American Express Company v. Koerner

PETITIONER:American Express Company
RESPONDENT:Koerner
LOCATION:1980 Democratic National Convention, Madison Square Garden

DOCKET NO.: 80-202
DECIDED BY: Burger Court (1975-1981)
LOWER COURT: United States Court of Appeals for the Fifth Circuit

CITATION: 452 US 233 (1981)
ARGUED: Apr 20, 1981
DECIDED: Jun 08, 1981

ADVOCATES:
Louis R. Koerner, Jr. – on behalf of the Respondent
Ronald J. Greene – on behalf of the Petitioner

Facts of the case

Question

Audio Transcription for Oral Argument – April 20, 1981 in American Express Company v. Koerner

Warren E. Burger:

We will hear arguments first this morning in American Express Co. v. Koerner.

Mr. Greene, you may proceed whenever you are ready.

Ronald J. Greene:

Mr. Chief Justice, and may it please the Court:

This case turns on what we view as a relatively simple question of statutory construction.

It requires the Court to construe the meaning of Section 104(1) of the Truth-in-Lending Act.

That section provides an exemption from the entire Act for business credit transactions.

The precise statutory language is,

“transactions involving extensions of credit for business or commercial purposes. “

The question before the Court today is whether this language makes the Truth-in-Lending Act inapplicable to the business credit cards issued by American Express to the company for which Respondent works.

Now American Express says that the exemption applies because the cards in question were business cards, obtained by a business enterprise for business purposes.

Respondent counters that the exemption should not apply because he, together with his employer, was jointly liable for any charges on the account and because allegedly, on some occasions he used the card to make personal purchases.

Now, time permitting, there are three basic points that I’d like to cover this morning.

First, I’d like to review briefly the precise statutory language that we feel is dispositive.

It is our position that this language clearly and without any equivocation, exempts all business card systems from the Truth-in-Lending Act.

Second, I’d like to discuss the position that the Federal Reserve Board has taken on the issues before the Court.

Under this Court’s decision in Ford Motor v. Milhollin, the rulings of the Federal Reserve Board are, we think, dispositive.

And finally, I’d like to touch on the fundamental policy considerations that we think are reflected in the business credit exemption.

And the Fifth Circuit decision which we’ve asked this Court to reverse is particularly troublesome because it reflects an insensitivity to these fundamental policy considerations.

And also, because it might lead to the imposition of an exceptionally complicated and convoluted regulatory scheme in an area where Congress and the Federal Reserve Board never thought that it should be applied.

Application of those regulations in this area would impose wholly unnecessary regulatory costs in an area that Congress specifically decided it was not going to regulate.

Now, there are no disputes about the facts in this case; it comes here on a motion for summary judgment that was granted by the District Court.

Mr. Koerner, the Respondent, was an officer of the John E. Koerner & Co. In 1965, the company applied to American Express for issuance of a company card for Mr. Koerner’s use.

Other employees also were to receive cards; five cards were ultimately issued on this account.

American Express checked out the company’s credit, and issued all five cards.

It also obtained Mr. Koerner’s individual signature, and that made him liable together with the company for any charges on his particular card… not on the other four cards, but on his particular card.

Potter Stewart:

Did the company investigate the credit rating of any of Mr. Koerner… or of any of the other four employees?

Ronald J. Greene:

No, Mr. Justice, just the company.

If you look at the application form which is in the joint appendix on page 27a, you will see that there are listed there credit references of the company, Whitney National Bank, Hibernia National Bank, and so on.

International Milling Company.

These are credit references of the company and it was the company’s credit that stood behind the account.

Ronald J. Greene:

You will also see from that application form that it notes in–

Warren E. Burger:

Well, you say that the company stood behind it.

Are you suggesting that American Express was looking only to the corporation, not to the individuals?

Ronald J. Greene:

–Well technically, the individual employees were jointly liable with the company for any charges on their particular cards.

What I was pointing out, Mr. Chief Justice, was that the credit checks that were made and that are made, for company cards, look to the company’s credit worthiness as the basis for–

Warren E. Burger:

Well, what I was trying to clarify, because I wasn’t sure what you meant, is there any difference in the relationship between American Express and Mr. Koerner, and American Express and the other four men?

Ronald J. Greene:

–No, Your Honor.

Warren E. Burger:

Individually.

Ronald J. Greene:

No.

William H. Rehnquist:

How about the relationship between the individual and the company, and the individual and American Express; could American Express have gone after him for the personal charges?

Ronald J. Greene:

It could have, Mr. Justice.

As a matter of practice, it does not, it goes after the company.

In this case, the record reflects that all the bills were sent to the company at the company address.

The correspondence relating to the billing error inquiries were between the company bookkeeper and American Express.

Ordinarily, with these accounts, it is the company that is primarily involved.

There are–

Potter Stewart:

But it could have gone after the individual for all of the charges, couldn’t it?

Ronald J. Greene:

–It could have.

It could have.

The purpose for the individual liability is primarily to assure the company, the Koerner Company, in this case, against misuse of the cards by their employees.

There are, under Section 135 of the Truth-in-Lending Act, where you have a business card system where ten or more cards are issued… that wouldn’t have applied in this case… but where there are ten or more cards, the credit card issuer and the company getting the cards are allowed by contract to negotiate between themselves any division of liability they want to negotiate without regard to the $50 limit on liability for unauthorized use of credit cards that would otherwise apply.

And what often happens in these company card situations is that American Express will reach an agreement with the company that will allow the company, in the case of an employee who leaves town without paying his bills, the company will inform American Express, cancel the card and then American Express will go after the employee rather than the company.

Warren E. Burger:

What does the record show as to the payment of these accounts?

Payment by the checks of the corporation in all instances, or–

Ronald J. Greene:

No, there were apparently some instances where personal checks of the employees were also sent, as well as company checks.

Warren E. Burger:

–Well, are we to infer from that that sometimes the employees used it for personal purposes, and then paid with a personal check, but when it was for a corporate purpose it was paid for by a corporate check?

Ronald J. Greene:

Well, that’s possible, Mr. Chief Justice.

The record does not reflect that.

In our view, that is irrelevant to the case, however.

The question is, in our mind, as far as the application of the business credit exemption is concerned is whether the card was issued for a business purpose, not whether it was used for a business purpose.

Ronald J. Greene:

A creditor must know when a credit card is opened, whether the account is covered by the Truth-in-Lending Act, or whether it is exempt.

The most important reason is found in Section 127 of the Truth-in-Lending Act which requires initial disclosures to be sent to all cardholders before the first transaction on the account.

So you have to send out these initial disclosures before any charges have been made at all.

And the creditor has to know, at that time, whether the card is going to be covered by the Act and therefore the disclosures have to be sent, or whether it’s exempt.

And the Federal Reserve Board has taken precisely this position in its newly issued Regulation Z, which came out just a couple of weeks ago, where it, in its new definition of cardholder, defines a cardholder as a person to whom a card is issued for consumer credit purposes.

The question is the purpose for the issuance of the card, it’s a prospective kind of test.

It’s very similar to a situation outside the credit card area where you might have a loan that’s taken out at the bank.

The lender at the time the loan is taken out must make the decision whether of the Truth-in-Lending disclosures.

And he hands over the loan proceeds and once the customer leaves the bank he could use that money for whatever he pleases.

Byron R. White:

Well, Mr. Greene, there are… do you… does the company make the disclosures every time it issues a new card, every year?

Ronald J. Greene:

Yes, Your Honor.

It makes the initial disclosures before the first use of the card and then American Express, at least, makes new disclosures each year.

Byron R. White:

Must it?

Ronald J. Greene:

Well it must make initial disclosures at the beginning–

Byron R. White:

Well I’m asking you how about on reissue?

When… I suppose this card was reissued every year?

Ronald J. Greene:

–A renewal card was sent.

Byron R. White:

Yes.

And there are disclosures then?

Ronald J. Greene:

There are disclosures.

I don’t believe they are required, except where there’s a change in terms.

Byron R. White:

Well, suppose a card like this is never used for business purposes, as it turns out, it’s used completely for personal use.

It never… and the employee makes the payments directly to the company.

Ronald J. Greene:

Well, American Express would have no way of knowing what the card was being used for, or whether those purchases are personal or business; all it gets are copies of the credit card slips from the merchant.

They can’t tell whether that’s a personal use or a business use; it has to rely upon the representations that are made to it at the time the account is issued.

And in this case, the application form which Mr. Koerner signed and which the company signed as well, clearly labels the application as one for a company account.

Perhaps I could–

Byron R. White:

Even though every payment… the payment for every charge on the card is made by him personally, and not by the company?

Ronald J. Greene:

–Well, that may not indicate that the charges were business charges.

I, for example, have a company American Express card from my law firm, and I often pay for the charges with a personal check and then receive petty cash from the company, from the law firm, in reimbursement.

Ronald J. Greene:

The nature of the payment doesn’t necessarily determine the issue.

Byron R. White:

So it really isn’t the purpose, it’s what somebody says the purpose is?

Ronald J. Greene:

Well, it’s… in this case, there is a contract, Your Honor.

There is a contract between American Express–

Byron R. White:

I’m just trying to find out what your theory is.

It isn’t a matter of fact, it’s a matter of–

Ronald J. Greene:

–Agreement.

Byron R. White:

–contractual representation.

Ronald J. Greene:

And it’s a matter that has to be determined at the outset, before the account is used.

Potter Stewart:

Well, your… that argument depends upon the hypothesis, does it not, that the extension of credit occurs when the card is issued?

Ronald J. Greene:

Well an extension of credit–

Potter Stewart:

Yes.

Ronald J. Greene:

–certainly occurs then.

I wouldn’t–

Potter Stewart:

And I thought of a credit card, or at least it can be argued, that a credit card is no more than an agreement to extend credit in the future.

Ronald J. Greene:

–Well, the definition of credit contained in the Truth-in-Lending Act is broad enough so that the opening of an account has to be viewed as an extension of credit.

If it weren’t–

Potter Stewart:

Even though the card is put by the cardholder into his desk drawer and never used?

Ronald J. Greene:

–Well certainly–

Potter Stewart:

That’s an extension of credit?

Ronald J. Greene:

–an extension of credit is the right to defer payment.

Potter Stewart:

It’s not… well, it’s an agreement to extend credit in the future, is it not?

Ronald J. Greene:

Yes, and that constitutes an extension of credit.

For example, if American Express were to discriminate against someone in opening accounts, and let’s say, refused to open accounts for women, under the Equal Credit Act, the refusal to open an account for a woman would be a refusal to extend credit and would give her a right of action.

The opening of an account is… has to be, an extension of credit.

Potter Stewart:

Well, it has to be to support your argument, does it not?

Ronald J. Greene:

It has to be an extension of credit; I’m not denying that it’s used for–

Potter Stewart:

To support your statutory argument?

Ronald J. Greene:

–That’s right.

That’s right.

William H. Rehnquist:

Well what do you make then, of the first clause of Section 104(1), credit transactions involving extensions of credit for business or commercial purposes… are not covered by the subsection.

Ronald J. Greene:

Well, I think that language is crucial to us, Mr. Justice Rehnquist.

It indicates clearly that you can have extensions of credit within an overall transaction.

The language is, transactions involving extensions of credit for business or commercial purposes.

William J. Brennan, Jr.:

Well Mr. Greene, isn’t your position pretty much that the key really is the purpose of the extension of credit… and where the purpose is business and it is established here by the application form itself as being for business… that brings you within the exemption?

Ronald J. Greene:

Precisely.

Precisely, Your Honor.

Byron R. White:

Even if, as a matter of fact, that’s false, the purpose is false?

In the sense that it’s never used, and–

Ronald J. Greene:

Well, I could conceive of a case, Your Honor, where if someone were to come into American Express and say, two years later, I got a business card from you but I’d like to change it over into a personal card.

Byron R. White:

–Well, I can certainly conceive of a situation where someone couldn’t get a card of his own but he could get one with the company’s name on it and he never intended to use it for business purposes.

Solely personal.

Ronald J. Greene:

I would… that should hardly entitle him to–

Byron R. White:

That wouldn’t change your case.

Ronald J. Greene:

–No, it wouldn’t.

Because the credit transaction here was a business credit transaction.

I should point out, that American Express issues two kinds of cards: it issues personal cards, and those are the vast majority of all cards that are issued; something like 90 percent of the cards.

And it issues company, or, corporate cards, which are the kinds of cards involved in this case.

Now Mr. Koerner individually, could have applied for a personal card on a different application form and he… if he qualified for credit… could have received it.

And then he would have received all of the disclosures under Truth-in-Lending, and all of the protections.

If he did not, the company applied for a business account, and then the company authorized a card to be delivered to Mr. Koerner and the four other employees.

That changes the nature of the transaction.

The company name was on the card, the company received the bills, the company’s credit was at stake; this is a business credit transaction and the agreement between American Express and the Company makes it so.

Perhaps, if I… if we look a little bit at the particular section of the Act that American Express was charged with violating, you will see why an account can’t be half fish and half fowl, why it has to be all business or all personal.

Section 161 of the Act applies only to open-end, consumer credit plans, that’s the statutory language.

Now, an open-end credit plan by its very nature involves a continual flow of credit extensions, as part of an overall credit plan.

Now, a creditor, in order to comply with the Fair Credit Billing Provisions, has to set up a complete compliance program to assure that the statutory deadlines, that are set in Section 161, are satisfied.

You have to respond within 30 days, and then within 90 days in specific ways, and you have to conduct certain kinds of investigations within certain time periods.

The creditor has to set up these procedures for a category of account, and when it gets an inquiry it has to know whether to assign it the deadline that the statute requires or whether not to assign it a deadline.

The inquiry, the credit card issuer will have no way of knowing whether the inquiry relates to a personal charge or to a business charge.

Ronald J. Greene:

In fact, it may relate to no charge at all, it may be a use… a charge that appears on the statement where the cardholder had never made any purchase.

It might just be an error on the bill.

Or it might be one of the statutory definitions of the billing error is a mistake in computation.

It might be a mistake in adding up a number of charges, some of which were business and some of which were personal.

So, the creditor has to know, to comply with that Section, whether the account is fish or fowl; whether it is business or personal.

And in this case, this account was categorized as a business account.

Warren E. Burger:

To what extent, Mr. Greene, is that an analogy with a letter of credit?

Ronald J. Greene:

It’s very similar, Your Honor; that would involve an agreement by a creditor to make extensions of credit in the future, and if that agreement were between a lender and a business debtor, it would not be covered by Truth-in-Lending.

Section 103(h) of the Act confirms this reading.

That Section defines consumer, and consumer credit in the substantive provisions of the Act, like 161 that I was talking about a moment ago, use the word consumer.

Now Section 103(h) says that consumer credit is credit primarily for personal, family or household purposes.

It has the word primarily in it.

That, in our view, reflects that you can have a mixed purpose account, and that the creditor has to make a judgment at the outset, admittedly at the risk of making a mistake and then being liable under the law.

William J. Brennan, Jr.:

So Mr. Greene, what’s the significance of the last sentence of letter 727,

“however we suspect that few cards, if any, which are issued with a corporation as the cardholder would fall within this category. “

Isn’t there an implication in that that there might be some cards?

Ronald J. Greene:

There might be, and I don’t–

William J. Brennan, Jr.:

I mean, although ostensibly a business card, where in fact it is established that it was primarily for personal use, this suggests that while ordinarily that wouldn’t happen with a corporate card, it might happen.

Ronald J. Greene:

–It might happen, and I don’t disagree with that, Your Honor.

This case arises on a motion for summary judgment.

We put in the record the application forms, it is admitted through discovery that all billing was to the Koerner Company as a business account, that’s an admission of the Plaintiff, we have the contract in the record which says it’s a company account, and the Plaintiff put in no evidence indicating that this was to be a personal account.

William J. Brennan, Jr.:

You mean, at the time of the issuance?

Ronald J. Greene:

At the time of the issuance.

I assume that if somebody sent in the same company card application form that’s in the record and put a cover letter on the front of it, saying I need this card for personal purposes, that would change the case significantly.

But that–

William J. Brennan, Jr.:

Well I gather probably American Express would not have issued a card in the name of the company then, would it?

Ronald J. Greene:

–If that, the procedures are if that were to happen, it would issue a personal card, which as I said, is the vast majority of the cards that American Express issues.

William H. Rehnquist:

But you won the motion for summary judgment in the District Court, did you not?

Ronald J. Greene:

We did, Mr. Justice–

William H. Rehnquist:

So doesn’t that mean that all inferences have to be resolved against your client?

Ronald J. Greene:

–Well of course it does, but in this case, we put in the evidence that I’ve cited, and under Rule 56 the Plaintiff was required to come in with any affidavits to counter that that were required, and he didn’t put in any.

William H. Rehnquist:

But unless… notwithstanding his failure to produce affidavits, there was a genuine issue as to material fact, in which case you were not entitled to prevail.

Ronald J. Greene:

If there were an issue of material fact, but we don’t believe there is an issue of material fact because of the explicit agreement among the three involved parties: the John Koerner Company, Louis Koerner and American Express Company, a contract that this was to be a company account and a stipulation during discovery that all billing was done as a business account.

We think that that’s sufficient to support summary judgment.

Summary judgment is really the common mode of proceeding in most of these Truth-in-Lending cases, because in most cases the issues will turn on a construction of contractual agreements or language in a form, and it is not at all unusual for cases to come up in summary judgment contexts.

The Mourning v. Family Publications Services, Inc. case that this Court decided was a summary judgment case.

And most of the cases that we’ve cited in our brief, the District Court and the Court of Appeals cases are summary judgment cases.

The issue is one of construction of the agreement in question.

I’d like just to mention before my time for my main argument is concluded, the most recent actions of the Federal Reserve Board.

Under the Truth-in-Lending Simplification and Reform Act of 1980, the Federal Reserve Board was required to issue by April 1, ’81, a totally revised Regulation Z. And it did that a couple of weeks ago, and we have set forth in our reply brief the crucial sections of that Regulation.

That new Regulation is now in effect, and governs the actions of creditors at this time.

The 1980 statute did not amend any of the sections of the law that we’ve been talking about this morning.

It did, however require the new regulation and in the new regulation, the Board, in its commentary on the Sections that I’ve set forth in the brief notes, and we have the quotation… in footnote 10, on page 9, that the new regulation is simply an interpretation of both the old and the new law and not a change in law.

And that new regulation follows the approach that I outlined this morning, it talks about the issuance of a card and defines whether it’s a business or a consumer card by the purpose for which the card is issued.

I’ll reserve the rest of my time for rebuttal.

Warren E. Burger:

Very well.

Mr. Koerner.

Louis R. Koerner, Jr.:

Mr. Chief Justice, and may it please the Court:

Your Honors, I am very honored and pleased to be here.

I am also pleased and honored that this narrow and somewhat unique case as important as it is to my family, was important enough to merit the consideration of this Court.

This is a litigation that need never have happened.

This is a case in which a man of principle was embarrassed for no reason by employees of American Express as impersonal as the computers that they served.

This is a lack of… this case arose because of a lack of good manners and proper etiquette and breakdown of proper business practices.

William H. Rehnquist:

Although the Truth-in-Lending Act doesn’t deal with proper business etiquette, does it?

Louis R. Koerner, Jr.:

Well in a way, this… the Fair Credit Billing Act in a way does.

What they’ve done is, they’ve imposed as a matter of law, what is ordinarily good practice, which the legislative history suggests that most creditors have done anyway.

That’s the reason I mentioned that.

William H. Rehnquist:

Well but you wouldn’t suggest that an argument over a bill or an argument over a plane reservation or something like that paid for with a credit card would come within the Truth-in-Lending Act simply because it was a violation of good etiquette?

Louis R. Koerner, Jr.:

No, not at all.

What happened is–

Potter Stewart:

There’s no question here that there was a violation of law?

Louis R. Koerner, Jr.:

–That’s correct.

What would have happened though, here, is that–

Potter Stewart:

If this was covered by law.

Louis R. Koerner, Jr.:

–What would have happened here is… what my father was looking for was an apology, and this suit would never have been brought.

We sent a draft suit to American Express, looking for an apology which never happened, and then like, things got… really grew and grew and grew.

By the way, you’d be interested to know last week my father received three invitations from American Express to join… two corporate and one personal.

John E. Koerner & Company was formed in 1907 by my grandfather, as a flower wholesaler.

In 1965… by 1965, my father and his two brothers, both of whom are now deceased, were the managers of the company.

In 1965, they made a decision to go to credit cards, company credit cards, rather than use individual credit or cash advances.

And this particular card my father signed as a joint applicant, jointly and severally, or under Louisiana law what they call in solido liable.

And there was no restriction on the card at the time to show that it was restricted as to credit or as to use.

Now, there was no credit information requested of the individuals, but it is the policy of credit card companies to investigate the individual’s credit reference in a closely held corporation, and there’s no evidence in the record either way as to whether that was done.

If you remember Mr. Greene’s response to Your Honors’ questions indicated, I think, some ambiguity as to whether that was done or not.

So I don’t think the record is clear, and if there’s any inference to be drawn, it’s… the inference would be that they may well have looked to the individual’s credit background.

My father is well known to the Whitney Bank and the Hibernia Bank, and to the International Milling Company.

Potter Stewart:

But the credit information was submitted only with respect to the corporation?

Louis R. Koerner, Jr.:

Correct.

But it is very simple, particularly in 1965, to simply run a credit check on the mainly liable individuals.

And in addition to that, if they didn’t want some credit of the individuals, why make them co-principals and jointly and severally liable?

Now, what happened is that eventually… one other thing that’s interesting about this is that the credit card application was in 1965, which is several years predating the Truth-in-Lending Act, so what American Express wishes us to do is to look back to a time in the past when the Truth-in-Lending Act had not been enacted, nor had the credit card amendments been enacted in order to find a manifestation of the will of the parties.

In addition, what’s interesting here is that during that intervening period of time in the ’70’s, American Express did send the company a… let’s see, the method by which a complaint could be made and acknowledged.

And that’s reported at… in Judge Ball’s opinion at 444 F. Supp. at 342, Note 32.

He… we did not contend that was an estoppel on American Express, because that wouldn’t affect the statutory construction.

But it is evidence of the will of the parties, that is, one of the only manifestations that the parties have made that there is some will that this should be… considered consumer credit.

Now, in 1975, because of lack of use by Mr. John E. Koerner, Jr. and personal use by my cousin, Ralph, and also the fact that Bankamericards were free and had no fee, they decided to go to Bankamericards primarily.

With regard to my father, he kept his business American Express card because it was convenient to use in Europe on European trips and on trips, whether it was… where Bankamericards were not recognized.

Now, at that time, they sent two cards back but were never credited.

In addition to that, there was flight insurance that was automatically billed to the card.

For a period of time that was a satisfactory arrangement, then it was cancelled.

Louis R. Koerner, Jr.:

They continued to bill the Koerner Company, for the personal… for the flight insurance.

My father authorized payment for a while, sending letters saying, do something.

But then it got to the point where he felt that it wouldn’t do any good and that the only way to get their attention was just to simply not pay and send them a letter explaining why they would not pay, which is the procedure that is set up under the Act.

Now, in September of 1976, which is the month of the credit card revocation, as late as that month, my father sent in personal checks for personal business… for personal use of the card during that month or the preceding month.

There were numerous personal checks sent over a period of time.

We did not submit an affidavit, but we did answer interrogatories in which we lined out some of the personal uses that he was able to find by going through his cancelled checks.

So, for a period of time, even to the same month involved, the checks individually were sent, by my father on his personal account for personal uses.

Now, in 1976–

John Paul Stevens:

Mr. Koerner, could I interrupt you for a second?

Louis R. Koerner, Jr.:

–Certainly.

John Paul Stevens:

What is your basic theory here?

Is it that the individual is jointly liable on the account, or is it that the individual made some personal use of the account.

Louis R. Koerner, Jr.:

Both.

Okay, first–

John Paul Stevens:

Do you require both, or… under the statute?

Louis R. Koerner, Jr.:

–No, I don’t think we require both.

However, we have both.

The first thing is, he’s jointly and severally liable, which… I don’t know what the common law is, but under Louisiana law, that means he is a co-principal.

So that’s one–

John Paul Stevens:

I understand.

But how does… we have to relate it back to the statute.

Louis R. Koerner, Jr.:

–Okay, the statute protects consumers.

He is a consumer, the card was issued to him.

The credit card application talks about joining in the application with the company, but my Uncle John, he was an individual applicant.

So the card was issued to him and to the company, jointly, with his name on it and with the company’s name on it.

John Paul Stevens:

So under that construction, you would win, if all of the transactions were business transactions?

Louis R. Koerner, Jr.:

That is one possibility.

John Paul Stevens:

The other possibility is that if there’s any one personal transaction on the account, you would win even if he weren’t jointly liable, I suppose?

Louis R. Koerner, Jr.:

Correct.

But that’s… I think it’s nice to have both though.

Louis R. Koerner, Jr.:

But what happens here is that there’s… in addition to that, on the revocation there were no extensions of credit.

William H. Rehnquist:

Can you summarize in about two sentences what you think American Express should have done under the statute here which it did not do?

Louis R. Koerner, Jr.:

Acknowledge the dispute.

Thurgood Marshall:

Apologize?

Isn’t that the word you used?

Louis R. Koerner, Jr.:

Yes sir.

But that… even an apology afterwards would have worked.

But beforehand, this… remember there’s a year of correspondence between the company, on behalf of my father and American Express.

Thurgood Marshall:

The statute does a whole lot of things, but it doesn’t require apologies, does it?

Louis R. Koerner, Jr.:

No.

Thurgood Marshall:

Well, then what does the statute require?

Louis R. Koerner, Jr.:

The statute requires that while there is a dispute, and American Express, the issuer is notified of the dispute, that they do not revoke the card until they take certain steps, that’s all.

William H. Rehnquist:

And that’s what you claim was erroneously done here, when the credit card was cut in two?

Louis R. Koerner, Jr.:

Correct.

In other words, what happened is that… as a matter of fact, after the date of the revocation there was no further money paid on the account, because the account was credited in full by American Express.

All of the $55 worth of disputed charges were acknowledged and credited out, as having been improper.

There was never any money paid.

So, we have the strongest possible situation.

We have no extensions of credit that were in dispute; merely improper charges by American Express that should never have been made.

William H. Rehnquist:

So what’s going to happen if you win?

Louis R. Koerner, Jr.:

In this particular, what’s going to happen–

William H. Rehnquist:

In this particular case, if you win?

Louis R. Koerner, Jr.:

–Okay.

In Louisiana–

William H. Rehnquist:

Well, I mean in… with respect to your client.

Louis R. Koerner, Jr.:

–It will reverse the summary judgment.

I don’t think there’s any money to be involved, because the remedy under the Act is if there is a dispute.

From what I can see, there’s a dispute and they don’t acknowledge it, whatever is in dispute the company waives.

William H. Rehnquist:

And, since there isn’t any money involved, what happens?

Louis R. Koerner, Jr.:

It’s just a matter of principles.

William H. Rehnquist:

So it’s just kind of a… like they used to say in Michigan, litigation was the winter sport of farmers.

Louis R. Koerner, Jr.:

Well, of course what happens is that we have a public interest in this, is that, we are appearing in a way, as a private attorney general seeking to enforce a right of consumers under the Act.

And the Act provides for costs, attorneys fees and certain out-of-pocket expenses, under, I think it’s 15 U.S.C. 1640.

And so, it’s not… what’s happened is that we have undergone a great deal of time… trouble–

William J. Brennan, Jr.:

Well let’s see, the Court of Appeals reversed the summary judgment?

Louis R. Koerner, Jr.:

–Correct.

William J. Brennan, Jr.:

So now you’re supposed to go back to the trial court?

Louis R. Koerner, Jr.:

Precisely.

William J. Brennan, Jr.:

What happens in the trial court?

Louis R. Koerner, Jr.:

We decide whether we wish to go forward with a certification of a class, or whether at that point the case should be over.

What happened is that there’s no dispute that the billings in question were in error, they’ve been credited out.

So the first prong of the relief was voluntarily granted.

William J. Brennan, Jr.:

I know, but won’t the District Court have to agree with that proposition?

Louis R. Koerner, Jr.:

It is stipulated by the parties.

I believe those facts are stipulated.

Potter Stewart:

What’s the… what stake does your client have in this controversy now that would qualify as Article III standing?

Louis R. Koerner, Jr.:

He’s paid me, we’ve paid costs as we’ve gone along, in addition, he’s incurred attorneys fees.

John Paul Stevens:

Mr. Koerner, you filed this as a class action, didn’t you?

Louis R. Koerner, Jr.:

Correct.

And also we have, the class has an interest in the outcome of it also, both retrospective and prospective relief.

John Paul Stevens:

And has the class been certified?

Louis R. Koerner, Jr.:

No, Your Honor.

John Paul Stevens:

That was because the District Court ruled against you on the merits?

Louis R. Koerner, Jr.:

Precisely.

John Paul Stevens:

So now, I suppose, on remand it would be open to certify a class and recover the ten million dollars or whatever it is you sued for, isn’t it?

Louis R. Koerner, Jr.:

I think there’s a statute of limitation of $100,000.

John Paul Stevens:

Ten thousand dollars.

Whatever it is, but if there are other members of the class who have a similar claim, I suppose the case is not moot, is it?

Louis R. Koerner, Jr.:

Oh no, it’s not moot.

As a matter of fact, after the decision of the Court of Appeals we filed for certification of the class, and when the mandate was stayed, we suspended the action in the District Court.

Louis R. Koerner, Jr.:

One of the arguments that American Express makes talks about the legislative history.

It’s obvious that the Fair Credit Billing Act was part, in a way, in the Truth-in-Lending Act, and that 1603 should not be applicable.

The legislative history of the new amendments is very interesting, because what happens is that there were two titles to it, that’s… there were three.

The first title incorporated the 1974 amendments, one of which was the revocation provision.

And there were some technical amendments that were talked about from a year before, from the… and what happened in the legislative history it’s S 2616, they said,

“to remove any possible uncertainty relating to the coverage of all credit cards under the Act’s credit card amendments Section 135 should be added as follows. “

–and then they exempted from the first three of the ’70, but they never ever thought about the ’74 Act.

And what happened is, we have an act that was, I don’t think anybody ever really considered the effect of what they were doing.

And I think under those circumstances, they really should have thought more fully about the consequences of whether the business exemption might be contended to be applicable to the ’74 amendments.

Now, my contention is that the ’74 amendment with regard to revocation is like the unauthorized use in that you don’t have a credit transaction and that it’s only to credit transactions that the exemption would apply under any circumstances.

Potter Stewart:

This was not decided by the District Court or the Court of Appeals, was it?

Louis R. Koerner, Jr.:

What was?

I’m sorry?

Potter Stewart:

The inapplicability?

Louis R. Koerner, Jr.:

The Court of Appeals said it was… they would not apply it because the man was a consumer.

Potter Stewart:

Yes.

But had it been a business card.

Your present argument as I understand it, is that in any event this particular provision is not applicable.

Louis R. Koerner, Jr.:

Correct.

Potter Stewart:

And that was not decided by the Court of Appeals?

Louis R. Koerner, Jr.:

No.

What they did was, they termed it an obviously difficult question–

Potter Stewart:

Correct.

Louis R. Koerner, Jr.:

–and ducked it.

Potter Stewart:

Right.

Louis R. Koerner, Jr.:

That is an available alternative grounds for consideration by the Court.

Byron R. White:

Did you urge it in the Court of Appeals?

Louis R. Koerner, Jr.:

Certainly.

That was the main contention that we urged and it was only as an alternative that the Fifth Circuit took the idea that under the Louisiana law, the man was a consumer because of the in solido provisions, and the agreement between the parties.

American Express’ argument at the present time is that you should go all the way back to 1965 to try to decipher, give a presumption of the agreement of the parties.

Louis R. Koerner, Jr.:

But it seems like a total fiction.

What happens is that American Express over a period of years, knows that this card has been used for personal purposes because they paid by personal checks.

Why should we use that as a manifestation of the will of the parties?

Warren E. Burger:

When you say that American Express knows, how do they know?

Because personal checks were sent sometime?

Louis R. Koerner, Jr.:

Yes.

Warren E. Burger:

Does American Express have an obligation to find out whether the credit was extended for the purchase of perfume in Paris or an airline ticket, or what?

Louis R. Koerner, Jr.:

No.

But I think that what we’re doing is we’re looking for any objective manifestation of the will of the parties, rather than using the fiction.

American Express either has to say you can only use it for business purpose, or we’ve… somebody has to say something.

Because what happens here is we have an absolute, we have a neutral factual background, except for receipt and acceptance by American Express of personal checks.

The… I think some burden has to be on the card issuer, at the renewal, to make it clear–

John Paul Stevens:

Mr. Koerner, if you wait till the account is paid, isn’t that too late for them to comply with the pre-extension of credit disclosure requirement?

If you rely on the fact that they paid the check personally, that’s a little late for them to comply with the statute, isn’t it?

Louis R. Koerner, Jr.:

–Yes.

In a way, that’s true.

But what happens here is we have a relationship that predates the statute, so at some point or other in the relationship, they had to make a decision on whether to comply or not.

John Paul Stevens:

You’re assuming the computer can differentiate between personal checks and other kinds of checks?

Louis R. Koerner, Jr.:

Well they… they don’t seem to be able to differentiate the correspondence from the company saying something is wrong, I mean if they have that burden, why shouldn’t they be able to differentiate between personal checks and not?

What happens here is you have an account where there is the capacity to incur personal obligations.

And we have situation where, as I read, and under the Louisiana law, my father was responsible for every debt on the credit card.

I wonder what the collection agent would have done if the company had refused to pay.

Would they have put it on my father’s–

Thurgood Marshall:

I think what they could do, they could have looked to the contract which said you can negotiate that point.

Right?

Louis R. Koerner, Jr.:

–No, there’s nothing in the contract that says that.

Thurgood Marshall:

It did so.

It said that among the people… you can negotiate as to who should be responsible.

Louis R. Koerner, Jr.:

Oh well, that’s true.

In other words, what happens is–

Thurgood Marshall:

Yes,–

Louis R. Koerner, Jr.:

–they would have gone for my father.

Thurgood Marshall:

–So they could have done this.

Louis R. Koerner, Jr.:

Absolutely.

Thurgood Marshall:

Who did they send the bill to?

Louis R. Koerner, Jr.:

They sent it to the company.

Thurgood Marshall:

I thought so.

Louis R. Koerner, Jr.:

On the other hand, 15 U.S.C. 1637 provides that you’re supposed to give individual notice to the consumer.

And I allege that that was violated also.

That’s also, I think, one of the administrative interpretations suggest that they should have sent… using the same language, that they should have sent a notice to the consumer.

William H. Rehnquist:

If you look at the application on page 27a of the Joint Appendix at the very bottom there, it’s in small print

“the undersigned individual and company join in this application. “

and apparently, is that your father’s signature there?

Louis R. Koerner, Jr.:

That’s my uncle’s.

My father’s is on the following page.

William H. Rehnquist:

Your uncle’s.

Is there any indication in… either of the… either the District Court proceedings or the Court of Appeals, what American Express would have done if your uncle or your father had refused to sign those portions of the application?

Louis R. Koerner, Jr.:

No.

That wasn’t something that was important at the time.

What has happened… well, the same thing with regard to, I think we have to look to the… to what happened in 1976, and not looking at 1981 amendments and things of this nature.

What was the relationship of the parties at the time?

They had sent a disclosure statement talking about credit revocation.

That was one objective manifestation of the will of the parties initiated by American Express.

The obverse or converse was the acceptance of personal checks for a number of personal transactions.

Under those circumstances, the burden was on American Express.

American Express… most credit card issuers in my experience comply… whether it’s business card or personal card… they comply with the credit revocation statute under any circumstances because it’s good business to do so.

It’s no more trouble to do so; as a matter of fact, it’s easier than as Mr. Greene says… only ten percent of their cards are business cards… are issued to corporations.

The other 90 percent are personal.

It seems to me it would probably be… much easier.

Thurgood Marshall:

Listen, if–

Louis R. Koerner, Jr.:

Yes sir?

Thurgood Marshall:

–If the Respondent in this case had taken out a personal American Express card and paid for it then he wouldn’t have this problem?

Louis R. Koerner, Jr.:

Precisely.

Thurgood Marshall:

And was the only reason for doing this to save money?

Louis R. Koerner, Jr.:

No.

Thurgood Marshall:

Well what was the reason?

Louis R. Koerner, Jr.:

The reason was to avoid the company advancing, or him advancing his own personal funds to the company, rather than use of the credit card.

Thurgood Marshall:

Well, I don’t understand that at all.

Louis R. Koerner, Jr.:

Well okay.

What happened–

Thurgood Marshall:

He’d have an American Express credit card, just like he had before?

Louis R. Koerner, Jr.:

–Correct.

Thurgood Marshall:

But he would have paid for it?

Louis R. Koerner, Jr.:

Correct.

Thurgood Marshall:

Now he’s got one for free?

Louis R. Koerner, Jr.:

That the company pays for.

Thurgood Marshall:

As to him, it’s free.

Louis R. Koerner, Jr.:

True, but he’s a principal of the company.

Thurgood Marshall:

Well should he give up something for that?

Louis R. Koerner, Jr.:

$20, for free?

No, I don’t think so.

And the reason he shouldn’t, is that for this card… every transaction makes American Express money, whether they choose–

Thurgood Marshall:

About the only way for American Express to make money is for you to pay them.

Louis R. Koerner, Jr.:

–Correct.

And on the other hand–

Thurgood Marshall:

Well, and he didn’t want to pay, so he goes under the company’s, and now he wants to have it both ways.

Louis R. Koerner, Jr.:

–Well what happened is, in 1965 that was a distinction without a difference, because it didn’t make any difference whether it was a personal card or business card or whatever.

Thurgood Marshall:

I cannot expect to be bound by 1965.

Louis R. Koerner, Jr.:

Agreed.

I think that that’s American Express’ argument; that that’s the time when you look to the objective manifestation of the will of the parties.

Thurgood Marshall:

Well did you bill him in 1975?

Louis R. Koerner, Jr.:

The company–

Thurgood Marshall:

1980?

Louis R. Koerner, Jr.:

–The company was billed in 1975.

Byron R. White:

Right.

Thurgood Marshall:

Well, can’t we look at that?

Instead of looking at ’65?

Louis R. Koerner, Jr.:

That’s correct, but at that time–

Thurgood Marshall:

And at that time, he was getting a free ride?

Louis R. Koerner, Jr.:

–Yes.

John Paul Stevens:

Well why do you say yes?

Wasn’t the individual liable on the account?

Louis R. Koerner, Jr.:

Precisely.

But–

John Paul Stevens:

Wasn’t he liable for all of the company debts, not only his own, under the agreement?

So that’s–

Louis R. Koerner, Jr.:

–That’s true, that would be the quid pro quo.

He would not be–

Thurgood Marshall:

–not a free ride.

Louis R. Koerner, Jr.:

–he would not be getting a free ride therefore, because he swapped the $20–

Thurgood Marshall:

He wasn’t paying… so far, as the annual $20 cost… did you hear me?

Louis R. Koerner, Jr.:

–Yes sir.

Thurgood Marshall:

Was that a free ride or not?

Louis R. Koerner, Jr.:

That was.

But the–

Thurgood Marshall:

He didn’t pay the $20, right?

Louis R. Koerner, Jr.:

–He did not play the $20, but–

Thurgood Marshall:

Who paid the $20?

Louis R. Koerner, Jr.:

–The company.

Of which he was vice president.

Louis R. Koerner, Jr.:

But on the other hand, he swapped unlimited liability for any use by the company.

Thurgood Marshall:

Wouldn’t he have had that if he’d have had his own card?

Louis R. Koerner, Jr.:

Only for his own use.

But what happens if my cousin Ralph decides to run off with–

Thurgood Marshall:

I can’t get involved with your cousin and your uncle.

I’m talking about this case here.

Louis R. Koerner, Jr.:

–Well American Express, by the terms of the application, invited him to become liable for any use by other people that they issued the card to.

They issued four cards to the Koerner Company and its employees.

And so my father, under Louisiana law, and the terms of the application, was stuck if American Express chose to do so, for what my cousin Ralph did, my Uncle John, anyone else–

Thurgood Marshall:

Well that’s a family affair, let the family work it out.

But don’t bother us with it.

William H. Rehnquist:

Well that’s only if they use an American Express credit card.

It isn’t as if some deal not involving a credit card arose.

Louis R. Koerner, Jr.:

–Precisely.

This is only American Express credit card.

In other words, what happened is that American Express wished to get the personal liability of each of the cardholders for all of the debts on all of the cards of the whole of the company.

And that is a mighty tough bargain for not having to pay $20.

If there are no more questions, Your Honors?

Thank you very much.

Warren E. Burger:

Very well.

Do you have anything further, Mr. Greene?

Ronald J. Greene:

Just a few minor points.

First of all, this is not from American Express’ standpoint, an academic dispute.

We were sued for half a million dollars.

The complaint talked about 10 million or something like that, but–

William J. Brennan, Jr.:

What happens if you lose, we affirm?

What goes on in the District Court?

Ronald J. Greene:

–It will go back to the District Court and the District Court will have to decide whether to certify the case as a class action.

If it is certified as a class action, then under Section 130 of the Truth-in-Lending Act there are statutory damages of $500,000 for the class; $500,000 or one percent of the net worth of the creditor, whichever is less.

William J. Brennan, Jr.:

And suppose the Court refuses to certify the class, then what?

Ronald J. Greene:

Then it would go forward as an individual action, as to Mr. Koerner, and there are statutory damages there of $100.

William J. Brennan, Jr.:

How about the damages for humiliation, ripping your card up, and all that sort of thing?

Is that independently, or is that–

Ronald J. Greene:

Well, there would be arguments as to whether the $100 statutory damages–

William J. Brennan, Jr.:

–Was all?

Ronald J. Greene:

–would preclude such other damages.

So we were in this case, defending it, not because we didn’t want to apologize to somebody, but because we were sued for a half a million dollars.

Now, the second–

Byron R. White:

But you didn’t want to apologize?

Ronald J. Greene:

–Well, I don’t know.

On that point, Mr. Koerner said that it was undisputed that we had violated the law.

That’s not entirely correct.

This case arises on a motion for summary judgment, and I think the Court has to assume that if the Act applies it was violated.

But if it were remanded for trial, Mr. Koerner would have to put on evidence that would show that we did in fact violate the law, that there was a dispute, that it was properly sent in, there’s an extremely technical definition of what has to be a proper written notification of a billing error and whether it was sent in within the statutory–

Byron R. White:

Didn’t you… you answered, I suppose, before the summary judgment motion?

Ronald J. Greene:

–I believe we did.

We moved to dismiss.

Byron R. White:

Did you deny the fact?

Ronald J. Greene:

I’ll check that.

Byron R. White:

Well that’s all right.

I just wanted to–

Ronald J. Greene:

It’s in my records.

Byron R. White:

–I would think he alleged the facts and that you either denied them or admitted them?

Ronald J. Greene:

We certainly filed a motion to dismiss, on summary judgment, you have to assume the facts.

John Paul Stevens:

Mr. Greene, let me just ask you a question about… I think Judge Wisdom’s theory.

Why isn’t it perfectly clear that the only consideration for the guarantee… it isn’t a guarantee… but the joint responsibility for the account on the part of the individual, was that the individual was going to get individual credit for consumer purposes, for non-business purposes.

Ronald J. Greene:

That’s not–

John Paul Stevens:

He’s not a surety, as I understand your–

Ronald J. Greene:

–That’s not clear at all.

I think the basic problem with Judge Wisdom’s contention is that he seems to equate individual liability with the fact that you have a consumer credit transaction covered by the Act.

John Paul Stevens:

–Well what could the individual possibly be doing for which he would accept individual liability that–

Ronald J. Greene:

Oh, Mr. Justice, that happens all the time.

In all… as pointed out in our brief, that it’s a common practice for creditors to require individuals, especially in cases of small businesses, new businesses, unincorporated businesses, to assume liability for business debts.

John Paul Stevens:

–But that’s in the nature of a surety relationship.

Ronald J. Greene:

Well, it could be a joint liability.

That happens as well.

Oftentimes in the case of a new business with–

John Paul Stevens:

Don’t you have this agreement, say somebody like U.S. Steel… a very large corporation, they have cards for literally dozens of people, I suppose, do they assume individual liability too?

Ronald J. Greene:

–Yes.

We made, we have some customers–

John Paul Stevens:

Then your analogy wouldn’t apply there.

It’s not because you’re concerned about the credit investigations.

Ronald J. Greene:

–No, but it might well with the Koerner Company.

Certainly with U.S. Steel, the purpose for the individual liability is somewhat different, the purpose of control of individual employees’ expenditures and the allocation of liability as among the card issuer… card issuing company and the employee,–

John Paul Stevens:

It seems to me that the most frequent situation where you have an individual on a company card is that everybody expects him to use it for personal purposes.

Ronald J. Greene:

–Well, you might assume that, but in this case, we have a contract that says that it’s a business account, and the record doesn’t reflect that.

Thank you, Your Honor.

Warren E. Burger:

Thank you, gentlemen.

The case is submitted.