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In re TD Bank, N.A. Debit Card Overdraft Fee Litigation

United States District Court, D. South Carolina, Greenville Division

December 10, 2015

IN RE: TD BANK, N.A. DEBIT CARD OVERDRAFT FEE LITIGATION

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          For James King, on behalf of themselves and all others similarly situated, Jan Kasmir, on behalf of themselves and all others similarly situated, Shawn Balensiefen, on behalf of themselves and all others similarly situated, JoAnne McLain, on behalf of themselves and all others similarly situated, Michael McLain, on behalf of themselves and all others similarly situated, Michael Goheen, on behalf of themselves and all others similarly situated, Keith Irwin, on behalf of themselves and all others similarly situated, Plaintiffs: Edward Adam Webb, LEAD ATTORNEY, Webb Klase and Lemond, Atlanta, GA; William E Hopkins, Jr, Hopkins Law Firm, Pawleys Island, SC.

         For FREDERICK KLEIN, Plaintiff: Christopher P Kenney, Richard A Harpootlian, LEAD ATTORNEYS, Richard A. Harpootlian Law Office, Columbia, SC; H Blair Hahn, LEAD ATTORNEY, Richardson Patrick Westbrook and Brickman, Mt Pleasant, SC; Mark Charles Tanenbaum, LEAD ATTORNEY, Mark C Tanenbaum Law Office, Charleston, SC; Richard D McCune, LEAD ATTORNEY, McCuneWright, Redlands, CA.

         For TD Bank NA, formerly known as Carolina First Bank, formerly known as Mercantile Bank, Defendant: Donald R Frederico, LEAD ATTORNEY, PRO HAC VICE, Pierce Atwood (MA), Boston, MA; Joshua D Dunlap, Lucus A Ritchie, LEAD ATTORNEYS, PRO HAC VICE, Pierce Atwood, Portland, ME; Tara Cloer Sullivan, Thomas William McGee, III, LEAD ATTORNEYS, Nelson Mullins Riley and Scarborough (Cola), Columbia, SC.

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         OPINION AND ORDER

         Bruce Howe Hendricks, United States District Judge.

         This matter is before the Court on the defendant's motion to dismiss counts I-VI and VIII of the plaintiffs' consolidated amended class action complaint (" CAC" ) for failure to state a claim upon which relief can be granted. (ECF No. 53.) For the reasons set forth in this order, the defendant's motion is granted in part and denied in part.

         PROCEDERUAL BACKGROUND

         In this litigation, the plaintiffs challenge the manner in which the defendant, TD Bank, N.A., and some smaller state banks that it has acquired (collectively " TD Bank" or " the Bank" ), assessed overdraft fees, posted debit transactions, and assessed " sustained" overdraft fees.

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          Eight putative class actions, King, et al. v. TD Bank, N.A., D.S.C. C.A. No. 6:13-cv-02264; Padilla, et al. v. TD Bank, N.A., E.D. Pa. C.A. No. 2:14-cv-01276; Hurel v. TD Bank, N.A., et al., D.N.J. C.A. No. 1:14-cv-07621; Koshgarian v. TD Bank, N.A., et al., S.D.N.Y. C.A. No. 1:14-cv-10250 ; Goodall v. Toronto-Dominion Bank, et al., M.D. Fla. C.A. No. 8:15-cv-00023; Klein, et al. v. TD Bank, N.A., D.N.J. C.A. No. 1:15-cv-00179; Ucciferri v. TD Bank, N.A., D.N.J. C.A. No. 1:15-cv-00424; and Austin v. TD Bank, N.A., D. Conn. C.A. No. 3:15-cv-00088, were filed against TD Bank in federal court. On April 2, 2015, the Judicial Panel on Multidistrict Litigation (" MDL" ) centralized these actions and assigned them to this Court. On April 15, 2015, the MDL Panel transferred an additional putative class action, Robinson v. TD Bank, N.A., S.D. Fla. C.A. No. 15-cv-60469, to this Court for inclusion in this litigation, MDL No. 2613. On May 20, 2015, the Court appointed co-lead counsel, the plaintiffs' executive committee, and liaison counsel. On May 22, 2015, the Court consolidated all nine actions for pretrial purposes and directed the plaintiffs to file an amended or consolidated complaint within thirty days of the date of that order.

         The plaintiffs' CAC was filed on June 19, 2015. (ECF No. 37.) TD Bank filed a motion to dismiss the plaintiffs' CAC for failure to state a claim on August 3, 2015. (ECF No. 53.) The plaintiffs filed a response in opposition to the motion (ECF No. 59) on September 2, 2015, and TD Bank filed a reply on September 23, 2015 (ECF No. 60). A hearing was held on the motion to dismiss on October 14, 2015, and the Court took the matter under advisement. TD Bank filed a notice of supplemental authority in support of the motion to dismiss on October 22, 2015. (ECF No. 63.) The plaintiffs filed a response to the notice of supplemental authority on October 23, 2015. (ECF No. 64.) On November 30, 2015, the plaintiffs filed a notice of supplemental authority. (ECF No. 66.) TD Bank filed an objection to the plaintiffs' notice of supplemental authority on December 4, 2015. (ECF No. 67.)

         FACTUAL BACKGROUND

         Unless otherwise indicated, the following facts are drawn from the CAC and construed in the light most favorable to the plaintiffs.

         I. TD Bank's Overdraft Program

         The plaintiffs' claims arise from TD Bank's assessment and collection of allegedly improper and excessive overdraft fees. The claims can be grouped into five categories of alleged behavior by the Bank: (1) assessment of overdraft fees when there are sufficient actual funds in the account; (2) assessment of overdraft fees as a result of reordering debit transactions from high to low; (3) assessment of overdraft fees on transactions intentionally authorized into overdraft without notice to customers; (4) assessment of overdraft fees on ATM and one-time debit transactions in violation of Regulation E, 12 C.F.R. § 205.17, under the Electronic Funds Transfer Act (" EFTA" ); and (5) assessment of " sustained" overdraft fees on checking and money market account customers in violation of the National Bank Act's prohibition on the collection of usurious interest (12 U.S.C. § § 85-86).

         TD Bank provides debit cards to its checking account customers. Customers can use their debit cards to access their checking account funds by making purchases or withdrawing money from ATM machines. The Bank is instantaneously notified of debit card transactions and has the option to accept or decline the transaction at the point of sale. According to the plaintiffs, TD Bank can immediately determine

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whether customers have sufficient funds in their accounts to cover the transactions. The Bank's contracts with its customers provide that the Bank can assess overdraft fees on their accounts when it has advanced funds because there was insufficient money in the account to cover the transaction. If a customer does not have sufficient funds in his or her account to pay for a transaction, the transaction is considered an " overdraft."

         Instead of declining such transactions or informing customers that they will result in overdraft fees, TD Bank will, in its discretion, honor transactions that result in overdraft. However, if TD Bank honors an overdraft, it charges the customer a $35 fee for each overdraft, up to five charges per day. At the time of the transaction, TD Bank does not alert its customers that it will cause an overdraft. The plaintiffs aver that TD Bank paid, rather than returned or declined, nearly all debit card charges resulting in overdraft, even though the accounts in question purportedly lacked sufficient funds to cover the relevant transactions. The Bank charged customers the same $35 fee for each overdraft regardless of the amount of the transaction.

         TD Bank's automated overdraft system is allegedly designed to maximize overdraft fee revenue without regard to customers' particular financial circumstances. The plaintiffs assert that when marketing its overdraft protection program, TD Bank represents that it takes the personal circumstances of each customer into account before exercising its discretion in deciding whether to authorize an overdraft transaction. This allegedly creates a false impression in the mind of the consumer that the Bank assesses personal information before making individualized decisions on a case-by-case, transaction-by-transaction basis. In reality, claim the plaintiffs, the Bank simply honors nearly every transaction that will create an overdraft, thus increasing the number of fees it can charge.

         Next, the plaintiffs allege that TD Bank assessed overdraft fees on customers' accounts even when there was still enough money in the account to cover the transaction. The Bank purportedly did not notify plaintiffs that it was possible to incur overdraft fees on transactions even when there were sufficient funds in the checking account to cover the transaction at the time it was executed. At the time such transactions were executed, TD Bank also did not notify customers that their checking accounts were or would be overdrawn, or that they would be charged an overdraft fee as a result of the transaction. The plaintiffs assert that TD Bank deemed accounts to be overdrawn when sufficient funds still remained in the account by using a calculation called " available balance." Instead of using the actual balance of money in the account to determine when it was overdrawn and when a fee should be triggered, TD Bank used a reduced balance calculated by subtracting " pending" debit transactions, which may not settle or be paid for several days and may not settle for the authorized amount or at all. This reduced balance is the " available balance." TD Bank treated transactions that caused the " available balance" to fall below zero, or to remain below zero, as an " overdraft." TD Bank then assessed the associated overdraft fees without regard to the actual balance, which was still positive. By so doing, claim the plaintiffs, TD Bank increased the number of fees it charged to its customers because fees that would not otherwise have been assessed if the actual balance was considered were triggered by the use of a negative available balance for accounting purposes.

         The plaintiffs further allege that TD Bank manipulated and reordered transactions on customers' deposit accounts from

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highest to lowest in order to increase the overdraft fees it assessed its customers. This practice is commonly called " high-to-low" posting. A transaction is " posted" when TD Bank either debits an expenditure from the customer's account or credits a deposit to a customer's account. (Ex. A, ECF No. 37-1 at 8-9.) TD Bank does not debit funds from a customer's account at the moment a transaction is made. Instead, TD Bank purportedly batches together several days' worth of transactions and orders them from the highest to the lowest dollar amount before posting them to the customer's account. The plaintiffs claim that the manipulation of posting order from chronological to high-to-low caused them to incur more overdraft fees than they otherwise might, because the balance in the account was depleted more rapidly when the highest expenditures were applied first. Moreover, they assert that customers were unable to easily avoid these overdraft fees even if they closely tracked their income and spending because TD Bank's monthly account statements and online account tools obfuscate the connection between a particular transaction and the overdraft fee that transaction has triggered. ( See CAC, ECF No. 37 at ¶ 119.)

         TD Bank has already been sued regarding its high-to-low posting overdraft practices. Several cases filed against TD Bank were settled as part of a multidistrict litigation proceeding known as In re Checking Account Overdraft Litigation in the United States District Court for the Southern District of Florida (" MDL No. 2036). ( See Order of Final Approval of Settlement, Authorizing Service Awards, and Granting Application for Attorneys' Fees, Ex. C., ECF No. 37-3.) TD Bank settled the case for $62,000,000, an amount paid to customers whose accounts had been subject to overdraft fees as a result of the high-to-low posting practice from December 1, 2003 to August 15, 2010. ( Id. at 8-9.) The plaintiffs allege that many of the overdraft fee practices complained of in the instant proceeding have continued unchanged despite the class action settlement in that prior case.

         TD Bank was required to comply with Regulation E, 12 C.F.R. § 205.17, relating to obtaining affirmative opt-ins before it could assess its customers overdraft fees on ATM and non-recurring debit card transactions. According to the plaintiffs, TD Bank assessed certain customers overdraft fees for these types of transactions without obtaining the requisite affirmative opt-ins.

         TD Bank charged its customers an extended overdraft balance charge, or " sustained overdraft fee," in the amount of $20 when a customer failed to bring an overdrawn account back into a positive balance within ten business days. This sustained overdraft fee is a secondary fee that is applied to overdrawn accounts after the initial overdraft fees have been charged. The plaintiffs assert that the sustained overdraft fee is premised on a customer's account remaining in a negative balance for a specified period of time. They claim that the sustained overdraft fee is therefore an interest charge, and that the rate of interest vastly exceeds permissible limits as set forth in the National Bank Act, 12 U.S.C. § § 85-86.

         Each of the named plaintiffs opened checking accounts with TD Bank, and are, or were, customers of TD Bank. Shawn Balensiefen, Michael Goheen, Keith Irwin, Jan Kasmir, James King, Jr., Joanne McClain, and Michael McClain were also customers of Carolina First Bank or Mercantile Bank. TD Bank acquired Carolina First Bank and Mercantile Bank on September 30, 2010, and assumed the liabilities of those entities. The holding company

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for Carolina First Bank and Mercantile Bank, the South Financial Group, Inc., merged into TD Bank's parent holding company, TD Bank U.S. Holding Company, on that same date. Carolina First Bank and Mercantile Bank had branches in Florida, North Carolina, and South Carolina until rebranding occurred in June 2011. The plaintiffs assert that TD Bank has confirmed that the contracts and practices of South Financial were substantively identical for Carolina First Bank and Mercantile Bank customers during the relevant time period.

         II. The Account Holder Agreements

         The Personal Deposit Account Agreement (" PDAA" ) sets forth terms and conditions governing TD Bank's relationship with account holders. The PDAA contains an extensive section that explains the mechanics of how items are processed and posted to customers' accounts, entitled, " PROCESSING ORDER FOR PAYMENT OF CHECKS AND OTHER ITEMS." (Ex. A, ECF No. 37-1 at 8-9.) The PDAA states, " Overdraft fees may be assessed on items presented for payment that bring your Account into a negative balance, as well as any subsequent transactions presented for payment while the Account has a negative balance." ( Id. at 9.) The PDAA defines an overdraft as an " advance of funds greater than the amount that has become available in accordance with the Bank's Funds Availability Policy, made by us to you, at our sole discretion." ( Id. at 10.) The PDAA indicates that overdrafts may include " advances to cover a check, in-person withdrawal, ATM withdrawal, or a withdrawal by other electronic means from your Account," and warns, " [w]e may demand immediate repayment of any overdraft and charge you an overdraft fee." ( Id. ) The PDAA states that " overdraft fees are not charged on 'pending' authorizations, although they reduce your available balance." ( Id. at 9.) The PDAA further states, " You may overdraw your account by up to $5 per day without being charged a fee. If your negative available balance exceeds $5 at the end of the day, we will charge you for each transaction that overdraws your account . . . ." ( Id. at 10.)

         The plaintiffs allege that Carolina First Bank and Mercantile Bank followed overdraft policies nearly identical to those of TD Bank, including the use of " available balance" instead of actual balance to assess overdraft fees when there was sufficient money in the customer's account to cover the transaction in question. One version of the Carolina First Bank customer agreement entitled, " Terms and Conditions of Your Account" (" Carolina First Account Agreement" ), governed various aspects of the state banks' relationship with account holders. The Carolina First Account Agreement states, " This document, along with any other documents we give you pertaining to your account(s), is a contract that establishes rules which control your account(s) with us." (Ex. D, ECF No. 37-4 at 2.) The Carolina First Account Agreement is not as specific as the PDAA regarding item posting and overdraft procedures. However, the Carolina First Account Agreement includes the following language related to overdrafts and overdraft fees:

The fact that we may honor withdrawal requests that overdraw the available account balance does not obligate us to do so later. You agree that we may charge fees for overdrafts and use subsequent deposits, including direct deposits of social security or other government benefits, to cover such overdrafts and overdraft fees.

( Id. (under " WITHDRAWALS" )) In a section entitled " CHECK PROCESSING,"

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the Carolina First Account Agreement states:

We may determine the amount of available funds in your account for the purpose of deciding whether to return an item for insufficient funds at any time between the time we receive the item and when we return the item or send a notice in lieu of return. We need only make one determination, but if we choose to make a subsequent determination, the account balance at the subsequent time will determine whether there are insufficient available funds.

( Id. at 3.)

         STANDARD OF REVIEW

         A plaintiff's complaint should set forth " a short and plain statement . . . showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). Rule 8 " does not require 'detailed factual allegations,' but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell A. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). " To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Id. (quoting Twombly, 550 U.S. at 570)). " 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." Id. (quoting Twombly, 550 U.S. at 556)). In considering a motion to dismiss under Fed.R.Civ.P. 12(b)(6), a court " accepts all well-pled facts as true and construes these facts in the light most favorable to the plaintiff . . . ." Nemet Chevrolet, Ltd. v. Consumeraffairs.com, Inc., 591 F.3d 250, 255 (4th Cir. 2009). A court should grant a Rule 12(b)(6) motion if, " after accepting all well-pleaded allegations in the plaintiff's complaint as true and drawing all reasonable factual inferences from those facts in the plaintiff's favor, it appears certain that the plaintiff cannot prove any set of facts in support of his claim entitling him to relief." Edwards v. City of Goldsboro, 178 F.3d 231, 244 (4th Cir. 1999).

         As previously noted, to survive a Rule 12(b)(6) motion to dismiss a complaint must state " a plausible claim for relief." Iqbal, 556 U.S. at 679 (emphasis added). " The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully. Where a complaint pleads facts that are 'merely consistent with' a defendant's liability, it 'stops short of the line between possibility and plausibility of entitlement to relief.'" Id. at 678 (quoting Twombly, 550 U.S. at 557). Stated differently, " where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged--but it has not 'show[n]'--'that the pleader is entitled to relief.'" Id. at 679 (quoting Fed.R.Civ.P. 8(a)(2)). Still, Rule 12(b)(6) " does not countenance . . . dismissals based on a judge's disbelief of a complaint's factual allegations." Colon Health Centers of Am., LLC v. Hazel, 733 F.3d 535, 545 (4th Cir. 2013) (quoting Neitzke v. Williams, 490 U.S. 319, 327, 109 S.Ct. 1827, 104 L.Ed.2d 338 (1989)). " A plausible but inconclusive inference from pleaded facts will survive a motion to dismiss . . . ." Sepulveda-Villarini v. Dep't of Educ. of Puerto Rico, 628 F.3d 25, 30 (1st Cir. 2010).

         DISCUSSION

         I. Federal Preemption

         The first question to be answered by the Court is whether the National Bank Act of 1864

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(" NBA" ), 12 U.S.C. § 1 et seq., and its attendant regulations preempt some or all of the plaintiffs' state law claims.[1] The CAC is pled in a manner that imprecisely consolidates a plethora of factual allegations into each theory of liability. For example, count II states, " Plaintiffs repeat and reallege each and every allegation contained above as if fully set forth herein" (referencing the prior 53 pages of the CAC), then goes on to advance broad notions of " preserving the spirit -- not merely the letter -- of the bargain" and abuse of bargaining power. (CAC, ECF No. 37 at 59-60.) Count VI similarly incorporates all foregoing allegations in the CAC and states, " Certain of Defendant's policies and/or practices described in this Complaint constitute unfair, unconscionable or deceptive trade or business practices. Defendant engages in such conduct as a general business practice, uniformly and as a matter of policy assessing and collecting overdraft fees where it is not legally permitted to do so." (CAC, ECF No. 37 at 65.) Yet count VI is purportedly asserted on behalf of the named plaintiffs and the " EFTA Class" only. ( Id.; see also Pls.' Resp. in Opp. to Mot. to Dismiss, ECF No. 59 at 27 (" [M]uch of the basis [for count VI] is TD's violation of EFTA, a claim which TD has not argued is preemptible." ).) Meanwhile, counts IV and V are asserted on behalf of the named plaintiffs and " All Classes." (CAC, ECF No. 37 at 63-64.) From the facts as asserted, the Court has distilled three sources of putative liability at issue in counts II-VI to which the preemption analysis applies: 1. high-to-low posting order, 2. intentional honoring of debit transactions into overdraft without notice to customers, and 3. assessment of overdraft fees despite sufficient funds. Indeed, the plaintiffs have defined two of their five putative classes by way of these categories (" TD High-to-Low Class" and " TD Sufficient Funds Class" ). (CAC, ECF No. 37 at 52-53.) The theory regarding intentional authorization of transactions into overdraft is not included in any of the putative class definitions, but is specifically incorporated into count I. (CAC, ECF No. 37 at 59.) There are other alleged sources of liability (EFTA and usury theories) raised within counts VII and

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VIII specifically. However, the Court will address the preemption issue with respect to the foregoing three categories as they constitute the gravamen of the plaintiffs' claims in counts II-VI. To the extent the EFTA and usury theories are incorporated into counts II-VI, preemption does not apply. The Court finds that counts II-VI of the CAC are preempted as they relate to high-to-low posting order and intentionally honoring debit transactions into overdraft, but not preempted as they relate to assessment of overdraft fees when there are sufficient funds in the account.

         Under the Supremacy Clause, Article VI, Clause II of the United States Constitution, state law that conflicts with federal law is of no effect and the applicable federal law controls. Federal law may supersede state law in three different ways: (1) when Congress expressly preempts state law by so stating in express terms, (2) where a scheme of federal regulation is sufficiently comprehensive to invoke a reasonable inference that Congress left no room within the field for supplementary state regulation, and (3) where federal and state law actually conflict. See California Federal Sav. and Loan Ass'n v. Guerra, 479 U.S. 272, 280-81, 107 S.Ct. 683, 93 L.Ed.2d 613 (1987). The third category, so called " conflict" preemption, may arise either because " compliance with both federal and state regulations is a physical impossibility," Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142-143, 83 S.Ct. 1210, 10 L.Ed.2d 248 (1963), or because the state law " stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress," Hines v. Davidowitz, 312 U.S. 52, 67, 61 S.Ct. 399, 85 L.Ed. 581 (1941).

         In the context of the national banking industry, the question of conflict preemption is more refined. " Federally chartered banks are subject to state laws of general application in their daily business to the extent such laws do not conflict with the letter or the general purposes of the NBA." Watters v. Wachovia Bank, N.A., 550 U.S. 1, 11, 127 S.Ct. 1559, 167 L.Ed.2d 389 (2007) (citing Davis v. Elmira Savings Bank, 161 U.S. 275, 290, 16 S.Ct. 502, 40 L.Ed. 700 (1896)). However, " when state prescriptions significantly impair the exercise of authority, enumerated or incidental under the NBA, the [s]tate's regulations must give way." Id. at 12 (citing Barnett Bank of Marion Cty., N.A. v. Nelson, 517 U.S. 25, 32-34, 116 S.Ct. 1103, 134 L.Ed.2d 237 (1996) (federal law permitting national banks to sell insurance in small towns preempted state statute prohibiting banks from selling most types of insurance); Franklin Nat. Bank of Franklin Square v. New York, 347 U.S. 373, 375-379, 74 S.Ct. 550, 98 L.Ed. 767 (1954) (local restrictions preempted because they burdened exercise of national banks' incidental power to advertise)). Thus, in defining the preemptive scope of statutes and regulations that grant power to national banks, the United States Supreme Court takes the view that " Congress would not want States to forbid, or to impair significantly, the exercise of a power that Congress explicitly granted." Barnett Bank, 517 U.S. at 33 (emphasis added). The history of national bank legislation " is one of interpreting grants of both enumerated and incidental 'powers' to national banks as grants of authority not normally limited by, but rather ordinarily pre-empting, contrary state law." Id. at 32. Nevertheless, " [s]tate laws on the [ ] subjects [of contracts and torts] are not inconsistent with the deposit-taking powers of national banks to the extent consistent with the decision of the Supreme Court in [ Barnett Bank]. " 12 C.F.R. § 7.4007(c). The resultant

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question operative wherever state law conflicts with federal law regarding a national bank's authorized powers, is whether that state law " significantly interferes" with the bank's exercise of those powers. See Barnett Bank, 517 U.S. at 33.

         For the sake of clarity, the Court specifically considered whether the fact that the preemption question in the instant case includes state common law causes of action, rather than state statutes or regulations only, should have any bearing on the preemption outcome. The Court finds no distinction between state common law and state statutory or regulatory law with respect to their proclivity to impair a bank from carrying out the business of banking, or lack thereof. As such, the Court considers the applicable case law dealing with preemption in the context of state statutes (e.g. Gutierrez v. Wells Fargo Bank, N.A., 704 F.3d 712 (9th Cir. 2012)) to be of the same persuasive and precedential value as if it dealt with common law claims specifically. Where federal preemption applies, it bars both a direct assertion of state law by a state legislature, see Barnett Bank, 517 U.S. at 31, and the assertion of state law causes of action by private plaintiffs based on laws of general applicability, see Smiley v. Citibank (S.D.), N.A., 517 U.S. 735, 738, 116 S.Ct. 1730, 135 L.Ed.2d 25 & n.1, 747 (1996). See also Wilmington Shipping Co. v. New England Life Ins. Co., 496 F.3d 326, 341 (4th Cir. 2007) (reasoning that parties may not avoid the preemptive reach of federal law by recasting otherwise preempted claims as state law contract and tort claims). The operative question of " significant interference" is the same in both contexts. See Hawthorne v. Umpqua Bank, 2013 WL 5781608, at *11-13 (N.D. Cal. Oct. 25, 2013) (state statutory unfair trade practices, implied covenant of good faith, and unjust enrichment claims premised on bank's high-to-low posting order preempted); Mann v. TD Bank, N.A., 2009 WL 3818128, at *4 (D.N.J. Nov. 12, 2009) (breach of contract, implied covenant of good faith, unconscionability, and state statutory unfair trade practices claims premised on bank's gift card fees preempted).

         A. Counts II-VI Challenge Actions by TD Bank That Constitute Federally Conferred Powers

         The NBA authorizes national banks to receive deposits and perform " all such incidental powers as shall be necessary to carry on the business of banking." 12 U.S.C. § 24. The Office of the Comptroller of the Currency (" OCC" ) possesses regulatory oversight of national banks' exercise of their federally authorized powers, and Congress has delegated to the OCC authority to determine the scope of national banks' incidental powers. See 12 U.S.C. § 93a; 12 C.F.R. § 7.4000.[2] The OCC has promulgated regulations recognizing that

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" national bank[s] may receive deposits and engage in any activity incidental to receiving deposits . . . subject to . . . limitations prescribed by the [OCC] and any other applicable Federal law." 12 C.F.R. § 7.4007(a). The power to receive deposits includes a national bank's authority to " charge its customers no-ninterest charges and fees, including deposit account service charges." 12 C.F.R. § 7.4002(a). OCC regulations further provide, " The establishment of non-interest charges and fees, their amounts, and the method of calculating them are business decisions to be made by each bank, in its discretion, according to sound banking judgment and safe and sound banking principles." 12 C.F.R. § 7.4002(b) (emphasis added).

         National banks' powers to receive deposits and to establish non-interest charges and fees include the power to decide the order in which transactions will be posted, to honor overdrafts, and to assess overdraft fees. OCC Interp. Ltr. No. 1082, 2007 WL 5393636 at *3 (May 17, 2007); OCC Interp. Ltr. No. 997, 2002 WL 32872368, at *2 (Apr. 15, 2002); OCC Interp. Ltr. No. 916, 2001 WL 1285359, at *2 (May 22, 2001). When considering the question of transaction posting order in the context of checks, the OCC stated " [a] bank's authorization to establish fees pursuant to 12 C.F.R. 7.4002(a) necessarily includes the authorization to decide how they are computed," and " posting order is one component that affects the Bank's NSF fee-setting computation." OCC Interp. Ltr. No. 916, 2001 WL 1285359, at *2 (May 22, 2001). When considering the question of honoring items for which there are insufficient funds in depositors' accounts and recovering overdraft fees for doing the same, the OCC concluded that national banks are " authorized under 12 U.S.C. § 24(Seventh) and 12 C.F.R. § 7.4007(a), to honor overdrafts and recover overdraft amounts from depositors' accounts," and " authorized by Section 24(Seventh) and 12 C.F.R. § 7.4002 to charge and recover fees for processing overdrafts." OCC Interp. Ltr. No. 1082, 2007 WL 5393636, at *4 (May 17, 2007).

         The challenges raised by the plaintiffs in counts II-VI of the CAC directly implicate TD Bank's practices with regard to the order of posting debit transactions, honoring transactions that will drive depositors' accounts into overdraft, and charging fees in the event of such overdraft. By way of their claims sounding in the implied covenant of good faith and fair dealing, unconscionability, conversion, unjust enrichment, and alleged violation of various state statutes prohibiting unfair and deceptive trade practices, the plaintiffs have mounted diverse attacks on the same corpus of activities by TD Bank. As such, counts II-VI all relate to TD Bank's exercise of federally-conferred incidental powers.

         B. The Common Law and Statutory Claims in Counts II-VI Significantly Interfere With TD Bank's Incidental Powers as They Relate to High-to Low Posting and Intentionally Honoring Transactions into Overdraft

         The question of whether state law, be it in the form of common law causes of action or statutory claims, significantly interferes with a national bank's exercise of its incidental powers necessarily turns on the degree to which that state law constrains the bank's ability to carry on the business of banking. Where the state and federal law are not in irreconcilable conflict, and the degree of interference imposed by state law is merely incidental, preemption does not apply. Where, however, the degree of interference is severe, the state law, in whatever form, must

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yield. See Watters, 550 U.S. at 12.

         The plaintiffs argue that TD Bank bears a heavy burden of proof in order to establish preemption and that there is a presumption against Congressional preemption of state law. ( See Pls.' Resp. in Opp. to Mot. to Dismiss, ECF No. 59 at 22-23 (citing Medtronic, Inc. v. Lohr, 518 U.S. 470, 485, 116 S.Ct. 2240, 135 L.Ed.2d 700 (1996) (Medical Device Act preemption).) However, " [t]he doctrine of federal preemption, which regulates the interplay between federal and state laws when they conflict or appear to conflict, tilts in favor of the federal government in the arena of national banking." Decohen v. Capital One, N.A., 703 F.3d 216, 222 (4th Cir. 2012). Moreover, Fourth Circuit Court of Appeals' precedent is clear " that the presumption against preemption, which governs fields traditionally regulated by the states, does not apply to the NBA. " Id. at 222-23 (emphasis added) (citing Nat'l. City Bank of Ind. v. Turnbaugh, 463 F.3d 325, 330-31 (4th Cir. 2006) (holding the presumption against preemption does not apply to state regulation of federally chartered banks)).

         The only federal appellate court to have addressed NBA preemption in the context of overdraft fees is Gutierrez v. Wells Fargo Bank, N.A., 704 F.3d 712 (9th Cir. 2012). The question considered by the Ninth Circuit Court of Appeals was " the extent to which overdraft fees imposed by a national bank are subject to state regulation." Id. at 715-16. In Gutierrez a group of consumers sued Wells Fargo Bank under California's Unfair Competition Law (" UCL" ) for engaging in unfair business practices by imposing overdraft fees based on high-to-low posting order of deposit-account transactions, and for engaging in fraudulent business practices by misleading clients regarding the bank's posting order procedures. Id. at 716. The case went to trial, and the district court found that Wells Fargo's high-to-low posting policy violated the UCL because it was both unfair, in that the bank's motive was to maximize the number of overdrafts and associated fees, and fraudulent, in that the bank had affirmatively reinforced the expectation in its customers that transactions were posted in chronological sequence and obfuscated its true high-to-low posting practices. The district court issued a permanent injunction against high-to-low posting and ordered $203 million in restitution. Id. The Ninth Circuit held that federal law preempted state regulation of debit-account transaction posting order as well as any obligation on the part of the bank to make affirmative disclosures to account holders regarding posting procedures, but that federal law did not preempt state law with respect to fraudulent or misleading misrepresentations about posting practices. Id.

         The Gutierrez court stated that the determination of whether the NBA and its attendant regulations preempt the applicable state law " turns on whether state law can dictate [the bank's] choice of posting method," and held " that it cannot." Id. at 723 (emphasis added). The Ninth Circuit reasoned that " the deposit and withdrawal of funds 'are services provided by banks since the days of their creation. Indeed, such activities define the business of banking.'" Id. (citing Bank of Am. v. City and Cnty. of San Francisco, 309 F.3d 551, 563 (9th Cir. 2002). Moreover, both the business of banking and the power to receive deposits " necessarily include the power to post transactions--i.e., tally deposits and withdrawals--to determine the balance in customer's account." Id. (citing 12 U.S.C. § 24 (Seventh)) (emphasis added). The Ninth Circuit noted, " the OCC has determined that '[t]he establishment of non-interest

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charges and fees, their amounts, and the method of calculating them are business decisions to be made by each bank, in its discretion, according to sound banking judgment and safe and sound banking principles.'" Id. at 724 (quoting 12 C.F.R. § 7.4002(b)(2)) (emphasis in original). Furthermore, the court relied on the OCC's determination that " 'a bank's authorization to establish fees pursuant to 12 C.F.R. 7.4002(a) necessarily includes the authorization to decide how they are computed.'" Id. (quoting OCC Interp. Ltr. No. 916, 2001 WL 1285359, at *2 (May 22, 2001) (emphasis added). Additionally, " the OCC has determined that a national bank 'may establish a given order of posting as a pricing decision pursuant to section 24 (seventh) and section 7.4002.'" Id. (quoting OCC Interp. Ltr. No. 916). " In sum," the court concluded, " federal law authorizes national banks to establish a posting order as part and parcel of setting fees, which is a pricing decision." Id.

         The Gutierrez court reversed the district court's holding that the bank's choice of posting order was not a pricing decision because, in the district court's view, the bank did not follow the four factor decision making process for safe and sound banking principles required by the OCC in 12 C.F.R. § 7.4002(b). Id. On this point, the Ninth Circuit stated, " [w]hether Wells Fargo's internal decision making processes regarding posting orders complied with the 'safe and sound banking principles' under § 7.4002(b)(2) is an inquiry that falls squarely within the OCC's supervisory powers," and " 'is within the exclusive purview of the OCC.'" Id. at 724-25 (quoting Martinez v. Wells Fargo Home Mortg., Inc., 598 F.3d 549, 556 (9th Cir. 2010)). Finally, the Gutierrez court held that, " a 'good faith' limitation applied through [the UCL] is preempted when applied in a manner that prevents or significantly interferes with a national bank's federally authorized power to choose a posting order." Id. at 725 (citing Barnett Bank, 517 U.S. at 37). " The federal court cannot mandate the order in which [a national bank] posts its transactions . . . . The district court premised both [the permanent injunction and the restitution award] on only a violation of the 'unfair' business practice prong of the [UCL] tethered to the 'good faith' requirement of [the California Commercial Code]." Id.

         In the case sub judice, the Court holds that a " good faith" or " fairness" limitation on TD Bank's power to choose a debit-account transaction posting order and elect to honor transactions into overdraft, whether applied through the implied covenant of good faith and fair dealing (count II), the doctrine of unconscionability (count III), a common law conversion claim (count IV), the doctrine of unjust enrichment (count V), or state consumer protection statutes (count VI) is preempted where such limitation significantly interferes with the Bank's federally authorized incidental powers.[3] The Court further holds that the state law claims itemized above, specifically as pled in counts II-VI of the CAC, constitute precisely such a limitation on transaction posting order and discretionary authorization of debit transactions, significantly interfere with TD Bank's exercise of its incidental powers, and are therefore preempted.

         The Court emphasizes that this preemption analysis is necessarily an " as applied" inquiry into the soundness of the state law claims asserted. In other words, it is of course true that claims by a consumer

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against a national bank sounding in state contract and tort law in the abstract are not preempted, so long as their impact on the bank's exercise of its powers is only incidental. See 12 C.F.R. § 7.4007(c); see also Watters (550 U.S. at 11) (holding that national banks are subject to such laws " to the extent [they] do not conflict with the letter or general purpose of the NBA" (emphasis added)). For example, breach of contract claims not premised on unfairness or bad faith theories but on genuine disputes about the terms of the contract and the parties' compliance therewith, fall squarely within that category of state laws that are not inconsistent with the deposit-taking powers of national banks because they only incidentally affect the exercise of those deposit-taking powers. See id. For this reason, count I of the CAC, alleging breach of contractual terms is not subject to preemption.[4] For the same reason, counts II-VI as they relate to claims that TD Bank assessed overdraft fees when there were sufficient funds in the account are not preempted, even though premised on unfairness and bad faith theories, because, as will be explained more fully below, the impact of those claims on federally authorized powers is incidental only. However, the degree of impact on TD Bank's deposit-taking powers imposed by the claims in counts II-VI regarding posting order and honoring transactions into overdraft cannot be described as incidental. Indeed, the plaintiffs' effort to differentiate their claims in counts II-VI based on the nature of the relief sought from the challenge to high-to-low posting practices at issue in Gutierrez is wholly unpersuasive.

         The plaintiffs argue that the Ninth Circuit was influenced by the distinctive nature of the relief sought, namely a permanent injunction, and quote Gutierrez when it notes that " as a practical matter, the remedy ordered by the district court boils down to a complete prohibition on the high-to-low sequencing method." Gutierrez, 704 F.3d at 723 (emphasis added).[5] This argument conveniently avoids the fact that Gutierrez vacated both the injunctive relief and the monetary relief awarded by the district court. Id. at 730 (" The restitution order, which is predicated on liability for Wells Fargo's choice of posting method and thus also preempted, is vacated as well." ). Realistically, a finding, for example, that TD Bank's high-to-low posting method violated the implied covenant of good faith and fair dealing would result in a de facto complete prohibition on that practice, regardless of the specific remedy requested in the CAC. Furthermore, the remedies requested by the plaintiffs -- including inter alia a declaratory judgment ...


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