Appeal from the United States Bankruptcy Court for the Northern District of California. BK. No. 93-33634 WTC, ADV. No. 93-3523 DM. Honorable Dennis Montali, Bankruptcy Judge, Presiding.
Before: Russell, Ollason, and Jones, Bankruptcy Judges.
RUSSELL, Bankruptcy Judge:
A creditor bank filed a complaint against the debtors pursuant to § 523(a)(2)(A)*fn1, seeking to have the debtors' credit card debt to the bank determined to be nondischargeable. The debtors did not respond to the creditor's complaint, and the clerk of the bankruptcy court entered the debtors' default.
The creditor filed a motion for entry of a default judgment. Following a default prove up hearing, the bankruptcy court denied the motion and entered judgment in favor of the debtors. The creditor timely filed a notice of appeal. We AFFIRM.
One of the debtors/appellees, Marta Julia Beltran ("Mrs. Beltran"), applied for and obtained a credit card with an $8,100 credit limit (the "account") from the appellant Wells Fargo Bank, a National Association (the "Bank") in December 1989. In October 1992, Mrs. Beltran had available credit of $7,877 on the account.
From October 1992 through February 1993, Mrs. Beltran made purchases and obtained cash advances on the account. As of February 1993, no further credit was available on the account, and Mrs. Beltran made no further purchases or cash advances. She made timely payments on the account from November 1992 through March 1993. The Bank closed the account in June 1993.
From January to August 1993, Mrs. Beltran's husband, Joseph Orlando Beltran ("Mr. Beltran") was unemployed and on disability as a result of a job-related injury. (Mr. Beltran is also a debtor/appellee). The Beltrans filed a pro se joint chapter 7 petition on August 11, 1993. On their bankruptcy schedules, they listed the Bank as an unsecured creditor owed $7,987.79.
The Bank timely filed a complaint under § 523(a)(2)(A) to determine the dischargeability of the debt and for entry of a money judgment against both of the Beltrans. The bankruptcy court clerk issued a summons and notice of status conference, which the Bank served on the Beltrans. The Beltrans did not respond to the complaint and did not appear at the status conference.
Following the status conference, the Bank filed its request for entry of default and a declaration in support of the request. The bankruptcy court clerk duly filed an entry of default and related notice. The bankruptcy court then scheduled a default prove up hearing.
The Bank served the Beltrans with a copy of the notice of the default prove up hearing. In addition, it served subpoenas on each of the Beltrans to compel their attendance at the hearing. Mr. and Mrs. Beltran both appeared at the hearing in response to the subpoenas.
At the hearing, the Bank's counsel conducted a direct examination of a credit officer of the Bank concerning the account activity, and Mr. Beltran cross-examined the credit officer. Counsel for the Bank then conducted a direct examination of Mr. Beltran as a witness for the Bank. At the Conclusion of the hearing, the bankruptcy court denied the Bank's motion and entered judgment in favor of the Beltrans.
A. Whether the bankruptcy court abused its discretion in considering the testimony of one of the defaulting defendants at the default prove up hearing, in order to determine whether to deny the motion for entry of a default judgment.
B. Whether the bankruptcy court erred in determining the debt to be dischargeable under § 523(a)(2)(A).
C. Whether the bankruptcy court erred in entering judgment in favor of the defaulting defendants following denial of the motion for entry of a default judgment, without further proceedings in the bankruptcy case.
We review a bankruptcy court's denial of a motion for entry of a default judgment under Fed. R. Civ. P. 55 for abuse of discretion. In re Villegas, 132 Bankr. 742, 744 (9th Cir. BAP 1991); Eitel v. McCool, 782 F.2d 1470, 1471 (9th Cir. 1986).
We review a bankruptcy court's findings of fact, whether based on oral or documentary evidence, for clear error, and give due regard to the opportunity of the bankruptcy court to Judge the credibility of the witnesses. Fed. R. Bankr. P. 8013. A bankruptcy court's finding regarding a debtor's intent to repay a credit card obligation is a question of fact which is similarly subject to the clearly erroneous standard. In re Eashai, 167 Bankr. 181, 183 (9th Cir. BAP 1994).
A. Consideration of the debtor's testimony at the default prove up hearing
The Bank argues that in a default situation, the facts presented by a plaintiff are presumed to be true unless disproved by contrary evidence, and that a defaulting defendant is rendered silent with ...