Connell Oil Inc. v. Erik McConnell Johnson, et ux

FILED
OCTOBER 25, 2018
In the Office of the Clerk of Court
WA State Court of Appeals, Division III
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION THREE
CONNELL OIL INC., A Washington ) No. 35372-9-III
Corporation, )
)
Respondent, )
)
v. ) PUBLISHED OPINION
)
ERIK MCCONNELL JOHNSON and )
JACKIE MCCONNELL JOHNSON, a )
marital community, )
)
Appellants. )
LAWRENCE-BERREY, C.J. — Are cards used to access unmanned fuel pumps
“credit cards” so that cardholder liability is limited for unauthorized fuel purchases?
15 U.S.C § 1643 of the Truth in Lending Act (TILA)1 limits a cardholder’s
liability for the unauthorized use of a credit card. Staff working for a division of the
Federal Reserve Board (FRB) issues official commentaries to TILA. One official
commentary states that a credit card does not include a card required to be used to obtain
1
Truth in Lending Act, 15 U.S.C. §§ 1601-1667f.
No. 35372-9-III
Connell Oil v. Johnson
petroleum products for business purposes from a wholesale distribution facility,
regardless of payment terms. In general, an official commentary is binding on a court
unless it is arbitrary, capricious, or manifestly contrary to the statute.
We hold that the commentary at issue here is binding because it is not arbitrary,
capricious, or manifestly contrary to the statute. We conclude that Erik Johnson’s stolen
petroleum card is a type of card described by the commentary, and his liability for its
unauthorized use is not limited by TILA. In so holding, we affirm the trial court.
FACTS
Connell Oil is in the business of selling and distributing wholesale fuel for
commercial purposes. It provides its customers access to unmanned fueling stations
commonly used by police, fire, transit, and school districts.
The unmanned fuel pumps are inoperable unless the customer uses an appropriate
access device. Early on, the access device was a key, referred to as a keylock system. As
technology developed, the keylock system was replaced with an optical-lock, which is a
card with holes in it. Later, as computers were used to read magnetic strips, the optical-
lock system was replaced by the current cardlock system.
The cardlock system is a plastic card that looks exactly like a credit card. The card
has a magnetic strip, which when swiped, communicates the customer’s account number
2
No. 35372-9-III
Connell Oil v. Johnson
to Connell Oil’s computer system. For security, the customer must enter a personal
identification number (PIN) before the pump is activated. Connell Oil recommends to its
customers that they keep their PIN separate from their card.
Once the customer completes fueling, an invoice is generated for the specific
amount of fuel purchased. Invoices are sent to customers at regular intervals, twice each
month. Customers are required to pay the invoices within 15 days. Unpaid balances
accrue interest at 1.5 percent per month.
Since 2009, Erik Johnson has been a customer of Connell Oil. On July 27, 2014,
Mr. Johnson’s wallet was stolen from his farm vehicle. The next day, Mr. Johnson began
contacting issuers of his stolen credit and debit cards. On July 31, 2014, Mr. Johnson
telephoned Connell Oil. There is a factual dispute whether Mr. Johnson asked Connell
Oil to cancel his stolen petroleum card or simply ordered one or more cards. But there is
no factual dispute that the cardlock agreement required cancellation to be in writing, and
Mr. Johnson never requested in writing that his stolen petroleum card be canceled.
Around September 8, 2014, Connell Oil called Mr. Johnson and notified him that it
was terminating his account because of suspicious activity. Because Mr. Johnson had
kept his PIN and petroleum card together in his wallet, the thief was able to steal
$34,649.68 worth of fuel during the six weeks before the card’s cancelation. Although
3
No. 35372-9-III
Connell Oil v. Johnson
Connell Oil had invoiced Mr. Johnson three times since his wallet was stolen, Mr.
Johnson did not detect the fuel theft. Mr. Johnson explained to Connell Oil that he was
too busy during harvest to open its invoices. The parties were unable to resolve the
dispute.
Connell Oil served Mr. Johnson and his wife, Jackie McConnell Johnson, with a
complaint alleging that the Johnsons were liable for $34,649.68 in stolen card charges,
plus interest, costs, and attorney fees. The Johnsons then filed an answer with affirmative
defenses, including limitations on cardholder liability for lost or stolen cards as well as
counterclaims under TILA, Washington’s Consumer Protection Act, chapter 19.86 RCW,
and negligence.
Procedure
After discovery, the Johnsons filed a motion for partial summary judgment and
Connell Oil filed a cross-motion. The court ruled that the petroleum card issued by
Connell Oil was not a credit card as contemplated by TILA. The court held that the
Johnsons’ defenses under TILA were inapplicable, granted Connell Oil’s motion for
summary judgment, and dismissed the Johnsons’ affirmative defenses and counterclaims.
The court entered judgment in favor of Connell Oil for the unpaid petroleum charges,
4
No. 35372-9-III
Connell Oil v. Johnson
plus interest, costs, and reasonable attorney fees in accordance with the cardlock
agreement.
The Johnsons timely appealed.
ANALYSIS
A. STANDARD OF REVIEW
This court reviews a summary judgment order de novo, engaging in the same
inquiry as the trial court. SentinelC3, Inc. v. Hunt, 181 Wn.2d 127, 140, 331 P.3d 40(2014). “Summary judgment is appropriate only if ‘the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any, show that there
is no genuine issue as to any material fact and that the moving party is entitled to a
judgment as a matter of law.’” RockRock Grp., LLC v. Value Logic, LLC, 194 Wn. App.
904, 913, 380 P.3d 545 (2016) (quoting CR 56(c)), review denied, 187 Wn.2d 1002, 386
P.3d 1078 (2017). A fact is material when the outcome of the litigation depends on it, in
whole or in part. Atherton Condo. Apt.-Owners Ass’n Bd. of Dirs. v. Blume Dev. Co., 115
Wn.2d 506, 516, 799 P.2d 250 (1990). This court views all facts and reasonable
inferences in the light most favorable to the nonmoving party. SentinelC3, 181 Wn.2d at
140. Summary judgment is appropriate if reasonable persons could reach but one
conclusion from all the evidence. Id.5
No. 35372-9-III
Connell Oil v. Johnson
B. PURPOSE OF TILA
The purpose of TILA is to
assure a meaningful disclosure of credit terms so that the consumer will be
able to compare more readily the various credit terms available to him and
avoid the uninformed use of credit, and to protect the consumer against
inaccurate and unfair credit billing and credit card practices.
15 U.S.C. § 1601(a). Because TILA is remedial in nature, the substance rather than the
form of the credit transactions should be examined in cases arising under it. Hickman v.
Cliff Peck Chevrolet, Inc., 566 F.2d 44, 46 (8th Cir. 1977). TILA is liberally construed to
protect consumers. Burnett v. Ala Moana Pawn Shop, 3 F.3d 1261, 1262 (9th Cir. 1993).
C. DEFERENCE TO FEDERAL RESERVE BOARD REGULATIONS AND OFFICIAL
COMMENTARY
Congress expressly delegated authority to the FRB to promulgate regulations with
such classification, differentiations, or other provisions that are in the FRB’s opinion
necessary or proper to effectuate the purposes of TILA, to prevent circumvention or
evasion thereof, or to facilitate compliance therewith. Household Credit Servs., Inc. v.
Pfennig, 541 U.S. 232, 238, 124 S. Ct. 1741, 158 L. Ed. 2d 450 (2004). “Congress has
specifically designated the Federal Reserve Board and staff as the primary source for
interpretation and application of truth-in-lending law.” Ford Motor Credit Co. v.
Milhollin, 444 U.S. 555, 566, 100 S. Ct. 790, 63 L. Ed. 2d 22 (1980).
6
No. 35372-9-III
Connell Oil v. Johnson
In accordance with this delegated authority, the FRB has promulgated a detailed
and comprehensive set of rules known as “Regulation Z,” which is codified at 12 C.F.R.
§ 226.1(a). The staff of the Division of Consumer and Community Affairs to the FRB
issues official interpretations of Regulation Z, referred to as commentary. See 12 C.F.R.
pt. 226, supp. I, (1). Courts have recognized that the FRB “‘play[s] a pivotal role in
‘setting [TILA] in motion . . .’” and have consistently afforded the FRB’s regulations and
staff interpretations great deference. Household Credit Servs., 541 U.S. at 238(alterations in original) (internal quotation marks omitted) (quoting Ford Motor Credit
Co., 444 U.S. at 566).
D. LIMITATION OF LIABILITY FOR UNAUTHORIZED CREDIT CARD USE
1. Overview
15 U.S.C. § 1643(d) states: “Except as provided in this section, a cardholder incurs
no liability from the unauthorized use of a credit card.” 15 U.S.C. § 1643(a)(1) limits a
cardholder’s liability to $50, if various conditions were met, including that the card issuer
gave adequate notice of the cardholder’s limitation of liability.
The term “cardholder” includes “any person to whom a credit card is issued.”
15 U.S.C. § 1602(n). The term “person” means “a natural person or an organization.”
15 U.S.C. § 1602(e). The term “organization” means “a corporation, government or
7
No. 35372-9-III
Connell Oil v. Johnson
governmental subdivision or agency, trust, estate, partnership, cooperative, or
association.” 15 U.S.C. § 1602(d). Therefore, 15 U.S.C. § 1643 significantly limits a
person’s and a business’s liability for the unauthorized use of their credit card.
The term “credit card” “means any card, plate, coupon book or other device
existing for the purpose of obtaining money, property, labor, or services on credit.”
15 U.S.C. § 1602(l). The term “credit” “means the right granted by a creditor to a debtor
to defer payment of debt or to incur debt and defer its payment.” 15 U.S.C. § 1602(f).
“Deferral of debt” includes even short-term deferrals where payment in full is due
promptly. Telco Commc’ns Grp., Inc. v. Race Rock, 57 F. Supp. 2d 340, 343 (E.D. Va.
1999). Therefore, any card that allows a debtor to defer payment of a debt, even for a
short time, is a credit card.
In furtherance of this section, the FRB promulgated 12 C.F.R. § 226.12(b)(1)(ii),
which provides in relevant part:
The liability of a cardholder for unauthorized use of a credit card shall not
exceed the lesser of $50 or the amount of money, property, labor, or
services obtained by the unauthorized use before notification to the card
issuer under paragraph (b)(3) of this section.
(Emphasis added) (footnote omitted).
By regulation, “cardholder” is defined as “a natural person to whom a credit card is
issued for consumer credit purposes.” 12 C.F.R. § 226.2(a)(8). But for purposes of
8
No. 35372-9-III
Connell Oil v. Johnson
§ 226.12(a) and (b), “cardholder” also “includes any person to whom a credit card is
issued for any purpose, including business, commercial or agriculatural use . . . .”
12 C.F.R. § 226.2(a)(8). So under both the statute and the regulation, natural persons as
well as businesses enjoy extensive protection from the unauthorized use of their credit
cards.
However, an official commentary provides:
[A] credit card does not include, for example
....
. . . [a]ny card . . . that is used in order to obtain petroleum products for
business purposes from a wholesale distribution facility . . . and that is
required to be used without regard to payment terms.
12 C.F.R. pt. 226, supp. I, subpt. A, § 226.2(a)(15)(2)(ii)(B) (hereafter “Commentary
(B)”).
2. Whether Commentary (B) is binding
To determine if an FRB regulation or a staff commentary is binding, a court is
“faced with only two questions.” Household Credit Servs., 541 U.S. at 239. First, the
court must ask if “‘Congress has directly spoken to the precise question at issue.’” Id.(quoting Chevron U.S.A. Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 842, 104 S.
Ct. 2778, 81 L. Ed. 2d 694 (1984)). Second, if “Congress has ‘explicitly left a gap for the
agency to fill,’ the agency’s regulation is ‘given controlling weight unless [it is] arbitrary,
9
No. 35372-9-III
Connell Oil v. Johnson
capricious, or manifestly contrary to the statute.’” Id. (alteration in original) (quoting
Chevron U.S.A., 467 U.S. at 843-44).
Connell Oil argues that Congress has not directly spoken to the precise question of
whether cardlocks used to access fuel pumps at unmanned stations are credit cards under
TILA. We agree.
A cardlock serves two functions. First, it unlocks an unmanned fuel pump to
facilitate a wholesale purchase of gasoline. Second, it facilitates a short-term credit
purchase. Although the latter function is within the definition of a credit card, the former
is not.
Nor is Commentary (B) arbitrary, capricious, or manifestly contrary to the statute.
The device used to access fuel at Connell Oil’s unmanned fuel stations evolved from a
keylock, to an optical-lock, to a card with a magnetic strip. All versions of this evolution
allowed a customer to access a fuel pump at an unmanned station so as to purchase fuel at
wholesale prices. Because TILA is remedial in nature, the substance rather than the form
of the transaction should be examined. Hickman, 566 F.2d at 46. The substance of the
transaction has not changed through this evolution. Commentary (B) reasonably
concluded that Congress had no more desire to regulate a cardlock than it had to regulate
a keylock or an optical-lock device.
10
No. 35372-9-III
Connell Oil v. Johnson
3. Whether the cardlock is a device that conforms to Commentary (B)
The Johnsons argue that Connell Oil’s cardlock device does not conform to
Commentary (B). Specifically, the Johnsons argue that the cardlock device not only
provides access to a fuel pump, but also allows customers to accumulate large credit
balances on their accounts. Even if true, we disagree that this causes the device to not
conform to Commentary (B).
Commentary (B) states, “[a] credit card does not include . . . [a]ny card . . . that is
used to obtain petroleum products for business purposes from a wholesale distribution
facility . . . without regard to payment terms.” Commentary (B) itself states it makes no
difference if the card permits a business customer to accumulate a balance and pay
interest on that balance.
4. Whether Mr. Johnson used his petroleum card for business purposes
The Johnsons do not argue on appeal that they primarily used their stolen
petroleum card for personal, as opposed to business, purposes. Shalon Braswell, Connell
Oil’s Chief Operating Officer, stated by declaration: “[The Johnsons] requested the use of
all fuel type products to include, Diesel, Gas, and ‘Off Road’ which is a dyed farm diesel
commonly used for agricultural purposes.” Clerk’s Papers (CP) at 411-12. Connell Oil’s
officer further stated: “Johnson has paid [our] invoices through the business entity of
11
No. 35372-9-III
Connell Oil v. Johnson
Johnson Enterprise.” CP at 412. In response, Mr. Johnson stated by declaration: “My
Connell Oil credit card allowed me to buy fuel for personal and family use, which I have
done on occasion.” CP at 227. Because the Johnsons did not raise the issue on appeal,
we infer that Mr. Johnson used his petroleum card primarily for business purposes.
Nevertheless, the Johnsons failed to preserve the issue. RAP 2.5(a).
In summary, we conclude the trial court did not err when it ruled that the stolen
cardlock was not a credit card for purposes of TILA and entered judgment in favor of
Connell Oil.
E. ATTORNEY FEES AND COSTS
Connell Oil, citing RAP 18.1, RCW 4.84.330, and its contract with Mr. Johnson,
requests an award of attorney fees and costs.
RAP 18.1 requires a party to request attorney fees and expenses if recovery of such
is permitted by applicable law. If recovery of attorney fees and costs is authorized by
contract, RCW 4.84.330 requires a court to award the prevailing party its reasonable
attorney fees and costs.
The parties’ contract provides in relevant part: “I agree to pay . . . any attorney
and/or court fees incurred in the collection of unpaid accounts. . . . /s/ Erik Johnson.”
12
No. 35372-9-III
Connell Oil v. Johnson
CP at 416. Subject to its compliance with RAP 18.1 (d), we award Connell Oil its
reasonable attorney fees and costs on appeal.
Affirmed.
Lawrence-Berrey, C.J.
WE CONCUR:
f}]Ww~
Siddoway, J.
1~·
13