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1.5.10.4 The Ninth Circuit’s Decision in Gutierrez

The Ninth Circuit’s decision in Gutierrez v. Wells Fargo Bank217 analyzes preemption of a variety of claims regarding the manipulation of posting order and is the only published Circuit decision to date on the topic. The trial court had found that the bank’s sole motive for choosing a high-to-low posting order was to gouge customers and that the bank violated the state UCC provision requiring it to act in good faith in charging overdraft fees.218 Relying on OCC regulations, the Ninth Circuit held that the ability to choose a method of posting transactions was integrally related to the receipt of deposits, a power that the OCC did not permit state laws to condition, and that the OCC delegated to banks the method of calculating fees. The court also relied on OCC interpretive letters finding that high-to-low posting, which affects the amount of overdraft fees imposed, is a pricing decision authorized by federal law.219 It held that the state’s good faith requirement could not be applied to prevent a bank from choosing high-to-low posting.

The Ninth Circuit failed to consider that the OCC regulation authorizing bank fees does not categorically preempt state laws as applied to such fees,220 and that the OCC’s interpretive letters explicitly declined to address the applicability of state law to posting order.221 Moreover, the OCC interpretive letters on which the court relied dealt only with processing of checks, not processing of the debit card transactions that were the subject of the suit. Reordering is hard to justify for debit card transactions, as the bank is obligated by card network rules to pay for transactions that have already been authorized. Consequently, the claim that reordering helps consumers by ensuring that larger, more important transactions are covered has little applicability in the debit card context. The OCC letters on which the Ninth Circuit relied also expressly declined to address the good faith requirements of the California and Texas UCC provisions.222 The implied covenant of good faith and fair dealing is an aspect of contract law, an area generally not preempted by the OCC,223 and a good faith requirement is also part of the Uniform Commercial Code, which the OCC has held not to be preempted.224 Since the case arose prior to the enactment of the Dodd-Frank Act, and does not cite the Dodd-Frank changes in preemption law, the decision should have little precedential value on this issue.

On the other hand, the Ninth Circuit held that federal law did not preempt the consumers’ claim that the bank made affirmative misrepresentations about its overdraft program.225 While federal law would preempt a non-disclosure claim,226 a claim that it made misleading statements would not be preempted. As the court held, “the limitation on fraudulent representations in California’s Unfair Competition Law does not subject Wells Fargo’s ability to receive deposits, to set account terms, to implement a posting method, or to calculate fees to surveillance under a rival oversight regime, nor does it stand as an obstacle to the accomplishment of the National Bank Act’s purposes.”227

On remand from the Ninth Circuit, the lower court reinstated its previous restitution order against the bank, finding that full restitution was justified based on the claims of fraudulent and misleading conduct that the Ninth Circuit had determined were not preempted.228 The district court also enjoined the bank from making any false or misleading representations relating to posting order but did not mandate a particular posting order. On appeal once more, the Ninth Circuit largely upheld the district court’s order but found that the injunction was overbroad.229

Footnotes

  • 217 {206} 704 F.3d 712 (9th Cir. 2012). See also Hawthorne v. Umpqua Bank, 2013 WL 5781608 (N.D. Cal. Oct. 25, 2013) (applying Gutierrez’s preemption determinations to California branch of Oregon-chartered bank pursuant to 12 U.S.C. § 1831a(j)).

  • 218 {207} Gutierrez v. Wells Fargo Bank, 730 F. Supp. 2d 1080 (N.D. Cal. Aug. 10, 2010), rev’d, 704 F.3d 712 (9th Cir. 2012).

  • 219 {208} OCC Interpretive Letter No. 1082, 2007 WL 5393636 (May 17, 2007); OCC Interpretive Letter No. 916, 2001 WL 1297814 (May 22, 2001); OCC Interpretive Letter No. 977, 2002 WL 32872368 (Apr. 15, 2002).

  • 220 {209} See § 1.5.6, supra.

  • 221 {210} OCC Interpretive Letter No. 1082, 2007 WL 5393636 (May 17, 2007) (“we express no opinion concerning[] the applicability of any state law to national banks”); OCC Interpretive Letter No. 916, 2001 WL 1297814 (May 22, 2001) (“this letter does not address the applicability to the Bank of the California Commercial Code check-posting provision or the standard articulated in the Commentary”).

  • 222 {211} Cal. Com. Code § 4303, cmt. 7 (West 1992); Tex. Bus. & Com. Code Ann. § 4.303 (West) (commentary). See §§ 3.4.3 (general U.C.C. duty to act in good faith), 3.8.4.5, infra (discussing U.C.C. standards, and state variations, as applied to check reordering).

  • 223 {212} See 12 C.F.R. § 7.4007(c); In re Checking Account Overdraft Litig., 797 F. Supp. 2d 1312 (S.D. Fla. 2011), later op. at 2014 WL 12557839 (S.D. Fla. June 24, 2014) (denying motion for judgment on pleadings; reiterating that claims are not preempted).

  • 224 {213} See OCC Interpretive Letter # 1005 (June 10, 2004), available at www.occ.gov; § 3.4.3, infra.

    Indeed, both the California and Texas commentaries to the U.C.C. state explicitly that a procedure designed to maximize the number of returned checks solely to increase returned check fees is not appropriate. The first OCC letter states that the California commentary “glosses this provision [permitting banks to post in any order] with the application of a ‘good faith’ standard” and then states that one factor in evaluating good faith is whether the bank’s practices were consistent with its representations. OCC Interpretive Letter No. 916, 2001 WL 1297814 (May 22, 2001). The second OCC letter notes that the Texas Commercial Code “is consistent with Federal law” and then makes a similar comment about evaluating good faith. OCC Interpretive Letter #977, 2002 WL 32872368 (Apr. 15, 2002), available at www.occ.gov. See generally § 1.5.10.3, supra; National Consumer Law Center, Mortgage Lending § 5.8.4.2 (3d ed. 2019), updated at www.nclc.org/library.

  • 225 {214} Gutierrez v. Wells Fargo Bank, 704 F.3d 712, 725–728 (9th Cir. 2012).

  • 226 {215} Id. at 726.

  • 227 {216} Id. at 727.

  • 228 {217} See Gutierrez v. Wells Fargo Bank, 944 F. Supp. 2d 819 (N.D. Cal. 2013), aff’d in part, vacated in part, 589 Fed. Appx. 824 (9th Cir. 2014).

  • 229 {218} Gutierrez v. Wells Fargo Bank, 589 Fed. Appx. 824 (9th Cir. 2014).