JOHN R. TUNHEIM, District Judge.
Plaintiff Jeremy Cobb brings this action alleging violations of the Electronic Fund Transfer Act, 15 U.S.C. §§ 1693 et seq. ("EFTA"), as well as claims for conversion and unjust enrichment against Defendant PayLease LLC ("PayLease") arising out of an insufficient funds return fee assessed to Cobb's bank account by PayLease. Cobb's complaint also includes class allegations. PayLease moves to dismiss Cobb's Amended Complaint in its entirety. Because, taking the allegations in the Amended Complaint as true, Cobb has stated a claim under EFTA, and his allegations fall within the scope of conversion and unjust enrichment theories, the Court will deny PayLease's motion.
On May 14, 2013, Cobb submitted an apartment rental application to Common Properties Management Cooperative ("Common Properties"). (Am. Compl. ¶ 11, Jan. 2, 2014, Docket No. 14.) As part of the application process Cobb spoke to a Common Properties representative by telephone and authorized an Automated Clearing House ("ACH") debit from his checking account in the amount of $37.95. (Id. ¶¶ 11-12.) The amount authorized included an application fee of $35.00 plus a convenience charge of $2.95. (Id. ¶ 11.)
On May 16, 2013, due to insufficient funds in Cobb's account, the ACH debit initiated by Common Properties was returned by Cobb's bank as unpaid. (Id.
Cobb alleges that during the telephone conversation with the Common Properties' representative he "was not asked for permission nor was he asked to grant authorization for the collection of any fees via electronic fund transfer (`EFT') in the event of a return of his debit payment." (Am. Compl. ¶ 13.) Additionally Cobb alleges that he "did not voluntarily provide any written or oral permission or authorization to Common Properties, Defendant PayLease, or Defendant's agents permitting the collection of any fees via electronic fund transfer which might result in the event of a return of his ACH debit payment." (Id. ¶ 14.)
Cobb filed the Amended Complaint on January 2, 2014, bringing three claims against PayLease. In Count I, Cobb alleges that PayLease violated EFTA by "initiating or causing to be initiated an electronic funds transfer to collect their NSF fee without first obtaining Plaintiff's authorization." (Am. Compl. ¶ 33.) With respect to this claim Cobb contends that "PayLease has not provided
In reviewing a motion to dismiss brought under Federal Rule of Civil Procedure 12(b)(6), the Court considers all facts alleged in the complaint as true to determine if the complaint states a "`claim to relief that is plausible on its face.'" Gomez v. Wells Fargo Bank, N.A., 676 F.3d 655, 660 (8th Cir.2012) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009)). To survive a motion to dismiss, a complaint must provide more than "`labels and conclusions' or `a formulaic recitation of the elements of a cause of action.'" Ashcroft, 556 U.S. at 678, 129 S.Ct. 1937 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. "Where a complaint pleads facts that are merely consistent with a defendant's liability, it stops short of the line between possibility and plausibility," and therefore must be dismissed. Id. (internal quotation marks omitted). Finally, Rule 12(b)(6) "authorizes a court to dismiss a claim on the basis of a dispositive issue of law." Neitzke v. Williams, 490 U.S. 319, 326, 109 S.Ct. 1827, 104 L.Ed.2d 338 (1989).
EFTA provides a "basic framework establishing the rights, liabilities, and responsibilities of participants" in electronic banking and its primary objective "is the provision of individual consumer rights." 15 U.S.C. § 1693(b). Congress delegated authority and responsibility to the Board of Governors of the Federal Reserve System to "prescribe rules to carry out the purposes of" the Act in order to "prevent circumvention or evasion thereof, or to facilitate compliance therewith." 15 U.S.C. § 1693b; see also 12 C.F.R. § 205.1. The Board has promulgated administrative regulations codified at 12 C.F.R. Part 205, which are commonly referred to as Regulation E. See 12 C.F.R. § 205.1. With respect to remedies for violations, EFTA provides that "any person who fails to comply with any provision of this subchapter with respect to any consumer... is liable to such consumer." 15 U.S.C. § 1693m(a). EFTA authorizes class actions and allows for the recovery of
Cobb brings his EFTA claim under 12 C.F.R. § 205.3(b)(3)(i) which governs notice to consumers with respect to the collection of returned item fees. The regulation provides, in relevant part, that:
12 C.F.R. § 205.3(b)(3)(i). In its motion to dismiss, PayLease argues that EFTA is not applicable to Cobb's claim because (1) an electronic fund transfer was never completed; (2) the $25 fee has since been recredited to Cobb's account; and (3) the transaction was authorized via telephone. Additionally, PayLease argues that Cobb has failed to adequately plead that PayLease did not provide the statutorily required notice to Common Properties, and therefore fails to state a claim under EFTA. Recognizing that "[a]n EFTA claim should be dismissed when neither the language of the statute nor a provision of Regulation E applies to the defendant's conduct," Olen v. N. Tier Retail, LLC, Civ. No. 11-2665, 2012 WL 1580994, at *2 (D.Minn. May 4, 2012), the Court will address each of these arguments in turn.
PayLease first argues that EFTA does not apply to Cobb's claim because no electronic fund transfer was ever completed. Specifically, PayLease argues that "according to the facts asserted by Plaintiff, a fee was merely `assessed' but never actually paid to PayLease" and therefore no electronic fund transfer took place. (Def.'s Mem. in Supp. of Mot. to Dismiss at 8, Feb. 7, 2014, Docket No. 18.)
EFTA defines an "electronic fund transfer" as
15 U.S.C. § 1693a(7). Generally, in order for a defendant's conduct to come within the scope of EFTA the transaction at issue must involve an electronic fund transfer. See Vigneri v. U.S. Bank Nat'l Ass'n, 437 F.Supp.2d 1063, 1066-67 (D.Neb.2006) (granting defendant's motion for summary judgment on EFTA claims because the withdrawal at issue did not constitute an electronic fund transfer); Mitchem v. Paycheck Advance Express, Inc., Civ. No. 99-1858, 2000 WL 419993, at *1 (N.D.Ill. Apr. 14, 2000) ("Without an electronic funds transfer, Mitchem's claims under the EFTA cannot be sustained."). Additionally, where, as here, a plaintiff's claim is based upon a provision of EFTA or Regulation E that regulates a defendant's conduct
The Court finds that the Amended Complaint in combination with the bank statement produced by PayLease — taken as true — plausibly alleges that an electronic fund transaction was completed by PayLease. Cobb's bank account shows that on May 29 a transaction was initiated by PayLease and $25 was "withdraw[n]/subtract[ed]" from Cobb's account. (Miller Decl., Ex. A at 2.) Furthermore, Cobb alleges that PayLease "assessed" a $25 fee to his account and that the "taking" of the fee from his account was a violation of EFTA. (Am. Comp. ¶¶ 3, 17, 38.) Assess means "[t]o charge (a person or property) with a special payment, such as a tax or fine." The American Heritage Dictionary of the English Language 108 (5th ed.2011). Thus, a plain reading of the Amended Complaint indicates that PayLease charged a $25 fee and the fee was removed from Cobb's bank account. The Court finds that this is sufficient to state a claim based upon a completed electronic fund transfer. Although PayLease intimated at oral argument that it may never have actually received the $25 in its own account, suggesting that the transaction was never completed, this contention goes beyond the scope of the allegations in the Amended Complaint, which plausibly allege that a completed transfer occurred, and is therefore not properly considered by the Court at this motion to dismiss stage. Because the Amended Complaint adequately alleges a completed transfer, the Court will deny PayLease's motion to dismiss to the extent it is based on the contention that no electronic fund transfer ever occurred.
PayLease next argues that because the $25 was recredited to Cobb's account on
The Raine court found Raine's reliance on EFTA to be misplaced. The court began by explaining that, under FDIC regulations, no deposit insurance was allowed because the funds were not in her account at the time of the bank's insolvency. Id. at 283. The court then went on to conclude that EFTA did not alter its analysis because "that statute supplies only a cause of action to a customer seeking to have money recredited after an unauthorized withdrawal." Id. (citing 15 U.S.C. §§ 1693f(e), 1693(m)). Specifically, the court explained "EFTA does not change the fact that at the time of the transfer of insured deposits ... the money was not in her account. While she may have had a right to reimbursement for the money removed, she did not have the actual funds in her account at the time the bank failed, and, therefore, the deposit was not covered." Id.
Although the Raine court stated that EFTA "supplies only a cause of action to a customer seeking to have money recredited," id., the context of the court's statement is readily distinguishable from the circumstances in the present case, and the case does not support PayLease's argument that Cobb cannot maintain a cause of action because he has since recovered the $25 fee. First, Raine was discussing the import of EFTA in the context of whether the Act had any bearing on the FDIC's determination of which funds were in the petitioner's account at a particular time for purposes of deposit insurance. The court's statement that EFTA was inapplicable because it supplies a cause of action only for customers seeking to have money recredited meant only that EFTA provides a mechanism for recrediting an account rather than a mechanism by which a consumer can claim that certain funds, which have not yet been recredited, are part of
Second, Raine spoke of recrediting as it relates to EFTA in the context of a very specific statutory provision within the Act. Specifically, Raine cited 15 U.S.C. § 1693f, which is a provision of EFTA dealing with error resolution between consumers and their financial institutions. Section 1693f requires a financial institution to investigate when a consumer informs the financial institution about an alleged error in the consumer's account. See 15 U.S.C. § 1693f(a); Collins v. Mo. Elec. Coops. Emps. Credit Union, Civ. No. 05-0009, 2006 WL 2189693, at *7 (E.D.Mo. July 26, 2006). If a financial institution determines that an error did occur, the statute requires it to promptly "correct the error." 15 U.S.C. § 1693f(b). Additionally, the financial institution can extend its time for conducting an investigation if the institution "provisionally recredit[s] the consumer's account for the amount alleged to be in error" during the pendency of the investigation. Id. § 1693f(c); see also Berenson v. Nat'l Fin. Servs., LLC, 403 F.Supp.2d 133, 144 (D.Mass.2005). Therefore, Raine's statement that EFTA supplies a cause of action to a customer seeking to have money recredited after an unauthorized withdrawal can fairly be read as relating only to the specific statutory provision cited, which governs the relationship between customers and their financial institutions and provides a mechanism for investigation and recrediting of an account. Accordingly, the Court concludes that Raine does not support PayLease's argument because it says nothing about whether liability under EFTA's
PayLease has provided, and the Court has found, no other authority indicating that an entity is absolved of liability arising out of notice provisions of EFTA where it has already recredited the account in question. At least two provisions of EFTA strongly suggest that a plaintiff
First, EFTA provides for the recovery of statutory damages, in addition to "any actual damage sustained" by a consumer. 15 U.S.C. § 1693m(a)(1). The fact that a consumer can recover statutory damages indicates that the consumer need not be able to prove in each case that he has suffered actual damages. See Burns v. First Am. Bank, Civ. No. 04-7682, 2006 WL 3754820, at *6 (N.D.Ill. Dec. 19, 2006) ("[F]or a plaintiff seeking statutory damages, all that is required is proof that the statute was violated." (alteration and internal quotation marks omitted)). Additionally, courts have concluded that even where a plaintiff "did not suffer damages" "`under the plain terms of the Act, civil liability attaches to
Second, EFTA already provides a procedure for a potential defendant to reimburse a plaintiff and avoid liability. Section 1693m(e) provides:
15 U.S.C. § 1693m(e); see also Buechler v. Your Wine & Spirit Shoppe, Inc., 846 F.Supp.2d 406, 410 (D.Md.2012) (explaining that a potential defendant is entitled to the protection of § 1693m(e)'s safe harbor if "before litigation is commenced, the person (1) notifies the consumer concerned of the failure, (2) complies with the requirements of EFTA, and (3) makes an appropriate adjustment to the consumer's account and pays actual damages" (internal quotation marks omitted)). This safe harbor provision — which provides a clear mechanism for defendants to avoid possible liability prior to the commencement of litigation — strongly suggests that merely repaying unauthorized fund transfers is insufficient to avoid liability under EFTA. To allow mere repayment of funds to be sufficient to escape liability under § 1693m(a) would render § 1693m(e)'s safe harbor — which also requires the person to notify the consumer of the failure — superfluous, as a defendant would never have any reason to comply with the notification portion of the safe harbor if it were sufficient to merely return the consumer's funds. See Cody v. Hillard, 304 F.3d 767, 776 (8th Cir.2002) ("[C]ourts should not interpret one provision [of a statute] in a manner that renders other sections in the same statute inconsistent, meaningless, or superfluous." (internal quotation marks omitted)). Because EFTA's provision of statutory damages and safe harbor provision indicate that a defendant cannot escape liability by merely recrediting a consumer's account, the Court will deny PayLease's motion to dismiss to the extent it seeks dismissal on the basis that Cobb recovered the $25 fee prior to the commencement of litigation.
PayLease next argues that EFTA is inapplicable to Cobb's claim because "Plaintiff authorized a non-recurring ACH debit by telephone to his agent, Common Properties." (Def.'s Mem. in Supp. of Mot. to Dismiss at 10.) As noted above, EFTA's definition of electronic fund transfer includes transfers "initiated through [a] telephonic instrument." 15 U.S.C. § 1693a(7). But EFTA specifically exempts from the definition of electronic fund transfer "any transfer of funds which is initiated by a telephone conversation between a consumer and an officer or employee of a financial institution which is not pursuant to a prearranged plan and under which periodic or recurring transfers are not contemplated." 15 U.S.C. § 1693a(7)(E). The term "financial institution" is defined as "a State or National bank, a State or Federal savings and loan association, a mutual savings bank, a State or Federal credit union, or any other person who, directly or indirectly, holds an account belonging to a consumer." 15 U.S.C. § 1693a(9). Courts have observed that the legislative history of EFTA suggests that electronic fund transfers initiated by a telephone conversation with a financial institution are exempt from EFTA "because of the personal element in these transfers." Kashanchi v. Tex. Commerce Med. Bank, N.A., 703 F.2d 936, 940 (5th Cir.1983). In particular, in passing EFTA Congress was concerned with "impersonal transactions, [which] are much more vulnerable to fraud, embezzlement, and unauthorized use than the traditional payment methods," whereas "informal
PayLease argues that because Cobb agreed to authorize the initial $37.95 rental application fee over the phone with a representative of Common Properties, the later charge of $25 by PayLease is exempt under EFTA as a transaction "initiated by a telephone conversation between a consumer and an officer or employee of a financial institution." 15 U.S.C.A. § 1693a(7)(E). But PayLease's argument is misplaced. First, Common Properties is undisputedly not a financial institution as defined by EFTA. Therefore, any telephone conversation between Cobb and Common Properties does not satisfy the exemption under § 1693a(7)(E), which only excludes from the definition of electronic fund transfers transfers initiated by telephone conversations between a consumer and an officer or employee of a financial institution. Although PayLease appears to argue that the Court should expand the exemption to include transfers initiated by any telephone conversation that has an element of personal contact, it has provided no support for this expansion in light of the unambiguous language of the statute which confines the exemption to telephone conversations with representatives of financial institutions. See Carcieri v. Salazar, 555 U.S. 379, 387, 129 S.Ct. 1058, 172 L.Ed.2d 791 (2009) (explaining that "settled principles of statutory construction" require courts to "apply the statute according to its terms" where "the statutory text is plain and unambiguous"). Second, even if a telephone conversation initiating an electronic transfer of funds between a consumer and any entity was sufficient to take the transaction out of EFTA, here, the transaction at issue was not authorized by telephone. The telephone conversation between Cobb and Common Properties alleged in the Amended Complaint authorized only the electronic fund transfer of the $37.95 rental application fee. The telephone conversation included no mention of the later $25 fee, nor did Cobb authorize the $25 fee during the conversation. Moreover, the $25 fee was subtracted from Cobb's account in an entirely separate electronic fund transfer from the transfer of the $37.95 rental application fee. Because the telephone conversation did not authorize or initiate the at-issue transaction, the purposes of the telephone exemption are not met here because there was no personal interaction between the consumer and the electronic device used to facilitate the transaction that subtracted the $25 fee from Cobb's account. Accordingly, the Court will deny PayLease's motion to dismiss Cobb's EFTA claims to the extent it is based upon application of the telephone exception.
Finally, PayLease argues that Cobb's EFTA claims must be dismissed because the Amended Complaint "fails to allege that PayLease did not make the required disclosures to Common Properties." (Reply at 5, Mar. 20, 2014, Docket No. 30.) Specifically, PayLease argues that
(Id. at 5-6.) As support for this argument, PayLease relies upon the official staff interpretations of the notice provision underlying Cobb's EFTA claim, which provide that "[t]he person initiating an EFT to a consumer's account to electronically collect a fee for an item returned unpaid may obtain the authorization and provide the notices required under § 205.3(b)(3) through third parties, such as merchants." 12 C.F.R. Pt. 205, Supp. I, ¶ 3(b)(3).
The Court concludes that dismissal based upon PayLease's contentions about the nature of Cobb's and its own relationship to Common Properties and what type of notice it did or did not provide to Common Properties would be inappropriate at this stage. The provision of Regulation E that Cobb brings his EFTA claim under provides that "the person initiating an electronic fund transfer to collect a fee for the return of an electronic fund transfer or a check that is unpaid ... must obtain
Under Minnesota law, conversion is "an act of willful interference with personal property, done without lawful justification by which any person entitled thereto is deprived of use and possession." DLH, Inc. v. Russ, 566 N.W.2d 60, 71 (Minn.1997) (internal quotation marks omitted). A claim for conversion requires two elements: (1) that plaintiff has a property interest in some property; and (2) that defendant deprives the plaintiff owner of that interest. Lassen v. First Bank Eden Prairie, 514 N.W.2d 831, 838 (Minn. Ct.App.1994). "The measure of damages in a conversion case is generally the value of the property at the time of the conversion plus interest from that time." Microsoft Corp. v. Ion Techs. Corp., 484 F.Supp.2d 955, 963 (D.Minn.2007) (internal quotation marks omitted).
PayLease argues that Cobb's claim for conversion based on the taking of the $25 fee must be dismissed because "Plaintiff was returned his fee assessment, and PayLease never received the money." (Def.'s Mem. in Supp. of Mot. to Dismiss at 12.) Cobb acknowledges that he has already recovered the $25 fee, and therefore return of the fee cannot form the basis of his conversion claim. But Cobb argues that his conversion claim can be maintained because "Defendant interfered with, retained, and benefited from [the taking of the $25 fee] until 6 days later on June 4, 2013, when the $25 was replaced by a second fund transfer." (Pl.'s Mem. in Opp'n to Mot. to Dismiss at 14, Mar. 6, 2014, Docket No. 27.) Because the only type of damage recoverable under a conversion theory is the fair market value of the property at the time of the conversion plus interest, the only damages Cobb would be entitled to on this claim are interest on the $25 running from May 29 through June 4. See Olen, 2012 WL 1580994 at *5 & n. 5 (dismissing plaintiff's claim for conversion where the only damages alleged were loss of use of $54 for twenty-four hours and where the terms of the account in which the $54 was kept did not allow plaintiff to accrue interest). Although these damages will likely be miniscule, the Court finds that Cobb has adequately pled a conversion claim based upon PayLease's alleged retention of six-days' worth of interest on the $25 fee. See Tennille v. W. Union Co., 751 F.Supp.2d 1168, 1173 (D.Colo.2010) (denying a motion to dismiss a conversion claim where "[b]y holding customers' unclaimed deposits, sometimes for years, while those deposits accrued interest, and then failing to return that interest or an amount compensating Plaintiffs for the lost time-value of their deposits, Western Union exercised dominion over, and benefitted at Plaintiffs' expense by holding, moneys that belonged to Plaintiffs.... Because Plaintiffs acknowledge Western Union returned the deposit principle, the essential harm alleged is the wrongful retention, and failure to return and/or the conversion of, the interest earned on that principle.").
"To establish a claim for unjust enrichment under Minnesota law, a plaintiff must demonstrate `that another party knowingly received something of value to which he was not entitled, and that the circumstances are such that it would be unjust for that person to retain the benefit.'" Khoday v. Symantec Corp., 858 F.Supp.2d 1004, 1019 (D.Minn.2012) (quoting Schumacher v. Schumacher, 627 N.W.2d 725, 729 (Minn.Ct.App.2001)). Cobb's unjust enrichment claim is based upon the allegation that "[b]y unlawfully collecting NSF Fees from Plaintiff and Class members, Plaintiff and Class members conferred benefits upon the Defendant PayLease, to which it was not and is not legally entitled, which Defendant PayLease nonetheless knowingly and voluntarily appreciated and accepted." (Am. Compl. ¶ 51.) PayLease raises the same arguments in support of dismissal of the unjust enrichment claim as it does with respect to the conversion claim. Similarly, as with his conversion claim, Cobb concedes that the $25 fee originally assessed by PayLease has since been returned to him, and therefore frames his unjust enrichment claim as based upon the benefit PayLease retained by its holding of the $25 for the six-day period between May 29 and June 4.
Although, like the conversion claim, the claim for unjust enrichment could at most entitle Cobb to the small amount of interest earned on the $25 fee in the six-day period, the Court concludes that the allegations in the Amended Complaint are sufficient to allow the claim to move forward at this stage. See Tennille, 751 F.Supp.2d at 1171 (denying defendant's motion to dismiss an unjust enrichment claim where "Plaintiffs allege Western Union accrued interest on moneys belonging to Plaintiffs, during the entire period of time Western Union held those moneys without informing Plaintiffs they remained unclaimed, under circumstances where retaining that interest for itself rather than returning it to Plaintiffs was unfair, inequitable, and unjust"). Failing to require PayLease to pay interest on the $25 could result in a situation where PayLease is left in a better position than it was in before it wrongfully acquired Cobb's funds, which would be contrary to the principles underlying unjust enrichment. See Willis v. Rehab Solutions, PLLC, 82 So.3d 583, 588 (Miss. 2012) ("[T]he party to whom the payment mistake was made must be left in the same situation after he refunds it as he would have been left had the payment to him not been made." (emphasis and internal quotation marks omitted)); cf. Holmes v. Pension Plan of Bethlehem Steel Corp., 213 F.3d 124, 131 (3d Cir.2000) (concluding, in the context of awarding prejudgment interest, that "to allow the Fund to retain the interest it earned on funds wrongfully withheld would be to approve of unjust enrichment" (alteration and internal quotation marks omitted)); Litchfield v. Bank of N.Y., Civ. No. 99-97, 2000 WL 1449848, at *3 (D.Me. Sept. 21,
Based on the foregoing, and all the files, records, and proceedings herein,
