2015 WL 774478
E.D.N.Y.2015Background
- Plaintiff Jeanette Costoso, a New York Bank of America (BofA) accountholder, alleges BofA processed ACH debits from online payday lenders that made usurious, unlawful loans to New York residents and charged overdraft/NSF fees when those debits caused negative balances.
- Plaintiff’s Account Agreement included a clause acknowledging ACH transactions are subject to NACHA operating rules and a separate "freeze funds" discretionary clause.
- Regulatory bodies (New York DFS, OCC, NACHA, federal agencies) had warned banks about online payday lending risks and identified suspicious originators; NACHA maintains monitoring rules and a Terminated Originator Database.
- Plaintiff alleges multiple specific high-rate payday loans in 2013 where lenders initiated WEB ACH debits that applied only to interest and triggered fees from BofA.
- Plaintiff sued on behalf of a NY class asserting breach of contract (incorporating NACHA rules), breach of covenant of good faith, conversion, unjust enrichment, unconscionability, and NY Gen. Bus. Law § 349 claims; BofA moved to dismiss under Rule 12(b)(6).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether BofA breached the Account Agreement by honoring ACH debits from illegal payday lenders and failing to block or recredit the debits | Costoso contends the Account Agreement incorporated NACHA rules obligating BofA to block or recredit unlawful/unauthorized ACH debits and that charging fees arising from such debits breached the contract | BofA argues the NACHA clause is an accountholder acknowledgement (not a bank promise), the Funds Transfer section excludes consumer Reg E transactions, RDFIs may rely on ODFI warranties, and NACHA recredit provisions require receiver notice | Dismissed: Court held the NACHA clause does not impose the alleged bank obligations for consumer ACHs, RDFI may rely on ODFI warranties, plaintiff did not allege her authorizations were invalid under NACHA or that she requested recredit, so no contractual breach proven |
| Whether BofA breached implied covenant of good faith and fair dealing by processing debits and charging fees | Costoso alleges BofA abused contractual discretion to process transactions and impose fees, undermining the contract’s purpose | BofA notes it complied with express contract terms and the Account Agreement preserves its discretion (including freezing accounts) | Dismissed: Court treats claim as duplicative of contract claim and finds no independent breach of implied covenant |
| Whether plaintiff can maintain causes of action in tort/quasi-contract (conversion, unjust enrichment, unconscionability) based on bank’s handling of deposits and fees | Costoso claims conversion, unjust enrichment, and unconscionability because BofA retained funds and profited from fees tied to illegal loans | BofA responds New York law treats deposited funds as bank property, conversion requires identifiable segregated funds and independent tort, unjust enrichment is precluded where a contract governs, unconscionability is a defense not an affirmative claim | Dismissed: Conversion fails because deposited funds are not sufficiently identifiable and claim mirrors contract; unjust enrichment dismissed because the Account Agreement governs; unconscionability cannot be an affirmative claim under NY law |
| Whether plaintiff states a consumer-protection claim under NY Gen. Bus. Law § 349 | Costoso argues BofA engaged in consumer-oriented misleading practices by processing illegal debits and charging fees | BofA contends the conduct is contractual (not a deceptive consumer practice) and lacks misleading acts separate from alleged contract breach | Dismissed: Court finds the alleged conduct is essentially a breach of contract and not a cognizable § 349 claim |
Key Cases Cited
- ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007) (Twombly plausibility standard applied to securities pleading principles)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (complaint must state plausible claim to survive dismissal)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (plausibility and judicially noticeable facts framework)
- DiFolco v. MSNBC Cable L.L.C., 622 F.3d 104 (2d Cir. 2010) (documents integral to the complaint may be considered on a motion to dismiss)
- Affinion Benefits Group, LLC v. Econ-O-Check Corp., 784 F. Supp. 2d 855 (M.D. Tenn. 2011) (RDFI reliance on ODFI/Originator warranties in ACH context)
- Colavito v. New York Organ Donor Network, Inc., 8 N.Y.3d 43 (2006) (elements of conversion and requirement for identifiable property)
- Valley Juice Ltd., Inc. v. Evian Waters of France, Inc., 87 F.3d 604 (2d Cir. 1996) (unjust enrichment is a quasi-contract remedy precluded by an express contract)