NONPRECEDENTIAL DISPOSITION
To be cited only in accordance with
Fed. R. App. P. 32.1
United States Court of Appeals
For the Seventh Circuit
Chicago, Illinois 60604
Argued January 21, 2011
Decided March 24, 2011
Before
JOEL M. FLAUM, Circuit Judge
DANIEL A. MANION, Circuit Judge
TERENCE T. EVANS, Circuit Judge
No. 10‐2441 Appeal from the United States District
Court for the Eastern District of
In re: Wisconsin.
James Ormal Anthony, No. 09‐CV‐01155
Debtor‐Appellee.
William C. Griesbach, Judge.
Appeal of:
Discover Bank
O R D E R
Discover Bank filed an adversary action in James Ormal Anthony’s bankruptcy case,
seeking to have $3100 in cash advances declared as nondischargeable debt. Both the
bankruptcy court and the district court ruled against Discover Bank, finding that the debt
was dischargeable because Anthony had presented evidence that he lacked the intent to
defraud Discover Bank. For the same reason, we affirm.
In October 2008, Anthony made two cash advances totaling $3100 using his Discover
Bank credit card. In November, after meeting with a financial counselor, Anthony filed for
No. 10‐2441 Page 2
Chapter 7 bankruptcy relief. Discover Bank filed an adversary action against Anthony,
arguing that the cash advances were nondischargeable. Normally, cash advances are
presumed to be nondischargeable if they exceed $825 and are obtained within 70 days of the
entry of the order for relief in the bankruptcy court.
11 U.S.C. § 523(a)(2)(C)(i)(II). But this
presumption can be rebutted if the debtor raises “a substantial doubt in the mind of the trier
of fact as to the existence of the presumed intent” to defraud his creditors. FCC Nat’l Bank v.
Orecchio,
109 B.R. 285, 290 (Bankr. S.D. Ohio 1989); see Chase Manhattan Bank, N.A. v. Sparks,
154 B.R. 766, 768 (N.D. Ala. 1993).
During the trial in the bankruptcy court, Anthony presented uncontested evidence
that he took out the cash advances in order to pay off earlier debts and that he had engaged
in similar behavior on previous occasions. Anthony testified that the cash advances were
made 40 and 50 days before declaring bankruptcy, not on the eve of bankruptcy. He also
testified that the cash advances were made before he consulted with a financial counselor
and was advised of the option of bankruptcy. Based on this evidence, the bankruptcy court
concluded that Anthony had rebutted the presumption that he had an intent to defraud
Discover Bank and, therefore, that the debt from the cash advances was dischargeable.
Discover Bank appealed to the district court, which affirmed the bankruptcy court’s
decision.
Discover Bank now appeals to this court. We review the bankruptcy court’s decision
with the same standard of review as the district court; that is, we review factual findings for
clear error. Kovacs v. United States,
614 F.3d 666, 672 (7th Cir. 2010). A finding is “clearly
erroneous” if we are “left with the definite and firm conviction that a mistake has been
committed.”
Id. (internal quotation omitted).
In this case, there was adequate evidence rebutting the presumption that Anthony
had an intent to defraud Discover Bank. The evidence indicates that Anthony was an
unsophisticated person who was using the cash advances to pay off debts and not running
up frivolous charges. Anthony’s cash advances were small and were made not on the eve
of bankrupcty, but well before Anthony learned of the option of declaring bankruptcy. This
unfortunate method of paying bills was not some scheme that he recently discovered.
Rather, as the bankruptcy court noted, “he had been using the procedure of borrowing from
one credit card to pay off another credit card, and it worked for several years.” Remarkably,
someone of his income level was able “to get nine credit cards with $120,000 worth of
available debt” from financially sophisticated creditors.
No. 10‐2441 Page 3
Discover Bank counters that Anthony’s cash advances were nondischargeable based
on Citibank (S.D.), N.A. v. Eashai,
87 F.3d 1082 (9th Cir. 1996). Discover Bank’s reliance on
the Eashai case is misplaced. In Eashai, the Ninth Circuit Court of Appeals found the debt
to be nondischargeable because the debtor was engaged in actual fraud through a practice
called credit card “kiting.”
Id. at 1091. The Eashai court, however, distinguished between a
debtor who engages “in the practice of using cash advances to solve their short‐term cash
flow problems” and a kiter who “manipulates the credit card system to gain money,
property, and services with no intention of ever paying for them,” and asserted that the
most important element is the “intent to deceive.”
Id. at 1090. Here, Anthony presented
evidence from which the bankruptcy court concluded that Anthony was not a kiter engaged
in actual fraud, but an unsophisticated debtor who lacked the intent to deceive Discover
Bank. This finding was not clear error. As the bank’s counsel acknowledged at oral
argument, henceforth risky card applicants will likely be confined to very low credit limits,
or perhaps debit cards only. AFFIRMED.
