Gao v. JPMorgan Chase & Co. et al
Filing
31
OPINION & ORDER re: 26 MOTION to Dismiss (Notice of Defendants' Motion to Dismiss Amended Complaint). filed by JPMorgan Chase & Co., Chase Bank USA, N.A. For the foregoing reasons, Defendants' motion to dismiss is grante d with respect to Plaintiffs' claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and fraudulent inducement. As to fraudulent inducement, the Court grants leave to replead but only in the event that P laintiffs can allege actionable misrepresentations with the specificity required by Fed. R. Civ. P. 9(b) by June 29, 2015. Defendants' motion to dismiss the unjust enrichment claim and the OCSPA and FDUTPA claims is denied. The parties are directed to file a civil case management plan by July 2, 2015. The Clerk of the Court is directed to terminate the motion at Docket Number 26., ( Amended Pleadings due by 6/29/2015.) (Signed by Judge Paul A. Crotty on 6/9/2015) (lmb)
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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
Ir;.:··
I DOCUMENT
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ELECTRONICALLY FILED
DOC#:-----·
DATE FILED: ~- CJ-1S
.__
HARRY GAO and ROBERTA SOCALL, on
behalf of themselves and all others similarly
situated,
Plaintiffe,
14 Civ. 4281 (PAC)
-againstJPMORGAN CHASE & CO. and CHASE
BANK USA, N.A. ,
OPINION & ORDER
Defendants.
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HONORABLE PAUL A. CROTTY, United States District Judge:
Plaintiffs Harry Gao ("Gao") and Roberta Socall ("Socall") (collectively, "Plaintiffs")
bring this putative class action against Defendants JPMorgan Chase & Co. ("JPM") and Chase
Bank USA, N.A. ("Chase") (collectively, "Defendants") for breach of contract, breach or"the
covenant of good faith and fair dealing, fraudulent inducement, unjust enrichment, and violations
of the Ohio and Florida state statutes prohibiting unfair and deceptive acts and practices
following the termination of their credit card accounts and the ensuing loss of their credit card
rewards points. For the following reasons, the motion is granted in part and denied in part.
1
BACKGROUND 1
Rewards programs for cardholders are offered by almost all major credit card issuers in
the United States, including Chase. Compl.
if 1.
These programs "entice consumers to apply for
credit cards and, once enrolled, to use the credit cards more frequently. " Id. The Chase Freedom
credit card is part of the Chase Ultimate Rewards program, pursuant to which cardholders earn
one point or 1% rebate for each dollar charged to the card. Id.
if 5.
Advertisements for the
program "tout[] the fact that Chase rewards points do not expire." Id. The points earned by
using the card "have a real, ascertainable value" and can be redeemed "for cash or merchandise."
Id. if 7.
In 2011 , Gao applied for a Chase Freedom credit card at a Chase Bank branch location.
Id.
if 36.
Gao received the card in the mail, along with a copy of the Ultimate Rewards Program
Rules and Regulations ("Program Rules") and a copy of the Cardmember Agreement. Id.
if 36,
Ex. A, B, D, E. From 2011 until 2013, Gao made numerous purchases with his credit card,
amounting to thousands of dollars. Id.
if 37.
Pursuant to the Program Rules, Gao expected to
receive one rewards point for every dollar charged to his credit card account. Id. He also
expected that the rewards points would never expire. Id. Gao redeemed portions of his rewards
points. Id. if 7.
By July 2013 , he had 10,000 rewards points, worth approximately $100. Id.
if 39.
During this time, he had never missed a card payment and his account was in good standing. Id.
In July 2013 , he unexpectedly received written notification from Chase that his credit card was
terminated. Id.
if 40.
Chase revoked the unredeemed rewards points when terminating his
account. Id. Chase did not compensate Gao for the revocation of these points. Id.
1
The allegations from the Amended Complaint and the attached exhibits are taken as true.
2
Socall "applied for and received a Chase Freedom credit card in approximately 2006."
Id.
if 41.
In 2010, she applied for and received another Chase Freedom card. Id. With both of
these cards, she received copies of the Program Rules. Id. Socall made numerous purchases
with these credit cards, amounting to thousands of dollars. Id.
if 42.
She made these purchases
"with the belief that her expenditures would result in the accumulation of rewards points or
rebates and that they would not expire." Id. if 42. The Program Rules specifically stated,
"Points/rebates earned in this Program will not expire." Id. As of September 2011, Socall had
over 12,000 points entitling her to a cash rebate of over $120. Id.
if 43.
Socall never missed a
monthly card payment and her account was in good standing. Id. Socall redeemed "a portion of
[her] Chase Ultimate Rewards points without difficulty." Id.
if 7.
In September 2011, she
unexpectedly received written notification from Chase that her credit cards were terminated. Id.
if 44.
Chase revoked the unredeemed rewards points when terminating her accounts. Id. Chase
did not compensate Socall for the revocation of these points. Id.
This case is not about Gao and Socall getting their points back or a cash rebate. Instead,
they seek to represent one main class and two subclasses of putative plaintiffs. First, they seek to
represent a "National Class," consisting of "cardholders enrolled in a Chase Rewards program
during the applicable statutory period who were not in Default and had their accounts closed and
their rewards points taken without compensation." Id. if 48. Gao seeks to represent an "Ohio
Subclass," consisting of Ohio residents enrolled in the Rewards program "who were not in
Default and had their accounts closed and their rewards points taken without compensation." Id.
Socall seeks to represent a "Florida Subclass," consisting of Florida residents enrolled in the
Rewards program "who were not in Default and had their accounts closed and their rewards
points taken without compensation." Id.
if 48.
3
DISCUSSION
I.
Applicable Law
"To survive a motion to dismiss, a complaint must contain sufficient factual matter,
accepted as true, to ' state a claim to relief that is plausible on its face. "' Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). At this
stage, " [w]hen there are well-pleaded factual allegations, a court should assume their veracity
and then determine whether they plausibly give rise to an entitlement to relief." Id. at 679. The
Court does not "assay the weight of the evidence which might be offered in support thereof' but
instead "assess[es] the legal feasibility of the complaint." Lopez v. Jet Blue Airways, 662 F.3d
593, 596 (2d Cir. 2011) (internal citation and quotation marks omitted).
II.
Analysis
A.
Breach of Contract2
To state a claim for breach of contract under Delaware law, a plaintiff must allege "(1)
the existence of the contract, whether express or implied; (2) the breach of an obligation imposed
by that contract; and (3) any damages that the plaintiff incurred as a result of the breach." Yellow
Pages Grp., LLC v. Ziplocal, LP, 2015 WL 358279, at *3 (Del. Super. Ct. 2015) (citing VLIW
Tech. , LLC v. Hewlett-Packard Co. , 840 A.2d 606, 612 (Del. 2003)).
Defendants move to dismiss the contract claim because Plaintiffs do not allege a breach
of any express contract term. Def. Mem. at 5-8. Plaintiffs respond that Defendants breached the
contract by failing "to compensate Plaintiffs for earned but unredeemed rewards points." Pl.
Mem. at 6. Plaintiffs also argue that competing provisions in the contract render it ambiguous,
2
The parties agree that pursuant to the Cardmember Agreement, Delaware state law governs their contract-based
disputes. See Pl. Mem. at 5 n.4, Def. Mem. at 5 n.5.
4
and that accordingly the Court should not dismiss the claim because the ambiguity should be
construed in Plaintiffs' favor. Id. at 6-7.
Plaintiffs' argument fails, and their contract claim must be dismissed. Plaintiffs have
pointed to no provision of the contract, or obligation imposed by the contract, that has been
breached by Defendants. Plaintiffs' opposition to the motion to dismiss simply reinforces that
point. Plaintiffs argue that they have "adequately pled that the unwarranted taking of rewards
points violates the terms of the contract," id. at 6, but they fail to identify any provision of the
contract that would demonstrate such a breach, even in the face of Defendants' argument that
such failure warrants dismissal of the breach of contract claim.
Plaintiffs' contractual ambiguity argument also fails. Plaintiffs assert that the termination
provision in the Program Rules, which states "if your Account is closed for any reason, your
membership in the Program will be terminated," contradicts the expiration provision, which
states that "Points/rebates earned in this Program will not expire." Id. The word "expire" is not
ambiguous in this situation, and does not mean that the points will never become invalid.
Ambiguity in a contract exists where " ' the provisions in controversy are reasonably
susceptible of different interpretations or may have two or more different meanings."' Preferred
Inv. Servs., Inc. v. T & H Bail Bonds, Inc., 2013 WL 3934992, at *12 (Del. Ch. 2013) (quoting
E.I. du Pont de Nemours & Co. v. Allstate Ins. Co., 693 A.2d 1059, 1061 (Del. 1997)).
Plaintiffs' suggested interpretation here is not reasonable. Read together, the expiration
provision clearly conveys the message that the points are not limited temporally, but the
termination provision alerts the accountholder that membership may be terminated and points
forfeited for reasons other than temporal limitations. In addition, the Program Rules also state
that if "your Account is closed for any reason ... we reserve the right ... to cause you to forfeit
5
any points/rebates in your Account. If your points/rebates are forfeited for any reason, we will
not reinstate these points/rebates to your Account." Ex. A, ~ 1. Reading the expiration provision
in the context of the remainder of the Program Rules eliminates any reasonable interpretation of
the expiration provision as a promise that a cardholder' s points will never become invalid.
Accordingly, Plaintiffs' breach of contract claim is dismissed.
B.
Breach of the Covenant of Good Faith and Fair Dealing
Defendants move to dismiss Plaintiffs' claim for breach of the implied covenant of good
faith and fair dealing for failure to state a claim, arguing that the express contract terms allow for
termination and forfeiture of points, and there is no evidence the parties would have agreed to
limit Defendants' authority to cause the forfeiture of points. Def. Mem. at 8-11.
Under Delaware law, a party is liable for a breach of the implied covenant of good faith
and fair dealing "when their conduct frustrates the ' overarching purpose ' of the contract by
taking advantage of their position to control implementation of the agreement's terms." Dunlap
v. State Farm Fire & Cas. Co., 878 A.2d 434, 442 (Del. 2005) (quoting Breakaway Solutions,
Inc. v. Morgan Stanley & Co. Inc., 2004 WL 1949300, at *12 (Del. Ch. 2004)). The usage of
this doctrine, however, " should be a rare and fact-intensive exercise, governed solely by issues of
compelling fairness," and "one generally cannot base a claim for breach of the implied covenant
on conduct authorized by the terms of the agreement." Dunlap, 878 A.2d at 441-42 (internal
citations, quotation marks, and alterations omitted). The implied covenant "functions by
requiring the Court to discover additional terms from an agreement; terms in line with the spirit
of the agreement but absent from those expressed by the parties." BAE Sys. Info. & Elec. Sys.
Integration Inc. v. Lockheed Martin Corp., 2009 WL 264088, at *6 (Del. Ch. 2009).
6
Allowing an implied provision prohibiting the unilateral forfeiture of points by
Defendants, Pl. Mem. at 8-9, would contradict the express language of the contract which
explicitly provides for forfeiture, as discussed above. This case does not present a situation
n
where the contract at issue implies the provision of rights _ ot expressly included, such that the
Court must read in such a provision to ensure fairness and preserve the contract's purpose.
Instead here, the contract speaks to the relevant issue, and explicitly permits termination. The
Court cannot "rewrite the contract to appease a party who later wishes to rewrite a contract he
now believes to have been a bad deal." Nemec v. Shrader, 991 A.2d 1120, 1125-26 (Del. 2010).
The contract permitted Defendants "to take the Plaintiffs' earned reward points for no reason,"
Pl. Mem. at 9, and no covenant will be implied to prevent conduct which is expressly allowed.
Accordingly, Plaintiffs' claim for breach of the implied covenant of good faith and fair dealing is
dismissed.
C.
Fraudulent Inducement3
Defendants move to dismiss Plaintiffs' fraudulent inducement claim on the grounds that
(i) they have failed to allege a misstatement, intent, and reliance, and (ii) that the fraudulent
inducement claim is insufficiently distinct from the breach of contract claim. Def. Mem. at 1115.
3
In their opposition, Plaintiffs argue that Delaware law does not apply to their non-contractual claims. Pl. Mem. at
10 n.7 . Plaintiffs fail to identify what governing law they seek to apply, but rely on New York law to support their
fraudulent inducement and unjust enrichment claims. Defendants do not oppose the application of New York law
and note that "the elements [of fraud and unjust emichment] are the same under both New York and Delaware law."
Def: Reply at 4 n.4 . Accordingly, the Court will apply New York law to the non-contractual claims. See Golden
Pac. Bancorp v. Fed. Deposit Ins. Corp. , 273 F.3d 509, 514 n.4 (2d Cir. 2001).
7
A fraudulent inducement claim under New York law requires a plaintiff to allege "(i) a
material misrepresentation of a presently existing or past fact; (ii) an intent to deceive; (iii)
reasonable reliance on the misrepresentation by appellants; and (iv) resulting damages." !peon
Collections LLC v. Costco Wholesale Corp., 698 F.3d 58, 62 (2d Cir. 2012) (internal citation and
quotation marks omitted). Where a fraudulent inducement claim concerns the same facts as a
breach of contract claim, the fraud claim is only permissible when it points to "a fraudulent
misrepresentation that is collateral or extraneous to the contract." Le Metier Beauty Inv.
Partners LLC v. Metier Tribeca, LLC, 2015 WL 769573 , at *6 (S.D.N.Y. Feb. 24, 2015)
(internal citations and quotation marks omitted).
Here, there is no actionable misstatement. Plaintiffs claim that three statements constitute
actionable misstatements from Defendants' promotional materials: the statement that the
program allowed "unlimited earnings;" that "there was no limit on the amount of points earned;"
that there was "no expiration on points;" and "that there were no caps or limits on earnings." Pl.
Mem. at 11. But the face of the complaint reveals that none of these statements are untrue, and
therefore cannot be fraudulent.
Plaintiffs seek leave to replead their fraudulent inducement claim. Were Plaintiffs to
plead their fraudulent inducement claim by alleging actionable misstatements in the promotional
materials with the specificity required by Fed. R. Civ. P. 9(b ), Plaintiffs may be able to plead a
fraudulent inducement claim. See Schlenger v. Fid. Emp 'r Servs. Co., LLC, 785 F. Supp. 2d 317,
352-53 (S.D.N.Y. 2011). While Plaintiffs do not appear to have the strongest claim for
fraudulent inducement, the allegations meet the baseline requirement for leave to replead.
8
Plaintiffs have adequately alleged intent4 and reliance, 5 and Plaintiffs' claims regarding
misleading promotional and advertising materials render the fraudulent inducement claim
sufficiently collateral to the parties' contract. See, e.g., Le Metier, 2015 WL 769573, at *6
(citing Saleemi v. Pencom Sys. Inc., 2000 WL 640647, at *4 (S.D.N.Y. May 17, 2000)) (fraud
claim not duplicative of breach of contract claim where it is based on misrepresentations made
prior to formation of the contract which induced entrance into the contract). The Court notes that
it has not considered Plaintiffs' argument that they have alleged a material omission because of a
duty to disclose, because Plaintiffs did not make such an allegation in their complaint; Plaintiffs
may seek to include such a claim in their amended pleading.
D.
Unjust Enrichment
Defendants move to dismiss Plaintiffs' unjust enrichment claims on the grounds that the
claim is barred because the parties' relationships are governed by a written contract. Def. Mem.
at 18-20. While Defendants are correct that a claim for unjust enrichment does not lie where '"a
valid and enforceable written contract governing a particular subject matter"' exists, Grant &
Eisenhofer, P.A. v. Bernstein Liebhard LLP, 2015 WL 1809001, at *5 (S.D.N.Y. Apr. 20, 2015)
(quoting Jn re First Cent. Fin. Corp., 377 F.3d 209, 213 (2d Cir. 2004)), here Plaintiffs bring an
unjust enrichment claim in the alternative, alleging that the contract is not enforceable.
4
Plaintiffs have adequately alleged Defendants' motive and opportunity, Pl. Mem. at 13-15, and Plaintiffs'
allegation that Defendants sought to close accounts prior to rewards redemption for financial reasons is entirely
plausible.
5
Defendants argue that Plaintiffs did not allege that they received the promotional materials prior to entering into
the contract and therefore could not have relied on them. Def. Reply at 6-7. The Court draws all reasonable
inferences in Plaintiffs' favor on a motion to dismiss, and so the Court interprets the Complaint as alleging that
Plaintiffs viewed some element of Defendants' "pervasive mass advertising," Compl. ~ 5, prior to entering into the
contract.
9
Under both Delaware and New York law, if the validity or enforceability of a contract "is
in doubt or uncertain," "claims of unjust enrichment may survive a motion to dismiss." REDUS
Peninsula Millsboro, LLC v. Mayer, 2014 WL 4261988, at *5 (Del. Ch. 2014) (internal citation
and quotation marks omitted); accord DeWitt Stern Grp., Inc. v. Eisenberg, 14 F. Supp. 3d 480,
485 (S.D.N.Y. 2014) (unjust enrichment claim could proceed where Plaintiff had pied
unenforceability of contract). Here, in addition to the breach of contract claim, Plaintiffs have
alleged that the contract between the parties amounts to "an illusory promise rendering the
rewards contract unenforceable." Compl.
~
86. Defendants argue that it is clear from the face of
the complaint that the contract is enforceable, Def. Reply at 9, but this is not so, and whether the
contract was illusory will not be determined at this stage. While the Court holds above that
Plaintiffs did not state a claim for breach of contract, that does not equate to a holding that the
contract is valid and enforceable. In light of Plaintiffs' allegation regarding the contract' s
enforceability, the Court may later determine the contract unenforceable, and could then consider
in the alternative a claim for unjust enrichment. At this stage in the litigation, Plaintiffs may
plead both that a valid (breached) contract exists and that the contract is unenforceable. See
Intellectual Capital Partner v. Institutional Credit Partners LLC, 2009 WL 1974392, at *8
(S.D.N.Y. July 8, 2009). Accordingly, Defendants' motion to dismiss the unjust enrichment
claim is denied.
E. State Statute Violations
Under the Ohio Consumer Sales Practices Act (the "OCSPA"), Ohio Rev. Code Ann. §
1345.01 et seq. , "no supplier shall commit an unfair or deceptive act or practice in connection
with a consumer transaction." Id. § 1345.02. To state a claim for violations of the OCSPA, a
plaintiff must allege "that the defendant performed an act or omission that was unfair or
10
deceptive, and that the alleged act impacted the plaintiffs ' decision to purchase the item at issue."
Robinson v. Kia Motors Am. Inc., 2014 WL 5155969, at *5 (D .N.J. Oct. 14, 2014) (internal
citation and quotation marks omitted) (applying Ohio law).6 Likewise, the Florida Deceptive
and Unfair Trade Practices Act (the "FDUTP A") prohibits " [u ]nfair methods of competition,
unconscionable acts or practices, and unfair or deceptive acts or practices in the conduct of any
trade or commerce." Fl. Stat.§ 501.204(1). A prima facie claim under the FDUTPA requires
plaintiff to allege "(1) a deceptive act or unfair practice; (2) causation; and (3) actual damages."
Wright v. Emory, 41 So. 3d 290, 292-93 (Fla. Dist. Ct. App. 2010) (internal citation and
quotation marks omitted).
Plaintiffs concede that the Florida and Ohio statutes do not apply to Chase and agree to
dismiss this claim against Chase only. Pl. Mem. at 20 n.18. As to the OCSP A and the FDUTP A
claims against JPM, Defendants move to dismiss because the complaint contains improper group
pleading against JPM and because Defendants ' conduct was authorized by contract and therefore
did not violate these statutes. Def. Mem. at 15-18.
Defendants ' group pleading argument fails. Defendants assert that the complaint fails to
make specific allegations against JPM. Id. at 17-18. But Defendants have failed to explain why
this results in the complete dismissal of the claim against JPM. Fed. R. Civ. P. 8 requires only
that a complaint provide "the defendant [with] fair notice of what the claim is and the ground
upon which it rests." Twombly, 550 U.S. at 555 (internal citations, quotation marks, and
alterations omitted). These claims against JPM, and the grounds upon which they rest, are clear
6
The Court notes its doubts about Plaintiffs' ability to maintain a class action under the OCSPA because of the
statute' s class action notice requirement. See Robinson v. Kia Motors Am. , 2014 WL 5155969, at *4-5 (D.N.J.
2014) (citing Ohio Rev. Code Ann. § 1345.09(b)). Because Defendants have not raised this provision as grounds to
dismiss Plaintiffs' class action claim under the OCSPA, the Court does not consider it for purposes of this motion.
11
from the complaint. See, e.g., Reich v. Lopez, 38 F. Supp. 3d 436, 462-63 (S.D.N.Y. 2014).
Accordingly, this argument is rejected.
Defendants also assert that both the OCSP A and the FDUTP A do not allow claims where
a defendants' conduct complied with an express contract. Def. Mem. at 18. Defendants may
well be correct, but not at this stage of the proceedings. The cases relied on by Defendants do
not show that the OCSPA and FDUTP A bar claims where the complained-of conduct complied
with an express contract as a matter oflaw. Englert v. Nutritional Sciences, LLC, 2008 WL
4416597 (Ohio Ct. App. 2008), a grant of summary judgment, found no OCSPA violation where
the contract at issue had already been found enforceable. Likewise, Zlotnick v. Premier Sales
Grp., Inc., 480 F.3d 1281 (11th Cir. 2007), held that the relevant contract was valid. And
Chastain v. NS.S. Acquisition Corp., 2009 WL 1971621 (S.D. Fla. July 8, 2009) does not hold
that, as a matter oflaw, compliance with a contract shields a defendant from the FDUTPA. Even
if such a doctrine could be found in the cases cited by Defendants, such a holding is inapplicable
here, where Plaintiffs have also alleged the unenforceability of the contract and the deceptive
nature of promotional materials.
Defendants have failed to demonstrate that Plaintiffs ' claims do not meet the pleading
requirements of either the OCSP A or the FDUTP A. Nor have Defendants demonstrated that
these statutes bar Plaintiffs ' claim as a matter of law. Plaintiffs have alleged that Defendants'
acts are deceptive and are entitled at this point to proceed with these claims under these statutes.
Accordingly, Defendants ' motion to dismiss these claims is denied.
12
CONCLUSION
For the foregoing reasons, Defendants' motion to dismiss is granted with respect to
Plaintiffs' claims for breach of contract, breach of the implied covenant of good faith and fair
dealing, and fraudulent inducement. As to fraudulent inducement, the Court grants leave to
replead but only in the event that Plaintiffs can allege actionable misrepresentations with the
specificity required by Fed. R. Civ. P. 9(b) by June 29, 2015. Defendants' motion to dismiss the
unjust enrichment claim and the OCSP A and FDUTP A claims is denied.
The parties are directed to file a civil case management plan by July 2, 2015. The Clerk
of the Court is directed to terminate the motion at Docket Number 26.
Dated: New York, New York
June 9, 2015
SO ORDERED
PAUL A. CROTTY
United States District Judge
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