Daniel Hewitt v. Capital One Bank, N.A.

• Court: Court of Appeals for the Seventh Circuit
• Decided: April 8, 2026
• Docket: 25-1974
• Status: Published
• Author: Easterbrook

Opinion

In the United States Court of Appeals For the Seventh Circuit ____________________ No. 25-1974 DANIEL HEWITT and LYNNE THOMPSON, Plaintiffs-Appellants,

v.

CAPITAL ONE, N.A., Defendant-Appellee. ____________________

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 1:24-CV-04839 — Edmond E. Chang, Judge. ____________________

ARGUED FEBRUARY 10, 2026 — DECIDED APRIL 8, 2026 ____________________

Before EASTERBROOK, SCUDDER, and KIRSCH, Circuit Judges. EASTERBROOK, Circuit Judge. Capital One resigned as cus- todian of the funds in plaintiffs’ individual retirement ac- counts (IRAs) and told them that, unless they specified other- wise, their money would be transferred to Inspira Financial Trust (then known as Millennium Trust Company). Plaintiffs concede that their contracts with Capital One gave it every right to resign. After ample time had passed without action on plaintiffs’ behalf, Capital One sent the money to Inspira— which told plaintiffs that, unless they instructed it to invest the money in some other way, it would stay in a “sweeps” 2 No. 25-1974 account based on bank deposits. Plaintiffs did not direct In- spira to act otherwise. The sweeps account paid interest at only 0.02% annually, which for plaintiffs came to less than the management fees that Inspira charged. They eventually sued both Capital One and Inspira for breach of contract, invoking the diversity jurisdiction of 28 U.S.C. §1332. Plaintiffs contend that Capital One acted imprudently in choosing, as successor custodian, an institution that would pay them so licle (which was less than their investments had earned at Capital One). Plaintiffs do not deny that Inspira is a reputable financial institution, but they complain that it too violated its duties by providing such a low return. The district judge did not resolve plaintiffs’ claims against Inspira, for they had promised to arbitrate with it. The judge resolved the claims against Capital One on the merits, dis- missing the complaint under Fed. R. Civ. P. 12(b)(6). 2025 U.S. Dist. LEXIS 60482 (N.D. Ill. Mar. 31, 2025). The judge relied principally on a clause exculpating Capital One from liability for any loss caused by a successor’s decisions. We do not con- sider that clause, however, and we bypass other liability-lim- iting clauses, because Capital One did not break any promise it made to plaintiffs, even viewing the contractual language in the way plaintiffs want us to read it. Plaintiffs’ appeal is lim- ited to Capital One, authorized by a partial final judgment un- der Fed. R. Civ. P. 54(b). Capital One’s power to resign and transfer the assets stems from this clause: We can resign as custodian at any time effective 30 days after we send wriMen notice of our resignation to you. Upon receipt of that notice, you must make arrangements to transfer your IRA to an- other financial organization. If you do not complete a transfer of your IRA within 30 days from the date we send the notice to you, No. 25-1974 3 we have the right to transfer your IRA assets to a successor IRA trustee or custodian that we choose in our sole discretion … .

Capital One gave plaintiffs more than 30 days’ notice and added (going beyond the required notice) that unless they elected otherwise Inspira would put the funds in a sweeps ac- count. Plaintiffs insist that Capital One should have chosen a different successor whose offered rate of return was higher. For this proposition they rely on a principle of state law re- quiring contracting parties to engage in good faith and fair dealing toward each other. See Dieckman v. Regency GP LP, 155 A.3d 358, 367 (Del. 2017); Ward’s Equipment, Inc. v. New Hol- land North America, Inc., 254 Va. 379, 385 (1997). (The parties dispute whether Delaware or Virginia supplies the governing law, but as both states appear to use the same approach we need not decide who is right.) Capital One contends that the good-faith principle is just a way to resolve contractual ambi- guities and that this contract is not ambiguous. To simplify macers, however, we assume that the principle applies. Even on that assumption, plaintiffs must lose. Capital One did not exploit a contractual loophole to enrich itself at cus- tomers’ expense. The complaint asserts that Capital One re- ceived “valuable consideration for the transfer”, but plaintiffs have not told us what this means or cited any decision in ei- ther Delaware or Virginia requiring a resigning custodian to disclose the financial terms of the transaction. What is unfair—or evinces a departure from good faith— about giving customers complete discretion to choose a suc- cessor custodian and complete discretion to choose the vehi- cles through which the successor deploys the money? Plain- tiffs do not contend that Capital One set out to make the funds’ disposition hard to change. That might be a problem, because some customers devote licle acention to notices or lack the intellectual capacity to make independent decisions. 4 No. 25-1974 Nor do plaintiffs say that Capital One arranged for Inspira to offer lower rates of return than customers whose funds came from sources received from Inspira’s sweeps account. Simi- larly there might have been a problem if Capital One had sent incomplete or confusing notices. But plaintiffs do not make such an argument or contend that they were unable to choose. And the arrangement to route the money presumptively to a sweeps program minimized customers’ risk until they made their own decisions. One can only imagine the howls that would have arisen had Inspira put the money in a stock mar- ket fund that promptly lost 10% of its value. The sweeps fund didn’t pay much, but it carried trivial risk. Pucing money from rolled-over IRAs into sweeps accounts is normal in the financial-services industry. Plaintiffs easily could have discovered the rate of return that Inspira was offering on its sweeps account. They could have told Inspira to put the money in a different vehicle (such as a stock market index fund) or had Capital One send it to a money manager other than Inspira. They could have learned the rates of return available from Fidelity, Vanguard, Schwab, or other mutual-fund operators. Capital One gave them time to do this before the transfer—and plaintiffs could have moved the money freely after it arrived at Inspira. Plaintiffs do not contend that Capital One handed their money to a known or suspected thief or Ponzi-scheme operator. Since plaintiffs could have chosen for themselves who would man- age their money, and in what investment vehicle, it is impos- sible to conclude that Capital One deprived them of good faith or fair dealing in carrying out its obligations. AFFIRMED