In re Washington Mut. Overdraft Protection Litig.

• Decision Date: 17 March 2008
• Docket Number: Case No. CV 03-2566 ABC (RCx).
• Court: U.S. District Court — Central District of California
• Parties: In re WASHINGTON MUTUAL OVERDRAFT PROTECTION LITIGATION, This action relates to: All Actions.

539 F.Supp.2d 1136

In re WASHINGTON MUTUAL OVERDRAFT PROTECTION LITIGATION,

This action relates to: All Actions.

Case No. CV 03-2566 ABC (RCx).

United States District Court, C.D. California.

March 17, 2008.

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Andrew Kierstead, Andrew S. Kierstead Law Offices, Portland, OR, Barry J. MacNaughton, Kelly 0. Scott, Ervin Cohen and Jessup, Beverly Hills, CA, Charles M. Delbaum, National Consumer Law Center, Boston, MA, David A. Searles, Michael D. Donovan, Donovan Searles, Philadelphia, PA, for Chirou M. Sola.

Chi Chi Wu, Stuart T. Rossman, National Consumer Law Center, Boston, MA, Marc R. Stanley, Martin Woodward, Roger L. Mandel, Stanley Mandel and Iola, Dallas, TX, Matthew J. Zevin, Stanley Mandel and Iola, San Diego, CA, for Chirou M. Sola and Nadine Viseth.

David W. Moon, Julia B. Strickland, Keith A. Custis, Lisa M. Simonetti, Stroock Stroock & Lavan, Los Angeles, CA, for Washington Mutual Bank FA.

ORDER RE: DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AND TO DISMISS

AUDREY B. COLLINS, District Judge.

Pending before the Court is Defendant's Motion for Summary Judgment or, in the Alternative, for Partial Summary Judgment, and to Dismiss ("Motion"), filed on December 6, 2007. Plaintiffs filed an Opposition on January 4, 2008, and Defendant filed a Reply on January 22, 2008. Defendant filed two Notices of Recent Decision, on January 25 and February 11, 2008, to which Plaintiffs filed a Response and objection on February 19, 2008. Defendant filed a Notice of Errata on March 13, 2008. The Court finds this Motion appropriate for decision without oral argument and VACATES the hearing set for April 14, 2008. See Fed.R.Civ.P. 78; Local Rule 7-15. Having considered the materials submitted by the parties and the case file, the Court hereby GRANTS Defendant's Motion.

I. PROCEDURAL HISTORY

On October 20, 2003, Plaintiffs filed a Consolidated Class Action Complaint ("Complaint") against Defendant. Washington Mutual Bank, FA ("Washington Mutual"), alleging violations of the Truth in Lending Act ("TILA"), 15 U.S.C. § 1601, et seq., and its implementing regulations 12 C.F.R. Pt. 226 ("Regulation Z") ("TILA claims"); the Home Owners' Loan Act ("HOLA"), 12 U.S.C. § 1461, et seq.; and various Washington and California state laws, in connection with the "Overdraft Limit feature" of ATM and debit cards ("ATM cards") that Defendant issued to Plaintiffs.

In November 2003, Defendant moved to dismiss the Complaint. In an Order issued April 26, 2004, 2004 WL 5046210 ("April 26 Order"), the Court found that none of Plaintiffs' causes of action stated a claim for relief and dismissed the case. In relevant part, this Court dismissed certain of Plaintiffs' TILA claims on the ground that "Plaintiffs failed to sufficiently allege that the parties agreed in writing to payment of the items creating the overdraft," and that therefore the, cards were not credit cards to which TILA or 12 C.F.R. § 226.12 applied. (Order 6:4-7.) Belatedly, the Court held that Plaintiffs' allegation that Defendant's promotional materials constituted a contract was inadequate to show that Defendant had agreed to pay all overdraft items because "promotional materials are not agreements." (Order 7:1-7.) Having dismissed all of the federal claims, the Court dismissed without prejudice the supplemental state claims.

Plaintiffs appealed. See Sola v. Wash. Mut. Bank. FA (In re Wash. Mut. Overdraft Prot. Litig.), 201 Fed.Appx. 409 (9th Cir.2006) The Ninth Circuit affirmed, reversed, and remanded in part the April 26 Order. Specifically, the Ninth Circuit reversed the dismissed of Plaintiffs' claims under "TILA' and 12 C.F.R, § 226.12, for unsolicited issuance of credit cards and offsetting without an agreement to do so," stating that "the complaint does not necessarily imply the existence of a formal, written deposit agreement. Read in the light most favorable to the plaintiffs, it alleges that a credit agreement governing the ATM cards exists based on the promotional materials and the parties' courses of conduct, As alleged in the complaint, then, the cards may fall within the definition of credit cards." (201 Fed.Appx. at 410.) However, the Court also noted that "if the defendants introduce evidence of a written deposit agreement with terms contrary to the promotional materials, the cards may well not satisfy the definition of credit cards. In that case, the district court's reasoning may apply." (Id. at 410, fn. 4.) Because the Ninth Circuit reinstated the two TILA claims, it noted that this Court should reconsider its decision to decline supplemental jurisdiction over the state claims.

Thereafter, Plaintiffs filed their Corrected Second Amended Consolidated Class Action Complaint ("SAC") realleging in their First Cause of Action the two revived federal claims. Specifically, Plaintiffs claim that by "issuing ATM cards and debit cards to Plaintiffs and the Class in connection with its `Overdraft Protection-Overdraft Limit' feature, [Defendant] violated TILA's provisions against the unsolicited issuance of credit cards, 15 U.S.C. § 1642, because these ATM cards and debit cards were credit cards as defined by TILA and Regulation Z, 12 C.F.R. § 226.2(a)(15)." (SAC ¶ 30.) Second, Plaintiffs claim that "by offsetting the accounts of Plaintiffs and the Class in connection with ATM card and debit card transactions made pursuant to its `Overdraft Protection-Overdraft Limit' credit feature, [Defendant] violated TILA's prohibition against credit card issuers offsetting cardholders' indebtedness against funds held on deposit with card issuers in the absence of the affirmative consent of Plaintiffs and the Class, pursuant to 15 U.S.C. § 1666h(a)." (SAC ¶ 31.) Plaintiffs also reallege three claims under, California law: their Second Cause of Action for violation of California Business & Professions Code § 17200, et seq.; their Third Cause of Action for violation of the Consumer Legal Remedies Act ("CLRA"), Cal. Civ.Code § 1750 et seq.; and their Fourth Cause of Action for unjust enrichment under California law.

On December 12, 2006, the Court approved the parties' Stipulation and Order, pursuant to which discovery was stayed in anticipation of Defendant's filing a Rule 12(b)(6) motion to dismiss the SAC. On January 19, 2007, Defendant filed its 12(b)(6) motion asking the Court to dismiss each of Plaintiffs' four causes of action. Defendant's motion included exhibits purporting to be the Master Agreement and Account Disclosures that set forth all of the relevant terms governing the Plaintiffs' accounts. Defendant stated that, in submitting these materials, it essentially renewed its November 2003 motion to dismiss the revived TILA claims by supplying the Court with the governing agreements that the Ninth Circuit noted were missing from the record when this Court issued its April 26 Order.

Plaintiffs then moved to lift the stay of discovery, noting that Defendant's motion to dismiss asked the Court to consider matters outside of the pleadings, and challenging whether the documents submitted by Defendant constituted the entirety of the agreement between the parties. Plaintiffs thus asked the Court to convert the Rule 12(b)(6) motion to dismiss into a Rule 56 motion for summary judgment, and, pursuant to Rule 56(f), to continue the motion to allow Plaintiffs to take discovery sufficient to respond to Defendant's motion. Therein, and in subsequent briefing, Plaintiffs elaborated on their two theories purporting to trigger liability under TILA. First, under their "credit agreement theory," Plaintiffs contend that Defendant's promotional brochure created a credit agreement triggering TILA. Second, under their "credit feature theory," Plaintiffs contend that Defendant's automatic payment of overdrafts renders the Overdraft Limit feature a credit feature triggering TILA. In its April 18, 2007 minute order, the Court lifted the stay to allow Plaintiff to conduct discovery as to the entirety of the written agreement between the parties so that the Court could ascertain the terms of that agreement.

Thereafter, Defendant filed the instant motion, seeking summary judgment on Plaintiffs' first cause of action (its TILA claims) and dismissal of Plaintiffs' state law claims.

II. FACTUAL BACKGROUND

The parties are in substantial agreement about almost all of the material facts. Defendant is a federal savings association. (Defendant's Statement of Uncontroverted Facts Number ("UF") 1.) Plaintiffs opened checking accounts with Defendant (UF 3-5), and each Plaintiff signed a "Master Agreement" acknowledging that he or she is bound by the agreement and all of Defendants' disclosures and regulations, and acknowledging receipt of Defendant's Account Disclosures and Regulations ("Account Disclosures"). (UF 6-8.) The Account Disclosures included an "Overdraft Limit Provision" ("Overdraft Limit") as follows: "If your periodic statement for your account specifies an `Overdraft Limit,' the Bank may, at its option, pay checks transfers and withdrawals presented for payment against your account, despite insufficiency of good funds in the account, up to the amount of the Overdraft Limit, but has no obligation to do so. Fees will be assessed as set forth above. The Bank provides this Overdraft Limit at its sole option. We may terminate or reduce the Overdraft Limit at any time without limit, and without notice except as when required by law." (UF 10.)¹ The Overdraft Limit Provision in subsequent revisions of the Account Disclosures also provides that Defendant is not obligated to pay overdrafts and may terminate or reduce the Overdraft Limit at any time. (UF 11.) Defendant imposed a fee on Plaintiffs for each overdraft it paid under Overdraft Limit.

The "promotional materials" attached to Plaintiffs' complaint are from an informational brochure entitled "Checking Savings & Services" (the "CS & S Brochure"). (UF 12.) The...