Andrichyn v. TD Bank, N.A.

• Decision Date: 19 March 2015
• Docket Number: Civil Action No. 14–CV–3863.
• Parties: David ANDRICHYN, et al., Plaintiffs, v. TD BANK, N.A., Defendant.
• Court: U.S. District Court — Eastern District of Pennsylvania

93 F.Supp.3d 375

David ANDRICHYN, et al., Plaintiffs

v.TD BANK, N.A., Defendant.

Civil Action No. 14–CV–3863.

United States District Court, E.D. Pennsylvania.

Signed March 19, 2015.

Filed March 20, 2015.

Brent W. Landau, Hausfeld LLP, Philadelphia, PA, Daniel L. Berger, Grant & Eisenhofer PA, New York, NY, Hassan A. Zavareei, Jeffrey D. Kaliel, Tycko & Zavareei LLP, James J. Pizzirusso, Sathya S. Gosselin, Hausfeld LLP, Washington, DC, Jason H. Alperstein, Jeffrey M. Ostrow, Kopelowitz Ostrow PA, Ft. Lauderdale, FL, Steve Six, Stueve Siegel Hanson LLP, Kansas City, MO, Raymond F. Schuenemann, III, Grant & Eisenhofer PA, Wilmington, PA, for Plaintiffs.

Allen Burton, Jonathan Rosenberg, O'Melveny & Myers LLP, New York, NY, Alexander D. Bono, Ryan E. Borneman, Duane Morris LLP, Philadelphia, PA, for Defendant.

MEMORANDUM

JOYNER, District Judge.

Before the Court are Defendant's Motion to Dismiss (Doc. No. 23), Plaintiffs' Response in Opposition thereto (Doc. No. 25), and Defendant's Reply in Further Support thereof (Doc. No. 27). For the reasons below, the Motion to Dismiss is GRANTED. An Order follows.

I. BACKGROUND

This putative class action arises from Defendant TD Bank's processing of debits from so-called “payday lenders.” Plaintiffs claim that TD's conduct violated (1) its contractual duties, (2) New York and Pennsylvania common law, and (3) those states' consumer protection laws.

Payday loans are short-term, high-interest loans that are “among the most controversial credit products in the marketplace.” Nathalie Martin, 1,000% Interest–Good While Supplies Last: A Study of Payday Loan Practices and Solutions, 52 Ariz. L.Rev. 563, 564 (2010). In essence, the loans are intended “to tide a consumer over until payday, and then be paid back in one lump sum when the consumer receive[s] her paycheck.” Id. They generally operate in two ways. First, the borrower can “write a personal check payable to the lender for the amount the person wants to borrow, plus the fee they must pay for borrowing. The company gives the borrower the amount of the check less the fee, and agrees to hold the check until the loan is due, usually the borrower's next payday.” Federal Trade Commission, Payday Loans; Consumer Information, (March 2008), http://www.consumer.ftc.gov/articles/0097–payday–loans. In the alternative, the lender can “deposit[ ] the amount borrowed—less the fee—into the borrower's checking account electronically. The loan amount is due to be debited the next payday.” Id. If the borrower wishes to extend or “roll over” the loan to the next payday, she is charged another set of fees. Id. In most cases, the interest rates on these loans (calculated based on the borrowing fee) exceed 100% APR, and in some circumstances can reach 1000% APR. See id.; Martin, supra, at 564–65.

The legality of these loans depends on the laws of the state in which the loan transactions occur. See generally Mary Spector, Taming the Beast: Payday Loans, Regulatory Efforts, and Unintended Consequences, 57 DePaul L.Rev. 961 (2008). Of note here, both Pennsylvania and New York have laws that prohibit high-interest loans. See Cash Am. Net of Nev., LLC v. Commw. of Pa., 978 A.2d 1028 (Pa.Commw.Ct.2009), aff'd, 607 Pa. 432, 8 A.3d 282 (2010) (discussing the application of Pennsylvania's lending laws to payday lenders); Otoe–Missouria Tribe of Indians v. N.Y. State Dep't of Fin. Servs., 769 F.3d 105 (2d Cir.2014) (examining the application of New York's usury laws to payday lenders). Besides several generally applicable lending laws (such as the Truth In Lending Act), efforts by the federal government to curb payday lending have so far only extended to military personnel and their families. See Spector, supra, at 978–79. Plaintiffs allege that many payday lenders are based offshore or on Native American reservations and conduct their business over the internet in an attempt to avoid the application of state and federal laws. Complaint, Doc. No. 1, at ¶ 4.

The named Plaintiffs in this matter are banking customers of TD Bank who applied for and received payday loans from several out-of-state lenders. Plaintiff David Andrichyn is a resident of Lansdale, Pennsylvania, and Plaintiff Gladstone Williams is a resident of Fresh Meadows, New York. Id. at ¶¶ 16, 17

Andrichyn alleges that in December of 2012 he took out a $350 loan from GR Enterprises, operating at www.signmyloan.net. Id. at ¶ 101. The nominal APR for the loan was 995.45%. Id. at ¶ 102. On December 14, 2012 the lender initiated a debit of $106 from Andrichyn's TD account. Id. at ¶ 103. TD Bank processed the debit even though Andrichyn's account already held a negative balance. Id. Three days later, the debit was returned and TD charged Andrichyn a $35 overdraft fee. Id. This process was repeated a week later. Id. at ¶ 104. On December 24, 2012, the lender initiated another $106 debit and this time Andrichyn's account held sufficient funds. Id. at ¶ 105. The lender initiated further debits on December 28, 2012 ($106); January 11, 2013 ($106); January 25, 2013 ($106); and February 8, 2013 ($281). Id. at ¶¶ 106–110. In sum, Andrichyn alleges that $705 was taken from his account by TD Bank at the request of GR Enterprises. Id. at ¶ 110.

Throughout 2013, Plaintiff Williams took out payday loans from various lenders under circumstances similar to those of Mr. Andrichyn. The lenders, loan amounts, and nominal interest rates were as follows: (1) JD Marketing Group—$300 at 995.45%; (2) Hydra Financial Limited Fund III—$300 at 730%; (3) EZPaydayCash—$400 at 500%; (4) 500FastCash—$350 at 720%; (5) Cash Jar—$450 at 100%; (6) 247GreenStreet—$1,120 at 366%. Id. at ¶¶ 112–151. Plaintiffs allege that TD processed the debits from these lenders without challenge and assessed fees for overdrafts when they occurred. Id.

Understanding Plaintiffs' claims against TD requires an understanding of how electronic debits are processed. Electronic debits and credits are generally made through a system called the “ACH Network.” NACHA, ACH Network: How it Works, https://www.nacha.org/ach-network (last visited February 18, 2015). It works as follows: first, an “Originator” (here, the payday lender) initiates a debit or credit request through the ACH Network. Id. Next, the Originator's bank, known as an “Originating Depository Financial Institution” or “ODFI” aggregates various ACH transactions into batches and transmits them to an “ACH Operator.”¹ Id. The Operator sorts the transactions and makes them available to the “Receiving Depository Financial Institution” or “RDFI” (here, TD Bank). Id. The RDFI then debits or credits the account of an individual or business, known as the “Receiver” (here, the Plaintiffs). Id. This system moves almost $39 trillion per year in approximately 22 billion individual electronic transactions. Id.

The ACH Network is operated by the Electronic Payments Association, known as “NACHA.” Id. NACHA operates as both an administrator of the network and a trade organization that advocates on the network's behalf. NACHA, About NACHA, https://www.nacha.org/about (last visited February 18, 2015). Relevant here, NACHA also promulgates a set of operating rules which “provide the legal foundation for the ACH Network.” Id.

Plaintiffs allege that TD Bank violated the NACHA Rules, its contracts with Plaintiffs, and various state laws by acting as an RDFI for the ACH transactions initiated by the payday lenders. Plaintiffs also claim that TD's assessment of overdraft fees generated as a result of these transactions further violates the parties' contracts and state law. In the instant Motion, TD moves to dismiss the Plaintiffs' Complaint for failure to state a claim.

II. STANDARD OF REVIEW

Under Rule 8, a pleading must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). Although this pleading standard does not require “detailed factual allegations,” it does demand “more than an unadorned, the defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). Thus “[a] pleading that offers ‘labels and conclusions' or ‘a formulaic recitation of the elements of a cause of action will not do.’ Nor does a claim suffice if it tenders ‘naked assertion[s]’ devoid of ‘further factual enhancement.’ ” Id. (citation omitted) (second alteration in original) (quoting Twombly, 550 U.S. at 555, 557, 127 S.Ct. 1955 (2007) ).

“The touchstone of the pleading standard is plausibility.” Bistrian v. Levi, 696 F.3d 352, 365 (3d Cir.2012). “ ‘To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.’ ” Ethypharm S.A. Fr. v. Abbott Labs., 707 F.3d 223, 231 n. 14 (3d Cir.2013) (quoting Sheridan v. NGK Metals Corp., 609 F.3d 239, 262, n. 27 (3d Cir.2010) ). A court determining the sufficiency of a complaint should take note of the elements a plaintiff must plead to state a claim, identify the conclusions that are not entitled to the assumption of truth, and “ ‘where there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement for relief.’ ” Connelly v. Steel Valley Sch. Dist., 706 F.3d 209, 212 (3d Cir.2013) (quoting Burtch v. Milberg Factors, Inc., 662 F.3d 212, 221 (3d Cir.2011) ).

III. DISCUSSION

A. Choice of Law

Though neither party addresses this issue in their briefing, we must determine what substantive law to apply to Plaintiffs' common-law claims. “A federal court sitting in diversity applies the choice- of-law rules of the forum state ... to determine the controlling law.” Maniscalco v. Brother Int'l (USA) Corp., 709 F.3d 202, 206 (3d Cir.2013) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., Inc., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941)...