United State Dealt a 26 a are Vinia
Mawyer v. Atl. Union Bank
Decided Ape 7, 2022
CIVIL 3:21cv726 (DJN)
04-07-2022
CASSANDRA MAWYER, individually and on
behalf of all others similarly situated Plaintiff, v.
ATLANTIC UNION BANK, Defendant.
David J. Novak, United States District Judge.
MEMORANDUM OPINION (GRANTING IN
PART AND DENYING IN PART MOTION
TO DISMISS)
David J. Novak, United States District Judge.
similarly situated against Defendant Atlantic
Union Bank ("Defendant"). Plaintifis suit stems
from a contract dispute regarding Defendant's fee
practices for overdrafts. Plaintift alleges that
Defendant violates the terms of its agreement with
accountholders by charging multiple fees for
multiple attempts to process a single payment
instruction. This matter now comes before the
Court on Defendant's Motion to Dismiss Plaintifis
Class Action Petition (ECF No. 6). For the reasons
set forth below, the Court hereby GRANTS IN
PART and DENIES IN PART Defendant's
Motion.'+
1 Defendant has requested oral argument on
the instant Motion, because of the parties'
contradictory readings of the contract at
issue. (Notice of Request for Hrg. (ECF
No. 18).) The Court hereby DENIES
Defendant's request and dispenses with oral
argument, because the materials before it
adequately present the facts and legal
contentions, and argument would not aid
the decisional process.
1 BACKGROUND
At this stage of the proceedings, the Court must
accept as true the facts set forth in the Petition.
Against this backdrop, the Court accepts the
following facts as alleged for purposes of
resolving the instant Motion. Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009).
A. Factual Background
Defendant is one of the largest banks based in
Virginia, with locations spanning Virginia,
Maryland and North Carolina. (Pct. 9 7.) Plaintiff
maintains a checking account with Defendant.
(Pet. 9 6.) Plaintifis account with Defendant is
governed by a uniform contract entitled "Terms
and Conditions of Your Account." (Account
Agreement (ECF No. 1-1).) Plaintifi's account is
also governed by a fee schedule, which outlines
fees that Defendant may charge when certain
enumerated events occur. (Fee Schedule (ECF No.
1-2).) One of those events occurs when an
accountholder lacks sufficient funds in her account
to cover a transaction. In that situation, Defendant
has two options: (1) it can cover the transaction
and charge the accountholder a $38.00 "overdraft"
fee, or, (2) it can return the payment request to the
merchant and charge the accountholder a $38.00
"non-sufficient funds" ("NSF") fee. (Account
Agreement at 7; Fee Schedule at 1.)
casetext

Mawyer v. Ati. Union Bank CIVIL 3:21cv726 (DUN) (E.D. Va. Apr. 7, 2022)
The parties dispute whether the contract allows
Defendant to charge multiple fees on a single
overdrawn transaction. The Fee Schedule states
that a fee may be charged "per item":
2 The Account Agreement and the Foe
Schedule are collectively the "contract."
OVERDRAFT FEES:
Applies to overdrafts created by check,
in-person withdrawal, ATM withdrawal,
or other electronic means.
Non-Sufficient
Funds?
Item).....
(Per
........$38.00
Overdraft2
(Per/tem)...
........$38.00
Transfers
to
Overdrafts.......
Cover
.......
12.50
(Non-sufficient funds and overdraft fees
are not charged for items
$1.00 or less or for items that cause an
account balance to be overdrawn by
$1.00 or less)
2 *2 (Fee Schedule at 1.) The Account Agreement
includes the following provision discussing
"items":
The law permits us to pay items (such as
checks or drafts) drawn on your account in
any order... To assist you in handling your
account with us, we are providing you with
the following information about how we
process items: In general, ATM and debit
card transactions will be posted in order of
the date and time on which they occurred,
if known, and before any checks written by
you; certain other non-check transactions
such as overdraft protection fees will be
posted in order of dollar amount, from
highest to lowest; and chocks will be paid
in order of check number ...
casetext
The order in which items are paid is
important if there is not enough money in
your account to pay all of the items that
are presented.... If an item is presented
without sufficient funds in your account to
pay it, we may, at our discretion, pay the
item (creating an overdraft) or return the
item (resulting in a NSF).
(Account Agreement at 6-7.)
Plaintift alleges that Defendant charges a fee each
time a merchant presents an item for payment -
regardless of whether Defendant
previously
returned it and charged a fee. (Pet. { 13.) For
example, on October 1, 2021, Plaintifi made five
payments in varying amounts, but Defendant
returned them unpaid due to insufficient funds in
Plaintift's account and charged a total fee of $190.
(Oct. 1 Account Statement (ECF No. 7-1).) Then,
on October 15, 2021, those five payments were
presented again without Plaintiffs knowledge, and
Defendant again returned them due to insufficient
funds and charged another $190. (Oct. 15 Account
Statement (ECF No. 7-2); Pet. 9 36.) Plaintift
contends that the second fee is not only
contractually prohibited, but also "deceptive."
(Pct. 9 12.)
B. Procedural History
On November 18, 2021, Plaintiff filed a Class
Action Petition against Defendant based on the
above allegations. The Petition raises one count of
breach of contract but advances two claims in
support of the count. (Pet. 4| 57-68.) First, Plaintiff
alleges that Defendant breached the express terms
of the contract by charging multiple fees for each
transaction. (Pet. { 60.) *3 Second, Plaintifi
maintains that Defendant's conduct breached the
implied covenant of good faith and fair dealing.
(Pet. 11 61-66.)
In response to Plaintiffs Petition, Defendant filed
the instant Motion to Dismiss (ECF No. 6) on
December 21, 2021. Plaintiff filed her Response in
Opposition on January 21, 2022. (PL's Resp. in

Mawyer v. Ati. Union Bank CIVIL 3:21cv726 (DJN) (E.D. Va. Apr. 7, 2022)|
Opp'n To Def.'s Mot. to Dismiss ("Opp'n") (ECF
No. 13).) Defendant filed its Reply on February 7,
2022. (Reply in Supp. of Mot. to Dismiss Pl's
Compl. ("Reply") (ECF No. 17).)
Defendant asserts that the Court must dismiss
Plaintift's Petition, because "the plain language of
the contract" permits its fee practice. (Def's Brief
in Supp. of Mot. to Dismiss ("Def.'s Mem.") at 7
(ECF No. 7).) Defendant further contends that
Plaintifts implied covenant of good faith and fair
dealing claim should be dismissed because "her
argument goes to the express terms of the
contract," not the implied covenant of good faith
and fair dealing. (Reply at 13.)
II. STANDARD OF REVIEW
A motion to dismiss pursuant to Rule 12(b)(6)
tegts the
sufficiency of a
complaint
counterclaim; it docs not serve as the means by
which a court will resolve contests surrounding
the facts, determine the merits of a claim, or
address potential defenses. Republican Party of
N.C. v. Martin, 980 F.2d 943, 952 (4th Cir. 1992).
In considering a motion to dismiss, the Court will
accept a plaintiffs well-pleaded allegations as true
and view the facts in a light most favorable to the
plaintift. Mylan Lab ys, Inc. v. Matkari, 7 F.3d
1130, 1134 (4th Cir. 1993). However, "the tenet
that a court must accept as true all of the
allegations contained in a
complaint Is
inapplicable to legal conclusions." Iqbal, 556 U.S.
at 678. *4
Under the Federal Rules of Civil Procedure, a
complaint or counterclaim must state facts
sufficient to "give the defendant fair notice of
what the … claim is and the grounds upon which it
rests." Bell All Corp. v. Twombly, 550 U.S. 544,
555 (2007) (quoting Conley v. Gibson, 355 U.S.
41, 47 (1957)) (internal quotation marks omitted).
As the Supreme Court opined in Twombly, a
complaint or counterclaim must state "more than
labels and conclusions" or a "formulaic recitation
of the elements of a cause of action," though the
law does not require "detailed factual allegations."
casetext
Id. (citations omitted). Ultimately, the "[factual
allegations must be cnough to raise a right to relief
above the speculative level," rendering the right
"plausible on its face" rather than
merely
"conccivable." Id. at 555, 570. Thus, a complaint
must assert more tacts then those
"merely
consistent with" the other party's liability. Id. at
557. And the facts alleged must suffice to "state
all the elements of [any] claim[s]." Bass v. E.I.
DuPont de Nemours & Co., 324 F.3d 761, 765|
(4th Cir. 2003) (first citing Dickson v. Microsoft
Corp., 309 F.3d 193, 213 (4th Cir. 2002); and then
citing lodice v. United States, 289 F.3d 270, 281
(4th Cir. 2002)).
For the purposes of deciding a motion to dismiss,
the Court considers the factual allegations set forth
in the Complaint. Phillips v. LCI Intl, Inc., 190
F.3d 609, 618 (4th Cir. 1999). Additionally, the
Court may consider documents attached to the
Complaint, Fed.R.Civ.P. 10(c), as well as
"documents incorporated into the complaint by
reference, and matters of which a court may take
judicial notice," Tellabs, Inc. v. Makor Issues &
Rts., Ltd., 551 U.S. 308, 322 (2007). Where, as
here, the Complaint expressly relies upon a
document integral to the Complaint that the
plaintiff did not attach, the Court can also consider
§ that document on a motion *s to dismiss.' See Am.
Chiropractic Ass'n v. Trigon Healthcare, Inc., 367
F.3d 212, 234 (4th Cir. 2004) ("[When a
defendant attaches a document to its motion to
dismiss, 'a court may consider it in determining
whether to dismiss the complaint [if] it was
integral to and explicitly relied on in the complaint
and [if] the plaintifis do not challenge its
authenticity."' (quoting Phillips, 190 F.3d at 618)).
Where the bare allegations of the Complaint
conflict with any document incorporated therein,
the document prevails. Fayetteville Invs. v. Com.
Builders, Inc., 936 F.2d 1462, 1465 (4th Cir.
1991).
3 The Petition alleges that, in October 2021,
Plaintiff was charged $ 1, 216 in NSF fees,
according to her account statements. (Pet. 1

Mawyer v. Ati. Union Bank CIVIL 3:21cv726 (DJN) (E.D. Va. Apr. 7, 2022)|
30. Mithough to statemicais do bot
provide specifics, Plaintift asserts "upon
Information and betes trait ine majorly of
ner ices came trom re-prescried stems that
Decadent had previous returod and
chargee a too. feet So., Betendant, for us
part, has provided Plaintifis account
statements from October 202. for the
Court to consider. (October 1 Account
Statement: October 15 Account Statement
Detes Mom. at 41, and Plaintin does not
appear to challenge their authenticity.
Thus, the Court may consider such
evidence at this stage
III. ANALYSIS
The Court will first address Defendant's argument
that Plaintifis breach of contract claim must be
dismissed, because the contract expressly permits
its multiple fee practice. The Court will then
evaluate Plaintift's claim that Defendant breached
the implied covenant of good faith and fair
6 dealing.* *6
4 When adjudicating state law claims, a
federal court must apply the law of the
state in which they sit. United States v.
Littie, 52 F.3d 495, 498 (E.D. Va. 1995)
(citing Eric R.R. Co. : Tompkins, 304 U.S.
64, 78 (1938)). In so doing, federal courts
must use state law according to how the
state's highest court has interpreted the law
or anticipate how that court would rule.
Horace Mann Ins Co. v. Ger Star Nat 7|
Ins. Co., 514 F.3d 327, 329 (4th Cir. 2008).
Here, Plaintiff brings claims for breach of
contract and breach of the covenant of
good faith and fair dealing, two state law
claims, on behalf of herself and the
putative class, so the Court must apply
Virginia law. (Compl. 11 57-68.)
breach of that obligation; and (3) injury or damage
to the plaintiff caused by the breach of obligation."
Filak v. George, 594 S.E.2d 610, 619 (Va. 2004).
Defendant asserts that Plaintifis breach of contract
claim talls on the mist clement because the
contract "expressly permits the fees she
challenges." (Def.'s Mem. at 1.) According to
Defendant, because "checks" and "drafts" are
"items" under the contract, and because the
contract imposes a fee "per item," Defendant may
charge a fee each time a merchant submits check
or draft and the account has insufticient funds.
(Def.'s Mem. at 8-10.) Stated differently,
Defendant contends that an "item" is merely a
"request for payment" submitted by a merchant.
(Def.'s Mem. at 10 (emphasis added).) Under this
reading, each resubmission of a chock or draft by a
merchant constitutes a distinct "item" that
Defendant can decide to pay (resulting in an
overdraft) or return (resulting in an NSF).
In response, Plaintiff cautions that such a reading
would permit Defendant to impose enormous fees
on accountholders without their knowledge, as a
merchant could have multiple requests returned
before an accountholder becomes aware of what
happened. In her view, an "item" does not
constitute a request for payment, but rather "an
accountholder's instruction for payment." (Opp'n
at 9 (emphasis added).) Under this interpretation,
Defendant cannot charge multiple fees on a single
returned check or draft, because a merchant's
resubmission does not constitute a new "item."
A. Plaintiff Has Stated a Claim for Breach of
Contract.
"The elements of a breach of contract action are
(1) a legally enforceable obligation of a defendant
to a plaintift; (2) the defendant's violation or
Thus, at its core, the parties' dispute turns on what
"item" means. If the Court finds its meaning
ambiguous - that is, both Plaintiff' and Defendant's
interpretations are reasonable - then the Court
cannot dismiss Plaintifis breach of contract claim.
7 *7 See Martin Marietta Corp. v. Int'l Telecomms.
Satellite Org., 991 F.2d 94, 97 (4th Cir. 1992) ("
[The construction of ambiguous contract
provisions is a factual determination that precludes
dismissal on a motion for failure to state a
claim."); Info. Applications Grp., Inc. v
Shkolnikov, 836 F.Supp.2d 400, 419 (E.D. Va.
casetext

Mawyer v. Ati. Union Bank CIVIL 3:21cv726 (DJN) (E.D. Va. Apr. 7, 2022)|
2011) (denying a motion to dismiss because the
defendant's argument required "the interpretation
of ambiguous terms" in a contract).
"Contractual provisions are ambiguous if they
may be understood in more than one way or if
they may be construed to refer to two or more
things at the same time." Nextel Wip Lease Corp.
v. Saunders, 666 S.E.2d 317, 321 (Va. 2008).
However, "[a) contract is not ambiguous simply
because the partics to the contract disagree about
the meaning of its language." Pocahontas Mining
LLC w. Jewell Ridge Coal Corp., 556 S.E.2d 769,
771 (Va. 2002). Conflicting interpretations reveal
an ambiguity only if the interpretations are
"reasonable." Erie Ins. Exch. v. EPCMD 15, LLC,
822 S.E.2d 351, 355 (Va. 2019). An interpretation
is reasonable when it serves as one of two "equally
possible" interpretations "given the text and
context of the disputed provision." Id. at 356
(citation and internal quotation marks omitted).
When determining the reasonableness of an
interpretation, the court must "constric the
contract as a whole." Landsdowne Dev. Co. v.
Xerox Realty Corp., 514 S.E.2d 157, 161 (Va.
1999). The court should not emphasize isolated
terms at the expense of the "larger contractual
context." Babcock & Wilcox Co. v. Areva NP, Inc.,
788 S.E.2d 237, 244 (Va. 2016). In the event that
the contract bears an ambiguity, the court must
construe it "against the drafter of the agreement."
Martin & Martin, Inc. . Bradley Enters., Inc.,
504 S.E.2d 849, 851 (Va. 1998).
After careful consideration, the Court finds that
the contract is ambiguous as to whether an item
functions as a request for payment (as Defendant
argues) or an accountholder's instruction to pay (as
Plaintift argues). The contract does not make clear
whether the *s resubmission of a previously
returned item constitutes a new item, which would
enable Defendant to charge another fee. (See Fee
Schedule at 1 (imposing a fee "per item").) That
an item could be a check or draft, as Defendant
argues, does not resolve whether the same check
or draft presented again is a separate item. See
casetext
Fludd v. S. State Bank, 2021 WL 4691587, at *11-
12 (D.S.C. Oct. 7, 2021) (concluding that an
account agreement was ambiguous, because its
examples of "item" did not resolve whether a re-
preschument or a previousy returnce Item
constituted a new item). Indeed, the contract here
reveals little about what makes an item distinct. It
does not state that each request for payment by a
merchant creates a new item, or that each
instruction by the accountholder creates a new
item; it merely permits the assessment of a foe"
[ilf an item is presented without sufficient funds in
your account to pay it." (Account Agreement at 7
(emphasis added).) Defendant suggests that
difficulty distinguishing between new submissions
and resubmissions can arise, resulting in multiple
items. (Def.'s Mem. at 2.) However, the contract
indicates that each item has a date, amount, payce
and
unique
identifying number (Account
Agreement at 4), demonstrating that Defendant
can discriminate between new submissions and
resubmissions. At bottom, the Court finds
Plaintift's and Defendant's arguments equally
persuasive and plausible. Thus, an ambiguity
exists, and the Court must read it against
Defendant, as the drafter of the agreement.'
9 Martin & Martin, Inc., 504 S.E.2d at 851. *9
Defendant argues that Plaintiffs reading is not
reasonable, because it relics on cases where "the
contract at issue equated 'items' with 'transactions'
for purposes of assessing overdraft or NSF fees."
(Reply at 9.) In particular, Defendant targets
Plaintifi's reliance on Fludd, where the district
court found a similar account agreement
ambiguous. 2021 WL 4691587, at *11-12.
According to Defendant, "[alternating the use of
the terms 'item' and 'transaction' in the contract at
issue in Fludd resulted in ambiguity that simply
does not exist under [Defendant]'s contract."
(Reply at 9.) The Court disagrees. Both the
contract in Fludd and the contract here use item
and transaction interchangeably, creating an
ambiguity. In Fludd, the contract stated, "if we do
not authorize and pay an item then we will decline
or return the transaction unpaid." 2021 WL

Mawyer v. Ati. Union Bank CIVIL 3:21cv726 (DJN) (E.D. Va. Apr. 7, 2022)|
4691587, at *11 (emphasis omitted). Here, the
contract conflates "items" with "ATM and debit
transactions" and "non-check transactions" right
before it states that overdraft and NSF fees may be
imposed on an "item." (Account Agreement at 6.)
While such fact is not dispositive, it lends further
credence to the Court's finding that Plaintifis
interpretation is reasonable.
5 Plaintift relics on several picoes of
extrinsic evidence to support her breach of
account agreements from lace olich
account agreements ordinanty socchy that
malapto Nst toes may be imposed oba
sange transachon. (eel 31-99.) And
Plaintifis Opposition
Umtorm Commercial Lode and the
National Automated Clearing House
Association rules to bolster her ber
interpretation of "item." (Opp'n at 9-10.)
While courts may consider extrinsic
evidence if a contract provision bears
ambiguity, the resolution of that ambiguity
yields a question of fact, Online Res. Corp.
V. Lawlor, 736 S.2.2d 83b, 894 (Va. 2013).
and courts may not resolve such questions
at the motion to dismiss stage, Martin
Marietta Corp., 991 F.2d at 97.
Accordingly, because the contract here is
ambiguous, the Court will not consider
Plaintifis extrinsic evidence at this stage to
resolve that ambiguity:
Defendant relies heavily on Lambert v. Navy
Federal Credit Union, 2019 WL 3843064 (E.D.
Va. Aug. 14, 2019), to argue that the contract here
unambiguously supports its reading (Def.'s Mem.
at 12-15; Reply at 4-5, 10-11), but Lambert
provides limited guidance. Although the court in
Lambert concluded that similar contract language
unambiguously permitted the multiple-fee practice
at issue here, the parties there agreed that item
meant a request for payment, so it logically
followed that each request for payment by a
merchant created a distinct item under the
contract. 2019 WL 3843064, at *3. Here, by
contrast, the parties vigorously dispute whether
item means a request for payment by a merchant
10 or an instruction to pay by the *10 accountholder.
And as noted above, the contract language does
not unambiguously resolve the dispute.
Because of the lack of clarity regarding
resubmission of a previously returned item
constitutes the same or a separate item under the
contract, and because the Court finds Plaintiffs
and Defendant's interpretations equally plausible,
the allegations supporting Plaintifis breach of
contact claim can winstand Derendants Moron
to Dismiss. Therefore, the Court will deny the
Motion as to Plaintiff's breach of contract claim.
B. Plaintiff Has Not Stated a Claim for Breach
of the Implied Covenant of Good Faith and
Fair Dealing.
The Court tums next to Plaintiffs contention that
Defendant breached the implied covenant of good
faith and fair dealing. "Under Virginia law, every
contract contains an implied covenant of good
faith and fair dealing." Rogers v. Decne, 992
F.Supp.2d 621, 633 (E.D. Va. Jan. 22, 2014). A
breach of the implied covenant, however, "only
gives rise to a breach of contract claim, not a
scparate cause of action." Frank Brunckhorst Co.
v. Coastal Atl., Inc., 542 F.Supp.2d 452, 462 (E.D.
Va. 2008). A claim for breach of the implied
covenant of good faith and fair dcaling requires "
(1) a contractual relationship between the parties,
and (2) a breach of the implied covenant."
Enomoto v. Space Adventures, Ltd., 624 F.Supp.2d
443, 450 (E.D. Va. 2009). Here, it is undisputed
that a contractual relationship existed between the
parties, so the only question is whether Plaintift
has properly alleged a breach of the implied
6 Because a claim for breach of the implied
covenant of good faith and fair dealing
does not fumish an independent cause of
action, a party cannot raise it as a separate
count in a complaint. Rogers, 992
casetext

Mawyer v. Ati. Union Bank CIVIL 3:21cv726 (DJN) (E.D. Va. Apr. 7, 2022)|
r.supped de oss. But a many can raise the
chaim 25 pan 0l a count tor becach of
contract. Goodrich Corp. v. Baysks Vechs.
LLC, 873 F.Supp.2d 736, 742 (E.D. Va.
implied covenant of good faith and fair
dealing as part of her breach of contract
Tusco decide ceo roshane cons
The implied covenant of good faith and fair
dealing exists to protect a party's right "to reccive
the benefits of the agreement." Drummond Coal
Sales, Inc. v. Norfolk S. Ry. Co., 3 F.4th 605, 611
(4th Cir. 2021) (quoting 23 Williston on Contracts
§ 63:22 (4th ed. 2021)) (internal quotation marks
omitted). To this end, the implied covenant
prohibits a party from exercising "contractual
discretion in bad faith, even when such discretion
is vested solely in that party." Va. Vermiculite, Lid.
v. W.R. Grace & Co.-Conn., 156 F.3d 535, 542
(4th Cir. 1998). The implied covenant does not,
however, "prevent a party from exercising its
explicit contractual rights." Id. Accordingly, if a
party possesses a discretionary power under the
contract, "that party cannot act arbitrarily or
unfairly" in exercising that discretion. Stoney
Glen, LLC v. S. Bank & Trust Co., 944 F.Supp.2d
460, 466 (E.D. Va. 2013). But if a party has a
contract right, then "that party is only forbidden
from acting dishonestly." Id.
Plaintift contends that Defendant "uses its
contractual discretion" to define "item" in a way
"that violates common sense and reasonable
consumer expectations" to charge more fees. (Pet.
1 44.) Plaintiff further describes such practice as
deceptive, given the contract's express terms. (Pet.
€ 12.) Defendant, for its part, asserts that Plaintifis
implied covenant claim must be dismissed because
her argument goes to the "express language in the
contract, not any implied discretion." (Reply at 13
(emphasis omitted).) Given the language in the
contract and the nature of Plaintifi s claim, the
Court agrees with Defendant that Plaintiffs claim
pertains to Defendant's express contractual rights
and will dismiss her implied covenant claim.
Defendant also alleges that the Court must
dismiss Plaintiffs claim, because the
contract expressly permitted its maltiple
foo practice. (Def.'s Mem. at 16-18.) But as
this Court has alrcady concluded, the
contract is ambiguous on that issue.
The contract does not just vest mere discretion in
Defendant to define what qualifics as an item
before charging a fee. Indeed, "every exercise of a
12 contractual neht involves some •2 exercise of
discretion." Stoney Glen, 944 F.Supp.2d at 467.
However, the legal distinction between the two
terms hinges on weter a contract reoutres that a
party make a finding before exercising its
contractual right. See, e.g., Id. at 469 (finding that
plaintiff stated a plausible claim for breach of the
implied covenant, because the contract gave
defendant the right to terminate the agreement if it
found that plaintiff made a misrepresentation); Va.
Vermiculite, 156 F.3dat 541- 42 (holding that the
district court erred in dismissing plaintift's implied
covenant claim, because the contract granted "sole
discretion" to defendant to determine whether to
mine the land at issue and thus remit profits to
plaintifts).
Here, the contract states: "If an item is presented
without sufficient funds in your account to pay it,
we may, at our discretion, pay the item (creating
an overdraft) or retum the item (resulting in a
NSF)." (Account Agreement at 7.) Nothing in the
contract tasks Defendant with the power to
determine what qualifies as an item. It does not
say, for instance, "If, as determined by Defendant,
an item is presented." Nor does it say, "Defendant
reserves the right to determine if a submission is
an item." In fact, the contract attempts to define
"item," suggesting that a submission either docs or
does not constitute an item - and if a submission
does not qualify as an item, Defendant violates the
express terms of the contract if it charges a fee, not
a discretionary power. (Account Agreement at 6
casetext

Mawyer v. Ati. Union Bank CIVIL 3:21cv726 (DJN) (E.D. Va. Apr. 7, 2022)|
(using "checks," "drafts," "ATM and debit card
transactions," and "non-check transactions"
examples of "items.").)
Importantly,
the
gives Defendant
discretion in other areas related to processing
items. but by contrast. It does not tumish
Defendant discretion over what constitutes an
item. The contract confers discretion on Defendant
to choose what to do with an item once it is
presented: pay the item (resulting in an overdratt
fee) or retur the item (resulting in an NSF fce).
But Plaintift does not allege that Defendant
13 exercised tnis alscrcuon in bad ramn, as would "13.
conceivably be the case if Defendant exclusively
retured items to maximize fees. (See Pet. f 12
(alleging that Defendant will charge "an NSF fee
followed by an overdraft fee" on an item).) The
contract also gives Defendant "unilateral and
absolute discretion" to decide the order in which it
processes items. (Account Agrement at 6
(emphasis added).) But Plaintiff docs not allege
that Defendant employs an ordering method that
unfairly triggers more overdrafts. See, e.g., Fludd,
2021 WL 4691587, at * 1 (alleging that the
defendant employed an "available balance
bookkeeping method" that "routinely [led] to an
overdraft fee even though sufficient money
remain|ed] in the account after a transaction (was]
paid"). That the contract explicitly gives
Defendant discretion in such areas but docs not
state that Defendant has discretion to decide what
constitutes an item further confirms that the
contract does not vest Defendant with such
discretion.
Because Plaintiffs claim docs not turn on whether
Defendant abused its discretion, but instead turns
on whether Defendant has a contractual right to
charge multiple fees (i.e., whether "item" means a
request for payment or an instruction to pay),
Plaintift can properly state a claim for breach of
the implied duty of good faith and fair dealing
only through alleging that Defendant acted
dishonestly. See Stoney Glen, 944 F.Supp.2d at
466 ("The duty can also be breached if the
casetext
purported exercise of a contractual right is
dishonest, as opposed to merely arbitrary."
(citation omitted)). The Petition, however, is
devoid of factual allegations suggesting that
Defendant acted dishonestly. First, the brunt of the
Petition's allegations on this point are conclusory.
(See Pet. 91 2, 5, 44, 46 (accusing Defendant of
"misleadingly and deceptively misrepresent[ing)"
its fee practices,
orchestraung
"improper
scheme," violating "common sense and reasonable
consumer expectations," and acting in "bad
faith")); see also Iqbal, 556 U.S. at 681 (noting
that "conclusory" allegations are "not entitled to
14 be assumed true".. Second. " 4 the tact that thei
contract is not as specific as other account
agreements is not dishonest. See (Pet. 11 31-33
(describing the contractual provisions that other
banks include in their account agreements));
Stoney Glen, 944 F.Supp.2d at 466 (holding that
contravening standard business practices is not
dishonest). And finally, the mere fact the Court
finds the term "item" ambiguous does not provide
the Court with sufficient reason to infer that
Defendant intended to deceive accountholders to
charge more fees - particularly when the contract
attempts to define the term. Accordingly, the
Court will grant Defendant's Motion to Dismiss
with respect to Plaintiffs breach of the implied
covenant of good faith and fair dealing claim.'
8 On March 9, 2022, Plaintift filed a Notice
of Supplemental Authority, in which she
brings Watson v. Suffolk Federal Credit
Union, 2022 WL. 523543 (E.D.N.Y.Feb
22, 2022) to the Court's attention. (PI.S
Notice of Supplemental Authority (*PI.'S
Notice") (ECF No. 22).) In Watson, the
plantitt sued Suttolk Federal Credit Unio
for, among other claims, breach of contract
and breach of the covenant of good faith
and fair dealing, alleging the same sort of
maltiple-tee claims at issue in the instan
casc. Matson, 2022 WL 523345, at 12. 2
Defendant points out in its Response to the
Notice, the Eastern District of New York's
rulings do not band this Lourt, and tho

Mawyer v. Ati. Union Bank CIVIL 3:21cv726 (DJN) (E.D. Va. Apr. 7, 2022)
Wazson court interpreted the claims in that
casc under New York law - two factors that
render Watson langely irrelevant to the
instant case. (Resp. to Pl's Notice of
Supplemental Authority at 1 (ECF No.
23).) At any rate, the outcome in Watson
does not change the Court's analysis,
because, as here. the Matson court deemed
the term "item" ambiguous and allowed the
breach of contract claim to survive the
motion to dismiss. Ratson, 2022 WL
523543, at *4. The court also dismissed her
implied covenant claim, as in this case, but
did so because New York law does not
perma amphod corcutes claims that sintoly
duplicate breach of contract claims.
Watson, 2022 WL. 523543, at *4.5.
Additionally, the Court hereby DENIES
15 Defendant's request for oral argument *15 on the
Motion (ECF No. 18).
Let the Clerk file a copy of this Memorandum
Opinion electronically and notify all counsel of
record.
An appropriate Order will issue.
16 It is so ORDERED. *16
IV. CONCLUSION
Plaintiff has pled sufficient facts to support her
claim for breach of contract, but she has not pled
sufficient facts to support her claim for breach of
the implied covenant of good faith and fair
dealing. Therefore, the Court hereby GRANTS IN
PART AND DENIES IN PART Defendant's
Motion to Dismiss. The Motion is GRANTED
with respect to Plaintifis implied covenant of good
faith and fair dealing claim and DENIED with
respect to Plaintiff's breach of contract claim.
casetext

Civil No. 1:19-cv-103-LO-MSN
UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF VIRGINIA Alexandria Division
Lambert v. Navy Fed. Credit Union
Decided Aug 14, 2019
Plaintiff's insurance payment from her Navy
Federal account (with Plaintiff's prior
authorization) using an Automated Clearing
House ("ACH") debit request. That request was
rejected due to insufficient funds, and Plaintiff
was charged a nonsufficient fund foc. Mutual of
Omaha again submitted an ACH debit request for
the same payment two days later. Navy Federal
again rejected the request due to insufficient funds
and charged Plaintiff with another nonsufficient
fund fee. Plaintift challenges Navy Federal's
assessment of the second nonsufficient fund foe,
as she views Mutual of Omaha's original payment
Civil No. 1:19-cv-103-LO-MSN
08-14-2019
RUBY LAMBERT, individually and on behalf of
all others similarly situated, Plaintiff, v. NAVY
FEDERAL CREDIT UNION, Defendant.
Hon. Liam O'Grady
MEMORANDUM OPINION AND ORDER
This matter comes before the Court on
Defendant's Motion to Dismiss for Failure to State
a Claim (Dkt. 19). The Motion is fully briefed,
and the Court heard oral argument on May 24,
2019. For the reasons stated below, and for good
cause shown, Defendant's Motion to Dismiss for
Failure to State a Claim (Dkt. 19) is hereby
GRANTED.
I. BACKGROUND
Plaintiff Ruby Lambert alleges that Defendant
Navy Federal Credit Union charges multiple
nonsufficient fund fees for multiple attempts to
process a single payment request in violation of
contractual language implying that only a single
nonsufficient fund fee would ever be charged for a
payment request, no matter how many times that
payment request is declined for nonsufficient
funds.
Plaintift's contract with Navy Federal states that
Navy Federal "may" assess "[a) fee" "for each
returned debit item." Navy Fed. Credit Union
Important Disclosures (hercinafter "Important
Disclosures") at 4. Plaintiff's insurer, Mutual of
2 Omaha, attempted to automatically *2 deduct
brought two claims against Navy Federal: (1)
breach of contract and the covenant of good faith
and fair dealing under Virginia law, and (2)
violation of North Carolina's Unfair and Deceptive
Trade Practices Act.
Defendant Navy Federal Credit Union has moved
to dismiss both claims on preemption grounds and
for failure to state a valid claim.
II. LEGAL STANDARD
To survive a motion to dismiss under Federal Rule
of Civil Procedure 12(b)(6), a complaint must
contain sufficient factual information to "state a
claim to relief that is plausible on its face." Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).
A motion to dismiss pursuant to Rule 12(b)(6)
must be considered in combination with Rule 8(a)
(2), which requires "a short and plain statement of
the claim showing that the pleader is entitled to
relief so as to "give the defendant fair notice of
what the … claim is and the grounds upon which
casetext

Lambert v. Navy Fed. Credit Union Civil No. 1:19-cv-103-LO-MSN (E.D. Va. Aug. 14, 2019)
it rests." Id. (quoting Conley v. Gibson, 355 U.S.
41, 47 (1957)).
While
"detailed
factual
allegations" are not required, Rule 8 does demand
that a plaintift provide more than mere labels and
conclusions stating that the plaintiff is entitled to
relief. Id. In evaluating whether a complaint states
a plausible claim to relief, "although a court must
accept as true all factual allegations contained in
3 [the] complaint, *3 such deference is not accorded
to legal conclusions stated therein." Walters v.
McMahen, 684 F.3d 435, 439 (4th Cir. 2012).
III. ANALYSIS
A. Plaintifis Claims Are Partially Preempted.
Defendant Navy Federal Credit Union argues
Plaintift's claims are preempted by the National
Credit
Union
Administration's
("NCUA")
regulations implementing the
Federal Credit
Union Act ("FCUA") and Truth in Savings Act
("TISA"). State law claims may be preempted by
Congress "either expressly through the statute or
regulation's language or impliedly through its aim
and structure." Whittington v. Mobiloil Fed. Credit
Union, 2017 WL 6988193, at *6 (E.D. Tex. Sept.
14, 2017) (citing Altria Grp., Inc. v. Good, 555
U.S. 70, 76 (2008)).
The relevant implementing regulations of the
FCUA and TISA are contained in 12 C.F.R. parts
701
and /01.
respectively.
The FCUA's
implementing regulations state:
A Federal credit union may, consistent
with this section, parts 707 and 740 of this
subchapter, other federal law, and its
contractual obligations, determine the
types of fees or charges and other matters
aflecting the opening, maintaining and
closing of a share, share draft or share
certificate account. State laws regulating
such activities are not applicable to federal
credit unions.
12 C.F.R. § 701.35(c) (emphasis added). By its
terms, § 701.35 "expressly provides that [federal
credit unions] are authorized to determine, free
casetext
from state regulation, the types of disclosures, fees
or charges" for their account offerings. 49 Fed.
Reg. 46552-01, 46552 (Nov. 27, 1984) (emphasis
added); see also 50 Fed. Reg. 4636-01, 4636 (Feb.
1, 1985) (*This final rule provides that policies
with respect to disclosures, toes or charges . . .
shall be determined by [a federal credit union's]
member-elected board of directors, free from
regulatory restrictions."). Similarly, the TISA
implementing regulations require federal credit
unions to provide disclosures regarding "[the
amount of any tee that may be imposed in
connection with the account... and the conditions
under which the fee may be imposed," 12 C.F.R. §
707.4(b)(4), and expressly *4 preempt any "[s)tate
law requirements that are inconsistent with the
requirements of the TISA and [its implementing
regulations]," 12 C.F.R. § 707.1(d) (emphasis
added).
Consistent with the language and purpose of these
regulations, it is well established that state law
claims regarding a federal credit union's failure to
disclose certain fee practices or any perceived
unfairess in the fee practices themselves are
preempted. See, eg., Gutierrez v. Wells Fargo
Bank, N.A., 704 F.3d 712, 725 (9th Cir. 2012)
(finding that claims alleging the defendant's
practice of posting debit-card transactions in high-
to-low order was unfair were preempted because
they would "preventl] or significantly interferel
with a national bank's federally authorized power
to choose a posting order"); id. at 726 (finding
failure to disclose claim against a bank preempted
because "[imposing liability for the bank's failure
to sufficiently disclose its posting method leads to
the same
result as
mandating specific
disclosures"); Whittington, 2017 WL 6988193, at
*9 (finding that the plaintiff's "attempts to use a
state consumer law to dictate to a federal credit
union what foes it may charge and how it may
charge them" were preempted); id. at *10 ("[Ajny
claims based on [Mobiloil Federal Credit Union's]
alleged failure to make certain disclosures are
preempted.").

Lambert v. Navy Fed. Credit Union Civil No. 1:19-cv-103-LO-MSN (E.D. Va. Aug. 14, 2019)
On the other hand, it is equally well established
that truc breach of contract and anumative
misrepresentation
claims are not federally
preempted, even if the result of those claims may
affect a federal credit union's fee disclosures. See,
e.g., Gutierrez, 704 F.3d at 726 (finding that the
plaintift's
claims "based on Wells Fargo's
misleading statements about its posting method"
under the fraudulent prong of California's Unfair
Competition Law were not preempted because that
law "does not impose disclosure requirements but
merely prohibits statements that are likely to
mislead the public"); Whittington, 2017 WL
6988193, at *10-11 (finding a claim alleging a
credit union affirmatively misrepresented that it
assesses overdraft •s tees only when a customen
has overdrawn his or her account not preempted);
In re TD Bank, N.A., 150 F. Supp. 3d 593, 610
(D.S.C. 2015) (*[B]reach of contract claims not
premised on unfairness or bad faith theories but on
genuine disputes about the terms of the contract
and the parties' compliance therewith," are not
preempted because "their impact on the bank's
exercise of its powers is only incidental."
(emphasis in original)); Hanjy v. Arvest Bank, 94
F. Supp. 3d 1012, 1025 (E.D. Ark. 2015) (finding
that the plaintifts' breach of contract and breach of
the implied covenant of good faith and fair dealing
claims were not preempted because the plaintiffs
merely sought "to hold [the defendant bank] to the
terms of its contracts*); Murr v. Capital One Bank
(USA), N.A., 28 F. Supp. 3d 575, 583 (E.D. Va.
2014) (rejecting the argument that the plaintiff's
fraud claim was preempted by the National
Banking Act because holding the defendant liable
for fraud under state law would be "tantamount to
imposing greater disclosure requirements").
Here, Plaintiff alleges that Navy Federal does not
assess fees as disclosed in its contract and that its
actual fee assessment practice is unfair. To the
extent Plaintift's claims allege only that Navy
Federal has failed to comply with the express
terms of the partics' contract or affirmatively
misrepresented its fee practices, Plaintiff's claims
are not preemptca unaer te amamative
misrepresentation and true breach of contract line
of cases. While federal credit unions have the
discretion to determine foe practices and
disclosures free from state regulation inconsistent
with the FCUA, the TISA, and their implementing
regulations, federal credit unions must still comply
with the terms of their contracts related to fee
practices and not affirmatively misrepresent those
practices. To the extent Plaintift challenges a
perceived failure to disclose, the specific language
used in the disclosure, or the fairness of the fee
practice itself, however, those arguments are
6 clearly preempted. *6
B. The Complaint Fails to State a Claim for
Breach of Contract.
Although Plaintiff's breach of contract claim is not
entirely preempted, the Court finds that it must be
dismissed for failure to state a claim because the
contract unambiguously gives Navy Federal the
contractual right to impose fees in the way that it
did.
Contracts must be construed as a whole without
placing undue emphasis on isolated terms, Erie
Ins. Exch. v. EPC MD 15, LLC, 297 Va. 21, 822
S.E.2d 351, 356 (2019), or adding additional
terms, Squire v. Va. Hous. Dev. Auth., 287 Va.
507, 758 S.E.2d 55, 60 (2014). When the terms of
a contract are "clear and unambiguous," courts are
required to construe those terms "according to
their plain meaning." Golding v. Floyd, 261 Va
190, 192, 539 S.E.2d 745, 736 (2001). "The fact
that one may hypothesize opposing interpretations
of the same contractual provision does not
necessarily render the contract ambiguous because
... a contact is not ambiguous simply because the
parties to the contract disagree about the meaning
of its language." Erie, 822 S.E.2d at 356 (internal
quotation marks omitted) (quoting Babcock &
Wilcox Co. v. Areva NP, Inc., 292 Va. 165, 179,
788 S.E.2d 237 (2016)). Instead, "conflicting
interpretations reveal an ambiguity only where
they are reasonable." Id.at 355. "If the text of the
casetext

Lambert v. Navy Fed. Credit Union Civil No. 1:19-cv-103-LO-MSN (E.D. Va. Aug. 14, 2019)
agreement is unambiguous, then the court is
without authority to resort to extrinsic evidence,"
such as public confusion, "in interpreting its
meaning." Schneider v. Cont'l Cas. Co., 989 F.2d
728, 732 (4th Cir. 1993).
While Plaintiff disagrees with Navy Federal's
interpretation of "[a) fee may be assessed….. for
each returned debit item," the Court agrees with
Navy Federal that the provision is unambiguous
and matches Navy Federal's practice.
Both parties agree that an "item" is a request or
invitation for payment. In disclosing the order in
which transactons are posica to a members
account, the contract lists all of the following as
types of "items": "all money coming in (credits,
deposits, cte.); ATM withdrawals; *7 debit card
transactions, also called Point of Sale (POS);
Automated Clearing House (ACH) debits; and
checks written." Important Disclosures at 3
(emphasis added). Thus, it is clear from the
contract that ACH debit requests, such as the two
submitted by Plaintifl's insurer, qualify as "debit
items." The contract also warns Navy Federal
Credit Union members that "[a]n ACH debit might
be made as a result of an authorization you gave a
third party to automatically transfer funds from
your account to pay your monthly insurance
premium, utility bills, or car payment," id. at 9, as
happened when Plaintiff's insurer submitted the
second request for payment.
Plaintiff argues, however, that two ACH debit
requests made by the same merchant, in the same
amount, for the same purpose, are the same "debit
item." In other words, Plaintiff argues that her
insurer merely resubmitted the same "debit item"
when it requested payment for the second time,
rather a new debit item. In support of her
interpretation, Plaintiff analogizes her insurer's
requests for payment to a "chock[] that you have
written but that ha(s] not yet cleared your
account," which the disclosures refer to as a single
item, id. at 5.
Plaintiff's interpretation is unreasonable in light of
the contract as a whole. When Plaintiff was
charged the initial nonsufficient funds fee, it was
because her insurer's request for payment (the
"debit item") was returned. The contract specifics
that "Navy Federal may return debits to the
checking account (c.g., an ACH payment) if the
amount of the debit exceeds funds available in the
checking account" and assess "[a] fee" for the
"returned debit item." Id. at 4 (emphasis added);
see also id. at 5 ("If we do not pay an overdraft,
your transaction will be declined and/or your
check/ACH will be returned, unpaid." (emphasis
added)). Plaintiff's insurer's first ACH debit
request was not in the midst of being processed
like a "check[] that you have written but that ha[s]
not yet cleared your account," but rather was
8 rejected just as a *8 bounced check would be.
Navy Federal also did not keep Plaintift's insurer's
unsuccessful first ACH request and attempt to
reprocess the request on its own. It returned the
request and waited for Plaintiff's insurer to submit
another request for payment, which Navy Federal
was then obligated to process.
If a check was rejected and a second check was
submitted by the same merchant, in the same
amount, for the same purpose, and the second
check was also rejected, the contract cicarly gives
Navy Federal Credit Union the right to charge
another foe. Id. at 4 ("A fee will be assessed ...
for each refused check."). The analogous
provision for debit items therefore also gives Navy
Federal the right to charge a fee for each
presentment of an ACH electronic request for
payment, even if the request is by the same
merchant, in the same amount, and for the same
purpose.' Thus, rather than support Plaintift's
position, the contract's check provisions support
Navy Federal's interpretation of the contract and
position that the contract is unambiguous. When
Plaintifi's insurer "re-presented" the request for
payment, it was a new ACH debit item - just as a
second check would be a new check even if it was
casetext

Lambert v. Navy Fed. Credit Union Civil No. 1:19-cv-103-LO-MSN (E.D. Va. Aug. 14, 2019)
by the same merchant, in the same amount, for the
same purpose - and was therefore cligible for a fee
when it was returned for nonsufficient funds.
1 The nee of leafreed before check hurt
retunned"
before
"debit
item"
inconsequential. When a check is retused.
it may not always be returned. lor
exampic, Navy Federal Credit Union may
not mail a bounced check back to the
member or payment requester. By contrast.
the parties have represented that when
electrone transactions.
such an ACh
debits, are rejected, they are returned via
the same electronic transmission method.
such as the ACH network
Further, the sentence in dispute must be read in
conjunction with the sentence immediately before
it. The first sentence states: "Navy Federal may
retum debits to the checking account (c.g., an
ACH payment) if the amount of the debit exceeds
funds available in the checking account." Id. at 4.
The next sentence warns: "A fee may be assessed
in the amount shown on Navy Federal's current
Schedule of Fees and Charges for each returned
9 debit item." *9 Id. (italics removed). Taken
together, these sentences clearly provide that Navy
Federal may return a debit item, such as an ACH
debit, if there is not enough money in the account
(the first sentence), and, if there is a return, Navy
Federal may charge the member a fee for that
returned debit transaction (the second sentence).
Plaintift disagrees, arguing that "returned debit
item" in the second sentence must mean something
different than "returned debit" in the first sentence.
At the hearing, Plaintiff conceded that without the
inclusion of "item" in the second sentence,
Plaintift would not have a claim. Yet, the Court
finds that the use of "item" does not render the
sentence ambiguous. As noted above, other
provisions of the contract demonstrate that an
"item" includes various types of transactions that
would either add or subtract money from the
account. The contract merely uses "debit" as an
adjective to modify "item," just as "returned" is
casetext
used as an adjective to modify "debit item." Thus,
"debit item" clearly refers to a transaction that
attempts to withdraw money from the account,
such as an ACH debit request, and the inclusion of
item in retuirner dchit item" does not render the
contract ambicuous.
In conclusion, when the terms of the contract are
read together and in context,
the contract
unambiguously provides that "each" time Navy
Federal Credit Union "returns" a request for
payment (a "debit item") for insufficient funds, a
nonsufficient fund fee may be assessed without
recaras to waetner une retumee acdit llem was a
re-presentment of a previously rejected request.
As a result, Navy Federal Credit Union did not
breach the contract when it assessed the second
nonsuflicient fund fee for Plaintifi's insurer's
second ACH debit request.
Because "[the
Complaint's allegations make clear that no breach
(of contract) occurred," the breach of contract
claim must be dismissed for failure to state a
claim. Hanback v. DRHI, Inc., 94 F. Supp. 3d 753,
10 761 (E.D. Va. 2015). *10
C. The Complaint Fails to State a Claim for
Breach of the Covenant of Good Eaith and Fair
Dealing.
Plaintiff's breach of the covenant of good faith and
fair dealing claim must also be dismissed for
similar reasons.
"Implicit in all contracts is a covenant of good
faith and fair dealing in the course of contract
performance." In re HSBC Bank, USA, N.A., Debit
Card Overdraft Fee Litig., 1 F. Supp. 3d 34, 51
(E.D.N.Y. 2014). The implied covenant prevents a
party from exercising "contractual discretion in
bad faith, even when such discretion is vested
solely in that party," but it "does not prevent a
party from exercising its explicit contractual
rights." Va. Vermiculite, Lid. v. W.R. Grace & Co.-
Conn., 156 F.3d 535, 542 (4th Cir. 1998)
(emphasis in original). The relevant case law
establishes that "(1) where a party has a clear
contract right, even if its exercise would arguably

Lambert v. Navy Fed. Credit Union Civil No. 1:19-cv-103-LO-MSN (E.D. Va. Aug. 14, 2019)
be arbitrary, that party is only forbidden from
acting dishonestly; (2) but where a party has
discretion in performance, that party cannot act
arbitrarily or unfairly." Stoney Glen, LLC v. S.
Bank & Trust Co., 944 F. Supp. 2d 460, 466 (E.D.
Va. 2013) (citations omitted).
Courts have
"explicitly rejected attempts to
characterize the decision whether to exercise an
accrued right
as a mater
discretion.'" Id. at 468. At the same time, however,
courts have held that the implied covenant applies
where the accrual of a contractual right depends
on a party's exercise of contractual discretion
rather than on objective facts. Id. at 469. In other
words, "[a) party to a contract can flip a coin to
decide whether to exercise an accrued right, but
cannot flip a coin to determine whether a right has
accrued." Id.
In this case, Navy Federal's right to charge a fee
depended on the existence of an objective fact:
whether a debit item had been returned for
nonsufficient funds. Thus, although the contract
stated that Navy Federal "may" rather than "will"
assess a fee for each returned debit item, Navy
Federal had the contractual right to assess the
11 challenged fee and, unlike in the cases *11 cited by
Plaintift, had not exercised any contractual
discretion in bad faith to cause that right to
accrue? Plaintifi has also not plausibly alleged
that Navy Federal exercised its contractual right to
charge the fee dishonestly.
2 In the cases Plaintiff relies upon, the breach
molied coverant claims survived
motions to dismiss because the banis
exercised their contractual discretion to
post debat wems in any order to maximie
the accrual of their right to charge
overdratt toes. See, c.g., Gutiere, 622 F.
Supp. 2d at 954; In re HSBC Bank, 1 F.
Vupp. vd at uro2
Accordingly, Plaintiffs' breach of the covenant of
good faith and fair dealing claim must be
dismissed because Navy Federal honestly
casetext
exercised its contractual right to charge Plaintiff a
nonsufficient fund fee for her insurer's second
request for payment. Va. Vermiculite, 156 F.3d at
542 ("[It is a basic principle of contract law in
Virginia, as elsewhere, that... the duty of good
faith does not prevent a party from exercising its
explicit contractual rights..." (emphasis in
original)); Riggs Nat'l Bank of Wash., D.C. v.
Linch, 36 F.3d 370, 373 (4th Cir. 1994) (*An
implied duty of good faith cannot be used to
override or modify explicit contractual terms.");
Wilkins v. United States, 2016 WL 2689042, at *4
(E.D. Va. May 9, 2016) (dismissing implied
covenant claim where the defendant
"had the
contractual right.. to engage in the actions
alleged in the Complaint"); Bennett v. Bank of
Am., NA., 2012 WL 1354546, at *11 (E.D. Va.
Apr. 18, 2012) (dismissing implied covenant claim
where the defendant bank exercised its contractual
rights and it was not plausibly alleged that the
bank "exercise[d] its contractual discretion in bad
faith" (alteration and emphasis in original));
Albayero v. Wells Fargo Bank, N.A., 2011 WL
4748341, at *6 (E.D. Va. Oct. 5, 2011) (dismissing
implied covenant claim where "the actions taken
by Defendants merely amounted to an exercise of
12 their contractual rights"). *12
D. The Complaint Eails to State a Claim Under
the North Carolina Unfair and Deceptive Trade
Practices Act.
Finally, Plaintiffs' North Carolina Unfair and
Deceptive Trade Practices Act ("NC UDTPA")
claim must be dismissed pursuant to the contract's
choice-of-law provision.
The contract specifics that "Navy Federal accounts
are maintained and governed in accordance with
federal law and the laws of the Commonwealth of
Virginia, as amended." Important Disclosures at 7.
The language of this provision, which is included
in a sparate "Governing Laws" section, is
sufficiently broad to preclude Plaintiff's NC
UDTPA claim because the claim (a) concerns how
Navy Federal "maintain(s)" Plaintift's "accounts"

Lambert v. Navy Fed. Credit Union Civil No. 1:19-cv-103-LO-MSN (E.D. Va. Aug. 14, 2019)
and interprets the account agreement, and (b)
asserts identical allegations to Plaintift's breach of
contract claims. Run Them Sweet, LLC v. CPA
Glob. Ltd., 224 F. Supp. 3d 462, 465-69 (E.D. Va.
2016) (Ellis, J.); Freedman v. Am. Online, Inc.,
325 F. Supp. 2d 638, 653-54 (E.D. Va. 2004)
(Ellis, J.); see also Hitachi Credit Am. Corp. v.
Signet Bank, 166 F.3d 614, 628 (4th Cir. 1999)
"Where a choice of law clause in the contract is
sufficiently broad to encompass contract-related
tort claims," courts should apply the clause as
such.).
Plaintift has also failed to show that enforcing the
choice-of-law provision in this case "would be
contrary to a fundamental policy of a state which
has a materially greater interest than the chosen
state." Projects Mgmt. Co. v. DynCorp Int'l, LLC,
2014 U.S. Dist. LEXIS 41411, at *13 (E.D. Va.
March 26, 2014) (quoting Restatement (Second)
of Conflict of Laws § 187(2) (1971)). Although
North Carolina's UDTPA permits claims against
credit unions while Virginia's analogue statute
docs not, "the enforcement of a choice-of-law
provision that would apply a narrower consumer
protection or deceptive trade practices statute does
not amount to a violation of a fundamental public
policy of another, more interested jurisdiction."
Canon U.S.A., Inc. v. Cavin's Bus. Sols., Inc., 208
F. Supp. 3d 494, 505 (E.D.N.Y. 2016) (dismissing
13 NC *13 UDTPA claim pursuant to a choice-of-law
provision); see also, Run Them Sweet, 224 F.
Supp. 3d at 469 (dismissing a claim brought under
California's unfair and deceptive trade practices
statute pursuant to a Virginia choice-of-law
provision because "there is no indication" that
doing so "violates California public policy").
North Carolina's UDTPA also does not have an
anti-waiver provision that would indicate
dismissing a NC UDTPA claim pursuant to a
choice-of-law provision would violate North
Carolina's policy. G.P.P., Inc. v. Guardian Prot.
Prods., Inc., 2015 WL 3992878, at *18 (E.D. Cal.
June 30, 2015) (dismissing a NC UDTPA claim
pursuant to a choice-of-law provision because the
parties did not "identify a choice-of-law exclusion
or waiver provision in the statute"); see also Volvo
Const. Equip. N. Am., Inc. v. CLM Equip. Co., 386
F.3d 581, 608-09 (4th Cir. 2004) (noting that a
fundamental policy analysis generally focuses on
whether there is an anti-waiver provision in the
statute or other statutory language suggesting the
legislature intended the statute to embody
fundamental policy, and finding that a choice-of-
law provision barred a state law claim brought
under a statute that had neither). To the contrary,
the North Carolina Supreme Court has held that
patues can waive inch tights unacr nort
Carolina's UDTPA. See Ussery v. Branch Banking
& Trust Co., 368 N.C. 325, 777 S.E.2d 272, 281
(2015); United Labs., Inc. v. Kuykendall, 335 N.C.
183, 437 S.E.2d 374, 381 n.6 (1993). Thus,
dismissing Plaintift's NC UDPTA claim pursuant
to the choice-of-law provision would not violate
North Carolina's fundamental policy.
Accordingly, Plaintiff's North Carolina Unfair and
Deceptive Trade Practices Act claim will be
dismissed pursuant to the contract's choice-of-law
14 provision.' *14
3 In Lloyd v. Navy Federal Credit Union, the
United States District Court for the
Southern District of California found the
Virginia choice-of-law provision at issuc
unenforocable as to the plaintifi's
California consumer protection statutory
claims because enforcing the provision
would violate California's public policy.
2018 WL 1757609, at *5-6 (S.D. Cal. Apr.
12, 2018). The holding in Lloyd was based
on (a) Califomia's fundamental public
poisoy ta banoe of class actioes, which thal
Calitornia statutes permit but the Virginia
statutes do not, and (b) the express anti•
waiver provision in onc of the California
consumer cocccon statutes de laste,
which stated that waivers
unenforccable as contrary to public policy.
Id. at *5. Because NC's UDTPA does not
nave an anti-waver provision or any
salicient that the abilly to bring sui
casetext

Lambert v. Navy Fed. Credit Union Civil No. 1:19-cv-103-LO-MSN (E.D. Va. Aug. 14, 2019)
against a credit union is a fundamental
policy of the stats, Lloyd does not apply to
IV. CONCLUSION
For the reasons stated above, and for good cause
shown, Defendant's Motion to Dismiss for Failure
to State a Claim (Dkt. 19) is hereby GRANTED.
Finding that amendment would be futile,
Plaintift's Complaint is hereby DISMISSED
WITH PREJUDICE.
It is SO ORDERED. August 14, 2019
Alexandria, Virginia
Liam O'Grady
United States District Judge
casetext

Civil No. 21-cv-00534-LM
2021-11-08
Rita GRENIER and Edwin Grenier, Individually
and on Behalf of All Others Similarly Situated v.
GRANITE STATE CREDIT UNION, Does 1
through S
Elaine Kusel, Sherief Morsy, McCune Wright
Arevalo LLP, Newark, NJ, Christine M. Craig,
Shaheen & Gordon PA, Dover, NH, for Rita
Grenier, Edwin Grenier. Bethany P. Minich,
Litchfield Cavo, Lynnfield, MA, James R. Branit,
Jason E. Hunter, Litchfield Cavo, Chicago, IL, for
Granite State Credit Union.
Landya McCafferty, United States District Judge
20 *20
Elaine Kusel, Shcrief Morsy, McCune Wright
Arevalo LLP, Newark, NJ, Christine M. Craig,
Shaheen & Gordon PA, Dover, NH, for Rita
Grenier, Edwin Grenier.
Bethany P. Minich, Litchfield Cavo, Lynnfield,
MA, James R. Branit, Jason E. Hunter, Litchfield
Cavo, Chicago, IL, for Granite State Credit Union.
ORDER
Landya McCafferty, United States District Judge
Plaintifis Rita and Edwin Grenier bring this
putative class action against Granite State Credit
Union ("Granite") and "Does 1 through 5,"
alleging injuries stemming from Granite's
overdraft fees and policies. Plaintiffs allege that—
casetext
Civil 21-cy-00534-LM
United States District Court, D. New Hampshire
Grenier v. Granite State Credit Union
570 F. Supp. 3d 18 (D.N.H. 2021)
Decided Nov 8, 2021
by not properly informing consumers how
overdrafts are assessed-Granite has violated, and
continues to violate, the Electronic Funds Transfer
Act's, 15 U.S.C. § 1693 ("EFTA"), implementing
regulations, 12 C.F.R. § 1005 et seg. ("Regulation
E").
Pending before the court is Granite's motion to
dismiss (doc. no. 9) under Fed. R. Civ. P. 12(b)(6).
For the following reasons, the motion is denied.
STANDARD OF REVIEW
Under Rule 12(b)(6), the court must accept the
factual allegations in the complaint as true,
construe reasonable inferences in the plaintiff's
favor, and "determine whether the factual
allegations in the plaintiff's complaint set forth a
plausible claim upon which relief may be
granted." Foley v. Wells Fargo Bank, N.A.., 772
F.3d 63, 71 (1st Cir. 2014) (internal quotation
marks omitted). A claim is facially plausible
"when the plaintift pleads factual content that
allows the court to draw the reasonable inference
that the defendant is liable for the misconduct
21 alleged." *21 Ashcroft v. Iqbal, 556 U.S. 662, 678,
129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).
BACKGROUND
Regulators, private litigants, and the courts have
recently devoted significant attention to overdraft
fees. See Chambers v. NASA Fed. Credit Union.
222 F. Supp. 3d 1, 5-7 (D.D.C. 2016) (thoroughly
outlining history). In 2009, the Federal Reserve
Board' revised Regulation E to add a provision
intended to "assist consumers in understanding
how overdraft services provided by their

Grenier v. Granite State Credit Union 570 F. Supp. 3d 18 (D.N.H. 2021)
institutions operate and to ensure that consumers
have the opportunity to limit the overdraft costs
associated with ATM and onc-time debit card
transactions where such services do not meet their
needs." Electronic Fund Transfers, Final Rule, 74
Fed. Reg. 59,033, 59,033 (Nov. 17, 2009).
1 Congress reassigned respoasibility fer
entorcing the EFTA from the Federal
Roservo Board to the Consume Financial
Protection Bureau in 2010. Sec Dodd.
Frank Wall Streat Retorm and Consumen
Protection Act of: 2010. Pub. L. No. 1.14
203, Title X, § 1084, 124 Stat. 1376, 2081-
Thus,
Regulation E now requires financial
institutions to obtain a customer's "affirmative
consent" before charging overdraft fees on ATM
or onc-time debit card transactions. 12 C.F.R. §
1005.17(b)(1)(iii). To secure consent, institutions
must use an opt-in notice that "describe[s] the
institution's overdraft service." Id. at 1005.17(b)
(I)(i). The notice must be "segregated from all
other information," and "substantially similar" to a
model form (Model Form A-9) provided by the
Consumer Financial Protection Bureau. Id. at
1005.17(b)(1)(i); (d). All disclosures must be
"clear and readily understandable." 12 C.F.R. §
1005.4(a)(1).
Issues occur when a disclosure does not
adequately convey how overdraft fees are
assessed. There are two balances financial
institutions can use to calculate whether the
amount of money in an account dips below zero:
either the "actual balance"? or the "available
balance." The "actual balance" is the actual
amount of money in an accountholder's account at
any particular time. The "available balance," in
contrast, is the actual amount of money in the
account minus any "holds" on deposits and
pending debits that have not yet been posted. For
this reason, calculating overdrafts based on the
available balance "often leads to more frequent
overdrafts because there is less money available in
the account due to holds and pending
casetext
transactions." Domann v. Summit Credit Union,
No. 18-cv-1670-slc, 2018 WL 4374076 (W.D.
Wis. Sept. 13, 2018) (citation omitted).
- Courts also refer to "actual balance" as the
"Tedger balance" or "current bulance."
Thus, plaintiffs across America have filed a
number
of "virtually identical lawsuits"
challenging institutions that use the available
balance method where the opt-in notice does not
explain how it assesses overdraft focs. Id.; sec,
sg.. Tims y. LGE Cmty, Credit Union, 935 F.3d
1228, 1239-40 (11th Cir. 2019) ; Adams v. Liberty.
Bank. No.
3:20-cv-01601(MPS), 2021 WL
3726007 (D. Conn. Aug. 23, 2021); Wellington v.
Empower Fed. Credit Union, 533 F. Supp. 3d 64
(N.D.N.Y. 2021) ; Bettencourt v. Icanne D'Ars
Credit Union, 370 F. Supp. 3d 258 (D. Mass.
2019) ; Walbridge v. Northeast Credit Union, 299
F. Supp. 3d 338 (D.N.H. 2018) ; Walker v.
People's United Bank, 305 F. Supp. 3d 365 (D.
Conn. 2018) ; Salls y Digital Fed. Credit Union.
349 F. Supp. 3d 81 (D. Mass. 2018) ; Domann,
22 2018 WL 4374076; *22 Ramirez v. Baxter Credit
Union, No. 16-CV-03765-SI, 2017 WL 1064991
(N.D. Cal. Mar. 21, 2017) ; Pinkston-Poling.v.
Advia Credit Union, 227 F. Supp. 3d 848 (W.D.
Mich. 2016) ; Chambers, 222 F. Supp. 3d 1.
Plaintifis in this case bring one such lawsuit. They
allege that Granite used a one-page notice entitled
"What You Need to Know about Overdrafts and
Overdraft Foes" (the "Opt-in Disclosure"). The
Opt-in Disclosure states that an overdraft "occurs
when you do not have enough money in your
account to cover a transaction, but we pay it
anyway." It docs not outline the distinction
between the actual balance method and the
available balance method. Thus, Plaintifts allege
that Granite has violated, and continues to violate,
Regulation E because the phrase "enough money"
docs not specify whether Granite calculates
overdrafts based on the actual balance or the
available balance. Essentially, they argue that the
Opt-in Disclosure docs not provide a "clear and

Grenier v. Granite State Credit Union 570 F. Supp. 3d 18 (D.N.H. 2021)|
readily
understandable" explanation of "the
institution's overdraft service." See 12 C.F.R. $
1005.4(1)(1) ; 1005.17(b)(1)(i).
DISCUSSION
Granite moves to dismiss on the grounds that,
first, it did not violate Regulation E and, second,
that the EFTA's safe harbor provision, 15 U.S.C. §
1693m(d)(2), insulates it from liability.
I. Regulation E. Violation
Granite first argues that when the Opt-in
Disclosure is read in con uncuon win a cocument
entitled "Terms and Conditions of Your Account"
(the "Membership Agreement"), Granite satisfies
Regulation E's disclosure requirements. Granite
attaches the five-page Membership Agreement to
its motion, and alleges it is the operative
agreement governing Plaintiffs' relationship with
Granite. The Membership Agreement states that
Granite assesses overdrafts based on the available
balance:
Determining your available balance -
We use the "available balance" method to
determine whether your account is
overdrawn, that is, whether there is enough
money in your account to pay for a
transaction. Importantly, your "available"
balance may not be the same as your
account's "actual" balance. This means an
overdraft or an NSF [nonsufficient funds] |
transaction could occur regardless of your
account's actual balance.
Doc. no. 9-3 at 1. It then proceeds to describe in
further detail the difference between actual
balance and available balance. See id. The
Membership Agreement was not attached to or
referenced in the complaint.'
3 Granito alleges that Plantilis relento w
the Membership Agreement in their
complaint when they referenced a "Granite
agroement." Doc. no. 9 at 2 n.l. As
Plaintifis clarify, the "Granite agreement"
Ween wester Wee no, weakne
Even assuming that the Membership Agreement
could be considered at the motion to dismiss stage,
Plaintifi's have still plausibly alleged violations of
Regulation E. Regulation E requires financial
institutions to provide disclosures about their
overdraft policies "segregated from all other
information," i.e. in a standalone document. 12
C.F.R. § 1005.17(b)(1)(i). Because Plaintift's
allege that the Opt-in Disclosure is the segregated
document, only it is relevant to Plaintifts' claim.
The Membership Agreement is extrancous
information, irrelevant to whether the Opt-in
Disclosure itself-i.c., the segregated document—
adequately explains Granite's overdraft policy. Sec
Adams. 2021 WL 3726007, at *4 (refusing to
23 consider extrancous *23 documents such as an
Account Agreement on Rule 12(b)(6) motion, but
holding that even if it could consider those
documents, they would not make plaintifi's
Regulation E claim any less plausible because
Regulation E requires notice to be "segregated
from all other information"); see also Wellington,
533 F.Supp.3d at 69 (holding that even assuming
extraneous evidence should be considered on a
Rule 12(b)(6) motion, the plaintiff' still plausibly
alleged violations of Regulation E).
The cases Granite cites in support of its argument
that the Opt-in Disclosure and the Membership
Agreement should be read together are not
persuasive. Those cases are all in the context of
contract claims, for which it may be appropriate to
construe multiple documents together. See. c.g.
Tims, 935 F.3d at 1238 n.5 (citing state contract
law for the proposition that "where multiple
documents are executed at the same time in the
course of a single transaction, they should be
construed together"); Domann, 2018 WL
4374076, at *6-7 ; Chambers, 222 F. Supp. 3d at
11-12. Yet in cases where plaintifis allege both a
contract claim and a Regulation E claim, courts
will read the documents together for the contract
casetext

Grenier v. Granite State Credit Union 570 F. Supp. 3d 18 (D.N.H. 2021)|
claim only, because Regulation E requires notice
to be "segregated." See Ramirez v. Baxter Credit
Union, 2017 WL 118859, at *8 (N.D.Cal. Jan. 12,
2017). Thus, Tims, Domann, and Chambers do not
help Granite's argument because here Plaintiffs do
not allege breach of contract,
and in tact
specifically disavow any such claim. See doc. no.
11 at 10.
Looking only at the Opt-in Disclosure, then,
Plaintifts plausibly state a claim that the phrase
"enough money" does not adequately provide a
"clear and readily understandable" explanation of
"the institution's overdraft service." 12 C.F.R. §
1005.4(1X1) ; 1005.17(b)(1)i). Countless courts
examining virtually identical language have
agreed. Scs. c.g, Tims. 935 F.3d at 1238
(ambiguous whether disclosure that overdraft
occurs "when you do not have enough money in
your account to cover a transaction, but we pay it
anyway" uses actual balance or available balance
method); Wellington, 533 F.Supp.3d at 71 ;
Bettencourt, 370 F. Supp. 3d at 262, 265 ;
Walbridge, 299 F. Supp. 3d at 343 ; Salls, 349 F.
Supp. 3d at 90 ; Pinkston-Poling, 227 F. Supp. 3d
at 857 ; Walker, 305 F. Supp. 3d at 376. Thus,
Plaintifis plausibly state a claim that Granite's
Opt-in Disclosure violates Regulation E.
II. Sate Harbor Provision
Granite next argues that the EFTA's safe harbor
provision insulates it from liability. The EFTA
protects financial institutions from liability for
"any failure to make disclosure in proper form ifa
financial institution utilized an appropriate model
clause issued by the Bureau or the Board." 15
U.S.C. § 1693m(d)(2). Regulation E requires that
notice "shall be substantially similar to Model
Form A-9," which is promulgated by the
Consumer Financial Protection Bureau. 12 C.F.R.
§ 1005.17(d). Model Form A-9 states: "An
overdraft occurs when you do not have enough
money in your account to cover a transaction, but
we pay it anyway." § 1005, App. A (emphasis in
original).
Courts across the country have
arguments identical to Granite's argument here,
and the vast majority have held that that using
language identical to that in Model Form A-9 does
not necessarly insulate a minancia. insatuton trom
liability. See Tims, 935 F.3d at 1244 ; Adams.
2021 WL 3726007, at *6-*8 ; Bettencourt, 370 F.
Supp. 3d at 266; Salls, 349 F. Supp. 3d at 90-91 ;
Walbridge, 299 F. Supp. 3d at 349 ; Smith, 2017
24 WL 3597522, at *8; *24 Gunter v. United Fed.
Credit Union, No. 3:15-cv-00483-MMD-WGC,
2017 WL 4274196, at *3 (D. Nev. Sept. 25, 2017)
; Ramirez, 2017 WL 118859, at *7 ; Pinkston:
Poling, 227 F. Supp. 3d at 852. As one court
reasoned, the safe harbor provision requires the
use of an "appropriate model clause." Adams,
2021 WL 3726007, at *7 (citing 15 U.S.C. $
1693m(d)(2) ). If the language in Model Form A-9
does not accurately describe a particular
institution's overdraft service, then it is not
"appropriate." Id, Indeed, "[i)f use of a model
clause were, by itself, an impenetrable shield, a
consumer would have no redress" when Model
Form A-9 does not actually provide a "clear and
readily understandable" description, 12 C.F.R.§
1005.5, of an institution's overdraft services. Id.
Granite cites two unreported district court cases
holding otherwise. See Rader v. Sandia Lab. Fed.
Credit Union, No.20-559 JAP/JHR, 2021 WL
1533664, at *13-*14 (D.N.M. April 19, 2021) ;
Tilley v, Mountain Am. Fed. Credit Union, No.
2:17-cv-01120-JNP-BCW, 2018 WL 4600655, at
*4-*6 (D. Utah Sept. 25, 2018). The court does
not find the reasoning of these cases to be
persuasive. Tilley, for example, cited a Northern
District of Georgia case for the proposition the
phrase "enough money" from the model form is
not inaccurate when the financial institution
calculates overdrafts based on an account's
available balance. Tilley, 2018 WL 4600655, at *5
(citing Tims v. LGE Cmty. Credit Union, No.
1:15-cv-4279-TWT, 2017 WL 5133230, at *6
(N.D. Ga. Nov 6, 2017), revd and remanded by.
935 F.3d 1228 (11th Cir.2019) ). But the Eleventh
casetext

Grenler v. Granite State Credit Union 570 F. Supp. 3d 18 (D.N.H. 2021)
Circuit later overturned that case on appeal,
holding that using language from a model clause
"docs not shield [a financial institution] for claims
based on their failure to make adequate
disclosures." Tims, 935 F.3d at 1243. The other
case Granite cited, Rader, relied exclusively on
Tilley's reasoning, without acknowledging that
Tilley was predicated in part on reasoning that the
Eleventh Circuit had overturned. See 2021 WL
1533664, at *13-*14. Rather than following either
of these cases, this court agrees with the sound
reasoning of the Eleventh Circuit and the
previously cited district court cases holding that
the safe harbor provision did not defeat plaintiffs'
claims.
Thus, Plaintiffs have plausibly stated a claim that
the clause from Model Form A-9 was not
"appropriate" because the language did not
describe Granite's overdraft policy in a "elcar and
readily understandable" way. See Adams, 2021
WL 3726007, at *8.
CONCLUSION
For these reasons, Granite's motion to dismiss
(doc. no. 9) for failure to state a claim is denicd.
SO ORDERED.
casetext

No. 17-14968
08-27-2019
Carol TIMS, Individually, and on behalf of all
others similarly situated, Plaintiff' - Appellant, v.
LGE
COMMUNITY CREDIT UNION,
Defendant - Appellee.
Edward Adam Webb, G. Franklin Lemond, Jr.,
Webb Klase & Lemond, LLC, Atlanta, GA,
Richard D. McCune, McCune Wright, LLP,
Redlands, CA, Taras Kihiczak, The Kick Law
Firm, APC, Santa Monica, CA, for Plaintiff -
Appellant. Stephen Paul Dunn, Brandon J. Wilson,
Howard & Howard Attorneys, PLLC, Royal Oak,
Mi, Kevin A. Maxim, The Maxim Law Firm, PC,
Atlanta, GA, for Defendant - Appellee. Howard R.
Rubin, Katten Muchin Rosenman, LLP,
Washington, DC, for Amicus Curiac.
JILL PRYOR, Circuit Judge
1233*1233
Edward Adam Webb, G. Franklin Lemond, Jr.,
Webb Klase & Lemond, LLC, Atlanta, GA,
Richard D. McCune, McCune Wright, LLP,
Redlands, CA, Taras Kihiczak, The Kick Law
Firm, APC, Santa Monica, CA, for Plaintiff -
Appellant.
Stephen Paul Dunn, Brandon J. Wilson, Howard
& Howard Attorneys, PLLC, Royal Oak, MI,
Kevin A. Maxim, The Maxim Law Firm, PC,
Atlanta, GA, for Defendant - Appellee.
No. 17-14968
UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT
Tims v. LGE Cmty. Credit Union
935 F.3d 1228 (11th Cir. 2019)
Decided Aug 27, 2019
Howard R. Rubin, Katten Muchin Rosenman,
LLP, Washington, DC, for Amicus Curiac.
Before MARTIN, JILL PRYOR and JULIE
CARNES, Circuit Judges.
JILL PRYOR, Circuit Judge:
According to Carol Tims, when she opened an
account at LGE Community Credit Union, LGE
promised to use one account balance calculation
method in assessing overdraft foes against her
account, but then used a different one, which
resulted in more fees. Tims alleged that LGE
agreed to impose overdraft fees only when her
ledger balance the amount of money in her
account without considering pending debits—-was
insufficient to cover a transaction. She alleged that
LGE broke that promise by assessing overdraft
fees when, based on her ledger balance, there was
enough money in her account to cover the
1234 transaction in question, but based on her *1234
available balance—the money in her account after
considering pending debits and deposits-there
was not.
Tims sued LGE in district court for breach of
contract, breach of the implied covenant of good
faith and fair dealing, and violation of the
Electronic Fund Transfer Act (EFTA), 15 U.S.C.
$§ 1693 - 1693r. The district court dismissed her
claims under Federal Rule of Civil Procedure
12(b)(6) after determining that the two parties'
agreements unambiguously permitted LGE to
assess overdraft fees using the available balance
calculation method.
casetext

Tims v. LGE Cmty. Credit Union 935 F.3d 1228 (11th Cir. 2019)
We disagree with the district court's interpretation
of the contracts. Because we conclude that the
agreements are ambiguous as to whether LGE
could rely
on an account's available balance,
rather than its ledger balance, to assess overdraft
fees, we reverse the district court's dismissal of the
case and remand for further proceedings consistent
with our opinion.
I. BACKGROUND
A. Congressional Regulation of
Overdraft Fees After the Advent of
Online Banking
"Overdraft" is a banking term describing a deficit
in a bank account caused by drawing more money
than the account holds. Before the development of
electronic fund transfer (EFT) systems, banks
generally provided overdraft coverage for check
transactions only. See Electronic Fund Transfers,
74 Fed. Reg. 59,033, 59,033 (Nov. 17, 2009).
When a bank customer overdrew her account by
writing a check in an amount that exceeded the
amount of funds in the account, her financial
institution applied its discretion in deciding
whether to honor the customer's draft, in effect
extending a small line of credit to its customer and
imposing a small fee for the convenience. Id.
Online banking transformed how financial
institutions handled overdrafts and overdraft fees.
New EFT systems provided customers with more
ways to make payments from their accounts,
including automatic teller machine (ATM)
withdrawals, debit card transactions, online
purchases, and transfers to other accounts. Id.
Most financial institutions chose to extend their
overdraft coverage to all EFT transactions. Some
further decided to cover automatically all
overdrafts their customers might gencrate from
their EFTs. Id. These changes had the benefit to
financial institutions of "reduc(ing) cost[s]" from
manually reviewing individual transactions and
furthering "consistent treatment of consumers." Id.
at 59,033 -34. But they came at a significant and
sometimes unexpected cost to consumers:
casetext
financial institutions generally assessed a flat fee
each time an overdraft occurred, sometimes
charging additional fees-for each day an account
remained
overdrawn.
for
example,
incrementally higher fees as the number of
overdrafts increased. Id. at 59,033.
Congress enacted EFTA with the aim of outlining
the rights, responsibilities, and obligations of
individuals and institutions using EFT systems. Id
In EFTA's implementing regulations (Regulation
E, 12 C.F.R. pt. 1005), Congress set out to "assist
consumers in
understanding how
overdraft
services provided by their institutions operate and
to ensure that consumers have the opportunity to
limit the overdraft costs associated with ATM and
one-ume debit card transactions
where such
services do not mect their needs." Id. at 59,035.
Doing away with the practice of automatic
enrollment of consumers in overdraft coverage,
Regulation E required financial institutions to
secure consumers' "affirmative consent" to
overdraft services through an opt-in notice. Id. at
59,036. The opt-in notice was to be "segregated
1235 from *1235 all other information[ ] describing the
institution's overdraft service," 12 C.F.R. $
1005.17(b)(1)(i), and be "substantially similar" to
a model form (Model Form A-9) provided by the
Federal Reserve, id. § 1005.17(d).
"But the opt-in requirement and model form have
not dispelled all the controversy and confusion
surrounding overdraft fees." Chambers v NASA
Fed. Credit Union, 222 F. Supp. 3d 1, 6 (D.D.C.
2016). Model Form A-9 does not address which
account balance calculation method a financial
institution should use to determine whether a
transaction results in an overdraft. See 12 C.F.R
pt. 1005, app. A. Without any such provision in
the model form, "some financial institutions have
failed to disclose the balance calculation method
that they use to determine whether a transaction
results in an overdraft." Chambers, 222 F. Supp.
3d at 6.

Tims v. LGE Cmty. Credit Union 935 F.3d 1228 (11th Cir. 2019)|
In determining whether a customer has made a
withdrawal or incurred a debit that exceeds the
balance in her account—an overdraft-financial
institutions typically use one of two methods of
calculating the balance in a customer's account:
the "ledger" balance method or the "available"
balance method.
The ledger balance method
considers only settled transactions; the available
balance method considers both settled transactions
and authorized but not yet settled transactions, as
well as deposits placed on hold that have not yet
cleared. Consumer Fin. Prot. Bureau, Supervisory
Highlights 8 (Winter 2015), available at
https://files.consumerlinance.gov/f/201503_cfpb
supervisory-highlights-winter-2015.pdf
(last
visited May 24, 2019). These two competing
methods of calculating a consumer's balance and
charging overdraft fees based on that balance lie at
the heart of this case.
B. Factual Background
LGE allegedly charged Tims overdraft fees of $
30.00 each on two occasions. Tims's complaint
alleged that at the time LGE assessed the overdraft
fees, her ledger balance was sufficient to cover
each transaction. She alleged that LGE agroed to
use the ledger balance calculation method in
assessing overdraft fees, and so LGE's use of the
available balance calculation method breached her
agreements with LGE.
LGE argues that its agreements with Tims
unambiguously provided that LGE would use the
available balance calculation method in imposing
overdraft fees. LGE thus asserts that it did not
breach its agreements by imposing fees based on
Tims's available balance.
There were two agreements between Tims and
LGE: the "Opt-In Agreement" and the "Account
Agreement." LGE asked consumers to sign the
Opt-in Agreement to obtain their consent to LGE's
overdraft policies. The Opt-In Agroement said
little about which balance calculation method LGE
employs, stating only that "[ajn overdraft occurs
when you do not have enough money in your
account to cover a transaction, but we pay it
anyway." Doc. 29 at 44.'
1 All citations in the form "Don, f" refer to
numbere canesencedecor
powde
LGE adopted the Opt-in Agreement to comply
with Regulation E, 12 C.F.R. § 1005.17. Again,
Regulation E requires financial institutions to
secure a consumer's "affirmative consent" before
charging overdraft fees and stipulates that consent
can be secured through use of an opt-in form
"substantially similar" to Model Form A-9. Id.$
1005.17(b)(1)(iii), (d). LGE's Opt-In Agreement is
nearly an exact copy of Model Form A-9.
Compare id. pt. 1005, app. A, with Doc. 29 at 44.
The second agreement between Tims and LGE,
1236the Account Agreement, contained *1236 a
"Payment Order" provision explaining that in
processing items drawn on a consumer's account,
LGE's "policy is to pay (the items) as we receive
them." Doc. 29 at 31. The Account Agreement
went on to say, "[i]f an item is presented without
sufficient funds in your account to pay it" or "if
funds are not available to pay all of the items"
presented for payment, LGE "may, at [its]
discretion, pay" the item or items, creating an
overdraft for which LGE will charge a fee. Id. at
32.
A separate provision in the Account Agreement,
the "Funds Availability Disclosure," addressed the
conditions under which funds were available for
consumers' use. Id. at 37. In this provision, LGE
explained that its general policy was "to make
funds from your deposits available to you on the
same business day that [LGE] receive[s] your
deposit," but certain deposits would not be
"available" to consumers until the second business
day at the carliest. Id.
C. Procedural History
casetext

Tims V. LGE Cmty. Credit Union 935 F.3d 1228 (11th Cir. 2019)
Tims brought this case as a consumer class action,
asserting three claims against LGE that are the
subject of this appeal." First, Tims alleged that
LGE breached its Opt-In and Account Agreements
by assessing overdraft fees using the available
balance calculation method. Second, she alleged
that LGE violated the implied covenant of good
faith and fair dealing implicit in every contract
under Georgia law.' Third, she alleged that LGE's
practices failed to accurately describe its overdraft
service as required by Regulation E, thus violating
2 Tims also asserted claims apainst L.GE for
unjust enchment and moncy had and
received. On appeal, she does not argue
that the distnct court erred in dismissing
these claims, so we do not address them
Co., 385 F.3d 1324, 1330 (11th Cir. 2004)
(stating that a legal claim or argument that
has not boon bricfed on anoenl is "deemed.
abandoned and its marits wil not be
addressed").
3 The Account Agreement provided that
Georgia law governs the contract. Because
the parties agree that Geongia law applies
here, we assume that it does. See Bahamas
Sales Assoc., LLC v. Byers, 701 F.3d 1335,
1342 (11th Cir. 2012) ("If the parties
tigate the case under the assumption that a
certain law applies, we will assume that
law applies.")
LGE filed a Rule 12(b)(6) motion to dismiss all
claims, which the district court granted. Using
Georgia's canons of contract construction, the
district court determined that the agreements
unambiguously permitted LGE to assess overdraft
fees using the available balance calculation
method. The court concluded that LGE had neither
breached the parties' contract nor the covenant of
good faith and fair dealing and that no EFTA
violation had occurred. Tims timely appealed.
II. STANDARD OF REVIEW
We review de novo a district court's grant of a
motion to dismiss for failure to state a claim under
Federal Rule of Civil Procedure 12(b)(6). See
Glover v. Liggett Grp., Inc. , 459 F.3d 1304, 1308
(11th Cir. 2006). We accept factual allegations in
the complaint as true and construe them in the
light most favorable to the plaintiff. See Hill v
White , 321 F.3d 1334, 1335 (11th Cir. 2003). To
withstand a motion to dismiss under Rule 12(b)
(6), a complaint must include "enough facts to
state a claim to relief that is plausible on its face."
Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570,
127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). "A claim
has facial plausibility when the plaintiff pleads
factual content that allows the court to draw the
reasonable inference that the defendant is liable
for the misconduct alleged." Ashcroft v. Iqbal, 556
U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868
1237(2009).*1237 We review de novo the issue of
whether a contract is ambiguous. See Frulla v
CRA Holdings, Inc. , 543 F.3d 1247, 1252 (11th
Cir. 2008). Questions of contract interpretation are
pure questions of law, also reviewed de novo.
Gibbs v. Air Canada, 810 F.2d 1529, 1532 (11th
Cir. 1987).
III. DISCUSSION
Tims challenges the district court's dismissal of
her claims against LGE for (1) breach of contract;
(2) breach of the implied covenant of good faith
and fair dealing; and (3) violation of Regulation E
of EFTA. We consider these claims in turn.
A. Tims Stated a Claim for Breach of
Contract.
To state a claim for breach of contract under
Georgia law, Tims had to plausibly allege that
LGE owed her a contractual obligation, then
breached it, causing her damages. Norton v
Budget Rent a Car Sis., Inc. , 307 Ga.App. 501,
705 S.E.2d 305, 306 (2010). Tims alleged that
LGE promised to calculate her account balance—
and assess overdraft foes in light of that balance
by considering only the ledger balance, then
breached that promise by considering the available
casetext

Tims V. LGE Cmty. Credit Union 935 F.3d 1228 (11th Cir. 2019)
balance instead. We must interpret the two
agreements between Tims and LGE to decide
whether LGE had a contractual obligation to use
the available balance calculation method or the
ledger balance calculation method for unsettled
withdrawals* in imposing overdraft fees.
Ga.App. 101, 661 S.E.2d 578, 583 (2008) (internal
quotation marks omitted). A contract is
unambiguous when, after examining the contract
as a whole and affording its words their plain
meaning, "the contract is capable of only one
reasonable interpretation." Id. (internal quotation
marks omitted).
4 The partics appear to agroc that, as to
deposits, the Funds Availability Disclosure
permits LGE to place holds on some types
of deposits pending clearance of the
deposit (ledger balance method), but that as
to other types of deposits, LGE has agreed
that the deposit will be made immediately
availabic to the custoner available
balance method). The dispate here
concems how debit transactions are to be
treated under the Opt-In Agreement and
the Account Agreement, with lums arguing
that the relevant documents indicate that
the ledger method will be used and LGE
arguing that the terms of the agreements
provide for use of the available balance
method.
Under Georgia law, courts interpret contracts in
three steps: first, the court determines whether the
contract language is clear and unambiguous. If the
language is clear, the court applies its plain
meaning; if it is unelear, the court proceeds to step
two. At step two, the court attempts to resolve the
ambiguity using Georgia's canons of contract
construction. If the ambiguity cannot be resolved
using the canons, then the court proceeds to step
three, where the parties' intent becomes a question
of fact for the jury. City of Baldwin v. Woodward
& Curran, Inc ., 293 Ga. 19, 743 S.E.2d 381, 389
(2013).
"The cardinal rule of construction is to ascertain
the intention of the parties." Maiz v. Virani, 253
F.3d 641, 659 (11th Cir. 2001) (alteration adopted)
(internal quotation marks omitted). A contract is
ambiguous when it "leavefs) the intent of the
parties in question i.e., that intent is uncertain,
unclcar, or is open to various interpretations."
Capital Color Printing. Inc. v Ahern , 291
1. The Plain Language of the Opt-In
and
Account
Agreements
Is
Ambiguous as to Which Account
Balance Calculation Method LGE
Uses to Assess Overdraft Fees.
Both parties argue that the Opt-In and Account
1238 Agreements are unambiguous, *1238 but they
disagree about which account balance calculation
method the agreements unambiguously promised
to use. Each party contends that the agreements'
plain language clearly supports its own
interpretation of LGE's balance calculation
method. After careful review, we disagree with
both partics that the agreements are unambiguous.
We turn to the language of the Opt-In and Account
Agreements and begin with the Opt-In
Agreement.' In relevant part, the Opt-In
Agreement explained that "[ajn overdraft occurs
when you do not have enough money in your
account to cover a transaction, but we pay it
anyway." Doc. 29 at 44. Each party contends that
interpretain of tiny sulanes calculation
method. Tims argues that the phrase "enough
money in your account" unambiguously referred
to the ledger balance because the term "account" is
presented without limitation or modification, such
as a reference to "available" funds. LGE argues
that "enough" unambiguously referred to the
available balance. LGE consults the dictionary
definition of the word "nough"-"occurring in
such quantity, quality, or scope as to satisfy fully
the demands, wants, or needs of a situation or of a
proposed use or end"" —then points out that
"enough" is synonymous with "available."
Because "enough" and "available" are synonyms,
casetext

Tims v. LGE Cmty. Credit Union 935 F.3d 1228 (11th Cir. 2019)|
LGE argues, a consumer would understand merely
by reading the word "enough" that LGE would
take only a consumer's available funds into
account in calculating the account's balance.
S Under Gconzia law. " 'shhere multinle
vernons deedence mende sanese
too course of a singe transacton, they
should be construed together.'" Curry v.
State, 309 Ga.App. 338, 711 S.E.2d 314,
313 (2011) (quoting Martinez a DaVita,
Esc., 266 Ga.App. 723, 598 S.E.2d 334,
337 (2004) ). Neither party disputes that
Tims entered into the Onton and Account
opence an decouts with Last
Webster's Third New
Intemational Drctionary 755 120021. In
Georgia, "[when interpreting a contract,
the language must be afforded its literal
meaning and plain ardinary words given
their
[dictionaries may supply the plain and
ordinary meaning of a word." Grange Mur.
Cas. Co. v. Woodard, 861 F.3d 1224, 1231
(11th Cir. 2017) (internal quotation marks
omitted).
We find neither argument persuasive. The Opt-In
Agreement sheds no light on what "enough money
in (an) account" means in the context of
determining when an overdraft has occurred. Id.
Both parties' arguments raise the question of how
LGE determines what "enough money" is— is it
chough money to cover only settled transactions
or to cover authorized but not yet settled
transactions as well? The Opt-in Agreement is
thus ambiguous concerning the account balance
calculation method LGE's overdraft service uses
for unsettled debit transactions.
The plain language of the Account Agreement is
no more helpful. In describing LGE's overdraft
service, the Account Agreement's Payment Order
section stated that an overdraft occurs "[i]f an item
is presented without sufficient funds in your
account to pay it" or "if funds are not available to
casetext
pay all of the items." Id. at 32. The conditions
under which deposits would be available for
consumers' use were set forth in a separate section,
the Funds Availability Disclosure. The Funds
Availability Disclosure explained that LGE's
"policy is to make funds from (the consumer's]
deposits available to [the consumer) on the same
business day" that LGE receives the deposit. Id. at
37. It stipulated that consumers can immediately
"withdraw funds" for most deposits, including
cash, wire transfers, and money order deposits;
1239 however, consumers must wait to 1239 "withdraw
funds" under certain limited circumstances,
including deposits of checks exceeding $ 5,000
and deposits into repeatedly and recently
overdrawn consumer accounts. Id. The Funds
Availability Disclosure made no mention of debit
transactions specifically, referring only to
"withdrawals" gencrally. Id.
Each party contends the language of this
agreement, too, clearly requires the use of its
favored account balance calculation method in
charging overdraft fees. Tims argues that the
phrase "sufficient funds," by itself, plainly refers
to the ledger balance. She also argues that even
though the Funds Availability Disclosure said
some deposited funds will be considered
unavailable to consumers for a period of time, it
did not say whether or how the funds'
unavailability relates to the financial institution's
account balance calculation method for overdraft
purposes. Finally, Tims points out that even
though the Funds Availability Disclosure
explained that certain deposits could not
immediately be withdrawn by consumers, it said
nothing about whether pending debits affected
consumers' ability to withdraw funds.
In an argument similar to the one it makes about
the Opt-in Agreement, LGE asserts that
"sufficient" is synonymous with "available," and
so a consumer reading the word "available" and
then the term "sufficient" in adjacent sentences
would understand the Account Agreement as
clearly referring to
the available balance

Tims V. LGE Cmty. Credit Union 935 F.3d 1228 (11th Cir. 2019)
calculation method. LGE also notes that the Funds
Availability Disclosure stipulated that consumers
could use funds only when they were "available,"
a word also used in the Payment Order subsection
of the Account Agreement describing when an
overdraft occurs. See Doc. 29 at 32 (stating that an
overdraft occurs "if funds are not available to pay
all of the items").
7 "Sufficicer" is defined as "(a)drquate; of
such quality, number, foroc, or value as is
necessary for a given purpose." Sufficient
Black's Law Dictionary 1661 (10th ed.
2014). "Available" is defined as "capable
of use for the accomplishment of a
purpose: immediately utilizable." Available
• Webster's Third New Internationa,
Dictionary 150 (2002).
Neither argument persuades us. We cannot say the
Account Agreement unambiguously articulated
the account balance calculation method LGE uses
for unsettled debit transactions. Nothing in the
Account Agreement explained how LGE
determines whether funds are "sufficient." Nor did
the mere presence of the word "available" in the
Account Agreement, in two separate subsections,
clearly communicate that LGE would calculate a
consumer's account balance for the purpose of
assessing overdraft fees based on unsettled
transactions. LGE "apparently assumes that the
[consumer] will read the word 'available' in [two
separate] sections spanning the [12]-page Account
Agreement" and conclude that the financial
institution uses the available balance calculation
method in its overdraft service just because the
agreement uses the term "available." Smith v. Bank
of Hawaii , No. 16-00513 JMS-RLP, 2017 WL
3597522, at *7 (D. Haw. Apr. 13, 2017). LGE
assumes too much. As Tims points out, although
the Account Agreement explained that certain
deposits would not immediately be available to
consumers, it did not explain that a pending debit
would render funds unavailable to consumers.
In the absence of anything in the Account
Agreement addressing the account balance
calculation method LGE used in its overdraft
service for unsettled transactions and given the
ambiguity of the terms "sufficient funds" and
"available," the Account Agreement failed to
clearly indicate which balance calculation method
LGE was using to determine when an unsettled
debit transaction would result in an assessment
1240*1240 of overdraft fees. Other courts, confronting
similar terms across subsections of similar account
agreements, have agroed. See, e.g. , Pinkston-
Poling v Advia Credit Union, 227 F. Supp. 3d
848, 854-56, 856 n.4 (W.D. Mich. 2016) (deciding
that the terms "enough money" and "sufficient
funds" did not clearly indicate that an available
balance method would be used in imposing
overdraft foes); see also Walbridge v. Ne. Credit
Union, 299 F. Supp. 3d 338, 343-46 (D.N.H.
2018) (determining that the terms "enough
money," "insufficient funds," and "nonsufficient
funds" did not clearly indicate that an available
balance method would be used in charging
overdraft fees).
Neither the Opt-In Agreement nor the Account
Agreement clearly articulated which balance
calculation method LGE was using to determine
when unsettled transactions would trigger an
overdraft. The contracts are ambiguous.
2. The Agreements Remain
Ambiguous
Considering
Georgias Cannot derang
Construction.
Having determined that the language of the Opt-In
and Account Agreements is susceptible to two
different constructions, we turn to the second step
of contract interpretation under Gorgia law and
attempt to resolve the ambiguity using Georgia's
canons of construction.' Applying these canons,
the district court determined that any ambiguity in
the contracts could be resolved. The district court
concluded that the use of the word "available" in
the Account Agreement plainly referred to the
casetext

Tims V. LGE Cmty. Credit Union 935 F.3d 1228 (11th Cir. 2019)
available balance method for two reasons: first,
based on the close proximity of the words
"available" and "sufficient" in the Payment Order
1241 subsection, *1241 and second, because "available"
must be interpreted consistently throughout the
Account Agreement, which uses the word in
different subsections. We find neither reason
compelling.
8 Tims also asks us to construe the
focusat as coatracts of adhcsion. n
standardized comraces orcred on a "axe
it or leave itbasis and under such
appeal").
In addition. Tims anoes that we should
apply the coctrine of contra proverchiew,&
canon of contract construction that
counsels in favor of construing ambiguities
in contract language against the drafter."
Allen v: Thomas, 161 F.3d 667, 671 (Ilth
Cir. 1998). Tuns licewise taako to peesenc
this argument for appetinie rowiew. she
mentioned the doctrine of congra
provesentew only
once. in the
aforcincattonta footaote,
advancing any argument that it applied. Ser
Doc. 31 at 15 n.3 (noting only that
ambig alties ta a contrace will be colstricd
against the drafter' (alterations adopted)
too dcsired produes or scarce except by
acquiescing in the form contract," and ard
"construed strictly against the drafter.
Walton Elec. Membership Corp. v. Suyder,
226 Ga.App. 673, 487 S.E.2₫ 613, 617 n.6
(1997). Because she failed to clearly
present this argument before the district
court, we will not assess its merits here.
See In ne Pan Am. World Airways, Inc.
Maternity Loze Practices & Flighr
Attendant Weight Program Litig. , 905 F.2d
1451， 1402111tha 6a. .990. Ims contends
that she presented the argument to the
district court becausc her complaint stated
that LGE drafted the agreements, which
were adhesive in nature. Tims does not
arguc, but we note, that she subsequently
mentana the
Licongia canon
of
construction regarding contracts of
adhesion once, in a footnote in bes
opposition to LUl's motion to dismiss.
without advancing any argunsent that ber
agroement with Lots was a contract of
adhesion. Tims's description of the
agreements and her brief reference without
argument in a footnote was insuthcient to
preserve the argument for appeal. See U.S.
Sec. de Exchange Commit v. Big Apple
Consulting USA, Inc., 783 F3d 786, 812
(11th Cir. 2015) (explaining that a litigant's
"fleeting footnote explaining" an argument
to the district court in one sentence ... 1s
insufficient to properly assert a claim on
alcouns reverence in a roomote to the
doctrine of contra proferentem was
insufficient to preserve her argument for
appeal, and we thus do not address it. See
Big Apple Consulting USA, Inc. , 783 F.3d
at 812.
Our conclusion that Tims failed to preserve
of the motion to dismiss does not foreclose
her from raising these arguments in the
district court at the summary judgment
stage.
First, the proximity of the word "available" to the
word "sufficient" in the Payment Order subsection
of the Account Agreement does not elcarly
communicate that LGE would use an available
balance calculation method when considering
unsettled transactions in its overdraft service. As
discussed above, the Account Agreement's
Payment Order provision stated that LGE would
assess overdraft fees if there were not "sufficient
funds in your account to pay (an item]" and just
after noting that its "payment policy ... may reduce
the amount of overdraft….. fees you have to pay if
funds are not available to pay all of the items."
Doc. 29 at 32 (emphasis added). The district court
concluded that the proximity of "sufficient" to
"available" meant the words are somehow linked.
See Doc. 67 at 11 ("By including the term
casetext

Tims V. LGE Cmty. Credit Union 935 F.3d 1228 (11th Cir. 2019)
'available' in such close proximity to the term
'sufficient,' the parties indicate that they view
both terms to be related."). No Georgia canon of
contract construction supports this conclusion,
however.' There is no rule that words in close
proximity should be construed as related to one
another without considering word order and
context. And even if we agreed that the terms were
related to one another, the related terms still did
not unambiguously specify that LGE would apply
the available balance calculation method to
unscttled transactions in assessins overdrafts.
consumer could reasonably understand the phrase
"available ... sufficient funds" to refer to her ledger
balance. tat avalable tunds are those mn nes
account and sufficient to cover her draft. Thus,
even read together, the terms "available" and
"suflicient" fail to clearly communicate how
unsettled transactions are treated in the balance
calculation method LGE employs in its overdraft
services. So the contract remains capable of two
reasonable constructions.
* The most comparablo Georgia canon of
contract construction is the last antecedent
canon, which provides that "[r)cferential
and qualifying words and phrases, where
no contrary intention appears, refer solely
to the last antecedent." Deal & Coleman,
294 Ga. 170, 751 S.E.2d 337, 342 (2013)
(intemal quotation marks omitted); see also
Key v Ga Dep's of Admin. Servs. , 340
Ga.App. 534, 798 S.E.2d 37, 41 (2017)
(canon applicable in contract as well as
statutory construction). But the last
antecedent rule does not apply here
because "sufficient funds" is not a limiting
clause or phrase and "available" is not a
noan. See Barnhart v. Thomas, 540 U.S.
20, 26, 124 S.Ct. 376, 157 L.Ed.2d 333
20us) explaining that the oscinine apples
to "limiting clause(s) or phrases)" that aro
read as modifying only the noun or phrase
Second, we disagree that the Account Agreement
was neoessarily referring to an available balance
calculation method for unsettled debit transactions
based on the use of the word "available" in a
runas Avalabilly Disclosure provision that
addresses a completely ditterent matter. the
availability of deposited funds.
The Funds
Availability Disclosure provision used variations
of the word "available" more than 20 times—in
nearly every sentence. But "available" was never
used in conjunction with the word "balance." And
"available" was never defined to exclude unsettled
debit transactions for overdraft purposes. At best,
this section equated "available" with "able to be
withdrawn." See, e.g., Doc.
29 at 37 ("This
disclosure describes your ability to withdraw
funds at LGE .... Our policy is to make funds from
your deposits available to you on the same
business day we receive your deposit."). LGE's
explanation in the Funds Availability Disclosure
provision for when deposited funds became
1242"available" to consumers for withdrawal *1242
simply did not address how LGE would treat
unsettled debits when it calculated a consumer's
balance for overdraft fee purposes.
LGE's argument that the agreements clearly
promised to use the available balance calculation
method does not convince us, either. LGE asserts
that the repeated use of the word "available"
unambiguously communicated that overdraft fees
would be assessed using the available balance
method. To support its interpretation of the word
"available," LGE cites to Chambers . 222 F. Supp.
3d at 1. The dispute in Chambers, as in this case,
concerned whether a credit union's Opt-in and
Account Agreements obligated the credit union to
use the ledger or the available balance method in
its overdraft service. Id. at 10. The court dismissed
Chambers's breach of contract claims after
concluding that the Opt-In Agreement
unambiguously stated that the credit union would
use the available balance calculation method. Id.
casetext

Tims V. LGE Cmty. Credit Union 935 F.3d 1228 (11th Cir. 2019)
Several significant details distinguish Chambers
from this case, however. Importantly, in Chambers
, the Opt-In Agreement used the phrase "available
balance." Id. In addition, the Account Agreement
in Chambers contained a subsection addressing
"Available Balances to Make Transactions," which
linked the concept of available balance to the
mechanics of when and how the bank would
assess overdrafts. Id. at 10-11. Finally, the Opt-In
Agreement in Chambers provided examples
illustrating when an account would not have
"enough money" and thus be subject to an
overdraft. Id. at 10.
None of those factors is present in this case. The
agreements here did not use the phrase "available
balance"; the Account Agreement nowhere
explained the mechanics of how and when LGE
would assess overdrafts, nor linked the concept of
an "available balance" to those mechanics; and the
Opt-In Agreement provided no examples
illustrating when a consumer would not have
"enough money" to cover a transaction and
thereby trigger an overdraft. Because of these
three distinctions, we cannot say the Opt-in and
Account Agreements in this case clearly
demonstrated the parties' intent that LGE would
use the available balance calculation method when
assessing overdraft foes. See Walbridge, 299 F.
Supp. 3d at 345-46 (concluding based on the same
three factors that the financial institution did not
clearly communicate an intent to use the available
balance in charging overdraft fees).
Neither the Opt-In Agreement nor the Account
Agreement read separately, nor the two
agreements read together, clearly articulated
LGE's balance calculation method for charging
overdraft fees. Applying the Georgia canons of
construction does nothing to clarify the contracts'
ambiguity. Because the language remains
ambiguous after considering both the plain
language of the contracts and the Georgia canons
of construction before us, '" the partics' intent will
become a question for the jury should neither
party be granted summary judgment. The district
court therefore erred in dismissing Tims's claim
for breach of contract.
10 In note 8, supra, we noted that the doctrine
of contra proferentem had not been
preserved for purposes of our review but
Tims could advance it during the summary
judgment stage of litigation.
B. Tims Stated a Claim Against LGE
for Breach of the Covenant of Good
Faith and Fair Dealing.
Tims next argues that the district court erred in
dismissing her claim that LGE breached the
implied covenant of good faith and fair dealing
1243 under Georgia law. We agree.*1243 Under Georgia
law, "[c)very contract imposes upon each party a
duty of good faith and fair dealing in its
performance and enforcement." Brack v. Brownlee
, 246 Ga. 818, 273 S.E.2d 390, 392 (1980)
(internal quotation marks omitted). That implied
promise "becomes a part of the provisions of the
contract, but the covenant cannot be breached
apart from the contract provisions [that] it
modifies and therefore cannot provide an
independent basis for liability." Myung Sung
Presbyterian Church v. N. Am. Assoc. of Slavic
Churches de Ministries, 291 Ga.App. 808, 662
S.E.2d 745, 748 (2008). A plaintiff "must set forth
facts showing a breach of an actual term of an
agreement" to state a claim for breach of the
implied duty of good faith and fair dealing. Am.
Casual Dining. L.P. v. Moe's Sw. Grill, L.L.C. ,
426 F. Supp. 2d 1356, 1370 (N.D. Ga. 2006).
Given our conclusion on the breach of contract
claim, Tims's allegations sufficiently "set forth
facts showing a breach of an actual term of [the]
agreement." Id. Tims alleged that LGE had a
contractual obligation to use the ledger balance
calculation method and breached that promise;
therefore, Tims's claim for breach of the implied
covenant of good faith and fair dealing has been
properly pled. The district court erred in
dismissing this claim.
casetext
10|

Tims v. LGE Cmty. Credit Union 935 F.3d 1228 (11th Cir. 2019)
C. Tims Stated a Claim Against LGE
for Violating EFTA.
Tims alleges, and we think it plausible, that LGE
violated EFTA Regulation E. Under EFTA,
Congress charged the Federal Reserve Board-
and, later, the Consumer Financial Protection
Bureau (CFPB)-with promulgating regulations
to carry out EFTA's purposes. 15 U.S.C. §
1693b(a)(1) ; see also id. § 1693a(4)."' One of
EFTA's central features is a requirement that
financial institutions disclose "[the terms and
conditions of electronic fund transfers involving a
consumers account ... in accordance with the
regulations of the" CFPB. Id. § 1693c(a).
11 Congress reassigned responsibility for
entorcing trin trom ine reectal Keichel
Board to the CFPB in 2010. See Dodd-
Frank Wall Street Reform and Consumer
Protection Act of 2010, Pub. L. No. 111-
203, Title X, § 1084, 124 Stat. 1376, 2081-
831
Regulation E is part of the CFPB's implementation
of this requirement. Regulation E requires
financial institutions to give consumers a "notice
… describing the institution's overdraft service."
12 C.F.R. § 1005.17(bX1)(i). The notice must be
"substantially similar to Model Form A-9" and
describe the "financial institution's overdraft
service" in a "clcar and readily understandable"
way. Id. § 1005.17(d)(1), 1005.4(a)(1). See also 15
U.S.C. § 1693c (requiring financial institutions to
make disclosures "in accordance with the
regulations of the" CFPB
"in readily
understandable language"). Before financial
institutions may charge overdraft fees, they must
give consumers "a reasonable opportunity ... to
affirmatively consent, or opt in, to the service." 12
C.F.R. § 1005.17(b)(1)(ii). Congress created a
private right of action for consumers against
financial institutions that fail to provide proper
notice describing their overdraft service. See 15
U.S.C.§ 1693m. Congress further directed the
CFPB to draft boilerplate language to help
financial institutions "comply] with the disclosure
casetext
requirements" for overdraft services. 15 U.S.C.§
1693(b). Model Form A-9, the template for LGE's
Opt-In Agreement, was issued pursuant to this
directive.
As we have explained, the Opt-In Agreement LGE
gave Tims is ambiguous because it could describe
either the available or the ledger balance
calculation method for unsettled debits. As a
result, it is plausible that the notice does not
1244 describe *1244 the overdraft service in a "clear and
readily understandable" way. 12 C.F.R.
1005.4(a)(1). It is also plausible that Tims had no
reasonable opportunity to affirmatively consent to
LGE's overdraft services. Id. § 1005.17(b)(1)(ii).
Affirmative consent requires "plain and clear
consent ... before certain acts or events, such as
changes in policies that could impair an
individual's rights or interests." Affirmative-
Consent Requirement, Black's Law Dictionary
(11th cd. 2019). A notice that does not adequately
convey the circumstances in which a financial
institution will charge overdraft fees may not
provide a consumer all the information she needs
to give plain and clear consent. Here, Tims
plausibly did not have a reasonable opportunity to
affirmatively consent because the notice gave her
no way to know whether LGE would use the
available balance or the ledger balance method to
charge her overdraft fees.
But that is not the end of the matter. Congress
provided a safe harbor from EFTA liability for
"any failure to make disclosure in proper form if a
financial institution utilized an appropriate model
clause issued by the" CFPB. 15 U.S.C. 8
1693m(d)(2).!? The CFPB interprets the safe
harbor to preclude liability "for failure to make
disclosures in proper form" provided the
institution "uses [the model form's] clauses
accurately to reflect its services." 12 C.F.R. pt.
1005, app. A ( Supp. I).
12 The safe-harbor provision also shields
financial institutions from liability for "any
des done or omance la good tail in
11

Tims v. LGE Cmty. Credit Union 935 F.3d 1228 (11th Cir. 2019)|
consomally win any mule, regulaton, or
interpretation thereof." 15 U.S.C.
1693m(d)(1). LGE does not argue this
provision precludes liability here, and we
express as view on the matter.
In its notice defining the term "overdraft," LGE
copied verbatim the definition of that term
provided in Model Form A-9: "[ajn overdratt
occurs when you do not have enough money in
your account to cover a transaction, but we pay it
anyway." LGE seeks refuge in the safe harbor
because, it argues, it used an appropriate model
form to describe its overdraft service. We disagree
that LGE is protected from liability by the safe
harbor.
LGE emphasizes that its form is accurate, and that
may be so. After all, we have concluded it could
correctly refer to either the ledger balance or the
available balance method. But that does not
conclude the inquiry.
The relevant question is whether the claim Tims
asserts is one for LGE's "failure to make
disclosure in proper form." The answer must be
no. The statute's text, which is where all statutory
interpretation must begin, makes that much plain.
See BedRoc Ltd., LLC v. United States , 541 U.S.
176, 183, 124 S.Ct. 1587, 158 L.Ed.2d 338
(2004). "Form" has many meanings, but it is best
read here to refer to "[p)rocedure as determined or
governed by custom or regulation," as distinct
from content or substance. Webster's New College
Dictionary 448 (3d cd. 2008); see also Form,
Black's Law Dictionary (11th cd. 2019) (defining
"form"
as "[the outer shape, structure or
configuration of something, as distinguished from
its substance or matter" or an "[e]stablished ...
procedure"); Form, Oxford English Dictionary (2d
cd. 1989) (defining "in due or proper form" to
mean "according to the rules or prescribed
methods"). Thus, making disclosure in proper
form means making the disclosure according to
proper procedures.
The safe-harbor provision
insulares nancial instutions tom bria clams
based on the means by which the institution has
communicated its overdraft policy. But it does not
shield them for claims based on their failure to
make adequate disclosures. A financial institution
1245 thus strays beyond the safe harbor when *1245|
communications within its overdraft disclosure
inadequately inform the consumer of the overdraft
policy that the institution actually follows. See
Berenson v. Nat'l Fin. Servs., LLC, 403 F. Supp.
2d 133, 151 (D. Mass. 2005) (holding the safe
harbor "insulates an institution only from a
challenge as to the form-not the adequacy-of
the disclosure").
Regulation E sets out procedures for how financial
institutions must present their disclosures. To
comply with the regulation, financial institutions
must make the disclosure "in writing, or if the
consumer agrees, electronically" and must further
"segregatel J" the notice "from all other
information." 12 C.F.R. § 1005.17(b)(1)(i). The
format of the notice required by § 1005.17(b(1)(i)
must be "substantially similar to Model Form A-
9." Id. § 1005.17(d). Financial institutions must
also "(p)rovide[] the consumer with confirmation
of the consumer's consent in writing, or if the
consumer agrees, electronically." Id. § 1005.17(b)
(D(iv). These provisions set out the "proper form"
for presenting a disclosure.
Tims does not allege LGE failed to do any of that.
Instead, she challenges the substance of the Opt-In
Agreement, which she says failed to give her
enough information to give affirmative consent to
LGE's overdraft service. As its text makes clear,
the safe-harbor provision LGE invokes does not
preclude liability when, as in this case, the content
of the Regulation E disclosure is at issue. Because
Tims challenges only LGE's failure to make an
adequate disclosure, and not its failure to make the
disclosure "in proper form," LGE cannot seck
refuge under the safe harbor provision. This is so
whether or not the form accurately describes the
overdraft service. In this, our ruling is consistent
with the great weight of district court authority to
casetext
12

Tims V. LGE Cmty. Credit Union 935 F.3d 1228 (11th Cir. 2019)
have considered the matter. See Salls v. Dig. Fed.
Credit Union , 349 F. Supp. 3d 81, 91 (D. Mass
2018) (collecting cases).
Tims's complaint challenged the substance of
LGE's Opt-In Agreement. Because the safe harbor
does not protect financial institutions from
challenges to the substance of Opt-In Agreements,
Tims's EFTA claim survives a motion to dismiss,
and the district court erred in granting the motion.
IV. CONCLUSION
For the foregoing reasons, we reverse the district
court's order granting LGE's motion to dismiss
and remand for further proceedings consistent
with this opinion.
REVERSED AND REMANDED.
casetext

20-cv-12061
08-23-2021
Veronica Gardner, Plaintiff, v. Flagstar Bank, FSB,
Defendant.
GERSHWIN A. DRAIN, UNITED STATES
DISTRICT JUDGE
OPINION AND ORDER GRANTING IN
PART AND
PART
GERSHWIN A. DRAIN, UNITED STATES
DISTRICT JUDGE
1. Introduction
On July 31, 2020, Plaintifi Veronica Gardner
brought the instant action on bchalf of herself and
all others similarly situated against Defendant
Flagstar Bank, FSB ("'Flagstar" or "Bank"). ECF
No. 1. Plaintiff filed her First Amended Complaint
on October 6, 2020 and alleges that Defendant
unlawfully assesses and collects overdraft fees on
transactions.
sometimes multiple times, in
violation of the contract between the parties. Id.
Plaintiff brings two state law claims for breach of
contract and conversion. Id.
Presently before the Court is Defendant's Motion
to Dismiss. ECF No. 18. This matter is fully
briefed. ECF Nos. 20, 23. Plaintiff also filed two
Notices of Supplemental Authority. ECF Nos. 26,
1 28. A hearing on this matter was held on *!
August 11, 2021. For the reasons stated herein, the
Court will GRANT IN PART and DENY IN
PART Defendant's Motion to Dismiss [#18].
casetext
20-cv-12061
United States District Court, E.D. Michigan, Southem Division
Gardner v. Flagstar Bank, FSB
Decided Aug 23, 2021
II. Factual Background
Plaintiff Veronica Gardner has a checking account
with Defendant Flagstar Bank. ECF No. 14,
PagelD.75. This relationship is governed by
Account Agreement Documents ("Agreement")
that include definitions, policies, and procedures
concerning Plaintif's account. Id. Specifically, the
Agreement contains various provisions regarding
the assessment and payment of overdraft fees and
insufficient funds fees (referred to by the parties as
"ODINSF Fees"). ECF No. 14, PageID.66; ECF
No. 18, PageID.148.
Plaintiff's claims derive from two related but
distinct actions by Defendant, which she terms
"fee maximization practices" ECF No. 20,
PageID.215. First, Plaintifi alleges that Defendant
unlawfully charges overdraft fees on transactions
referred to as "Authorize Positive, Purportedly
Settle Negative
Transactions"
('APPSN
Transactions*). ECF No. 14, PagelD.69. This
occurs when an individual has made a transaction
and a temporary authorization hold is placed on
the account for the amount of that transaction. Id.
This hold is in place while the merchant processes,
and eventually settles, the transaction with
Flagstar. Id.; ECF No. 18, PagelD.149. In these
APPSN Transactions, there are always positive
funds available in the account balance that cover
2 this transaction, even though subsequent *2
transactions put the account into a negative
balance. Plaintiff emphasizes that "customers
accounts will always have sufficient funds
available to cover" the initial transaction made
with a positive balance "bocause Flagstar Bank
has already sequestered these funds for payment."

Gardner v. Flagstar Bank, FSB 20-cv-12061 (E.D. Mich. Aug. 23, 2021) |
ECF No. 14, PagelD.69. Notwithstanding the
initial positive balance when the funds were
temporarily held, Plaintiff' states that "Flagstar
Bank later assesses OD Fees on those same
transactions when they purportedly settle days
later into a negative balance." Id. at PagelD.69-70.
This practice, Plaintiff alleges, is barred by the
terms of the Agreement with Flagstar regarding
overdraft fee assessments. However, Defendant
maintains that the Agreement makes clear that this
process may occur, and that the customer's balance
is not assessed "unless or until the payment is
posted, which typically takes up to two days."
ECF No. 18, PagelD.162. Thus, the parties dispute
whether the Agreement indicates that OD/NSF
Fees will be assessed either at the point of the
transaction's (1) initial authorization or (2)
payment when the hold is released and the
transaction is settled days later.
Second, Plaintiff alleges that Defendant assesses
multiple NSF Foes "on the same (often small
dollar) electronic transactions or checks when
reprocessed again and again after being returned
for insufficient funds." ECF No. 20, PagelD.215.
This process occurs after the initial authorization
when the temporary hold is placed on positive
funds. In these cases, the transaction is repeatedly
3 processed by the bank *3 or a merchant, and an
OD/NSF Fee is assessed per each processing
request. ECF No. 14, PagelD.82. This dispute
between the parties centers around the definition
of the term "item" in the Agreement. Plaintifi
alleges that the Agreement "expressly states that
(only] a singular NSF Fee can be assessed on
checks, ACH debits, and electronic payments,"
and therefore the "same 'item' on an account
cannot conccivably become a new one cach time it
is rejected for payment then reprocessed,
especially when-as here-Plaintiff Gardner took no
action to resubmit them." Id. at PagelD.82, 84.
Defendant maintains, however, that "the
Agreement does not state that 'item' means only
one presentment of a transaction," so the multiple
assessments of NSF Fees in this circumstance are
permitted by the Agreement.
ECF No. 18,
PagelD. 152.
Plaintift accordingly filed the instant action
against Flagstar Bank on July 31, 2020. ECF No.
1. On October 6, 2020, Plaintift filed her First
Amended Complaint and brings two claims for
breach of contract, including breach of the
covenant of good faith and fair dealing, and
conversion under Michigan state law. ECF No. 14.
III. Legal Standard
Federal Rule of Civil Procedure 12(b)(6) allows a
aisinct coun to maxe an assessment as to wncine.
the plaintift has stated a claim upon which relief
may be granted. See Fed.R.Civ.P. 12(b)(6). To
withstand a motion to dismiss pursuant to Rule
12(b)(6), a complaint must comply with the
pleading requirements of Federal *4 Rule of Civil
Procedure 8(a)(2). See Ashcroft v. Iqbal, 556 U.S.
662, 677-78 (2009). Rule 8(a)(2) requires *a short
and plain statement of the claim showing that the
pleader is entitled to relief, in order to give the
defendant fair notice of what the … claim is and
the grounds upon which it rests." Bell Atl. Corp. v.
Tiwombly, 550 U.S. 544, 555 (2007) (quotation
marks omitted) (quoting Fed.R.Civ.P. 8(a)(2);
Conley v. Gibson, 355 U.S. 41, 47 (1957)). To
meet this standard, a complaint must contain
sufficient factual matter, accepted as true, to "state
a claim to relief that is plausible on its face."
Tiwombly, 550 U.S. at 570; see also Iqbal, 556
U.S. at 678-80 (applying the plausibility standard
articulated in Twombly).
When considering a Rule 12(b)(6) motion to
dismiss, the Court must construe the complaint in
a light most favorable to the plaintiff and accept
all of his factual allegations as true. Lambert
Hartman, 517 F.3d 433, 439 (6th Cir. 2008).
While courts are required to accept the factual
allegations in a complaint as true, Twombly, 550
U.S. at 556, the presumption of truth does not
apply to a claimant's legal conclusions. See Iqbal,
556 U.S. at 678. Therefore, to survive a motion to
casetext

Gardner v. Flagstar Bank, FSB 20-cv-12061 (E.D. Mich. Aug. 23, 2021)
dismiss, the plaintiff's pleading for relief must
provide "more than labels and conclusions, and a
formulaic recitation of the clements of a cause of
action will not do." Ass'n of Cleveland Fire
Fighters v. City of Cleveland, 502 F.3d 545, 548
(6th Cir. 2007) (quoting Twombly; 550 U.S. at
5 555) (internal citations and quotations omitted). *s
IV. Discussion
In the present Motion, Defendant claims that
Plaintift's First Amended Complaint should be
dismissed in its entirety because the Agreement
does not contain ambiguous language or permit
conduct in violation of Defendant's obligations
such that either a breach of contract or conversion
claim may stand. Plaintiff maintains that she has
pled facts sufficient to survive dismissal on both
of her claims at this stage.
A. Breach of Contract (Count 1)
Count 1 of Plaintif's First Amended Complaint
alleges that Defendant has breached provisions of
the Agreement regarding overdraft fee assessment
timing and frequency. Specifically, this claim
asserts that Defendant is (1) improperly charging
OD/NSF Fees on APPSN Transactions in
contravention of the Agreement's language
regarding overdrafts and available balances, and
(2) improperly charging multiple OD/NSF Fees on
singular transactions with multiple merchant
presentments on overdrawn accounts.
As an initial matter, Defendant claims that
"Plaintif" has not identified any contract provision
that has been violated by Flagstar," and thus her
claim cannot be maintained for breach of contract.
ECF No. 18, PageID.158. However, a review of
Plaintift's First Amended Complaint does not
support this assertion. While the text of Count I
does not list specific contractual language, the
6 First Amended Complaint * is replete with
references to various provisions of the Agreement
that were purportedly breached by Defendant
when OD/NSF Fees were assessed against
Plaintift: See, eg., ECF No. 14, PageID.75-77, 82-
casetext
84. Count 1 also expressly incorporates the
preceding paragraphs of Plaintifi's First Amended
Complaint prior to asserting the breach claim. Id.
at PagelD.91. The Court thus declines to adopt
Defendant's argument that the breach of contract
claim is improper for failure to identify which
terms of the Agreement were breached.
1. APPSN Transactions
In the First Amended Complaint, the Response,
and the hearing on the matter, Plaintiff directs the
Court to various provisions in the Agreement that
are breached each time an APPSN Transaction
occurs. One section broadly defines what balances
and available funds include:
Balance is the total amount of funds in
account
from
your
posted
transactions.
Available Balance is your Balance minus
any pending debit card transactions
and/or any outstanding holds (for
example, holds on deposited checks,
fraud/legal holds, or temporary debit
authorization holds).
Any checks you may have written or ACH
transactions that have not posted to your
account, Bounce Protection funds, or any
funds from accounts(s) you have linked for
overdraft (for example, deposit overdraft
protection and/or overdraft line of credit)
are not reflected in your Balance or
Available Balance.
*7 ECF No. 14-1, PageID.99 (emphasis added). In
other words, a customer's Available Balance, from
which he or she could make purchases with
positive funds, do not include outstanding holds.
Temporary debit authorization holds are defined
and explained as follows:

Gardner v. Flagstar Bank, FSB 20-cv-12061 (E.D. Mich. Aug. 23, 2021) |
A temporary debit authorization hold
aftects your Available Balance - On debit
card purchases, merchants may request a
temporary debit authorization hold on your
account for an amount that may differ from
the actual amount of your purchase. This
temporary debit authorization
hold
reduces your Available Balance unless
and until: (1) we release it after two
business days; or (2) before we release the
temporary debit authorization hold, the
merchant provides to us the actual amount
of the purchase and we are able to adjust
your account to reflect the actual purchase
amount. Please note that adjustment may
take more than two business days
depending on when the merchant provides
the actual amount of the purchase to us.
If, at any time before the temporary debit
authorization hold is released or the
adjustment is made, a transaction is
presented to us for payment in an amount
greater than your then-existing Available
Balance, the transaction presented for
payment will be: (1) a non-sufficient funds
(NSF) transaction if we do not pay it; (2)
an overdraft transaction if we do pay it; or
(3) declined if the transaction is a
debit/ATM card purchase and you have not
authorized us to pay overdrafts on your
ATM and everyday debit card transactions.
For nonsufficient funds or overdraft
transactions, you will be charged an NSF
fee according to the Fee Schedule. You
will be charged the NSF fee even if you
would have had sufficient funds in your
account had the amount of the hold been
equal to the actual amount of your
transaction.
Id. at PagelD.101 (emphasis added). Another
provision in the Agreement similarly discusses
these temporary debit authorizations and how the
held funds may or may not be accessed by an
account holder:
casetext
Purchases made using your Flagstar debit
card or ATM card are subtracted from your
designated Flagstar account. PIN based
transactions gencrally are settled the same
day. Signature based transactions, on the
other hand, may
take longer to settle. Therefore, a
temporary debit authorization creates a
hold on the account that reduces your
Available Balance by the amount of the
authorization, even if the amount of the
transaction is more or less when it is
finally posted. While pending, the
temporary debit authorization hold could
lead to
other pending or future
transactions (1) being returned for non
sufficient funds if we do not pay them, (2)
contributing to an overdraft if we do pay
them, or (3) being declined if the
transaction is a debit/ATM card purchase
and you have not authorized us to pay
overdrafts
for
debit/ATM
card
transactions.
Id. at PagelD.117 (emphasis added).
Plaintiff points to these provisions within the
Agreement to illustrate how the temporary debit
authorizations are described, specifically in
relation to the hold authorizations with positive
funds. Plaintift explains that "available funds are
immediately placed on 'hold' for the transaction
they were held for, and those held funds cannot be
consumed by later made transactions-which is
why Flagstar repeatedly warns accountholders that
such later made transactions can (incur) OD Fees
as a result of the held funds being unavailable."
ECF No. 20, PagelD.231 (emphasis in original).
The dispute in the instant matter, however, does
not concern the assessment of OD Fees on
subsequent transactions after a temporary debit
authorization hold is placed; instead, Plaintiff
asserts that nothing in the Agreement language
permits Defendant to later charge an OD/NSF Fee

Gardner v. Flagstar Bank, FSB 20-cv-12061 (E.D. Mich. Aug. 23, 2021)
on the funds that were sequestered within the
temporary debit authorization hold when she
makes her initial purchase, and thus the
Agreement is ambiguous about overdraft fee
9 assessments. *9
In response, Defendant avers that Plaintiff is
"contorting the Agreement's clear definitions of a
customer's Balance and Available Balance[ and]
twisting the Agreement's explanation of a
"temporary debit authorization hold' to mean that
money is physically set aside and depleted from
Plaintift's Balance." ECF No. 18, PagelD.161.
tenant
alsa yrees
with
Plaintift's
characterization of the temporary holds placed
upon pending transactions and emphasizes that
"[njowhere does the Agreement say that the hold
removes money from the account, set aside money
in that account, or posts the transaction to the
Balance." Id. at PageID.162. Instead, Defendant
asserts, the temporary hold simply confirms that a
customer has sufficient funds at the time of
authorization by a merchant, and the balance is
settled when the payment is posted up to two days
later. Id.
Further, the parties disagree about when the
assessment of an OD/NSF Fee is warranted under
the Agreement when a temporary hold is deployed
by Flagstar. This dispute centers around whether
the assessment of fees is permitted at
authorization-when Plaintift first makes her
transaction and the temporary hold is placed-or
whether
the
settlement/payment-when Flagstar later settles the
transaction with the third-party merchant, posts
the transaction to the account, and removes the
hold. Plaintiff claims that the Agreement contains
a "clear promise to accountholders that
authorization is the key moment when overdraft
fees on debit card transactions are determined"
10 and cites to a provision in the Agreement •10
stating that Flagstar may "honor withdrawal
requests that overdraw your account." ECF No.
20, PageID.232; ECF No. 14-1, PagelD.101.
However, Defendant maintains that the Agreement
casetext
is clear that OD/NSF Fees are determined at the
point of payment, when Flagstar settles the
transaction with the merchant and posts it in
Plaintiff's balance. ECF No. 18, PagelD.163.
According to Defendant, this is expressly provided
for in the Agreement:
Your account is overdrawn when your
Available Balance is less than zero. Onc
way this can happen is if we pay an Item
for more money than your Available
Balance.
ECF No. 14-1, PageID.104 (emphasis added).
Thus, Defendant believes there are no ambiguitics
in the Agreement and Plaintift is contorting clear
contractual language about when OD/NSF Fees
are assessed
Whether contract language is clear or ambiguous
is a question of law. Collins v. National General
Ins. Co., 834 F.Supp.2d 632 (E.D. Mich. 2011). A
contract is ambiguous if it is subject to two
reasonable interpretations. See Citizens Ins. Co. of
America v. MidMichigan Health ConnectCare
Network Plan, 449 F.3d 688 (6th Cir. 2006)
(quoting Boyer v. Douglas Components Corp., 986
F.2d 999, 1003 (6th Cir.1993)). If the Court
decides that the contract is ambiguous, then the
meaning of the contract becomes a question of fact
and dismissal of the claim is improper. See 51382
Gratiot Ave. Holdings, LLC v. Chesterfield
Development Co., LLC, 835 F.Supp.2d 384, 391
11 (E.D. Mich. 2011). *11
Federal courts across the country have been
presented with similar or identical APPSN
Transaction claims and have overwhelmingly
denied dismissal motions on the grounds brought
by Defendant and other financial institutions. In
Roberts v. Capital One, N.A., 719 Fed.Appx. 33
(2nd Cir. 2017), the Second Circuit found that the
district court erred in dismissing a breach of
contract claim that was predicated on a similar
ambiguity about the timing of overdraft fee
assessments by a bank. The Roberts court found
unpersuasive the argument that the words "pay" or

Gardner v. Flagstar Bank, FSB 20-cv-12061 (E.D. Mich. Aug. 23, 2021) |
"payment" as used in the contract clearly meant
that the overdraft foes would be assessed at
payment and settlement, not at authorization. Id. at
36. Thus, the Second Circuit found that dismissal
was improper because the definition of "payment"
and when tees were assessed was ambiquous and
sud cct to more man one microsciaton.
(explaining that "it is equally reasonable to
understand the term 'Overdraft' as referring to
Capital One's election to make a payment, which
would occur at the time of authorization (as
asserted by Roberts), or as referring to the
payment itself, which would occur at the time of
settiement (as asserted by Capital One).").
This Court is persuaded by the reasoning of the
Second Circuit and other district courts who have
recently considered this issue. For example, in
Lloyd v. Navy Fed. Credit Union, No. 17-CV-
1280-BAS-RBB, 2018 WL 1757609 (S.D. Cal.
Apr. 12, 2018), the court found that a similar
contractual provision regarding debit holds and
overdraft fees was ambiguous and thus precluded
12 dismissal of the breach *12 of contract claim. Id. at
*7 ("The Account Agreements do not clearly
identify how funds sequestered for a transaction
authorized with positive funds are to be used when
the transaction is paid … [the contract] can thus
be fairly read to include either a consumer's
transaction with a merchant (i.e., authorization of
the transaction) or Navy Federal's transaction with
a merchant (i.e., settlement with the merchant).").
Other courts have notably arrived at similar
conclusions. See, e.g., Lussoro v. Ocean Fin. Fed.
Credit Union, 456 F.Supp.3d 474, 483 (E.D.N.Y.
2020) (finding that the plaintiff stated a breach of
contract claim because "[alt the very least, the
Court finds that the language is ambiguous
because the Contract does not define at what point
in time an item 'is presented, i.e., whether an item
is presented at the point of authorization, when a
consumer is engaging in a transaction with a
merchant, or at the point of settlement, when the
merchant is seeking payment from the bank."); see
also Precision Roofing of N. Fla. Inc. v
casetext
CenterState Bank, No. 3:20-CV-352-J-39JRK,
2021 WL 3036354, at *2 (M.D. Fla. Feb. 22,
2021) ("In this case, Plaintiff' sets forth a
reasonable interpretation of the Terms
and
Conditions that would preclude Defendant from
overdraft
charges
APPSN
transactions. The language in other sections of the
Terms and Conditions regarding how Defendant
processes debit holds and imposes non-sufficient
funds fees and overdraft fees arguably supports
such an interpretation."); Hash v. First Fin.
Bancorp, No. 1:20-CV-1321 RLM-MJD, 2021|
13 WL 859736, at *7 (S.D. Ind. Mar. 8, 2021) *13
(denying bank's dismissal motion and explaining
that "[none of the contract sections cited by First
Financial
unambiguously
establish that the
contract allows First Financial to determine
overdratt fees at settlement on the type of
transactions on which Mr. Hash alleges he was
improperly charged overdraft fees.").
The instant matter presents analogous ambiguitics
to the above-cited cases about when a transaction
is "paid,
"and if that payment occurs at
authorization
scitlement.
Contrary
Defendant's assertions, the Agreement is not
unambiguously clear about whether an OD/NSF
Fee may be assessed on an APPSN Transaction,
and Plaintiff could reasonably understand the
Agreement's terms to preclude Flagstar from
assessine overdratt tees when the initia.
transaction is made with a positive account
balance. While Defendant's interpretation of the
Agreement may be plausible here, so is Plaintiff's
interpretation. See Roberts, 719 Fed.Appx. at 3637
(*[I]t would hardly be implausible for a consumer
to think that 'a transaction' refers to the
consumer's transaction with a merchant, such that
the assessment of whether their account holds
sufficient funds refers to the funds available at the
time that the consumer-merchant transaction is
authorized by" the defendant bank, not when the
transaction is settled days later.). This Court must
construe Plaintiff's First Amended Complaint in
the light most favorable to her, Lambert, 517 F.3d

Gardner v. Flagstar Bank, FSB 20-cv-12061 (E.D. Mich. Aug. 23, 2021) |
at 439, and agrees that Flagstar's "preferred
interpretation of the agreement makes little sense
from the account-holder's point of view, as a
14 reasonable
consumer likely
*14
considers
something to have been paid for when they swipe
their debit card, not when their bank's back-office
operations
are
compicted,"
Roberts,
719
Fed.Appx. at 37.
Further, it is well-established in this Circuit that a
contract that is subicet to two regsonable
interpretations is ambiguous and create an issue of
fact precluding dismissal at this stage. See Citizens
Ins. Co. of Am., 449 F.3d at 694; See In re Fifth
Third Early Access Cash Advance Litig., 925 F.3d
265, 276 (6th Cir. 2019); see also City of
Wyandotte v. Consol. Rail Corp., 262 F.3d 581,
585 (6th Cir. 2001) ("The rule of law that has
emerged from D'Avanzo, one which guides our
consideration of this case, is that '[a) contract is
ambiguous if the language is susceptible to two or
more
reasonable
interpretations."') (citing
D'Avanzo v. Wise & Marsac, P.C., 223 Mich. App.
314, 565 N.W.2d 915, 918 (1997)). Under this
precedent, the Court finds that the Agreement may
be reasonably interpreted to mean that overdraft
fees are assessed at the time of authorization,
under Plaintif's argument, or at the time of
payment and settlement, under Defendant's
argument. Thus, the instant matter presents
ambiguities about when OD/NSF Fees may be
assessed in APPSN Transactions under the
existing contractual language. And because
ambiguities exist, dismissal of the breach of
contract claim is improper. See Roberts, 719
Fed.Appx. at 36. The Court thus declines to
dismiss the breach of contract claim in relation to
16 APPSN Transactions. *15
2. The Assessment of Multiple OD/NSF Fees on
Single Transactions
Plaintiff also challenges Defendant's assessment of
multiple OD/NSF Fees on single transactions that
are repcatedly processed by third-party merchants.
Plaintift alleges that Defendant's conduct is not
casetext
permitted per the Agreement's provisions, and that
only one overdraft fee may be assessed for the
transaction made in a negative balance, not per
each processing request. However, Defendant
disputes this interpretation of the Agreement and
states, "contrary to Plaintiff's assertion, each
presentment of an Item can incur its own OD/NSF
fec." ECF No. 18, PageID.165.
This claim rests upon the term "item" as it is
defined and utilized throughout the Agreement. It
is first referenced at the beginning of the
Agreement:
Items are intended to rerer to any debits
against your account and include, but are
not limited to, withdrawal tickets, checks,
transfers, electronic debits, imaged debits,
wire transfers, ATM debits, ACH debits,
bill pay debits, photo copy debits, bank
gencrated debits, and debit card point of
sale transactions.]
Posted transactions are Items and/or
deposits reflected in your Balance.
Pending transactions are Items (for
example, electronic debits, ACH debits,
bill pay debits, bank generated debits),
clectronic/ACH deposits, and debit card
authorizations/holds that have been
received by the bank but not yet posted to
your Balance.
ECF No. 14-1, PagelD.100 (emphasis added).
Defendant avers that this provision makes clear
that an "item" can include two separate
presentments of the same transaction. ECF No. 18,
PagelD.165 ("Based on the definition expressly
provided *16 by the Agreement, an 'item' can be
an ACH debit, and then an entirely new 'item' can
be the same ACH debit presented as a new
transaction."). This argument is purportedly
supported by additional language later in the
Agreement:

Gardner v. Flagstar Bank, FSB 20-cv-12061 (E.D. Mich. Aug. 23, 2021)
We may determine whether your Available
Balance is sufficient to pay an Item at any
point between (1) the time an Item is
presented to us or we roceive notice
regarding the Item and (2) the time the
Item is returned.
ECF No. 14-1, PagelD.104 (emphasis added).
Under Defendant's interpretation, this provision
clearly indicates that the presentment of an
"item"-which may include the same transaction
presented multiple times-may incur multiple
OD/NSF Fees.
Plaintift, however, highlights other language that
supports her claim that the Agreement's definition
of "item" is ambiguous as to whether it becomes a
new item upon reprocessing by a merchant. See
ECF No. 20, PagelD.228. The Agreement
provides, for example, that:
We may refuse to pay an overdraft item at
any time even though we may have
previously paid overdrafts for you. For
example, we typically do not pay overdraft
items if your account is not in good
standing as defined above, or, if based
upon our review of your account
management, we determine that you are
using Bounce Protection excessively. You
will be charged an NSF fee for each item
returned.
ECF No. 14-1, PagelD.108 (emphasis added).
Additional provisions in the
17 Agreement also state: *17
Overdrafts above and beyond your
established Bounce Protection Limit may
result in checks or other items being
returned to the payee. The NonSufficient
Fee (NSF) will be charged per item and
assessed to your account. An OD/NSF
notice will be sent to notify you of items
paid and/or returned. If the account is
overdrawn, it may be subject to the current
Consecutive Days Overdrawn (OD) fee.
casetext
Id. at PagelD.113. Plaintiff thus asserts that the
"each item" and "per item" language presents, at
the very least, an ambiguity as to whether Flagstar
can charge multiple OD/NSF Fees on the same
transaction.
As with the APPSN Transactions litigation,
numerous federal courts around the country have
overwhelmingly permitted claims premised on
ambiguous uses of the term "item" to proceed in
cases against financial institutions. This Court
finds particularly persuasive the analysis in Perks
v. TD Bank, 444 F.Supp.3d 635 (S.D.N.Y. 2020),
for example, which looked at an analogous
contractual provision that stated "An 'item'
includes an] ... ACH transaction….. and any
other instruction or order for the payment,
transfer, deposit or withdrawal of funds." Id. at
640 (emphasis added). The Perks court held that it
was plausible to read this provision as authorizing
the defendant bank to only charge a single
OD/NSF Fee, even though
the bank's
interpretation permitting multiple OD/NSF Fees
was also a reasonable interpretation. Id. Here,
Flagstar attempts to make the same argument by
emphasizing the word "any" in the definition of
"item" as evidence that each presentment can be
individually considered an "item." ECF No. 18,
PagelD.164-165. However, the Court agrees with
18 the Perks analysis that Plaintiff's construction *18
of the Agreement is also reasonable, and "the
definition of 'item' is ambiguous with regard to
whether a resubmission of an ACH transaction is a
separate item or is a part of the same initial ACH
transaction, and that ambiguity must be read in
favor of Plaintifill at this stage." Perks, 444
F.Supp.3d at 640.
This conclusion has been repeatedly reached in
additional cases that guide this Court's decision.
See Chambers v. HSBC Bank USA, N.A., No. 19
CIV. 10436 (ER), 2020 WL 7261155, at *4
(S.D.N.Y. Dec. 10, 2020) (allowing a breach of
contract claim to proceed because "the proposed
interpretations of 'item' by HSBC and Chambers
are both reasonable based on" the contract

Gardner v. Flagstar Bank, FSB 20-cv-12061 (E.D. Mich. Aug. 23, 2021)
between the parties.); Wilkins v. Simmons Bank,
No. 3:20-CV-116-DPM, 2020 WL 7249030, at *1
(E.D. Ark. Dec. 9, 2020) (*The Court concludes
that there is ambiguity in all this, and lurking in
the Bank's 'per item' fee in particular. Is each try
an item? Or is the entire transaction one item even
though multiple tries are involved?"); Coleman v
Alaska USA Fed. Credit Union, No. 3:19-CV-
0229-HRH, 2020 WL 1866261, at *4 (D. Alaska
Apr. 14, 2020) (finding that "[both parties'
interpretations of the Account Agreement are
plausible" as to whether the bank may charge
multiple NSF fees each time a merchant presents
the transaction for payment.).
Here, the Court looks to the specific language of
this Agreement between Gardner and Flagstar and
finds that both interpretations of the Agreement
and the definitional breadth of "item" are
19 plausible, and thus an ambiguity exists. While +19
Defendant argues that "Flagstar's assessment of an
NSF/OD fee is tied to the circumstances
surrounding each item (i.c., whether the item is
returned), rather than the item itself, " an
ambiguity still exists as to whether "item" can
mean more than one presentment. ECF No. 23,
PagelD.506 (emphasis in original). This is in
contrast to Lambert v. Navy Fed. Credit Union,
No. 1:19-CV-103-LO-MSN, 2019 WL 3843064
(E.D. Va. Aug. 14, 2019), cited by Defendant,
which contained more express contractual
language placing a customer on notice that
multiple fees may be assessed on the same
underlying transaction. Id. at *4 ("The next
sentence warns: 'A fee may be assessed in the
amount shown on Navy Federal's current Schedule
of Fees and Charges for each returned debit item.'
Taken together, these sentences cicarly provide
that Navy Federal may return a debit item, such as
an ACH debit, if there is not enough money in the
account, and, if there is a return, Navy Federal
may charge the member a fee for that returned
debit transaction.") (internal citations and
parentheticals removed).
Defendant's Agreement cannot be said to have the
same clarity as the Lambert contract. Moreover,
multiple courts have observed that when "other
courts have found similar contractual language to
be both unambiguous and ambiguous,' such case
law is of limited guidance on a motion to
dismiss." Chambers, No. 19 CIV. 10436 (ER),
2020 WL 7261155 at *S (citing Coleman, No. 19
Civ. 229 (HRH), 2020 WL 1866261 at *5). Thus,
this Court maintains that the Agreement's
20 language in *20 the instant case lends itself to two
reasonable interpretations of "item" and whether
the Agreement permits multiple OD/NSF Fees on
all presentments or resubmissions associated with
a single transaction. Accordingly, a contractual
ambiguity exists precluding dismissal of the
breach of contract claim.' See Citizens Ins. Co. of
Am., 449 F.3d at 694.
' Plaintiff also pleads a breach of the implied
covenant of good taith and tair dcaling in
the alternative to her breach of contract
claim. See BCF No. 14, PagelD.91. At this
stage of the litigation, the Court will allow
Plaintiff to proceed with this claim in the
alternative as permitted by Federal Rule of
Civil Procedure 8. FED. R. CIV. P. 8(a)(2).
The Court declines to engage in a merits
determination of the alternative claim at
this tine.
B. Conversion (Count II)
Plaintiff's second claim alleges that Defendant has
unlawfully withdrawn funds and converted it for
personal gain in its assessment of OD/NSF Fees
on various transactions. Conversion is defined
under Michigan law as "any distinct act of domain
wrongfully exerted over another's personal
property in denial of or inconsistent with the rights
therein." Foremost Ins. Co. v. Allstate Ins. Co.,
439 Mich. 378, 391 (1992). Defendant argues that
Plaintifi cannot maintain this claim because
Michigan law precludes conversion claims when
the parties are in a debtor-creditor relationship,
casetext

Gardner v. Flagstar Bank, FSB 20-cv-12061 (E.D. Mich. Aug. 23, 2021)
and there is no tort duty established separate from
the existing contractual dutics. The Court agrees
21 with Defendant Flagstar. *21
The cases cited by Plaintiff do not support the
argument that her conversion claim can be
maintained under Michigan law. The Michigan
cases referenced in her Kesponse discuss
Here, Plaintiff's First Amended Complaint alleges
that the "money Defendant held for Plaintiff and
class members were held in identifiable accounts
and was still the property of Plaintiff and class
members,
"and that "[these deposits were
bailments and the Defendant was a bailee." ECF
No. 14, PagelD.94. However, as Defendant points
out, the Sixth Circuit has held that conversion
claims may not be maintained between a financial
institution, like Defendant, and a depositor, like
Plaintift:
conversion claims that may arise from separate
and distinct legal dutics outside contractual
obligations-which is not the case here. See Check
Reporting Servs., Inc. v. Michigan Nat. Bank-
22 Lansing, 191 Mich.App. 614, 617, 22 *22 478
N.W.2d 893, 896 (1991) (affirming grant of
summary judgment on the conversion claim when
the defendant "had the right to use the funds on
deposit in [the plaintifi's] check purchase account
as a setoff' against [the plaintiff's] obligations.");
Hansman v. Imlay City State Bank, 121 Mich.App.
Under Michigan law, a breach of a
424, 426, 328 N. W.2d 653, 654 (1982) (discussing
contractual obligation cannot support an
the right to set off a plaintiff's checking account
action in tort absent the "violation of a
funds against the plaintift's indebtedness to the
legal duty separate and distinct from the
financial institution and holding that questions of
contractual obligation." Rinaldo's Constr
fact exist about the plaintiff's account ownership).
Corp. v. Michigan Bell Tel. Co., 454 Mich.
In the instant matter, Plaintift's cause of action
65, 559 N.W.2d 647, 658 (1997). The
does not involve Flagstar's right to set-off funds.
relationship between a bank and its
Instead, her claims clearly stem from an alleged
depositor is one of a debtor-creditor.
breach of contractual obligations under the
Citizens Ins. Co. of Am. v. Delcamp Truck
Agreement, and there are no duties separate and
Ctr., Inc., 178 Mich.App. 570, 444 N. W.2d
distinct from these obligations to support a
210, 213 (1989). Accordingly, a claim of
conversion claim arising in tort.
conversion is only sustainable if the
defendant bank obtained the moncy
without the owner's consent to the creation
of
that
debtorcreditor relationship.
Comerica Bank v. Allied Comme'ns, Inc.,
1997 WL 33353282, at *2 (Mich.Ct.App.
Mar. 14, 1997) (holding that a defendant
bank could not be held liable for a claim of
conversion
arising from its allegedly
improper set-off of funds from the
customer's bank account to pay down a
debt owed to the bank where the customer
had consented to the creation of a debtor-
creditor relationship by depositing money
with the bank).
Spizizen v. Nat'l City Corp., 516 Fed.Appx. 426,
429 (6th Cir. 2013).
Further, courts within this District have dismissed
conversion claims in nearly identical cases. In
Lossia, for example, the district court found that
the plaintifts consented to the creation of a debtor-
creditor relationship when they opened and
deposited money into a checking account at the
financial institution. Lossia v. Flagstar Bancorp,
Inc., No. 15-12540, 2016 WL. 520867, at *3 (E.D.
Mich. Feb. 10, 2016) (Stech, J.). The district court
noted that even though "plaintifis contend that
they did not consent to a debtor-creditor
relationship regarding the monies on which the
fees were assessedl, I" the "proper focus of the
23 consent is not the particular *23 monies deposited,
but the intent to form a debtor-creditor
relationship by depositing money with the bank."
Id.
casetext
10

Gardner v. Flagstar Bank, FSB 20-cv-12061 (E.D. Mich. Aug. 23, 2021)
The sere if ud here with ages when a sendind as Denis Move to Diam
Accordingly, Defendant's Motion to Dismiss will
she opened her chocking account, deposited
V. Conclusion
money into her account, and proccoded to make
various transactions using those funds.
Furthermore, the claims within Plaintiff's First
Amended Complaint are predicated on the
For the reasons discussed herein, Defendant's
Motion to Dismiss (#18] is GRANTED IN PART
and DENIED IN PART.
Agreement between the parties, which forms the
25 IT IS SO ORDERED. *25
basis of Defendant's contractual obligations.
Plaintift has failed to plead a tort duty owed by
Defendant that is separate and distinct from the
parties' contractual relationship. Because "a tort
action will not lie when based solely on the
nonperformance of a contractual duty, " Plaintiff's
conversion claim must therefore be dismissed.
Lossia v. Flagstar Bancorp, Inc., No. 15-12540,
2016 WL 520867, at *3 (E.D. Mich. Feb. 10,
2016) (quoting Fultz v. Union-Com. Assocs., 470
Mich. 460, 466, 683 N. W.2d 587, 591 (2004)).
casetext
11

Cause No. 1:20-cv-1321 RLM-MJD
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF INDIANA INDIANAPOLIS DIVISION
Hash v. First Fin. Bancorp
Decided Mar 8, 2021
Cause No. 1:20-cv-1321 RLM-MJD
03-08-2021
GREGORY HASH on behalf of himself and all
others similarly situated, Plaintiff v. FIRST
FINANCIAL BANCORP, Defendant
Robert L. Miller, Jr. Judge, United States District
Court
ORDER
Plaintift Gregory Hash, a checking accountholder
at defendant First Financial Bancorp, sues First
Financial on behalf of himself and a putative class
for breach of contract (including breach covenant
of good faith and fair dealing), and violation of the
Indiana Deceptive Consumer Sales Act, Ind. Code
§ 24-5-0.5-1 et seq. The court has jurisdiction
under the Class Action Fairness Act of 2005, 28
U.S.C. § 1332(d)(2) & (6), and the parties agree
that Indiana law provides the rule of decision. Mr.
Hash alleges that First Financial improperly
charged him overdraft fees that weren't authorized
by his checking account contract with First
Financial. First Financial has moved to dismiss
Mr. Hash's complaint for failure to state a claim
upon which relief can be granted. The court heard
argument on the motion on March 4 and now
DENIES First Financial's motion [Doc. No. 17].
2 *2
I. Background
Mr. Hash's complaint alleges that debit-card
transactions occur in two parts. First, when a
debit-card holder uses a debit card at the point of
sale to complete a transaction, the merchant
presents the transaction in real time to First
Financial for authorization. If First Financial
authorizes the transaction, the transaction will be
completed at the point-of-sale. Whether First
Financial authorizes or declines a transaction
depends on whether (1) enough funds are
available in the accountholder's checking account
to cover the transaction, or (2) the accountholder
clects to have First Financial cover the transaction
(causing an overdraft).'
1 First Financial includes an overdraft
disclosure in their account contract that
sayx First Financial will authorize and pay
overdrafts for transactions made using a
checking account number and automatic
bill payments, but not for ATM
transactions and All debit
card
transactions. First Financial will only
authorize and pay overdrafts for ATM
transactions and ATH debit card
transactions if the accountholder is enrolled
in the Courtesy Cash Plus service. Mr.
Hash was carolled in the Courtesy Cash
Plus service.
Once First Financial authorizes the transaction, the
amount of the transaction will be subtracted from
the accountholder's available balance, meaning the
balance that is available for immediate use. The
available balance might differ from
accountholder's current balance, which is the
amount of money actually in the account. When a
transaction is authorized at the point of sale, a
"debit hold" in the amount of the transaction is
placed on the accountholder's account and
subtracted from the accountholder's available
casetext

Hash v. First Fin. Bancorp Cause No. 1:20-cv-1321 RLM-MJD (S.D. Ind. Mar. 8, 2021)|
balance. However, the amount of the debit hold
isn't subtracted from his current balance during
authorization. *
Second, the transaction "settles"
after it is
authorized, meaning that the funds are actually
transferred from the accountholder's account to the
merchant. The transaction (the amount of the debit
hold) is then subtracted from and reflected in the
accountholder's current balance.
First Financial charges a $37 overdraft fee if an
accountholder overdraws his available balance.
According
to wic
parties'
overdrafts "occur when [an accountholder does]
not have cnough money in (his] account to cover a
transaction, but [First Financial] pay[s] it
anyway."
Mr. Hash filed his complaint challenging First
Financial's practice of charging overdraft fees on
Authorize Positive, Settle Negative Transactions
("APSN transactions"). An APSN transaction
occurs when a transaction is authorized and there
are enough funds in the accountholder's available
balance to cover the transaction at the point of
sale, but later the transaction overdraws the
account at settlement, triggering an overdraft fee.
Mr. Hash alleges that these types of transactions
should never occur on an account with a positive
available balance because debit holds are placed
transactions
(effectively
sequestering the funds needed to pay the
transaction), so there should always be enough
money in the account to cover the transactions
when they settle. Compl. 11 11-17. According to
the complaint, First Financial breaches the
contract because the contract promises to only
charge overdraft fees on transactions with
insuflicient available funds, yet First Financial
charges overdraft fees on transactions "for which
there are sufficient funds available to cover the
transactions throughout their lifecycle." Compl. 4
4 *4 37. Regarding APSN transactions specifically,
Mr. Hash alleges that First Financial uses the same
debit-card
transaction
twice once
casetext
authorization
and
once
at settement t
determine if the transaction overdraws an account.
Compl. 1 41-43. This
practice allows First
Financial to charge overdraft foes on transactions
wat snouant nave causce an overaran Decause
there were sufficient available funds at the time of
authorization; as Mr. Hash sees it, the later
"pseudo-event" of settlement has no bearing on
whether there were sufficient available funds to
cover a transaction when it was authored.r
Hash alleges that he was assessed overdraft fees
for debit-card transactions even though they were
authorized when he had enough funds to pay for
them. These overdraft fees are alleged to have
violated the parties' contract, the implied duty of
good faith and fair dealing, and the Indiana
Deceptive Consumer Sales Act. Mr. Hash attached
a copy of the contract to his complaint.
To illustrate how a transaction could authorize
positive but settle negative, assume you have $10
in your bank account. On day one, you make a $7
purchase that is authorized at the point of sale. The
$7 is immediately deducted from your available
balance, bringing the available balance to $3, but
the transaction will take three days to settle, so
your current balance remains at $10. On day two,
you make a purchase for $11? that settles within
hours, bringing your available balance to $-8 and
s your current balance to $-1. The *5 second
transaction prompts an overdraft fee of $37,
leaving your available balance at the end of day
two at $-45 and your current balance at S-38. On
day three, the first S7 purchase finally settles, and
the available and current balances are the same at
$-45. At this point, First Financial charges another
overdraft fee because the $7 transaction settled
negative. Mr. Hash challenges this second
overdraft fee on the $7 transaction because, at the
ume or the wansacton. ne nac sumcient tunds to
pay for the purchase.
2 This transaction would still authorize (the
purchase wouldnt be declingo: it call
just overdran the account) in the

Hash v. First Fin. Bancorp Cause No. 1:20-cv-1321 RLM-MJD (S.D. Ind. Mar. 8, 2021)|
accountolder was carolice in Lounesy
Cash Plus. Mr. Bash wus mrolled in
Courtesy Cash Plus.
3 Me. Hash doesat dispute the assessancer or
Mr. Hash says that the contract actually doesn't
allow what the contract calls "Authorize Positive
-Settle Negative" transactions; it bars them
because First Financial promises to determine
overdrafts at the moment of authorization. If
overdrafts are determined at the time
of
authorization, APSN transactions should never
trigger an overdraft fee because they are
authorized on a positive balance. Mr. Hash also
argues that the contract is ambiguous at best as to
whether overdraft fees
assessed
autonzation or scuement, and because the
meaning of an ambiguous contract term is a
question of fact that must be answered in favor of
the plaintifi at the motion to dismiss stage, Mr.
Hash states a claim for breach of contract. First
Financial is steadfast that the contract clearly
explains that an overdraft occurs if the customer's
balance is too low when transactions are presented
for permanent payment and settlement, even of
there was enough when the transaction was
6 initially authorized. *6
II. Standard of Review
A court considering a defendant's motion to
dismiss for failure to state a claim on which relief
can be granted "take[s] as true all well-pleaded
facts and allegations in the plaintiff's complaint,
- and the plaintift is entitled to all reasonable
inferences that can be drawn from the complaint."
Bontkowski v. First Nat. Bank of Cicero, 998 F.2d
459, 461 (7th Cir. 1993). "To survive a motion to
dismiss, a complaint must contain sufficient
factual matter, accepted as true, to 'state a claim to
relief that is plausible on its face.' Ashcroft
Igbal,
556
U.S.
662,
678 (2009). Factual
allegations must give the defendant fair notice of
the claims being asserted and the grounds upon
which they rest and "be enough to raise a right to
casetext
relief above the speculative level on the
assumption that all of the complaint's allegations
are true." Bell Atlantic Corp. v. Twombly, 550
U.S. 544, 545 (2007). "A claim has facial
plausiomty wnch me plaiun picads tactual
content that allows the court to draw the
reasonable inference that the defendant is liable
for the misconduct alleged." Ashcroft v. Iqbal, 556
U.S. at 678. In other words, a complaint must give
"enough details about the subject-matter of the
case to present a story that holds together."
McCauley v. City of Chicago, 671 F.3d 611, 616
(7th Cir. 2011). A pleading that merely offers
"labels and conclusions" or "a formulaic recitation
of the elements of a cause of action will not do."
7 Ashcroft v. Igbal, 556 U.S. at 678. *7
III. Breach of Contract Claim
Under Indiana law, "[the essential elements of a
breach of contract action are the existenoe of a
contract, the defendant's breach thereof, and
damages." McVay v. Store House Comp., 289 F.
Supp. 3d 892, 896 (S.D. Ind. 2017) (citing
McCalment v. Eli Lilly_ & Co., 860 N.E.2d 884,
894 (Ind. Ct. App. 2007)). To the extent that the
allegations in a complaint contradict a contract
that is attached to the complaint, the contract
"trumps the allegations" and "the court is not
required to credit the unsupported allegations." N.
Ind. Gun & Outdoor Shows, Inc. v. City of S.
Bend, 163 F.3d 449, 454 (7th Cir. 1998). "In fact,
a plaintift may plead himself out of court by
attaching documents to the complaint that indicate
that he or she is not entitled to judgment." Id. at
455.
The partics agree that a contract exists, but dispute
the defendant's breach of the parties' contract.
Whether Mr. Hash has alleged a claim upon which
relief can be granted depends on whether the
contract allows First Financial's challenged
conduct. First Financial determined that an
overdraft occurred when Mr. Hash's debit-card
transactions settled negative even though those
transactions authorized positive. So, whether Mr.

Hash v. First Fin. Bancorp Cause No. 1:20-cv-1321 RLM-MJD (S.D. Ind. Mar. 8, 2021)|
Hash has stated a claim upon which relief can be
granted depends on whether the contract allows
First Financial to determine overdrafts when
transactions settle.
A court's primary objective when interpreting a
contract is "to give eflect to the intentions of the
parties as expressed in the four corners of the
instrument." Allen v. Cedar Real Estate Group.
LLP. 236 F.3d 374, 381 (7th Cir. 2001) (citing
Fetz. v. Phillips, 591 N.E.2d 644, 647 (Ind. Ct.
8 App.1992)). *8 Interpretation of a contract is
primarily a question of law. USA Life One Ins.
Co. of Indiana v. Nuckolls, 682 N.E.2d 534, 538
(Ind. 1997). If the contract is "clear and
unambiguous, then it should be given its plain and
ordinary meaning." Id. "The meaning of a contract
is to be determined from an examination of all of
its provisions, not from a consideration of
individual words, phrases, or even paragraphs read
alone." Art Country Squire. L.L.C. y. Inland
Mortg, Corp., 745 N.E.2d 885, 889 (Ind. Ct. App.
2001). A "contract term is not ambiguous merely
because the parties disagree about the term's
meaning." Roy_A. Miller & Sons, Inc. y. Industrial
Hardwoods Corp, 775 N.E.2d 1168, 1173 (Ind.
Ct. App. 2002). "An ambiguity exists only where
reasonable people could come to different
conclusions about the contract's meaning." Id.; see
also Abbey Villas Dev. Corp. v. Site Contrs., Inc,
716 N.E.2d 91, 100 (Ind. Ct. App. 1999) ("A
contract is ambiguous when it is susceptible to
more than one interpretation and reasonably
intelligent persons would honestly differ as to its
meaning.").
If the contract contains language that is
ambiguous, "then the court may apply the rules of
construction in interpreting the language." Id. A
patent ambiguity is one that "is apparent on the
face of the instrument and arises from an
inconsistency or inherent uncertainty of language
used so that it either conveys no definite meaning
or a confused meaning." Oxford Financial Group.
Ltd. v. Evans, 795 N.E.2d 1135, 1143 (Ind. Ct.
App. 2003). If the ambiguity in the contract is a
casetext
patent one, then extrinsic evidence isn't admissible
to explain or remove the ambiguity, and the
ambiguity presents a question of law. Id. A latent
ambiguity is an "ambiguity that arises only upon
anempung to imprement "y te contact, and the
meaning of which can only be determined by
reference to extrinsic evidence." Id. at 1144. If the
ambiguity can't be resolved without the aid of a
factual determination, then "the trier of fact must
ascertain the facts necessary to construe the
contract." E.g., Arrotin Plastic Materials of
Indiana v. Wilmington Paper Corp., 865 N.E.2d
1039, 1041 (Ind. Ct. App. 2007); see also Felker v
Sw. Emergency Med. Serv., Inc., 521 F. Supp. 2d
857, 867 (S.D. Ind. 2007) ("[T]he fact finder
resolves latent ambiguity as a question of fact.").
When there is ambiguity in a contract, it is
construed against its drafter. MPACYT Const.
GrouR. LLC v. Superior Concrete Constructors,
Inc. 802 N.E.2d 901, 910 (Ind. 2004).
First Financial identifies several sections of the
contract that it argues unambiguously allow them
to charge overdraft fees at settlement on all types
of APSN transactions. These sections are analyzed
in the sections that follow.
1. "Authorize Positive - Settle
Negative" Section
First Financial's primary argument is that the
contract's "Authorize Positive - Settle Negative"
section makes it clear that overdrafts are
determined at the time of settlement. That section
reads in relevant part:

Hash v. First Fin. Bancorp Cause No. 1:20-cv-1321 RLM-MJD (S.D. Ind. Mar. 8, 2021)
In order to determine whether your
account is overdrawn, we use the Available
Balance. ... When you make a point-of-
sale transaction, a hold is placed on those
funds at the time the transaction is
authorized. If a point-of-sale hold expires
and the point-of-sale transaction has not
yet been paid, the amount being held is
then returned to your Available Balance. If
the point-of-sale transaction then comes
through after the hold expires, because we
have arcady authorized that transaction
previously, we will honor the transaction.
If you do not have sufficient funds in your
account at the time we honor the
transaction, the point-of-sale transaction
will cause you to overdraw and, if you are
opted into Courtesy Cash Plus, or the debit
transaction is a recurring transaction, you
may still incur an overdraft fee.
The section gocs on to provide an example of how
a transaction could be authorized on positive funds
yet still settle negative and incur an overdraft fec
because a debit hold expired.
Mr. Hash argues that, while the section warns that
a certain type of ASPN transaction can incur an
overdraft fee, it docs so only in the limited
circumstance of when the hold expires before the
transaction settles. That isn't the only way an
ASPN transaction can occur, and that wasn't the
type of ASPN transaction Mr. Hash experienced.
The holds on Mr. Hash's positively authorized
transactions never expired, but were nevertheless
charged with an overdraft fee when they settled.
The "Authorize Positive - Settle Negative" section
docsn't make it clear that First Financial can
charge overdraft fees at settlement on all types of
APSN transactions, and the factual scenario in
which the section allows First Financial to assess
overdraft fees at settlement docsn't apply to Mr.
Hash's situation. Furthermore, the section states
that First Financial uses the available balance to
casetext
determine whether an account is overdrawn. The
available balance is the balance that is
immediately affected when a point-of-sale
transaction is authorized. Using the available
balance to determine overdrafts implics that
overdrafts are determined at authorization, not
settlement. The "Authorize Positive - Settle
Negative" section of the contract doesn't
unambiguously allow First Financial to charge
overdraft fees at settlement on every APSN
11 transaction. *11
2. "Authorize and Pay" Terms
Next, the parties address the meaning of First
Financial's use of the terms "authorize and pay."
For example, a portion of the contract reads:
You understand that we may, at our
discretion, honor withdrawal requests that
overdraw your account as part of our
Courtesy Cash service. However, we will
only authorize and pay overdrafts for
ATM transactions or debit transactions if
you specifically opted-in to Courtesy Cash
Plus service, or there are available funds at
the time of authorization.
Mr. Hash argues these terms link authorization
with paying overdrafts, appear many times in the
contract and tell consumers that transactions are
"paid"- creating overdrafts-at the time of
authorization. First Financial says that "[this
language simply details how First Financial's
Courtesy Cash overdraft programs work and
explains that First Financial will only 'authorize'
ATM transactions and debit-card transactions and
'pay overdrafts' for those transactions in two
circumstances: (1) if the customer 'opted-in to
Courtesy Cash Plus' or (2) if the customer has
sufficient available funds at the time of
authorization."
This language docsn't help the customer
understand whether overdrafts are determined at
the time of authorization or settlement. The
sentence might explain either of two scenarios.

Hash v. First Fin. Bancorp Cause No. 1:20-cv-1321 RLM-MJD (S.D. Ind. Mar. 8, 2021)
First, if an accountholder opted into Courtesy
Cash Plus, First Financial will authorize and pay
overdrafts on ATM and debit transactions (instcad
of declining the transaction at the point of sale).
The "benefit" of Courtesy Cash Plus is that ATM
and debit transactions that overdraw an account
will be authorized instead of being declined. But
12 that doesn't shed *12 light on whether overdraft
fees are determined at the time of authorization or
sett cment.
PAYMENT ORDER OF ITEMS - The
order in which items are paid from your
account is important if there is not enough
money in your account to pay all of the
items that are presented. The payment
order can affect the number of items
overdrawn or returned unpaid and the
amount of the fees you may be assessed.
To assist you in managing your account,
we are providing you with the following
information regarding how we pay items.
Second, if an accountholder has sufficient
13 available funds at the time of authorization, First
Financial will authorize and pay overdrafts on
ATM and debit transactions, regardless of whether
an accountholder opted-in to Courtesy Cash Plus.
The "and pay overdrafts" portion could imply that
overdrafts can occur on ATM and debit
transactions authorized on sufficient funds,
mcaning that overdrafts would be determined at
settlement. But the "and pay overdrafts" also could
reasonably be read as only applying to the first
scenario when an accountholder opted into
Courtesy Cash Plus. The terms are ambiguous and
unheipful in determining if overdrafts are
determined at authorization or settlement.
3. "Payment Order of Items" Section
First Financial argues that the "Payment Order of
Items" section explains its policy is to pay when
items are presented for "permanent payment" and
explains the order in which various types of
transactions are paid, stating repeatedly explains
that transactions are paid "on the day presented for
permanent payment." The section reads:
*13
? Our policy is to pay items being
presented for permanent payment in the
following order.
casetext

Hash v. First Fin. Bancorp Cause No. 1:20-cv-1321 RLM-MJD (S.D. Ind. Mar. 8, 2021)
6. Electronic Fund Transfers - in
low to high dollar amount order on
the day presented for permanent
payment
7. Checks paid at the teller window
or to an FFB loan - in check
number order on the day presented
for permanent payment
8. ACH transactions - in low to
high dollar amount order on the
day presented for permanent
payment
9. All other checks - in check
1. Wire transfers - in low to high
dollar amount order on the day
number order on the day presented
for permanent payment
presented for permanent payment
? Note: Items that are temporarily
2. ATM transactions - in low to
presented as a debit to your account may
high dollar amount order on the
day presented for permanent
not permanently be paid in the same order
as temporarily presented.
payment
If a check, item or transaction is presented
3. Debit Card transactions
authorized with a PIN (appcars as
without sufficient funds in your account to
"DBT CRID" on your statement) or
pay it, we may, at our discretion, pay the
item(s) (creating an overdraft).
a person-to-person payment - in
low to high dollar amount order on
The section doesn't unambiguously establish that
the day presented for permanent
First Financial can assess overdraft fees at
payment
settlement; the section describes the order in
4. Debit Card transactions
14 which items *14 presented for permanent payment
will be paid. The order in which transactions of
authorized as a credit transaction
the same category are paid is determined by their
(appears as "POS DEB" on your
amount at settlement, but that docsn't clarify
statement) - in low to high dollar
amount order on the day presented
whether First Financial determines overdraft fees
at authorization or settlement. The Payment Order
for permanent payment
of Items Section docsn't unambiguously allow
5. Recurring Debit Card
First Financial to charge overdraft fees at
transactions - in low to high dollar
settlement on every type of APSN transaction.
amount order on the day presented
for permanent payment
casetext

Hash v. First Fin. Bancorp Cause No. 1:20-cv-1321 RLM-MJD (S.D. Ind. Mar. 8, 2021)
First Financial also argues that the last sentence of
the cited section shows that overdrafts are created
when a transaction is presented with too little a
balance in the customer's account to pay it. This,
First Financial says, is exactly what happens in an
APSN transaction.
The strength of this argument depends on whether
the word "presented" means "presented at
settlement" as opposed to "presented for
authorization."
Ambiguitics
exists
when
reasonable poople could differ as to the meaning
of a contract. Abbey Villas Dev. Corp. v. Site
Contrs., Inc., 716 N.E.2d 91, 100 (Ind. Ct. App.
1999). Because reasonable people can difter as to
what "presented" means, this section of the
contract docsn't unambiguously allow First
Financial to charge overdraft fees at settlement on
every APSN transaction.
4. Overdraft Disclosure
The overdraft disclosure provides that: "An
overdraft occurs when you do not have enough
money in your account to cover a transaction, but
we pay it anyways." First Financial argues that
this language makes it clear that overdrafts are
determined at settlement. Mr. Hash argues that the
15 words "to *15 cover" are ambiguous because the
sentence docsn't clarify whether an accountholder
would need enough money to cover the
transaction when it is authorized, or later when it
setties.
The overdraft disclosure isn't helpful in
determining whether overdrafts are assessed at
authorization or settiment. When an account is
determined to be overdrawn is left unspecified,
and it can't be said one way or the other from the
context in which the section appears. The
overdraft
disclosure doesn't unambiguously
establish that First Financial can assess overdraft
foes at settlement on every APSN transaction.
5. "Withdrawals" Section
First Financial cites language in the contract's
"Withdrawals" section that it says allows First
Financial to assess overdraft fees at settlement.
The section reads in relevant part:
An nem may de retumea aner te runas
from the deposit of that item are made
available for withdrawal. In that case, we
will reverse the credit of the item. We may
determine the amount of available funds in
your account for the purpose of deciding
whether to return an item for insufficient
funds at any time between the time we
item or send a notice in licu of return. We
need only make one determination, but if
we choose to make a subsequent
determination, the account balance at the
subsequent time will determine whether
there are insufficient available funds.
First Financial argues that this section allows First
Financial to determine the sufficiency of the
customer's available funds at any time, or at many
multiple times, between First Financial's reccipt of
the item and First Financial's return of the item or
payment and notification to the customer, and
16 specifics that, in *16 any event, the account
balance at the later time decides whether there are
insufficient available funds.
The court doesn't read this section the way First
Financial does. The section describes how an
account's available balance is determined in a very
specific context: when an item, once deposited in
an account, is returned after the funds from the
deposit were aready made available for
withdrawal. That scenario doesn't apply to Mr.
Hash's situation; Mr. Hash didn't allege that he
deposited an item that was subsequently returned
after the funds of that item were already made
available for withdrawal. The "withdrawals"
section docsn't unambiguously allow First
Financial to determine overdraft fees at settlement
on every type of APSN transaction.
***
casetext

Hash v. First Fin. Bancorp Cause No. 1:20-cv-1321 RLM-MJD (S.D. Ind. Mar. 8, 2021)
None of the contract sections cited by First
Financial unambiguously
establish
that the
contract allows First Financial to determine
overdratt fees at settlement on the type of
transactions on which Mr. Hash alleges he was
improperly charged overdraft fees. The court must
draw every reasonable inference in favor of the
plaintiff on a motion to dismiss, and because the
contract is ambiguous as to when First Financial
overdraft tees on Mr. Hash's
transactions, that ambiguity must be resolved in
favor of Mr. Hash. The contract doesn't foreclose
Mr. Hash's complaint, Mr. Hash states a claim
upon which relicf can be granted, and First
Financial's motion to dismiss Mr. Hash's breach of
17 contract claim must be denied. *17
IV. Breach of the Covenant of Good
Faith and Fair Dealing
Mr. Hash alleges that First Financial breach the
covenant of good faith and fair dealing in the
contract. Compl. 82. According to the complaint,
First Financial "exploits contractual discretion to
the detriment of accountholders" by "unfairly
[extracting overdraft] Fees on transactions that no
reasonable accountholder would believe could
cause [overdraft] Fees." Compl. 9 47, 49.
Indiana law imposes a generalized duty of good
faith and fair dealing on bank account contracts
because banks "offer customers contracts of
adhesion, often with terms not readily discernable
to a layperson. If the contract is ambiguous ...
then the courts will impose such a duty of good
faith and fair dealing." Old Nat. Bank v. Kelly, 31
N.E.3d 522, 531 (Ind. Ct. App. 2015). The implied
duty of good faith and fair dealing "requires that a
party perform its obligations and exercise its
discretion under the contract in good faith. But it
does not require a party to undertake a new,
affirmative obligation that the party never agreed
to undertake." Acheron Med. Supply, LLC v.
Cook Med. Inc., 958 F.3d 637, 645 (7th Cir.
2020).
First Financial argues that Mr. Hash's claim for
breach of the implied duty of good faith and fair
dealing must be dismissed simply because Mr.
Hash hasn't stated a claim for breach of contract,
and the implied duty of good faith and fair dealing
doesn't require First Financial to do anything that
the contract doesn't require it to do. First Financial
argues that the implied duty of good faith and fair
dealing doesn't revise the contract's plain terms.
18 *18
As already discussed, Mr. Hash's complaint states
a claim for breach of contract, and the law requires
Parthinancial to perrom
obligations in good faith. Because all well-pleaded
facts
are assumed
wue and all reasonadie
interences on a motion to dismiss are drawn in
favor of the plaintiff, Mr. Hash has stated a claim
upon which relief can be granted, and First
Financial's motion to dismiss Mr. Hash's claim for
breach of the implied duty of good faith and fair
dealing must be denied.
V. Indiana Deceptive Consumer
Sales Act Claim
The complaint's second claim alleges that Mr.
Hash suffered monctary damages as a result of
First Financial's "unfair and deceptive acts and
practices in violation of the [Indiana Deceptive
Consumer Sales Act]." Compl. $ 96. Mr. Hash
alleges that First Financial made representations
about how it assessed overdraft fees on debit card
transactions that didn't accurately reflect its true
fee practices, and that these violations of the
Indiana Deceptive Consumer Sales Act ("the Act")
were "done as a part of a scheme, artifice, or
device with intent to defraud or mislead, and
therefore are incurable deceptive acts under [the
Act]." Compl. 19 91-92.
The Deceptive Consumer Sales Act is "a remedial
statute that must be liberally construed and applied
to promote its purposes and policies of protecting
consumers from deceptive or unconscionable sales
practices." Castagna v. Newmar Corp., 2016 WL
3413770, at *6 (N.D. Ind. June 22,2016) (quoting
casetext

Hash v. First Fin. Bancorp Cause No. 1:20-cv-1321 RLM-MJD (S.D. Ind. Mar. 8, 2021)|
20 Kesling v. Hubler Nissan, 997 N.E.2d 327, 332
19 (Ind. 2013); Ind. Code § 24-5- *19 0.5-1(a). The
Act provides in relevant part that "[a] supplier
may not commit an unfair, abusive, or deceptive
acl, omission, or pracuce in connection win a
consumer transaction. such an act. omission. on
practice by a supplier is a violation of this chapter
whether it occurs before, during, or after the
tansacton. An act omission. I
or practice
prohibited by this section includes both implicit
and explicit misrepresentations." Ind. Code § 24-
5-0.5-3(a). The Act defines these representations
as deceptive acts:
(1) That such subject of a consumer
transaction has sponsorship, approval,
performance, characteristics, accessories,
uses, or dencrits it does not have wnich the
supplier knows or should reasonably know
it does not have.
(2) That such subject of a consumer
transaction is of a particular standard,
quality, grade, style, or model, if it is not
and if the supplier knows or should
reasonably know that it is not.
Ind. Code § 24-5-0.5-3(b). The Act recognizes two
types of doceptive acts: "uncured" deceptive acts,
and "incurable" deceptive acts. Ind. Code § 24-5-
0.5-2(a)(6)-(7). Mr. Hash alleges an incurable
deceptive act, which is defined as "a deceptive act
done by a supplier as part of a scheme, artifice, or
device with intent to defraud or mislead." Ind.
Code § 24-5-0.5-2(a)(8). "[Fjor actions under the
Act that are 'grounded in fraud,' the specificity
requirement of Rule 9(B) must be met."
McKinney v. State, 693 N.E.2d 65, 71 (Ind. 1998).
The pleading requirements of Indiana Trial Rule
9(B) and Federal Rule of Civil Procedure 9(b) are
the same. Fed. R. Civ. P. 9(b); Ind. Trial R. 9(B).
Federal Rule of Civil Procedure 9(b) states: "In
alleging fraud or mistake, a party must state with
particularity the circumstances constituting fraud
or mistake. Malice, intent, knowledge, and other
conditions of a person's mind may be alleged
generally." *20 "The primary purpose of the rule is
to give the defendant 'fair notice' of the allegations
against it." Thornton v. CMB Entm't, LLC, 309
F.R.D. 465, 468 (S.D. Ind. 2015) (citing Vicom,
Inc. v. Harbridge Merch. Servs,, Inc., 20 F.3d 771,
777 (7th Cir. 1994)). "This means as a practical
matter that [a plaintift] must identify the 'who,
what, when, where, and how' of the alleged fraud."
Benson v. Fannie May Confections Brands, Inc.,
944 F.3d 639, 646 (7th Cir. 2019). "Conclusory
allegations do not satisfy the requirements of Rule
9(b) and subject the pleader to dismissal." Veal v.
First Am. Bank, 914 F.2d 909, 913 (7th Cir. 1990).
A claim under the Act "may not be brought more
than two (2) years after the occurrence of the
deceptive
act." Ind. Code § 24-5-0.5-5(b).
"Dismissing a complaint as untimely at the
pleading stage is an unusual step, since a
complaint need not anticipate and overcome
affirmative defenses, such as the statute of
limitations. But dismissal is appropriate when the
plaintiff pleads himself out of court by alleging
facts sufficient to establish the complaint's
tardiness." Cancer Found, Inc. v. Cerberus Capital
Mgmt., L.P. 559 F.3d 671, 674-675 (7th Cir.
2009).
The Act's statute of limitations is governed by an
occurrence rule that is 'triggered by the date of
each occurrence' of a deceptive act." Elward y
Electrolux Home Products, Inc., 264 F. Supp. 3d
877, 892 (N.D. Ill. 2017) (quoting State v. Classic
Pool & Patio, Inc., 777 N.E.2d 1162, 1166 (Ind.
Ct. App. 2002)). However, "the doctrine of
fraudulent concealment can toll the statute of
limitations when the defendant has "committed
concealment or fraud of such character as to
prevent inquiry, to clude investigation, or to
21 mislead the plaintiff, *21 such as by concealing
material facts so as to prevent the plaintifi from
discovering a potential cause of action." Id. at 890
(citing Doc v. Shults-Lewis Child and Services,
Inc., 718 N.E.2d 738 (Ind. 1999)).
casetext
10

Hash v. First Fin. Bancorp Cause No. 1:20-cv-1321 RLM-MJD (S.D. Ind. Mar. 8, 2021)
First Financial argues that Mr. Hash's claim for
violations under the Act should be dismissed for
three reasons. First, First Financial argues that
assessing overdraft fees on ASPN transactions
can't be a deceptive act because the contract
allows First Financial to assess overdraft fees on
APSN transactions. But as discussed in Part III,
the contract's plain terms don't unambiguously
make it clear that First Financial can assess
overdraft fees on all APSN transactions.
Second, First Financial argues that the complaint
lacks the particularity needed to plead a plausible
claim for an incurable deceptive act, and that Mr.
Hash substitutes conclusory and legal conclusions
for the factual allegations Rule 9(b) requires. But
the complaint provides:
la detailed explanation of the fee practice
challenged (Compl. 91 11-17);
¡ a detailed overview of the way First
Financial allegedly processes debit-card
transactions (Compl. 11 23-28);
43. Upon information and belief,
something more is going on: at the
moment a debit card transaction is getting
ready to settle, [First Financial] docs
something new and unexpected during its
nightly batch posting process. Specifically,
[First Financial] releases the hold placed
on funds for the transaction for a split
second, putting money back into the
account, then re-debits
the
same
transaction a second time.
44. This secret step allows (First Financial]
to charge OD Fees on transactions that
never caused an overdraft—-transactions
that were authorized into sufficient funds
and for which [First Financial] specifically
set aside money to pay them.
45. This discrepancy between [First
Financial's] actual practices and the
contract causes accountholders to incur
more OD Fces than they should.
¡ citations to contractual representations at
issue (Compl. { 30-31);
; descriptions of the way First Financial's
actual practices allegedly differ from those
representations (Compl. 9 37-45, 91); and
i specific transactions for which First
Financial allegedly charged improper
overdraft fees (Compl. { 60).
22 *22
The complaint's factual allegations are more than
sufficient to identify the who, what, when, where,
and how of Mr. Hash's fraud claim, giving First
Financial fair notice. In particular, paragraphs 43-
46 read:
46. In sum, there is a huge gap between
practices as described in the account
documents and [First Financials) actual
practices.
A plantiff gencrally can't satisfy the particularity
requirement of Rule 9(b) with a complaint filed on
information and belief, but that rule isn't ironclad:
"the practice is permissible, so long as (1) the facts
constituting the fraud are not accessible to the
plaintift and (2) the plaintiff provides the grounds
for his suspicions.' Pirelli Armstrong Tire Corp-
Retiree Med. Benefits Tr. v. Walgreen Co., 631
F.3d 436, 442 (7th Cir. 2011). Mr. Hash satisfies
both requirements because the method by which
First Financial actually determines and assesses
overdraft fees isn't accessible to him, and he has
provided grounds for his suspicions— namely, that
he was charged overdraft fees on transactions even
though he had sufficient available funds to pay for
23 those transactions. *23
casetext
11

Hash v. First Fin. Bancorp Cause No. 1:20-cv-1321 RLM-MJD (S.D. Ind. Mar. 8, 2021)
Finally, First Financial argues that Mr. Hash's
claim is based on overdraft fecs assessed in 2015,
nearly five years before he filed suit, so the
Deceptive Consumer Sales Act's two-ycar statute
of limitations bars his claim. Mr. Hash responds
that the Act's statute of limitations should be tolled
because First Financial committed incurable
deceptive acts with the intent to defraud. He says,
too, that tolling is proper because First Financial's
violations of the Act are ongoing and continue to
occur into the present because the allegedly
improper overdraft fees are part of a larger scheme
that continued from month-to-month and was
deceptive.
With respect to Mr. Hash's first argument, he
alleges a "scheme to defraud" that involved a
"secret step" that allowed First Financial to charge
improper overdraft fecs. Compl. 9 43-46, 92. But
the assessment of overdraft fees at settlement
wasn't hidden; overdraft fees were allegedly
determined at settlement and charged in violation
of what was allowed under the contract. If the
court were to find that "concealment" was
sufficiently pleaded to toll the statute of
limitations, the concealment would have to lie in
the mechanics of how exactly First Financial
assessed overdraft fees at settlement, not that
overdraft fees assessed at settlement were
unknown or hidden. It's too great a stretch to say
that this is "concealment or fraud of such character
as to prevent inquiry, to elude investigation, or to
misicad the plaintift, such as by concealing
material facts so as to prevent the plaintiff from
discovering a potential cause of action." Elward y
Electrolux Home Products, Inc., 264 F. Supp. at
890 (citing Doc v. Shults-Lewis Child and
24 Services, Inc., 718 N.E.2d 738 (Ind. 1999)). *24
Mr. Hash's other argument supporting that his
claims aren't time-barred is more availing: First
Financial's violations of the Act are ongoing and
25 continue to occur into the present because the
improper overdraft foes are part of an ongoing
scheme to defraud. The two relevant paragraphs
from the complaint pertaining to an ongoing
scheme are:
92. [First Financial's) violations were
willful and were done as part of a scheme,
artifice, or device with intent to defraud or
mislead,
and therefore are
incurable
deceptive acts under the DCSA.
***
97. Plaintift and members of the Class
seck actual damages plus interest on
damages at the legal rate, as well as all
other just and proper relief afforded by the
DCSA. As redress for Defendant's
repeated and ongoing violations, Plaintift"
and members of the Class are entitled to,
inter alia, actual damages, treble damages,
attorneys' fees, and injunctive relief.
Compl. Il 92, 97. This is cnough to plead an
ongoing scheme that would toll the two-ycar
statute of limitations. See, e.g., JUE-CWA Local
201 v. Spark Encrgy LLC, 440 F. Supp. 3d 969,
975 (N.D. Ind. 2020). First Financial responds
that, by pleading an ongoing scheme, Mr. Hash
has created a different problem-that he hasn't
sufficiently pleaded the "when" requirement of
Rule 9(b). Whether the "when" requirement of
Rule 9(b) is pleaded with sufficient particularity
depends on whether Mr. Hash's pleadings that he
was charged improper and fraudulent overdraft
fees in October 2015 in conjunction with his
pleadings in paragraphs 92 and 97 are specific
enough to allege that the fraud occurred within the
past two years. Because Mr. Hash is entitled to
every reasonable inference on a motion to dismiss,
and because the Act is "a remedial statute that
must be liberally construed and applied to promote
its purposes and policies of protecting *25
consumers from deceptive or unconscionable sales
practices," Mr. Hash has met the pleading
requirements of Rule 9(b) to state a claim for
casetext
12

Hash v. First Fin. Bancorp Cause No. 1:20-cv-1321 RLM-MJD (S.D. Ind. Mar. 8, 2021)|
fraud upon which relief can be granted. Castagna
v. Newmar Corp., 2016 WL 3413770, at *6 (N.D.
Ind. June 22,2016) (quoting Kesling v. Hubler
Nissan, 997 N.E.2d 327, 332 (Ind. 2013)); see also
Ind. Code § 24-5-0.5-1(a).
VI. Conclusion
For the foregoing reasons, the court DENIES First
Financial's motion to dismiss [Doc. No. 17].
SO ORDERED.
ENTERED: March 8, 2021
Is/ Robert L. Miller, Jr.
Judge, United States District Court Distribution:
All cloctronically registered counsel of record
casetext

Case 1:21-cv-00534-LM Document 20 Filed 11/08/21 Page 1 of 10|
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
Rita Grenier and Edwin Grenier, Individually
and on Behalf of All Others Similarly Situated
v.
Granite State Credit Union,
Does 1 through 5
Civil No. 21-ev-00534-LM
Opinion No. 2021 DH 172 P
ORDER
Plaintiffs Rita and Edwin Grenier bring this putative class action against
Granite State Credit Union ("Granite") and "Does 1 through 5," alleging injuries
stemming from Granite's overdraft fees and policies. Plaintiffs allege that-by not
properly informing consumers how overdrafts are assessed Granite has violated,
and continues to violate, the Electronic Funds Transfer Act's, 15 U.S.C. § 1693
("EFTA"), implementing regulations, 12 C.F.R. § 1005 et seq. ("Regulation E").
Pending before the court is Granite's motion to dismiss (doc. no. 9) under Fed.
R. Civ. P. 12(b)(6). For the following reasons, the motion is denied.
STANDARD OF REVIEW
Under Rule 12(b)(6), the court must accept the factual allegations in the
complaint as true, construe reasonable inferences in the plaintiff's favor, and
"determine whether the factual allegations in the plaintiff's complaint set forth a
plausible claim upon which relief may be granted." Foley v. Wells Fargo Bank,
N.A., 772 F.3d 63, 71 (1st Cir. 2014) (internal quotation marks omitted). A claim is
facially plausible "when the plaintiff pleads factual content that allows the court to

Case 1:21-cv-00534-LM Document 20 Filed 11/08/21 Page 2 of 10
draw the reasonable inference that the defendant is liable for the misconduct
alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
BACKGROUND
Regulators, private litigants, and the courts have recently devoted significant
attention to overdraft fees. See Chambers v. NASA Fed. Credit Union, 222 F. Supp.
3d 1, 5-7 (D.D.C. 2016) (thoroughly outlining history). In 2009, the Federal Reserve
Board' revised Regulation E to add a provision intended to "assist consumers in
understanding how overdraft services provided by their institutions operate and to
ensure that consumers have the opportunity to limit the overdraft costs associated
with ATM and one-time debit card transactions where such services do not meet
their needs." Electronic Fund Transfers, Final Rule, 74 Fed. Reg. 59,033, 59,033
(Nov. 17, 2009).
Thus, Regulation E now requires financial institutions to obtain a customer's
"affirmative consent" before charging overdraft fees on ATM or one-time debit card
transactions. 12 C.F.R. § 1005.17(b)(1)(iii). To secure consent, institutions must
use an opt-in notice that "describe[s) the institution's overdraft service." Id. at
1005.17(b)(1)(). The notice must be "segregated from all other information," and
"substantially similar" to a model form (Model Form A-9) provided by the Consumer
1 Congress reassigned responsibility for enforcing the EFTA from the Federal
Reserve Board to the Consumer Financial Protection Bureau in 2010. See Dodd-
Frank Wall Street Reform and Consumer Protection Act of 2010, Pub. L. No. 111-
203, Title X, § 1084, 124 Stat. 1376, 2081-83.
2

Case 1:21-cv-00534-LM Document 20 Filed 11/08/21 Page 3 of 10
Financial Protection Bureau. Id. at 1005.17(b)(1)(i); (d). All disclosures must be
"clear and readily understandable." 12 C.F.R. § 1005.4(a)(1).
Issues occur when a disclosure does not adequately convey how overdraft fees
are assessed. There are two balances financial institutions can use to calculate
whether the amount of money in an account dips below zero: either the "actual
balance"? or the "available balance." The "actual balance" is the actual amount of
money in an accountholder's account at any particular time. The "available
balance," in contrast, is the actual amount of money in the account minus any
"holds" on deposits and pending debits that have not yet been posted. For this
reason, calculating overdrafts based on the available balance "often leads to more
frequent overdrafts because there is less money available in the account due to
holds and pending transactions." Domann v. Summit Credit Union, No. 18-cv-1670-
slc, 2018 WL 4374076 (W.D. Wis. Sept. 13, 2018) (citation omitted).
Thus, plaintifis across America have filed a number of "virtually identical
lawsuits" challenging institutions that use the available balance method where the
opt-in notice does not explain how it assesses overdraft fees. Id.; see, e.g., Tims v.
LGE Cmty. Credit Union, 935 F.3d 1228, 1239-40 (11th Cir. 2019); Adams v.
Liberty Bank, No. 3:20-cv-01601(MPS), 2021 WL 3726007 (D. Conn. Aug. 23, 2021);
Wellington v. Empower Fed. Credit Union, -- F. Supp. 3d. --, 2021 WL 1377789
(N.D.N.Y. Apr. 13, 2021); Bettencourt v. Jeanne D'Arc Credit Union, 370 F. Supp.
2 Courts also refer to "actual balance" as the "ledger balance" or "current
balance."

Case 1:21-cv-00534-LM Document 20 Filed 11/08/21 Page 4 of 10|
3d 258 (D. Mass. 2019); Walbridge v. Northeast Credit Union, 299 F. Supp. 3d 338
(D.N.H. 2018); Walker v. People's United Bank, 305 F. Supp. 3d 365 (D. Conn.
2018); Salls v Digital Fed. Credit Union, 349 F. Supp. 3d 81 (D. Mass. 2018);
Domann, 2018 WL 4374076; Ramirez v. Baxtor Credit Union, No. 16-CV.-03765-ST,
2017 WL 1064991 (N.D. Cal. Mar. 21, 2017); Pinkston-Poling v. Advia Credit Union,
227 F. Supp. 3d 848 (W.D. Mich. 2016); Chambers, 222 F. Supp. 1.
Plaintiffs in this case bring one such lawsuit. They allege that Granite used
a one-page notice entitled "What You Need to Know about Overdrafts and Overdraft
Fees" (the "Opt-in Disclosure"). The Opt-in Disclosure states that an overdraft
"occurs when you do not have enough money in your account to cover a transaction,
but we pay it anyway." It does not outline the distinction between the actual
balance method and the available balance method. Thus, Plaintiffs allege that
Granite has violated, and continues to violate, Regulation E because the phrase
"enough money' does not specify whether Granite calculates overdrafts based on the
actual balance or the available balance. Essentially, they argue that the Opt-in
Disclosure does not provide a "clear and readily understandable" explanation of "the
institution's overdraft service." See 12 C.F.R. § 1005.4(L)(1); 1005.17(b)(L)(i).
DISCUSSION
Granite moves to dismiss on the grounds that, first, it did not violate
Regulation E and, second, that the EFTA's safe harbor provision, 15 U.S.C.
§ 1693m(d)(2), insulates it from liability.
4

Case 1:21-cv-00534-LM Document 20 Filed 11/08/21 Page 5 of 10|
Regulation E Violation
Granite first argues that when the Opt-in Disclosure is read in conjunction
with a document entitled "Terms and Conditions of Your Account" (the
"Membership Agreement"), Granite satisfies Regulation E's disclosure
requirements. Granite attaches the five-page Membership Agreement to its motion,
and alleges it is the operative agreement governing Plaintifis relationship with
Granite. The Membership Agreement states that Granite assesses overdrafts based
on the available balance:
Determining your available balance - We use the available
balance" method to determine whether your account is overdrawn, that
same as your account's "actual" balance. This means an overdraft or
an NSF [nonsufficient funds] transaction could occur regardless of your
account's actual balance.
Doc. no. 9-3 at 1. It then proceeds to describe in further detail the difference
between actual balance and available balance. See id. The Membership Agreement
was not attached to—or referenced in—the complaint.?
Even assuming that the Membership Agreement could be considered at the
motion to dismiss stage, Plaintiffs have still plausibly alleged violations of
Regulation E. Regulation E requires financial institutions to provide disclosures
about their overdraft policies "segregated from all other information," i.e. in a
3 Granite alleges that Plaintiffs referred to the Membership Agreement in their
complaint when they referenced a "Granite agreement." Doc. no. 9 at 2 n.1. As
Plaintiffs clarify, the "Granite agreement" referenced in the complaint is actually the
Opt-in Disclosure. Doc. no. at 11 n.4.

Case 1:21-cv-00534-LM Document 20 Filed 11/08/21 Page 6 of 10
standalone document. 12 C.F.R. § 1005.17(b)(1)i). Because Plaintiffs allege that
the Opt-in Disclosure is the segregated document, only it is relevant to Plaintiffs'
claim. The Membership Agreement is extraneous information, irrelevant to
whether the Opt-in Disclosure itself-i.e., the segregated document— adequately
explains Granite's overdraft policy. See Adams, 2021 WL 3726007, at *4 (refusing
to consider extraneous documents such as an Account Agreement on Rule 12(b)(6)
motion, but holding that even if it could consider those documents, they would not
make plaintiff's Regulation E claim any less plausible because Regulation E
requires notice to be "segregated from all other information"); see also Wellington,
2021 WL 1377789, at *4 (holding that even assuming extraneous evidence should be
considered on a Rule 12(b)(6) motion, the plaintiff still plausibly alleged violations
of Regulation E).
The cases Granite cites in support of its argument that the Opt-in Disclosure
and the Membership Agreement should be read together are not persuasive. Those
cases are all in the context of contract claims, for which it may be appropriate to
construe multiple documents together. See, e.g., Tims, 935 F.3d at 1238 n.5 (citing
state contract law for the proposition that "where multiple documents are executed
at the same time in the course of a single transaction, they should be construed
together"); Domann, 2018 WL 3474076, at *6-7; Chambers, 222 F. Supp. 3d at 11-
12. Yet in cases where plaintiffs allege both a contract claim and a Regulation E
claim, courts will read the documents together for the contract claim only, because
Regulation E requires notice to be "segregated." See Ramirez, 2017 WL 118859, at
6

Case 1:21-cv-00534-LM Document 20 Filed 11/08/21 Page 7 of 10
*8. Thus, Tims, Domann, and Chambers do not help Granite's argument because
here Plaintiffs do not allege breach of contract, and in fact specifically disavow any
such claim. See doc. no. 11 at 10.
Looking only at the Opt-in Disclosure, then, Plaintiffs plausibly state a claim
that the phrase "enough money" does not adequately provide a "clear and readily
understandable" explanation of "the institution's overdraft service." 12 C.F.R.
§ 1005.4(1)(1); 1005.17(b)(1)(i). Countless courts examining virtually identical
language have agreed. See, e.g., Tims, 935 F.3d at 1238 (ambiguous whether
disclosure that overdraft occurs "when you do not have enough money in your
account to cover a transaction, but we pay it anyway" uses actual balance or
available balance method); Wellington, 2021 WL 1377789, at *5; Bettencourt, 370 F.
Supp. 3d at 262, 265; Walbridge, 299 F. Supp. 3d at 343; Salls, 349 F. Supp. 3d at
90; Pinkston-Poling, 227 F. Supp. 3d at 857; Walker, 305 F. Supp. 3d at 376. Thus,
Plaintifis plausibly state a claim that Granite's Opt-in Disclosure violates
Regulation E.
II. Safe Harbor Provision
Granite next argues that the EFTA's safe harbor provision insulates it from
liability. The EFTA protects financial institutions from liability for "any failure to
make disclosure in proper form if a financial institution utilized an appropriate
model clause issued by the Bureau or the Board." 15 U.S.C. § 1693m(d)(2).
Regulation E requires that notice "shall be substantially similar to Model Form A-
9," which is promulgated by the Consumer Financial Protection Bureau. 12 C.F.R.
7

Case 1:21-cv-00534-LM Document 20 Filed 11/08/21 Page 8 of 10
§ 1005.17d). Model Form A-9 states: "An overdraft occurs when you do not have
enough money in your account to cover a transaction, but we pay it anyway."
§1005, App. A (emphasis in original).
Courts across the country have addressed arguments identical to Granite's
argument here, and the vast majority have held that that using language identical
to that in Model Form A-9 does not necessarily insulate a financial institution from
liability. See Tims, 935 F.3d at 1244; Adams, 2021 WL 3726007, at *6-*8;
Bettencourt, 370 F. Supp. 3d at 266; Salls, 349 F. Supp. 3d at 90-91; Walbridge, 299
F. Supp. 3d at 349; Smith, 2017 WL 3597522, at *8; Gunter v. United Fed. Credit
Union, No. 3:15-cv-00483-MMD-WGC, 2017 WL 4274196, at *3 (D. Nev. Sept. 25,
2017); Ramirez, 2017 WL 118859, at *7; Pinkston-Poling, 227 F. Supp. 3d at 852.
As one court reasoned, the safe harbor provision requires the use of an "appropriate
model clause." Adams, 2021 WL 3726007, at *7 (citing 15 U.S.C. § 1693m(d)(2)). If
the language in Model Form A-9 does not accurately describe a particular
institution's overdraft service, then it is not "appropriate." Id. Indeed, "(i]f use of a
model clause were, by itself, an impenetrable shield, a consumer would have no
redress" when Model Form A-9 does not actually provide a "clear and readily
understandable" description, 12 C.F.R. § 1005.5, of an institution's overdraft
services. Id.
Granite cites two unreported district court cases holding otherwise. See
Rader v. Sandia Lab. Fed. Credit Union, No.20-559 JAP/JHR, 2021 WL 1533664, at
*13-*14 (D.N.M. April 19, 2021); Tilley v. Mountain Am. Fed. Credit Union, No.

Case 1:21-cv-00534-LM Document 20 Filed 11/08/21 Page 9 of 10
2:17-cv-01120-JNP-BCW, 2018 WL 4600655, at *4-*6 (D. Utah Sept. 25, 2018). The
court does not find the reasoning of these cases to be persuasive. Tilley, for
example, cited a Northern District of Georgia case for the proposition the phrase
"enough money" from the model form is not inaccurate when the financial
institution calculates overdrafts based on an account's available balance. Tilley,
2018 WL 4600655, at *5 (citing Tims v. LGE Cmty. Credit Union, No. 1:15-cv-4279.
TWT, 2017 WL 5133230, at *6 (N.D. Ga. Nov 6, 2017), rev'd and remanded by 934
F.3d 1228). But the Eleventh Circuit later overturned that case on appeal, holding
that using language from a model clause "does not shield (a financial institution] for
claims based on their failure to make adequate disclosures." Tims, 935 F.3d at
1243. The other case Granite cited, Rader, relied exclusively on Tilley's reasoning,
without acknowledging that Tilley was predicated in part on reasoning that the
Eleventh Circuit had overturned. See 2021 WL 1533664, at *13-*14. Rather than
following either of these cases, this court agrees with the sound reasoning of the
Eleventh Cireuit and the previously cited district court cases holding that the safe
harbor provision did not defeat plaintiffs' claims.
Thus, Plaintiffs have plausibly stated a claim that the clause from Model
Form A-9 was not "appropriate" because the language did not describe Granite's
overdraft policy in a "clear and readily understandable" way. See Adams, 2021 WL
3726007, at *8.
9

Case 1:21-cv-00534-LM Document 20 Filed 11/08/21 Page 10 of 10
CONCLUSION
For these reasons, Granite's motion to dismiss (doc. no. 9) for failure to state
a claim is denied.
SO ORDERED.
United States District Judge
November 8, 2021
cc: Counsel of Record
10

NO. CIV-15-0913-HE
UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF OKLAHOMA
Parrish v. Arvest Bank
Decided Jul 14, 2016
NO. CIV-15-0913-HE
07-14-2016
SARAH LEE GOSSETT PARRISH, Plaintiff, v.
ARVEST BANK, Defendant.
JOE HEATON CHIEF U.S. DISTRICT JUDGE
ORDER
According to the complaint, plaintiff Sarah Lee
Gossett Parrish ("Parrish") is a customer of
defendant Arvest Bank ("Arvest") who has one or
more accounts with Arvest. Parrish has filed this
suit against Arvest on behalf of herself and all
others similarly situated, alleging that Arvest
deliberatcly sequences its transaction processing
to maximize the bank's collection of fees for
overdraft service or non-sufficient funds, to the
detriment of its customers. Based on this, Parrish
asserts seven claims:' (1) actual fraud, (2)
constructive fraud, (3) false representation/deceit,
(4) violation of the Oklahoma Consumer
Protection Act, 15 Okla. Stat. § 751 st seq., (5)
breach of fiduciary duty, (6) breach of contract,
and (7) unjust enrichment. Arvest has moved to
dismiss all of these claims under Federal Rule of
Civil Procedure 12(b)(6) for failure to state a
claim.
" The complaint purports to assert an eiglah
claim for punitive and exemplary damages,
but that is not a separate cause of action.
When evaluating a motion to dismiss for failure to
state a claim under Rule 12(b)(6), the court
accepts all well-pleaded factual allegations as true
and views them in the light most favorable to the
casetext
plaintiff as the nonmoving party. S.E.C. v. Shields,
2 744 F.3d 633, 640 (10th *2 Cir. 2014). Generally,
the complaint need only present "a short and plain
statement of the claim showing that the pleader is
entitled to relief" Fed. R. Civ. P. 8(a)(2). The
complaint must, however, contain "enough facts to
state a claim to relief that is plausible on its face"
and "raise a right to relief above the speculative
level." Bell Atlantic Corp. v. Twombly, 550 U.S.
544, 570, 555 (2007). *'A claim has facial
plausibility when the plaintiff pleads factual
content that allows the court to draw the
reasonable inference that the defendant is liable
for the misconduct alleged.'* Shields, 744 F.3d at
640 (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009)).
Some claims, however, are subject to the pleading
requirements of Rule 9(b), which requires a party
alleging fraud or mistake to "state with
particularity the circumstances constituting fraud
or mistake." Although the claimant may gencrally
allege the other party's state of mind in connection
with the fraud or mistake, the complaint must still
"set forth the time, place, and contents of the false
representation, the identity of the party making the
false statements and the consequences thereof."
Toone v. Wells Fargo Bank, N.A., 716 F.3d 516,
522 (10th Cir. 2013).
The complaint alleges that Arvest provides ATM
and check cards for customers to use in drawing
on their accounts
through point-of-sale
transactions, and that it allows customers to
complete electronic fund transfers and other
banking activities through Arvest's website and
mobile banking technology. It generally alleges

Parrish v. Arvest Bank NO. CIV-15-0913-HE (W.D. Okla. Jul. 14, 2016)|
that Arvest represents to its customers, through
marketing materials and customer agreements, that
these transactions post to customer accounts in the
same order in which the transactions are made
3 (i.c., *3 chronologically). The complaint further
asserts that Arvest represents to customers that
they can rely on the account information reflected
on the bank's website or accessed by phone in
determining whether they have sufficient funds for
debit transactions.
However, according to the complaint, transactions
are actually posted to accounts in batches by
transaction type at the end of each day, and those
batches are deliberately sequenced so that
transaction types with larger median amounts are
debited carlier
than
smaillcr
The
complaint further alleges that, as a result, accounts
incur more fees for overdrafts or for having
insuflicient funds (collectively, "Overdraft Fees")
than would be the case if the transactions were
posted in chronological order.
The first four claims in the complaint are for
actual fraud, constructive fraud, deceit, and
violation of the Oklahoma Consumer Protection
Act (OCPA). Each of them rely on some form of
alleged fraud and are hence subject to the pleading
requirements of Rule 9(b) referenced above.
The complaint generally alleges that Arvest made
false representations by "stat[ing] to its customers
that it would only apply [Overdraft Foes] when a
customer overdrew his or her account and had
insufficient funds in his or her account," and by
representing that their reported account balances
would be accurate. The complaint also asserts that
Arvest made false representations in its standard
Electronic Fund Transfers Agreement by stating
debit card transactions would be applied to
accounts "cach time" the card is used instead of in
batches at the end of the day. Further, the
complaint
states
that
Arvest
made
misrepresentations by stating in marketing and
4 promotional materials that customers can *4 avoid
foes by
"immediately
record(ing]"
each
transaction they make. Id.
General allegations like those involved here are
insufucient to state a claim under Rile • Some ot
the alleged representations do not even arguably
constitute a false representation such as might be a
basis for a fraud claim. For example, advice to
customers tat wey can miimize
Ices by
immediately recording transactions in their own
records is not only self-evidently accurate but,
more importantly for present purposes, represents
nothing about the way the bank books the
transactions. A statement that a transaction will bo
posted "each time" a card is used does not say or
imply that the posting will be instantancous. Other
allegations in the complaint assert fraud, but do so
only in conclusory fashion, and are not specific
representations sufticient to meet the heightened
pleading standard of the rule. See Jensen y.
America's Wholesale Lender, 425 F. App'x 761,
763 (10th Cir. 2011) (requiring more to satisfy
Rule 9(b) than gencral allegations of a defendant's
"pattern and practice" of harming plaintiff through
false representations). Moreover, the complaint
does not set forth with particularity how Parrish
relied on the alleged false representations or how
that reliance led to injury. See Olds v. Bank of
America N.A., 573 F. App'x 710, 711 (10th Cir.
2014) (memorandum). Therefore, the claims for
fraud, constructive fraud, deceit, and violation of
the OCPA will be dismissed for failure to plead
them with the particularity required by Rule 9(b),
but with leave to amend granted except as to the
5 OCPA claim.? *5
2 Invest argues thar awendment would be
futile, as the claims are preempted by
federal law. However, while promption
principles might proclude claims dinctly
challenging the posting onder of items or
similar matters subject to federal law,
thase principles do not extend to
preempting claims based on false or
fraudulent representations about thane
casetext

Parrish v. Arvest Bank NO. CIV-15-0913-HE (W.D. Okla. Jul. 14, 2016)|
practices. See Gutienez x Hells Parge
Bask. MA, 704 F.3d 712, 726 (9th Car.
Unanoma Union Connercial couc
12A Okla. Star. § 4-101 er sog -, allows
posting of news in any order sadle fals
to precioe wese crats, Whieh are
alecten to aegea misrepresslations
about the posting wactices rather than the
practices themselves.
As to the OCPA claim, the statute does not extend
to "(actions or transactions regulated under laws
administered by the Corporation Commission or
any other regulatory body or officer acting under
statutory authority of this state or the United
States ..." 15 Okla. Stat. § 754(2). The alleged
activity at issue here is part of the business of
banking, an activity that is heavily regulated by
the Board of Governors of the Federal Reserve
System, see 15 U.S.C. § 1693c (Electronic Fund
Transfer Act); see also 12 C.F.R. § 205.7
(Regulation E), the FDIC, and state banking
authorities. The statute's "regulated activity"
exemption is therefore applicable and bars
plaintiff's OCPA claim. In light of that legal
conclusion, amendment of the complaint as to that
claim would de mutle.
Plaintift's fifth claim alleges Arvest breached its
fiduciary duty to plaintiff and its other customers
by its conduct. Under Oklahoma law, the
relationship between a bank and its customer is
that of debtor and creditor. Beshara v. S. Nat'l
Bank, 928 P.2d 280, 288 (Okla. 1996). The
relationship between a bank and its customer is
not viewed as fiduciary in nature unless there is an
exoress written aureement to that chect. 6 Okla.
Stat. § 425, or other special circumstances exist
which support such a conclusion. Beshara, 928
P.2d at 288. No basis for either exception is
alleged here.
As to the sixth claim, the complaint alleges that
Arvest breached the contract which was formed
when Parrish became a customer of Arvest and
6 enrolled in electronic fund *6 transfer service (the
casetext
"EFT Agreement"). The EFT agreement attached
to the comolant imposes on Arvest a contractual
duty to provide access to telephone, online, and
mobile banking services. It does not include a
promise to post transactions mn any partcular orac.
or to display account balances retlecting
transactions posted in a particular order. The
complaint asserts that Arvest breached the contract
oy providing maccurate account balances, out it is
not apparent what makes the balances inaccurate.
Plaintiff's argument is essentially
that an
"accurate" balance is only one which reflects
instantancous posung or transactions. But the
agreement promises no such thing and there is no
apparent reason for concluding that transactions
posted by size or by some other batching process
result in balances that are other than "accurate" for
purposes of the agreement.
Plaintiff also asserts a claim for unjust enrichment.
Unjust enrichment results from a party's retention
of a benefit that, "in equity and good conscience, it
should not be allowed to retain." Harvell y.
Goodyear Tire and Rubher Co., 164 P.3d 1028,
1035 (Okla. 2006). In other words, a party secking
to recover for unjust enrichment must show
"enrichment to another, coupled with a resulting
injustice." City_of Tulsa v, Bank of Oklahoma,
N.A.. 280 P.3d 314, 319 (Okla. 2011) (internal
citation and quotation marks omitted).
Here, Parrish alleges that Arvest collected
Overdraft Fees as a result of banking practices that
were "unfair, unconscionable, and oppressive."
Doc. No. 17, at 18. However, the complaint does
not state a plausible basis for inferring that
defendant's conduct meets that standard. As noted
above, tere is no pasts alleyce for concluaing that
Arvest breached its contract with its customers by
the challenged practices, nor is there a basis stated
for *7 treating its representations as to those
practices as fraudulent. There is no basis alleged
for finding a fiduciary duty between the parties
that Arvest's conduct has arguably violated.
Finally, there is no basis alleged for concluding
that Arvest's procedures are contrary to applicable

Parrish v. Arvest Bank NO. CIV-15-0913-HE (W.D. Okla. Jul. 14, 2016)|
regulations or customary banking practice. In
these circumstances, an unjust cnrichment claim is
not stated.
For the reasons indicated, the motion to dismiss
[Doc. No. 30] is GRANTED and plaintiff's claims
are DISMISSED. As the deficiencies in the
claims other than the OCPA claim are potentially
subject to being remedied by amendment, plaintifi
is granted leave to file an amended complaint
within twenty-one (21) days addressing the
deficiencies if she can do so.
IT IS SO ORDERED.
Dated this 14th day of July, 2016.
JOE HEATON
CHIEF U.S. DISTRICT JUDGE
casetext

casetext
Nos. 10-16959 10-17468 10-17689.
2012-12-26
Veronica GUTIERREZ; Erin Walker; William
Smith, individually and on behalf of all others
similarly situated, Plaintiffs-Appellees, v. WELLS
FARGO
BANK, NA, Defendant-Appellant.
Veronica Gutierrez; Erin Walker; William Smith,
individually and on behalf of all others similarly
situated, Plaintifis-Appellees, v. Wells Fargo
Bank, NA,
Defendant-Appellant. Veronica
Gutierrez, Erin Walker, Plaintifis-Appellants, and
William Smith, individually and on behalf of all
others similarly situated, Plaintiff, v. Wells Fargo
Bank, NA, Defendant-Appellee.
West's Ann. Cal.Bus. & Prof.Code § 17200 Jordan
Elias, Richard M. Heimann, Roger N. Heller,
Michacl W. Sobol (argued), and Alison M.
Stocking, Lieff Cabraser Heimann & Bernstein,
LLP, San Francisco, CA; Jac K. Kim and Richard
D. McCune, McCune & Wright, LLP, Redlands,
CA, for Plaintifis-Appellees.
McKEOWN
Nos. 10-16959
United States Court of Appeals, Ninth Circuit.
Gutierrez v. Wells Fargo Bank, NA
704 F.3d 712 (9th Cir. 2012)
Decided Des 26, 2012
D. McCune, McCune & Wright, LLP, Rodlands,
CA, for Plaintiffs-Appellces.
Robert A. Long, Jr. (argued), Mark William
Mosier, Keith A. Noreika, and Stuart C. Stock,
Covington & Burling LLP, Washington, D.C.;
David M. Jolley and Sonya D. Winner, Covington
& Burling, LLP, San Francisco, CA; Emily
Johnson Henn, Covington & Burling LLP,
Redwood Shores, CA, for Defendant-Appellant.
Limited on Preemption Grounds
715 West's Ann.Cal.Bus. & Prof.Code § 17200*715
Jordan Elias, Richard M. Heimann, Roger N.
Heller, Michael W. Sobol (argued), and Alison M.
Stocking, Lieft Cabraser Heimann & Bernstein,
LLP, San Francisco, CA; Jac K. Kim and Richard
Angeles, CA, for Amici Curiac American Bankers
Association and California Bankers Association.
Nina F. Simon, Washington, D.C., for Amici
Curiac Center for Responsible Lending, Consumer
Federation of America, California Reinvestment
Coalition, and Law Foundation of Silicon Valley.
Appeal from the United States District Court for
the Northern District of California, William Alsup,
District Judge, Presiding, 3:07-cv-05923-WHA
Before: SIDNEY
R. THOMAS,
M.
MARGARET MeKEOWN, and WILLIAM A.
FLETCHER, Circuit Judges.
OPINION
McKEOWN, Circuit Judge:
Bank fees, like taxes, are ubiquitous. And, like
taxes, bank fees are unlikely to go away any time
716 soon. The question we *716 consider here is the

Gutierrez v. Wells Fargo Bank, NA 704 F.3d 712 (9th Cir. 2012)
extent to
which overdraft fees imposed by a
Casataxink are subject to state regulation.
At issue is a bookkeeping device, known as "high-
to-low" posting, which has the potential to
multiply overdraft fees, turning a single overdraft
into many such overdrafts.
The revenue from
overdraft fees is massive. Between 2005 and 2007,
Wells Fargo Bank ("Wells Fargo") assessed over
$1.4 billion in overdraft fees. Disturbed by the
number of overdrafts caused by small, everyday
debit-card purchases, Veronica Gutierrez and Erin
Walker (collectively "Gutierrez") sued Wells
Fargo under California state law for engaging in
unfair business practices by imposing overdratt
fees based on the high-to-low posting order and
for engaging in fraudulent business practices by
misleading clients as to the actual posting order
used by the bank.
The district court found that "the bank's dominant,
indeed sole, motive" for choosing high-to-low
posting "was to maximize the number of
overdrafts and squeeze as much as possible out of
what
it
called
its
'ODRI
customers
(overdraft/returned item)." The district court also
found that Wells Fargo had "affirmatively
reinforced the expectation that transactions were
covered in the sequence [the purchases were]
made while obfuscating its contrary practice of
posting transactions in high-to-low order to
maximize the number of overdrafts assessed on
customers."
The court issued a permanent
injunction
against "high-to-low" posting and
ordered $203 million in restitution. On appeal,
Wells Fargo seeks refuge from state law on the
ground of federal preemption. It also challenges
the district court's factual and legal findings. We
conclude that federal law proempts state regulation
of the posting order as well as any obligation to
make specific, affirmative disclosures to bank
customers. Federal law does not, however,
preempt California consumer law with respect to
fraudulent
misleading
representations
conceming posting. As a consequence, we affirm
in part, reverse in part, and remand for further
proceedings.
Background'
1 This background is drawn from the district
court's Findings of Fact and Conclusions of
Law After Bench Trial.
"Posting" is the procedure banks use to process
debit items presented for
payment against
accounts. During the wee hours after midnight, the
posting process takes all debit items presented for
payment during the preceding business day and
subtracts them from the account balance. These
items are typically debit-card transactions and
checks. If the account balance is sufticient to
cover all items presented for payment, there will
be no overdrafts, regardless of the bookkeeping
method used. If, however, the account balance is
insufficient to cover every debit item, then the
account will be overdrawn. When an account is
overdrawn, the posting sequence can have a
dramatic effect on the number of overdrafts
incurred by the account (even though the total sum
overdrawn will be exactly the same). The number
of overdrafts drives the amount of overdraft fees.
Before April 2001, Wells Fargo used a low-to-
high posting order. Under this system, the bank
posted settiement items from lowest-to-highest
dollar amount. Low-to-high posting paid as many
items as the account balance could cover and thus
minimized the number of overdrafts. Beginning in
April of 2001, Wells Fargo did an about-face in
California and began posting debit-card purchases
717 in order of highest-to-lowest*717 dollar amount.
This system had the immediate effect of
maximizing the number of overdrafts. The
customer's account was now depleted more
rapidly than would be the case if the bank posted
transactions in low-to-high order or, in some
cases, chronological order.

Gutierrez v. Wells Fargo Bank, NA 704 F.3d 712 (9th Cir. 2012)
As an illustration, consider a customer with $100
CasteXtunt who uses his debit-card to buy ten
small items totaling S99, followed by one large
item for $100, all of which are presented to the
bank for payment on the same day. Under
chronological posting or low-to-high posting, only
one overdraft would occur because the ten small
items totaling $99 would post first, leaving $1 in
the account. The $100 charge would then post,
causing the sole overdraft. Using high-to-low
sequencing, however, these purchases would lead
to ten overdraft events because the largest item.
$100, would be posted first— depleting the entire
account balance-followed by the ten transactions
totaling S99. Overdraft fees are based on the
number of withdrawals that exceed the balance in
the account, not on the amount of the overdraft.
When high-to-low sequencing is used, the fees
charged by the bank for the overdrafts can
dramatically exceed the amount by which the
account was actually overdrawn. For example,
Gutierrez incurred $143 in overdraft fees as a
consequence of a $49 overdraft, and Erin Walker
incurred $506 in overdraft fees for exceeding her
account balance by $120.
Gutierrez claims that Wells Fargo made the switch
to high-to-low processing in order to increase the
amount of overdraft fees by maximizing the
number of overdrafts. The bank amplified the
cficct of its fee maximization plan, which it
named "Balance Sheet Engineering," through
several related practices that are not at issue here.
California's Unfair Competition Law allows
individual plaintifis to bring claims for unfair,
unlawful, or fraudulent business practices. Cal.
Bus. & Prof.Code § 17200.
2 Although remedies under the Unfair Competition
Law are limited to injunctive relief and restitution,
the law's scope is "sweeping." Cel-Tech
Comme'ns, Inc. v. Los Angeles Cellular Tel. Co.,
20 Cal. 4th 163, 180, 83 Cal.Rptr. 2d 548, 973 P.2d
527 (1999). Gutierrez sued on behalf of a class,
alleging independent violations of both the law's
"unfair" and "fraudulent" prongs. Gutierrez
alleged that
Wells Fargo's "resequencing"
practices are unfair because they contradict the
legislative policy expressed in California
Commercial Code § 4303(b) 1992 Amendment
cmt. 7, which provides that "items may be
accepted, paid, certified, or charged to the
indicated account of its customer in any order" so
long as the bank "act[s] in good faith" and not "for
the sole purpose of increasing the amount of
returned chock fees charged to the customer."
2 .Section 17200 of the California Business
and Professions Code provides that "unfair
competition shall mean and include any
unlawful, unfair or fraudulent business act
or practice. The Caltoma Supreme Lourt
has held that the law's covcrage 1s
sweepi, chcocoassing dhything that
can properly be called a basiness practice
and that at the same time is forbidden by
law." Rubin k. Green, 4 Cal.4th 1187, 1200,
17 Cal.Rptr.2d 828, 847 P.2d 1044 (1993).
It govems "anti-competitive business
practices as well as injuries to consumers,
and has as a major purpose the preservation
of fair business competition." Cel-Tech
Commens, Inc. v. Los Angeles Cellular Tel.
Co. 20 Cal.4th 163, 180, 83 Cal.Rptr.2d
548, 973 P.2d 527 (1999) (citation and
218 * Id. *718
3 The district court held that proof of an
uair ous ncos practice under $ 17200
requires an unfair policy or practice
tethered to a legislatively declared policy
or the demonstration of an actual orl
threatened impact on competition. As
described above, Gutierrez "tethered" the
claims to too legislative comment expressed
in California Commercial Codo § 4303(b).
The extent to which claims brought under
the Unfair Competition Law must be
tethered to a legislatively declared policy is
a question of debato in California courts

Gutierrez v. Wells Fargo Bank, NA 704 F.3d 712 (9th Cir. 2012) |
casetextSB Bank Nevada, N.1. 691 F3d
1152, 1169-70 (9th Cir.2012); Durell v.
Sharp Healthcare, 183 Cal.App.4th 1350,
1364-65, 108 Cal.Rptr.3d 682 (2010).
The district court certified a class of "all Wells
Fargo customers from November 15, 2004 to June
30, 2008, who incurred overdraft fees on debit-
card transactions as a result of the bank's practice
of sequencing transactions from highest to
lowest." After a two-week bench trial, the district
court issued a comprehensive 90-page decision
and found that Wells Fargo's "decision to post
debit-card transactions in high-to-low order was
made for the sole purpose of maximizing the
number of overdrafts assessed on its customers."
The court also concluded that Wells Fargo led
customers "to expect that the actual posting order
of their debit-card purchases would mirror the
order in which they were transacted" while hiding
its actual practice of posting transactions in high-
to-low order so that the bank could "maximiz[e]
the number of overdrafts assessed on customers."
The district court rejected Wells Fargo's numerous
defenses-federal preemption pursuant to various
statutes and regulations, Gutierrez's lack of
standing, and the impropriety of class certification
-and held Wells Fargo's actions to be both unfair
and fraudulent under the Unfair Competition Law.
As a remedy, the court entered a permanent
injunction requiring Wells Fargo to "cease its
practice of posting in high-to-low order for all
debit-card transactions" and "either reinstate a
low-to-high posting method or use a chronological
posting method (or some combination of the two
methods) for debit-card transactions." It also
imposed various related disclosure requirements.
In addition to injunctive relief, the district court
ordered Wells Fargo to pay $203 million in
restitution. Both parties appealed. Wells Fargo's
appeal focuses on its preemption argument and on
the merits of Gutierrez's Unfair Competition Law
claims. Gutierrez's cross-appeal is directed to the
district court's denial of prejudgment interest and
punitive damages.
Analysis
I. Arbitration
As a threshold matter, we consider whether this
dispute should be arbitrated. Although the contract
between the parties contained a permissive
arbitration clause, neither party requested
arbitration, and consequently the district court did
not consider the issue. On appeal, Wells Fargo
seeks to compel arbitration and claims that its
enforceable right to arbitration did not mature
until the Supreme Court's 2011 decision in AT&T
Mobility LLC v. Concepcion,
- U.S.
-, 131|
S.Ct. 1740, 179 L.Ed.2d 742 (2011). Wells Fargo
asks us to vacate the judgment and remand so that
the district court can dismiss the case or stay it
pending arbitration. Gutierrez argues that Wells
Fargo has waived any claim to arbitration.
After considering the terms of the arbitration
agreement, the conduct of the parties, and the
course of the litigation, along with the traditional
benchmarks regarding waiver of arbitration and
the purpose of the Federal Arbitration Act
("FAA"), we conclude that the district court
judgment should not be vacated on the basis of
Concepcion. To do so at this stage would
undermine the partics' agreement regarding
719 arbitration, severely prejudice Gutierrez*719 and
the certified class members, and result in a waste
of judicial resources. This is an unusual, perhaps
sul geners, case in which the specific
circumstances counsel this result.
In Concepcion, the Supreme Court held that the
FAA prompted California's Discover Bank rule,
id. at 1753, which rendered class-wide arbitration
waivers unenforccable if it was "alleged that the
party with the superior bargaining power has
carried out a scheme to deliberately cheat large
numbers of consumers out of individually small

Gutierrez v. Wells Fargo Bank, NA 704 F.3d 712 (9th Cir. 2012)
sums of money," Discover Bank v Superior Court,
casetexit 148, 162-63, 30 Cal.Rptr.3d 76, 113
P.3d 1100 (2005).
The central purpose of the FAA "is to ensure that
"private agreements to arbitrate are enforced
according to their terms.' " Stolt-Nielsen S.A. v.
AnimalFeeds Int'l Corp.,
- U.S. -
—, 130 S.Ct.
1758, 1773, 176 L.Ed.2d 605 (2010) (quoting Volt
Info. Sci., Inc. v. Bd. of Trs. of Leland Stanford
Junior Univ., 489 U.S. 468, 479, 109 S.Ct. 1248,
103 L.Ed.2d 488 (1989)). Section 2 of the FAA
provides that an agreement to arbitrate "shall be
valid, irrevocable, and enforceable, save upon
such grounds as exist at law or in equity for the
revocation of any contract. 9 U.S.C. $ 2.
Although the FAA's savings clause "permits
agreements to arbitrate to be invalidated by
generally applicable contract defenses, such as
fraud, duress, or unconscionability," it does not
allow "defenses that apply only to arbitration or
that derive their meaning from the fact that an
agreement to arbitrate is at issue." Concepcion,
131 S.Ct. at 1746 (citation and internal quotation
marks omitted). In Concepcion, the Court struck
down the Discover Bank rule because it was
applied in a manner that disfavored arbitration and
interfered with the enforcement of private
arbitration agreements, thus standing "as an
obstacle to the accomplishment and execution of
the full purposes and objectives of Congress." Id.
at 1753 (quotation marks and citation omittod).
The effect of Concepcion, as intervening Supreme
Court law, on a judgment on appeal after trial, is
an issue of first impression. The mine run of cases
claiming waiver of arbitration stem from situations
where, before trial, a party belatedly asserts a clear
right to arbitration. See, e.g., Cox v. Ocean View
Hotel Corp., 533 F.3d 1114, 1123-26 (9th
Cir. 2008) (declining to find that defendant's initial
refusal to arbitrate employee's complaints
constituted waiver of right to arbitrate subsequent
legal action). But we have not found, nor have the
parties cited, any cases involving waiver of a
permissive arbitration right where the applicability
of the right was not clear-cut, arbitration was
never demanded, and the claim was first asserted
on appeal following trial.
Our analysis begins with the Customer Account
Agreement ('CAA") between Wells Fargo and the
class members, which provides:
Either of us may submit a dispute to binding
arbitration at any reasonable time notwithstanding
that a lawsuit or other proceeding has been
commenced. If either of us fails to submit to
binding arbitration following a lawful demand, the
one who fails to submit bears all costs and
expenses incurred by the other compelling
arbitration.
The CAA further states that "[ejach of us agrees
that any arbitration we have shall not be
consolidated with any other arbitration and shall
not be arbitrated on bchalf of others without the
consent of each of us."
4 We assume without deciding that the
arbitration agreement is valid and that the
dispute is within the scope of the
arbitration agreement. Neither issue is on
appeal.
720 *720
This arbitration clause stands in contrast to the
mandatory arbitration provision found in many
consumer contracts, such as the provision in
Concepcion. To begin, it is a permissive clause in
which either party may demand arbitration. The
penalty for failing to consent to arbitration upon
demand is bearing the costs involved in
compelling arbitration. Four points stand out: 1)
an arbitration demand is required; 2) the
agreement contemplates that the partics may
decide to remain within the judicial system to
settle their disputes; 3) the agreement permits
class arbitration on consent; and 4) any demand
for arbitration must be made within a "reasonable
time."

Gutierrez v. Wells Fargo Bank, NA 704 F.3d 712 (9th Cir. 2012)|
The procedural posture of this case is reflective of
casetexE intentions and expectations. Notably,
Wells Fargo never made a demand for arbitration,
raised it as a defense, or even mentioned it until
after the Concepcion decision, at which point the
trial was over and the district court had issued its
judgment.
Although
the
FAA
allows
for
interlocutory appeals of orders denying motions to
compel arbitration, seel U.S.C. § 16(a)(1)(B),
unlike the defendant in Concepcion, Wells Fargo
undertook no such tack. See131 S.Ct. at 1744-
45;see also Franceschi v. Hosp. Gen. San Carlos,
Inc., 420 F.3d 1, 4 (Ist Cir.2005) (arbitration right
is forfcited where no interlocutory appeal was
filed because "it would prejudice plaintiffs to have
a full trial and then dctermine by a post-trial
appeal that the whole matter should have been
arbitrated and so [should] start again" (internal
quotation marks omitted)).
The timing of the
arbitration
demand is
informative. The certiorari petition in Concepcion
was filed on January 25, 2010, three months
before the bench trial began in April 2010.
Petition for Writ of Certiorari, Concepcion, 131
S.Ct. 1740 (No. 09-893). On May 24, 2010, the
Supreme Court accepted review. AT de T Mobility
LLC v Concepcion,
- U.S.
-, 130 S.Ct.
3322, 176 L.Ed.2d 1218 (2010). At that stage,
final argument in the district court was more than
a month away, no decision had been issued, and
the parties were exchanging proposed findings.
The arbitration
however, squarely
before the Supreme Court. The district court's
decision was not issued until August 2010. Even
in that interim period, Wells Fargo was silent as to
arbitration and did not seck a stay pending the
Supreme Court's decision in Concepcion. Instcad,
Wells Fargo proceeded full steam ahead with this
litigation in federal court. Only in April 2011,
after an unfavorable result in the district court and
the Supreme Court opinion did Wells Fargo seek
to vacate the district court's judgment via a motion
to compel arbitration filed with this court. The
Appellate Commissioner
motion
without prejudice to renewing the arguments in
the brief on cross-appeal. See Order, July 15,
2011.
Gutierrez argues that Wells Fargo "was driven by
its preference to litigate this case in federal court
in order to obtain favorable rulings from the
district court on federal preemption and other
issues." The record is devoid of Wells Fargo's
motives for its chosen course of action, although
Wells Fargo offered only argument, not evidence
or declarations, as to the rationale for its litigation
strategy. We make no judgment about Wells
Fargo's motives.
Against this background, we consider Gutierrez's
argument that Wells Fargo waived any rights to
arbitration given the belated nature of its request.
For such a waiver to occur, there must be: "*(1)|
knowledge of an existing right to compel
721 arbitration; (2) acts inconsistent with that *721
existing right; and (3) prejudice to the party
opposing
arbitration
resulting
from
inconsistent acts." Fisher v. A.G. Becker Paribas
Inc., 791 F.2d 691, 694 (9th Cir. 1986).
Wells Fargo claims that any "existing right" arose
only after Concepcion and thus it did not act
inconsistently with that "existing right" because it
would have been futile to seck arbitration carlier.
See Fisher, 791 F.2d at 695. The futility of an
In contemporancous consumer htigation, litigants
did sucoeed in compelling arbitration despite the
existence of the Discover Bank rule. See, e.g.,
Dalie v. Pulte Home Corp., 636 F.Supp.2d 1025,
1027 (E.D.Cal.2009) (recognizing that "under
California law a class action waiver is only
unenforceable in a narrow set of circumstances");
McCabe v. Dell, Inc., No. CV 06-7811, 2007 WL
1434972, at *3-4 (C.D.Cal. Apr. 12, 2007)
(compelling arbitration after finding the arbitration
clause
enforceable
unac.
California
law);
Galbraith v. Resurgent Capital Servs., No. CIV S
05-2133, 2006 WL 2990163, at *2 (E.D.Cal. Oct.
19, 2006) (same). Especially because the CAA did

Gutierrez v. Wells Fargo Bank, NA 704 F.3d 712 (9th Cir. 2012)
not prohibit class arbitration, a motion to compel
casataxtwas not inevitably futile under the
prescribed case-by-case analysis. See Douglas v
U.S. Dist. Court for Cent. Dist. of Cal., 495 F.3d
1062, 1068 (9th Cir.2007) (whether arbitration can
be compelled "depends on the facts and
circumstances developed during the course of
litigation").
Given the differing circumstances in our case and
Fisher with respect to the first two prongs of
Fisher, we focus on prejudice. We reject Wells
Fargo's attempt to collapse all three Fisher prongs
into one. Adopting this course would ignore the
procedural posture of the case and also the court's
approach in Fisher, which laid out the waiver
analysis. Although Fisher held that the defendant
there had not acted inconsistently with an existing
right, it went on to discuss the prejudice that the
Fishers would suffer if the court were to order
arbitration. See791 F.2d at 698-99. We do the
same.
Ordering arbitration post-appeal would severely
prejudice Gutierrez. The CAA requires the
demand to be made at a "reasonable time." The
series of dispositive motions, voluminous
discovery, preparation for trial, two-week bench
trial, post-trial briefing, and appellate proceedings
amply demonstrate the resources both the parties
and the courts have already expended, all of which
would be undone if arbitration is now required.
The prejudice to Gutierrez and the class stemming
from Wells Fargo's invocation of arbitration five
years into this litigation-time, expense, delay and
uncertainty-is apparent. See Nat'l Found. for
Cancer Research v. A.G. Edwards & Sons, Inc.,
821 F.2d 772, 776 (D.C.Cir. 1987) (*To give
[defendant] a second bite at the very questions
presented to the court for disposition squarely
confronts the policy that arbitration may not be
used as a strategy to manipulate the legal
process.").
Independent of the Fisher analysis, arbitration at
this juncture would frustrate the purposes of the
FAA. "The overarching purpose of the FAA,
evident in the text of $§ 2, 3, and 4, is to ensure
the enforcement of arbitration agreements
according to their terms so as to facilitate
streamlined proceedings." Concepcion, 131 S.Ct.
at 1748. Far from facilitating streamlined
proceedings, sending this case to arbitration post-
appeal would be wholly duplicative and lead to
further delay and expense for both partics.
Nor would arbitration at this late stage serve any
contractual purpose. The CAA calls for all claims
to be resolved through either litigation or
722 arbitration, if timely *722 demanded by one of the
parties. Because the CAA does not require
arbitration, Gutierrez's prejudice is in no way self-
inflicted. Ordering arbitration would undercut her
contractual expectations, be inconsistent with the
parties' agreement, and contradict their conduct
throughout the litigation. See Concepcion, 131
S.Ct. at 1752 ("Arbitration is a matter of contract,
and the FAA requires courts to honor parties'
expectations."). Because we reject Wells Fargo's
belated effort to invoke arbitration, we proceed to
the parties' remaining arguments.
II. Federal Preemption
We next consider whether the National Bank Act
of 1864, 13 Stat. 99 (codified at 12 U.S.C. § 1 ct
seq.), preempts application of California's Unfair
Competition Law. Consistent with the principles
of federalism, the United States has a "dual
banking system." See, e.g., Atherton v. F.D.I.C.,
519 U.S. 213, 221-23, 117 S.Ct. 666, 136 L.Ed.2d
656 (1997). During the first century of the nation's
existence, "state-chartered banks were the norm
and federally chartered banks an exception." Id. at
221, 117 S.Ct. 666. After the Civil War, Congress
passed the National Bank Act to ensure that
national and state banks could coexist on a basis
of "competitive cquality." First Nat'! Bank of
Logan, Utah v. Walker Bank & Trust Co., 385 U.S.
252, 261, 87 S.Ct. 492, 17 L.Ed.2d 343 (1966).

Gutierrez v. Wells Fargo Bank, NA 704 F.3d 712 (9th Cir. 2012)
The Act vests nationally chartered banks with
casatext powers, such as the power to make
contracts, to receive deposits, and to make loans,
together with "all such incidental powers as shall
be necessary to carry on the business of banking."
12 U.S.C. § 24 (Third, Seventh). In addition to the
National Bank Act, the activities of national banks
are governed by related regulations promulgated
by the Office of the Comptroller of the Currency
(the "OCC"). See12 U.S.C. §§ 24, 93a, 371(a).
In analyzing preemption, we ask whether the state
law "prevent[s] or significantly interfere[s] with
the national bank's exercise of its powers." Barnett
Bank of Marion Cnty., N.A. v. Nelson, 517 U.S. 25,
33, 116 S.Ct. 1103, 134 L.Ed.2d 237 (1996).
Althouch states
"visitorial"
oversight over national banks, state laws of
general application continue to apply to national
banks when "doing so does not prevent or
significantly interfere with the national bank's
exercise of its powers." Id. at 33, 116 S.Ct.
1103;see also Watters v. Wachovia Bank, N.A., 550
U.S. 1, 11, 127 S.Ct. 1559, 167 L.Ed.2d 389
(2007) ("Federally chartered banks are subject to
state laws of general application in their daily
business to the extent such laws do not conflict
with the letter or purposes of the NBA."). As the
Supreme Court explained in Cuomo v. Clearing
House Ass'n, LLC, 557 U.S. 519, 530, 129 S.Ct.
2710, 174 L.Ed.2d 464 (2009), this balance of
authority preserves "a regime of exclusive
administrative oversight by the Comptroller while
honoring in fact rather than merely in theory
Congress's decision not to pre-empt substantive
state law. This system echoes many other mixed
state/federal regimes in which the Federal
Government exercises general oversight while
leaving state substantive law in place." Indeed,
"[s)tates ... have always enforced their general
laws against national banks." Id. at 534, 129 S.Ct.
2710.
Against the framework of extensive federal
statutory and regulatory oversight of national
banks, the question is whether Wells Fargo's
implementation of high-to-low posting is subject
to California's Unfair Competition Law, a
consumer
protection
statute
general
applicability. Cal. Bus. & Prof.Code § 17200. We
do not tackle the Unfair Competition Law
723 generally*723 vis-a-vis federal banking regulation.
Rather, reviewing de novo, we analyze each
Unfair Competition
Law
claim separately,
Martinez v. Wells Fargo Home Mortg., Inc., 598
F.3d 549, 553 (9th Cir.2010), though as a practical
matter, the remedy ordered by the district court
boils down to a complete prohibition on the high-
to-low-sequencing method.
A. Unfair Business Practices and
High-to-Low Posting
The district court deemed Wells Fargo's high-to-
low posting method an unfair practice in violation
of the Unfair Competition Law because it was
imposed in bad faith, in contravention of the
policy reflected in California Commercial Code §
4303(b).
' In terms of remedy, the district court
permanently enjoined Wells Fargo's use of high-
to-low posting. The court ordered Wells Fargo to
"either reinstate a low-to-high posting method or
use a chronological posting method (or some
combination of the two methods)." With respect to
disclosures, the court required "all agreements,
disclosures, websites, online banking statements,
and promotional materials" to conform to the new
posting system. Finally, the court ordered $203
million in restitution because it found that Wells
Fargo acted in bad faith when it decided to post
debit-card transactions in high-to-low order. The
appeal of this claim turns on whether state law can
dictate Wells Fargo's choice of posting method.
We hold that it cannot.
§ The commentary to § 4303 explains that:
Subsection (b) provides that a payor bank
may accept or pay items in any order..
The only restraint on the discretion given
to the payor bank under subsection (b) 15
that the bank act in good faith. For

Gutierrez v. Wells Fargo Bank, NA 704 F.3d 712 (9th Cir. 2012)|
examplc, the bank could not properly
casetextew an established
practioe
maximing the number of recamed cheeks
for the so purpose of increasing the
ordinarily pre-empt[s], contrary
state
law."
Watters, 550 U.S. at 12, 127 S.Ct. 1559 (quotation
marks omitted).
Cal. Com.Code § 4303, 1992 Amendment
am!
Under the National Bank Act, key powers of
national banks include the authority to receive
deposits, as well as "all such incidental powers as
shall be necessary to carry on the business of
banking." 12 U.S.C. § 24 (Seventh). The deposit
and withdrawal of funds "are services provided by
banks since the days of their creation. Indeed, such
activities define the business of banking."
" Bank of Am. v. City and Cnty: of San Francisco,
309 F.3d 551, 563 (9th Cir.2002). Both the
"business of banking" and the power to "receiv[e)
deposits" necessarily include the power to post
transactions— i.e., tally deposits and withdrawals
-to determine the balance in the customer's
account. See12 U.S.C. § 24 (Seventh).
6 The incidental powers reserved for national
banks are "not limited to activities deemed
essential to the exercise of enumerated
powers but include activities closely
related to banking and useful in carying
out the business of banking." Bank of Aw.
v. City and Cnty. of San Frascisco, 309
F.3d 551, 562 (9th Cir.2002); see alsol2|
C.F.R. § 7.4007(a) ('A national bank may
roccive deposits and engage in any activity
incidental to receiving deposits.").
In addition to the broad power vested by statute,
federal banking regulations adopted by the OCC
724 specifically delegate *724 to banks the method of
calculating fees. 12 C.F.R. § 7.4002(b). As the
agency charged with administering the National
Bank Act, the OCC has primary responsibility for
the surveillance of the "business of banking"
authorized by the National Bank Act. NationsBank
of N.C., N.A. v. Variable Annuity Life Ins. Co., 513
U.S. 251, 256, 115 S.Ct. 810, 130 L.Ed.2d 740
(1995). The OCC is authorized to define the
"incidental powers" of national banks beyond
those specifically enumerated. See12 U.S.C. § 93a
(authorizing the OCC "to prescribe rules and
regulations to carry out the responsibilities of the
office").
The OCC has interpreted these incidental powers
to include the power to set account terms and the
power to charge customers non-interest charges
and fees, such as the overdraft fees at issue here.
12 C.F.R. § 7.4002(a).
More specifically, the OCC has determined that
"[t]he establishment of non-interest charges and
fees, their amounts, and the method of calculating
them are business decisions to be made by cach
bank, in its discretion, according to sound banking
judgment and safe and sound banking principles."
12 C.F.R. § 7.4002(b)(2) (emphasis added).
7 Section 7,4000(ai provides that a "national
Danx may charge ld custonses nobelterest
changes and foes, including deposit account
service charges." 12 C.F.R. $ 7.4002(a).
The ability to choose a method of posting
transactions is not only a useful, but also a
necessary, component of a posting process that is
integrally related to the receipt of deposits.
Designation of a posting method falls within the
type of overarching federal banking regulatory
power that is "not normally limited by, but rather
OCC letters interpreting $ 7.4002 specifically
consider high-to-low posting and associated
overdraft fees to be a "pricing decision authorized
by Federal law" within the power of a national
bank. OCC Interpretive Letter No. 916, 2001 WL
1285359, at *2 (May 22, 2001); see also OCC

Gutierrez v. Wells Fargo Bank, NA 704 F.3d 712 (9th Cir. 2012) |
Interpretive Letter No. 997, 2002 WL 32872368,
casetex L15, 2002); OCC Interpretive Letter No.
1082, 2007 WL 5393636, at *2 (May 17, 2007).
The OCC has opined that "a bank's authorization
to establish fees pursuant to 12 C.F.R. 7.4002(a)
necessarily includes the authorization to decide
how they are computed." OCC Interpretive Letter
No. 916, 2001 WL 1285359, at *2 (May 22,
2001). Accordingly, the OCC has determined that
a national bank "may establish a given order of
posting as a pricing decision pursuant to section
24 (seventh) and section 7.4002." Id. In sum,
Icecral law autorizes natona. Danks to establisa a
posting order as part and parcel of setting fees,
which is a pricing decision.
The district court held that the bank's
determination of posting order did not constitute a
pricing decision because Wells Fargo did not
follow the four factor decision making process for
safe and sound banking principles mandated by
the OCC. 12 C.F.R. § 7.4002(b).
* The National Bank Act gives to the OCC the
exclusive authority to exercise visitorial oversight
over national banks, and it entrusts the OCC with
the supervision of national banks' activities that
are authorized by federal law. 12 U.S.C. § 484(a);
12 C.F.R. § 7.4000; see also Cuomo, 557 U.S. at
524, 129 S.Ct. 2710. Whether Wells Fargo's
internal decision-making processes regarding
posting orders complied with the "safe and sound
banking principles" under § 7.4002(b)(2) is an
725 inquiry that falls *725 squarely within the OCC's
supervisory powers. The district court's findings
with regard to Wells Fargo's compliance with the
OCC regulation, then, are both "inapposite to the
issue of preemption" and "fruitless." Martinez,
598 F.3d at 556 n. 8 (citing Watters, 550 U.S. at
13, 127 S.Ct. 1559). In Martinez, we addressed
whether Wells Fargo had followed safe and sound
banking principles in making a pricing decision
and emphasized that the determination of the
bank's compliance with these principles "is within
the exclusive purview of the OCC." Id.
8 Saction 7.4002 6) provides that
charzes and feas in accomance with safel
and sound banking principles it the bank
employs
decision-making proces
through which it considers the following
factors, among others: (i) The cost incurred
Dy the banx in providing the service, (al)
the competitive position of the bank in
and marketing strategy; and (iv) The
maintenance of the safety and soundness of
12 C.F.R. § 3.4002(b).
Wells Fargo's decision to rescquence the posting
order falls within the OCC's definition of a pricing
decision authorized by federal law. The district
court is not free to disregard the OCCs
determinations of what constitutes a legitimate
pricing decision, nor can it apply state law in a
way that interferes with this enumerated and
incidental power of national banks.
The restriction that the district court imposed on
posting is akin to the fee restriction addressed in
the Eleventh Circuit's recent preemption ruling.
See Baptista v. JPMorgan Chase Bank, N.A., 640
F.3d 1194, 1197 (11th Cir.2011). The court in
Baptista held that a state statute that disallowed
banks from charging non-customers for cashing a
check was preempted because it significantly
reduced the banks' latitude in deciding how to
charge fees. Id. at 1197-98. The same logic
applies here.
We hold that a "good faith" limitation applied
through California's Unfair Competition Law is
preempted when applied in a manner that prevents
or significantly interferes with a national bank's
federally authorized power to choose a posting
order. See Barnett, 517 U.S. at 37, 116 S.Ct. 1103
(state statute could not bar small town national
banks from selling insurance where federal statute
10|

Gutierrez v. Wells Fargo Bank, NA 704 F.3d 712 (9th Cir. 2012)
gave the banks such authority); Bank of Am., 309
casetext 64 (federal regulations allowing banks
to collect non-interest charges preempted a local
law governing what ATM fecs a bank could
charge). The federal court cannot mandate the
order in which Wells Fargo posts its transactions.
Therefore, we vacate the permanent injunction and
the $203 million restitution award. The district
court premised both of these remedies on only a
violation of the "unfair" business practice prong of
the Unfair Competition Law tethered to the "good
faith" requirement of California Commercial Code
§ 4303(b).
B. Fraudulent Business Practices and
Wells Fargo's Representations
The district court found not only a violation of the
"unfair" prong of the Unfair Competition Law
with regard to the posting order, but also a
violation of the "fraudulent" prong of the Unfair
Competition Law with regard to Wells Fargo's
representations about posting. The Unfair
Competition Law authorizes injunctive relief and
restitution as remedies against a person or entity
engaging in unfair competition, including
fraudulent business practices. Cal. Bus. &
Prof.Code § 17203; see also Cel-Tech Comme'ns,
Inc., 20 Cal.4th at 180, 83 Cal.Rptr.2d 548, 973
P.2d 527 (each of the three Unfair Competition
Law prongs constitutes a separate and independent
cause of action). The district court faulted Wells
Fargo both for its failure to disclose the effects of
high-to-low posting and for its misleading
statements. The district court concluded that Wells
Fargo "did not tell customers that frequent use of a
debit-card for small-valued purchases could result
in an avalanche of overdraft fees for each of those
purchases due to the high-to-low posting order."
Instead, Wells Fargo
"directed misleading
propaganda at the class that likely led class
726 members to *726 expect that the actual posting
order of their debit-card purchases would mirror
the order in which they were transacted."
We have determined that the district court's
injunction ordering a particular kind of posting
and ordering $203 million in restitution under the
"unfair" prong of California's Unfair Competition
Law is preempted. The question arises whether we
need to address preemption under the "fraudulent"
prong as well. We conclude that we do because,
on remand, the district court may determine that
appropriate relief is available to the extent a claim
for fraudulent misrepresentation is not preempted.
The requirement to make particular disclosures
falls squarely within the purview of federal
banking regulation and is expressly preempted: "A
national bank may exercise its deposit-taking
powers without regard to state law limitations
concerning," among other things, "disclosure
requirements." 12 C.F.R. § 7.4007(b)(3). In
Martinez, plaintiffs' claim that the bank "engaged
in 'fraudulent' practices by failing to disclose
actual costs of its underwriting and tax services"
was expressly preempted by the OCC regulation
preempting state disclosure requirements in real
estate transactions. Martinez, 598 F.3d at 554,
557;see also12 C.F.R. § 34.4(a)(9). Similarly, the
Unfair Competition Law cannot impose liability
simply based on the bank's failure to disclose its
chosen posting method. See Rose v. Chase Bank
USA, N.A., 513 F.3d 1032, 1038 (9th Cir.2008)
(the National Bank Act preempts affirmative
disclosure requirements of a California statute,
insofar as those requirements apply to national
banks); Parks v. MBNA Am. Bank, N.A., 54
Cal.4th 376, 386-87, 142 Cal.Rptr.3d 837, 278
P.3d 1193 (2012) (state law directed at credit card
issuers, which prescribed specific disclosures on
convenience chocks, was preempted). Imposing
liability for the bank's failure to sufficiently
disclose its posting method leads to the same
result as mandating specific disclosures. Both
remedies are tantamount to state regulation of
disclosure requirements.
We turn now to the different question of state law
liability based on Wells Fargo's misicading
statements about its posting method. Notably, the
11

Gutierrez v. Wells Fargo Bank, NA 704 F.3d 712 (9th Cir. 2012) |
Unfair Competition Law itself does not impose
casetext requirements but merely prohibits
statements that are likely to mislead the public. As
a non-discriminating
state aw of venera.
applicability that does not "conflict with federal
law, frustrate the purposes of the National Bank
Act, or impair the efficiency of national banks to
discharge their duties," the Unfair Competition
Law's prohibition on misleading statements under
the fraudulent prong of the statute is not
preempted by the National Bank Act. Bank of Am.,
309 F.3d at 561.
Wells Fargo's position-that § 7.4007(b)(2)
dictates preemption is conclusively undercut by
the OCC itself, which, far from concluding that
the Unfair
Competition Law is expressly
preempted under its regulations, "has specifically
cited [California's Unfair Competition Law] in an
advisory letter cautioning banks that they may be
subject to such laws that prohibit unfair or
deceptive acts or practices." Martinez, 598 F.3d at
555. The advisory letter warns that the
"consequences of engaging in practices that may
be unfair or deceptive under federal or state law
can include litigation, enforcement actions,
monctary judgments, and harm to the institution's
reputation." OCC Advisory Letter, Guidance on
Unfair or Deceptive Acts or Practices, 2002 WL
521380, at *1 (Mar. 22, 2002). The OCC
recognizes that state laws that withstand
727 preemption "typically do not regulate the *727
manner or content of the business of banking
authorized for national banks, but rather establish
the legal infrastructure that makes practicable the
conduct of that business." Bank Activities and
Operations, 69 Fed.Reg.1904, 1913 (Jan. 13,
2004). By prohibiting fraudulent business
practices, the Unfair Competition Law does
exactly that—it establishes a legal infrastructure.
Although Wells Fargo insists that a state law
prohibiting misleading statements necessarily
touches on "checking accounts," such an
candisive
interpretation—with
limiting
principle-"would swallow all laws." Aguayo v
U.S. Bank, 653 F.3d 912, 925 (9th Cir.2011). We
recently declined a bank's invitation to interpret
the term "lending opcrations" expansively because
"every action by the bank, due to the nature of its
business, affects its ability to attract, manage, and
disburse capital, and could be said to 'affect' its
lending operations." Id. California's prohibition of
misleading statements
does
not
significantly
interfere with the bank's ability to offer checking
account services, choose a posting method, or
calculate foes. Nor docs the Unfair Competition
Law mandate the content of any nonmisleading
and nontraudulent statements in the banking
arcna. On the flip side, the National Bank Act and
other OCC provisions do not aid Wells Fargo, as
neither source regulates deceptive statements vis-
a-vis the bank's chosen posting method. Where, as
here, federal laws do not cover a bank's actions,
states "are permitted to regulate the activitics of
national banks where doing so does not prevent or
significantly interfere with the national bank's or
the national bank regulator's exercise of its
powers." Watters, 550 U.S. at 12, 127 S.Ct.
1559;see also Gibson v. World Sav. & Loan Ass'»,
103 Cal.App.4th 1291, 1299, 128 Cal.Rptr.2d 19
(2002) (the "state cannot dictate to the Bank how
it can or cannot operate, but it can insist that,
however the Bank chooses to operate, it do so free
from fraud
and
other deceptive business
practices*).
Other than an argument regarding the cost of
modifying its published materials, Wells Fargo
does not articulate how abiding by the Unfair
Competition Law's prohibition of misleading
statements would prevent or significantly interfere
with its ability to engage in the business of
banking. Wells Fargo's inability to demonstrate a
significant interference is unsurprising-the
district court found that when it chose to, the bank
could accurately explain the posting process to
customers: "Wells Fargo provided its tellers and
phone-bank employees with a clear script to
respond to customers
who
protested after
receiving multiple overdraft fees caused by high-
12

Gutierrez v. Wells Fargo Bank, NA 704 F.3d 712 (9th Cir. 2012) |
to-low resequencing. These explanations were in
capetextish." The limitation on fraudulent
representations in California's Unfair Competition
Law does not subject Wells Fargo's ability to
receive acposts, to set account teams.
implement a posting method, or to calculate fees
to surveillance under a rival oversight regime, nor
does it stand as an obstacle to the accomplishment
of the National Bank Act's purposes. See Barnett,
517 U.S. at 31, 116 S.Ct. 1103. In Martinez, we
expressed the principle that controls here: "State
laws of general application, which merely require
all businesses incluany natonal danks, to rewaln
from fraudulent, unfair, or illegal behavior, do not
necessarily impair a bank's ability to exercise its …
powers." 598 F.3d at 555. Accordingly, we hold
that Gutierrez's claim for violation of the
fraudulent prong of the Unfair Competition Law
by making misleading misrepresentations with
regard to its posting method is not preempted, and
we affirm the district court's finding to this extent.
Consistent with the foregoing, the district court
728 may provide injunctive relief *728 and restitution
against Wells Fargo. Although the court cannot
issue an injunction requiring the bank to use a
particular system of posting or requiring the bank
to make specific disclosures, it can enjoin the bank
from making fraudulent or
misleading
representations about its system of posting in the
future. Restitution is available for past misleading
representations. We make no judgment as to
whether it is warranted here. On remand, the
district court will be in a position to determine
whether, subject to the limitations in this opinion,
restitution is justified by the pleadings and the
evidence in this case.
III. Remaining Issues
Finally, we consider Wells Fargo's challenge to
standing, class certification, and the finding that
Wells Fargo made misleading statements. Upon
reviewing the trial record and the district court's
extensive findings, we conclude that the district
court did not err. See Lyon v. Gila River Indian
Cmty:, 626 F.3d 1059, 1071 (9th Cir.2010) (the
district court's conclusions of law are reviewed de
novo and its findings of fact are reviewed for clear
error).
A. Standing
To establish standing to seck class-wide relief for
fraud-based Unfair Competition Law claims, the
named plaintiff's must prove "actual reliance" on
the misleading statements. Specifically, "a class
representative
proceeding on
a claim of
misrepresentation as the basis of his or her UCL
action must demonstrate achiel reliance on the
allegedly deceptive or misleading statements, in
accordance with well-settled principles regarding
the element of reliance in ordinary fraud actions."
In re Tobacco Il Cases, 46 Cal.4th 298, 306, 93
Cal.Rptr.3d 559, 207 P.3d 20 (2009).
The district court found that Gutierrez and Walker
read portions of the "Welcome Jacket," "which
stated that '[clach purchase is automatically
deducted from your primary checking account.'"
The district court next found that Gutierrez and
Walker each "relied upon the bank's misleading
marketing materials that reinforced her natural
assumption that debit-card transactions would post
chronologically." The district court determined
that both Gutierrez and Walker were misled by
Wells Fargo's statements because the extent of the
falsity of the statements was not known to either
of them until they incurred hefty fees for having
overdrawn their checking accounts. These findings
are well supported by the evidence and are not
clearly erroneous. Gutierrez and Walker therefore
have standing. See Bates v. United Parcel Serv.,
Inc., 511 F.3d 974, 985 (9th Cir.2007) (en banc)
("In a class action, standing is satisfied if at least
one named plaintiff' meets the requirements.").
' Gutierrez's and Walker's harm was not all
caused by their lack of oversight of their
Owts
account
halanene
misundesstanding that Wells Fargo's
masleading statements sowed among
customers about its posting scheme was a
13

Gutierrez v. Wells Fargo Bank, NA 704 F.3d 712 (9th Cir. 2012)
significant cause of the magnitude of the
casete it experienced by Gutienez and Walker.
B. Class Certification
Next, class certification under Fed.R.Civ.P. 23(b)
(3) requires that "questions of law or fact common
to class members predominate over any questions
affecting only individual members." With respect
to marketing materials, the district court found
that:
A Wells Fargo marketing theme was that debit-
card
purchases
"immediately"
"automatically" deducted from an account. This
likely led the class to believe: (1) that the funds
would be deducted from their checking accounts
729 in the order transacted, and (2) that the *729
purchase would not be approved if they lacked
sufficient available funds to cover the transaction.
This language was present on Wells Fargo's
website (TX 129), on Wells Fargo's Checking,
Savings and More brochures from 2001 and 2005
(TX 88, 89), and Wells Fargo's New Account
Welcome Jacket from 2004 (TX 82).
The pervasive nature of Wells Fargo's misleading
marketing materials amply demonstrates that class
members, like the named plaintiffs, were exposed
to the materials and likely relied on them. See
Tobacco II, 46 Cal.4th at 312, 93 Cal.Rptr.3d 559,
207 P.3d 20 (to establish fraud under the Unfair
Competition Law, plaintifis must show "that
members of the public are likely to be deceived"').
In addition, the district court found that Wells
Fargo knew that "new accounts generate the bulk
of OD [overdraft] revenue." Wells Fargo's
speculation-that "some class members would
have engaged in the same conduct irrespective of
the alleged misrepresentation" does not meet its
burden of demonstrating that individual reliance
issues predominate. Unlike McLaughlin v. Am.
Tobacco Co., 522 F.3d 215, 223 (2d Cir.2008)
(partially abrogated on other grounds by Bridge v.
Phoenix Bond & Indem. Co., 553 U.S. 639, 128
S.Ct. 2131, 170 L.Ed.2d 1012 (2008)), where
individual class members could have had different
motives for choosing "light" cigarettes, we are
hard pressed to agree that any class member would
prefer to incur multiple overdraft fees.
C. Misleading Statements
Finally, the district court's finding that Wells Fargo
made misleading statements is amply supported
by the court's factual findings. Wells Fargo told
customers that "[c)heck
card
and
AlM
transactions generally reduce the balance in your
account immediatcly" and that "the money comes
right out of your checking account the minute you
use your debit-card." The bank also misleadingly
admonished
customers to "remember that
whenever you use your debit-card, the money is
immediately
withdrawn from your checking
account. If you don't have enough money in your
account to cover the withdrawal, your purchase
won't be approved." According to the district
court,
the "account activity" information provided to
customers through online banking-a service
made available to all Wells Fargo depositors-
displayed "pending" debit-card transactions in
chronological order (ie., the order in which the
transactions were authorized by Wells Fargo).
When it came time to post them during the
settlement process, however, the same transactions
were not posted in chronological order but were
posted in high-to-low order.
The findings go on:
Misleading marketing materials promoted the
same theme of chronological subtraction. A
number of Wells Fargo marketing materials,
including the Wells Fargo Welcome Jacket that
was customarily provided to all customers who
opened a consumer checking account, contained
misleading representations regarding how debit-
card transactions were processed. Specifically,
these various materials— covered in detail in the
findings of fact-communicated that debit-card
POS purchases were deducted "immediately" or
"automatically" from the user's checking
14

Gutierrez v. Wells Fargo Bank, NA 704 F.3d 712 (9th Cir. 2012)|
account...
Such representations would lead
casetext consumers to believe that the
transactions would be deducted from their
checking accounts in the sequence transacted.
Based on these findings, the district court
concluded that "Wells Fargo affirmatively
730 reinforced the expectation that transactions*730
were covered in the sequence made while
obfuscating its contrary practice of posting
transactions in high-to-low order to maximize the
number of overdrafts assessed on customers."
Wells Fargo's altemate interpretation of the word
"automatically" is insufficient to render the district
court's findings clearly erroncous. Accordingly,
the district court's holding that Wells Fargo
violated the Unfair Competition Law by making
misleading statements likely to deceive its
customers is aftirmed.
Conclusion
Given the terms of the arbitration agreement and
the parties' conduct throughout litigation, the
Supreme Court's decision in Concepcion does not
require that this dispute be arbitrated at this late
stage— post-trial, post-judgment, and post-appeal.
As to preemption, we hold that a national bank's
decision to post payments to checking accounts in
a particular order is a federally authorized pricing
decision. The National Bank Act preempts the
application of the unfair business practices prong
of California's Unfair Competition Law to dictate
a national bank's order of posting. See12 U.S.C. §
24; 12 C.F.R. $ 7.4002. Similarly, both the
imposition of affirmative disclosure requirements
and liability based on failure to disclose are
preempted by 12 U.S.C. § 24 and 12 C.F.R. §
7.4007. The National Bank Act, however, docs not
preempt Gutierrez's claim for affirmative
misrepresentations under the "fraudulent" prong
of the Unfair Competition Law.
Although the injunctive relief ordered by the
district court is based on both the unfair and
fraudulent prongs of the Unfair Competition Law,
the injunction is vacated because each of its terms
dictates relief relating to the posting order, which
is preempted. The restitution order, which is
predicated on liability for Wells Fargo's choice of
posting method and thus also preempted, is
vacated as well. The district court's finding of
liability for Wells Fargo's violations of the
"fraudulent" prong of California's Unfair
Competition Law is affirmed, and we remand for
the district court to determine what relief, if any, is
appropriate and consistent with this opinion.
10 In lisht of the decision to vacate thel
parties' arguments as to the amount of
restitution awarded, prejudgment interest,
and punitive damages.
AFFIRMED in part, REVERSED in part, and
REMANDED. Each party shall pay its own fees
on appeal.
15

casetext
Gutierrez v. Wells Fargo Bank, NA
704 F.3d 712 (9th Cir. 2012)