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United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 17, 2004 Decided November 9, 2004
No. 03-7132
DBI ARCHITECTS, P.C.,
APPELLANT
v.
AMERICAN EXPRESS TRAVEL–RELATED SERVICES CO., INC.,
APPELLEE
Appeal from the United States District Court
for the District of Columbia
(No. 02cv01729)
John A. Fraser, III argued the cause and filed the briefs
for appellant.
James J. Faughnan argued the cause and filed the brief
for appellee.
Before: RANDOLPH, ROGERS and GARLAND, Circuit Judges.
Opinion for the Court filed by Circuit Judge ROGERS.
Bills of costs must be filed within 14 days after entry of judgment.
The court looks with disfavor upon motions to file bills of costs out
of time.
2
ROGERS, Circuit Judge: The Truth in Lending Act
(‘‘TILA’’), 15 U.S.C. § 1601, et seq. (2000), limits the liability
of a cardholder for ‘‘unauthorized use of a credit card,’’ id.
§ 1643(a)(1), which is defined as use without ‘‘actual, implied,
or apparent authority’’ that does not benefit the cardholder,
id. § 1602(o). The principal issue on appeal is what creates
apparent authority to limit cardholder protection under
§ 1643. The district court, in granting summary judgment to
American Express Travel–Related Services Co. (‘‘AMEX’’),
ruled that DBI Architects, P.C. (‘‘DBI’’) clothed its account-
ing manager with apparent authority to use its corporate
AMEX account by failing to examine monthly billing state-
ments that identified all cardholders and their charges. We
hold that, while DBI did not clothe its accounting manager
with apparent authority by failing to inspect its monthly
billing statements, DBI did clothe its accounting manager
with apparent authority by repeatedly paying after notice all
charges made by the accounting manager on its corporate
AMEX account, thereby misleading AMEX reasonably to
believe that the accounting manager had authority to use the
account. We remand DBI’s § 1643 claim to the district court
to determine precisely how many payments created apparent
authority and thus limited DBI’s protection under TILA.
Otherwise, we affirm the grant of summary judgment.
I.
DBI is a corporation with its principal place of business in
the District of Columbia. It had an AMEX corporate credit
card account, which it authorized certain employees to use.
On March 14, 2001, DBI appointed Kathy Moore as the
Accounting Manager for its District of Columbia and Virginia
offices. In that position, Moore was in charge of both approv-
al and payment functions in the cash disbursement system:
she controlled accounts receivable, accounts payable, corpo-
rate checking, corporate credit cards, and all other financial
aspects of DBI’s business. She had authority to issue DBI
corporate checks to pay bills and invoices from vendors, was
‘‘entrusted with the duty of affixing authorized signatures and
approvals to checks and other documents,’’ and was responsi-
3
ble for the receipt, review, and payment of DBI’s AMEX
invoices. Aff. of Alan L. Storm in Supp. of Pl.’s Mot. for
Partial Summ. J.
On or about August 10, 2001, AMEX added Moore as a
cardholder on DBI’s corporate account at Moore’s request
and without DBI’s knowledge or approval. On August 22,
2001, AMEX sent DBI an account statement identifying
Moore as a corporate cardholder and itemizing her annual
membership fee. From August 2001 to May 2002, Moore
charged a total of $134,810.40 to DBI’s corporate AMEX
card, including $1,555.51 in authorized corporate charges and
$133,254.79 in unauthorized charges for clothing, travel, jew-
elry, and other personal items. During this period, AMEX
sent DBI ten monthly billing statements, each listing Moore
as a corporate cardholder and itemizing her charges. Be-
tween August 2001 and June 2002, Moore paid for these
charges with thirteen DBI checks made payable to AMEX.
In addition, between July 2001 and March 2002, Moore paid
for $162,139.04 in charges on her personal AMEX card with
fourteen DBI checks made payable to AMEX. Most of these
checks were signed or stamped in the name of Alan L. Storm,
the president of DBI; none were signed in Moore’s own
name.
On May 31, 2002, DBI notified AMEX of Moore’s fraudu-
lent charges and requested a refund of $133,254.79 for the
corporate account and $162,139.04 for the personal account.
AMEX denied the request. DBI sued AMEX in the Superior
Court for the District of Columbia, alleging, in Count One of
the complaint, that AMEX had violated TILA, 15 U.S.C.
§ 1643, by refusing to repay DBI for the $133,254.79 in
fraudulent charges made by Moore on DBI’s corporate
AMEX card. Count Two of the complaint alleged that
AMEX was liable for conversion for using DBI’s corporate
funds to credit the $162,139.04 in charges on Moore’s personal
AMEX card. Following AMEX’s removal of the case to the
United States District Court for the District of Columbia,
AMEX moved for summary judgment, and DBI moved for
partial summary judgment on the issue of liability. The
district court granted AMEX’s motion for summary judg-
4
ment, denying DBI recovery except for two months of
charges on the corporate account, and DBI appeals. Our
review of the grant of summary judgment is de novo. See
Tao v. Freeh, 27 F.3d 635, 638 (D.C. Cir. 1994).
II.
Congress enacted the credit card provisions of the Truth in
Lending Act ‘‘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); see S. REP. NO. 91–739, at 1 (1970); 116 CONG.
REC. 11,827–29 (1970). Responding to concerns about the
abuse of uninformed cardholders by a growing credit card
industry, see generally John C. Weistart, Consumer Protec-
tion in the Credit Card Industry: Federal Legislative Con-
trols, 70 MICH. L. REV. 1475 (1972), Congress strictly limited
the cardholder’s liability for ‘‘unauthorized’’ charges, see 15
U.S.C. § 1643(a)(1), placed the burden of establishing card-
holder liability on the card issuer, see id. § 1643(b), and
imposed criminal sanctions for the fraudulent use of credit
cards, see id. § 1644. Specifically, § 16431 provides that a
1 Under TILA, a cardholder is liable for ‘‘unauthorized’’
charges only if —
(A) the card is an accepted credit card;
(B) the liability is not in excess of $50;
(C) the card issuer gives adequate notice to the cardholder of
the potential liability;
(D) the card issuer has provided the cardholder with a descrip-
tion of a means by which the card issuer may be notified of
loss or theft of the card TTT;
(E) the unauthorized use occurs before the card issuer has
been notified that an unauthorized use of the credit card
has occurred or may occur as the result of loss, theft, or
otherwise; and
(F) the card issuer has provided a method whereby the user of
such card can be identified as the person authorized to use
it.
5
cardholder is not liable for the unauthorized use of a card
unless the issuer previously provided the cardholder with
information about potential liability, a means of reporting a
lost or stolen card, and a means of identifying the authorized
user. Id. § 1643(a)(1)(C), (D), (F). Even then, the cardhold-
er’s maximum liability is $50, id. at § 1643(a)(1)(B), and in
any event, the cardholder is not liable for unauthorized
charges incurred after the cardholder notifies the issuer of
the fraud. Id. § 1643(a)(1)(E).
The protections under § 1643, however, apply only to ‘‘un-
authorized use,’’ which Congress defined as ‘‘a 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.’’ Id. § 1602(o); see
Regulation Z, 12 C.F.R. § 226.12(b)(1) n.22. Because the
parties agree that Moore had neither actual nor implied
authority to use DBI’s corporate AMEX card, the question is
whether Moore’s charges were ‘‘authorized’’ as a result of her
apparent authority to use the card and thus fall outside the
protections available to DBI under § 1643. Cf. Credit Card
Serv. Corp. v. FTC, 495 F.2d 1004, 1007 (D.C. Cir. 1974).
The Federal Reserve Board’s official staff interpretation of
Regulation Z, 12 C.F.R. § 226.12(b)(1), states that ‘‘whether
[apparent] authority exists must be determined under state
or other applicable law.’’ 12 C.F.R. pt. 226, Supp. I, at 418.
The Second Circuit observed in Towers World Airways, 933
F.2d at 176–77, that ‘‘[b]y defining ‘unauthorized use’ as that
lacking in ‘actual, implied, or apparent authority,’ Congress
apparently contemplated, and courts have accepted, primary
reliance on background principles of agency law in determin-
ing the liability of cardholders for charges incurred by third-
party card bearers.’’ The common law rule provides that
apparent authority arises from the ‘‘written or spoken words
or any other conduct of the principal which, reasonably
interpreted, causes [a] third person to believe that the princi-
15 U.S.C. § 1643(a)(1). If the charge is authorized — that is, made
with ‘‘actual, implied, or apparent authority,’’ id. § 1602(o) — this
provision does not apply.
6
pal consents to have [an] act done on his behalf by the person
purporting to act for him.’’ RESTATEMENT (SECOND) OF AGENCY
§ 27, at 103 (1958). The District of Columbia has adopted a
similar definition: ‘‘apparent authority of an agent arises
when the principal places the agent in such a position as to
mislead third persons into believing that the agent is clothed
with authority which in fact he does not possess.’’ Stieger v.
Chevy Chase Sav. Bank, 666 A.2d 479, 482 (D.C. 1995)
(quoting Jack Pry, Inc. v. Harry Drazin, 173 A.2d 222, 223
(D.C. 1961)). The existence of apparent authority is a ques-
tion of fact that should normally be left to the jury. See, e.g.,
Herbert Constr. Co. v. Continental Ins. Co., 931 F.2d 989, 994
(2d Cir. 1991). However, a principal may be estopped from
denying apparent authority if the principal intentionally or
negligently created an appearance of authority in the agent,
on which a third party relied in changing its position. See
RESTATEMENT (SECOND) OF AGENCY § 8B, at 38–40. We need
not decide whether District of Columbia law or the common
law of agency provides the rule of decision, as we discern no
difference between them for the purposes of this case.
The district court ruled that Moore did not have apparent
authority to become a cardholder on DBI’s corporate AMEX
account. But distinguishing between the acquisition and use
of a credit card, the court ruled that DBI’s negligent failure
to examine its monthly billing statements from AMEX creat-
ed apparent authority for Moore’s use of the corporate card.
The court relied on an analogy to District of Columbia
banking law, under which depositors are required to ‘‘exercise
reasonable promptness in examining the statement TTT to
determine whether any payment was not authorized,’’ D.C.
Code § 28:4–406(c), and embraced the analysis of the Second
Circuit in Minskoff v. American Express Travel Related
Services Co., 98 F.3d 703 (2d Cir. 1996), which involved a
nearly identical fact situation. There, as here, an employee of
a corporation fraudulently acquired a corporate credit card
from AMEX, charged personal expenses to the card, and paid
for the charges with corporate checks. AMEX sent monthly
statements listing the employee as a cardholder and itemizing
7
the employee’s charges, but the corporation failed to review
the statements, continued to make payments, and demanded
a refund upon discovering the fraud. See id. at 706–07.
The Second Circuit held in Minskoff that TILA ‘‘clearly
preclude[s] a finding of apparent authority where the transfer
of the card was without the cardholder’s consent, as in cases
involving theft, loss, or fraud.’’ Id. at 708 (quoting Towers
World Airways, 933 F.2d at 177). Regarding the employee’s
use of the card, however, the court drew an analogy from
New York banking law, under which depositors are obligated
to ‘‘exercise reasonable care and promptness’’ in examining
their bank statements and reporting unauthorized charges,
id. at 709 (quoting N.Y. U.C.C. § 4–406(1)), and held that a
‘‘cardholder’s failure to examine credit card statements that
would reveal fraudulent use of the card constitutes a negli-
gent omission that creates apparent authority for charges
that would otherwise be considered unauthorized under the
TILA.’’ Id. at 709–10. The court noted that the corpora-
tion’s negligence ‘‘enabled [the employee] to pay all of the
American Express statements with forged checks, thereby
fortifying American Express’ continuing impression that
nothing was amiss.’’ Id. at 710. The court reasoned that, as
a policy matter, cardholders are in a better position than card
issuers to discover fraudulent charges, and that ‘‘[n]othing in
the TILA suggests that Congress intended to sanction inten-
tional or negligent conduct by the cardholder that furthers
the fraud or theft of an unauthorized card user.’’ Id. at 709.
Accordingly, the court concluded that AMEX was liable only
for the fraudulent charges incurred before the corporation
had a reasonable opportunity to examine its first billing
statement, and remanded the case for the district court to
make this determination, including whether, as the record
developed on remand, any issues required submission to the
jury. See id. at 710.
On appeal, DBI contends that the district court erred in
following Minskoff. Because TILA and Regulation Z oblige
the card issuer to protect the cardholder from fraud, DBI
maintains that the district court erred in imposing on the
cardholder a ‘‘novel duty TTT derived from a rough analogy to
8
D.C. banking law’’ to inspect monthly billing statements and
to notify the card issuer of fraud. Appellant’s Br. at 12; see
D.C. Code § 28:4–406(c). AMEX responds that, by continu-
ing to pay without objection all charges on its corporate
account, DBI vested Moore with apparent authority to use its
corporate credit card. We conclude that both parties are
correct. DBI is correct that its failure to inspect its monthly
billing statements did not clothe Moore with apparent author-
ity to use its corporate AMEX account. AMEX is correct
that DBI clothed Moore with apparent authority to use its
corporate AMEX account by repeatedly paying without pro-
test all of Moore’s charges on the account after receiving
notice of them from AMEX.
Nothing in the law of agency supports the district court’s
conclusion that DBI’s mere failure to review its monthly
billing statements created apparent authority for Moore to
use its corporate AMEX account. DBI’s silence without
payment would be insufficient to lead AMEX reasonably to
believe that Moore had authority to use DBI’s corporate
account, as such silence would be equally consistent with
DBI’s never having received the statements. Cf. Whetstone
Candy Co. v. Kraft Foods, Inc., 351 F.3d 1067, 1078 (11th Cir.
2003). Indeed, in Crestar Bank, N.A. v. Cheevers, 744 A.2d
1043 (D.C. 2000), the District of Columbia Court of Appeals
held that a cardholder’s ‘‘failure to object to the [disputed]
charges within a reasonable time TTT [did not] constitut[e]
ratification and acceptance of those charges.’’ Id. at 1048
(first alteration in original). The court distinguished Min-
skoff as involving more than mere silence: whereas in Crestar
Bank there was no relationship between the cardholder and
the third party who made the fraudulent charges, and the
cardholder neither received notice of the charges nor paid
them, in Minskoff the cardholder’s employee made the fraud-
ulent charges, and the cardholder both received notice of the
charges and paid them in full for sixteen consecutive months.
Id. at 1048 n.4.; see Minskoff, 98 F.3d at 710.
Further, the view that mere silence does not confer appar-
ent authority is consistent with the text and purpose of
§ 1643 and Regulation Z. The plain language of § 1643 does
9
not require a cardholder to inspect monthly billing statements
in order to invoke its protections. The text sets no precondi-
tions to its protections, such as an exhaustion requirement,
and makes no reference to other remedies, such as those
under the Fair Credit Billing Act, 15 U.S.C. § 1666 (2000),
which permits — but does not require — a cardholder to seek
correction of billing errors by reporting them to the card
issuer in writing.2 Rather, § 1643 places the risk of fraud
primarily on the card issuer. Designed to remedy the prob-
lem that ‘‘if a consumer does not immediately discover and
report a card loss, he can be liable for thousands of dollars in
unauthorized purchases made by a fast working thief,’’ S. REP.
NO. 91–737, at 5, § 1643 requires the card issuer to demon-
strate that it has taken certain measures to protect the
cardholder from fraud before it can hold a cardholder liable
for any unauthorized charges. 15 U.S.C. § 1643(a)(1), (b).
The text of § 1643 thus indicates that Congress intended for
the card issuer to protect the cardholder from fraud, not the
other way around. Explaining the rationale underlying Con-
gress’s ‘‘policy decision that it is preferable for the issuer to
bear fraud losses from credit card use,’’ one commentator has
suggested that Congress understood that ‘‘[a] system of
issuer liability is preferable because it stimulates more effi-
cient precautions against losses,’’ with cardholder liability
incurred ‘‘only [to] the degree TTT necessary to ensure proper
control of his card and prompt notice of loss to the issuer.’’
See Weistart, supra, at 1509, 1511.
Regulation Z likewise reflects the remedial purpose of
§ 1643. Filling in the gap between TILA and the Fair Credit
2 The Fair Credit Billing Act provides:
If a creditor, within sixty days after having transmitted to an
obligor a statement of the obligor’s account in connection with
an extension of consumer credit, receives TTT a written notice
TTT from the obligor TTT indicat[ing] the obligor’s belief that
the statement contains a billing error TTT, the creditor shall
[acknowledge receipt of the notice and] either make appropri-
ate corrections in the account of the obligor or [explain why the
charge is correct].
15 U.S.C. § 1666(a).
10
Billing Act, the Federal Reserve Board explains in Regulation
Z that a cardholder need not contest charges under § 1666 in
order to pursue remedies under § 1643. See Crestar Bank,
744 A.2d at 1048. Specifically, the Board’s official staff
interpretation of 12 C.F.R. § 226.12(b)(3) states that ‘‘[t]he
liability protections afforded to cardholders in § 226.12 [un-
der § 1643] do not depend upon the cardholder’s following
the error resolution procedures in § 226.13 [under § 1666].’’
Although § 1666 and § 226.13 apply only to ‘‘consumer cred-
it’’ and not to corporate credit, see §§ 1666(a), 1602(h), they
nevertheless support the general proposition that a cardhold-
er’s failure to report fraudulent charges does not create
apparent authority for such charges. Congress instructed
the Federal Reserve Board to promulgate regulations to
carry out the purposes of TILA, see 15 U.S.C. § 1604(a), and
the Supreme Court has held that courts owe deference to the
Board’s regulations and its interpretation of its regulations
under TILA. See Anderson Bros. Ford v. Valencia, 452 U.S.
205, 219 (1981) (citing Ford Motor Credit Co. v. Milhollin, 444
U.S. 555, 556 (1980)). Because the Board’s interpretation is
consistent with § 1643 and § 1666, deference to Regulation Z
is due. See Anderson, 452 U.S. at 219; Milhollin, 444 U.S. at
565. Indeed, in Crestar Bank, 744 A.2d at 1048, the District
of Columbia Court of Appeals deferred to Regulation Z and
rejected an interpretation that ‘‘reads into § 1643 a presump-
tion that if the cardholder fails to notify the [card issuer] that
the disputed charges are not his, they will be deemed to have
been authorized by the cardholder.’’
Thus, there is no need for a court to look to banking laws to
resolve the risk allocation and public policy issues regarding
credit card fraud. While the district court duly noted that
DBI had paid Moore’s charges in full for ten months, cf.
Minskoff, 98 F.3d at 710, the court ultimately relied on an
analogy to District of Columbia banking law in concluding
that DBI’s negligent failure to examine its monthly billing
statements created apparent authority for Moore to use its
corporate AMEX account. In so doing, the district court
gave insufficient weight to the fact that § 1643 places the risk
of fraud primarily on the card issuer. Under the district
11
court’s approach, once a card issuer sends a billing statement
to the cardholder, the statutory burden shifts to the cardhold-
er to prove that it fulfilled its duty to review the statement
and to report fraudulent charges. As DBI suggests, the
effect is to make § 1666 a fraud shield for AMEX. This
interpretation hardly seems consistent with the courts’ liberal
construction of TILA in light of its remedial purposes.3
Congress’s plan for addressing credit card fraud places the
burden on the card issuer to prove that it has taken certain
measures to protect the cardholder from fraud before it can
hold the cardholder liable for any unauthorized charges, see
15 U.S.C. § 1643(a)(1), (b), and even then, limits the cardhold-
er’s liability to $50, see id. § 1643(a)(1)(B), (d). In other
words, the consequence of the cardholder’s failure to examine
its billing statements is that it may not be able to take
advantage of the opportunity Congress provided under
§ 1666 to correct a billing error, not that it forfeits protec-
tions against liability for unauthorized use under § 1643. Cf.
Crestar Bank, 744 A.2d at 1048. The district court thus
erred in imposing a duty on DBI to inspect its monthly billing
statements because such a duty effectively creates an exhaus-
tion requirement that neither § 1643 nor Regulation Z con-
templates.
Consequently, AMEX cannot meet its burden to show that
it is entitled to judgment as a matter of law, see Fed. R. Civ.
P. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247–
48 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 322–23
(1986); Dunaway v. Int’l Bhd. of Teamsters, 310 F.3d 758,
761 (D.C. Cir. 2002), based solely on DBI’s failure to examine
its monthly billing statements. Indeed, AMEX makes no
such attempt. AMEX contends, and we hold, that DBI
cannot avoid liability for Moore’s fraudulent charges because
3 See, e.g., Mourning v. Family Publ’ns Serv., Inc., 411 U.S.
356, 377 (1973); Roberts v. Fleet Bank, 342 F.3d 260, 266 (3d Cir.
2003); Begala v. PNC Bank, 163 F.3d 948, 950 (6th Cir. 1998);
Jackson v. Grant, 890 F.2d 118, 120 (9th Cir. 1989); Bragg v. Bill
Heard Chevrolet, Inc., 374 F.3d 1060, 1065 (11th Cir. 1988); Free-
man v. B&B Assocs., 790 F.2d 145, 149 (D.C. Cir. 1986); Gram v.
Bank of Louisiana, 691 F.2d 728, 729 (5th Cir. 1982).
12
its repeated payments in full after notice led AMEX reason-
ably to believe that Moore had the authority to use DBI’s
corporate credit card. Imposing liability based on the card-
holder’s payment after notice is not inconsistent with Con-
gress’s plan for allocating loss from credit card fraud. By
identifying apparent authority as a limit on the cardholder’s
protection under § 1643, Congress recognized that a card-
holder has certain obligations to prevent fraudulent use of its
card. DBI’s troubles stemmed from its failure to separate
the approval and payment functions within its cash disburse-
ment process. Moore had actual authority both to receive the
billing statements and to issue DBI checks for payment to
AMEX. While DBI did not voluntarily relinquish its corpo-
rate card to Moore, it did mislead AMEX into reasonably
believing that Moore had authority to use the corporate card
by paying her charges on the corporate account after receiv-
ing AMEX’s monthly statements identifying her as a card-
holder and itemizing her charges. While payment may not
always create apparent authority, this is not a case involving
‘‘an occasional transgression buried in a welter of financial
detail.’’ Minskoff, 98 F.3d at 710. Nor is this a case
involving payment without notice, as might occur when a
cardholder authorizes its bank to pay its credit card bills
automatically each month. Where, as here, the cardholder
repeatedly paid thousands of dollars in fraudulent charges for
almost a year after monthly billing statements identifying the
fraudulent user and itemizing the fraudulent charges were
sent to its corporate address, no reasonable juror could
disagree that at some point the cardholder led the card issuer
reasonably to believe that the fraudulent user had authority
to use its card.
DBI’s remaining contentions have no merit. DBI’s reliance
on the provision limiting a cardholder’s liability to charges
made on an ‘‘accepted’’ credit card, see 15 U.S.C.
§ 1643(a)(1)(A), is misplaced, for Moore’s charges were not
‘‘unauthorized’’ because DBI’s payments created apparent
authority for Moore to make them. DBI’s insistence that it
derived no benefit from Moore’s purchase of jewelry, shoes,
and clothing is irrelevant because the use of a card is
13
‘‘unauthorized’’ only if the cardholder derives no benefit from
it and it lacks actual, implied, or apparent authority. See id.
§ 1602(o). Because DBI’s payments created apparent au-
thority, the use was not ‘‘unauthorized.’’
Accordingly, we hold that DBI is estopped from avoiding
liability to AMEX for the charges Moore incurred on the
corporate account after her apparent authority arose. The
question remains when Moore’s apparent authority arose.
The district court held, consistent with AMEX’s alternative
prayer for relief, that DBI could recover payment for the first
two months of Moore’s charges following her unauthorized
acquisition of the card on DBI’s corporate account. But no
relevant statute sets a time period that is controlling. Both
§ 1666 and Regulation Z allow the cardholder 60 days from
the date of the credit card statement to notify the card issuer
of a billing error, see 15 U.S.C. § 1666(a); 12 C.F.R.
§ 226.13(b)(1), and District of Columbia banking law, on
which the district court may have relied, allows the customer
a ‘‘reasonable period of time, not exceeding 30 days,’’ to
examine a bank statement and to notify the bank of any
fraudulent charges. D.C. Code § 28:4–406(d)(2); cf. Min-
skoff, 98 F.3d at 709–10. Because the question of precisely
when apparent authority arose cannot be resolved as a matter
of law, we remand DBI’s § 1643 claim to the district court to
determine, or as appropriate to allow a jury to determine, at
what point DBI’s payment created apparent authority and
thereby terminated DBI’s protection under the statute.
AMEX did not cross-appeal, and therefore the district court’s
award of $21,748.87 for the first two months of use sets a
floor for DBI’s recovery. Cf. Hartman v. Duffey, 19 F.3d
1459, 1464–65 (D.C. Cir. 1994).
III.
The tort of conversion, or the ‘‘wrongful possession or
disposition of another’s property as if it were one’s own,’’
BLACK’S LAW DICTIONARY 333 (7th ed. 1999), has been codified
in the District of Columbia:
14
The law applicable to conversion of personal property
applies to instruments. An instrument is also converted
if it is taken by transfer, other than a negotiation, from a
person not entitled to enforce the instrument or a bank
makes or obtains payment with respect to the instrument
for a person not entitled to enforce the instrument or
receive payment.
D.C. Code § 28:3–420(a). Under District of Columbia law, a
holder in due course of a negotiable instrument, such as a
check, takes the instrument free of any claims. Id. § 28:3–
306. A holder of an instrument is a holder in due course if
the instrument bears no facial evidence of forgery or altera-
tion, and if the holder takes the instrument for value, in good
faith, and without notice of the claim or defense. Id. § 28:3–
302.4 Although § 28:3–420(a) provides that ‘‘[a]n action for
conversion of an instrument may not be brought by TTT the
issuer TTT of the instrument,’’ and DBI was the issuer of the
checks, AMEX did not challenge DBI’s claim on this basis,
and we therefore turn to DBI’s contentions.
DBI concedes that the checks at issue bore no facial
evidence of forgery or alteration, that AMEX took the checks
for value, and that AMEX had no knowledge of the fraud.
See Pl.’s Mem. of P. & A. in Opp’n to Def.’s Mot. for Summ.
4 D.C. Code § 28:3–302(a) defines ‘‘holder in due course’’ as a
holder of an instrument if:
(1) The instrument when issued or negotiated to the holder
does not bear such apparent evidence of forgery or altera-
tion or is not otherwise so irregular or incomplete as to call
into question its authenticity; and
(2) The holder took the instrument (i) for value, (ii) in good
faith, (iii) without notice that the instrument is overdue or
has been dishonored or that there is an uncured default
with respect to payment of another instrument issued as
part of the same series, (iv) without notice that the instru-
ment contains an unauthorized signature or has been al-
tered, (v) without notice of any claim to the instrument
described in section 28:3–306, and (vi) without notice that
any party has a defense or claim in recoupment described
in section 28:3–305(a).
15
J., at 14 & n.3. DBI’s challenges to AMEX’s good faith are
to no avail. First, the district court’s finding that AMEX
took the checks in good faith, defined as ‘‘honesty in fact and
the observance of reasonable commercial standards of fair
dealing,’’ D.C. Code § 28:3–103(a)(4), was not invalidated by
its enforcement of an erroneous discovery deadline. The
finding of good faith was based on the court’s recognition that
the automated processing of checks is a commercially reason-
able practice in the banking industry, see id. § 28:3–103(a)(7);
Grand Rapids Auto Sales, Inc. v. MBNA Am. Bank, 227 F.
Supp. 2d 721, 729 (W.D. Mich. 2002), and that AMEX had no
reason to suspect fraud because it is not unusual for employ-
ers to pay the credit card debts of their employees, see
Hartford Accident & Indem. Co. v. Am. Express Co., 542
N.E. 2d 1090, 1095 (N.Y. 1989). Any further discovery on
this point would not have affected the basis for the district
court’s finding of good faith.
Second, DBI does not dispute that AMEX processed the
checks electronically pursuant to its normal procedures. Nor
does it offer any evidentiary support to show that AMEX’s
automated procedures ‘‘vary unreasonably from general
banking usage.’’ D.C. Code § 28:3–103(a)(7). It thus fails to
raise a genuine issue as to whether AMEX’s automated
processing of checks was commercially reasonable.
Third, DBI’s contention that AMEX acted in bad faith
when it failed to offer DBI the fraud prevention technology
that it applies to large corporate accounts is irrelevant to the
conversion claim, which relates only to Moore’s personal
AMEX account. Similarly, DBI’s supplemental memoran-
dum that the district court rejected as untimely refers to
technology that prevents fraudulent credit card charges, not
fraudulent use of checks to pay for legitimate credit card
charges.
DBI’s remaining contentions have no merit. Its view that
a direct payee of stolen funds cannot be a holder in due
course does not reflect District of Columbia law. Comment 4
to D.C. Code § 28:3–302 states that although typically the
holder in due course is not the payee of the instrument, ‘‘in a
16
small percentage of cases it is appropriate to allow the payee
of an instrument [such as AMEX] to assert rights as a holder
in due course.’’ This occurs when the ‘‘conduct of some third
party [such as Moore] is the basis of the defense of the issuer
of the instrument.’’ D.C. Code § 28:3–302 cmt. 4. Conse-
quently, AMEX can be a holder in due course of DBI’s
corporate checks for payment of charges on Moore’s personal
account. DBI’s suggestion that the holder in due course
doctrine ‘‘has the effect of abolishing the common law of
conversion’’ preserved in District of Columbia law, Appellant’s
Br. at 26, is an overstatement, for the tort is defeated only to
the extent there is a defense to the claim.
Accordingly, we affirm in part the grant of summary
judgment to AMEX on DBI’s § 1643 claim and we remand in
part; we affirm the grant of summary judgment to AMEX on
DBI’s conversion claim.