Cobb v. PayLease LLCCobb v. PayLease LLC
MEMORANDUM OPINION AND ORDER DENYING DEFENDANT’S MOTION TO DISMISS
Plaintiff Jeremy Cobb brings this action alleging violations of the Electronic Fund Transfer Act, 15 U.S.C. §§ 1693 et seq. (“EFTA”), as well as claims for conversion and unjust enrichment against Defendant PayLease LLC (“PayLease”) arising out of an insufficient funds return fee assessed to Cobb’s bank account by PayLease. Cobb’s complaint also includes class allegations. PayLease moves to dismiss Cobb’s Amended Complaint .in its entirety. Because, taking the allegations in the Amended Complaint as true, Cobb has stated a claim under EFTA, and his allegations fall within the scope of conversion and unjust enrichment theories, the Court will deny PayLease’s motion.
BACKGROUND
I. THE RETURNED FEE
On May 14, 2013, Cobb submitted an apartment rental application to Common Properties Management Cooperative (“Common Properties”). (Am. Compl. ¶ 11, Jan. 2, 2014, Docket No. 14.) As part of-the application process Cobb spoke to a Common Properties representative by telephone and authorized an Automated Clearing House (“ACH”) debit from his checking account in the amount of $37.95. (Id. ¶¶ 11-12.) The amount authorized included an application fee of $35.00 plus a convenience charge of $2.95. (Id. ¶ 11.)
On May 16, 2013, due to insufficient funds in Cobb’s account, the ACH debit initiated by Common Properties was returned by Cobb’s bank as unpaid. (Id.
Cobb alleges that during the telephone conversation with the Common Properties’ representative he “was not asked for permission nor was he asked to grant authorization for the collection of any fees via electronic fund transfer (‘EFT’) in the event of a return of his debit payment.” (Am. Compl. ¶ 13.) Additionally Cobb alleges that he “did not voluntarily provide any written or oral permission or authorization to Common Properties, Defendant PayLease, or Defendant’s agents permitting the collection of any fees via electronic fund transfer which might result in the event of a return of his ACH debit payment.” (Id. ¶ 14.)
Cobb filed the Amended Complaint on January 2, 2014, bringing three claims against PayLease. In Count I, Cobb alleges that PayLease violated EFTA by “initiating or causing to be initiated an electronic funds transfer to collect their NSF fee without first obtaining Plaintiffs authorization.” (Am. Compl. ¶ 33.) With respect to this claim Cobb contends that “PayLease has not provided any notice whatsoever to the Plaintiff regarding an NSF fee” and “had no basis to expect or believe that Common Properties] provided Plaintiff with any notice that he would be charged an NSF Fee if the ACH was returned due to insufficient funds.” (Id. ¶¶ 38, 40 (emphasis in original).) Cobb seeks actual damages “including without limitation the unlawfully collected NSF fees” as well as statutory damages and attorneys’ fees in connection with his EFTA claim. (Id. ¶44.) In Count II, Cobb brings a claim for conversion based on the allegation that PayLease unlawfully collected or shared in NSF fees obtained from Plaintiff. (Id. ¶ 46.) Finally, in Count III, Cobb brings a claim for unjust enrichment based on PayLease’s “unlawful ]” collection of NSF fees. (Id. ¶ 51.)
ANALYSIS
I. STANDARD OF REVIEW
In reviewing a motion to dismiss brought under Federal Rule of Civil Procedure 12(b)(6), the Court considers all facts alleged in the complaint as true to determine if the complaint states a “ ‘claim to relief that is plausible on its face.’ ” Gomez v. Wells Fargo Bank, N.A.,
II. EFTA
EFTA provides a “basic framework establishing the rights, liabilities, and responsibilities of participants” in electronic banking and its primary objective “is the provision of individual consumer rights.” 15 U.S.C. § 1693(b). Congress delegated authority and responsibility to the Board of Governors of the Federal Reserve System to “prescribe rules to carry out the purposes of’ the Act in order to “prevent circumvention or evasion thereof, or to facilitate compliance therewith.” 15 U.S.C. § 1693b; see also 12 C.F.R. § 205.1. The Board has promulgated administrative regulations codified at 12 C.F.R. Part 205, which are commonly referred to as Regulation E. See 12 C.F.R. § 205.1. With respect to remedies for violations, EFTA provides that “any person who fails to comply with any provision of this subchapter with respect to any consumer ... is liable to such consumer.” 15 U.S.C. § 1693m(a). EFTA authorizes class actions and allows for the recovery of
Cobb brings his EFTA claim under 12 C.F.R. § 205.3(b)(3)© which governs notice to consumers with respect to the collection of returned item fees. The regulation provides, in relevant part, that:
The person initiating an electronic fund transfer to collect a fee for the return of an electronic fund transfer or a check that is unpaid, including due to insufficient or uncollected funds in the consumer’s account, must obtain the consumer’s authorization for each transfer. A consumer authorizes a one-time electronic fund transfer from his or her account to pay the fee for the returned item or transfer if the person collecting the fee provides notice to the consumer stating that the person may electronically collect the fee, and the consumer goes forward with the underlying transaction. The notice must state that the fee will be collected by means of an electronic fund transfer from the consumer’s account if the payment is returned unpaid and must disclose the dollar amount of the fee.
12 C.F.R. § 205.3(b)(3)®. In its motion to dismiss, PayLease argues that EFTA is not applicable to Cobb’s claim because (1) an electronic fund transfer was never completed; (2) the $25 fee has since been recredited to Cobb’s account; and (3) the transaction was authorized via telephone. Additionally, PayLease argues that Cobb has failed to adequately plead that Pay-Lease did not provide the statutorily required notice to Common Properties, and therefore fails to state a claim under EFTA. Recognizing that “[a]n EFTA claim should be dismissed when neither the language of the statute nor a provision of Regulation E applies to the defendant’s conduct,” Olen v. N. Tier Retail, LLC, Civ. No. 11-2665,
A. Completed Transfer
PayLease first argues that EFTA does not apply to Cobb’s claim because no electronic fund transfer was ever completed. Specifically, PayLease argues that “according to the facts asserted by Plaintiff, a fee was merely ‘assessed’ but never actually paid to PayLease” and therefore no electronic fund transfer took place. (Def.’s Mem. in Supp. of Mot. to Dismiss at 8, Feb. 7, 2014, Docket No. 18.)
EFTA defines an “electronic fund transfer” as
any transfer of funds, other than a transaction originated by check, draft, or similar paper instrument, which is initiated through an electronic terminal, telephonic instrument, or computer or magnetic tape so as to order, instruct, or authorize a financial institution to debit or credit an account. Such term includes, but is not limited to, point-of-sale transfers, automated teller machine transactions, direct deposits or withdrawals of funds, and transfers initiated by telephone.
15 U.S.C. § 1693a(7). Generally, in order for a defendant’s conduct to come within the scope of EFTA the transaction at issue must involve an electronic fund transfer. See Vigneri v. U.S. Bank Nat’l Ass’n,
The Court finds that the Amended Complaint in combination with the bank statement produced by PayLease — taken as true — plausibly alleges that an electronic fund transaction was completed by Pay-Lease. Cobb’s bank account shows that on May 29 a transaction was initiated by PayLease and $25 was “withdraw[n]/sub-traet[ed]” from Cobb’s account. (Miller Deck, Ex. A at 2.) Furthermore, Cobb alleges that PayLease “assessed” a $25 fee to his account and that the “taking” of the fee from his account was a violation of EFTA. (Am. Comp. ¶¶3, 17, 38.) Assess means “[t]o charge (a person or property) with a special payment, such as a tax or fine.” The American Heritage Dictionary of the English Language 108 (5th ed.2011). Thus, a plain reading of the Amended Complaint indicates that PayLease charged a $25 fee a/id the fee was removed from Cobb’s bank account. The Court finds that this is sufficient to state a claim based upon a completed electronic fund transfer. Although PayLease intimated at oral argument that it may never have actually received the $25 in its own account, suggesting that the transaction was never completed, this contention goes beyond the scope of the allegations in the Amended Complaint, which plausibly allege that a completed transfer occurred, and is therefore not properly considered by the Court at this motion to dismiss stage. Because the Amended Complaint adequately alleges a completed transfer, the Court will deny PayLease’s motion to dismiss to the extent it is based on the contention that no electronic fund transfer ever occurred.
B. Money Recredited
PayLease next argues that because the $25 was recredited to Cobb’s account on
The Raine court found Raine’s reliance on EFTA to be misplaced. The court began by explaining that, under FDIC regulations, no deposit insurance was allowed because the funds were not in her account at the time of the bank’s insolvency. Id. at 288. The court then went on to conclude that EFTA did not alter its analysis because “that statute supplies only a cause of action to a customer seeking to have money recredited after an unauthorized withdrawal.” Id. (citing 15 U.S.C. §§ 1693f(e), 1693(m)). Specifically, the court explained “EFTA does not change the fact that at the time of the transfer of insured deposits ... the money was not in her account. While she may have had a right to reimbursement for the money removed, she did not have the actual funds in her account at the time the bank failed, and, therefore, the deposit was not covered.” Id.
Although the Raine court stated that EFTA “supplies only a cause of action to a customer seeking to have money recredit-ed,” id., the context of the court’s statement is readily distinguishable from the circumstances in the present case, and the case does not support PayLease’s argument that Cobb cannot maintain a cause of action because he has since recovered the $25 fee. First, Raine was discussing the import of EFTA in the context of whether the Act had any bearing on the FDIC’s determination of which funds were in the petitioner’s account at a particular time for purposes of deposit insurance. The court’s statement that EFTA was inapplicable because it supplies a cause of action only for customers seeking to have money recredit-ed -meant only that EFTA provides a mechanism for recrediting an account rather than a mechanism by which a consumer can claim that certain funds, which have not yet been recredited, are part of
Second, Raine spoke of recrediting as it relates to EFTA in the context of a very specific statutory provision within the Act. Specifically, Raine cited 15 U.S.C. § 1693f, which is a provision of EFTA dealing with error resolution between consumers and their financial institutions. Section 1693f requires a financial institution to investigate when a consumer informs the financial institution about an alleged error in the consumer’s account. See 15 U.S.C. § 1693f(a); Collins v. Mo. Elec. Coops. Emps. Credit Union, Civ. No. 05-0009,
PayLease has provided, and the Court has found, no other authority indicating that an entity is absolved of liability arising out of notice provisions of EFTA where it has already recredited the account in question. At least two provisions of EFTA strongly suggest that a plaintiff can maintain a cause of action under the Act even where the funds in question have already been returned.
First, EFTA provides for the recovery of statutory damages, in addition to “any actual damage sustained” by a consumer. 15 U.S.C. § 1693m(a)(l). The fact that a consumer can recover statutory damages indicates that the consumer need not be able to prove in each case that he has suffered actual damages. See Bums v. First Am. Bank, Civ. No. 04-7682,
Second, EFTA already provides a procedure for a potential defendant to reimburse a plaintiff and avoid liability. Section 1693m(e) provides:
Notification to consumer prior to action; adjustment of consumer’s account
A person has no liability under this section for any failure to comply with anyrequirement under this subchapter if, prior to the institution of an action under this section, the person notifies the consumer concerned of the failure, complies with the requirements of this sub-chapter, and makes an appropriate adjustment to the consumer’s account and pays actual damages or, where applicable, damages in accordance with section 1693h of this title.
15 U.S.C. § 1693m(e); see also Buechler v. Your Wine & Spirit Shoppe, Inc.,
C. Telephone Authorization
PayLease next argues that EFTA is inapplicable to Cobb’s claim because “Plaintiff authorized a non-recurring ACH debit by telephone to his agent, Common Properties.” (Def.’s Mem. in Supp. of Mot. to Dismiss at 10.) As noted above, EFTA’s definition of electronic fund transfer includes transfers “initiated through [a] telephonic instrument.” 15 U.S.C. § 1693a(7). But EFTA specifically exempts from the definition of electronic fund transfer “any transfer of funds which is initiated by a telephone conversation between a consumer and an officer or employee of a financial institution which is not pursuant to a prearranged plan and under which periodic or recurring transfers are not contemplated.” 15 U.S.C. § 1693a(7)(E). The term “financial institution” is defined as “a State or National bank, a State or Federal savings and loan association, a mutual savings bank, a State or Federal credit union, or any other person who, directly or indirectly, holds an account belonging to a consumer.” 15 U.S.C. § 1693a(9). Courts have observed that the legislative history of EFTA suggests that electronic fund transfers initiated by a telephone conversation with a financial institution are exempt from EFTA “because of the personal element in these transfers.” Kashanchi v. Tex. Commerce Med. Bank, N.A.,
PayLease argues that because Cobb agreed to authorize the initial $37.95 rental application fee over the phone with a representative of Common Properties, the later charge of $25 by PayLease is exempt under EFTA as a transaction “initiated by a telephone conversation between a consumer and an officer or employee of a financial institution.” 15 U.S.C.A. § 1693a(7)(E). But PayLease’s argument is misplaced. First, Common Properties is undisputedly not a financial institution as defined by EFTA. Therefore, any telephone conversation between Cobb and Common Properties does not satisfy the exemption under § 1693a(7)(E), which only excludes from the definition of electronic fund transfers transfers initiated by telephone conversations between a consumer and an officer or employee of a financial institution. Although PayLease appears to argue that the Court should expand the exemption to include transfers initiated by any telephone conversation that has an element of personal contact, it has provided no support for this expansion in light of the unambiguous language of the statute which confines the exemption to telephone conversations with representatives of financial institutions. See Carcieri v. Salazar,
D. Lack of Notice
Finally, PayLease argues that Cobb’s EFTA claims must be dismissed because the Amended Complaint “fails to allege that PayLease did not make the required disclosures to Common Properties.” (Reply at 5, Mar. 20, 2014, Docket No. 30.) Specifically, PayLease argues that
[b]y electing to use Common Properties as his agent, Plaintiff entrusted Common Properties to act on his behalf .... Essentially, Plaintiff asked another entity (Common Properties) to process the transaction with PayLease for him. Inthe absence of any contrary allegation, we can assume that PayLease made the required disclosures to Common Properties (in fact they did). To hold Pay-Lease responsible for any alleged failure by Common Properties to communicate those disclosures to Plaintiff puts Pay-Lease in an impossible situation, where it is being punished in situations when it made all of the required disclosures.
(Id. at 5-6.) As support for this argument, PayLease relies upon the official staff interpretations of the notice provision underlying Cobb’s EFTA claim, which provide that “[t]he person initiating an EFT to a consumer’s account to electronically collect a fee for an item returned unpaid may obtain the authorization and provide the notices required under § 205.3(b)(3) through third parties, such as merchants.” 12 C.F.R. Pt. 205, Supp. I, ¶ 3(b)(3).
The Court concludes that dismissal based upon PayLease’s contentions about the nature of Cobb’s and its own relationship to Common Properties and what type of notice it did or did not provide to Common Properties would be inappropriate at this stage. The provision of Regulation E that Cobb brings his EFTA claim under provides that “the person initiating an electronic fund transfer to collect a fee for the return of an electronic fund transfer or a check that is unpaid ... must obtain the consumer’s authorization for each transfer.” 12 C.F.R. § 205.3(b)(3)® (emphasis added). Authorization is obtained if the person collecting the fee provides notice to the consumer of the fee. See id. Here, according to the allegations in the Amended Complaint, the person collecting the fee at issue was PayLease. Although the official interpretations of the regulations allow PayLease to obtain that consumer authorization through third parties, PayLease has identified no portion of EFTA or its implementing regulations which shield it from liability if it assumes that a third party will provide notice to the consumer and obtain the statutory authorization, and that third party fails to do so. The Amended Complaint contains specific allegations that PayLease had no reason to believe that Common Properties was providing notice to Cobb on PayLease’s behalf. (See Am. Compl. ¶ 40 (“Defendant PayLease had no basis to expect or believe that Common Properties] provided Plaintiff with any notice that he would be charged an NSF Fee if the ACH was returned due to insufficient funds.”); id. ¶41 (“Upon information and belief, it appears that Common Properties did not have to respond or in any way reflect or advise the Defendant either that it had read certain ACH materials provided by Defendant or that it agreed to and would provide such notice. Under these circumstances, Defendant PayLease had no basis for expecting or believing that Plaintiff had received any notice.”)). Additionally, Cobb’s allegations are based upon the fact that he never received notice. Whether PayLease provided notice to Common Properties is not dispositive of Cobb’s claims at this stage because the Amended Complaint clearly alleges that he, the consumer, never received the notice, and therefore did not provide authorization. (See Am. Compl. ¶¶ 13-14, 37-39.) Although PayLease speculates that Common Properties was acting as Cobb’s agent and therefore had authority to authorize the $25 fee on Cobb’s behalf, these facts are not contained in the Amended Complaint and are therefore not properly considered at this motion to dismiss stage. Accordingly, because the Amended Complaint plausibly alleges that Cobb never received the required notices, and PayLease — the entity initiating the electronic fund transfer at issue — had no reason to believe that he had received the notice or any basis to rely upon Common Properties to provide such
III. CONVERSION
Under Minnesota law, conversion is'“an act of willful interference with personal property, done without lawful justification by which any person entitled thereto is deprived of use and possession.” DLH, Inc. v. Russ,
PayLease argues that Cobb’s claim for conversion based on the taking of the $25 fee must be dismissed because “Plaintiff was returned his fee assessment, and PayLease never received the money.” (Def.’s Mem. in Supp. of Mot. to Dismiss at 12.) Cobb acknowledges that he has already recovered the $25 fee, and therefore return of the fee cannot form the basis of his conversion claim. But Cobb argues that his conversion claim can be maintained because “Defendant interfered with, retained, and benefited from [the taking of the $25 fee] until 6 days later on June 4, 2013, when the $25 was replaced by a second fund transfer.” (PL’s Mem. in Opp’n to Mot. to Dismiss at 14, Mar. 6, 2014, Docket No. 27.) Because the only type of damage recoverable under a conversion theory is the fair market value of the property at the time of the conversion plus interest, the only damages Cobb would be entitled to on this claim are interest on the $25 running from May 29 through June 4. See Olen,
IV. UNJUST ENRICHMENT
“To establish a claim for unjust enrichment under Minnesota law, a plaintiff must demonstrate ‘that another party knowingly received something of value to which he was not entitled, and that the circumstances are such that it would be unjust for that person to retain the benefit.’ ” Khoday v. Symantec Corp.,
Although, like the conversion claim, the claim for unjust enrichment could at most entitle Cobb to the small amount of interest earned on the $25 fee in the six-day period, the Court concludes that the allegations in the Amended Complaint are sufficient to allow the claim to move forward at this stage. See Ten-nille,
ORDER
Based on the foregoing, and all the files, records, and proceedings herein, IT IS HEREBY ORDERED that Defendant’s Motion to Dismiss [Docket No. 16] is DENIED.
Notes
. PayLease is a limited liability company that processes payments for the property management industry. (Am. Compl. ¶ 10.)
. In support of its motion to dismiss, Pay-Lease submitted the Miller Declaration which includes as an exhibit a redacted copy of Cobb’s bank statements showing the transfers at issue in the Amended Complaint. Generally a motion to dismiss under Rule 12(b)(6) must be treated as a motion for summary judgment if "matters outside the pleadings are presented to and not excluded by the court.” Fed.R.Civ.P. 12(d). Although "matters outside the pleading may not be considered in deciding a Rule 12 motion to dismiss, documents necessarily embraced by the complaint are not matters outside the pleading.” Enervations, Inc. v. Minn. Mining & Mfg. Co.,
. Some courts have held that an attempt is sufficient to impose liability under EFTA in certain situations. See Curde v. Tri-City Bank & Trust Co.,
. The fact that the $25 fee had to be recredit-ed to Cobb’s bank account also provides support for the conclusion explained above that the Amended Complaint adequately pleads that a completed electronic fund transfer occurred. In other words, if no electronic fund transfer had been completed, there would have been no reason to “deposit[]” or “add[]” the funds back into Cobb's account. (Miller Deck, Ex. A at 3.)
. The Court also declines to dismiss Cobb’s conversion claim based upon PayLease’s contention that "Plaintiff’s own bank statement shows [that] PayLease never received the money.” (Def.’s Mem. in Supp. of Mot. to Dismiss at 12.) As explained above, whether PayLease actually gained control of the money — and therefore may be liable for conversion — is a question to be resolved during discovery. The Amended Complaint adequately alleges that PayLease initiated a transfer which assessed or took a fee, removing $25 from Cobb's bank account. That money did not reappear in Cobb's account until six days