Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_07-cv-00671/USCOURTS-cand-3_07-cv-00671-36/pdf.json

Nature of Suit Code: 371
Nature of Suit: Truth in Lending
Cause of Action: 15:1601 Truth in Lending

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United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

DAVID VAN SLYKE, FRANKLIN CHAN

and THOMAS E. BROWNING, on behalf of

themselves and all others similarly situated,

Plaintiffs,

 v.

CAPITAL ONE BANK, CAPITAL ONE

FINANCIAL CORPORATION, and DOES

1–100, inclusive,

Defendants. /

No. C 07-00671 WHA

ORDER DENYING MOTION

FOR RECONSIDERATION

INTRODUCTION

In this protracted grudge match over credit-card practices, two recent orders have

effectively ended plaintiffs’ claims. Now, reconsideration is sought and DENIED.

STATEMENT

Plaintiffs are all holders of credit-card accounts with Capital One Bank. Defendant

Capital One Financial is Capital One Bank’s parent company. Both defendants are located in

Virginia. This action commenced on February 1, 2007, asserting claims for (1) violations of

the Truth in Lending Act; (2) violations of California’s Consumer Legal Remedies Act;

(3) violations of California’s Unfair Competition Law; and (4) deceit and omission of material

facts. The motion practice has been bone-crushing. 

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United States District Court

For the Northern District of California

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On June 7, 2007, an order dismissed the CLRA claim. Plaintiffs filed a first amended

complaint omitting that claim on June 27. Defendants then filed a motion for reconsideration

regarding certain issues in their original motion to dismiss. An order then struck plaintiffs’

allegations regarding Capital One’s state of mind from plaintiffs’ deceit claim. 

Plaintiffs filed a second amended complaint on July 3, in conformity with the prior order

and adding plaintiffs Myrna Bragado, Susanna Garcia, and Robert Hart. Defendants

subsequently filed a motion to dismiss plaintiffs’ TILA claims and a motion for summary

judgment as to all of plaintiff Thomas Browning’s claims and all claims against Capital One

Financial. The Court issued an order granting the motion to dismiss and granting summary

judgment as to Browning’s claims and the TILA claim as to Capital One Financial. Leave to

amend was granted, but only as to the TILA claim in order to allow plaintiffs to plead an

“interest on fees” theory. Nevertheless, plaintiffs submitted a proposed pleading that included a

number of other changes to their deceit and UCL claims. Plaintiffs’ motion for leave to file an

amended complaint was denied on September 28, 2007. 

On September 27, 2007, defendants filed summary judgment motions on plaintiffs’

deceit claims and UCL claims, and plaintiffs filed a motion to certify a class. On October 5,

plaintiffs filed a motion for leave to file a third amended complaint. Then, on October 12,

defendants filed counterclaims against each named plaintiff. On November 1, a hearing

was held on the motions for summary judgment and the class certification motion. 

Plaintiffs introduced new theories at the hearing and in their opposition briefs on their

deceit and Section 17200 claims. 

On November 7, 2007, an order granted defendants’ motions for summary judgment,

but declined to address the new theories because they did not appear in the operative complaint

and declined to rule on the pending class-certification motion. On November 13, an order was

issued denying plaintiffs’ motion for leave to file a third amended complaint and denying

plaintiffs’ motion to certify a class. At that point, only defendants’ counterclaims remained. 

On November 19, plaintiffs filed a motion for leave to file a motion for reconsideration of the

November 7 and 13 orders. 

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ANALYSIS

In order to seek reconsideration of a prior ruling, a party must first obtain leave of the

court to file a motion. Under Civil Local Rule 7-9(b), a party may seek leave to move for

reconsideration of an order issued before the entry of a judgment on all claims if a party can

demonstrate either: (1) that there is a material difference of fact or law between the time of the

motion for leave and the time of an entry of an interlocutory order; (2) that new material facts

emerged or a change of law occurred after the entry of the order; or (3) a manifest failure by the

court to consider material facts or dispositive legal arguments which were presented before the

interlocutory order was entered.

These requirements allow for reconsideration of prior rulings under certain limited

circumstances, but the rule does not allow a party to simply relitigate an issue that has already

been argued and decided. Backlund v. Barnhart, 778 F.3d 1386, 1388 (9th Cir. 1985). 

Plaintiffs’ motion argues two main points. First, plaintiffs argue that the November 7

order did not consider the central allegations of plaintiffs’ complaint and was manifestly

incorrect in asserting that plaintiff was adding new theories of recovery, and second, plaintiffs

argue that the order applied the wrong legal standards in granting defendants’ summary

judgment motions. Each argument will be addressed below.

1. THE SUMMARY JUDGMENT ORDER CONSIDERED 

THE CENTRAL ALLEGATIONS OF PLAINTIFFS’ COMPLAINT. 

Plaintiffs argue that there was a manifest failure to consider the “central and

fundamental” allegations of plaintiffs’ complaint, namely that defendants “engaged in an

overarching scheme to boost its earnings with fee income, and that payment of the fees

themselves injured plaintiffs” (Br. 5). Plaintiffs contend that the November 7 order granting

summary judgment did not focus on these allegations. Instead, plaintiffs argue that the order

focused on practices that plaintiffs had not alleged, namely defendants’ “cross-default”

fee-collection scheme, and plaintiffs’ “minimum payment” allegations. 

Plaintiffs argue in their motion for leave to file a motion for reconsideration that they

never made the cross-default or minimum payment allegations (Br. 5). This is not true. 

Plaintiffs’ counsel Jacqueline Mottek stood before the Court on numerous occasions,

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including the November 1 hearing on defendants’ summary judgment motions, and reiterated

these allegations. The November 7 order granting summary judgment addressed plaintiffs’

“cross-default” allegations, in which defendants allegedly issued multiple low-limit credit cards

to cardholders with the intention that cardholders default on one card so that defendants could

then charge fees on all cards. The order found that no named plaintiff had ever been subjected

to cross-default, and therefore granted summary judgment on that issue. 

As for the minimum-payment allegations, the November 7 order noted that the Court

had been led to believe by plaintiffs’ counsel that she was alleging that the minimum payments

listed on the monthly statements were not enough to keep cardholders out of default because

they allegedly did not include late fees and overlimit fees. At the hearing, plaintiffs’ counsel

surprised the Court by announcing that this was no longer her theory. Instead, she argued that

even if defendants did in fact include fees and charges in minimum payments, they nevertheless

engaged in deceptive practices by not noting in the statements that any subsequent charges

might result in more fees. Plaintiffs thus abandoned their original theory and instead alleged

that defendants actions lulled cardholders into a “false sense of security” by encouraging

them to think they could go out, charge more on their card, and avoid fees. As previously

explained, the new theory assumed that cardholders do not track their balances and credit limits. 

Counsel argued that defendants should include the fees from the second billing cycle in the first,

but the order found that such a measure on the part of defendants would require a crystal ball. 

The order concluded that defendants could not anticipate future fees, and accordingly granted

summary judgment.

Counsel now seems to abandon both these theories. She seems now to contend that the

Court has, all along, ignored the central theory, that of an “overarching scheme to boost

earnings with fee income” that soaked consumers with high and frequent fees. The overarching

scheme is based, however, on the same alleged practices considered in both the November 7

and November 13 orders. These included (1) failing to disclose and “misrepresenting” that

Capital One targeted subprime consumers with solicitations for multiple credit cards based on

the calculation that subprime cardholders would generate the most revenue in fees; (2) failing to

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adequately disclose that they charged interest on fees; (3) failing to disclose that fees can

generate fees; (4) failing to disclose that as many as three overlimit fees can be charged for a

single incident; (5) failing to disclose that the minimum payment does not include penally fees;

(6) failing to disclose that fees and interest on the fees were billed in the cycle following the one

in which they were incurred; (7) failing to disclose that the reason payments must be posted by

3:00 p.m. rather than 12:00 a.m. was to generate fees, not because of operational limitations;

(8) failing to disclose that the purpose of the so-called 25-day grace period was to generate

additional fees; (9) receiving numerous customer complaints; and (10) failing to disclose

limitations and exclusions regarding payment-protection plans before cardholders agreed to

purchase them. 

Some of these practices were disposed of on summary judgment, and others were

notably absent from the proposed third amended complaint. The November 13 order considered

these arguments and stated that even if plaintiffs were allowed to add them, they still would not

have a viable complaint. This remains the case. There was no manifest failure to consider these

arguments, even those which were brought up late or changed midstream. 

2. THE COURT APPLIED THE CORRECT LEGAL STANDARDS.

A. The Court Did Not Mischaracterize Plaintiffs’ Arguments.

Characterizing the situation differently, counsel also contends that the order granting

summary judgment failed to consider new evidence presented in plaintiffs’ opposition to

defendants’ motions for summary judgment. Rather than new “theories,” the new arguments

described above were merely “evidence” only just uncovered, it is said. Plaintiffs argue they

were simply pointing to factual evidence that supports claims that defendants engaged in an

overarching scheme to boost earnings with fee income. This argument misstates plaintiffs’

arguments in this case. 

The November 7 order found that the original minimum-payment allegations were

without merit, and then found that the plaintiffs’ second theory, the “false sense of security”

theory, did not state a claim. The order also found that no named plaintiff had ever been in

cross-default. The order did not at that time consider the new allegations because they were not

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part of the operative complaint at the time and were separate from plaintiffs’ previous

contentions. Plaintiffs’ counsel was operating as if playing a game of darts, throwing out

allegations that a number of practices were unfair under the UCL, and hoping one theory would

stick. Now plaintiffs wish to have the Court treat these arguments as “evidence” of a broad,

overarching scheme, but they have failed to point to anything making defendants’ conduct

illegal. They cannot introduce evidence without alleging a claim upon which relief can be

granted. As the November 13 order stated, these arguments do not save plaintiffs’ complaint. 

They were correctly viewed as new allegations, not evidence, and therefore the orders did not

apply the wrong legal standard.

B. The Court Applied the Correct Legal Standards 

To Plaintiffs’ UCL Claims.

By abstracting their argument to the highest level of generality and now arguing an

overarching scheme to defraud, plaintiffs argue that the November 7 order misapplied Rule

9(b), arguing that it should not apply since defendants’ summary judgment motions were

directed toward evidence (Br. 15). This is wrong. Evidence is beside the point without a viable

theory. 

Plaintiffs also contend that the order misapplied the legal standard for the requirement of

California Business and Professions Code Section 17204 that plaintiffs have “lost money or

property” as a result of defendants’ fraudulent practices. Plaintiffs argue that defendants’

fee-generation scheme did deceive plaintiffs into paying fees and the fact that plaintiffs paid

fees means they lost money or property. 

Plaintiffs’ argument about Section 17204 is bogus, because it merely alleges that

defendants cheated plaintiffs by charging late fees, and plaintiffs’ payment thereof constituted a

loss of money or property. For this argument to have merit, every cardholder who paid late fees

would have standing regardless of whether the fees were deserved or not. It is circular

reasoning and does not avoid the fact that plaintiffs still cannot point to any law or policy

making defendants’ practices illegal. The order did not misapply Rule 9(b) or Section 17204. 

Plaintiffs also argue that the November 7 order did not correctly apply California

precedent under the unlawful conduct prong of the UCL because it did not address Garrett v.

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Coast & South Federal Savings & Loan Association, 9 Cal. 3d 731 (1973) and instead

addressed Bondanza v. Peninsula Hospital & Medical Center, 23 Cal. 3d 260 (1979). Plaintiffs

present this argument in spite of the fact that their opposition to defendants’ summary judgment

motion relied heavily on Bondanza, and the fact that they were free to base the thrust of their

earlier argument on Garrett. Regardless, Garrett, like Bondanza, stood for the proposition that

banks may not charge fees that bear no relationship to the costs incurred as a result of the late

payments. As noted in the November 7, 2007, order, however, defendants presented evidence

that the fee structure was completely disclosed to plaintiffs, and this was not controverted by

plaintiffs, who did not present evidence that fees charged were unrelated to their costs. 

Thus, summary judgment was properly granted and the order did not apply the wrong standard.

CONCLUSION

This Court has done the best it can do with this ever-changing, ever-shifting set of

theories. It is time for this tortured record to go to the court of appeals. Counsel will please be

as candid as possible with the circuit judges in identifying when and where in the lower court

process various points and objections were made so that if the district court is reversed, it will

be on account of some matter properly of record before the rulings in question. The motion for

reconsideration is DENIED.

IT IS SO ORDERED.

Dated: December 3, 2007. 

WILLIAM ALSUP

UNITED STATES DISTRICT JUDGE

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