This matter is before the Court on the defendant’s motion to dismiss counts I-VI and VIII of the plaintiffs’ consolidated amended class action complaint (“CAC”) for failure to state a claim upon which relief can be granted. (ECF No. 53.) For the reasons set forth in this order, the defendant’s 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 “TD Bank” or “the Bank”), assessed overdraft fees, posted debit transactions, and assessed “sustained” overdraft fees.
The plaintiffs’ CAC was filed on June 19, 2015. (ECF No. 37.) TD Bank filed a motion to dismiss the plaintiffs’ 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, plaintiffs’ 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 Bank’s Overdraft Program
The plaintiffs’ claims arise from TD Bank’s 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 (“EFTA”); and (5) assessment of “sustained” overdraft fees on checking and money market account customers in violation of the National Bank Act’s 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 chеcking 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 Bank’s automated overdraft system is allegedly designed to maximize overdraft fee revenue without regard to customers’ 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 customers’ 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 plаintiffs assert that TD Bank deemed accounts to be overdrawn when sufficient funds still remained in the account by using a calculation called “available balance.” 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 “pending” 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 “available balance.” TD Bank treated transactions that caused the “available balance” to fall below zero, or to remain below zero, as an “overdraft.” 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 ■ Bank increased the number of fees it charged to its customers because fees that would not otherwise have been assessed if the actúa] 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 customers’ 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 (“MDL No. 2036). (See Order of Final Approval of Settlement, Authorizing Service Awards, and Granting Application for Attorneys’ Fees, Ex. C., ECF No. 37-3.) TD Bank settled the case for $62,000,000, an аmount 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 “sustained overdraft fee,” 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 customer’s account remaining in á negative balance for a specified period of time. They claim that the sustained overdraft fee is therefore an interest'charge, ánd that the rate of interest vastly exceeds permissible limits as set forth in the National' Bank Act, 12 U.S.C. §§ 85-86. •
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 (“PDAA”) sets forth terms and conditions governing. TD Bank’s relationship with, account holders. The PDAA contains an extensive section that explains the mechanics of how items are processed and posted to customers’ accounts,. entitled, “PROCESSING ORDER FOR PAYMENT OF CHECKS AND OTHER ITEMS.”.(Ex. A, ECF No. 37-1 at 8-9.) The PDAA states, “Overdraft 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.” (Id. at 9.) The PDAA defines аn overdraft as an “advance of funds greater than the amount that has become available in accordance with the Bank’s Funds Availability Policy, made by us to you, at our sole discretion.” (Id. at 10.) The PDAA indicates that overdrafts may include “advances to cover a check, in-person withdrawal, ATM withdrawal, or a withdrawal by other electronic means from your Account,” and warns, “[w]e may demand immediate repayment of any overdraft and charge you an overdraft fee.” (Id.) The PDAA states that “overdraft fees are not charged on ‘pending’ authorizations, although they reduce your available balance.” (Id. at 9.) The PDAA further states, ‘You 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 .... ” (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 “available balance” instead of actual balance to assess overdraft fees when there was sufficient money in the customer’s account to cover the transaction in question. One version of the Carolina First Bank- customer agreement entitled, “Terms and Conditions of Your Account” (“Carolina First Account Agreement”), governed various aspects of the state • banks’ relationship with account holders. The Carolina First Account Agreement states, “This 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.” (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 “WITHDRAWALS”)) In a section entitled “CHECK PROCESSING,”
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 “a short and plain statement ... showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). Rule 8 “does not require ‘detailed factual allegations,’ but it dеmands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal,
As previously noted, to survive a Rule 12(b)(6) motion to dismiss a complaint must state “a plausible claim for relief.” Iqbal,
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 thé 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 Ass’n v. Guerra,
In the context of the national banking industry, the question of conflict preemption is more refined. “Federally chartered banks, are subject to state laws of general application in their daily business to the extent such laws do not conflict with the letter or the general purposes of the NBA.” Watters v. Wachovia Bank, N.A.,
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.,
A. Counts II-VI Challenge Actions by TD Bank That Constitute Federally Conferred Powers
The NBA authorizes national banks to receive deposits and perform “all such incidental powers as shall be necessary to carry on the business of banking.” 12.U.S.C. § 24. The Office of the Comptroller of the Currency (“OCC”) possesses regulatory oversight -of national banks’ exercise of their federally authorized powers, and Congress has delegated to the OCC authority to determine the-scope of national banks’ incidental powers. See 12 U.S.C. § 93a; 12 C.F.R. § 7.4000.
National banks’ 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,
The challenges raised by the plaintiffs in counts II-VI of the CAC directly implicate TD Bank’s practices with regard to the order of posting debit transactions, honoring transactions that will drive depositors’ 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 Bank’s exercise of federally-conferred incidental powers.
B. The Common Law and Statutory Claims in Counts II-VI Significantly Interfere With TD Bank’s 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 bank’s exercise of its incidental powers necessarily turns on the degree to which that state law constrains the bank’s 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.’ Resp. in Opp. to Mot. to Dismiss, ECF No. 59 at 22-23 (citing Medtronic, Inc. v. Lohr,
The only federal appellate court to have addressed NBA preemption in the context of overdraft fees is Gutierrez v. Wells Fargo Bank, N.A.,
The Gutierrez court stated that the dеtermination of whether the NBA and its attendant regulations preempt the applicable state law “turns on whether state law can dictate [the bank’s] choice of posting method,” and held “that it cannot.” Id. at 723 (emphasis added). The Ninth Circuit reasoned that “the deposit and withdrawal of funds ‘are services provided by banks since the days of their creation. Indeed, such activities define the business of banking.’ ” Id. (citing Bank of Am. v. City and Cnty. of San Francisco,
The Gutierrez court reversed the district court’s holding that the bank’s choice of posting order was not a pricing decision because, in the district court’s 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, “[w]hether Wells Fargo’s internal decision making processes regarding posting orders complied with the ‘safe and sound banking principles’ under § 7.4002(b)(2) is an inquiry that falls squarely within the OCC’s supervisory powers,” and “ ‘is within the exclusive purview of the OCC.’ ” Id. at 724-25 (quoting Martinez v. Wells Fargo Home Mortg., Inc.,
■ In the cáse sub judice, the Court holds that a “good faith” or “fairness” limitation on TD Bank’s 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 Bank’s fedеrally authorized incidental powers.
The Court emphasizes that this preemption analysis is necessarily an “as applied” 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 “as a practical matter, the remedy ordered by the district court boils down to a complete prohibition on the high-to-low sequencing method.” Gutierrez,
The process by which a bank honors overdraft items is typically part of the Bank’s administration of a depositor’s 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 depositor’s account. These activities are part of or incidental to the business of receiving deposits.
OCC Interp. Ltr. No. 1082,
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 bank’s choice of posting method, counts ÍI-VI seek to dictate TD Bank’s 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,
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. “Designation of a posting method falls within the type of overarching federal banking regulatory power that is ‘not normally limited by, but rather ordinarily preempts[s], contrary state law.” Id. at 723 (citing Watters,
To the extént that the plaintiffs challenge TD Bank’s 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 plaintiffs’ preferred method of notice via state law claims unquestionably poses a significant'interference with TD Bank’s 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 Bank’s discretionary methodology -for honoring overdrafts itself. OCC regulations provide that a “national bank may exercise its deposit-taking powers without regard to state law limitations concerning ... disclosure requirements.” ■ 12 C.F.R. § 7.4007(b)(3) (emphasis added). Thus, on this notice slice of the plaintiffs’ 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.,
Plaintiffs’ 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 heré are not preempted. (Pis.’ 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,
chartered bank via the Federal Deposit Insurance Act (“FDIA”), and finding persuasive the reliance by other district courts on MDL 2036); In re HSBC Bank, USA, N.A., Debit Card Overdraft Fee Litig.,
The MDL court then analyzed the overdraft issue in the context of OCC Interp. Ltr. No. 997,
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 banks’ 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 “significant interference” standard, see Barnett Bank,
Second, the MDL court’s 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 “unlawful manner” 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 “state law prevents TD Bank from charging us overdraft fees at all.” But the fact that they did not do so does not make the “significant interference” standard any less applicable or any
The plaintiffs further argue that “ ‘sound banking judgment’ 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.” (Pis,’ Resp. in Opp. to Mot. to Dismiss, EOF No. 59 at 29.) In so doing, the plaintiffs implicitly challenge TD Bank’s overdraft fee policies on grounds that they exhibit a failure' to exercise “sound banking judgment.” 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 “is within the exclusive purview of the OCC.” Gutierrez,
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,
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 Bank’s 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 Bank’s 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 plaintiffs’ claims in counts II-VI are not preempted to the extent they incorporate the “sufficient funds” theory of liability. This theory claims that TD Bank “systematically 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.” (CAC, ECF No. 37 at 28.) The plaintiffs highlight the distinction between “actual balance,” which they define as “the actual amount of funds held in a demand account” (including checking accounts), and “available balance,” which they define as' “the actual balance minus ‘pending’ 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).” (M' at 29.) Specifically, the plaintiffs claim that TD Bank has breached the express terms of the PDAA (count I) by “assessing] overdraft fees even when [the Bank] does not ‘advance funds’ and the account has a positive balance even though the ‘available balance’ is negative.” (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 plaintiffs’ 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 Bank’s 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 Bank’s 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 “prevent” 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.,
The Court wants to be careful, however, not to overstate the strength of the plaintiffs’ 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 • Group, Inc. prior to its merger with TD Bank on September 30, 2010. TD Bank argues that the plaintiffs’ 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 Appeals’ holding in Monroe Retail, Inc. v. RBS Citizens, N.A.,
. The Court holds that thе plaintiffs’ state law claims against Carolina First Bank, Mercantile Bank, and South Financial Group, Inc. are not preempted to the extent they ¡challenge conduct by the state banks prior to their merger with TD Bank. TD Bank’s assertion that because the merger occurred “under the charter” 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' debtors’ 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 garnishors’ 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 garnishors’ conversion claim pursuant to a state garnishment statute was preempted by the NBA’s 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, “The 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.” 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 bank’s liability for pre-merger conduct is erased merely by virtue of being “swallowed up” into a national bank. Specifically, the plaintiffs have defined their “South Financial Class” with inclusive dates “within the applicable statute of limitations preceding the merger of accounts onto the TD system in Juñe 2011 to the date of' class certification.” (CÁC, 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.
■ Fidelity-Baltimore • does not offer TD Bank any more assistance than Monroe Retail. Indeed, the reasoning of Fidelity-Baltimore actually supports the notion that a state bank’s pre-merger conduct is not preempted because it. interprets the NBA concept of merger “under the charter of’ the national bank as “ ‘indicative 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.’ ” Fidelity-Baltimore,
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 “merger of accounts onto the TD System” 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 á motion to dismiss under Fed. R. Ciy. P. 12(b)(6), the plaintiffs must have alleged sufficient facts to “raise a right to relief above the, speculative level, and have enough facts to state a claim to relief that is plausible on its face.” Philips v. Pitt Cnty. Mem’l Hosp.,
A. Count I — 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 contract’s 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 “OVERDRAFTS” section of the PDAA: “If your negative available balance exceeds $5 at the end of the day, we will charge you for each transaction that overdraws your account.” (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 “an advance of funds greater than the amount that has become available in accordance with the Bank’s Fund Availability Policy .... ” (Id. at 10 (emphasis added).) They argue that the Bank improperly calculates overdrafts by subtracting the customer’s pending debits' (available balance) to determine when an “advance of funds” occurs, rather than simply using the actual "balance of funds in the account.
Next, the- plaintiffs argue’ 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 “repeatedly suggests” 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 “available balance,” which is always equal to or lower than actual balance, to “determine the amount available to pay other items presented against your account,” 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 customers’ common sense expectations lead them to believe that their debit card is not a credit card, but that TD Bank has nevertheless “developed 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.” (Pis.’ Resp. in Opp. to Mot. to Dismiss, EOF No. 59 at 17.) Moreover, the plaintiffs point to the “WE MAY REFUSE TO PAY A CHECK OR OTHER ITEM” section of the PDAA, which states that the Bank can refuse to pay ah item which “is 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.” (Ex. A, ECF No. 37-1 at 9.) The plaintiffs acknowledge that ■ the OVERDRAFTS section states some transactions may not be rejected, and the Bank may decide to' “advance funds” and charge an overdraft fee, but they aver that this provision is ambiguous because it allows “advances” only in the event of “check, in-person withdrawal, ATM withdrawal, or a withdrawal by other electronic means from your Account” and does not specifically list “debit card transactions.” (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 Bank’s 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 “the Agreement does not use the term ‘available balance’ when determining whether an overdraft fee can be assessed,” because the PROCESSING section of the PDAA states that overdraft fees may be assessed on items that bring the account into a “negative balance.” (Pis.’
.■ Count I is alleged on behalf of the plaintiffs and the putative “TD High-to-Low,” “TD Sufficient Funds,” and “South Financial” classes. The plaintiffs claim TD Bank violated the PDAA by engaging in certain overdraft practices that were not disclosed, not requestеd 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 Defendant’s 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 “advanced funds,” whether imprecise use of the terms “negative balance” and “negative available balance” created a duty on the Bank’s part to only assess overdraft fees when the “actual balance” 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 Bánk argues that the plaintiffs have failed to state a claim for breach of thé implied" covenant of good faith ‘and 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.,
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 “balance” and “available balance” as synonymous terms when they are not. The plaintiffs assert that “ ‘[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.’ ” Commercial Credit Corp. v. Nelson Motors, Inc.,
There exists within every contract an implied" covenant of good faith' and fair dealing. See, e.g., Parker v. Byrd,
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 doctrine’s precise meaning. “[T]He concept of good faith in the performance of contracts ‘is a phrase without general meaning (or meanings) of its own.’ ” Tymshare, Inc. v. Covell,727 F.2d 1145 , 1152 (D.C.Cir.1984)(Scalia, J.) (quoting Summers, “Good Faith” 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 “to effectuate the intentions of parties or to рrotect their reasonable expectations,” ibid., other States clearly employ the doctrine to ensure that a party does not “ ‘violate community standards of decency, fairness, or reasonableness.’ ”
Id. at 1432 (citing Universal Drilling Co., LLC v. R & R Rig Service, LLC,
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 ■ putative classes: “TD High-to-Low,” “TD Sufficient Funds,” and “South Financial.” 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,
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 “distinct factual allegations” 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.,
C. Count III — Unconscionability
TD Bank argues that the plaintiffs’ claim for unconscionability fails first, because there is no • 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 névertheless concede to dismissal of count III based on the prior ruling in King v. Carolina First Bank,
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 becaüse the Court agrees with TD Bank in.the first instancé: 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 — Conversion
TD Bank argues that the plaintiffs’ conversion claim fails for three - reasons: (1) the plaintiffs cannot show “wrongful” interference with the plaintiffs’ ownership rights in contravention of federal or state
TD Bank’s 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 'thé “unauthorized assumption and exercise of the right of ownership over goods or persona! chattel belonging to another.”' Owens v. Andrews Bank & Trust Co.,
TD Bank’s third argument is that in seven of the twelve jurisdictions at issue in this proceeding, the economic loss or “gist of the action” 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.,
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,
The Court generally agrees with the plaintiffs and finds that they have stated a claim for conversion; The majority of federal courts that have ■ 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,
With respect to TD Bank’s first argument, the Court has discussed the plaintiffs’ allegations of the Bank’s breach of ■contract extensively and sees no need to regurgitate the same points; - The Court will not dismiss the conversion- claim on these grounds.
‘ The Bank’s second argument, that the parties’ debtor/creditor relationship' precludes the plaintiffs’ 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,
Finally, TD Bank’s 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 — Unjust Enrichment
TD Bank argues that the plaintiffs’ 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, “Relief under a theory of quantum meruit is not available if a party bases its action on the existence of a cоntract.” Limehouse v. Resolution Trust Corp.,
TD Bank’s 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,
The'plaintiffs respond that their unjust enrichment claim should be allowed to proceed at this early stage of-the' litigation. (See Pls.’ Resp. in Opp. to Mot. to Dismiss, ECF No. 59 at 41 (citing King,
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,
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 plaintiffs’ theory of the ease is that:TD Bank’s 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 plaintiffs’ 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 — 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 “EFTA Classes,” and does not, on its face, incorporate the TD High-to-Low, TD Sufficient Funds,
In their response tо 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.’ 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 (“DTPA”)
TD Bank argues that the plaintiffs cannot maintain a claim under the DTPA because “the DTPA is not intended to redress wrongs between a business and its customers.” Grand Ventures v. Whaley,
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. ■
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,
2. New Hampshire,Consumer Protection Act (“NHCPA”)
TD Bank argues that the NHCPA exempts from its reach “[t]rade or com
The plaintiffs failed to respond to the Bank’s 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 OCC’s comprehensive power -to regulate those banks.
3. South Carolina Unfair Trade Practices Act (“SCUTPA”)
TD Bank argues that the plaintiffs SCUTPA claim cannot stand because “SCUTPA ... prohibits a plaintiff from bringing a suit in a representative capacity.” Dema v. Tenet Physician Svcs.-Hilton Head, Inc.,
The plaintiffs respond that the U.S. Supreme Court’s decision in Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co.,
The Court agrees with TD Bank and hereby dismisses the portion of count VI that incorporates class claims • under SCUTPA. The individual plaintiffs’ 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: “Any 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.” 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,
The Court further agrees with TD Bаnk’s reply brief, (ECF No. 60 at 17-18), and the recent decision in Stalvey v. American Bank Holdings, Inc.,
4. Remaining State Statutes
Given the Court’s 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 áre 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,
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 “génerally required to allege either reliance' or- causation” 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 practieés 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 Bank’s 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,
Thir’d, 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 Bank’s 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.’ 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 Bank’s 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 áre 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 áre 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 Bank’s 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 Bank’s 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,
G. Count VIII — Violation of National Bank Act, 12 U.S.C. §§ 85-86 and Usury
The plaintiffs have alleged a violation of the National Bank Act’s 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 “SUSTAINED FEE FOR OVERDRAWN ACCOUNTS” (see ECF No. 37-1 at 10) (“sustained overdraft fee”), 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 “[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.” (CAC, ECF No. 37 at 47 (emphasis in original).) Moreover, the plaintiffs aver that “TD Bank renders no service to its customers in exchange for charging this extra fee other than advancing money to a customer’s account in an amount to cover the overdraft,” and “TD 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.” (Id. at 48.) The plaintiffs further state, “There is nothing in TD Bank’s written materials disclosing, that this additional ‘fee’ is in reality a charge of interest on extended credit.” (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 Robinson’s 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 “interest” 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 “creditor-imposed not sufficient funds (NSF) fees charged when a borrower tenders payment on a debt with a check drawn on insufficient funds” 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.,
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 meéts the definition of “interest” 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 “interest” as explicitly laid ■ out in 12 C.F.R. § 7.4001(a) because it is a “late fee” 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.’ 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 “interest” within the meaning of the NBA áre governed by § 7.4001 and not § 7.4002. Because § 7.4001 does not define “extension of credit,” one should look to the definition in Regulation O, 12 C.F.R. § 215.3, which includes “an advance by means of an overdraft, cash item or otherwise.” 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, “Definition of ‘Interest’ for Purposes of 12 U.S.C. 85 (Revised § 7.4001(a))” dated July 2, 2001:
The OCC proposed revising § 7.4001 to clarify the scope of the term “NSF fees” 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 “interest.” Section 7.4001 generally defines the charges that are considered “interest” for purposes of section 85, and then sets out a nonexclusive list of charges covered by that definition. The list includes “NSF fees.”
The inclusion of “NSF fees” in the definition of “interest” 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 “interest” within the meaning ■ of section 85. The charges were referred to as “NSF charges” 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 “NSF fees” 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 “NSF fees” 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 — including overdraft and •returned check charges — are not' covered by the term “NSF fees” 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 “interest” 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 ádded). It is of course true that this section does not discuss “sustained” 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 “interest” for purposes of the NBA have uniformly held that they cannot constitute “interest,” and have dismissed claims under 12 U.S.C. § 85 that relate to overdraft fees. See Armstrong v. Colonial Bank, N.A.,
Two federal courts have recently considered the specific question at issue in the case sub judice, whether sustained overdraft fees constitute “interest” 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.,
Likewise, in Shaw v. BOKF, N.A.,
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 “Joint Guidance on Overdraft Protection Programs,” 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, defendants’ 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,
. . The plaintiffs’ 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 interference” is synonymous with complete prohibition of a national bank’s enumerated or incidental power. The Sixth Circuit Court of Appeals has noted that the "significant interference” standard should not be conflated with prohibition of a practice. "We have found that the level of ‘interference’ that gives rise to preemption under the NBA is not very high.” Monroe Retail, Inc. v. RBS Citizens, N.A.,
. It is also not lost on the Court that the plaintiffs state that injunctive relief is appropriate in both the “Class Allegations" section and count VI of the CAC, though not in the “Prayer 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 mеthods. See Hanjy,
. In Hanjy v. Arvest Bank,
. 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 “significant interference” analysis pursuant to Barnett Bank.
. The Court uses this term for the sake of clarification, despite the vagaries of referring to the "physical” presence of money in the ■' 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 I„ 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.,
. The plaintiffs also cite Yocca v. Pittsburgh Stealers Sports, Inc.,
. 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.” Stutman v. Chemical Bank,