FINAL ORDER OF DISMISSAL
JAMES LAWRENCE KING, District Judge.
Plaintiff Diane Lewis ("Lewis"), a citizen of Maryland who maintained a checking account with Sovereign, seeks to recover for herself, and all customers similarly situated, excess overdraft fees generated and retained through Sovereign's alleged unlawful practices, including, among other things, its manipulation and reordering of debit transactions from largest to smallest in order to maximize the overdraft fees it charged its customers. (CAC ¶¶ 1, 12, 62.)
Plaintiff filed the initial Complaint on behalf of herself and a putative class on January 7, 2011 in the United States District Court for the District of Maryland. (DE # 1 in 11-cv-10064 (D.Md.)). On May 31, 2011, the United States Judicial Panel on Multidistrict Litigation transferred Plaintiffs case to this Court for adjudication as part of this multi-district litigation ("MDL") proceeding. (DE # 1544). On October 21, 2011, Plaintiff filed the CAC (DE # 2027), which is the subject of the instant Motion to Dismiss.
Plaintiff's claim against Sovereign is stated in five counts: Count I for breach of contract and the covenant of good faith and fair dealing; Count II for unconscionability; Count III for conversion; Count IV for unjust enrichment; and Count V for violation of the Maryland Consumer Protection Act. (CAC at ¶¶ 77-114.) Plaintiff bases those claims on Sovereign's high-to-low ordering of withdrawals, its allegedly deficient disclosure of that practice, and its allowing of account holders to overdraw without warning and opportunity to abort. (Id. at ¶¶ 1, 7.) Sovereign seeks dismissal of the CAC in its entirety on the ground that it is preempted by federal law.
Sovereign argues it is unique in this MDL as the "first defendant that has been charted as a federal savings bank and therefore regulated by the Office of Thrift Supervision ("OTS") under the Home Owner's Loan Act ("HOLA"), 12 U.S.C. § 1461 et seq."
STANDARD OF REVIEW
Under Federal Rule of Civil Procedure 12, facts taken from the Complaint are accepted as true and all reasonable inference are resolved in the plaintiff's favor. Harper v. Lawrence County, 592 F.3d 1227, 1232 n. 10 (11th Cir.2010). "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." Ashcroft v. Iqbal, 556 U.S. 662, 663, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)) (internal quotation marks omitted).
Applying this standard to a consideration of the well-pled allegations made by Plaintiff in the CAC, the Court finds Plaintiff makes the following assertions:
Plaintiff Lewis and members of the classes she represents maintain or maintained a checking account with Sovereign, the terms of which were contained in standardized account holder agreements (the "Deposit Agreement"), attached as Exhibit A to the CAC. The terms relating to reordering are alleged to be unconscionable contracts of adhesion. (CAC ¶¶ 31-33.)
The Deposit Agreement contains discretionary language regarding Sovereign's reordering practices, including, for example, that the bank reserves the right to pay withdrawals in any order the bank determines, which may affect the amount of overdraft fees charged. (Id. at ¶ 32.) The Deposit Agreement is alleged to be ineffective, ambiguous, unfair, and deceptive because it does not unambiguously state that Sovereign always reorders debits from high-to-low regardless of the amounts involved — even though, as alleged, Sovereign does always reorder transactions in this manner to maximize overdrafts and overdraft fee revenues for itself at the consumers' expense. (Id. at ¶¶ 37-38.) To carry out this scheme, Sovereign is alleged to have manipulated customer transaction records, causing funds in customer accounts to be depleted more rapidly, resulting in more overdrafts and, hence, more overdraft fees. (Id. at ¶¶ 6467.)
Moreover, as alleged, Sovereign failed to: (i) disclose to customers that they may "opt-out" of Sovereign's overdraft scheme; (ii) provide an opportunity to cancel the debit transaction before incurring an overdraft fee; or (iii) obtain affirmative consent from customers prior to processing transactions that will overdraw their accounts and result in overdraft fees. (Id. at ¶¶ 5052.) As such, its overdraft policies and practices and the reordering provisions of its Deposit Agreement are alleged to be procedurally and substantively unconscionable. (Id. at ¶ 60.)
Plaintiff alleges she suffered damages as a result of Defendant's alleged improper
Defendant moves to dismiss all of Plaintiff's claims pursuant to Federal Rule of Civil Procedure 12(b)(6) as preempted by federal law. Specifically, Defendant argues, the OTS's deposit-related regulations preempt "state laws that purport to impose requirements" regarding, among other things, "Checking accounts," "Disclosure requirements," and "Service charges and fees." (Motion, at 9) (quoting 12 C.F.R. § 557.12(b), (c), (f).) Defendant argues that Plaintiffs claims, which attack how Sovereign processes checking account withdrawals and provides or not provide overdraft opt-out procedures, how it discloses its practices, and how many overdraft fees it charges, (CAC ¶¶ 37-45, 50-52), fall squarely within all of these categories listed in § 557.12 and are thus preempted.
Moreover, Defendant argues that the Deposit Agreement complies with OTS disclosure requirements by fully disclosing Sovereign's policies and rights with respect to withdrawals and overdraft fees. With respect to withdrawals, for example, the Deposit Agreement provides:
(Id. at 4-5) (bold in original).
(Id. at 10.)
Plaintiff concedes that the Deposit Agreement contains discretionary language,
The Court will consider the Omnibus Order and address whether Sovereign's status as a federal savings association changes the Court's previous preemption analysis.
A. Federal Preemption
There are "three types of preemption: express preemption, field preemption, and conflict preemption." Baptista v. JPMorgan Chase Bank, N.A., 640 F.3d 1194, 1197 (11th Cir.2011). Express preemption occurs where federal law expressly so provides. Wis. Pub. Intervenor v. Mortier, 501 U.S. 597, 604-05, 111 S.Ct. 2476, 115 L.Ed.2d 532 (1991). Field preemption occurs where federal law implies an intent "to supersede state law in a given area...." Id. Conflict preemption occurs where federal and state law "actually conflict," whether because state law makes compliance with federal law impossible or because state law "stands as an obstacle to the accomplishment and execution of federal purposes. Id. at 605, 111 S.Ct. 2476 (internal quotation marks omitted). Regulations, not just statutes, may preempt state law. See Fidelity Fed. Sav. & Loan Ass'n v. de la Cuesta, 458 U.S. 141, 153, 102 S.Ct. 3014, 73 L.Ed.2d 664 (1982) ("Federal regulations have no less pre-emptive effect than federal statutes.").
B. Preemption under the HOLA and the Non-Retroactivity of Dodd-Frank
While there is generally a presumption against preemption, see Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230, 67 S.Ct. 1146, 91 L.Ed. 1447 (1947), courts abandon that presumption where the area of law at issue has "a history of significant federal presence." United States v. Locke, 529 U.S. 89, 108, 120 S.Ct. 1135, 146 L.Ed.2d 69 (2000). Banking is such an area. See, e.g., Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25, 32-33, 116 S.Ct. 1103, 134 L.Ed.2d 237 (1996) (discussing the long history of federal bank legislation and its effect on state law). In the case of the HOLA, the Supreme Court has observed that the predecessor to the OTS "promulgated regulations governing the powers and operations of every Federal savings and loan association from its cradle to its corporate grave." Fidelity, 458 U.S. at 144, 102 S.Ct. 3014 (internal quotation marks omitted).
Historically, federal savings banks were chartered under the HOLA, which was administered by the OTS. See id. & n. 1; see also 12 U.S.C. § 1464 (2006). This means that federal savings banks have been subject to a different regulatory regime than national banks chartered under the NBA and overseen by the OCC. See, e.g., Aguayo v. U.S. Bank, 653 F.3d 912, 921 (9th Cir.2011) (describing differences in OCC and OTS regulatory structures); Bank of America v. City & County of San Francisco, 309 F.3d 551, 559-60 (9th Cir. 2002) (discussing the historical context of the HOLA and OTS regulations).
On July 21, 2010, Congress' passage of Dodd-Frank changed the OTS and OCC structures. See Pub.L. No. 111-203, 124 Stat. 1376 (2010). Among other things,
C. Field Preemption
The parties agree that at all relevant times, Sovereign was a federal savings bank regulated by the OTS.
Defendant argues that while this Court held that generally applicable common law doctrines and statutes were not preempted under the NBA/OCC, see In re Checking Account Overdraft Litigation, 694 F.Supp.2d at 1311, that holding is inapposite here because the OTS expressly provides that common law claims and laws of general application are preempted under OTS regulations. In their oral argument, Defendant also relied heavily on Hassler v. Sovereign Bank, 374 Fed.Appx. 341 (3d Cir.2010), which affirmed the lower court's dismissal of similar claims against the same bank based on this same Deposit Agreement.
Plaintiff, on the other hand, argues that the preemption analysis is the same under both the NBA and the HOLA and the Court's ruling in the Omnibus Order applies with equal force to the instant matter. (Response, at 3-7.) Plaintiff further argues Hassler is non-precedential and inapplicable to the alleged facts of this case. (Id. at 8-13.)
In considering the HOLA/OTS, as contrasted with the NBA/OCC, the Court will first turn to the governing OTS regulation on preemption, which provides as follows:
12 C.F.R. § 560.2(a) (emphasis added).
Section 560.2(b) clarifies the scope of this express preemption clause by setting forth a non-exhaustive list of the types of state laws that are expressly preempted. C.F.R. § 560.2(b). These include state laws purporting to impose requirements regarding "[disclosures." Id. at § 560.2(b)(9). Further, under section 557.12, the OTS expressly preempts state laws that purport to impose requirements governing "Checking accounts;" "Disclosure Requirements;" "Funds availability;" "Savings account orders of withdrawal;" and "Service charges and fees." Id. at § 557.12(b)-(f).
To determine whether a claim is preempted, the OTS framework is explained as follows: "[T]he first step is to ascertain whether the law in question is of the type listed in § 557.12 as an example of preempted law.
Defendant argues that since Plaintiffs claims all relate to areas in which field preemption under section 557.12 expressly applies, the analysis must end there. (Motion, at 9.) The Court agrees.
Unlike in its Omnibus Order, in which the Court distinguished between claims challenging a bank's ability to charge overdraft fees at all (which the Court intimated would be preempted) versus claims attacking a bank's methods in disclosing and calculating overdraft fees, such distinction is simply immaterial for OTS field preemption. See In re Checking Account Overdraft Litigation, 694 F.Supp.2d at 1313. The Court concluded, upon examination of the OCC regulations, that "federal regulation in this field is not so pervasive that we can reasonably infer that Congress left no room for the states to supplement it." Id. But, as explained in Aguayo, leaving no room for state supplementation is precisely what field preemption does. 653 F.3d at 921.
Indeed, a key focus of this Court's preemption analysis for national banks involved the section of the OCC's preemption rule stating that contract, tort and, criminal laws are not preempted if they "only incidentally affect" the deposit-related activities otherwise subject to preemption. In re Checking Account Overdraft Litigation, 694 F.Supp.2d at 1313 (citing 12 C.F.R. § 7.4007(c)). While the OTS regulations contain a section, 12 C.F.R. § 557.13, that looks similar to the OCC rule in that it refers to contract, tort, and criminal laws that only incidentally affect deposit-related activities, there is a fundamental distinction: The OTS regulation itself establishes that this section must not even be considered where, as here, the matters complained of fall within the ambit of the activities described in the preempting language of section 557.12.
Under this framework, Plaintiff's claim is similarly distinguishable from Binetti v. Washington Mutual Bank, 446 F.Supp.2d 217 (S.D.N.Y.2006), and other cases cited by Plaintiff (DE # 2849). In Binetti, for example, Judge McMahon found that the plaintiffs claims arose strictly out of the lender's failure to adhere to the terms of its contract with the plaintiff. In that context, the statute was not directly aimed at lenders and had only an incidental impact on lending relationships. Id. at 220. Here, in contrast, Plaintiff's claims arise out of conduct directly regulated by the
Also in the Omnibus Order, the Court cited Gutierrez v. Wells Fargo Bank, N.A., 622 F.Supp.2d 946 (N.D.Cal.2009), as an authority rejecting a preemption defense in the precise context of this case, overdraft fees. See In re Checking Account Overdraft Litigation, 694 F.Supp.2d at 1312. Critically, the Gutierrez court had, in an earlier decision, already considered the differences between OTS and OCC preemption and declined to follow a Ninth Circuit decision in favor of OTS preemption because of those distinctions:
Gutierrez v. Wells Fargo Bank, N.A., 2008 WL 4279550 at *12 (N.D.Cal. Sept. 11, 2008). Applying this more narrow preemption analysis, the Court finds that Plaintiffs claims against Sovereign bear on activities expressly contemplated by section 557.12, and, as such, are preempted. 12 C.F.R. § 557.12(b).
Based on the foregoing, it is hereby
12 U.S.C. § 5553 (emphasis added).
12 C.F.R. § 560(c).