Murphy v. Law Offices of Howard Lee Schiff, P.C.

Filing 10

Judge Rya W. Zobel: Memorandum of Decision entered granting in part and denying in part 7 Motion to Dismiss for Failure to State a Claim. Allowed to Count 1 and Denied as to Count 2. A further conference is set for 3/11/14 at 2:30 p.m. (Urso, Lisa)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS

CIVIL ACTION NO. 13-10724-RWZ

MICHAEL MURPHY, II,
individually and on behalf of all other similarly situated
v.
LAW OFFICES OF HOWARD LEE SCHIFF, P.C.

MEMORANDUM OF DECISION
February 25, 2014

ZOBEL, D.J.
Plaintiff Michael Murphy II, on behalf of himself and others similarly situated,
alleges that defendant Law Offices of Howard Lee Schiff, P.C., violated the Electronic
Funds Transfer Act (“EFTA”), 15 U.S.C. § 1693 et seq., by (1) requiring him to provide
written notice to cancel or stop payment of a preauthorized electronic funds transfer
(Count I); and (2) entering into a written agreement that contained a waiver of his right
to cancel preauthorized electronic funds transfers orally or in writing, or by providing
notice of cancellation to the relevant financial institution (Count II). Defendant moves
to dismiss both counts (Docket # 7). See Fed. R. Civ. P. 12(b)(6).
I.

Background
Defendant sent plaintiff a written communication offering to enroll him in an

automated payment plan to repay an alleged debt plaintiff owed. Compl. ¶¶ 13-14.
The communication included an electronic funds authorization, which states, “‘[t]hese

deductions will commence on the day(s) you selected and will continue until your
balance is paid in full or we receive your WRITTEN REQUEST to stop ACH
payments.’” Id. ¶ 16 (quoting Compl. Ex. A). After plaintiff entered into the payment
plan, defendant sent him a second communication, which also required defendant to
make a written request to stop automatic payments. Id. ¶ 19 (citing Compl. Ex. B).
Plaintiff contends these communications do not comply with the EFTA.
II.

Legal Standard
A complaint must contain a “short and plain statement of the claim showing that

the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). The court accepts as true all
factual allegations contained in the complaint, but not legal conclusions. Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009). If the complaint fails to state a plausible claim upon
which relief can be granted, it must be dismissed. Id.
III.

Analysis
A.

Count I: Written Notice

Plaintiff alleges that defendant’s omission of his right to orally cancel a
preauthorized transfer in the communication it sent to plaintiff unlawfully “limit[ed] the
more generous cancellation rights legally provided to [p]laintiff and the class pursuant
to the EFTA.” Compl. ¶ 38. Defendant moves to dismiss on the ground that the
EFTA’s notice provisions apply only to financial institutions, and defendant, a law firm,
is not a financial institution.
The EFTA provides, “[a] consumer may stop payment of a preauthorized
electronic fund transfer by notifying the financial institution orally or in writing at any time
2

up to three business days preceding the scheduled date of such transfer.” 15 U.S.C. §
1693e(a) (emphasis added). The plain terms of the statute place an obligation to
comply with an oral cancellation notice only on financial institutions; professional
corporations like defendant, see Compl. ¶ 11, are not included by name. Therefore, I
must determine whether a professional corporation is within the EFTA’s definition of a
“financial institution.” The regulations that implement the EFTA define a “financial
institution” as
a bank, savings association, credit union, or any other person that directly
or indirectly holds an account belonging to a consumer, or that issues an
access device and agrees with a consumer to provide electronic fund
transfer services.
12 C.F.R. § 1005.2(i). Again, the plain terms of the statute do not encompass a law
firm or professional corporation. Nor does plaintiff contend that by periodically debiting
payments from plaintiff’s account, defendant “directly or indirectly holds an account
belonging to [plaintiff].” Id. Defendant is not a financial institution.
But does § 1693e(a) apply only to financial institutions? Plaintiff says it does
not. Section § 1693m authorizes civil litigation against “any person who fails to comply
with any provision of this subchapter with respect to any consumer.” Plaintiff contends
that because a corporation is a “person” for EFTA purposes, see 12 C.F.R. § 1105.2(j),
defendant may be held liable. It is true that § 1693m provides “an enforcement
mechanism against non-financial institutions.” I.B. ex rel. Fife v. Facebook, Inc., 905 F.
Supp. 2d 989, 1006 (N.D. Cal. 2012) (internal quotation and citation omitted). Plaintiff,
however, overlooks the exemption in the statute’s introductory phrase. Section 1693m

3

exempts the provisions of § 1693h from liability for “any person” under the statute. And
§ 1693(h)(3), as one court considering this exact question recently concluded, “limits
liability to financial institutions for violations of the stop payment provisions concerning
preauthorized transfers.” Baldukas v. B & R Check Holders, Inc., No. 12-cv-01330CMA-BNB, 2012 WL 7681733, at *4 (D. Colo. Oct. 1, 2012), adopted sub nom. by
Baldukas v. B & R Check Holders, 2013 WL 950847 (D. Colo. Mar. 8, 2013). “No
similar liability exists for any other ‘person’ under § 1693.” Baldukas, 2013 WL 950847,
at *2. In short, § 1693e(a) applies only to financial institutions, and defendant is not a
financial institution. Notwithstanding the application of § 1693m, defendant may not be
held liable under § 1693e(a). Plaintiff has not stated a claim on which relief can be
granted.1
B.

Count II: Waiver

Plaintiff contends that by limiting the stop-payment method to only written notice,
defendant caused plaintiff to waive his right to cancel preauthorized transfers orally or
in writing, or by providing notice of cancellation to the relevant financial institution, as
15 U.S.C. § 1693e(a) allows. Compl. ¶ 41. That waiver violates 15 U.S.C. § 1693l,
which provides,
No writing or other agreement between a consumer and any other person

1

Plaintiff also argues that defendant should be subject to the EFTA for public policy reasons. I
may not indulge that argument, however, because the language of the statute is clear. See Ruiz v. Bally
Total Fitness Holding Corp., 496 F.3d 1, 8 (1st Cir. 2007) (“Where, as here, [the statutory] language is
clear and unambiguous, the inquiry is at an end.”). I further note that O’Donovan v. Cashcall, Inc., No. C
08-03174 MEJ, 2009 WL 1833990 (N.D. Cal. June 24, 2009), on which plaintiff relies, is readily
distinguishable. There, unlike here, defendant did not contest the threshold question whether it was a
“financial institution” under the EFTA. The O’Donovan court examined the claims on their merits and did
not address the question presently before me. The other cases defendant cites are also not on point.

4

may contain any provision which constitutes a waiver of any right
conferred or cause of action created by this subchapter. Nothing in this
section prohibits, however, any writing or other agreement which grants to
a consumer a more extensive right or remedy or greater protection than
contained in this subchapter or a waiver given in settlement of a dispute
or action.2
Plaintiff adequately states a claim. If plaintiff attempted to orally cancel a
payment within the applicable time period, he would have breached the terms of the
payment plan, even though he was within his EFTA-conferred rights. As the Baldukas
court concluded, that is enough to state a claim for a violation of 15 U.S.C. § 1693l.
2012 WL 7681733, at *5.
Defendant’s arguments to the contrary are unpersuasive. Defendant first
contends that plaintiff did not have actual knowledge of his payment transfer
cancellation rights, a necessary element to prove a waiver claim. See United States v.
Walker, 665 F.3d 212, 227 (1st Cir. 2011) (“Waiver normally involves the intentional
relinquishment of a known right.”). But I cannot infer as much at this early stage in the
litigation, where I must take the alleged facts as true and construe all reasonable
inferences in plaintiff’s favor. See Alternative Energy, Inc. v. St. Paul Fire and Marine
Ins. Co., 267 F.3d 30, 33 (1st Cir. 2001).
Nor can I credit defendant’s argument that it is entitled to dismissal under the
EFTA’s “safe harbor” affirmative defense, which exempts from liability “any act done or
omitted in good faith in conformity with any rule, regulation, or interpretation thereof by
the [Consumer Financial Protection] Bureau or the Board [of Governors of the Federal

2

Because the statute applies to an agreement between a consumer and “any other person,” the
statute applies to defendant even though it is not a financial institution.

5

Reserve].” See 15 U.S.C. § 1693m(d)(1). An affirmative defense may support
dismissal of a complaint only where it is “definitively ascertainable from the complaint
and other sources of information that are reviewable at this stage, and (2) the facts
establish the affirmative defense with certitude.” Citibank Global Mkts., Inc. v. Santana,
573 F.3d 17, 23 (1st Cir. 2009). Here, the facts necessary to establish the affirmative
defense are uncertain. Dismissal on this basis is therefore appropriate.
Defendant’s remaining arguments are without merit.3 Plaintiff has stated a claim
under 15 U.S.C. § 1693 l.
IV.

Conclusion
Defendant’s motion to dismiss (Docket # 7) is ALLOWED with respect to Count I

and DENIED with respect to Count II.

/s/Rya W. Zobel

February 25, 2014
DATE

RYA W. ZOBEL
UNITED STATES DISTRICT JUDGE

3

Defendant explains at great length the difference between the cancellation of authorization for
preauthorized fund transfers and the cancellation of a specific initiated transfer request made pursuant to
that authorization. Defendant, however, does not explain the legal significance of this difference, and I
divine none. Defendant also contends that by allowing plaintiff to cancel a transfer request by contacting
itself rather than plaintiff’s financial institution, it provided plaintiff greater rights than the EFTA confers.
This, too, has no legal significance, because supplementing EFTA-conferred rights in one area does not
excuse failure to supply the EFTA’s mandatory minimum rights in another.

6

7