The need to be precise about who will ultimately be responsible for paying what was driven home last week by the California Court Appeal in a case involving businessman David Kayatta and his erstwhile associates, Robert Francis and Walter Coulter.
Kayatta opened a business credit card account with American Express. As the primary cardmember, Kayatta authorized American Express to issue additional cards to Francis and Coulter.
Whatever business Kayatta had with Francis and Coulter apparently soured, but there was still the matter of a $265,000 in charges, interest and penalties on the American Express account.
Kayatta tried to wash his hands of the matter by claiming that he had paid off all his own charges.
Of course, American Express tried to remind Kayatta that there was pretty clear language in his cardmember agreement making him liable for charges made by supplemental cardholders like Francis and Coulter.
American Express forcefully made that point by suing in state court and obtaining a $265,000 judgment against Kayatta.
Kayatta tried to avoid the judgment by arguing on appeal that American Express breached a duty by not disclosing that Francis had had some prior dealings with the credit card company. In fact, American Express allegedly had obtained a default judgment against Francis.
As Kayatta saw it, American Express assumed the risk that Francis would not repay the charges made on Kayatta’s charge card account.
Of course, that argument was never going to fly.
Last Wednesday, the California Court of Appeal dispensed with Kayatta’s contention that the federal Truth In Lending Act or state consumer statutes imposed any duty on American Express to disclose the bad credit histories of additional cardholders authorized by a primary cardholder.
“We generally agree with Kayatta’s assertion that these statutes and regulations are ‘intended to allow the cardholder to make an informed decision as to his or her or its use of the card, as well as the potential obligations of allowing others either to use their card, or have an “additional card” issued on the same card account.’ …
“However, Kayatta points to no language in these statutes or regulations providing that American Express has a duty to disclose to the basic cardmember that it, or one of its affiliates, obtained a judgment against an additional cardmember. Thus, there is no specific statutory language imposing upon American Express such a duty of disclosure,” the court said.
With nothing in the consumer protection statutes to aid him, Kayatta was left at the mercy of the language in his cardmember agreement.
The court concluded: “Kayatta has not shown that American Express had a contractual obligation to inform him that its affiliate had obtained a judgment against Francis. Therefore, American Express was entitled to enforce the terms of the Business Agreement and to seek money damages from Kayatta to repay charges incurred by additional cardmembers.” (American Express Bank v. Kayatta)
– Pat Murphy