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Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 

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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.

USCA Case #03-7132 Document #858782 Filed: 11/09/2004 Page 1 of 16
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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 accounting manager with apparent authority to use its corporate

AMEX account by failing to examine monthly billing statements 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 approval and payment functions in the cash disbursement system:

she controlled accounts receivable, accounts payable, corporate 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 responsiUSCA Case #03-7132 Document #858782 Filed: 11/09/2004 Page 2 of 16
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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, jewelry, 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. Between 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 fraudulent 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 judgUSCA Case #03-7132 Document #858782 Filed: 11/09/2004 Page 3 of 16
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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 Protection in the Credit Card Industry: Federal Legislative Controls, 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 cardholder 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 description 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.

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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 cardholder’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 ‘‘unauthorized 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 determining the liability of cardholders for charges incurred by thirdparty 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 princi15 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.

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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 question 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 created 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

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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 negligent 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 corporation’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 intentional 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

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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 continuing 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 authority 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 protest 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 Minskoff 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 fraudulent 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 apparent authority is consistent with the text and purpose of

§ 1643 and Regulation Z. The plain language of § 1643 does

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not require a cardholder to inspect monthly billing statements

in order to invoke its protections. The text sets no preconditions 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 problem 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 demonstrate 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 Congress’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 efficient 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 appropriate corrections in the account of the obligor or [explain why the

charge is correct].

15 U.S.C. § 1666(a).

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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 [under § 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 credit’’ and not to corporate credit, see §§ 1666(a), 1602(h), they

nevertheless support the general proposition that a cardholder’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 presumption 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

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court’s approach, once a card issuer sends a billing statement

to the cardholder, the statutory burden shifts to the cardholder 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 cardholder’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 protections 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 exhaustion requirement that neither § 1643 nor Regulation Z contemplates.

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); Freeman 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).

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its repeated payments in full after notice led AMEX reasonably to believe that Moore had the authority to use DBI’s

corporate credit card. Imposing liability based on the cardholder’s payment after notice is not inconsistent with Congress’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 cardholder 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 disbursement 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 corporate 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 receiving AMEX’s monthly statements identifying her as a cardholder 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

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‘‘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 authority, 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. Minskoff, 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:

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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 alteration, 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 alteration 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 instrument contains an unauthorized signature or has been altered, (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).

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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 reasonable 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 employers 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 memorandum 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

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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. Consequently, 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.

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