Moose v. Allegacy Fed. Credit Union

2021 NCBC 30

• Court: North Carolina Business Court
• Decided: May 5, 2021
• Docket: 20CVS4279
• Status: Published

Opinion

Moose v. Allegacy Fed. Credit Union, 2021 NCBC 30.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION FORSYTH COUNTY 20 CVS 4279

TERRI MOOSE, individually and on behalf of all others similarly situated,

Plaintiff,

v. ORDER AND OPINION ON DEFENDANT’S MOTION TO DISMISS ALLEGACY FEDERAL CREDIT UNION,

Defendant.

1. Terri Moose has a checking account with Allegacy Federal Credit Union.

Over the past five years, she has incurred more than $10,000 in overdraft fees. In

this case, she claims that Allegacy’s fee practices are unlawful and has sued

individually and on behalf of a putative class.

2. Allegacy has moved to dismiss the complaint under Rule 12(b)(6) of the

North Carolina Rules of Civil Procedure. For the following reasons, the Court

DENIES the motion.

Morgan and Morgan Complex Litigation Group, by Jean Sutton Martin, Branstetter Stranch & Jennings, PLLC, by Gerard J. Stranch, and Rhine Law Firm, PC, by Martin A. Ramey, for Plaintiff Terri Moose.

Spilman Thomas & Battle, PLLC, by Lee D. Denton, Jeffrey D. Patton, and Bruce M. Jacobs, for Defendant Allegacy Federal Credit Union.

Conrad, Judge. I. BACKGROUND

3. The following background assumes that the allegations in the amended

complaint are true. (Am. Compl., ECF No. 41.)1

4. The overdraft fees at issue involve debit-card transactions. A brief

explanation of the mechanics of these transactions may be helpful. When a

cardholder uses a debit card to make a purchase, no money changes hands at the time

of sale. Rather, the merchant asks the bank (here, Allegacy) to authorize the

transaction. (See Am. Compl. ¶ 24.) By authorizing the transaction, Allegacy

effectively promises to pay the merchant later. (See Am. Compl. ¶ 27.) This process

happens in the blink of an eye thanks to modern telecommunications, but days may

pass before the merchant requests payment. Eventually, Allegacy must settle the

transaction by taking funds from the cardholder’s account and paying the merchant.

(See Am. Compl. ¶ 26.)

5. The period between authorization and settlement is a source of uncertainty.

Neither Allegacy nor the cardholder controls when the merchant will seek payment.

During that time, Allegacy may process checks, account drafts, and new debit-card

purchases that reduce the cardholder’s account balance. (See Am. Compl. ¶ 20.) As

a result, the cardholder may not have enough money in her account to pay for a

transaction at the time of settlement even though Allegacy authorized the transaction

while the account had sufficient funds. (See Am. Compl. ¶ 14.) Moose refers to these

1 Moose filed her amended complaint in October 2020 but, due to a clerical error, did not post

it to the Court’s electronic docket until 26 April 2021. transactions as “Authorize Positive, Settle Negative Transactions,” or “APSN

Transactions.” (Am. Compl. ¶¶ 11, 12.)

6. According to Moose, her account agreement with Allegacy does not permit

overdraft fees for APSN transactions. Under the agreement, Allegacy uses a

cardholder’s “available balance to determine whether there are sufficient funds in

your account to pay items,” including debit-card transactions. (Am. Compl. Ex. A at

6, ECF No. 41.1 [“Account Agrmt.”].) 2 The “available balance” is defined as “the

amount of money in your account that is available for you to use[,]” which is not

necessarily the same as the actual or “current” balance. (Account Agrmt. 6.) In the

course of authorizing a debit-card transaction, Allegacy “places a hold on funds in

your account when the authorization is completed. The ‘authorization hold’ will

reduce your available balance by the amount authorized” but will not immediately

reduce the current balance. (Account Agrmt. 7.) When Allegacy later settles the

transaction, it “result[s] in a reduction in the current balance.” (Account Agrmt. 7.)

7. Moose takes this to mean that she cannot be charged overdraft fees for any

transaction authorized based on a positive available balance. As she puts it, her

account “will always have sufficient funds available to cover these transactions

because [Allegacy] has already sequestered these funds for payment.” (Am. Compl.

¶ 12; see also Am. Compl. ¶ 16.) This remains true, she alleges, even if Allegacy

authorizes “subsequent, intervening transactions” that overdraw the account by

further reducing the available balance below zero. (Am. Compl. ¶ 17.) In that

2 All quotations from the account agreement omit its occasional use of boldface type. circumstance, the intervening transaction may trigger an overdraft fee (because it

was authorized despite a lack of available funds), but the original transaction should

not (because it was authorized based on sufficient funds).

8. In practice, though, Allegacy assesses overdraft fees for APSN transactions.

As alleged, Allegacy reviews each debit-card transaction “both at the time of

authorization and later at the time of settlement.” (Am. Compl. ¶ 46.) Despite

placing a hold on funds at the time of authorization, Allegacy charges an overdraft

fee if intervening transactions drop the available balance below zero at the time of

settlement. (See Am. Compl. ¶¶ 18, 19.) Moose identifies four transactions for which

she incurred overdraft fees even though Allegacy had authorized them based on

sufficient funds. (See Am. Compl. ¶¶ 71–74.)

9. Moose asserts individual and putative class claims for breach of the account

agreement, unjust enrichment, and unfair or deceptive trade practices under

N.C.G.S. § 75-1.1. Allegacy has moved to dismiss the complaint in its entirety. (Mot.

to Dismiss, ECF No. 14.) After full briefing and a hearing in March 2021, the motion

is ripe for disposition.

II. ANALYSIS

10. A motion to dismiss under Rule 12(b)(6) “tests the legal sufficiency of the

complaint.” Isenhour v. Hutto, 350 N.C. 601, 604 (1999) (citation and quotation marks

omitted). The motion should be granted only when “(1) the complaint on its face

reveals that no law supports the plaintiff’s claim; (2) the complaint on its face reveals

the absence of facts sufficient to make a good claim; or (3) the complaint discloses some fact that necessarily defeats the plaintiff’s claim.” Corwin v. Brit. Am. Tobacco

PLC, 371 N.C. 605, 615 (2018) (citation and quotation marks omitted). In deciding

the motion, the Court must treat the well-pleaded allegations of the complaint as true

and view the facts and permissible inferences “in the light most favorable to” the

nonmoving party. Sykes v. Health Network Sols., Inc., 372 N.C. 326, 332 (2019)

(citation and quotation marks omitted).

A. Breach of Contract

11. Moose claims that Allegacy breached the express terms of the account

agreement and the implied covenant of good faith and fair dealing when it assessed

overdraft fees on transactions that had been previously authorized based on sufficient

available funds. (See Am. Compl. ¶¶ 96, 101.) Allegacy moves to dismiss the claim

on the ground that the account agreement permits the alleged fees. (See Br. in Supp.

8–13, ECF No. 8.)

12. “The elements of a claim for breach of contract are (1) existence of a valid

contract and (2) breach of the terms of that contract.” Poor v. Hill, 138 N.C. App. 19,

26 (2000). “In every contract there is an implied covenant of good faith and fair

dealing that neither party will do anything which injures the right of the other to

receive the benefits of the agreement.” Bicycle Transit Auth., Inc. v. Bell, 314 N.C.

219, 228 (1985) (citation and quotation marks omitted).

13. The question here is one of contract interpretation. “A contract that is plain

and unambiguous on its face will be interpreted by the court as a matter of law.”

Schenkel & Shultz, Inc. v. Hermon F. Fox & Assocs., P.C., 362 N.C. 269, 273 (2008). When the contract is ambiguous, its interpretation is a question of fact for the jury.

See id. “An ambiguity exists in a contract when either the meaning of words or the

effect of provisions is uncertain or capable of several reasonable interpretations.”

Variety Wholesalers, Inc. v. Salem Logistics Traffic Servs., LLC, 365 N.C. 520, 525

(2012) (citation and quotation marks omitted).

14. In short, Allegacy interprets the agreement to state that the designated time

for deciding whether a cardholder has enough funds to cover a transaction is when

the merchant requests payment, not when it requests authorization. On that basis,

Allegacy contends that the amended complaint does not state a claim for breach of

the agreement even if the allegations are taken as true. (See Br. in Supp. 11–12.) In

response, Moose insists that the agreement does not allow Allegacy to impose

overdraft fees at a time other than when authorization is requested and given and

that, alternatively and at a minimum, the agreement is ambiguous. (Opp’n 6–9, ECF

No. 10.)

15. Upon careful review, the Court concludes that the account agreement is

ambiguous. The agreement states that Allegacy’s “determination of an insufficient

available account balance may be made at any time between presentation and

[Allegacy’s] midnight deadline with only one (1) review of the account required.”

(Account Agrmt. 6.) It further states that Allegacy may charge a fee for insufficient

funds “each time an item is presented against your available balance.” (Account

Agrmt. 6.) Allegacy construes this to mean that the overdraft determination occurs

at the time a merchant presents an item for payment. But the terms “presentation” and “presented” are not defined. And it is unclear from context whether the “time an

item is presented” necessarily means presentation for payment or may mean

presentation for authorization.

16. Indeed, for purposes of the debit-card transactions at issue, the merchant

must submit requests for both authorization and payment. Upon receiving an

authorization request, Allegacy “places a hold on funds” and reduces the “available

balance by the amount authorized.” (Account Agrmt. 7.) Thus, a cardholder may

reasonably believe that debit-card transactions are “presented against [her] available

balance”—and therefore assessed for sufficient funds—at the time of authorization.

17. The definition of available balance—the “amount of money in your account

that is available for you to use”—bolsters Moose’s interpretation. (Account Agrmt.

6.) From the cardholder’s perspective, her use of funds occurs at the point of sale.

This definition reasonably suggests that she may spend whatever is available “to use”

at the time of a given purchase without fear of incurring an overdraft fee for that

purchase. Allegacy’s interpretation, by contrast, is counterintuitive because it

requires assessing the availability of funds long after the cardholder has used them

at the point of sale.

18. To be sure, the account agreement warns cardholders that “[t]he amount of

an authorization hold may differ” from the actual purchase amount. (Account Agrmt.

7.) Restaurant bills are a good example. A restaurant may request authorization for

the billed amount but not any tip added to the bill. As a result, when the restaurant

later seeks payment, the settled amount (bill plus tip) will exceed the amount of the authorization hold (bill only). (See Account Agrmt. 7.) At the hearing, Moose’s

counsel stressed that these types of transactions are not at issue and might

legitimately result in an overdraft fee. In addition, by warning cardholders that a fee

may result if the authorization hold doesn’t cover the whole purchase, the account

agreement implies that there is no such risk when the authorized amount and the

settlement amount are the same.

19. Contracts must be construed as a whole. See, e.g., Crescent Foods, Inc. v.

Evason Pharms., Inc., 2016 NCBC LEXIS 76, at *9 (N.C. Super. Ct. Oct. 5, 2016).

Looking at the entirety of the account agreement, its terms are “capable of several

reasonable interpretations.” Variety Wholesalers, 365 N.C. at 525. Thus, the

agreement is ambiguous, and the Court denies Allegacy’s motion to dismiss the claim

for breach of contract. 3

B. Unjust Enrichment

20. Moose asserts her claim for unjust enrichment “in the alternative to” her

claim for breach of contract. (Am. Compl. ¶ 106.) Allegacy seeks to dismiss this claim

on the ground that the parties’ relationship is governed by an express contract. (See

Br. in Supp. 14.)

3 There have been many similar cases around the country. Decisions in these cases, which are not controlling, highlight the frequency with which ambiguities arise in contracts between banks and cardholders when defining overdraft practices. See, e.g., Roberts v. Cap. One, N.A., 719 F. App’x 33, 34–37 (2d Cir. 2017) (unpublished) (reversing dismissal of claim for breach of contract); Hash v. First Fin. Bancorp, 2021 U.S. Dist. LEXIS 42711, at *8–21 (S.D. Ind. Mar. 8, 2021) (denying motion to dismiss); Lussoro v. Ocean Fin. Fed. Credit Union, 456 F. Supp. 3d 474, 482–86 (E.D.N.Y. 2020) (denying motion to dismiss). 21. As a rule, when the parties have made an express contract, the law will not

imply one “with reference to the same matter.” Vetco Concrete Co. v. Troy Lumber

Co., 256 N.C. 709, 713 (1962) (citations omitted). At this early stage, however, the

Court is persuaded that Moose may plead her claim for unjust enrichment in the

alternative to her claim for breach of an express contract. See, e.g., N.C. R. Civ. P.

8(e)(2); Gao v. Sinova Specialties, Inc., 2018 NCBC LEXIS 71, at *34–36 (N.C. Super.

Ct. July 16, 2018) (denying motion to dismiss claim for unjust enrichment when

pleaded in the alternative to claim for breach of contract); Can-Dev, ULC v. SSTI

Centennial, LLC, 2018 NCBC LEXIS 9, at *21–23 (N.C. Super. Ct. Jan. 25, 2018)

(same); Strategic Mgmt. Decisions, LLC v. Sales Performance Int’l, LLC, 2017 NCBC

LEXIS 69, at *15–16 (N.C. Super. Ct. Aug. 7, 2017) (same).

22. The Court therefore denies Allegacy’s motion to dismiss the claim for unjust

enrichment.

C. Section 75-1.1

23. Moose’s final claim is for unfair or deceptive trade practices under N.C.G.S.

§ 75-1.1. Allegacy argues that the claim must be dismissed because the complaint

alleges nothing more than a mere breach of contract, which is insufficient to plead a

violation of section 75-1.1. (See Br. in Supp. 15–17.)

24. Section 75-1.1 was “designed to provide consumers with a remedy for

injuries done to them by dishonest and unscrupulous business practices.” Hester v.

Hubert Vester Ford, Inc., 239 N.C. App. 22, 30 (2015). To state a claim, a plaintiff

must allege an unfair or deceptive act or practice in or affecting commerce, resulting in actual injury. See McLamb v. T.P. Inc., 173 N.C. App. 586, 593 (2005). A “party is

guilty of an unfair act or practice when it engages in conduct which amounts to an

inequitable assertion of its power or position.” McInerney v. Pinehurst Area Realty,

Inc., 162 N.C. App. 285, 289 (2004) (citation and quotation marks omitted). “Finally,

in determining whether a particular act or practice is deceptive, its effect on the

average consumer is considered.” Becker v. Graber Builders, Inc., 149 N.C. App. 787,

794 (2002).

25. It is well established that “a mere breach of contract, even if intentional, is

not sufficiently unfair or deceptive to sustain an action under N.C.G.S. § 75-1.1.”

Branch Banking & Tr. Co. v. Thompson, 107 N.C. App. 53, 62 (1992) (citations

omitted). The plaintiff must also allege “some type of egregious or aggravating

circumstances” to elevate the breach to an unfair or deceptive act. Dalton v. Camp,

353 N.C. 647, 657 (2001) (citations, quotation marks, and emphasis omitted).

Examples include “forged documents, lies, and fraudulent inducements.”

Forest2Market, Inc. v. Arcogent, Inc., 2016 NCBC LEXIS 3, at *14 (N.C. Super. Ct.

Jan. 5, 2016) (citations and quotation marks omitted); see also, e.g., Alamance Fam.

Prac., P.A. v. Lindley, 2018 NCBC LEXIS 83, at *25–26 (N.C. Super. Ct. Aug. 14,

2018); Post v. Avita Drugs, LLC, 2017 NCBC LEXIS 95, at *10 (N.C. Super. Ct. Oct.

11, 2017).

26. Among other things, the amended complaint alleges that Allegacy

“misleadingly and deceptively misrepresents” its overdraft practices; “exploits its

contractual discretion by implementing these practices to gouge its customers”; employs a “scheme to extract funds from account holders”; carries out this scheme

through a “secret posting process” for account transactions; “knowingly authoriz[es]

later transactions that it allows to consume available funds” held for previously

authorized transactions; and “willfully engage[s] in the improper assessment of”

overdraft fees. (Am. Compl. ¶¶ 2, 5, 21, 38, 60, 113; see also Am. Compl. ¶¶ 13, 45,

48, 49, 111.) In addition, the amended complaint alleges that the contracts at issue

are adhesion contracts, that the imposition of overdraft fees in these circumstances

are contrary to the expectation of ordinary consumers, and that overdraft processes

similar or identical to Allegacy’s have been deemed unfair and deceptive by

regulatory authorities. (See Am. Compl. ¶¶ 19, 21, 67–69.)

27. Viewing these allegations in a light most favorable to Moose, the Court

concludes that they suffice to plead aggravating circumstances, particularly given the

context of a consumer adhesion contract. At a minimum, the allegations could

support an inference that Allegacy used its “power and position” inequitably. Lake

Mary L.P. v. Johnston, 145 N.C. App. 525, 534 (2001); see also S. Bldg. Maint., Inc. v.

Osborne, 127 N.C. App. 327, 334 (1997) (allowing section 75-1.1 claim based on breach

of contract when defendant “took advantage of [his] position”). In addition, Moose

has alleged “deceitful conduct”—such as the alleged secret posting process—to

effectuate the purported breach. Sparrow Sys. v. Priv. Diagnostic Clinic, PLLC, 2014

NCBC LEXIS 70, at *44–45 (N.C. Super. Ct. Dec. 24, 2014); see also Becker, 149 N.C.

App. at 794–95 (reversing dismissal of section 75-1.1 claim based on allegedly

deceitful conduct to carry out breach of contract); Lendingtree, LLC v. Intercontinental Cap. Grp., Inc., 2017 NCBC LEXIS 54, at *8–10 (N.C. Super. Ct.

June 23, 2017) (denying motion to dismiss based on allegation of concealment); cf.

Morris v. Bank of Am., N.A., 2019 U.S. Dist. LEXIS 53617, at *9–10 (W.D.N.C. Mar.

29, 2019) (denying motion to dismiss section 75-1.1 claim based on improper

assessment of overdraft fees).

28. At this early stage, these allegations are sufficient to defeat a motion to

dismiss. The Court therefore denies Allegacy’s motion to dismiss the section 75-1.1

claim.

IV. CONCLUSION

29. For all these reasons, the Court DENIES Allegacy’s motion to dismiss.

SO ORDERED, this the 5th day of May, 2021.

/s/ Adam M. Conrad Adam M. Conrad Special Superior Court Judge for Complex Business Cases