Sparkman v. Comerica Bank

Background

Paula Sparkman brought a proposed class action against Comerica Bank and Conduent Business Services, LLC. The lawsuit concerned Way2Go prepaid debit cards used through California Child Support Services to distribute child support payments. Sparkman alleged that her card was stolen on November 29 or 30, 2022. She reported the theft on December 1, 2022, later disputed 21 transactions totaling more than $1,000, and alleged that Defendants denied reimbursement after an inadequate investigation.

Sparkman asserted claims under the Electronic Funds Transfer Act, breach of contract, and California’s Unfair Competition Law. She also demanded a jury trial. Defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint adequately states a legal claim, and moved to strike the jury demand.

Choice of Law

The card terms stated that Michigan law governed. The court held that the choice-of-law provision was not enforceable because Defendants had not shown a substantial relationship or other reasonable basis connecting Michigan to the parties or transaction. The court therefore applied California law.

Breach of Contract

The court dismissed with leave to amend Sparkman’s breach-of-contract theories based on the Way2Go Terms of Use. Those theories alleged that Defendants failed to reimburse unauthorized transactions, failed to conduct a proper investigation, placed the burden on consumers to prove fraud, and denied claims based on conflicting information. The court found that the complaint did not adequately connect those alleged actions to a specific contractual obligation, or in some instances merely alleged disagreement with Defendants’ determination under the Terms of Use.

The court declined to dismiss the breach-of-contract theory based on the separate Way2Go information sheet stating that Mastercard’s “Zero Liability Protection” assured cardholders they would not lose funds if the card was lost or stolen. Defendants raised their challenge to that theory for the first time in their reply brief, so the court denied the motion to dismiss that portion of the contract claim.

Electronic Funds Transfer Act Claim

The court denied the motion to dismiss Sparkman’s claim under the Electronic Funds Transfer Act. The Act limits a consumer’s liability for an unauthorized electronic fund transfer and places on the financial institution the burden of showing that the transfer was authorized or that the statutory conditions for consumer liability were met.

The court found Sparkman’s allegations sufficient at the pleading stage. She alleged that she reported the theft within two days, disputed transactions exceeding $1,000, provided a list of 21 charges, and received a denial stating that Defendants could not confirm fraud and had found conflicting information. The court concluded that these allegations plausibly showed that Defendants failed to establish authorization and failed to conduct a reasonable investigation.

California Unfair Competition Law Claims

The court denied dismissal of both the unlawful-business-practices and unfair-business-practices claims. Because California law applied, Defendants could not rely on the Michigan choice-of-law provision to defeat those claims. The court also rejected the argument that Sparkman could not seek equitable remedies merely because she might have another legal remedy at this stage of the case.

The court dismissed with leave to amend Sparkman’s request for restitution. It concluded that she had not addressed Defendants’ argument that restitution under the Unfair Competition Law requires showing that Defendants acquired the money she lost.

The unlawful-business-practices claim was allowed to proceed because it was based on the alleged Electronic Funds Transfer Act violations, which the court found adequately pleaded. The unfair-business-practices claim was also allowed to proceed because Sparkman alleged that Defendants failed to investigate disputes properly, shifted the burden of proving fraud to cardholders, and failed to promptly credit accounts for unauthorized transactions.

Jury Demand

The court denied the motion to strike Sparkman’s jury demand. Although the Terms of Use contained a jury-trial waiver, Defendants did not show that Sparkman knowingly and voluntarily waived that right. The court deferred deciding which specific issues would ultimately be submitted to a jury.

Disposition

The motion to dismiss was granted in part and denied in part. Sparkman’s breach-of-contract claims based on the Terms of Use and her claim for restitution were dismissed with leave to amend. The motion to dismiss the other identified theories, including the Electronic Funds Transfer Act claim, the information-sheet contract theory, and the two substantive Unfair Competition Law theories, was denied. The motion to strike the jury demand was denied. An amended complaint was due within 14 days of the order.