Northampton Restaurant Group, Inc. v. Firstmerit Bank, N.A.

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 12a0727n.06
FILED
No. 10-4056
Jul 05, 2012
UNITED STATES COURT OF APPEALS LEONARD GREEN, Clerk
FOR THE SIXTH CIRCUIT
NORTHAMPTON RESTAURANT GROUP, )
INC., and HAMBURGER STATION, INC., )
)
Plaintiffs-Appellants, )
) On Appeal from the United States
v. ) District Court for the Northern
) District of Ohio
FIRSTMERIT BANK, N.A., )
)
Defendant-Appellee. )
Before: BOGGS and GIBBONS, Circuit Judges; RUSSELL, Senior District Judge.*
RUSSELL, Senior District Judge. Northampton Restaurant Group, Inc., and Hamburger Station, Inc.,
(collectively “Northampton” or the “restaurant”) brought suit against FirstMerit Bank, N.A. (“FirstMerit” or
the “bank”) on behalf of themselves and several putative classes, alleging that the bank breached its contracts
with its customers, wrongfully converted their property, and violated the implementing regulations of
Electronic Funds Availability Act (“EFAA” or the “Act”), 12 U.S.C. § 4001 et seq. The district court
dismissed all of Northampton’s causes of action pursuant to a motion to dismiss by FirstMerit under Federal
Rule of Civil Procedure 12(b)(6). Northampton now appeals dismissal of all of the claims.
I. FACTUAL BACKGROUND
Northampton’s primary business is the operation of restaurants in Ohio. To facilitate that business,
Northampton maintains a commercial banking relationship with FirstMerit. Pursuant to contract,
Northampton opened a deposit account (i.e., a checking account) with FirstMerit more than twenty years ago.
*
The Honorable Thomas B. Russell, United States Senior District Judge for the Western District
of Kentucky, sitting by designation.
Approximately ten years ago, Northampton also opened a credit line (i.e., a credit card) with the bank.
Northampton opened the credit line, in part, to provide overdraft protection on its deposit account. If the
assets of the deposit account were ever insufficient to cover the account’s liabilities, the credit line would be
used to cover any overdraft.
Northampton alleged that discrepancies in the deposit account and credit line began occurring in
January of 2007. According to Northampton, the bank used the credit line to cover overdrafts in the deposit
account even though that account held sufficient funds to pay some or all of the items presented for payment.
Each time the credit line was used to cover an overdraft (regardless of whether sufficient funds were available
to cover the item), FirstMerit charged Northampton two separate fees. First, the bank charged Northampton
an overdraft fee on the deposit account. Second, FirstMerit charged a finance fee on the credit line when it
was used to cover an item presented for payment on the deposit account. According to Northampton, the
bank wrongfully charged overdraft and finance fees even though the restaurant had sufficient funds to pay
some or all of the items presented for payment, and these wrongfully imposed fees constituted a breach of
contract by FirstMerit.
Northampton’s breach-of-contract claim centers on a banking practice known as “resequencing.”
When a deposit account is resequenced, items presented for payment on the account during a twenty-four-
hour period are not paid in the order in which they were received. Instead, the items are resequenced and paid
in order of amount, largest to smallest. Thus, even if the largest item presented for payment on any particular
day is the last item received, resequencing causes it to be paid first.
Banks justify resequencing as a means of protecting their customers’ interests. Because the largest
items presented for payment on a deposit account are often those with the greatest consequences if left unpaid
– a payment to a business’s main supplier – banks resequence accounts to ensure that these “big ticket” items
are paid first. Resequencing has at least two interrelated drawbacks, however. First, when the largest items
are paid first, the account’s balance is consumed more quickly and this can result in overdraft fees being
charged on numerous, smaller payments that the account would otherwise have had funds to cover. For
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example, if the largest item presented for payment consumes the account’s entire balance, all other items will
overdraft, and the customer will be charged a fee for each overdraft. Second, if there are insufficient funds
in the account to pay the largest item, then no items get paid, even though the funds would cover some or all
of the lesser items. Additionally, if a credit line has been established for overdraft protection, as in the present
case, and the funds in a resequenced account are insufficient to pay some or all of the items presented for
payment, the credit line will be used to cover the shortfall. Thus, in addition to overdraft fees on the deposit
account, finance fees will be charged for each extension of credit used to cover a shortfall in the deposit
account.
In the present case, Northampton alleged that its contracts with FirstMerit prohibited the bank from
resequencing transactions in its deposit account. FirstMerit allegedly disregarded this prohibition and
wrongfully charged overdraft and finance fees. Northampton also alleged that FirstMerit’s practices were
not restricted to its account but also extended to many of the bank’s other commercial customers, who
comprised the putative classes.
In addition to the breach-of-contract claim, Northampton asserted that FirstMerit wrongfully
converted the restaurant’s property. The conversion claim is closely related to the breach-of-contract claim.
By wrongfully resequencing the accounts, Northampton claimed that FirstMerit converted its property in two
ways. First, the bank used funds in Northampton’s deposit account that were not used to pay items presented
on the account to make investments for the bank’s own benefit. Second, FirstMerit converted Northampton’s
funds when it charged finance fees on the credit line at a time that Northampton’s deposit account contained
sufficient funds to pay some or all of the items presented.
Finally, Northampton alleged that FirstMerit violated the EFAA, 12 U.S.C. § 4001 et seq., and its
implementing regulations in two ways. First, the bank failed to make funds in Northampton’s deposit account
available as required by FirstMerit’s own policies and by the EFAA’s implementing regulations. Second,
FirstMerit failed to disclose its policies on availability of funds or changes in those policies to its customers
within the statutorily prescribed time periods.
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II. STANDARD OF REVIEW
This court reviews de novo a district court’s dismissal of a case pursuant to Federal Rule of Civil
Procedure 12(b)(6), and, in reviewing the dismissal, the court employs the same standard as the district court.
Total Benefits Planning Agency, Inc. v. Anthem Blue Cross & Blue Shield, 552 F.3d 430, 433 (6th Cir. 2008)
(citing First Am. Title Co. v. Devaugh, 480 F.3d 438, 443 (6th Cir. 2007); Nat’l Hockey League Players Ass’n
v. Plymouth Whalers Hockey Club, 419 F.3d 462, 468 (6th Cir. 2005)).
The Federal Rules of Civil Procedure require that pleadings, including complaints, contain a “short
and plain statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). A
complaint may be attacked for failure “to state a claim upon which relief can be granted.” Fed. R. Civ. P.
12(b)(6). When considering a Rule 12(b)(6) motion to dismiss, the court will presume all of the factual
allegations in the complaint are true and will draw all reasonable inferences in favor of the non-moving party.
Total Benefits, 552 F.3d at 434 (citing Great Lakes Steel v. Deggendorf, 716 F.2d 1101, 1105 (6th Cir.
1983)). “The court need not, however, accept unwarranted factual inferences.” Id. (citing Morgan v.
Church’s Fried Chicken, 829 F.2d 10, 12 (6th Cir. 1987)).
Even though a “complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed
factual allegations, a plaintiff’s obligation to provide the grounds of his entitlement to relief requires more
than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (citations omitted). Instead, the plaintiff’s “[f]actual
allegations must be enough to raise a right to relief above the speculative level on the assumption that all the
allegations in the complaint are true (even if doubtful in fact).” Id. (citations omitted). A complaint should
contain enough facts “to state a claim to relief that is plausible on its face.” Id. at 570. A claim becomes
plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that
the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (citing
Twombly, 550 U.S. at 556). If, from the well-pleaded facts, the court cannot “infer more than the mere
possibility of misconduct, the complaint has alleged – but has not ‘show[n]’ – ‘that the pleader is entitled to
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relief.’” Id. at 1950 (citing Fed. R. Civ. P. 8(a)(2)). “[O]nly a complaint that states a plausible claim for relief
survives a motion to dismiss.” Id.
III. ANALYSIS
The district court dismissed all of Northampton’s causes of action under Federal Rule of Civil
Procedure 12(b)(6). Having reviewed the district court’s opinion and analysis of Northampton’s claims, we
find no error in the lower court’s opinion. Upon our own de novo review, we find that Northampton has
failed to state a claim upon which relief can be granted.
As detailed above, Northampton alleged that FirstMerit’s practice of resequencing the restaurant’s
deposit account was a breach of the parties’ contracts. Despite making this claim, Northampton did not attach
any contracts to its complaint and did not include the language of any specific contractual provisions that had
been breached by the bank. In its briefs on appeal, the restaurant admitted that it could not provide the
contracts to the court because it no longer possessed copies of them. Instead, Northampton argued that
dismissal was inappropriate because it should be allowed to conduct discovery in order to obtain the contracts
that would show FirstMerit’s actions violated their agreement. In a recent anti-trust case, a panel of this court
affirmed a Rule 12(b)(6) dismissal in the absence of discovery because:
[T]he language of Iqbal specifically directs that no discovery may be conducted in cases
such as this, even when the information needed to establish a claim of discriminatory pricing
is solely within the purview of the defendant . . . . [The] plaintiff must allege specific facts
of price discrimination even if those facts are only within the head or hands of the
defendants. The plaintiff may not use the discovery process to obtain these facts after filing
suit.
New Albany Tractor, Inc. v. Louisville Tractor, Inc., 650 F.3d 1046, 1051 (6th Cir. 2011). In this case, “[i]t
is a basic tenet of contract law that a party can only advance a claim of breach of written contract by
identifying and presenting the actual terms of the contract allegedly breached.” Harris v. Am. Postal Workers
Union, 198 F.3d 245, 1999 U.S. App. LEXIS 26601, at *14 (6th Cir. Oct. 19, 1999) (per curiam) (table)
(citing Platsis v. E.F. Hutton & Co., Inc., 829 F.2d 13 (6th Cir. 1986); Western Indus., Inc. v. Newcor
Canada, Ltd., 739 F.2d 1198, 1206 (7th Cir. 1984)). Accordingly, just as it would have been inappropriate
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to allow the Louisville Tractor plaintiff to conduct discovery on the issue of price discrimination in order to
avoid dismissal, it would be equally inappropriate to allow Northampton to use the discovery process to find
the contracts in dispute after filing suit. The restaurant was required to allege facts sufficient to make its
breach-of-contract claim plausible on its face, and without the contracts or reference to specific language,
Northampton has failed to put forth a plausible claim for relief.
In any event, attached to its motion to dismiss, FirstMerit included copies of the parties’ contracts,
which expressly show that Northampton agreed that the bank could resequence the deposit account in the
manner of its choosing.1 Furthermore, even in the absence of an agreement, the Ohio commercial code
explicitly allows banks to reorder account transactions in any manner they see fit. See Ohio Rev. Code Ann.
§ 1304.29(B) (LexisNexis 1994) (“[I]tems may be accepted, paid, certified, or charged to the indicated
account of [a bank’s] customer in any order.”);2 Daniels v. PNC Bank, N.A., 738 N.E.2d 447, 449 (Ohio Ct.
App. 2000) (finding that a resequencing program did not violate an account agreement and was expressly
authorized by § 1304.29(B)). Given these facts, Northampton failed to state a claim for breach of contract
upon which relief could be granted, and dismissal of that claim was appropriate.
1
Including the contracts with FirstMerit’s motion to dismiss did not convert that motion into a motion for summary
judgment under Federal Rule of Civil Procedure 12(d) because Northampton expressly referenced those contracts in
its complaint. See Bassett v. Nat’l Collegiate Athletic Ass’n, 528 F.3d 426, 430 (6th Cir. 2008) (“W hen a court is
presented with a Rule 12(b)(6) motion, it may consider the Complaint and any exhibits attached thereto . . . and
exhibits attached to defendant’s motion to dismiss so long as they are referred to in the Complaint and are central to
the claims contained therein.”) (citing Amini v. Oberlin Coll., 259 F.3d 493, 502 (6th Cir. 2001)).
2
Comment 7 to § 1304.29 of the Ohio Revised Code is particularly instructive in this case:
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, having in mind the almost infinite number
of combinations of large and small checks in relation to the available balance on hand in the drawer's
account; the possible methods of receipt; and other variables. 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; and the holders have no direct right against the payor or bank in any
event, unless of course, the bank has accepted, certified, or finally paid a particular item, or has
become liable for it under section 4-302. Under subsection (b) the bank has the right to pay items for
which it is itself liable ahead of those for which it is not.
Ohio Rev. Code Ann. § 1304.29 cmt. 7 (LexisNexis 1994). This comment makes it exceedingly clear that banks may resequence
deposit account transactions in whatsoever order they choose.
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Northampton also alleged a cause of action for conversion and for FirstMerit’s violation of the
EFAA, 12 U.S.C. § 4001 et seq. In a well-reasoned opinion the district court dismissed those claims because
Northampton could not recover as a matter of law. Upon review, the we affirm dismissal of those claims for
the reasons articulated by the district court.
IV. CONCLUSION
For the foregoing reasons, we AFFIRM the judgment of the district court.
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