Court Opinion

ID: 3171448
Source: CourtListenerOpinion
Date Created: 2016-01-22 15:04:15.062305+00
Date Added: 2024-06-11T07:38:49.222353
License: Public Domain

IN THE SUPREME COURT OF IOWA
                              No. 14–0692

                         Filed January 22, 2016

DARLA LEGG and JASON T. LEGG, on Behalf of Themselves and All
Persons Similarly Situated,

      Appellees,

vs.

WEST BANK,

      Appellant.

      Appeal from the Iowa District Court for Polk County, Bradley

McCall, Judge.

      Defendant applied for interlocutory appeal from a district court

ruling denying its two motions for summary judgment. DECISION OF

DISTRICT COURT AFFIRMED IN PART, REVERSED IN PART, AND

REMANDED.

      Wade R. Hauser III, Jason M. Craig, Lindsay A. Vaught, and

Michael J. Streit of Ahlers & Cooney, P.C., Des Moines, for appellant.

      Ann E. Brown-Graff, Brad J. Brady, and Matthew L. Preston of

Brady Preston Brown PC, Cedar Rapids, Joseph R. Gunderson of

Gunderson, Sharp & Walke, Des Moines, and Thomas J. Duff of Duff

Law Firm, P.L.C., Des Moines, for appellees.
                                  2

      Robert L. Hartwig, Johnston, for amicus curiae Iowa Bankers

Association.

      Emily Anderson of RSH Legal, Cedar Rapids, for amici curiae Iowa

Association for Justice, Iowa Citizen Action Network, and National

Consumer Law Center.
                                    3

ZAGER, Justice.

      In this interlocutory appeal, we are asked to determine whether the

district court properly denied the bank’s two motions for summary

judgment.   The plaintiffs filed a multiple-count consumer class action

lawsuit against the bank challenging the one-time nonsufficient funds

(NSF) fees it charged when the plaintiffs used their debit cards to create

overdrafts in their checking account. For the reasons set forth below, we

find that the district court erred in denying the motions for summary

judgment except as to the good-faith claim involving the sequencing of

the overdrafts.   The decision of the district court is affirmed in part,

reversed in part, and remanded for further proceedings.

      I. Background Facts.

      West Bank is a state-chartered Iowa bank.      Plaintiffs Darla and

Jason Legg are former customers of West Bank.        They opened a joint

checking account with West Bank on November 26, 2002. They closed

their last account with West Bank in April 2013. The claims arising in

this case, discussed in detail below, arise out of the payment of

overdrafts and resulting NSF fees charged by West Bank.

      West Bank issues bank cards to its customers.       Customers use

their bank cards in one of two ways: automatic teller machine

withdrawals (ATM withdrawals) or point of sale purchases (POS

purchases). Customers may also make electronic payments using their

West Bank accounts that are processed in the same way as ATM

withdrawals and POS purchases.       All three of these transactions are

classified as “bank card transactions.”   When customers are issued a

bank card, they receive a “Deposit Account Agreement” (Agreement). The

Agreement provides that West Bank “shall have an obligation to
                                         4

Depositor to exercise good faith and ordinary care in connection with

each account.”

       When a customer of West Bank uses his or her bank card to begin

a transaction, an electronic request is sent to Shazam. Shazam in turn

sends an electronic request to Fiserv. Fiserv is a banking platform that

processes payment requests for West Bank.               Based on the customer

balance available at the time the electronic request is made, Fiserv either

denies or allows the transaction.        The district court summarized what

happens next as follows:

       When a customer uses a Bank Card, once the transaction is
       approved at the point of sale the bank is required to pay the
       transaction when presented, even if there are not sufficient
       funds in the account by the time the transaction is posted to
       the account. Such posting typically occurs one to three days
       after the original transaction.

             If West Bank is called upon to pay a Bank Card
       transaction when there are insufficient funds in the account,
       the bank advances sufficient money to cover the amount by
       which the account is short, and assesses a non-sufficient
       funds (NSF) fee. Those advances are automatically deducted
       from the customer account and repaid to the bank the next
       time a deposit sufficient to cover the advances is made to the
       account. 1

       Debit   card    transactions     are   thus    classified   as   “force-pay”

transactions. Once they are authorized by Fiserv, West Bank is required

to pay them, even if the customer’s account has insufficient funds at the

time the transaction is processed. These transactions may be presented

for payment up to three days after the transaction is approved.                 The

decision to pay the bank card transaction is made separately from the

       1West  Bank disputes whether the services are automated. However, since facts
are viewed in the light most favorable to the nonmoving party in a motion for summary
judgment, we assume without deciding that the system in question is automated.
Smidt v. Porter, 695 N.W.2d 9, 14 (Iowa 2005).
                                    5

assessment of the NSF fee.       After the NSF fees are applied to a

customer’s account, a reviewing West Bank employee has the discretion

to waive the fees. The plaintiffs in this case had NSF fees waived on at

least one occasion.   The NSF fee West Bank charged customers was

originally $27.00. It was later raised to $30.00. West Bank sets its NSF

fee based on market studies of competitors.

      West Bank does not post customer account balances in real time.

Rather, transactions are posted in a batch at the end of the day. Prior to

July 1, 2006, West Bank posted bank card transactions with the lowest

amount for each day’s debits posted first and the highest amount posted

last (low-to-high sequencing). After July 1, 2006, West Bank reversed its

posting sequencing and posted bank card transactions with the highest

amount posted first and the lowest amount posted last (high-to-low

sequencing). Beginning October 1, 2010, West Bank changed its posting

order back to low-to-high sequencing.

      After the 2006 change, a Miscellaneous Fees document was

provided to customers that included two footnotes relating to sequencing.

The first footnote stated, “[C]hecks written on your account will be paid

in order daily with the largest check paid first and the smallest check

paid last.” The second footnote provided that insufficient fund charges

applied to “items” posted to accounts and defined items to include

checks, money transfers, ATM debits, debit card debits, and ACH debit

withdrawals.

      In 2009, footnote two on the Miscellaneous Fees document West

Bank provided to customers was modified to state that overdrafts would

be posted high to low, based on the amount of the transaction.          It

provided that
                                       6

            [c]hecks written on your account will be paid in order
      daily with the largest items paid first and the smallest items
      paid last. NSF fees apply to overdrafts created by check, in
      person withdrawal, ATM withdrawal or other electronic
      means.

      West Bank discussed in an internal memo that the low-to-high

sequencing had created a business expectation for customers.              West

Bank acknowledged that an Iowa Bankers Association Compliance

Officer had discussed the proposed high-to-low sequencing order with an

attorney and concluded in an internal memo that customers would need

to be notified of the change. The summary judgment record supported

an inference that West Bank made the change without adequately

notifying its customers.

      In August 2009, September 2009, and May 2010, the Leggs were

charged NSF fees after West Bank instituted the new high-to-low

sequencing. On August 31, the Leggs made two separate POS purchases

in the amounts of $6.50 and $5.91, which resulted in overdrafts to their

account. West Bank charged the Leggs $27.00 per POS purchase. On

September 2, the Leggs made a $5.50 electronic payment which resulted

in an overdraft to their account, and West Bank charged the Leggs a NSF

fee of $27.00.   The Leggs repaid these amounts on September 4.             On

September 17, the Leggs wrote a check for $560, which overdrew their

account.    The Leggs also made two POS purchases in the amounts of

$10.89 and $9.00. West Bank charged the Leggs an NSF fee of $27.00

for each POS purchase, and the Leggs repaid both on September 18. 2 In

all of these transactions, West Bank paid for the purchases.

      2Ifthese amounts were finance charges under the Iowa Consumer Credit Code,
as the Leggs subsequently alleged, then the amount of each charge exceeded the
twenty-one percent limitation contained in Iowa Code section 537.2201(2) (2009).
                                          7

       On September 17, if the bank card transactions had been posted

in the low-to-high sequence, the Leggs would have only been charged one

NSF fee for one overdraft. On May 17, the Leggs were charged four NSF

fees for bank card transactions.              The Leggs would have only been

charged two NSF fees if the transactions were posted low-to-high.

       II. Course of Proceedings.

       The Leggs filed this action as a proposed consumer class action on

September 29, 2010.         Their petition has been amended twice.               The

petition as amended includes six counts. Counts I, II, III, and IV arise

under the Iowa Consumer Credit Code (ICCC).                 These claims are the

“usury claims” and are based on the Leggs’ allegation that West Bank’s

collection of NSF fees amounts to a finance charge in excess of twenty-

one percent in violation of Iowa Code section 537.2201 (2009). Counts V

and VI are the “sequencing claims,” and they arise from West Bank’s

decision to process bank card transactions from high to low.

       On April 8, 2013, West Bank filed its first motion for summary

judgment. The motion for summary judgment asked the district court to

dismiss all of the Leggs’ usury claims except Count III, a claim arising

under the Iowa Ongoing Criminal Conduct Act. See Iowa Code ch. 706A.

The Leggs resisted West Bank’s first motion for summary judgment. On

August 14, West Bank filed a second motion for summary judgment,

seeking to dismiss the Leggs’ sequencing claims. The Leggs resisted the

second motion for summary judgment. On September 5, West Bank filed

a third motion for summary judgment, seeking to dismiss Count III. The

Leggs resisted the third motion for summary judgment. 3

       3Theplaintiffs alleged West Bank violated chapter 706A because the willful and
knowing charging of finance charges over the statutory limit was a qualifying criminal
                                           8

       Before the hearing on the motions for summary judgment, the Iowa

Superintendent of Banking filed a “Superintendent Guidance” regarding

the definition of finance charges under the ICCC. The guidance defines

one-time NSF fees as “account fee[s] related to the maintenance of the

customer’s deposit account with the bank.”                Iowa Superintendent of

Banking, Superintendent Guidance No. SG-2014-01, One-Time Overdraft

Fees (Jan. 7, 2014), available at www.idob.state.ia.us/bank/docs/

bulletinguidances.aspx.       The Leggs assert this is a departure from the

previous guidances and bulletins issued by the Superintendent.

       The district court held a hearing on West Bank’s three motions for

summary judgment on January 9 and 10, 2014.                      In a ruling issued

March 14, the district court denied West Bank’s motions for summary

judgment on the usury and sequencing claims, and granted its third

motion for summary judgment. After the district court ruling, the Iowa

legislature amended the ICCC to exclude NSF fees from the definition of a

finance charge. 4      West Bank applied for interlocutory appeal on the

district court ruling on its motions for summary judgment, which we

granted. West Bank also moved for interlocutory appeal on the district

court ruling on class certification, which we also granted. We address

_______________________________
act. West Bank filed a motion for summary judgment on this claim, which the district
court granted. No appeal was taken from that ruling.
       4The   amendment made an NSF fee an additional item expressly excluded from
the definition of finance charge. The amendment reads as follows:
       (5) An initial charge imposed by a financial institution for returning an
       item presented against non-sufficient funds or for paying an item that
       overdraws an account. For the purposes of this subparagraph, “item”
       includes any form of authorization or order for withdrawal of funds from
       an account such as a check, automated teller machine card, debit card,
       automated clearinghouse or other means.
2014 Iowa Acts ch. 1037, § 15 (codifed at Iowa Code § 537.1301(21)(b)(5) (2015)).
                                     9

the appeal from the class certification in a separate opinion filed today.

Legg v. West Bank, ___ N.W.2d ___ (Iowa 2016).

      III. Standard of Review.

      Our review of a grant or denial of summary judgment is for

corrections of errors at law. Griffen Pipe Prods. Co. v. Bd. of Review, 789
N.W.2d 769, 772 (Iowa 2010). “Summary judgment is appropriate when

there is no genuine issue of material fact and the moving party is entitled

to judgement as a matter of law.” Id. We view the record in the light

most favorable to the Leggs as the parties opposing summary judgment.

Id.

      IV. Analysis.

      We are asked to determine whether the district court ruling on

West Bank’s motions for summary judgment was proper.          We address

the remaining usury claims first, followed by the sequencing claims.

      A. The Usury Claims. The usury claims arise under the ICCC.

The purpose of the ICCC is to “[s]implify, clarify and modernize the law

governing retail installment sales and other consumer credit” and to

“[p]rotect   consumers    against    unfair   practices.”     Iowa     Code

§ 537.1102(2)(a), (d) (2009).   The ICCC notes that it “shall be liberally

construed and applied to promote its underlying purposes and policies.”

Id. § 537.1102(1).

      The Leggs’ usury claims were challenged below on two grounds:

(1) that the bank’s payment of the overdraft amounts did not constitute

an extension of credit and (2) that the NSF fees were not finance charges.

Because we find that the payment of the overdraft amount is not an

extension of credit, we do not need to address whether the NSF fees were

finance charges. This is because the cap on finance charges in the ICCC

applies only to “creditors . . . extending credit in consumer credit
                                    10

transactions.” Id. § 537.1108(1). Similarly, the ICCC defines a finance

charge as a charge that is “imposed . . . by the creditor as an incident to

or as a condition of the extension of credit.”           Id. § 537.1301(21)(a).

Therefore, since we find there is no extension of credit, we need not

address whether the NSF fees constitute a finance charge.

      The Leggs argue that the payment of overdrafts constitute

extensions of credit by West Bank. The district court concluded that the

payments of overdraft amounts were extensions of credit under the

ICCC. The ICCC “prescribes maximum charges for certain creditors . . .

extending credit in consumer credit transactions.” Id. § 537.1108(1). We

must therefore decide whether the payment of overdrafted amounts on

bank card transactions are an extension of credit under the ICCC.

      The ICCC defines “creditor” as a “person who grants credit in a

consumer credit transaction.”     Id. § 537.1301(18).       The ICCC defines

“credit” as “the right granted by a person extending credit to a person to

defer payment of debt, to incur debt and defer its payment, or to

purchase property or services and defer payment therefor.”                  Id.

§ 537.1301(16) (emphasis added). In a number of consumer credit sale

cases under the ICCC, this court has been asked to determine whether

particular transactions constitute an extension of credit.           See, e.g.,

Anderson v. Nextel Partners, Inc., 745 N.W.2d 464, 465 (Iowa 2008); State

ex rel. Miller v. Nat’l Farmers Org., 278 N.W.2d 905, 906–07 (Iowa 1979).

While this case does not deal with a consumer credit sale, the definition

of credit under the ICCC is the same regardless of the type of consumer

transaction—consumer credit sale, consumer lease, or consumer loan—

and   thus,   we   find   these   cases   instructive.       See   Iowa   Code

§ 537.1301(12). In determining whether there was an extension of credit,

we asked whether the individual had the ability to defer payments and
                                    11

when the money was “due and payable.” See, e.g., Miller, 278 N.W.2d at

907 (“Nothing in the agreement allows the member to defer payment of

dues. They are ‘due and payable’ at the date of making application and

annually thereafter. Nor is any provision made for deferring payment of

the annual assessment.”).

      In each of these cases, we held that the parties’ agreement needed

to grant the debtor the right to defer repayment in order for there to be

an extension of credit.     In Miller, we looked at the content of the

membership agreement and ultimately concluded that the agreement did

not constitute a grant of credit as it is defined under the ICCC. Id. at

906–07.   We were concerned with whether the membership agreement

granted a right to the members to defer the payment of dues and

assessments. Id. at 907. The language of the membership agreement

made dues due and payable at the time of signing and did not include

any provision granting members the right to defer payment.         Id.   We

noted that “[d]elay by the [National Farmers Organization] in attempting

to collect past dues and assessments does not establish that credit was

granted; it only demonstrates forbearance in collecting sums which, if

owed, were due and payable at the time the debts were incurred.” Id.

We held that there was no grant of credit and therefore the ICCC did not

apply to the transactions in question. Id. at 905.

      Similarly, in Muchmore Equipment, we examined the contract

between the parties to determine if it contained a right to defer payment.

Muchmore Equip., Inc. v. Grover, 315 N.W.2d 92, 98–99 (Iowa 1982),

superseded by statute on other grounds, Iowa Code § 535.2(2)(a)(5)

(1989), as recognized in Power Equip., Inc. v. Tschiggfrie, 460 N.W.2d 861,

863 (Iowa 1990). Because the contract required payment in full upon

completion, we held that there was no extension of credit. Id. at 98. In
                                    12

Anderson, we again examined the service agreement between the parties

to determine whether there was a right to defer payment. 745 N.W.2d at

468–69.   The customers were required to pay charges “as they were

billed.” Id. at 468. We found that the agreement did not allow customers

to defer payment of monthly invoices and that there was no extension of

credit. Id. at 468–69.

      Similar to the situation in these three cases, the Agreement signed

by West Bank’s customers does not extend any right to defer payment.

Rather, the Agreement expressly gives West Bank the right to

immediately collect payment as soon as a customer deposits sufficient

funds to cover the overdraft into their account.     In other words, the

overdraft payment advanced on bank card transactions is due and

payable at the time the account is overdrawn. The customer has no right

to defer the payment past the first time there is sufficient money in the

account to cover the repayment of the overdraft.      West Bank has the

right to immediately withdraw the amount the bank paid for the

overdraft from the customer’s account as soon as that amount is

available. West Bank is not required to notify customers that the money

sufficient to repay the overdraft will be withdrawn from their account

because, at the time of the insufficient funds transaction, the amount the

bank paid for the overdraft becomes due and payable.

      The plaintiffs argue that they have the right to defer payment of the

overdraft amount because, by definition, it cannot be paid until a later

date. However, the language of the ICCC is that an extension of credit

exists when the “right . . . to defer payment” has been granted.      Iowa

Code § 537.1301(16) (2009) (emphasis added).           Here, West Bank

customers have not been granted a right to defer payment; rather, they

must pay the bank back immediately upon their next deposit. This is
                                   13

because the overdraft is due and payable as soon as it is created;

customers have no right or choice to defer the payment past the next

deposit sufficient to cover the amount owed.

        The Leggs also point to a line of cases where the court has held

that payment of an overdraft on checks is either an unsecured loan or an

extension of credit. See, e.g., Clinton Nat’l Bank v. Saucier, 580 N.W.2d
717, 720 (Iowa 1998).     However, these cases did not arise under the

ICCC. See, e.g., id. The ICCC definition of credit in section 537.1301(16)

is much more narrow than the common law definition.            Iowa Code

§ 537.1301(16) (“ ‘Credit’ means the right granted by a person extending

credit to a person to defer payment of debt, to incur debt and defer its

payment, or to purchase property or services and defer payment

therefor.”). When the legislature chooses to define words in a statute,

“the common law and dictionary definitions which may not coincide with

the legislative definition must yield to the language of the legislature.”

Sherwin-Williams Co. v. Iowa Dep’t of Revenue, 789 N.W.2d 417, 425

(Iowa 2010) (quoting Hornby v. State, 559 N.W.2d 23, 25 (Iowa 1997)).

Therefore, we confine our inquiry to the definition of credit under the

ICCC.

        Since we find that the payment of overdraft amounts on bank card

transactions does not constitute an extension of credit under the ICCC,

the district court should have granted West Bank’s motion for summary

judgment on the usury claims.

        B. Sequencing Claims. The Leggs’ sequencing claims are based

upon West Bank’s decision to switch from low-to-high sequencing to

high-to-low sequencing between July 1, 2006, and September 30, 2010.

The Leggs assert that the change to high-to-low sequencing resulted in
                                            14

unjust enrichment to West Bank and was in violation of West Bank’s

duty to act in good faith.

       1. Unjust enrichment. The Leggs assert that West Bank’s change

to high-to-low sequencing with the intent to gain income for the bank

resulted in unjust enrichment. 5 A claim for unjust enrichment “arises

from the equitable principle that one shall not be permitted to unjustly

enrich oneself by receiving property or benefits without making

compensation therefor.”           Ahrendsen ex rel. Ahrendsen v. Iowa Dep’t of

Human Servs., 613 N.W.2d 674, 679 (Iowa 2000). The Leggs allege that

West Bank’s previous practice of posting bank card transactions from

low-to-high created an expectation for its customers that it would

continue to post in that order. They assert that any income the bank

gained from the change in posting order was at the expense of customers

and therefore unjustly enriched West Bank. West Bank counters that

the Leggs cannot continue with their unjust enrichment claim because

an express contract already exists that allows West Bank to charge

customers       a   NSF     fee    for   insufficient     bank     card    transactions.

Additionally, there is express contract language that addresses the

       5Count   V of the Leggs’ amended petition claim for relief reads as follows:

       WHEREFORE, Plaintiffs, individually and on behalf of the proposed class
       respectfully request that the Court order West Bank to repay to Plaintiffs
       and the proposed class all overdraft fees paid in excess of the statutorily
       allowable rate and all overdraft fees charged as a result of West Bank’s
       practice of sequencing Bank Card Transactions from highest amount to
       lowest amount, together with interest as provided by law, punitive
       damages, and for such further relief as is equitable.

The plaintiffs’ claim for unjust enrichment seems to be based both on the usury claims
(“in excess of the statutorily allowable rate”), and the sequencing claims (“practice of
sequencing”). Because we conclude it was error for the district court not to grant
summary judgment to West Bank on the usury claims, we only address the claim for
unjust enrichment based on the practice of sequencing.
                                    15

sequencing of postings.       The district court held that the unjust

enrichment claim was not based on the express contract between the

Leggs and West Bank, and therefore the Leggs could proceed with the

claim.

         Contracts may be either express contracts or implied contracts.

Hunter v. Union State Bank, 505 N.W.2d 172, 177 (Iowa 1993).              A

contract is express when the parties reach an agreement by words. Id. A

contract is implied if it is manifested by the conduct of the parties. Id. A

person who pleads an express contract ordinarily cannot also recover

under an implied contract. Scott v. Grinnell Mut. Reins. Co., 653 N.W.2d
556, 561 (Iowa 2002).      “An express contract and an implied contract

cannot coexist with respect to the same subject matter, and the former

supersedes the latter.”    Chariton Feed & Grain v. Harder, 369 N.W.2d
777, 791 (Iowa 1985). “Although we have held there may be a contract

implied in law on a point not covered by an express contract, there can

be no such implied contract on a point fully covered by an express

contract and in direct conflict therewith.”    Smith v. Stowell, 256 Iowa
165, 174, 125 N.W.2d 795, 800 (1964). The district court found that the

sequencing order in which West Bank posts bank card transactions was

not expressly covered in the contract between the Leggs and West Bank.

We do not agree.

         When the Leggs opened their account with West Bank, they signed

a signature card on which they agreed “to be bound by the rules and

regulations of this bank governing deposit accounts.” They also agreed

“to the terms, conditions, fees and earnings of the account as outlined in

the Deposit Account Agreement brochure provided.”          The Agreement

specifically   addressed   NSF   fees.     The   Agreement     included   a

Miscellaneous Fees document that listed the amount of all fees charged
                                             16

by the bank, including NSF fees.                    Between 2006 and 2008, the

Miscellaneous Fees document listed the amount owed per insufficient

funds transaction (three free, then $27.00 each).                   It also noted in a

footnote that “checks written on your account will be paid in order daily

with the largest check paid first and the smallest check paid last.” This

footnote was followed by: “Insufficient check charges apply to items

posted in your account.             An item is defined to include the following:

Check money transfer, ATM debit, debit card debit, ACH debit

withdrawal.” In 2009 and 2010, the Miscellaneous Fees document listed

NSF fees as $27.00 and included a similar footnote that stated:

       Checks written on your account will be paid in order daily
       with the largest items paid first and the smallest items paid
       last. NSF fees apply to overdrafts created by check, in-
       person withdrawal, ATM withdrawal or other electronic
       means.

Further, the Agreements issued each year the Leggs were customers

stated that the depositor agreed that the terms may be amended or

modified from time to time.

       The signature card, along with the Agreement and accompanying

documents, demonstrate that West Bank and its customers have an

express agreement that allows West Bank to charge NSF fees on bank

card transactions and grants West Bank discretion in choosing the

sequencing order. Further, the Leggs’ petition does not allege what the

implied contract term might be. 6              Because the issue of sequencing is

       6The     amended petition, as it relates to the unjust enrichment sequencing claims,
only alleges:
       103. West Bank’s previous pattern and practice of debiting amounts
       from low to high had created an expectation in its customers that West
       Bank would debit accounts in that order and thus created an expectation
       that West Bank would continue to debit amounts from low to high.
                                         17

expressly covered within the contracts between the Leggs and West

Bank, no claim for unjust enrichment is available.              The district court

erred by not granting summary judgment to West Bank on this claim.

      2. Good faith. Finally, the Leggs claim that West Bank breached

the implied and express duties of good faith when it changed the

sequencing order of bank card transactions to high-to-low without

informing customers. West Bank argues that Article 4 of the Uniform

Commercial Code (UCC) applies.           A comment to the good-faith section

found in the general provisions of the UCC—which apply to all articles

including Article 4—provides that the section

      does not support an independent cause of action for failure
      to perform or enforce in good faith. Rather, [the] section
      means that a failure to perform or enforce, in good faith, a
      specific duty or obligation under the contract, constitutes a
      breach of that contract.

U.C.C. § 1–203 cmt., 1 U.L.A. 273 (2012). The district court held that

the Leggs may maintain a cause of action against West Bank on this

claim based upon the express contractual good-faith obligation contained

in the Agreement and upon an implied obligation on the part of West

Bank to exercise discretion in good faith in carrying out the terms of the

contract.

      When the Leggs opened their account with West Bank, they were

provided with an Agreement that included the statement that West Bank

_______________________________
      104. West Bank’s enrichment was at the expense of Plaintiffs and Class
      Members.
      105. It is unjust to allow West Bank to retain the above benefits under
      the circumstances and the overdraft fees should be returned to Plaintiffs
      and Class Members.
      106. West Bank acted with willful and wanton disregard to the rights of
      Plaintiffs and Class Members, entitling Plaintiffs to recover punitive
      damages.
                                    18

“shall have an obligation to Depositor to exercise good faith and ordinary

care in connection with each account.” Before West Bank initiated the

sequencing change, it consulted with an Iowa Bankers Association

Compliance Officer. After this consultation, West Bank concluded in an

internal memo that the previous practice of posting low-to-high created a

business expectation with customers and it would be necessary to notify

them of the change. Although West Bank’s memo specifically discussed

notifying its customers of the sequencing change with regard to bank

card transactions, West Bank nonetheless made the change without

notifying customers.

      The district court, relying on the opinions of other courts that have

heard similar issues, concluded that the plaintiffs could pursue their

good-faith claims.     One case the district court discussed addressed

whether express contract terms were being carried out in good faith. In

In re Checking Account Overdraft Litigation, the plaintiffs argued that the

banks violated express contractual provisions to act in good faith by

reordering postings to high-to-low sequencing. 694 F. Supp. 2d 1302,

1315 (S.D. Fla. 2010).     The court found that the plaintiffs were not

asking to vary the terms of the express contract. Id. Rather, they were

asking that the bank carry out its express agreement to exercise its

discretion regarding the posting sequencing in good faith. Id. at 1315.

The court cited to a number of cases where other courts held that “when

one party is given discretion to act under a contract, said discretion must

be exercised in good faith.”   Id.; see Amoco Prod. Co. v. Heimann, 904
F.2d 1405, 1411–12 (10th Cir. 1990); Alexander Mfg., Inc. v. Ill. Union Ins.

Co., 666 F. Supp. 2d 1185, 1206 (D. Or. 2009); Bybee Farms LLC v.

Snake River Sugar Co., No. CV–06–5007–FVS, 2008 WL 4454054, at *12

(E.D. Wash. Sept. 29, 2008).
                                    19

      Similarly, West Bank has discretion with regard to the sequencing
order of bank card transactions in its agreements with the Leggs and its
other customers. The bank wrote the duty of good faith into its contract
with customers. The Leggs could reasonably argue that the change in
sequencing of bank card transactions, coupled with the lack of
notification, violated the reasonable expectations of customers that the
bank act in good faith when exercising its discretion to sequence
transactions. Therefore, the district court did not err in denying West
Bank’s motion for summary judgment on the express contractual
provision requiring West Bank to act in good faith. Because we find an
express contract governs West Bank’s duty to act in good faith, we find
the district court erred in concluding that a claim based on an implied
duty of good faith was preserved. See, e.g., Chariton Feed & Grain, 369
N.W.2d at 791 (“An express contract and an implied contract cannot
coexist with respect to the same subject matter, and the former
supersedes the latter.”).
      C. Limitation of Actions.       West Bank argues that the Leggs’
usury claims are subject to a one-year statute of limitations under Iowa
Code section 537.5201(1).     The bank argues that section 537.5201(1)
limits the claim for damages to one year and section 537.5201(3) limits
claims for excess charges to one year. Id. § 537.5201(1), (3). Because we
dismiss the plaintiffs’ usury claims, we decline to address what the
appropriate statute of limitations would be under the ICCC.
      The only remaining claim—that the bank violated the express duty

of good faith—is a contractual claim. Iowa Code section 614.1 covers the

statute of limitations for both written and unwritten contractual

provisions. Id. § 614.1(4)–(5). Written contracts are subject to a ten-year

statute of limitations, while unwritten contracts are subject to a five-year
                                    20

statute of limitations. Id.; see also Robinson v. Allied Prop. & Cas. Ins.

Co., 816 N.W.2d 398, 402 (Iowa 2012).

      In order to determine the appropriate statute of limitations for a

cause of action, we look to the foundation of the action. Sandbulte v.

Farm Bureau Mut. Ins. Co., 343 N.W.2d 457, 462 (Iowa 1984), overruled

on other grounds by Langwith v. Am. Nat’l Gen. Ins. Co., 793 N.W.2d 215,

223 (Iowa 2010). “In order for a cause of action to be founded upon a

contract in writing, the instrument itself must contain an undertaking to

do the thing for the non-performance of which the action is brought.”

Matherly v. Hanson, 359 N.W.2d 450, 455 (Iowa 1984) (quoting Kersten v.

Cont’l Bank, 628 P.2d 592, 594–95 (Ariz. Ct. App. 1981)).

      In the past, when we have been faced with a claim based solely on

the breach of the implied covenant of good faith, we found the claim was

based on an unwritten contract and the five-year statute of limitations

applied.   Sandbulte, 343 N.W.2d at 460.         However, we have also

recognized that claims based on specific, written contracts fall under the

ten-year statute of limitations contained in section 614.1. See, e.g., Bob

McKiness Excavating & Grading Co. v. Morton Bldgs., Inc., 507 N.W.2d
405, 408 (Iowa 1993). In this case, the Leggs’ claim for the breach of the

duty of good faith comes from the Agreement itself. The document itself

states that West Bank will act in good faith with regard to sequencing.

Because we find that the plaintiffs may only proceed on a claim of a

breach of the duty of good faith based on the written contractual

provision between customers and West Bank, we likewise find that the

appropriate statute of limitations that governs this action is the ten-year

limitation for written contractual provisions.
                                   21

      V. Conclusion.

      We conclude that the district court erred when it denied summary

judgment to West Bank on all the claims except the claim based on a

potential breach of the express duty of good faith in the sequencing of

postings of bank card transactions.     The case is remanded for further

proceedings consistent with this opinion.

      DECISION     OF   DISTRICT      COURT     AFFIRMED     IN   PART,

REVERSED IN PART, AND REMANDED.