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In re Capital One Bank Credit Card Interest Rate Litigation

United States District Court, N.D. Georgia, Atlanta Division

September 30, 2014

IN RE: CAPITAL ONE BANK CREDIT CARD INTEREST RATE LITIGATION

OPINION AND ORDER

THOMAS W. THRASH, Jr., District Judge.

This matter is before the Court on the Defendant's motion for summary judgment [Doc. 48].

I. Background

A. Procedural History

This multidistrict litigation and purported class action stems from the Defendant Capital One's decision to raise interest rates on customers' credit card accounts in 2009. The Plaintiffs allege a multitude of claims, including breach of contract; breach of implied contract; unconscionability; unjust enrichment; and violations of the Truth in Lending Act, 15 U.S.C. § 1601 et seq.; the California Consumers Legal Remedies Act, Cal. Civ. Code § 1750 et seq.; the California Unfair Competition Law, Cal. Bus. & Prof. Code § 17200 et seq.; the California False Advertising Act, Cal. Bus. & Prof. Code § 17500 et seq.; the Kansas Consumer Protection Act, K.S.A. 50-623; and the New Jersey Consumer Fraud Act, N.J.S.A. § 56:8-1 et seq.

The Plaintiffs Barker, Baxter, Gaffney, and Kautz filed their original complaint against Capital One in state court on September 15, 2009. Capital One removed that suit to federal court on September 30, 2009 in a case styled as Barker v. Capital One Bank (USA), N.A., Civil Action No. 1:09-CV-2682, N.D.Ga. After removal, the complaint was amended to add the Plaintiffs Solsberry and Lavallie. The Plaintiffs Mancuso and Roberti filed their complaint against Capital One on April 2, 2010, in the United States District Court for the Eastern District of Virginia in a case styled Mancuso v. Capital One Bank (USA), N.A., Civil Action No. 1:10-CV-326, E.D. Va. The Plaintiff Kolkowski filed her complaint against Capital One on May 10, 2010, in the United States District Court for the Central District of California in a case styled as Kolkowski v. Capital One Bank (USA), N.A., CV10-3486, C.D. Cal. On June 11, 2010, the cases were consolidated in the multidistrict litigation, In re: Capital One Credit Card Interest Rate Litigation, MDL No. 2171.

In earlier proceedings during this litigation, the Court provided the Plaintiffs with the opportunity to file a consolidated amended complaint. See Docket Entry [8], Transcript, July 14, 2010, at 15, 25-26.[1] The Court also ruled that the Defendant would be permitted to file a dispositive motion as to certain legal issues (federal causes of action and breach of contract) before any matters of class certification or state consumer protection laws were addressed.[2] In a later conference, however, the Defendant asked the Court to revisit its decision to put off consideration of state consumer protection claims.[3] The Court agreed that it would consider all federal and state law claims when the Defendant filed its dispositive motion.[4]

The Defendant filed a motion for summary judgment on August 8, 2011. As the Court has previously explained, however, briefing of this motion was substantially delayed by discovery disputes between the parties that were eventually referred to Special Master Jeffrey Bramlett. Special Master Bramlett issued a Report and Recommendation that required disclosure of certain documents. The parties had previously agreed to accept the ruling of the Special Master without further objection.

After the Special Master issued his Report, the parties filed additional briefing on the Defendant's motion for summary judgment supplemented by the additional documents disclosed. See the Plaintiffs' Supplemental Brief, Docket Entry [115]; the Plaintiffs' Updated Response to Defendant's Statement of Material Facts, Docket Entry [124]; the Plaintiff's Updated Statement of Material Facts Docket Entry [125]; the Defendant's Reply Brief, Docket Entry [127]; and the Defendant's Response to Plaintiffs' Updated Statement of Material Facts, Docket Entry [128].[5] The Defendant's motion for summary judgment is now fully briefed.

B. Facts

The Defendant is a national bank, organized under the National Bank Act, which offers credit cards to consumers. Consumers who hold a Capital One credit card typically have responded to direct mail, internet, or other form of solicitation from Capital One to apply for a credit card.[6] These solicitations offer a wide variety of terms, including "fixed rate" and "variable rate" credit cards. Generally, after Capital One approves a credit card application, it mails out the credit card. Within several days, Capital One also mails the new account holder a Customer Agreement in effect at that time.[7] Further, in the 2009 time period, the back of Capital One credit cards stated: "By accepting, signing or using this card, you agree to Capital One's present and future rules and regulations."[8]

Capitol One on occasion amends its Customer Agreement. The Customer Agreement in effect during the 2009 time period was the 2005 Customer Agreement. For those Plaintiffs who had an account prior to 2005, the 2005 Customer Agreement was mailed to them at the time it went into effect. For those Plaintiffs who opened accounts after 2005, the 2005 Customer Agreement was mailed to them at the time they opened their accounts. The 2005 Customer Agreement was not amended until 2010, and that amendment has no impact here.

The 2005 Customer Agreement states that the account holder's contract with Capital One consists of the:

Customer Agreement, together with any changes to this Customer Agreement that we make as provided below, the Security Account (if applicable), the Security Account Assignment Agreement (if applicable), Capital One Privacy Notice, any account disclosures provided and delivered to you prior to or at the time your account opened, including disclosures pursuant to requirements of Truth in Lending Act..., as well as any subsequent notices of changes to these documents, and any and all documents that include your signature (including any electronic or digital signature) on any application, sales slip or other evidence of indebtedness on your account.[9]

The 2005 Customer Agreement also contains an "Account Closure and Suspension of Credit Privileges" clause, which provides:

Account Closure and Suspension of Credit Privileges. (1) We may, at any time, with or without cause, with or without advance notice, and regardless or the existence or non-existence of a default under this Agreement, cancel the account...[10]

The 2005 Customer Agreement contains a "Changes in Terms" clause, which provides:

Changes In Terms. We may add to, remove, amend or change any part or provision of this Agreement, including the annual percentage rate(s) and any charges, (including adding new provisions of the same or a different nature as the existing provisions in this Agreement) at any time. If we do so, we will give you notice of such amendment or change if required by Federal law or Virginia law (to the extent not preempted by Federal law) unless we had previously notified the customer that the account would be subject to such amendment or change without notice. Notice will be mailed to the last billing address indicated in our records for the account. However, no notice will be mailed if we previously had notified you that your account would be subject to such amendment or change without notice. Changes to the annual percentage rate(s) will apply to your existing account balance from the effective date of the change, whether or not the account balance includes transactions billed to the account before the change date and whether or not you continue to use the account. Changes to fees and other charges will apply to your account from the effective date of the change.[11]

For the purpose of providing context, witnesses in the case will often refer to Changes in Terms as "CIT." The 2005 Customer Agreement contains a choice of law provision which states the contract "will be governed only by Federal law and Virginia law (to the extent not preempted by Federal law)."[12]

In late 2008, Capital One decided to increase the annual percentage rate ("APR") applicable to the accounts of certain customers, including the Plaintiffs, as part of a 2009 "repricing" program. This program is sometimes referred to as the 2009 CIT, or 2009 Change in Terms. On other occasions, the company referred to it as "NCR" or noncontractual repricing. The 2009 Change in Terms changed customers' purchase interest rates, cash interest rates, penalty interest rates, and credit limits. Over 30 million customers were "repriced" during the 2009 Change in Terms which occurred in two phases. The first group of accounts was selected for repricing in February 2009, the second in May 2009.

The 2009 Change in Terms excluded certain accounts, including:

• accounts opened less than 12 months before 2009 Change in Terms would take effect;
• accounts promised a "Fixed for Life" APR;
• customers who had promises made specifically in their solicitations that were still enforceable at the time of the 2009 Change in Terms;
• accounts located in the newly-acquired Chevy Chase Bank geographic footprint;
• closed accounts;
• accounts that had restricted charging privileges;
• accounts with spending activities more than $30, 000 per year;
• accounts associated with customers who had more than $50, 000 in deposits in Capital One banking institutions; and
• accounts in Puerto Rico.[13]

As the Plaintiffs note, the implementation of these exemptions was not without error.

In the account records for each affected customer, Capital One noted if the account was designated for repricing in the 2009 Change in Terms.[14] Attached to Jiulianti's declaration are screen shots from each of the Plaintiff's accounts which show that his/her account was selected for inclusion in the 2009 Change in Terms.[15] Capital One developed a procedure to send notice of the 2009 Change in Terms to the affected customers. Capital One created several different "templates" for the notices, each of which was assigned a different "Offer ID number." The Offer ID number corresponded to the specific repricing change that would affect that group of customers.

Capital One contracted with third-party vendor R.R. Donnelly to mail the notices in two batches, one in February 2009 and one in May 2009. The notices were mailed to each customer using the addresses listed in Capital One's account records. The envelope containing the notice stated: "IMPORTANT INFORMATION REGARDING YOUR ACCOUNT." The notice generally informed customers of the proposed changes to the annual percentage rate, the effective date of these changes, and the opportunity to decline the changes.

Lisa Gaylor, Principal Production Manager for Capital One Services, LLC, provided a declaration describing the mailing process. Gaylor worked as the "point person" between Capital One and R.R. Donnelly on the February 2009 mailing.[16] R.R. Donnelly's facilities allow for "in-line" printing which means that the notice and envelope are processed on one line eliminating the need for another additional machine or person to "stuff" the envelope. Capital One sent an employee to R.R. Donnelly's mail facility in Green Bay, Wisconsin to oversee the February and May 2009 mailings. Capital One provided R.R. Donnelly with an electronic list of those customers who would be subject to the 2009 Change in Terms. When R.R. Donnelly received Capital One's list of customers, it printed the notices and envelopes which were then sorted by zip code and put on pallets for mailing.[17] A U.S. Postal Service facility is located within the R.R. Donnelly mail facility where the notices were printed. The notices were placed on pallets which were then given over to the custody of the U.S. Postal Service.

Each Change in Terms notice was mailed via first class mail. The U.S. Postal Service facility in Wisconsin provided to R.R. Donnelly periodic postal receipts in February and May 2009 to show that the number of notices received by the U.S. Postal Service matched the number Capital One requested that R.R. Donnelly print. For the February 2009 mailing, Capital One intended to send 23, 862, 852 notices and R.R. Donnelly's mailing receipts show that 23, 862, 852 notices were mailed from the Post Office in the R.R. Donnelly facility.[18] For the May 2009 mailing, 11, 110, 906 notices were printed and 11, 110, 906 were mailed.[19] There was, however, no reconciliation of individual names on mailings with names on accounts.[20]

The notices mailed in February 2009 gave account holders until April 17, 2009, to contact Capital One to opt out of the Change in Terms. The May 2009 notices gave account holders until July 28, 2009, to contact Capital One to opt out of the Change in Terms. Generally, once those deadlines passed, customers were not permitted to opt out of the Change in Terms. However, sometimes if a customer complained, he would be permitted to opt out after those deadlines.[21] These notices were mailed prior to August 22, 2009, the effective date of the Credit Card Accountability Responsibility and Disclosure ("Credit CARD") Act which changed certain disclosure requirements credit card companies had to make to their consumers.

Jiulianti testified that when an explicit promise had been made to a customer concerning how long a "fixed" rate would last, Capital One intended to exclude them from the 2009 Change in Terms.[22] Jiulianti also recognized that the company had made an "internal commitment" to keeping customers' rates at "fixed" for three years.[23] This was not an external promise, however, and those customers could be "repriced" but Capital One attempted to "delay" the impact of the "repricing" on these customers.[24]

1. Barker Facts[25]

In 2003, Capital One offered Barker a fixed APR of 0% on balance transfers until April 2004 and a fixed APR of 9.9% thereafter, as well as a fixed APR of 0% on purchases through his April 2004 billing period and a fixed APR of 9.9% on purchases thereafter. Barker accepted this offer and has held this Capital One card from November 28, 2003 to date, although it has had two different account numbers. The 2003 Customer Agreement apparently is not in the record, but Barker would have been mailed a 2005 Customer Agreement at some point in 2005.[26]

Barker could not recall whether he responded to a specific solicitation in getting his Capital One credit card in 2003.[27] Thus, there is no information in the record that Barker ever received a "fixed for life" offer.[28] Barker testified that he "understood" that his rate would remain "fixed" at 7.9%.[29] Barker believed that Capital One would "keep [his] rate at that level unless [he] violate[d] the terms of the agreement."[30]

The 0% promotional fixed APR for purchases remained in effect until April 8, 2004 when the APR switched to a 9.9% fixed rate. On July 8, 2005, the APR for purchases changed to a fixed rate of 14.9%. In April 2007, the default APR changed to a variable rate of 28.15%. On May 8, 2007, the APR for purchases changed to a fixed rate of 7.9%.[31]

Barker's account was part of the 2009 Change in Terms. Capital One mailed to Barker a notice of the repricing on May 12, 2009. Specifically, the notice informed Barker that the terms of the account for (1) purchase and balance transfer rate and (2) cash advance rate, were changing.[32] It further stated that the changes to the "Annual Percentage Rates (APRs) would be effective for all billing periods that begin after July 2, 2009."[33] For Purchase and Balance Transfer APR:

Your new rate for all balances subject to the Purchase and Balance Transfer rate is 17.9%.... This is a variable rate, determined by adding 14.65% to the Prime rate. Please note that this rate does not affect any special transfer, introductory or promotional rates unless or until they expire.[34]

The Notice went on to state that "[y]ou can choose to decline the changes to your rates and close your account."[35] "If you decline, we will close your account on August 2, 2009.... If you decline, you will be able to pay down your balance at your existing terms. Please keep in mind that any transactions you make prior to August 2, 2009 will still post to your account."[36]

Barker testified that he received this notice, but that he understood the notice to mean that the increased interest rate would apply to future purchases and not to existing balances.[37] Barker did not opt out and decline these changes. Barker's account is scheduled to close when he pays off the remaining balance.[38]

Barker testified that when he received the notice, he decided to stop using the card and just pay off his existing balance at the old rate.[39] He did not realize that the higher interest rate had been applied to his existing balance until he opened his August 2009 account statement.[40] He called then to opt-out, but Capital One told him he could not.[41] Barker closed the account and is paying off the balance at the higher rates.[42] This has increased his monthly payments by approximately $100 per month.[43]

2. Baxter Facts

In 2005, Capital One offered Baxter a fixed APR of 0% on purchases through December 2006 and a variable APR tied to the London Interbank Offered Rate ("LIBOR") on purchases thereafter. Baxter did not receive a "fixed for life" offer and understood that he did not have a fixed rate. Baxter also could not identify a specific solicitation to which he responded, but rather stated that Capital One's "no hassle" advertisements convinced him to apply for a Capital One credit card. Under Capital One's general procedures, after Baxter opened his account, he would have been sent the 2005 Customer Agreement in effect at the time.

The promotional fixed APR rate of 0% on purchases continued through December 13, 2006, when the APR for purchases switched to a variable rate of 9.45%. From this point until the 2009 Change in Terms, Baxter's rate varied from 4.53% to 9.89%.[44] In April 2007, the default APR on Baxter's account changed to a variable rate of 28.15%.

Baxter's Capital One account was part of the 2009 Change in Terms. Baxter received Notice of the 2009 Change in Terms around February 2, 2009. The Notice informed Baxter that the terms of the account for (1) purchase and balance transfer rate, (2) cash advance rate, and (3) default rate, were changing.[45] It further stated that the changes to the "Annual Percentage Rates (APRs) would be effective for all billing periods that begin after April 17, 2009."[46] For Purchase and Balance Transfer APR:

A variable rate equal to 15.9%... as of January 28, 2009. Your purchase and balance transfer APR may vary monthly. The rate will be determined by adding 12.65% to the Prime rate.... Please note that this change impacts balances transferred at the Purchase rate, but does NOT affect any Special Transfer rates.... Any introductory or promotional rates on your account will not increase until they expire.[47]

The Notice went on to state that "[y]ou can choose to decline this change and close your account."[48] "If you decline, we will close your account on May 17, 2009.... If you decline, you will be able to pay down your balance at your existing terms. Please keep in mind that any transactions you make prior to August 2, 2009 will still post to your account."[49] Baxter did not decline the Change in Terms.[50]

Baxter testified that he did receive notice of the Change in Terms, but believed that the increased rates would apply only to purchases made after April 17, 2009.[51] He did not learn that his interest rate had increased on existing balances until he received his next statement.[52]

3. Gaffney Facts

Gaffney opened his Capital One account on July 14, 1993 and has had his account since then. Due to the age of the account, only those statements from 2000 forward are available. Gaffney, however, testified that he could not recall any particular solicitation that led to him apply for a Capital One credit card and that he understood his rate could vary over time.[53] In his supplemental response to the Defendant's interrogatories, Gaffney stated that he was "enticed" by several promotional checks from Capital One in January and March 2009 which caused him to transfer his other credit card balances to his Capital One account.[54] In accordance with Capital One's practices, Gaffney would have been mailed a 2005 Customer Agreement shortly after its terms became effective.[55]

From October 20 to November 19, 2000, the APR for cash advances on Gaffney's account was a variable rate of 19.9%.[56] On November 20, 2000, the APR for cash advances on Gaffney's account changed to a fixed rate of 9.9%.[57] In April 2007, the default rate changed to a variable rate of 28.15%.[58] On August 26, 2007, the APR for cash advances changed to a variable rate of 22.99%.[59] On September 26, 2007, the APR for cash advances changed to a variable rate of 9.9%.[60]

Gaffney's account was part of the 2009 Change in Terms. Jiulianti testified that Gaffney's account records show that on May 12, 2009, he was mailed a Notice with an Offer ID No. 15488.[61] Gaffney's account records reflect an address in East Longmeadow, Massachusetts. No. 15488 matches the notice number on the Defendant's Exh. A-11. The Notice states that it is providing information on a Change in Terms for the Cash Advance Rate.[62] Beginning for all billing periods after July 2, 2009, "[y]our new rate for all balances subject to the Cash Advance rate is 24.9%... This is a variable rate, determined by adding 21.65% to the Prime rate."[63] The Notice went on to state that "[y]ou can choose to decline this change and close your account."[64] "If you decline, we will close your account on August 2, 2009.... If you decline, you will be able to pay down your balance at your existing terms. Please keep in mind that any transactions you make prior to August 2, 2009 will still post to your account."[65] Gaffney did not decline the Change in Terms.[66]

Gaffney testified that he did receive notice of the 2009 Change in Terms, but with regard to his purchase and balance transfer rates only.[67] He determined that he would not use his card for purchases so he did not feel the need to call and opt out.[68] Gaffney testified that he did not receive a notice concerning an increase in his cash advance rate.[69] Gaffney testified that he did call Capital One in August when he saw that the cash advance rate had increased to 24.9%.[70] He asked that his cash advance rate be lowered and Capital One declined to do so.[71]

4. Kautz Facts

In 2003, Capital One offered Kautz, nee Casanova, a fixed APR of 0% on balance transfers and purchases through her October 2003 billing period and a fixed APR of 14.9% on balances and transfers thereafter (for account ending -2600). Kautz has had her credit card with Capital One from May 3, 2003 to date. Capital One mailed Kautz a 2005 Customer Service Agreement shortly after it took effect.[72]

In 2003, Capital One also offered Kautz a credit card with a fixed APR of 0% on purchases through her February 2004 billing period and a fixed APR of 14.9% on purchases thereafter (for account ending -8899). Kautz has had that card from July 20, 2003 to date. Capital One mailed ...


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