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From Banking and Finance Law Daily, October 30, 2014

Wells Fargo again loses challenge to $203 million restitution order

By Richard A. Roth, J.D.

A judgment that Wells Fargo Bank owes consumers nearly $203 million in restitution for misrepresenting the order in which debit card transactions were posted has been affirmed by the U.S. Court of Appeals for the Ninth Circuit. While an earlier Ninth Circuit decision ruled that many of the class action claims were preempted by federal law, the federal district court subsequently reinstated the restitution award based on the surviving state law claims. That decision was upheld by the latest not-for-publication opinion (Gutierrez v. Wells Fargo Bank, Oct. 29, 2014).

The consumer class claims centered on Wells Fargo’s practice of posting debits in a largest-to-smallest order and on the bank’s related statements and disclosures. According to the bank, posting debits in this order means customers’ most important bills, like mortgage payments, are more likely to be paid before the funds in an account are exhausted; however, it also increases the bank’s fee income because it maximizes the number of overdraft transactions. The class alleged that the bank’s practices and statements violated the California Unfair Competition Law and also state common law.

Preemption. In 2012, the Ninth Circuit decided that many of the state law claims were preempted by the National Bank Act because they constituted efforts to mandate a specific posting order and consumer disclosures. These are subjects regulated by federal law, the court said.

On the other hand, federal law did not give the bank the authority to make misrepresentations about its posting order, the court said. As a result, claims that the bank misrepresented its practices in violation of state law were not preempted (Gutierrez v. Wells Fargo Bank).

Award reinstated. The Ninth Circuit sent the class action back to the district court to consider whether the restitution award was supported by the claims that survived preemption. The district court judge decided they were and reinstated the full amount of the judgment against Wells Fargo (see Banking and Finance Law Daily, May 15, 2013). The principal issues on remand were whether the class had waived the claim for restitution or the ability to use expert testimony to prove the amount of restitution that should be paid.

Second appeal. The latest appeal was limited to a review of the reinstatement. The appellate court began by agreeing that the restitution demand had not been waived.

The restitution award was not based on conduct permitted by the NBA, the appellate court next said. The district court had made clear the award was based on the bank’s affirmative misrepresentations, which were not permitted conduct. The record included many examples of such misrepresentations, the appellate court added.

Salve on the wounds. The appellate court did, however, decide that the district court’s injunction against future false statements was too broad. The injunction banned future false statements about the posting orders of debit card, check, and automated clearing house transactions. However, because the court had decided that consumers were not confused about the posting orders of checks and ACH transactions, the injunction went farther than was necessary to give the class the relief to which it was entitled, the appellate court decided.

Also, the district court’s denial of the class request for prejudgment interest was affirmed.

The consolidated cases are No. 13-16195No. 13-16598, and No. 13-16749.

Attorneys: Richard M. Heimann (Lieff Cabraser Heimann & Bernstein LLP) for Veronica Gutierrez. Emily Johnson Henn (Covington & Burling LLP) for Wells Fargo Bank, NA.

Companies: Wells Fargo Bank, NA

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