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Jacobs v. FirstMerit Corp.

Court of Appeals of Ohio, Eleventh District

September 30, 2013

FIRSTMERIT CORPORATION, et al., Defendants-Appellants.

Civil Appeal from the Lake County Court of Common Pleas, Case No. 11CV000090.

Patrick J. Perotti and Nicole T. Fiorelli, Dworken & Bernstein Co., L.P.A., Hassan A. Zavareei and Andrea R. Gold, Tycko & Zavareei, LLP, and Stuart E. Scott and Daniel Frech, Spangenberg Shibley & Liber, LLP, (For Plaintiffs-Appellees).

David F. Adler, Michael A. Platt, Robert E. Haffke, and Amanda R. Parker, Jones Day, North Point, and Chad A. Readler, Jones Day, (For Defendants-Appellants).



(¶1} Appellants, FirstMerit Corporation, et al. ("FM"), appeal the judgment of the Lake County Court of Common Pleas granting the motion of appellees, Emily Jacobs and James Glavic, for class certification. For the reasons that follow, we affirm in part; reverse in part for the trial court to modify the class definition and remand for this limited purpose.

(¶2} Appellees alleged in their First Amended Class Action Complaint that they opened a joint checking account with FM. Appellees were automatically enrolled in FM's overdraft program so that if they did not have sufficient funds in their account to pay for a transaction, FM paid the item, processed an overdraft without advising appellees, and charged them $35 per overdraft.

(¶3} Appellees alleged that FM adopted a bookkeeping device pursuant to which it reordered its customers' debit card transactions using a "high-to-low" posting method. Under this posting method, FM paid its customers' debit card transactions in descending order from the highest to the lowest amount, rather than in the actual order in which they occurred. Under this posting method, the account's balance was depleted as quickly as possible, unlawfully increasing the number of transactions that would result in overdrafts.

(¶4} Appellees alleged that, at the same time FM adopted its new posting method, FM also began to "commingle" its customers' debit card transactions with their checks and other customer-authorized transactions. By commingling all debit transactions and then reordering them from high to low, FM wrongfully charged its customers, including appellees, additional overdraft fees. Further, FM did not disclose to its customers its manipulations or that they would greatly increase overdrafts and overdraft fees. Also, FM misrepresented to appellees on their monthly account statements that their transactions were posted chronologically and that appellees owed overdraft fees, which, in fact, appellees did not owe.

(¶5} Appellees alleged that, as a result of FM's illegal reordering and commingling scheme, their accounts and those of all putative class members were placed in overdraft status before they were actually overdrawn and the accounts were assessed more overdraft fees than legally permitted. As a result of FM's reordering and commingling scheme, FM has improperly charged its Ohio customers millions of dollars.

(¶6} Appellees asserted claims for fraud, unjust enrichment, and breach of contract, and prayed for disgorgement by FM of all illegally held monies, damages in an unspecified amount to be determined at trial, and injunctive relief.

(¶7} Subsequently, appellees moved for class certification of their claims, and FM filed its brief in opposition. The parties submitted evidentiary materials, including deposition transcripts, experts' reports, and exhibits in support of their respective positions. The trial court held an oral hearing on the motion for certification.

(¶8} Larry Shoff, FM's representative, testified in deposition that "posting" is the procedure followed by all banks to process debit items presented for payment against accounts. Each night after midnight, all debit items presented for payment during the preceding business day are posted by computer and subtracted from the account balance. The order in which items are posted is determined by computer programming. These items are typically debit-card transactions, checks, and other customer-authorized transactions. If the account balance is sufficient to cover all items presented for payment, there will be no overdrafts, regardless of the posting method used. However, if the account balance is insufficient to cover every debit item, the account will be overdrawn. When an account is overdrawn, the posting sequence can have a dramatic effect on the number of overdrafts incurred by the account, even though the total sum overdrawn will be the same. The number of overdrafts drives the amount of overdraft fees.

(¶9} Prior to March 2005, the bank sorted transactions by different groups. Checks were posted by number and non-check items were posted "low-to-high." Under the low-to-high posting method, the bank posted items from lowest to highest dollar amount. The smallest purchases were deducted first and the balance was used as slowly as possible, minimizing the number of overdrafts and overdraft fees.

(¶10} Mr. Shoff testified that in March 2005, in order to increase FM's revenue, it adopted a change in its posting method, pursuant to which all customers' transactions were commingled and all transactions were posted and paid in order of highest to lowest dollar amount. Under this posting method, large dollar items were posted and paid first, even if they were received last, and the account balance was depleted as quickly as possible, thus maximizing the number of overdrafts and overdraft fees.

(¶11} Mr. Shoff testified that when a customer opens an account, he receives a copy of the "Terms and Conditions, " which are drafted solely by FM and not subject to any change by the customer. Thereafter, he receives a monthly account statement.

(¶12} After FM changed its posting order in March 2005, it advised its existing customers in their April 2005 account statement, as follows:

(¶13} FirstMerit Bank may pay items drawn on your account in any order. Our current practice is to pay items received on any one day in the order of the highest dollar amount to the lowest dollar amount. * * * The order in which items are paid is important if there is not enough money in your account to pay all of the items that are presented. FirstMerit's current practice will cause your largest * * * items to be paid first * * *, but may increase the overdraft * * * fees you have to pay if collected funds are not available to pay all of the items. FirstMerit may change the order in which it generally pays items at any time and from time to time without giving you prior notice of the change.

(¶14} This same notice was given to new customers in the "Terms and Conditions" they received when they opened their accounts after March 2005.

(¶15} Elizabeth Barber, an FM senior vice president, testified that a customer could not determine from his monthly checking account statements the order in which multiple transactions were posted on any given day. She said that the amount of the overdraft fee is $35, regardless of the amount of the overdraft, and that FM limits the amount of overdrafts it will charge a customer to seven per day. Thus, one minimal overdraft could result in as many as seven separate overdraft fees of $35 each.

(¶16} Following the oral hearing on appellees' motion for certification, the trial court entered its judgment granting the motion.

(¶17} FM appeals the trial court's ruling, asserting three assignments of error. Because the first two are related, they are considered together. They allege:

(¶18} "[1.] The trial court abused its discretion by granting Plaintiffs' class-certification motion without conducting the required rigorous analysis of the Civ.R. 23 prerequisites.

(¶19} "[2.] The trial court abused its discretion in concluding that Plaintiffs satisfied each of the Civ.R. 23 prerequisites and that the class ...

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