Friday, November 26, 2010
Creditor Had No Duty to Tell Customer His Co-Debtor Was Bad Risk—C.A.
By STEVEN M. ELLIS, Staff Writer
This district’s Court of Appeal Wednesday threw out a credit cardholder’s suit arguing that American Express should have warned him that the man he sought to add to his account as an additional cardmember was a poor credit risk.
Div. Four ruled that the company had no duty—by contract, law or practice—to tell cardholder David Kayatta that it held a judgment for nonpayment of a charge card bill against a man for whom Kayatta sought an additional card.
American Express sued Kayatta in 2008 in the Los Angeles Superior Court after a $265,000 balance on the charge card account became overdue. The company introduced an agreement Kayatta signed when he opened the business charge card, agreeing to pay all amounts charged on the account plus delinquency charges, interest, costs and fees.
Claims He Paid
Kayatta, however, countered that he had paid all of the charges he personally made on the account, and that the balance was from charges made by two others to whom additional cards on the account had been issued: Robert E. Francis and Walter Coulter.
He argued that American Express was grossly negligent in issuing a card to Francis when “it knew, or should have known” that one of its affiliates had obtained a default judgment against Francis in 2004. As a result, Kayatta said, the company—not him—assumed the risk that Francis would not repay the charges made on Kayatta’s account.
Superior Court Judge Robert A. Dukes granted the company’s motion for summary judgment, noting that Kayatta provided “no authority, no case law, no statute, [and] no principle of law, for the proposition that he, as the primary cardholder, is relieved from liability if other supplemental cardholders make charges on the account.”
On appeal, Kayatta renewed his contention that American Express was barred from enforcing the credit card agreement because it had failed to inform him about the judgment against Francis. He also asserted that a duty to disclose arose under federal and state statutes and regulations on credit accounts; his “special relationship” of “trust and confidence” with the company; and the implied covenant of good faith and fair dealing.
Justice Nora M. Manella, however, flatly rejected each argument.
Writing that there was no triable issue of fact as to whether Kayatta was responsible for the overdue balance under the contract, which specifically indicated that he bore responsibility for charges made by individuals added to the account, she pointed out that the agreement set forth no duty to disclose with respect to additional members.
She further rejected Kayatta’s contentions that the federal Truth in Lending Act, federal regulations and the Song-Beverly Credit Card Act imposed a disclosure duty. Agreeing that they were “intended to allow the card holder to make an informed decision as to…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,” she said Kayatta showed no language imposing an obligation to disclose a prior judgment against an additional cardmember.
Turning to Kayatta’s assertion regarding his longstanding business relationship with American Express, Manella noted that Kayatta did not claim that he relied on the company for advice on who to add as an additional cardmember, or that the company induced him to authorize Francis as one.
The justice then opined that there was no duty under the implied covenant of good faith and fair dealing, explaining that the card agreement never stated that Kayatta would be provided with credit-related information, and that any failure to disclose the judgment against Francis did not frustrate any of Kayatta’s rights under the agreement to receive the benefits of using the card.
Attorneys on appeal were Peter Brown Dolan for Kayatta and Douglas Jaffe for American Express.
Presiding Justice Norman L. Epstein and Justice Thomas L. Willhite Jr. joined Manella in her opinion.
The case is American Express Bank, FSB v. Kayatta, B223686.
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