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Financial Services Law Insights and Observations

District Court compels arbitration for most class action overdraft claims

Courts Arbitration Federal Arbitration Act State Issues Overdraft

Courts

On August 23, the U.S. District Court for the Northern District of California held that a portion of a class action suit alleging a bank improperly assessed overdraft fees must proceed to arbitration. According to the opinion, a consumer filed the class action complaint alleging the bank charged multiple non-sufficient funds fees for the same credit card payment transaction, in violation of the contract between the bank and the consumer. The class action alleged claims for breach of contract, or, in the alternative, unjust enrichment, as well as a claim for violating the California Business & Professions Code and a claim for violating the California Consumer Legal Remedies Act. The bank moved to compel arbitration of all the claims based on an arbitration clause contained in the customer deposit agreement. The court concluded that the claims for breach of contract and unjust enrichment are covered by the arbitration clause in the deposit agreement and therefore compelled arbitration. As for the injunctive relief the consumer sought under the California state statutory claims, the consumer argued that the court should apply the California Supreme Court decision in McGill v. Citibank, N.A (covered by a Buckley Special Alert here), which held that a waiver of the plaintiff’s substantive right to seek public injunctive relief is not enforceable, and that “Texas law is contrary to a fundamental policy of California.” The court determined that because Texas does not have a “rule comparable to McGill and because California has a materially greater interest than Texas,” California law applies to the injunctive relief claims and therefore, the claims “must be litigated and not arbitrated.” However, to the extent the consumer sought monetary relief under the state statutory claims, those claims must be arbitrated.

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