Opinion
Civil Action No. 21-cv-1484-WJM-SKC
2022-04-15
Karen MCCOLLAM, on behalf of herself and all others similarly situated, Plaintiff, v. SUNFLOWER BANK, N.A., Defendant.
Sophia G. Gold, KalielGold PLLC, Berkeley, CA, Jeffrey Douglas Kaliel, Kaliel Gold PLLC, Washington, DC, for Plaintiff. Andrew J. Demko, Mayer Brown LLP, Ashley Taylor Brines, Katten Muchin Rosenman LLP, Los Angeles, CA, David Cameron Walker, Douglas Wayne Brown, Brown Dunning Walker Fein PC, Denver, CO, for Defendant.
Sophia G. Gold, KalielGold PLLC, Berkeley, CA, Jeffrey Douglas Kaliel, Kaliel Gold PLLC, Washington, DC, for Plaintiff.
Andrew J. Demko, Mayer Brown LLP, Ashley Taylor Brines, Katten Muchin Rosenman LLP, Los Angeles, CA, David Cameron Walker, Douglas Wayne Brown, Brown Dunning Walker Fein PC, Denver, CO, for Defendant.
ORDER GRANTING DEFENDANT'S MOTION TO DISMISS
William J. Martinez, United States District Judge Plaintiff Karen McCollam brings this putative class action against Defendant Sunflower Bank, N.A. ("Sunflower"), alleging claims of breach of contract and breach of the implied covenant of good faith and fair dealing. (ECF No. 26 at 14–16.) This matter is before the Court on Sunflower's Motion to Dismiss ("Motion") pursuant to Federal Rule of Civil Procedure 12(b)(6). (ECF No. 29.) For the reasons explained below, the Motion is granted.
I. BACKGROUND
The following factual summary is drawn from McCollam's Amended Class Action Complaint ("Complaint"). (ECF No. 26.) The Court assumes the allegations contained in the Complaint are true for the purpose of deciding the Motion. See Ridge at Red Hawk, L.L.C. v. Schneider , 493 F.3d 1174, 1177 (10th Cir. 2007).
McCollam has a checking account with Sunflower. (¶ 32.) Customers with checking accounts are issued debit cards that allow them to have electronic access to their checking accounts for purchases, payments, withdrawals, and other electronic debit transactions. (¶ 11.) Among the documents that govern the parties’ relationship is a document entitled Your Deposit Account ("Account Agreement") (ECF No. 26-1) and a document entitled What You Need to Know About Account Overdrafts and Overdraft Fees ("Opt-in Form") (ECF No. 26-2) (jointly, the "Contract Documents"). (¶ 33.)
Citations to paragraph numbers, without more, e.g. (¶ ___), are references to the Complaint. (ECF No. 26.)
The Court may consider documents outside the pleadings, even in a Rule 12(b)(6) analysis, if the documents are (1) "mentioned in the complaint," (2) "central to [the] claims [at issue]," and (3) not challenged as inauthentic. Toone v. Wells Fargo Bank, N.A. , 716 F.3d 516, 521 (10th Cir. 2013). The Court considers the Contract Documents at this stage because these three requirements are satisfied.
McCollam brings this putative class action challenging Sunflower's practice of charging overdraft fees on a subset of debit card transactions that she refers to as "Authorize Positive, Purportedly Settle Negative Transactions" ("APPSN Transactions"). (¶ 13.)
Defining an APPSN Transaction requires familiarity with the basic structure of a debit card transaction. A debit card transaction occurs in two stages. (¶ 26.) First, when a merchant swipes a customer's debit card, the credit card terminal connects to Sunflower, who verifies the customer's account and determines whether to authorize the transaction. (¶ 27.) If Sunflower authorizes the transaction, it may put a hold on the account. (¶ 39.) The hold does not affect the account's actual balance, but the account's "available balance" is reduced by the amount of the hold. (¶ 14; ECF No. 26-1 at 7.)
Second, when the merchant presents the transaction for payment, which can occur up to three days after the transaction was authorized, the hold is released. (¶ 29.) Then funds are withdrawn from the account—i.e. , subtracted from the account's actual balance—and paid to the merchant. (Id. ; ECF No. 26-1 at 7.)
An APPSN Transaction is a debit card transaction that is authorized when an account has sufficient funds to cover the transaction but paid when the account does not have sufficient funds to cover the transaction. (¶ 16.) For instance, a customer may have an "available balance" of $100 on Monday when a merchant swipes her card and requests a temporary hold of $80. If Sunflower authorizes the transaction, an $80 hold would be put on the account, bringing the "available balance" to $20. On Tuesday, Sunflower may choose to honor a $100 check written by the customer and presented for payment. (See ECF No. 26-1 at 7 ("You understand that we may, at our discretion, honor withdrawal requests that overdraw your account.").) At this point the account would have an "available balance" of negative $80. Then, on Wednesday, if the merchant presents the $80 transaction for payment, Sunflower will release the hold, bringing the "available balance" to $0, and pay merchant, bringing the "available balance" and actual balance to negative $80. Thus, at the time this transaction is settled and paid, the account would not have sufficient funds to cover the $80 transaction. McCollam refers to this type of transaction as an APPSN Transaction. (¶ 16.)
McCollam alleges that on October 5, 2017, and November 6, 2017, Sunflower breached its contract with her by assessing overdraft fees for APPSN Transactions. (¶ 56.) On September 10, 2021, McCollam filed her Complaint alleging breach of contract and breach of the implied covenant of good faith and fair dealing against Sunflower. (¶¶ 69–77.)
On September 24, 2021, Sunflower filed the instant Motion requesting that McCollam's claims be dismissed for failure to state a claim upon which relief may be granted. (ECF No. 29.) McCollam filed a response to the Motion (ECF No. 33), to which Sunflowers replied (ECF No. 35). McCollam also filed two notices of supplemental authorities. (ECF Nos. 37 and 40.)
II. LEGAL STANDARDS
A. Rule 12(b)(6)
Under Rule 12(b)(6), a party may move to dismiss a claim in a complaint for "failure to state a claim upon which relief can be granted." "The court's function on a Rule 12(b)(6) motion is not to weigh potential evidence that the parties might present at trial, but to assess whether the plaintiff's complaint alone is legally sufficient to state a claim for which relief may be granted." Dubbs v. Head Start, Inc. , 336 F.3d 1194, 1201 (10th Cir. 2003) (internal quotation marks omitted).
The Rule 12(b)(6) standard requires the Court to "assume the truth of the plaintiff's well-pleaded factual allegations and view them in the light most favorable to the plaintiff." Ridge at Red Hawk , 493 F.3d at 1177. Thus, in ruling on a Motion to Dismiss under Rule 12(b)(6), the dispositive inquiry is "whether the complaint contains ‘enough facts to state a claim to relief that is plausible on its face.’ " Id. (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ); see also Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).
Granting a motion to dismiss "is a harsh remedy which must be cautiously studied, not only to effectuate the spirit of the liberal rules of pleading but also to protect the interests of justice." Dias v. City & Cnty. of Denver , 567 F.3d 1169, 1178 (10th Cir. 2009) (internal quotation marks omitted). "Thus, ‘a well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable, and that a recovery is very remote and unlikely.’ " Id. (quoting Twombly , 550 U.S. at 556, 127 S.Ct. 1955 ). However, "[t]he burden is on the plaintiff to frame a ‘complaint with enough factual matter (taken as true) to suggest’ that he or she is entitled to relief." Robbins v. Oklahoma , 519 F.3d 1242, 1247 (10th Cir. 2008) (quoting Twombly , 550 U.S. at 556, 127 S.Ct. 1955 ). "[C]omplaints that are no more than ‘labels and conclusions’ or ‘a formulaic recitation of the elements of a cause of action,’ ... ‘will not do.’ " Id. (quoting Twombly , 550 U.S. at 555, 127 S.Ct. 1955 ).
B. Breach of Contract
It has long been the law in Colorado that a party attempting to recover on a claim for breach of contract must prove the following elements: (1) the existence of a contract; (2) performance by the plaintiff or some justification for nonperformance; (3) failure to perform the contract by the defendant; and (4) resulting damages to the plaintiff. W. Distrib. Co. v. Diodosio , 841 P.2d 1053, 1058 (Colo. 1992) (en banc).
If the underlying contract is unambiguous and the plaintiff fails to state a claim based on the language of the contract, a motion to dismiss should be granted. Titan Indem. Co. v. Travelers Prop. Cas. Co. of Am. , 181 P.3d 303, 307 (Colo. App. 2007) (en banc). On the other hand, dismissal is inappropriate when the claim "may have merit if ambiguities are resolved in favor of the claimant." Dorman v. Petrol Aspen, Inc. , 914 P.2d 909, 915 (Colo. 1996) (en banc).
A contract is ambiguous when it "is reasonably and fairly susceptible of more than one meaning." Arenberg v. Cent. United Life Ins. Co. , 18 F. Supp. 2d 1167, 1179 (D. Colo. 1998). "In determining whether a provision in a contract is ambiguous, the instrument's language must be examined and construed in harmony with the plain and generally accepted meaning of the words used, and reference must be made to all the agreement's provisions." Fibreglas Fabricators, Inc. v. Kylberg , 799 P.2d 371, 374 (Colo. 1990) (en banc).
III. ANALYSIS
A. Breach of Contract
McCollam alleges that Sunflower breached its contract with her by charging her overdraft fees for APPSN Transactions on October 5, 2017, and November 6, 2017. (¶¶ 69–77.) She alleges breach of contract based on two theories: (1) the Contract Documents require Sunflower to make overdraft determinations when it authorizes APPSN transactions, but Sunflower made its overdraft determinations when it paid the transactions at issue here (ECF No. 33 at 10–16); and (2) after Sunflower authorized her APPSN Transactions, the holds put on her account made it impossible for those transactions to overdraw her account (id. at 8–10).
Sunflower argues that McCollam fails to state a claim for breach of contract because the Contract Documents expressly permit Sunflower to charge overdraft fees for APPSN Transactions. (ECF No. 29 at 5–6; ECF No. 35 at 5.)
1. Whether Overdraft Fees are Assessed at Authorization or Payment
First, McCollam argues that the Contract Documents require that overdraft fees be assessed at the time Sunflower authorizes an APPSN Transaction. (ECF No. 33 at 10–16.) Sunflower argues that the Contract Documents unambiguously permit it to assess overdraft fees at the time of payment. (ECF No. 35 at 6–9.) The Court agrees with Sunflower. The Checking Agreement states that Sunflower "may charge fees for overdrafts," and "[a]n overdrawn account will typically result in you being charged an overdraft fee." (ECF No. 26-1 at 7.) More specifically, it states that "an overdraft occurs when there is not enough money in your account to pay for a transaction, but we pay (or cover) the transaction anyway." (Id. at 7 (emphasis added).) Similarly, the Opt-in Form states that "[a]n overdraft occurs when you do not have enough money in your account to cover a transaction, but we pay it anyway." (ECF No. 26-2 at 2 (emphasis added).)
The Court finds that these sections of the Contract Documents unambiguously provide that overdraft fees are assessed at the time Sunflower pays the transaction, not at the time Sunflower authorizes the transaction.
Additional support for this conclusion is found in a section of the Checking Agreement describing the settlement process, which states:
Payment order of items - The order in which items are paid is important if there is not enough money in your account to pay all of the items that are presented. The payment order can affect the number of items overdrawn or returned unpaid and the amount of the fees you may have to pay.
(ECF No. 26-1 at 7 (emphasis in original).) This section also states that "[p]oint-of-Sale purchases," i.e. , debit-card transactions, are paid "in the order they are received on the day they are processed," after Wire Transfers, ATM withdrawals, and In-Branch withdrawals. (Id. at 7–8.) Thus, the order of payment is determinative when assessing overdraft fees, not the order of authorization. If overdraft fees were determined at authorization, as McCollam asserts, the payment order would be irrelevant and this section would be meaningless. Therefore, the Court finds that McCollam's assertion that overdraft fees must be determined at authorization is inconsistent with the clear and express terms of the Checking Agreement.
Plaintiff argues that the terms "presented" and "pay" are ambiguous because it is unclear whether they refer to the settlement of a transaction or the authorization of a transaction. (ECF No. 33 at 17.) The Court disagrees. The "Payment order of items" section of the Checking Agreement makes it clear that that "present" and "pay" occur as part of the settlement process. (See ECF No. 26-1 at 7–8.)
Notwithstanding these unambiguous contractual provisions, McCollam argues that several other sections of the Contract Documents make the timing of overdraft determinations ambiguous. (ECF No. 33 at 10–16.)
McCollam argues that, in the Opt-in Form, Sunflower "promises repeatedly that overdrafts are determined when transactions are ‘authorized and paid.’ " (Id. at 11.) The Opt-in Form states, in relevant part:
We do authorize and pay overdrafts for the following types of transactions:
- Checks and other transactions made using your checking account number
- Automatic bill payments
We will not authorize and pay overdrafts for the following types of transactions without your consent.
- ATM transactions
- Everyday debit card transactions
We pay overdrafts at our discretion, which means we do not guarantee that we will always authorize and pay any type of transaction. If we do not authorize and pay an overdraft, your transaction will be declined.
(ECF No. 26-2 at 2–3 (emphasis added).) McCollam argues that the repeated linking of the terms "authorize" and "pay" could be reasonably interpreted to mean that overdrafts are determined at the time Sunflower authorizes a transaction. (ECF No. 33 at 11–12.) She also argues that using the terms together "expressly links ‘authorization and payment’ as coterminous." (Id. at 17.)
The Court agrees that, based solely on the terms of the Opt-in Form, and nothing more, the timing of Sunflower's overdraft determinations might possibly be unclear. However, "[i]n determining whether a provision in a contract is ambiguous, ... reference must be made to all the agreement's provisions." Fibreglas Fabricators, Inc. , 799 P.2d at 374. As discussed above, the Checking Agreement provides that the assessment of an overdraft fee occurs at the time Sunflower pays the transaction, not at the time Sunflower authorizes the transaction. Thus, the Court finds that reference to the Checking Agreement resolves the ambiguity of the phrase "authorize and pay" as used in the Opt-in Form.
Plaintiff also argues that Sunflower promised to assess overdraft fees at the time of authorization because the Opt-in Form states that "[a]n overdraft occurs when you do not have enough money in your account to cover a transaction, but we pay it anyway." (ECF No. 33 at 12 (quoting ECF No. 26-2 at 2).) However, the Court finds that this provision supports Sunflower's position because it states that an overdraft occurs when Sunflower pays the merchant.
McCollam also argues that Sunflower promised to determine overdraft fees at authorization because it promised to determine overdrafts when it decides to "honor" debit card transactions. (ECF No. 33 at 13–16.) The relevant language from the Checking Agreement reads:
Overdrafts - You understand that we may, at our discretion, honor withdrawal requests that overdraw your account. However, the fact that we may honor withdrawal requests that overdraw the account balance does not obligate us to do so later. So you can NOT rely on us to pay overdrafts on your account regardless of how frequently or under what circumstances we have paid overdrafts on your account in the past. We can change our practice of paying, or not paying, discretionary overdrafts on your account without notice to you.
(ECF No. 26-1 at 7 (emphasis in original).) The Court is not persuaded by Plaintiff's argument because this section of the Account Agreement does not address the timing of overdraft determinations. Rather, the clear intent of this section is to provide that Sunflower has absolute discretion to pay or not to pay discretionary overdrafts, regardless of its past decisions or its previous practice.
The Court agrees with Sunflower that its decision to honor a debit-card transaction at the time of authorization does not mean that it determines whether to impose an overdraft fee at that point. (ECF No. 29 at 13.) Further, McCollam's interpretation of this provision is unreasonable because it is in direct contradiction to the provisions of the contract discussed above, which clearly provide that overdraft fees are determined at payment. (ECF No. 26-1 at 7–8.) For the reasons discussed above, the Court finds that that McCollam fails to sufficiently plead a breach of contract claim based on her theory that overdraft determinations must be made when APPSN Transactions are authorized.
Plaintiff cites Lussoro , a non-binding decision by a court in the Eastern District of New York which found that provisions about the timing of overdraft determinations were ambiguous where the contract stated that: (1) the defendant may, at its discretion, honor withdrawal requests that overdraw the plaintiff's account, and (2) if an item is presented without sufficient funds to pay it, the defendant may, at its discretion, pay the item. Lussoro v. Ocean Fin. Fed. Credit Union , 456 F. Supp. 3d 474, 483 (E.D.N.Y. 2020). But the court's reasoning in Lussoro depended on its determination that the contract was ambiguous as to whether an item was "presented" at authorization or at payment. Here, there is no such ambiguity. (See ECF No. 26-1 at 7–8 (an item is "presented" as part of the settlement process).) Therefore, the Court finds Lussoro to be easily distinguishable on this point.
2. Whether an APPSN Transaction Can Be Subject to Overdraft Fees
Next, McCollam alleges that Sunflower's assessment of overdraft fees on APPSN Transactions breached the terms of their contract because a "transaction for which a hold of positive funds was placed at authorization, and for which the hold endures until the transaction is paid at settlement, cannot actually overdraw an account." (ECF No. 33 at 8.) McCollam argues that a hold effectively sequesters some of the funds in her account such that they can only be used for the payment of the transaction that gave rise to the hold. (ECF No. 33 at 8–10.) As a result, McCollam argues, the funds put on hold make it impossible for an APPSN Transaction to overdraw her account because when the transaction is presented for payment the sequestered funds are available to pay the transaction regardless of the account's balance. (Id. at 8.)
Plaintiff repeatedly alleges in her Complaint that Sunflower "sequesters" funds when it puts a hold on an account. (¶¶ 14, 17, 19, 27, 54.) These assertions are legal conclusions based on Plaintiff's interpretation of the Contract Documents; they are not proper factual allegations in the context of a Rule 12(b)(6) analysis. Thus, the Court declines to accept these assertions as true for the purposes of deciding the instant Motion. See Twombly , 550 U.S. at 555, 127 S.Ct. 1955 (on motion to dismiss, allegations are generally taken as true, but "labels and conclusions" are not).
Sunflower points out that the Contract Documents do not contain an explicit promise that it will not assess overdraft fees when a hold of funds is placed at authorization. (ECF No. 35 at 10.) Further, Sunflower argues that McCollam's interpretation of the Contract Documents is unreasonable and inconsistent with the text of the documents. (Id. 9–10.)
The Court agrees with Sunflower. The only section of the Account Agreement that addresses account holds reads:
A temporary debit authorization hold affects your account balance - On debit card purchases, merchants may request a temporary hold on your account for a specified sum of money when the merchant does not know the exact amount of the purchase at the time the card is authorized. The amount of the temporary hold may be more than the actual amount of your purchase. Some common transactions where this occurs involve purchases of gasoline, hotel rooms, or meals at restaurants. When this happens, our processing system cannot determine that the amount of the hold exceeds the actual amount of your purchase. This temporary hold, and the amount charged to your account, will eventually be adjusted to the actual amount of your purchase, but it could be three calendar days, or even longer in some cases, before the adjustment is made. Until the adjustment is made, the amount of funds in your account available for other transactions will be reduced by the amount of the temporary hold. If another transaction is presented for payment in an amount greater than the funds left after the deduction of the temporary hold amount, you will be
charged an NSF or overdraft fee according to our NSF or overdraft fee policy. You will be charged the fee even if you would have had sufficient funds in your account if the amount of the hold had been equal to the amount of your purchase.
(ECF No. 26-1 at 7 (emphasis in original).) There is no language in this provision that can be reasonably interpreted to require that the funds on hold be sequestered. The funds are not withdrawn from the account. (See id. (explaining that holds affect the available balance, not the actual balance).) A hold simply reduces the account's "available balance" by the amount of the hold until it is "eventually [ ] adjusted to the actual amount of the purchase." (Id. )
Consider this hypothetical, which is based on an example provided by Sunflower. (ECF No. 29 at 10.) Assume a customer has a negative "available balance" of $100. Then Sunflower authorizes a $5 debit-card transaction and puts a $5 hold on the account, bringing its "available balance" to negative $105. When the $5 transaction is presented for payment, the hold will be released, bringing the "available balance" to negative $100 again. Since the account never had positive funds, the release of the hold clearly would not cause the account to have a sufficient balance to cover the transaction.
The Court finds no provision in the Contract Documents that requires an APPSN Transaction to be treated differently than the hypothetical transaction described above. According to the Checking Agreement, when Sunflower decides whether to charge an overdraft fee, the determinative question is whether the account's "available balance" is sufficient to cover the transaction when the hold has been lifted and the transaction is paid. (See supra Section III.A.1; see also ECF No. 26-1 at 7–8.) In an APPSN Transaction, the account does not have sufficient funds to cover the transaction after the hold is lifted. Therefore, Sunflower is entitled to assess and overdraft fee on APPSN Transactions.
Accordingly, the Court finds that that McCollam fails to sufficiently and plausibly plead a breach of contract claim based on her theory that a hold on an APPSN Transaction sequesters funds and makes an overdraft impossible. Moreover, the Court finds that the Contract Documents are unambiguous on this point, and expressly permit Sunflower's course of conduct challenged by Plaintiffs. Therefore, Sunflower's Motion is granted as to McCollam's breach of contract claim, and her breach of contract claim is dismissed with prejudice.
The Tenth Circuit has held that the Court "may dismiss without granting leave to amend when it would be futile to allow the plaintiff an opportunity to amend his complaint." Brereton v. Bountiful City Corp. , 434 F.3d 1213, 1219 (10th Cir. 2006). Here, McCollam's claims fail not only based on her allegations, but based on the language of the Contract Documents underlying her claim. Therefore, the Court finds that amendment would be futile, and the Court dismisses McCollam's claims with prejudice.
B. Breach of Implied Duty of Good Faith and Fair Dealing
Under Colorado law, every contract contains an implied duty of good faith and fair dealing. Colo. Rev. Stat. §§ 4-1-304 ; 4-1-201(b)(19). "Good faith performance of a contract involves ‘faithfulness to an agreed common purpose and consistency with the justified expectations of the other party,’ " and the doctrine is used to effectuate the parties’ intentions or honor their reasonable expectations for the contract performance. Amoco Oil Co. v. Ervin , 908 P.2d 493, 498 (Colo. 1995) (en banc) (quoting Wells Fargo Realty Advisors Funding, Inc. v. Uioli, Inc. , 872 P.2d 1359, 1362 (Colo. App. 1994) ).
Here, the express terms of the Contract Documents permit Sunflower to assess overdraft fees on APPSN Transactions. The implied duty of good faith and fair dealing cannot contradict the "terms or conditions for which a party has bargained." Amoco Oil Co. , 908 P.2d at 498. And "an implied covenant cannot be used to rewrite, contradict, or add to the express terms of the contract." McKinnis v. Fitness Together Franchise Corp. , 2010 WL 5056666, at *4 (D. Colo. Dec. 6, 2010) (citing Monroe Prop., LLC v. Bachelor Gulch Resort, LLC , 374 F. Supp. 2d 914, 922 (D. Colo. 2005) ). Therefore, McCollam also fails to state a claim for breach of the implied duty of good faith and fair dealing, and this claim is dismissed with prejudice.
IV. CONCLUSION
For the foregoing reasons, the Court ORDERS as follows:
1. Defendant Sunflower Bank N.A.’s Motion to Dismiss (ECF No. 29) is GRANTED;
2. All claims against Defendant Sunflower Bank, N.A., are DISMISSED WITH PREJUDICE;
3. The Clerk shall enter judgment in favor of Defendant Sunflower Bank, N.A., and against Plaintiff Karen McCollam and shall terminate this case; and
4. Defendant shall have its costs upon the filing of a bill of costs in accordance with D.C.COLO.LCivR 54.1.