LLC Member Held Liable on What He Thought Was Company Credit Card

LLC Member Held Liable on What He Thought Was Company Credit Card

      In a recent decision of the Kentucky Court of Appeals, it was held that the member of an LLC would be personally liable for charges incurred in connection with an American Express card.  The Court considered and dismissed arguments that the suit was improperly brought in that American Express is not qualified to transact business in Kentucky and under the Statute of Frauds.  Williams v. American Express Bank, FSE, No. 2012 CA-000855-MR (Ky. App. June 14, 2013) (Not to be Published).

      Williams was one of the three members of Wheel Play, LLC, a Kentucky LLC.  The company ceased operations in 2012, leaving an open balance of $36,814.71 on the American Express obligation.  American Express relied primarily upon its card holder agreement, which provided, inter alia, that by using the card, one agrees to the terms of that agreement.  Williams, treated as the “authorizing officer” of the LLC, was obligated “to pay all Charges, including Charges incurred by Additional Cardmembers” on the account.  Further, that same Cardmember Agreement provided:

The Company and the Basic Cardholder are responsible under this Agreement for all use of the Card Account by the Basic Cardmember and Additional Cardmembers, by anyone the Basic Cardmember or an Additional Cardmember lets use the Card, and the charges they incur will be billed to the Basic Cardmember.

      Williams relied, in turn, on the limited liability provision (KRS § 275.150) of the LLC Act.  Williams also asserted that he should be treated as a guarantor of the company debt, and that the Cardmember Agreement did not satisfy the terms of the KRS § 371.065, the guaranty should be held unenforceable. 

      In reviewing the Cardmember Agreement, the Court of Appeals found that Williams and the LLC jointly applied for and received the line of credit from AmEx, which was conditioned upon the terms of the Agreement with AmEx.  Ergo, Williams undertook direct liability on the debt.

      As to the argument that his personal liability should be barred by the Kentucky statute covering personal guarantees, the Court found that Williams was an original obligator under the Agreement and not a guarantor.

      With respect to the assertion that AmEx could not bring suit because it was not qualified to do business, that claim was initially dismissed for its failure to be brought as an affirmative defense.  In addition, the Court found that American Express is exempt from the requirement to qualify to transact business in that it is a savings association regulated by the Office of the Comptroller of the Currency for which, inter alia, qualification is not required.  On this point, the Court cited the 2012 decision rendered in Williams v. Chase Bank USA, N.A., it relating to a national chartered bank regulated by the Office of the Comptroller of the Currency.

      Last, with respect to Williams’ assertion that enforcement of the debt against him would violate the Statute of Frauds, the Court found that Williams was bound the Cardmember Agreement and, irrespective thereof, KRS § 371.010(9) exempts from the scope of the Statute of Frauds “agreements pursuant to which credit is extended by means of a credit card or similar device.”

      Needless to say, many small businesses that are, in effect, debt financing their operations through credit card draws need to carefully scrutinize those agreements if they believe that the members or other owners making the draws on those cards will in some manner be protected from liability when the business fails.