party rely

upon it and that they are damaged as a result

of that reliance." In determining the

nondischargeability of a debt, federal common

law, not state law, controls. In Field, the

Court stated that “[w]e construe the terms in

§ 523(a)(2)(A) to incorporate the general

common law of torts, the dominant consensus

of common-law jurisdictions, rather than the

law of any particular State.” Field, 516 U.S.

at 70 n.9. The Court then explained that "the

most widely accepted distillation of the
6

common law of torts was the Restatement

(Second) of Torts (1976) . . . ." Id. at 70.

Universal then points us to Melançon, in

which the bankruptcy court reviewed the

application of the Restatement to

§ 523(a)(2)(A). 

Section 525 of the Restatement

provides: One who fraudulently makes

a misrepresentation of fact, opinion,

intention, or law for the purpose of

inducing another to act or to refrain

from action in reliance upon it, issubject

to liability to the other in deceit for

pecuniary loss caused to him by his

justifiable reliance upon the

misrepresentation . . . . [T]hat the use

of a credit card to obtain a cash advance

included with it a promise that the party

obtaining the cash advance would pay

the money back . . . . 

According to the Restatement

(Second) of Contracts, a promise is a

manifestation of an intention to act or

refrain from acting. The Restatement of

Tortsstatesthat a promise automatically

includes an assertion that the party

making the promise intends to fulfill it.

The credit card agreement, then, can be

viewed as a contract that sets forth

certain agreed termsfor future contracts

that are contemplated by the parties. If

a credit card holder decides to exercise

his rights under the agreement and

borrow some money, he can do so

without waiting for bank approval, and

without paperwork. He simply goes to

the nearest ATM, puts in this card,

pushes a few buttons, and takes his cash

. . . . .

But a loan is still a loan . . . . When

the card holder inserts the card into an

ATM, he is, in one step, asking for a

loan and promising to repay it if it is

obtained . . . . Inherent in any request

for a loan, in any making of a loan by

two parties, is a promise by the

borrower to repay the money borrowed.

This is no legal fiction.

Melançon, 223 B.R. at 307-08, 311, 316.

Thus, in conformity with the Restatement, the

use of the credit card, be it for a cash advance

or a purchase, is conduct that constitutes a

representation that "I will repay the loan."

All of thisistrue, but all ofit illustrates why

the bankruptcy court’s application of the

wrong law of frauds worked no harm.

Universal points us to Melançon to

demonstrate that, had the bankruptcy court

employed the Restatement standard, it would

have realized that taking a cash advance

implicitly makes the “I will repay”

representation. Of course, the bankruptcy

court noted that

I believe the credit card agreement

makesit clear that the credit card holder

makes an express. . .statement theywill

in fact repay the debt, and that what

courts have said is that in order to curb

real abuses . . . there should be layered a

presumed intention that the party is

acting in good faith, that is, that not only

do you have an expressstatement that “I

intend to repay it,” but that on top of

that the facts and circumstances of that

particular debtor are such at that time

that that is a reasonable belief. I think

that’s pretty much where the law sits.

Thus, though the bankruptcy court applied the

wrong law of fraud, that error was harmless,

because the court performed the same

functional analysis that Universal would have

had it apply under theRestatement’s definition

of fraud.

Universal also argues that the bankruptcy

court erred in that it mentioned that “I do

think that . . . . Ms. Deison did not have any

contemplation of filing a bankruptcy petition

until after this transaction took place.”

Universal points out that the intent analysis to

be undertaken is whether the debtor intended

to repay the loan, not whether he intended to

file bankruptcy. The cases cited above support

this position. The bankruptcy court’s error
7

was one of locution rather than analysisSSit

simply misspoke. 

This is shown by the court’s statement that

“there should be layered a presumed intention

that the party is acting in good faith, that is,

that . . . you have an express statement that

‘I intend to repay it.’” This passage illustrates

that the court was well aware of the proper

standard when it explicated the relevant legal

analysis.

Finally, Universal points to the

Restatement, § 530, Comment d, and to

Boydston, which acknowledge that, in the

words of the Restatement, “[f]radulent intent

may, however, be proved by circumstantial

evidence. Thus, an intent not to pay for goods

purchased may be shown by the promisor’s

insolvency.” RESTATEMENT (SECOND) OF

TORTS § 530, cmt. d. (1976); see Boydston,

520 F.2d at 1101. From this, Universal

concludes that “as Ms. Deison could not

afford to repay her debts the trial court should

have, as a matter oflaw under the Restatement

of Torts, inferred that she did not intend to

repay the debt.” 

We disagree with thislogic; that insolvency

may be used to demonstrate intent not to

repay certainly does not require the

conclusion, as a matter oflaw, that a consumer

debtor who borrows when insolvent has

committed fraud. Such a requirement would

in fact render the § 523(a)(2)(C) presumption

unrebuttable, because almost all consumer

debtors are going to be technically insolvent in

the days before their declaration of

bankruptcy. This is not the law.

AFFIRMED.