Miller v. American Exp. Co.

• Decision Date: 27 September 1982
• Docket Number: No. 81-5257,81-5257
• Parties: Virginia F. MILLER, Plaintiff/Appellant, v. AMERICAN EXPRESS COMPANY, Defendant/Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1235

688 F.2d 1235

Virginia F. MILLER, Plaintiff/Appellant, v. AMERICAN EXPRESS COMPANY, Defendant/Appellee.

No. 81-5257.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted March 4, 1982.

Decided Sept. 27, 1982.

Kraig J. Marton, Marton, Halladay & Hall, Phoenix, Ariz., for plaintiff/appellant.

John G. Sestak, Jennings, Strouss & Salmon, Phoenix, Ariz., for defendant/appellee.

Appeal from the United States District Court for the District of Arizona.

Before POOLE and BOOCHEVER, Circuit Judges and PFAELZER ^*, District Judge.

BOOCHEVER, Circuit Judge:

Virginia Miller brought an action in district court alleging a violation of the Equal Credit Opportunity Act (ECOA), 15 U.S.C. §§ 1691 et seq., after her American Express card was cancelled following the death of her husband. At issue is whether the American Express Company's (Amex) policy of automatically cancelling a supplementary cardholder's account upon the death of the basic cardholder violated the ECOA. The district court granted Amex's motion for summary judgment. We reverse.

FACTS

Maurice Miller, plaintiff's late husband, applied for and received an American Express credit card in 1966. His account was denominated a Basic Card Account. Later in 1966, plaintiff Virginia Miller applied for and was granted a supplementary card. Her application was signed by her husband as the basic cardholder and by her. Mrs. Miller agreed to be personally liable for all charges made on her supplementary card. Her card bore a different account number from her husband's card, was issued in her own name, required a separate annual fee, and bore a different expiration date from Mr. Miller's card. The Millers used their American Express cards until Mr. Miller passed away in May, 1979. Two months after her husband's death, Mrs. Miller attempted to use her card during a shopping trip and was informed by the store clerk that her account had been cancelled. This was the first notice she received of the cancellation. Subsequently, Amex informed her that her account had been cancelled pursuant to a policy of automatically terminating the account of a supplementary cardholder upon the death of a basic cardholder. Amex invited her to apply for a basic account. Her application for a new account consisted merely of filling out a short form, entitled "Request to Change Membership status from Supplementary to Basic Card member," which did not require any financial or credit history data. Amex issued Mrs. Miller a new card, apparently on the basis of her thirteen year credit history in the use of the card it had just cancelled. Mrs. Miller brought suit against Amex for violation of the ECOA.

In the district court, the parties made cross motions for summary judgment on the issue of liability. Mrs. Miller argued that because her supplementary card had been cancelled after a change in her marital status, 12 C.F.R. § 202.7(c) had been violated, giving rise to a cause of action under the ECOA. Amex argued that Mrs. Miller was not within the terms of the regulation, and that she had not raised an issue of fact as to whether its allegedly uniform cancellation policy was discriminatory in motive or effect. The court awarded summary judgment to Amex without specifying its reasons.

ANALYSIS

The issues on this appeal are whether Amex's policy of cancelling a spouse's supplementary account upon the death of the basic cardholder violates the ECOA and whether a plaintiff must always show discriminatory intent or effect to establish an ECOA violation. The facts are undisputed, therefore, we must decide whether the substantive law was correctly applied. Yazzie v. Olney, Levy, Kaplan & Tenner, 593 F.2d 100, 102 (9th Cir. 1979). We hold that there has been credit discrimination within the meaning of the ECOA and that partial summary judgment on the issue of liability should have been granted to Mrs. Miller, rather than to Amex.

The ECOA makes it unlawful for any creditor to discriminate with respect to any credit transaction on the basis of marital status. 15 U.S.C. § 1691(a) (1). It also authorizes the Board of Governors of the Federal Reserve System (Board) to prescribe regulations, 15 U.S.C. § 1691b, and creates a private right of action for declaratory and equitable relief and for actual and punitive damages. 15 U.S.C. § 1691e.

In order to carry out the purposes of the ECOA, the Board promulgated the regulations codified at 12 C.F.R. §§ 201.1 et seq. Section 202.7(c)(1) provides that a creditor shall not terminate the account of a person who is contractually liable on an existing open end account on the basis of a change in marital status in the absence of evidence of inability or unwillingness to repay. Under certain circumstances, a creditor may require a reapplication after a change in the applicant's marital status. 12 C.F.R. § 202.7(c)(2).

Mrs. Miller's Amex card was cancelled after her marital status changed from married to widowed. Under § 202.7(c)(2), Amex could have asked her to reapply for credit, but instead it first terminated her card and then invited reapplication. There was no contention or evidence that her widowhood rendered Mrs. Miller unable or unwilling to pay, indeed, Amex's prompt issuance of a new card to her indicates that she was considered creditworthy.

Amex has argued that there was no violation of the ECOA for three reasons: that Section 202.7(c) was beyond the scope of the Board's authority, that Mrs. Miller was not "contractually liable on an existing open end account" within the meaning of § 202.7(c), and that the termination did not constitute discrimination on the basis of marital status because it occurred pursuant to a policy of automatic cancellation of all supplementary cardholders whether they were widow, widower, sibling, or child of the basic cardholder. We hold that § 202.7(c) was within the scope of the Board's authority under the ECOA, and that Mrs. Miller was within the protection of the regulation.

I

Authority for Section 202.7(c)

We reject Amex's contention that the Board exceeded its authority in promulgating § 202.7(c), the regulation forbidding credit terminations "on the basis of" marital status. The Board is required to "prescribe regulations to carry out the purposes of (the ECOA)." 15 U.S.C. § 1691b. Although the ECOA outlaws credit "discrimination," the meaning of that term must be defined with reference to the purposes of the Act. The history of the ECOA shows that it was meant to reach credit decisions based on factors such as sex, marital status, and race which are irrelevant to creditworthiness. S. Rep. No. 94-589, 94th Cong., 2d Sess. 3, reprinted in 1976 U.S. Code Cong. & Ad. News 403, 405-06. The Senate Report accompanying the 1976 amendments to the ECOA characterizes decisions made on the basis of such characteristics as "irrational discrimination." Id.

In passing the ECOA, Congress contemplated that the Board would have significant flexibility in its enforcement authority. Conference Report No. 93-1429, 93d Cong., 2d Sess. reprinted in 1974 U.S. Code Cong. & Ad. News 6119, 6148, 6152-53. A definition of discrimination was deleted from the final bill in order to leave broad flexibility in the Board to specify what conduct would be prohibited. Id., S. 3492, 93d Cong., 2d Sess. § 702(8) (1974). Section 2.207(c) is directly addressed to one of the evils that the ECOA was designed to prevent: loss of credit because of widowhood. See generally 121 Cong. Rec. H27,135 (daily ed. Aug. 1, 1975) (statement of Rep. Sullivan). It was therefore within the discretion allowed the Board to define termination or credit as a result of the death of a spouse as credit discrimination. ¹

II

Application of Section 202.7(c)

A. Coverage of the Regulation: Contractual Liability on an Open End Account

By its terms, § 202.7(c) reaches only terminations of existing open end accounts on which the creditholder is contractually liable. "Open End Credit" is defined in 12 C.F.R. § 202.2(w) as "credit extended pursuant to a plan under which a creditor may permit an applicant to make purchases or obtain loan(s) from time to time...." "Contractually liable" means "expressly obligated to repay all debts arising on an account by reason of an agreement to that effect." 12 C.F.R. § 202.2(i). Amex has argued that the reference to persons "contractually liable" was meant to exclude spouses who are only "users" of accounts. The Federal Reserve Board's comments, made when the "contractually liable" phrase was added in 1975, indicate that the phrase was designed to exclude a "user" who might be liable for a specific debt charged to a spouse's account, "but (who) is not liable on the contract creating the account." 40 Fed.Reg. 49,298 (1975) (emphasis added).

Mrs. Miller was not, however, merely a user of her husband's basic account. She was personally liable under the contract creating her supplementary account for all debts charged on her card by any person. For example, Mrs. Miller would have been personally liable for even charges made on her supplementary card by her husband, the basic cardholder.

We are unconvinced by Amex's argument that the supplementary account was created by the agreement establishing Mr. Miller's basic card account. Mrs. Miller's supplementary card was issued after the basic card account had been set up, and pursuant to a separate application which had to be signed by Mrs. Miller as well as by her husband. If the basic card account had already created the supplementary account, such prerequisites to a supplementary card, especially Mrs. Miller's agreement to be liable, would be unnecessary.

Amex's cardholder agreement provides that "by either signing, using or accepting the Card, you will be agreeing with us to everything written here" and that "(i)f you are a Supplementary Cardmember, you are liable to us for all Charges made in connection with the Card issued to you...." This language made Mrs. Miller ...