Pierce v. Safe Credit Union ( 2020 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 ----oo0oo---- 11 12 ANGELIC PIERCE, individually, No. 2:20-cv-985 WBS DB and on behalf of all others 13 similarly situated, 14 Plaintiff, MEMORANDUM AND ORDER RE: MOTION TO REMAND 15 v. 16 SAFE CREDIT UNION, a California Corporation; and DOES 1 through 17 100, inclusive, 18 Defendants. 19 20 ----oo0oo---- 21 Plaintiff Angelic Pierce filed this action against 22 defendant SAFE Credit Union (“SAFE”) and Does 1 through 100, 23 alleging various state law claims arising out of plaintiff’s 24 checking account with SAFE. Before the court is plaintiff’s 25 motion to remand. (Docket No. 10.) 26 I. Factual and Procedural Background 27 Defendant is a credit union and offers its customers 28 checking accounts. (Compl. ¶ 14 (Docket No. 1).) Plaintiff 1 opened a checking account with defendant SAFE. (Compl. ¶ 59.) 2 When opening the account, plaintiff entered into an agreement 3 (“account agreement”) that included “overdraft” and “overdraft 4 privilege service” provisions governing instances in which an 5 account is overdrawn. (Id. ¶¶ 31-32.) On some occasions, 6 defendant allegedly improperly assessed overdraft fees because it 7 determined sufficiency of funds based on an account’s “available 8 balance” -- the actual balance minus anticipated debits and 9 credits in the future (that may or may not occur) -- rather than 10 its “actual balance.” (Id. ¶¶ 26-29.) This practice resulted in 11 SAFE charging overdraft fees even “when there is enough money in 12 the account to cover the transaction.” (Id. ¶ 35.) 13 Further, although the account agreement provided that 14 SAFE would charge “‘a’ (singular) ‘fee’” when funds were 15 insufficient to cover a transaction, SAFE charged multiple fees 16 for the same item. (Id. ¶¶ 36-37.) Defendant charged a fee when 17 an electronic transaction was first processed for payment and the 18 account had insufficient funds, and again when the same 19 transaction was presented for processing again by the payee, even 20 when the account holder took no action to resubmit the 21 transaction for payment. (Id.) Defendant disclosed neither its 22 practice of using the “available balance” for its calculations 23 nor its practice of charging multiple fees on the same item. 24 (Id. ¶ 25.) 25 Plaintiff filed suit in state court alleging the 26 following five causes of action: (1) breach of contract; (2) 27 breach of the implied covenant of good faith and fair dealing; 28 (3) unjust enrichment; (4) money had and received; and (5) 1 violation of the California Unfair Competition Law (“UCL”), Cal. 2 Bus. & Prof. Code §§ 17200, et seq. (See generally Compl.) 3 Defendant removed the action under federal question 4 jurisdiction. (Notice of Removal (Docket No. 1).) Specifically, 5 defendant contended that because plaintiff’s UCL claim alleges a 6 violation of Regulation E, 12 C.F.R. §§ 1005, et seq., 7 plaintiff’s claim necessarily raises a federal question and 8 therefore confers subject matter jurisdiction upon this court. 9 (Id. at 4, ¶ 10.) 10 II. Motion to Remand 11 A. Legal Standard 12 A defendant may remove “any civil action brought in a 13 State court of which the district courts . . . have original 14 jurisdiction.” 28 U.S.C. § 1441. Original jurisdiction may be 15 based on either diversity jurisdiction or federal question 16 jurisdiction. Caterpillar Inc. v. Williams, 482 U.S. 386, 392 17 (1987). “The ‘strong presumption’ against removal jurisdiction 18 means that the defendant always has the burden of establishing 19 that removal is proper.” Gaus v. Miles, Inc., 980 F.2d 564, 566 20 (9th Cir. 1992). The federal removal statutes are strictly 21 construed, and federal court must remand to the state court “if 22 there is any doubt as to the right of removal in the first 23 instance.” Id. 24 The district courts have original jurisdiction under 25 the federal question statute over cases “arising under the 26 Constitution, laws, or treaties of the United States.” 28 U.S.C. 27 § 1331. “Federal jurisdiction over a state law claim will lie if 28 a federal issue is: (1) necessarily raised, (2) actually 1 disputed, (3) substantial, and (4) capable of resolution in 2 federal court without disrupting the federal-state balance 3 approved by Congress.” Gunn v. Minton, 568 U.S. 251, 258 (2013). 4 “Where all four of these requirements are met . . . jurisdiction 5 is proper.” Id. 6 The parties dispute only whether plaintiff’s UCL claim 7 “necessarily raise[s]” a federal issue. “[T]he mere presence of 8 a federal issue in a state cause of action does not automatically 9 confer federal-question jurisdiction.” Merrell Dow Pharm. Inc. 10 v. Thompson, 478 U.S. 804, 813 (1986). Further, “[w]hen a claim 11 can be supported by alternative and independent theories -- one 12 of which is a state law theory and one of which is a federal law 13 theory -- federal question jurisdiction does not attach because 14 federal law is not a necessary element of the claim.” Rains v. 15 Criterion Sys., Inc., 80 F.3d 339, 346 (9th Cir. 1996). In other 16 words, “a claim supported by alternative theories in the 17 complaint” does not establish federal question jurisdiction 18 unless federal law “is essential to each of those theories.” See 19 id. (applying Christianson v. Colt Indus. Operating Corp., 486 20 U.S. 800, 810 (1988)); see also Mulcahey v. Columbia Organic 21 Chems. Co., 29 F.3d 148, 153 (4th Cir. 1994) (“Christianson 22 teaches us that, if a claim is supported not only by a theory 23 establishing federal subject matter jurisdiction but also by an 24 alternative theory which would not establish such jurisdiction, 25 then federal subject matter jurisdiction does not exist.”). 26 B. Application 27 Plaintiff’s fifth cause of action alleges defendant’s 28 practices relating to overdraft fees constitute acts of unfair 1 competition under the UCL. (Compl. ¶¶ 97-105.) Under the UCL, 2 an act of unfair competition includes “any unlawful, unfair or 3 fraudulent business act or practice.” Cal. Bus. & Prof. Code § 4 17200. Each of the UCL’s three prongs is “a separate and 5 distinct theory of liability” and each offers “an independent 6 basis for relief.” See Kearns v. Ford Motor Co., 567 F.3d 1120, 7 1127 (9th Cir. 2009). 8 Here, plaintiff alleges liability based on both the 9 unlawful and unfair prongs. (Compl. ¶¶ 100-102.) To establish 10 federal question jurisdiction, defendant must therefore show that 11 the resolution of a federal issue is essential to each of 12 plaintiff’s two theories of liability. See Rains, 80 F.3d at 13 346. 14 1. Unlawful Prong 15 “By proscribing ‘any unlawful’ business practice, ‘[the 16 UCL] ‘borrows’ violations of other laws and treats them as 17 unlawful practices’ that the unfair competition law makes 18 independently actionable.” Cel-Tech Commc’ns, Inc. v. Los 19 Angeles Cellular Tel. Co., 20 Cal. 4th 163, 180 (1999). 20 Plaintiff alleges that defendant’s conduct is “unlawful” because 21 it violates the “Opt-In Rule” of Regulation E, 12 C.F.R. § 22 1005.17, which requires a financial institution to provide the 23 consumer with a notice (“Opt-In Contract”) describing the 24 overdraft service. The court finds that defendant’s liability 25 under the “unlawful” prong necessarily turns upon defendant’s 26 compliance with a federal regulation and plaintiff does not 27 appear to dispute this point. (See generally Mot.) Resolution 28 of a federal issue is therefore essential to this theory of 1 liability. 2 2. Unfair Prong 3 “California courts have not uniformly settled on a 4 single approach to defining ‘unfair’ business practices in a 5 consumer action under the UCL.” Moralez v. Kern Sch. Fed. Credit 6 Union, No. 1:15-CV-01444 DAD, 2016 WL 2756427, at *3 (E.D. Cal. 7 May 12, 2016) (citing Lozano v. AT & T Wireless Servs., Inc., 504 8 F.3d 718, 736 (9th Cir. 2007)). Prior to 1999, California courts 9 applied what is known as the “balancing test.” Courts “defined 10 ‘unfair’ business practices as those ‘offend[ing] an established 11 public policy or when the practice is immoral, unethical, 12 oppressive, unscrupulous or substantially injurious to 13 consumers,’” or where the utility of the defendant’s conduct does 14 not outweigh the gravity of the harm to the victim. See id.; 15 Cel-Tech, 20 Cal. 4th at 184. 16 In 1999, the California Supreme Court rejected that 17 test and held that a finding of unfairness must instead “be 18 tethered to some legislatively declared policy or proof of some 19 actual or threatened impact on competition.” Cel-Tech, 20 Cal. 20 4th at 186–87. The Cel-Tech court, however, expressly declined 21 to extend this standard to consumer actions. Id. at 187 n.12. 22 Given this split in authority, the Ninth Circuit has concluded 23 that a UCL claim under the “unfair” prong may proceed under 24 either of these standards. Lozano, 504 F.3d at 736. 25 Plaintiff proceeds only under the balancing test. 26 Under the balancing test, “a determination of unfairness involves 27 an examination of [the practice’s] impact on its alleged victim, 28 balanced against the reasons, justifications and motives of the 1 alleged wrongdoer.” McKell v. Washington Mut., Inc., 142 Cal. 2 App. 4th 1457, 1473 (2d Dist. 2006) (internal citations omitted); 3 see also Lozano, 504 F.3d at 735. 4 Here, plaintiff properly pleads a UCL claim for unfair 5 conduct under the balancing test. Plaintiff alleges that 6 defendant’s conduct is “unfair” because it “was not motivated by 7 any legitimate business or economic need or rationale,” “[t]he 8 harm and adverse impact of SAFE’s conduct on members of the 9 general public was neither outweighed nor justified by any 10 legitimate reasons, justifications of motives,” and that the harm 11 to plaintiff in the form of “improper, abusive, and/or 12 unconscionable” overdraft fees when the account had sufficient 13 funds “outweighs the utility, if any, of those practices.” 14 (Compl. ¶¶ 100-101.) Plaintiff properly alleges that the harm 15 caused by defendant’s conduct outweighs its utility, and 16 therefore sufficiently pleads liability under the UCL’s “unfair” 17 prong. 18 Further, plaintiff’s theory of liability is independent 19 of defendant’s compliance with federal law and defendant does not 20 appear to disagree. (See generally Opp’n (Docket No. 11).) 21 Accordingly, because plaintiff may prevail on her UCL claim 22 without reliance on federal law, plaintiff’s claim does not 23 “necessarily raise” a federal issue and does not give rise to 24 federal question jurisdiction. See Gunn, 568 U.S. at 258. 25 For the same reasons, other district courts that have 26 considered this issue in virtually identical overdraft-fee class 27 actions have reached the same conclusion. See, e.g., Moralez, 28 2016 WL 2756427, at *3 (alleging liability under the “unlawful” 1 and “unfair” prongs of the UCL); Lawrence v. Provident Savings 2 Bank, FSB, Case No. 5:16-cv-00352-SVW-MRW, 2016 WL 2979194, at *2 3 (C.D. Cal. May 23, 2016) (same). The courts in Moralez and 4 Lawrence both concluded that, because plaintiffs’ allegations 5 established liability under the UCL’s “unfair” prong 6 independently of federal law, “no federal question jurisdiction 7 attache[d].” Moralez, 2016 WL 2756427, at *3. The same is true 8 here and the court is unaware of authority to the contrary in 9 analogous circumstances. 10 Indeed, every case defendant cites in support is 11 immediately distinguishable because the resolution of each of 12 those cases depended “entirely” on the courts’ adjudication of 13 federal law. See California ex rel. Lockyer v. Dynegy, Inc., 375 14 F.3d 831, 841 (9th Cir. 2004) (“The state lawsuit turns, 15 entirely, upon the defendant’s compliance with a federal 16 regulation.”); see also, e.g., Cent. Valley Med. Grp., Inc. v. 17 Indep. Physician Assocs. Med. Grp., Inc., No. 1:19-CV-00404 LJO 18 SKO, 2019 WL 2491328, at *3 (E.D. Cal. June 14, 2019) 19 (“Plaintiff’s sole theory of UCL unfair competition liability is 20 that [defendant’s] conduct violates policies tethered to federal 21 antitrust laws. Plaintiff does not explicitly plead in its 22 complaint . . . that [defendant’s] alleged conduct violates 23 policies tethered to California-specific constitutional, 24 statutory, or regulatory provisions.”); Johnson v. Morrison 25 Homes, Inc., No. 2:08-CV-01600, 2010 WL 2942745, at *3 (E.D. Cal. 26 July 23, 2010) (“Whether or not Defendants violated the federal 27 statute controls Plaintiff’s right to relief” because 28 “[u]navoidably, the state law claim ‘turns, entirely, upon the 1 defendant's compliance with a federal regulation.’”); Cty. of 2 Santa Clara v. Astra USA, Inc., 401 F. Supp. 2d 1022, 1025 (N.D. 3 Cal. 2005) (“For this case to be resolved on its merits, at least 4 one of the federal issues embedded in the complaint must be 5 addressed. There is simply no other way.”); Nat’l Credit 6 Reporting Ass’n, Inc. v. Experian Info. Sols., Inc., No. C04- 7 01661 WHA, 2004 WL 1888769, at *1 (N.D. Cal. July 21, 2004) 8 (finding federal question jurisdiction where plaintiff alleged 9 that defendant’s business practices were “unfair, unlawful, and 10 deceptive” because they “violate[] state and federal antitrust 11 laws”). None of these cases, unlike the matter at hand, involved 12 alternative theories of liability independent of violations of 13 federal law. 14 Finally, defendant argues that the allegations under 15 the “unlawful” prong involve conduct distinct from those under 16 the “unfair” prong, such that the unlawful conduct constitutes a 17 separate UCL claim. (Opp’n at 4-5, 7-9.) Specifically, 18 defendant alleges that the Complaint challenges three practices: 19 while the “unfair” prong allegations cover defendant’s practices 20 of charging overdraft fees based on the “available balance” and 21 charging multiple fees for a single item, plaintiff’s “unlawful” 22 prong addresses defendant’s third practice of charging overdraft 23 fees on “ATM and non-recurring transactions.” (Compl. ¶ 102; 24 Notice of Removal ¶ 7.) Plaintiff, on the other hand, contends 25 that the third practice is a subset of the other two. 26 The court agrees with plaintiff. First, plaintiff is 27 “the master of the claim” and “may avoid federal jurisdiction by 28 exclusive reliance on state law.” Caterpillar, 482 U.S. at 392. 1 Here, plaintiff pleaded his UCL claim as a single claim under at 2 least one state law theory of liability, and, as “master of the 3 complaint,” “cho[se] to have the cause heard in state court.” 4 Id. at 398-99. Defendant cannot rewrite plaintiff’s claim so as 5 to confer federal jurisdiction. 6 Further, the conduct that plaintiff alleges is 7 “unfair” is the same conduct that plaintiff alleges is 8 “unlawful.” The conduct that allegedly violates Regulation E is 9 the “charging of overdraft fees on ATM and nonrecurring 10 transactions.” (Compl. ¶ 102; see also id. ¶¶ 33-38 (alleging 11 that charging overdraft fees “when there is enough money in the 12 account to cover the transaction” (id. ¶ 35) and charging more 13 than one fee “for the same item” (id. ¶ 36) violate Regulation 14 E).) This conduct is also the basis for plaintiff’s allegations 15 under the “unfair” prong. (Compl. ¶ 100 (“SAFE’s conduct 16 violates the UCL’s ‘unfair’ prong insofar as SAFE charges 17 multiple NSF fees on a single item, and charges overdraft or NSF 18 fees when there is enough money in an account to cover a 19 transaction.”).) Indeed, at oral argument, plaintiff clarified 20 that the only two practices at issue were defendant’s use of the 21 “available balance” and charges of multiple fees per item. 22 Plaintiff’s allegations of “unfair” and “unlawful” conduct 23 therefore constitute only one UCL claim. 24 Because none of plaintiff’s causes of action 25 necessarily raise a federal issue, “defendant has failed to 26 establish a basis sufficient to confer federal subject matter 27 jurisdiction on this court.” Cf. Moralez, 2016 WL 2756427, at 28 *5. The court will therefore remand this action. WwOAOe 2. OU DDE MVEUEEIOTI aor PIR Viewer PF Oye 44 VI tt 1 IT IS THEREFORE ORDERED that plaintiff’s motion to 2 remand (Docket No. 10) be, and the same hereby is, GRANTED; 3 AND IT IS FURTHER ORDERED that this action be, and the 4 same hereby is, REMANDED to the Superior Court of the State of 5 California, in and for the County of Sacramento. 6 Dated: July 17, 2020 oh tle HK (hi. | WILLIAM B. SHUBB 8 UNITED STATES DISTRICT JUDGE 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 11