Navajo Nation v. Wells Fargo & Co.

• Citation: 344 F.Supp.3d 1292
• Decision Date: 25 September 2018
• Docket Number: Case No. 17-CV-1219-JAP-SCY
• Parties: NAVAJO NATION, a Federally Recognized Indian Tribe, on Its Own Behalf, by Ethel B. Branch, Attorney General of the Navajo Nation, and as Parens Patriae on Behalf of the Navajo People, Plaintiff, v. WELLS FARGO & COMPANY, Wells Fargo Bank, N.A., and Does 1–10, Defendants.
• Court: U.S. District Court — District of New Mexico

344 F.Supp.3d 1292

NAVAJO NATION, a Federally Recognized Indian Tribe, on Its Own Behalf, by Ethel B. Branch, Attorney General of the Navajo Nation, and as Parens Patriae on Behalf of the Navajo People, Plaintiff,
v.
WELLS FARGO & COMPANY, Wells Fargo Bank, N.A., and Does 1–10, Defendants.

Case No. 17-CV-1219-JAP-SCY

United States District Court, D. New Mexico.

Filed September 25, 2018

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Ethel Branch, Jana C. Werner, Navajo Nation Department of Justice, Window Rock, AZ, Douglas Dixon, John C. Hueston, Hueston Hennigan LLP, Newport Beach, CA, Leanne Vanecek, Moez M. Kaba, Hueston Hennigan LLP, Los Angeles, CA, for Plaintiff.

Andrew G. Schultz, Rodey Dickason Sloan Akin & Robb, P.A., Albuquerque, NM, David H. Fry, Munger, Tolles & Olson LLP, San Francisco, CA, Eric P. Tuttle, Erin J. Cox, Samuel H. Allen, Susan S. Har, Munger, Tolles & Olson LLP, Los Angeles, CA, for Defendants.

MEMORANDUM OPINION AND ORDER

JAMES A. PARKER, SENIOR UNITED STATES DISTRICT JUDGE

On December 12, 2017, Plaintiff Navajo Nation (Plaintiff or the Nation), a federally recognized Indian Tribe, filed suit on its own behalf and as parens patriae on behalf of the Navajo people against Defendants Wells Fargo & Company (WFC), a financial services company, and Wells Fargo Bank, N.A. (WFBNA), a national banking association that is the primary subsidiary of WFC, along with Does 1-10 (the Doe Defendants), who are yet-to-be identified agents and principals of WFC and WFBNA.¹ Plaintiff brings claims under federal, state, and tribal law arising out of unfair, deceptive, fraudulent, and illegal banking practices that Plaintiff alleges

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have harmed Plaintiff's sovereign and quasi-sovereign interests. WFC and WFBNA (together, Wells Fargo or Defendants) filed a motion on February 26, 2018, to dismiss Plaintiff's claims on the grounds of res judicata, lack of standing, and failure to state a claim.² Alternatively, Defendants request a limited stay as to Plaintiff's parens patriae claims pending settlement of nationwide consumer class action Jabbari, et al. v. Wells Fargo & Co., et al. , Case No. 3:15-cv-02159-VC (N.D. Cal.).³ The Motion is fully briefed.⁴ The Court will grant the Motion.

I. BACKGROUND⁵

Wells Fargo is one of the biggest banks in the United States. Compl. ¶ 15. For years, Wells Fargo increased its sales by engaging in illegal banking practices, defrauding customers nationwide for its own financial gain. Id. ¶ 16. Wells Fargo employees were shamed, disciplined, demoted, and fired for failing to meet sales goals. Id. ¶¶ 20–23. They were incentivized to pad sales numbers by management's acceptance and sometimes even active encouragement of misconduct. Id. ¶ 23. As a result of the intense pressure to meet unattainably high sales quotas, Wells Fargo employees created fake accounts and signed customers up for debit cards, credit cards, and online banking services without their knowledge. Id. ¶¶ 23–25.

Wells Fargo employees regularly practiced techniques such as (1) "bundling," in which a customer was falsely told that the account or product the customer desired was only available as part of a package with other unneeded products or services; (2) "pinning," in which an employee obtained a debit card and assigned it a PIN without customer authorization, and then used that PIN to enroll the customer in online banking services without permission; and (3) "sandbagging," in which the opening or processing of accounts was purposefully delayed without customer knowledge so that the accounts could be included in a new sales reporting period. Id. ¶ 24. Wells Fargo employees also lied to customers by representing that accounts did not have fees when they did, or by falsely telling customers that they were required to open a savings account to avoid a monthly checking account fee. Id. ¶ 25. Employees forged customer signatures or obtained customer signatures fraudulently by stating that forms to be signed were related to existing accounts, then using those forms to open additional accounts without customer knowledge or consent.

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Id. When Wells Fargo employees did inform a customer that an account had been opened and the customer would be receiving a credit card, they then told the customer to simply destroy the card if the account was unwanted and led the customer to erroneously believe that this would terminate the account. Id.

In September 2016, Wells Fargo's actions were exposed to the public when the Consumer Financial Protection Bureau (CFPB) announced that "Wells Fargo employees secretly opened unauthorized accounts to hit sales targets and receive bonuses." Id. ¶ 3. The CFPB entered into a Consent Order (CFPB Consent Order, Doc. 26-1) with WFBNA and its "successors and assigns," finding that WFBNA had violated the Consumer Financial Protection Act of 2010 (CFPA) by opening unauthorized accounts, submitting unauthorized credit card applications, enrolling customers in unrequested online banking services, and ordering and activating debit cards without customer knowledge or consent. Id. ¶ 27; CFPB Consent Order ¶¶ 3(k), 9–37. Wells Fargo's own analysis concluded that 1,534,280 deposit accounts may not have been properly authorized or funded, and that 85,000 of these accounts had incurred $2 million in fees. Compl. ¶ 28. Similarly, Wells Fargo found that 565,443 credit card accounts may have been unauthorized, and 14,000 of those accounts had incurred over $400,000 in fees. Id. One outside record review reported a total of 3.5 million potentially fake accounts and 528,000 Wells Fargo customers who had been enrolled in online bill pay without their consent. Id. ¶ 26. The CFPB found that WFBNA had violated the CFPA's ban on unfair, deceptive, or abusive practices. See 12 U.S.C. § 5536(a)(1). The CFPB ordered Wells Fargo to (1) review and report on its practices; (2) develop a plan to correct any deficiencies; (3) develop and implement a plan to redress harm to its consumers, for which it was required to segregate $5 million; and (4) pay a $100 million civil penalty. See CFPB Consent Order ¶¶ 39–42, 49–50, 52, 57.

Wells Fargo's internal investigations demonstrated that the employee misconduct had been most prevalent in California and Arizona. Compl. ¶ 35. The Nation reached out to Wells Fargo after the CFPB disclosures, seeking to determine whether any of the unlawful sales practices had affected Navajo tribal members. Id. ¶ 68. Wells Fargo is the primary provider of banking and financial services to the Nation, which is located in the states of Arizona, New Mexico, and Utah. Id. ¶ 15. Wells Fargo operates five branches in Arizona and New Mexico that are inside the boundaries of the Nation, along with additional branches in Arizona, New Mexico, and Utah within half an hour's drive from the Nation's borders. Id. Wells Fargo is the only brick and mortar national bank that serves this geographic area. Id. ¶ 75. And because Navajo tribal members living on the Nation often have limited access to computers, Wells Fargo is the only banking option for many Navajo people. Id. ¶¶ 44, 49, 75. Wells Fargo, through its Vice President Aaron Lemke, assured the Nation that the improper actions had not impacted the Navajo community, that no tribal members in Arizona or New Mexico had been harmed, and that no Wells Fargo employees at branches located on the Nation had been terminated. Id. ¶¶ 69–70. The Nation later discovered that these representations were false, and that the Navajo community had not only been impacted, but had been specifically targeted. Id. ¶¶ 43, 60, 71. Interviews with former Wells Fargo employees and the limited internal records that have since been produced demonstrate that unlawful practices did occur on the Nation and that internal investigations into reports of misconduct were often closed as unsubstantiated because

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of difficulty contacting customers. Id. ¶ 57. Wells Fargo later sent notices of the Jabbari class action to affected Navajo citizens. Id. ¶ 71. Jabbari settled claims based on the same unlawful practices found by the CFPB that were brought under the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq., state consumer protection laws, and a common law theory of unjust enrichment. See Jabbari , No. 3:15-cv-02159-VC, Class Action Complaint (Doc. 5).

Wells Fargo systematically preyed on Navajo tribal members by instituting unfair, deceptive, fraudulent, and illegal practices in connection with the financial products and services Wells Fargo offered to tribal members. Id. ¶ 57. From at least 2011 until 2016, Wells Fargo employees, under pressure from their supervisors to increase Wells Fargo's revenue, enrolled Navajo customers in a variety of banking services and financial products without permission or by obtaining the customers' consent through fraud or deception. Id. The pressure on employees was especially strong on the Nation, where unemployment rates reach 42 percent. Id. ¶¶ 22, 45. Wells Fargo employees coerced vulnerable Navajo citizens into signing up for unnecessary accounts by falsely telling Navajo elders who did not speak English and were unfamiliar with banking services that a savings account was required to have a check cashed, or by insisting that they open a...