Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_07-cv-05923/USCOURTS-cand-3_07-cv-05923-46/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 28:1331 Fed. Question

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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

VERONICA GUTIERREZ, ERIN

WALKER, and WILLIAM SMITH, as

individuals and on behalf of all others

similarly situated,

Plaintiffs,

 v.

WELLS FARGO & COMPANY, WELLS

FARGO BANK, N.A., and DOES 1

through 125,

Defendants. /

No. C 07-05923 WHA

CLASS ACTION

ORDER DENYING MOTION

FOR RECONSIDERATION

In this certified consumer class action, defendant Wells Fargo Bank, N.A. moves for

reconsideration of a prior order finding that plaintiffs’ claims pertaining to the allegedly “unfair”

re-sequencing of consumer transactions by Wells Fargo were not preempted by the National Bank

Act and regulations set forth by the Office of the Comptroller of the Currency (OCC) (Dkt. No.

98). The basis for the instant motion is the recent Ninth Circuit decision, Martinez v. Wells Fargo

Home Mortgage, Inc., 2010 WL 779549 (9th Cir. 2010), which held — in relevant part — that a

claim targeting certain underwriting and tax services fees brought under the “unfair” prong of

California unfair competition law, Cal. Bus. & Prof. Code § 17200 et seq., was preempted by the

National Bank Act and OCC regulations. For the reasons set forth below, defendant’s motion

must be DENIED.

Case 3:07-cv-05923-WHA Document 337 Filed 03/26/10 Page 1 of 4
United States District Court

For the Northern District of California

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The undersigned has carefully reviewed each of the decisions submitted by both sides. 

This includes the Martinez decision mentioned above, the Sixth Circuit decision cited therein,

Monroe Retail, Inc. v. RBS Citizens, N.A., 589 F.3d 274 (6th Cir. 2009), and the decision by

Judge King in In re Checking Account Overdraft Litigation, --- F. Supp. 2d ----, 2010 WL 841305

(S.D. Fla. 2010). The undersigned also reviewed Cuomo v. Clearing House Association, L.L.C., -

-- U.S. ----, 129 S.Ct. 2710 (2009), as well as Watters v. Wachovia Bank, N.A., 550 U.S. 1 (2007).

Giving full consideration to the Ninth Circuit’s recent decision in Martinez, this order

finds that the unfair competition claim remaining in this litigation is not preempted by the

National Banking Act or OCC regulations. An important distinction can be drawn between the

claims in Martinez and those made by plaintiffs here. In Martinez, the plaintiffs alleged that an

$800 underwriting fee was excessive or an “overcharge” because the amount was not reasonably

related to the lender’s actual underwriting costs. The Martinez plaintiffs also alleged that a $75

tax service fee represented a “mark-up” because the fee was more than what Wells Fargo was

charged by its affiliate for providing tax services. Based upon these allegations, the Martinez

plaintiffs claimed that the overcharge and mark-up constituted “unfair” competition under Section

17200 of the California Business & Professions Code.

The Ninth Circuit characterized the above claims as follows: “In essence, the Martinezes

argue that these fees are too high, and ask the court to decide how much an appropriate fee would

be.” Given this characterization, the Martinez court held that the Section 17200 claim was

preempted by an OCC regulation that stated in relevant part: 

The establishment of non-interest charges and fees, their amounts,

and the method of calculating them are business decisions to be

made by each bank, in its discretion, according to sound banking

judgment and safe and sound banking principles

12 C.F.R. § 7.4002(b)(2). The court separately held that preemption was warranted under a

different OCC regulation pertaining specifically to real estate loans, which does not apply to the

instant dispute.

Unlike in Martinez, plaintiffs in the instant litigation neither challenge whether a

particular overdraft fee charged by the bank is “too high,” nor do they ask the Court to decide

how much an appropriate fee would be. Rather, the “unfair” claim in this litigation targets

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United States District Court

For the Northern District of California

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whether Wells Fargo’s manipulation of customer transactions “behind the scenes” to maximize

the occurrence of overdraft fees during the posting process was a breach of the bank’s duty to act

in good faith. In other words, it is the bank’s allegedly “unfair” practice of assessing and

imposing as many overdraft penalties as mathematically possible that is at issue in this action.

This practice has nothing to do with whether Wells Fargo has the right to establish

overdraft fees, or whether individual overdraft fees are reasonably related to actual underlying

costs. Plaintiffs also do not question how Wells Fargo calculated its $34 (as alleged in the

complaint) overdraft fee. Indeed, an important distinction between the claims alleged here and in

Martinez is that the Martinez plaintiffs were not challenging how often they would be assessed the

challenged fees. By contrast, in this litigation, part of what makes Wells Fargo’s re-sequencing

practice allegedly “unfair” is that consumers have no idea whether one or ten overdrafts fees will

result from a particular debit-card transaction. 

Even the Ninth Circuit recognized a distinction between a bank’s right to establish a fee

versus a bank’s right to deceive or unfairly induce customers into paying them. See Martinez,

2010 WL 779549, at *4 (citing White v. Wachovia Bank, N.A., 563 F. Supp. 2d 1358 (N.D. Ga.

2008), which held that a claim under the Georgia Fair Business Practices Act that a bank engaged

in unfair or deceptive business practices by manipulating the posting of transactions to an account

in order to impose overdraft fees was not preempted). Indeed, the Martinez decision expressly

noted that “the OCC has specifically cited the UCL in an advisory letter cautioning banks that

they may be subject to such laws that prohibit unfair or deceptive acts or practices.” The Ninth

Circuit would not have reiterated this point, or cited to the White decision, if — as Wells Fargo

contends — the court intended for all “unfair” UCL claims pertaining to fees to be preempted. 

As explained above, unlike in Martinez, the practice at issue here does not challenge

“[t]he establishment of non-interest charges and fees, their amounts, and the method of

calculating them . . .”. 12 C.F.R. § 7.4002(b)(2). As such, this order finds that the re-sequencing

claims are not preempted in light of the Ninth Circuit’s recent decision.

The out-of-circuit decisions cited by defendants do not compel a contrary conclusion. In

Monroe, the practice examined by the Sixth Circuit was between a bank and its creditors, and it

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United States District Court

For the Northern District of California

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involved a state law that interfered with the bank’s right to charge service fees for garnishment

orders. By contrast, the targeted practice here is between a bank and its depositor customers, and

the bank’s right to charge an overdraft fee is not challenged. These differences were also noted

by Judge King in distinguishing Monroe from the types of claims alleged in this action. See In re

Checking Account Overdraft Litigation, 2010 WL 841305, at *6 (distinguishing Monroe on

similar grounds).

Finally, neither Supreme Court decision compels preemption to be found. In Cuomo, the

more recent of the two decisions, the Court underscored the notion that the National Bank Act is

limited in its preemptive scope, commenting that “states retain some power to regulate national

banks in areas such as contracts, debt collection, acquisition and transfer of property, and

taxation, zoning, criminal, and tort law” before holding that federal law did not preempt an action

under state fair-lending laws. 129 S.Ct. at 2718–21 (citations omitted). This appeared to be a

retreat from the earlier decision in Watters, which upheld preemption by the National Bank Act

and OCC regulations in a mortgage lending context. In any event, neither decision compels

preemption of plaintiffs’ re-sequencing claims.

For the reasons set forth above, as well as the reasons stated in the Court’s prior order on

this issue, the remaining claims in this dispute are not preempted by the National Bank Act and

OCC regulations. Wells Fargo’s motion is DENIED.

IT IS SO ORDERED.

Dated: March 26, 2010. 

WILLIAM ALSUP

UNITED STATES DISTRICT JUDGE

Case 3:07-cv-05923-WHA Document 337 Filed 03/26/10 Page 4 of 4