A copy of the opinion is available online at: http://www.courtinfo.ca.gov/opinions/documents/B223686.PDF
Kayatta brought the appeal contending that American Express had a duty to disclose to him that "it had filed suit against, or obtained a judgment against" Robert E. Francis, a third party additional card-member. Kayatta had entered into a Business Agreement with American Express upon application for the card, which stated in part, "You [the cardholder] promise to pay all Charges, including Charges incurred by Additional Cardmembers, on your Account." The Agreement further stipulated that the "Company and the Basic Cardmember" will be held responsible "for any losses as well as any other consequences related to or resulting from actions taken by any third parties authorized to act on behalf of the Company and Basic Cardmember."
The facts and terms of the Business Agreement were undisputed. Kayatta posited three "extra-contractual" bases for American Express's purported duty to advise him of its affiliates' judgment against Francis. The Appellate Court stated that Kayatta "apparently contends that American Express is barred from enforcing the Business Agreement" because of its failure to disclose the judgment. The three bases for this extra-contractual duty Kayatta posited were: "(1) federal and state statutes and regulations on credit accounts; (2) the "special relationship" of "trust and confidence" between American Express and Kayatta; and (3) the implied covenant of good faith and fair dealing."
Kayatta argued that American Express owed him a duty of disclose under the federal Truth in Lending Act. The court agreed with Kayatta that the purpose of TILA was to assist cardholders with making an "informed decision" regarding use of credit. However, the court noted that there is no specific language in TILA that supports the proposition that American Express would have the duty to disclose a judgment against an additional cardholder to the basic cardholder.
The court also found Kayatta's citations to "dicta" in cases involving fraudulent obtainment of a charge card or authorization of a conditional possession of a card readily distinguishable. No fraud was alleged in the present case, and American Express "did not authorize a conditional possession of a charge card by Francis." Kayatta himself authorized Francis's use of the card "and thus he bore the risk of nonpayment by Frances."
The court also rejected Kayatta's attempts to establish a "special relationship" of "trust and confidence" with American Express. Kayatta argued that "some courts in other states have recognized that the relationship between a bank and its loan customers" may place a duty to disclose "facts which may place the bank or a third party at an advantage with respect to the customer." However, in the present case, the court held that "nothing in the record suggests a confidential relationship" between Kayatta and American Express such that would require disclosure. Kayatta made no claims that he sought advice from American Express regarding additional cardmembers, nor did American Express induce him to authorize Francis as such.
Lastly, Kayatta invoked the "implied covenant of good faith and fair dealing", which is "implied by law in every contract" to try to establish American Express's duty to disclose Francis's credit history. However, examining the language of the Business Agreement, the court found that there was no stipulation that Kayatta would be given "credit-related information" concerning additional card members. The court held that American Express's failure to disclose the judgment against Francis did not in any way deprive Kayatta of any rights or benefits in relation to the charge card. Kayatta himself did not dispute that he obtained the charge card and "was able to add (or remove) Francis as an additional member."
For the foregoing reasons, the Appellate Court upheld the lower court's decision granting American Express money damages pursuant to the terms of the Business Agreement with Kayatta.
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Ralph T. Wutscher
Kahrl Wutscher LLP
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