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Ramirez v. Baxter Credit Union

United States District Court, N.D. California

March 21, 2017



          SUSAN ILLSTON United States District Judge

         Before the Court are defendant's motions to dismiss plaintiff's first amended complaint and to strike plaintiff's class allegations, or in the alternative, to deny class certification. Dkt. Nos. 48, 49. Pursuant to Civil Local Rule 7-1(b), the Court determines that this matter is appropriate for resolution without oral argument and VACATES the hearing set for March 24, 2017. For the reasons set forth below, the Court DENIES defendant's motion to dismiss and GRANTS IN PART and DENIES IN PART defendant's motion to strike class allegations.


         Plaintiff Sondra Ramirez (“Ramirez”) filed this class action lawsuit on July 5, 2016, seeking damages and injunctive relief against defendant Baxter Credit Union (“BCU”) in connection with BCU's overdraft charge policy. Compl. (Dkt. No. 1). On January 12, 2017, the Court granted BCU's motion to dismiss plaintiff's complaint, in part, with leave to amend. Dkt. No. 40. Ramirez filed an amended complaint against BCU, alleging the same six causes of action: (1) breach of contract; (2) breach of the implied covenant of good faith and fair dealing; (3) unjust enrichment/restitution; (4) money had and received; (5) violation of the Electronic Fund Transfer Act (“EFTA”); and (6) violation of California's Unfair Competition Law (“UCL”). First Am. Compl. (“FAC”) (Dkt. No. 46) ¶¶ 55-96.

         I. Plaintiff's Allegations

         During the class period, Ramirez was a BCU member. FAC ¶ 5. When Ramirez opened her BCU checking account, she affirmatively opted in to BCU's overdraft protection, which BCU refers to as its “Courtesy Payment service.” See Id. ¶¶ 23, 37; id. Ex. 1, Membership Enrollment Form (Dkt. No. 46-1), at 1-2. Ramirez's Membership Enrollment Form included a federally mandated, separate opt-in provision with the heading “What You Need to Know About Overdraft Fees.” FAC, Ex. 1 at 2.

         The opt-in states that “[a]n overdraft occurs when you do not have enough money in your account to cover a transaction, but [BCU] pay[s] it anyway.” Id. (emphasis in original). It further describes the credit union's Courtesy Payment service, explaining that BCU automatically authorizes and pays overdrafts for certain transactions, including checks and automatic bill payments. Id. The opt-in notes that BCU “does not authorize and pay overdrafts for” ATM transactions and one-time debit card transactions, unless the applicant opts in immediately below. Id. (emphasis in original). The opt-in describes the amount of fees BCU charges for overdrafts ($29 per overdraft), but does not describe how the credit union calculates a member's balance for purposes of determining whether she has overdrafted her account. See Id. Ramirez alleges that the overdraft opt-in does not accurately describe BCU's actual overdraft service. FAC ¶¶ 22-23, 25, 27.

         When she opened her account, Ramirez and her joint applicant opted in to the Courtesy Payment service for ATM and one-time debit card transactions by checking the box beside “I do want [BCU] to authorize and pay overdrafts on my ATM and one-time (individual, not recurring) Debit Card transactions.” Id. (emphasis in original). The two signed the Membership Enrollment Form just below the opt-in provision. Id. In the signature block, the form states that “[b]y signing below you acknowledge that you have received and agreed to the terms and conditions contained on both sides of this form and in the Deposit Account Agreement, which includes . . . Fee disclosures . . . .” Id.

         The Deposit Account Agreement, attached as Exhibit 2 to plaintiff's first amended complaint, is a 33-page document containing detailed disclosures regarding the rights and responsibilities of Ramirez and BCU with respect to Ramirez's account. See FAC, Ex. 2 (Dkt. No. 46-2). Ramirez alleges that the Deposit Account Agreement also fails to accurately describe BCU's overdraft service. Id. ¶¶ 24-25, 27. While BCU's Courtesy Payment service is not identified in the account agreement table of contents, it is described in some detail under the section entitled “Your Checking Account.” See FAC, Ex. 2, Table of Contents; id. at 11. In brief, the Courtesy Payment service disclosure first explains eligibility criteria for the service, and then describes how the service functions. See Id. The agreement provides, in relevant part:

Courtesy Payment may be granted that will allow you to overdraw the available funds in your Account. We pay overdrafts at our discretion, which means we do not guarantee that we will always authorize and pay any type of transaction. Our Courtesy Payment service will attempt to pay, when possible, checks, [Automated Clearing House transfers], and recurring Debit Card purchases presented against insufficient available funds in your account. . . .
Our current service charge is $29 for each overdraft. A Courtesy Payment service charge will not be charged for any transaction that brings the available balance in your account negative by $5 or less. A Courtesy Payment service charge per each occurrence that results in the available balance in your account becoming negative by more than $5 will be charged to your account as stated in the Product Feature, Truth-In-Savings and Service Charge and Fee disclosures. There is no limit to the number of service charges that can be charged for overdrawing the available balance in your account. . . .

Id. The agreement contains “Funds Availability Disclosures” that describe when deposited funds become “available.” See Id. at 22-23. The agreement also describes that, when a customer uses her Visa Debit Card to make purchases, funds to cover those purchases “will be deducted from [the] checking account. If the balance in [the] account is not sufficient to pay the transaction amount, [BCU] may treat the transaction as an overdraft request pursuant to [the] Courtesy Payment program . . . .” Id. at 23. The last page of the Deposit Account Agreement is the “Service Charge and Fee Schedule, ” which lists the $29 “Courtesy Payment service charge (each transaction that results in the available balance in the account being negative by more than $5).” Id. at 33. The agreement also contains nearly a full page of definitions. Id. at 1-2. Nowhere, however, does the Deposit Account Agreement define “available balance” or describe how it is calculated.

         Ramirez alleges that on January 16, 2016, she had a positive balance of $347.86 in her checking account. FAC ¶ 37. When Ramirez bought something for $60.97 with her debit card, BCU assessed an overdraft fee against her account. Id. Plaintiff alleges that this is but one example of an ongoing course of conduct. See Id. ¶¶ 37, 40.

         This dispute, and others like it, hinge on how a financial institution calculates account balances when determining whether an overdraft has occurred, and whether the institution adequately informs accountholders of these overdraft practices. A checking account has two balances: a “ledger” balance (or “actual” balance), which represents the official account balance at any given time, and an “available” balance, which represents the funds immediately available to the accountholder. See Id. ¶ 26. Sometimes these two balances are the same, but often they are not. For instance, when an accountholder deposits a check, banks generally make only a portion of that check available immediately, with the remainder held for a certain time period while the funds clear. See Id. The account's ledger balance might reflect the full amount of the deposit right away, but the available balance would include only a portion of that check deposit until the check clears. Or, as another example, when an accountholder uses his or her debit card to make a purchase in a store or online, the merchant might place a “credit hold” on those funds, with the actual debit against the account occurring one or two days later when the transaction settles. See Id. The account's ledger balance does not reflect such a transaction until it settles, but the available balance reflects the transaction immediately.

         Ramirez alleges that, based on the opt-in language in her Membership Enrollment Form and the disclosures in the Deposit Account Agreement, BCU promised to use a member's ledger balance to determine when an overdraft occurs, when in actuality, the credit union uses a member's available balance. Id. ¶¶ 25-27. As a result, an accountholder may inadvertently overdraft his or her account, and do so repeatedly, by relying on the ledger balance. Ramirez alleges that by misleading its members in this manner, BCU has violated the EFTA provisions governing overdrafts and breached the terms of the opt-in form and the Deposit Account Agreement (together, the “Customer Agreements”).

         II. Class Allegations

         Plaintiff brings this case on behalf of two separate classes, the “Positive Balance Class” and the “Regulation E Class.” See FAC ¶¶ 42-43. The “Positive Balance Class” is defined as “[a]ll United States residents who have or have had accounts with BCU who incurred overdraft fees when the ledger balance in the checking account was sufficient to cover the transactions in the four years preceding the filing of this Complaint.” Id. ¶ 43. The “Regulation E Class” is defined as “[a]ll United States residents who have or have had accounts with BCU who incurred overdraft fee(s) for ATM or non-recurring debit card transactions since August 15, 2010.” Id.

         LEGAL ...

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