Checking Account Overdraft Litig. v. Sovereign Bank

• Citation: 880 F.Supp.2d 1290
• Decision Date: 26 July 2012
• Docket Number: D. MD Case No. 1:11–cv–0064.,Case No. 09–MD–02036–JLK.,S.D. FL Case No. 1:11–cv–22022–JLK.,MDL No. 2036
• Parties: In re CHECKING ACCOUNT OVERDRAFT LITIGATION This Document Relates to Fifth Tranche Action Lewis v. Sovereign Bank.
• Court: U.S. District Court — Southern District of Florida

880 F.Supp.2d 1290

In re CHECKING ACCOUNT OVERDRAFT LITIGATIONThis Document Relates to Fifth Tranche ActionLewis

v.Sovereign Bank.

MDL No. 2036

Case No. 09–MD–02036–JLK.

D. MD Case No. 1:11–cv–0064.

S.D. FL Case No. 1:11–cv–22022–JLK.

United States District Court, S.D. Florida.

July 26, 2012.

Robert Cecil Gilbert, Miami, FL, Bruce S. Rogow, Bruce S. Rogow PA, Fort Lauderdale, FL, for Checking Account Overdraft Litigation.

Darryl May, Nathan W. Catchpole, Ballard Spahr Andrews & Ingersoll, Philadelphia, PA, for Defendants.

FINAL ORDER OF DISMISSAL

JAMES LAWRENCE KING, District Judge.

THIS CAUSE comes before the Court upon Defendant Sovereign Bank's (“Sovereign”) Motion to Dismiss (the “Motion”) (DE # 2148), filed November 21, 2011. Therein, Defendant seeks to dismiss Plaintiff's First Consolidated Amended Class Action Complaint (“CAC”) (DE # 2027) pursuant to Federal Rule of Civil Procedure 12(b)(6) on the grounds that Plaintiff's claims are preempted and fail under Maryland law. The Court is fully briefed on the Motion and proceeds with the benefit of oral argument.¹ After careful consideration of the parties' legal briefs and extensive oral argument, the Court has determined that Plaintiff's claims are preempted by federal banking law and must be dismissed accordingly.²

I. BACKGROUND³

Plaintiff Diane Lewis (“Lewis”), a citizen of Maryland who maintained a checking account with Sovereign, seeks to recover for herself, and all customers similarly situated, excess overdraft fees generated and retained through Sovereign's alleged unlawful practices, including, among other things, its manipulation and reordering of debit transactions from largest to smallest in order to maximize the overdraft fees it charged its customers. (CAC ¶¶ 1, 12, 62.)

Plaintiff filed the initial Complaint on behalf of herself and a putative class on January 7, 2011 in the United States District Court for the District of Maryland. (DE # 1 in 11–cv–10064 (D.Md.)). On May 31, 2011, the United States Judicial Panel on Multidistrict Litigation transferred Plaintiff's case to this Court for adjudication as part of this multi-district litigation (“MDL”) proceeding. (DE # 1544). On October 21, 2011, Plaintiff filed the CAC (DE # 2027), which is the subject of the instant Motion to Dismiss.

Plaintiff's claim against Sovereign is stated in five counts: Count I for breach of contract and the covenant of good faith and fair dealing; Count II for unconscionability; Count III for conversion; Count IV for unjust enrichment; and Count V for violation of the Maryland Consumer Protection Act. (CAC at ¶¶ 77–114.) Plaintiff bases those claims on Sovereign's high-to-low ordering of withdrawals, its allegedly deficient disclosure of that practice, and its allowing of account holders to overdraw without warning and opportunity to abort. ( Id. at ¶¶ 1, 7.) Sovereign seeks dismissal of the CAC in its entirety on the ground that it is preempted by federal law.

Sovereign argues it is unique in this MDL as the “first defendant that has been charted as a federal savings bank and therefore regulated by the Office of Thrift Supervision (“OTS”) under the Home Owner's Loan Act (“HOLA”), 12 U.S.C. § 1461 et seq.” ⁴ According to Defendant, that is significant because OTS regulations provide different preemption standards than those adopted by the Office of the Comptroller of the Currency (“OCC”) for national banks under the under the National Bank Act (“NBA”). Thus, unlike the conflict preemption analysis applied in the Court's previous decision relating to defenses raised by national banks, the OTS “occupied the entire fields of the deposit and lending-related practices of federal savings banks,” such that a field preemption analysis applies to preempt all of Plaintiff's claims against here. (Motion, at 7 (internal quotations omitted)). Cf. In re Checking Account Overdraft Litigation, 694 F.Supp.2d 1302, 1310–14 (S.D.Fla.2010) (“ Omnibus Order ”).

II. STANDARD OF REVIEW

Under Federal Rule of Civil Procedure 12, facts taken from the Complaint are accepted as true and all reasonable inference are resolved in the plaintiff's favor. Harper v. Lawrence County, 592 F.3d 1227, 1232 n. 10 (11th Cir.2010). “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.” Ashcroft v. Iqbal, 556 U.S. 662, 663, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)) (internal quotation marks omitted).

III. DISCUSSION

Applying this standard to a consideration of the well-pled allegations made by Plaintiff in the CAC, the Court finds Plaintiff makes the following assertions:

Plaintiff Lewis and members of the classes she represents maintain or maintained a checking account with Sovereign, the terms of which were contained in standardized account holder agreements (the “Deposit Agreement”), attached as Exhibit A to the CAC. The terms relating to reordering are alleged to be unconscionable contracts of adhesion. (CAC ¶¶ 31–33.)

The Deposit Agreement contains discretionary language regarding Sovereign's reordering practices, including, for example, that the bank reserves the right to pay withdrawals in any order the bank determines, which may affect the amount of overdraft fees charged. ( Id. at ¶ 32.) The Deposit Agreement is alleged to be ineffective, ambiguous, unfair, and deceptive because it does not unambiguously state that Sovereign always reorders debits from high-to-low regardless of the amounts involved—even though, as alleged, Sovereign does always reorder transactions in this manner to maximize overdrafts and overdraft fee revenues for itself at the consumers' expense. ( Id. at ¶¶ 37–38.) To carry out this scheme, Sovereign is alleged to have manipulated customer transaction records, causing funds in customer accounts to be depleted more rapidly, resulting in more overdrafts and, hence, more overdraft fees. ( Id. at ¶¶ 6467.)

Moreover, as alleged, Sovereign failed to: (i) disclose to customers that they may “opt-out” of Sovereign's overdraft scheme; (ii) provide an opportunity to cancel the debit transaction before incurring an overdraft fee; or (iii) obtain affirmative consent from customers prior to processing transactions that will overdraw their accounts and result in overdraft fees. ( Id. at ¶¶ 5052.) As such, its overdraft policies and practices and the reordering provisions of its Deposit Agreement are alleged to be procedurally and substantively unconscionable. ( Id. at ¶ 60.)

Plaintiff alleges she suffered damages as a result of Defendant's alleged improper conduct. ( Id. at ¶¶ 6276.) Specifically, Plaintiff overdrew from her account on several occasions and incurred overdraft fees as a result. ( Id. at ¶ 64.) For instance, on April 26, 2010, Plaintiff made ten withdrawals from her checking account using either a check or the debit card that Sovereign had issued to her in connection with the account. ( Id.) Plaintiff's beginning account balance on that date was $309.41, and her ten withdrawals totaled $669.13. ( Id.) Sovereign posted those withdrawals starting with the largest. ( Id.) As a result, Plaintiff incurred nine overdraft fees totaling $315.00. ( Id.)

Defendant moves to dismiss all of Plaintiff's claims pursuant to Federal Rule of Civil Procedure 12(b)(6) as preempted by federal law. Specifically, Defendant argues, the OTS's deposit-related regulations preempt “state laws that purport to impose requirements” regarding, among other things, “Checking accounts,” “Disclosure requirements,” and “Service charges and fees.” (Motion, at 9) (quoting 12 C.F.R. § 557.12(b), (c), (f).) Defendant argues that Plaintiff's claims, which attack how Sovereign processes checking account withdrawals and provides or not provide overdraft opt-out procedures, how it discloses its practices, and how many overdraft fees it charges, (CAC ¶¶ 37–45, 50–52), fall squarely within all of these categories listed in § 557.12 and are thus preempted.

Moreover, Defendant argues that the Deposit Agreement complies with OTS disclosure requirements by fully disclosing Sovereign's policies and rights with respect to withdrawals and overdraft fees. With respect to withdrawals, for example, the Deposit Agreement provides:

We reserve the right to pay the withdrawals you make from your Account regardless of the method of withdrawal in any order we determine. This includes withdrawals made at an ATM or by computer, [point-of-sale] purchases, checks, pre-authorized payments and by any other means we make available to you. The order in which you make withdrawals from your Account may not be the same as the order in which we post those transactions to your Account each business day. Generally, we post your payment transactions each business day in descending order, starting with the largest payment order that is presented for payment. This means, for example, that your $900 mortgage payment will be paid before the $100 purchase you made at the supermarket. The order in which we post your transactions may affect whether you incur fees for insufficient or unavailable funds.

( Id. at 4–5) (bold in original).⁵ Similarly, with respect to overdraft fees, the Account Agreement provides:

If you write a check or other order or otherwise request a withdrawal from your Account, such as by using an ATM or making a purchase using a Visa Checkcard or ATM Card, for more money than you have available for withdrawal from your Account, we may either permit you to withdraw the funds by complying with the payment order or we may refuse to honor the payment order. You may incur a fee for each payment order that is presented against your account when you do not have sufficient available funds.

( Id. at 10.)

Plaintiff concedes that the Deposit Agreement contains discretionary language,but argues Sovereign abused the discretion afforded under...