Docena v. Navy Federal Credit Union

Filing 33

ORDER granting Navy Federal's 12 Motion to Dismiss; denying as moot Navy Federal's 12 Request for Judicial Notice. Signed by Judge Larry R. Hicks on 1/4/2016. (Copies have been distributed pursuant to the NEF - KR)

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UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA

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***

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GERARDO DOCENA, individually and on
behalf of all others similarly situated,
3:15-CV-00184-LRH-WGC

Plaintiff,
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v.

ORDER

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NAVY FEDERAL CREDIT UNION, a
Virginia Corporation,

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Defendant.

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Before the Court is Defendant Navy Federal Credit Union’s (“Navy Federal”) Motion to

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Dismiss Plaintiff Gerardo Docena’s (“Docena”) First Amended Complaint (“FAC”). Doc. #12.1

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This motion also contains a request for judicial notice. Doc. #12. Docena filed an Opposition

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(Doc. #16), to which Navy Federal replied (Doc. #17).

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I. Factual Background

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This case involves claims of breach of contract and violations of the Nevada Deceptive

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Trade Practices Act (“DTPA”) arising from Navy Federal’s sale of a payment protection plan.

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Navy Federal is a credit union whose members consist of military personnel, Department

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of Defense personnel, and their families. Navy Federal offers a Payment Protection Plan, which

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is a voluntary add-on to credit card and consumer loan agreements. Through the Payment

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Protection Plan, Navy Federal promises to cancel a portion of a subscriber’s loan upon the

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Refers to the Court’s docket number.

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occurrence of certain specific conditions in exchange for a monthly fee based on their loan

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balance. These specific conditions are death, disability, and involuntary unemployment, and

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payment is subject to restrictions spelled out in the Payment Protection Plan Agreement and

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Disclosure (“Agreement”).

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Docena is a former military contractor with a credit card issued to him by Navy Federal.

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He has been enrolled in the Payment Protection Plan since August 11, 2008, with individual

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coverage for loss of life, disability, and involuntary unemployment. Until August 15, 2014,

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Docena was employed as a military contractor. Beginning on that date, he was unable to work

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because he was seeking, but had not received, a security clearance. He was then laid off in late

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October 2014. Docena submitted a claim to Navy Federal for benefits under his Payment

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Protection Plan, but was denied because he had not been actively working 25 hours or more per

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week immediately preceding the date he became unemployed, which the contract stated was one

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of the requirements to obtain benefits.

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On March 27, 2015, Docena filed a class action Complaint against Navy Federal alleging

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breach of contract and violations of Nevada’s DTPA. Doc. #1. On June 30, 2015, Navy Federal

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filed its Motion to Dismiss. Doc. #12. Docena filed a timely Opposition on July 24, 2015. Doc.

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#16. Navy Federal filed a Reply on August 18, 2015. Doc. #17. On December 22, 2015, oral

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argument on the motion to dismiss was conducted before the Court. Doc. #31.

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II. Legal Standard

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Navy Federal seeks dismissal for failure to state a claim upon which relief can be granted

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pursuant to Federal Rule of Civil Procedure 12(b)(6). To survive a motion to dismiss for failure

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to state a claim, a complaint must satisfy the Federal Rule of Civil Procedure 8(a)(2) notice

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pleading standard. Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1103 (9th Cir.

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2008). That is, a complaint must contain “a short and plain statement of the claim showing that

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the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). The 8(a)(2) pleading standard does not

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require detailed factual allegations, but a pleading that offers “‘labels and conclusions’ or ‘a

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formulaic recitation of the elements of a cause of action’” will not suffice. Ashcroft v. Iqbal, 556

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U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)).
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To satisfy the plausibility standard, 8(a)(2) requires a complaint to “contain sufficient

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factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Id.

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(quoting Twombly, 550 U.S. at 570). A claim has facial plausibility when the pleaded factual

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content allows the Court to draw the reasonable inference, based on the Court’s “judicial

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experience and common sense,” that the defendant is liable for the misconduct alleged. See id. at

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678-79. The plausibility standard “is not akin to a probability requirement, but it asks for more

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than a sheer possibility that a defendant has acted unlawfully. Where a complaint pleads facts

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that are merely consistent with a defendant’s liability, it stops short of the line between

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possibility and plausibility of entitlement to relief.” Id. at 678 (internal quotation marks

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omitted).
In reviewing a motion to dismiss, the court accepts the facts alleged in the complaint as

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true. Id. The “factual allegations that are taken as true must plausibly suggest an entitlement to

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relief, such that it is not unfair to require the opposing party to be subjected to the expense of

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discovery and continued litigation.” Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011).

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Moreover, “bare assertions . . . amount[ing] to nothing more than a formulaic recitation of the

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elements of a . . . claim . . . are not entitled to an assumption of truth.” Moss v. U.S. Secret Serv.,

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572 F.3d 962, 969 (9th Cir. 2009) (citing Iqbal, 556 U.S. at 681) (brackets in original) (internal

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quotation marks omitted). The court discounts these allegations because “they do nothing more

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than state a legal conclusion—even if that conclusion is cast in the form of a factual allegation.”

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Id. (citing Iqbal, 556 U.S. at 681). “In sum, for a complaint to survive a motion to dismiss, the

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non-conclusory ‘factual content,’ and reasonable inferences from that content, must be plausibly

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suggestive of a claim entitling the plaintiff to relief.” Id.

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Furthermore, a court may take judicial notice of “records and reports of administrative

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bodies.” Interstate Natural Gas Co. v. Southern California Gas Co., 209 F.2d 380, 385 (9th

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Cir.1953. This includes items like notices and opinion letters issued by the administrative

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agencies. Wible v. Aetna Life Ins. Co., 375 F.Supp.2d 956, 965 (C.D.Cal.2005) (internal

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quotation marks omitted) (taking judicial notice of the February 26, 2004, opinion letter issued

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by the California DOI). Under the Federal Rules of Evidence, “[a] judicially noticed fact must
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be one not subject to reasonable dispute in that it is either (1) generally known within the

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territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by

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resort to sources whose accuracy cannot reasonably be questioned.” Fed.R.Evid. 201(b). “A

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court shall take judicial notice if requested by a party and supplied with the necessary

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information.” Fed.R.Evid. 201(d).

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III. Discussion

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A. Docena’s Breach of Contract Claim

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Navy Federal argues that Docena’s breach of contract claim fails as a matter of law

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because he cannot show a specific provision of the Payment Protection Plan was breached and

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there has been no violation of the implied covenant of good faith and fair dealing. Docena

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responds that Navy Federal breached the implied covenant of good faith and fair dealing through

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acts of dishonesty.

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Docena and Navy Federal agree that the breach of contract claim is governed by Virginia

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law. Under Virginia law, the elements of a breach of contract action “are (1) a legally

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enforceable obligation of a defendant to a plaintiff; (2) the defendant's violation or breach of that

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obligation; and (3) injury or damage to the plaintiff caused by the breach of obligation.” Brown

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v. Harms, 251 Va. 301, 306, 467 S.E.2d 805, 807 (1996); Fried v. Smith, 244 Va. 355, 358, 421

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S.E.2d 437, 439 (1992); Westminster Investing Corp. v. Lamps Unlimited, Inc., 237 Va. 543,

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546, 379 S.E.2d 316, 317 (1989). Docena does not show that Navy Federal violated any of its

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specific obligations as outlined in the Agreement, and Docena cannot show such a violation

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because he contends that Navy Federal did not violate its specific obligations but obfuscated

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them. Thus, Docena has no claim for an express breach of contract.

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B. Breach of the Implied Covenant of Good Faith and Fair Dealing

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The Fourth Circuit has held that contracts governed by Virginia law contain an implied

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covenant of good faith and fair dealing. See Va. Vermiculite. Ltd. v. W.R. Grace & Co., 156 F.3d

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535, 541–42 (4th Cir.1988). In Virginia, the elements of a claim for breach of an implied

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covenant of good faith and fair dealing are (1) a contractual relationship between the parties, and

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(2) a breach of the implied covenant. Enomoto v. Space Adventures, Ltd., 624 F. Supp. 2d 443,
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450 (E.D. Va. 2009) (citing Charles E. Brauer Co., 251 Va. at 35, 466 S.E.2d at 386). However,

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“no implied duty arises with respect to activity governed by express contractual terms.”

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Skillstorm, Inc. v. Elec. Data Sys., LLC, 666 F.Supp.2d 610, 620 (E.D.Va.2009) (citing Ward's

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Equip., Inc. v. New Holland N. Am., 493 S.E.2d 516, 520 (Va.1997)). Thus, the covenant of

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good faith and fair dealing does not preclude a party from exercising valid contractual rights, “as

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long as that party does not exercise those rights in bad faith.” Wolf v. Fed. Nat. Mortg. Ass'n,

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512 Fed.App’x. 336, 345 (4th Cir. 2013). The duty can also be breached if the purported

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exercise of a contractual right is dishonest, as opposed to merely arbitrary. See Enomoto, 624

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F.Supp.2d at 450 (holding that the “claim [was] properly pled because ... Plaintiff alleges that

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Defendant's actions were not merely unfavorable, but dishonest”); Charles E. Brauer Co., 251

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Va. at 35, 466 S.E.2d at 386 (holding that the implied duty of good faith was not breached when,

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“arguably, the bank's conduct was arbitrary, but it was not dishonest.”).

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It is clear that the implied covenant of good faith and fair dealing is found in this contract

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under Virginia law. Docena acknowledges that a party cannot breach the obligation of good

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faith and fair dealing by exercising their valid and binding contractual rights, and he instead

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focuses on the dishonesty method of breaching the implied covenant of good faith and fair

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dealing. Docena relies heavily on the Enomoto case, in which a prospective space tourist

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brought action against the company he had contracted with to facilitate his space flight. In

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Enomoto, the space tourist made several large payments toward his space flight, but despite

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passing two medical clearance boards the company told him his space flight had been cancelled

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because he was medically unfit. Enomoto, 624 F.Supp.2d at 448-49. The space tourist’s health

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was no different at disqualification than it had been either time he was medically cleared, and the

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company refused to provide him with medical records regarding his disqualification despite his

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repeated requests. Id.

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The court found that the space tourist’s claim was properly pled because he alleged not

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unfavorable actions, but dishonest ones. Id. at 450. However, the facts supporting the space

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tourist’s claims are substantially different than the ones at issue here. In Enomoto, the tourist

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alleged that the company had specifically lied to him. Here, Docena does not allege that Navy
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Federal lied to him about anything. He only alleges that they should not have accepted his

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money because they knew or should have known that he was likely ineligible for Payment

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Protection benefits, even though his potential ineligibility was explained in the Agreement they

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gave him. Therefore, Navy Federal’s actions are not “dishonest” as in Enomoto because the

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express grounds of qualification were clear and unambiguous at all times. Therefore, the implied

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covenant of good faith and fair dealing is not violated.

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Next, a “party cannot breach the covenant of good faith and fair dealing before a contract

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is formed. Wensley v. First Nat. Bank of Nevada, 874 F. Supp. 2d 957, 964 (D. Nev. 2012).

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(citing Indep. Order of Foresters v. Donald, Lufkin & Jenrette, Inc., 157 F.3d 933, 941 (2d

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Cir.1998) (“[A]n implied covenant relates only to the performance of obligations under an extant

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contract, and not to any pre-contract conduct.”)).

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Docena contends that his claims stem from post-contractual dishonesty in the

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administration of the plan. However, the implied covenant of good faith and fair dealing does

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not compel a party to take affirmative actions that the party is not obligated to take under the

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terms of the contract. E. Shore Markets, Inc. v. J.D. Assocs. Ltd. P'ship, 213 F.3d 175, 182 (4th

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Cir.2000). Instead, the duty simply bars a party from “acting in such a manner as to prevent the

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other party from performing his obligations under the contract.” Id. at 183.The covenant of good

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faith and fair dealing “cannot be construed to establish new and independent rights or duties not

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agreed upon by the parties.” De Vera v. Bank of Am., N.A., No. 2:12CV17, 2012 WL 2400627,

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at *3 (E.D. Va. June 25, 2012) (quoting Knudsen v. Countrywide Home Loans, Inc., No. 2:11–

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CV–429, 2011 WL 3236000, at *3 (D. Utah July 26, 2011)). An implied duty under a contract is

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simply a manifestation of conditions inherent in expressed promises. E. Shore Markets, 213 F.3d

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at 182. The implied covenant cannot “rewrite[e] an unambiguous contract in order to create

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terms that do not otherwise exist.” McInnis v. BAC Home Loan Servicing, LP, 2:11CV468, 2012

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WL 383590 (E.D. Va. Jan.13, 2012) report and recommendation adopted, McInnis v. BAC Home

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Loan Servicing, LP, 2:11CV468, 2012 WL 368282 (E.D. Va. Feb.3, 2012).

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Here, Docena contends that he is simply asking for compensation, but it is clear from his
complaint that he is asking Navy Federal to take on different and additional obligations. He
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takes issue with the restrictiveness and opacity of the terms of the contract, and he claims Navy

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Federal had a duty to prescreen customers, explain the contract to them, and stop accepting

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payments from those currently ineligible for certain benefits. Docena’s claim is not about the

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conditions inherent in Navy Federal’s expressed promise; it’s about Docena’s subjective

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expectations. Docena is alleging a host of duties that Navy Federal simply did not owe him.

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Therefore, there is no valid claim for breach of the implied covenant of good faith and fair

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dealing.

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C. Docena’s Claim for Violations of the Nevada DTPA

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Docena also alleges that Navy Federal’s actions constitute an unfair trade practice under

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Nevada's DPTA. Nevada Revised Statutes section 41.600 provides, “An action may be brought

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by any person who is a victim of consumer fraud. As used in this section, ‘consumer fraud’

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means: ... A deceptive trade practice as defined in NRS 598.0915 to NRS 598.0925....” Docena

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claims a violation because Navy Federal failed to “disclose a material fact in connection with the

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sale or lease of goods or services.” Nev. Rev. Stat. Ann. § 598.0923(2). To establish a violation

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of the DPTA, the plaintiff must demonstrate that (1) an act of consumer fraud by the defendant

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(2) caused (3) damages to the plaintiff. Picus v. Wal–Mart Stores, Inc., 256 F.R.D. 651, 657–58

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(D.Nev.2009) (noting Nevada Supreme Court has not specified the elements of a DPTA claim

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and predicting how the court would rule).

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Navy Federal argues that Docena’s claim fails on several grounds: that he cannot plead
consumer fraud, that the claim is time barred, and that it is preempted.

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Even without reaching the question of whether the heightened pleading standard of Rule

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9(b) applies, Docena cannot adequately plead consumer fraud. Docena states that his claim is

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based on Navy Federal’s failure to disclose material facts, namely that exceptions like the

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actively working requirement apply to the involuntary unemployment activation event.

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However, these facts are clearly stated in the Agreement, and they are quoted and cited to many

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times by the plaintiff. The Agreement clearly states that involuntary unemployment means “You

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involuntarily lost Your Full-Time Employment,” that Full-Time Employment means “you are

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Actively at Work for Income twenty-five (25) hours or more per week,” and that Actively at
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Work means “actively working and actually performing Your job duties and not off work due to

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a leave of absence; layoff; furlough; routine or seasonal work interruption; or any other reason.”

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Doc. 1 Ex. 1. These terms are on the first page of a two page document, in the same font size as

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everything else in the document. Id. Terms are labeled in bold and defined in a section clearly

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labeled “Definitions.”

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document to denote that they are described in the definitions section. Id. All of the things

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Docena alleges Navy Federal failed to disclose are, in fact, disclosed. The fact that Docena did

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not read them or did not understand them is immaterial. Freeman v. Time, Inc., 68 F.3d 285, 289

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(9th Cir. 1995) (upholding a motion to dismiss because a reasonable consumer would have been

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put on notice “simply by doing sufficient reading”); Gage v. Phillips, 26 P. 60, 61–62, 21 Nev.

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150 (Nev.1891) (“The mere statement of the defendant ‘that she did not know what she was

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signing, when she signed the bill of sale’ is no excuse in law”); In re Schwalb, 347 B.R. 726, 743

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(Bankr. D. Nev. 2006) (“It has long been the common law rule that signing a document

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authenticates and adopts the words it contains, even if there was a lack of subjective

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understanding of the words or their legal effect. In essence, people are presumed to be bound by

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what they sign.”). Because the facts Docena alleges Navy Federal failed to disclose were, in

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fact, disclosed in the Agreement, he cannot make a claim for violations of Nevada’s DTPA.

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Words with specific definitions are capitalized throughout the

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Further, because Docena cannot state a legally valid claim for violations of Nevada’s

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DTPA, it is unnecessary to address Navy Federal’s arguments regarding federal preemption and

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the time bar.2

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It is also unnecessary to address Navy Federal’s request for judicial notice because the documents in question are
not necessary to this decision.

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IV. Conclusion
IT IS THEREFORE ORDERED that Navy Federal’s Motion to Dismiss (Doc. #12) is
GRANTED.
IT IS FURTHER ORDERED that Navy Federal’s Request for Judicial Notice (Doc. #12)
is DENIED as moot.

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IT IS SO ORDERED.

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DATED this 4th day of January, 2016.

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________________________________
LARRY R. HICKS
UNITED STATES DISTRICT JUDGE

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