Cobb v. Paylease LLC

34 F.Supp.3d 976

Jeremy J. COBB, on behalf of himself and all others similarly situated, Plaintiff

v.PAYLEASE LLC, Defendant.

Civil No. 13–3091 JRT/JJK.

United States District Court, D. Minnesota.

Signed July 22, 2014.

Thomas J. Lyons, Jr., Consumer Justice Center P.A., Vadnais Heights, MN, for Plaintiff.

Michael Bruce Miller, Morrison & Foerster LLP, New York, N.Y. and Joseph G. Schmitt, Nilan Johnson Lewis PA, Minneapolis, MN, for Defendant.

MEMORANDUM OPINION AND ORDER DENYING DEFENDANT'S MOTION TO DISMISS

JOHN R. TUNHEIM, District Judge.

Plaintiff Jeremy Cobb brings this action alleging violations of the Electronic Fund Transfer Act, 15 U.S.C. §§ 1693 et seq. (“EFTA”), as well as claims for conversion and unjust enrichment against Defendant PayLease LLC (“PayLease”) arising out of an insufficient funds return fee assessed to Cobb's bank account by PayLease. Cobb's complaint also includes class allegations. PayLease moves to dismiss Cobb's Amended Complaint in its entirety. Because, taking the allegations in the Amended Complaint as true, Cobb has stated a claim under EFTA, and his allegations fall within the scope of conversion and unjust enrichment theories, the Court will deny PayLease's motion.

BACKGROUND

I. THE RETURNED FEE

On May 14, 2013, Cobb submitted an apartment rental application to Common Properties Management Cooperative (“Common Properties”). (Am. Compl. ¶ 11, Jan. 2, 2014, Docket No. 14.) As part of the application process Cobb spoke to a Common Properties representative by telephone and authorized an Automated Clearing House (“ACH”) debit from his checking account in the amount of $37.95. (Id. ¶¶ 11–12.) The amount authorized included an application fee of $35.00 plus a convenience charge of $2.95. (Id. ¶ 11.)

On May 16, 2013, due to insufficient funds in Cobb's account, the ACH debit initiated by Common Properties was returned by Cobb's bank as unpaid. (Id.¶ 15.) That same day, Cobb's bank assessed a Non–Sufficient Funds (“NSF”) fee of $35.00 to Cobb's account. (Id. ¶ 16.) On May 29, 2013, PayLease,¹ acting as Common Properties' agent, assessed a $25.00 “returned fee” by ACH from Cobb's account in connection with the unpaid application fee. (Id. ¶ 17; Decl. of Michael B. Miller, Ex. A at 2, Feb. 7, 2014, Docket No. 19.)² On June 4, 2013, the $25 returned fee was deposited back into Cobb's account. (Miller Dec., Ex. A at 3.)

Cobb alleges that during the telephone conversation with the Common Properties' representative he “was not asked for permission nor was he asked to grant authorization for the collection of any fees via electronic fund transfer (‘EFT’) in the event of a return of his debit payment.” (Am. Compl. ¶ 13.) Additionally Cobb alleges that he “did not voluntarily provide any written or oral permission or authorization to Common Properties, Defendant PayLease, or Defendant's agents permitting the collection of any fees via electronic fund transfer which might result in the event of a return of his ACH debit payment.” (Id. ¶ 14.)

II. AMENDED COMPLAINT

Cobb filed the Amended Complaint on January 2, 2014, bringing three claims against PayLease. In Count I, Cobb alleges that PayLease violated EFTA by “initiating or causing to be initiated an electronic funds transfer to collect their NSF fee without first obtaining Plaintiff's authorization.” (Am. Compl. ¶ 33.) With respect to this claim Cobb contends that “PayLease has not provided any notice whatsoever to the Plaintiff regarding an NSF fee” and “had no basis to expect or believe that Common Propert[ies] provided Plaintiff with any notice that he would be charged an NSF Fee if the ACH was returned due to insufficient funds.” (Id. ¶¶ 38, 40 (emphasis in original).) Cobb seeks actual damages “including without limitation the unlawfully collected NSF fees” as well as statutory damages and attorneys' fees in connection with his EFTA claim. (Id. ¶ 44.) In Count II, Cobb brings a claim for conversion based on the allegation that PayLease unlawfully collected or shared in NSF fees obtained from Plaintiff. (Id. ¶ 46.) Finally, in Count III, Cobb brings a claim for unjust enrichment based on PayLease's “unlawful[ ]” collection of NSF fees. (Id. ¶ 51.)

ANALYSIS

I. STANDARD OF REVIEW

In reviewing a motion to dismiss brought under Federal Rule of Civil Procedure 12(b)(6), the Court considers all facts alleged in the complaint as true to determine if the complaint states a “ ‘claim to relief that is plausible on its face.’ ” Gomez v. Wells Fargo Bank, N.A., 676 F.3d 655, 660 (8th Cir.2012) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ). To survive a motion to dismiss, a complaint must provide more than “ ‘labels and conclusions' or ‘a formulaic recitation of the elements of a cause of action.’ ” Ashcroft, 556 U.S. at 678, 129 S.Ct. 1937 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). “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. “Where a complaint pleads facts that are merely consistent with a defendant's liability, it stops short of the line between possibility and plausibility,” and therefore must be dismissed. Id. (internal quotation marks omitted). Finally, Rule 12(b)(6) “authorizes a court to dismiss a claim on the basis of a dispositive issue of law.” Neitzke v. Williams, 490 U.S. 319, 326, 109 S.Ct. 1827, 104 L.Ed.2d 338 (1989).

II. EFTA

EFTA provides a “basic framework establishing the rights, liabilities, and responsibilities of participants” in electronic banking and its primary objective “is the provision of individual consumer rights.” 15 U.S.C. § 1693(b). Congress delegated authority and responsibility to the Board of Governors of the Federal Reserve System to “prescribe rules to carry out the purposes of” the Act in order to “prevent circumvention or evasion thereof, or to facilitate compliance therewith.” 15 U.S.C. § 1693b ; see also 12 C.F.R. § 205.1. The Board has promulgated administrative regulations codified at 12 C.F.R. Part 205, which are commonly referred to as Regulation E. See 12 C.F.R. § 205.1. With respect to remedies for violations, EFTA provides that “any person who fails to comply with any provision of this subchapter with respect to any consumer ... is liable to such consumer.” 15 U.S.C. § 1693m(a). EFTA authorizes class actions and allows for the recovery of actual or statutory damages and attorneys' fees. Id.

Cobb brings his EFTA claim under 12 C.F.R. § 205.3(b)(3)(i) which governs notice to consumers with respect to the collection of returned item fees. The regulation provides, in relevant part, that:

The person initiating an electronic fund transfer to collect a fee for the return of an electronic fund transfer or a check that is unpaid, including due to insufficient or uncollected funds in the consumer's account, must obtain the consumer's authorization for each transfer. A consumer authorizes a one-time electronic fund transfer from his or her account to pay the fee for the returned item or transfer if the person collecting the fee provides notice to the consumer stating that the person may electronically collect the fee, and the consumer goes forward with the underlying transaction. The notice must state that the fee will be collected by means of an electronic fund transfer from the consumer's account if the payment is returned unpaid and must disclose the dollar amount of the fee.

12 C.F.R. § 205.3(b)(3)(i). In its motion to dismiss, PayLease argues that EFTA is not applicable to Cobb's claim because (1) an electronic fund transfer was never completed; (2) the $25 fee has since been recredited to Cobb's account; and (3) the transaction was authorized via telephone. Additionally, PayLease argues that Cobb has failed to adequately plead that PayLease did not provide the statutorily required notice to Common Properties, and therefore fails to state a claim under EFTA. Recognizing that “[a]n EFTA claim should be dismissed when neither the language of the statute nor a provision of Regulation E applies to the defendant's conduct,” Olen v. N. Tier Retail, LLC, Civ. No. 11–2665, 2012 WL 1580994, at *2 (D.Minn. May 4, 2012), the Court will address each of these arguments in turn.

A. Completed Transfer

PayLease first argues that EFTA does not apply to Cobb's claim because no electronic fund transfer was ever completed. Specifically, PayLease argues that “according to the facts asserted by Plaintiff, a fee was merely ‘assessed’ but never actually paid to PayLease” and therefore no electronic fund transfer took place. (Def.'s Mem. in Supp. of Mot. to Dismiss at 8, Feb. 7, 2014, Docket No. 18.)

EFTA defines an “electronic fund transfer” as

any transfer of funds, other than a transaction originated by check, draft, or similar paper instrument, which is initiated through an electronic terminal, telephonic instrument, or computer or magnetic tape so as to order, instruct, or authorize a financial institution to debit or credit an account. Such term includes, but is not limited to, point-of-sale transfers, automated teller machine transactions, direct deposits or withdrawals of funds, and transfers initiated by telephone.

15 U.S.C. § 1693a(7). Generally, in order for a defendant's conduct to come within the scope of EFTA the transaction at issue must involve an electronic fund transfer. See Vigneri v. U.S. Bank Nat'l Ass'n, 437 F.Supp.2d 1063, 1066–67 (D.Neb.2006) (granting defendant's motion for summary judgment on EFTA claims because the withdrawal at issue did not constitute an electronic fund transfer); Mitchem v. Paycheck Advance Express, Inc., Civ. No. 99–1858, 2000 WL 419993, at *1 (N.D.Ill. Apr. 14, 2000) (“Without an electronic funds transfer, Mitchem's claims under the EFTA cannot be sustained.”). Additionally, where, as here, a plaintiff's claim is based upon a provision of EFTA or Regulation E that...