Rader v. Sandia Lab. Fed. Credit Union

JENNY RADER, on behalf of herselfand all others similarly situated, Plaintiff, v. SANDIA LABORATORY FEDERAL CREDIT UNION, Defendant.

Civ. No. 20-559 JAP/JHR

UNITED STATES DISTRICT COURT DISTRICT OF NEW MEXICO

April 19, 2021

MEMORANDUM OPINION AND ORDER

On August 31, 2020, Sandia Laboratory Federal Credit Union ("Defendant") moved to dismiss Jenny Radar's ("Plaintiff's") CLASS ACTION COMPLAINT (Doc. 1) ("Complaint").¹ At first blush, the Complaint appears to allege garden-variety breach of contract claims, a few extra-contractual claims, and a federal consumer protection law violation against a credit union by one of its members. But below the surface, there is an ongoing national battle between certain interest groups against federal credit unions, with consumers attacking overdraft fee disclosures via attempted class action lawsuits. Federal credit unions are now being forced to defend membership agreements and overdraft fee disclosures from technical accounting arguments, even though the consumers incurring the penalties literally appear to be spending more money than they actually have. Although most federal credit unions will undoubtedly respond with revised membership agreements and opt-in contracts to eliminate any ambiguities, this Motion is Defendant's attempt to neutralize an attack on its own overdraft practices. The Court will grant Defendant's Motion in its entirety.

I. BACKGROUND

At the outset, the Court includes some general information to help the reader understand Plaintiff's arguments. Essentially, Plaintiff's claims turn on which accounting method Defendant promised to use when it assessed overdraft fees on her checking account. Financial institutions primarily use two approaches to calculate an account holder's checking account balance: the ledger balance method and the available balance method. As described by the Consumer Financial Protection Bureau ("CFPB"),

[a] ledger-balance method factors in only settled transactions in calculating an account's balance; an available-balance method calculates an account's balance based on electronic transactions that the institutions have authorized (and therefore are obligated to pay) but not yet settled, along with settled transactions. An available balance also reflects holds on deposits that have not yet cleared.

CFPB, Winter 2015 Supervisory Highlights, Section 2.3; see Compl. ¶ 25 n.14 (same).

II. FACTUAL BACKGROUND²

Defendant is a federal credit union. Compl. ¶ 8. Defendant requires its members to sign a Membership and Account Agreement ("Membership Agreement"). Id. ¶ 18. The Membership Agreement incorporates Defendant's Funds Availability Policy Disclosure ("FAPD"), which explains a member's ability to withdraw funds from transaction accounts. Id., Ex. A § 12. Additionally, Defendant offers overdraft protection to its members via a form entitled "What You Need to Know About Overdrafts, Overdraft Fees and Courtesy Pay ("Opt-In Contract"). Id. ¶ 19; see also id., Ex. B. The parties agree that these instruments govern Plaintiff's claims.³

The Membership Agreement, in relevant part, states:

12. TRANSACTION LIMITATIONS

a. Withdrawal Restrictions. We will pay checks or drafts, permit withdrawals, and make transfers from available funds in your account. The availability of funds in your account may be delayed as described in our Funds Availability Policy Disclosure. We may also pay checks or drafts, permit withdrawals, and make transfers from your account from insufficient available funds if you have established an overdraft protection plan or, if you do not have such a plan with us, in accordance with our overdraft payment policy.

14. OVERDRAFTS

a. Payment of Overdrafts. If, on any day, the available funds in your share or deposit account are not sufficient to pay the full amount of a check, draft, transaction . . . we may return the item or pay it, as described below. The Credit Union's determination of an insufficient available account balance may be made at any time between presentation and the Credit Union's midnight deadline with only one review of the account required. We do not have to notify you if your account does not have sufficient available funds[.]

If we offer standard overdraft services, this service allows us to authorize payment for the following types of transactions regardless of whether your share or deposit account has sufficient funds . . . For ATM and one-time debit card transactions, you must affirmatively consent to such coverage. Without your consent, the Credit Union may not authorize and pay an ATM or one-time debit card transaction that will result in insufficient funds in your account. If you have established a service linking your share or deposit account with other individual or joint accounts, you authorize us to transfer funds from another account of yours to cover an insufficient item . . . Services and fees for these transactions are shown in the document the Credit Union uses to capture your affirmative consent and the Schedule of Fees and Charges.

Except as otherwise agreed in writing, if we exercise our right to use our discretion to pay such items that result in an insufficiency of funds in your account, we do not agree to pay them in the future and may discontinue coverage at any time without notice. If we pay these items or impose a fee that results in insufficient funds in your account, you agree to pay the insufficient amount, including the fee assessed by us, in accordance with our standard overdraft services or any other service you may have authorized with us, or if you do not have such protections with us, in accordance with any overdraft payment policy we have, as applicable.

Compl., Ex. A §§ 12, 14.

The Opt-In Contract specifies that "an overdraft occurs when you do not have enough money in your account to cover a transaction, but we pay it anyway." Id., Ex. B. Lastly, the FAPD explains a member's "ability to withdraw funds" and "only applies to the availability of funds in transaction accounts." Doc. 16 at 5.

In accordance with the foregoing, Defendant assessed multiple overdraft fees on Plaintiff's account for various one-time debit card purchases, including six penalties on January 21, 2019, two on February 11, 2019, three on February 12, 2019, three on March 30, 2019, and three more on June 1, 2020. Compl. ¶¶ 28, 30-32. Plaintiff alleges that Defendant violated the Membership Agreement and Opt-In Contract when it imposed these fees because her ledger balance reflected an amount sufficient to cover the transactions. Id. Specifically, Plaintiff asserts that by pegging overdraft fees to her available balance, even though Defendant promised to penalize her only when her ledger balance could not cover a transaction, Defendant breached (1) the Opt-In Contract (Count I), (2) the Membership Agreement (Count II), and (3) the implied covenant of good faith and fair dealing (Count III). Id., passim. Plaintiff further alleges that this practice unjustly enriched Defendant (Count IV). Id. ¶¶ 70-73. Lastly, Plaintiff argues that Defendant violated Regulation E, 12 C.F.R. §§ 1005, et seq., implemented under the Electronic Fund Transfers Act ("EFTA"), 15 U.S.C. §§ 1693, et seq., when Defendant failed to provide a valid description of its overdraft program, i.e., that it uses the available balance method rather than the ledger balance method to assess penalties (Count V). Id. ¶¶ 74-78.

III. LEGAL STANDARD

A Rule 12(b)(6) motion "tests the sufficiency of the allegations within the four corners of the complaint." Mobley v. McCormick, 40 F.3d 337, 340 (10th Cir. 1994). In considering a Rule 12(b)(6) motion, courts must "accept as true all well-pleaded factual allegations in a complaint and view [those] allegations in the light most favorable to the [non-moving party]." Smith v. United States, 561 F.3d 1090, 1098 (10th Cir. 2009). The allegations must "state a claim to relief that is plausible on its face." Id. (quoting Ridge at Red Hawk L.L.C. v. Schneider, 493 F.3d 1174, 1177 (10th Cir. 2007)). "The claim is plausible only if it contains sufficient factual allegations to allow the court to reasonably infer liability." Moya v. Garcia, 895 F.3d 1229, 1232 (10th Cir. 2018) (citing Iqbal, 556 U.S. 662, 678 (2009)). The term "plausible" does not mean "likely to be true." Robbins v. Oklahoma, 519 F.3d 1242, 1247 (10th Cir. 2008). A claim is facially plausible "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678 (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556 (2007)). The factual allegations must "raise a right to relief above the speculative level," Twombly, 550 U.S. at 555—i.e., "that discovery will reveal evidence to support the plaintiff's allegations." Shero v. City of Grove, Okla., 510 F.3d 1196, 1200 (10th Cir. 2007). A mere "formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555.

IV. ANALYSIS

A. Counts I-II

Counts I and II are simple breach of contract claims. In Count I, Plaintiff alleges that Defendant breached the express terms of the Opt-In Contract when it assessed overdraft fees on Plaintiff's checking account even though her ledger balance was sufficient to cover the transactions at issue. Count II advances the same theory but as applied to the Membership Agreement. Defendant maintains that both Counts fail to state a claim because the two agreements, read in tandem, unambiguously convey that Defendant applies the available balance method to assess overdraft fees. The Court agrees.

As a threshold matter, the Court will read the Membership Agreement and Opt-In Contract as a whole. In a misguided tactic, Plaintiff completely divorces the Membership Agreement from the Opt-In Contract, reading each document in isolation when advancing her arguments. Indeed, Plaintiff does not even attempt to convince the Court that these instruments should be...