Santoro v. State Farm Mutual Automobile Insurance Company

Background

Melissa Santoro alleged that State Farm Mutual Automobile Insurance Company violated New York General Business Law § 399-zzz by charging different installment fees based on whether policyholders paid by check, used automatic electronic payments, or received paper billing statements. She sued individually and on behalf of others similarly situated.

Santoro had insured her vehicles through State Farm for many years. Her policies generally required the full premium at the beginning of the policy period, unless an alternative payment plan applied. Under State Farm’s Payment Plan Agreement, customers could pay in installments under three options: a $3 fee for “Non Recurring Accounts,” a $2 fee for “Recurring Accounts Print Billing Notice,” and a $1 fee for “Recurring Accounts.” Santoro used the nonautomatic option, paid by check, received paper bills, and paid a $3 fee with each installment.

Motion to Dismiss Standard

State Farm moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which asks whether the complaint alleges enough facts to make a legally valid claim plausible. In deciding the motion, the court accepted factual allegations as true but did not accept legal conclusions as true. The court considered the amended complaint, the State Farm Payment Plan Agreement attached to it, and the relevant insurance policies.

New York Fee Statute

Section 399-zzz(1) generally prohibits charging a consumer an additional rate or fee, or a different rate or fee, when the consumer chooses to pay by United States mail or receive a paper billing statement. But the same provision says that it must not be interpreted to prohibit a business from offering a consumer “a credit or other incentive” to choose a particular payment or billing option. Violations are treated as deceptive acts enforceable under New York General Business Law § 349.

Court’s Analysis

The court harmonized the two sentences of § 399-zzz(1). It reasoned that the statute prohibits a general charge for paper billing or payment by mail, and also prohibits a general discount for avoiding paper billing or payment by mail. But it permits a business to offer a lower fee as an incentive for a specific payment or billing option.

The court held that State Farm’s lower fees for preauthorized, recurring electronic payments fit within the statute’s permitted-incentive language. The court rejected Santoro’s argument that the $1 fee for recurring electronic payments without paper statements was the basic fee and that the $2 and $3 fees were additional charges for paper billing or payment by mail. The payment-plan documents and website chart did not identify the $1 fee as a default fee. Instead, the documents showed that the nonrecurring, paper-billing, nonautomatic option was the default because automatic electronic payments required affirmative authorization by the policyholder.

The court also rejected Santoro’s argument that an “incentive” had to be limited to a credit, rebate, refund, or similar payment. In the court’s view, a reduced fee or discount has the same practical effect as a credit, and the statutory phrase “credit or other incentive” included that type of reduction.

The court recognized the policy concerns described in the New York legislative history, including the effect of paper-billing fees on people without internet access and on lower-income consumers. But it concluded that those concerns could not override the statute’s text, which expressly permits incentives for specific payment or billing options.

State Farm also argued that the federal Electronic Signatures in Global and National Commerce Act preempted Santoro’s claim. The court did not reach that issue because the claim failed on the statutory interpretation issue. The court nevertheless stated that, if it had to decide the issue, it would not view the federal statute as expressly preempting § 399-zzz because the federal law was silent about charging a fee for paper records from the outset.

Leave to Amend and Disposition

Santoro had already amended her complaint after receiving notice of State Farm’s arguments and the court’s observations at a pre-motion conference. She did not request another amendment or identify facts that would cure the problem. The court therefore declined to grant leave to amend on its own initiative, concluding that the defect was substantive and could not be fixed through better pleading.

The court granted State Farm’s motion to dismiss, directed the clerk to terminate the motion, and closed the case. The opinion does not state that the court certified a class.