Eckhardt ex rel. Situated v. State Farm Bank FSB, Case No. 1:18-cv-01180
| Decision Date | 12 March 2019 |
| Docket Number | Case No. 1:18-cv-01180 |
| Parties | SETH ECKHARDT, Individually and On Behalf of All Others Similarly Situated, Plaintiff, v. STATE FARM BANK FSB, Defendant. |
| Court | U.S. District Court — Central District of Illinois |
This matter is before the Court on Defendant State Farm Bank FSB's Motion to Dismiss for Failure to State a Claim (Doc. 13). The Motion has been fully briefed and is ready for disposition. For the following reasons, Defendant's motion (Doc. 13) is GRANTED IN PART and DENIED IN PART.
Plaintiff Seth Eckhardt has held a credit card issued by Defendant since 2017. (Doc. 11 at 5). When he became a cardholder, he was given a copy of the standard cardholder agreement, which stated in pertinent part: (Doc. 11 at 11 (citing Doc 11-1 at 4)). The agreement further stated: "Quasi-cash transactions, described below, are deemed to be Cash Advances and notPurchases." (Doc. 11 at 11 (citing Doc 11-1 at 4)). The agreement defined "quasi-cash transactions" as:
[I]tems that are convertible to cash or similar cash-like transactions that we may designate from time to time, including wire transfer money orders, other money orders, travelers checks, or foreign currency or tax payments (so-called "quasi-cash transactions"). However, your Card may not be used to obtain, and we will not honor requests for, a Cash Advance in the form of casino chips, bets or wagers, gaming transactions (including Internet gambling), lottery tickets or the like. (Doc. 11 at 12 (citing Doc 11-1 at 4)).
Cash advances are treated less favorably than purchases. The annual percentage rate charged for cash advances is substantially higher than that for purchases, and a transaction fee is assessed for each cash advance while there is no corresponding fee for purchases. (Doc. 11 at 5; see also Doc 11-1 at 1).
On multiple occasions prior to February 2018, Plaintiff purchased cryptocurrency using his State Farm credit card. The cryptocurrency at issue herein is created with cryptographic functions (essentially mathematical algorithms) performed using a software called "Blockchain." (Doc. 11 at 6-7). It is described as "virtual money" but is not legal tender for public or private debts; neither its value nor production are regulated by any government at this time. (Doc. 11 at 6). One can obtain cryptocurrency by purchasing it from another; "mining" it, i.e., creating new units of the cryptocurrency; or creating a new cryptocurrency altogether. (Doc. 11 at 6-9).
Prior to February 2018, Plaintiff's transactions acquiring cryptocurrency were treated as purchases within the meaning of the cardholder agreement and so listed in his monthly credit card statements. (Doc. 11 at 15). On February 4, 2018, Plaintiffpurchased cryptocurrency using his State Farm credit card, but that time, the transaction was treated as a cash advance and so listed on his monthly statement. (Doc. 11 at 15). Plaintiff was therefore charged a transaction fee, and the transaction was subjected to the higher interest charges attributable to cash advances per the agreement. (Doc. 11 at 15, Doc 11-1 at 1). Plaintiff attempted to negotiate with State Farm to remedy the "surprise Cash Advance fees and interest charges" to no avail. (Doc. 11 at 16).
Defendant seeks dismissal pursuant to Federal Rule of Civil Procedure 12(b)(6), arguing Plaintiff failed to state a claim upon which relief may be granted. (Doc. 13). To survive dismissal pursuant to Rule 12(b)(6), the complaint must contain a short and plain statement of the plaintiff's claim sufficient to plausibly demonstrate entitlement to relief. Fed. R. Civ. P. 8(a)(2); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-57 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A plaintiff is not required to anticipate defenses or plead extensive facts or legal theories but must plead enough facts to present a story that holds together. Twombly, 550 U.S. at 570; Swanson v. Citibank, N.A., 614 F.3d 400, 404 (7th Cir. 2010).
When faced with a motion to dismiss pursuant to Rule 12(b)(6), the Court construes the complaint in the light most favorable to the plaintiff. United States ex rel. Berkowitz v. Automation Aids, Inc., 896 F.3d 834, 839 (7th Cir. 2018). The Courtalso accepts all well-pleaded factual allegations as true and draws all reasonable inferences from those facts in favor of the plaintiff. Id. Allegations that are, in reality, legal conclusions are not taken as true and cannot survive a Rule 12(b)(6) challenge. McReynolds v. Merrill Lynch & Co., Inc., 694 F.3d 873, 885 (7th Cir. 2012).
Congress enacted the Truth in Lending Act (TILA) to assure "a meaningful disclosure of credit terms" so consumers "will be able to compare more readily the various credit terms available . . . and avoid the uninformed use of credit." TILA, 15 U.S.C. § 1601(a). The statute further sought "to protect the consumer against inaccurate and unfair credit billing and credit card practices." Id. To achieve these goals, Congress delegated rule-making authority to the Board of Governors of the Federal Reserve System (Board) and later to the Bureau of Consumer Financial Protection (Bureau), which currently holds rule-making authority. TILA, 15 U.S.C. § 1604(a); see also Chase Bank USA, N.A. v. McCoy, 562 U.S. 195, 198 (2011) (). Pursuant to this statutory authority, Regulation Z, 12 C.F.R. 1026 et seq., was promulgated "to effectuate the purposes of [TILA], to prevent circumvention or evasion thereof, [and] to facilitate compliance therewith[,]" TILA, 15 U.S.C. § 1604(a).
Plaintiff's Amended Complaint (Doc. 11) alleges multiple violations of TILA and Regulation Z as well as breach of the cardholder agreement. Specifically, Count I alleges Defendant violated TILA, 15 U.S.C. § 1637(i)(2), and Regulation Z, 12 C.F.R. § 1026.9(c), by failing to provide Plaintiff and the putative class members advancednotice of its intent to classify transactions acquiring cryptocurrency as cash advances rather than purchases. (Doc. 11 at 20-22). Count II alleges Defendant violated TILA, 15 U.S.C. § 1632(a), and Regulation Z, 12 C.F.R. § 1026.5(a)(1)(i), by failing to abide by the "clear and conspicuous" disclosure requirement. (Doc. 11 at 22-24). Count III alleges Defendant breached the cardholder agreement by classifying transactions acquiring cryptocurrency as cash advances. (Doc. 11 at 24-25). Count IV argues, alternative to Counts I and III, if advanced notice was not required and transactions acquiring cryptocurrency are, in fact, quasi-cash transactions, the prior monthly statements labeling such transactions as purchases failed to "reflect the terms of the legal obligations between the parties," as required by TILA, 15 U.S.C. § 1637(b), and Regulation Z, 12 C.F.R. § 1026.5(c). (Doc. 11 at 25-27). Count V argues, alternative to Count III, Defendant breached the cardholder agreement by delegating to a third party its right to designate transactions as cash advances. (Doc. 11 at 27-28). Finally, Count VI seeks a declaration pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201, stating the terms of the cardholder agreement "do not permit State Farm to impose Cash Advance fees or interest charges on Plaintiff and the Class for buying virtual currencies from third-party credit card merchants." (Doc. 11 at 28).
Defendant has moved to dismiss all six counts. (Doc. 13). Unfortunately, the memoranda on the instant motion largely focus on the merits of Plaintiff's claims as opposed to the sufficiency of the Amended Complaint (Doc. 11). Specifically, many of the arguments turn on the pivotal question of fact presented in this controversy: whether cryptocurrency is cash-like. Questions of fact are inappropriate issues toaddress in the context of a motion to dismiss pursuant to Rule 12(b)(6). See, e.g., Roberson ex rel. Roberson v. Novartis Pharm. Corp., No. 11 C 2035, 2011 WL 1740137, at *1 (N.D. Ill. May 5, 2011). At this stage of the proceeding, the Court is bound to accept Plaintiff's factual allegations as true and must draw all reasonable inferences therefrom in favor of Plaintiff. Automation Aids, Inc., 896 F.3d at 839.
The remaining arguments presented by the parties require the Court to engage in statutory and regulatory interpretation. When interpreting a statute, the Court's primary focus is on the plain language enacted by Congress. "It is a cardinal principle of statutory construction that a statute ought, upon the whole, to be so construed that, if it can be prevented, no clause, sentence, or word shall be superfluous, void, or insignificant." Doe v. Chao, 540 U.S. 614, 630-31 (2004) (internal quotation marks omitted). Secondary tools of statutory construction are employed only if the plain language of the provision is ambiguous to the extent it is susceptible to more than one reasonable interpretation. See United States v. Marcotte, 835 F.3d 652, 656 (7th Cir. 2016) . Similarly, "[c]ourts interpreting a regulation first look to the regulation's text, and look past it only when it is ambiguous or where a literal interpretation would lead to an absurd result or thwart the purpose of the overall statutory scheme." Nat. Res. Def. Council v. Ill. Power Res. Generating, LLC, No. 1:13-CV-1181, 2019 WL 208856, at *9 (C.D. Ill. Jan. 15, 2019) (internal quotation marks omitted).
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