Opinion
Civil Action No. 1:19-cv-950
2019-12-05
Robin PFAHNING, on behalf of herself and all others similarly situated, Plaintiffs, v. CAPITAL ONE BANK (USA), N.A., Defendant.
Bernard Joseph DiMuro, Miles Jarrad Wright, DiMuroGinsberg PC, Alexandria, VA, Peter N. Wasylyk, Law Offices of Peter N. Wasylyk, Providence, RI, for Plaintiffs. Andrew Soukup, Pro Hac Vice, Colleen Rosannah Smith, Covington & Burling LLP, Washington, DC, Mary C. Dunn, Blish & Cavanagh, LLP, Providence, RI, for Defendant.
Bernard Joseph DiMuro, Miles Jarrad Wright, DiMuroGinsberg PC, Alexandria, VA, Peter N. Wasylyk, Law Offices of Peter N. Wasylyk, Providence, RI, for Plaintiffs.
Andrew Soukup, Pro Hac Vice, Colleen Rosannah Smith, Covington & Burling LLP, Washington, DC, Mary C. Dunn, Blish & Cavanagh, LLP, Providence, RI, for Defendant.
ORDER
Liam O'Grady, United States District Judge
Before the Court is Defendant Capital One's Motion to Dismiss, or, in the alternative, for Summary Judgment. Dkt. 29. The motion is fully briefed and the Court heard oral argument on November 22, 2019.
I. BACKGROUND
A. The Dispute
Plaintiff Robin Pfahning represents a putative class of credit card accountholders with Defendant Capital One Bank. Plaintiff claims that "Capital One breached the express terms of the account documents by charging interest to Plaintiff and the Class on cash advance balances that should have been paid in full previously." Dkt. 28 ¶ 44. Specifically, the Complaint alleges two counts: (I) Breach of Contract, and (II) Breach of the Implied Covenant of Good Faith and Fair Dealing.
The Court does not address class eligibility herein, as it is unnecessary at this time.
Capital One credit cards allow cardholders to use their accounts for multiple types of transactions. Two such types are crucial to this suit: credit purchases and cash advances. Defendant treats purchases as one Segment of the account and cash advances as a separate Segment. The Capital One Customer Agreement ("Agreement") defines these "Segments" as "different parts of your Account [Capital One] may establish that are subject to unique APRs, pricing, or other terms ... The sum of your Segment balances equals your total Account balance." Dkt. 31-3. Indeed, different Annual Percentage Rates ("APRs") are used to calculate interest due on purchases and cash advances. The Agreement notes, "[f]or example, purchases may have a lower APR than cash advances." Dkt 31-3 at 4. In the recent past, however, the opposite is true; Capital One's cash advance APR (e.g. 19.39%, May 2018) has hovered just below the APR for purchases (e.g. 19.40%, May 2018). Dkt. 31-4.
Pfahning has held a Capital One credit card for many years, and often makes use of the ability to obtain cash advances on her credit card account. She also uses the card to make purchases. Plaintiff opts to use Defendant's Autopayment service, and chooses to pay her full Statement Balance from the last billing cycle on the due date each month. To do this, Plaintiff authorizes Capital One to debit the amount of her Statement Balance automatically.
Plaintiff's claim relies on the application of her monthly Autopayments in the amount of the Statement Balance, which is identified as the "New Balance" on the actual statement. Plaintiff believed that paying the Statement Balance in full each month would satisfy all obligations that were outstanding at the time the statement was issued. As a result, Pfahning argues, it was a breach of contract for Capital One to charge any interest on balances that existed after the time the statement was issued. In other words, Plaintiff thought balances on her monthly statements would be zeroed out each month. In fact, Capital One was applying part of the monthly payment to purchases Pfahning made since the statement issued, leaving a partial balance on the cash advance Segment of her account. That Segment balance was carried over to the next month's Statement Balance; this practice continued, and Pfahning's cash advance Segment was not paid down to zero for several consecutive months.
Capital One does not deny this allocation method. Rather, Capital One argues that this payment application was entirely within its contractual rights, and, further, required by Regulation Z of the Truth in Lending Act, 12 C.F.R. § 1026.53 ("Regulation Z"). Regulation Z requires banks to comply with a certain allocation of customer payments, including:
[W]hen a consumer makes a payment in excess of the required minimum periodic payment for a credit card account ... the card issuer must allocate the excess amount first to the balance with the highest annual percentage rate and any remaining portion to the other balances in descending order based on the applicable annual percentage rate.
Id. § 1026.53(a). Because the purchase Segment APR has been higher than the cash advance APR, Capital One applies payments in excess of the "required minimum periodic payment" to all purchases before any cash advance balance. Defendant finds the authority to calculate balances and rates as of the payment date in the Comments to Regulation Z, which allow card issuers to calculate these "on the day the preceding billing cycle ends, on the day the payment is credited to the account, or on any day in between those two dates." 12 C.F.R. § Pt. 1026, Supp. I, Part 4. Further, Capital One maintains, all of this is clearly communicated to cardholders in the customer Agreement as Truth in Lending Act Disclosures.
B. The Contract Provisions
The base contract at issue is the Capital One Customer Agreement. Dkt. 31-3. That Agreement includes a provision that incorporates several additional documents and sources of information that are considered incorporated into the Agreement by reference. This provision specifically states, "[t]he following documents govern your Account with us: ... 2. All Statements; ... 7. Any other documents and disclosures relating to your Account, including those provided online." Id. at 1. Both the monthly account statements provided to Plaintiff (e.g. Dkt. 31-1) and the Capital One Terms and Conditions – Autopayments (Dkt. 35-1) are thus contractually binding as part of the Agreement. The following provides pertinent language from the Agreement, the monthly statement, and the AutoPay terms.
The Agreement includes, in part:
Interest Charges and Fees. We will charge Interest Charges and Fees to your Account as disclosed on your Statement and other Truth-in-Lending Disclosures. In general, Interest Charges begin to accrue from the day a transaction occurs. However, we will not charge you interest on any new transactions posted to the purchase Segment of your Account if you paid the total balance across all Segments of your Account in full by the due date on your Statement each month.
How We Apply Your Payments. Your Account may have Segments with different
Annual Percentage Rates (APRs). For example, purchases may have a lower APR than cash advances. If your Account has Segment balances with different APRs, here is how we apply payments in a Billing Cycle:
We generally apply credits and payments up to your minimum payment first to the balance with the lowest APR, and then to balances with higher APRs.
We apply any part of your payment exceeding your minimum payment to the balance with the highest APR, and then to balances with lower APRs.
Dkt. 31-3 at 3, 4. Further, Agreement defines "Cash Advance" as "a loan in cash or things we consider cash equivalents, including wire transfers, travelers’ checks, money orders, foreign currency, lottery tickets, gaming chips, and wagers. We post Cash Advances to the Cash Advance Segment of your Account and not to your purchase Segment." Id. at 5.
The monthly billing statement includes additional detailed information about interest charges to the account. In pertinent part, the statement says:
How can I Avoid Paying Interest Charges? If you pay your statement's New Balance in full by the due date, we will not charge you interest on any new transactions that post to the purchases segment. If you have been paying your account in full with no Interest Charges, but then you do not pay your next New Balance in full, we will charge interest on the portion of the balance that you did not pay. For Cash Advances and Special Transfers, we will start charging interest on the transaction date.
How is the Interest Charge applied? Interest Charges accrue from the date of the transaction or the first day of the Billing Cycle. Interest Charges accrue on every unpaid amount until it is paid in full. This means you may owe Interest Charges even if you pay the entire New Balance for one Billing Cycle, hut did not do so the previous Billing Cycle. Unpaid Interest Charges are added to the corresponding segment of your account.
How do you Calculate the Interest Charge? We use a method called Average Daily Balance (including new transactions ). First, for each segment we take the beginning balance each day and add in new transactions and the periodic Interest Charge on the previous day's balance. Then we subtract any payments and credits for that segment as of that day. The result is the daily balance for each segment.
... Next, for each segment, we add the daily balances together and divide the sum by the number of days in the Billing Cycle. The result is the Average Daily Balance for each segment.
... The Average Daily Balance is referred to as the Balance Subject to Interest Rate in the Interest Charge Calculation section of this Statement.
How do you Apply My Payment? We generally apply payments up to your Minimum Payment first to the balance with the lowest APR (including 0% APR), and then to balances with higher APRs. We apply any part of your payment exceeding your Minimum Payment to the balance with the highest APR, and then to balances with lower APRs.
See, e.g. , Dkt. 31-1 (italics in original removed, emphasis added). The statement also indicates whether the accountholder is enrolled in AutoPay, as is the case for Plaintiff.
Finally, the Capital One Terms and Conditions – Autopayments page covers three options for customers. The Autopayments can be set for (1) Minimum Amount Due, (2) Statement Balance, or (3) Fixed Amount. As Plaintiff is enrolled in the second option, Statement Balance, the relevant terms include the following:
Important Definitions:
Statement Balance – Your total balance as of the statement issuance date , which will be indicated on your monthly statement.
Account Balance – Your total outstanding balance as of the date the AutoPay payment begins processing (includes posted charges and adjustments for payments, credits and/or disputes since the statement issuance date).
Payment Options:
Statement Balance: Each month, we will debit the "Statement Balance" referenced in your monthly statement, OR the "Account Balance," whichever is the lower of the two amounts when the AutoPay Payment begins processing.
... (We will generally begin processing your AutoPay Payment 1-2 days before your due date.)
Dkt. 35-1 (italics in original removed, emphasis added). There is a table that appears below the Statement Balance payment description displaying five examples of how the Account Balance can fluctuate between the statement issuance date and the payment processing or due date.
II. LEGAL STANDARD
To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a complaint must contain sufficient factual information to "state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). A motion to dismiss pursuant to Rule 12(b)(6) must be considered in combination with Rule 8(a)(2), which requires "a short and plain statement of the claim showing that the pleader is entitled to relief" so as to "give the defendant fair notice of what the ... claim is and the grounds upon which it rests." Id. (quoting Conley v. Gibson , 355 U.S. 41, 47, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957) ). While "detailed factual allegations" are not required, Rule 8 does demand that a plaintiff provide more than mere labels and conclusions stating that the plaintiff is entitled to relief. Id. In evaluating whether a complaint states a plausible claim to relief, "although a court must accept as true all factual allegations contained in a complaint, such deference is not accorded to legal conclusions stated therein." Walters v. McMahen , 684 F.3d 435, 439 (4th Cir. 2012).
Summary judgment is appropriate if "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). The trial judge is not required to make findings of fact at the summary judgment stage. "The inquiry performed is the threshold inquiry of determining whether there is the need for a trial—whether, in other words, there are any genuine factual issues that properly can be resolved only by a finder of fact." Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 250, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). While the burden is on the moving party to demonstrate entitlement as a matter of law, the opposing party "must ‘set forth specific facts showing that there is a genuine issue for trial.’ " Dash v. Mayweather , 731 F.3d 303, 311 (4th Cir. 2013) (quoting Bouchat v. Balt. Ravens Football Club, Inc. , 346 F.3d 514, 522 (4th Cir. 2003) ).
"Summary judgment is ordinarily inappropriate when ‘the parties have not had an opportunity for reasonable discovery.’ " Manning v. Mercatanti , 898 F. Supp. 2d 850, 868 (D. Md. 2012) (quoting E.I. du Pont de Nemours & Co. v. Kolon Indus., Inc. , 637 F.3d 435, 448 (4th Cir. 2011) ). "On the other hand, a court may decide not to allow further discovery if a nonmovant ‘did not specifically allege why the information sought would have been sufficient to create a genuine issue of material fact such that it would have defeated summary judgment.’ " Downing v. Lee , No. 1:16-CV-1511, 2017 WL 3082664, at *6 (E.D. Va. July 18, 2017), aff'd , 724 F. App'x 226 (4th Cir. 2018) (O'Grady, J.) (quoting Strag v. Bd. of Trs. , 55 F.3d 943, 954 (4th Cir. 1995) ).
III. BREACH OF CONTRACT CLAIM
A. Standard of Review
The parties agree that Virginia law governs the contract claims. "The elements of a Virginia breach of contract claim are: (1) a legally enforceable obligation of a defendant to a plaintiff, (2) the defendant's violation or breach of that obligation, and (3) resulting injury or harm to the plaintiff." Enomoto v. Space Adventures, Ltd. , 624 F. Supp. 2d 443, 449 (E.D. Va. 2009) (citing Filak v. George , 267 Va. 612, 594 S.E.2d 610, 614 (2004) ). The Fourth Circuit approaches contract claims as follows:
Under Virginia law, courts adhere to the "plain meaning" rule in interpreting and enforcing a contract. " ‘[W]here an agreement is complete on its face, is plain and unambiguous in its terms, the court is not at liberty to search for its meaning beyond the instrument itself.... This is so because the writing is the repository of the final agreement of the parties.’ " Berry v. Klinger , 225 Va. 201, 300 S.E.2d 792, 796 (1983) (quoting Globe Iron Const. Co. v. First Nat. Bank of Boston , 205 Va. 841, 140 S.E.2d 629, 633 (1965) ) (alteration and omission in original). In interpreting a contract, a court should read the contract as a single document and give meaning to every clause where possible. See Berry , 300 S.E.2d at 796. Such an interpretation gives effect to the "presumption that the parties have not used words aimlessly." Winn v. Aleda Constr. Co. , 227 Va. 304, 315 S.E.2d 193, 195 (1984).
Hitachi Credit Am. Corp. v. Signet Bank , 166 F.3d 614, 624 (4th Cir. 1999).
The Fourth Circuit also notes in contract claims that " ‘if the terms are vague or ambiguous, then we may consider extrinsic evidence to interpret those provisions.’ " Webster v. Rumsfeld , 156 F. App'x 571, 581 (4th Cir. 2005) (Gregory, J., concurring in part and dissenting in part) (quoting Providence Square Assocs., LLC v. G.D.F., Inc. , 211 F.3d 846, 850 (4th Cir. 2000) (internal citations omitted)). Courts will find ambiguity "where [the contract] is capable ‘of admitting of two or more meanings, of being understood in more than one way, or of referring to two or more things at the same time.’ " Id. (quoting Nehi Bottling Co. v. All–American Bottling Corp. , 8 F.3d 157, 161 (4th Cir. 1993) (internal quotations and citations omitted)).
But, "[t]he fact that one may hypothesize opposing interpretations of the same contractual provision does not necessarily render the contract ambiguous ... a contract is not ambiguous simply because the parties to the contract disagree about the meaning of its language." Erie Ins. Exch. v. EPC MD 15, LLC , 297 Va. 21, 29–30, 822 S.E.2d 351 (2019) (quoting Babcock & Wilcox Co. v. Areva NP, Inc. , 292 Va. 165, 179, 788 S.E.2d 237 (2016) ) (internal quotation marks omitted). "If the text of the agreement is unambiguous, then the court is without authority to resort to extrinsic evidence," such as public confusion, "in interpreting its meaning." Schneider v. Cont'l Cas. Co. , 989 F.2d 728, 732 (4th Cir. 1993).
B. Discussion
The following considers Defendant's Motion to Dismiss under Rule 12(b)(6), incorporating the contract language discussed herein.
Plaintiff fails to state a valid claim for breach of contract. The operative documents and regulations binding the Parties include unambiguous language explaining Capital One's policy and ability to allocate cardholders’ monthly payments. Whether the payments were via AutoPay or manual, Defendant's conduct was contractually authorized. Plaintiff's monthly Statement specifically discloses, "Interest Charges accrue on every unpaid amount until it is paid in full. This means you may owe Interest Charges even if you pay the entire New Balance for one Billing Cycle, but did not do so the previous Billing Cycle ." Dkt. 31-1 at 2. This provision alone is unambiguous and potentially dispositive in this case.
Plaintiff's argument to the contrary, that paying the Statement Balance in full through Autopayments should have eliminated all of her balances, is not supported by the contract. Capital One defines both Statement Balance and Account Balance in the Terms and Conditions for Autopayments, indicating that they are separate things and that the Account Balance "includes posted charges ... since the statement issuance date." Dkt. 35-1 at 1. Further, Plaintiff's AutoPay enrollment terms note that Capital One "will debit the ‘Statement Balance’ referenced in your monthly statement, OR the ‘Account Balance ,’ whichever is lower of the two amounts when the AutoPay Payment begins processing. " Id. at 2. This tells the customer, in other words, that the Statement Balance will be the dollar amount by which Capital One will reduce the total Account Balance as of the day of payment. Plaintiff claims that Defendant's treatment of the Statement Balance as a dollar amount independent of the underlying charges is wrong, but "a contract is not ambiguous simply because the parties to the contract disagree about the meaning of its language." Erie Ins. Exch. , 297 Va. at 29–30, 822 S.E.2d 351 (2019).
Again, the Account Balance definition unambiguously includes charges since the statement issuance date. Indeed, the contract language defines Account Balance as the "total outstanding balance as of the date the AutoPay payment begins processing (includes posted charges and adjustments for payments, credits and/or disputes since the statement issuance date)." Dkt. 35-1. The term "posted charges" as it appears in the parenthetical cannot reasonably be included in "adjustments for payments, credits and/or disputes" that follow in the same clause. These "posted charges" could include purchases, new cash advances, and various other transactions related to the account.
Furthermore, the language in the Agreement states that Capital One "will not charge you interest on any new transactions posted to the purchase Segment of your Account if you paid the total balance across all Segments of your Account in full by the due date on your Statement each month." Dkt. 31-3 at 3 (italics in original removed, emphasis added). This statement only addresses interest on the purchases Segment of the account; nothing in the language hides or negates the fact that the account might be carrying a cash advance balance and accruing interest. Finally, the monthly statement Pfahning received—by mail or electronically—expressly shows the continuing cash advance balance and associated interest charges. See id. at 4. Authorization of the challenged allocation of customer payments—including purchases since the Statement date—is reinforced when considering the contract as a whole. This is particularly true when the AutoPay terms are read in conjunction with the monthly Statement. As discussed above, the Statement includes an unambiguous disclaimer that payment of the full Statement amount does not necessarily immunize the accountholder from Interest Charges. But it is also material that the Statement breaks down the calculation of Interest Charges into three steps, reiterating that interest is dependent on an "Average Daily Balance (including new transactions )." Dkt. 31-1 at 2 (emphasis added). Further, this "Average Daily Balance is referred to as the Balance Subject to Interest Rate in the Interest Charge Calculation section of this Statement." Id.
In sum, nothing in the contract promises Plaintiff that a payment of a Statement Balance will eliminate all outstanding balances and apply to the exact obligations that were underlying the Statement when it was generated. The contract indicates otherwise across all relevant documents. Pfahning's understanding of the effect of her monthly payments is irreconcilable with the contract language, and since the contract " ‘is plain and unambiguous in its terms, the court is not at liberty to search for its meaning beyond the instrument itself.’ " Hitachi , 166 F.3d at 624 (quoting Berry v. Klinger , 225 Va. 201, 300 S.E.2d 792, 796 (1983)) (quoting Globe Iron Const. Co. v. First Nat. Bank of Boston , 205 Va. 841, 140 S.E.2d 629, 633 (1965) ).
Regulation Z allows card issuers to allocate amounts in excess of the minimum payment due "based on the annual percentage rates and balances ... on the day the payment is credited to the account." 12 C.F.R. § Pt. 1026, Supp. I, Part 4. Having chosen the payment date to determine rates, Capital One, under Regulation Z, "must allocate the excess amount first to the balance with the highest APR." Id. at § 1026.53(a). Here, purchases carried a higher APR than cash advances, resulting in Defendant's alleged, undisputed conduct.
Accordingly, the Court does not find a valid breach of contract claim.
IV. BREACH OF COVENANT OF GOOD FAITH AND FAIR DEALING
A. Standard of Review
It is accepted that "[i]n Virginia, every contract contains an implied covenant of good faith and fair dealing." Enomoto v. Space Adventures, Ltd. , 624 F. Supp. 2d 443, 450 (E.D. Va. 2009) (citing Va. Vermiculite, Ltd. v. W.R. Grace & Co. , 156 F.3d 535, 541–42 (4th Cir. 1998) ; Penn. Life Ins. Co. v. Bumbrey , 665 F.Supp. 1190, 1195 (E.D. Va. 1987) ). In Va. Vermiculite , the Fourth Circuit noted, "in Virginia, as elsewhere, [ ] although the duty of good faith does not prevent a party from exercising its explicit contractual rights, a party may not exercise contractual discretion in bad faith, even when such discretion is vested solely in that party." 156 F.3d at 542 (internal citations omitted).
B. Discussion
Capital One exercised an articulated contractual right when allocating Plaintiff's monthly Autopayments as it did. Both Regulation Z and the contract documents authorized the particular conduct alleged, and "the duty of good faith does not prevent a party from exercising its explicit contractual rights." Va. Vermiculite, Ltd. , 156 F.3d at 541–42. See also Wilkins v. United States , Civil No. 2:15cv566, 2016 WL 2689042, at *4 (E.D. Va. May 9, 2016) (dismissing good faith and fair dealing claim where allegations were within Defendant's contractual rights); Bennett v. Bank of Am., N.A. , Civil No. 3:12-cv-34-HEH, 2012 WL 1354546 (E.D. Va. April 18, 2012) (dismissing implied covenant claim where the defendant bank acted within its contractual rights and there was no plausible allegation it implemented contractual discretion in bad faith).
As such, Plaintiff's claim for breach of the implied covenant of good faith and fair dealing is also dismissed.
V. CONCLUSION
For the reasons stated herein, the Motion to Dismiss (Dkt. 29) is GRANTED and the Amended Complaint (Dkt. 28) is hereby DISMISSED WITH PREJUDICE, as the Court does not see a purpose for further amendment to these pleadings.
It is SO ORDERED.