Opinion ID: 1360640
Heading Depth: 3
Heading Rank: 3

Heading: Setoffs

Text: The district court found that even if the Garnishors' claims were not preempted, the Garnishors' claims should be dismissed because the Banks have a right to set off the service fee against the garnished funds before releasing the remainder of the funds to the Garnishors. Although the issue of setoffs is not necessary to our holding, we vacate the district court's invocation of the doctrine of setoff because the doctrine is applicable only to debts. In their appellate briefs, the Banks and Garnishors all agree that the service fees are not setoffs. (Charter One's Br. 18) (Charter One's Assessment of Fees Is Not a Setoff); (Removing Def.'s Br. 26) (Plaintiffs' arguments are based on the flawed premise that the doctrine of `setoff' applies.); (KeyBank, N.A., and KeyCorp's Br. 20) (There is a fundamental difference in the bank's charging internal processing fees to its customers pursuant to its account agreement, and the rules of traditional debitor/creditor setoff); (Pl.'s Br. 19) (The Banks Concede Their Seizure of Garnished Funds Is Not a Setoff). [7] The district court, without explaining its reasoning, found to the contrary: The parties address this issue passingly, so this Court finds it sufficient to note that, in light of the long history of the practice and the fact that the legislature failed to explicitly exclude it, § 2716.12 is not intended to interfere with the common law right of setoff. Monroe Retail, Inc., 624 F.Supp.2d at 683-84. The district court nevertheless found this issue dispositive: This Court grants [the Banks'] motions to dismiss on the basis of the language of section 2716.12 and the preservation of [Banks'] right to setoff. Id. at 684-85. As defined by the Ohio Supreme Court, the common law right of setoff is an extrajudicial self-help remedy based on general principles of equity that allows a bank to apply general deposits of a depositor against a depositor's matured debt. Daugherty v. Cent. Trust Co. of Ne. Ohio, N.A., 28 Ohio St.3d 441, 504 N.E.2d 1100, 1104 (1986). In other words, setoff is that right which exists between two parties, each of whom under an independent contract owes a definite amount to the other, to set off their respective debts by way of mutual deduction. Walter v. Nat'l City Bank of Cleveland, 42 Ohio St.2d 524, 330 N.E.2d 425, 525 (1975). The doctrine of setoff only applies when banks use customers' funds to satisfy an independent contract and external debt to the bank. Pruitt v. LGR Trucking, Inc., 148 Ohio App.3d 481, 774 N.E.2d 273, 277-78 (2002). By contrast, the dispute in this case centers on whether the Banks can satisfy a customer's service fee by reducing the same, internal account by that amount before releasing the remaining funds to the Garnishors. We thus vacate the district court's characterization of service fees as setoffs. See id. (finding that the principle of setoff did not apply because the debts were not based on independent contracts).