Ji Dong Cheng v. HSBC Bank USA, N.A.

511 F.Supp.3d 248

JI DONG CHENG, Plaintiff,

v.HSBC BANK USA, N.A., Defendant.

20-cv-1551 (BMC)

United States District Court, E.D. New York.

Signed January 4, 2021

Filed January 5, 2021

Beth E. Terrell, Pro Hac Vice, Terrell Marshall Law Group PLLC, Seattle, WA, Daniel Adam Schlanger, Schlanger Law Group, LLP, New York, NY, for Plaintiff.

Andrew J. Soven, Holland & Knight LLP, Philadelphia, PA, Mark S. Melodia, Qian Shen, Holland & Knight LLP, New York, NY, for Defendant.

MEMORANDUM DECISION AND ORDER

COGAN, District Judge.

Defendant moves for judgment on the pleadings on plaintiff's claims for breach of contract, a violation of the Electronic Fund Transfer Act ("EFTA"), and a violation of New York General Business Law § 349. For the reasons described below, the motion is granted as to the EFTA claim and otherwise denied.

BACKGROUND¹

Plaintiff opened a savings account with defendant bank by online application. According to defendant's Terms and Charges Disclosures (the "Disclosures"), "[i]nterest begins to accrue on the Business Day you deposit noncash items." Noncash items are instruments like checks and wire transfers. That same document defines "Business Day" as "every day except Saturday, Sunday and Federal holidays."

This case concerns two deposits that plaintiff made. First, on Friday, May 31, 2019, plaintiff transferred $100,000 to his account with defendant through an Automated Clearing House ("ACH") network. Plaintiff alleges, however, that defendant "did not apply interest on [the] account until, at the earliest, Tuesday, June 4, 2019." Second, on Tuesday, November 26, 2019, plaintiff made another $100,000 ACH transfer to the account, but defendant "did not apply interest on [the] deposit until, at the earliest, Friday, November 29, 2019."

Upon plaintiff notifying defendant of the alleged delay in crediting interest to his deposits, defendant responded that its policy is to not credit interest on deposits until 3-5 business days after they are made. Plaintiff claims that this policy is contrary to the representations contained in defendant's Disclosures. He filed this putative class action for breach of contract and violations of the Electronic Fund Transfer Act and New York General Business Law § 349.

DISCUSSION

"The same standard applicable to Fed. R. Civ. P. 12(b)(6) motions to dismiss applies to Fed. R. Civ. P. 12(c) motions for judgment on the pleadings." Bank of New York v. First Millennium, Inc., 607 F.3d 905, 922 (2d Cir. 2010). The complaint must plead "enough facts to state a claim to relief that is plausible on its face," Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), and to "allow[ ] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged."

Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).

I. Breach of contract claim

Contract language is unambiguous "where it has a definite and precise meaning, unattended by danger of misconception in the purport of the contract itself, and concerning which there is no reasonable basis for difference of opinion." JA Apparel Corp. v. Abboud, 568 F.3d 390, 396 (2d Cir. 2009). In the context of the instant case, the word "deposit" has an unclear meaning that is open to different reasonable interpretations.

Defendant first argues that all of plaintiff's claims should be dismissed because interest properly began to accrue upon receipt of each deposit. Defendant points to the Electronic Balance Transfer Service ("EBTS") agreement, which provides "more information about electronic banking ... for the services [an account owner] is using." The EBTS states that an "Electronic Bank Transfer may take up to four business days before it is credited to your HSBC account." According to defendant, this explanation – read together with the Disclosures’ statement that "[i]nterest begins to accrue on the Business Day you deposit noncash items" – unambiguously establishes that the relevant date for interest accrual to begin is not the date that the account owner initiates an ACH transaction to transfer funds, but instead is the date that the electronic transferred funds are credited to the account and the transaction is completed.

Although defendant's interpretation is not unreasonable, the provision does not unambiguously support it. The Disclosures state that "[i]nterest begins to accrue on the Business Day you " – the account owner – "deposit noncash items." (Emphasis added.). The agreement does not state that interest accrues only once the transaction is complete, or once the bank receives the funds, or once the funds are credited to the account, or otherwise suggest that interest accrual relates to some act performed by the bank or during the transfer. Instead, the Disclosures tie the date of interest accrual to the act taken by "you," i.e. , the account owner.

The EBTS is a separate agreement and provides little support for defendant's interpretation. The EBTS states that an electronic transfer may take up to four days "before it is credited to your" account. It does not state that a deposit may take up to four days to be completed, or consummated, or recognized by the bank. And it certainly does not state that interest will not accrue until the Business Day that noncash items are credited to the account.

Defendant points to the analysis of an interest accrual date in Eke v. Bank of Am., N.A., No. 09-cv-488, 2009 WL 10688932, at *2 (E.D. Va. Nov. 12, 2009), but that case somewhat supports plaintiff's position. The Agreement in Eke provided that "interest begins to accrue no later than the business day on which [BOA] receive[s] credit for non-cash items, such as checks." Id. at *2. Based on that language, the court found that, although a cash deposit begins to accrue interest the day it is deposited because "that is the day on which the bank receives and credits the full value of the deposit," "non-cash deposits do not begin to accrue interest until the day on which they are properly credited as having been fully and validly received." Id. Here, however, the relevant contractual provision does not contain any mention of when the bank receives credit for the non-cash item. Instead, it plainly states that interest accrues on the day "you deposit" the non-cash item.

Defendant's contention that "common sense suggests that interest cannot accrue on funds that have been only provisionally-credited to an interest-bearing account pending verification and valuation," Eke, 2009 WL 10688932, at *2, does not persuade me. The argument ignores the fact that there is a competitive market for banking products and services. Although courts must reject interpretations of provisions that are commercially unreasonable or illogical, see Wells Fargo Bank, N.A. v. Wrights Mill Holdings, LLC, 127 F. Supp. 3d 156, 173 (S.D.N.Y. 2015) (collecting cases), it is perfectly conceivable that an institution might offer a few days of pre-receipt interest to attract deposits. After all, banks used to give away televisions and toasters to attract deposits. I see no impediment to defendant, if it wanted to, applying interest to the account from the date on which a customer notifies the bank of his deposit transaction. Perhaps, at most, defendant could defer withdrawal of that interest until the funds had cleared, but that possibility does not bear on when the interest calculation begins to run.

Plaintiff's proposed interpretation is not any less ambiguous. Plaintiff's cited cases focus on check deposits and ATM transfers, not ACH transfers, and so are not persuasive. As used in this context, it is not an unreasonable interpretation of word "deposit" as referring to the act of placing money in the custody of the bank, and not merely the act of requesting an ACH transfer. See United States v. Jenkins, 943 F.2d 167, 174 (2d Cir. 1991) ("the term ‘deposit’ means a sum of money placed in the custody of a bank") (citing Black's Law Dictionary 395 (5th ed. 1979)). There can be a reasonable difference in opinion as to whether the date "you deposit" funds refers to the date an account holder requests a transfer of funds or the date the bank receives the funds, and thus the provision is ambiguous.

I cannot resolve this ambiguity on the present motion because extrinsic evidence that is not before me may shed light on the parties’ actual intent. See Sarinsky's Garage Inc. v. Erie Ins. Co., 691 F. Supp. 2d 483, 486 (S.D.N.Y. 2010).

II. The EFTA

I must interpret the EFTA according to its plain language and "with reference to the statutory context, ‘structure, history, and purpose.’ " L.S. v. Webloyalty.com, Inc., 954 F.3d 110, 115 (2d Cir. 2020). The purpose of the EFTA is "to protect consumers by providing a ‘basic framework establishing the rights, liabilities, and responsibilities of participants in electronic transfer systems.’ " Azose v. Wash. Mut. Bank, 588 F. Supp. 2d 366, 370 (E.D.N.Y. 2008). The EFTA and its implementing regulations require financial institutions to disclose the terms and conditions of electronic fund transfers in "clear and readily understandable" language, 12 C.F.R. § 1005.4(a)(1) ; 15 U.S.C. § 1693c(a), and disclose "any charges for electronic fund transfers or for the right to make such transfers." 15 U.S.C. § 1693c(a)(4). Under the EFTA, financial institutions like defendant must disclose fees or charges applicable to an electronic fund transfer but are not required to disclose every potential consequence of a fund transfer. Cf. Azose v. J.P. Morgan Chase Bank, Nat'l Ass'n, 411 F. App'x 387, 388 (2d Cir. 2011) (defendant bank need not disclose at its ATM fees it imposed on plaintiffs’ bank in the course of processing plaintiffs’ transactions, even though plaintiffs alleged that their bank passed those fees on to plaintiffs).

Defendant argues that plaintiff's claim under the EFTA must fail because the uncredited interest is not a "fee" or "charge" requiring disclosure. Defendant defines a...