ANDRICHYN et al v. TD BANK, N.A.

Filing 38

MEMORANDUM AND/OR OPINION. SIGNED BY HONORABLE J. CURTIS JOYNER ON 3/19/2015. 3/20/2015 ENTERED AND COPIES E-MAILED.(kp, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA

DAVID ANDRICHYN, et al.,

:
:
: CIVIL ACTION
:
:
: No. 14-CV-3863
:
:
:

Plaintiffs,
vs.
TD BANK, N.A.,
Defendant.

MEMORANDUM
JOYNER, J.

MARCH 19, 2015

Before the Court are Defendant’s Motion to Dismiss (Doc. No.
23), Plaintiffs’ Response in Opposition thereto (Doc. No. 25), and
Defendant’s Reply in Further Support thereof (Doc. No. 27). For the
reasons below, the Motion to Dismiss is GRANTED. An Order follows.
I. BACKGROUND
This putative class action arises from Defendant TD Bank’s
processing of debits from so-called “payday lenders.” Plaintiffs
claim that TD’s conduct violated (1) its contractual duties, (2)
New York and

Pennsylvania

common

law, and

(3)

those states’

consumer protection laws.
Payday loans are short-term, high-interest loans that are
“among the most controversial credit products in the marketplace.”
Nathalie Martin, 1,000% Interest-Good While Supplies Last: A Study
of Payday Loan Practices and Solutions, 52 Ariz. L. Rev. 563, 564
(2010). In essence, the loans are intended “to tide a consumer over
1

until payday, and then be paid back in one lump sum when the
consumer receive[s] her paycheck.” Id. They generally operate in
two ways. First, the borrower can “write a personal check payable
to the lender for the amount the person wants to borrow, plus the
fee they must pay for borrowing. The company gives the borrower the
amount of the check less the fee, and agrees to hold the check
until the loan is due, usually the borrower’s next payday.” Federal
Trade Commission, Payday Loans; Consumer Information, (March 2008),
http://www.consumer.ftc.gov/articles/0097-payday-loans.

In

the

alternative, the lender can “deposit[] the amount borrowed — less
the fee — into the borrower’s checking account electronically. The
loan amount is due to be debited the next payday.” Id. If the
borrower wishes to extend or “roll over” the loan to the next
payday, she is charged another set of fees. Id. In most cases, the
interest rates on these loans (calculated based on the borrowing
fee) exceed 100% APR, and in some circumstances can reach 1000%
APR. See id.; Martin, supra, at 564-65.
The legality of these loans depends on the laws of the state
in which the loan transactions occur. See generally Mary Spector,
Taming the Beast: Payday Loans, Regulatory Efforts, and Unintended
Consequences, 57 DePaul L. Rev. 961 (2008). Of note here, both
Pennsylvania and New York have laws that prohibit high-interest
loans. See Cash Am. Net of Nev., LLC v. Commw. of Pa., 978 A.2d
1028

(Pa.

Commw.

Ct.

2009),

aff’d,

2

8

A.3d

282

(Pa.

2010)

(discussing the application of Pennsylvania’s lending laws to
payday lenders); Otoe-Missouria Tribe of Indians v. N.Y. State
Dep't of Fin. Servs., 769 F.3d 105 (2d Cir. 2014) (examining the
application of New York’s usury laws to payday lenders). Besides
several generally applicable lending laws (such as the Truth In
Lending Act), efforts by the federal government to curb payday
lending have so far only extended to military personnel and their
families. See Spector, supra, at 978-79. Plaintiffs allege that
many payday lenders are based offshore or on Native American
reservations and conduct their business over the internet in an
attempt to

avoid

the application

of state

and

federal laws.

Complaint, Doc. No. 1, at ¶ 4.
The named Plaintiffs in this matter are banking customers of
TD Bank who applied for and received payday loans from several outof-state lenders. Plaintiff David Andrichyn is a resident of
Lansdale, Pennsylvania, and Plaintiff Gladstone Williams is a
resident of Fresh Meadows, New York. Id. at ¶¶ 16, 17
Andrichyn alleges that in December of 2012 he took out a $350
loan from GR Enterprises, operating at www.signmyloan.net. Id. at
¶ 101. The nominal APR for the loan was 995.45%. Id. at ¶ 102. On
December 14, 2012 the lender initiated a debit of $106 from
Andrichyn’s TD account. Id. at ¶ 103. TD Bank processed the debit
even though Andrichyn’s account already held a negative balance.
Id. Three days later, the debit was returned and TD charged

3

Andrichyn a $35 overdraft fee. Id. This process was repeated a week
later. Id. at ¶ 104. On December 24, 2012, the lender initiated
another

$106

debit

and

this

time

Andrichyn’s

account

held

sufficient funds. Id. at ¶ 105. The lender initiated further debits
on December 28, 2012 ($106); January 11, 2013 ($106); January 25,
2013 ($106); and February 8, 2013 ($281). Id. at ¶¶ 106-110. In
sum, Andrichyn alleges that $705 was taken from his account by TD
Bank at the request of GR Enterprises. Id. at ¶ 110.
Throughout 2013, Plaintiff Williams took out payday loans from
various

lenders

under

circumstances

similar

to

those

of

Mr.

Andrichyn. The lenders, loan amounts, and nominal interest rates
were as follows: (1) JD Marketing Group — $300 at 995.45%; (2)
Hydra Financial Limited Fund III — $300 at 730%; (3) EZPaydayCash
— $400 at 500%; (4) 500FastCash — $350 at 720%; (5) Cash Jar — $450
at 100%; (6) 247GreenStreet — $1,120 at 366%. Id. at ¶¶ 112-151.
Plaintiffs allege that TD processed the debits from these lenders
without challenge and assessed fees for overdrafts when they
occurred. Id.
Understanding

Plaintiffs’

claims

against

TD

requires

an

understanding of how electronic debits are processed. Electronic
debits and credits are generally made through a system called the
“ACH

Network.”

NACHA,

ACH

Network:

How

it

Works,

https://www.nacha.org/ach-network (last visited February 18, 2015).
It works as follows: first, an “Originator” (here, the payday

4

lender) initiates

a

debit

or

credit

request

through

the

ACH

Network. Id. Next, the Originator’s bank, known as an “Originating
Depository Financial Institution” or “ODFI” aggregates various ACH
transactions into batches and transmits them to an “ACH Operator.”1
Id. The Operator sorts the transactions and makes them available to
the “Receiving Depository Financial Institution” or “RDFI” (here,
TD Bank). Id. The RDFI then debits or credits the account of an
individual

or

business,

known

as

the

“Receiver”

(here,

the

Plaintiffs). Id. This system moves almost $39 trillion per year in
approximately 22 billion individual electronic transactions. Id.
The

ACH

Network

is

operated

by

the

Electronic

Payments

Association, known as “NACHA.” Id. NACHA operates as both an
administrator
advocates

on

of

the

the

network

and

network’s

https://www.nacha.org/about

a

trade

behalf.

(last

visited

organization

NACHA,

About

February

18,

that

NACHA,
2015).

Relevant here, NACHA also promulgates a set of operating rules
which “provide the legal foundation for the ACH Network.” Id.
Plaintiffs allege that TD Bank violated the NACHA Rules, its
contracts with Plaintiffs, and various state laws by acting as an
RDFI for the ACH transactions initiated by the payday lenders.
Plaintiffs also claim that TD’s assessment of overdraft fees
generated as a result of these transactions further violates the
1
Either The Federal Reserve or The Clearing House, a private-sector ACH
operator. See The Clearing House, Operations and Service,
https://www.theclearinghouse.org/payments/ach/operations-and-service (last
visited February 18, 2015).

5

parties’ contracts and state law. In the instant Motion, TD moves
to dismiss the Plaintiffs’ Complaint for failure to state a claim.
II. STANDARD OF REVIEW
Under Rule 8, a pleading must contain “a short and plain
statement of the claim showing that the pleader is entitled to
relief.” Fed. R. Civ. P. 8(a)(2). Although this pleading standard
does not require “detailed factual allegations,” it does demand
“more

than

accusation.”

an

unadorned,

the

defendant-unlawfully-harmed-me

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing

Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)). Thus
“[a] pleading that offers ‘labels and conclusions’ or ‘a formulaic
recitation of the elements of a cause of action will not do.’ Nor
does a claim suffice if it tenders ‘naked assertion[s]’ devoid of
‘further factual enhancement.’” Id. (citation omitted) (second
alteration in original) (quoting Twombly, 550 U.S. at 555, 557
(2007)).
“The touchstone of the pleading standard is plausibility.”
Bistrian v. Levi, 696 F.3d 352, 365 (3d Cir. 2012). “‘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.’” Ethypharm S.A. Fr. v. Abbott Labs., 707
F.3d 223, 231 n.14 (3d Cir. 2013)(quoting Sheridan v. NGK Metals
Corp.,

609

F.3d

239,

262,

n.

27

(3d

Cir.

2010)).

A

court

determining the sufficiency of a complaint should take note of the

6

elements a plaintiff must plead to state a claim, identify the
conclusions that are not entitled to the assumption of truth, and
“‘where there are well-pleaded factual allegations, a court should
assume their veracity and then determine whether they plausibly
give rise to an entitlement for relief.’” Connelly v. Steel Valley
Sch. Dist., 706 F.3d 209, 212 (3d Cir. 2013)(quoting Burtch v.
Milberg Factors, Inc., 662 F.3d 212, 221 (3d Cir. 2011)).
III. DISCUSSION
A. Choice of Law
Though neither party addresses this issue in their briefing,
we must determine what substantive law to apply to Plaintiffs’
common-law claims. “A federal court sitting in diversity applies
the choice-of-law rules of the forum state ... to determine the
controlling law.” Maniscalco v. Brother Int'l (USA) Corp., 709 F.3d
202, 206 (3d Cir. 2013) (citing Klaxon Co. v. Stentor Elec. Mfg.
Co., Inc., 313 U.S. 487, 496 (1941)). Thus Pennsylvania’s choice of
law rules control.
Where parties have contracted for the application of a certain
forum’s

law,

Pennsylvania

courts

will

generally

honor

that

decision.2 Cottman Transmission Sys., Inc. v. Melody, 869 F. Supp.
1180, 1183 (E.D. Pa. 1994); see also Restatement (Second) of
Conflict of Laws § 187. Here, the contract between TD and the

2

While there are exceptions to this general rule, we see no reason why
they would apply here.

7

Plaintiffs

states

that

it

“is

governed

by

the

laws

of

the

jurisdiction in which the Store where you opened your Account is
located.” See Compl. Ex. A. at 24 (Doc. No. 1 at 75 of 101).
“Store” is defined as a TD Bank branch. Id. at 2. Though the
Plaintiffs have not provided us with details as to the location of
the TD branches where they opened their accounts, a safe assumption
is that each opened an account within their home state. Thus, per
the contract, Plaintiff Andrichyn’s claims (and those of the
Pennsylvania putative class) should be governed by Pennsylvania
law, and Plaintiff Williams’s claims (and those of the New York
putative class) should be governed by New York law.
However, we recognize that in consumer class actions choice of
law questions are hardly ever so cut-and-dried. This is partly due
to the Third Circuit’s decision in Georgine v. Amchem Products,
Inc. which held that “we must apply an individualized choice of law
analysis to each plaintiff’s claims.” 83 F.3d 610, 627 (3d Cir.
1996), aff’d sub nom., Amchem Products, Inc. v. Windsor, 521 U.S.
591, 117 (1997). This can cause a “proliferation of disparate
factual

and

legal

issues”

and

can

ultimately

defeat

class

certification. Id. But at this early stage it is not necessary to
resolve the question definitively, especially where the parties
have failed to address it. See, e.g., In re Flonase Antitrust
Litig., 815 F. Supp. 2d 867, 880 n. 10 (E.D. Pa. 2011) (explaining
the

Court’s

decision

to

defer

8

a

class-wide

choice

of

law

determination

until

after

the

completion

of

fact

discovery).

Instead, we will give Plaintiffs ample opportunity to plead a
plausible claim for relief by examining the law of each state, and
determining whether a claim can go forward under either.3
B. Breach of Contract
The Plaintiffs’ first claim against TD is for breach of
contract. In Pennsylvania, “a plaintiff seeking to proceed with a
breach of contract action must establish ‘(1) the existence of a
contract, including its essential terms, (2) a breach of a duty
imposed by the contract[,] and (3) resultant damages.’” Ware v.
Rodale Press, Inc., 322 F.3d 218, 225 (3d Cir. 2003) (alteration in
original) (quoting CoreStates Bank, N.A. v. Cutillo, 723 A.2d 1053,
1058 (Pa. Super. 1999)). Similarly, under New York law, a plaintiff
must allege “(1) the existence of an agreement, (2) adequate
performance

of

the

contract

by

the

plaintiff,

(3)

breach

of

contract by the defendant, and (4) damages.” Harsco Corp. v. Segui,
91 F.3d 337, 348 (2d Cir. 1996). As there is no indication in the
Parties’

briefing

that

the

Plaintiffs

failed

to

perform

any

contractual obligations, and as there exists no common-sense basis
to believe that such nonperformance occurred, we will analyze these
claims under a basic tripartite framework and assess whether
Plaintiffs have adequately alleged the existence of (1) a contract,

3

We note as well that this is consistent with the Parties’ briefing, as
both have cited to precedent from each state.

9

(2) a breach of that contract, and (3) resultant damages.
The contract at issue between the parties is TD’s “Personal
Deposit Account Agreement” (hereinafter “Account Agreement” or
“Agreement”) which governs the deposit relationship between TD and
its customers. See Compl. Ex. A., Doc. No. 1 at 50 of 101. Neither
party

has

contested

the

validity

of

this

contract

or

its

application to this dispute.
Plaintiffs claim that TD breached the Account Agreement in
three ways. First, they claim that TD breached the express terms of
the Agreement by processing the allegedly unlawful debits. Second,
Plaintiffs claim that the same conduct constitutes a violation of
the NACHA Rules, which they argue were incorporated into the
Account Agreement. Third, Plaintiffs claim that TD breached the
Agreement by assessing overdraft fees generated by the processing
of the allegedly unlawful transactions. We address each of the
alleged breaches in turn.
Plaintiffs first allege that “[t]he Account Agreement []
provided

TD

Bank

with

the

contractual

obligation

to

block

transactions it knew or believed to be unlawful.” Compl. at ¶ 168.
Thus, they argue, by processing the debit requests from the payday
lenders, TD violated the express terms of the agreement. Id.
However, Plaintiffs fail to cite any provision in the Account
Agreement that would create this obligation. The only provision
Plaintiffs cite that could arguably fit this description states

10

that TD “may block or otherwise prevent or prohibit” a “suspected
restricted transaction.” Compl. at ¶ 44 (quoting Account Agreement
at 3). But Plaintiffs fail to realize that this passage refers only
to “‘restricted transactions’ as defined in the Unlawful Internet
Gambling Enforcement Act of 2006.” Account Agreement at 2. As one
might imagine, that statute deals only with gambling, and has no
application to the facts presented here. See 31 U.S.C. §§ 5362(7),
5363. This portion of Plaintiffs’ breach claim cannot proceed.
The bulk of Plaintiffs’ breach claim centers around their
argument

that

TD’s

conduct

violated

the

NACHA

Rules,

which

Plaintiffs claim were incorporated into the Account Agreement. See
Compl. at ¶ 166-67. In order to address this claim we must first
determine whether the NACHA rules were in fact incorporated. In
support of this point, Plaintiffs cite to page 16 of the Account
Agreement, which states in relevant part:
International ACH and Wire Transactions
If your Account receives incoming ACH transactions
(either credits or debits) or wire transfers initiated
from outside of the United States, both you and we are
subject to the Operating Rules and Guidelines of the
National Automated Clearing House Association (“NACHA”)
or the rules of any wire transfer system involved ....
As TD points out, this provision does not refer to all ACH
transactions, but rather only to those initiated from outside of
the United States. Motion to Dismiss at 18 (Doc. No. 23). Thus to
the extent that an ACH transaction was initiated within the United
States, we see nothing in the Account Agreement that would obligate

11

TD to follow the NACHA rules for processing that transaction.
TD argues further that Plaintiffs “have not alleged that any
of the ACH debits at issue were initiated outside of the United
States,” Doc. No. 23 at 18 n. 12 (emphasis in original), and thus
this portion of the breach claim should be dismissed in its
entirety. We disagree. The Plaintiffs state in the Complaint that
many payday lenders are based offshore or on Native American
reservations. Compl. at ¶ 4. Though the Complaint fails to state
whether Plaintiffs’ specific lenders are based outside of the
United States,4 at this stage the Complaint does not require
“detailed factual allegations.” Iqbal, 556 U.S. at 678. Again, the
touchstone is plausibility. Ethypharm, 707 F.3d at 231 n. 14.
Taking the Plaintiffs’ allegations as true, the Complaint raises a
plausible claim that some number of the loans originated outside of
the United States. The Account Agreement provides that the parties
must

abide

by

the

NACHA

rules

for

the

processing

of

those

transactions.
The question then becomes whether TD, by processing these
allegedly unlawful transactions, was plausibly in breach of the
NACHA Rules. The Complaint alleges that the “NACHA Rules ...
require TD Bank to block transactions it knows to be unlawful or
unauthorized under NACHA rules.” Id. at ¶ 167. Thus, the Plaintiffs

4

Plaintiffs later address this in their Opposition brief, Doc. No. 25
at 18 n. 8.

12

claim, TD “breached its contractual promise to process ... ACH
transactions in accordance with the NACHA rules when it processed
Illegal Payday Loan transactions it knew to be unlawful.” Id. at ¶
169.
Plaintiffs

claim

that

TD’s

obligation

to

block

unlawful

transactions stems from two provisions of the NACHA Rules.

First,

they quote Rule 3.1.1, which states in relevant part that an RDFI
“‘must accept Entries that comply with these Rules and are received
with respect to an account maintained with that RDFI, subject to
its right to return Entries under these Rules.’” Id. at ¶ 40
(emphasis in Complaint). We are unsure why Plaintiffs cite to this
provision. As a general matter, it requires an RDFI to accept
entries, not block or return them. The emphasized language merely
means that if the Rules provide the RDFI with the right to return
an entry, it may do so without running afoul of 3.1.1. There is
nothing in the subsection requiring an RDFI to exercise those
return

rights.

This

provision

cannot

provide

the

basis

for

Plaintiffs’ breach claim.
Plaintiffs also cite to Section 3.11 for this obligation:
“‘[a]n RDFI must recredit the accountholder for a debit Entry that
was, in whole or in part, not properly authorized under these
Rules, as required by these Rules, applicable Legal Requirements,
or agreement between the RDFI and the accountholder.’” Id. at ¶ 41

13

(alteration and emphasis in Complaint).5 Initially, we do not see
how this provision could create several of the obligations that
Plaintiffs

claim

it

does.

Rather

than

requiring

an

RDFI

to

“monitor,” “block,” “reject,” or otherwise refuse to process these
transactions, the Rule uses the term “recredit.” We understand this
to mean that the Rule’s only possible application would be after
the transaction has occurred. This interpretation is bolstered by
our reading of Rule 3.1.1, discussed above, which requires an RDFI
to process transactions subject only to its right of return. Thus
we understand the two rules to work in tandem: an RDFI must
initially accept the entries per Rule 3.1.1, and can later return
the entry and recredit the Receiver’s account per Rule 3.11. See
generally Engelhard Corp. v. N.L.R.B., 437 F.3d 374, 381 (3d Cir.
2006) (Court must read, “if possible, all provisions of a contract
together as a harmonious whole.”). Thus to the extent Plaintiffs
claim that TD breached the NACHA Rules by failing to properly
monitor or reject the allegedly unlawful transactions, we see no
basis in this provision for such a claim to proceed.

5
Plaintiffs appear to be quoting from an earlier version of the rule,
which was amended (effective March 15, 2013) to read as follows:

An RDFI must recredit the accountholder to the extent provided in
this Section 3.11 for (a) a debit Entry to a Consumer Account ...
that was, in whole or in part, not properly authorized under these
Rules, as required by these Rules, applicable Legal Requirements,
or agreement between the RDFI and the account holder; ...
NACHA Rules Section 3.11 (emphasis added for clarity). This alteration is
discussed further below. Neither party has addressed what version of the NACHA
Rules should apply to the conduct at issue here, though our analysis would
remain the same regardless.

14

Plaintiffs do allege however that TD ran afoul of Rule 3.11 by
failing to recredit “the accounts of its customers it wrongfully
debited for Illegal Payday Loans.” Compl. at ¶ 42. TD counters by
arguing that the recredit obligation is only triggered when a
customer challenges the allegedly unauthorized debit, and notes
that the

Plaintiffs

fail

to

allege that

any

such

challenges

occurred. See Doc. No. 23 at 18. We agree with TD.
It is a fundamental principle of contract interpretation that
specific provisions control more general ones. See generally 11
Williston on Contracts § 32:10 (4th ed. 2014). Courts in both
Pennsylvania and New York follow this principle. See Great Am. Ins.
Co. v. Norwin Sch. Dist., 544 F.3d 229,

247 (3d Cir. 2008)

(applying Pennsylvania law); Cnty. of Suffolk v. Alcorn, 266 F.3d
131, 139 (2d Cir. 2001) (applying New York law). Additionally, the
NACHA Rules incorporate this principle in Rule 1.1.3, which states
that “[i]f there is a conflict in these Rules between a general
provision applicable to all Entry types and a specific provision
applicable to a specific Entry type, the provision for the specific
Entry type governs.”
Here, the language Plaintiffs cite is from an introductory
portion of Rule 3.11 that is followed by several subsections which
provide an RDFI’s recredit obligations for specific types of
entries. The subsection that applies here is 3.11.1, which reads in
relevant part:

15

An RDFI must promptly recredit the amount of a debit
Entry to a Consumer Account6 of a Receiver ... if it
receives notification from the Receiver in accordance
with Section 3.12 (Written Statement of Unauthorized
Debit), and such notification is received within fifteen
calendar days from the date the RDFI sends or makes
available to the Receiver information related to the
debit Entry.
NACHA Rule 3.11.1 (2015) (emphasis added). Thus in regards to a
consumer account, the recredit obligation arises only after the
Receiver provides the RDFI with a written challenge to the debit.
The language relied upon by the Plaintiffs appears to not be
a standalone obligation, but rather an introductory paragraph that
provides the general outline of an RDFI’s recredit obligation.7
Subsection 3.11.1 on the other hand provides the terms that apply
to the Plaintiffs’ specific situation. Under both the terms of the
NACHA Rules and basic contract interpretation principles, the
specific provision must control. We thus find that the NACHA Rules
did not require TD to recredit the Plaintiffs’ accounts absent the
receipt of a written challenge.8 Because the Plaintiffs do not

6

Defined by the Rules as: “an account ... established by a natural
person primarily for personal, family or household use and not for commercial
purposes.”
7

This understanding is bolstered by the language added to Section 3.11
in 2013 (noted above in footnote 5), which made clear that the recredit
obligation only arose “to the extent provided in this Section.” This
alteration indicates that the introductory section is limited by the specific
provisions that follow.
8

While we do not look outside of the contract for interpretative
guidance when its terms are unambiguous (as they are here), we note that this
understanding of the Rules is consistent with NACHA’s own interpretation.
NACHA has explained that in the absence of a consumer complaint, an RDFI will
generally “have no basis on its own by which to dispute the validity of
a[n ACH] transaction.” NACHA, ACH Operations Bulletin #2-2013: High Risk

16

claim that they challenged the debit entries, this portion of their
breach claim cannot proceed.
For their final breach allegation, Plaintiffs claim that TD
breached the Account Agreement by assessing “overdraft and/or
returned item fees ... on transactions that were unlawful or
unauthorized under NACHA Rules.” Compl. at ¶ 170-71. They allege
that these fees exacerbated their debt problems, and the revenue
generated from the fees was “a primary motivation for TD Bank’s
conduct.” Id. at ¶ 15. Plaintiffs do not point to a specific
provision of the Account Agreement to support this claim, but
rather state that it “does not authorize, expressly or impliedly,
TD Bank to assess overdraft and/or returned item fees generated as
a result of illegal and unenforceable transactions.” Id. at ¶ 46.
This claim is defeated by the actual terms of the Agreement.
It

provides

that

“[o]verdraft fees

may

be assessed

on items

presented for payment that bring your Account into a negative
balance, as well as any subsequent transactions presented for
payment

while

the

Account

has

a

negative

balance.”

Account

Agreement at 13. Further, the contract states that if an overdraft
occurs, TD “may demand immediate repayment of any overdraft and

Originators and Questionable Debit Activity (March 14, 2013) (Doc. No. 23-7 at
6 of 10). This is because “ [t]he ACH message itself, like any check or

other payment instrument, provides no information about the substance of
the transaction to which the payment relates that would enable to RDFI to
make such a judgment .” Id. Instead, the network is “ set up to empower
consumers to dispute transactions that they believe were not validly
authorized .” Id.

17

charge ... an overdraft fee.” Account Agreement at 14. We see
nothing in the Account Agreement — and Plaintiffs do not point to
anything — that conditions TD’s ability to charge these fees on the
nature of the transaction that overdraws the account. While it is
unfortunate

that

these

fees

contributed

to

Plaintiffs’

dire

financial circumstances, TD did not breach the Account Agreement by
assessing them.
C. Breach of the Covenant of Good Faith and Fair Dealing
Plaintiffs also claim that TD breached the implied covenant of
good

faith

and

fair

dealing.

The

substance

of

this

claim

essentially mirrors their breach claim; that is, Plaintiffs allege
that TD breached the covenant by (1) knowingly processing allegedly
unlawful payday loan transactions, and (2) charging overdraft fees
generated as a result. Compl. at ¶ 177.
Both Pennsylvania and New York recognize that “every contract
imposes upon each party a duty of good faith and fair dealing in
its

performance

and

its

enforcement.”

W.

Run

Student

Hous.

Associates, LLC v. Huntington Nat. Bank, 712 F.3d 165, 170 (3d Cir.
2013) (quotation marks omitted); see also Fishoff v. Coty Inc., 634
F.3d 647, 653 (2d Cir. 2011) (“Under New York law, a covenant of
good faith and fair dealing is implied in all contracts.”). In both
states, the implied covenant is described as an obligation to not
“do anything which will have the effect of destroying or injuring
the

right

of

the

other

party

to

18

receive

the

fruits

of

the

contract.” Sec. Plans, Inc. v. CUNA Mut. Ins. Soc., 769 F.3d 807,
817 (2d Cir. 2014) (quotation marks omitted); see also Hart v.
Arnold, 884 A.2d 316, 333 (Pa. Super. 2005). Or more simply, “the
implied covenant ensures that parties to a contract perform the
substantive bargained-for terms of their agreement.” Geren v.
Quantum

Chem.

Corp.,

832

F.

Supp.

728,

732

(S.D.N.Y.

1993)

(internal quotation marks omitted). The Restatement provides the
following examples of conduct that could violate the covenant:
“evasion of the spirit of the bargain, lack of diligence and
slacking off, willful rendering of imperfect performance, abuse of
a power to specify terms, and interference with or failure to
cooperate in the other party’s performance.” Restatement (Second)
of Contracts § 205. Notably, the covenant cannot be used to
“override express contractual terms” or “add new terms to an
agreement.” In re IT Grp., Inc., 448 F.3d 661, 671 (3d Cir. 2006);
see also Broder v. Cablevision Sys. Corp., 418 F.3d 187, 198-99 (2d
Cir. 2005). Rather, it “can only impose an obligation ‘consistent
with other mutually agreed upon terms in the contract.’” Geren, 832
F. Supp. at 732 (quoting Sabetay v. Sterling Drug, Inc., 506 N.E.2d
919, 922 (N.Y. 1987)).
Plaintiffs’ claim that TD breached the covenant by processing
payday loan debits cannot proceed for several reasons. For one, it
appears that Plaintiffs are asking us to read an entirely new term
into the Account Agreement. That is, Plaintiffs would like the

19

implied covenant to require TD to monitor and/or block allegedly
unlawful payday loan debits. But, as explained above, the actual
contract between the parties contains no such obligation. A claim
for breach of the implied covenant cannot proceed if it bears no
relationship to the express terms of the contract. See, e.g., W.
Run Student Hous. Associates, 712 F.3d at 170 (“[T]here must be
some relationship to the provisions of the contract itself to
invoke the duty of good faith.”). Thus if there was a provision in
the contract stating that TD would monitor all transactions and
could block those it thought were improper, Plaintiffs could
present a proper claim that TD used that discretion arbitrarily or
in bad faith. But here, no such clause exists.9 We cannot use the
implied covenant to create an obligation that the parties did not
agree to.
Additionally

(and

perhaps

more

importantly),

we

see

no

plausible implication in the Complaint that TD acted in bad faith
by processing these transactions. After all, each of the allegedly
improper debits occurred after the Plaintiffs received the loan
funds and authorized the payday lenders to debit their accounts. It
strains credulity to argue after the fact that TD “evaded the
spirit”

of

the

contract

by

processing

debits

initiated

and

authorized by the Plaintiffs. If anything, TD was acting in accord
9
Plaintiffs’ Response points to page 3 of the Account Agreement which
allows TD to block or prohibit transactions relating to unlawful gambling.
Doc. No. 25 at 23. As discussed above, this provision is inapplicable to the
conduct at issue here.

20

with the Plaintiffs’ reasonable expectations, not undermining them.
Plaintiffs’ claim that TD breached the covenant by assessing
overdraft fees must also fail. As explained above, TD’s assessment
of such fees was expressly provided for in its contract with the
Plaintiffs. Plaintiffs cannot use the implied covenant of good
faith and fair dealing to override express contractual terms.
D. Unconscionability
Plaintiffs’ third claim is that “TD Bank’s policies and
practices

are

or

were

substantively

and

procedurally

unconscionable.” Compl. at ¶ 180. They point to the following
allegedly unconscionable practices: (a) TD’s failure to disclose
that

it

would

charge

overdraft

fees

resulting

from

unlawful

transactions; (b) TD’s failure to solicit Plaintiffs’ consent prior
to processing transactions that overdrew their accounts; and (c)
TD’s failure to alert Plaintiffs that payday loan debits would
overdraw

their

account.

Id.

at

¶

180(a)-(c).

Additionally,

Plaintiffs claim that the Account Agreement is a contract of
adhesion, and also that it is unfair and misleading because it does
not inform customers that they will be charged overdraft fees as a
result of TD’s processing of payday loan debits. Id. at ¶ 180(d)(e). Plaintiffs seeks a declaration that these practices are
unconscionable, and also a finding that the contract as a whole is
unenforceable as a matter of law. Id. at ¶ 181.
Unconscionability “is a ‘defensive contractual remedy which

21

serves to relieve a party from an unfair contract or from an unfair
portion of a contract.’” Harris v. Green Tree Fin. Corp., 183 F.3d
173, 181 (3d Cir. 1999) (quoting Germantown Mfg. Co. v. Rawlinson,
491 A.2d 138, 145 (Pa. Super. 1985)). In the absence of fraud,
illegality, or duress, “[u]nconscionability is the rubric under
which the judiciary may refuse to enforce unfair or oppressive
contracts.” Stanley A. Klopp, Inc. v. John Deere Co., 510 F. Supp.
807, 810 (E.D. Pa. 1981) aff’d, 676 F.2d 688 (3d Cir. 1982).
The doctrine of unconscionability has historically been used
not as an affirmative claim, but rather as a defense to an
enforcement action. In spite of this, Plaintiffs argue that we
should allow an affirmative claim here because of this case’s
unique facts (i.e., TD already has the Plaintiff’s funds and thus
does not need to sue to enforce the contract). In this regard,
Plaintiffs urge us to follow In re Checking Acct. Overdraft Litig.,
694 F. Supp. 2d 1302 (S.D. Fla. 2010), which presented similar
facts and allowed an affirmative unconscionability claim to survive
a motion to dismiss. Though we agree with the Plaintiffs that there
are factual similarities between that case and this one, we decline
to create a cause of action where none exists under controlling
state law.
New York law is absolutely clear on this question: “The
doctrine of unconscionability is to be used as a shield, not a
sword, and may not be used as a basis for affirmative recovery.

22

Under both the UCC and common law, a court is empowered to do no
more than refuse enforcement of the unconscionable contract or
clause.” Super Glue Corp. v. Avis Rent A Car Sys., Inc., 132 A.D.2d
604, 606 (N.Y. 1987).
Similarly, Pennsylvania has always treated unconscionability
as a defensive doctrine. See Salley v. Option One Mortg. Corp., 925
A.2d 115, 119 (Pa. 2007) (“The doctrine of unconscionability has
been applied in Pennsylvania as both a statutory and a common-law
defense to the enforcement of an allegedly unfair contract or
contractual provision.”). Plaintiffs cannot point to — and we have
not found — any Pennsylvania case allowing this type of claim to go
forward. In fact, both the Commonwealth courts and this Court
routinely

dismiss

affirmative

unconscionability

claims.

See

Williams v. Enter. Holdings, Inc., No. 12-05531, 2013 WL 1158508,
at

*3

(E.D.

Pa.

Mar.

20,

2013)

(“Under

Pennsylvania

law,

‘Unconscionability may only be asserted as a defense in an action
on a contract for the sale of goods.’”)(quoting Witmer v. Exxon
Corp., 394 A.2d 1276, 1286 (Pa. Super. 1978)); Toth v. Nw. Sav.
Bank, No. GD-12-008014, 2013 WL 8538695, at *16 (Pa. Com. Pl. Mar.
1, 2013) (rejecting In re Checking Acct. Overdraft Litig. because
“there is no Pennsylvania case law permitting a party to pursue a
separate cause of action on the ground that the other party is
enforcing an unconscionable provision in the parties’ agreement”).
As there is no precedent in either New York or Pennsylvania

23

allowing for an affirmative unconscionability claim, this claim
must be dismissed.
E. Conversion
Plaintiffs’ fourth claim is for conversion. They claim that TD
has “wrongfully collected overdraft and/or returned item fees from
Plaintiffs and the members of the Classes, and has taken specific
and readily identifiable funds from their accounts in payment of
these fees in order to satisfy them.” Compl. at ¶ 186. Further,
they claim that TD has, “without proper authorization, assumed and
exercised the right of ownership over these funds, in hostility to
the rights of Plaintiffs and the members of the Classes, without
legal justification.” Id. at ¶ 187.
In Pennsylvania, “conversion constitutes ‘the deprivation of
another’s right of property in, or use or possession of, a chattel,
or other interference therewith, without the owner’s consent and
without lawful justification.’” Turevsky v. FixtureOne Corp., 904
F.

Supp.

2d

454,

462

(E.D.

Pa.

2012)

(quoting

McKeeman

v.

Corestates Bank, N.A., 751 A.2d 655, 659 n. 3 (Pa. Super. 2000)).
New York law is similar; to survive a motion to dismiss “a
plaintiff must allege: (1) the property subject to conversion is a
specific

identifiable

thing;

(2)

plaintiff

had

ownership,

possession or control over the property before its conversion; and
(3) defendant exercised an unauthorized dominion over the thing in
question, to the alteration of its condition or to the exclusion of

24

the plaintiff's rights.” DeAngelis v. Corzine, 17 F. Supp. 3d 270,
282 (S.D.N.Y. 2014) (quotation marks omitted).
Fatal here is the requirement in both states that the alleged
conversion be “unauthorized” or “without the owner’s consent.” As
we have already discussed, the Account Agreement provided TD with
the

right

to

assess

these

fees.

When

Plaintiffs

signed

the

contract, they consented to this assessment. Accordingly, they
cannot state a plausible claim for conversion. See, e.g., Pioneer
Comm. Funding Corp. v. Am. Fin. Mortgage Corp., 855 A.2d 818, 827
(Pa. 2004) (“[A] claim of conversion cannot be sustained in the
face

of

lawful

justification

on

the

part

of

the

asserted

tortfeasor.”).
F. Unjust Enrichment
Plaintiffs’ claim for unjust enrichment must also fail based
on clear precedent from both Pennsylvania and New York. In both
states, where the subject matter of the claim is governed by a
contract, a plaintiff cannot pursue (and a court cannot grant)
relief based on an unjust enrichment theory. See Grudkowski v.
Foremost Ins. Co., 556 F. App’x 165, 169-70 (3d Cir. 2014) (“Under
Pennsylvania law, the doctrine of unjust enrichment is inapplicable
when the relationship between parties is founded upon a written
agreement

or

express

contract,

regardless

of

how

harsh

the

provisions of such contracts may seem in the light of subsequent
happenings.”) (quotation marks omitted); Wilson Area Sch. Dist. v.

25

Skepton, 895 A.2d 1250, 1254 (Pa. 2006) (“[I]t has long been held
in this Commonwealth that the doctrine of unjust enrichment is
inapplicable when the relationship between parties is founded upon
a written agreement or express contract.”); MacDraw, Inc. v. CIT
Grp. Equip. Fin., Inc., 157 F.3d 956, 964 (2d Cir. 1998) (“[T]he
existence of a valid and enforceable written contract governing a
particular subject matter ordinarily precludes recovery in quasi
contract, i.e., unjust enrichment, for events arising out of the
same subject matter.”) (quotation marks omitted); Pappas v. Tzolis,
982 N.E.2d 576, 580 (N.Y. 2012) (“A party may not recover in unjust
enrichment where the parties have entered into a contract that
governs the subject matter.”)(quotation marks omitted).
Here, the relationship between TD and the Plaintiffs is
founded upon the Account Agreement and the subject matter of this
suit is closely related to that of the contract. Consequently, this
claim must be dismissed.
G. Pennsylvania Consumer Protection Claim
Plaintiff Andrichyn, a Pennsylvania resident, brings this
claim under Pennsylvania’s Unfair Trade Practices and Consumer
Protection Law, 73 Pa. Stat. §§ 201-1 et seq. Specifically, he
claims that TD violated the law’s “catchall” provision, which
prohibits
likelihood

“fraudulent
of

or

confusion

deceptive
or

of

conduct

which

misunderstanding.”

creates
Id.

§

a

201-

2(4)(xxi). The law provides for a private cause of action where a

26

consumer “suffers any ascertainable loss ... as the result of the
use ... of a method, act or practice declared unlawful” by the law.
73 Pa. Stat. § 201-9.2(a). Thus to state a claim under the catchall
provision, Andrichyn must allege (1) that TD engaged in “fraudulent
or deceptive conduct which create[d] a likelihood of confusion or
of misunderstanding”; (2) an ascertainable loss; and (3) causation.
See Seldon v. Home Loan Servs., Inc., 647 F. Supp. 2d 451, 470
(E.D. Pa. 2009). The initial question we must address then is
whether Andrichyn adequately pleads the existence of fraudulent or
deceptive conduct. He makes four allegations in this regard, which
we will address in turn.
Andrichyn’s first allegation is that TD engaged in deceptive
conduct by “processing debits on Illegal Payday Loans” in violation
of

Pennsylvania’s

public

policy.

Compl.

at

¶

208(a).

This

allegation typifies the kind of “naked assertion[] devoid of
further factual enhancement,” that must be dismissed. Iqbal, 556
U.S. at 678. Andrichyn points to no authority showing that an
RDFI’s

processing

of

these

transactions

is

against

the

Commonwealth’s law or public policy.
The second allegation is that TD deceptively “represent[ed]
that it would act in accordance with NACHA Rules and not process
illegal transactions, when in fact it did not.” Compl. at ¶ 208(b).
If

Andrichyn

is

claiming

here

that

the

TD

made

these

representations in the Account Agreement, we already addressed this

27

in

regards

to

the

breach

claim

and

determined

that

no

such

provision exists. If Andrichyn is claiming that TD made these
alleged representations outside of the Account Agreement, he has
failed to allege that such representations were in fact made. Thus
this allegation also cannot survive the Motion to Dismiss.
The third allegation states that TD acted fraudulently or
deceptively by processing payday debits “despite rules and laws
requiring the bank to monitor and reject such transactions.” Id. at
¶ 208(c). This must be dismissed because Andrichyn fails to cite
any such rules or laws. To the extent he is referring to the NACHA
Rules, we already addressed that issue in regards to Plaintiffs’
breach claim and found that those rules do not require RDFIs such
as TD to monitor or reject these transactions.
Finally, Andrichyn alleges that TD’s assessment of overdraft
fees resulting from payday debits was deceptive and/or fraudulent
because the Account Agreement did not allow for such fees. Id. at
¶

208(d).

But

as

we

have

already

discussed

in

regards

to

Plaintiffs’ breach claim, the Agreement does allow for the fees
that Andrichyn challenges. Actions permitted by the express terms
of the contract that he signed cannot plausibly be seen as either
deceptive or fraudulent. See Hassler v. Sovereign Bank, 374 F.
App’x 341, 344 (3d Cir. 2010) (affirming the dismissal of a

28

consumer protection claim10 based on the assessment of overdraft
fees where the contract between the consumer and bank explicitly
provided for the conduct challenged by the plaintiff).
In sum, none of Andrichyn’s allegations presents a legally
cognizable claim that TD engaged in any deceptive or fraudulent
conduct. This claim must therefore be dismissed.
H. New York Consumer Protection Claim
Plaintiff Williams, a resident of New York, brings this final
claim under New York’s general consumer protection law, General
Business Law

§

349.

That

law

prohibits “[d]eceptive

acts

or

practices in the conduct of any business, trade or commerce or in
the furnishing of any service in this state.” N.Y. Gen. Bus. Law §
349(a). The law provides that “any person who has been injured by
reason of any violation of this section” can bring an action for
both injunctive and monetary relief. Id. at § 349(g).
To state a claim under § 349 a Plaintiff must allege that (1)
the defendant’s conduct was consumer-oriented, (2) the defendant’s
conduct was deceptive or misleading in a material way, and (3) the
plaintiff was injured by the conduct. Oswego Laborers’ Local 214
Pension Fund v. Marine Midland Bank, N.A., 647 N.E.2d 741, 744
(N.Y. 1995). As is the case with Pennsylvania’s law, New York
courts look at the conduct objectively, and limit the definition of

10

Hassler applied New Jersey’s consumer fraud statute, but we see no
reason why the case’s logic should not apply to our analysis of Pennsylvania’s
law.

29

deceptive or misleading acts to only “those likely to mislead a
reasonable consumer acting reasonably under the circumstances.” Id.
at 745.
The dispositive question here is whether Williams plausibly
pleads the existence of an objectively deceptive or misleading act.
The allegations put forth in Williams’s claim are exactly the same
as those found in Andrichyn’s Pennsylvania claim, save for the
substitution of New York-specific language. See Compl. at ¶ 212.
Consequently, Williams’s GBL § 349 claim must be dismissed for the
same reasons. That is, he fails to present a legally cognizable
argument that TD engaged in any deceptive or misleading conduct.
IV.

CONCLUSION
For the foregoing reasons, the Plaintiffs’ have failed to

state a legally cognizable claim. The Motion to Dismiss (Doc. No.
23) is GRANTED, and this matter is DISMISSED with prejudice.

30