Koerner v. American Express Co.

• Decision Date: 08 December 1977
• Docket Number: Civ. A. No. 76-3660.
• Citation: 444 F. Supp. 334
• Parties: Louis R. KOERNER, Sr., etc. v. The AMERICAN EXPRESS COMPANY.
• Court: U.S. District Court — Eastern District of Louisiana

444 F. Supp. 334

Louis R. KOERNER, Sr., etc. v. The AMERICAN EXPRESS COMPANY.

Civ. A. No. 76-3660.

United States District Court, E. D. Louisiana.

December 8, 1977.

Louis R. Koerner, Jr., Stephen M. Bernstein, New Orleans, La., for plaintiff.

Peter Frank Liberto, Chaffe, McCall, Phillips, Toler & Sarpy, David L. Campbell, Lemle, Kelleher, Kohlmeyer & Matthews, New Orleans, La., for defendant.

MEMORANDUM OPINION AND ORDER

EDWARD J. BOYLE, Sr., District Judge:

Invoking the court's jurisdiction pursuant to 15 U.S.C. § 1640(e), its counterparts 28 U.S.C. §§ 1331 and 1337, and the general diversity jurisdiction statute, 28 U.S.C. § 1332, plaintiff, Louis R. Koerner, Sr., seeks injunctive relief and damages for alleged violations by American Express, Inc. (American Express) of the Truth in Lending Act (TILA), 15 U.S.C. §§ 1601 et seq. Plaintiff brings these claims on his own behalf and seeks to represent an alleged class of persons similarly situated. Pendant to the claims are plaintiff's demands for relief based on an alleged breach of duties imposed upon American Express by Louisiana law.

The defendant has filed a Motion for Summary Judgment dismissing the federal claims on the grounds that the statute claimed to have been violated, 15 U.S.C. § 1666, which deals with correction of billing errors, does not apply to transactions of a business or commercial nature and that holders of credit cards issued under a company account do not qualify as "consumers" as that term is defined in the TILA. The motion also seeks dismissal of the state claims on the grounds that they fail to meet the required jurisdictional amount. Following a hearing on the motion, a United States Magistrate rendered his report, recommending that the motion be granted on the basis that the instances of card usage which led to the alleged Truth in Lending violations were exempted from coverage by the Act and plaintiff, therefore, had failed to state a cause of action under the federal statute. Further, it was recommended that plaintiff's state claim, supportable only under diversity jurisdiction in the absence of a viable federal claim, be dismissed.¹ Plaintiff has filed timely objections to the recommendations of the Magistrate as they relate to the Truth in Lending claims, specifically asserting that the report failed to reconcile with its conclusions the case of American Airlines, Inc. v. Remis Industries, Inc., 494 F.2d 196 (2 Cir. 1974). After considering the record, the memoranda of counsel in support of and opposition to plaintiff's objections to the Magistrate's Report and Recommendation, and the law applicable, we have concluded that said objections should be overruled and defendant's Motion for Summary Judgment dismissing plaintiff's complaint should be granted.

The pertinent facts, which are uncontested unless otherwise noted, are as follows:

1. On November 16, 1965, an application for a credit card was completed on a company account form. It was signed by the company through one of its officers and by John E. Koerner, Jr., who was designated as an individual authorized to receive a card in the company name. Bank and credit references were requested of and supplied by the company only. According to the application, all billings were to go to the company at its office address. Following approval of the application, the company account was opened and the card issued.²

2. Also on November 16, 1965, a form labelled "Application for Supplementary Credit Card, Company Account" was completed by the company through one of its officers and by Louis R. Koerner, plaintiff herein. No additional bank or credit references were requested. The application was approved and the card was issued.³

3. Apparently, additional supplementary company cards were issued to Ralph E. Koerner, Dennis Thomas and Carroll A. DeGeorge. All cards, including those mentioned above, were embossed with the company name and the name of the individual cardholder.⁴

4. All charges for use of plaintiff's card, as well as other company cards, were billed to the company and statements of combined billing, showing subtotals by individual cards, were mailed to it at its business address.⁵

5. From the date of issuance of the supplementary card to plaintiff, he has remitted payment for a number of transactions with a total of seven personal checks. Payment for all other charges (excluding those currently disputed) was made by the company.⁶

6. A billing dispute arose over the following charges included on the combined billing statements sent to the company:⁷

(a) Three debits in the amount of $3.00 each and one debit in the amount of either $3.00 or $6.00 for charges made by plaintiff in July, August, September and October of 1975 for air flight insurance for trips conducted for business purposes.

(b) A debit of $20.00 representing, according to plaintiff, "a charge for Mr. John E. Koerner's card which was returned and for which credit was never given." This, presumably, was a renewal fee for a card no longer desired.

(c) A debit of $20.00, ultimately cancelled by a credit which plaintiff asserts was "a charge for a card of Ralph E. Koerner." The nature of the charge has not been established.

7. Although American Express communicated with the company regarding the alleged billing errors, the dispute remained unresolved on September 28, 1976. On that date, plaintiff was asked to speak by phone to a representative of American Express when he attempted to use his card for the purchase of an airline ticket at N.O. International Airport. Following conversation with the representative as requested, plaintiff was presented with his credit card cut in half. The purpose of the trip for which the ticket was to be purchased was business related.⁸

Plaintiff argues that this withdrawal was in violation of the creditor's obligations established by § 161 of the TILA, 15 U.S.C. § 1666, which was added on October 28, 1974,⁹ and became effective one year later.¹⁰ Section 1666 regulates the conduct of cardholders and card issuers, among other creditors, relating to possible billing errors. Plaintiff also alleges that defendant has violated § 127 of the Act, 15 U.S.C. § 1637, which requires that periodic disclosures be made by creditor, and which plaintiff asserts "is made applicable to American Express through § 1666." Therefore, plaintiff will be able to proceed to the merits of his Truth in Lending claims only upon a determination that § 1666 is applicable in the present situation.

American Airlines, Inc. v. Remis Industries, Inc., supra, on which plaintiff relies as being controlling,¹¹ dealt not with the 1974 amendments to the TILA but with the 1970 amendments, the first provisions of the Act to deal with credit cards. The 1970 credit card provisions include § 132 (15 U.S.C. § 1642), which prohibits the unsolicited issuance of cards, § 133 (15 U.S.C. § 1643), which limits the liability of cardholders for fraudulent use of their cards, and § 134 (15 U.S.C. § 1644), which establishes penalties for fraudulent use. These provisions are implemented by the Federal Reserve Board, the agency given regulatory and advisory powers under the Act,¹² which has promulgated Regulation Z.¹³

Since its enactment in 1968, the TILA has provided for a "business use exemption." The exemption is stated in § 104(1) of the Act, 15 U.S.C. § 1603(1), which reads:

This title 15 U.S.C. § 1601 et seq. does not apply to . . . credit transactions involving extensions of credit for business or commercial purposes . . ..

The exemption is repeated in Regulation Z (12 C.F.R. § 226.3(a)). The history of the relationship between the exemption and the TILA's early credit card provisions is outlined in a letter from the Federal Reserve Board, which, in pertinent part, states:

In administering Regulation Z staff at first interpreted 12 C.F.R. § 226.3(a) to mean that credit cards used for business purposes were not subject to the provisions of § 226.13 . . . regarding issuance of credit cards and liability for unauthorized use. More extensive experience with the Act, however, indicated that the congressional intent and the purposes of the legislation would be better served by including such cards within the coverage of the section, and Regulation Z was amended on December 12, 1972, to include credit cards issued for business purposes (§ 226.13(a)(4), renumbered as 226.2(m) . . .).¹⁴

In its annual reports to Congress, the Board recommended that the Truth in Lending Act be amended to reflect this interpretation of the credit card provisions. Public Law 93-495 enacted on October 28, 1974, gave effect to this recommendation in § 410 15 U.S.C. § 1645, which provides that the business purpose exemption of the Act does not apply to the credit card provisions. Therefore, a credit card issuer supplying cards to a company or its employees must comply with all relevant provisions of § 226.13 of Regulation Z. Federal Reserve Board Letter No. 898 of June 15, 1975 by Susan B. Collins, Attorney, Fair Credit Practices Section, quoted in, 5 CCH Consumer Credit Guide, ¶ 31,232.

On March 15, 1974, a time prior to the enactment of § 1645 which negates the operation of the § 1603 business use exemption in §§ 1642, 1643 and 1644, the opinion in Remis, supra, was rendered and provided a judicial pronouncement that § 1643(a) — limiting cardholders' liability for fraudulent use — applies to all cardholders, individual and corporate alike. Plaintiff's argument therein, that § 1603 excluded corporate cardholders from the protection afforded by § 1643, was rejected. The court viewed the argument as contrary to the uniform interpretation of the relationship between § 1603(1) and the 1970 credit card provisions voiced by the Federal Reserve Board and the Federal Trade Commission and out of harmony with the expanded definition of "cardholder" provided by § 226.2(m) of Regulation Z. Further, plaintiff's argument foundered on principles of statutory...