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Tims v. LGE Community Credit Union

United States Court of Appeals, Eleventh Circuit

August 27, 2019

CAROL TIMS, Individually, and on behalf of all others similarly situated, Plaintiff - Appellant,
v.
LGE COMMUNITY CREDIT UNION, Defendant-Appellee.

          Appeal from the United States District Court for the Northern District of Georgia D.C. Docket No. 1:15-cv-04279-TWT

          Before MARTIN, JILL PRYOR and JULIE CARNES, Circuit Judges.

          JILL PRYOR, CIRCUIT JUDGE:

         According to Carol Tims, when she opened an account at LGE Community Credit Union, LGE promised to use one account balance calculation method in assessing overdraft fees against her account, but then used a different one, which resulted in more fees. Tims alleged that LGE agreed to impose overdraft fees only when her ledger balance-the amount of money in her account without considering pending debits-was insufficient to cover a transaction. She alleged that LGE broke that promise by assessing overdraft fees when, based on her ledger balance, there was enough money in her account to cover the transaction in question, but based on her available balance-the money in her account after considering pending debits and deposits-there was not.

         Tims sued LGE in district court for breach of contract, breach of the implied covenant of good faith and fair dealing, and violation of the Electronic Fund Transfer Act (EFTA), 15 U.S.C. §§ 1693-1693r. The district court dismissed her claims under Federal Rule of Civil Procedure 12(b)(6) after determining that the two parties' agreements unambiguously permitted LGE to assess overdraft fees using the available balance calculation method.

         We disagree with the district court's interpretation of the contracts. Because we conclude that the agreements are ambiguous as to whether LGE could rely on an account's available balance, rather than its ledger balance, to assess overdraft fees, we reverse the district court's dismissal of the case and remand for further proceedings consistent with our opinion.

         I. BACKGROUND

         A. Congressional Regulation of Overdraft Fees After the Advent of Online Banking

         "Overdraft" is a banking term describing a deficit in a bank account caused by drawing more money than the account holds. Before the development of electronic fund transfer (EFT) systems, banks generally provided overdraft coverage for check transactions only. See Electronic Fund Transfers, 74 Fed. Reg. 59, 033, 59, 033 (Nov. 17, 2009). When a bank customer overdrew her account by writing a check in an amount that exceeded the amount of funds in the account, her financial institution applied its discretion in deciding whether to honor the customer's draft, in effect extending a small line of credit to its customer and imposing a small fee for the convenience. Id.

         Online banking transformed how financial institutions handled overdrafts and overdraft fees. New EFT systems provided customers with more ways to make payments from their accounts, including automatic teller machine (ATM) withdrawals, debit card transactions, online purchases, and transfers to other accounts. Id. Most financial institutions chose to extend their overdraft coverage to all EFT transactions. Some further decided to cover automatically all overdrafts their customers might generate from their EFTs. Id. These changes had the benefit to financial institutions of "reduc[ing] cost[s]" from manually reviewing individual transactions and furthering "consistent treatment of consumers." Id. at 59, 033-34. But they came at a significant and sometimes unexpected cost to consumers: financial institutions generally assessed a flat fee each time an overdraft occurred, sometimes charging additional fees-for each day an account remained overdrawn, for example, or incrementally higher fees as the number of overdrafts increased. Id. at 59, 033.

         Congress enacted EFTA with the aim of outlining the rights, responsibilities, and obligations of individuals and institutions using EFT systems. Id. In EFTA's implementing regulations (Regulation E, 12 C.F.R. pt. 1005), Congress set out to "assist consumers in understanding how overdraft services provided by their institutions operate and to ensure that consumers have the opportunity to limit the overdraft costs associated with ATM and one-time debit card transactions where such services do not meet their needs." Id. at 59, 035. Doing away with the practice of automatic enrollment of consumers in overdraft coverage, Regulation E required financial institutions to secure consumers' "affirmative consent" to overdraft services through an opt-in notice. Id. at 59, 036. The opt-in notice was to be "segregated from all other information[] describing the institution's overdraft service," 12 C.F.R. § 1005.17(b)(1)(i), and be "substantially similar" to a model form (Model Form A-9) provided by the Federal Reserve, id. § 1005.17(d).

         "But the opt-in requirement and model form have not dispelled all the controversy and confusion surrounding overdraft fees." Chambers v. NASA Fed. Credit Union, 222 F.Supp.3d 1, 6 (D.D.C. 2016). Model Form A-9 does not address which account balance calculation method a financial institution should use to determine whether a transaction results in an overdraft. See 12 C.F.R. pt. 1005, app. A. Without any such provision in the model form, "some financial institutions have failed to disclose the balance calculation method that they use to determine whether a transaction results in an overdraft." Chambers, 222 F.Supp.3d at 6.

         In determining whether a customer has made a withdrawal or incurred a debit that exceeds the balance in her account-an overdraft-financial institutions typically use one of two methods of calculating the balance in a customer's account: the "ledger" balance method or the "available" balance method. The ledger balance method considers only settled transactions; the available balance method considers both settled transactions and authorized but not yet settled transactions, as well as deposits placed on hold that have not yet cleared. Consumer Fin. Prot. Bureau, Supervisory Highlights 8 (Winter 2015), available at https://files.consumerfinance.gov/f/201503_cfpb_supervisory-highlights-winter-2015.pdf (last visited May 24, 2019). These two competing methods of calculating a consumer's balance and charging overdraft fees based on that balance lie at the heart of this case.

         B. Factual Background

         LGE allegedly charged Tims overdraft fees of $30.00 each on two occasions. Tims's complaint alleged that at the time LGE assessed the overdraft fees, her ledger balance was sufficient to cover each transaction. She alleged that LGE agreed to use the ledger balance calculation method in assessing overdraft fees, and so LGE's use of the available balance calculation method breached her agreements with LGE.

         LGE argues that its agreements with Tims unambiguously provided that LGE would use the available balance calculation method in imposing overdraft fees. LGE thus asserts that it did not breach its agreements by imposing fees based on Tims's available balance.

         There were two agreements between Tims and LGE: the "Opt-In Agreement" and the "Account Agreement." LGE asked consumers to sign the Opt-In Agreement to obtain their consent to LGE's overdraft policies. The Opt-In Agreement said little about which balance calculation method LGE employs, stating only that "[a]n overdraft occurs when you do not have enough money in your account to cover a transaction, but we pay it anyway." Doc. 29 at 44.[1]

         LGE adopted the Opt-In Agreement to comply with Regulation E, 12 C.F.R. § 1005.17. Again, Regulation E requires financial institutions to secure a consumer's "affirmative consent" before charging overdraft fees and stipulates that consent can be secured through use of an opt-in form "substantially similar" to Model Form A-9. Id. § 1005.17(b)(1)(iii), (d). LGE's Opt-In Agreement is nearly an exact copy of Model Form A-9. Compare id. pt. 1005, app. A, with Doc. 29 at 44.

         The second agreement between Tims and LGE, the Account Agreement, contained a "Payment Order" provision explaining that in processing items drawn on a consumer's account, LGE's "policy is to pay [the items] as we receive them." Doc. 29 at 31. The Account Agreement went on to say, "[i]f an item is presented without sufficient funds in your account to pay it" or "if funds are not available to pay all of the items" presented for payment, LGE "may, at [its] discretion, pay" the item or items, creating an overdraft for which LGE will charge a fee. Id. at 32.

         A separate provision in the Account Agreement, the "Funds Availability Disclosure," addressed the conditions under which funds were available for consumers' use. Id. at 37. In this provision, LGE explained that its general policy was "to make funds from your deposits available to you on the same business day that [LGE] receive[s] your deposit," but certain deposits would not be "available" to consumers until the second business day at the earliest. Id.

         C. Procedural History

         Tims brought this case as a consumer class action, asserting three claims against LGE that are the subject of this appeal.[2] First, Tims alleged that LGE breached its Opt-In and Account Agreements by assessing overdraft fees using the available balance calculation method. Second, she alleged that LGE violated the implied covenant of good faith and fair dealing implicit in every contract under Georgia law.[3] Third, she alleged that LGE's practices failed to accurately describe its overdraft service as required by Regulation E, thus violating EFTA.

         LGE filed a Rule 12(b)(6) motion to dismiss all claims, which the district court granted. Using Georgia's canons of contract construction, the district court determined that the agreements unambiguously permitted LGE to assess overdraft fees using the available balance calculation method. The court concluded that LGE had neither breached the parties' contract nor the covenant of good faith and fair dealing and that no EFTA violation had occurred. Tims timely appealed.

         II. STANDARD OF REVIEW

         We review de novo a district court's grant of a motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). See Glover v. Liggett Grp., Inc., 459 F.3d 1304, 1308 (11th Cir. 2006). We accept factual allegations in the complaint as true and construe them in the light most favorable to the plaintiff. See Hill v. White, 321 F.3d 1334, 1335 (11th Cir. 2003). To withstand a motion to dismiss under Rule 12(b)(6), a complaint must include "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). "A claim has facial plausibility when the plaintiff pleads factual ...


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