Opinion
No. 1:20-CV-01331
2021-03-30
Daniel O'MALLEY, individually and on behalf all others similarly situated, Plaintiff, v. KASS MANAGEMENT SERVICES, INC., Defendant.
Angel Petrov Bakov, Bakov Law, Ltd., Glen Joseph Dunn, Jr., Glen J. Dunn & Associates, Chicago, IL, for Plaintiff. John D. Dalton, Christopher Mackey, Monica V. Banasiuk, O'Hagan Meyer, Chicago, IL, for Defendant.
Angel Petrov Bakov, Bakov Law, Ltd., Glen Joseph Dunn, Jr., Glen J. Dunn & Associates, Chicago, IL, for Plaintiff.
John D. Dalton, Christopher Mackey, Monica V. Banasiuk, O'Hagan Meyer, Chicago, IL, for Defendant.
MEMORANDUM OPINION AND ORDER
Edmond E. Chang, United States District Judge
This case arises from a settlement agreement between a property management corporation and a condominium owner. In a dispute that was separate from this law-suit, now-Defendant Kass Management Services sued now-Plaintiff Daniel O'Malley for allegedly violating condominium-association bylaws. As part of a settlement, O'Malley agreed to pay Kass $233 per month for 18 consecutive months. After O'Malley wrote out checks for the first two installments, Kass automatically withdrew the remaining monthly installments directly from his bank account. With the tables turned, O'Malley filed this lawsuit alleging that those withdrawals violated the Electronic Funds Transfer Act, 15 U.S.C. § 1693e et seq. R. 1, Complaint. Kass filed a motion to dismiss the Complaint under Civil Rule 12(b)(6), but really the motion raised the affirmative defense of the statute of limitations. R. 19. The Court authorized the parties to conduct limited discovery on the limitations defense. R. 24. After each party responded to limited discovery requests, Kass has now moved under Civil Rule 12(c) for judgment on the pleadings. R. 25. For the reasons explained in this Opinion, the motion is converted to a summary judgment motion, and it is granted in part and denied in part.
The Court has federal question jurisdiction over this action. 28 U.S.C. § 1331.
Citations to the record are "R." followed by the docket entry number and, if need, a page or paragraph number.
I. Background
Daniel O'Malley owned a condominium in a building in Chicago, Illinois. R. 1, Compl. ¶ 9. On behalf of the property's Condominium Association, Kass Management collected monthly assessments from O'Malley and other members. Id. ¶¶ 10–11. The monthly assessments included recurring charges for parking and other services. Id. ¶ 12. Kass obtained O'Malley's prior written authorization to debit these charges directly from O'Malley's bank account. Id. ¶ 14.
In August 2017, Kass filed a lawsuit against O'Malley based on violations of the Association's bylaws. Compl. ¶ 15. The following year, the parties reached a settlement under which O'Malley would pay Kass $233 per month for 18 consecutive months. Id. ¶ 16. In April and May 2018, O'Malley wrote checks for the first two monthly installments. Id. ¶¶ 17–18. Then, seemingly out of the blue, during every month from June 2018 through July 2019 (with the exception of May 2019), Kass debited the monthly settlement installment directly from O'Malley's bank account. Id. ¶ 21. But O'Malley never authorized automatic withdrawals of the monthly legal fee. Id. ¶ 20. During this period, Kass bundled the monthly legal fee with other assessments and withdrew the total as a lump sum. R. 28, Pl.’s Resp. at 7; R. 28-4, Pl.’s Resp., Exh. D, Pl.’s Bank Statements. According to O'Malley's responses to interrogatories, he first noticed direct debits for the monthly legal fees in May 2019. Pl.’s Resp. at 7; R. 26-2, Interr. Resp. ¶ 5.
In early May 2019, O'Malley requested that Chase Bank stop the automatic transfers to Kass. R. 26-2, Interr. Resp., ¶¶ 5, 7.
On February 24, 2020, O'Malley filed this lawsuit, alleging that Kass violated the Electronic Fund Transfer Act by automatically withdrawing the monthly settlement payments without his written authorization. 15 U.S.C. § 1693e ; Compl. ¶¶ 22–27. O'Malley brings his claim on behalf of a proposed class comprising all persons whose bank accounts were automatically debited by Kass for a recurring legal fee through an electronic fund transfer. Compl. ¶ 28. O'Malley alleges (on information and belief) that Kass manages around 9,500 residential units and 600,000 square feet of commercial space throughout the Chicago area. Id. ¶ 30.
Kass moved for judgment on the pleadings, Fed. R. Civ. P. 12(c), seeking to dismiss the Complaint as untimely filed under the statute of limitations. R. 25; R. 26, Def. Br. at 2.
II. Standard of Review
A party may move for judgment on the pleadings after the pleadings are closed. Fed. R. Civ. P. 12(c). A motion for judgment on the pleadings is subject to the same standard as a motion to dismiss under Rule 12(b)(6). N. Ind. Gun & Outdoor Shows, Inc. v. City of South Bend , 163 F.3d 449, 452 (7th Cir. 1998). In deciding a motion for judgment on the pleadings, the Court must "accept all well-pleaded allegations in the complaint as true," Forseth v. Vill. of Sussex , 199 F.3d 363, 368 (7th Cir. 2000), and view the alleged facts in the light most favorable to the non-moving party, Flenner v. Sheahan , 107 F.3d 459, 461 (7th Cir. 1997). Judgment on the pleadings is proper if it appears beyond doubt that the non-moving party can prove no set of facts sufficient to support its claim for relief. Id. In deciding a motion for judgment on the pleadings, the Court considers the pleadings alone, which consist of the complaint, the answer, and any documents attached as exhibits. N. Ind. , 163 F.3d at 452.
Given that Rule 12(c) motions are confined to an examination of the pleadings, if the Court needs to refer to facts outside the pleadings to decide the motion, then the motion must be treated as a summary judgment motion under Rule 56. Fed. R. Civ. P. 12(d). As explained next, that is what must happen here.
III. Analysis
The Electronic Fund Transfer Act (often referred to by its acronym, the EFTA) requires that creditors obtain written pre-approval before making electronic withdrawals: a "preauthorized electronic fund transfer from a consumer's account may be authorized by the consumer only in writing, and a copy of such authorization shall be provided to the consumer when made." 15 U.S.C. § 1693e(a). A "preauthorized electronic fund transfer" is "an electronic fund transfer authorized in advance to recur at substantially regular intervals." 15 U.S.C.A. § 1693a(10). The Act also provides that "[w]ithout regard to the amount in controversy, any action under this section may be brought in any United States district court, or in any other court of competent jurisdiction, within one year from the date of the occurrence of the violation." 15 U.S.C. § 1693m(g).
Kass argues that the Complaint is time-barred because the statute of limitations accrued on the first automatic withdrawal in June 2018, which happened more than one year before O'Malley filed the lawsuit (on February 24, 2020). Def. Br. at 5–8. In response, O'Malley contends that at least four unauthorized transfers, from March 2019 through July 2019, took place within the statute of limitations. Pl.’s Resp. at 3. According to O'Malley, each electronic transfer gives rise to "a discrete cause of action that starts the running of the one-year statute of limitations anew at each violation." Id. Alternatively, O'Malley argues that his claims are salvaged by the discovery rule or the continuing-violation doctrine. Id. at 6–9. The Court will explain why these two doctrines do not apply before returning to the EFTA itself.
A. Continuing Violation
O'Malley has not suffered a continuing violation because it would be reasonable to require him to sue separately over each transfer. Heard v. Sheahan , 253 F.3d 316, 319 (7th Cir. 2001). Under the continuing-violation doctrine, a plaintiff suffering an ongoing injury can reach back to its beginning even if the beginning is outside the limitations period. Id. at 319. The doctrine applies to injuries that are, by their nature , difficult to separate into discrete violations. See Heard , 253 F.3d at 318–20 (explaining that a deliberate refusal to treat a medical problem may qualify as a continuing violation of the Eighth Amendment); Nat'l R.R. Passenger Corp. v. Morgan , 536 U.S. 101, 115–18, 122 S.Ct. 2061, 153 L.Ed.2d 106 (2002) (applying continuing-violation doctrine to hostile work environment claim because that type of claim, by its nature, contemplates a pattern or practice of conduct "in direct contrast to discrete acts"). As pled, O'Malley's injuries are not by their nature the type of ongoing harms covered by the continuing-violations doctrine. The mere fact that Kass allegedly made a regular habit of violating the EFTA is "not enough to convert multiple individual violations into one long continuing wrong." CSC Holdings, Inc. v. Redisi , 309 F.3d 988, 992 (7th Cir. 2002). Indeed, Heard distinguished a continuing violation from cases arising out of a context analogous to this one: suits for lost wages. Heard , 253 F.3d at 320. The Seventh Circuit explained that a plaintiff seeking backpay for repeated underpayment would not be permitted to reach back to the first pay period because damages from each discrete act are readily discernible without waiting for the entire series of events. Id. In the same way, each of the unauthorized transfers is a readily discernible injury for which damages are readily calculable.
The statute itself also weighs against applying the continuing-violation doctrine. The EFTA contemplates that although preauthorized transfers would "recur at substantially regular intervals", 15 U.S.C. § 1693a(10), a consumer may stop a preauthorized transfer in any given single pay period. 15 U.S.C. § 1693e(a) ("A consumer may stop payment of a preauthorized electronic fund transfer by notifying the financial institution orally or in writing at any time up to three business days preceding the scheduled date of such transfer."). This implies that each preauthorized transfer constitutes a discrete event under the statutory scheme. For these reasons, the continuing violation doctrine does not apply. B. Discovery Rule
O'Malley also contends that the statute of limitations accrued only when he discovered the unauthorized withdrawals were happening. "The ‘discovery rule,’ which is read into state statutes of limitations in federal question cases, postpones the beginning of the limitations period of a federal claim from the date the party is injured to the date when the party discovers or should have discovered the injury, exercising reasonable diligence." Cathedral of Joy Baptist Church v. Vill. of Hazel Crest , 22 F.3d 713, 717 (7th Cir. 1994). O'Malley does not benefit from this rule because reasonable diligence would have revealed the injury.
According to O'Malley's response to interrogatories, he first learned of automatic legal-fee withdrawals in May 2019. Interr. Resp. ¶ 5. O'Malley attributes the delayed discovery to the lumping of monthly legal fees with other Association dues. Pl.’s Resp. at 6–7. But had he exercised reasonable diligence, O'Malley would have discovered the first alleged violation back in June 2018. According to O'Malley, it was in May 2019 that he first noticed his Chase Bank account contained "less money that it usually does and that his electronic withdrawals totaled a higher amount than usual." Interr. Resp. ¶ 5. Because he requested Chase Bank to stop electronic withdrawals on May 7, 2019, the "higher than usual" withdrawal is reflected in O'Malley's bank statement covering the period from March 23, 2019 to April 22, 2019. Pl.’s Bank Statements at 30. O'Malley's monthly assessment for that period was $956.20. Id. If that amount was "higher than usual," than the $1,177.32 assessment on June 11, 2018 was higher than usual by an even greater amount. Id. at 3. The conditions that purportedly led O'Malley to discover his alleged injuries in May 2019 applied just as well in June 2018, and then some. And he undisputedly knew that he owed Kass $233 every month during that time period. See R. 26-3, Pl.’s Resp., Exh. C, Pl.’s Resp. RFA ¶ 1. Tellingly, O'Malley does not allege, for example, that he double-paid on his monthly legal fees from June 2018 through June 2019. Thus, it is reasonable to expect that O'Malley should have investigated how his settlement obligations were being fulfilled, assuming that he was not making payments via written check or any other method. So, in June 2018, he should have exercised reasonable diligence either to inquire with Kass, or to review his monthly assessment statement. See R.26-6, Pl.’s Resp., Exh. F, June 2018 Kass Statement at 2. On doing either, he would have discovered the alleged injury.
The next statement period runs from April 23, 2019 to May 22, 2019, and reflects the stop-payment fees dated May 7, 2019. Pl.’s Bank Statements at 34.
Aside from the factual inapplicability of the discovery rule, the discovery rule should not be read into the EFTA's limitations provision as a matter of statutory construction either. Section 1693m(g) says that "any action under this section may be brought ... within one year from the date of the occurrence of the violation." In Rotkiske v. Klemm , the Supreme Court interpreted a similar limitations provision in the Fair Debt Collections Practices Act. ––– U.S. ––––, 140 S. Ct. 355, 360–61, 205 L.Ed.2d 291 (2019) ; 15 U.S.C. § 1692k(d) ("An action to enforce any liability created by this subchapter may be brought ... within one year from the date on which the violation occurs"). Relying on the plain language of the statutory provision, the Supreme Court declined to read the discovery rule into the provision. Klemm , 140 S. Ct. at 361. It noted that if Congress had intended for claims under the Fair Debt Collections Practices Act to accrue on discovery, it would have said so as it did in other limitations provisions. Id. (citing 12 U.S.C. § 3416 ; 15 U.S.C. § 1679i ; 15 U.S.C. § 77m ; 19 U.S.C. § 1621 ; 26 U.S.C. § 7217(c) ; 29 U.S.C. § 1113 ). The similar text in the EFTA ("the date of the occurrence of the violation") demands the same result: the discovery rule does not apply.
C. Accrual of the Claim
With O'Malley unable to invoke the continuing-violation doctrine or the discovery rule, the next question is: when do EFTA claims accrue for purposes of the statute of limitations? When interpreting limitations provisions, courts begin by analyzing the statutory text. Klemm , 140 S. Ct. at 360. To repeat, the EFTA provides that "[w]ithout regard to the amount in controversy, any action under this section may be brought in any United States district court, or in any other court of competent jurisdiction, within one year from the date of the occurrence of the violation. " 15 U.S.C. § 1693m(g) (emphasis added).
The introductory clause "without regard to the amount in controversy," does not supply any additional meaning to what constitutes an "occurrence" or a "violation." It merely reiterates that EFTA claims arise under federal-question jurisdiction, which of course does not require a minimum amount in controversy.
The Seventh Circuit has not addressed when a claim accrues under the EFTA. There is sparse case law on the issue. In Wike v. Vertrue, Inc. , the Sixth Circuit held that the plaintiff's EFTA claim accrued on the first recurring transfer. 566 F.3d 590, 593 (6th Cir. 2009). In Wike , however, the precise question was whether an EFTA claim accrued on the first recurring transfer—which there occurred within the limitations period—or upon arrangement of the recurring transfer, which fell outside it. Id. The question here is different, namely, whether an EFTA claim involving recurring transfers accrues solely on the first transfer, starting the limitations clock ticking for all of the subsequent transfers too, such that the subsequent transfers do not qualify as separate accruals of independent claims. Neither the Seventh Circuit nor any other Circuit has answered this precise question. On review of district court decisions, those courts have decided the issue both ways.
In an unpublished opinion, the Tenth Circuit held that the statute of limitations had expired on the plaintiff's EFTA claims, but the case is inapposite because the last possible occurrence in the series of alleged violations was itself outside the limitations period. Houck v. Loc. Fed. Sav. & Loan, Inc. , 996 F.2d 311, 1993 WL 191818, at *3 (10th Cir. 1993).
Compare the cases holding that each transfer constitutes an independent violation, see, e.g., Diviacchi v. Affinion Grp., Inc. , No. CIV.A. 14-10283-IT, 2015 WL 3631605, at *10 (D. Mass. Mar. 11, 2015) ; Soileau v. Midsouth Bancorp Inc. , No. 6:19-CV-00537, 2019 WL 5296499, at *4 (W.D. La. July 19, 2019), with cases holding that accrual starts only on the first transfer, see, e.g., Repay v. Bank of Am., N.A. , No. 12 CV 10228, 2013 WL 6224641, at *5 (N.D. Ill. Nov. 27, 2013) ; Walbridge v. Ne. Credit Union , 299 F. Supp. 3d 338, 350 (D.N.H. 2018).
On examination of the statutory text and the EFTA's overall scheme, the Court concludes that each preauthorized transfer in violation of § 1693e constitutes a discrete occurrence and a new violation accrues for purposes of the statute of limitations. First, the EFTA explicitly contemplated that preauthorized electronic fund transfers would "recur at substantially regular intervals," 15 U.S.C. § 1693a(10), but nonetheless framed § 1693e ’s written pre-approval requirement in terms of discrete authorizations. § 1693e(a) ("A preauthorized electronic fund transfer from a consumer's account may be authorized by the consumer only in writing ...."). This discreteness is bolstered by the subsequent clause permitting consumers to effectively cancel any preauthorized transfer within three days. § 1693e(a) ("A consumer may stop payment of a preauthorized electronic fund transfer by notifying the financial institution orally or in writing at any time up to three business days preceding the scheduled date of such transfer."). When read together, these clauses suggest that a consumer can provide or withdraw preauthorization within any single period of recurrence. This also means that a consumer could potentially stop a withdrawal within that same period—which also means that a creditor might reinitiate unauthorized withdrawals. So violations of § 1693e need not be consecutive, and it would be odd to treat non-consecutive violations as a single "occurrence" that accrues only on the earliest violation. Cf. Gomez v. Cavalry Portfolio Servs., LLC , 962 F.3d 963, 967 (7th Cir. 2020) (explaining that a tortfeasor "could not acquire immunity by waiting, before transgressing again, until the time to sue on an earlier wrong had expired").
This is not the same thing as applying the continuing-violation doctrine. Remember that that doctrine allows a plaintiff to reach back to the onset of an ongoing injury for the entire occurrence. Heard , 253 F.3d at 319. In contrast, the independent accrual for each violation means that only the occurrences within the limitations period are timely.
Second, if Congress wanted to start the clock on the first transfer, then it could have said so—just as it did in another federal law involving recurring payments. Specifically, in the Truth in Lending Act, Congress enacted the same text to set the limitations period. 15 U.S.C. § 1640(e) ("within one year from the date of the occurrence of the violation"). Right after the limitations-setting text, Congress set forth a different accrual rule for a specific type of recurring payment: "or, in the case of a violation involving a private education loan ..., 1 year from the date on which the first regular payment of principal is due under the loan." § 1640(e) (emphasis added). So Congress there altered the limitations clock by pegging it to the "first regular payment." In contrast, the EFTA contains no special limitations provision for recurring payments. Each recurring payment is its own violation with its own independent accrual.
One other federal statutory scheme points the same way. As explained earlier, the Fair Debt Collection Practices Act (the FDCPA) contains a limitations provision that is similar to the EFTA. 15 U.S.C. § 1692k(d) ("[a]n action to enforce any liability created by this subchapter may be brought ... within one year from the date on which the violation occurs"). The Seventh Circuit examined this provision in Gomez v. Cavalry Portfolio Services, LLC , 962 F.3d 963, 967 (7th Cir. 2020). There, a debt collector purchased the plaintiff-couple's credit-card debt, which was initially owed to Bank of America. Id. at 965. Before the purchase of the debt, Bank of America had abandoned collection efforts and stopped issuing billing statements. Id. Nonetheless, the debt collector sent plaintiffs two "dunning letters," in March and January 2013, seeking payment on the debt. Id. In March 2014, in response to a request from the plaintiffs’ attorney, the debt collector sent a verification letter confirming that the account was subject to resumed collection. Id. at 965–66. Eight months later, the plaintiffs sued under the FDCPA, alleging that the debt collector violated the statute's prohibition against "false, deceptive, or misleading representation ... in connection with the collection of any debt." Id. at 966 ; 15 U.S.C. § 1692e(2).
In evaluating the timeliness of the lawsuit, the Seventh Circuit treated each of the three letters as a separate "violation of a federal statute [that] carries its own period of limitations." Gomez , 962 F.3d at 966. Gomez held that the suit was timely with regard to the third letter, even though the first two letters were received more than one year before the suit's filing. Id. Even though each letter made demands with regard to the same underlying debt, each letter qualified as a separate violation for limitations purposes. Id. Just so here: each of the fund transfers must be treated as a separate "occurrence" under § 1693m(g).
One final analogy: claims for unpaid overtime under the Fair Labor Standards Act accrue anew with each pay period in which a violation occurs. See Knight v. Columbus, Ga. , 19 F.3d 579, 581 (11th Cir. 1994) ; Figueroa v. D.C. Metro. Police Dep't , 633 F.3d 1129, 1135 (D.C. Cir. 2011).
For these reasons, each of the fund transfers from June 2018 to May 2019 are independently accruing violations of the EFTA. This means that the lawsuit survives for the transfers in March, April, June, and July 2019. Any claims predating March 2019 are time-barred.
IV. Conclusion
Kass Management's converted motion for summary judgment is granted in part and denied in part. The claims based on the March, April, June, and July 2019 transfers were timely filed, and the claims based on transfers that happened before March 2019 are dismissed as untimely filed. Moving forward, Kass Management's answer is due by April 13, 2021. The parties shall confer and file a joint initial status report, see R. 8, by April 15, 2021. The tracking status hearing of April 9, 2021, is reset to April 23, 2021 at 8:30 a.m., but to track the case only (no appearance is required). Instead, the Court will set the discovery schedule based on the status report.