Roling v. E*Trade Securities LLC

Filing 210

ORDER by Judge Edward M. Chen granting 171 Defendant's Motion for Summary Judgment; and denying 186 , 190 Plaintiffs' Motion to Strike. The Court shall hold a status conference on April 13, 2012 at 10:30 a.m. (emclc1, COURT STAFF) (Filed on 3/27/2012)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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JOSEPH ROLING, et al.,

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For the Northern District of California

United States District Court

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Plaintiffs,
v.
E*TRADE SECURITIES LLC,

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No. C-10-0488 EMC

Defendant.

ORDER GRANTING DEFENDANT’S
RENEWED MOTION FOR SUMMARY
JUDGMENT
(Docket No. 171)

___________________________________/

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Plaintiffs Joseph Roling and Alexander Landvater have filed a class action against E*Trade

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Securities, LLC, asserting that it unlawfully charged and collected account inactivity fees – also

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known as account maintenance fees (“AMFs”) or account service fees (“ASFs”) – from its

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customers. Currently pending before the Court is E*Trade’s renewed motion for summary judgment

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on Plaintiffs’ second amended complaint (“SAC”). E*Trade’s motion deals with Plaintiffs’ claims

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as individuals only as there has been no class certification as of yet.

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Having considered the parties’ briefs and accompanying submissions, as well as the oral
argument of counsel, the Court hereby GRANTS E*Trade’s motion.

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I.

FACTUAL & PROCEDURAL BACKGROUND

As stated above, there are two individual plaintiffs in this case: Mr. Roling and Mr.
Landvater.
Mr. Roling opened his brokerage account with E*Trade in 2001. See SAC ¶ 21 (alleging
that Mr. Roling opened his brokerage account with E*Trade in or around February 2001); Mot. at 1

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(stating that Mr. Roling opened his account in 2001). As of February 3, 2004 – the earliest date for

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which Mr. Roling seeks relief – E*Trade charged a quarterly inactivity fee of $25. See Docket No.

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172 (Lobel Decl., Ex. 1) (Gandhi Depo. at 154) (stating that the AMF increased from $15 to $25 in

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March 2002). The inactivity fee would not be charged if, e.g., a customer had a certain minimum

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balance or had executed a certain number of trades. Cf. Docket No. 125 (Renga Decl., Ex. 3-4) (fee

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schedules for 2005 and 2006).1

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In 2005, the inactivity fee was increased to $40 per quarter. See Docket No. 172 (Lobel

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Decl., Ex. 1) (Gandhi Depo. at 165) (stating that notice of the increase to $40 was sent out in

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February 2005); Docket No. 172 (Lobel Decl., Ex. 5) (Reckart Depo. at 63) (stating that notices of
the increase to $40 were sent out in February and March 2005). Mr. Roling continued to be a

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For the Northern District of California

United States District Court

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customer of E*Trade during this time.

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As for Mr. Landvater, he became a customer in April 2006, when the $40 inactivity fee was

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still being assessed. See SAC ¶ 31 (alleging that Mr. Landvater opened his brokerage account with

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E*Trade in or around April 2006); Mot. at 2 (stating that Mr. Landvater opened his account in April

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2006). The inactivity fee appears to have been discontinued in 2010. See Docket No. 196 (Lobel

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Reply Decl., Ex. 2) (response to Interrogatory No. 15) (stating that fees were discontinued as of

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March 23, 2010).

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Plaintiffs’ position is that neither should have been charged any inactivity fee at all, whether

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$25 or $40, because the Brokerage Customer Agreements (“BCAs”) they entered into with E*Trade

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did not allow E*Trade to charge an inactivity fee – more specifically, because the BCAs did not

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effectively incorporate the fee schedule containing the inactivity fee.

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Plaintiffs have taken the alternative position that, even if the BCAs allowed E*Trade to

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charge an inactivity fee, Mr. Roling at least should not have been subjected to an increased fee (from

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$25 to $40) because he was not given adequate notice that E*Trade was increasing the fee and he

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was not given an adequate opportunity to reject the change in the fee schedule.

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Plaintiffs have moved to strike the Renga declaration. However, it does not appear that
Plaintiffs dispute that the inactivity fee would not be assessed under these circumstances.

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Finally, Plaintiffs have taken another alternative position that, even if the BCAs allowed

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E*Trade to charge an inactivity fee, a document available on E*Trade’s website – known in this

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litigation as the Brown Co. Addendum – actually stated that no inactivity fees would be charged.

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In its motion, E*Trade argues that it is entitled to summary judgment under each of

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Plaintiffs’ positions. For example, E*Trade contends that the BCAs did include reference to the

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inactivity fee, stating that, if the account is inactive, then E*Trade “may charge additional fees” and

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that “[a]ccount maintenance fees are described in the schedule of fees on the E*Trade securities

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website.” Docket No. 126 (Gutierrez Decl., Ex. 7) (2005 BCA § 4(b)). E*Trade further argues that

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Plaintiffs have waived their right to challenge the inactivity fees.

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For the Northern District of California

United States District Court

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II.
A.

DISCUSSION

Legal Standard
Federal Rule of Civil Procedure 56(c) provides that summary judgment shall be rendered “if

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the pleadings, depositions, answers to interrogatories, and admissions on file, together with the

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affidavits, if any, show that there is no genuine issue as to any material fact and that the moving

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party is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c). An issue of fact is genuine

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only if there is sufficient evidence for a reasonable jury to find for the nonmoving party. See

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Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49 (1986). “The mere existence of a scintilla of

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evidence . . . will be insufficient; there must be evidence on which the jury could reasonably find for

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the [nonmoving party].” Id. at 252. At the summary judgment stage, evidence must be viewed in

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the light most favorable to the nonmoving party and all justifiable inferences are to be drawn in the

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nonmovant’s favor. See id. at 255.

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Where the plaintiff has the ultimate burden of proof, as here, the defendant may prevail on a

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motion for summary judgment simply by pointing to the plaintiff’s failure “to make a showing

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sufficient to establish the existence of an element essential to [the plaintiff’s] case.” Celotex Corp.

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v. Catrett, 477 U.S. 317, 322 (1986). However, where a defendant moves for summary judgment

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based on an affirmative defense for which it has the burden of proof, the defendant “must establish

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beyond peradventure all of the essential elements of the . . . defense to warrant judgment in [its]

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favor.” Martin v. Alamo Cmty. College Dist., 353 F.3d 409, 412 (5th Cir. 2003) (internal quotation

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marks and emphasis omitted); see also Clark v. Capital Credit & Collection Servs., 460 F.3d 1162,

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1177 (9th Cir. 2006) (noting that a defendant bears the burden of proof at summary judgment with

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respect to an affirmative defense).

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B.

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Statute of Limitations
Before discussing the merits of Plaintiffs’ claims, the Court addresses first an issue that

informs the scope of Plaintiffs’ claims – i.e., the statute of limitations.

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Based on the allegations in the SAC, it appears that Mr. Roling is seeking relief starting from

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February 3, 2004. See SAC ¶ 40 (defining class as “[a]ll persons in the United States who were

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E*Trade Brokerage Account Customers and were charged at least one quarterly inactivity fee any
time from February 3, 2004 through the present”). Presumably, Mr. Roling has asked for relief as of

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For the Northern District of California

United States District Court

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this date because New York has a six-year statute of limitations for breach of contract. See N.Y.

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C.P.L.R. § 213(2). The problem for Mr. Roling is that, based on the evidence of record, the first

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BCA that included a New York choice-of-law provision is the BCA effective from May to October

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2005. See Gutierrez Decl., Ex. 7 (2005 BCA § 12(m)). The otherwise applicable California

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limitation period is four years. See Cal. Code Civ. Proc. § 337(1) (providing for a four-year

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limitations period for an action upon a contract). Therefore, Mr. Roling may seek relief only back to

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May 2005.

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As for Mr. Landvater, he did not become an E*Trade customer until April 2006. Therefore,

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presumably, he seeks relief as of April 2006 and on.

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C.

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Waiver
E*Trade argues first that, under any of Plaintiffs’ positions as stated above, it is entitled to

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summary judgment on their individual claims for relief because both Mr. Roling and Mr. Landvater

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waived their right to challenge E*Trade’s charging and collecting of the AMFs by continuing to

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perform under the BCAs. There seems to be no dispute that waiver is an affirmative defense. See,

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e.g., Docket No. 71 (in answer to first amended complaint, asserting as the sixth affirmative defense

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the doctrine of waiver).

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Under New York law, a waiver involves a knowing relinquishment.2 See New York v. State,

right with both knowledge of its existence and an intention to relinquish it”) (internal quotation

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marks omitted). The same is true under California law.3 See Harvard Investment Co. v. Gap Stores,

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Inc., 156 Cal. App. 3d 704, 711 n.6 (1984) (stating that “a waiver of rights generally involves a

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clear, voluntary, intentional, and knowing expression”). Furthermore, under both New York and

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California law, where a plaintiff has knowledge of the defendant’s breach and continues to perform

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under the contract and/or accepts the defendant’s performance without notifying the defendant of the

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breach, a waiver is fairly implied. See National Westminster Bank v. Ross, 130 B.R. 656, 675

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(S.D.N.Y. 1991) (stating that, “where a party to an agreement has actual knowledge of another

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For the Northern District of California

40 N.Y.2d 659, 669 (1976) (stating that “[a] waiver is the intentional relinquishment of a known

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United States District Court

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party’s breach and continues to perform under and accepts the benefits of the contract, such

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continuing performance constitutes a waiver of the breach”; adding that “a party to an agreement

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who believes it has been breached may elect to continue to perform the agreement rather than

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terminate it, and later sue for breach; this is true, however, only where notice of the breach has been

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given to the other side”); A.B.C. Distrib. Co. v. Distillers Distrib. Corp., 154 Cal. App. 2d 175, 187

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(1957) (stating that “plaintiff waived such alleged breaches of contract by continued performance on

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its part without any claim of breach by defendant”).

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Given the standard articulated above – which Plaintiffs do not dispute in their opposition –

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the Court concludes that, as a matter of law, both Mr. Roling and Mr. Landvater waived their right

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to challenge E*Trade’s conduct. That is, a reasonable jury could not find in favor of Plaintiffs on

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the issue of waiver.

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With respect to Mr. Roling, Plaintiffs concede that he knew about the inactivity fees – more

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specifically, as of 2003. Among other things, there is no dispute that the quarterly statements from

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The parties dispute whether a waiver must be based on actual knowledge or whether
constructive knowledge is sufficient. Even assuming actual knowledge, Plaintiffs still have a waiver
problem as discussed infra.
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The Court addresses California law out of an abundance of caution. Although Plaintiffs
have suggested in their SAC that California law should apply (i.e., the New York choice-of-law
provisions in the BCAs are unconscionable), they have presented no such argument in conjunction
with the summary judgment briefing.

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E*Trade show the inactivity fee charged as a debit. See Docket No. 125 (Renga Decl., Ex. 23)

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(quarterly account statements for Mr. Roling reflecting AMFs); see also Docket No. 126 (Renga

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Decl., Ex. 24) (quarterly statements for Mr. Landvater reflecting AMFs). Plaintiffs’ position is that,

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once he learned about the fees, “[Mr.] Roling immediately contested E*TRADE’s right to assess

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inactivity fees” by calling the customer support line, i.e., he did not silently sit back and do nothing.

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Opp’n at 25 (emphasis added). The problem for Plaintiffs is that the transcript of the telephone call

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shows that Mr. Roling did not make any claim of breach to the customer service representative4:

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I just noticed that so far I’ve lost $505 with you guys just by not
trading, which I understand. But I’m just wondering, is there any way
you guys can slash that for me or give me some sort of a discount on
that amount? ‘Cause it’s such a huge amount, it’s half of everything I
invested.

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Docket No. 124 (Lobel Decl., Ex. 3) (Tr. at 2) (emphasis added). In other words, while Mr. Roling

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expressed unhappiness with the amount of the fee assessment, he never alerted E*Trade to the fact

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that he was disputing its legal right to charge the fees in the first place. In short, he did not assert the

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fees were in breach of the contract. See National Westminster Bank, 130 B.R. at 675 (stating that,

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“[h]aving failed to notify the Bank of any breach of the Loan Agreements and having continued to

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accept the benefits of the agreement in the form of continuing advances from the Bank, RPC is now

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precluded from asserting any such breaches”); cf. Whitney Inv. Co. v. Westview Dev. Co., 273 Cal.

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App. 2d 594, 603 (1969) (noting that, “[w]hile a notice of termination or cancellation of a contract

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for breach need not be formal and explicit, it should clearly indicate to the defaulting party that the

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injured party considers the contract terminated”). Indeed, the fact that Mr. Roling asked if he could

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be given a discount is an implicit concession that E*Trade was within its legal right in charging the

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fees.

For the Northern District of California

United States District Court

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As for Mr. Landvater, Plaintiffs admit that he knew about the inactivity fees in 2008. They

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argue, however, that he cannot be said to waived any right because, after he learned about the fees in

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2008, he was not thereafter assessed any such fees; thus, “at no point did he ‘silently and knowingly

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accept’ E*TRADE’s purportedly unlawful conduct.” Opp’n at 25. This argument misses the point.

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Notably, in their opposition, Plaintiffs repeatedly cite Mr. Roling’s deposition testimony
about the telephone call and not the telephone call itself. See Opp’n at 25.

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After learning of the fees, Mr. Landvater was not subsequently charged any fees because he

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complied with E*Trade’s rules and made the necessary trades to avoid being charged the fees. See

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Docket No. 124 (Lobel Decl., Ex. 4) (Landvater Depo. at 179, 183, 187). He thus accepted

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performance of the contract terms without claiming a breach. This constitutes a waiver under

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National Westminster Bank and A.B.C. Distribution Co.

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Accordingly, the Court finds, as a matter of law, that both Mr. Roling and Mr. Landvater

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waived their right to contest E*Trade’s charging and collecting of the inactivity fees. In light of the

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waiver, E*Trade is entitled to summary judgment on the individual plaintiffs’ claims for relief.

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Because the Court finds waiver, Plaintiffs’ motion to strike the Renga declaration is moot. Plaintiffs
take issue with the Renga declaration based on issues not related to that of waiver. Similarly,

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For the Northern District of California

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Plaintiffs’ Rule 56(d) request is moot. Plaintiffs have not identified a need for any discovery with

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respect to the issue of waiver in order to oppose E*Trade’s motion for summary judgment.

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D.

Alternative Rulings

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Although the Court grants E*Trade’s motion based on waiver, it shall still address E*Trade’s

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additional arguments in support of its motion for summary judgment. The Court does so not only to

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provide alternative grounds for its ruling but also to give guidance to the parties in the event

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Plaintiffs may seek to join a new plaintiff and potential class representative in the case. As noted

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above, Plaintiffs have offered three legal theories in support of their case: (1) that no inactivity fees

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should have been assessed because the BCAs did not allow for the assessment of such fees; (2) that

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Mr. Roling at least should not have been subjected to a fee increase from $25 to $40 because he was

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not given advance notice of the fee increase and/or an adequate opportunity to reject it; and (3) that

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even if the BCAs did allow for the assessment of inactivity fees, a document available on E*Trade’s

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website – known in this litigation as the Brown Co. Addendum – actually stated that no inactivity

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fees would be charged. E*Trade attacks each of these legal theories as discussed below.

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1.

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Plaintiffs’ first position is that they never should have been charged any inactivity fees

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Incorporation by Reference

because BCAs they entered into with E*Trade did not allow E*Trade to charge such fees.

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For purposes of the summary judgment, given the applicable limitations period, the relevant

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BCAs are those in effect for (1) the period May to October 2005 (“2005 BCA”); and (2) the period

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November 2005 to November 2006 (“2005-2006 BCA”). See Docket No. 126 (Gutierrez Decl. ¶¶

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18, 20, 22 & Exs. 6-8). Both BCAs contained the following term on fees and commissions:

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4.

ACCOUNT PROVISIONS

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....

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(b)

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For the Northern District of California

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Fees, Commissions and Account Minimums

I agree promptly to pay brokerage commissions, charges and
other fees as set forth in E*TRADE Securities’ then-current fee
schedule and as applicable to my Account and the transactions and
services I may receive. . . . A schedule of the current fees and
commissions is available on the E*TRADE Securities Web site. . . . If
my Account’s value falls below the minimum balance or my Account is
inactive, E*TRADE Securities may charge additional fees or, if it
deems appropriate in its discretion, close my account. Account
maintenance fees are described in the schedule of fees on the
E*TRADE Securities Web site.

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Docket No. 126 (Gutierrez Decl., Ex. 7) (2005 BCA ¶ 4(b)) (emphasis added); Docket No. 126

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(Gutierrez Decl., Ex. 8) (2005-2006 BCA ¶ 4(b)) (emphasis added).

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Plaintiffs acknowledge the above provision but argue that any fee schedule available on

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E*Trade’s website should be considered extrinsic to the BCAs because the fee schedule was not

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properly incorporated by reference. More specifically, Plaintiffs maintain that the fee schedule was

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too hard to find on the website. The Court does not agree. That is, as a matter of law, the Court

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concludes that the fee schedule was properly incorporated by reference.

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Under New York law, “[t]he doctrine of incorporation by reference requires that the paper to

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be incorporated into a written instrument by reference must be so referred to and described in the

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instrument that the paper may be identified beyond all reasonable doubt.” Chiacchia v. National

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Westminster Bank, 507 N.Y.S.2d 888, 890 (1986). California law has a similar requirement. See

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DVD Copy Control Ass’n, Inc. v. Kaleidescape, Inc., 176 Cal. App. 4th 697, 713 (2009) (noting that,

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under California law, for purposes of incorporation by reference the reference be “clear and

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unequivocal”). In the instant case, the BCAs clearly identified the “document” that was being

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incorporated – i.e., E*Trade’s website. The incorporation of the specifically identified document –

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the E*Trade website – was “clear and unequivocal” and identification was “beyond all reasonable

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doubt.”

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Plaintiffs contend, however, that the fee schedule could not easily be located on E*Trade’s

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website, either through browsing or the search box available on the website. The Court

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acknowledges that Plaintiffs’ argument is not without any legal basis. Under California law,

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incorporation by reference requires that “the terms of the incorporated document . . . be known or

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easily available to the contracting parties.” Baker v. Osborne Development Corp., 159 Cal. App. 4th

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884, 895 (2008) (internal quotation marks omitted) (emphasis added). E*Trade does not dispute that

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a similar requirement would be imposed under New York law. The problem for Plaintiffs is that,
based on the evidence of record, no reasonable jury could find that the fee schedule (the term at

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For the Northern District of California

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issue) was not “easily available.”

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E*Trade has presented evidence showing that the fee schedule could be located on its

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website through at least three different means:

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(1)

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pages on the website).

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(2)

through the Pricing page (accessible from the home page); and

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(3)

through a search box (accessible from the home page and all other pages on the website).

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See Docket No. 126 (Gutierrez Decl. ¶¶ 7-16).

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through the Help Center/Customer Service page (accessible from the home page and all other

The Court concludes that, as a matter of law, each of these means constituted an easy way for

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an E*Trade customer, including Plaintiffs, to find the fee schedule. Plaintiffs’ criticisms of these

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means lack merit.

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For example, Plaintiffs point out that a customer would have to click three to four times to

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get to the fee schedule through the Help Center/Customer Service page and two times to get to the

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fee schedule through the Pricing page. This navigation, however, is far from excessive; it is only a

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handful of clicks, and the sequence of clicks was reasonably intuitive. Notably, a customer has an

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incentive to make at least a few clicks given the explicit notice in the BCAs that inactivity fees may

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be charged and that account maintenance fees could be found on the website. Finally, and most

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importantly, the navigation is neither counterintuitive, difficult, nor confusing. At the very least,

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accessing through the Pricing page seems obvious. Tellingly, Plaintiffs did not present any evidence

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that any customer was actually confused by the website and unable to locate the fee schedule.

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While, as Plaintiffs argue, E*Trade could also have made the fee schedule available through other

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intuitive means such as putting a link to the fee schedule on the online version of the BCA, the fact

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that E*Trade could have made the schedule more easily available (and thus minimize the legal risk it

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has incurred here) does not negate the fact that the fee schedule was nonetheless “easily available.”

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As for the search box, Plaintiffs concede that the fee schedule would be produced as a search

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result if a customer were to type in “fee” or “fees” or “commissions” in the search box. Plaintiffs

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also concede that “fee” or “fees” “were certainly the most popular searches.” Opp’n at 7. While
customers may have used other terms to search for the AMF (e.g., “fee schedule,” “inactivity,”

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For the Northern District of California

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“inactivity fee,” or “inactivity fees”), see Docket No. 115 (Iqbal Sur-Reply Decl., Ex. 2) which may

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or may not have led to the fee schedule (the record is not clear), the statistics provided by E*Trade

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indicate that those numbers were dwarfed by the numbers using “fee” or “fees.”5 See Docket No.

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115 (Iqbal Sur-Reply Decl., Ex. 2) (indicating, e.g., that, for the month of March 2009, more than

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20,000 searches were done for “fee” or “fees,” while only 286 searches were done for “fee

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schedule,” “inactivity,” “inactivity fee,” or “inactivity fees”).

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The Court further notes that the record evidence establishes that the commission rates for

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trading were also listed on the same schedule of fees and found on the same E*Trade website as the

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AMF. As E*Trade pointed out at argument, it cannot seriously be contended that trade commission

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rates are not incorporated into the BCA. Yet Plaintiffs fail to make a convincing argument that

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AMFs on the same fee schedule as commission rates are not incorporated into the BCA whereas the

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commission rates are.

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The Court thus concludes that E*Trade is entitled to partial summary judgment on Plaintiffs’

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first theory for relief. To the extent Plaintiffs have made a Rule 56(d) request, asking for permission

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to take the deposition of Mr. Gutierrez (i.e., the E*Trade witness who provided the critical testimony

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Plaintiffs’ reliance on Douglas v. United States District Court, 495 F.3d 1062 (9th Cir.
2007), is unavailing. There, the Ninth Circuit simply held that, without advance notice, “a service
provider may not change the terms of its service contract by merely posting a revised contract on its
website.” Id. at 1065.

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that “Plaintiffs need to depose Mr. Gutierrez and/or obtain additional discovery to see if the ‘Help

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Center’ was actually available to all visitors when Plaintiffs were E*TRADE customers”); Opp’n at

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6 (stating that “Plaintiffs should be allowed to depose Mr. Gutierrez on this method [of accessing the

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fee schedule through the Pricing button]”), the request is denied. Plaintiffs have not demonstrated

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that they exercised due diligence in conducting discovery on this matter. See Freeman v. ABC Legal

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Servs., Inc., No. C-11-3007 EMC, 2011 U.S. Dist. LEXIS 129840, at *10 (N.D. Cal. Nov. 9, 2011)

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(noting that “cases in this jurisdiction suggest that unless plaintiffs failed to exercise due diligence in

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conducting discovery, . . . the request is generally granted with liberality”). Clearly, the navigability

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of E*Trade’s website has been an issue since the inception of this case. Moreover, Mr. Gutierrez’s

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For the Northern District of California

about how the fee schedule was available to customers on the website), see Opp’n at 5 n.2 (stating

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United States District Court

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declaration was first filed on January 17, 2012. See Docket No. 126 (Gutierrez declaration).

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Plaintiffs did not make any request to take Mr. Gutierrez’s deposition until more than a month later

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as part of their opposition brief (i.e., on February 24, 2012).

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2.

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Plaintiffs’ second position focuses on the fee increase to which Mr. Roling was subjected in

Notice and Opportunity to Reject Fee Increase

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2005 – i.e., the increase in the AMF from $25 to $40. According to Plaintiffs, even if the BCAs

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allowed E*Trade to charge an inactivity fee, Mr. Roling at least should not have been subjected to

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an increased fee because he was not given adequate notice that E*Trade was increasing the fee and

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he was not given an adequate opportunity to reject the change in the fee schedule.

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a.

Notice

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Plaintiffs’ claim that Mr. Roling was not given adequate notice of the fee increase is not

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borne out by the evidence of record. The evidence of record indicates that, in advance of being

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charged the inactivity fee in March 2005, Mr. Roling was notified of the fee by direct mail in

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February 2005, see Docket No. 172 (Lobel Decl., Ex. 1) (Gandhi Depo. at 165), and by a statement

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insert in February 2005. See Docket No. 172 (Lobel Decl., Ex. 5) (Reckart Depo. at 63).

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To the extent Plaintiffs argue that the only way E*Trade could give notice was by posting the

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fee schedule on its website, that argument is without merit. The BCAs simply state that E*Trade

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may modify the fee schedule by posting. See Docket No. 126 (Gutierrez Decl., Ex. 7) (2005 BCA ¶

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4(b)) (“E*TRADE Securities may modify the fee structure anytime by posting a modified schedule

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on its Web site.”); Docket No. 126 (Gutierrez Decl., Ex. 8) (2005-2006 BCA ¶ 4(b) (same).

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b.

Opportunity to Reject

Plaintiffs do not argue only inadequate notice; they also argue that, even if notified, Mr.

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Roling was not given an adequate opportunity to reject the fee increase prior to the fee being

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charged. Defendants maintain that Mr. Roling, as well as all customers, were given an adequate

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opportunity to reject the fee increase because all customers were notified at least thirty days prior to

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the fee first being charged at the end of March 2005. See Mot. at 24.

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In response, Plaintiffs do not dispute that notice was given at least thirty days prior to the
first charge. Plaintiffs point out, however, that the fee became effective as of January 1, 2005 (i.e.,

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For the Northern District of California

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the first fee charged in March 2005 covered the January-March 2005 period). According to

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Plaintiffs, under the BCAs, a customer only has fifteen days after a change in service to reject the

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change and close his account. Here, because the change in service went into effect on January 1,

14

2005, a customer only had until January 16, 2005, to close his account. Thus, when the notice of the

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fee increase went out in February 2005, it was too late for a customer to close his account. Plaintiffs

16

assert that E*Trade should have provided the notice at least fifteen days before the change in service

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went into effect on January 1, 2005.

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The Court finds Plaintiffs’ argument unconvincing. Even if the first fee charged covered the

19

period starting on January 1, 2005, the fact remains that no fee was actually charged until March

20

2005, which was well after the advance notice was given. Thus, a customer would have an

21

opportunity to act before being charged. There is nothing in the record to indicate that, e.g., a

22

customer would be charged the inactivity fee or a pro rata fee if the customer terminated his or her

23

brokerage account before the assessment in March.

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25
26
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Moreover, Plaintiffs have not adequately taken into account the BCAs’ terms. Paragraph
12(e) of both the 2005 BCA and 2005-2006 BCA provided:
I agree that use of the Service after a change to the Service or notice of
a change to this Agreement, or if I do not close my Account within
fifteen (15) calendar days of the change to the Service or notice of a
change to the Agreement, means that I accept the change, whether or

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12

1

not I actually know if it, except that changes required by law will be
effectively immediately.

2
3

Docket No. 126 (Gutierrez Decl., Ex. 7) (2005 BCA ¶ 12(e)) (emphasis added); Docket No. 126

4

(Gutierrez Decl., Ex. 8) (2005-2006 BCA ¶ 12(e)) (emphasis added). In other words, under the

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BCAs, a customer would have fifteen days to act upon receiving notice of a change such as a fee

6

increase. Thus, under the terms of the BCA itself, Mr. Roling had an opportunity to reject the fee

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increase after receiving notice. Given the above, the Court concludes that, as a matter of law, Mr.

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Roling was given an adequate opportunity to reject the fee increase.

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Plaintiffs make the additional argument that, timing issues aside, the notices were also
deficient in that they do not allow customers to reject the fee increase short of canceling service.

11
For the Northern District of California

United States District Court

10

Plaintiffs argue that this rendered the fee increase procedurally unconscionable. See, e.g., Szetela v.

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Discover Bank, 97 Cal. App. 4th 1094, 1100 (2002) (finding procedural unconscionability where

13

plaintiff “received the amendment to the Cardholder Agreement in a bill stuffer, and under the

14

language of the amendment, . . . was told to ‘take it or leave it,’” thus leaving as “[h]is only option,

15

if he did not wish to accept the amendment, [the] clos[ing] [of] his account”). The problem for

16

Plaintiffs is that, even if there is procedural unconscionability, they are still required to show, in

17

addition, substantive unconscionability in order to sustain an unconscionability argument. See

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Gillman v. Chase Manhattan Bank, 73 N.Y.2d 1, 10 (1988) (noting that “[a] determination of

19

unconscionability generally requires a showing that the contract was both procedurally and

20

substantively unconscionable when made”); Armendariz v. Foundation Health Psychcare Servs., 24

21

Cal. 4th 83, 114 (2000) (noting that a finding of unconscionability requires “a ‘procedural’ and a

22

‘substantive’ element, the former focusing on ‘oppression’ or ‘surprise’ due to unequal bargaining

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power, the latter on ‘overly harsh’ or ‘one-sided’ results”). Plaintiffs have made no argument as to

24

how the fee increase was substantively unconscionable. AMFs appear to have been charged because

25

E*Trade provided services such as quotes, independent research, and customer service to its

26

customers. See Docket No. 172 (Lobel Decl., Ex. 4) (Walton Depo. at 29-30).

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1
2

c.

Posting of March 2005 Fee Increase

For the reasons discussed above, Plaintiffs’ alternative theory that Mr. Roling should not

3

have been subjected to the fee increase is without merit, and partial summary judgment might well

4

be appropriate but for one final argument made by Plaintiffs.

5

That is, Plaintiffs now seem to arguing that Mr. Roling (and other customers) should not

6

have been subjected to the fee increase from $25 to $40 on at least two specific occasions. This

7

argument is predicated on the fact that, under the BCA, E*Trade could not actually charge a fee until

8

it posted the fee change on its website. See Docket No. 126 (Gutierrez Decl., Ex. 7) (2005 BCA ¶

9

4(b) (providing that “E*TRADE Securities may modify the fee structure anytime by posting a
modified schedule on its Web site”); Docket No. 126 (Gutierrez Decl., Ex. 8) (2005-2006 BCA ¶

11
For the Northern District of California

United States District Court

10

4(b) (same). Plaintiffs claim that a change log produced by E*Trade shows that the March 2005 fee

12

increase was not posted on E*Trade’s website until June 23, 2005 – which was after the inactivity

13

fee had been charged two times (in March and June 2005). See Docket No. 184 (Woodrow Decl.,

14

Ex. F) (ETS 002303).6 Plaintiffs further point out that the Renga declaration does not state exactly

15

when the March 2005 fee increase posted. Accordingly, Plaintiffs maintain that there is a genuine

16

issue of material fact precluding summary judgment.

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18

Putting aside the fact that the statute of limitations allows Mr. Roling to seek relief based on
conduct as of May 2005 only, E*Trade argues in response that Plaintiffs

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fundamentally misunderstand the nature of the log. E*TRADE’s
change logs only go back to June 2005, when E*TRADE first began
tracking changes to the fee schedules. The entry Plaintiffs rely on is
the date the $40 fee schedule was first entered into E*TRADE’s
document repository, not the date it went live on the website.

22

Reply at 6-7 (emphasis in original); Docket No. 198 (Gutierrez Reply Decl. ¶¶ 3, 5-6). E*Trade

23

also provides a reply declaration from Mr. Renga providing a concrete date for the posting of the fee

24

increase. See Docket No. 197 (Renga Reply Decl. ¶ 4) (testifying that the fee increase was posted

25

no later than February 11, 2005).

20

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27
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6

Exhibit F is the change log for the fee schedule for retail customers. The first entry in the
log is dated June 23, 2005, with the comment “Initial check-in.” All other entries on the log postdate June 23, 2005.

14

1

While E*Trade may well be accurate in its explanation, the Court concludes that Plaintiffs

2

should have, at the very least, an opportunity to test the evidence E*Trade submits in support of the

3

above argument in its reply papers. E*Trade suggests that Plaintiffs could have asked about the

4

change logs – but did not – when they deposed its technical witnesses (Mr. Hiltbrand and Mr. Raj).

5

See Reply at 7 n.5. The problem with this position is that E*Trade did not submit a declaration from

6

either Mr. Hiltbrand or Mr. Raj about the change logs. Rather, it submitted a declaration from an

7

entirely new witness (i.e., Mr. Gutierrez). As for the Renga reply declaration, the Court shall not

8

consider the testimony on the date the March 2005 fee increase was posted because Mr. Renga could

9

have, but failed to, provide that testimony in his initial declaration.
The Court thus concludes that, while E*Trade is entitled to summary adjudication on the

11
For the Northern District of California

United States District Court

10

issues of notice and opportunity to reject, there is still a potentially viable theory that E*Trade

12

breached the BCAs by charging the increased fee two times in 2005 before actually posting the fee

13

increase on the website. While the first charge – in March 2005 – may be barred by the statute of

14

limitations, the second charge – in June 2005, would not be.

15

3.

16

Finally, Plaintiffs contend that, even if the fee schedule was properly incorporated by

17

reference, another fee schedule – i.e., the Brown Co. Addendum – was also available on E*Trade’s

18

website, and the Brown Co. Addendum actually stated that no inactivity fees would be charged. See

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Docket No. 126 (Renga Decl., Ex. 5) (Brown Co. Addendum) (stating, inter alia, “No Inactivity

20

Fees” and “E*TRADE Securities will not charge fees when your account is inactive for a period of

21

time”); see also Docket No. 181 (SAC, Ex. B) (Brown Co. Addendum) (stating the same).

22

While the Court does not find all of E*Trade’s arguments in relation to this theory

Brown Co. Addendum

23

persuasive, there is one that is convincing – i.e., that, if the Brown Co. Addendum was easily

24

available, then a customer would have access to both the Addendum and the regular retail customer

25

fee schedule, in which case that would give rise to an ambiguity in the BCA as to which fee

26

schedule should apply. Judge Patel explicitly raised this point in her order granting in part and

27

denying in part E*Trade’s Rule 12(b)(6) motion. See Docket No. 63 (Order at 8-10). In fact, in her

28

order, Judge Patel indicated that a side-by-side comparison of the Addendum and the regular fee

15

1

schedule would “strengthen[]” a conclusion that the Addendum was applicable only to former

2

Brown Co. customers. Docket No. 63 (Order at 9).

3

In their opposition, Plaintiffs argue that, even if there is an ambiguity, “E*TRADE has not

4

come forward with any additional information to show that the existence or availability of the [retail

5

customer fee] schedule defeats any ambiguity in the BrownCo. schedule’s application to Plaintiffs’

6

brokerage account as a matter of law.” Opp’n at 22. This is not true. E*Trade has provided

7

evidence that it was the industry practice during the relevant period to charge an AMF. See Docket

8

No. 125 (Renga Decl. ¶ 5) (testifying that, “[b]eginning in or around 2000, it became standard

9

industry practice for brokerage firms to assess Account Maintenance Fees for inactive or low
activity accounts similar to E*TRADE’s AMF”). See, e.g., Lopez v. Consolidated Edison Co. of N.

11
For the Northern District of California

United States District Court

10

Y., 40 N.Y.2d 605, 609 (1976) (indicating that, where contract terms were ambiguous, parol

12

evidence of custom and practice was properly admitted to show parties’ intent); 407 East 61st

13

Garage, Inc. v. Savoy Fifth Ave. Corp., 23 N.Y.2d 275, 281 (1968) (indicating that contract was “not

14

so free from ambiguity to preclude extrinsic evidence” of industry “custom and usage” that would

15

“establish the correct interpretation or understanding of the agreement as to its term”). Notably, this

16

is exactly the type of evidence that Judge Patel contemplated in her order on the motion to dismiss.

17

See Docket No. 63 (Order at 17 n.4) (noting that “[e]xtrinsic evidence [to resolve ambiguity] may

18

include evidence of trade usage”).

19

The Court acknowledges that Plaintiffs have not had an opportunity to depose Mr. Renga on

20

this specific matter. But, as E*Trade points out, if Plaintiffs had acted reasonably diligently, then

21

they would have been prepared to address this argument without needing to depose Mr. Renga –

22

particularly because Judge Patel called out this issue in her order on the motion to dismiss. Instead,

23

Plaintiffs produced no contrary evidence on this point.

24

Moreover, there is a legal argument in E*Trade’s favor that ultimately renders extrinsic

25

evidence of industry practice unnecessary. That is, as a canon of construction, the Court must

26

interpret the BCA to give effect to both the Brown Co. Addendum and the fee schedule. See Galli v.

27

Metz, 973 F.2d 145, 149 (2d Cir. 1992) (stating that, “Under New York law an interpretation of a

28

contract that has ‘the effect of rendering at least one clause superfluous or meaningless . . . is not

16

1

preferred and will be avoided if possible’[;] [r]ather, an interpretation that ‘gives a reasonable and

2

effective meaning to all terms of a contract is generally preferred to one that leaves a part

3

unreasonable or of no effect’”); Cal. Civ. Code § 1641 (providing that “[t]he whole of a contract is

4

to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping

5

to interpret the other”; Cal. Civ. Code § 1643 (providing that “[a] contract must receive such a

6

interpretation as will make it lawful, operative, definite, reasonable, and capable of being carried

7

into effect, if it can be done without violating the intention of the parties”). The only way to do so is

8

to interpret the Addendum as being applicable to only former Brown Co. customers. Otherwise, the

9

AMF fee schedule would be meaningless.

11
For the Northern District of California

United States District Court

10

The Court thus finds that partial summary judgment on the Brown Co. Addendum theory is
appropriate.7

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III.

13

CONCLUSION

For the foregoing reasons, the Court grants E*Trade’s motion for summary judgment. More

14

specifically, the Court rules as follows:

15

(1)

16

based on waiver. In light of this ruling, Plaintiffs’ motion to strike the Renga declaration is moot.

17

(2)

18

for relief (i.e., allegedly improper incorporation by reference) and (b) Plaintiffs’ third theory for

19

relief (i.e., accessibility of the Brown Co. Addendum). E*Trade is further entitled to summary

20

adjudication on the issues of notice and opportunity to reject, as related to Plaintiffs’ second theory

21

for relief (i.e., allegedly improper fee increase from $25 to $40). However, Plaintiffs may have a

22

potentially viable theory that E*Trade breached the BCAs by charging the inactivity fee at least one

23

time (within the statute of limitations) in 2005 before actually posting the fee schedule on its

24

website. With respect to the Court’s alternative rulings, Plaintiffs’ motion to strike the Renga

E*Trade is entitled to summary judgment on all of Plaintiffs’ individual claims for relief

Alternatively, E*Trade is entitled to partial summary judgment on (a) Plaintiffs’ first theory

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7

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27
28

Plaintiffs have also argued that summary judgment on the Brown Co. Addendum-based
claim is inappropriate because there is a genuine dispute as to when the Addendum was available –
i.e., March 16, 2006 (Plaintiffs’ position) or May 5, 2006 (E*Trade’s position). This argument has
little merit because, even if it is a genuine dispute of fact, it is not a dispute as to a material fact, at
least not for purposes of the summary judgment motion and the arguments made in conjunction with
the motion.

17

1

declaration is denied. Plaintiffs take issue with three paragraphs in the Renga declaration (¶¶ 16, 24,

2

and 30). Two of the paragraphs are essentially immaterial (i.e., the paragraphs as to when the

3

Brown Co. Addendum was posted and when the March 2002 fee increase (from $15 to $25) was

4

posted). With respect to the last paragraph (i.e., when the March 2005 fee increase posted), there is

5

nothing to strike because Mr. Renga does not provide any testimony as to when the fee increase was

6

posted. To the extent Mr. Renga tries to rectify that deficiency in his reply declaration, Plaintiffs’

7

objection is sustained. Mr. Renga could have provided that testimony in his initial declaration but

8

failed to do so. In addition, Plaintiffs’ objection to Mr. Gutierrez’s reply declaration is sustained in

9

part. As discussed above, Plaintiffs should be given an opportunity to test Mr. Gutierrez’s testimony
related to the change logs.

11
For the Northern District of California

United States District Court

10

The only issue remaining for the Court is how to proceed given its rulings above. Because

12

the Court has granted summary judgment to E*Trade based on waiver, Plaintiffs’ individual claims

13

have been disposed of in their entirety. There are no other individual plaintiffs in this case; thus,

14

there is no one who can proceed with the class claim. Even assuming that counsel for Plaintiffs asks

15

for leave to join a new plaintiff and proposed class representative and the Court grants that request

16

for relief (the Court notes that previously it denied Plaintiffs’ motion to amend to add Mr. Gogulski

17

to the case, see Docket No. 144 (Order at 4-5)), the Court’s alternative rulings above on Plaintiffs’

18

individual claims substantially narrows the legal claims available to any new plaintiff and proposed

19

class representative.

20

Given this situation, the Court concludes that the best way to proceed is to vacate all pending

21

deadlines and hearings, including but not limited to those related to Plaintiffs’ motion for class

22

certification. The Court shall hold a status conference on April 13, 2012 at 10:30 a.m. to discuss

23

///

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///

25

///

26

///

27

///

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///

18

1

with the parties how this litigation should proceed. The parties should be prepared to discuss, inter

2

alia, whether counsel for Plaintiffs should be given an opportunity to join a new plaintiff and

3

proposed class representative and, if so, what legal theories a new litigant would or would not be

4

precluded from making in light of the Court’s alternative rulings above. A joint status conference

5

statement shall be filed one week prior to the conference.

6

This order disposes of Docket No. 171.

7
8

IT IS SO ORDERED.

9
Dated: March 27, 2012

11
For the Northern District of California

United States District Court

10

_________________________
EDWARD M. CHEN
United States District Judge

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