Lossia v. Flagstar Bancorp, Inc.

Decision Date06 July 2018
Docket NumberNo. 17-1468,17-1468
Citation895 F.3d 423
Parties James LOSSIA, Jr.; Alexandra Plapcianu, individually and on behalf of others similarly situated, Plaintiffs–Appellants, v. FLAGSTAR BANCORP, INC., aka Flagstar Bank, Defendant–Appellee.
CourtU.S. Court of Appeals — Sixth Circuit

ARGUED: Ronald G. Acho, CUMMINGS, MCCLOREY, DAVIS & ACHO, P.L.C., Livonia, Michigan, for Appellants. Sonal Hope Mithani, MILLER, CANFIELD, PADDOCK & STONE, P.L.C., Ann Arbor, Michigan, for Appellee. ON BRIEF: Ronald G. Acho, CUMMINGS, MCCLOREY, DAVIS & ACHO, P.L.C., Livonia, Michigan, for Appellants. Sonal Hope Mithani, Colin M. Battersby, Caroline B. Giordano, MILLER, CANFIELD, PADDOCK & STONE, P.L.C., Ann Arbor, Michigan, for Appellee.

Before: BOGGS, SILER, and SUTTON, Circuit Judges.

BOGGS, Circuit Judge.

This is a breach-of-contract case arising from the order in which Flagstar Bank (Flagstar) processes Automated Clearing House (ACH) transactions. James Lossia, Jr. and Alexandra Plapcianu are former checking-account customers of Flagstar. Lossia asserts that his checking-account agreement required Flagstar to process his ACH transactions in the order that he initiated them, which Flagstar admittedly did not do. But because the plain language of the agreement does not require Flagstar to process transactions in the order that the customer initiated them, we affirm the district court's grant of summary judgment to Flagstar.

I
a. The Agreement and NACHA Guidelines

Plaintiffs opened a joint checking account at Flagstar in December 2014. The checking account was subject to the terms listed in Flagstar's "Terms and Conditions" disclosure guide (the Agreement). The Agreement discusses the method by which Flagstar will process transactions, including ACH transactions. ACH transactions are electronic payments made from one bank account to another and involve one party providing their account number and routing number. Common ACH transactions include online bill pay and an employee's direct deposit. ACH Network: How it Works , NACHA The Electronic Payments Association, https://www.nacha.org/ach-network (last visited June 14, 2018).

In the "Payment Order of Items" section, the Agreement states:

Our policy is to process wire transfers, phone transfers, online banking transfers, in branch transactions, ATM transactions, debit card transactions, ACH transactions, bill pay transactions and items we are required to pay, such as returned deposited items, first—as they occur on their effective date for the business day on which they are processed."

(Emphasis added).

The Agreement also states that it is "subject to applicable federal laws, the laws of the state of Michigan and other applicable rules such as the operating letters of the Federal Reserve Banks and payment processing system rules (except to the extent that this agreement can and does vary such rules or laws)." (Emphasis added). While not explicitly cited in the Agreement, the National Automated Clearing House Association Operating Rules and Guidelines (Guidelines) are the relevant payment-processing-system rules. See About NACHA–The Electronic Payments Association , NACHA The Electronic Payments Association, https://www.nacha.org/about (last visited June 14, 2018).

There are five parties to an ACH transaction: (1) the Originator (here, the individual merchant with whom Lossia did business); (2) the Originating Depository Financial Institution, or ODFI (the merchant's bank); (3) the ACH Operator (the Federal Reserve); (4) the Receiver (Lossia); (5) the Receiving Depository Financial Institution, or RDFI (Flagstar).

The term "Receiver" is something of a misnomer because the label does not necessarily refer to the party who "receives" funds in a given ACH transaction. Instead, the Receiver is the party who authorizes the Originator to introduce the transaction into the ACH Network—regardless of whether that transaction will be a credit to or a debit from the Receiver's account. See PFG Precious Metals, Inc. v. SunTrust Bank , No. 10 C 7709, 2012 WL 401487, at *1–2 (N.D. Ill. Feb. 7, 2012) (providing an example of an ACH transaction in which the entity who would receive the funds is the Originator). By providing his account number and routing number to an online merchant, Lossia authorized the merchant (Originator) to initiate the ACH transaction.1 Then the merchant's bank introduced the transaction to the ACH Network by sending the transaction to the Federal Reserve (the ACH Operator), which in turn forwarded the transactions to the Receiver's bank (Flagstar) so that Lossia's account could be debited.2

The Agreement states that ACH transactions will be processed "as they occur on their effective date for the business day on which they are processed." (Emphasis added). And the Guidelines define the effective date of an ACH transaction as "the date specified by the Originator on which it intends a batch of Entries to be settled." In practice, this date is whatever date the merchant or merchant's bank chooses to submit the transaction to the ACH Operator (the Federal Reserve). The ACH Operator then includes this settlement date in the batch records that it submits to the RDFI (Flagstar). Finally, Flagstar processes the transactions in the order that they were presented by the Federal Reserve in the batch files. In other words, Flagstar does not re-sequence the ACH transactions that it receives from the Federal Reserve.3

The Agreement also states that "[t]here is a combined limit of five Non–Sufficient Funds Charges per business day."

b. Lossia's ACH Transactions

Between Wednesday, February 25 and Saturday, February 28, 2015, Lossia authorized merchants to initiate a series of ten ACH transactions to be debited from Lossia's Flagstar checking account. Each of the relevant transactions was ultimately processed by Flagstar on Monday, March 2, 2015.4 However, much to Lossia's chagrin, the transactions were not processed in the order that he initiated them. Instead, they were processed in the order set forth below.

                Order that Order that Amount Description
                Lossia initiated Flagstar processed
                transaction the transaction
                1                    3                      $200          CHASE-EPAY
                2                    4                      $450          USAA.COM PAYMNT ACH PAYMENTS
                3                    2                      $500          AMEX E Payment ER AM  —  ACH PMT
                4                    10                     $185.71       BARCLAYCARD US  —  CREDITCARD
                5                    9                      $200          DISCOVER DC PYMNTS DCIINTNET
                6                    5                      $500          CHASE  —  EPAY
                7                    6                      $200          CHASE  —  EPAY
                8                    7                      $200          CITI CARD ONLINE  —  PAYMENT
                9                    8                      $100          DISCOVER DC PYMNTS DCINTNET
                10                   1                      $2,285.00     GOOGLE GOOGLE.COM/CH-WALLET/TOP
                

Lossia concedes that he did not have sufficient funds in his account to pay for all ten transactions. However, Lossia argues that had the transactions been processed in the order that Lossia initiated them, his largest transaction—the $2,285 Google Wallet payment—would have been processed last rather than first. This would have resulted in Lossia committing just one overdraft on March 2. Instead, because the largest transaction was processed first, Lossia initially incurred eight overdraft fees on March 2. The next day, Flagstar manually reversed three overdraft fees.

c. Procedural History

On October 25, 2016, Lossia filed his third amended complaint, alleging a federal question under the Fair Credit Reporting Act, 15 U.S.C. § 1681(p), and state-law breach-of-contract claims. Discovery had begun in November 2015 from previous iterations of the complaint. Flagstar filed a motion for summary judgment on December 13, 2016, which was granted by the district court. Lossia timely appealed, challenging the grant of summary judgment as to his breach-of-contract claims but abandoning his Fair Credit Reporting Act claim.

II

We review de novo the trial court's grant of summary judgment. Borman, LLC v. 18718 Borman, LLC , 777 F.3d 816, 821 (6th Cir. 2015). Summary judgment will be granted if "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). We must view the evidence in the light most favorable to the nonmoving party. Latits v. Phillips , 878 F.3d 541, 547 (6th Cir. 2017). But in order to survive a summary-judgment motion, the non-moving party "must do more than simply show that there is some metaphysical doubt as to the material facts," Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp. , 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986), and the "mere existence of a scintilla of evidence" in support of the nonmoving party is not enough to demonstrate a genuine issue of material fact. Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

Under Michigan law, a valid breach-of-contract claim must establish three elements: (1) the existence of a contract; (2) a breach of that contract; and (3) damages suffered by the nonbreaching party as a result of the breach. Miller–Davis Co. v. Ahrens Const., Inc., 296 Mich.App. 56, 817 N.W.2d 609, 619 (2012). In interpreting a contract, Michigan law requires that a contract be construed as a whole, so we must "give effect to every word, phrase, and clause ... and avoid an interpretation that would render any part of the contract surplusage or nugatory." Klapp v. United Ins. Grp. Agency, Inc. , 468 Mich. 459, 663 N.W.2d 447, 453 (2003).

Lossia raises two separate breach-of-contract claims. First, he argues that Flagstar breached the Agreement by failing to process his transactions in the order that he initiated them. Second, Lossia asserts that Flagstar's initial posting of eight overdraft charges on...

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