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Smith v. Bank of Hawaii

United States District Court, D. Hawaii

January 31, 2019

RODNEY SMITH, individually and on behalf of all others similarly situated, Plaintiff,
BANK OF HAWAII, Defendant.




         In this putative class action, Plaintiff Rodney Smith (“Smith”) challenges the adequacy of disclosures regarding the method used by Defendant Bank of Hawaii (“BOH”) to impose overdraft fees. Smith contends that BOH charged him overdraft fees in a manner inconsistent with what was described in agreements he signed, by using an available-balance method rather than a ledger-balance method to assess the sufficiency of customer account funds to cover a transaction. BOH moves for summary judgment on five causes of action or, in the alternative, partial summary judgment as to actual damages on the Electronic Fund Transfers Act (“EFTA”) claim. ECF No. 116. For the reasons set forth below, the Court DENIES the Motion.


         A. Factual Background

         Because several prior orders describe the factual background of this case, the Court will not recount every detail here. See Smith v. Bank of Haw., 2017 WL 3597522 (D. Haw. Apr. 13, 2017) (“Smith I”) (denying BOH's Motion to Dismiss); Smith v. Bank of Haw., 2018 WL 1662107 (D. Haw. Apr. 5, 2018) (“Smith II”) (granting in part and denying in part BOH's first Motion for Summary Judgment).

         Smith alleges that BOH's use of the available-balance method rather than the ledger-balance method is “inconsistent with how BOH expressly describes the circumstances under which overdraft fees are assessed in” its contractual overdraft program documents. FAC ¶ 28-29, ECF No. 1-1. A ledger-balance method uses only settled transactions to determine overdraft fees. Smith II, 2018 WL 1662107, at *1 (citing Consumer Financial Protection Bureau (“CFPB”) Supervisory Highlights, Winter 2015 § 2.3, ECF No. 81-15). The available-balance method includes: (1) settled transactions; (2) transactions that are authorized but not yet settled; and (3) holds on deposits that have yet to clear. Id. Accordingly, “transactions that would not have resulted in an overdraft (or overdraft fee) under a ledger-balance method [may] result in an overdraft (and an overdraft fee) under an available-balance method.” Id. (quoting CFPB Supervisory Highlights, Winter 2015 § 2.3, ECF No. 81-15).

         BOH's contractual overdraft program documents include: (1) the Consumer Deposit Account Agreement and Disclosure Statement and Bankoh Consumer Electronic Financial Services Agreement (“Account Agreement”); (2) the Fee Schedule for Personal Checking and Savings Accounts (“Fee Schedule”); and (3) “What You Need to Know about Overdrafts and Overdraft Fees” (“Opt-In Agreement”) (collectively, the “Agreements”).[1] See Smith I, 2017 WL 3597522, at *2 (describing in detail the terms of the Agreements). In the Motion, BOH argues that the Court should also consider the change-in-terms notice sent to BOH customers in January 2015 (“January 2015 CIT Notice”) as an additional contract document in BOH's overdraft program. ECF No. 116-1 at 29. The January 2015 CIT Notice provided, in relevant part:

If you do not have sufficient available funds on deposit to cover the amount of a check or transaction (e.g., an in-person withdrawal, automatic payment, ATM withdrawal, BankCard or Check Card purchase, or other electronic transfer), we may return the check or reject the transaction without payment. We may elect, however, in our sole discretion to create an overdraft by paying the check or permitting the transaction. Either way, there may be a service fee for each item or transaction as stated in our Fee Schedule. You will be charged no more than three Overdraft and/or Returned Item fees per account on any one day. No. Overdraft or Returned Item fee will be imposed on any day that your end of day available balance is or would have been overdrawn by less than $5.

ECF No. 117-12 at 2.

         In the Motion, BOH argues that there was a course of dealing between Smith and BOH prior to when Smith received the January 2015 CIT Notice, and that the course of dealing resolved any ambiguities concerning which balance method BOH used. See ECF No. 116-1 at 32. The following facts inform the course of dealing argument:

         Smith opened his first BOH checking account on July 1, 2010.[2] See BOH's Concise Statement of Facts (“CSF”)[3] ¶ 3, ECF No. 117; Ex. 1, ECF No. 117-5. BOH employees were trained to explain BOH's overdraft program to customers when they opened a new account, including providing a description of the “available balance.” Maryellen Ing Decl. (“Ing Decl.”) ¶¶ 2-4, ECF No. 117-3. Smith testified that BOH did not provide this explanation to him when he opened his account. Rodney Smith Deposition (“Smith Dep.”) at 104:4-106:12, ECF No. 126-2.[4]

         BOH gave Smith a copy of the Frequently Asked Questions (“FAQ”) document when he opened his account and mailed him another copy of that document a few weeks later. CSF ¶¶ 32-33; Ex. 3, ECF No. 117-7; Matt Emerson Decl. (“Emerson Decl.”) ¶ 6, ECF No. 117-2. The FAQ document provided, in relevant part: “You may also be assessed overdraft charges or non-sufficient funds (returned item) charges for checks, automatic bill payments, and other transactions which exceed the available balance in your account.” ECF No. 117-1 at 2.

         In 2010, the BOH website had an “Understanding Overdrafts” page. CSF ¶ 29; Ex. 15, ECF No. 117-19. It appears that the customer would have to click the “Personal” tab, then “Checking, ” then “Understanding Overdrafts” to reach that page. Id. Then, the customer would click on the “FAQs” tab on that page, and find the question, “How is my available balance determined?” there, “available balance” was defined, in relevant part:

Your current balance is your balance at the start of the day, plus or minus the day's transactions. Your available balance is your current balance minus holds. Holds include deposits with a hold on the amount and Visa debit card holds for purchases you've signed for or made online. (Please note that for point-of-sales transactions, some merchants obtain authorizations for only a partial amount [for example, gas stations] or a greater amount [for example restaurants] of the purchase. Therefore, until the actual amount of the transaction is debited from your account, you must factor in the difference.) You can spend up to the amount of your available balance without incurring a fee for insufficient funds.

Ex. 15, ECF No. 117-19 at 5 (bracket in original). Smith testified that he did not remember seeing this information on the website. Smith Dep. at 142:11-144:8.

         BOH also has a mobile app, which displays the “current” and “available” balances. CSF ¶ 24. Smith testified that he used the app to check his account balance, but that he did not pay attention to or, ultimately, understand that there were two different balances. Smith Dep. at 86:25-87:5, 144:13-16.

         Smith received an electronic account statement each month. CSF ¶ 13; Ex. 9, ECF No. 117-13. Amidst other information, the account statement listed overdraft fees and the dates they were charged. Ex. 9, ECF No. 117-13. The daily balances were listed near the end of each account statement. Ex. 9, ECF No. 117-13. Putting that information together, some of the account statements revealed (with some deduction) a positive “daily balance” (the ledger balance) on days when overdraft fees were imposed. CSF ¶¶ 14-15; see, e.g., ECF No. 117-13 at 6-7, 11-13. Each time Smith incurred an overdraft fee, he received a mailed notice from BOH. CSF ¶ 21; Ex. 10, ECF No. 117-14. Smith testified that it was only when he received the overdraft fee notices that he would review the monthly account statements. Smith Dep. at 42:4-8, 131:5-10, 150:2-22.

         On five or six occasions, Smith called BOH because he thought (1) his balance amount as displayed in the mobile app was incorrect or (2) BOH had improperly charged him an overdraft fee. Id. at 70:11-16, 90:8-15. Smith testified that he did not learn about BOH's balance method from these phone calls, although he admitted that a BOH employee had once mentioned holds to him. Id. at 70:11-25.

         B. Procedural History

         Smith filed his Complaint and First Amended Complaint (“FAC”) in the First Circuit Court of the State of Hawai'i on September 9 and 13, 2016, respectively. ECF No. 1-1 at 1, 35. BOH removed the action to federal court on September 19, 2016. ECF No. 1. Smith brings six causes of action: (1) violation of Hawaii Revised Statutes (“HRS”) Chapter 480 for unfair or deceptive acts or practices (“UDAP”); (2) breach of contract; (3) breach of the covenant of faith and fair dealing; (4) unjust enrichment; (5) money had and received; and (6) violation of EFTA for noncompliance with Regulation E. ECF No. 1-1.

         BOH filed a Motion to Dismiss the FAC on November 2, 2016, ECF No. 16, which Chief District Judge J. Michael Seabright denied on April 13, 2017. Smith I, 2017 WL 3597522, at *4, 10. In that motion, BOH argued that the Agreements were not ambiguous because they clearly conveyed that BOH used the available-balance method. See Id. at *5. Smith I construed the Agreements together, and found that the relevant terms in the Agreements were ambiguous. Id.

         BOH also argued that “Plaintiff's EFTA claim should be dismissed because: (1) BOH complied with EFTA; (2) BOH's use of the model form precludes liability; (3) imposing liability would violate due process; and (4) the claim is outside of the statute of limitations.” Id. at *7. Chief Judge Seabright rejected all of BOH's arguments. Id. Having determined that the terms in the Agreements were ambiguous, Chief Judge Seabright further concluded it was unclear whether BOH complied with EFTA. Id.

         BOH also argued that the UDAP claim should be dismissed because the Agreements explicitly stated that BOH uses the available balance to determine overdraft fees. Id. at *9. However, Chief Judge Seabright concluded that “[b]ecause the relevant terms of the Agreements are ambiguous, it is unclear whether BOH's conduct constituted a deceptive act or practice.” Id. Further, Chief Judge Seabright found that Smith had adequately alleged a deceptive act or practice. Id.

         On December 11, 2017, BOH filed its first Motion for Summary Judgment, arguing that Smith's claims were time-barred under both EFTA and the contractual limitations provision of the Account Agreement. ECF No. 71. On April 8, 2018, Chief Judge Seabright granted the Motion for Summary Judgment based on the state law contractual limitation period, but only as to overdraft fees charged before September 9, 2015. Smith II, 2018 WL 1662107, at *9.

         On August 5, 2018, BOH filed the instant motion, its Second Motion for Summary Judgment. ECF No. 116. Smith filed his Opposition on October 1, 2018, ECF No. 125, and BOH filed its Reply on October 5, 2018, ECF No. 127. A hearing was held on November 26, 2018. On November 29, 2018, Smith filed a supplemental brief addressing two cases cited by defense counsel for the first time at the hearing. ECF No. 140. On December 3, 2018, BOH filed a reply to Smith's supplemental brief. ECF No. 144.


         Summary judgment is proper where there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). Federal Rule of Civil Procedure 56(a) mandates summary judgment “against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); see also Broussard v. Univ. of Cal. at Berkeley, 192 F.3d 1252, 1258 (9th Cir. 1999).

         “A party seeking summary judgment bears the initial burden of informing the court of the basis for its motion and of identifying those portions of the pleadings and discovery responses that demonstrate the absence of a genuine issue of material fact.” Soremekun v. Thrifty Payless, Inc., 509 F.3d 978, 984 (9th Cir. 2007) (citing Celotex, 477 U.S. at 323). “When the moving party has carried its burden under Rule 56[(a)], its opponent must do more than simply show that there is some metaphysical doubt as to the material facts [and] come forward with specific facts showing that there is a genuine issue for trial.” Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 586-87 (1986) (citation and internal quotation signals omitted); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986) (stating that a party cannot “rest upon the mere allegations or denials of his pleading” in opposing summary judgment).

         “An issue is ‘genuine' only if there is a sufficient evidentiary basis on which a reasonable fact finder could find for the nonmoving party, and a dispute is ‘material' only if it could affect the outcome of the suit under the governing law.” In re Barboza, 545 F.3d 702, 707 (9th Cir. 2008) (citing Anderson, 477 U.S. at 248). When considering the evidence on a motion for summary judgment, the court must draw all reasonable inferences on behalf of the nonmoving party. Matsushita Elec. Indus. Co., 475 U.S. at 587; see also Posey v. Lake Pend Oreille Sch. Dist. No. 84, 546 F.3d 1121, 1126 (9th Cir. 2008) (stating that “the evidence of [the nonmovant] is to be believed, and all justifiable inferences are to be drawn in his favor” (citations omitted)).


         BOH seeks summary judgment on Smith's UDAP, breach of contract, unjust enrichment, money had and received, and EFTA claims and, in the alternative, partial summary judgment as to actual damages on the EFTA claim. Having drawn all reasonable inferences in favor of Smith, the Court finds that the contract between BOH and Smith was ambiguous, and that there are genuine issues of material fact regarding the claims.

         A. ...

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