In Gutierrez v. Wells Fargo Bank, NA, ___ F.3d ___ (9th Cir. Dec. 26, 2012), the Ninth Circuit reversed the judgment in a certified class action challenging the defendant bank's practice of "high-to-low" posting of debit card transactions (as opposed to "low-to-high" or chronological posting), which allegedly led to more frequent overdrafts and hefty charges. However, the Court affirmed class certification as well as liability, and remanded for redetermination of the appropriate remedy.
Preliminarily, the Court held that the defendant had waived its right to seek to compel arbitration, and rejected the argument that doing so would have been "futile" before Concepcion. Slip op. at 10-17.
The Court then held that the National Bank Act preempted the UCL to the extent that its "unfair" prong prohibited the defendant's "high-to-low" posting (which the district court had enjoined). Slip op. at 20-25. So applied, the UCL "prevent[ed] or significantly interfere[d] with a national bank’s federally authorized power to choose a posting order." Id. at 24. Likewise, the claim under the UCL's "fraudulent" prong for not adequately disclosing the posting method was also preempted. Id. at 26.
However, the claim based on the bank's affirmative misstatements was a different story. The UCL's "prohibition on misleading statements under the fraudulent prong of the statute is not preempted by the National Bank Act." Id. at 27. The Court relied on a 2002 OCC advisory letter warning that national banks may be subject to state UDAP statues such as the UCL. Id. (citing OCC Advisory Letter, Guidance on Unfair or Deceptive Acts or Practices, 2002 WL 521380 (Mar. 22, 2002)). The panel further explained:
California’s prohibition of misleading statements does not significantly interfere with the bank’s ability to offer checking account services, choose a posting method, or calculate fees. Nor does the Unfair Competition Law mandate the content of any nonmisleading and nonfraudulent statements in the banking arena. On the flip side, the National Bank Act and other OCC provisions do not aid Wells Fargo, as neither source regulates deceptive statements vis-a-vis the bank’s chosen posting method. Where, as here, federal laws do not cover a bank’s actions, states “are permitted to regulate the activities of national banks where doing so does not prevent or significantly interfere with the national bank’s or the national bank regulator’s exercise of its powers.” Watters, 550 U.S. at 12; see also Gibson v. World Sav. & Loan Ass’n, 103 Cal. App. 4th 1291, 1299 (2002) (the “state cannot dictate to the Bank how it can or cannot operate, but it can insist that, however the Bank chooses to operate, it do so free from fraud and other deceptive business practices”).
Id. at 28. The court then found ample evidence of classwide misleading statements in the record regarding the bank's posting practices, affirmed the judgment based on that UCL violation, and remanded for redetermination of the appropriate relief to be ordered (both injunctive and restitutionary). Id. at 32-34.
The opinion also reaffirms the rule that in federal court, only a single named class representative must have standing, and affirmed the district court's finding of standing under Prop. 64. Id. at 30-31 (citing Bates v. United Parcel Serv., Inc., 511 F.3d 974, 985 (9th Cir. 2007) (en banc) (“In a class action, standing is satisfied if at least one named plaintiff meets the requirements.”)).
Finally, the opinion affirmed the class certification order. This section of the opinion reads in its entirety as follows:
Next, class certification under Fed. R. Civ. P. 23(b)(3) requires that “questions of law or fact common to class members predominate over any questions affecting only individual members.” With respect to marketing materials, the district court found that:A Wells Fargo marketing theme was that debit-card purchases were “immediately” or “automatically” deducted from an account. This likely led the class to believe: (1) that the funds would be deducted from their checking accounts in the order transacted, and (2) that the purchase would not be approved if they lacked sufficient available funds to cover the transaction. This language was present on Wells Fargo’s website (TX 129), on Wells Fargo’s Checking, Savings and More brochures from 2001 and 2005 (TX 88, 89), and Wells Fargo’s New Account Welcome Jacket from 2004 (TX 82).
The pervasive nature of Wells Fargo’s misleading marketing materials amply demonstrates that class members, like the named plaintiffs, were exposed to the materials and likely relied on them. See Tobacco II, 46 Cal. 4th at 312 (to establish fraud under the Unfair Competition Law, plaintiffs must show “that members of the public are likely to be deceived”). In addition, the district court found that Wells Fargo knew that “new accounts generate the bulk of OD [overdraft] revenue.” Wells Fargo’s speculation—that “some class members would have engaged in the same conduct irrespective of the alleged misrepresentation”—does not meet its burden of demonstrating that individual reliance issues predominate. Unlike McLaughlin v. Am. Tobacco Co., 522 F.3d 215, 223 (2d Cir. 2008) (partially abrogated on other grounds by Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639 (2008)), where individual class members could have had different motives for choosing “light” cigarettes, we are hard pressed to agree that any class member would prefer to incur multiple overdraft fees.
Slip op. at 31-32. This case exemplifies how class certification should work under the UCL's "fraudulent" prong, which requires proof only that the defendant's conduct was "likely to deceive" a reasonable consumer.
The Recorder had this article on the opinion the day it was handed down.