In re TD Bank, N.A.
IN RE: TD BANK, N.A. Debit Card Overdraft Fee Litigation
Full Opinion (html_with_citations)
This matter is before the Court on the defendantâs motion to dismiss counts I-VI and VIII of the plaintiffsâ consolidated amended class action complaint (âCACâ) for failure to state a claim upon which relief can be granted. (ECF No. 53.) For the reasons set forth in this order, the defendantâs motion is granted in part and denied in part.
PROCEDURAL BACKGROUND
In this litigation, the plaintiffs challenge the manner in which the defendant, TD Bank, N.A., and some smaller state banks that it has acquired (collectively âTD Bankâ or âthe Bankâ), assessed overdraft fees, posted debit transactions, and assessed âsustainedâ overdraft fees.
The plaintiffsâ CAC was filed on June 19, 2015. (ECF No. 37.) TD Bank filed a motion to dismiss the plaintiffsâ CAC for failure to state a claim on August 3, 2015. (ECF No. 53.) The plaintiffs filed a response in opposition to the motion (ECF No. 59) on September 2, 2015, and TD Bank filed a reply on September 23, 2015 (ECF No. 60). A hearing was held on the motion to dismiss on October 14, 2015, and the Court took the matter under advisement. TD Bank' filed a notice of supplemental authority in support of the motion to dismiss on October 22, 2015. (ECF No. 63.) The plaintiffs filed a response to the notice of supplemental authority on October 23, 2015. (ECF No. 64.) On. November 30, 2015, the plaintiffs filed a notice of supplemental authority. (ECF No. 66.) TD Bank filed an objection to, the, plaintiffsâ notice of supplemental authority on December 4, 2015. (ECF No. 67.)
FACTUAL BACKGROUND
Unless otherwise indicated, the following facts are drawn from the CAC and construed in the light most favorable to the plaintiffs.
I. TD Bankâs Overdraft Program
The plaintiffsâ claims arise from TD Bankâs assessment and collection of allegedly improper and excessive overdraft fees. The claims can be grouped into five categories of alleged behavior by the Bank: (1) assessment of overdraft fees when there are sufficient actual funds in the account; (2) assessment of overdraft fees as a result-of reordering debit transactions from high to low; (3) assessment of overdraft fees on transactions intentionally authorized into overdraft without notice.to customers; (4) assessment of overdraft fees on ATM and one-time debit transactions in violation of Regulation E, 12 C.F.R. § 205.17, under the Electronic Funds Transfer Act (âEFTAâ); and (5) assessment of âsustainedâ overdraft fees on checking and money market account customers in violation of the National Bank Actâs prohibition on the collection of usurious interest (12 U.S.C. §§ 85-86).
TD Bank provides debit cards to its checking account customers. Customers can use their debit cards to access their checking account funds by making purchases or withdrawing money from ATM machines. The Bank is instantaneously notified of debit card transactions and has the option to accept or decline the transaction- at the point of sale. According to the plaintiffs, TD Bank can immediately deter
Instead of declining such transactions or informing customers that they will result in overdraft fees, TD Bank will, in its discretion, honor transactions that result in overdraft. However, if TD Bank honors an overdraft, it charges the customer a $35 fee for each overdraft, up' to five charges per day. At the time of the transaction, TD Bank does'not alert its customers that it will cause an overdraft. The plaintiffs aver that TD Bank paid, rather than returned or declined, nearly all debit card charges resulting in overdraft, even though the accounts in question purportedly lacked' sufficient funds to cover the relevant transactions. The Bank-charged customers the same $35 fee for each overdraft regardless of the amount of the transaction.
. TD Bankâs automated overdraft system is allegedly designed to maximize overdraft fee revenue without regard to customersâ particular financial circumstances. The plaintiffs assert that when marketing its overdraft protection program, TD Bank represents that it takes the personal circumstances of each customer into account before exercising its discretion in deciding whether to- authorize an overdraft transaction. This allegedly creates a false impression in the mind of the consumer that the Bank assesses personal information before making individualized decisions on a case-by-case, transaction-by-transaction basis. In reality, claim the plaintiffs, the Bank simply honors nearly every transaction that will create an overdraft, thus increasing the number of fees it can charge.
Next, the plaintiffs allege that TD Bank assessed overdraft fees on customersâ accounts even when there was still enough money in the account to cover the transaction. The Bank purportedly did not notify plaintiffs that it was possible to incur overdraft fees on transactions even when there were sufficient funds in the checking account to cover the transaction at the time it was executed. At the time such transactions were executed, TD Bank also did not notify customers that their checking accounts were or would be overdrawn, or that they would be charged an overdraft fee as a result of the transaction. The plaintiffs assert that TD Bank deemed accounts to be overdrawn when sufficient funds still remained in the account by using a calculation called âavailable balance.â Instead of using the actual balance of money in the account to determine when it was overdrawn and- when a fee should be triggered, TD Bank used a reduced balance calculated by subtracting âpendingâ debit transactions, which may not settle or be paid for several days, and may not settle for the authorized amount or at all. This reduced balance is the âavailable balance.â TD Bank treated transactions that caused the âavailable balanceâ to fall below zero, or to remain below zero, as an âoverdraft.â TD Bank then assessed the associated overdraft fees without regard to the actual balance, which was still positive. By so doing, claim the plaintiffs, TD â Bank increased the number of fees it charged to its customers because fees that would not otherwise have been assessed if the actĂșa] balance was considered were triggered by the use of a negative available balance for accounting purposes.
The plaintiffs further allege that TD Bank manipulated and reordered transactions on customersâ deposit accounts from
TD Bank has already been sued regarding its high-to-low posting overdraft practices. Several cases filed against TD Bank were settled as part of a multidistrict litigation proceeding known as In re Checking Account Overdraft Litigation in the United States District Court for the Southern District of Florida (âMDL No. 2036). (See Order of Final Approval of Settlement, Authorizing Service Awards, and Granting Application for Attorneysâ Fees, Ex. C., ECF No. 37-3.) TD Bank settled the case for $62,000,000, an amount paid to customers whose accounts had been subject to overdraft fees as a result of the high-to-low posting practice from December 1, 2003 to August 15, 2010. (Id. at 8-9.) The plaintiffs allege that many of the overdraft fee practices complained of in the instant proceeding have continued unchanged despite the class action settlement in that prior case.
TD Bank was required to comply with Regulation E, 12 C.F.R. § 205.17, relating to obtaining affirmative opt-ins before it could assess its customers overdraft fees on ATM and non-recurring debit card transactions. According to the plaintiffs, TD Bank assessed certain customers overdraft fees for these types of transactions without, obtaining the requisite affirmative opt-ins.
TD Bank charged its customers an extended overdraft balance charge, or âsustained overdraft fee,â in the amount of $20 when a customer failed to bring an overdrawn account back into a positive balance within ten business days. This sustained overdraft fee is a secondary fee that is applied to overdrawn accounts after the initial overdraft fees have been charged. The plaintiffs assert that the sustained overdraft fee is premised' on a customerâs account remaining in ĂĄ negative balance for a specified period of time. They claim that the sustained overdraft fee is therefore an interest'charge, ĂĄnd that the rate of interest vastly exceeds permissible limits as set forth in the National' Bank Act, 12 U.S.C. §§ 85-86. âą
Each of the named plaintiffs opened checking accounts with TD Bank, and are, or were, customers of TD Bank. Shawn Balensiefen, Michael Goheen, Keith Irwin, Jan Kasmir, James- King, Jr., Joanne McClain, and Michael McClain were also customers of Carolina First Bank or Mercantile Bank. TD Bank acquired Carolina First Bank and Mercantile Bank on September 30, 2010, and assumed the liabilities of those entities. -The holding company
II. The Account Holder Agreements
The Personal Deposit Account Agreement (âPDAAâ) sets forth terms and conditions governing. TD Bankâs relationship with, account holders. The PDAA contains an extensive section that explains the mechanics of how items are processed and posted to customersâ accounts,. entitled, âPROCESSING ORDER FOR PAYMENT OF CHECKS AND OTHER ITEMS.â.(Ex. A, ECF No. 37-1 at 8-9.) The PDAA states, âOverdraft fees may be assessed on items presented for payment that bring your Account into a negative balance, as well as any subsequent transactions presented for payment while the Account has a negative balance.â (Id. at 9.) The PDAA defines an overdraft as an âadvance of funds greater than the amount that has become available in accordance with the Bankâs Funds Availability Policy, made by us to you, at our sole discretion.â (Id. at 10.) The PDAA indicates that overdrafts may include âadvances to cover a check, in-person withdrawal, ATM withdrawal, or a withdrawal by other electronic means from your Account,â and warns, â[w]e may demand immediate repayment of any overdraft and charge you an overdraft fee.â (Id.) The PDAA states that âoverdraft fees are not charged on âpendingâ authorizations, although they reduce your available balance.â (Id. at 9.) The PDAA further states, âYou may overdraw your account by up to $5 per day without being charged a fee. If your negative available balance exceeds $5 at the end of the day, we will charge you for each transaction that overdraws your account .... â (Id. at 10.)
The plaintiffs allege that Carolina First Bank and- Mercantile Bank followed overdraft policies nearly identical to those of TD Bank, including the use of âavailable balanceâ instead of actual balance to assess overdraft fees when there was sufficient money in the customerâs account to cover the transaction in question. One version of the Carolina First Bank- customer agreement entitled, âTerms and Conditions of Your Accountâ (âCarolina First Account Agreementâ), governed various aspects of the state âą banksâ relationship with account holders. The Carolina First Account Agreement states, âThis document, along with any other documents we give you pertaining to your account(s), is a contract that establishes rules which control your account(s) with us.â (Ex. D, ECF No. 37-4 at 2.) The Carolina First Account Agreement is not as specific as the PDAA regarding item posting and overdraft procedures'. However, the Carolina First Account Agreement includes the following language related to overdrafts and overdraft fees:
The fact that we may honor withdrawal requests that overdraw the available account balance does not obligate us to do so later. You agree that' we may charge fees for overdrafts and use subsequent deposits, including direct deposits of social security or other government benefits, to cover such overdrafts and overdraft fees.
(Id. (under âWITHDRAWALSâ)) In a section entitled âCHECK PROCESSING,â
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 receive the item and when we return the item or send a notice in- lieu 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.
(Id. at 3.)
STANDARD OF REVIEW
A plaintiffs complaint should set forth âa short and plain statement ... showing that the pleader is entitled to relief.â Fed. R. Civ. P. 8(a)(2). Rule 8 âdoes not require âdetailed factual allegations,â but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.â Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). âTo survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to âstate a claim to relief that is plausible on its face.â â Id. (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955)). âA 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.â Id. (quoting Twombly, 550 U.S. at 556, 127 S.Ct. 1955)). In considering a motion to dismiss under Fed. R. Civ. P. 12(b)(6), a court âaccepts all well-pled facts as true and construes these facts in the light most favorable to the plaintiff .... â Nemet Chevrolet, Ltd. v. Consumeraffairs.com, Inc., 591 F.3d 250, 255 (4th Cir.2009). A court should grant a Rule 12(b)(6) motion if, âafter accepting all well-pleaded allegations in the plaintiffs complaint as true and drawing all reasonable factual inferences from- those facts in the plaintiffs favor, it appears certain that the plaintiff cannot prove any set of facts in support of his claim entitling him to relief.â Edwards v. City of Goldsboro, 178 F.3d 231, 244 (4th Cir.1999).
As previously noted, to survive a Rule 12(b)(6) motion to dismiss a complaint must state âa plausible claim for relief.â Iqbal, 556 U.S. at 679, 129 S.Ct. 1937 (emphasis added). âThe plausibility standard is not akin to a âprobability requirement,â but it asks for more than a sheer possibility that a defendant has acted unlawfully. Where a complaint pleads facts that .are âmerely consistent withâ a defendantâs liability, it âstops short of the. line between possibility and plausibility of entitlement to relief.â â Id. at. 678, 129 S.Ct. 1937 (quoting Twombly, 550 U.S. at 557, 127 S.Ct. 1955). Stated differently, âwhere the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged â but it has not âshow[n]â â âthat the pleader is entitled to relief.ââ Id. at 679, 129 S.Ct. 1937 (quoting Fed. R. Civ. P. 8(a)(2)). Still, Rule 12(b)(6) âdoes not countenance ... dismissals based on a judgeâs disbelief of a complaintâs factual allegations.â Colon Health Centers of Am., LLC v. Hazel, 733 F.3d 535, 545 (4th Cir.2013) (quoting Neitzke v. Williams, 490 U.S. 319, 327, 109 S.Ct. 1827, 104 L.Ed.2d 338 (1989)). âA plausible but inconclusive inference from pleaded facts will survive a motion to dismiss____â Sepulveda-Villarini v. Depât of Educ. of Puerto Rico, 628 F.3d 25, 30 (1st Cir.2010).
DISCUSSION
I. Federal Preemption
The first question to be answered by the Court is whether the National Bank Act of
Under the Supremacy Clause, Article VI, Clause II of the United States Constitution, state law that conflicts'with federal law is of no effect and thĂ© applicable federal law controls. Federal law miay supersede state law in three different ways: (1) when Congress expressly preempts state law by so stating in express terms, (2) where a scheme of federal regulation is sufficiently comprehensive to invoke a reasonable inference that Congress left no room- within the field for supplementary state regulation, and (3) where federal and state law actually conflict. See California Federal Sav. and Loan Assân v. Guerra, 479 U.S. 272, 280-81, 107 S.Ct. 683, 93 L.Ed.2d 613 (1987). The third category, so called âconflictâ preemption, may arise either because âcompliance with both federal and state regulations is a physical impossibility,â Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142-143, 83 S.Ct. 1210, 10 L.Ed.2d 248 (1963), or because the state law âstands as an obstacle to the accomplishment and execution of the full, purposes and objectives' of Congress,â Hines v. Davidowitz, 312 U.S. 52, 67, 61 S.Ct. 399, 85 L.Ed. 581 (1941).
In the context of the national banking industry, the question of conflict preemption is more refined. âFederally 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 the general purposes of the NBA.â Watters v. Wachovia Bank, N.A., 550 U.S. 1, 11, 127 S.Ct. 1559, 167 L.Ed.2d 389 (2007) (citing Davis v. Elmira Savings Bank, 161 U.S. 275, 290, 16 S.Ct. 502, 40 L.Ed. 700 (1896)). However, âwhen state prescriptions significantly impair the exercise of authority, enumerated or incidental under- the NBA, the [s]tateâs regulations must give way.â Id. at 12, 127 S.Ct. 1559 (citing Barnett Bank of Marion Cty., N.A. v. Nelson, 517 U.S. 25, 32-34, 116 S.Ct. 1103, 134 L.Ed.2d 237 (1996) (federal law permitting national banks to sell insurance in small towns preempted state statute prohibiting banks from selling most types of insurance); Franklin Nat. Bank of Franklin Square v. New York, 347 U.S. 373, 375-79, 74 S.Ct. 550, 98 L.Ed. 767 (1954) (local restrictions preempted because they burdened exercise of national banksâ incidental power to advertise)). Thus, in defining the preemptive scope of statutes and regulations that grant power to national banks, the United States Supreme Court takes the view that âCongress would not want States to forbid, or to impair significantly, the exercise of a power that Congress explicitly granteâd.â Barnett Bank, 517 U.S. at 33, 116 S.Ct. 1103 (emphasis added). The history of national bank legislation âis one of interprĂ©t-ing grants of both enumerated and incidental âpowersâ to national banks as grants of authority not normally limited by, but rather ordinarily pre-empting, contrary state law.â Id. at 32, 116 S.Ct. 1103. Nevertheless, ,â[s]tate laws on the [ ] subjects [of . contracts and torts] are not inconsistent with the deposit-taking powers of national banks to' the extent consistent with the decision of the Supreme Court in [Barnett Bank].â 12 C.F.R. § 7.4007(c). The resul
For the sake of clarity, the Court specifically considered whether the fact that the preemption question in the instant case includes state common' law causes of action, rather than state statutes or regulations only, should have any bearing on the preemption outcome. The Court finds no distinction between state common law and state statutory or regulatory law with respect to their proclivity to-impair a bank from carrying out the business of banking, or lack thereof. As such, the Court considers the applicable case law dealing with preemption in the context of state statutes (e.g. Gutierrez v. Wells Fargo Bank, N.A., 704 F.3d 712 (9th Cir.2012)) to be of the same persuasive and precedential value as if it dealt with common law claims specifically. Where federal preemption applies, it bars both a direct assertion of state law by a state legislature, see Barnett Bank, 517 U.S. at 31, 116 S.Ct. 1103, and the assertion of state law causes of action by private plaintiffs based on laws of general applicability, see Smiley v. Citibank (S.D.), N.A., 517 U.S. 735, 738 & n. 1, 747, 116 S.Ct. 1730, 135 L.Ed.2d 25 (1996). See also Wilmington Shipping Co. v. New England Life Ins. Co., 496 F.3d 326, 341 (4th Cir. 2007) (reasoning that parties may not avoid the preemptive reach of federal law by recasting otherwise preempted claims as state law contract and tort claims). The operative question of âsignificant interferenceâ is the same in both contexts. See Hawthorne v. Umpqua Bank, 2013 WL 5781608, at *11-13 (N.D.Cal. Oct. 25, 2013) (state statutory unfair trade practices, implied covenant of good faith, and unjust enrichment claims premised on bankâs high-to-low posting order preempted); Mann v. TD Bank, N.A., 2009 WL 3818128, at *4 (D.N.J. Nov. 12, 2009) (breach of contract, implied covenant of .good faith, unconscionability, and state statutory unfair trade practices claims premised on bankâs gift card fees preempted).
A. Counts II-VI Challenge Actions by TD Bank That Constitute Federally Conferred Powers
The NBA authorizes national banks to receive deposits and perform âall such incidental powers as shall be necessary to carry on the business of banking.â 12.U.S.C. § 24. The Office of the Comptroller of the Currency (âOCCâ) possesses regulatory oversight -of national banksâ exercise of their federally authorized powers, and Congress has delegated to the OCC authority to determine the-scope of national banksâ incidental powers. See 12 U.S.C. § 93a; 12 C.F.R. § 7.4000.
National banksâ powers to receive deposits and to establish non-interest charges and fees include the power to decide the order in which transactions will be posted, to honor overdrafts, and to assess overdraft fees. OCC Interp. Ltr. No. 1082, 2007 WL 5393636 at *3 (May 17, 2007); OCC Interp. Ltr. No. 997, 2002 WL 32872368, at *2 (Apr. 15, 2002); OCC In-terp. Ltr. No. 916, 2001 WL 1285359, at *2 (May 22, 2001). When considering the question of transaction posting order in the context of checks, the OCC stated â[ĂĄ] bankâs authorization to establish fees pursuant to 12 C.F.R. § 7.4002(a) necessarily includes the authorization to decide how they are computed,â and âposting order is one component that affects the Bankâs NSF fee-setting comjputation.â OCC In-terp. Ltr. No. 916, 2001 WL 1285359, at *2 (May 22, 2001). When considering the question of honoring items for which there are insufficient funds in depositorsâ accounts and recovering overdraft fees for doing the same, the OCC concluded that national banks are âauthorized under 12 U.S.C. § 24(Seventh) and 12 C.F.R. § 7.4007(a), to honor overdrafts and recover overdraft amounts from depositorsâ accounts,â and âauthorized by Section 24(Seventh) and 12 C.F.R. § 7.4002 to charge and recover fees for processing overdrafts.â OCC Interp. Ltr. No. 1082, 2007 WL 5393636, at *4 (May 17, 2Ă07).
The challenges raised by the plaintiffs in counts II-VI of the CAC directly implicate TD Bankâs practices with regard to the order of posting debit transactions, honoring transactions that will drive depositorsâ accounts into overdraft, and charging fees in the event of such overdraft. By way of their claims sounding in the implied covenant of good faith and fair dealing, unconscionability, conversion, unjust enrichment, and.alleged violation of various state statutes prohibiting unfair and deceptive trade practices, the plaintiffs have mounted diverse attacks on the same corpus of activities by TD Bank. As such, counts II-VI all relate to TD Bankâs exercise of federally-conferred incidental powers.
B. The Common Law and Statutory Claims in Counts II-VI Significantly Interfere With TD Bankâs Incidental Powers as They Relate to High-to Low Posting and Intentionally Honoring Transactions into Overdraft
The question of whether state law, be it in the form of common law causes of action or statutory claims, significantly interferes with a national bankâs exercise of its incidental powers necessarily turns on the degree to which that state law constrains the bankâs ability to carry on the business of banking. Where the state and federal law are not in irreconcilable conflict, and the degree of interference imposed by state law is merely incidental, preemption does not apply. Where, however, the degree-of interference is severe, the state law, in whatever form, must
The plaintiffs argue that TD Bank bears a heavy burden of proof in order to establish preemption and that there is a presumption against Congressional preemption of state law. (See Pls.â Resp. in Opp. to Mot. to Dismiss, ECF No. 59 at 22-23 (citing Medtronic, Inc. v. Lohr, 518 U.S. 470, 485, 116 S.Ct. 2240, 135 L.Ed.2d 700 (1996) (Medical Device Act preemption),) However, â[t]he doctrine of federal preemption, which regulates the interplay between federal and state laws when they conflict or appear to conflict, tilts in favor of the federa) government in the arena of national banking.â Decohen v. Capital One, N.A., 703 F.3d 216, 222 (4th Cir.2012). Moreover, Fourth Circuit Court of Appealsâ precedent is clear âthat the presumption against preemption, which governs fields traditionally regulated by the states, does not apply to the NBA.â Id. at 222-23 (emphasis added) (citing Natâl. City Bank of Ind. v. Turnbaugh, 463 F.3d 325, 330-31 (4th Cir.2006) (holding the presumption against preemption does not apply to state regulation of federally chartered banks)).
The only federal appellate court to have addressed NBA preemption in the context of overdraft fees is Gutierrez v. Wells Fargo Bank, N.A., 704 F.3d 712 (9th Cir.2012). The question considered by the Ninth Circuit Court of Appealsâ was âthe extent to which overdraft fees imposed by a national bank are subject to state regulation.â Id. at 715-16. In Gutierrez a group of consumers sued Wells Fargo Bank under Californiaâs Unfair Competition Law (âUCLâ) for engaging in unfair business practices by imposing overdraft fees based on high-to-lĂłw posting order of deposit-account transactions, -and for engaging in fraudulent business practices by' misleading clients regarding the bankâs posting order procedures. Id. at 716. The ease went to trial, and the district court - found that Wells Fargoâs high-to-low posting policy violated the UCL because it was both unfair, in that the bĂĄnkâs motive was to maximize the number of overdrafts and associated fees, and fraudulent, in that the bank had affirmatively reinforced the expectation in its customers that transactions were posted in chronological sequence and obfuscated its true high-to-low posting practices. The district court issued a permanent injunction against high-to-low posting and ordered $203 million in restitution. Id. The Ninth Circuit held that federal law preempted' state regulation of debit-account transaction posting order as well as any obligation on the part of the bank to make affirmative disclosures to account holders regarding posting procedures, but that federal law did not preempt state law with respect to fraudulent or misleading misrepresentations about posting practices. Id.
The Gutierrez court stated that the determination of whether the NBA and its attendant regulations preempt the applicable state law âturns on whether state law can dictate [the bankâs] choice of posting method,â and held âthat it cannot.â Id. at 723 (emphasis added). The Ninth Circuit reasoned that âthe deposit and withdrawal of funds âare services provided by banks since the days of their creation. Indeed, such activities define the business of banking.â â Id. (citing Bank of Am. v. City and Cnty. of San Francisco, 309 F.3d 551, 563 (9th Cir.2002). Moreover, both the business of banking and the power to receive deposits ânecessarily include the power to post transactions â i.e., tally deposits and withdrawals â rto determine the balance in customerâs account.â Id. (citing 12 U.S.C, § 24 (Seventh)) (emphasis added). The Ninth Circuit noted, âthe OCC has determined âą that â[t]he establishment of non-
The Gutierrez court reversed the district courtâs holding that the bankâs choice of posting order was not a pricing decision because, in the district courtâs view,' the bank did not follow the four "factor decision making process for safe and sound banking principles required by the OCC in 12 C.F.R. § 7.4002(b). Id. On this point, the Ninth Circuit stated, â[w]hether Wells Fargoâs internal decision making processes regarding posting orders complied with the âsafe and sound banking principlesâ under § 7.4002(b)(2) is an inquiry that falls squarely within the OCCâs supervisory powers,â and â âis within the exclusive purview of the OCC.â â Id. at 724-25 (quoting Martinez v. Wells Fargo Home Mortg., Inc., 598 F.3d 549, 556 (9th Cir. 2010)). Finally, the Gutierrez court held that, âa âgood faithâ limitation applied through- [the UCL] is preempted when applied in a manner that prevents or significantly interferes with a national bankâs federally authorized power to choose a posting order.â Id. at 725 (citing Barnett Bank, 517 U.S. at 37, 116 S.Ct. 1103). âThe federal court cannot mandate the order in which [a national bank] posts its transactions .... The district court premised both [the permanent injunction and the restitution award] on only a violation of the âunfairâ business practice prong of-the [UCL] tethr ered to the âgood faithâ requirement-of [the California Commercial Code].â Id.
â In the cĂĄse sub judice, the Court holds that a âgood faithâ or âfairnessâ limitation on TD Bankâs power to choose a debit-account transaction posting order and elect to honor transactions into overdraft, whether applied through the implied covenant of good faith and fair dealing (count II), the doctrine of unconscionability (count III), a common law conversion claim (count IV), the doctrine of unjust enrichment (count V), or state consumer protection statutes (count VI) is preempted' .where such limitation significantly inters feres with the Bankâs federally authorized incidental powers.
The Court emphasizes that this preemption analysis is necessarily an âas appliedâ inquiry into the soundness of the state law claims asserted. In other words, it is- of course true that claims by a consumer
The plaintiffs argue that the Ninth Circuit was influenced by the distinctive nature of the relief sought, namely a permanent injunction, and quote Gutierrez when it notes that âas a practical matter, the remedy ordered by the district court boils down to a complete prohibition on the high-to-low sequencing method.â Gutierrez, 704 F.3d at 723 (emphasis added).
The process by which a bank honors overdraft items is typically part of the Bankâs administration of a depositorâs account. Creating and recovering overdrafts have long been recognized as elements of the discretionary deposit account services that banks provide. Where a customer creates debits on his or her account for amounts in excess of the funds available in that account, a bank may elect to honor the overdraft and then recover the overdraft amount as part of its posting of items and clearing of the depositorâs account. These activities are part of or incidental to the business of receiving deposits.
OCC Interp. Ltr. No. 1082, 2007 WL 5393636, at *2 (May 17, 2007) (internal citations omitted) (emphasis added).
In the same way that the.challenge to the posting practices at issue in Gutierrez was an improper encroachment of state law on federal banking regulations because it sought to dictate a national bankâs choice of posting method, counts ĂI-VI seek to dictate TD Bankâs method of deciding when to honor debits that .will drive deposit accounts into overdraft and method of posting transactions for purposes of balance calculation. This-is why counts II-VI are preempted in these categories, because they amount to de facto state regulation of discretionary functions specifically reserved to the. sound judgment of a national bank. See Gutierrez, 704 F.3d at 723-r25. Though they are couched in slightly different terms, and request slightly different remedies, these categories of the plaintiffsâ claims offend federal preemption principles for. the same essential reasons that the âunfairnessâ prong of Californiaâs UCL did. Gutierrez stands for the proposition that it is not the purview of private litigants to âdictate [a national bankâs] choice of posting methodâ or invalidate a national bankâs exercise of its discretionary powers with respect to the non-interest charges and fees it has established. See id. at 723-25. Moreover, the question of whether TD Bank complied with safe and sound banking principles when establishing its policies regarding honoring overdrafts and posting order is an inquiry âwithin the exclusive purview of the OCC.â Id. at 725.
Gutierrez is squarely on point regarding the high-to-low posting challenge raised by the plaintiffs in this proceeding and it counsels inexorably toward preemption of that challenge. âDesignation of a posting method falls within the type of overarching federal banking regulatory power that is ânot normally limited by, but rather ordinarily preempts[s], contrary state law.â Id. at 723 (citing Watters, 550 U.S. at 12, 127 S.Ct. 1559). Though the question of intentionally honoring transactions into overdraft was not specifically raised in Gutierrez, the reasoning of the Ninth Circuit is clear: where state law
To the extĂ©nt that the plaintiffs challenge TD Bankâs election to honor overdrafts specifically because they believe TD Bank should provide point-of-sale notice and the contemporaneous option to cancel the transaction, this portion of the challenge is also preempted. (See CAC, ECF No. 37 at ¶¶ i, 5, 134, 143-44, 197.) An imposition of the plaintiffsâ preferred method of notice via state law claims unquestionably poses a significant'interference with TD Bankâs discretionary exercise of its incidental powers because it amounts to an unqualified mandate on the way TD Bank can elect to honor overdrafts, namely only after receiving affirmative consumer opt-in for every debit card transaction that will potentially drive an account into the negative. In this way, the question of point-of-sale notice collapses back into the Bankâs discretionary methodology -for honoring overdrafts itself. OCC regulations provide that a ânational bank may exercise its deposit-taking powers without regard to state law limitations concerning ... disclosure requirements.â â 12 C.F.R. § 7.4007(b)(3) (emphasis added). Thus, on this notice slice of the plaintiffsâ intentional honoring of overdrafts theory, it appears that their claim, is even expressly preempted by section 7.4007(b)(3). See Montgomery v. Bank of America Corp., 515 F.Supp.2d 1106, 1114 (C.D.Cal.2007) (holding plaintiffsâ claim that bankâs contracts were âunconscionable .because they do not accurately disclose when.the [overdraft] fees are assessedâ were expressly preempted); see also Gutierrez, 704 F.3d at 726 (reversing the lower courtâs imposition of disclosure requirements regarding high-to-low posting, and imposition of liability for the same, because â[t]he requirement to make particular disclosures falls squarely within, the purview of federal banking regulation and is expressly preemptedâ); Robinson v. Bank of Am., NA, 525 Fed.Appx. 580, 582 (9th Cir.2013) (finding preemption under 12 C.F.R. § 7.4007 because the plaintiff was âattempting to -use [state] law to impose a specific disclosure obligation on.[the bank] whenever it discloses any feeâ). Moreover, OCC regulations provide national banks, not consumers, the authority to electively honor overdrafts. See OCC Interp. Ltr. No. 1082, 2007 WL 5393636, at *2 (May 17, 2007); 12 U.S.C. § 24(Seventh); 12 C.F. R. §§ 7.4002, 7.4007(a). This is to say nothing of the havoc that such a notice and right-to-cancel requirement could wreak upon the universe of debit card transactions, precisely because deposit account transac
Plaintiffsâ argue that overdraft fee-related litigation has generated numerous decisions at the motion to dismiss stage confirming that' state law claims of the type they have raised herĂ© are not preempted. (Pis.â Resp. in Opp. to Mot. to Dismiss, ECF No. 59 at 24.) But the decisions they cite in support of this assertion either do not address Gutierrez at all, or do not adequately explain their rejection of its reasoning. See King, 26 F.Supp.3d at 517 (stating only that MDL 2036 is persuasive and failing to explain why Gutierrez does not apply); Hanjy v. Arvest Bank, 94 F.Supp.3d 1012, 1020-26 (E.D.Ark.2015) (assuming without deciding that federal preemption principles applied to a state-
chartered bank via the Federal Deposit Insurance Act (âFDIAâ), and finding persuasive the reliance by other district courts on MDL 2036); In re HSBC Bank, USA, N.A., Debit Card Overdraft Fee Litig., 1 F.Supp.3d 34, 47-48 (E.D.N.Y.2014) (stating merely that the plaintiffs âdo not seek a blanket prohibition on high-to-low postingâ and reverting to reliance on MDL 2036); Hughes v. TD Bank, N.A., 856 F.Supp.2d 673, 680 (D.N.J.2012) (predating Gutierrez and relying solely on MDL 2036); In re Cheeking Account Overdraft Litig., 797 F.Supp.2d 1312, 1316-21 (S.D.Fla.2011) (predating Gutierrez and denying a motion to reconsider the prior ruling on preemption in MDL 2036); In re Checking Account Overdraft Litig., 694 F.Supp.2d 1302, 1313-14 (S.D.Fla.2010) (predating Gutierrez and relying on portions of the district court opinion that Gutierrez later reversed); White v. Wachovia Bank, N.A., 563 F.Supp.2d 1358, 1367 (N.D.Ga.2008) (predating Gutierrez and making the conclusory statement without further explanation that thĂ© plaintiffsâ âexercise of their rightsâ under state contract and tort law only incidentally affected the national bankâs deposit-taking powers); Old National Bank v. Kelly, 31 N.E.3d 522, 528-31 (In.Ct.App.2015) (relying on MDL 2036 in making a distinction between an attack upon the right to charge overdraft fees writ large and an allegation of unlawful manipulation of an overdraft program to find only incidental impact); Higgins v. Pinnacle Fin. Partners, Inc., Case No. 11-C4858, slip op. at 598-99 (Tenn. 5th Cir. Ct. May 16, 2012) (predating Gutierrez, conflating the motion to dismiss standard with the applicability of preemption, and holding that preemption did not apply because ââ[pjlaintiff s state law claims ... do not involve state statutes and, therefore, do not impose any âstate law limitationâ â).
The MDL court then analyzed the overdraft issue in the context of OCC Interp. Ltr. No. 997, 2002 WL 32872368, at *2 (Apr. 15, 2002), and opined that the letter âdoes not authorize debit card postings in a high to low order to increase fees, it merely states that doing so does not violate the OCCâs requirement that banks set fees using sound banking judgment.â In re
The Plaintiffs alleged claims are not that banks lack the right to charge overdraft fees as part of their deposit-taking powers. Instead, Plaintiffs attack the allegedly unlawful manner in which the banks operate their overdraft programs to maximize fees at the expense of consumers. At this stage, these allegations do no more than incidentally affect the banksâ exercise of their deposit taking power and are therefore not preempted.
Id. (emphasis in original).
With due respect to the MDL court, this Court does not construe conflict preemption in the context of overdraft fee policy quite as narrowly, and finds the reasoning in Gutierrez more persuasive. First, the MDL court seems to conflate the âsignificant interferenceâ standard, see Barnett Bank, 517 U.S. at 33, 116 S.Ct. 1103, with an âirreconcilable conflictâ between state and federal law such that compliance with both regimes amounts to a âphysical impossibility,â see Rice v. Norman Williams Co., 458 U.S. 654, 659, 102 S.Ct. 3294, 73 L.Ed.2d 1042 (1982); Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142-143, 83 S.Ct. 1210, 10 L.Ed.2d 248 (1963). Undoubtedly, there are scenarios in which particular state laws do not âirreconcilably conflictâ with a national bankâs federally authorized powers, yet significantly interfere with the exercise thereof. Where that is true, federal preemption applies. In other words, conflict preemption in the NBA context is not limited to those scenarios where state, law requires a bank to act in a way prohibited by federal law, or vice versa. The mere fact that a national bank can act consistently with both state and federal law in a particular area, does not preclude the possibility that the state law may âstan[d] as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.â Hines v. Davidowitz, 312 U.S. 52, 67, 61 S.Ct. 399, 85 L.Ed. 581 (1941). This is why the standard set forth in Barnett Bank describes the category of state law that permissibly regulates national banks by way of two prongs, namely, when such state law does not â[1] prevent or [2] significantly interfere with the national bankâs exercise of its powers.â See 517 U.S. at 33, 116 S.Ct. 1103.
Second, the MDL courtâs observation that the plaintiffs in MDL 2036 were not claiming the national bank defendants lacked the right to charge them overdraft fees in general, appears to be a red herring. After implying that such a claim is the scenario where preemption would apply, the MDL court distinguished the claims actually raised by saying they challenged only the âunlawful mannerâ in which the banks operated their overdraft programs. However, this Court does not find that distinction to be of much help in deciding whether the state law claims raised here run afoul of the standard articulated in Barnett Bank. Of course, the preemption issue would be much easier to decide if the plaintiffs in the instant case simply averred âstate law prevents TD Bank from charging us overdraft fees at all.â But the fact that they did not do so does not make the âsignificant interferenceâ standard any less applicable or any
The plaintiffs further argue that â âsound banking judgmentâ incorporates the concept of good faith, and an application of the contractual principle of good faith would not impinge the freedom of national banks to charge fees.â (Pis,â Resp. in Opp. to Mot. to Dismiss, EOF No. 59 at 29.) In so doing, the plaintiffs implicitly challenge TD Bankâs overdraft fee policies on grounds that they exhibit a failure' to exercise âsound banking judgment.â It may very well be true that concepts of good faith can become relevant to the question of 'whether a bank has exercised sound banking judgment. Ultimately though, the inclusion of good faith considerations does not change the fact that the sound banking judgment inquiry âis within the exclusive purview of the OCC.â Gutierrez, 704 F.3d at 724-25; see Martinez v. Wells Fargo Home Mortg. Svcs., Inc., 598 F.3d 549, 556 n. 8 (9th Cir.2010). In the Courtâs view, to superimpose good faith and fairness tests upon otherwise permissible actions by TD Bank is to subject the Bank to a degree of state- law regulation that neither the NBA nor the OCC regulations envision.
Though the plaintiffs reference: it only cursorily in their response in opposition to the motion to dismiss, the In re HSBC Bank, USA, N.A., Debit Card Overdraft Fee Litigation, 1 F.Supp.3d 34 (E.D.N.Y. 2014) case is probably the strongest persuasive authority that they cite in favor of no preemption. This is because In re HSBC Bank analyzed underlying facts and state law claims substantially similar to those raised in the instant case. It is also the only federal decision cited by the plaintiffs to support a finding of no preemption that both post-dates Gutierrez and is not readily' distinguishable on other grounds (excluding the King case which is part of the instant proceeding).
At bottom, by way of their high-to-low posting theory and intentional, honoring of transactions into overdraft theory the plaintiffs have challenged the method by which TD Bank calculates and imposes overdraft fees. These challenges limit the Bankâs exercise of discretionary functions granted to it by the NBA and OCC regulations in a significant way. As such, the Court holds that counts II-VI are preempted to the extent they incorporate these two theories of liability.
C. The Claims in Counts II-VI Only Incidentally Interfere With TD Bankâs Incidental Powers as They Relate to Assessing Overdrafts When There Are Sufficient Funds in the Account
Bearing all of the foregoing discussion in mind, the Court is equally persuaded that the plaintiffsâ claims in counts II-VI are not preempted to the extent they incorporate the âsufficient fundsâ theory of liability. This theory claims that TD Bank âsystematically assesses and collects overdraft fees for transactions that do not actually overdraw the account, as there is actually enough money in the account to cover the transaction.â (CAC, ECF No. 37 at 28.) The plaintiffs highlight the distinction between âactual balance,â which they define as âthe actual amount of funds held in a demand accountâ (including checking accounts), and âavailable balance,â which they define as' âthe actual balance minus âpendingâ credits and debit transactions, which may not settle or be paid for several days (and may not settle for the authorized amount or at all).â (M' at 29.) Specifically, the plaintiffs claim that TD Bank has breached the express terms of the PDAA (count I) by âassessing] overdraft fees even when [the Bank] does not âadvance fundsâ and the account has a positive balance even though the âavailable balanceâ is negative.â (Id. at 32.) The plaintiffs base additional claims on this theory in counts II-VI. They argue that even if the PDAA permits TD Bank to engage in this practice, it is .otherwise unlawful as a breach of the implied covenant of good faith and fair dealing (count II), a business practice that renders the contract unconscionable (count III), a wrongful taking of the plaintiffsâ money amounting to conversion (count IV), an unjust enrichment of the Bank (count V), and a violation of various state statutes prohibiting unfair and deceptive business practices (count VI).
The question before the Court is, again, whether these state law claims prevent or significantly interfere with TD Bankâs exercise of its federally conferred banking powers.. The answer, the Court finds, is that the claims in counts II-VI, as they relate to the sufficient funds theory, constitute an incidental impairment of the Bankâs powers only. The preemption analysis on this theory of liability is relatively straightforward. The plaintiffs have essentially claimed that the Bank assesses overdraft fees when no overdraft actually occurs, at least not as conceived by the . reasonable consumer. To the extent this is true, it would not âpreventâ TD Bank from exercising its deposit-taking powers, or any of the attendant. discretion that comes along with those powers, to require
The Gutierrez case, upon which the Court has relied for other portions of the preemption analysis, is silent as to the sufficient funds theory. District courts that have considered this question appear to be unanimous in finding that state law claims based on the sufficient funds theory are not preempted. See, e.g., In re Checking Acct. Overdraft Litig., 694 F.Supp.2d at 1312-14; White, 563 F.Supp.2d at 1367-68. The OCC has not answered the specific question whether the use of available balance, vice actual balance, in assessing overdraft fees is permissible. The closest OCC commentary on this point is language from OCC Interp. Ltr. No. 1082, 2007 WL 5393636 (May 17, 2007) already quoted above: âWhere a customer creates debits on his or her account for amounts in excess of the funds available in that account, a bank may elect to honor the overdraft and then recover the overdraft amount as part of its posting of items and clearing of the depositorâs account.â Id. at *2 (emphasis added). However, OCC Interp. Ltr. No. 1082 was about national banksâ authority to honor transactions into overdraft and recover overdraft fees generally, not directly on point to the sufficient funds theory. As such, the use of the phrase âin excess of the funds availableâ should not be read as specifically condoning the use of âavailable balance,â as that term of art has been defined in this case, to invoke overdraft fees.
The Court wants to be careful, however, not to overstate the strength of the plaintiffsâ position on this aspect of the preemption analysis. As pled in the CAC, the Court believes two potential scenarios are implicated by the sufficient funds theory. One scenario is where an overdraft fee is assessed because: (1) the customer has pending debits that create a negative available balance, (2) TD Bank pays on a transaction against that negative available balance, and (3) the pending debits later settle for the amount held at the time the transaction triggering the overdraft fee was paid. The second scenario is where an overdraft fee is assessed because: (1) pending debits create a negative available balance, (2) TD Bank pays on a transaction against that negative available balance, and (3) the debits that were pending at the time the transaction triggered the overdraft fee either do not settle for the amount held or do not settle at all. (See CAC, ECF No. 37 at 29.) The Court understands the plaintiffs to assert that both of these scenarios amount to unfair, unlawful, and wrongful assessment of overdraft fees because at the precise moment the
D. Claims Challenging the Pre-Merger Practices of State Banks Are Not Preempted
Part and parcel to the complexity of this proceeding is the fact that some of the challenged conduct implicates actions by Carolina First iBank and Mercantile Bank, both state bank subsidiaries of the holding company South Financial âą Group, Inc. prior to its merger with TD Bank on September 30, 2010. TD Bank argues that the plaintiffsâ state law claims are preempted to the extent they challenge the conduct of the state banks before their merger with TD Bank. The Bank cites the Sixth Circuit Court of Appealsâ holding in Monroe Retail, Inc. v. RBS Citizens, N.A., 589 F.3d 274 (6th Cir.2009) for the proposition that federal preemption extends to the pre-merger conduct of state-chartered banks. TD Bank further argues that although a national bank assumes the liabilities of a state bank upon merger, see 12 U.S.C. § 215a, it may also assert all defenses premised on its status as a national bank because the merger occurs âunder the charter ofâ the national bank, see id. § 215a(a). This âunder the charter ofâ concept, the Bank asserts, means that upon merger, âthe state bank [is] necessarily swallowed up, and thereafter in no real sense can it be said to have had a separable identity.â Fidelity-Baltimore Natâl Bank v. United States, 328 F.2d 953, 959 (4th Cir.1964). TD Bank relies on the Fourth Circuitâs decision in Fidelity-Baltimore for the conclusion that, in the event of a merger, thĂ© consolidated national bank cannot remain subject to state regulation that is incompatible with federal regulation. (See Mot. to Dismiss, ECF No. 53-1 at 39 (citing Fidelity-Baltimore, 328 F.2d at 957).) Finally, TD Bank argues
. The Court holds that the plaintiffsâ state law claims against Carolina First Bank, Mercantile Bank, and South Financial Group, Inc. are not preempted to the extent they ÂĄchallenge conduct by the state banks prior to their merger with TD Bank. TD Bankâs assertion that because the merger occurred âunder the charterâ of a national bank federal preemption of state law can somehow reach back in time to cover pre-merger conduct is. a non sequi-tur. The authorities cited by the Bank do not adequately support the propositions claimed. . . ,
In Monroe Retail, a group of garnishor-creditors who sought to collect, judgments by garnishing' debtorsâ funds on deposit with various defendant banks brought suit against the banks for imposing their own additional .garnishment fees, to customer accounts prior to relinquishing funds to the garnishors. Id. at 277. The district court held, inter alia, that the NBA preempted the garnishorsâ claims as to the national bank defendants, but not as to the state bank defendants.. Id. at 278. The Sixth Circuit affirmed, in pertinent part, on the point that the garnishorsâ conversion claim pursuant to a state garnishment statute was preempted by the NBAâs grant of authority to the defendant banks to charge and collect fees. Id. at 281. The Sixth Gircuit dealt with the issue of potentially disparate preemption results for "state and' federal banks in a footnote, stating, âThe Garnishors brought claims against both national and state banks before the district court____As noted at oral argument, however, [one-of the federal bank defendants] has since acquired [the state bank defendant]. Therefore, all of the defendants are now national banks, and we need not bifurcate the analysis.â Id. at , 280 n. 5. This cursory treatment of the disparate preemption. landscape for federal and state banks may have satisfied the factual scenario in Monroe Retail, but it does not answer the operative questions in this proceeding. The Court does not pretend to know the precise chronological boundaries of the state law claims raised in Monroe Retail as they relate to the date of the merger in that case, but it makes no conceptual sense , to say that a state bankâs liability for pre-merger conduct is erased merely by virtue of being âswallowed upâ into a national bank. Specifically, the plaintiffs have defined their âSouth Financial Classâ with inclusive dates âwithin the applicable statute of limitations preceding the merger of accounts onto the TD system in Juñe 2011 to the date of' class certification.â (CĂC, ECF No. 37 at 53.) So long as those dates precede September 30, 2010, arid the state law claims at issue raise questions regarding conduct by the state-chartered banks prior to that date, the claims are not preempted.
â Fidelity-Baltimore âą does not offer TD Bank any more assistance than Monroe Retail. Indeed, the reasoning of Fidelity-Baltimore actually supports the notion that a state bankâs pre-merger conduct is not preempted because it. interprets the NBA concept of merger âunder the charter ofâ the national bank as â âindicative of the intent that upon its consolidation with or merger into a national bank the, state bank shall go out of existence and the latter continue its existence and identity under its original charter.â â Fidelity-Baltimore, 328 F.2d at 959 (quoting 15 Fletch
All of that said, it seems abundantly clear that the cutoff date for the preemption analysis as it applies to the conduct of the state banks is the date they became inseparable parts of TD Bank, September 30, 2010. (See CAC, ECF No. 37 at 21.) This is true irrespective of the June 2011 date the plaintiffs list for the âmerger of accounts onto the TD Systemâ in their class definition. (See id. at 53.) The Court finds that the state law claims against the state-banks are preempted .to the . same degree as against TD Bank itself from September 30,2010 forward.
II. Failure to State a Claim
The next question to be answered by the Court is whether counts I-VI and VIII of the CAC fail to state a claim upon which relief can be granted. In order to survive ĂĄ motion to dismiss under Fed. R. Ciy. P. 12(b)(6), the plaintiffs must have alleged sufficient facts to âraise a right to relief above the, speculative level, and have enough facts to state a claim to relief that is plausible on its face.â Philips v. Pitt Cnty. Memâl Hosp., 572 F.3d 176, 180 (4th Cir.2009) (internal citations and quotation marks omitted). The Court will address each of the challenged counts in turn.
A. Count I â Breach of Contract
TD Bank argues that the plaintiffs have failed to state a claim for breach of contract in count I of the CAC because their claim depends on a distorted reading of the PDAA. Such a distorted reading, the Bank argues, requires the reader to disregard some of the contractâs language and take other language out of context. TD Bank asserts that if the contract is read reasonably and as a whole, the contract expressly discloses the challenged overdraft practices and there is no breach.
The first point raised by TD Bank is that the, PDAA openly states that the Bank relies on available balance in assessing overdraft fees. TD Bank quotes the following language, inter alia, from the âOVERDRAFTSâ section of the PDAA: âIf your negative available balance exceeds $5 at the end of the day, we will charge you for each transaction that overdraws your account.â (Ex. A, ECF No. 37-
Meanwhile, the plaintiffs adamantly contend that the very provisions cited by TD Bank in its defense do not authorize the Bank to assess overdraft fees under the circumstances alleged in the CAC. First, the plaintiffs quote language from the OVERDRAFTS section that defines an overdraft as âan advance of funds greater than the amount that has become available in accordance with the Bankâs Fund Availability Policy .... â (Id. at 10 (emphasis added).) They argue that the Bank improperly calculates overdrafts by subtracting the customerâs pending debits' (available balance) to determine when an âadvance of fundsâ occurs, rather than simply using the actual "balance of funds in the account.
Next, the- plaintiffs argueâ that the PDAA fails to state that debits are posted from highest to lowest dollar amount. They
Finally, the plaintiffs argue that the PDAA fails to disclose that TD Bank will assess overdraft fees on debit card transactions that overdraw the account. Their basis for this assertion is that the PDAA ârepeatedly suggestsâ that debit card transactions that would push the account below zero will not be approved. For example, because the PDAA states that the Bank uses âavailable balance,â which is always equal to or lower than actual balance, to âdetermine the amount available to pay other items presented against your account,â the plaintiffs infer- that the contract gives customers the reasonable impression that transactions will be rejected once the available balance falls below zero. (See Ex. A, EOF No. 37-1 at 9.) The plaintiffs contend that customersâ common sense expectations lead them to believe that their debit card is not a credit card, but that TD Bank has nevertheless âdeveloped a system whereby it secretly adopts a hidden credit line for each customer, and then treats their debit card as a credit card, but a credit card where exorbitant fees are charged for each use.â (Pis.â Resp. in Opp. to Mot. to Dismiss, EOF No. 59 at 17.) Moreover, the plaintiffs point to the âWE MAY REFUSE TO PAY A CHECK OR OTHER ITEMâ section of the PDAA, which states that the Bank can refuse to pay ah item which âis drawn in an amount greater than the amount of funds then available for withdrawal in [the] Account ... or which would, if paid, create an overdraft.â (Ex. A, ECF No. 37-1 at 9.) The plaintiffs acknowledge that â the OVERDRAFTS section states some transactions may not be rejected, and the Bank may decide to' âadvance fundsâ and charge an overdraft fee, but they aver that this provision is ambiguous because it allows âadvancesâ only in the event of âcheck, in-person withdrawal, ATM withdrawal, or a withdrawal by other electronic means from your Accountâ and does not specifically list âdebit card transactions.â (See id. at 10.) In sum, the plaintiffs argue that the collective language in the relevant sections of the PDAA, when read together, does not communicate that the Bank will intentionally honor debit card transactions into overdraft and then assess overdraft fees on those transactions.
The Court sees the logic in TD Bankâs argument that some of the theories of liability in count I belie a selective reading of the contract by the plaintiffs. For example, the plaintiffs make the bold assertion that âthe Agreement does not use the term âavailable balanceâ when determining whether an overdraft fee can be assessed,â because the PROCESSING section of the PDAA states that overdraft fees may be assessed on items that bring the account into a ânegative balance.â (Pis.â
.â Count I is alleged on behalf of the plaintiffs and the putative âTD High-to-Low,â âTD Sufficient Funds,â and âSouth Financialâ classes. The plaintiffs claim TD Bank violated the PDAA by engaging in certain overdraft practices that were not disclosed, not requested by customers, and unreasonable. (See Ex. A, ECF No. 37-1 at 4.) They provide the following non-exhaustive list of practices that are allegedly violative of the PDAA:
a. the authorization of debit card transactions that Defendant knew would result in an overdraft fee;
b. the adoption of a line of - credit or spending limit up to which Defendant would authorize debit card transactions;
c. the manipulation of debit card transactions by Defendantâs posting software to increase overdraft fees; and
d. the decision to assess overdraft fees .even when there were funds in customer accounts sufficient to cover the transaction.
(CAC, ECF No. 37 at 59.) To the extent count I incorporates the sufficient funds theory of liability (i.e. the use of available balance to assess overdraft fees),, the plaintiffs state a plausible claim for relief and count I survives the motion to dismiss. At the very least, there are outstanding factual questions on when TD Bank actually âadvanced funds,â whether imprecise use of the terms ânegative balanceâ and ânegative available balanceâ created a duty on the Bankâs part to only assess overdraft fees when the âactual balanceâ was negative, and the like.
TD Bank is not moving at this time to dismiss the portion of count I based on the Carolina First Bank contract, and the Court will not engage in- an analysis of whether that portion fails to state a claim sua sponte. (See Mot. to Dismiss, ECF No. 53-1 at 19 n.L) -Thus, count I survives-in its entirety with' respect to alleged actions taken by Carolina First Bank and Mercantile Bank.
TD BĂĄnk argues that the plaintiffs have failed to state a claim for breach of thĂ© implied" covenant of good faith âand fair dealing for the same essential reasons the Bank believes that count I fails. At bottom, the Bank contends that a reasonable reading of the PDAA according to sound principles of contract construction expressly discloses and permits all of the challenged conduct, and although the laws governing the implied covenant vary from state to state, the implied covenant cannot be used to alter the express terms of the contract. See, e.g., Volvo Const. Equip. N. Am., Inc. v. CLM Equip. Co., Inc., 386 F.3d 581, 599 (4th Cir.2004) (â[T]here can be no breach of an implied covenant of good faith and fair dealing where âa party to a contract [does] what provisions of the contract expressly [give] him the right to do.â â (quoting Adams v. G.J. Creel & Sons, Inc., 320 S.C. 274, 465 S.E.2d 84, 85 (1995)). TD Bank cites Hassler v. Sovereign Bank, 644 F.Supp.2d 509 (D.N.J.2009), for the proposition that where a contract âpermit[s] precisely [the] ... fee incurralâ alleged to be wrongful, a claim for breach of the implied covenant fails. Id. at 519. Finally, the Bank argues that under the laws of New York, Vermont, and Pennsylvania, the claim'for breach of the implied covenant of good faith and fair dealing should be dismissed simply because it is based on the same facts as, and is therefore duplicative of, the breach of contract claim. (See Mot. to Dismiss, EOF No. 53-1 at 44 n.15 (citing Cruz v. FXDirectDealer, LLC, 720 F.3d 115, 125 (2d Cir.2013); Northview Motors, Inc. v. Chrysler Motors Corp., 227 F.3d 78, 92 (3d Cir.2000); Citibank N.A. v. City of Burlington, 971 F.Supp.2d 414, 431 (D.Vt. 2013)).
The plaintiffs deny that they are attempting to vary the express terms of the contract by way of the implied covenant of good faith and fair dealing, and quip that TD Bank is actually the party attempting to vary the express terms of the PDAA by treating âbalanceâ and âavailable balanceâ as synonymous terms when they are not. The plaintiffs assert that â â[i]n the absence of an express provision therefore, the law will imply an agreement by the parties to a contract to do and perform those things that according to reason and justice they should do.â â Commercial Credit Corp. v. Nelson Motors, Inc., 247 S.C. 360, 147 S.E.2d 481, 484 (1966) (citation omitted). They argue that their claim for breach of the implied' covenant is merely an attempt to enforce TD Bankâs obligation to carry out its contractual duties in good faith, pursuant to the purpose of the contract between the parties. The plaintiffs contend that the Bankâs reliance upon Hassler is misplaced because the more recent New Jersey decision in Hughes v. TD Bank, 856 F.Supp.2d 673, 681 (D.N.J. 2012) 'held that a claim for breach of the implied covenant based on facts nearly identical to this case survived a motion to dismiss for failure tĂł stĂĄte ĂĄ claim. Finally, the plaintiffs argue that it is permissible under the laws of New York, Vermont, and Pennsylvania, to bring a breach of contract claim and a separate implied covenant claim if the latter is supported by distinct factual allegations. (See Pis.â Resp. in Opp. to Mot. to Dismiss, EOF No. 59 at 39 n.10 (citing Dorset Indus., Inc. v. Unified Grocers, 893 F.Supp.2d 395, 405 (E.D.N.Y. 2012); Harsch Props., Inc. v. Nicholas, 182 Vt. 196, 932 A.2d 1045, 1050 (2007); Ross v. Canada Life Assurance Co., 1996 WL 182561, at *7-8 (E.D.Pa. Apr. 16, 1996)).) The plaintiffs do not specify what distinct factual allegations support count II, as opposed to count I, but simply aver that their âclaims arise from at least five different aspects of TDâs overdraft practices which involve different contracts and different
There exists within every contract an implied" covenant of good faith' and fair dealing. See, e.g., Parker v. Byrd, 309 S.C. 189, 420 S.E.2d 850, 853 (1992). The United States Supreme Court offered helpful insight into the vagaries of this doctrine in the case of Northwest, Inc. v. Ginsberg, â U.S. -, 134 S.Ct. 1422, 188 L.Ed.2d 538 (2014):
While most States recognize some form of the good faith and fair dealing doctrine, it does not appear that there is any uniform understanding of the doctrineâs precise meaning. â[T]He concept of good faith in the performance of contracts âis a phrase without general meaning (or meanings) of its own.â â Tymshare, Inc. v. Covell, 727 F.2d 1145, 1152 (D.C.Cir.1984)(Scalia, J.) (quoting Summers, âGood Faithâ in General Contract Law and the Sales Provisions of the Uniform Commercial Code, 54 Va. L.Rev. 195, 201 (1968)); see also Burton, Breach of Contract and the Common Law Duty to Perform in Good Faith, 94 Harv. L.Rev. 369, 371 (1980). Of particular importance here, while some States are said to use the doctrine âto effectuate the intentions of parties or to protect their reasonable expectations,â ibid., other States clearly employ the doctrine to ensure that a party does not â âviolate community standards of decency, fairness, or reasonableness.â â
Id. at 1432 (citing Universal Drilling Co., LLC v. R & R Rig Service, LLC, 271 P.3d 987, 999 (Wisc.2012); DDP Roofing Services, Inc. v. Indian River School Dist., 2010 WL 4657161, at *3 (Del.Super.Ct., Nov. 16, 2010); Allworth v. Howard Univ., 890 A.2d 194, 201-02 (D.C.2006); Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Center Assocs., 182 N.J. 210, 864 A.2d 387, 395-96 (2005); Harper v. Health-source New Hampshire, 140 N.H. 770, 674 A.2d 962, 965-66 (1996); Borys v. Josada Builders, Inc., 110 Ill.App.3d 29, 65 Ill. Dec. 749, 441 N.E.2d 1263, 1265-66 (1982); Restatement (Second) of Contracts § 205, Comment a (1979); Summers, The General Duty of Good Faith â Its Recognition and Conceptualization, 67 Cornell L.Rev. 810, 8Ă2 (1982)). Some states maintain that the implied covenant of good faith and fair dealing is not an independent cause of action separate from the claim for breach of contract. See, e.g., RoTec Servs., Inc. v. Encompass Servs., Inc., 359 S.C. 467, 597 S.E.2d 881, 884 (2004). Where these states recognize the implied covenant, they maintain that it should be viewed âas merely another term of the contract at issue.â Id. at 884 (internal citation omitted).
The Court finds that the plaintiffs have'pled sufficient facts to state a plausible claim for relief under the implied covenant of good faith and fair dealing, and declines to dismiss count II on those grounds. It is worth reminding the parties, however, that count II is preempted to the extent it incorporates the high-to-low posting and intentional honoring of overdraft theories. On its face, count II incorporates only some of the â putative classes: âTD High-to-Low,â âTD Sufficient Funds,â and âSouth Financial.â However, it also purports to repeat and reallege every factual allegation in the complaint. (CAC, ECF No. 37 at 59.) Thus, count II.can be read to apply the good faith and fair dealing test to every theory of liability contained within the complaint.
The result in Hassler, on which TD Bank relies; appears to be quite specific both to New Jersey law and "to the facts of that case. See Hassler, 644 F.Supp.2d at 519 (dismissing the implied covenant claim because even the most favorable reading of the plaintiffs allegations failed to satisfy the âimproper motive element of a good
The Court also declines to dismiss count II with respect to New York,. Vermont, and Pennsylvania law on grounds that the plaintiffs have failed to raise âdistinct factual allegationsâ from count I. To the extent that these jurisdictions do not recognize simultaneous claims for breach of contract and breach of the implied covenant grounded in the same predicate facts, it is generally because they conceive of the implied duty of'good faith as part of the contract itself. See Harris v. Provident Life & Accident Ins. Co., 310 F.3d 73, 80 (2d Cir.2002) (â[P]arties to an express contract are bound by an implied duty of good faith, but breach of that duty is merely a breach of the underlying contract.â); Harsch Props., Inc., 932 A.2d at 1051 (â[Although breach of the implied covenant may create an action in tort, the covenant arises from the contract and .exists because -of the contract â The covenant of good faith and fair dealing was an implied term,' which required the parties ânot to do anything to undermine or destroy the otherâs rights to receive the benefits of the agreement.â â (quoting Carmichael v. Adirondack Bottled Gas Corp. of Vermont, 161 Vt. 200, 635 A.2d 1211, 1216 (1993)); Ross, 1996 WL 182561 at *7-8 (acknowledging two lines of state and federal court decisions diverging on the question of whether some or all contracts contain an implied duty of good faith and fair dealing under Pennsylvania law, and concluding that such an implied duty existed in a contract between a lender and borrower even under the more limited view)). Thus, it is of no import for the Court to decide at this stage of the proceedings whether count II raises âdistinct factual allegationsâ under New. York, Vermont, and Pennsylvania law, because the implied covenant theory would survive as embedded within count I in any event. Accordingly, the motion .to dismiss count II is denied insofar as count II is not preempted.
C. Count III â Unconscionability
TD Bank argues that the plaintiffsâ claim for unconscionability fails first, because there is no âą affirmative cause of action for unconscionability, and second, because the plaintiffs have not alleged sufficient facts to plead unconscionability even if such cause of action exists. The Bank
The plaintiffs assert that while they believe they have stated a valid claim for unconscionability they nĂ©vertheless concede to dismissal of count III based on the prior ruling in King v. Carolina First Bank, 26 F.Supp.3d 510, 518 (D.S.C.2014). They cursorily argĂŒe that there is âample authority to support allowing [thĂ©ir] claim for unconscionability to go forwardâ (citing Hanjy, 94 F.Supp.3d at 1031-34; Hughes, 856 F.Supp.2d at 681; In re Checking Account Overdraft Litig., 694 F.Supp.2d at 1318-19), but because of the King decision dismissing this claim they arĂ© âwilling tĂł accept that ruling for the purposes of TDâs latest motion to dismiss.â (Pls.â Resp. in Opp. to Mot. to Dismiss, ECF No. 59 at 43.)
The Court need not address' the question of whether the plaintiffs have pled sufficient facts to make a plausible claim for both procedural and substantive uncon-scionability becaĂŒse the Court agrees with TD Bank in.the first instancĂ©: unconscion-ability is not an affirmative cause of action. The plaintiffs have clearly plead count HI as an affirmative cause of action, in that they are seeking damages 'based on that claim. (See CAC, ECF No. 37 at 62.) More importantly, the plaintiffs have conceded to dismissal of count III in their response brief. Accordingly, the motion to dismiss count III is granted.
D. Count IV â Conversion
TD Bank argues that the plaintiffsâ conversion claim fails for three - reasons: (1) the plaintiffs cannot show âwrongfulâ interference with the plaintiffsâ ownership rights in contravention of federal or state
TD Bankâs second argument is that money held in a general deposit account in a bank may not be the subject of a claim for conversion. Conversion can be defined as 'thĂ© âunauthorized assumption and exercise of the right of ownership over goods or persona! chattel belonging to another.â' Owens v. Andrews Bank & Trust Co., 265 S.C. 490, 220 S.E.2d 116, 119 (1975). The Bank cites South Carolina law for the commonly held view that the ârelationship between a general depositor and his bank is that of creditor and debtor.â Id.â, see Citizens Bank of Md. v. Strumpf, 516 U.S. 16, 21, 116 S.Ct. 286, 133 L.Ed.2d 258 (1995) (a bank account âconsists of nothing more or less than a prohiise to pay, from the bank to the depositorâ). TD Bank further contends that âmoney may be the subject of conversion, when it is capable of being identified,â but âthere can be no conversion where there is a mere obligation to pay a debt.â Owens, 220 S.E.2d at 119. Given these principles, âthe overwhelming authority is that money on deposit in a bank cannot be the subject of. conversion unless it was intended to be kept separate or constituted a specific intact fund,â and â[t]he proper action where payment of a general deposit is refused, is an action on the contract and not one in tort.â Id. (citing 9 C.J.S. Banks and Banking s 320, p. 646 (1938)). TD Bank argues that the plaintiffs have not alleged any right to a specific intact fund,' are in a debtor/creditor relationship with .the Bank as depositors, and therefore cannot bring a conversion claim.
TD Bankâs third argument is that in seven of the twelve jurisdictions at issue in this proceeding, the economic loss or âgist of the actionâ doctrine mandates that a breach of duty arising under the provision of a contract between the parties must be redressed via a contract claim, arid not a tort action. See, e.g., Tommy L. Griffin Plumbing & Heating Co. v. Jordan, Jones & Goulding, Inc., 320 S.C. 49, 463 S.E.2d 85, 88 (1995). Under this doctrine, where a plaintiff brings an action for purely economic loss, the source of the duty that the plaintiff claims the defendant owed determines the appropriate form of the claim. Id. TD Bank contends that the plaintiffs have identified the account agreements as the source of the duty owed to them by the Bank, and as a result their claim must be contract-based, rather than tort-based.
The plaintiffs respond that in order to state a claim for conversion, they need only show: (1) their ownership of or right to possess the property, and (2) a wrongful interference with that rights See, e.g., Moore v. Weinberg, 373 S.C. 209, 644 S.E.2d 740, 749 (2007). The plaintiffs argue that the plain language of the account agreements indicate âą that they hold the requisite possessory or ownership rights to the funds in their accounts. The plaintiffs further contend that by taking monies from customer-owned accounts to cover
The Court generally agrees with the plaintiffs and finds that they have stated a claim for conversion; The majority of federal courts that have â addressed this question in the context of overdraft fees have found that plaintiffs may bring a conversion claim for fees that are alleged to have been wrongfully assessed, and permitted such claims to proceed past the motion to dismiss stage. See King, 26 F.Supp.3d at 518-19; Hughes, 856 F.Supp.2d at 682; In re Checking Account Overdraft Litig., 694 F.Supp.2d at 1323 (surveying numerous state jurisdictions on the question of customersâ right to possess funds that they have deposited with banks and concluding âa' conversion action is available for a bankâs wrongful debiting of funds from a customerâs accountâ); White, 563 F.Supp.2d at 1371 (â[A]s explained in declining to dismiss the breach of contract claim, Plaintiffs have alleged that Wacho-via imposed Overdraft Fees when .there was in fact no overdraft. The trover and conversion claim may proceed for now.â); but see In re HSBC Bank, 1 F.Supp.3d at 52-53 (dismissing the plaintiffsâ claims for conversion under New York and California law because of: 1. the debtor to creditor relationship between bank and customer, and 2. the lack of specific and identifiable funds).
With respect to TD Bankâs first argument, the Court has discussed the plaintiffsâ allegations of the Bankâs breach of â contract extensively and sees no need to regurgitate the same points; - The Court will not dismiss the conversion- claim on these grounds.
â The Bankâs second argument, that the partiesâ debtor/creditor relationship' precludes the plaintiffsâ ownership of the property and thus any conversion claim, fails because the plaintiffs retain a right to immediate possession of the property at any time. See Hughes, 856 F.Supp.2d at 682; see also In re Checking Account Overdraft Litig., 694 F.Supp.2d at 1323 (âPlaintiffs unquestionably had the right to possess the funds in them bank accounts upon demand to the bank, and they have alleged that Defendants wrongfully took funds from' their accounts so' that Plaintiffs were unable to possess and Ășse those funds, This interference with Plaintiffsâ property interest in the funds in their accounts- constitutes a cause of action for conversion.â). Additionally, the Court is not sure the traditional view of the debtor/creditor relationship between bank and customer properly applies to the overdraft fee scenario because that relationship appears to be inverted when the account is in a negative balance. The plaintiffs claim is not that TD Bank has wrongfully refused to pay funds owed to the customer, see Owens, 220 S.E.2d at 119â20, but rather that the Bank has improperly relieved itself of its debtor obligations and imposed a debtor status on the customer by debiting funds-from the account that it had no business debiting, see Moore, 644 S.E.2d at 749 (âConversion is a wrongful act that-emanates by either a wrongful taking or wrongful detention.â) (emphasis added).
Finally, TD Bankâs third argument, that the economic loss doctrine prevents an action in tort, is unpersuasive because the losses claimed are associated with actions on the part-of the Bank that the plaintiffs contend exceeded the bounds of the contract. In other words, the plaintiffs allege that TD Bank wrongfully deducted funds
E. Count V â Unjust Enrichment
TD Bank argues that the plaintiffsâ claim for unjust enrichment fails for two reasons: (1) no quasi-contractual recovery is available when the parties have an express contract that governs, and (2) the plaintiffs have alleged no 'enrichment that was unjust. TD Bank asserts that, âRelief under a theory of quantum meruit is not available if a party bases its action on the existence of a contract.â Limehouse v. Resolution Trust Corp., 862 F.Supp. 97, 103 (D.S.C.1994). Rather, âQuantum meruit is only available in circumstances where no contract exists, but the obligation to' pay is implied by law.â Id. The Bank further argues that the plaintiffsâ claims are directly governed by the express terms of a written contract, and therefore no claim for unjust enrichment can proceed. (See Mot. to Dismiss, ECF No. 53-1 at 51 (citing Bright v. QSP, Inc., 20 F.3d 1300, 1306 (4th Cir.1994) (holding that a two million dollar jury award on an unjust enrichment claim could not stand because a written supply contract between two fund-raising distributors clearly governed the expenses and services at issue)).)
TD Bankâs second argument is that in order for enrichment to be unjust, the allegedly enriched person must have retained money that belonged to another. See, e.g., Inglese v. Beal, 403 S.C. 290, 742 S.E.2d 687, 690 (2013). Therefore, âa plaintiff cannot seek restitution for benefits that the defendant had a legal right to receive.â Bright, 20 F.3d at 1306. The Bank reasserts points made previously: that it was authorized by contract and OCC regulations to assess and collect â overdraft fees under the methods that it chose. As a result, the Bank argues, any enrichment that occurred as a result of retaining the fees cannot be unjust.
The'plaintiffs respond that their unjust enrichment claim should be allowed to proceed at this early stage of-the' litigation. (See Pls.â Resp. in Opp. to Mot. to Dismiss, ECF No. 59 at 41 (citing King, 26 F.Supp.3d at 519; Hughes, 856 F.Supp.2d at 682; In re Checking Account Overdraft Litig., 694 F.Supp.2d at 1321).) The plaintiffs further argue that their unjust enrichment claims should be permitted as an alternative theory to their breach of contract claim.
The federal courts that have addressed this question in overdraft fee litigation have arrived at disparate results. One line of cases holds that an unjust enrichment claim may be pled along with a breach of contract claim as an alternative theory of relief, and survives a motion to dismiss brought pursuant to Fed. R. Civ. P. 12(b)(6). See King, 26 F.Supp.3d at 519 (â[Wjhile they cannot recover for both breach of contract- and unjust enrichment, [Plaintiffs] can allege alternative theories of relief.â); Hughes, 856 F.Supp.2d at 680 n. 4, 682 (relying on result in MDL 2036); In re Checking Account Overdraft Litig., 694 F.Supp.2d at 1323 (â[Fed. R. Civ. P. 8(d) allows pleading in the alternative, even if the theories, are inconsistent. Defendants have not conceded that Plaintiffs are entitled to recovery under the contract, and it is possible that if their contractual claim fails, Plaintiffs may still be entitled to recovery under an unjust enrichment theory.â). The other line of cases dismissed the unjust enrichment claims because they found that an express contract existed and adequately covered the dispute at issue. See In re HSBC Bank, 1 F.Supp.3d at 52-53 (applying New York
After careful review and consideration, the Court finds the first line of cases persuasive and declines to dismiss count V on grounds of failure to- state a claim at this early stage of the litigation. While it is true that there appears to be much crossover between the-practices challenged in the breach of contract and implied covenant claims (counts I and' II) and the practices challenged in the unjust enrichment claim (count V), part of the plaintiffsâ theory of the ease is that:TD Bankâs overdraft fee policy in practice exceeded the bounds of what the express terms of the contract allowed. In this way, the unjust enrichment claim is potentially an alternative theory of relief, should the plaintiffsâ contractual claims fail. Additionally, unlike the breach of contract and 'implied covenant claims, the unjust enrichment claim is asserted on behalf of all putative classes. (CAC, EOF No. 37 at 64.) Therefore, it incorporates more alleged misconduct than the contractual claims in counts I and II. Accordingly, the motion to dismiss count V is denied to the extent count V is not preempted.
F. Count VI â Violation of State Statutes Prohibiting Unfair and Deceptive Acts and Practices
The plaintiffs have advanced claims for unfair and deceptive trade practices under statutes from each of the twelve jurisdictions included in this proceeding. Namely, Connecticut: the Connecticut Unfair Trade Practices Act (Conn. Gen. Stat. § 42-110a et seq.); Delaware: the Delaware Uniform Deceptive Trade Practices Act, (6 Del. C. § 2531 et seq.); Maryland: the..Maryland Consumer Protection Act (Md. Com. Law Code Ann. §§ 13-101 et seq.,j( 14-101 et seq.)-, .Massachusetts:, the Consumer Protection Act (Mass. Gen. Laws Ann. Ch. 93A); New Hampshire: the Regulation of Business Practices for Consumer Protection Act (N.H. Rev. Stat. Ann.' § 358-A:l et seq.)-, New Jersey: the New Jersey Consumer Fraud Act (N.J. Stat. Ann. § 56:8-1 et seq. (West)); New York: New York Consumer Protection Act (N.Y. Gen. Bus. Law §§ 349, 350 (Consol.)); North Carolina: North ' Carolina Unfair and Deceptive Trade Practices Act (N.C. Gen. Stat. § 75-1.1 et seq.); Pennsylvania: Unfair Trade Practices Act and Consumer Protection Law (Pa, Stat. Ann. Tit. ,73 § 201-1 et seq. (Purdon)); South Carolina: South Carolina Unfair Trade Practices Act (S.C. Code Ann. § 39-5-10 et seq.); Vermont: Vermont Consumer Fraud Statute- (Vt. Stat, Ann. Tit. 9, § 2451 et seq.); and- Washington, D.C. the Gonsumer Protection Procedures Act (D.C. Code Ann. § 28-3901 et seq.). Count VI is purportedly asserted on behalf of the plaintiffs and the âEFTA Classes,â and does not, on its face, incorporate the TD High-to-Low, TD Sufficient Funds,
In their response to the motion to dismiss, the plaintiffs have agreed to the dismissal of their claims brought under the consumer protection statutes of Massachusetts, Pennsylvania, and Vermont. (See Pis.â Resp. in Cpp. to' Mot. to Dismiss, ECF No. 59 at 43 n.12.) Thus, to the extent those claims are incorporated in count VI, that portion of count VI is dismissed and the Court will not address any arguments related to those statutes.
1. Delaware Uniform Deceptive Trade Practices Act (âDTPAâ)
TD Bank argues that the plaintiffs cannot maintain a claim under the DTPA because âthe DTPA is not intended to redress wrongs between a business and its customers.â Grand Ventures v. Whaley, 632 A.2d 63, 65 (Del.1993). Instead, the DTPA. âis intended to address unfair or deceptive trade practices that interfere with the promotion and conduct of another personâs business.â Id. Consequently, the Bank argues, a consumer has no standing to assert a cause of action under the DTPA. Worldspan, L.P. v. Ultimate Living Group, LLC, 390 F.Supp.2d 412, 414-15 (D.Del.2005) (dismissing DTPA claim).
The plaintiffs contend that Delaware case law allows standing under the DTPA for consumers with relationships to businesses similar to their own relationships with TD Bank. They cite three Delaware Superior Court cases that predate Grand Ventures and construed the DTPA liberally to allow consumer lawsuits. However, the plaintiffs have not explained why these Superior Court decisions should trump a Delaware Supreme Court decision that is both more recent and has precedential force. â
The Court agrees with TD Bank and hereby dismisses the portion of count VI that incorporates the DTPA claim. The Supreme Court of Delaware has outlined the parameters of the DTPA and held that they do not include suits brought by customers against a business. See Grand Ventures, 632 A.2d at 66-70. Specifically,, the Grand Ventures court delineated a sharp difference between the Delaware Consumer Fraud Act, which âprotects consumers and legitimate business enterprises from unfair or deceptive merchandising practices,â 6 Del. C. § 2512, and the DTPA, which âprohibits unreasonable interference with the promotion and conduct of another personâs business.â Grand Ventures, 632 A.2d at 66-67. The court explained .that the most logical interpretation of the -two state statutes in conjunction âis that the Consumer Fraud Act provides remedies for violations of the âverticalâ relationship between a buyer (the consumer) and a producer or seller. ... Conversely, the DTPA addresses unreasonable or unfair 'interference with the âhorizontalâ relationships between various business interests.â Id. at 70. Thus, there is no doubt that âĂĄ litigant has standing under the DTPA only when such person has a business or trade inter: est at stake which is the subject of interference by the unfair or deceptive trade practices of another/â Id. The- plaintiffs have alleged no such, business or trade interest and lack standing to bring a claim under the DTPA.
2. New Hampshire,Consumer Protection Act (âNHCPAâ)
TD Bank argues that the NHCPA exempts from its reach â[t]rade or com
The plaintiffs failed to respond to the Bankâs arguments for dismissal of the NHCPA claim. The Court agrees with TD Bank and hereby dismisses the portion of count VI that incorporates the NHCPA claim. The NHCPA expressly exempts consumer protection claims regarding the behavior of national banks from its purview because of the OCCâs comprehensive power -to regulate those banks.
3. South Carolina Unfair Trade Practices Act (âSCUTPAâ)
TD Bank argues that the plaintiffs SCUTPA claim cannot stand because âSCUTPA ... prohibits a plaintiff from bringing a suit in a representative capacity.â Dema v. Tenet Physician Svcs.-Hilton Head, Inc., 383 S.C. 115, 678 S.E.2d 430, 434 (2009). â[Because SCUTPA claims may not be maintained in a class action law suit,â the Bank argues, this portion of count VI should be dismissed. Id. â (affirming trial courtâs dismissal of SCUTPA claim); see In re Microsoft Corp. Antitrust Litig., 127 F.Supp.2d 702, 727 (D.Md.2001) (dismissing SCUTPA claim); see also Gunnells v. Healthplan Servs., Inc., 348 F.3d 417, 423, 446 (4th Cir.2003) (affirming by implication the district courtâs refusal to certify a SCUTPA suit as a class action pursuant to S.C. Code Ann. § 39-5-140).
The plaintiffs respond that the U.S. Supreme Courtâs decision in Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., 559 U.S. 393, 130 S.Ct. 1431, 176 L.Ed.2d 311 (2010), dictates that Fed. R. Civ. P. 23, and not state law, governs whether a class action may be maintained. Id. at 399, 130 S.Ct. 1431 (âRule 23 provides a one-size-fits-all formula for deciding the class-action question.â). The Supreme Court stated, âRule 23 unambiguously authorizes any plaintiff, in any federal civil proceeding, to maintain a class action if the Ruleâs prerequisites ĂĄre met. We cannot contort its text, even to avert a collision with state law that might render it invalid.â Id. at 406, 130 S.Ct. 1431 (emphasis in original). Moreover, âCongress itself has created the possibility that the same case may follow a different course if filed in federal instead of state court.â Id. at 416, 130 S.Ct. 1431. The plaintiffs cite two federal court decisions that have relied on Shady Grove to permit class actions under SCUTPA in multidistrict litigations such as this one. See In re Optical Disk Drive Antitrust Litig., 2012 WL 1366718, at *8 (N.D.Cal. Apr. 19, 2012) (denying motion to dismiss class actions claims under South Carolina law ânotwithstanding a limitation on class actions in the' state statuteâ based on Shady Grove); In re Auto. Parts Antitrust Litig., 2013 WL 2456612, at *106
The Court agrees with TD Bank and hereby dismisses the portion of count VI that incorporates class claims âą under SCUTPA. The individual plaintiffsâ claims based on SCUTPA remain intact and may proceed. First, SCUTPA unambiguously states that the statute may not form the basis of a class action lawsuit: âAny person who suffers any ascertainable loss of money or property, real or personal, as a result of the use or employment by another person of an unfair or deceptive method, act or practice declared unlawful by § 39-5-20 may bring an action individually, but not in a representative capacity, to recover actual damages.â S.C. Code Ann. § 39-5-140(a) (emphasis added). As already noted, the South Carolina Supreme Court has held that class actions are not permissible under SCUTPA. Dema, 678 S.E.2d at 434; see also Harris v. Sand Canyon Corp., 274 F.R.D. 556, 565 (D.S.C.2010). Accordingly, the plaintiffsâ class action claims based on the SCUTPA are improper and subject to dismissal.
The Court further agrees with TD Bankâs reply brief, (ECF No. 60 at 17-18), and the recent decision in Stalvey v. American Bank Holdings, Inc., 2013 WL 6019320, at *4 (D.S.C. Nov. 13, 2013), on the point that SCUTPAâs class action bar survives Shady Grove for the following reasons. âIn Shady Grove, a fragmented Court held that a New York procedural law prohibiting class actions in suits seeking penalties or statutory damages did not preclude a federal district court sitting in diversity from entertaining a class action under Rule 23 of the Federal Rules of Civil Procedure because Rule 23 preempted the New York state law.â- Id. Under standard rules of interpretation applied to plurality opinions like Shady Grove, a majority of courts have concluded that Justice Stevensâ opinion is controlling in view of the ânarrowest groundsâ principle. Id.) see, e.g., In re Packaged Ice Antitrust Litig., 779 F.Supp.2d 642, 660 (E.D.Mich.2011) (referencing multiple cases); James River Ins. Co. v. Rapid Funding, LLC, 658 F.3d 1207, 1217 (10th Cir.2011) (noting that the Tenth Circuit has understood Justice Stevensâ opinion to be controlling). Justice Stevens concluded, âA federal rule ... cannot govern a particular case in which the rule would displace a state law that is procedural in the ordinary use of the term but is so intertwined with, a state right or remedy that it functions, to define the scope of the state-created right.â Shady Grove, 559 U.S. at 423, 130 S.Ct. 1431. The Stalvey court noted that SCUTPA is importantly different from the state procedural law at issue in Shady Grove, because the New York law had no substantive component. Stalvey, 2013 WL 6019320 at *4; see N.Y. Civ. Prac. Law Ann. § 901(b). âHere, the prohibitions against class actions ingrained in the very text of the SCUTPA ... are substantive portions of South Carolina law and are not trumped by Federal Rule of Civil Procedure 23, evĂ©n in light of the Shddy Grove decision.â Stalvey, 2013 WL 6019320 at *4. The Court agrees with the Stalvey courtâs analysis and accordingly dismisses the plaintiffsâ representative SCUTPA claims. However, as in StĂĄlvĂ©y, the plaintiffs' may maintain their SCUTPA causes of action in their individual capacity. See id.
4. Remaining State Statutes
Given the Courtâs rulings above, the consumer protection statutory claims that remain viable are those brought pursuant to the law of- Connecticut, Maryland, New
TD Bank further argues that' none of the three practices listed ĂĄre deceptive in fact, so the plaintiffs cannot state a claim under the relevant statutes that they are misleading or deceptive.1 The Bank refers back to language from the PDAA in the attempt to show that all of the challenged practices are .expressly disclosed in the agreement, and cannot support a. claim for deception. TD Bank cites Hassler, 644 F.Supp.2d at 517 (New Jersey law), and Gay v. Peoples Bank, 2015 WL 3650090, at *10-11 (N.C.Super.Ct. June 10, 2015), for the. proposition that an unfair trade practice claim based on high-to low, posting cannot be maintained where a bankâs practices are disclosed in the relevant agreement. The Hassler court stated, where a statutory unfair trade practices claim âis based upon an allegedly incomplete or misleading disclosure," and where the partiesâ agreement contains the very information that Plaintiffs allege was misrepresented, suppressed,, -or concealed, dismissal for failure to state a claim is appropriate.â 644 F.Supp.2d at 515 (internal quotation marks and ÂżIterations omitted). The Bank contends that all of the plaintiffsâ claims regarding misrepresentation and deception are âunequivocally belied by the plain terms of the partiesâ Agreement.â Id. â
Lastly, TD Bank argues that to the extent the plaintiffs assert claims for alleged misrepresentations, those claims fail because the plaintiffs have not alleged reliance and/or causation. The Bank cites to a smattering of state and federal case law from a select few of the relevant jurisdictions (Pennsylvania, North Carolina, Maryland) and New Jersey) for- the assertion that plaintiffs are âgĂ©nerally required to allege either reliance' or- causationâ to properly plead claims- under unfair trade practices" statutes. (See Mot. to Dismiss, EOF No. 53-1 at 56-57.) TD Bank contends that the plaintiffs never allege that they relied on any misrepresentations, or that but for the alleged misrepresentations they would not-have incurred the overdraft fees in question-. The Bank argues that the plaintiffs have not even really alleged that they were exposed to any misrepresentation, and that the claims under 'the state unfair trade practieĂ©s statutes' should therefore be dismissed.
The. plaintiffs respond that TD Bank has treated their state consumer protection statutory claims en masse with generalized arguments that are not universally applicable. They contend that the CAC recites detailed allegations of the ways in which TD Bankâs overdraft practices are unfair, unconscionable, misleading, and deceptive. First, the plaintiffs point to their sufficient funds theory as an example of conduct by
Second, the plaintiffs argue that the consumer fraud and unfair business practices statutes upon which they rely are general in their application, and that no federal or state law or regulation can immunize TD Bank from general prohibitions against unfair, deceptive, or unconscionable practices such as those alleged in the CAC. On this point, the plaintiffs cite the result in Gutierrez, 704 F.3d 712, 726-27 (9th Cir. 2012), which upheld the district courtâs judgment against Wells Fargo Bank for making misleading statements about its high-to-low posting method, and the OCC itself, which has specifically put national banks on notice that they need be mindful of the constraints imposed by state statutes of the type invoked by the plaintiffs, see OCC Advisory Letter, Guidance on Unfair or Deceptive Acts or Practices, 2002 WL 521380, at *2 (Mar. 22, 2002); see also Martinez v. Wells Fargo Home Mortg., Inc., 598 F.3d 549, 555 (9th Cir. 2010).
Thirâd, the plaintiffs argue that TD Bank has conflated the concepts of reliance and causation, which are not the same and apply in distinct fashion in each of the relevant jurisdictions. It is enough, they contend, that the CAC alleges the plaintiffs suffered harm as a direct result of the Bankâs actions and representations, which were both unfair and misleading. Finally, the plaintiffs go through, in painstaking detail, why they feel that they have satisfied the Rule 12(b)(6) pleading standard under the applicable state law of various jurisdictions (Connecticut, Maryland, North Carolina, New Jersey, New York, and others now moot), and why they have met the reliance and/or causation requirements where applicable. (See Pis.â Resp. to Mot. to Dismiss, ECF No. 59 at .48-55.)
The Court finds that the plaintiffs have stated plausible claims for relief under the remaining state consumer protection statutes, and declines to dismiss these claims. With respect to TD Bankâs first argument, that the conduct in question is accurately disclosed in the PDAA and fully complies with federal banking law, the Court has already extensively analyzed these issues in the context of counts I-V, and will not restate all of the same points here. Suffice to say, there ĂĄre outstanding questions about whether the PDAA adequately disclosed the assessment of overdraft fees when sufficient funds remained in the account, and the Court has determined that federal banking law does not expressly permit this practice. Thus, the Court cannot dismiss the statutory claims on this basis. However, it goes without saying that the statutory claims ĂĄre dismissed pursuant to the preemption analysis supra to the extent they incorporate the high-to:low posting theory and the intentional honoring of transactions into overdraft theory.
With respect to TD Bankâs second argument, that the express language of the PDAA ' categorically ' demonstrates that none of the practices were deceptive in fact, the Court again disagrees. There is at least a plausible' reading of certain portions of the PDAA that could cause the reader to be misled about the mechanics of
With respect to TD Bankâs third argument, that the state unfair trade practices claims should be dismissed for a failure to allege reliance and causation, the Court is not convinced. The cases cited by the Bank in support of this proposition are inapposite here, because the misrepresentations alleged by the plaintiffs in this case are contained within the contract at issue and directly relate to the assessment of overdraft fees, which is itself the alleged harm. In other words, there is no lack of proximate cause between the alleged misrepresentation and the alleged -harm. The cases cited by TD Bank for the proposition that reliance and causation are prerequisites to an unfair trade practices claim deal with situations where the alleged misrepresentation was either wholly unconnected to any attendant harm, see Stewart v. Bierman, 859 F.Supp.2d 754, 769 (D.Md. 2012) (âPlaintiffs fail to indicate how the alleged forgeries of the foreclosure documents materially impacted -the debtorsâ conduct or how the signatures caused Plaintiffs a specific harm separate from the debt owed.â), or where legitimate questions regarding the. proximate relationship between the alleged misrepresentation and the alleged harm remained, see Bumpers v. Community Bank of Northern Virginia, 367 N.C. 81, 747 S.E.2d 220, 226-28 (2013) (reversing trial courtâs grant of summary judgment for plaintiffs because there -was a genuine question whether the plaintiffs actually and reasonably relied upon alleged misrepresentations about loan discount fees when choosing to take out the loans); Donachy v. Intrawest U.S. Holdings, Inc., 2012 WL 869007, at *1 (D.N.J. March 14, 2012) (granting defendantsâ, motion .for judgment on the pleadings because plaintiffs claimed reliance on- misrepresentations in a marketing brochure, but the agreement between the parties contained an express acknowledgment that no pre-contractual representation had induced the plaintiffs to enter the purchase agreements at issue).
G. Count VIII â Violation of National Bank Act, 12 U.S.C. §§ 85-86 and Usury
The plaintiffs have alleged a violation of the National Bank Actâs prohibition on the taking of usurious interest. Their claim is premised on the assertion that an extended overdraft balance charge, or what is referred to in the PDAA as a âSUSTAINED FEE FOR OVERDRAWN ACCOUNTSâ (see ECF No. 37-1 at 10) (âsustained overdraft feeâ), amounts to an interest charge by TD Bank on the funds it advances when an account is overdrawn. The sustained overdraft fee is a one-time $20.00 charge levied on a customer whose checking account remains in an overdrawn status for ten consecutive business days. (See id.) The plaintiffs allege that â[ujnlike an initial overdraft fee, the [sustained overdraft fee] is an additional charge to a customer based solely on the alleged indebtedness to the bank remaining unpaid by the customer for a period of time.â (CAC, ECF No. 37 at 47 (emphasis in original).) Moreover, the plaintiffs aver that âTD Bank renders no service to its customers in exchange for charging this extra fee other than advancing money to a customerâs account in an amount to cover the overdraft,â and âTD Bank uses the fact that it has loaned funds to its customer as a pretext to justify charging that customer a secondary service charge that exceeds lawful limits.â (Id. at 48.) The plaintiffs further state, âThere is nothing in TD Bankâs written materials disclosing, that this additional âfeeâ is in reality a charge of interest on extended credit.â (Id. at 49.) Finally, the plaintiffs extrapolate an effective annualized interest rate far in excess of the permissible limit by relating the $20.00 charge, which corresponds to a 10-day period, to the actual negative balance on the' account (e.g. Plaintiff Robinsonâs negative balance fluctuated from $147.10 to $439.42, leading to an effective, annualized interest rate between 166 and 496 percent). (See id. at 68-70.) The question of whether count VIII states a plausible claim for relief turns
TD Bank argues' that the sustained overdraft fee is simply not âinterestâ within the meaning of 12 U.S.C. § 85. The Bank points to OCC regulations, which differentiate between bank, charges of interest, governed by 12 C.F.R. § 7.4001, and non-interest charges and fees, governed by 12 C.F.R. § 7.4002. Section 7.4001(a) dictates that âcreditor-imposed not sufficient funds (NSF) fees charged when a borrower tenders payment on a debt with a check drawn on insufficient fundsâ constitute interest. However, the OCC has specifically excluded deposit account charges, including overdraft fees from this definition. 66 Fed. Reg. 34784-01, 34786-87; see Cargile v. JP Morgan Chase & Co., 2010 WL 5491200, at *3 (E.D.Mich. Nov. 23, 2010) (noting that OCC regulations âmake[] it clear that an NSF fee constitutes âinterestâ only when a borrower tenders an insufficient funds check to a creditor in payment of a previous debtâ and âuse of the term âNSF feesâ does not apply to overdraft charges to a deposit accountâ) (emphasis in original). TD Bank contends that if a fee is charged on a deposit account under the terms of the deposit agreement that fee is a ânon-interestâ charge levied pursuant to 12 C.F.R. § 7.4002(a). See Video Trax, Inc. v. NationsBank, N.A., 33 F.Supp.2d 1041, 1049-51 (S.D.Fla.1998) (holding that overdraft fees âarising) from the terms of the deposit agreementsâ were non-interest charges under 12 C.F.R. § 7.4002 rather than interest under 12 C.F.R. § 7.4001), affd per curiam 205 F.3d 1358 (11th Cir. 2000), cert. denied, 531 U.S. 822, 121 S.Ct. 66, 148 L.Ed.2d 31 (2000); OCC Interp. Ltr. No. 1082, 2007 WL 5393636, at *2 (stating that overdraft fees are authorized under 12 C.F.R. § 7.4002). The Bank asserts that the critical inquiry is the nature of the account; if the fees are charged on a deposit account, then they are not âinterestâ under the NBA. Soto v. Bank of Lancaster Cty., 2011 WL 1050213, at *9 (E.D.Pa. Mar. 23, 2011). â[T]he distinction between a credit account and- a deposit account is dispositive.â Id. at *8. â
The plaintiffs respond that the sustained overdraft fee is indeed an interest charge because it is distinct from the initial overdraft charge in both its purpose and application. Whereas the initial overdraft fee is properly categorized as administrative in nature, the sustained overdraft fee, argue the plaintiffs, is an amount paid by the customer for the use of money over time. The plaintiffs assert that such an amount charged meĂ©ts the definition of âinterestâ regardless of what label the Bank uses, making the sustained overdraft fee subject to usury laws. They characterize the initial overdraft fees as defacto loans made without a specific loan agreement, and the sustained overdraft fee as interest charged on those loans far in excess of the permissible rate. (CAC,-ECF No. 37 at ¶ 247-48.)
In support of these concepts the plaintiffs advance the following progression of arguments. First, the sustained overdraft fee-falls within the'definition of âinterestâ as explicitly laid â out in 12 C.F.R. § 7.4001(a) because it is a âlate feeâ connected to the extension of credit, and therefore is -subject' to the prohibition on usurious interest' in the NBA, 12 U.S.C. § 86. (See Pis.â Resp. to Mot. to Dismiss, ECF No. 59 at 58.) Second, 12 C.F.R. § 7.4002 explicitly states that charges and fees which constitute âinterestâ within the meaning of the NBA ĂĄre governed by § 7.4001 and not § 7.4002. Because § 7.4001 does not define âextension of credit,â one should look to the definition in Regulation O, 12 C.F.R. § 215.3, which includes âan advance by means of an overdraft, cash item or otherwise.â Third, one
The Court agrees with TD Bank, and finds that the sustained, overdraft fee is not interest within the meaning of 12 U.S.C. § 85 and 12 C.F.R. § 7.4001. As such, count VIII fails to state a plausible claim for relief and. is hereby dismissed. The OCC has clarified any ambiguity on the point of whether overdraft fees constitute interest in the following section of a final rule regarding banking activities and operations entitled, âDefinition of âInterestâ for Purposes of 12 U.S.C. 85 (Revised § 7.4001(a))â dated July 2, 2001:
The OCC proposed revising § 7.4001 to clarify the scope of the term âNSF feesâ for purposes of 12 U.S.C. 85. Section 85 governs the interest rates that national banks may charge, .but it does not define the term âinterest.â Section 7.4001 generally defines the charges that are considered âinterestâ for purposes of section 85, and then sets out a nonexclusive list of charges covered by that definition. The list includes âNSF fees.â
The inclusion of âNSF feesâ in the definition of âinterestâ was intended to codify a position the OCC took in Interpretive Letter 452, issued in 1988. IL 452 concluded that charges imposed by a credit card bank on its customers who paid their accounts with checks drawn on insufficient funds were âinterestâ within the meaning â of section 85. The charges were referred to as âNSF chargesâ in the letter. The term, however, is also is [sic] commonly used to refer to fees imposed by a bank on its checking account customers whenever a customer writes a check against insufficient funds, regardless of whether the cheek was intended to pay an obligation due to the bank. These different uses of the term âNSF feesâ have created ambiguity about the scope'of the term as used in § 7.4001(a).
The proposal invited comments on a change to § 7.4001(a) that would clarify that the term âNSF feesâ includes only those fees imposed by a creditor bank when a borrower attempts to pay an obligation to that bank with a check drawn on insufficient funds. Fees that a bank charges for its deposit account services â including overdraft and âąreturned check charges â are not' covered by the term âNSF feesâ as that term is used in § 74001(a). The OCC received no objections on that proposed change, and, therefore, we adopt it in the final rule- as proposed, 'change, [sic] Thus, we are clarifying the definition of âinterestâ by stating in the final rule that interest includes creditor-imposed NSF fees that are charged when a borrower tenders payment on a debt with a check drawn on insufficient funds.
66 Fed. Reg. 34784-01, 34786-87 '(emphasis ĂĄdded). It is of course true that this section does not discuss âsustainedâ overdraft fees specifically. However, the Court is unconvinced that a one-time sustained overdraft fee constitutes the accrual of interest on an extension of credit merely because it occurs ten days after the initial overdraft fee is imposed. In general, the nature of interest is.the application, over
Federal courts that have considered the question of whether NSF fees (including overdraft fees) arising from a deposit agreement can be âinterestâ for purposes of the NBA have uniformly held that they cannot constitute âinterest,â and have dismissed claims under 12 U.S.C. § 85 that relate to overdraft fees. See Armstrong v. Colonial Bank, N.A., 196 Fed.Appx. 872 (11th Cir.2006) (affirming district courtâs order concluding that overdraft charges are not interest and dismissing related action for failure to state a claim); Soto, 2011 WL 1050213, at *8; Cargile, 2010 WL 5491200, at *3-4; In re Wash. Mut. Overdraft Prot. Litig., 2004 WL 5046210, at *5 (C.D.Cal. Apr. 26, 2004) (applying the NBAâs definition of âinterestâ to the Home Ownerâs, Loan Act and concluding that overdraft fees are not interest because they are âa deposit account service charge arising from the terms of the depository agreementâ and thus controlled by. 12 C.F.R. § 7.4002), aff'd in part, revâd in part on other grounds, 201 Fed.Appx. 409 (9th Cir.2006); Video Trax, Inc., 33 F.Supp.2d at 1049-51; Terrell v. Hancock Bank, 7 F.Supp.2d 812, 816 (S.D.Miss. 1998) (assuming for purposes of argument that the NBA applied to defendant state bank.and concluding thatâ overdraft fees are not interest because they âarise[ ] from the terms of the Depository Agreementâ and are addressed in 12 C.F.R. § 7.4002); Nicolas v. Deposit Guar. Natâl Bank, 182 F.R.D. 226, 231 (S.D.Miss.1998) (same).
Two federal courts have recently considered the specific question at issue in the case sub judice, whether sustained overdraft fees constitute âinterestâ for purposes of 12 U.S.C. § 85, and have both held that such fees are not interest. In McGee v. Bank of Am., N.A., 2015 WL 4594582, at *4 (S.D.Fla. July 30, 2015), the court held that an âextended overdrawn balance chargeâ was not interest within the meaning of 12 U.S.C. §§ 85 and 86, and dismissed the plaintiffsâ complaint for failure to state a plausible claim for relief. The McGee court specifically considered and rejected the same arguments raised by the plaintiffs in this case, namely: 1) that the sustained overdraft fees cannot be non-interest charges because no additional service is provided, 2) that the sustained fees are âinterestâ because they qualify as âlate feesâ within the text of 12 C.F.R. § 7.4001(a), (3) that the initial overdraft fees are extensions of credit, and (4) that the plaintiffsâ arguments raise questions of fact inappropriate for resolution at the pleading stage. Id. at *3-4. The McGee court stated, âThe [extended overdrawn balance charges] at issue are flat fees contingent upon a customerâs failure to remedy an overdrawn account, rather than payment for the use of money, and are not âinterestâ within the ordinary meaning of the word.â Id. at *3 (citing Video Trax, 33 F.Supp.2d at 1050). Furthermore, âthe extended overdrawn balance charges â like initial overdraft charges â do not arise from a credit transaction, and are not interest under 12 U.S.C. § 85.â Id. (emphasis added). In so holding, the McGee court relied upon the reasoning in Video Trax, âthat flat fees for overdrafts serve purposes other than compensation for the use of money,-such as covering the costs of banking services, discouraging harmful customer behavior, and fostering the safety and stability of the banking system.â Id. at *2 (citing Video Trax, 33 F.Supp.2d at
Likewise, in Shaw v. BOKF, N.A., 2015 WL 6142903, at *4 (N.D.Okla. Oct. 19, 2015), the court held that, the âextended overdraft feesâ being challenged by the plaintiffs were not âinterestâ as that term is defined in the NBA. The Shaw court relied upon the reasoning and results in McGee and Video Trax for the proposition that âthe extended overdraft charges were incurred as part of maintaining a deposit account, not a credit transaction, and the extended overdraft charges could not be considered interest.â Id. at *3 (citing McGee, 2015 WL 4594582 at *3). In addition, the Shaw court directly confronted the plaintiffsâ argument that 12 C.F.R. § 215, also known as Regulation O, defines overdrafts as âextensions of credit.â In their response brief, the plaintiffs seek to disclaim the rather obvious inapplicability of Regulation O to their relationship with the Bank. (See Pls.â Resp. in Opp. to Mot. to Dismiss, ECF No. 59 at 59 (âAlthough this definition appears in the section addressing extensions of credit to insiders of a bank, it is an integral part of the entire framework of the regulations, and understanding all of them is vital to grasping regulatory intent.â).) As the Shaw court explains, âRegulation 0 is entirely inapplicable to the ordinary bank customer with a deposit account, because Regulation 0 was intended to prevent âbanking abuses by bank insiders.â This understanding of Regulation O is confirmed by 12 C.F.R. § 215.1, which states that the âpurpose and scopeâ of Regulation O is to govern âany extension of credit made by a member bank to a company controlled by such a person----â Shaw, 2015 WL 6142903 at *4. This Court finds the reasoning in Shaw persuasive. Similar to the plaintiffs in Shaw, the plaintiffs in- this case did .not borrow money or , obtain a line of credit from TD Bank. Rather, they maintained deposit accounts with the Bank and overdrew those accounts, at which point the Bank provided the service of covering their overdrafts. See id. Furthermore, the plaintiffs were not charged interest for the use of money, but were charged fees for overdrawing their accounts and for failing to remedy the status- of those overdrafts within 'the contractually allotted time period. See id. "
The plaintiffs point the Court to a document issued on February 15, 2015 by the OCC, the Board of Governors of the Federal Reserve System, the FDIC, and the National Credit Union Administration, entitled âJoint Guidance on Overdraft Protection Programs,â as a source of authority for the concepts that overdraft fees are extensions of credit and that banks must be wary of the usury implications raised by such extensions of credit. (See Resp. to Def. Not. of Supp. Authority, ECF No. 64 at 1.) The plaintiffs urge the Court to ignore the results in Shaw, Mcgee, and Video Trax as having no application to the sustained overdraft fees at issue in this proceeding. (See id.) The Court disagrees and believes the plaintiffs have overstated any purported support that the Joint Guidance offers their position on the usury issue.
Finally, the plaintiffs submitted a notice of supplemental' authority regarding the usury issue with citations to various sources. Among those sources are: 1. two OCC enforcement actions, cited for the premise that honoring a check on an account with insufficient funds is an extension of credit; 2. one federal and three state court decisions, cited for the premise that a bank makes a loan when it honors an overdraft check; and, 3. two banking treatises, cited for the premise that overdraft coverage constitutes short-term unsecured loans to customers so banks
CONCLUSION
For the reasons set forth above, defendantsâ motion to dismiss is GRANTED in part and DENIED in part; In general, for those portions of the complaint for which dismissal is GRANTED, such dismissal is with prejudice. However, wliere the plaintiffs conceded dismissal of ' their claims brought under the consumer protection statutes of Massachusetts, Pennsylvania, and Vermont, such dismissal is without prejudice. -
IT IS SO ORDERED.
. OCC regulations carry the same preemptive weight as Congressional enactments. See Fid. Fed. Sav. & Loan Ass'n v. de la Cuesta, 458 U.S. 141, 153-54, 102 S.Ct. 3014, 73 L.Ed.2d 664 (1982) ("Federal regulations have no less pre-emptive effect than federal statutes.â). "Congress has expressly recognized the OCCâs power to preempt particular state laws by issuing opinion letters and interpretive rulings, subject to certain notice-and-comment procedures.â Wachovia Bank, N.A. v. Burke, 414 F.3d 305, 314 (2d Cir.2005). "It is settled that courts should givp great weight to any reasonable construction of a regulatory statute adopted by the agency charged âwith the enforcement of that statute.â Clarke v. Securities Industry Assân, 479 U.S. 388, 403, 107 S.Ct. 750, 93 L.Ed.2d 757 (1987). Moreover, "[t]he [OCC] is charged with the enforcement of banking laws to an extent that warrants the invocation of this principle with respect to [its] deliberative conclusions as to the meaning of these laws.â Id. at 403-04, 107 S.Ct. 750.
. . The plaintiffsâ claims in counts II-VI, reduced to their essence, are that TD Bank acted unfairly and in bad faith in choosing a high-to-low posting order and routinely honoring transactions into overdraft for the sole purpose of increasing overdraft fees.
. Nor has TD Bank argued that preemption applies to count I.
. The Court is not persuaded that "significant interferenceâ is synonymous with complete prohibition of a national bankâs enumerated or incidental power. The Sixth Circuit Court of Appeals has noted that the "significant interferenceâ standard should not be conflated with prohibition of a practice. "We have found that the level of âinterferenceâ that gives rise to preemption under the NBA is not very high.â Monroe Retail, Inc. v. RBS Citizens, N.A., 589 F.3d 274, 283 (6th Cir.2009) (citing Ass'n of Banks in Ins., Inc. v. Duryee, 270 F.3d 397, 409 (6th Cir.2001) (rejecting a partyâs attempt to redefine "significantly interfereâ as "effectively thwartâ because it would render redundant the two prongs of the Barnett Bank standard, namely that states may regulate national banks only where doing so does not "prevent or significantly interfere withâ banksâ exercise of their powers)).
. It is also not lost on the Court that the plaintiffs state that injunctive relief is appropriate in both the âClass Allegations" section and count VI of the CAC, though not in the âPrayer for Relief" section. (ECF No. 37 at 58, 67, 71.)
. In full candor, and with the utmost respect to the courts that have considered this preemption question post-Gutierrez, the Court perceives something of an. echo-chamber effect in the manner with which MDL 2036 has continued to be quoted and relied upon, even where directly inconsistent with Gutierrez on the ability of state law to prevent national banks from employing high-to-low posting methods. See Hanjy, 94 F.Supp.3d at 1023 ("Other courts have followed the . Florida MDL court in declining, at the motion to dismiss stage, to find preemption of state law claims regarding banksâ debit posting practices.â (citing In re HSBC Bank, King, and Hughes)); In re HSBC Bank, 1 F.Supp.3d at 48 (quoting MDL 2036 in finding that " â[a]t'this stage, these allegations do no more than incidentally affect the banksâ exercise of their deposit taking power and are therefore not preemptedâ â); King, 26 F.Supp.3d at 517 ("Construing the Amended Complaint in the light most favorable to Plaintiffs, the court finds the courtâs decision in MDL 2036 to be persuasive.â); Hughes, 856 F.Supp.2d at 680 (âThis Court agrees with the MDL Courtâs opinion and adopts, its reasoning in full,â). This Court believes that Gutienez explicated a more nuanced understanding of how state law is preempted in the context of overdraft policy and the NBA, and therefore adopts the more recent reasoning in,Gutierrez as persuasive, Additionally, the Court's understanding of federal preemption is that it either applies or does not apply, bĂ©cause the state law claims either impermissibly conflict with federal law or they do not. Therefore, the Court finds the often repeated language that various courts decline to find federal preemption "at this stage of the proceedingsâ confusing and unhelpful to the analysis. See, e.g., King, 26 F.Supp.3d at 517; In re HSBC Bank, 1 F.Supp.3d at 48.
. In Hanjy v. Arvest Bank, 94 F.Supp.3d 1012 (E.D.Ark.2015), the. defendant bank asserted federal preemption of state law claims even though it was a state-chartered bank. Id. at 1021. The Hanjy court assumed, without deciding, that the state bank enjoyed the same preemption rights by way of the FDIA, 12 U.S.C. § 1831a(j)(l), that national banks enjoy under the NBA and attendant regulations. Id. at 1022. The Hanjy case is readily distinguishable on this point alone.
. The Court is cognizant of the fact that the plaintiffs insist they are not trying to tell the Bank how it can and cannot act, but only asking that past and present harms against them be remedied. As previously noted, the Court considers the state law claims to be the functional equivalent of an injunction for purposes of a âsignificant interferenceâ analysis pursuant to Barnett Bank.
. The Court uses this term for the sake of clarification, despite the vagaries of referring to the "physicalâ presence of money in the â ' age of ubiquitous electronic transactions where no dollar bills or coins are ever exchanged.
. Notably, the Fidelity-Baltimore case- did not deal with preemption doctrine.
. See definitions of available balance and actual balance supra at section I., C.
. See related discussion of viable claims in the preemption analysis supra at section Iâ C.
. The New York Statute prohibits only de- ..- ceptive, not. unfair, acts. N.Y., Gen. Bus. Law § 349(a); see Bildstein v. MasterCard Int'l Inc., 329 F.Supp.2d 410, 413 (S.D.N.Y.2004).
. The plaintiffs also cite Yocca v. Pittsburgh Stealers Sports, Inc., 578 Pa. 479, 854 A.2d 425, 438 (2004). However, TD Bankâs arguments based On this case are rendered moot
. This does not apply to the claim brought pursuant to section 349 of the, New York General Business Law. However, in New York, "reliance is not an element of a Section 349 claim.â Stutman v. Chemical Bank, 95 N.Y.2d 24, 29, 709 N.Y.S.2d 892, 731 N.E.2d 608 (2000). Moreover, â[r]eliance and causation are twin concepts, but they are not identical.â Id. at 30, 709 N.Y.S.2d 892, 731 N.E.2d 608. Nevertheless, where a plaintiff alleges that they suffered harm because of a defendantâs deceptive act, they have satisfied the causation requirement, and â[p]laintiffs need not additionally allege that they would not otherwise have entered into the transaction. Nothing more is required.â Id.