The depositor was a customer of the credit union and opened a joint checking account with his minor son. The depositor’s debit card was stolen, and numerous unauthorized transactions were made using the stolen card. The depositor filed a claim with the credit union to challenge the charges but the claim was denied. The credit union determined that “no error had occurred.” The depositor appealed the finding and requested more information. The credit union once again denied the claim, stating that the depositor remained liable for the charges and needed to file a police report if the customer wished to receive more information on the reasoning for the denial. The depositor submitted a police report, a Consumer Financial Protection Bureau claim, and a complaint to the Better Business Bureau. Still, the credit union maintained that the depositor remained liable for the charges. In response, the depositor filed a class action lawsuit against the credit union, alleging violations of the Electronic Funds Transfers Act (EFTA), the California Unfair Competition Law (UCL), and breach of contract. The credit union filed a motion to dismiss, arguing that it had complied with the EFTA; the depositor did not have standing to bring the state unfair competition law claim because of a choice of law provision in the deposit agreement? and had failed to state a claim for breach of contract.
In Stephenson v. Navy Fed. Credit Union, No. 23-cv-1851-WQH-KSC, 2024 WL 4257639, 2024 U.S. Dist. LEXIS 170470 (S.D. Cal. Sept. 20, 2024) (opinion not yet released for publication), the court granted the motion to dismiss on the UCL claims and denied the motion to dismiss the breach of contract and EFTA claims. First, the court discussed the depositor’s claims under the EFTA. The court found that the depositor had “adequately alledge[d]” a violation of the EFTA when the credit union required the depositor to file a police report to obtain more information on the denial. The EFTA requires the credit union to supply the depositor with “all documents which the financial institution relied on to conclude that such error did not occur.” 15 U.S.C. §1693f(d). Further, the court found that the depositor had sufficiently alleged that harm had resulted from being “on the hook” for the unauthorized transactions. Second, the court addressed the California UCL claims and whether the choice of law provision in the agreement governed. The credit union argued that the agreement mandated that Virginia law be applied to dispute resolution. The court stated that, in California, an agreed-upon choice of law provision would govern unless it “would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which…would be the state of the applicable law in the absence of an effective choice of law.” Nedlloyd lines B.C. Superior Court, 3 Cal. 4th 459, 466 (1992). The court found that “Virginia’s consumer protection laws generally do not allow for class actions… [t]hus, there is a substantial risk that a California fundamental public policy in favor of class actions would be harmed by applying Virginia law.” Van Slyke v. Cap. One Bank, 503 F. Supp. 2d 1353, 1361 (N.D. Cal. 2007). Then, the court found that California had a “materially greater interest” in determining consumer protection claims and rendered the choice of law provision unenforceable. In the alternative, the credit union argued that the depositor lacked standing to bring a UCL claim because he had not suffered monetary harm and that, regardless of harm, recovery was limited to restitution or an injunction. The court found that the depositor had sufficiently alleged injury by claiming that he lost money because the claim had been denied. However, the court held that (1) the depositor was not entitled to restitution because he had failed to show that the credit union had money to which he was entitled; and (2) the depositor did not state a claim for injunctive relief by because the customer had failed to allege an “‘actual or imminent’ threat of repeated injury.” Thus, the court granted the credit union’s motion to dismiss the California UCL claims. Third, the court addressed the depositor’s breach of contract and covenant of good faith and fair dealing claims. The depositor argued that after proper notification of the unauthorized transaction and a finding of “no error,” the agreement required the credit union to provide the depositor a “written explanation.” However, the credit union had only sent the depositor a conclusory determination without an explanation. In addition, the court held that the depository had sufficiently alleged that the credit union had breached the implied covenant of good faith and fair dealing by “fail[ing] to exercise its discretionary power” in determining whether to approve or deny a claim in good faith. Therefore, the court denied the motion to dismiss the breach of contract claim. In short, the court denied the credit union’s motion to dismiss except for the UCL claims, for which the court allowed the depositor leave to amend.
By Hayden Mariott [email protected]
Edited By Ashley Boyce [email protected]