944 F.Supp.2d 819 (N.D.Cal. 2013), C 07-05923 WHA, Gutierrez v. Wells Fargo Bank, N.A.

Docket Nº:C 07-05923 WHA
Citation:944 F.Supp.2d 819
Opinion Judge:WILLIAM ALSUP, UNITED STATES DISTRICT JUDGE.
Party Name:VERONICA GUTIERREZ, ERIN WALKER, and WILLIAM SMITH, as individuals and on behalf of all others similarly situated, Plaintiffs, v. WELLS FARGO BANK, N.A., Defendant
Attorney:No. C 07-05923 WHA For Erin Walker, individually and on behalf of all others similarly situated, Plaintiff: Adam Kent Shea, Brian Joseph Panish, LEAD ATTORNEYS, Panish Shea & Boyle, LLP, Los Angeles, CA; Richard D. McCune, Jr., Jae Kook Kim, McCuneWright LLP, Redlands, CA; Barry R. Himmelstein, H...
Case Date:May 14, 2013
Court:United States District Courts, 9th Circuit, Northern District of California
 
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944 F.Supp.2d 819 (N.D.Cal. 2013)

VERONICA GUTIERREZ, ERIN WALKER, and WILLIAM SMITH, as individuals and on behalf of all others similarly situated, Plaintiffs,

v.

WELLS FARGO BANK, N.A., Defendant

No. C 07-05923 WHA

United States District Court, N.D. California

May 14, 2013

For Erin Walker, individually and on behalf of all others similarly situated, Plaintiff: Adam Kent Shea, Brian Joseph Panish, LEAD ATTORNEYS, Panish Shea & Boyle, LLP, Los Angeles, CA; Richard D. McCune, Jr., Jae Kook Kim, McCuneWright LLP, Redlands, CA; Barry R. Himmelstein, HIMMELSTEIN LAW NETWORK, Emeryville, CA; Michael W. Sobol, Lieff Cabraser Heimann & Bernstein, LLP, San Francisco, CA; Mikaela Bernstein, Richard Martin Heimann, Lieff Cabraser Heimann & Bernstein, San Francisco, CA; Mitchell M. Breit, Hanly Conroy Bierstein Sheridan Fisher & Hayes LLP, New York, NY.

For William Smith, individually and on behalf of all others similarly situated, Plaintiff: Richard D. McCune, Jr., LEAD ATTORNEY, Jae Kook Kim, McCuneWright LLP, Redlands, CA; Barry R. Himmelstein, HIMMELSTEIN LAW NETWORK, Emeryville, CA; Michael W. Sobol, Lieff Cabraser Heimann & Bernstein, LLP, San Francisco, CA; Mikaela Bernstein, Richard Martin Heimann, Lieff Cabraser Heimann & Bernstein, San Francisco, CA; Mitchell M. Breit, Hanly Conroy Bierstein Sheridan Fisher & Hayes LLP, New York, NY.

For Veronica Gutierrez, individually and on behalf of all others similarly situated, Plaintiff: Adam Kent Shea, Brian Joseph Panish, LEAD ATTORNEYS, Panish Shea & Boyle, LLP, Los Angeles, CA; Jae Kook Kim, Richard D. McCune, Jr., LEAD ATTORNEYS, McCuneWright LLP, Redlands, CA; Barry R. Himmelstein, HIMMELSTEIN LAW NETWORK, Emeryville, CA; Michael W. Sobol, Lieff Cabraser Heimann & Bernstein, LLP, San Francisco, CA; Mikaela Bernstein, Richard Martin Heimann, Lieff Cabraser Heimann & Bernstein, San Francisco, CA; Mitchell M. Breit, Hanly Conroy Bierstein Sheridan Fisher & Hayes LLP, New York, NY.

For Wells Fargo Bank NA, Defendant: Sonya Diane Winner, LEAD ATTORNEY, Margaret G. May, Covington & Burling LLP, San Francisco, CA; Bryanne Jeanette Schmitt, David M. Jolley, Covington Burling, San Francisco, CA; Emily Johnson Henn, Covington & Burling LLP, Redwood Shores, CA.

For Donna McMillian, Terry Dagenhart, Kristy Dagenhart, Interested Parties: Jeff D Friedman, Hagens Berman Sobol Shapiro LLP, Berkeley, CA.

OPINION

WILLIAM ALSUP, UNITED STATES DISTRICT JUDGE.

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ORDER GRANTING IN PART AND DENYING IN PART MOTION FOR JUDGMENT FOLLOWING REMAND

Introduction

After a bench trial in this certified consumer class action, certain overdraft practices by Wells Fargo Bank, N.A. that imposed hundreds of millions of dollars in overdraft fees on depositors were held unfair and fraudulent. Our court of appeals affirmed in part and reversed in part. On remand, plaintiffs now move to reinstate the prior judgment on narrower grounds and request injunctive relief, restitution, and interest. For the reasons explained below, plaintiffs' motion is Granted In Part And Denied In Part.

Statement

Plaintiffs brought this class action to challenge a Wells Fargo bookkeeping device known as " high-to-low" posting. In practice, processing account debits received by the bank each day in high-to-low order multiplied the overdraft fees collected by the bank by depleting the account as fast as possible and turning what might otherwise be a single overdraft into as many as ten. Following a two-week bench trial, the Court made the following rulings on class claims relevant to the instant motion:

(1) Wells Fargo's decision to use high-to-low posting (along with certain allied practices) was made in bad faith with the sole object being to increase the overdraft fees charged to customers. This violated the " unfair" prong of Section 17200 of the California Business and Professions Code.

(2) Wells Fargo failed to disclose (or to do so adequately) the challenged resequencing practice. This violated the " fraudulent" prong of Section 17200.

(3) Wells Fargo made misleading statements to consumers regarding its resequencing practice in violation of the " fraudulent" prong of Section 17200.

(4) The deceptive conduct under the " fraudulent" prong of Section 17200 also established liability for plaintiffs' false advertising

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claim under Section 17500 of the California Business and Professions Code.

(5) Wells Fargo was enjoined and thereby ordered to (a) cease the high-to-low posting practice, (b) reinstate an alternative posting method for all class members, (c) file a declaration on any new posting system so that it could be vetted by the Court prior to implementation, and (d) conform all agreements, disclosures, websites, online banking statements, and promotional materials provided to class members to the new system.

(6) Wells Fargo was ordered to pay restitution for its unfair competition under Section 17200. Using a measurement method that tracked class members' most likely expectations that debits would have been posted in chronological posting order, Wells Fargo was liable for restitution to class members totaling $202,994,035.46 (as specified in the final judgment, Dkt. No. 498 at 1). This was based on the difference between the high-to-low method versus the chronological posting method.

The Findings did not reach the class claims for negligent misrepresentation and fraud because the injunctive relief sought thereunder would be duplicative.

On appeal, the above-numerated rulings 1-2 and 5-6 were reversed; rulings 3-4 were affirmed. Gutierrez v. Wells Fargo Bank, N.A., 704 F.3d 712, 725-30 (9th Cir. 2012). [*] Our court of appeals specifically ruled that the National Bank Act preempts the application of the " unfair" prong of Section 17200 to a national bank's order of posting. Both the posting order itself, and any requirement to make particular disclosures are within the exclusive purview of the National Bank Act. Liability based on failure to disclose was likewise preempted on the ground that it was tantamount to mandating specific disclosures.

Liability based on the " fraudulent" prong of Section 17200 for false and misleading statements, however, was held not preempted. Our court of appeals held that for these purposes Section 17200 is a non-discriminatory state law of general applicability that did not impose disclosure requirements in conflict with federal law. Rather, it prohibited statements that are likely to mislead the public. Id. at 726-27.

As set forth in the previous Findings -- re-approved herein and incorporated by reference -- Wells Fargo's affirmative misrepresentations came in several forms:

A Wells Fargo marketing theme was that debit-card purchases were " immediately" or " automatically" deducted from an account. This likely led the class to believe: (1) that the funds would be deducted from their checking accounts in the order transacted, and (2) that the purchase would not be approved if they lacked sufficient available funds to cover the transaction. This language was present on Wells Fargo's website (TX 129), on Wells Fargo's Checking, Savings and More brochures from 2001 and 2005 (TX 88, 89), and Wells Fargo's New Account Welcome Jacket from 2004 (TX 82).

. . . This order finds that these misrepresentations were placed in such a wide array of marketing documents and these documents were distributed in such a widespread manner that class members were likely to be misled by them.

(Findings, Dkt. No. 477 at 54-55).

Wells Fargo made misleading statements directly to customers, such as by

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telling them that " [c]heck card and ATM transactions generally reduce the balance in your account immediately," that " the money comes right out of your checking account the minute you use your debit-card," and that " [i]f you don't have enough money in your account to cover the withdrawal, your purchase won't be approved" ( ibid. ). In addition, the Wells Fargo online banking service displayed pending transactions to customers in chronological order, only to rearrange them in high-to-low order at the time of posting in order to maximize the number of overdraft fees ( id. at 71-72).

In addition to marketing materials and its website, the 60-plus page Consumer Account Agreement (" CAA" ) Wells Fargo distributed to its customers buried statements on posting order deep inside the thick document. The CAA was both difficult for consumers to understand and misleading. The CAA stated that the bank " if it chooses" might post transactions in high-to-low order, and that if it did so a high-to-low posting order " might" result in more overdraft and returned-item fees. The Findings specifically ruled that this language in the CAA, if it were ever discovered and read in the first place, affirmatively left the misleading impression with consumers that the bank had not yet...

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