Walters v. Target Corp.

Filing 32

ORDER granting in part and denying in part 30 Motion for Reconsideration. Plaintiffs UCL and CLRA claims may proceed. Plaintiffs breach of the implied covenant of good faith and fair dealing claims may proceed, but only as to the alleged delay in EFT processing. All other claims are dismissed. Signed by Judge M. James Lorenz on 10/18/2017. (sjt)

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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 JAMES WALTERS, Case No.: 3:16-cv-01678-L-MDD Plaintiff, 12 13 v. 14 ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT’S MOTION [Doc. 30] FOR RECONSIDERATION TARGET CORP., Defendant. 15 16 Pending before the Court is Defendant Target Corp’s (“Target”) motion for 17 18 reconsideration of this Court’s partial denial [Doc. 13] of Target’s motion [Doc. 8] to 19 dismiss. Pursuant to Civil Local Rule 7.1(d), the Court decides the matter on the papers 20 submitted and without oral argument. For the foregoing reasons, the Court GRANTS IN 21 PART and DENIES IN PART Target’s motion for reconsideration. 22 // 23 // 24 // 25 // 26 // 27 // 28 // 1 3:16-cv-01678-L-MDD 1 I. BACKGROUND This case is a putative class action stemming from Target’s issuance of a product 2 3 called a Target Debit Card (“TDC”). The TDC is a card that links to a cardholder’s 4 deposit bank account (“deposit account”). By swiping a TDC, a cardholder can purchase 5 merchandise from target at a five percent discount. Target, in turn, withdraws funds from 6 the linked deposit account to cover any purchases made with the TDC. To become a 7 TDC Cardholder, a customer must sign an agreement with Target that articulates various 8 terms and conditions. (“The Agreement” [Doc. 8-3].) 9 In the Agreement, in advertising, through customer / cashier interactions, and by 10 the name of the card itself, Target markets the TDC as a “debit card.” Plaintiff James 11 Walters (“Plaintiff”) –a Target Customer that held a TDC–alleges that an inherent feature 12 of a debit card is immediate processing of a transaction by either seizing1 deposit account 13 funds or declining a transaction. Because of this immediate processing feature, Plaintiff 14 alleges it is impossible for a true debit card transaction to directly trigger overdraft or 15 non-sufficient funds fees (“NSF Fees”) by spending more than available funds. 16 The TDC, by contrast, does not thus process transactions immediately. Rather, 17 there is a severe lag in time, often up to ten days, separating the use of a TDC from the 18 processing of the transaction. This delayed transaction occurs over the Automated 19 Clearinghouse (“ACH”) network, a processing network that typical debit cards do not 20 utilize. 21 By marketing the TDC as a “debit card”, Plaintiff alleges Target misleads 22 cardholders into believing it will process transactions immediately. As a result, many 23 TDC customers whose deposit accounts have adequate funds at time of transaction will 24 no longer have adequate funds several days later when the ACH transaction ultimately 25 26 27 28 The seizure, or “hold” of deposit account funds sufficient to cover the transaction occurs immediately with a normal debit card. The actual transfer of the held deposit account funds to the payee can occur later. (FAC ¶¶ 25–26.) 1 2 3:16-cv-01678-L-MDD 1 processes. Per the Agreement, this resulting inadequacy of funds triggers Returned 2 Payment Fees (“RPFs”) to Target. It also triggers overdraft or NSF fees to a customer’s 3 depository bank. Plaintiff alleges that Target’s practice of misrepresenting the TDC as a 4 debit card is intentional, aimed at (1) generating RPF fees and (2) saving on ACH 5 transaction fees by grouping transactions together over several days and processing them 6 en masse. 7 On August 15, 2016, Plaintiff filed a first amended putative class action complaint 8 alleging (1) breach of contract; (2) breach of the implied covenant of good faith and fair 9 dealing; (3) unjust enrichment; (4) unconscionability; (5) conversion; (6) violation of 10 California Business and Professions Code § 17200 et seq. (“UCL”); and (7) violation of 11 California Civil Code § 1750 (“CLRA”). (See FAC [Doc. 3].) Target filed a motion to 12 dismiss all claims against it. (MTD [Doc. 8].) The Court granted Target’s motion in 13 part, dismissing all but the breach of the implied covenant of good faith and fair dealing 14 claim, the UCL claim, and the CLRA claim. (MTD Order [Doc. 13].) Target seeks 15 reconsideration of the Court’s partial denial of its motion to dismiss. (Mot. [Doc. 30].) 16 Plaintiff opposes. (Opp’n [Doc. 31].) 17 18 II. 19 LEGAL STANDARD A district court has the power to reconsider and amend a previous order. See Fed. 20 R. Civ P. 59(e). However, a district court generally should not grant a motion for 21 reconsideration unless (1) the moving party presents newly discovered evidence, (2) there 22 is an intervening change in the controlling law or (3) the original ruling was clearly 23 erroneous. 389 Orange Street Partners v. Arnold, 179 F.3d 656, 665 (9th Cir. 1999). 24 25 III. UCL AND CLRA CLAIMS 26 Plaintiff’s UCL and CLRA claims both allege Target misrepresented the true 27 nature of the TDC by labeling and marketing it as a “debit card.” To succeed, these 28 claims require a showing that Target made an actionable misrepresentation by marketing 3 3:16-cv-01678-L-MDD 1 and labeling the TDC as a “debit card”. In its previous order, the Court held that Plaintiff 2 adequately alleged Target thus made an actionable misrepresentation. Target presents 3 two arguments as to why it believes this ruling was clear error. First, Target argues that 4 “the TDC is a ‘debit card’ as a matter of federal law.” (Mot. 3:1–2.) Target does not cite 5 to any federal law that specifically discusses the TDC. Rather, Target cites to Regulation 6 E, which, among other things, regulates the provision of electronic funds transfer 7 (“EFT”) services. Regulation E contemplates that companies like Target who do not hold 8 a customer’s deposit account can provide EFT services that access the customer’s deposit 9 account. 12 C.F.R. §1005.14. Regulation E further provides that such non-deposit 10 account holding companies can provide these EFT services by issuing “a debit card (or 11 other access device) that the consumer can use to access the consumer's account held by a 12 financial institution.” Because Regulation E thus authorizes Target to issue a debit card, 13 Target seems to argue that Regulation E explicitly defines the TDC as a debit card. 14 This argument lacks merit. Regulation E plainly does not attempt to define the 15 term “debit card.” It simply lists provision of a debit card as one mechanism among 16 others that a non-deposit account holding company like Target can use to provide EFT 17 services linked to a customer’s deposit account. Regulation E therefore provides no basis 18 by which to conclude the TDC is a debit card as opposed to another variety of deposit 19 account access device. Given this lack of any controlling legal definition for the term 20 “debit card”, this Court must construe as true at the pleading stage Plaintiff’s plausible 21 allegation that an indispensable defining feature of all debit cards is immediate 22 transaction processing. See Bell Atlantic v. Twombly, 550 U.S. 544, 547 (2007). Because 23 the TDC does not feature immediate processing, it follows that the TDC is not a debit 24 card. 25 Next, Target rehashes the argument that a reasonable consumer would not be 26 misled by the term “debit card” because the Agreement explains the TDC does not 27 function in the manner Plaintiff alleges a normal debit card functions. In dismissing the 28 breach of contract claim, the Court did hold that the Agreement explains that the TDC 4 3:16-cv-01678-L-MDD 1 does not function the way Plaintiff alleges a typical debit card functions. Target urges the 2 Court to impute to Plaintiff any knowledge he would have gained from reading the 3 Agreement. As a matter of contract law, it is true that a person who signs a contract is 4 presumed to have read and understood its clear language. From this, it simply does not 5 follow that one can affirmatively misrepresent the nature of a product and then use fine 6 print in a contract to immunize it from consumer protection law claims. See Williams v. 7 Gerber Prods. Co., 552 F.3d 934, 938–39 (9th Cir. 2008) (reasonable consumers are not 8 required to look past misleading labels to clarifying fine print).2 9 Furthermore, whether a representation would mislead a reasonable consumer is 10 rarely a question suitable for determination on a motion to dismiss. Williams, 552 F.3d at 11 938–39. It may be true that, prior to incurring RPF or NSF charges, a reasonable 12 consumer would read the several pages of fine print contained on the Agreement and thus 13 learn that the TDC is not actually what Plaintiff alleges Target affirmatively 14 misrepresents the TDC as being: a debit card that process transactions immediately. That 15 said, a reasonable jury could conclude otherwise. Accordingly, the Court DENIES 16 Target’s motion for reconsideration as to the UCL and CLRA claims. 17 18 IV. IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING 19 In ruling on Target’s motion to dismiss, the Court declined to dismiss Plaintiff’s 20 breach of the implied covenant of good faith and fair dealing claim (“bad faith claim”) 21 because “a reasonable jury could conclude that Target exercised its discretion in bad faith 22 by always delaying EFT’s and charging maximum RPF’s when [the Agreement] said 23 only that [Target] may engage in such practices. Target contends that this ruling was 24 clear error because the Agreement expressly permits such practices. Target’s argument is 25 partially correct. 26 27 2 28 Target cites no binding authority to the contrary. The Court notes that Davis v. HSBC Bank Nev., N.A., 691 F.3d 1152 (9th Cir. 2012) did not involve an affirmative misrepresentation. 5 3:16-cv-01678-L-MDD 1 Here, the Agreement explicitly gives Target discretion to delay EFT’s several days 2 and to charge RPF’s of up to a maximum value of $40. (Agreement §§1, 6.) Where a 3 party to a contract has discretion, a duty arises to exercise that discretion in good faith. 4 Peak-Las Positas Partners v. Bollag, 172 Cal. App. 4th 101, 106 (2009) (internal 5 citations and quotation marks omitted). That said, a court cannot use the covenant of 6 good faith to create implied terms that vary express contractual terms. Carma 7 Developers (Cal.), Inc., v. Marathon Development California, Inc., 2 Cal. 4th 342, 374 8 (1992). Thus, Target argues, because the express terms of the Agreement give Target full 9 discretion to delay EFT’s by several days and charge RPFs of up to $40, it cannot be held 10 11 liable for doing exactly that. As to the RPF fees, the Court agrees with Target and, pursuant to Fed. R. Civ. P. 12 54(b), modifies its previous order such that the bad faith claim is dismissed as to the 13 dollar amount charged as RPF fees. Section 6 of the Agreement expressly sets the upper 14 limit as to how much Target can charge as RPFs. Therefore, Target cannot be held to 15 answer for bad faith in charging at or below that expressly stated dollar amount. As to 16 the EFT processing allegations, the Agreement does not use the same level of precision in 17 defining the amount of time Target can delay in processing the EFTs. The Agreement 18 simply states “[y]ou agree that any EFT may occur several business days after your 19 transaction(s) have occurred and after the date shown on your transaction receipt(s). 20 (Agreement §1.) 21 This begs the question of what the parties meant by the term “several business 22 days”. It is not clear that the parties expressly intended that “several business days” was 23 to contemplate any delay at all, regardless of how long, or whether it was intended to 24 contemplate the up to ten days’ delay of which Plaintiff complains, or something less. 25 Because the Agreement thus does not seem to expressly and unequivocally bestow upon 26 Target the right to delay EFTs in an unbridled fashion, the Court finds it proper to apply 27 the implied covenant of good faith and fair dealing such to require that any delay be 28 6 3:16-cv-01678-L-MDD 1 reasonable.3 See Third Story Music, Inc. v. Waits, 41 Cal. App. 4th 798, 806 (1995) 2 (reasoning it is proper to use the implied covenant to interpret an ambiguous 3 discretionary power conferred by contract). Accordingly, the Court will not dismiss the 4 bad faith claim as to the allegations of unreasonable delay in EFT processing. However, 5 the Court dismisses all other allegations under Plaintiff’s bad faith claim because they run 6 directly against the express and unambiguous language of the Agreement. 7 8 V. 9 For the foregoing reasons the Court GRANTS IN PART and DENIES IN PART 10 CONCLUSION & ORDER Target’s motion as follows: 11  Plaintiff’s UCL and CLRA claims may proceed. 12  Plaintiff’s breach of the implied covenant of good faith and fair dealing claims 13 may proceed, but only as to the alleged delay in EFT processing.  All other claims are dismissed. 14 15 IT IS SO ORDERED. 16 17 Dated: October 18, 2017 18 19 20 21 22 23 24 25 26 27 28 Given the generally accepted definition of “several” as “more than two but fewer than many”, any delay of three days or less cannot sustain a claim for breach of the implied covenant of good faith and fair dealing. See 3 7 3:16-cv-01678-L-MDD

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