Court: District Court, D. South Carolina; December 9, 2015; Federal District Court
A United States District Judge addressed a motion to dismiss specific counts (I-VI and VIII) of the plaintiffs' consolidated amended class action complaint against TD Bank, N.A. The court's decision resulted in a partial grant and partial denial of the defendant's motion. The plaintiffs allege that TD Bank improperly assessed overdraft fees through various practices, including charging fees despite sufficient account funds, reordering transactions from high to low, charging fees for authorized overdraft transactions without notice, violating Regulation E regarding ATM and one-time debit transactions, and imposing "sustained" overdraft fees that contravene the National Bank Act's usury prohibitions. The case has consolidated nine actions following a Multidistrict Litigation panel's assignment and establishes a timeline of filings, responses, and a hearing related to the motion to dismiss.
TD Bank issues debit cards to checking account customers, allowing them to access funds for purchases or ATM withdrawals. The Bank is notified of transactions in real-time and can choose to accept or decline them based on account balance. Plaintiffs allege that TD Bank routinely honors transactions that exceed available funds, resulting in overdraft fees of $35 per transaction, without notifying customers of the impending fees or the overdraft status. Customers are charged this fee regardless of the transaction amount, and the Bank's automated system allegedly prioritizes maximizing fee revenue over individual customer financial circumstances.
The plaintiffs claim that TD Bank misrepresents its overdraft protection program as being tailored to individual circumstances, suggesting a case-by-case evaluation that does not occur in practice. They allege that overdraft fees were charged even when sufficient funds existed, as the Bank used an "available balance" calculation that deducted pending transactions from the actual balance. This approach allowed overdraft fees to be charged based on a negative available balance rather than the actual positive balance. Additionally, the plaintiffs assert that TD Bank manipulated the order of transactions from highest to lowest to further increase the number of overdraft fees charged.
High-to-low posting is a practice utilized by TD Bank where transactions are organized by dollar amount rather than chronological order before being posted to customer accounts. This method allegedly leads to increased overdraft fees for customers, as larger expenditures are deducted first, depleting account balances more rapidly. The plaintiffs argue this posting order makes it difficult for customers to avoid overdraft fees, despite monitoring their finances, due to TD Bank’s unclear account statements and online tools.
TD Bank has faced previous lawsuits over these practices, including a settled multidistrict litigation case that resulted in a $62 million payout to affected customers from December 1, 2003, to August 15, 2010. The plaintiffs claim that many problematic practices have persisted post-settlement. Additionally, they allege that TD Bank violated Regulation E by assessing overdraft fees on ATM and non-recurring debit card transactions without the required affirmative opt-ins. TD Bank also charges a "sustained overdraft fee" of $20 if an account remains overdrawn for ten business days, which the plaintiffs argue constitutes an excessive interest charge under the National Bank Act.
The named plaintiffs, who were customers of TD Bank as well as of Carolina First Bank and Mercantile Bank—both acquired by TD Bank in 2010—assert that TD Bank's practices for these accounts were similar to those of TD Bank's own accounts. The banks had branches in Florida, North Carolina, and South Carolina before the rebranding in June 2011.
The Personal Deposit Account Agreement (PDAA) outlines the terms between TD Bank and its account holders, including specific procedures for processing and posting items. It states that overdraft fees are applicable when transactions create a negative balance and defines an overdraft as any advance of funds exceeding what is available under the Bank's Funds Availability Policy. Overdrafts can occur through various means, including checks and electronic withdrawals, with the bank retaining the right to demand immediate repayment of overdrafts and assess fees. Notably, overdraft fees are not charged on pending authorizations, and a customer may overdraw their account by up to $5 daily without incurring a fee, but fees apply if the negative balance exceeds this limit by day’s end.
Plaintiffs allege that Carolina First Bank and Mercantile Bank have similar overdraft policies, using "available balance" for fee assessment even when sufficient funds exist to cover transactions. The Carolina First Account Agreement establishes rules governing the account holder's relationship with the bank but is less detailed than the PDAA regarding overdraft procedures. It specifies that the bank may honor withdrawal requests that overdraw the account but is not obligated to do so in the future and may charge overdraft fees, using subsequent deposits to cover these debts. In terms of check processing, the agreement allows the bank to assess available funds at any point between receiving and returning items.
The standard of review for a plaintiff's complaint requires a clear and concise statement demonstrating entitlement to relief, as established by Federal Rule of Civil Procedure 8(a)(2), which necessitates more than vague allegations of harm.
To survive a motion to dismiss under Fed. R. Civ. P. 12(b)(6), a complaint must present sufficient factual matter that, when accepted as true, establishes a plausible claim for relief. A claim is deemed plausible when it provides enough factual content to allow a reasonable inference of the defendant's liability for the alleged misconduct. In evaluating a motion to dismiss, the court accepts all well-pled facts as true and interprets them in the light most favorable to the plaintiff. A dismissal is warranted if it is clear that the plaintiff cannot prove any set of facts that would entitle them to relief. The standard for plausibility does not equate to a probability requirement but demands more than mere possibility; if the facts only suggest a possibility of wrongdoing, the complaint fails to demonstrate entitlement to relief. Dismissals should not occur based solely on a judge's disbelief of the allegations. A plausible inference from the pleaded facts can survive dismissal.
The court must also determine if the National Bank Act of 1864 (NBA) preempts any or all of the plaintiffs' state law claims. The consolidated complaint (CAC) incorporates numerous factual allegations into each liability theory, with specific counts restating all previous allegations while asserting broad concepts of unfair practices and abuse of bargaining power. For instance, Count II emphasizes maintaining the spirit of agreements, while Count VI claims that certain defendant policies constitute unfair trade practices by improperly assessing overdraft fees.
Count VI is asserted solely on behalf of the named plaintiffs and the "EFTA Class," primarily based on TD's alleged violations of the Electronic Fund Transfer Act (EFTA), which TD has not claimed is preempted. Counts IV and V extend to both the named plaintiffs and "All Classes." The Court has identified three main sources of potential liability relevant to counts II-VI: 1) high-to-low posting order, 2) intentional overdraft transactions without customer notice, and 3) overdraft fees despite sufficient funds. The plaintiffs have classified two of their five classes based on these issues: the TD High-to-Low Class and the TD Sufficient Funds Class. While the theory regarding intentional overdraft transactions is included in count I, it is not part of the class definitions. Counts VII and VIII introduce additional liability theories related to EFTA and usury but will not be the focus for preemption analysis. The Court determines that counts II-VI are preempted concerning high-to-low posting and intentional overdrafts but not for overdraft fees when sufficient funds are present. Under the Supremacy Clause, state laws conflicting with federal law are ineffective. Federal law can preempt state law through express preemption, comprehensive regulatory schemes, or actual conflicts. Conflict preemption can occur if compliance with both federal and state laws is impossible or if state law obstructs federal objectives. In the context of national banks, state laws apply unless they conflict with the National Bank Act (NBA) or significantly impede the authority granted under it, as established by relevant case law.
The United States Supreme Court interprets the preemptive scope of statutes and regulations governing national banks to mean that Congress intends to prevent states from significantly impairing powers explicitly granted to these banks. The history of national bank legislation supports a broad interpretation of both enumerated and incidental powers, which typically preempts conflicting state laws. However, state laws concerning contracts and torts can coexist with national banks' deposit-taking powers if they do not significantly interfere with the banks' operations, as established in Barnett Bank.
The Court clarifies that there is no distinction in preemption outcomes between state common law and statutory or regulatory law; both types may impair banking operations. Therefore, case law regarding state statutes is equally applicable to common law claims. Federal preemption prevents both state legislative actions and private plaintiffs from asserting state laws that conflict with federally authorized banking powers. The key inquiry is whether state law causes "significant interference" with a national bank's operations.
The National Bank Act (NBA) empowers national banks to receive deposits and conduct incidental activities necessary for banking, under the regulatory oversight of the Office of the Comptroller of the Currency (OCC). The OCC determines the scope of these powers, allowing national banks to charge non-interest fees related to deposit accounts, in accordance with federal regulations.
OCC regulations permit banks to establish non-interest charges and fees at their discretion, guided by sound banking principles (12 C.F.R. 7.4002(b)). National banks have the authority to determine the posting order of transactions, honor overdrafts, and charge overdraft fees (OCC Interp. Ltrs. No. 1082, 997, and 916). The OCC asserts that a bank's fee-setting authority includes the computation of fees based on transaction posting order, which impacts non-sufficient funds (NSF) fees. The OCC also affirms that national banks may honor overdrafts and recover associated fees under specific statutory provisions (12 U.S.C. 24(Seventh) and 12 C.F.R. 7.4007(a)).
The plaintiffs' claims against TD Bank involve allegations related to the order of posting debit transactions and the practices surrounding overdrafts and associated fees, which touch upon the bank's federally-conferred incidental powers. These claims, rooted in various legal theories, challenge TD Bank's practices regarding high-to-low transaction posting and overdraft honors. The extent to which state law interferes with a national bank's powers is critical; if state law merely imposes incidental interference, preemption does not apply. Conversely, if interference is significant, state law must yield. The plaintiffs contend that TD Bank must demonstrate substantial grounds for preemption, yet federal preemption generally favors national banking laws, as established by Fourth Circuit precedent, which clarifies that the presumption against preemption does not apply to federally chartered banks.
The Ninth Circuit Court of Appeals addressed NBA preemption concerning overdraft fees in Gutierrez v. Wells Fargo Bank, N.A., 704 F.3d 712 (2012). The case involved consumers suing Wells Fargo under California’s Unfair Competition Law (UCL) for imposing overdraft fees based on a high-to-low transaction posting order and for misleading clients about this practice. The district court found Wells Fargo's policy violated the UCL, leading to a permanent injunction and $203 million in restitution. However, the Ninth Circuit ruled that federal law preempts state regulation of the posting order and the bank’s disclosure obligations but does not preempt state law regarding fraudulent misrepresentations. The court emphasized that the determination of NBA preemption hinges on whether state law affects the bank’s choice of posting method, which it concluded it does not, as transaction posting is a fundamental banking service. The court cited the OCC's stance that banks have discretion over fee establishment and calculation methods. Additionally, it reversed the district court's view that Wells Fargo's posting order choice was not a pricing decision, asserting that such decisions fall under OCC supervision. Ultimately, the Ninth Circuit concluded that a "good faith" limitation under the UCL is preempted if it interferes with a national bank’s federally authorized posting order choices.
The federal court cannot dictate the transaction posting order for a national bank. The district court based its permanent injunction and restitution on a violation of the "unfair" business practices under the California Unfair Competition Law (UCL) linked to a "good faith" requirement from the California Commercial Code. The court determined that any limitations on TD Bank’s discretion regarding debit transaction posting orders and overdrafts, whether via implied good faith, unconscionability, common law conversion, unjust enrichment, or state consumer protection laws, are preempted when they significantly interfere with the bank's federally authorized powers. The preemption analysis is an "as applied" examination of the state law claims, indicating that while state contract and tort claims against a national bank are not inherently preempted, their impact must be incidental to the bank's powers. Breach of contract claims not based on unfairness or bad faith are permissible, as are claims concerning overdraft fees if they do not significantly interfere with the bank’s powers. However, claims in Counts II-VI, which challenge posting order and overdraft practices, do not have merely incidental impacts and are therefore preempted. The court found the plaintiffs' distinction of their claims based on the nature of relief sought—specifically, a permanent injunction—unpersuasive, particularly in light of precedents that vacated similar relief.
The restitution order against Wells Fargo is vacated due to its reliance on the bank’s posting method, which is deemed preempted by federal law. A finding that TD Bank's high-to-low posting method violates the implied covenant of good faith would effectively ban that practice. The plaintiffs' remedies, including a declaratory judgment on the unlawfulness of TD Bank’s overdraft fees, restitution of fees, disgorgement of gains, and various damages, would functionally serve as an injunction against the disputed practices by reversing overdraft assessments and signaling illegality to TD Bank.
As established in Gutierrez, claims that challenge banking functions—such as honoring transactions and determining account balances—interfere significantly with federal banking regulations and are therefore preempted. The Office of the Comptroller of the Currency (OCC) recognizes that managing overdrafts is integral to a bank's service to depositors, and state law cannot dictate a national bank's methods in these areas. The plaintiffs' claims are essentially attempts to regulate discretionary banking functions reserved for national banks, paralleling concerns raised in Gutierrez about state law infringing on federal banking authority. Furthermore, the evaluation of whether TD Bank adheres to safe banking principles in its policies regarding overdrafts falls solely within the OCC's jurisdiction. Thus, challenges to TD Bank's posting method are preempted by federal law, as they pertain to regulatory powers that supersede state law.
State laws that restrict a national bank's discretion in managing overdraft transactions are preempted due to significant interference with the bank's powers. The Ninth Circuit's reasoning emphasizes that when state claims limit a bank's ability to set fees or manage transactions, such laws do not hold. For instance, in cases like Baptista v. JPMorgan Chase Bank, state statutes preventing banks from charging non-customers were deemed preempted, as they reduced the bank's discretion. Similarly, Monroe Retail, Inc. v. RBS Citizens, N.A. confirmed that state law claims that interfere with a bank's fee structures are also preempted.
The court cannot impose rules on how TD Bank manages overdrafts, as requested by plaintiffs in counts II-VI, which challenge the bank's discretion in honoring overdrafts. The plaintiffs’ demand for point-of-sale notice and an option to cancel transactions is preempted, as it imposes a specific method for the bank to operate its overdraft policy. Such a requirement would obstruct the bank's discretion, equating to a mandate that could only be overridden with customer opt-in for each potentially overdrawing transaction.
Federal regulations affirm that national banks can exercise their deposit-taking powers without adhering to state law requirements related to disclosures. Therefore, claims regarding the bank's alleged failure to provide accurate fee disclosures or impose certain posting orders are explicitly preempted by federal banking regulations. Courts have consistently upheld that the authority to manage overdrafts rests solely with the bank, not consumers, thereby reinforcing the preemption of state laws in this context.
The legal document addresses the implications of imposing notice and right-to-cancel requirements on debit card transactions, emphasizing that such regulations could disrupt the processing of deposit account transactions, which typically occur in batches rather than instantaneously. The court asserts that banks cannot predict future deposits that may affect an account's balance after a debit transaction, thereby questioning the fairness of the plaintiffs' claims regarding an information imbalance at the point of sale. The court concludes that any limitations on the bank's federally conferred powers must originate from Congress or the Office of the Comptroller of the Currency (OCC), rather than through private lawsuits asserting unfairness in lawful practices.
The plaintiffs argue that various court decisions at the motion to dismiss stage support their claims and assert that state law claims are not preempted. However, the court critiques the cited cases for either failing to address or adequately counter the precedent set by Gutierrez, which the court views as a significant authority on the issue of federal preemption concerning overdraft fees. The excerpt references multiple cases that predate Gutierrez, highlighting their reliance on prior rulings without engaging with the reasoning established in Gutierrez, indicating a lack of persuasive authority for the plaintiffs’ position.
The legal document addresses the preemption doctrine as it relates to overdraft fee policies of banks involved in MDL 2036. It highlights that the plaintiffs' state law claims do not concern state statutes, thereby suggesting preemption does not apply. The case revolves around allegations that defendant banks implemented a common practice of debiting accounts from the largest to the smallest transaction, thereby maximizing overdraft fees. The plaintiffs assert various claims, including breach of contract, breach of good faith, unconscionability, conversion, unjust enrichment, and violations of consumer protection laws.
The MDL court referenced the district court's ruling in Gutierrez to differentiate between challenges to a bank’s right to impose overdraft fees—which would invoke preemption—and claims regarding the manipulation of transaction records to increase fees, which would not. The court also cited White v. Wachovia Bank to support the argument that lawsuits alleging unlawful overdraft fees do not constitute regulatory matters subject to federal preemption.
Furthermore, the MDL court analyzed OCC Interpretive Letter No. 997, concluding that it does not authorize the practice of posting transactions in a manner that inflates fees, but instead emphasizes the need for sound banking judgment. The court stated that banks could adhere to both OCC regulations and state laws without conflict, provided they avoid the criticized posting methods. Ultimately, the plaintiffs’ claims focus on the alleged unlawful operation of overdraft programs rather than the banks' authority to charge fees, indicating that these claims do not preempt state law.
The Court finds the MDL court's interpretation of conflict preemption regarding overdraft fee policies overly narrow and favors the reasoning in Gutierrez. The MDL court conflates the standards of "significant interference" with "irreconcilable conflict" between state and federal law, which is not accurate. Conflict preemption under the National Bank Act (NBA) applies not only when state law directly contradicts federal law but also when state law significantly interferes with a national bank's federally authorized powers. Even if compliance with both state and federal law is possible, state law can still obstruct Congress's objectives. The standard from Barnett Bank establishes that state law may regulate national banks only if it does not prevent or significantly interfere with their exercise of powers.
Moreover, the MDL court's assertion that the plaintiffs in MDL 2036 did not claim a lack of right for banks to charge overdraft fees is seen as misleading. The Court argues that this distinction doesn't aid in assessing whether the plaintiffs' state law claims conflict with the Barnett Bank standard. While the plaintiffs' claims do not outright deny the banks' ability to charge overdraft fees, this does not lessen the applicability of the significant interference standard, which protects the banks' lawful discretion. Additionally, the plaintiffs' argument that "sound banking judgment" includes good faith suggests a challenge to TD Bank's overdraft policies, but ultimately, the determination of sound banking judgment falls under the exclusive authority of the Office of the Comptroller of the Currency (OCC).
To impose good faith and fairness standards on TD Bank's actions would subject it to state law regulations not envisioned by the National Bank Act (NBA) or the Office of the Comptroller of the Currency (OCC) regulations. The plaintiffs cite In re HSBC Bank, USA, N.A. Debit Card Overdraft Fee Litigation as a persuasive authority against preemption, as it involves similar state law claims. This case, the only federal decision post-dating Gutierrez that is not easily distinguishable, follows the reasoning of MDL 2036, asserting that banks can comply with both NBA/OCC regulations and state laws if they avoid criticized posting procedures. However, the court in In re HSBC Bank partially adopted Gutierrez’s preemption holding, indicating that liability for insufficient disclosure of posting methods is preempted. Unlike Gutierrez, where plaintiffs sought blanket prohibition on high-to-low posting, the HSBC case only challenged alleged manipulation of charges.
The court finds the reasoning in In re HSBC Bank insufficient to counter Gutierrez, as both cases involve claims of manipulation of overdraft charges. The plaintiffs’ challenges regarding TD Bank's methods of calculating and imposing overdraft fees significantly limit the Bank's discretionary functions under NBA and OCC regulations, leading the court to hold that counts II-VI are preempted concerning these theories.
Conversely, claims in counts II-VI that incorporate a "sufficient funds" theory are not preempted. This theory argues that TD Bank wrongfully assesses overdraft fees for transactions that do not actually overdraw accounts, asserting that sufficient funds exist to cover the transactions. The distinction between "actual balance" and "available balance" is emphasized by the plaintiffs in their claims.
Plaintiffs allege that TD Bank has violated the terms of the PDAA by charging overdraft fees despite customers having a positive actual balance, while their available balance is negative. They assert this constitutes a breach of the implied covenant of good faith (count II), renders the contract unconscionable (count III), amounts to conversion (count IV), results in unjust enrichment for the bank (count V), and violates state laws against unfair business practices (count VI). The Court evaluates whether these state law claims interfere with TD Bank's federally authorized banking powers. It concludes that the claims, particularly regarding the "sufficient funds" theory, only incidentally impair the bank's powers and do not prevent or significantly interfere with its deposit-taking operations. This theory suggests that overdraft fees are improperly assessed when no overdraft occurs as understood by a reasonable consumer. The Court notes that requiring TD Bank to stop this practice wouldn't hinder its compliance with federal objectives. Furthermore, district courts have generally found that state law claims based on this theory are not preempted. The Office of the Comptroller of the Currency (OCC) has not definitively addressed whether using the available balance to assess overdraft fees is permissible, with prior commentary indicating that banks may honor overdrafts but does not clarify this specific practice.
National banks’ authority regarding overdraft transactions and fees is examined, with the court clarifying that the phrase "in excess of the funds available" does not specifically endorse the use of "available balance" as a basis for charging overdraft fees. The court acknowledges potential weaknesses in the plaintiffs' arguments related to the "sufficient funds" theory, outlining two scenarios involving the assessment of overdraft fees. The first scenario occurs when a customer has pending debits creating a negative available balance, and TD Bank pays a transaction against this balance, with pending debits later settling for the amount held at the time of payment. The second scenario involves similar conditions, but the pending debits either do not settle for the anticipated amount or do not settle at all. Plaintiffs argue that overdraft fees are unfairly charged, as funds for pending debits have not yet left the account, indicating that sufficient funds were available at the time of the transaction. TD Bank counters that the plaintiffs' theory relies on the delay between transaction authorization and settlement, explaining that debit holds are used to ensure funds are available when a transaction is finalized. The court’s decision to allow plaintiffs to pursue their claims under the sufficient funds theory does not imply a judgment on the merits of either scenario. Furthermore, the court addresses claims against the pre-merger practices of Carolina First Bank and Mercantile Bank, asserting that state law claims challenging these practices are preempted as they occurred prior to the merger with TD Bank.
The Bank references the Sixth Circuit's ruling in Monroe Retail, Inc. v. RBS Citizens, asserting that federal preemption applies to the pre-merger actions of state-chartered banks. TD Bank contends that while a national bank inherits the liabilities of a state bank upon merger, it can also invoke defenses based on its national bank status, as the merger occurs "under the charter of" the national bank. This implies that the state bank loses its separate identity post-merger. Citing Fidelity-Baltimore Nat’l Bank v. United States, TD Bank argues that a consolidated national bank cannot be subject to conflicting state regulations following a merger. Furthermore, TD Bank claims that adjudicating the pre-merger activities of Carolina First Bank and Mercantile Bank would impose state law restrictions on TD Bank, contradicting Fidelity-Baltimore principles.
The Court, however, determines that the plaintiffs' state law claims related to the conduct of the state banks prior to their merger with TD Bank are not preempted. It rejects TD Bank’s argument that federal preemption should retroactively apply to pre-merger conduct simply because the merger was under the national bank’s charter. The Court finds that the cited cases do not adequately support TD Bank’s claims. In Monroe Retail, the Sixth Circuit concluded that while national banks’ actions were preempted by federal law, state banks were not similarly protected. The Court emphasizes that liabilities arising from pre-merger conduct are not negated by the merger itself and that the plaintiffs’ claims, defined within the statute of limitations prior to the merger, remain valid and unpreempted. Thus, Fidelity-Baltimore does not provide TD Bank with the support it seeks.
The Fidelity-Baltimore case supports the view that a state bank’s activities prior to a merger are not preempted by federal law, as the merger signifies the dissolution of the state bank, with the national bank continuing under its original charter. If the state bank ceases to exist upon merger, then valid state claims against it that were viable before the merger should not be preempted simply because they arise afterward. The core issue in Fidelity-Baltimore revolved around whether the merging banks retained their identities for tax obligations, concluding that the state bank was absorbed by the national bank, losing its independent legal identity. Consequently, after the merger with TD Bank on September 30, 2010, federal preemption applies to any state law claims regarding the state banks' conduct from that date onward, regardless of a later account merger date mentioned by the plaintiffs. The Court determines that state law claims against the state banks are preempted to the same extent as those against TD Bank from September 30, 2010, onward.
Additionally, the Court evaluates whether Counts I-VI and VIII of the Consolidated Amended Complaint (CAC) state a viable claim. For a claim to survive a motion to dismiss, plaintiffs must present sufficient facts to elevate their claims beyond mere speculation and establish a plausible right to relief. Regarding Count I, TD Bank contends that the breach of contract claim misinterprets the provisions of the relevant contract, arguing that a reasonable reading of the contract shows that it clearly outlines the contested overdraft practices, indicating no breach occurred.
TD Bank argues that the Personal Deposit Account Agreement (PDAA) explicitly states that it assesses overdraft fees based on the available balance, citing a provision that indicates fees are charged if the negative available balance exceeds $5 at the day's end. The Bank further claims the PDAA specifies the order in which transactions are processed, from highest to lowest dollar amount, and warns customers that this processing order can influence the total overdraft fees incurred. TD Bank contends that overdraft fees can be charged for debit card transactions as defined within the PDAA, which characterizes “items” to include various electronic transactions that result in a negative account balance.
Conversely, the plaintiffs argue that the provisions cited by TD Bank do not authorize the assessment of overdraft fees under the circumstances alleged. They assert that the definition of an overdraft in the PDAA indicates it refers to an advance of funds exceeding the amount available according to the Bank's Fund Availability Policy. The plaintiffs challenge the Bank's calculation method, which subtracts pending debits from the available balance, asserting that it should rely on the actual balance in the account. They argue that the term “negative balance” should align with the common understanding that overdraft fees apply only when the Bank has actually expended more money than is in the account. Additionally, they claim that the absence of the term “available” when referring to balance throughout the PDAA implies that the actual balance should be used for assessing overdraft fees, thus asserting that the Bank's reliance on the available balance contradicts the PDAA's language.
Plaintiffs contend that the Personal Deposit Account Agreement (PDAA) does not explicitly state that debits are posted from highest to lowest dollar amount, alleging that TD Bank manipulates transaction order to maximize overdraft fees. They assert that the Bank batches debit card transactions from multiple days and applies a high-to-low posting method, which generates overdraft fees that would not otherwise occur. The plaintiffs argue that the PROCESSING section cited by the Bank as notice of high-to-low posting is misrepresented, claiming it lacks clear communication that debit card transactions are subject to this ordering method. They emphasize that the PDAA implies debit transactions that would cause an overdraft will not be approved, leading customers to believe their debit cards function differently from credit cards. They also reference a section allowing the Bank to refuse items exceeding the available funds but argue that ambiguities exist regarding the treatment of debit card transactions compared to other withdrawal methods. Overall, plaintiffs claim that the PDAA collectively does not inform customers that overdraft fees will be applied to debit card transactions that exceed their available balance. The Court acknowledges the validity of TD Bank’s argument suggesting that the plaintiffs’ interpretation of the contract may be selective.
The PDAA's PROCESSING section allows overdraft fees on items causing a negative balance, as indicated in the document. It clarifies that if the negative available balance exceeds $5 at the end of the day, fees will be charged for transactions that overdraw the account. This reference to "available balance" highlights a selective interpretation of the contract by the plaintiffs. At the motion to dismiss stage, the Court cannot assess the merits of the plaintiffs' claims but must determine if they have presented a plausible claim for relief. The Court finds that certain aspects of Count I, which alleges TD Bank violated the PDAA by engaging in undisclosed and unreasonable overdraft practices, survive the motion to dismiss, particularly regarding the sufficient funds theory of liability. Key allegations include the authorization of debit transactions known to cause overdrafts, the establishment of spending limits, manipulation of transaction postings to increase fees, and charging fees despite sufficient funds being available. However, the Court dismisses the high-to-low posting theory within Count I, stating that the PDAA clearly outlines the Bank's posting practices, leaving no reasonable interpretation to support the plaintiffs' claims in that regard. The Court does not address the portion of Count I related to the Carolina First Bank contract as TD Bank has not sought its dismissal.
Count I remains intact regarding actions by Carolina First Bank and Mercantile Bank. Count II concerns the implied covenant of good faith and fair dealing. TD Bank argues that the plaintiffs failed to establish a claim for this breach, asserting that a reasonable interpretation of the PDAA aligns with the Bank's conduct and that the implied covenant cannot modify express contract terms. The Bank cites case law stating that no breach occurs when a party acts within their contractual rights. TD Bank further contends that under the laws of New York, Vermont, and Pennsylvania, the claim is duplicative of the breach of contract claim and should be dismissed.
In contrast, the plaintiffs argue they are not attempting to alter the contract terms and assert that TD Bank incorrectly equates "balance" with "available balance." They maintain that the law implies obligations of reason and justice within contracts, and their claim enforces TD Bank’s duty to perform in good faith. The plaintiffs challenge the Bank’s reliance on the Hassler case, referencing a more recent decision that allowed a similar implied covenant claim to proceed. They also argue that under relevant state laws, bringing both breach of contract and implied covenant claims is permissible if they are based on different factual allegations.
Plaintiffs in this case assert that their claims stem from multiple aspects of TD’s overdraft practices involving various contracts and provisions. They reference an implied covenant of good faith and fair dealing present in every contract, citing relevant case law, including *Parker v. Byrd* and *Northwest, Inc. v. Ginsberg*, which highlight the lack of a uniform understanding of this doctrine across states. The good faith concept can vary; some states interpret it to reflect parties' intentions or reasonable expectations, while others apply it to uphold community standards of fairness. Certain jurisdictions do not recognize the implied covenant as an independent cause of action, viewing it as an integral part of breach of contract claims. The court concludes that plaintiffs have provided adequate factual support for a plausible claim under the implied covenant and declines to dismiss count II. However, count II is preempted concerning specific overdraft theories. It incorporates allegations from the overall complaint, suggesting the good faith and fair dealing standard may be applied to all liability theories presented. The court notes that prior case law, particularly *Hassler*, is limited to its specific context in New Jersey law.
The court dismissed the implied covenant claim in Hassler, finding that even the most favorable interpretation of the plaintiffs' allegations did not meet the "improper motive" standard for a good faith performance claim. The court considers this case to have limited relevance to the current matter. However, when viewed favorably towards the plaintiffs, the allegations in count II suggest that TD Bank may not have exercised its contractual discretion reasonably, raising questions about the abusive nature of its overdraft policy and potential violations of the implied covenant due to actions exceeding express contract terms. The covenant of good faith and fair dealing requires that parties do not undermine each other's rights to benefit from the agreement, even if one party complies with the contract's literal terms.
The court declined to dismiss count II concerning New York, Vermont, and Pennsylvania law, noting that the plaintiffs have made sufficient distinct allegations. While these jurisdictions may not allow simultaneous claims for breach of contract and breach of the implied covenant based on the same facts, the implied duty is considered part of the contract itself. The covenant arises from the contract and is meant to protect the parties' rights. The court found it unnecessary to determine if count II had distinct factual allegations at this stage, as the implied covenant survives within count I.
Regarding count III, TD Bank contended that the claim for unconscionability was flawed because there is no affirmative cause of action for unconscionability and the plaintiffs failed to allege adequate facts if such a cause existed. The Bank referenced rulings indicating that unconscionability serves as a defense to contract enforcement rather than an independent claim.
The court notes that the common law of Florida, and similarly in other states, limits the doctrine of unconscionability to denying enforcement of oppressive contract provisions, rather than enabling affirmative claims. Unconscionability serves as a defensive mechanism, not a means for recovery. For a valid unconscionability claim, states generally require proof of both procedural and substantive unconscionability, which the plaintiffs failed to adequately plead. Although the plaintiffs believe they have a valid claim, they concede to dismissing it based on a prior ruling in King v. Carolina First Bank, acknowledging that the court need not evaluate their factual sufficiency. Consequently, the court grants the motion to dismiss Count III (unconscionability).
Regarding Count IV (conversion), TD Bank contends that the plaintiffs' claim is deficient for three reasons: (1) the plaintiffs cannot demonstrate wrongful interference with ownership rights; (2) deposited funds do not constitute a basis for conversion; and (3) the economic loss rule and gist-of-the-action doctrine bar recovery. The bank argues that a conversion claim cannot arise from the exercise of contractual rights, which is inherently not "wrongful."
Conversion cannot occur from the exercise of a legal right, as it is considered a wrongful act. TD Bank argues that since the practices in question were authorized by contracts and law, a conversion claim is inappropriate, referencing *Kirby v. Horne Motor Co.* to support this position. The bank asserts that general deposit accounts cannot be subject to conversion claims, as conversion involves unauthorized ownership over another's property. This principle is supported by South Carolina law, which views the relationship between a bank and its depositor as that of creditor and debtor. The bank further contends that money can only be converted if it can be specifically identified, and that a mere obligation to pay a debt does not constitute conversion. TD Bank argues that since plaintiffs have not claimed a right to a specific fund, their relationship is strictly debtor/creditor, precluding conversion claims. Additionally, TD Bank invokes the economic loss doctrine, which requires contract claims for breaches of duty arising from contractual provisions, asserting that the plaintiffs' claims must be contractual rather than tortious.
In contrast, the plaintiffs assert that to establish a conversion claim, they only need to demonstrate ownership or right to possess the property and wrongful interference with that right. They argue that the account agreements affirm their ownership of the funds and that the bank's actions in imposing unauthorized fees constitute wrongful interference. The plaintiffs also argue that the case law cited by TD Bank is not applicable to their situation regarding overdraft fees. The Court agrees with the plaintiffs, concluding that they have adequately stated a claim for conversion.
Plaintiffs are permitted to bring conversion claims regarding overdraft fees that they allege were wrongfully assessed, with several cases allowing such claims to proceed past the motion to dismiss stage. Courts have held that customers possess a right to their deposited funds, and conversion claims can arise from wrongful debiting of these funds. In this case, plaintiffs allege that TD Bank imposed overdraft fees without actual overdrafts occurring. The court rejects TD Bank's argument that the debtor/creditor relationship negates the plaintiffs' ownership and right to immediate possession of their funds, asserting that the plaintiffs' claims reflect an interference with their property rights that constitutes conversion. Furthermore, the court finds that the economic loss doctrine does not bar the conversion claims, as the plaintiffs argue that the bank's actions exceeded the contractual scope. Regarding the unjust enrichment claim, TD Bank contends that it fails due to the existence of an express contract and a lack of alleged unjust enrichment.
Relief under quantum meruit is unavailable if a party's claim is based on an existing contract, as established in Limehouse v. Resolution Trust Corp. Quantum meruit applies only when no contract exists and payment is implied by law. The Bank contends that the plaintiffs' claims are governed by a written contract, precluding any unjust enrichment claims. This is supported by Bright v. QSP, Inc., where a jury award for unjust enrichment was overturned due to the existence of a governing contract. Additionally, unjust enrichment requires that the enriched party retained money belonging to another, as noted in Inglese v. Beal, meaning restitution cannot be sought for benefits to which the defendant was legally entitled. The Bank asserts that it was contractually authorized to collect overdraft fees, thus any retention of these fees cannot be considered unjust enrichment.
In response, the plaintiffs argue their unjust enrichment claim should proceed as an alternative theory to their breach of contract claim. Federal courts have produced conflicting rulings on this matter in overdraft fee litigation. Some courts allow unjust enrichment claims to be pled alongside breach of contract claims, permitting alternative theories of relief under Fed. R. Civ. P. 8(d). If the contractual claim fails, the plaintiffs may still recover under unjust enrichment. Conversely, other cases have dismissed unjust enrichment claims when an express contract adequately addressed the dispute, indicating that a claim for unjust enrichment is not viable if the contract covers the issues at hand.
The court dismissed the unjust enrichment claim in White, 563 F.Supp.2d at 1371, based on the overlap between the unjust enrichment and breach of contract claims. Plaintiffs alleged that their unjust enrichment claim stemmed from the same conduct as their breach of contract claim against Wachovia, effectively asserting both within a single count. However, the court determined that the unjust enrichment claim could serve as an alternative theory of relief if the contractual claims were unsuccessful, particularly since it encompassed a broader range of alleged misconduct affecting all putative classes. Consequently, the motion to dismiss this claim was denied, barring any preemption issues.
In Count VI, plaintiffs asserted claims under various state statutes prohibiting unfair and deceptive acts, citing laws from twelve jurisdictions, including Connecticut, Delaware, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, South Carolina, Vermont, and Washington, D.C. This count aims to represent the plaintiffs and the "EFTA Classes," although it does not expressly include other identified classes. It incorporates all allegations from the complaint, seeking triple damages, disgorgement of funds, and injunctive relief. The plaintiffs agreed to dismiss their claims under the consumer protection laws of Massachusetts, Pennsylvania, and Vermont, leading to the dismissal of those portions of Count VI without further court analysis on those statutes.
TD Bank asserts that the plaintiffs lack standing to bring a claim under the Delaware Deceptive Trade Practices Act (DTPA), arguing that the DTPA is designed to address unfair interference between businesses rather than disputes between a business and its customers, citing Grand Ventures v. Whaley. The bank references case law indicating that consumers cannot assert claims under the DTPA, supported by the dismissal of a similar claim in Worldspan, L.P. v. Ultimate Living Group, LLC. While plaintiffs argue that prior Delaware Superior Court rulings allowed consumer claims under the DTPA, they fail to justify why these should override the more recent Delaware Supreme Court ruling in Grand Ventures, which clearly defines the DTPA's parameters. The court concurs with TD Bank's position and dismisses the DTPA claim, emphasizing the distinction between the DTPA and the Delaware Consumer Fraud Act, which protects consumers directly in buyer-seller relationships, whereas the DTPA addresses business-to-business interference.
Additionally, TD Bank contends that the New Hampshire Consumer Protection Act (NHCPA) does not apply to it because the Act exempts trade governed by federal regulators, asserting that as a national bank, it is under the jurisdiction of the Office of the Comptroller of Currency (OCC), which has broad regulatory authority over unfair trade practices. Citing Atkins v. U.S. Bank N.A. and an OCC advisory letter, TD Bank argues that the NHCPA is inapplicable to its operations, leading to the dismissal of the NHCPA claim as well.
The plaintiffs did not respond to the Bank's arguments for dismissing the NHCPA claim, leading the Court to dismiss this part of count VI. The NHCPA excludes consumer protection claims against national banks due to the OCC's regulatory authority. Regarding the South Carolina Unfair Trade Practices Act (SCUTPA), TD Bank contended that the plaintiffs' SCUTPA claim should be dismissed because SCUTPA prohibits representative lawsuits, as established in Dema v. Tenet Physician Services. The Bank referenced various cases affirming that SCUTPA claims cannot proceed as class actions. The plaintiffs countered with the U.S. Supreme Court decision in Shady Grove Orthopedic Associates, asserting that Federal Rule of Civil Procedure 23 governs class actions, allowing them in federal court even if state law restricts such actions. The Court agreed with TD Bank, dismissing the class claims under SCUTPA while allowing individual claims to proceed. SCUTPA explicitly states that only individuals who suffer losses may bring claims, not in a representative capacity, reinforcing that class actions are not permissible under SCUTPA, as confirmed by South Carolina case law. The Court aligned with TD Bank's arguments and relevant precedents, resulting in the dismissal of the plaintiffs' class action claims under SCUTPA.
SCUTPA's class action bar is upheld despite the Shady Grove decision, which determined that a New York law barring class actions seeking penalties did not prevent federal courts from allowing class actions under Rule 23, as it was preempted by federal law. Courts have interpreted Justice Stevens’ opinion in Shady Grove as controlling, emphasizing that a federal rule cannot displace state law if it is intertwined with state rights or remedies. Unlike the New York law in Shady Grove, SCUTPA’s prohibitions against class actions are substantive elements of South Carolina law, thus not overridden by Federal Rule of Civil Procedure 23. Consequently, the court agrees with the Stalvey case's reasoning and dismisses the class action claims under SCUTPA, allowing plaintiffs to pursue individual claims.
The court also identifies viable consumer protection claims under statutes from Connecticut, Maryland, New Jersey, New York, North Carolina, South Carolina (only for individual claims), and Washington, D.C. TD Bank contends that its practices regarding overdraft fees are legally disclosed in the PDAA and comply with federal banking law, asserting these practices are neither unfair nor deceptive as they are permitted under applicable laws. The Bank argues that since the practices are lawful, they cannot be deemed unfair trade practices and that none of the practices are misleading, referencing relevant case law to support its position.
An unfair trade practice claim based on high-to-low posting cannot proceed if the bank's practices are adequately disclosed in the relevant agreement. The court in Hassler established that if the claim arises from allegedly misleading disclosures that are actually detailed in the parties' agreement, dismissal for failure to state a claim is warranted. TD Bank asserts that plaintiffs' misrepresentation claims are directly contradicted by the explicit terms of their agreement. Additionally, the bank argues that plaintiffs have not demonstrated reliance or causation necessary for their claims under unfair trade practices statutes, referencing case law from Pennsylvania, North Carolina, Maryland, and New Jersey. They contend that plaintiffs failed to assert reliance on any misrepresentation or show that the alleged misrepresentation caused the overdraft fees.
In response, plaintiffs argue that TD Bank’s generalized dismissal approach fails to address the specific allegations detailed in their complaint. They cite a "sufficient funds theory," claiming that TD Bank’s overdraft practices contradict its contractual obligations and are misleading. They allege that the bank inaccurately described its overdraft practices in customer agreements and misrepresented the conditions under which overdraft fees would be charged. Furthermore, plaintiffs maintain that the consumer fraud and unfair practices statutes they invoke are broadly applicable and that no federal or state law can shield TD Bank from accusations of unfair, deceptive, or unconscionable practices. They reference the Gutierrez case, which upheld a ruling against Wells Fargo for similar misleading practices, alongside guidance from the OCC warning national banks about compliance with state statutes on unfair practices.
Plaintiffs assert that TD Bank has improperly merged the concepts of reliance and causation, which should be evaluated separately according to various jurisdictions. They argue that the Consolidated Amended Complaint (CAC) sufficiently alleges harm resulting directly from the Bank's unfair and misleading actions. The plaintiffs detail how they have met the Rule 12(b)(6) pleading standard across multiple states, including Connecticut, Maryland, North Carolina, New Jersey, and New York, and address reliance and causation requirements where applicable. The Court finds that plaintiffs have presented plausible claims under state consumer protection laws and denies the motion to dismiss these claims.
In response to TD Bank's assertion that its practices are fully disclosed in the Product Disclosure and Agreement (PDAA) and comply with federal banking law, the Court refers to previous analysis and notes significant questions regarding whether the PDAA properly disclosed overdraft fee assessments when sufficient funds were present. As federal banking law does not expressly allow such practices, the Court declines to dismiss the statutory claims based on this argument. However, claims incorporating the high-to-low posting theory and intentional overdraft transactions are dismissed due to preemption.
Regarding TD Bank's claim that the PDAA's language is not deceptive, the Court finds that certain interpretations could mislead consumers about the overdraft policy mechanics, particularly concerning fee assessments with sufficient account funds. While the Hassler case found no valid claim under the New Jersey Consumer Fraud Act based on high-to-low posting, this Court distinguishes the current case by noting additional liability theories, like the sufficient funds theory, which were not conclusively addressed in Hassler. The Gay case, which considered the sufficient funds theory, dismissed the claim under the North Carolina Unfair and Deceptive Trade Practices Act based on evidence evaluation at a summary judgment stage. The Court emphasizes its obligation to accept all allegations as true at the motion to dismiss stage and is not swayed by the Gay ruling, thereby allowing the statutory claims to proceed.
TD Bank's argument for dismissing the state unfair trade practices claims due to a lack of reliance and causation is rejected by the Court. The Court finds the misrepresentations in question, which relate to the assessment of overdraft fees, are directly linked to the alleged harm, thereby establishing proximate cause. The Bank's cited cases, which involve unrelated misrepresentations or unclear reliance issues, are deemed inapplicable. The Court emphasizes that reliance requirements are typically narrow and apply mostly to statutory consumer protection claims based on misrepresentation. In this case, the plaintiffs have asserted claims on unfairness grounds as well, rendering the Bank's argument moot. The Court allows the plaintiffs the opportunity to prove reliance and causation where necessary, concluding that the allegations in count VI sufficiently establish proximate cause to withstand a motion to dismiss. Additionally, the plaintiffs allege violations of the National Bank Act concerning usurious interest due to TD Bank's sustained overdraft fee, characterized as a one-time charge for accounts overdrawn for ten consecutive business days.
The sustained overdraft fee, unlike an initial overdraft fee, is an additional charge based on a customer's unpaid indebtedness to the bank over time. Plaintiffs allege that TD Bank provides no service in exchange for this fee, which they argue is essentially an interest charge for extending credit. They claim that the absence of disclosure regarding this fee as a charge of interest is misleading. By analyzing the $20.00 fee over a 10-day period against fluctuating negative account balances, they calculate an effective annualized interest rate ranging from 166% to 496%.
The legal question revolves around whether this fee is classified as interest under 12 U.S.C. § 85. TD Bank contends that the sustained overdraft fee does not qualify as "interest" as defined by regulatory guidelines, which differentiate between interest charges and non-interest fees. Specifically, the Office of the Comptroller of the Currency (OCC) regulations exclude overdraft fees from the definition of interest, categorizing them as non-interest charges under 12 C.F.R. § 7.4002. TD Bank argues that fees applied to deposit accounts, governed by the terms of deposit agreements, are not considered interest under the National Bank Act (NBA). The plaintiffs contend that the sustained overdraft fee is fundamentally different from the initial overdraft charge, justifying its classification as an interest charge.
The plaintiffs argue that while the initial overdraft fee is administrative, the sustained overdraft fee represents a charge for the use of money over time, fitting the definition of “interest” and thus being subject to usury laws. They claim that initial overdraft fees function as loans without formal agreements, and sustained overdraft fees are excessive interest on these loans. Their argument includes several points:
1. The sustained overdraft fee qualifies as a “late fee” associated with credit extension under 12 C.F.R. 7.4001(a) and is therefore subject to the National Bank Act's (NBA) usury prohibitions.
2. According to 12 C.F.R. 7.4002, fees that qualify as “interest” under the NBA are governed by 7.4001, which does not define “extension of credit.” Reference to Regulation O, 12 C.F.R. 215.3 indicates that this includes overdrafts.
3. Federal banking regulations indicate that overdrafts are loans, and fees based on the duration of the overdraft are considered interest income.
4. The plaintiffs differentiate previous federal rulings on overdraft fees by noting they primarily addressed initial fees, not sustained fees.
The court, however, sides with TD Bank, determining that sustained overdraft fees are not categorized as interest under 12 U.S.C. 85 and 12 C.F.R. 7.4001, leading to the dismissal of count VIII. The Office of the Comptroller of the Currency (OCC) has clarified that while overdraft fees can be classified as interest under certain conditions, the specific regulatory language does not classify sustained overdraft fees in this manner.
Ambiguity exists regarding the term "NSF fees" as used in 12 C.F.R. § 7.4001(a). A proposed change clarifies that "NSF fees" refers specifically to fees imposed by creditor banks when borrowers attempt to pay with checks that have insufficient funds, excluding service charges like overdrafts and returned check fees. The Office of the Comptroller of the Currency (OCC) received no objections to this clarification, which has been adopted in the final rule.
The document also explains that the term "interest" includes creditor-imposed NSF fees related to insufficient funds but does not apply to “sustained” overdraft fees, which are flat fees charged after ten consecutive days of a negative balance, irrespective of the balance amount. Federal courts have consistently ruled that NSF fees, including overdraft fees, do not qualify as "interest" under the National Bank Act (NBA) and have dismissed related claims. Notable cases such as Armstrong v. Colonial Bank, N.A. and McGee v. Bank of Am. N.A. reinforce this interpretation by confirming that overdraft fees are service charges arising from deposit agreements, thereby falling under 12 C.F.R. § 7.4002 rather than being considered interest as defined by 12 U.S.C. § 85.
The McGee court rejected several arguments from the plaintiffs, specifically: 1) sustained overdraft fees cannot be classified as non-interest charges due to a lack of additional service, 2) these fees are not "interest" even if characterized as "late fees" under regulatory definitions, 3) initial overdraft fees are not considered extensions of credit, and 4) factual questions raised by the plaintiffs are not suitable for resolution at the pleading stage. The court emphasized that extended overdrawn balance charges are fixed fees contingent on the failure to rectify an overdraft, distinguishing them from interest, which pertains to compensation for the use of money. This distinction aligns with the reasoning from Video Trax, where such fees were seen as serving purposes beyond monetary compensation, including covering banking costs and promoting banking stability.
The Shaw v. BOKF, N.A. case similarly concluded that extended overdraft fees are not "interest" under the National Bank Act (NBA) and relied on the McGee and Video Trax precedents. The Shaw court addressed plaintiffs’ claims regarding Regulation O, clarifying that it pertains to extensions of credit to bank insiders and is not applicable to regular bank customers with deposit accounts. The court highlighted that the plaintiffs did not engage in borrowing or obtain a line of credit but merely maintained deposit accounts and incurred overdrafts, thereby receiving a service from the Bank to cover those overdrafts. The court found the reasoning in Shaw persuasive and dismissed the relevant claims accordingly.
Plaintiffs were not charged interest for using funds but incurred fees for overdrawing their accounts and not resolving those overdrafts in the specified time. They referenced a February 15, 2015 document from multiple banking regulatory agencies, arguing it supports their claim that overdraft fees constitute extensions of credit, raising usury concerns. The Court, however, found their reliance on this guidance overstated and deemed the cited enforcement actions, court decisions, and banking treatises unpersuasive regarding whether sustained overdraft fees qualify as "interest" under 12 U.S.C. §§ 85 and 86. Consequently, count VIII of their complaint was dismissed for failing to state a plausible claim. The Court granted in part and denied in part the defendants' motion to dismiss, with dismissals being with prejudice except for those claims under Massachusetts, Pennsylvania, and Vermont consumer protection statutes, which were dismissed without prejudice. The excerpt emphasizes the OCC's authority to preempt state laws and the importance of adhering to its interpretations of banking regulations.
Plaintiffs allege that TD Bank acted unfairly and in bad faith by implementing a high-to-low posting order that led to increased overdraft fees. TD Bank has not claimed that preemption applies to count I of the plaintiffs' claims. The court clarifies that "significant interference” does not equate to a complete prohibition of a national bank's powers, referencing the Sixth Circuit's interpretation that the threshold for preemption under the National Bank Act (NBA) is low. The court notes that state law can regulate national banks unless it significantly interferes with their operations, as established in prior cases. It highlights that while the plaintiffs seek injunctive relief in their amended complaint, this request was not included in their “Prayer for Relief.” The court expresses skepticism regarding the reliance on MDL 2036 decisions, particularly in light of inconsistent rulings post-Gutierrez about state laws limiting banks' debit posting practices. The court finds the reasoning in Gutierrez to be more nuanced and applicable to the current case. It emphasizes that federal preemption should be clear-cut, either applying or not applying to state law claims based on potential conflicts with federal law. The court distinguishes the Hanjy case, where federal preemption was asserted by a state-chartered bank, noting that the plaintiffs are not trying to dictate the bank's actions but seek remedies for prior harms. The court views the state law claims as functionally equivalent to an injunction in assessing “significant interference” under the Barnett Bank standard.
The Court clarifies the term "physical presence" in the context of electronic transactions, acknowledging the absence of tangible currency exchange. The Fidelity-Baltimore case is noted for not addressing preemption doctrine. It highlights that the New York Statute, N.Y. Gen. Bus. Law § 349(a), prohibits only deceptive acts, referencing Bildstein v. MasterCard Int'l Inc. to illustrate this point. The plaintiffs' citation of Yocca v. Pittsburgh Stealers Sports, Inc. is deemed irrelevant due to their concession to dismiss claims under Pennsylvania's Unfair Trade Practices Act. However, this concession does not affect the claim under New York's General Business Law § 349, which does not require reliance as an element of a claim. The distinction between reliance and causation is emphasized, with reliance not being necessary for establishing causation in claims of deceptive acts; harm must simply be linked to the defendant’s actions without further proof that the plaintiff would not have engaged in the transaction otherwise.
