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Chambers v. Nasa Federal Credit Union

United States District Court, District of Columbia

October 21, 2016

MARY CHAMBERS, individually and on behalf of those similarly situated, Plaintiff,


          JOHN D. BATES United States District Judge.

         Plaintiff Mary Chambers asserts that defendant NASA Federal Credit Union misled her about its policy on overdraft fees. According to Chambers, the Credit Union promised in two contractual agreements to impose overdraft fees only on debit transactions that overdrew the "actual balance" in her account. Instead, the Credit Union imposed overdraft fees on debit transactions that overdrew her "available balance." This alleged misdirection is the foundation of Chambers' complaint and, she contends, supports claims arising under the common law, state consumer protection statutes, and federal regulation. But Chambers has not adequately alleged her premise. Under the agreements' unambiguous language, the Credit Union informed Chambers that her available balance would be used in imposing overdraft fees. Most of Chambers' claims, therefore, will be dismissed. Her claims can proceed only insofar as she alleges that the Credit Union failed to give her the form necessary to secure her consent to its overdraft program.


         Overdraft fees have garnered a significant amount of attention in recent years, from federal regulators, private litigants, and the courts. Historically, financial institutions imposed overdraft fees in limited circumstances, as an exercise of their discretion. When a customer attempted to make a payment by check, but full payment of the check would overdraw the customer's account, the financial institution would determine, on a case-by-case basis, whether to pay the check anyway. See Electronic Fund Transfers, Final Rule, 74 Fed. Reg. 59, 033, 59, 033 (Nov. 17, 2009). If it elected to do so, it might also impose an overdraft fee. Id. More recently, however, financial institutions began expanding and automating their overdraft programs, sometimes resulting in significant unexpected fees for consumers. Id. Rather than limiting overdraft fees to check transactions that the financial institution had decided to pay into overdraft, financial institutions began imposing fees automatically on ATM withdrawals, debit card transactions, online transactions, and other transactions that overdrew the customer's account. Id. These changes were unwelcome to many customers. Because customers often used checks to pay important bills, they generally preferred financial institutions to pay checks that overdrew their accounts, even if that payment resulted in an overdraft fee. Id. at 59, 034. But customers generally preferred that ATM and debit card transactions, which were often less important, would simply be declined in the event of overdraft. Id. at 59, 034-35. Many customers were unaware that they could incur overdraft fees for ATM or debit card transactions at all, until they incurred significant (and unexpected) fees. M at 59, 035.

         In 2009, the Federal Reserve promulgated regulations intended to "assist consumers in understanding how overdraft services provided by their institutions operate and to ensure that consumers have the opportunity to limit the overdraft costs associated with ATM and one-time debit card transactions where such services do not meet their needs." Id. Those regulations (referred to throughout as Regulation E) require financial institutions to secure a customer's "affirmative consent" before charging overdraft fees on ATM or one-time debit card transactions. See 12 C.F.R. § 1005.17(b). Affirmative consent must be secured through an opt-in notice, "segregated from all other information, describing the institution's overdraft service." Id. § 1005.17(b)(1)(i). The opt-in notice must also be "substantially similar" to a model form developed by the Federal Reserve after several rounds of consumer comprehension testing. Id. § 1005.17(d); 74 Fed. Reg. at 59, 036.

         But the opt-in requirement and model form have not dispelled all the controversy and confusion surrounding overdraft fees. Even after these amendments to Regulation E, some financial institutions have failed to disclose the balance calculation method that they use to determine whether a transaction results in an overdraft. Broadly speaking, there are two such methods. The ledger or actual balance method "factors in only settled transactions in calculating an account's balance." Consumer Financial Protection Bureau, Supervisory Highlights 8 (Winter 2015). The available balance method, on the other hand, "calculates an account's balance based on electronic transactions that the institutions have authorized (and therefore are obligated to pay) but not yet settled, along with settled transactions. An available balance also reflects holds on deposits that have not yet cleared." Id.; see Am. Compl. [ECF No. 16] ¶ 17 (adopting these definitions). When financial institutions fail to disclose which method they use to determine whether an account is in overdraft, customers can be misled or deceived. CFPB, Supervisory Highlights at 8. A number of private lawsuits have already been brought based on allegations of that kind. See In re: TD Bank, N.A., 150 F.Supp.3d 593 (D.S.C. 2015) (MDL); Gunter v. United Fed. Credit Union, 2016 WL 3457009 (D.Nev. June 22, 2016); Wodja v. Wash. State Emps. Credit Union, 2016 WL 3218832 (W.D. Wa. June 9, 2016).

         This case is another. On March 20, 2015, a debit card transaction for $59.99 was posted against Chambers' actual balance of $67.74. Am. Compl. ¶ 22. Although her actual balance was sufficient to cover the transaction, apparently her available balance was not, because the Credit Union charged her an overdraft fee of $32. Id. Chambers alleges that the Credit Union promised in its standard account agreement and then in its federally required opt-in agreement to impose overdraft fees for debit transactions only when she overdrew the actual balance in her account. Id. ¶ 16; see Account Agreement, Ex. 1 to Am. Compl. [ECF No. 16]; Opt-In Agreement, Ex. 2 to Am. Compl. [ECF No. 16]. By imposing overdraft fees based on her available balance instead, Chambers contends, the Credit Union has breached these agreements, breached the implied covenant of good faith and fair dealing, has been unjustly enriched, has violated state consumer protection laws, and has failed to comply with Regulation E.

         Chambers thus seeks to represent two classes of Credit Union customers. The first, termed the "Positive Balance Class, " would include customers who incurred overdraft fees for debit transactions when their actual balance was sufficient to cover the transaction at issue, even though their available balance was not. Id. ¶ 26. The second, the "Regulation E Class, " would include customers who were charged overdraft fees on ATM or non-recurring debit card transactions after consenting to participation in the program through the allegedly misleading opt-in agreement. Id. Alternatively, Chambers pleads that she was never given the opt-in agreement at all, also in violation of Regulation E. Id. , ¶ 70; see also PL's Opp'n [ECF No. 18] at 31-32. The Credit Union has moved to dismiss for failure to state a claim, arguing that the account and opt-in agreements unambiguously provide that overdraft fees will be based on the customer's available balance. See Defi's Mot. to Dismiss [ECF No. 17-1].


         When considering a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a court must presume the truth of a complaint's factual allegations, though it is "not bound to accept as true a legal conclusion couched as a factual allegation." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal quotation marks omitted). The court then asks whether the facts alleged suffice "to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks omitted). On a motion to dismiss, the court considers "facts alleged in the complaint, any documents either attached to or incorporated in the complaint and matters of which [the court] may take judicial notice." Mpoy v. Rhee, 758 F.3d 285, 291 n.l (D.C. Cir. 2014) (internal quotation marks omitted). Because copies of the account and opt-in agreements were attached to Chambers' complaint, were discussed frequently therein, and form the basis for her claims, they will be considered in the discussion that follows. Chambers also asks the Court to take judicial notice of a number of court orders and two reports by the CFPB. See PL's Request for Judicial Notice [ECF No. 19]. The Credit Union does not oppose. The Court has considered those documents as well.


         Before turning to the merits, some preliminary matters require attention. The first is whether the federally required opt-in agreement is itself a contract. Chambers thinks the answer is yes, see PL's Opp'n at 16-18, but the Credit Union disagrees, see Defi's Reply [ECF No. 22] at 4 n.5. The Court agrees with Chambers. In the opt-in notice, the Credit Union offers to pay overdrafts on one-time debit card transactions in exchange for overdraft fees. See Opt-In Agreement. When Chambers opted-in (if she in fact did so), she accepted that offer. And it "is an elementary principle of contract law that acceptance of an offer creates a binding contract." Cinciarelli v. Carter, 662 F.2d 73, 78 (D.C. Cir. 1981); see Wodja, 2016 WL 3218832, at *2 (concluding that a similar opt-in agreement was a contract). This conclusion is less momentous than it might initially seem, however. Whether or not the opt-in agreement is itself a contract, the parties agree that its terms are relevant when assessing the Credit Union's right to impose overdraft fees. See PL's Opp'n at 6-7 ("The two contracts which govern when NFCU may assess an overdraft fee, the Account Agreement and the Opt-In Agreement, both contractually link the right to assess overdraft fees to whether there are money/funds in the account sufficient to cover the transaction."); Def's Reply at 4 ("[R]eading the Opt-In Form in conjunction with the Membership Agreement, there is no doubt what is meant by the terms [of the contract].").

         The second preliminary matter concerns choice of law. "When deciding state-law claims under diversity or supplemental jurisdiction, federal courts apply the choice-of-law rules of the jurisdiction in which they sit." Mastro v. Potomac Elec. Power Co., 447 F.3d 843, 857 (D.C. Cir. 2006) (internal quotation marks omitted). Under District of Columbia law, the parties to a contract may agree upon the law they wish to apply, so long as there is some reasonable relationship with the state specified. Ekstrom v. Value Health, Inc., 68 F.3d 1391, 1394 (D.C. Cir. 1995) (citing Norris v. Norris, 419 A.2d 982, 984 (D.C. 1980)). Here, the parties have agreed that Maryland law should govern the account agreement. See Account Agreement at 7, ¶ 9. Because the Credit Union has branches in Maryland, see Am. Compl. ¶ 3, the Court will honor that choice. Maryland law will therefore apply to the account agreement and Chambers' associated claim for breach of the implied covenant of good faith and fair dealing arising out of that contract.

         Things are less clear cut when it comes to Chambers' other common law claims. She contends that the opt-in agreement, which contains no choice-of-law clause, must be governed by D.C.' slaw rather than Maryland's. See PL's Opp'n at 16 & n. 14. Describing the opt-in agreement as merely a "federally-mandated form" rather than a contract, the Credit Union does not engage with that contention. See Def's Reply at 4 & n.5. Neither party argues that the choice-of-law clause in the general account agreement should be imported into the opt-in agreement. And for good reason: the opt-in agreement does not refer to or incorporate that clause. SeeBode & Grenier, LLP v. Knight 808 F.3d 852, 862-63 (D.C. Cir. 2015) (holding that two agreements, executed contemporaneously between the same parties, were subject to different states' law where one contained a choice of law clause and the other was silent). In the absence of an applicable contractual provision, the Court must apply the District of Columbia's choice of law rules.

         "The District of Columbia follows a modified 'interest analysis' approach to choice of law. Under this approach, the first step is to determine whether a 'true conflict' exists-that is, whether more than one jurisdiction has a potential interest in having its law applied and, if so, whether the law of the competing jurisdictions is different." GEICO v. Fetisoff, 958 F.2d 1137, 1141 (D.C. Cir. 1992) (citing Fowler v. A & A Co., 262 A.2d 344, 348 (D.C. 1970)). If there is no "true conflict, " the Court applies D.C. law by default. Id. If, on the other hand, there is a "true conflict" between jurisdictions, then the Court must consider which of the relevant jurisdictions has the "more substantial interest" in having its law applied, id, and the more significant relationship to the litigation, see Bode & Grenier, LLP, 808 F.3d at 864. In a breach of contract case, the latter analysis involves consideration of five factors: the place of contracting; the place of negotiation of the contract; the place of performance; the location of the subject matter of the contract; and the domicile, place of incorporation, and place of business of the parties. Id. (citing Restatement (Second) of Conflict of Laws § 188(2) (1988)).

         Applying these principles, D.C. law must govern the opt-in agreement. As an initial matter, D.C. and Maryland courts employ similar principles of contract interpretation. See Napoleon v. Heard,455 A.2d 901, 903 (D.C. 1983) (Maryland law is the "source of the District's common law and an especially persuasive authority when the District's common law is silent"). In the absence of a conflict, D.C. law should govern. Even if there is a conflict, moreover, the available information indicates that the District of Columbia has the more substantial interest in and relationship to this litigation. Chambers is a resident of the District, and the Credit Union is headquartered here. See Am. Compl. ¶¶2-3. The District surely has a substantial interest in having its law applied to disputes between these parties. And the Court has no reason to believe that the other Restatement factors do not favor the District as well. See PL's Opp'n at 16 n.14 (contending that contract formation, the relevant Credit Union branches, and the ...

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