Hash v. First Fin. Bancorp

GREGORY HASH on behalf ofhimself and all others similarly situated, Plaintiff v. FIRST FINANCIAL BANCORP, Defendant

Cause No. 1:20-cv-1321 RLM-MJD

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF INDIANA INDIANAPOLIS DIVISION

March 8, 2021

ORDER

Plaintiff Gregory Hash, a checking accountholder at defendant First Financial Bancorp, sues First Financial on behalf of himself and a putative class for breach of contract (including breach covenant of good faith and fair dealing), and violation of the Indiana Deceptive Consumer Sales Act, Ind. Code § 24-5-0.5-1 et seq. The court has jurisdiction under the Class Action Fairness Act of 2005, 28 U.S.C. § 1332(d)(2) & (6), and the parties agree that Indiana law provides the rule of decision. Mr. Hash alleges that First Financial improperly charged him overdraft fees that weren't authorized by his checking account contract with First Financial. First Financial has moved to dismiss Mr. Hash's complaint for failure to state a claim upon which relief can be granted. The court heard argument on the motion on March 4 and now DENIES First Financial's motion [Doc. No. 17].

I. Background

Mr. Hash's complaint alleges that debit-card transactions occur in two parts. First, when a debit-card holder uses a debit card at the point of sale to complete a transaction, the merchant presents the transaction in real time to First Financial for authorization. If First Financial authorizes the transaction, the transaction will be completed at the point-of-sale. Whether First Financial authorizes or declines a transaction depends on whether (1) enough funds are available in the accountholder's checking account to cover the transaction, or (2) the accountholder elects to have First Financial cover the transaction (causing an overdraft).¹

Once First Financial authorizes the transaction, the amount of the transaction will be subtracted from the accountholder's available balance, meaning the balance that is available for immediate use. The available balance might differ from an accountholder's current balance, which is the amount of money actually in the account. When a transaction is authorized at the point of sale, a "debit hold" in the amount of the transaction is placed on the accountholder's account and subtracted from the accountholder's available balance. However, the amount of the debit hold isn't subtracted from his current balance during authorization.

Second, the transaction "settles" after it is authorized, meaning that the funds are actually transferred from the accountholder's account to the merchant. The transaction (the amount of the debit hold) is then subtracted from and reflected in the accountholder's current balance.

First Financial charges a $37 overdraft fee if an accountholder overdraws his available balance. According to the parties' account contract, overdrafts "occur when [an accountholder does] not have enough money in [his] account to cover a transaction, but [First Financial] pay[s] it anyway."

Mr. Hash filed his complaint challenging First Financial's practice of charging overdraft fees on Authorize Positive, Settle Negative Transactions ("APSN transactions"). An APSN transaction occurs when a transaction is authorized and there are enough funds in the accountholder's available balance to cover the transaction at the point of sale, but later the transaction overdraws the account at settlement, triggering an overdraft fee.

Mr. Hash alleges that these types of transactions should never occur on an account with a positive available balance because debit holds are placed on authorized transactions (effectively sequestering the funds needed to pay the transaction), so there should always be enough money in the account to cover the transactions when they settle. Compl. ¶¶ 11-17. According to the complaint, First Financial breaches the contract because the contract promises to only charge overdraft fees on transactions with insufficient available funds, yet First Financial charges overdraft fees on transactions "for which there are sufficient funds available to cover the transactions throughout their lifecycle." Compl. ¶37. Regarding APSN transactions specifically, Mr. Hash alleges that First Financial uses the same debit-card transaction twice—once at authorization and once at settlement—to determine if the transaction overdraws an account. Compl. ¶ 41-43. This practice allows First Financial to charge overdraft fees on transactions that shouldn't have caused an overdraft because there were sufficient available funds at the time of authorization; as Mr. Hash sees it, the later "pseudo-event" of settlement has no bearing on whether there were sufficient available funds to cover a transaction when it was authorized. Mr. Hash alleges that he was assessed overdraft fees for debit-card transactions even though they were authorized when he had enough funds to pay for them. These overdraft fees are alleged to have violated the parties' contract, the implied duty of good faith and fair dealing, and the Indiana Deceptive Consumer Sales Act. Mr. Hash attached a copy of the contract to his complaint.

To illustrate how a transaction could authorize positive but settle negative, assume you have $10 in your bank account. On day one, you make a $7 purchase that is authorized at the point of sale. The $7 is immediately deducted from your available balance, bringing the available balance to $3, but the transaction will take three days to settle, so your current balance remains at $10. On day two, you make a purchase for $11² that settles within hours, bringing your available balance to $-8 and your current balance to $-1. Thesecond transaction prompts an overdraft fee of $37,³ leaving your available balance at the end of day two at $-45 and your current balance at $-38. On day three, the first $7 purchase finally settles, and the available and current balances are the same at $-45. At this point, First Financial charges another overdraft fee because the $7 transaction settled negative. Mr. Hash challenges this second overdraft fee on the $7 transaction because, at the time of the transaction, he had sufficient funds to pay for the purchase.

Mr. Hash says that the contract actually doesn't allow what the contract calls "Authorize Positive—Settle Negative" transactions; it bars them because First Financial promises to determine overdrafts at the moment of authorization. If overdrafts are determined at the time of authorization, APSN transactions should never trigger an overdraft fee because they are authorized on a positive balance. Mr. Hash also argues that the contract is ambiguous at best as to whether overdraft fees are assessed at authorization or settlement, and because the meaning of an ambiguous contract term is a question of fact that must be answered in favor of the plaintiff at the motion to dismiss stage, Mr. Hash states a claim for breach of contract. First Financial is steadfast that the contract clearly explains that an overdraft occurs if the customer's balance is too low when transactions are presented for permanent payment and settlement, even of there was enough when the transaction was initially authorized.

II. Standard of Review

A court considering a defendant's motion to dismiss for failure to state a claim on which relief can be granted "take[s] as true all well-pleaded facts and allegations in the plaintiff's complaint, . . . and the plaintiff is entitled to all reasonable inferences that can be drawn from the complaint." Bontkowski v. First Nat. Bank of Cicero, 998 F.2d 459, 461 (7th Cir. 1993). "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, 678 (2009). Factual allegations must give the defendant fair notice of the claims being asserted and the grounds upon which they rest and "be enough to raise a right to relief above the speculative level on the assumption that all of the complaint's allegations are true." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 545 (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." Ashcroft v. Iqbal, 556 U.S. at 678. In other words, a complaint must give "enough details about the subject-matter of the case to present a story that holds together." McCauley v. City of Chicago, 671 F.3d 611, 616 (7th Cir. 2011). A pleading that merely offers "labels and conclusions" or "a formulaic recitation of the elements of a cause of action will not do." Ashcroft v. Iqbal, 556 U.S. at 678.

III. Breach of Contract Claim

Under Indiana law, "[t]he essential elements of a breach of contract action are the existence of a contract, the defendant's breach thereof, and damages." McVay v. Store House Comp., 289 F. Supp. 3d 892, 896 (S.D. Ind. 2017) (citing McCalment v. Eli Lilly & Co., 860 N.E.2d 884, 894 (Ind. Ct. App. 2007)). To the extent that the allegations in a complaint contradict a contract that is attached to the complaint, the contract "trumps the allegations" and "the court is not required to credit the unsupported allegations." N. Ind. Gun & Outdoor Shows, Inc. v. City of S. Bend, 163 F.3d 449, 454 (7th Cir. 1998). "In fact, a plaintiff may plead himself out of court by attaching documents to the complaint that indicate that he or she is not entitled to judgment." Id. at 455.

The parties agree that a contract exists, but dispute the defendant's breach of the parties' contract. Whether Mr. Hash has alleged a claim upon which relief can be granted depends on whether the contract allows First Financial's challenged conduct. First Financial determined that an overdraft occurred when Mr. Hash's debit-card transactions settled negative even though those transactions authorized positive. So, whether Mr. Hash has stated a claim upon which relief can be granted...