Old Nat'l Bank v. Kelly

• Decision Date: 23 April 2015
• Docket Number: No. 82A01–1406–CT–234.,82A01–1406–CT–234.
• Parties: OLD NATIONAL BANK, Appellant–Defendant, v. Steven KELLY, Jon A. Cook, and Rebecca F. Cook, individually and on behalf of others similarly situated, Appellees–Plaintiffs.
• Court: Indiana Appellate Court

31 N.E.3d 522

OLD NATIONAL BANK, Appellant–Defendant

v.Steven KELLY, Jon A. Cook, and Rebecca F. Cook, individually and on behalf of others similarly situated, Appellees–Plaintiffs.

No. 82A01–1406–CT–234.

Court of Appeals of Indiana.

April 23, 2015.

Mark J.R. Merkle, Marc T. Quigley, Libby Y. Goodknight, Kay Dee Baird, Krieg DeVault LLP, Indianapolis, IN, Attorneys for Appellant.

Henry J. Price, Joseph N. Williams, Price Waicukauski & Riley, LLC, Indianapolis, IN, William M. Sweetnam, Sweetnam LLC, Chicago, IL, Attorneys for Appellee.

Thomas W. Dinwiddie, Maureen E. Ward, Wooden & McLaughlin LLP, Indianapolis, IN, Attorneys for Amicus Curiae Indiana Bankers Association.

BAILEY, Judge.

Case Summary

[1] Old National Bank (“the Bank”) brings an interlocutory appeal challenging the trial court's denial of the Bank's motion for summary judgment upon breach of contract, conversion, and equitable claims of a certified class of depositors-plaintiffs who were charged overdraft fees stemming from debit card transactions (hereinafter, “Depositors”).¹ We affirm in part and reverse in part.

Issue

[2] The Bank presents a single (consolidated) issue: whether it is entitled to summary judgment upon each of Depositor's claims because those claims are preempted by federal law or because the Bank, as movant for summary judgment, has negated essential elements of each of those claims.

Facts and Procedural History

[3] Steven Kelly, Jon A. Cook, and Rebecca F. Cook, on behalf of themselves and a class of consumer checking account holders, brought a class action suit against the Bank.² The Amended Class Action Complaint (“the Complaint”) challenged a bank bookkeeping device known as “high-to-low” posting,³ the delayed debiting of transactions, and the Bank's alleged utilization of a so-called “shadow” line of credit.⁴ See Gutierrez v. Wells Fargo Bank, N.A., 730 F.Supp.2d 1080 (N.D.Cal.2010) (“Gutierrez I ”), aff'd. in part, rev'd. in part on other grounds 704 F.3d 712 (9th Cir.2012) ( “Gutierrez II ”).

[4] A copy of a Deposit Account Agreement between class members and the Bank was attached as Exhibit A. In relevant part, it provided:

If there are available funds to cover some, but not all, of the withdrawals or other debits (such as charges) to your Account, we may post those withdrawals or other debits for which there are sufficient available funds in any order we may choose at our sole discretion. If there are insufficient available funds to cover some of the withdrawals or debits presented against your Account, such items will be handled in accordance with our overdraft procedures or in accordance with any other agreement you may have with us (such as an overdraft protection program). Even if we choose to pay one or more overdrafts, we are not obligated to cover any future overdrafts. We may determine the balance of your account in connection with determining whether payment of an item will create an overdraft at any time between the time we receive the item and the deadline for us to take action on the item. We are not required to determine your account balance more than one (1) time during this period. An NSF/overdraft item fee may be assessed on any item that will overdraw the available account balance, regardless of whether we pay or dishonor (return) the item.

(App. 95–96.)

[5] The common factual allegations included an allegation that the Bank manipulated customers' electronic debits⁵ from highest to lowest dollar amount, thereby depleting customer funds and maximizing the occurrences of $35.00 overdraft fees.⁶ (App. 13.) Depositors also alleged that the Bank grouped together transactions from multiple days, defying a reasonable contractual expectation of the consumer that instantaneous electronic transactions would be posted in chronological order. According to Depositors, “customer accounts may not have been actually overdrawn at the time the overdraft fees were charged, or at the time of the debit transaction.” (App. 6.) Finally, Depositors alleged that the Bank failed to provide accurate and timely information to Depositors regarding their balances or to warn that an overdraft was in progress.

[6] Count I, captioned “Breach of Contract and Breach of the Covenant of Good Faith and Fair Dealing,” was premised upon the contention that the Bank, “through its overdraft policies and practices,” breached the Deposit Agreement and its implied covenant of good faith and fair dealing. (App. 24.) Count II alleged that the Bank committed civil conversion by taking specific and readily identifiable funds without consent and with intent to permanently deprive Depositors of those funds. Count III alleged that the Bank was unjustly enriched when it retained funds under circumstances making it inequitable to do so.

[7] Count IV alleged that the Bank's “overdraft policies and practices were substantively and procedurally unconscionable.” (App. 27.) In particular, it was alleged that the Bank automatically enrolled customers in overdraft protection service; the Bank did not obtain affirmative consent prior to processing a transaction that would result in an overdraft charge; the Bank did not provide an opportunity for transaction cancellation before fee assessment; the Deposit Agreement was a contract of adhesion; the fee schedule was not signed by the customers; and the Deposit Agreement failed to unambiguously reveal the re-ordering process. Depositors asserted that a fee in excess of the amount overdrawn “is itself unconscionable.” (App. 28.)

[8] Count V alleged that the Bank had violated the Indiana Crime Victim Relief Act, Indiana Code Section 34–24–3–1, et seq. (“the Act”). In their prayer for relief, Depositors sought restitution of all overdraft fees and actual damages trebled (together with attorney's fees and costs) pursuant to the Act.

[9] On June 11, 2013, the Bank moved for summary judgment upon each of the Depositors' claims. A summary judgment hearing was conducted on September 16, 2013. The Bank did not assert the existence of an issue of material fact as to whether the Bank engaged in the conduct alleged, that is, batching and re-ordering of transactions and providing overdraft coverage without an opt-out policy. Rather, the Bank claimed entitlement to judgment as a matter of law due to preemption by federal banking law and the non-viability of state claims. Depositors conceded that re-ordering of transactions was not “per-se” unlawful, but argued that its state claims should proceed because the Bank's printed materials were misleading in that they suggested instantaneous accounting for instantaneous transactions. (Tr. 52, 60.)

[10] The motion for summary judgment was denied on April 14, 2014. The trial court granted the Bank's request to certify the order for interlocutory appeal. On July 11, 2014, this Court accepted jurisdiction.

Discussion and Decision

Summary Judgment Standard of Review

[11] In Sargent v. State , 27 N.E.3d 729 (Ind.2015), our Indiana Supreme Court summarized the summary judgment standard of review:

When reviewing a grant or denial of a motion for summary judgment our standard of review is the same as it is for the trial court. Kroger Co. v. Plonski, 930 N.E.2d 1, 4 (Ind.2010). The moving party “bears the initial burden of making a prima facie showing that there are no genuine issues of material fact and that it is entitled to judgment as a matter of law.” Gill v. Evansville Sheet Metal Works, Inc., 970 N.E.2d 633, 637 (Ind.2012) (citations omitted). Summary judgment is improper if the movant fails to carry its burden, but if it succeeds, then the nonmoving party must come forward with evidence establishing the existence of a genuine issue of material fact. Id. In determining whether summary judgment is proper, the reviewing court considers only the evidentiary matter the parties have specifically designated to the trial court. See Ind. Trial R. 56(C)(H). We construe all factual inferences in the non-moving party's favor and resolve all doubts as to the existence of a material issue against the moving party. Plonski, 930 N.E.2d at 5.

Slip op. at 3–4.

[12] When the defendant is the moving party, the defendant must show that the undisputed facts negate at least one element of the plaintiff's cause of action or that the defendant has a factually unchallenged affirmative defense that bars the plaintiff's claim. First Farmers Bank & Trust Co. v. Whorley, 891 N.E.2d 604, 608 (Ind.Ct.App.2008). Although Indiana Trial Rule 56 employs language nearly identical to Federal Rule of Civil Procedure 56, Indiana's summary judgment procedure diverges from federal summary judgment practice. Pearman v. Jackson, 25 N.E.3d 772, 777 (Ind.Ct.App.2015). While federal practice permits the moving party to merely show that the party carrying the burden of proof lacks evidence on a necessary element, we impose a more onerous burden: to affirmatively negate an opponent's claim. Id. Summary judgment is not a summary trial and Indiana consciously errs on the side of letting marginal cases proceed to trial on the merits. Id.

Preemption

[13] The designated materials—taken in the light most favorable to Depositors, as the non-movant for summary judgment—reveal that the Bank issued to Depositors debit/ATM cards accompanied by overdraft protection. The Bank was instantly notified of debit card transactions and could immediately determine whether customers had sufficient account funds to cover transactions. The Bank could then accept or decline transactions.

[14] The Bank did not agree to honor transactions in the event of insufficient funds but had discretion to do so; however, customers were not offered an opt-out of such “courtesy” overdraft coverage. The Bank did not post electronic transactions in real-time, but rather in batches. The batched transactions, which might include transactions from more than one calendar day, were not posted in chronological order, but based on amount—from high to low. This maximized revenue for the Bank, because...