Chinitz v. Ally Bank

RONALD E. CHINITZ, individually, and on behalf of similarly situated individuals, Plaintiff, v. ALLY BANK, and DOES 1-50, Defendants.

Case No. 2:19-cv-00059

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH

April 7, 2020

MEMORANDUM DECISION AND ORDER GRANTING MOTION TO DISMISS

Chief Judge Robert J. Shelby

Magistrate Judge Dustin B. Pead

This putative class action concerns a dispute about the way Defendant Ally Bank pays interest on funds transferred to Ally's customers' accounts via standard ACH transfer. Specifically, Plaintiff Ronald E. Chinitz alleges Ally wrongfully fails to pay interest on funds it receives via ACH transfer beginning on the day Ally receives those funds. Ally filed a Motion to Dismiss, arguing Chinitz's Second Amended Complaint fails to state a claim upon which relief can be granted. For the reasons explained below, Ally's Motion is GRANTED.

BACKGROUND¹

Ally is an internet-only bank that allows customers to transfer money in and out of their Ally accounts using the Automated Clearing House (ACH) Network.² The ACH Network is used to transfer money and information from one bank account to another.³

Chinitz opened an interest-bearing online savings account with Ally in July 2017.⁴ Chinitz's online savings account is subject to Ally's Deposit Agreement and Disclosures (the DAD).⁵ Relevant to this Motion are the DAD's provisions regarding ACH transfers and interest.⁶

Section I.B.4 of the DAD governs interest and is titled "How Interest is Calculated."⁷ It states in relevant part: "Interest will be compounded on a daily basis. We use the daily balance method to calculate the interest on your account. This method applies a daily periodic rate to the principal and interest that has been accrued to the account each day."⁸

Section I.D.4.b deals with ACH transfers and is titled "External ACH Transfers Initiated at Ally by You; Non-Ally Accounts."⁹ This Section, in part, sets out "the timing of when funds are debited and credited based on the day and time the Standard [ACH] Transfer request is received by Ally."¹⁰ The DAD provides a chart illustrating the timing of when funds are debited and credited to Ally accounts. The DAD explains funds will be delivered to customer accounts on the third business day after a standard transfer request is initiated.¹¹ By way of example, the DAD provides that, if a request for standard ACH transfer from an external account to an Ally account is submitted between 1:01 a.m. ET Monday and 1:00 a.m. ET Tuesday, the funds will bewithdrawn from the external account on Tuesday and delivered to the Ally account on Thursday.¹² If a request is submitted after 1:01 a.m. ET on Tuesday, the funds will be withdrawn on Wednesday and delivered on Friday.¹³

And finally, Section I.D.4.d, which also deals with ACH transfers, is titled "Availability of Funds" and provides in relevant part, "For Inbound Transfers originated at Ally, the funds are generally available in your Ally account when they are received."¹⁴

On July 18, 2017, Chinitz initiated a standard ACH transfer from his external account to his Ally account in the amount of $800.¹⁵ Ally withdrew the $800 from Chinitz's external account on July 19.¹⁶ Ally received the funds no later than July 20, but did not deliver Chinitz's $800 deposit to his account or start paying interest on the deposit until July 21.¹⁷

Chinitz initiated another standard ACH transfer on August 18, 2017, directing Ally to deposit $1,000 into his online savings account from an external account.¹⁸ Ally withdrew the sum from Chinitz's external account on August 21.¹⁹ Ally received the funds no later than August 22, but did not deliver the funds to Chinitz's account or start paying interest until August 23.²⁰

Believing Ally improperly withheld his interest payments, Chinitz filed a Complaint in United States District Court for the Northern District of California on behalf of himself and a putative class.²¹ At Ally's request, the Northern District of California transferred the case to Utah.²²

This court previously dismissed Chinitz's First Amended Complaint on May 7, 2019.²³ On June 21, 2019, Chinitz filed his Second Amended Complaint (SAC).²⁴ And on July 18, 2019, Ally filed a Motion to Dismiss.²⁵ The Motion is now fully briefed and ready for consideration.

LEGAL STANDARD

Federal Rule of Civil Procedure 8(a)(2) requires a complaint to include "a short and plain statement of the claim showing that the pleader is entitled to relief."²⁶ Under Rule 12(b)(6), a court must dismiss causes of action that "fail[ ] to state a claim upon which relief can be granted."²⁷ To survive a Rule 12(b)(6) 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."²⁸ A claim is plausible on its face "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged."²⁹ When evaluating a motion to dismiss, the court "accept[s] all well-pleaded facts [in the complaint] as true andview[s] them in the light most favorable to the plaintiff."³⁰ However, the court will not accept as true "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements."³¹ The reviewing court is required to "draw on its judicial experience and common sense" to evaluate whether the well-pled facts state a plausible claim for relief.³² "Though a complaint need not provide detailed factual allegations, it must give just enough factual detail to provide [defendants] fair notice of what the . . . claim is and the grounds upon which it rests."³³

ANALYSIS

Chinitz brings three causes of action against Ally: (1) conversion; (2) fraud; and (3) unjust enrichment. The court will address each in turn.

I. CONVERSION

Chinitz's first cause of action is one for conversion. Specifically, Chinitz alleges "Ally willfully and intentionally interfered with Plaintiff's and the Class Members' right to have interest accrue on money transferred to their Ally accounts via standard ACH transfers starting from the day Ally received that money from external financial institutions."³⁴

A. Failure to State A Claim

Under Utah law, "a conversion is an act of wilful interference with a chattel, done without lawful justification by which the person entitled thereto is deprived of its use andpossession."³⁵ A chattel is tangible property.³⁶ As Utah courts have explained, "[m]oney may be the subject of conversion when the party charged wrongfully received it" or when "misappropriated funds [have been] placed in the custody of another for a definite application."³⁷

Ally first argues Chinitz's conversion claim fails because Chinitz alleges conversion of intangible property: the right to have interest accrue on money transferred to Ally.³⁸ Chinitz responds that his claim is better characterized not as conversion of a right to have interest accrue, but rather conversion of interest that should have been paid to Chinitz by never making that interest available to Chinitz.³⁹ In other words, Chinitz characterizes his conversion claim as a claim for non-payment of interest owed to Chinitz. This dispute need not be resolved, however, because, even if the court accepts Chinitz's characterization of his conversion claim, such a claim is not cognizable under Utah law.

The SAC does not contain any allegations suggesting Ally "wrongfully received" any money as a result of Chinitz's transactions with Ally. The SAC does not allege Ally's receipt of Chinitz's inbound transfer was wrongful. Instead, the SAC alleges non-payment of agreed-upon interest forms the basis for the conversion claim.⁴⁰ But the non-payment of agreed-upon interest cannot alone form the basis for a conversion claim under a wrongful receipt theory because theSAC does not allege any underlying wrongful receipt of money. Rather, the SAC alleges a general debt owed to Chinitz by Ally in the form of unpaid agreed-upon interest.⁴¹

Nor does the SAC allege a misappropriation of funds placed in the custody of another for a definite application. The SAC does not allege Ally misused the funds Chinitz transferred to his Ally account.⁴² This stands in stark contrast to cases in which courts have sustained conversion claims when a plaintiff placed funds in the custody of another for a particular use, and then that person misused those funds.⁴³ Instead, the SAC, at its core, alleges Ally failed to confer a promised benefit on Chinitz. Specifically, Chinitz transferred funds to Ally with the expectation that Ally would hold those funds and begin to pay interest on them when it received those funds but, upon receipt of the funds, Ally failed to uphold the promise to pay interest—at least for one day. Thus, the alleged wrongdoing is not that Ally misappropriated the funds Chinitz transferred to Ally, but rather that Ally failed to uphold an ancillary contractual promise—the payment of interest—related to the transfer of funds.

In sum, the court concludes the SAC fails to state a claim for conversion under Utah law because the SAC alleges neither wrongful receipt of money by Ally nor misappropriation of funds transferred to Ally.

B. Economic Loss Rule

Additionally, Ally also argues Chinitz's conversion claim is barred by the economic loss rule. The court agrees.

The economic loss rule marks the fundamental boundary between contract law and tort law.⁴⁴ Generally speaking, the economic loss rule prevents the recovery of purely economic damages under a tort theory "when a contract covers the subject matter of the dispute."⁴⁵ Therefore, "when a conflict arises between parties to a contract regarding the subject matter of that contract, 'the contractual relationship controls, and parties are not permitted to assert actions in tort in an attempt to circumvent the bargain they agreed upon.'"⁴⁶

The application of the economic loss rule depends on "whether a duty exists independent of any contractual obligations...