Permobil v. American Exp. Travel

• Decision Date: 06 August 2008
• Docket Number: No. 3:08-CV-0262.,3:08-CV-0262.
• Parties: PERMOBIL, INC., and Goran Udden, Plaintiffs, v. AMERICAN EXPRESS TRAVEL RLATED SERVICES CO., INC., d/b/a American Express, and American Express Bank, FSB d/b/a American Express, Defendants.
• Court: U.S. District Court — Middle District of Tennessee

571 F.Supp.2d 825

PERMOBIL, INC., and Goran Udden, Plaintiffs, v. AMERICAN EXPRESS TRAVEL RLATED SERVICES CO., INC., d/b/a American Express, and American Express Bank, FSB d/b/a American Express, Defendants.

No. 3:08-CV-0262.

United States District Court, M.D. Tennessee, Nashville Division.

August 6, 2008.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Edward A. Hadley, North, Pursell, Ramos & Jameson, PLC, Nashville, TN, Joseph W. Corrigan, Nicholas J. Nesgos, Posternak, Blankstein & Lund, LLP, Boston, MA, for Plaintiffs.

Andrew J. Pulliam, Michael D. Hornback, Wyatt, Tarrant & Combs, Nashville, TN, for Defendants.

MEMORANDUM

ALETA A. TRAUGER, District Judge.

Before the court is a Motion to Dismiss filed by the defendants (Docket No. 14), to which the plaintiffs have responded (Docket No. 29), the defendants have replied (Docket No. 30), and the plaintiffs have sur-replied (Docket No. 34). For the reasons discussed herein, the defendants' motion will be granted as to the plaintiffs' negligence claim and denied as to the plaintiffs' Truth in Lending Act, conversion, misrepresentation, and Tennessee Consumer Protection Act claims.

FACTS

Permobil, Inc. ("Permobil") is a Tennessee corporation that manufactures, distributes and sells electric wheelchairs.¹ In 1993, through its then-President, Goran Udden, Permobil contracted with American Express Travel Related Services Co., Inc. to obtain an American Express Business Platinum Card, a corporate credit card account to be used for business purposes.² Under the contractual arrangement between Permobil and American Express, Permobil paid the charges on the account, while Udden remained personally liable for them.³ At the time Permobil established the account with American Express, Permobil also authorized a small number of its employees to use the account for company purchases, issuing separate American Express credit cards to each of them. Each card carried the name of the company, "Permobil of America, Inc.," and the name of the authorized employee. Charles S. Combs, a Permobil sales representative, received one such card.

On February 27, 1995, Permobil hired Jennifer Haney as its accounts payable clerk. At some point thereafter, Mrs. Haney was promoted to accounts payable supervisor, a position she held until Permobil terminated her employment on December 4, 2007. As accounts payable supervisor, Mrs. Haney reviewed Permobil's American Express account and paid any charges on it, using funds from Permobil's bank account. Although she was responsible for reviewing and paying Permobil's American Express charges, Permobil did not issue Mrs. Haney her own American Express credit card or give her permission to make charges to the account.

On June 10, 2004, Mr. Combs terminated his employment with Permobil. At that point, through either theft or fraud, Mrs. Haney and her husband, Johnny Haney, obtained Mr. Combs' American Express card, which Permobil believed had been cancelled.⁴ Upon acquiring Mr. Combs' card, Mr. Haney began to charge a variety of personal expenses to Permobil's American Express account, including expenses for food, restaurant dining, recreation, clothing, sporting goods, and travel. Mrs. Haney also made internet purchases using the American Express card. From June 10, 2004 through December 31, 2007, the Haneys accumulated $1,296,680.11 in unauthorized charges on Permobil's American Express account, which Mrs. Haney concealed by continuing to review and pay the Permobil account. In order to further ensure that neither Permobil's management nor its external accountants noticed the charges, Mrs. Haney spread payments to American Express among different accounts and cost centers on Permobil's accounting records. The plaintiffs allege that the Haneys also hid or destroyed any American Express statements that would have revealed their fraud. During this time period, American Express did not notify Permobil of any suspicious charges or unusual activity on its account. Despite Permobil's procedures for processing and paying its invoices, which included a review of its records by outside accountants, Permobil did not uncover the Haneys' activities until December 2007.

On December 3, 2007, Enterprise Fleet Services, a company through which Permobil rented and leased vehicles, notified Permobil of suspicious activity on its master corporate account with that company. Upon receiving notification of these suspicious activities, Permobil conducted an investigation and discovered evidence of the Haneys' transactions, which resulted in Permobil's terminating Mrs. Haney's employment and notifying local authorities.⁵ Additionally, Permobil contacted American Express, informing it of the Haneys' fraudulent activities and requesting duplicate copies of its account statements. After reviewing these statements, Permobil promptly requested reimbursement for payments related to the Haneys' fraudulent transactions. However, American Express refused to reimburse Permobil.

ANALYSIS

Permobil brought this action against American Express, alleging a violation of the Truth in Lending Act and various state law claims. (Docket No. 1.) American Express filed this Motion to Dismiss for failure to state a claim on each of the plaintiffs' claims. (Docket No. 14.)

I. Motion to Dismiss Standard

In deciding a motion to dismiss for failure to state a claim under Rule 12(b)(6) the court will accept as true the facts as the plaintiff has pleaded tliem. Inge v. Rock Fin. Corp., 281 F.3d 613, 619 (6th Cir.2002); Performance Contracting, Inc. v. Seaboard Sur. Co., 163 F.3d 366, 369 (6th Cir.1998). The Federal Rules of Civil Procedure require only that a plaintiff provide "`a short and plain statement of the claim' that will give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests." Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). The court must determine only whether "the claimant is entitled to offer evidence to support the claims," not whether the plaintiff can ultimately prove the facts alleged. Swierkiewicz v. Sorema N.A., 534 U.S. 506, 511, 122 S.Ct. 992, 152 L.Ed.2d 1 (2002) (quoting Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974)). "Indeed it may appear on the face of the pleadings that recovery is very remote and unlikely but that is not the test." Scheuer, 416 U.S. at 236, 94 S.Ct. 1683. Rather, challenges to the merits of a plaintiff's claim should be "dealt with through summary judgment under Rule 56." Swierkiewicz, 534 U.S. at 514, 122 S.Ct. 992.

In Bell Atlantic Corp. v. Twombly, ___ U.S. ___, 127 S.Ct. 1955, 1964-65, 167 L.Ed.2d 929 (2007), the Supreme Court readdressed the pleading requirements under the federal rules. The Court stressed that, although a complaint need not plead "detailed factual allegations," those allegations "must be enough to raise a right to relief above the speculative level." Id. at 1964-65. "The factual allegations, assumed to be true, must do more than create speculation or suspicion of a legally cognizable cause of action; they must show entitlement to relief." League of United Latin Am. Citizens v. Bredesen, 500 F.3d 523, 527 (6th Cir.2007) (citing Twombly, 127 S.Ct. at 1965). Further, the Court observed that Federal Rule of Civil Procedure 8(a)(2) does require a "showing" that the plaintiff is entitled to relief and that this substantive threshold is not achieved by conclusory assertions. Twombly, 127 S.Ct. at 1965 n.3.

Although Federal Rule of Civil Procedure 8 establishes a "liberal system of notice pleading," see E.E.O.C. v. J.H. Routh Packing Co., 246 F.3d 850, 851 (6th Cir.2001), "a plaintiffs obligation to provide the `grounds' of his `entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 127 S.Ct. at 1964-65 (citing Papasan v. Allain, 478 U.S. 265, 286, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986)). Accordingly, to survive a motion to dismiss, "[f]actual allegations must be enough to raise a right to relief above the speculative level ... on the assumption that all the allegations in the complaint are true (even if doubtful in fact)." Id. at 1965; see also Swierkiewicz, 534 U.S. at 508 n. 1, 122 S.Ct. 992; Neitzke v. Williams, 490 U.S. 319, 327, 109 S.Ct. 1827, 104 L.Ed.2d 338 (1989) ("Rule 12(b)(6) does not countenance ... dismissals based on a judge's disbelief of a complaint's factual allegations"); Scheuer, 416 U.S. at 236, 94 S.Ct. 1683 (a well-pleaded complaint may proceed, even if it appears "that a recovery is very remote and unlikely"). With this standard in mind, the court turns to an analysis of the plaintiffs claims.

II. Truth in Lending Act

In 1970, Congress amended the Truth in Lending Act ("TILA"), 15 U.S.C. § 1601 et seq. (2000), adding provisions "in large measure to protect credit cardholders from unauthorized use perpetrated by those able to obtain possession of a card from its original owner." Towers World Airways, Inc. v. PHH Aviation Sys., Inc., 933 F.2d 174, 176 (2d Cir.1991). These amendments limited the liability of cardholders for all charges by third parties that are the result of "unauthorized use," providing, "[w]here an unauthorized use has occurred, the cardholder can be held liable only up to a limit of $50 for the amount charged on the card, if certain conditions are satisfied."⁶ Id. (citing 15 U.S.C. § 1643(a)(1)(B)). "Except as provided in section 1643, `a cardholder incurs no liability from the unauthorized use of a credit card.'" Id. (quoting 15 U.S.C. § 1643(d)).

TILA defines "unauthorized use" as the "use of a credit card by a person other than the cardholder who does not have actual, implied, or apparent authority for such use and from which the cardholder receives no benefit." 15 U.S.C. § 1602(o); Regulation Z, 12 C.F.R. § 226.12 (2008). By adopting this definition, "Congress apparently...