Barrer v. Chase Bank USA, N.A. et al

Filing 185

Opinion And Order. Chase's Motion for Summary Judgment 138 is GRANTED and plaintiffs' Motion to Certify the Class 127 is DENIED. Signed on 2/21/13 by Judge Ancer L. Haggerty. (cib)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
PORTLAND DIVISION

CHERYL BARRER and WALTER BARRER,
on Behalf of Themselves and Those Similarly
Situated,
Plaintiffs,
Case No. 3:06-cv-00415-HA

v.

OPINION AND ORDER
CHASE BANK, USA, N.A. and DOES 1
through and including 100
Defendants.

HAGGERTY, District Judge:
Plaintiffs Cheryl and Walter Baner advance causes of action in this putative class action
against defendant Chase Bank USA, N.A. (Chase or defendant). Plaintiffs allege that Chase
improperly raised the annual percentage rates of interest (APR) on their existing credit card
balances pursuant to a policy known as Adverse Action Repricing (AAR) that was not disclosed
in the cardmember agreements (CMAs). Plaintiffs allege that: (1) Chase violated the Federal

OPINION AND ORDER- 1

Truth in Lending Act (TILA) 15 U.S. C.§ 1601 et seq., by issuing misleading CMAs; and (2)
Chase violated the implied convenant of good faith and fair dealing under Delaware law because
its AAR practice was arbitary, unreasonable or oppressive, and contrary to the reasonable
expectations of cardholders. In 2007 this court adopted a Findings and Recommendation that
concluded that defendant's first Motion to Dismiss should be granted. That ruling was reversed
and remanded as the United States Comi of Appeals for the Ninth Circuit ruled that, as a matter
of law, Chase's CMA was not clear and conspicuous. Thereafter this comi denied Chase's
second Motion to Dismiss and Motion for Reconsideration. Chase now advances a Motion for
Summmy Judgment [138] and plaintiffs advance a Motion to CertifY the Class [127]. Oral
argument was held on Janumy 31, 2013. For the following reasons, Chase's Motion for
Summary Judgment is granted and plaintiffs' Motion to CertifY the Class is denied.

BACKGROUND
The following facts are drawn from the record, and for purposes of defendant's Motion
for Summary Judgment, are construed in the light most favorable to plaintiffs, the non-moving
pmiy. Plaintiffs had a joint credit card account with Providian National Bank beginning in or
about 2000. 1 In Februmy 2002, the joint account was sold and transfened to Chase. After Chase
merged with Bank One in July 2004, Chase mailed a new CMA (ADV 2039) to approximately
nineteen million of its pre-existing cardholders, including plaintiffs Walter and Cheryl Barrer.
The CMA Chase issued to plaintiffs and others stated that Chase would charge a
Prefened (or standard) APR that was either a fixed rate that would not fluctuate, or a variable

1

Walter Baner had two accounts with Chase. The joint account that is the subject of the
cunent lawsuit, and a second account that is not, and will not be discussed fmther.
OPINION AND ORDER- 2

rate that would change slightly based on fluctuations in the Prime Rate. Chase disclosed in the
"Finance Charges" section of the CMA that Chase could also charge a higher "Non-Preferred"
(default or penalty) APR if the cardmember failed to pay the amount owed on the credit card or
on another Chase account, if the cardmember exceeded their credit line, if the card member failed
to make a payment to another creditor when due, if a payment to Chase was not honored by the
cardmember's bank, or if the cardmember closed their account and failed to timely pay off the
account balance. Zevin Dec!. Ex. A at 3-4.
Chase also had a practice of raising APRs for reasons not disclosed in the "Finance
Charges" section of the CMA. Several pages after the "Finance Charges" section, Chase utilized
a "Changes to this Agreement" section in which Chase reserved the right to change "financial
tenns, such as the APRs and fees" at any time. Id. at 5. Chase would notify customers of any
change where notification was required by law. Id. Chase did not disclose under what
conditions it would change APRs pursuant to this section of the CMA. Nowhere did Chase
'
describe or disclose its AAR program in the CMA.

Cheryl Baner has a general practice of reading credit card agreements, and believes she
would have looked at the CMA that is the subject of this lawsuit, but cannot specifically recall
reading the CMA. See, e.g., Zevin Dec!. Ex. E at 10-11. Cheryl Baner did not believe Chase
could raise their APRs unless plaintiffs exceeded their credit limit, made a late payment, were in
default, or made a payment that was not honored. Id. at 12. Walter Baner cannot remember if
he read the CMA, but believed Chase could raise their APRs only in response to default or if the
card had a variable rate. Zevin Dec!. Ex. Nat 13-14.
AAR was a practice utilized by Chase to maximize profits and account for risk.
OPINION AND ORDER- 3

Profitably and risk are, for obvious reasons, closely linked in credit card lending. According to
Chase, the purpose of AAR was "[t]o select accounts that don't deliver hurdle second year
profitability [return on equity (ROE)] and increase their APR to a level at which they meet the
hurdle ROE." Zevin Dec!. Ex. P. Chase set the hurdle ROE at 18% after tax. !d. "Accounts that
don't meet profitability hurdles (i.e. their APR is not high enough to compensate for their risk
level) are selected for adverse action notification." Zevin Dec!. Ex. Q at 1. A February 22, 2005,
business overview described Chase's pricing stategy as "aligned across channels with the
objective of pricing for profitability across all perfmmance, segment, and risk bands - accounts
are moved to price points where profit is maximized." Zevin Dec!. Ex. S at 81. Though
profitability and risk are interlinked, Chase acknowledged "that targeted accounts are not
necessarily all high risk." Zevin Dec!. Ex. Q at 1. "Their expected loss rate can be as low as 34%, but if their APR is low and is not sufficient for them to meet profitability hurdles, they will
be repriced." !d. Chase excluded some accounts from AAR including accounts with a predicted
principal loss ofless than 3% and accounts that were less than a year old. The amounts of the
new APR varied depending on the risk/profitability calculus applied to a particular cardholder.
Lower risk cardholders were usually subjected to smaller increases in their APRs. !d.
At the same time that Chase issued the new CMAs it began a large scale AAR campaign.
Between November 2004 and March 2007, millions of customers were subjected to AAR. See,
e.g., Zevin Dec!. Ex. I at 3 (describing how "large scale" repricing was instituted beginning in the
fourth quarter of 2004 and how even though a large number of accounts still had promotional
rates, by the third quarter of2005, "we are at rough parity in asset yield versus our competitors);
Ex. I at 10 (more than 4.8 million accounts subjected to AAR between April2004 and March
2006). Between Januaty 2005 and March 2007, Chase utilized AAR to increase standard APRs
OPINION AND ORDER- 4

by an average of953 basis points (9.53%). Zevin Dec!. Ex. L at 22.
It appears that Chase's large scale AAR campaign was utilized, in part, to make up for the
fact that Chase, or its predecessors, had issued below market-rate APRs on millions of credit
cards. See, e.g., Zevin Dec!. Ex. I at 3; Ex. U at 23-24 (noting that pre-merger or "heritage"
portfolios "significantly lagged our competitors in asset yield," but after "large scale" AAR
leading up to the third quarter of2005, "we are now at rough parity in asset yield versus our
competitors").
Before subjecting an account to AAR, Chase sent a change in terms (CIT) notice that
provided customers with the opportunity to opt-out of the increased APRs. The CIT notices
required the cardholder to opt -out of the increased APRs in writing. If the cardholder opted out,
the APR increases would not go into effect, however, the cardholder would not be able to make
new purchases and would be required to repay their balance under the existing APR. Hogan
Dec!.~~

32-33. During the course of the AAR campaigns, the opt-out rate was generally

between one and three percent of customers. Zevin Dec!. Ex. Rat 139:2-11. Because a great
number of customers complained regarding AAR after the fact, Chase noted a need to revise the
CIT notices on several occasions. See, e.g., Zevin Dec!. Ex J at 5 ("[r]eprice related calls
increased ... after notification); Ex. Kat 3 (complaint volumes increased in response to AAR);
Ex. QQ at 2 (noting need to revise "the notice to make opt out options and instmctions for
contacting Chase easier to read and understand"); Ex. RR at 2 ("[a]dverse action notifications to
be redrafted to provide greater clarity to Cardmember on changes and how to opt-out"); Ex. TT at
12 (noting need to "[r]ecreate notices to make them more readable and draw more attention to
them").
Noting the need to issue a clearer CIT notice, Chase decided to test a new CIT notice in
OPINION AND ORDER- 5

2006 that made "the changes in terms more visible and easy to read" and allowed cardholders to
opt-out of the increased APRs while keeping their account open. Zevin Dec!. Ex. UU. However,
Chase noted that "we will need to constantly monitor and balance the impact of these changes on
complaints/satisfaction on the one hand and profitability on the other hand." !d. Chase would
"need to closely monitor opt-out rates and attrition to ensure that these changes do not have an
unanticipated/large impact on our returns and ability to price for risk." !d. According to. Chase,
"[t]he negative impact of this policy change was tlu·eefold: increased call volume, increased opt
out rates, and the resulting revenue loss." Zevin Dec!. Ex. VV at I. Thereafter, Chase
discontinued the opt-out remain open policy.
In February 2005, Chase sent plaintiffs a CIT notice. The six page CIT provided that "we
explain the most important changes in the Summmy of New Terms below." Morgan Dec!. Ex.

A. Section one on page one then states "[i]f any of your regular (standard) interest rates will be
changed, they appear in the Amendments part of this notice." Jd. Under the "Amendments to
Your Agreement" section on page two of the CIT notice, Chase explained that the Barrers' APRs
would increase substantially. Jd. However, the CIT notice also provided that the BmTers' could
choose not to accept the changes in Section one of the notice if they provided written notice of
their decision to opt-out by March 24, 2005. Jd. The CIT notice stated that Chase's "decision
was based in whole or in part on the infonnation obtained in a report from the consumer
rep01iing agency listed below." !d. Plaintiffs do not recall reading the CIT notice.
Plaintiffs did not opt-out and the changes went into effect with the April I, 2005 billing
cycle. Plaintiffs maintained a $3,700 credit card balance in March 2005 that was split among
three-sub-balances. Zevin Dec!. Ex. Mat 35-36. Plaintiffs total balance was split among three
categories of balance: "purchases" with an APR of 8.99%, "prior purchases" with an APR of
OPINION AND ORDER - 6

14.49%, and "cash" with an APR of21.49%. !d. Plaintiffs' April20, 2005 credit card statement
reflects that Chase increased their preferred APR for each balance to 24.74%. Zevin Dec!. Ex. M
at 37. This constituted an increase of 1,575 basis points (15.75%) for their purchases APR, an
increase of 1,025 basis points (I 0.25 %) for their prior purchases APR, and an increase of325
basis points (3.25%) for their cash APR. !d.
Upon receipt of the April20, 2005 statement, plaintiffs called Chase and Chase informed
them that the increase was due to something in their credit rep01i. Zevin Dec!. Ex. E. Chase
then sent Walter Barrera letter stating that plaintiffs':
account was selected for the change in interest rates because of the following
reason(s).
-The consumer credit report we received shows outstanding credit loan(s) on
revolving accounts that are too high.
- The consumer credit report we received shows too many recently opened
installment/revolving accounts.

Zevin Dec!. Ex. 0. Plaintiffs do not dispute that they had increased the number of or balances on
revolving accounts at the time they were subjected to AAR.
Plaintiffs closed their account, paid off the balance on their credit card, and brought this
lawsuit.
STANDARDS
Summary judgment is appropriate "if the movant shows that there is no genuine dispute
as to any material fact and the movant is entitled to judgment as a matter oflaw." Fed. R. Civ. P.
56(a). Summary judgment is improper if material factual issues exist for trial. Warren v. City of

Carlsbad, 58 F.3d 439,441 (9th Cir. 1995).
The moving pmiy bears the initial burden of demonstrating the absence of a genuine
dispute of material fact for trial, but it need not disprove the other pmiy's case. Anderson v.
OPINION AND ORDER- 7

Liberty Lobby, Inc., 477 U.S. 242, 256 (1986). Once the moving party meets itsburden, the

adverse party may not rest upon the mere allegations or denials of the adverse party's pleading,
but must set fmth specific facts showing that there is a genuine dispute for trial. Id at 248-49. A
nonmoving party cannot defeat summmy judgment by relying on the allegations in the complaint,
or with unsupported conjecture or conclusory statements. Hernandez v. Spacelabs }vfedical, Inc.,
343 F.3d 1107, 1112 (9th Cir. 2003) (citations <?mitted).
The coUlt must view the evidence submitted on summmy judgment in the light most
favorable to the non-moving party. Campbell v. PricewaterhouseCoopers, LLP, 642 F.3d 820,
824-25 (9th Cir. 2011). All reasonable doubt as to the existence of a genuine factual dispute
should be resolved against the moving patty. ,1,;/etroPCS, Inc. v. City & County ofSan Francisco,
400 F.3d 715, 720 (9th Cir. 2005) (citation omitted).
ANALYSIS
Plaintiffs allege that: (1) Chase violated§ 1637(a) and§ 1632 ofTILA by issuing
misleading CMAs; and (2) Chase violated the implied convenant of good faith and fair dealing
under Delaware law because its AAR practice was arbitary, unreasonable or oppressive, and
contrmy to the reasonable expectations of cardholders.
Chase argues that summary judgment should be granted against plaintiffs on their TILA
claims because: (1) plaintiffs'§ 1637(a) claim is barred by TILA's statute of limitations; (2)
plaintiffs'§ 1637(a) claim is foreclosed as a matter of law; (3) plaintiffs' claim for actual damages
under§§ 1632(a) and 1637(a) fails because plaintiffs did not detrimentally rely on the CMA; (4)
plaintiffs' good faith claim fails under Delaware law on the implied covenant of good faith and
fair dealing; and (5)plaintiffs' claim for breach of the implied covenant of good faith and fair
dealing is barred by the Delaware banking code.
OPINION AND ORDER- 8

1.

Plaintiffs' TILA claims

a.

Statute ofLimitations

Chase contends that plaintiffs' § 163 7(a) claim is barred by TILA's statute of limitations.
TILA requires that "any action" be commenced "within one year from the date of the occurrence
of the violation." 15 U.S. C.§ 1640(e). Because the alleged violation here occmTed when Chase
sent plaintiffs the CMA in October 2004, Chase contends that plaintiffs' March 24, 2006
Complaint was untimely. However, in the Ninth Circuit,§ 1640(e)'s one-year limitations period
may be tolled "until the borrower discovers or had reasonable opp01iunity to discover the fraud
or nondisclosures that form the basis of the TILA action." King v. State ofCal., 784 F.2d 910,
915 (9th Cir. 1986). Chase argues that plaintiffs had the reasonable opportunity to discover the
alleged nondisclosures when it sent them the CIT notice in Februaty 2005. However, this comi
will adopt the approach taken in Rockwell v. Chase Bank, whereby TILA's statute of limitations
for open-end credit anangements tolls until receipt of the first billing statement reflecting the
change-in-terms. No. C 10-1602RSL, 2011 WL 2292353, *5 (W.D. Wash. June 07, 2011)
(following Goldman v. First Nat. Bank, 532 F.2d 10,21 (7th Cir. 1973) and reasoning that with
respect to an open end credit at1'angement, the imposition of an increased APR is a necessaty
condition for TILA liability). As plaintiffs did not receive a statement reflecting the increased
APRs until April2005, the March 2006 Complaint was timely.

b.

Adequacy of Chase's APR disclosure

Chase contends that plaintiffs'§ 1637(a) claim is foreclosed as a matter of law because
the Ninth Circuit held that the disclosure in the CMA contained the information required by 15
U.S.C. § 1637(a) and 12 C.P.R.§ 226.
"The Truth in Lending Act is designed 'to assure a meaningful disclosure of credit tenns
OPINION AND ORDER- 9

so that the consumer will be able to compare more readily the various credit terms available to
him and avoid the uninformed use of credit." Barrer v. Chase Bank USA, N.A., 566 F.3d 883,
887 (9th Cir. 2009) (quoting 15 U.S.C. § 1601(a)). The act does little to regulate the terms
creditors can offer in financial products, but instead requires disclosure. Id. In short, TILA was
designed to protect consumers from being misled about the cost of credit. Gibson v. Bob Watson

Chevrolet-Geo, Inc., 112 F.3d 283, 285 (7th Cir. 1997).
Section 1637(a) and the Federal Reserve Board's implementing regulation, Regulation Z,
12 C.F.R. § 226, require a creditor, such as Chase, to disclose, among other things:
(1) The conditions under which a finance charge may be imposed, including the
time period (if any) within which any credit extended may be repaid without
incurr-ing a finance charge, except that the creditor may, at his election and
without disclosure, impose no such finance charge if payment is received after the
termination of such time period. If no such time period is provided, the creditor
shall disclose such fact.
(3) The method of detennining the amount of the finance charge, including any
minimum or fixed amount imposed as a finance charge.
(4) Where one or more periodic rates may be used to compute the finance charge,
each such rate, the range of balances to which it is applicable, and the
conesponding nominal annual percentage rate determined by multiplying the
periodic rate by the number of periods in a year.
15 U.S. C.§ 1637(a)(l),(3), and (4).
Section 1637(a) and its conesponding section of Regulation Z, 12 C.F.R. § 226.6(a}',
require a creditor to disclose certain information in initial disclosures including APRs that may
be charged. On the other hand§ 1632(a) and its conesponding section of Regulation Z, 12
C.F.R. § 226.5(a), require that the information be disclosed "clearly and conspicuously." Jd. In
short,§ 1637(a) and§ 226.6(a) state what must be disclosed, while§ 1632(a) and§ 226.5(a)
provide for the manner in which it must be disclosed.

2

All citations to Regulation Z are to the 2009 version, prior to its revision under the
CARD Act.
OPINION AND ORDER- 10

Chase argues that because the Ninth Circuit held that Chase adequately disclosed the
APRs petmitted by the CMA, plaintiffs'§ 1637(a) claim must be denied. This comi previously
addressed and rejected this argument in two opinions, one [84] denying Chase's Motion to
Dismiss Plaintiffs' Second Amended Complaint and in another [98] denying Chase's Motion for
Reconsideration. This court noted that at that stage in the litigation, the court was required to
accept plaintiffs' pleadings as true. Because plaintiffs had stated a claim for relief pursuant to §
1637(a), this court did not dismiss that claim. This court reasoned that because the Ninth Circuit
had not addressed all possible§ 1637(a) claims, and because plaintiffs had filed a Second
Amended Complaint alleging misleading disclosures, it was possible plaintiffs could prosecute a
valid§ 1637(a) claim. The comi now revisits that argument.
Because the Ninth Circuit's prior ruling in this case is instructive, especially so in light of
the facts that have emerged, the comi quotes at length from the Ninth Circuit's opinion before
analyzing Chase's argument. After analyzing TILA, Comment 11, and Regulation Z, the Ninth
Circuit held that:
We are persuaded that Chase adequately disclosed the APRs that the Agreement
petmitted it to use simply by means of the change-in-terms provision. That
provision reserved Chase's right to change APRs, among other tetms, without any
limitation on why Chase could make such a change. The provision thus disclosed
that, by changing the Agreement, Chase could use any APR, a class of APRs that
logically includes APRs adjusted on the basis of adverse credit infmmation. Apmi
:fi·om the gloss of Comment 11, neither the Act nor Regulation Z require Chase to
disclose the basis on which it would change or use APRs. Therefore the failure to
disclose the reason for the change to the Baners' APR-adverse credit
information-and that Chase would look up their credit history to acquire that
infmmation does not undermine the adequacy of Chase's disclosure.
Fmihermore, we recently concluded that "a creditor's undisclosed intent to act
inconsistent with its disclosures is irrelevant in determining the sufficiency of
those disclosures under section[] ... 226.6 [of Regulation Z]." I d. at 1122. If that
is true, it would be odd to say that a creditor's undisclosed intent to pursue a
particular a course of action consistent with its disclosures, though somewhat
more specific than the general policy that was disclosed, was not only relevant to
determining the sufficiency of those disclosures, but actually causes them to
OPINION AL'lD ORDER- 11

violate section 226.6 ....
. . . Comment 11 requires the disclosure of the "specific event or events that may
result in the increased rate." 12 C.F.R. Pt. 226 Supp. I, par. 6(a)(2) cmt. 11; see
also supra, at 888-90. Our conclusion that Comment 11 does not require the
disclosure of risk-based pricing rests, in part, on the fact that pricing credit on the
basis of cardholder risk is how credit card companies normally do business ....
Even so, such disclosure must be clear and conspicuous. 12 C.F.R. § 226.5(a)(l);
15 U.S.C. § 1632(a)....
Clear and conspicuous disclosures, therefore, are disclosures that a reasonable
cardholder would notice and understand. No particular kind offormatting is
magical, see Am. Gen. Fin., Inc. v. Basset (In re Bassett}, 285 F.3d 882, 886 (9th
Cir.2002), but, in this case, the document must have made it clear to a reasonable
cardholder that Chase was pennitted under the agreement to raise the APR not
only for the events of default specified in the "Finance Tetms" section, but for any
reason at all.
Although "[w]e decide conspicuousness as a matter oflaw," Bassett, 285 F.3d at
885, we need not promulgate here a code of conspicuousness. It is enough to
observe that the change-in-terms provision appears on page 10-11 of the
Agreement, five dense pages after the disclosure of the APR. It is neither
referenced in nor clearly related to the "Finance Terms" section. This provision,
as part of the APRs allowed under the contract, is buried too deeply in the fine
print for a reasonable cardholder to realize that, in addition to the specific grounds
for increasing the APR listed in the "Finance Charges" section, Chase could raise
the APR for other reasons.
Therefore, the Ba!1'ers have stated a claim because Chase cannot show that, as a
matter of law, the Agreement made clear and conspicuous disclosure of the APRs
that Chase was permitted to use.
Barrer, 566 F.3d at 891-892 (footnotes and excerpts omitted).
At this time, with the benefit of completed discovery and briefing on the merits of Chase's
Motion for Summmy Judgment, it is apparent that plaintiffs are pursuing a§ 1637(a) claim that
is not materially distinguishable from the one rejected by the Ninth Circuit in this vety case.
Plaintiffs argue that Chase's APR disclosures were inadequate and misleading as Chase failed to
disclose its AAR practice and what APRs it could impose because its disclosures were unclear
and inconspicuous. The essence of plaintiffs'§ 1637(a) claim is that Chase failed to disclose

OPINION AND ORDER- 12

"what" it needed to disclose because of "how" it disclosed it. This argument conflates § 1632's
"how" requirements into§ 1637(a)'s disclosures.
For the purposes of evaluating this argument the court notes that, based on the facts in the
record, a reasonable jmy could easily conclude that Chase had an existing AAR program at the
time it issued its CMA to plaintiffs, and that Chase knew it was likely to raise the APRs on
plaintiffs' account as well as millions of other customers based on its AAR program.
Additionally, Chase's disclosures in the CMA were not clear and conspicuous as a matter oflaw.
While the court is mindful that risk and profit are closely aligned, the facts suggest that Chase's
AAR program was not so much about mitigating risk but about maximizing profit and doing so
far beyond the risks Chase incurred by providing credit to its customers. In short, a reasonable
jmy could, without difficulty, conclude that Chase lured customers with promises oflow APRs,
knowing Chase would raise them, obscured that fact with a convoluted CMA, and then raised
APRs for the sole purpose of increasing Chase's profits. A jmy could conclude, that Chase's
AAR program was, as plaintiffs argue, a classic "bait and switch."
For purposes of determining whether dismissal of plaintiffs' § !637(a) claim is warranted
as a matter of law, this court remains mindful that "absolute compliance by creditors" is required.

Hauk v. JP 1Viorgan Chase Bank USA, 552 F.3d 1114, 1118 (9th Cir. 2009). "Even technical or
minor violations of the TILA impose liability on the creditor." Jackson v. Grant, 890 F.2d 118,
120 (9th Cir. 1989).
"Under the law of the case doctrine, a comt is ordinarily precluded from reexamining an
issue previously decided by the same court, or a higher court, in the same case." Hydrick v.

Hunter, 500 F.3d 978, 986 (9th Cir. 2007) (citations and intemal quotation marks omitted). The
intent of this doctrine has been described as maintaining consistency and avoiding
reconsideration of matters once decided during the course of a single, continuing lawsuit. Ingle
OPINION AND ORDER- 13

v. Circuit City, 408 F.3d 592, 594 (9th Cir. 2005). The doctrine applies in cases in which the
issue in question was "decided explicitly or by necessary implication in [the] previous
disposition." Hydrick, 500 F.3d at 986 (citations and internal quotation marks omitted).
Exceptions to the doctrine apply if "(1) the first decision was clearly el1'oneous; (2) an
intervening change in the law occulTed; (3) the evidence on remand was substantially different;
(4) other changed circumstances exist; or (5) a manifest injustice would otherwise result."

United States v. Lummi Indian Tribe, 235 F.3d 443, 452 (9th Cir. 2000); see also City of Los
Angeles v. Santa }.1onica Baykeeper, 254 F.3d 882, 885 (9th Cir. 2001) (a district court that has
jurisdiction over a case possesses the inherent procedural power to reconsider, rescind, or modifY
an interlocutmy order for cause seen by it to be sufficient).
This coutt is bound by the Ninth Circuit's conclusion that "Chase adequately disclosed the
APRs that the [CMA] petmitted it to use simply by means of the change-in-terms provision."

Barrer, 566 F.3d at 891. The CMA "reserved Chase's right to change APRs ... without any
limitation on why Chase could make such a change." !d. In fact, the Ninth Circuit specifically
contemplated the fact that Chase could act with an undisclosed intent. !d. at 890. Plaintiffs' §
1637(a) claim, as it has emerged, is in direct conflict with the Ninth Circuit's holding in this case.
That the facts may suggest underhanded dealing by Chase, does nothing to alleviate the defect in
plaintiffs' claim, as the Ninth Circuit's majority opinion reviewed the change-in-terms provisions
on its face alone.
Additionally, this court cannot shoehorn§ 1632(a)'s "how" provisions into plaintiffs' §
1637(a) "what" claim. Congress created separate provisions with separate requirements and as is
apparent from the Ninth Circuit's holding in this case, one is not necessarily applicable to the
next. See also, Rubio v. Capital One Bank, 613 F.3d 1195, 1200 (9th Cir. 2010) (explaining that
TILA's prohibition on misleading disclosures is§ 1632(a)'s clear and conspicuous requirement).
OPINION AND ORDER- 14

Judge Graber, in her pattial dissent, would have required "Chase to disclose-truthfully
and conspicuously-that it maintained a pre-existing program under which it would raise the
Barrers' APR if Chase learned of cettain specific risk factors, including negative credit events
that occmTed before the extension of credit" pursuant to§ 1637(a) and Regulation Z. Id. at 893.
However, this court is powerless to adopt Judge Graber's opinion, and is instead bound by the
majority. }vfaag v. Wessler, 993 F.2d 718, 720 n.2 (9th Cir. 1993) ("[t]he law of the case doctrine
states that the decision of an appellate comt on a legal issue must be followed in all subsequent
proceedings in the same case") (citations and quotations omitted). In my previous rulings, I did
not feel so bound as it was yet unclear what the final dimensions of plaintiffs'§ 1637(a) claim
would be. However, it is now impossible to reconcile plaintiffs' claim with the Ninth Circuit's
ruling. Accordingly,judgment must be granted to Chase on plaintiffs'§ 1637(a) claim.
c.

Actual Damages Pursuant to§ 1632(a)

As discussed above, the Ninth Circuit found that the change-in-terms provision of the
CMA was not clear and conspicuous. BmTer, 566 F.3d at 892. However, § 1632 only allows a
plaintiff to recover actual damages. To state a claim for actual damages under TILA, a plaintiff
must demonstrate detrimental reliance upon an inconspicuous or unclear disclosure. In re Smith,
289 F.3d 1155 (9th Cir. 2002); see also Turner v. Beneficial Corp., 242 F.3d 1023, 1028 (11th
Cir. 2001) (holding that plaintiffs must demonstrate detrimental reliance in order to be entitled to
actual damages under TILA, by showing that they suffered a loss because they relied on an
inaccurate or incomplete disclosure). Because neither plaintiff can recall reading the CMA,
Chase contends that they cannot prove detrimental reliance.
Plaintiffs respond that they relied on Chase's initial inadequate disclosures regarding the
APRs applicable under the CMA in deciding to accept credit and accrue a balance at a low rate,
and then were inadequately informed that Chase could, and subsequently did, almost triple the
OPINION AND ORDER- 15

cost of its credit. However, as discussed above, Cheryl BatTer cannot specifically recall reading
the CMA, and can only assert that it is her practice to read such agreements and to choose credit
cards based in large part on the APRs offered. Walter BatTer has read CMAs in the past, but
does not know if he read the CMA at issue in this case. Proof of detrimental reliance requires a
plaintiff to show that "she would either have secured a better interest rate elsewhere or foregone
the loan completely." In re Smith, 289 F.3d at 1157 (quotation omitted). Absent any testimony
or evidence that either Barrer recalls actually reading the CMA at issue, much less, making
informed decisions based on what was disclosed, a reasonable jury could not conclude that
plaintiffs detrimentally relied on the inadequate disclosures. Turner v. Beneficial Corp, 242 F.3d
1023, 1025 (11th Cir. 2001). Accordingly, summaty judgment must be granted to Chase on
plaintiffs' § 1632 claim.
2.

Plaintiffs' Implied Covenant of Good Faith and Fair Dealing Claim

Plaintiffs' Second Claim for Relief is for the alleged breach of the implied covenant of
good faith and fair dealing. Under Delaware law, the implied covenant of good faith and fair
dealing is construed as attaching "to evety contract." Dunlap v. State Farm Fire and Casualty

Co., 878 A.2d 434, 442 (Del. 2005). This implied covenant prohibits a party in a contractual
relationship "from arbitraty or umeasonable conduct which has the effect of preventing the other
party to the contract from receiving the fruits of the bargain." !d. (internal quotation and citation
omitted). Patiies may be liable for breaching the covenant "when their conduct frustrates the
overarching purpose of the contract by taking advantage of their position to control
implementation of the agreement's terms." !d. (internal quotation and citation omitted). "This
quasi-reformation, however, should be a rare and fact-intensive exercise, govemed solely by
issues of compelling faimess." Dunlap, 878 A.2d at 442 (citation and quotation omitted).
Additionally, a plaintiff "cannot state an implied duty of good faith claim ... where the subject at
OPINION Al"lD ORDER- 16

issue is expressly covered by the contract." McCoy v. Chase lvfanhattan Bank, USA, 559 F.3d
963, 971 (9th Cir. 2009) rev'd on other grounds in Chase Bank USA, NA. v. lvfcCoy, 131 S. Ct.
871 (2011) (citation and quotation omitted). "Parties have a right to enter into good and bad
contracts, the law enforces both," and the implied convenant cannot be used to rewrite a contract
to appease a party who got a bad deal. Nemec v. Shrader, 991 A.2d 1120, 1126 (Del. 2005)
Chase contends that it should be granted summary judgment on plaintiffs' implied
covenant claim because the CMA expressly allowed the conduct at issue and it is clear that the
"

parties would not have agreed to proscribe the complained of conduct as the contract specifically
allowed it. Additionally, Chase argues that the plaintiffs' expectation that Chase would only
increase the APR under limited circumstances was not an objectively reasonable expectation, and
plaintiffs' implied covenant claim is batTed by§ 952 of the Delaware Banking Code, which
grants credit cm·d companies a statutory right to amend APR terms with notice and an
opportunity to opt out.
a.

Express Terms ojC}.;JA

Under the express terms of the CMA, Chase reserved the right to change the APR terms
at any time, with notice to plaintiffs. Chase exercised that right, after providing notice to
plaintiffs. 3 Because Chase acted pursuant to the technical requirements of the CMA, Chase
contends it is entitled to summaty judgment. Under Delaware law, a party "cannot state an
implied duty of good faith claim ... where the subject at issue is expressly covered by the
contract." lvfcCoy, 559 F.3d at 971. "Only when it is clem· from the writing that the contracting
parties would have agreed to proscribe the act later complained of ... had they thought to

3

Though the CIT notice was not a model of clarity, it was not defective as a matter of law
and has not been challenged as such. Rather, plaintiffs have limited their claims to the
disclosures in the CMA and Chase's undisclosed AAR practice.
OPINION AND ORDER- 17

negotiate with respect to that matter may a pmiy invoke the covenant's protections. Dunlap, 878
A.2d at 442. (quoting Katz v. Oak Industries Inc., 508 A.2d 873, 880 (Del. Ch. 1986)).
Plaintiffs contend that the implied convenant requires more than simple adherence to a
contract's terms. The "implied covenant of good faith is the obligation to preserve the spirit of
the bargain rather than the letter, and adherence to substance rather than fmm." Dunlap, 878
A.2d at 444. Plaintiffs contend that Chase used its position of power to frustrate plaintiffs'
reasonable expectations and deprive them of the fruits of the bargain. Plaintiffs urge this court to
adopt the position taken by the Northern District of Califomia in a recent unpublished opinion:
In re Chase Bank USA, NA. "Check Loan" Contract Litig., MDL No. 2032, No. M:09-CV-2032

MMC, 2009 WL 4063349, at *7-8 (N.D. Cal. Nov. 20, 2009) ("Check Loan").
In that case, the plaintiffs alleged that Chase had unilaterally increased the minimum
monthly payments required of consumers paying on fixed rate credit loans with the intent of
triggering penalties or eliminating the accounts, thereby violating the "spirit of the agreements
between Chase" and its customers. The district comi held that the claim as plead was adequate to
state a claim for breaching the implied covenant of good faith and fair dealing. Check Loan,
2009 WL 4063349, at *7-8. That comi examined Delaware law, and rejected Chase's argument
that its contractual right to modifY the terms of its agreements with consumers trumped the
plaintiffs' attempt to invoke the implied covenant in the face of those express contractual rights.

ld. at *7. The court concluded that the plaintiffs' claim "is not subject to dismissal at the
pleading stage" because the pleadings adequately alleged that Chase may have taken advantage of
its position to control implementation of the agreement's tetms. !d. (citing Dunlap, 878 A.2d at
442).
However, this case is not at the pleading stage, and the court has a full record from which
to evaluate plaintiffs' claim. Though this comi has little trouble in concluding that Chase wrote
OPINION At'fD ORDER- 18

an unclear CMA, knowing it would raise plaintiffs' APRs through AAR, this court cannot
conclude that plaintiffs have a viable implied covenant claim. The CMA at issue specifically
allowed the conduct plaintiffs complain of. Additionally there is no doubt that Chase would not
have agreed to proscribe AAR, had the patiies thought to negotiate with respect to the practice, as
Chase specifically reserved its right to increase plaintiffs' APRs knowing full well it would likely
raise them through AAR. While Chase's actions may be underhanded and abusive, they do not
violate the implied covenant as Delawm·e courts (and the Ninth Circuit) have come to interpret it.
The quasi-refmmation permitted by the implied covenant may be used to preserve the spirit of a
contract only where such reformation does not contradict an express te1m of the contract.
Chase's conduct was expressly allowed under the reservation of rights in the CMA, and this court
is not pe1mitted to override that express contract te1m. Nemec, 991 A.2d at 1126; Dunlap, 878
A.2d at 441. Because summary judgment must be granted to Chase on this basis, the court does
not reach the remainder of Chase's arguments and plaintiffs' Motion to Ce1iity the Class must be
denied.

CONCLUSION
For the foregoing reasons, Chase's Motion for Summmy Judgment (138] is GRANTED
and plaintiffs' Motion to CertifY the Class [127] is DENIED.
DATED this :2]day of February, 2013.

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Ancer L. Haggerty
United States District Judge

OPINION AND ORDER- 19