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Nos. 10-16959, 10-17468 & 10-17689
IN THE UNITED STATES COURT OF APPEALS FOR THE
NINTH CIRCUIT
CONSUMER 1, ET AL.,
Plaintiffs-Appellees-Cross-Appellants, v.
WELLS FARGOBANK, N.A.,
Defendant-Appellant-Cross-Appellee.
ON APPEAL FROM THE UNITED STATES DISTRICTCOURT
FOR THE NORTHERN DISTRICT OF
CALIFORNIA
RESPONSE AND REPLY BRIEF FOR DEFENDANT-APPELLANT WELLS FARGO BANK, N.A.
Sonya D. WinnerDavid M. JolleyCOVINGTON & BURLING LLP One Front StreetSan Francisco, CA 94111-5356 (415) 591-6000
Emily Johnson HennCOVINGTON & BURLING LLP333 Twin Dolphin Drive, Suite 700
Redwood Shores, CA 94065 (650) 632-4700
Robert A. Long, Jr. Stuart C. Stock Keith A. Noreika Mark W. Mosier
COVINGTON & BURLING LLP1201 Pennsylvania Avenue NW Washington,DC 20004–2401(202) 662–6000
Attorneys for Defendant-Appellant Wells Fargo Bank, N.A.
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TABLE OF CONTENTS
P age
TABLE OF CONTENTS............................................................................................i
INTRODUCTION AND SUMMARY OF ARGUMENT ........................................1
ARGUMENT .............................................................................................................6
I. The National Bank Act And OCC Regulations Preempt Plaintiffs’Claims. .............................................................................................................6
A. This Court Reviews Preemption Issues Under A De NovoStandard. ................................................................................................6
B. Plaintiffs’ Claims Implicate Wells Fargo’s Federal BankingPowers Under The NBA. ......................................................................7
1. Plaintiffs Do Not Dispute That Their Claims ImplicateWells Fargo’s Deposit-Taking Powers. ......................................7
2. Plaintiffs’ Claims Also Implicate Wells Fargo’s PowerTo Impose Fees. ..........................................................................9
C. The National Bank Act Preempts Plaintiffs’ Claims..........................11
1. Plaintiffs’ Claims Prevent Or Significantly Interfere WithThe Exercise Of Wells Fargo’s Federal Powers. ......................11
2. Plaintiffs Cannot Avoid Preemption On The Ground ThatSection 17200 Is A Generally Applicable Law. .......................16
3. The Terms Of The CAA Do Not Alter The PreemptionAnalysis.....................................................................................18
D. The OCC’s Regulations Also Preempt Plaintiffs’ Claims..................19
i
1. Plaintiffs’ Claims Are Preempted Under § 7.4007(b)(2)..........19
2. OCC Regulations Preempt Plaintiffs’ Claims BecauseThey Prevent Wells Fargo From Fully Exercising ItsNational Bank Powers...............................................................24
i
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3. Plaintiffs’ Reliance On The Factors Listed In § 7.4002 IsContrary To This Court’s Decision In Martinez.......................27
E. Plaintiffs Cannot Save Their Claims From Preemption ByArguing That Federal Law Imposes The Same “Good Faith”Standard As California. .......................................................................28
II. The District Court Erred In Holding That Wells Fargo ViolatedSection 17200. ...............................................................................................33
A. ThCl
e District Erred On The Merits Of Plaintiffs’ “Unfair”aims..................................................................................................33
1. An Implied Covenant Of Good Faith Does Not Prohibit Wells Fargo From Posting Transactions As Expressly Authorized By The Agreement.................................................34
2. The Comment To The California Commercial Code DoesNot Prohibit Wells Fargo’s Posting Order................................39
B. ThCl
e District Court Erred By Deciding Plaintiffs’ “Fraudulent”aims On The Merits. ........................................................................42
1. The Named Plaintiffs Do Not Have Standing BecauseThey Did Not Rely On The Alleged Misrepresentations. ........43
2. Class Certification Was Improper Because IndividualizedIssues Of Reliance Predominate. ..............................................47
C. The District Erred On The Merits Of Plaintiffs’ “Fraudulent” Claims..................................................................................................50
III. The District Court Erred In Awarding Restitution Based On LawfulConduct. .........................................................................................................52
IV. Plaintiffs’ Cross-Appeal Lacks Merit............................................................55
A. The District Court Properly Denied Pre-Judgment Interest................55
B. The District Court Properly Denied Plaintiffs’ Request For
ii
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V. The Court Should Vacate The Judgment In Light Of The SupremeCourt’s Decision In Concepcion....................................................................60
A. The CAA’s Arbitration Provisions Are Valid And EnforceableUnder Concepcion. ..............................................................................61
B. Wells Fargo Has Not Waived Its Right To Arbitration BecauseIt Sought To Exercise Its Right As Soon As It Existed. .....................62
1. Prior to Concepcion, Wells Fargo Lacked An ExistingRight To Enforce The Arbitration Agreement..........................63
2. Wells Fargo’s Efforts To Defend Itself In The District Court Were Not Inconsistent With An Existing Right To Arbitrate....................................................................................68
3. Plaintiffs Were Not Prejudiced By Acts InconsistentWith An Existing Right To Arbitration. ...................................70
C. The Fact That Plaintiffs’ Claims Have Been Tried Does NotAlter The Waiver Analysis..................................................................72
D. At A Minimum, The Court Should Vacate The District Court’sCertification Of The Class...................................................................74
CONCLUSION ........................................................................................................75
3
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TABLE OF AUTHORI TIES
CASES
Ackerberg v. Johnson,
Page(s)
892 F.2d 1328 (8th Cir. 1989) ............................................................................69
Aguayo v. U.S. Bank, F.3d. , No. 09-56679, 2011 WL 3250465 (9th Cir. Aug. 1, 2011)............23
Arellano v. T-Mobile USA, Inc.,2011 WL 1842712 (N.D. Cal. May 16, 2011)....................................................66
Association of Banks in Insurance, Inc. v. Duryee,270 F.3d 397 (6th Cir. 2001) ........................................................................14, 15
AT&T Mobility LLC v. Concepcion,131 S. Ct. 1740 (2011).................................................................................passim
AT&T Techs., Inc. v. Commc’ns Workers of Am.,475 U.S. 643 (1986)............................................................................................62
Auer v. Robbins,519 U.S. 452 (1997)......................................................................................10, 21
Avritt v. Reliastar Life Ins. Co.,615 F.3d 1023 (8th Cir. 2010) ......................................................................47, 48
Bank of Am. v. City & Cnty. of San Francisco,309 F.3d 551 (9th Cir. 2002) ................................................................6, 8, 12, 13
Baptista v. JPMorgan Chase Bank, N.A.,640 F.3d 1194 (11th Cir. 2011) ........................................................13, 14, 25, 26
Barnett Bank of Marion City, N.A. v. Nelson,517 U.S. 25 (1996).......................................................................................passim
Beck v. State Farm Mut. Auto. Ins. Co.,
4
54 Cal. App. 3d 347 (Ct. App. 1976)..................................................................59
5
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Benoay v. Prudential-Bache Sec., Inc.,805 F.2d 1437 (11th Cir. 1986) (per curiam) .....................................................69
Blackie v. Barrack,524 F.2d 891 (9th Cir. 1975) ..............................................................................50
Bouman v. Block,940 F.2d 1211 (9th Cir. 1991) ............................................................................55
Bowen v. Georgetown Univ. Hosp.,488 U.S. 204 (1988)............................................................................................19
Brookwood v. Bank of Am.,45 Cal. App.4th 1667 (Ct. App. 1996) ...............................................................51
Bryant v. Service Corp. Int’l,2011 WL 2709643 (N.D. Cal. July 12, 2011) ....................................................66
California v. Altus Fin. S.A.,540 F.3d 992 (9th Cir. 2008) ..............................................................................58
Carma Developers v. Marathon Dev. Cal., Inc.,2 Cal.4th 342 (1992) .........................................................................34, 35, 36, 37
Chase Bank USA, N.A. v. McCoy,131 S. Ct. 871 (2011)....................................................................................10, 21
City of Vista v. Robert Thomas Sec., Inc.,84 Cal. App. 4th 882 (Ct. App. 2000) ................................................................58
Clifton v. Attorney Gen. of Cal.,997 F.2d 660 (9th Cir. 1993) ..............................................................................73
Cohen v. DirectTV, Inc.,178 Cal. App. 4th 966 (Ct. App. 2009) ..............................................................48
Colgan v. Leatherman Tool Grp.,135 Cal.App.4th 663 (Ct. App. 2006) ....................................................52, 53, 54
Conover v. Dean Witter Reynolds, Inc.,837 F.2d 867 (9th Cir. 1988) (per curiam) .........................................................68
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Crown, Cork & Seal Co. v. Parker,462 U.S. 345 (1983)............................................................................................74
Dalie v. Pulte Home Corp.,636 F. Supp. 2d 1025 (E.D. Cal. 2009) ..............................................................67
Davis v. Chase Bank USA, N.A.,299 Fed. App’x 662, 2008 WL 4832998 (9th Cir. Nov. 3, 2008) ......................65
Dean Witter Reynolds, Inc. v. Byrd,470 U.S. 213 (1985)................................................................................68, 69, 74
Discover Bank v. Super. Ct.,113 P.3d 1100 (Cal. 2005) ...........................................................................passim
Eisen v. Carlisle & Jacquelin,417 U.S. 156 (1974)............................................................................................74
Elko Mfg. Co. v. Brinkmeyer,15 P.2d 751 (Cal. 1932) ......................................................................................45
Estrella v. Freedom Fin.,No. C 09-03156 SI, 2011 WL 2466449 (N.D. Cal. July 5, 2011)......................66
Fireman’s Fund Ins. Co. v. Allstate Ins. Co.,234 Cal. App.3d 1154 (Ct. App. 1991).........................................................55, 56
Fiser v. Dell Computer Corp.,188 P.3d 1215 (N.M. 2008) ................................................................................65
Fisher v. A.G. Becker Pariobas Inc.,791 F.2d 691 (9th Cir. 1986) .......................................................................passim
Fogarty v. Piper,781 F.2d 662 (8th Cir. 1986) (per curiam) .........................................................75
Forrester v. Penn Lyon Homes, Inc.,553 F.3d 340 (4th Cir. 2009) ..............................................................................71
Franklin Nat’l Bank of Franklin Square v. New York,347 U.S. 373 (1954)........................................................................................9, 15
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Gaggero v. Yura,2009 WL 2916759 (Cal. Ct. App. 2009) ............................................................37
Gatton v. T-Mobile USA, Inc.,152 Cal. App. 4th 571 (Ct. App. 2007) ..............................................................64
Gordon v. Branch Banking & Trust,No. 09-15399, 2011 WL 1111718 (11th Cir. Mar. 28, 2011) ............................65
Gordon v. Virtumundo, Inc.,575 F.3d 1040 (9th Cir. 2009) ..............................................................................6
Guz v. Bechtel Nat’l Inc.,24 Cal.4th 317 (2000) .........................................................................................34
Hodes v. Van’s Int’l Foods,No. 09-cv-1530, 2009 WL 2424214 (C.D. Cal. July 23, 2009) .........................48
Hoffman v. Citibank (S.D.), N.A.,546 F.3d 1078 (9th Cir. 2008) ............................................................................65
In re Actimmune Marketing Litig.,No. C 08-02376, 2009 WL 3740648 (N.D. Cal. 2009) ......................................46
In re Beaty,306 F.3d 914 (9th Cir. 2002) ..............................................................................73
In re Cal. Title Ins. Antitrust Litig.,2011 WL 2559633 (N.D. Cal. June 27, 2011)....................................................66
In re Tobacco II Cases,207 P.3d 20 (Cal. 2009) ....................................................................43, 46, 47, 48
Indus. Truck Ass’n, Inc. v. Henry,125 F.3d 1305 (9th Cir. 1997) ..............................................................................6
Ingle v. Circuit City Stores, Inc.,328 F.3d 1165 (9th Cir. 2003) ............................................................................64
Korea Supply Co. v. Lockheed Martin Corp.,63 P.3d 937 (Cal. 2003) ......................................................................................57
vii
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Kroske v. U.S. Bank Corp.,432 F.3d 976 (9th Cir. 2005) ................................................................................6
Kusens v. Pascal Co., Inc.,448 F.3d 349 (6th Cir. 2006) ..............................................................................45
Lee v. Am. Nat’l Ins. Co.,260 F.3d 997 (9th Cir. 2001) ..............................................................................47
Letizia v. Prudential Bache Sec., Inc.,802 F.2d 1185 (9th Cir. 1986) ............................................................................68
Lowden v. T-Mobile USA, Inc.,512 F.3d 1213 (9th Cir. 2008) ............................................................................65
Madrid v. Perot Systems Corp.,130 Cal.App.4th 440 (Ct. App. 2005) ..........................................................53, 54
Marlo v. United Parcel Serv.,639 F.3d 942 (9th Cir. 2011) ..............................................................................47
Martinez v. Wells Fargo Home Mortg., Inc.,598 F.3d 549 (9th Cir. 2010) .......................................................................passim
McLaughlin v. Am. Tobacco Co.,522 F.3d 215 (2d Cir. 2008) ...............................................................................49
Med. Lab. Mgmt. Consultants v. Am. Broad. Cos., Inc.,306 F.3d 806 (9th Cir. 2002) ..............................................................................59
Metz v. Merrill Lynch, Pierce, Fenner & Consumer 3, Inc.,39 F.3d 1482 (10th Cir. 1994) ............................................................................71
Miller v. Drexel Burnham Lambert, Inc.,791 F.2d 850 (11th Cir. 1986) (per curiam) .......................................................72
Miller v. Nationwide Life Ins. Co.,391 F.3d 698 (5th Cir. 2004) ..............................................................................17
Monroe Retail, Inc. v. RBS Citizens, N.A.,589 F.3d 274 (6th Cir. 2009) ..........................................................................8, 15
8
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Morse v. ServiceMaster Global Holdings, Inc.,2011 WL 3203919 (N.D. Cal. July 27, 2011) ....................................................66
Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp.,460 U.S. 1 (1983)................................................................................................62
Muhammad v. Cnty. Bank of Rehoboth Beach, Del.,912 A.2d 88 (N.J. 2006) .....................................................................................65
Mutuelles Unies v. Kroll & Linstrom,957 F.2d 707 (9th Cir. 1992) ..............................................................................55
Nakana v. ServiceMaster Global Holdings, Inc.,2011 WL 3206592 (N.D. Cal. July 27, 2011) ....................................................66
Nein v. HostPro, Inc.,95 Cal. Rptr. 3d 34 (Ct. App. 2009) ...................................................................37
OCM Principal Opportunities Fund v. CIBC World Mkts. Corp.,157 Cal. App. 4th 835 (2007) .............................................................................45
Peterson v. Shearson/Am. Express, Inc.,849 F.2d 464 (10th Cir. 1988) ............................................................................69
Pfizer Inc. v. Super. Ct.,182 Cal. App. 4th 622 (Ct. App. 2010) ..............................................................46
Phillips Petroleum Co. v. Shutts,472 U.S. 797 (1985)............................................................................................75
Phoenix Newspapers, Inc. v. Phoenix Mailers Union Local 752, Int’l Bhd. ofTeamsters, 989 F.2d 1077 (9th Cir. 1993)..........................................................62
Pierce v. County of Orange,526 F.3d 1190 (9th Cir. 2008) ............................................................................75
Poulos v. Caesars World, Inc.,379 F.3d 654 (9th Cir. 2004) ..............................................................................50
Powertel, Inc. v. Bexley,743 So. 2d 570 (Fla. Dist. Ct. App. 1999) ..........................................................65
9
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Rent-A-Center, W., Inc. v. Jackson,130 S. Ct. 2772 (2010)........................................................................................61
Rincon Band of Luiseno Mission Indians of Rincon Reservation v.Schwarzenegger, 602 F.3d 1019 (9th Cir. 2010)................................................39
Rose v. Chase Bank USA, N.A.,513 F.3d 1032 (9th Cir. 2008) .....................................................................passim
Sanpete Water Conservancy Dist. v. Carbon Water Conservancy Dist.,226 F.3d 1170 (10th Cir. 2000) ..........................................................................37
Shroyer v. New Cingular Wireless Servs., Inc.,498 F.3d 976 (9th Cir. 2007) ..................................................................64, 67, 71
Sibley v. Tandy Corp.,543 F.2d 540 (5th Cir. 1976) ..............................................................................70
Silvas v. E*Trade Mortg. Corp.,514 F.3d 1001 (9th Cir. 2008) ..............................................................................6
Consumer 3 v. Americredit Fin. Servs., Inc.,No. 09cv1076, 2009 WL 4895280 (S.D. Cal. Dec. 11, 2009) ...........................67
Solomon v. N. Am. Life & Cas. Ins. Co.,151 F.3d 1132 (9th Cir. 1998) ............................................................................35
Spiegler v. Home Depot U.S.A., Inc.,552 F. Supp. 2d 1036 (C.D. Cal 2008) ...............................................................51
Stolt–Nielsen S.A. v. AnimalFeeds Int’l Corp.,130 S. Ct. 1758 (2010)........................................................................................74
Swift v. Zynga Game Network, Inc.,2011 WL 3419499 (N.D. Cal. Aug. 4, 2011) .....................................................66
Szetela v. Discover Bank,97 Cal. App. 4th 1094 (Ct. App. 2002) ..............................................................64
Ting v. AT&T,319 F.3d 1126 (9th Cir. 2003) ............................................................................64
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Transamerica Corp. v. Nat’l Union Fire Ins. Co.,1994 WL 712173 (9th Cir. 1994) .......................................................................71
United States v. Redman,35 F.3d 437 (9th Cir. 1994) ................................................................................39
Van Ness Townhouses v. Mar Indus. Corp.,862 F.2d 754 (9th Cir. 1988) ........................................................................70, 71
Vasquez-Lopez v. Beneficial Or., Inc.,152 P.3d 940 (Or. Ct. App. 2007).......................................................................65
Villegas v. US Bancorp,2011 WL 2679610 (N.D. Cal. June 20, 2011)....................................................66
Wal-Mart Stores, Inc. v. Dukes,131 S. Ct. 2541 (2011)........................................................................................50
Wang v. Chinese Daily News, Inc.,623 F.3d 743 (9th Cir. 2010) ................................................................................7
Watters v. Wachovia Bank, N.A.,550 U.S. 1 (2007)....................................................................................11, 13, 28
Wells Fargo Bank of Tex., N.A. v. James,321 F.3d 488 (5th Cir. 2003) ..............................................................................13
Wolf v. Walt Disney Pictures & Television,162 Cal.App.4th 1107 (Ct. App. 2008) ..............................................................37
STATUTES AND REGULATIONS
12 U.S.C. § 24(Seventh) ..................................................................................7, 9, 16
12 U.S.C. § 93(b) .....................................................................................................31
12 U.S.C. § 1818(i) ..................................................................................................31
Cal. Bus. & Prof. Code § 17200 .......................................................................passim
Cal. Civ. Code § 3287 ........................................................................................55, 56
Cal. Civ. Code § 3288 ........................................................................................55, 57
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Cal. Civ. Code § 3294 ..............................................................................................59
Cal. Com. Code § 1103 ............................................................................................40
Cal. Com. Code § 4303 ................................................................................33, 39, 40
12 C.F.R. § 7.4002 ............................................................................................passim
12 C.F.R. § 7.4007 ............................................................................................passim
12 C.F.R. § 7.4009 .............................................................................................19, 24
OTHER AUTHORITIES
69 Fed. Reg. 1904 (Jan. 13, 2004) ...............................................................20, 21, 24
74 Fed. Reg. 5498, 5547-48 (Jan. 29, 2009)......................................................30, 31
76 Fed. Reg. 43549 (July 21, 2011)...................................................................16, 19
34A Cal. Jur. 3d Fraud & Deceit § 64 .....................................................................45
Federal Rule of Civil Procedure 23 ..................................................................passim
OCC Interpretive Letter No. 916,2001 WL 1285359 (May 22, 2001) ............................................................passim
OCC Interpretive Letter No. 997,2002 WL 32872368 (Apr. 15, 2002) ................................................10, 11, 28, 30
OCC Interpretive Letter No. 1005,2004 WL 3465750 (June 10, 2004) .............................................................passim
OCC Interpretive Letter No. 1082,2007 WL 5393636 (May 17, 2007) ......................................................................8
OCC Takes Enforcement Action Against Eight Servicers For Unsafe AndUnsound Foreclosure Practices, OCC NR 11-47, 2011 WL 1396104(O.C.C. Apr. 13, 2011) .......................................................................................31
Uniform Commercial Code § 1-304 ........................................................................32
xii
Uniform Commercial Code § 4-303 ..................................................................32, 33
Uniform Commercial Code § 4A-504 .....................................................................32
xii
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INTRODUCTION AND SUMMARY OF ARGUMENT
Plaintiffs’ brief contains remarkable omissions. Plaintiffs do not
attempt to defend key rulings of the district court, including the court’s definition
of the national banking powers at issue in this case and its determination that
plaintiffs relied on documents they never read. Plaintiffs also fail to respond to key
arguments in Wells Fargo’s brief, including arguments about the deference owed
to the Office of the Comptroller of the Currency (“OCC”). In addition, plaintiffs
repeatedly advance arguments (on issues such as the standard of review, the
preemption standard, and the effect of OCC regulations) without acknowledging
that their arguments are flatly contrary to decisions of this Court and the Supreme
Court. When these omissions are corrected, it is clear that both the National Bank
Act (“NBA”) and federal banking regulations preempt plaintiffs’ claims. Separate
and apart from preemption, it is clear that the district court erred in holding that
plaintiffs have valid claims under Section 17200 of the California Business and
Professions Code.
1. Plaintiffs’ claims are preempted under both the NBA and federal
banking regulations. Contrary to plaintiffs’ assertion, the district court’s
preemption decision is reviewed de novo. Plaintiffs’ claims clearly implicate the
federal banking powers of national banks. As the OCC has recognized, national
banks have federal power to determine posting order (as a part of both the deposit-
- 1 -
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taking power and the power to charge fees), and to make disclosures regarding
posting order. Plaintiffs do not defend the district court’s refusal to defer to the
OCC’s reasonable interpretation of its own regulations.
The NBA preempts plaintiffs’ claims because they “prevent or
significantly interfere with the national bank’s exercise of its powers.” Barnett
Bank of Marion City, N.A. v. Nelson, 517 U.S. 25, 33 (1996). Plaintiffs’ contention
that there is no preemption so long as “simultaneous adherence” to state and
federal law is possible is contradicted by Barnett Bank and numerous decisions of
this Court. Plaintiffs’ claims are preempted because they significantly interfere
with Wells Fargo’s choice of a posting order. Indeed, they completely prevent
Wells Fargo from posting high-to-low as authorized by federal law. Plaintiffs
cannot avoid preemption by characterizing the state law at issue as one of general
application. This Court has twice held that claims under Section 17200—the very
state law at issue here— are preempted as applied to national banks.
The OCC’s regulations also preempt plaintiffs’ claims. The
regulations expressly preempt state-law limitations concerning checking accounts
and disclosure requirements. Plaintiffs do not defend the district court’s
conclusory holding that their claims involve neither checking accounts nor
disclosure requirements, and that ruling is clearly incorrect. Plaintiffs’ argument
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that preemption turns on whether Wells Fargo actually considered the factors listed
in 12 C.F.R. § 7.4002(b) conflicts with the law of this Circuit.
Plaintiffs are wrong to argue that federal law and California law (as
interpreted by the district court) impose the same good-faith requirement. Federal
law permits national banks to adopt high-to-low posting so long as their decision to
do so is made according to sound banking judgment and safe and sound banking
principles.
2. The district court also erred in holding that Wells Fargo violated
Section 17200. First, Wells Fargo’s conduct was not “unfair” under Section
17200. The agreement between Wells Fargo and plaintiffs expressly authorized
the bank to post transactions in any order, specifically including high-to-low.
Under California law, conduct that is expressly authorized by contract cannot
violate an implied covenant of good faith. Moreover, Wells Fargo’s posting order
did not maximize fees.
The district court also erred in holding that Wells Fargo’s conduct
was “fraudulent” under Section 17200. The named plaintiffs lack standing to
pursue this claim because they failed to show that misrepresentations by Wells
Fargo caused them to overdraw their accounts. Both plaintiffs testified that: (i)
they overdrew their accounts because of an oversight, not because Wells Fargo
failed to disclose its posting methodology; (ii) they did not read the Wells Fargo
documents
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that contained the alleged misrepresentations; and (iii) they had no understanding
that Wells Fargo posted transactions in any particular order. Moreover, the district
court should not have certified a class under Federal Rule of Civil Procedure 23
because an individualized inquiry is necessary to determine which, if any, putative
class members relied on Wells Fargo’s disclosures concerning posting order. The
district court also erred on the merits of plaintiffs’ claims because the contract
expressly disclosed that transactions may be posted in high-to-low order, and the
bank’s other statements concerning posting order were not misleading.
3. The district court erred by calculating restitution based on a
requirement that all debit card transactions be posted before any check or ACH
transactions, even though the court did not hold that it was illegal to post checks
and ACH transactions before debit card transactions. This requirement, which
increased the amount of restitution from $93 million to $203 million, was
unjustified because restitution is limited to a measurable amount that restores to the
plaintiff what has been acquired by violations of the statute.
4. Plaintiffs make only conclusory arguments in support of the
two issues they raise on cross-appeal. Neither argument has merit. First, the
district court acted well within its discretion in declining to award pre-judgment
interest, because the amount of restitution was not certain. Indeed, plaintiffs
themselves presented more than forty possible measures of restitution, varying
by more than
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600 percent. Second, the district court properly denied plaintiffs’ request for
punitive damages because Wells Fargo did not act with oppression, fraud, or
malice. Moreover, plaintiffs deliberately abandoned the damages portion of their
fraud claim prior to trial.
5. The Court should vacate the district court’s judgment on the
ground that plaintiffs must pursue their claims in arbitration on an individual basis.
After Wells Fargo filed its opening brief on appeal, the Supreme Court overruled
decisions of the California Supreme Court and this Court, and held that arbitration
clauses containing class arbitration waivers are enforceable. See AT&T Mobility
LLC v. Concepcion, 131 S. Ct. 1740 (2011). Following the Supreme Court’s
decision, Wells Fargo filed a motion to vacate the judgment based on the
intervening change in the law. Rather than referring the motion to the motions
panel or ordering that the motion be carried with the case, the Appellate
Commissioner issued an order denying the motion “without prejudice to renewing
the arguments in the third-cross-appeal brief.” Order of July 15, 2011. Pursuant to
this order, Wells Fargo renews the arbitration arguments in this brief.1
1 Consistent with the usual practice for a third cross-appeal brief, this brief first
addresses the issues raised in the prior briefs, and then addresses the issues raisedon cross-appeal. Although this approach places the arbitration issue at the end of the brief, Wells Fargo believes that the Court can decide the arbitration issue as a threshold matter, thereby mooting the remaining issues on appeal.
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ARGUMENT
I. THE NATIONAL BANK ACT AND OCC REGULATIONS PREEMPT PLAINTIFFS’ CLAIMS.
A. This Court Reviews Preemption Issues Under A DeNovo
Standard.
Plaintiffs contend that this Court should review the district court’s
preemption ruling only for clear error. Pls. Br. 31-33. This contention is directly
contrary to multiple decisions of this Court, which hold that a de novo standard of
review applies to preemption issues. See, e.g., Martinez v. Wells Fargo Home
Mortg., Inc., 598 F.3d 549, 553 (9th Cir. 2010) (“This Court reviews issues of . . .
preemption de novo.”); Kroske v. U.S. Bank Corp., 432 F.3d 976, 980 (9th Cir.
2005); Bank of Am. v. City & Cnty. of San Francisco, 309 F.3d 551, 557 (9th Cir.
2002).2
Plaintiffs contend that the Court should apply a clear error standard
because the district court relied on the factual record. Pls. Br. 32. But this Court
has not varied the standard of review based on the extent of the district court’s
reliance on the record. The reason is straightforward: preemption is an issue of law
to be determined based on the nature of the requirements that state law seeks to
2 See also Silvas v. E*Trade Mortg. Corp., 514 F.3d 1001, 1004 (9th Cir. 2008);
Gordon v. Virtumundo, Inc., 575 F.3d 1040, 1047 (9th Cir. 2009); Indus. Truck Ass’n, Inc. v. Henry, 125 F.3d 1305, 1309 (9th Cir. 1997).
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impose. See, e.g., Martinez, 598 F.3d at 553; Wang v. Chinese Daily News, Inc.,
623 F.3d 743, 759 (9th Cir. 2010) (applying de novo standard of review in
deciding whether a claim was preempted where, as here, the district court rejected
a preemption defense and the plaintiffs prevailed at trial).3
B. Plaintiffs’ Claims Implicate Wells Fargo’s Federal BankingPowers Under The NBA.
1. Plaintiffs Do Not Dispute That Their Claims ImplicateWells Fargo’s Deposit-Taking Powers.
In holding that plaintiffs’ claims are not preempted, the district court
distinguished between Wells Fargo’s deposit-taking power and “a bank’s ability to
reorder transactions in order to maximize overdraft fees during the posting
process.” ER79. The district court held that plaintiffs’ claims were not preempted
because they relate to the bank’s ability to reorder transactions, not its deposit-
taking power. Id.
Plaintiffs do not attempt to defend the district court’s distinction,
which is untenable. The NBA grants national banks not only the power to
“receiv[e] deposits,” but also “all such incidental powers as shall be necessary to
carry on the business of banking.” 12 U.S.C. § 24(Seventh); see Wells Fargo Br.
(“WF Br.”) 19-23, 27-29. These incidental federal powers “include activities that
3 As explained below, the court erred in relying on the evidentiary record to resolve
the preemption issues. See Part I.D.3 infra.
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are convenient or useful in connection with the performance of one of the bank’s
established activities pursuant to its express powers under the National Bank Act.”
Bank of Am., 309 F.3d at 562 (citation and quotation marks omitted). See also 12
C.F.R. § 7.4007(a) (“A national bank may receive deposits and engage in
any activity incidental to receiving deposits.”) (emphasis added).
A national bank’s incidental federal powers necessarily include the
power to post transactions to deposit accounts and to determine an order for doing
so. A national bank could not exercise its power to take deposits if it could not
post debits and credits, because posting is necessary to determine the balance in
each account. See, e.g., Monroe Retail, Inc. v. RBS Citizens, N.A., 589 F.3d 274,
283-84 (6th Cir. 2009). Because there are many ways to post transactions, see WF
Br. 5-6, 20-21, the federal power to post debits and credits necessarily includes the
power to determine a method for posting transactions, including a posting order.
The OCC has confirmed that national banks’ incidental powers include the
authority to make operational decisions about when, how, and in what order to post
transactions. See OCC Interpretive Letter No. 1082, 2007 WL 5393636 (May 17,
2007). Plaintiffs do not argue otherwise.
Nor do plaintiffs dispute that the bank’s deposit-taking powers
include the power to make disclosures about posting order. This Court recently
held that a national bank’s authority to “loan money on personal security” includes
the
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incidental federal power to make disclosures about such loans. Rose v. Chase
Bank USA, N.A., 513 F.3d 1032, 1036-38 (9th Cir. 2008); see also Franklin Nat’l
Bank of Franklin Square v. New York, 347 U.S. 373, 377-78 (1954) (national
banks’ power to accept deposits includes the incidental power to advertise that
service). Likewise, the bank’s power to receive deposits and post transactions
includes the federal power to make disclosures concerning posting order.
2. Plaintiffs’ Claims Also Implicate Wells Fargo’s Power ToImpose Fees.
Plaintiffs do not dispute that federal law authorizes Wells Fargo to
impose fees for banking services, and that the OCC has determined that the
decision to adopt high-to-low posting is a “pricing” decision that implicates the
power to impose fees when, as in this case, the amount of the fee depends on the
number of overdrafts that the customer has incurred. Instead, plaintiffs argue that
the bank’s power to charge fees is not implicated because “Wells Fargo never
regarded its high-to-low posting as a ‘pricing decision’ subject to section 7.4002.”
Pls. Br. 45-46. This argument lacks merit.
The OCC has made clear that a national bank’s federal power to
impose fees, which is expressly recognized in 12 C.F.R. § 7.4002(a), includes
authority to adopt high-to-low posting. See OCC Interpretive Letter No. 916, 2001
WL 1285359 (May 22, 2001) (“Interp. Letter 916”) (national bank “may establish
a given order of posting as a pricing decision authorized by section 24(Seventh)
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and 12 C.F.R. § 7.4002”); see also OCC Interpretive Letter No. 997, 2002 WL
32872368 (Apr. 15, 2002) (“Interp. Letter 997”). The agency’s view of its own
regulations is “controlling, unless plainly erroneous or inconsistent with the
regulation.” Auer v. Robbins, 519 U.S. 452, 462 (1997) (citations and quotation
mark omitted); see also Chase Bank USA, N.A. v. McCoy, 131 S. Ct. 871, 880
(2011) (reaffirming Auer in the context of banking regulation).
Plaintiffs, like the district court, make no attempt to explain why
the OCC’s view is not entitled to deference. Federal regulations provide that the
power to impose fees includes the authority to determine “the method of
calculating” the fees. 12 C.F.R. § 7.4002(b)(2). It is undisputed—indeed it is the
basis for plaintiffs’ claims—that a bank’s choice of posting order affects the
number of items that post against insufficient funds. When a bank determines the
amount of an overdraft fee based in part on the number of times a customer has
overdrafted his or her account, “posting order is one of the factors used to
determine the amount of [overdraft] fee that Banks charge.” Interp. Letter 997.
Accordingly, the OCC has determined that a bank’s choice of high-to-low posting
is thus a “pricing decision” because it affects the amount of the overdraft fee. See
Interp. Letter 916. The OCC’s interpretation is reasonable, and certainly not
plainly erroneous or inconsistent with § 7.4002(b)(2).
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Plaintiffs contend that Wells Fargo’s posting order cannot be
treated as a “pricing” decision because there is no evidence that the bank regarded
its choice of a posting order as a “pricing” decision. Pls. Br. 45-49. Plaintiffs cite
no authority to support this argument, and the OCC’s Interpretive Letters directly
contradict it. The OCC has twice issued letters approving a national bank’s
decision to adopt high-to-low posting without considering whether the bank’s
internal documents referred to posting order as a pricing decision. See Interp.
Letter 916; Interp. Letter 997.
In sum, plaintiffs’ claims clearly implicate Wells Fargo’s
federal banking powers, including both the power to determine posting order
and the power to determine the method of calculating overdraft fees.
C. The National Bank Act Preempts Plaintiffs’ Claims.
1. Plaintiffs’ Claims Prevent Or Significantly Interfere WithThe Exercise Of Wells Fargo’s Federal Powers.
Plaintiffs acknowledge (Pls. Br. 33) that the NBA preempts state
laws that “prevent or significantly interfere with the national bank’s exercise of its
powers” under federal law. Barnett Bank of Marion City, N.A. v. Nelson, 517 U.S.
25, 33 (1996); see also Watters v. Wachovia Bank, N.A., 550 U.S. 1, 13 (2007).
They nevertheless contend that their claims are not preempted because “the District
Court, while enjoining Wells Fargo from posting ‘high-to-low,’ allowed it latitude
to choose from the other two possible sequencing orders, or ‘some combination of
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the two methods.’” Pls. Br. 45. Contrary to plaintiffs’ contention, the availability
of other posting methods does not save plaintiffs’ claims from preemption.
Plaintiffs argue that “a state law may be preempted only where a
conflict prevents simultaneous adherence to state and federal law standards.” Pls.
Br. 34. In the national banking context, plaintiffs’ “simultaneous adherence”
standard is directly contrary to decisions of the Supreme Court and this Court,
which hold that state laws are preempted whenever they prevent or significantly
interfere with the exercise of federal banking powers, even if the bank could
comply with both state and federal law. See, e.g., Barnett Bank, 517 U.S. at 26;
Bank of Am., 309 F.3d at 561.
In Barnett Bank, the Supreme Court considered whether a federal
law that permitted national banks to sell insurance in small towns preempted a
Florida law prohibiting banks from selling insurance. 525 U.S. at 25-26. The
Supreme Court acknowledged that the relevant state and federal laws “d[id] not
impose directly conflicting duties on national banks,” because federal law simply
said that banks may sell insurance, not that they must do so. Id. at 31. The Court
nevertheless held that the state law was preempted because “the Federal Statute
authorizes national banks to engage in activities that the State Statute expressly
forbids.” Id.
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Rather than limiting preemption to circumstances in which
“simultaneous adherence” is impossible, the Supreme Court has explained that a
state law significantly interferes with federal law if it “curtail[s] or hinder[s] a
national bank’s efficient exercise of” its federal powers. Watters, 550 U.S. at 13.
Likewise, this Court has explained that state laws are preempted if they “conflict
with federal law, frustrate the purposes of the National Bank Act, or impair the
efficiency of national banks to discharge their duties.” Bank of Am., 309 F.3d at
561. See also Wells Fargo Bank of Tex., N.A. v. James, 321 F.3d 488, 491 & n.3
(5th Cir. 2003) (State law is preempted under NBA “where the federal scheme
expressly authorizes an activity which the state scheme disallows.”).
The Eleventh Circuit’s recent decision in Baptista v. JPMorgan Chase
Bank, N.A., 640 F.3d 1194, 1197 (11th Cir. 2011), demonstrates that the availability
of other options does not negate preemption. In Baptista, federal law authorized
national banks to impose check-cashing fees on any person who cashed a check,
but state law permitted only partial exercise of this power: the bank could charge
fees to account-holders, but not to non-account-holders. Id. at 1196-97.
The court of appeals noted that “allowing the banks the option of how to charge fees
was a significant objective of the NBA and regulations promulgated thereunder.”
Id. at 1198 n.2 (emphasis in original). See also id. (“Here the significant objective
of 12 C.F.R. § 7.4002 is to allow national banks to charge fees
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and to allow banks latitude to decide how to charge them.”) (emphasis added). As
a result, “[t]he state’s prohibition on charging fees to non-account-holders, which
reduces the bank’s fee options by 50%, is in substantial conflict with federal
authorization to charge such fees.” Id. at 1198. Accordingly, the court held that
the state law was preempted. Id.4
Similarly, in Association of Banks in Insurance, Inc. v. Duryee, 270
F.3d 397 (6th Cir. 2001), the court held preempted a state law permitting the denial
or revocation of an insurance license upon the determination that the insurer’s
“principal purpose” was to sell insurance to persons in certain prohibited
categories. Id. at 406. The court rejected an argument that a state law is
preempted under Barnett Bank only if it “effectively thwart[s]” the national bank’s
exercise of its federal power, and that the state law was not preempted because it
did not “totally prohibit national banks from selling insurance.” Id. at 409. The
Sixth Circuit held that the state law significantly interfered with the bank’s
exercise of its federal powers by (i) “prevent[ing] national banks from marketing
insurance to a significant segment of their customers,” (ii) “inevitably impos[ing]
administrative costs on national banks,” and (iii) “forc[ing] national banks to set up
4 In In re Checking Account Overdraft Litigation, the district court distinguished
Baptista on the ground that the plaintiffs’ claims in the overdraft litigation are “not predicated upon a bank’s authority to charge fees.” No. 09-MD-02036, 2011 WL2746171, at *7 (July 13, 2011). That distinction is invalid. See Part I.B.2 supra.
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a costly and burdensome tracking system to determine whether a potential
insurance sale fell within the restricted categories.” Id. at 408-10. See also
Monroe Retail, 589 F.3d at 283 (explaining that “the level of ‘interference’ that
gives rise to preemption under the NBA is not very high”).
Applying the Barnett Bank preemption standard to this case,
plaintiffs’ state-law claims are preempted because they prevent or significantly
interfere with Wells Fargo’s exercise of its federal banking powers. The OCC has
stated explicitly that the NBA confers on national banks authority to adopt high-to-
low posting. See, e.g., Interp. Letter 916. Yet the district court interpreted
California law to prevent Wells Fargo from adopting this posting order. Plaintiffs
attempt to justify this prohibition by arguing that Wells Fargo may choose between
low-to-high posting or some approximation of chronological order. Pls. Br. 45.
But nothing in Barnett Bank or any other decision suggests that state law may
prohibit one federally-authorized activity so long as it permits national banks to
engage in other activities.
Plaintiffs’ claims based on inadequate disclosure of posting order
are preempted for the same reasons. Both the Supreme Court and this Court have
held that state-law requirements regarding disclosures are preempted. See, e.g.,
Franklin Nat’l Bank, 347 U.S. at 378-79; Rose, 513 F.3d at 1038. The OCC, citing
both Franklin National Bank and Rose, recently reaffirmed that “disclosure laws
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that impose requirements that predicate the exercise of national banks’ deposit-
taking or lending powers on compliance with state-dictated disclosure
requirements clearly present a significant interference, within the meaning of
Barnett, with the exercise of those national bank powers.” Final OCC Preemption
Rule, 76 Fed. Reg. 43549, 43557 & n.51 (July 21, 2011).
In Rose, a California law required credit card issuers that offered
preprinted checks to include, among other information, the finance charges that
would be incurred by using the check. 513 F.3d at 1035. Although there was no
suggestion that federal law prohibited national banks from including this
information on the checks, this Court held that the NBA preempted the state law
insofar as it purported to apply to national banks. Id. at 1038. Relying on Barnett
Bank, the Court held that the state law’s attempt to dictate the content of a national
bank’s disclosures impaired the bank’s exercise of its power to “‘loan money on
personal security.’” Id. at 1036-37 (quoting 12 U.S.C. § 24(Seventh)). Plaintiffs’
disclosure claims are likewise preempted because they impose disclosure
requirements that are inconsistent with federal law.
2. Plaintiffs Cannot Avoid Preemption On The Ground ThatSection 17200 Is A Generally Applicable Law.
Plaintiffs contend that the preemption decisions of the Supreme
Court and this Court are inapposite because they involved state laws targeted
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businesses in California. Pls. Br. 39-40. Plaintiffs’ contention is directly contrary
to the law of this Circuit. In both Martinez and Rose, this Court held that claims
under Section 17200—the very California statute at issue in this case—were
preempted because they sought to impose duties on national banks that conflicted
with the banks’ authority under federal law. Martinez, 598 F.3d at 558;
Rose, 513
F.3d at 1038.
Regardless of whether a state law is generally applicable or
specifically targeted at banks, the preemption inquiry is the same: The law is
preempted if it prevents or significantly interferes with the bank’s exercise of its
federal powers. See Barnett Bank, 517 U.S. at 32. In holding that claims under
Section 17200 were preempted, this Court in Rose made clear that, “[r]egardless of
the nature of the state law claim alleged, . . . the proper inquiry is whether the legal
duty that is the predicate of Plaintiffs’ state law claim falls within the preemptive
power of the NBA or regulations promulgated thereunder.” Id. at 1038 (internal
quotation and citation omitted); see also Miller v. Nationwide Life Ins. Co., 391
F.3d 698, 702 (5th Cir. 2004) (preemption “hinges on the content of the allegations
—not on the label affixed to the cause of action”). Plaintiffs’ claims are preempted
under this standard because they significantly interfere with Wells Fargo’s ability
to choose a posting order and to make disclosures regarding that order. See Part
I.C.1 supra.
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3. The Terms Of The CAA Do Not Alter The PreemptionAnalysis.
Plaintiffs argue that there is no preemption because the Consumer
Account Agreement (“CAA”) provides that it is subject to “the laws governing
your account.” Pls. Br. 40-41. According to plaintiffs, this contractual language
recognizes the applicability of state law because the “governing law on bank
deposits is normally state law.” Id. at 41 (quotation marks omitted).
Plaintiffs’ interpretation of the CAA is incorrect. As explained
above, federal law preempts any state law that prevents or substantially interferes
with the exercise of federal banking powers. See Part I.C.1 supra. A preempted
state law is not, by definition, one of “the laws governing [the] account.” Excerpts
of Record (“ER”) 817. The CAA does not provide that state laws shall govern even
if preempted by federal law, and it is not clear that a national bank is permitted to
reverse the operation of the Supremacy Clause by setting aside federal banking law
in favor of state law.5
5 Plaintiffs cite an internal Wells Fargo document stating that the bank’s posting
order varies by state as a result of (i) differences in state laws, (ii) posting methods used by Wells Fargo’s competitors, and (iii) customer preference. Pls. Br. 40; Pls. Excerpts of Record (“PER”) 648. This document expressed no view on preemption; it simply recognized that the bank made a business decision to comply with certain state laws rather than seeking a declaratory judgment that those laws were preempted.
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D. The OCC’s Regulations Also Preempt Plaintiffs’ Claims.
In addition to being preempted under the NBA, plaintiffs’ claims
are preempted under two sets of OCC regulations implementing that Act. The
first is
12 C.F.R. § 7.4007(b)(2) (2010), which provides that “[a] national bank may
exercise its deposit-taking powers without regard to state law limitations
concerning . . . [c]hecking accounts . . . [and] [d]isclosure requirements.” The
second is a group of OCC regulations that implement the Barnett Bank preemption
framework. See 12 C.F.R. §§ 7.4002, 7.4007(b)(1), 7.4009 (2010).6
1. Plaintiffs’ Claims Are Preempted Under § 7.4007(b)(2).
Section 7.4007(b)(2) provides that “[a] national bank may exercise
its deposit-taking powers without regard to state law limitations concerning . . .
[c]hecking accounts . . . [and] [d]isclosure requirements.” 12 C.F.R.
§ 7.4007(b)(2) (2010). The district court held—without any supporting analysis or
authority—that this provision does not preempt plaintiffs’ claims because the
6 The OCC recently amended its regulations. See Final OCC Preemption Rule, 76
Fed. Reg. 43549 (July 21, 2011). The pre-amendment regulations (reproduced in the addendum to Wells Fargo’s opening brief) apply to this appeal because the OCC did not state that its new rules are retroactive, and there is no indication that
Congress authorized the OCC to enact retroactive rules. See Bowen v. GeorgetownUniv. Hosp., 488 U.S. 204, 208 (1988). Moreover, the result in this case would bethe same under either version of the regulations, because the amended regulationsretain 12 C.F.R. § 7.4007(b)(2) (2010) (which is now 12 C.F.R. § 7.4007(b) (2011)) and otherwise adopt the Barnett Bank preemption standard.
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claims do not implicate checking accounts or disclosure requirements. ER196.
But plaintiffs’ claims clearly implicate both checking accounts and disclosure
requirements. Indeed, their entire case is based on allegations regarding Wells
Fargo’s method of posting transactions to checking accounts and its disclosure of
that method. WF Br. 33-34.
Plaintiffs do not defend the district court’s decision on its own terms,
and do not dispute that their claims involve checking accounts and disclosure
requirements. Instead, they argue that their claims are not preempted under section
7.4007(b)(2) because the claims have only an incidental effect on Wells Fargo’s
practices. Pls. Br. 38-39 & nn. 17-18. This argument fails because it is directly
contrary to the OCC’s interpretation of section 7.4007.
In promulgating the regulation, the OCC made clear that section
7.4007(b)(2) “list[s] several types of state laws that are preempted.” 69 Fed. Reg.
1904, 1906 (Jan. 13, 2004) (emphasis added). A subsequent Interpretive Letter
reiterates the OCC’s view that subsection (b)(2) “preempts the types and features
of state laws pertaining to . . . taking deposits that are specifically listed in the
regulation.” OCC Interpretive Letter No. 1005, 2004 WL 3465750 (June 10, 2004)
(“Interp. Letter 1005”). As discussed above, the OCC’s interpretation of
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§ 7.4007(b)(2) is controlling unless it is plainly erroneous or contrary to
the regulation. See Auer, 519 U.S. at 462; Chase Bank, 131 S. Ct. at 880.7
This Court’s decision in Martinez establishes that the OCC’s
interpretation is not plainly erroneous. The preemption provision at issue in
Martinez was adopted in the same rulemaking and has the same structure as section
7.4007, and the OCC has interpreted both provisions in the same way. See 69 Fed.
Reg. at 1910; Interp. Letter 1005. Citing Interpretive Letter 1005—the same
interpretive letter that is relevant here—this Court held that the plaintiffs’ claims
under Section 17200 were preempted. Martinez, 598 F.3d at 557. The Court
reached this conclusion without considering whether the state law had more than
an incidental effect on Wells Fargo’s operations because “the types and features of
state laws specifically enumerated in 12 C.F.R. § 34.4 interfere with the ability of
national banks to operate under uniform federal standards, and are thus
preempted.” Id. at 557.
Plaintiffs do not acknowledge Interpretive Letter 1005, and they
present no argument as to why the OCC’s interpretation of its own regulation is not
entitled to deference. Nor do plaintiffs dispute that Martinez applied an analogous
7 Plaintiffs assert that Wells Fargo’s interpretation of section 7.4007(b)(2) is “[a]t
complete odds with the O.C.C.’s interpretative letters and other federal authority,” Pls. Br. 38, but they cite no authority to support this assertion, and they ignore Interpretive Letter 1005, which directly contradicts it.
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regulation according to the OCC’s interpretation by expressly relying on
Interpretive Letter 1005. Instead, they argue that section 7.4007(c) operates to
save state laws even if they are among the types of laws listed in section
7.4007(b)(2). Pls. Br. 38-39. But that argument finds no support in the language
or structure of the regulation or the OCC’s understanding of it. Prior to its recent
amendment, subsection (c) provided that state laws on certain subjects are not
preempted “to the extent they only incidentally affect the exercise of national
banks’ deposit-taking powers.” 12 C.F.R. § 7.4007(c) (2010).8
According to
plaintiffs, this provision must apply to laws listed in subsection (b)(2) because
otherwise (i) subsection (b)(2) would improperly create a field preemption
standard and (ii) subsection (c) would be rendered a nullity. Pls. Br. 38-39.
Neither argument has merit.
First, plaintiffs are wrong to assert that the OCC’s interpretation of
section 7.4007(b)(2) creates a field preemption standard. Subsection (b)(2) does
not preempt the field of state laws implicating a bank’s deposit-taking power.
Instead, it merely lists certain types of state laws that are preempted. The rest of
the field is not necessarily preempted. Preemption for laws not listed in subsection
8 The OCC recently amended this portion of the regulation to provide that
state laws on certain subjects “apply to national banks to the extent consistentwith” Barnett Bank. 12 C.F.R. § 7.4007(c) (2011).
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(b)(2) depends on whether their effects on the bank’s power are merely
“incidental” or whether they interfere with the bank’s ability to fully exercise its
powers. 12 C.F.R. § 7.4007(c); see also Barnett Bank, 517 U.S. at 32.
Second, there is no merit to plaintiffs’ contention the OCC’s
interpretation renders section 7.4007(c) a nullity. As just explained, subsection (c)
applies to all laws not listed in subsection (b)(2). When subsection (b)(2) is
inapplicable, subsection (c) applies in concert with the general Barnett Bank
preemption standards to provide the framework for making preemption
determinations on a case-by-case basis. See Interp. Letter 1005.
In sum, the regulation establishes certain categories of state-law
limitations (those addressed in subsection (b)(2)) that are so clearly preempted that
a case-by-case analysis is unnecessary. Because plaintiffs do not dispute (and it is
beyond reasonable debate) that plaintiffs’ claims involve checking accounts and
disclosure requirements, subsection (c) is inapplicable. Moreover, as explained
elsewhere in this brief, see Part I.C.1 supra and Part I.D.2 infra, plaintiffs’ claims
clearly have more than an incidental effect on the bank’s exercise of its federal
banking powers.9
9 The Court’s decision in Aguayo v. U.S. Bank, F.3d. , No. 09-56679, 2011
WL 3250465 (9th Cir. Aug. 1, 2011), does not lead to a different result. The Court held that an express preemption regulation, 12 C.F.R. § 7.4008(b)(2) (2010), did (continued…)
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2. OCC Regulations Preempt Plaintiffs’ Claims Because They Prevent Wells Fargo From Fully Exercising Its National Bank Powers.
Plaintiffs also contend that section 7.4007(c) saves their claims from
preemption under a second set of OCC regulations. See Pls. Br. 39-45; WF Br. 31-
33 (discussing 12 C.F.R. §§ 7.4002, 7.4007(b)(1), 7.4009 (2010)).10
According to
plaintiffs, these OCC regulations do not preempt their claims because the
evidentiary record establishes that their claims have no more than an incidental
effect on Wells Fargo’s practices. Pls. Br. 39-45. This argument fails to
acknowledge the well-settled understanding of preemption in this context.
This Court has already rejected the argument that preemption under
either the NBA or its implementing regulations requires an evidentiary assessment
of the effect of a state law on a particular national bank’s exercise of its federal
not apply because the bank’s notice was neither a “disclosure” nor a “credit-related document.” Id. at *11-14. In reaching this decision, the Court stated in dicta that the regulation’s saving clause must be applied even for laws the fall within the express preemption provision. Id. at *5-10. The Court acknowledged that it would defer to the OCC’s interpretation of its own regulations, but concluded that the OCC had not offered such an interpretation. Id. at *6. Here, as discussed above, the preamble to the final rule (69 Fed. Reg. 1906) and Interpretive Letter 1005 expressly state that laws that fall within the express preemption provision are preempted.
10 The OCC’s amended regulations eliminate sections 7.4007(b)(1) and
7.4009, but reaffirm that preemption under section 7.4002 turns on the Barnett Bank standard. 12 C.F.R. § 7.4002(d) (2011).
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powers. In Rose, the plaintiff argued that the Court “should remand to the district
court for further discovery regarding the issue of whether the state law constitutes a
‘significant’ impairment or interference with the purposes of the National Bank
Act.” 513 F.3d at 1038 n.4. The Court denied the request because “no amount of
discovery would change the central holding that Congress intended for the NBA to
preempt state restrictions on national banks such as” the law at issue in Rose. Id.
If an evidentiary showing of the impact that state law has on a
national bank’s powers were required, a court could never decide
preemption issues at the pleading stage. Yet this Court and other courts of
appeals have
affirmed the dismissal of claims based on preemption under the NBA and the OCC
regulations. See, e.g., Martinez, 598 F.3d at 552; Rose, 513 F.3d at 1036; Baptista,
640 F.3d at 1196.
Baptista confirms that the degree of interference posed by a state
law is not an evidentiary matter. In Baptista, the district court granted a motion to
dismiss. As a result, there was no evidentiary record showing how significantly
the bank would be affected by a state-law prohibition on check-cashing fees for
non-account-holders. The Eleventh Circuit considered the options authorized by
federal law and the options permitted by the state law, and held that state law’s
reduction of the available options significantly interfered with the bank’s federal
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authority. Id. at 1198. The district court’s analysis and holding directly conflict
with the Eleventh Circuit’s decision in Baptista.11
Even if Wells Fargo were required to produce evidence that
plaintiffs’ claims had more than an incidental effect on their banking practices, it
did so here. Plaintiffs argue that changing the posting order does not impose
substantial costs because it is “largely a mechanical change.” Pls. Br. 43. This
contention is both incorrect (because posting-order changes require systems
development, consumer service activities, and processing costs, all of which
impose substantial costs, see WF Br. 29-30) and beside the point. A state law’s
impact on a national bank’s exercise of its federal powers is not simply a matter of
out-of-pocket compliance costs. Rather, the question is whether the state law has a
significant impact on the bank’s ability to determine how to conduct its federal
banking operations. Here, the impact clearly is more than “incidental.” See Part
I.C.1 supra. Plaintiffs’
claims seek regulation not of an incidental activity largely unrelated to the business
11 Baptista illustrates the anomalous results that would follow from making
preemption an evidentiary issue. Under plaintiffs’ approach, if Bank A frequently cashes checks for non-account-holders, but Bank B rarely does so, the state law would be preempted as to Bank A but not Bank B. Once non-account-holderslearn that Bank A charges check-cashing fees but Bank B cannot, they will have an
incentive to cash checks at Bank B rather than Bank A. If that occurs, the state law would then be preempted as to Bank B but not as to Bank A.
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of banking, but of an operation that is fundamental to managing bank accounts.
See Part I.B supra.
3. Plaintiffs’ Reliance On The Factors Listed In § 7.4002 IsContrary To This Court’s Decision In Martinez.
The district court held that, “[f]or preemption to possibly apply,”
Wells Fargo must prove that it considered the four factors specified in 12 C.F.R.
§ 7.4002(b). ER76-77. This ruling is directly contrary to this Court’s decision in
Martinez, which held that the four factors listed in section 7.4002(b)(2) are
“inapposite to the issue of preemption.” 598 F.3d at 556 n.8.
Plaintiffs make no attempt to reconcile the district court’s holding
with Martinez. They nevertheless argue that their claims are not preempted under
section 7.4002 because Wells Fargo’s failure to prove that it considered the four
factors “unequivocally demonstrates” that its decision to post transactions in high-
to-low order is not governed by section 7.4002(b). Pls. Br. 46. The closest
Plaintiffs come to citing legal authority for their position is a statement, in a
footnote, that it is “noteworthy” that the district court in White v. Wachovia Bank
“viewed the section 7.4002 factors as important to the preemption inquiry.” Id. at
46 n.23.
This Court has already held that the section 7.4002(b) factors are
irrelevant to the preemption inquiry. Martinez, 598 F.3d at 556 n.8. That ruling is
correct. As this Court recognized, consideration of the section 7.4002(b) factors
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“goes to whether Wells Fargo has abided by the OCC regulation,” and “regulation
of a national bank’s adherence to OCC regulations is within the exclusive purview
of the OCC.” 598 F.3d at 556 n.8 (citing Watters, 550 U.S. at 13). The district
court decision on which plaintiffs rely—which was decided before Martinez—
provides no reason to doubt the correctness of this Court’s ruling.12
E. Plaintiffs Cannot Save Their Claims From Preemption ByArguing That Federal Law Imposes The Same “Good Faith” Standard As California.
Plaintiffs contend that the district court’s decision merely requires
Wells Fargo to exercise good faith in deciding whether to adopt high-to-low
posting. Pls. Br. 37. Based on this view, plaintiffs argue that their state law
claims are not preempted because “[t]here can be no conflict between federal and
state standards when both have the same good-faith requirement.” Id.
Plaintiffs’ argument fails because the district court’s order goes
well beyond merely directing Wells Fargo to exercise good faith in adopting a
posting
12 Moreover, the record indicates that Wells Fargo considered the factors listed in
section 7.4002(b). For example, the district court found that the bank considered the effect of high-to-low posting on the bank’s revenues. ER25 (¶ 102). The OCC has determined that a bank’s projection of increased revenue from high-to-low posting demonstrates that the bank considered the effect of the practice on the bank’s safety and soundness. See Interp. Letter 916; Interp. Letter 997. Similarly, uncontroverted testimony showed that Wells Fargo considered the costs of high-to-
low posting (ER609), and the district court found that Wells Fargo wanted to increase profits (ER25), which by definition depend on costs as well as revenues.
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order: it directs the bank to permanently “cease its practice of posting in high-to-
low order for all debit-card transactions” and “either reinstate a low-to-high
posting method or use a chronological posting method (or some combination of the
two methods).” ER84-85.
Moreover, California’s good-faith requirement, as interpreted by the
district court, differs markedly from the governing federal standards. Plaintiffs
contend that the OCC adopted California’s good-faith standard in Interpretive
Letter 916, see Pls. Br. 37, but that letter makes clear that the agency did no such
thing. In Interpretive Letter 916, the OCC analyzed whether federal law authorizes
national banks to adopt high-to-low posting, and determined that it does. The OCC
quoted the California legislative comment, but expressly stated that “this letter
does not address the applicability to the Bank of the California Commercial Code
check-posting provision or the standard articulated in the Commentary.” Interp.
Letter 916. The agency concluded that the bank could adopt high-to-low posting
without addressing whether the bank sought to adopt that posting order for the
“sole purpose” of maximizing overdraft fees. Id. Had the OCC adopted the
district court’s version of good faith, it could not have reached this conclusion
without addressing the “sole purpose” question.
Rather than adopting the district court’s version of California’s
good- faith standard, the OCC has adopted a different standard for deciding
whether a
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national bank’s decision to post in high-to-low order complies with federal law.
Under federal law, national banks may adopt high-to-low posting so long as their
decision to do so is made “according to sound banking judgment and safe and
sound banking principles.” 12 C.F.R. § 7.4002(b)(2); Interp. Letter 916; Interp.
Letter 997. It is this federal supervisory standard that governs a national bank’s
ability to adopt high-to-low posting, not the district court’s idiosyncratic
interpretation of California’s good-faith requirement.
That plaintiffs’ claims are preempted does not mean, as plaintiffs
contend, that the OCC has given Wells Fargo “carte blanche to reorder
transactions.” Pls. Br. 37. Federal bank regulatory agencies play an active role in
monitoring and overseeing posting order. See WF Br. 8-9. These agencies have
ample authority to impose additional restrictions on posting order. In 2009, after
extensively reviewing the posting issue, federal regulatory agencies decided to
retain the traditional rule that banks may post transactions in any order. See WF
Br. 8-9 (quoting 74 Fed. Reg. 5498, 5547-48 (Jan. 29, 2009)). Federal
agencies can revisit that determination at any time. Id.13
13 Relying on extra-record facts that are generally applicable to the banking
industry as a whole, plaintiffs’ amici advance policy-based arguments for increased regulatory restrictions on overdraft fees. See Br. for Ctr. for Responsible Lending
et al. 7-25. The NBA contemplates that policy decisions about how national banks should operate are issues of federal law subject to the supervisory authority of the (continued…)
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The OCC also has authority, as a supervisory matter, to review a
national bank’s decision to adopt high-to-low posting to ensure that the bank
considered the relevant factors in deciding that its posting order was consistent
with safe and sound banking practices. See 12 C.F.R. § 7.4002(b)(2). National
banks face serious consequences if they adopt high-to-low posting without
following the decisionmaking process required by federal law. The OCC is
authorized to impose civil penalties for violations of the NBA or its implementing
regulations. 12 U.S.C. §§ 93(b), 1818(i). The OCC can also require a bank to pay
restitution to injured customers. See id. § 1818(b)(6). For example, the OCC
recently entered consent orders with multiple national banks that required the
banks “to remediate all financial injury to borrowers caused by any errors,
misrepresentations, or other deficiencies” found in certain practices of the banks.
See OCC Takes Enforcement Action Against Eight Servicers For Unsafe And
OCC and other federal banking agencies, not issues of state law to be decided by judges or juries. When federal regulators adopted the uniform national regulations on overdraft fees for debit-card transactions, they rejected the suggestion that they should regulate posting order (which is the only overdraft fee practice at issue in this case). See 74 Fed. Reg. 5498, 5547-48 (Jan. 29, 2009). Federal regulators carefully considered the views of amici, but chose not to mandate or prohibit any order of posting. Id.
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Unsound Foreclosure Practices, OCC NR 11-47, 2011 WL 1396104 (O.C.C. Apr.
13, 2011).
Wells Fargo has not argued that national banks are not subject to any
duty to act in good faith, or that federal law preempts the general duty of good faith
found in the Uniform Commercial Code (“UCC”). See UCC § 1-304. But there is
no violation of the UCC’s good-faith standard here, because the UCC expressly
allows banks to post transactions in any order. See UCC § 4-303(b) (“[I]tems may
be accepted, paid, certified, or charged to the indicated account of [the bank’s]
customer in any order.”). The uniform UCC commentary makes clear that the
choice of a particular posting order cannot be considered bad faith:
As between one item and another no priority rule is stated. This is justified because of the impossibility of stating a rule that would be fair in all cases . . . . Further, the drawer has drawn all the checks, the drawer should have funds available to meet all of them and has no basis for urging one should be paid before another . . . .
UCC § 4-303, cmt. 7. This principle has been recognized in numerous decisions
rejecting challenges to high-to-low posting. See W.F. Br. 39 & n.10 (collecting
cases). 14
14 UCC § 4-303 specifically addresses only posting of checks, not posting of
wire transfers (governed by UCC Article 4A, see UCC § 4A-504(a)) or debit cards (generally governed by federal statute). See WF Br. 40 & n.11.
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Rather than arguing that national banks are free to act in bad faith,
Wells Fargo has argued only that federal law preempts the district court’s
interpretation of California’s non-uniform good-faith requirement.
Under the district court’s interpretation, California law prevents national banks
from posting transactions in any order, even though both federal law and the UCC
permit them to do so. Compare Cal. Com. Code § 4303, cmt. 7, with Interp.
Letter 916; UCC
§ 4-303, cmt.7. It is only the district court’s idiosyncratic version of good faith—
which (as discussed below) is based on a misapplication of California’s implied
covenant of good faith and a misinterpretation of a non-uniform comment to the
California Commercial Code—that is preempted in this case.
II. THE DISTRICT COURT ERRED IN HOLDING THAT WELLS FARGO VIOLATED SECTION 17200.
A. The District Erred On The Merits Of Plaintiffs’ “Unfair” Claims.
The district court concluded that Wells Fargo’s conduct was
“unfair” under Section 17200 because the bank did not act in good faith in
adopting high- to-low posting. ER60-66. The district court identified two sources
for the good- faith requirement: (i) a non-uniform comment to California
Commercial Code
§ 4303(b), and (ii) an implied covenant of good faith that applies to contractual
relationships under California law. Id. Contrary to the district court’s decision,
Wells Fargo’s conduct violated neither good-faith requirement.
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1. An Implied Covenant Of Good Faith Does Not Prohibit Wells Fargo From Posting Transactions AsExpressly Authorized By The Agreement.
The district court erred in holding that Wells Fargo violated an
implied covenant of good faith because the CAA expressly authorized Wells Fargo
to post in high-to-low order. Under California law, the good-faith covenant does
not forbid conduct that is expressly authorized by contract. See Carma Developers
v. Marathon Dev. Cal., Inc., 2 Cal.4th 342, 374 (1992) (“As to acts and conduct
authorized by the express provisions of the contract, no covenant of good faith and
fair dealing can be implied which forbids such acts and conduct.” (internal
quotations and citation omitted)).
The CAA expressly provided:
• “The Bank may post Items presented against the Account in any order the bank chooses,” ER50 (¶ 206);
• “[T]he Bank may, if it chooses, post Items in the order of the highest dollar amount to the lowest dollar amount,” id.;
• “The Bank may change the order of posting to the Account at any time without notice,” id.
These contractual provisions expressly authorized the bank to adopt
any posting order, including high-to-low posting. Because the contract expressly
authorized the challenged conduct, that conduct cannot violate an implied duty of
good faith. See Carma, 2 Cal.4th at 374; see Guz v. Bechtel Nat’l Inc., 24 Cal.4th
317, 349-50 (2000).
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Contrary to plaintiffs’ assertions, Wells Fargo has not misstated
the facts or holding of Carma. Pls. Br. 59. The California Supreme Court held
that a landlord did not violate an implied duty of good faith by terminating a lease
agreement in order to rent the property at a higher rate where the express terms of
the agreement authorized the landlord to do so. 2 Cal.4th at 376. The Court
observed, in terms that dispose of this case, that it was “aware of no reported case
in which a court has held the covenant of good faith may be read to prohibit a party
from doing that which is expressly permitted by an agreement.” Id. at 374. As this
Court has explained:
Carma made . . . clear that a party cannot be held liableon a bad faith claim for doing what is expressly permitted in the agreement. In Carma, a lessor’s termination of a lease for financial gain was not a breach of the covenant of good faith and fair dealing because the contractexpressly permitted such termination.
Solomon v. N. Am. Life & Cas. Ins. Co., 151 F.3d 1132, 1137 (9th Cir. 1998)
(internal citations omitted).
The facts of Carma illustrate this principle. Carma sued Marathon
for, among other things, breach of an implied covenant of good faith based on
Marathon’s termination of a lease with Carma. Under the terms of the lease, if
Carma intended to sublease the property, it had to notify Marathon of its intention
and identify the proposed sublessee. 2 Cal.4th at 351. The lease provided that,
upon receiving this notification, Marathon “shall have the right . . . to terminate
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this Lease.” Id. When Carma provided notice of its intent to sublease the
property, Marathon terminated the lease and rented the property to the proposed
sublessee for more money than it had received from Carma under the old lease.
Carma argued that Marathon had breached an implied covenant of good faith by
terminating the lease solely to rent the property directly to the proposed sublessee
at an increased rate. Id. at 374. The California Court of Appeal agreed, holding
that the implied covenant of good faith prevented Marathon from terminating the
agreement “solely to realize a profit.” Id. at 376.
The California Supreme Court reversed, pointing to a provision of
the lease stating: “If Landlord so terminates this Lease, Landlord may, if it elects,
enter into a new lease” with the proposed sublessee. Id. at 351-52. Based on this
provision, “Marathon’s termination of the lease in order to claim for itself
appreciated rental value of the premises was expressly permitted by the lease and
was clearly within the parties’ reasonable expectations.” Id. at 376. “[S]uch
conduct,” the court held, “can never violate an implied covenant of good faith and
fair dealing.” Id.15
15 Plaintiffs contend that “the holding [in Carma] related to the provision that the
landlord ‘shall have the right by written notice to Tenant to terminate,’ not any analysis of the ‘may’ language.” Pls. Br. 59. As shown by the discussion above, it was the “may, if it elects” provision that established the parties’ reasonable expectations regarding the “shall have the right” provision.
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Applied to this case, Carma’s analysis bars plaintiffs’ claims. The
CAA expressly provides that “the Bank may, if it chooses, post Items in the order
of the highest dollar amount to the lowest dollar amount.” ER50 (¶ 206). Because
the CAA expressly states that Wells Fargo may post high-to-low, “no covenant of
good faith and fair dealing can be implied which forbids such acts and conduct.”
Carma, 2 Cal.4th at 374. The district court thus erred in holding that high-to-low
posting was not within the reasonable expectations of the parties. An expressly
authorized posting order “cannot, by definition, be considered to be outside the
reasonable expectations of the parties.” Wolf v. Walt Disney Pictures & Television,
162 Cal. App.4th 1107, 1124 n.9 (Ct. App. 2008); see also WF Br. 43 (citing
cases).
Rather than disputing this principle of California law, plaintiffs turn
to Utah law to argue that a court cannot decide whether the implied covenant of
good faith has been breached based solely on the terms of the contract. Pls. Br. 61-
62 (quoting Sanpete Water Conservancy Dist. v. Carbon Water Conservancy Dist.,
226 F.3d 1170, 1176 (10th Cir. 2000)). Plaintiffs’ claims are governed by
California law, not Utah law. Under California law, “it is well established that an
implied covenant cannot create an obligation inconsistent with an express term of
the agreement.” Nein v. HostPro, Inc., 95 Cal. Rptr. 3d 34, 50 (Ct. App. 2009).
See also Gaggero v. Yura, 2009 WL 2916759, *14-15 (Cal. Ct. App. 2009)
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(unpublished) (Defendant’s act was within plaintiff’s “reasonable expectations”
because, “[a]lthough that [act] may not have been within plaintiff’s subjective
expectation, it was one of the potential outcomes of the contract language to which
he objectively agreed.”).
The district court viewed the contractual language as ambiguous, but
only on an issue that is irrelevant to the parties’ reasonable expectations. The
district court thought the statement that the bank “may” post in high-to-low order
suggested that the bank was not currently posting in that order. ER64. But the
CAA unambiguously provides that the bank is authorized to post in high-to-low
order; the ambiguity perceived by the district court related to whether the bank had
already begun to do so. That ambiguity, even if it existed, would be irrelevant to
the parties’ reasonable expectation, based on the express contractual language, that
Wells Fargo could post transactions in any order, including high-to-low, and could
change the order of posting at any time. Plaintiffs have no response on this point.
The district court’s interpretation of the contractual language is also
unreasonable. The CAA’s posting order provision includes three distinct
statements: (i) Wells Fargo “may” post transactions in any order, (ii) it “may” post
transactions from highest to lowest, and (iii) it “may” change this order at any
time. ER50 (¶ 206). Rather than uniformly interpreting each use of “may” as a
grant of permission, the district court interpreted the second use of “may” to mean
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that Wells Fargo might post in high-to-low order. ER64. The court erred by not
interpreting each use of “may” in the same way—as a grant of permission. See
United States v. Redman, 35 F.3d 437, 440-41 n.3 (9th Cir. 1994) (defining “may”
as “have permission to”).16
The term “may” gave the bank flexibility to change
its posting order without amending the agreement. See ER 232. Substituting the
term “will” for “may” would have been inaccurate, because Wells Fargo posted
credits and ATM withdrawals before other debit transactions. Id.; ER529-30. See
Br. for American Bankers Association et al. (“ABA Br.”) 23-24 (discussing
negative consequences of district court’s interpretation of “may”).
2. The Comment To The California Commercial Code DoesNot Prohibit Wells Fargo’s Posting Order.
The text of the California Commercial Code expressly authorizes
banks to post transactions in any order. Cal. Com. Code § 4303(b). Rather than
relying on the text of Section 4303, the district court relied on a comment to
Section 4303 stating that the choice of posting order must be made in good faith.
ER61-62. The comment—which is not found in the standard UCC commentary—
explains the good-faith requirement by example: “For example, the bank could not
16 Plaintiffs fault Wells Fargo for citing a dissenting opinion on the meaning of
“may.” Pls. Br. 62-63 (discussing Rincon Band of Luiseno Mission Indians of Rincon Reservation v. Schwarzenegger, 602 F.3d 1019, 1060 (9th Cir. 2010)). But there was no disagreement in Rincon about the meaning of “may.” See id. at 1028 n.9 (agreeing with dissent that “‘may’ indicates permissiveness”).
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properly follow an established practice of maximizing the number of returned
checks for the sole purpose of increasing the amount of returned check fees
charged to the customer.” Cal. Com. Code § 4303(b), cmt. 7.
The district court’s interpretation of this non-uniform comment not
only creates a serious preemption problem, see Part I supra, but also departs from
California’s policy of promoting uniform national interpretation of the UCC, see
Cal. Com. Code § 1103(a)(3). The district court’s interpretation is incorrect for
three reasons.
First, the comment should not be understood to prohibit high-to-
low posting when a contractual provision expressly authorizes the bank to post in
that order. Under California law, a party does not act in bad faith by performing
an action specifically contemplated by an agreement. See Part II.A.1 supra.
Thus, the comment’s example of bad faith is consistent with California law only
if it is
limited to situations in which a bank adopts a posting order not expressly permitted
by contract. Because Wells Fargo had an express contractual right to post in high-
to-low order, the comment does not apply. Plaintiffs do not respond to this
argument.
Second, the comment states that a bank acts in bad faith by
“maximizing” the number of return-item fees. Cal. Com. Code § 4303, cmt. 7. It
is undisputed that Wells Fargo did not maximize fees. Instead, it adopted
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procedures that significantly reduced the number of overdraft items. See WF Br.
47. Plaintiffs characterize these procedures as a “smattering of practices unrelated
to posting” (Pls. Br. 63), but that is demonstrably false. For example, Wells Fargo
reduced overdraft fees by posting all credits to a customer’s account before it
posted any debits. ER232. Wells Fargo further reduced overdraft fees by adopting
a daily cap and a de minimis exception for overdraft fees, and by offering overdraft
protection. See WF Br. 47.
Plaintiffs argue that the comment’s good-faith standard was violated
even though Wells Fargo could have adopted a different posting order that would
have resulted in more overdraft items and higher fees. Pls. Br. 63-64 (quoting
ER68). That argument is contrary to the language of the comment, which refers to
“maximizing” the number of returned-check fees. If a bank could have adopted a
different posting order that would have resulted in more overdraft items and higher
fees, it has not “maximized” fees.
Third, increasing fees was not the “sole purpose” of adopting high-
to- low posting. Wells Fargo presented evidence that the bank considered other
factors, including the deterrent effect of high-to-low posting. See WF Br. 48;
ER621 (Deterrence “is a very significant component of the decision-making
process with respect to posting order.”). Plaintiffs do not explain why the district
court was justified in disregarding this evidence.
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Nor do they offer support for their contention that the comment’s
good faith standard “is not limited to instances in which there is one sole motive.”
Pls. Br. 64. This position is contrary to the language of the comment and
California law. Under plaintiffs’ reading, a bank could not adopt a posting order if
it was motivated at all by a desire to increase revenue, even if it also (i) considered
all of the factors listed in 12 C.F.R. § 7.4002; (ii) decided, in part, to adopt high-to-
low posting because it deters customers from overdrafting and increases the chance
that a customer’s most important transaction is paid; and (iii) had a consumer
agreement expressly stating that the bank posts transactions in high-to-low order.
This is neither required by nor consistent with California law.
B. The District Court Erred By Deciding Plaintiffs’ “Fraudulent” Claims On The Merits.
The district court certified a class of Wells Fargo customers on all
claims, including the claim that Wells Fargo’s conduct was “fraudulent” under
Section 17200, and held that the entire class is entitled to relief on that claim. The
district court erred for two reasons: (1) the named plaintiffs lack standing to bring
this claim; and (2) a class should not have been certified for this claim because
individual issues of reliance on the alleged misrepresentations predominate.
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1. The Named Plaintiffs Do Not Have Standing Because TheyDid Not Rely On The Alleged Misrepresentations.
Plaintiffs contend that Gutierrez and Consumer 2 have standing
under Section 17200 because Wells Fargo’s posting order caused them to incur
additional overdraft fees. Pls. Br. 67. In order to sue for fraud under Section
17200,
however, plaintiffs must show more than an injury from Wells Fargo’s posting
order. They must demonstrate that the alleged misrepresentations were “an
immediate cause of the injury-producing conduct,” and that absent the
misrepresentations, “plaintiff[s] in all reasonable probability would not have
engaged in the injury-producing conduct.” In re Tobacco II Cases, 207 P.3d 20,
39 (Cal. 2009) (citation and quotation marks omitted). Plaintiffs did not meet these
requirements.
First, undisputed facts establish that plaintiffs would have
overdrawn their accounts (the “injury-producing conduct”) regardless of Wells
Fargo’s disclosures. Neither plaintiff testified that she overdrew her account
based on a misunderstanding of posting order. To the contrary, plaintiffs testified
that they had no idea of how transactions would be posted, and that they did not
even know they had overdrawn their accounts at the time. See WF Br. 50.
Plaintiffs contend that “full disclosure would have enabled them to
avoid being injured.” Pls. Br. 68. But they support that contention by pointing to
testimony that if retailers had informed Gutierrez and Consumer 2 that they were
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overdrawing their accounts, they would have declined to use their debit cards. Id.
at 66-67; ER208, 285-87, 422. The district court did not hold—and plaintiffs did
not even argue—that the bank had an obligation to instruct retailers to tell
customers of potential overdraft fees at the moment of purchase. ER70-73.
Second, Gutierrez and Consumer 2 cannot demonstrate that they
relied on any misrepresentation by Wells Fargo. Plaintiffs argue that they relied
on Wells Fargo’s use of the term “automatically” to form an understanding that
transactions posted chronologically, Pls. Br. 66-67, and the district court found that
plaintiffs relied on two documents that the court found misleading: the CAA and
the Welcome Jacket, ER 70-72. But plaintiffs do not dispute that Gutierrez and
Consumer 2 could not have relied on the CAA because they did not read it. See WF Br.
50-51. Nor do they dispute that the version of the Welcome Jacket that Gutierrez
received did not contain the term “automatic,” and therefore was not misleading.
Id. at 51.
Indeed, plaintiffs make no attempt to defend the district court’s
decision on its own terms. Instead, they attempt to establish Consumer 1’s
reliance based on a third document, the “Checking, Savings and More” brochure.
Pls. Br.
67 (citing ER334). This argument is both invalid and inappropriate. The district
court granted summary judgment against Gutierrez with respect to this document.
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ER145-46.17
Moreover, Gutierrez testified that she learned through experience
that debit-card transactions do not post immediately, and that she did not, “at any
time before this lawsuit started, have any idea as to whether transactions were
sorted in any particular order.” See ER283, 341-42. Gutierrez could not have
thought that transactions posted chronologically when “facts within [her]
observation” established that fact to be “patently and obviously false.” OCM
Principal Opportunities Fund v. CIBC World Mkts. Corp., 157 Cal. App. 4th 835,
865 (2007). See also 34A Cal. Jur. 3d Fraud & Deceit § 64 (“[T]here can be no
reliance on a representation where actual knowledge of its falsity exists.”) (citing
Elko Mfg. Co. v. Brinkmeyer, 15 P.2d 751, 751 (Cal. 1932)).
Nor was Consumer 2 misled into thinking that transactions post
chronologically. See Pls. Br. 67. Like Gutierrez, Consumer 2 admitted that she
knew from experience that debit-card transactions do not always post to an
account immediately. ER 437-38. And like Gutierrez, Consumer 2 testified that
she did not “understand anything at all about the sequence in which items like
this would get posted.” ER415. In light of those admissions, Consumer 2 could
not have relied on
17 Plaintiffs did not file a motion for reconsideration, even though the district
court invited them to do so. See Kusens v. Pascal Co., Inc., 448 F.3d 349, 369 (6thCir.
2006) (failure to file a motion for reconsideration “deprives [a plaintiff] of theopportunity to raise this argument on appeal”).
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any statement that debit card transactions would be deducted chronologically from
her account.
Finally, plaintiffs contend that they are required to identify the
specific advertisements that they relied on because the “‘misrepresentations and
false statements were part of an extensive and long-term advertising campaign.’”
Pls. Br. 65-66 (quoting Tobacco II, 207 P.3d at 40). In Tobacco II, the court
relaxed the actual reliance requirement because the evidence showed that the
defendants engaged in a “massive, sustained, decades-long fraudulent advertising
campaign.” Pfizer Inc. v. Super. Ct., 182 Cal. App. 4th 622, 632 (Ct. App. 2010).
That exception has never been applied outside of the unique facts of Tobacco II,
and it does not apply to this case. Wells Fargo’s use of the terms “automatically”
and “immediately” in a few specific contexts is nothing like the ubiquitous,
decades-long advertising campaign identified in Tobacco II. See In re Actimmune
Marketing Litig., No. C 08-02376, 2009 WL 3740648, at *13 (N.D. Cal. 2009)
(defendant’s seven-year effort marketing effort “pales in comparison to the
decades-long, national, ubiquitous advertising campaigns embarked upon by
cigarette manufacturers”).
In short, plaintiffs did not demonstrate that Wells Fargo’s
statements about posting order were “an immediate cause of the injury-producing
conduct.”
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Tobacco II, 207 P.3d at 39. Plaintiffs therefore lack standing to pursue their
Section 17200 fraud claims.
2. Class Certification Was Improper Because IndividualizedIssues Of Reliance Predominate.
Plaintiffs acknowledge that the record contains no evidence that each
absent class member relied on Wells Fargo’s disclosures on posting order. See Pls.
Br. 71. Plaintiffs defend this omission by citing Tobacco II, which held that a class
action could be maintained even if some absent class members lack standing to
bring the case in their own right. Id. But plaintiffs cannot avoid federal class
certification requirements by relying on state law. See WF Br. 52-55. In federal
court, Federal Rule of Civil Procedure 23 “governs the class-certification issue
even if the underlying claim arises under state law.” Marlo v. United Parcel Serv.,
639 F.3d 942, 947 (9th Cir. 2011); see also Lee v. Am. Nat’l Ins. Co., 260 F.3d
997, 1002 (9th Cir. 2001).
Plaintiffs contend that individualized reliance is not an element of
Section 17200 fraud claim. Pls. Br. 71. But a recent Eighth Circuit decision
demonstrates that, as a matter of federal law, a Section 17200 fraud claim cannot
proceed as a class action in federal court unless absent class members show actual
reliance. In Avritt v. Reliastar Life Ins. Co., 615 F.3d 1023, 1034 (8th Cir. 2010),
the plaintiffs sought class certification of Section 17200 claims arising from an
allegation that the defendant misrepresented its interest-crediting practices. The
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court held that Tobacco II “is inconsistent with the doctrine of standing as applied
by federal courts” because “the court’s expression of the UCL’s standing
requirement diverged from federal jurisprudential principles.” Id. at 1034-35.
Under federal law, “a named plaintiff cannot represent a class of persons who lack
the ability to bring a suit themselves.” Id. at 1034. See also Hodes v. Van’s Int’l
Foods, No. 09-cv-1530, 2009 WL 2424214, at *4 (C.D. Cal. July 23, 2009).
Plaintiffs offer no meaningful basis for distinguishing Avritt, but
instead mischaracterize the basis of the court’s decision as “speculative dicta.” Pls.
Br. 70. In affirming the denial of class certification, the court rejected the same
argument plaintiffs raise here—that “they are not required to produce evidence of
individual class members’ reliance or injury” to establish a Section 17200 fraud
class. Avritt, 615 F.3d at 1033. As a result, the district court’s contrary decision
directly conflicts with the Eighth Circuit’s decision in Avritt.18
Nor could plaintiffs demonstrate actual reliance for absent class
members through common evidence. Plaintiffs assert—without citation to the
record—that “Wells Fargo’s misrepresentations and omissions commonly, and
18 Even under California law, Tobacco II does not eliminate the commonality
requirement for class certification. See, e.g., Cohen v. DirectTV, Inc., 178 Cal.App. 4th 966, 981 (Ct. App. 2009).
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adversely affected the entire class.” Pls. Br. 71. But individual reliance issues
predominate over common questions when:
• Some class members, like Gutierrez, never read the CAA and other documents and others, like Consumer 2, claim that they never received them; (ER262, ER321-25 ER405);
• Some class members, like Gutierrez, received versions of Wells Fargo’s materials that did not contain the allegedly misleading statements (ER861); and
• Some class members, like Consumer 2 and Gutierrez, would have overdrawn their accounts regardless of the alleged misrepresentations because they did not know they were overdrawing their accounts (ER22 (¶ 88); ER303; ER319).
In light of the conflicting testimony, plaintiffs could not rely on
common evidence to prove that each class member “personally received a material
representation,” or that each class member “reli[ed] on the misrepresentation.”
McLaughlin v. Am. Tobacco Co., 522 F.3d 215, 223 (2d Cir. 2008). Plaintiffs’
selective quotation (Pls. Br. 71) from the Advisory Committee Notes to Rule 23
omits a key sentence that reinforces this point: “[A]lthough having some common
core, a fraud case may be unsuited for treatment as a class action if there was
material variation in the representations made or in the kinds or degrees of reliance
by the persons to whom they were addressed.” Fed. R. Civ. P. 23, Advisory
Committee Notes. Because the record demonstrates that “reliance is too
individualized to admit of common proof,” McLaughlin, 522 F.3d at 224-225, the
district court erred in certifying a class on this claim under Rule 23(b)(3). See
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Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011) (recognizing limits on class
actions that depend on individualized proof of misconduct).19
C. The District Erred On The Merits Of Plaintiffs’ “Fraudulent” Claims.
In holding that Wells Fargo violated the “fraudulent” prong of Section
17200, the district court concluded that the CAA misled reasonable consumers to
believe that transactions posted chronologically. ER70-71. That finding was
based on the court’s conclusion that the CAA “should have prominently disclosed
its high-to-low” posting order. Id. The district court erred in reaching this result
because the express terms of the CAA disclosed the fact that transactions may be
posted high-to-low. WF Br. 55-59.
Plaintiffs contend that Wells Fargo’s disclosures are inadequate
because ordinary customers could not have been expected to read the CAA. Pls.
Br. 22. Plaintiffs cite no legal authority to support this argument, and California
law is to the contrary. It is well settled that “[r]eliance on an alleged
19 This Court’s decision in Blackie v. Barrack, 524 F.2d 891, 902 (9th Cir. 1975),
does not authorize the use of common evidence to prove reliance by absent class members. See Pls. Br. 71. In Blackie, the court noted that “[i]ndividual questionsof reliance are likewise not an impediment [because] subjective reliance is not a distinct element of proof of 10b-5 claims of the type involved in this case.” Id. at905. Unlike the claims at issue in Blackie, allegations of fraud under Section17200 do require evidence that the plaintiff relied on the alleged misrepresentations. See also Poulos v. Caesars World, Inc., 379 F.3d 654, 666
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misrepresentation . . . is not reasonable when plaintiff could have ascertained the
truth through the exercise of reasonable diligence. Reasonable diligence requires
the reading of a contract before signing it.” Brookwood v. Bank of Am., 45 Cal.
App.4th 1667, 1673-74 (Ct. App. 1996). By reading the CAA, plaintiffs would
have determined that Wells Fargo could post transactions from high-to-low. See
also Spiegler v. Home Depot U.S.A., Inc., 552 F. Supp. 2d 1036, 1045 (C.D. Cal
2008) (no Section 17200 liability as a matter of law where the defendant
had “complied with the express terms of the contracts, and charged
plaintiffs in accordance with their terms”).
Plaintiffs presented no evidence that the bank’s use of the terms
“automatically” or “immediately” actually misled customers into believing that
debit-card transactions would be posted chronologically. Pls. Br. 25. Wells Fargo
described debit-card transactions as clearing “automatically” to distinguish them
from credit card transactions. ER574-76. When a customer uses a debit card, the
funds are removed from the customer’s account “automatically”—i.e., without a
further action by the customer—whereas with credit cards, the customer must take
an additional step (by paying his or her monthly bill) before the funds are removed
from the account. The term “automatic” says nothing about the bank’s posting
order.
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The record contains no evidence that any particular customer relied
on any documents using the term “automatically” or “immediately.” Indeed,
plaintiffs’ expert at trial admitted that he had no empirical evidence that the term
“actually” influenced any consumer “into incurring overdraft fees that he or she
would not have incurred otherwise.” ER393-95. Similarly, the bank used the term
“immediately” in a limited number of very specific contexts, and plaintiffs did not
identify a single consumer who had seen a document using the term, let alone
relied on it. See WF Br. 57-58.
III. THE DISTRICT COURT ERRED IN AWARDING RESTITUTION BASED ON LAWFUL CONDUCT.
The district court calculated the restitution award on the theory that
all debit-card transactions should have posted before any check or ACH
transactions. ER87. As a result, the court more than doubled the restitution award
—from $93 million to $203 million. ER89; ER457-59. The court did this even
though it did not hold (and plaintiffs did not even argue) that it is unlawful to post
check and ACH transactions before debit-card transactions. The court erred
because restitution under Section 17200 “operates only to return to a person those
measurable amounts which are wrongfully taken by means of an unfair business
practice.” Colgan v. Leatherman Tool Grp., 135 Cal. App.4th 663, 698 (Ct. App.
2006); see WF Br. 59-61.
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Plaintiffs do not dispute that their restitution award was
dramatically increased based on entirely lawful conduct. Instead, they attempt to
distinguish Colgan on the ground that they presented more evidence to support a
restitution award than was presented in that case. Pls. Br. 72 n.38. But plaintiffs
cannot avoid the legal principle adopted in Colgan, that restitution “must be of a
measurable amount to restore to the plaintiff what has been acquired by violations
of the statute.” 135 Cal. App.4th at 698 (emphasis added). Because Wells Fargo’s
posting of check and ACH transactions before debit-card transactions was not a
violation of the statute, plaintiffs are not entitled to restitution attributable to that
aspect of the bank’s posting order.
Plaintiffs also contend that the additional $110 million in restitution
is justified by Wells Fargo’s prior posting practices. Pls. Br. 74-75.20
But
restitution under Section 17200 is “not concerned with restoring the violator to the
status quo ante.” Madrid v. Perot Systems Corp., 130 Cal. App.4th 440, 455 (Ct.
App. 2005). “The focus instead is on the victim.” Id. The district court based its
restitution award on the idea “that the bank promoted the expectation that debit-
card transactions would post chronologically.” ER86. Consequently, the measure
of
20 Plaintiffs cite testimony by a Wells Fargo witness to support the proposition
that posting checks before debit cards is not “viable.” Pls. Br. 74. In fact, Wells
Fargo’s high-to-low posting order resulted in the posting of larger-amount debit card items ahead of smaller-amount checks. See WF Br. 47.
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restitution should be based on the difference between the overdraft fees class
members actually paid and the overdraft fees they would have paid if Wells Fargo
had posted debit-card transactions chronologically.
There is no merit to plaintiffs’ assertion that placing debit-cards
ahead of checks better approximates chronological order. Pls. Br. 75. From the
customer’s perspective, the relevant chronological event is the writing of a check,
not its presentation to the bank for payment. The customer has no control over—
and no knowledge of—when a merchant will present a check to the bank for
payment, and checks are often presented several days after they are written. See,
e.g., ER10 (¶33); ER437. Because checks typically take longer than debit-card
transactions to post, ER665-69, checks should be posted before debit-card and
ACH transactions in order to approximate chronological order.
Plaintiffs argue that restitution should be based on the low-to-high
posting used by Wells Fargo prior to 2001. Pls. Br. 76. The district court rejected
that argument as inconsistent with the idea “that debit-card transactions would post
chronologically.” ER86. In addition, the court recognized that restitution should
not be based on conduct that the plaintiffs never challenged and the court did not
hold to be illegal. Colgan, 135 Cal. App.4th at 698. Madrid, 130 Cal. App.4th at
455. For the same reasons, the court’s restitution calculation—which more than
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doubles the restitution award by adopting a posting order that is not legally
required and is inconsistent with chronological posting—should be
vacated.
IV. PLAINTIFFS’ CROSS-APPEAL LACKS MERIT.
Plaintiffs raise two issues on cross-appeal. First, they contend that
the district court erred by denying their request for pre-judgment interest. Second,
they argue that the court erred by denying their post-trial request for additional
proceedings regarding punitive damages. Both issues are reviewed for abuse of
discretion. See Mutuelles Unies v. Kroll & Linstrom, 957 F.2d 707, 714 (9th Cir.
1992) (pre-judgment interest); Bouman v. Block, 940 F.2d 1211, 1234 (9th Cir.
1991) (punitive damages).
A. The District Court Properly Denied Pre-Judgment Interest.
Plaintiffs contend that they are entitled to pre-judgment interest
under Sections 3287(a) and 3288 of the California Civil Code. The district court
did not abuse its discretion in denying plaintiffs’ request for prejudgment interest
under these provisions.
As plaintiffs acknowledge, pre-judgment interest is available under
Section 3287(a) only if damages are “certain, or capable of being made certain by
calculation.” Pls. Br. 77 (citing Cal. Civ. Code § 3287(a)). This standard is
satisfied only if there is “essentially no dispute between the parties concerning the
basis of computation of damages.” Fireman’s Fund Ins. Co. v. Allstate Ins. Co.,
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234 Cal. App.3d 1154, 1173 (Ct. App. 1991) (citation omitted). “The statute does
not authorize prejudgment interest where the amount of damage, as opposed to the
determination of liability, depends upon a judicial determination based upon
conflicting evidence . . . .” Id. (citation and quotation marks omitted).
In this case, plaintiffs’ damages depended on a judicial
determination based upon conflicting evidence. Id. As discussed above, see Part
III supra, calculation of damages depends upon the choice of an alternate posting
order. Plaintiffs’ expert initially presented three alternative sequencing scenarios
and calculated damages based on each of them. ER123. The district court rejected
all three scenarios and ordered plaintiffs to conduct an additional damages analysis.
ER135. In response, plaintiffs’ expert presented six different options for
calculating damages under seven additional sequencing orders, for a total of 42
possible restitution calculations. PER572. The amounts calculated ranged
from less than $70 million to nearly $450 million. Id. When plaintiffs’ own expert
offers more than forty calculations for damages that vary by $380 million, the
amount of damages is anything but “certain.” Cal. Civ. Code § 3287(a).
Accordingly, the district court did not abuse its discretion in denying pre-judgment
interest under Section 3287(a).
Nor did the district court abuse its discretion in declining to
award discretionary pre-judgment interest. PER3. A court may award pre-
judgment
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interest “[i]n an action for the breach of an obligation not arising from contract, and
in every case of oppression, fraud, or malice.” Cal. Civ. Code § 3288. This
provision leaves the decision to award pre-judgment interest to the trial judge, and
the case law interpreting this provision does not require a court to grant interest in
any circumstances. To Wells Fargo’s knowledge, no appellate court has ever
reversed a trial court’s denial of discretionary denial of pre-judgment under Section
3288. This case should not be the first. The district court expressly found that
Wells Fargo did not act with oppression, fraud or malice, see PER4, and plaintiffs
do not dispute that finding.
B. The District Court Properly Denied Plaintiffs’ Request ForProceedings Regarding Punitive Damages.
It is undisputed that plaintiffs are not entitled to punitive damages
for the Section 17200 claims on which they prevailed at trial. See Korea Supply
Co. v. Lockheed Martin Corp., 63 P.3d 937, 946 (Cal. 2003) (punitive damages
unavailable for Section 17200 claims). Instead, plaintiffs contend that they are
entitled to punitive damages for their common-law fraud claim, a claim on which
the district court did not rule. Pls. Br. 78. Before this Court, plaintiffs argue that
they had a “live, triable class fraud claim,” and that the district court was required
to grant their post-trial motion to reopen the proceedings in order to decide whether
to award punitive damages on this claim. Id. The district court did not abuse its
discretion in denying this request. See PER3-4.
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Prior to trial, Wells Fargo moved for summary judgment because
plaintiffs had presented no evidence of classwide damages for their
misrepresentation-based claims. PER3-4; see also City of Vista v. Robert Thomas
Sec., Inc., 84 Cal. App. 4th 882, 887 (Ct. App. 2000) (actual damages is a necessary
element of misrepresentation and fraud claims). Plaintiffs conceded that they
could not prove damages for this claim. PER3-4. To avoid summary judgment,
plaintiffs abandoned the damages portion of their fraud claim and informed the
court that they sought only injunctive relief for the fraud claim. Id. “California
courts have long interpreted Section 3294 to require an award of
compensatory damages, even if nominal, to recover punitive damages.” California
v. Altus Fin. S.A., 540 F.3d 992, 1000 (9th Cir. 2008). Accordingly, the district
court properly concluded that plaintiffs, by abandoning their claim for
compensatory damages, also abandoned any claim for punitive damages.
Even if plaintiffs had not abandoned the damages portion of their
fraud claim, the district court did not abuse its discretion by denying their request
to reopen the proceedings. Plaintiffs did not move to bifurcate the trial to allow the
presentation of evidence regarding punitive damages in a later proceeding.
Accordingly, if plaintiffs thought they had a viable claim for punitive damages,
they were obligated to present evidence to support punitive damages at trial. By
waiting until five months after trial to request further proceedings, plaintiffs
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waived any claim for punitive damages. See Med. Lab. Mgmt. Consultants v. Am.
Broad. Cos., Inc., 306 F.3d 806, 820 n.8 (9th Cir. 2002). Plaintiffs cite no
authority for their argument that the district court abused its discretion by refusing
to give them a second chance to present evidence for punitive damages. See Pls.
Br. 78.
Finally, even if plaintiffs had asserted a valid and timely claim
for punitive damages, the claim would have to be denied. California law “does
not favor punitive damages and they should be granted with the greatest
caution.”
Beck v. State Farm Mut. Auto. Ins. Co., 54 Cal. App. 3d 347, 355 (Ct. App. 1976).
“Proof of a violation of the duty of good faith and fair dealing does not establish
that the defendant acted with the requisite intent to injure the plaintiff.” Id.
Instead, punitive damages may be awarded only if the plaintiff proves by clear and
convincing evidence that the defendant committed a tort with oppression, fraud, or
malice. Cal. Civ. Code § 3294(a).
Here, the district court determined that plaintiffs had not shown that
Wells Fargo engaged in “oppression, fraud, or malice.” PER4. Plaintiffs do not
challenge this finding. Because plaintiffs do not argue that Wells Fargo acted with
the requisite level of intent, this Court should affirm the district court’s denial of
further proceedings on punitive damages.
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V. THE COURT SHOULD VACATE THE JUDGMENT IN LIGHT OF THE SUPREME COURT’S DECISION IN CONCEPCION.
On April 27, 2011, while this case was on appeal, the U.S.
Supreme Court issued a decision overruling governing decisions of the California
Supreme Court and this Court, and holding that arbitration agreements containing
class arbitration waivers are enforceable. See AT&T Mobility LLC v. Concepcion,
131
S. Ct. 1740 (Apr. 27, 2011). As a result of the Supreme Court’s decision, Wells
Fargo had, for the first time, an enforceable right to arbitrate plaintiffs’ claims in
this case.
Relying on this intervening change in the law, Wells Fargo moved
to vacate the district court’s judgment. See Motion of May 24, 2011. After Wells
Fargo’s motion was fully briefed, the Appellate Commissioner issued a three-
sentence order denying the motion “without prejudice to renewing the arguments
in the third-cross-appeal brief.” Order of July 15, 2011. Pursuant to that order,
Wells Fargo renews its request that, in light of Concepcion, the Court should
vacate the judgment and remand to district court to decertify the class and dismiss
this case, or to stay further proceedings pending arbitration.
The Court should grant the requested relief because Wells Fargo’s
arbitration provisions are enforceable under Concepcion. In the earlier briefing on
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this issue, plaintiffs argued only that Wells Fargo waived its right to enforce the
arbitration agreement. That argument is without merit.21
A. The CAA’s Arbitration Provisions Are Valid And EnforceableUnder Concepcion.
A right to arbitration exists if (1) there is a valid written
arbitration agreement between the parties, and (2) the dispute falls within the
scope of the arbitration agreement. See Rent-A-Center, W., Inc. v. Jackson, 130
S. Ct. 2772,
2782 (2010). Both conditions are met here.
First, there is a valid arbitration agreement. The CAA contains
provisions requiring individual, non-class wide arbitration of disputes arising from
or relating to their checking accounts. See, e.g., ER683-84. The agreement
provides that “any arbitration we have shall not be consolidated with any other
arbitration and shall not be arbitrated on behalf of others without the consent of
each of us.” ER 684. The Supreme Court’s decision in Concepcion establishes
that such agreements are now valid and enforceable.
Second, the dispute in this case falls within the scope of the
arbitration agreement. In construing a broadly-worded arbitration provision, “any
doubts
21 Because the Appellate Commissioner’s order requires Wells Fargo to reargue
this issue in a single brief, without a right of reply, the discussion below addresses both Wells Fargo’s affirmative arguments and its responses to the arguments made by plaintiffs in their opposition to the motion to vacate.
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concerning the scope of arbitrable issues should be resolved in favor of
arbitration.” Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1,
24-25 (1983). “[O]nly the most forceful evidence of a purpose to exclude the
claim from arbitration can prevail.” AT&T Techs., Inc. v. Commc’ns Workers of
Am., 475 U.S. 643, 654 (1986) (internal marks and citation omitted). The party
seeking to avoid arbitration bears the burden of rebutting the presumption of
arbitrability. Phoenix Newspapers, Inc. v. Phoenix Mailers Union Local 752, Int’l
Bhd. of Teamsters, 989 F.2d 1077, 1080 (9th Cir. 1993).
The arbitration agreement between Wells Fargo and plaintiffs
covers “any unresolved disagreement” between the parties “that relates in any
way” to the checking accounts at issue, and includes statutory, common law, and
equitable claims. ER684 (emphasis added). Plaintiffs’ claims clearly relate to
their
checking accounts, and thus fall within the broad scope of the
arbitration agreement.
B. Wells Fargo Has Not Waived Its Right To Arbitration Because ItSought To Exercise Its Right As Soon As It Existed.
Wells Fargo has not waived its right to arbitration. To demonstrate
a waiver of arbitration rights, plaintiffs must show: “(1) knowledge of an existing
right to compel arbitration; (2) acts inconsistent with that existing right; and
(3) prejudice to the party opposing arbitration resulting from such
inconsistent acts.” Fisher v. A.G. Becker Pariobas Inc., 791 F.2d 691, 694
(9th Cir. 1986)
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(emphasis added). “Any examination of whether the right to compel arbitration has
been waived must be conducted in light of the strong federal policy favoring
enforcement of arbitration agreements,” and therefore “any party arguing waiver of
arbitration bears a heavy burden of proof.” Id. (citation and quotation marks
omitted).
Plaintiffs cannot satisfy their heavy burden of proof. Before the
Supreme Court decided Concepcion, Wells Fargo had no right to compel
arbitration because class arbitration waivers were unenforceable under California
law. Because Wells Fargo had no right to compel arbitration, it could not have
knowledge of, nor take actions inconsistent with, such a right. Nor could plaintiffs
be prejudiced by inconsistent acts, because there were no such acts.
1. Prior to Concepcion, Wells Fargo Lacked An Existing RightTo Enforce The Arbitration Agreement.
From the time plaintiffs filed their complaint on November 21,
2007, until the Supreme Court decided Concepcion, Wells Fargo’s class arbitration
waiver was unenforceable under decisions of the California courts and this Court.
In Discover Bank v. Super. Ct., 113 P.3d 1100 (Cal. 2005), the California Supreme
Court held that class arbitration waivers are unenforceable when: [1] “found in a
consumer contract of adhesion [2] in a setting in which disputes between the
contracting parties predictably involve small amounts of damages, and [3] when it
is alleged that the party with the superior bargaining power has carried out a
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scheme to deliberately cheat large numbers of consumers out of individually small
sums of money.” Id. at 1110. See also Gatton v. T-Mobile USA, Inc., 152 Cal.
App. 4th 571, 579-581 (Ct. App. 2007); Szetela v. Discover Bank, 97 Cal. App. 4th
1094, 1100-01 (Ct. App. 2002).
This Court agreed that class arbitration waivers were
unenforceable under California law. In Shroyer v. New Cingular Wireless Servs.,
Inc., 498 F.3d
976 (9th Cir. 2007), the Court, applying California law, held that a class action
waiver in a standard-form consumer contract was unenforceable. The Court noted
that “[o]n two prior occasions, we have held that class arbitration waivers in
contracts of adhesion are both procedurally and substantively unconscionable.” Id.
at 982 (citing Ingle v. Circuit City Stores, Inc., 328 F.3d 1165, 1176 (9th Cir. 2003)
and Ting v. AT&T, 319 F.3d 1126, 1150 (9th Cir. 2003)). The Court observed that
its holding was “similar to that reached by district judges in the Northern, Central
and Southern District of California in at least ten other cases.” Id. at 978 & n.1
(citing cases). Indeed, the Court thought the result in Shroyer was so clear that it
decided the case without oral argument, and Judge Rymer wrote separately to state
that the result follows from three of this Court’s prior decisions, as well as the
California Supreme Court’s decision in Discover Bank. Shroyer, 498 F.3d at 993
(Rymer, J., concurring). Subsequent decisions of this Court reaffirmed the law of
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this Circuit.22
Other courts likewise declined to enforce arbitration
agreements containing class arbitration waivers under the laws of various
states.23
In Concepcion, the Supreme Court reversed these decisions. It held
that “[r]equiring the availability of classwide arbitration interferes with
fundamental attributes of arbitration and thus creates a scheme inconsistent with
the FAA.” 131 S. Ct. at 1748. The Court concluded that “class arbitration greatly
increases risks to defendants,” because “[t]he absence of multilayered review
makes it more likely that errors will go uncorrected.” Id. at 1752. The Court
found “it hard to believe that defendants would bet the company with no effective
means of review.” Id. Indeed, the Court noted, the American Arbitration
Association has no record of any class arbitration decision on the merits. Id. at
1751.
22 See Hoffman v. Citibank (S.D.), N.A., 546 F.3d 1078, 1084-85 (9th Cir. 2008)
(bank’s class arbitration waiver in credit card agreements unenforceable); Lowdenv. T-Mobile USA, Inc., 512 F.3d 1213, 1219-22 (9th Cir. 2008) (FAA does not preempt state law governing the enforceability of class arbitration waivers); Davisv. Chase Bank USA, N.A., 299 Fed. App’x 662, 664, No. 07-55561, 2008 WL4832998 (9th Cir. Nov. 3, 2008) (credit card company’s class arbitration waiver unenforceable).23
See Gordon v. Branch Banking & Trust, No. 09-15399, 2011 WL 1111718 (11th Cir. Mar. 28, 2011) (Georgia law); Vasquez-Lopez v. Beneficial Or., Inc.,152 P.3d 940 (Or. Ct. App. 2007) (Oregon law); Fiser v. Dell Computer Corp., 188
P.3d 1215 (N.M. 2008) (New Mexico law); Muhammad v. Cnty. Bank of RehobothBeach, Del., 912 A.2d 88 (N.J. 2006) (New Jersey law); Powertel, Inc. v. Bexley,743 So. 2d 570 (Fla. Dist. Ct. App. 1999) (Florida law).
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In the prior briefing on this issue, plaintiffs argued that Wells Fargo
waived its right to arbitration by not asserting it prior to the Supreme Court’s
decision in Concepcion. In the months since Concepcion, similar arguments have
been repeatedly rejected by district courts in this Circuit, which have held that
motions to enforce arbitration agreements similar to the one at issue here would
have been futile before the Supreme Court’s decision.24
This Court should reach
the same result.
In the prior briefing, plaintiffs argued that it would not have been
futile for Wells Fargo to seek arbitration because its arbitration agreement is
distinguishable from the agreement in Discover Bank. Plaintiffs asserted that
Discover Bank applied only to a “contract of adhesion” and that Wells Fargo does
not consider the CAA to be a contract of adhesion, as evidenced by the bank’s
denial that the CAA contained “unconscionable” provisions. This is a non
sequitur. A consumer contract may be a contract of adhesion – i.e., a standard-
24See, e.g., Swift v. Zynga Game Network, Inc., 2011 WL 3419499 (N.D. Cal.
Aug. 4, 2011); Morse v. ServiceMaster Global Holdings, Inc., 2011 WL 3203919 (N.D. Cal. July 27, 2011); Nakana v. ServiceMaster Global Holdings, Inc., 2011WL 3206592 (N.D. Cal. July 27, 2011); Bryant v. Service Corp. Int’l, 2011 WL2709643 (N.D. Cal. July 12, 2011); Estrella v. Freedom Fin., No. C 09-03156 SI,2011 WL 2466449 (N.D. Cal. July 5, 2011); In re Cal. Title Ins. Antitrust Litig.,2011 WL 2559633 (N.D. Cal. June 27, 2011); Villegas v. US Bancorp, 2011 WL2679610 (N.D. Cal. June 20, 2011); Arellano v. T-Mobile USA, Inc., 2011 WL1842712 (N.D. Cal. May 16, 2011).
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form, non-negotiable contract – without being unconscionable. As the Supreme
Court noted in Concepcion, “the times in which consumer contracts were anything
other than adhesive are long past.” 131 S. Ct. at 1750.
Second, plaintiffs contended that Discover Bank was
distinguishable because the disputes at issue here do not involve “predictably
small amounts of damages.” That contention is false. The two named plaintiffs
claimed individual damages in the amount of $66.00 and $173.00, respectively,
see ER12, 20, which is far less than the amounts at issue in the cases cited by
plaintiffs.25
Prior to Concepcion, it appears that no court had enforced a class
arbitration waiver when
the dispute involved individual sums less than $1,000, and some set the bar higher.
See Shroyer, 498 F.3d at 984.
In sum, plaintiffs cannot show that Wells Fargo had knowledge of
an existing right to arbitration—as they must to establish waiver—because the
bank lacked an existing right to enforce the arbitration agreement until the
Supreme Court decided Concepcion. See Fisher, 791 F.2d at 697.
25 See, e.g., Dalie v. Pulte Home Corp., 636 F. Supp. 2d 1025, 1030 (E.D. Cal.
2009) (plaintiffs’ “average individual damage award exceed[ed] $1000”); Consumer 3 v. Americredit Fin. Servs., Inc., No. 09cv1076, 2009 WL 4895280, at *7 (S.D. Cal.Dec. 11, 2009) (amount of damages exceeded $5,000).
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2. Wells Fargo’s Efforts To Defend Itself In The District CourtWere Not Inconsistent With An Existing Right ToArbitrate.
Wells Fargo did not waive its arbitration rights by litigating in
district court. Before Concepcion, Wells Fargo lacked an existing right to compel
plaintiffs to comply with the arbitration agreement. Under this Court’s decisions,
“there could be no waiver [when] there was no existing right to arbitration.”
Letizia v. Prudential Bache Sec., Inc., 802 F.2d 1185, 1187 (9th Cir. 1986).
In Fisher, the defendant moved to compel arbitration on the eve of
trial, after nearly three and half years of litigation. 791 F.2d at 693. Prior to the
defendant’s motion, most federal courts had adopted the “intertwining doctrine,”
which precluded arbitration when arbitrable and nonarbitrable claims arose out of
the same transaction. Id. at 696-97. While the litigation was pending, however,
the Supreme Court rejected the intertwining doctrine, thus allowing arbitration of
the plaintiffs’ claims. Id. at 694-95.
This Court held that “it was futile to file a motion to compel
arbitration until [the Supreme Court’s decision].” Fisher, 791 F.2d at 695. As a
result, “the fact that [defendant] did not file its motion to compel arbitration until
the Supreme Court’s decision in Byrd was not inconsistent with the agreement to
arbitrate disputes arising out of its contract.” Id. at 697. See also Conover v. Dean
Witter Reynolds, Inc., 837 F.2d 867, 868 (9th Cir. 1988) (per curiam) (“The delay
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in filing a motion to compel was not inconsistent conduct. An earlier motion to
compel would have been futile.”).26
The same is true in this case. Wells Fargo’s failure to invoke the
arbitration provision at an earlier stage of the litigation was not an intentional
abdication of its arbitration rights because invoking the arbitration provision would
have been futile under then-governing law. Wells Fargo did not have an existing
right to arbitration until the Supreme Court acted.
In the prior briefing, plaintiffs attempted to distinguish Fisher on the
ground that it involved “bright-line rules of law that, unlike Discover Bank,
definitively made the provisions at issue unenforceable.” Not so. The
“intertwining doctrine” at issue in Fisher precluded arbitration when arbitrable and
nonarbitrable claims were “sufficiently intertwined factually and legally.” Dean
Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 216 (1985). Rather than establishing a
bright-line rule, the intertwining doctrine required a case-by-case evaluation of
26 Other courts of appeals have likewise held that parties are not required to file
a futile motion for arbitration to avoid waiver. See Peterson v. Shearson/Am. Express, Inc., 849 F.2d 464, 466 (10th Cir. 1988) (“There was no requirement [to] make a futile attempt to obtain arbitration on the federal claim given the state of the law”); Benoay v. Prudential-Bache Sec., Inc., 805 F.2d 1437, 1440 (11th Cir.1986) (per curiam) (no waiver where the “right to arbitrate . . . did not accrue”until an intervening Supreme Court decision); Ackerberg v. Johnson, 892 F.2d
1328, 1333 (8th Cir. 1989) (“[W]e cannot find waiver, the voluntary relinquishment of a known right, in a situation in which no right existed.”).
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“subtle yet significant” features of plaintiffs’ claims. Sibley v. Tandy Corp., 543
F.2d 540, 543 (5th Cir. 1976). Here, by contrast, multiple judicial decisions
established that arbitration provisions like the one at issue here were unenforceable
under California law.
Plaintiffs attempted to support their waiver argument by citing
cases in which the court held that a party waived its right to arbitrate by actively
litigating in court. In each of those cases, however, the court found a waiver
because the party chose to litigate in the face of an existing and enforceable right to
arbitrate. See, e.g., Van Ness Townhouses v. Mar Indus. Corp., 862 F.2d 754, 759
(9th Cir. 1988) (party “did not move to arbitrate . . . even though it had a right to
do so” for over two years). In no case did the court find a waiver where, as here, it
would have been futile to make a motion at an earlier stage of the case.
3. Plaintiffs Were Not Prejudiced By Acts Inconsistent WithAn Existing Right To Arbitration.
Plaintiffs also have not suffered the kind of prejudice necessary to
establish a waiver of arbitration rights. In the prior briefing, plaintiffs argued that
they would be prejudiced if the Court were to enforce the arbitration agreement.
But for purposes of a waiver analysis, the relevant question is not whether
plaintiffs would be worse off if required to arbitrate. The relevant question is
whether they have been prejudiced by acts of Wells Fargo that were inconsistent
with an existing right to arbitration. Fisher, 791 F.2d at 694. Because Wells Fargo
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lacked an existing right to arbitration while this case was pending in the district
court, plaintiffs did not suffer the kind of prejudice that is relevant to the waiver
analysis.
In cases in which an arbitration motion has been denied on prejudice
grounds, there was no finding that it would have been futile to make the motion at
an earlier stage of the case.27
Instead, the party chose to litigate the case in the
face of an existing right to arbitrate. In this case, in contrast, Wells Fargo’s actions
were not inconsistent with an “existing right,” since that right did not exist until the
Court’s decision in Concepcion.
The situation here results from the Supreme Court’s precedent-
shattering decision in Concepcion, not from anything that Wells Fargo did or failed
to do at an earlier stage of the litigation. If Wells Fargo had filed a motion to
compel arbitration pursuant to the agreement, the district court undoubtedly would
have denied it, citing cases such as Discover Bank and Shroyer, and the case would
27 See, e.g., Van Ness Townhouses, 862 F.2d 754 (finding waiver where a party
could have requested arbitration, but instead chose to actively litigate a case for over two years); Transamerica Corp. v. Nat’l Union Fire Ins. Co., Nos. 93-55490,93-55498, 1994 WL 712173, at *1-2 (9th Cir. 1994) (finding waiver by litigating in the face of an existing right to arbitrate); Forrester v. Penn Lyon Homes, Inc.,553 F.3d 340, 343 (4th Cir. 2009) (finding waiver where a party could have raised arbitration at an earlier stage); Metz v. Merrill Lynch, Pierce, Fenner & Consumer 3, Inc.,39 F.3d 1482, 1490 (10th Cir. 1994) (finding waiver where a right to arbitrate
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have proceeded to trial. If Wells Fargo had sought to pursue an interlocutory
appeal of an order denying arbitration, this Court would have affirmed the district
court’s order under the same precedents.
Courts do not require a “litigant to engage in futile gestures merely
to avoid a claim of waiver.” Miller v. Drexel Burnham Lambert, Inc., 791 F.2d
850,
854 (11th Cir. 1986) (per curiam). Had Wells Fargo moved to compel arbitration
before trial, there could be no dispute that Wells Fargo had preserved its arbitration
rights. Yet the practical result would have been the same: the case would have
proceeded to trial.
C. The Fact That Plaintiffs’ Claims Have Been Tried Does Not AlterThe Waiver Analysis.
The waiver analysis is not changed by the fact that the Supreme
Court decided Concepcion while this case was on appeal. Under this Court’s
precedents, waiver of a right to arbitration requires acts inconsistent with an
existing right to arbitration. Fisher, 791 F.2d at 694. As explained above, Wells
Fargo had no existing right to arbitration while the case was pending in the district
court, and
thus it would have been futile for Wells Fargo to file a motion for arbitration. That
situation did not change until the Supreme Court decided Concepcion.
In prior briefing, plaintiffs argued that arbitration rights can never
be asserted following a trial on the merits. To support this argument, plaintiffs
cited cases in which the parties had an existing right to arbitration and chose to
proceed
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to trial. None of those cases addresses the situation presented here, where it would
have been futile to seek arbitration. The precedents that apply in this situation are
those, like Fisher, holding that a party opposing arbitration must show that the
party seeking arbitration waived or forfeited the right by “act[ing] inconsistently
with a known existing right to compel arbitration.” 791 F.2d at 697. That
principle applies whether the law changes on the eve of trial (as in Fisher) or while
the case is on direct appeal. To our knowledge, no court has ever adopted
plaintiffs’ proposed rule that arbitration agreements cannot be enforced after trial.28
Plaintiffs also argued that it would be unfair to permit Wells Fargo
to relitigate claims and defenses in a different forum. But the parties agreed to an
arbitral forum, and a court may not refuse to enforce such an agreement based on
the possible outcome. See Concepcion, 131 S. Ct. at 1752 (“Arbitration is a matter
of contract, and the FAA requires courts to honor parties’ expectations.”). Nor is
granting arbitration after a trial on the merits counter to the policy behind the FAA.
28 In the prior briefing, plaintiffs argued that the waiver analysis should be
informed by principles of res judicata and laches. But there is a “traditional exception to res judicata ‘where between the time of the first judgment and the second there has been an intervening decision or a change in the law creating analtered situation.’” Clifton v. Attorney Gen. of Cal., 997 F.2d 660, 663 (9th Cir.1993) (citation and internal quotation marks omitted). Similarly, “[d]elay for the purpose of awaiting a change of previously unfavorable law is reasonable delay forpurposes of laches, and does not constitute a lack of diligence.” In re Beaty, 306F.3d 914, 927 (9th Cir. 2002).
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The Supreme Court has “reject[ed] the suggestion that the overriding goal of the
Arbitration Act was to promote the expeditious resolution of claims.” Byrd, 470
U.S. at 219. Instead, “the central or ‘primary’ purpose of the FAA is to ensure that
‘private agreements to arbitrate are enforced according to their terms.’” Stolt–
Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758, 1773 (2010) (citation and
quotation marks omitted).
In sum, the fact that the Supreme Court did not decide
Concepcion until plaintiffs’ claims have been tried does not prevent the Court
from enforcing the parties’ arbitration agreement.
D. At A Minimum, The Court Should Vacate The District Court’sCertification Of The Class.
Even if this Court were to conclude, contrary to the arguments set
out above, that the named plaintiffs suffered prejudice as a result of Wells Fargo’s
failure to file a motion for arbitration at an earlier stage of this case, and that this
prejudice results in a waiver of the right to arbitrate, those conclusions would not
extend to absent class members. Absent class members retain the right to pursue
individual claims in arbitration, because the pendency of a class action tolls the
statute of limitations for absent class members. See Crown, Cork & Seal Co. v.
Parker, 462 U.S. 345, 351 (1983); Eisen v. Carlisle & Jacquelin, 417 U.S. 156,
176 n.13 (1974).
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Absent class members will not be prejudiced if the arbitration
agreement is respected. Indeed, they will likely be in a stronger position than they
would have been had arbitration been required earlier, as they will have access—at
no cost to themselves—to the extensive discovery and full trial record already
developed. See Fogarty v. Piper, 781 F.2d 662 (8th Cir. 1986) (per curiam).29
Thus, at a minimum, this Court should vacate and remand to the
district court to decertify the class so that absent class members’ claims can be
arbitrated on an individual basis.
CONCLUSION
The district court’s judgment should be vacated and remanded in
light of Concepcion. Alternatively, the judgment should be reversed.
29 Rule 23 imposes inherent limitations on absent class member discovery and
“such burdens are rarely imposed.” Phillips Petroleum Co. v. Shutts, 472 U.S.797, 810 n.2 (1985). See also Pierce v. County of Orange, 526 F.3d 1190, 1202 n.9 (9th Cir. 2008).
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Respectfully submitted,
Sonya D. WinnerDavid M. JolleyCOVINGTON & BURLING LLP One Front StreetSan Francisco, CA 94111-5356 (415) 591-6000
Emily Johnson HennCOVINGTON & BURLING LLP333 Twin Dolphin Drive, Suite 700Redwood Shores, CA 94065 (650) 632-4700
/s/ R o b ert A . Lo ng, J r. Robert A. Long, Jr.Stuart C. StockKeith A.Noreika Mark W. MosierCOVINGTON & BURLING LLP1201 Pennsylvania Avenue NW Washington,DC 20004–2401(202) 662–6000
Attorneys for Defendant-Appellant Wells Fargo Bank, N.A.
August 15, 2011
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CERTIFICATE OF COMPLIANCE
This brief complies with the type-volume limitations of Federal
Rule of Appellate Procedure 32(a)(7)(B) because it contains 17,878 words,
excluding the parts of the brief exempted by Rule 32(a)(7)(B)(iii). This brief
complies with the typeface requirements of Rule 32(a)(5) and the type style
requirements of Rule
32(a)(6) because it has been prepared in a proportionally spaced typeface using
Microsoft Word 2010 in Times New Roman and 14 point font.
/s/ R o b ert A . Lo ng, J r. Robert A. Long,Jr.
August 15, 2011
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CERTIFICATE OF SERVICE
I hereby certify that I electronically filed the foregoing with the
Clerk of the Court for the United States Court of Appeals for the Ninth Circuit by
using the appellate CM/ECF system on August 15, 2011.
I certify that all participants in the case are registered CM/ECF
users and that service will be accomplished by the appellate CM/ECF system.
/s/ R o b ert A . Lo ng, J r. Robert A. Long,Jr.
August 15, 2001
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IN THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
)CONSUMER 1, et al., ) Nos. 10-16959, 10-17468 &individually and on behalf of all others )
10-17689 similarly situated, )
) Plaintiffs-Appellees-Cross-Appellants
)) D.C. No. 3:07-cv-05923-WHA
v. ) U.S. District Court for Northern) California, San Francisco
WELLS FARGO BANK, N.A., ))
Defendant-Appellant-Cross-Appellee. )
)
UNOPPOSED MOTION TO EXCEED TYPE-VOLUME LIMITATION
Pursuant to Ninth Circuit Rule 32-2, Defendant-Appellant-Cross-
Appellee Wells Fargo Bank, N.A. moves for permission to exceed the type-volume
limitation for its Response and Reply Brief in the above-captioned cross-appeal.
Under the rules, Wells Fargo’s brief may contain no more than 14,000 words. See
Fed. R. App. P. 28.1(e)(2)(A)(1). Wells Fargo respectfully requests that the Court
increase this limitation by 3,878 words to allow for the filing of a brief containing
17,878 words. Plaintiffs-Appellees-Cross-Appellants (“Plaintiffs”) consent to this
expansion of the type-volume limitation. Wells Fargo has agreed to consent to a
similar expansion, if necessary, for Plaintiffs’ reply brief.
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This Court’s rules allow for the filing of oversized briefs
“upon a showing of diligence and substantial need.” Circuit Rule 32-2. As
discussed below and in the accompanying Declaration of Robert A. Long, Jr.,
those requirements are satisfied in this case.
Wells Fargo has a substantial need to exceed the type-volume
limitations for two reasons. First, Wells Fargo must respond to the oversized brief
filed by Plaintiffs. As Plaintiffs explained in their motion to file an oversized brief,
this “appeal and cross-appeal present complex questions of first impression for this
Court.” Pls. Mot. 2. Because of the complexity of the case, Plaintiffs requested
permission to file an oversized brief containing 19,380 words. In requesting this
relief, Plaintiffs stated that they “would not oppose a comparable expansion of the
word limit for” Wells Fargo. Id. The Appellate Commissioner granted the motion
and permitted Plaintiffs to file the oversized brief. See Order of May 11, 2011.
Wells Fargo should be permitted to exceed the type-volume limitations because it
must respond to a brief that exceeded those limitations.
Second, Wells Fargo must include in its brief the arguments made
in its Motion to Vacate, filed on May 24, 2011, and the reply in support of that
motion. After Wells Fargo filed its opening brief, the Supreme Court overruled
decisions of the California Supreme Court and this Court, and held that arbitration
clauses containing class arbitration waivers are enforceable. See AT&T Mobility
2
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LLC v. Concepcion, 131 S. Ct. 1740 (2011). Following the Supreme Court’s
decision, Wells Fargo filed a motion to vacate the judgment based on the
intervening change in the law. The Appellate Commissioner issued an order
denying the motion “without prejudice to renewing the arguments in the third-
cross-appeal brief.” Order of July 15, 2011. Wells Fargo’s motion, together with
its reply in support of the motion, contained more than 7,000 words. The type-
volume limitations should be increased in light of the Appellate Commissioner’s
order that these arguments should be incorporated into the third cross-appeal brief.
Wells Fargo has been diligent in attempting to comply with the
type- volume limitations. As discussed above, Wells Fargo must respond to a brief
that exceeded the type-volume limitation by almost 3,000 words, as well as
incorporating additional arguments of more than 7,000 words. Yet, Wells Fargo
seeks only an additional 3,878 words to address all the issues. Wells Fargo’s reply
and response to the cross-appeal contain fewer than 14,000 words. The additional
3,878 words are used entirely for the arguments made in the motion to vacate.
For the foregoing reasons, the motion should be granted.
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Respectfully submitted,
Sonya D. WinnerDavid M. JolleyCOVINGTON & BURLING LLP One Front StreetSan Francisco, CA 94111-5356(415) 591-6000
Emily Johnson HennCOVINGTON & BURLING LLP333 Twin Dolphin Drive, Suite 700Redwood Shores, CA 94065 (650) 632-4700
/s/ R o b ert A . Lo ng, J r. Robert A. Long, Jr.Stuart C. StockKeith A.Noreika Mark W. MosierCOVINGTON & BURLING LLP1201 Pennsylvania Avenue NW Washington,DC 20004–2401 (202) 662–6000
Attorneys for Defendant-Appellant Wells Fargo Bank, N.A.
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CERTIFICATE OF SERVICE
I hereby certify that on August 15, 2011, I caused copies of the foregoing Motion To Exceed Type Volume Limitations to be served upon the following attorneys through the Court’s Electronic Case Filing system:
Richard M. Heimann Michael W. Sobol Roger N. Heller Jordan EliasMikaela BernsteinLieff, Cabraser, Heimann
& Bernstein, LLP275 Battery Street, 29th FloorSan Francisco, CA 94111-3339Telephone: (415) 956-1000Facsimile: (415) 956-1008
Richard D. McCune Jae (Eddie) K. Kim McCune & Wright, LLP2068 Orange Tree Lane, Suite 216Redlands, CA 92374Telephone: (909) 557-1250Facsimile: (909) 557-1275
/ s / R ob e r t A. L ong, J r . Counselfor Appellant WellsFargo Bank, N.A.
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IN THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
)CONSUMER 1, et al., ) Nos. 10-16959, 10-17468 &individually and on behalf of all others )
10-17689 similarly situated, )
) Plaintiffs-Appellees-Cross-Appellants
)) D.C. No. 3:07-cv-05923-WHA
v. ) U.S. District Court for Northern) California, San Francisco
WELLS FARGO BANK, N.A., ))
Defendant-Appellant-Cross-Appellee. )
)
DECLARATION OF ROBERT A. LONG, JR.
I, Robert A. Long, Jr., hereby declare as follows:
1. I am a partner at the law firm of Covington & Burling LLP in
Washington, DC. My firm represents Defendant-Appellant-Cross-Appellee Wells
Fargo Bank, N.A. (“Wells Fargo”), in the above-captioned matter.
2. I am familiar with the matters set forth herein and make
this declaration on personal knowledge and belief in support of the Wells
Fargo’s Unopposed Motion To Exceed Type-Volume Limitation.
3. Plaintiffs-Appellees-Cross-Appellants (“Plaintiffs”) have
consented to Wells Fargo’s request to increase the type-volume limitation by up to
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4,000 words to allow for the filing of a response and reply brief containing up to
18,000 words.
4. Wells Fargo has a substantial need to exceed the type-volume
limitation for the third cross-appeal brief because it must respond to the oversized
brief filed by Plaintiffs. Plaintiffs requested, and were granted, permission to file
an oversized brief containing 19,380 words. See Order of May 11, 2011.
5. Wells Fargo also has a substantial need to exceed the type-
volume limitations because it must include in the brief the arguments made in its
Motion to Vacate and the reply in support of that motion. Following the Supreme
Court’s decision in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011),
Wells Fargo moved to vacate the district court’s judgment based on the intervening
change in the law. The Appellate Commissioner issued an order denying the
motion “without prejudice to renewing the arguments in the third-cross-appeal
brief.” Order of July 15, 2011. Wells Fargo’s motion and reply contained a total
of more than 7,000 words.
6. Wells Fargo has been diligent in attempting to comply with
the type-volume limitations. Wells Fargo’s brief contains 17,878 words. The
reply and response to the cross-appeal contain less than 14,000 words. The
additional
3,878 words are used entirely for the arguments from the motion to vacate.
2