EMILY JACOBS AND JAMES GLAVIC, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED v. FIRSTMERIT CORPORATION, et al.
CASE NO. 2013-L-012
IN THE COURT OF APPEALS ELEVENTH APPELLATE DISTRICT LAKE COUNTY, OHIO
August 19, 2013
2013-Ohio-4308
CYNTHIA WESTCOTT RICE, J.
Civil Appeal from the Lake County Court of Common Pleas, Case No. 11CV000090. Judgment: Affirmed in part; reversed in part and remanded.
David F. Adler, Michael A. Platt, Robert E. Haffke, and Amanda R. Parker, Jones Day, North Point, 901 Lakeside Avenue, Cleveland, OH 44114; and Chad A. Readler, Jones Day, 325 John H. McConnell Boulevard, Columbus, OH 43215 (For Defendants-Appellants).
CYNTHIA WESTCOTT RICE, J.
{¶1} Appellants, FirstMerit Corporation, et al. (“FM“), appeal the judgment of the Lake County Court of Common Pleas granting the motion of appellees, Emily Jacobs and James Glavic, for class certification. For the reasons that follow, we affirm
{¶2} Appellees alleged in their First Amended Class Action Complaint that they opened a joint checking account with FM. Appellees were automatically enrolled in FM‘s overdraft program so that if they did not have sufficient funds in their account to pay for a transaction, FM paid the item, processed an overdraft without advising appellees, and charged them $35 per overdraft.
{¶3} Appellees alleged that FM adopted a bookkeeping device pursuant to which it reordered its customers’ debit card transactions using a “high-to-low” posting method. Under this posting method, FM paid its customers’ debit card transactions in descending order from the highest to the lowest amount, rather than in the actual order in which they occurred. Under this posting method, the account‘s balance was depleted as quickly as possible, unlawfully increasing the number of transactions that would result in overdrafts.
{¶4} Appellees alleged that, at the same time FM adopted its new posting method, FM also began to “commingle” its customers’ debit card transactions with their checks and other customer-authorized transactions. By commingling all debit transactions and then reordering them from high to low, FM wrongfully charged its customers, including appellees, additional overdraft fees. Further, FM did not disclose to its customers its manipulations or that they would greatly increase overdrafts and overdraft fees. Also, FM misrepresented to appellees on their monthly account statements that their transactions were posted chronologically and that appellees owed overdraft fees, which, in fact, appellees did not owe.
{¶6} Appellees asserted claims for fraud, unjust enrichment, and breach of contract, and prayed for disgorgement by FM of all illegally held monies, damages in an unspecified amount to be determined at trial, and injunctive relief.
{¶7} Subsequently, appellees moved for class certification of their claims, and FM filed its brief in opposition. The parties submitted evidentiary materials, including deposition transcripts, experts’ reports, and exhibits in support of their respective positions. The trial court held an oral hearing on the motion for certification.
{¶8} Larry Shoff, FM‘s representative, testified in deposition that “posting” is the procedure followed by all banks to process debit items presented for payment against accounts. Each night after midnight, all debit items presented for payment during the preceding business day are posted by computer and subtracted from the account balance. The order in which items are posted is determined by computer programming. These items are typically debit-card transactions, checks, and other customer-authorized transactions. If the account balance is sufficient to cover all items presented for payment, there will be no overdrafts, regardless of the posting method used. However, if the account balance is insufficient to cover every debit item, the account will be overdrawn. When an account is overdrawn, the posting sequence can have a dramatic effect on the number of overdrafts incurred by the account, even though the
{¶9} Prior to March 2005, the bank sorted transactions by different groups. Checks were posted by number and non-check items were posted “low-to-high.” Under the low-to-high posting method, the bank posted items from lowest to highest dollar amount. The smallest purchases were deducted first and the balance was used as slowly as possible, minimizing the number of overdrafts and overdraft fees.
{¶10} Mr. Shoff testified that in March 2005, in order to increase FM‘s revenue, it adopted a change in its posting method, pursuant to which all customers’ transactions were commingled and all transactions were posted and paid in order of highest to lowest dollar amount. Under this posting method, large dollar items were posted and paid first, even if they were received last, and the account balance was depleted as quickly as possible, thus maximizing the number of overdrafts and overdraft fees.
{¶11} Mr. Shoff testified that when a customer opens an account, he receives a copy of the “Terms and Conditions,” which are drafted solely by FM and not subject to any change by the customer. Thereafter, he receives a monthly account statement.
{¶12} After FM changed its posting order in March 2005, it advised its existing customers in their April 2005 account statement, as follows:
{¶13} *** FirstMerit Bank may pay items drawn on your account in any order. Our current practice is to pay items received on any one day in the order of the highest dollar amount to the lowest dollar amount. * * * The order in which items are paid is important if there is not enough money in your account to pay all of the items that are presented.
{¶14} This same notice was given to new customers in the “Terms and Conditions” they received when they opened their accounts after March 2005.
{¶15} Elizabeth Barber, an FM senior vice president, testified that a customer could not determine from his monthly checking account statements the order in which multiple transactions were posted on any given day. She said that the amount of the overdraft fee is $35, regardless of the amount of the overdraft, and that FM limits the amount of overdrafts it will charge a customer to seven per day. Thus, one minimal overdraft could result in as many as seven separate overdraft fees of $35 each.
{¶16} Following the oral hearing on appellees’ motion for certification, the trial court entered its judgment granting the motion.
{¶17} FM appeals the trial court‘s ruling, asserting three assignments of error. Because the first two are related, they are considered together. They allege:
{¶18} “[1.] The trial court abused its discretion by granting Plaintiffs’ class-certification motion without conducting the required rigorous analysis of the
{¶19} “[2.] The trial court abused its discretion in concluding that Plaintiffs satisfied each of the
{¶21} However, “the trial court‘s discretion in deciding whether to certify a class action is not unlimited, and indeed is bounded by and must be exercised within the framework of
{¶22} In reviewing a motion for class certification, the court must take the substantive allegations of the complaint as true and not reach the merits of those allegations and claims. Ojalvo v. Bd. of Trustees of Ohio State Univ., 12 Ohio St.3d 230, 233 (1984).
{¶23} Throughout its brief, FM argues that the trial court did not engage in the “rigorous analysis” required by Hamilton, as evidenced by the fact that, according to FM, the court did not make sufficient findings. In Hamilton, the Supreme Court stated that, while there is no explicit requirement in
{¶24} The following seven requirements must be satisfied before an action may be maintained as a class action under
{¶26} First, FM challenges the trial court‘s definition of the class. The trial court defined the class, as follows: “(1) all people who live in Ohio and had or have an account with the defendants; (2) who had more than one account transaction in a single day; (3) whose transactions were re-ordered by the defendants to occur from largest to smallest debits; and, (4) whose accounts were charged overdraft fees on one or more of the days on which the defendants re-ordered their accounts.”
{¶27} “‘The requirement that there be a class will not be deemed satisfied unless the description of it is sufficiently definite so that it is administratively feasible for the court to determine whether a particular individual is a member.‘” Hamilton, supra, at 71-72, quoting 7A Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure (2 Ed.1986) 120-121, Section 1760. Thus, the class definition must be precise enough “to permit identification within a reasonable effort.” Hamilton, supra, quoting Warner, supra, at 96. “An identifiable class must exist before certification is permissible. The definition of the class must be unambiguous.” Warner, paragraph two of the syllabus. Where a class is overbroad and could include a substantial number of people who have no claim under the theory advanced by the named plaintiff, the class is not sufficiently definite. Miller v. Painters Supply & Equip. Co., 8th Dist. Cuyahoga No. 95614, 2011-Ohio-3976, ¶24.
{¶29} FM argues it only addressed appellees’ revised class definition at the hearing and that, because the trial court adopted appellees’ original definition of the class, FM was prevented from presenting its reasons in opposition to appellees’ original definition. Further, in their Answer and Affirmative Defenses, FM presented detailed allegations in opposition to appellees’ original definition of the class. Moreover, ”Warner not only permits but encourages the trial court to modify what is otherwise an unidentifiable class.” Ritt v. Billy Blanks Enters., 8th Dist Cuyahoga No. 80983, 2003-Ohio-3645, ¶20, discretionary appeal not allowed by the Ohio Supreme Court at 100 Ohio St.3d 1486, 2003-Ohio-5992. In any event, FM does not indicate what, if any, additional arguments it would have made in opposition to appellees’ original definition of the class.
{¶30} However, the class certified by the trial court is overbroad and thus does not meet the first requirement of
{¶31} First, the class is not limited in terms of a specific time period in which the class members were harmed by FM‘s alleged misconduct. As defined, the class is
{¶32} Second, in their proposed amended class definition, appellees proposed to limit the relevant transactions of class members to debit card transactions. However, the trial court in its definition did not so limit the class and its members include customers having any type of transactions. Thus, the class as defined is not consistent with appellees’ theory of recovery and is overbroad. In Gutierrez, supra, at 718, the class definition was limited to debit card transactions. The same was also true in Larsen v. Union Bank, N.A., 275 F.R.D. 666 (S.D.Fla.2011), another similar case.
{¶33} Third, the class definition adopted by the trial court does not limit the class to customers who were charged multiple overdraft fees on the same day. Rather, it includes customers who were charged multiple overdraft fees on several days due to an overdraft, which could be interpreted to mean that on several days, a customer was charged one fee. Appellees conceded at the oral hearing that one overdraft fee per day would be proper. For this additional reason, the present class definition is overbroad as it includes within the class customers who have no claim under appellees’ theory of recovery.
{¶34} Fourth, while appellees proposed to include a reference to a causal connection (“as a result of“) between FM‘s alleged misconduct and the imposition of overdraft fees in their proposed amended definition of the class, there is no such reference in the definition adopted by the trial court.
{¶36} By certifying the class as defined, we hold the trial court abused its discretion. However, the Supreme Court of Ohio has stated that if the appellate court finds an abuse of discretion by the trial court in its definition of the class, the appellate court should not proceed to formulate the class itself. Rather, the court should remand the matter to the trial court. Stammco, L.L.C. v. United Tel. Co. of Ohio, 125 Ohio St.3d 91, 2010-Ohio-1042, ¶12. This is because “the trial judge who conducts the class action and manages the case must be allowed to craft the definition with the parties.” Id. Thus, rather than attempt to redefine the class ourselves, we remand the case to the trial court to do so.
{¶37} Next, FM argues the trial court failed to make a rigorous analysis regarding the predominance requirement under
{¶38} Pursuant to
{¶39} the questions of law or fact common to the members of the class predominate over any questions affecting only individual members,
{¶40} The purpose of
{¶41} Before granting class certification under
{¶42} Here, the trial court found that common issues constitute a significant aspect of this case because, if it is determined that FM‘s practice of reordering debits from high to low is unlawful, the case would be resolved for all members of the class in one adjudication. Further, the court found that, once FM provides class-wide data, appellees would be able to perform an analysis of damages for the entire class.
{¶43} FM argues the trial court‘s analysis was deficient because the court was required, but failed, to determine in its judgment entry whether common issues predominated over the individual issues raised by FM with respect to each of appellees’ claims. However, in addition to the judgment entry, the record shows the trial court conducted a lengthy oral hearing on appellees’ motion for certification at which FM identified the individual issues and argued that they predominated as to each of appellees’ claims. While the court did not expressly discuss in its findings the individual issues with respect to each of appellees’ claims, it was not required to do so. Hamilton, supra, at 70. However, the court carefully considered FM‘s arguments; listed the individual issues asserted by FM in its judgment entry; and concluded that the common issues predominated over the individual issues identified by FM. The trial court thus satisfied its obligation to make a rigorous analysis of the predominance requirement.
{¶44} Specifically, with respect to appellees’ claim for fraud, they alleged that FM misrepresented to them and to the putative class members in their monthly account statements that their transactions had occurred chronologically and that certain overdraft fees were owed when, in fact, they did not represent actual overdrafts. In
{¶45} The Supreme Court of Ohio addressed this argument in Hamilton, supra. There, the plaintiffs brought an action to challenge certain methods used to amortize their residential mortgage loans. The bank argued the elements of inducement and reliance must be proven on an individual basis. The trial court accepted the bank‘s argument and denied class certification. The Supreme Court reversed the trial court‘s decision, and allowed the action to proceed on the plaintiffs’ fraud claim.
{¶46} In support of its holding, the Court in Hamilton stated that cases which involve common questions of law and fact arising from identical or similar form contracts and the use of standardized procedures present the classic case for treatment as a class action, and cases involving similar claims or similar circumstances are routinely certified as such. Id. at 80.
{¶47} The Court in Hamilton stated that claims containing a necessary element of reliance are not per se excluded from class action treatment because, if the drafters of Civ.R. 23 wanted to exclude them, they could have easily done so. Id. at 83. In rejecting the bank‘s argument, the Court stated, “‘a fraud perpetrated on numerous persons by the use of similar misrepresentations may be an appealing situation for a class action. * * * On the other hand, although having some common core, a fraud case may be unsuited for treatment as a class action if there was material variation in the representation made or in the kinds or degrees of reliance by the persons to whom they
{¶48} Further, the Court in Hamilton stated that “class action treatment is appropriate where the claims arise from standardized forms or routinized procedures, notwithstanding the need to prove reliance.” Id. at 84. The Court stated that in such cases, “proof of reliance will not require separate examination of each prospective class member. Instead, proof of reliance in this case may be sufficiently established by inference or presumption.” Id.
{¶49} Moreover, the Supreme Court of Ohio in Cope v. Metropolitan Life Ins. Co., 82 Ohio St.3d 426 (1998), stated that predominance is “a test readily met in certain cases alleging consumer * * * fraud * * * ” Id. at 429, quoting Amchem Products, Inc. v. Windsor, 521 U.S. 591, 625 (1997). The Court in Cope stated that a claim meets the predominance requirement when there exists generalized evidence that proves or disproves an element on a simultaneous class-wide basis. Id. at 429-430.
{¶52} Thus, if appellees can establish by common proof and/or form documents that FM misrepresented that it posted appellees’ debit transactions chronologically, rather than in high-to-low order, then an inference of inducement and reliance would arise as to the entire class, thereby obviating the need for individual proof on these issues. Hamilton, supra; Cope, supra, at 436.
{¶53} FM argues that appellees’ fraud claim lacks any common misrepresentation because each class member would have his or her own transactions listed in his or her account statement. However, the fact that each class member has his own transactions does not detract from the standardized information in each class member‘s statement. The way in which the account information is posted is the basis for the claim and it is the same for all class members.
{¶54} Further, FM argues the common issues in this case do not predominate because the amount of each class member‘s damages will require individual evidence. However, the Supreme Court in Hamilton held that a trial court should not deny class certification solely on the basis of disparate damages. Id. at 81. The court stated that, while some courts have denied certification where the calculation of damages is very complex or burdensome, certification should not be denied where damages can be
{¶55} Here, the alleged misrepresentations and omissions are contained in FM‘s account statements. Thus, appellees’ fraud claim is based on standardized documents that were given to all customers, not their own understanding of these documents, their differing levels of knowledge, any oral misstatements, or their individual reliance. This documentary evidence supports a finding that common issues predominate as to appellees’ fraud claim. The same is also true as to appellees’ claim for unjust enrichment as that claim is also based on FM‘s alleged fraud.
{¶56} With respect to appellees’ breach-of-contract claim, they alleged that their account agreement with FM only provided for overdraft fees if appellees actually overdrew their account. Appellees alleged that FM breached their account agreement by charging overdraft fees, although appellees had not actually overdrawn their account. Further, appellees alleged that FM breached their account agreement of adhesion by unilaterally amending their agreement to adopt the high-to-low posting order. In contrast, FM argues that common issues do not predominate with respect to appellees’ breach-of-contract claim because such claim would require an inquiry into each class member‘s understanding of the terms of his or her account agreement, account statements, etc.
. The Court stated:{¶58} “We have a uniform class of borrowers who were submitted an identical (insofar as material here) adhesion contract under strictly regimented procedures. The only unknown factor is the knowledge of each borrower concerning the use of the deposits by defendant for its own purposes. It is our conclusion that the proof here indicates that it is ‘unlikely’ that ‘numerous’ members of the class possessed such knowledge or that the subject of the beneficial interest in the funds even occurred to them. It is therefore proper that this proceeding continue as a class action. In answer to the possible argument that no claims arising out of separate contractual situations are proper for class action treatment, we acknowledge that there is no doubt they present special problems. However, had it been the intention of the legislature to exclude contractual situations from class action relief, we believe it would have said so.” Hamilton, supra, at 82-83, quoting Derenco, Inc. v. Benjamin Franklin Fed. S. & L. Loan Assn., 281 Ore. 533, 572-573 (1978).
{¶59} Here, appellees’ contract claim is based on FM‘s contract, rather than appellees’ knowledge. This evidence supports a finding that common issues predominate as to appellees’ contract claim. The same is also true as to appellees’
{¶60} Next, FM argues a class action is not the superior method of adjudication based on its argument that common issues do not predominate. However, FM‘s argument fails in light of the trial court‘s finding that common issues predominate. Moreover, in support of the trial court‘s finding that a class action is the superior method of adjudication, the court addressed the pertinent superiority factors in
{¶61} Thus, the trial court‘s finding that a class action was the superior method of adjudication was supported by the court‘s judgment and the record.
{¶62} Next, the bank argues the trial court abused its discretion in finding the typicality and adequate-representation requirements were satisfied. “The requirement for typicality is met where there is no express conflict between the class representatives and the class.” Hamilton, supra, at 77. Similarly, a representative is deemed adequate so long as “his or her interest is not antagonistic to that of other class members.” Id. at 77-78.
{¶64} The Supreme Court of Ohio considered a similar argument in Hamilton, supra. There the bank argued a conflict existed between borrowers with understated monthly payments and those with properly stated monthly payments. The Supreme Court rejected this argument and held that, because each class member sought to establish that the method of computation and the exaction of additional charges produced an interest rate in excess of the rate set forth in their notes, there was no conflict or antagonism between the plaintiffs and the other class members. Id. at 78.
{¶65} With respect to adequacy of representation, FM argued below that, because not all customers would prefer the type of ordering the plaintiffs desire, the plaintiffs are antagonistic to the other class members. However, the trial court found that because plaintiffs’ claim is that they and all other class members were charged excessive overdraft fees due to the way FM reordered debits, there was no conflict or antagonism between the plaintiffs and other class members, even if FM could prove that some customers preferred a different ordering system. The Supreme Court in Hamilton stated that a unique argument will not destroy typicality or adequacy of representation
{¶66} The trial court‘s finding that the typicality and adequacy-of-representation requirements were met was supported by the court‘s judgment entry and the record.
{¶67} Based on our review of the judgment and the record, the trial court conducted a rigorous analysis of the class action requirements. With the exception of the requirement that the class definition be unambiguous, the trial court did not abuse its discretion in deciding that each requirement was met and in certifying the class.
{¶68} The bank‘s first assignment of error is overruled. The second assigned error is sustained in part.
{¶69} For its third and final assigned error, the bank alleges:
{¶70} “The ‘as a result of’ class definition cannot be certified.”
{¶71} FM argues that the alternative class definition in the amended complaint, which included the phrase “as a result of,” is also insufficient to define the class because it is a “fail-safe class,” i.e., one whose members cannot be known until after liability is found on the merits. This argument is based on FM‘s contention that appellees were required, but failed, to identify the proper posting order at the class-certification stage. However, since the trial court did not adopt this alternative definition, the argument is moot. In any event, this argument lacks merit because it is for the jury to choose the appropriate posting method following trial on the merits. Larsen, supra.
{¶73} For the reasons stated in the opinion of this court, it is the judgment and order of this court that the judgment of the Lake County Court of Common Pleas is affirmed in part and reversed in part; and this case is remanded for further proceedings consistent with the opinion.
DIANE V. GRENDELL, J.,
THOMAS R. WRIGHT, J.,
concur.