Davis v. Chase Bank U.S.A., N.A.
| Decision Date | 03 September 2009 |
| Docket Number | Case No. CV 06-04804 DDP (PJWx). |
| Citation | 650 F.Supp.2d 1073 |
| Court | U.S. District Court — Central District of California |
| Parties | Gary DAVIS, an individual, on behalf of himself, and as Private Attorney General, and on behalf of all others similarly situated, Plaintiff, v. CHASE BANK U.S.A., N.A., a Delaware corporation; Circuit City Stores, Inc., a Virginia corporation, Defendants. |
Before the Court is Defendant Chase Bank U.S.A., N.A.'s Motion to Dismiss the First Amended Complaint. The First Amended Complaint, filed as a potential class action, seeks to bring four California state law causes of action against Chase,1 all arising from Chase's servicing of a credit card Chase offered with Circuit City Stores Inc. The First Amended Complaint claims that Chase (1) violated California's Consumer Legal Remedies Act, (2) violated California Business and Professions Code § 17200, (3) breached its contracts and (4) breached the implied covenant of good faith and fair dealing. Chase moves to dismiss the First, Second, and Fourth Causes of Action on the basis that they are federally preempted under the National Bank Act. Alternatively, Chase moves to dismiss all four causes of action on the basis that they fail to state a claim upon which relief can be granted. Additionally, Chase argues that the First and Second Causes of Action must be dismissed for failure to plead those claims with specificity pursuant to Federal Rule of Civil Procedure 9(b). After reviewing the materials submitted by the parties, hearing oral argument, and considering the issues raised in both, the Court denies the motion in significant part and grants the motion in part for the reasons discussed below.
Defendant Chase is a national bank incorporated in Delaware. First Amended Compl. ("FAC") ¶ 4. Chase and Circuit City offered a credit card called the "Circuit City Rewards Card," which conferred certain benefits on consumers who utilized the credit card to make their purchases. Id. at ¶ 5. Those benefits included earning reward points redeemable at Circuit City stores and access to Chase's advertised promotions of "no interest, no payment" or "no interest, with minimum payments" for a specified period of time on certain types of Circuit City purchases. Id. The FAC alleges that Chase solicited Plaintiff and others similarly situated to make purchases at Circuit City using the Circuit City Rewards Card. Id. ¶ 18. In exchange for using its services, Plaintiff was eligible to receive an interest- and payment-free period in which to pay off the balance on certain "Promotional Purchases." Id.
Plaintiff alleges that Chase offers a misleading promotional program with the card. Defendants from time to time advertised the ability to make Promotional Purchases. Id. at ¶ 19. For example, a Circuit City Rewards Card promotional item offered to customers in 2006 states in large writing: ; and Id. According to the FAC, the promotional offer conveys that the consumer will receive the benefit of a grace period of anywhere from a few months to two years or more. Id. at ¶ 28. In fact, however, all payments made by the consumer on his or her regular monthly statement are given priority of payment to the promotional item, even if not yet billed and even if not due for many months. Id. at ¶ 27. That is, Plaintiff alleges that Chase prioritized the allocation of credit card payments to purchases not yet due and owing—the Promotional Purchases subject to a grace period—rather than to purchases that were accruing interest. Id. at ¶ 28. According to the FAC, Chase fails to disclose that it allocates payments in this way. Id. at ¶ 27. As a result, Plaintiff alleges, the promotional offer is a scam used to induce customers into believing that they will have an extended time period in which to pay off their Promotional Purchases, when in fact the consumer has less time to pay off those purchases because of how Chase allocates consumers' payments. Id. at ¶ 28.
On March 3, 2006, Plaintiff purchased a television set from Circuit City, charging $2,000 to his Chase Circuit City Rewards Card. Id. at ¶ 21. Defendants treated the item as a Promotional Purchase, with the term of no interest with minimal payment until January 2008. Id. Prior to the purchase of the television, Chase billed Plaintiff for purchases made between January 14, 2006 and February 13, 2006 (the "February Statement"). Id. at ¶ 22. Based on the language appearing in his monthly statements, Plaintiff believed that he would not be assessed a finance charge if his monthly billings were paid in full, or that any finance charge would be based only on the remaining balance after any partial payment had been subtracted from the outstanding balance. Id. at ¶ 23 & Ex. B. Thus, if payment was due on the February Statement by March 10, 2006 and payment was posted by March 10, 2006, no finance charge should be applied because the balance would have been paid in full. Id. at ¶ 22. Alternatively, if partial payment was made either of the minimum or a greater amount, then a finance charge should be applied only against the remaining balance after subtracting the payment made. Id. Plaintiff returned two items and made two on-line payments consisting of the total owing on March 4, 2006 and March 6, 2006, thereby paying the February Statement balance in full and on time. Id.
When Plaintiff received his statement for purchases made between February 14, 2006 and March 13, 2006 ("March Statement"), the statement showed that although Plaintiff had paid the February Statement balance in full and in a timely manner, Chase assessed a $77.25 finance charge which appeared on the March Statement. Id. at ¶ 24 & Ex. C. Plaintiff alleges that he was assessed the finance charge because his entire February Statement Payment was applied against the $2,000 Promotional Purchase (payment for which was not due and which had not yet appeared on his bill), instead of the February Statement balance. Id. at ¶ 25. Plaintiff alleges that the $2,000 charge for the television was made subsequent to the issuance of the February Statement, and no Payments of any kind were due and owing for the Promotional Purchase until January 2008. Id. Chase nevertheless allocated the entire $1,736.91 that Plaintiff paid on his February Statement to the March 3, 2006 Promotional Purchase. Id. Chase assessed similar charges in at least two other situations. Id. at ¶ 26.
The terms and conditions of the Application to the Circuit City Rewards Card state that, by signing and returning the form for the credit card offer from Chase, an applicant agrees to numerous terms.2 Those terms include the following:
3. You authorize us to allocate your payments and credits in a way that is most favorable to or convenient for us. For example, you authorize us to apply your payments and credits to balances with lower APRs (such as promotional APRs) before balances with higher APRs.
4. Claims and disputes are subject to arbitration.
5. As described in the Cardmember Agreement, we reserve the right to change the terms of your account (including the APRs) at any time, for any reason, in addition to APR increases that may occur for failure to comply with the terms of your account.
FAC, Ex. A at 2. According to Plaintiff, although the quoted language addresses lower and higher APR balances, it should not be read to include "interest free" balances, with no APR being posted to Plaintiffs monthly account balance. Opp'n at 6.
The various cardholder agreements describe Interest Free Special Purchases as special promotional purchase balances . . . . Finance charges accruing on these balance types are not added to your Account balance, but instead they are accumulated from billing cycle to billing cycle and added to your account as Accumulated Finance Charges only if the Interest Free Special Purchase . . . has not been paid in full by the end of the time period specified in the promotional offer. . . . Until accumulated charges are posted to your account, we refer to these amounts as "Accumulated Deferred Finance Changes."
FAC, Ex. B at 2, col. 1. The Cardholder Agreements repeatedly represented that no payment would be due, and no interest would be charged, until after the end of the time period specified in the promotional offer. See Falk Decl., Ex. B at 6, ¶ 9(a) & Ex. E at 10, ¶ 10(a). The Cardholder Agreement also states: Falk Decl., Ex. E at 10, ¶ 9.3
After Plaintiff first filed his Complaint, Chase moved to compel arbitration and enforce a class action waiver on the basis of an arbitration clause contained in its cardmember agreement. Id. at ¶ 31. An arbitration clause was not part of Plaintiffs original cardmember agreement, but rather had been...
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