White v. BMO Bank N.A.

Background

Todd White sued BMO Bank N.A. after transactions allegedly caused his checking account to become overdrawn. White alleged that he had opted out of BMO’s overdraft protection service, but BMO processed the transactions and charged overdraft fees. He alleged that the fees caused the account to have a negative balance, after which BMO closed the account and reported the negative balance and closure to ChexSystems, a consumer reporting agency. White alleged that this reporting harmed his credit and caused him to be denied banking services elsewhere.

White, who was proceeding without a lawyer, asserted five claims: violation of the Electronic Fund Transfer Act and its implementing Regulation E; violation of the Fair Credit Reporting Act; breach of contract; negligence; and violation of California’s Unfair Competition Law.

Screening standard

The court screened the complaint under 28 U.S.C. § 1915(e)(2), which requires dismissal of a case proceeding without prepayment of fees if it is frivolous or malicious, fails to state a claim for relief, or seeks money from a defendant protected from such relief. The court applied the same failure-to-state-a-claim standard used under Federal Rule of Civil Procedure 12(b)(6). At this stage, the court accepted the complaint’s factual allegations as true and viewed them favorably to White, while requiring more than labels, conclusions, or unsupported assertions.

Claims allowed to proceed

The court found that White adequately stated a claim under the Electronic Fund Transfer Act. Regulation E generally bars a financial institution from charging a fee for paying certain transactions through an overdraft service unless the institution provides the required written notice and obtains the consumer’s affirmative consent. White alleged that BMO charged overdraft fees even though he had opted out of the service.

The court also found that White adequately stated a Fair Credit Reporting Act claim. White alleged that BMO furnished inaccurate information to ChexSystems, that he disputed the information with ChexSystems, that ChexSystems notified BMO of the dispute, and that BMO failed to conduct a reasonable investigation or correct the information.

The court found that White adequately pleaded breach of contract. He alleged that opening the checking account and opting out of overdraft services created a contract, that BMO breached it by processing withdrawals and charging overdraft fees, and that the breach caused fees, account closure, and harm related to the reported negative balance.

The court also allowed the California Unfair Competition Law claim to proceed. White alleged that BMO’s conduct violated Regulation E, supporting the law’s unlawful-practices theory, and alleged that the conduct was unfair.

Negligence claim

The court dismissed White’s negligence claim. Although White alleged the elements of negligence, the court held that the claim sought purely economic damages arising from the alleged breach of contract. Under California’s economic-loss rule, those losses generally must be pursued through contract rather than negligence unless the plaintiff alleges additional harm, such as physical injury. White did not allege physical injury, and the court found that his negligence claim was not independent of the contract claim.

Because the negligence claim was inseparably tied to the contract claim and amendment would be futile, the court dismissed it with prejudice and denied leave to amend that claim.

Order

The court concluded that White had stated claims under the Electronic Fund Transfer Act, the Fair Credit Reporting Act, for breach of contract, and under California’s Unfair Competition Law. Those claims could proceed past the screening stage. The Clerk of Court was directed to issue a summons, and the United States Marshal for the Northern District of California was directed to serve BMO without prepayment of fees. Judge Tigar denied White’s motion directing the marshal to serve BMO as moot.