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Martino v. American Airlines Federal Credit Union

United States District Court, D. Massachusetts

August 18, 2015

LISA MARTINO, Plaintiff,
v.
AMERICAN AIRLINES FEDERAL CREDIT UNION, Defendant

          For Lisa Martino, On Behalf of Herself and All Others Similarly Situated, Plaintiff: Carlin J Phillips, LEAD ATTORNEY, Phillips & Garcia, LLP, North Dartmouth, MA; Scott C. Borison, LEAD ATTORNEY, Legg Law Firm LLC, San Mateo, CA.

         For American Airlines Federal Credit Union, Defendant: Daniella Massimilla, Litchfield Cavo LLP, Lynnfield, MA; Eileen P. Kavanagh, Litchfield Cavo, Lynnfield, MA.

Page 278

          MEMORANDUM AND ORDER

         DOUGLAS P. WOODLOCK, UNITED STATES DISTRICT JUDGE.

         Lisa Martino brought this action on her own behalf and on behalf of a putative class challenging the practices of the American Airlines Federal Credit Union (AAFCU), which deducts funds owed on credit card bills from depository accounts held by cardholders with the credit union. Martino alleges that AAFCU's policies with respect to such accounts violate the anti-offset provisions of the Massachusetts Consumer Credit Cost Disclosure Act (MCCCDA) and the Federal Truth in Lending Act (TILA). AAFCU claims that it has a valid security interest in the depository accounts and is therefore permitted to take funds from the accounts. The parties now move for summary judgment on the question of liability.

         I. BACKGROUND

         A. Factual and Procedural Background

         Lisa Martino maintained three depository accounts with AAFCU. The first account, opened in the early nineties, was in Martino's name alone, while the second and third accounts, opened in 2001, were joint accounts with her children.

         Martino opened a credit card account with AAFCU in 2007. She failed to pay outstanding amounts due on her credit card, and on May 23, 2012, AAFCU withdrew funds from Martino's three depository accounts to pay the credit card debt. This withdrawal was noted on Martino's monthly statements as " CC CHG OFF RECOVERY."

         Martino brought this action alleging that AAFCU did not have the right to withdraw funds from the deposit accounts to pay off amounts due on the credit card. Martino filed a complaint on December 31, 2013, in the Superior Court of Suffolk County, Massachusetts, and filed an amended complaint in January 2014. AAFCU invoked the federal district court's diversity jurisdiction, 28 U.S.C. § 1332, and removed the action to this court in February 2014. Martino filed a Second Amended Class Action Complaint on January 12, 2015, alleging individual and class claims against AAFCU in three counts: (1) Violation of the MCCCDA, 209 CMR 32.12; (2) Declaratory Judgment seeking a declaration that AAFCU's practices are in violation of the MCCCDA; and (3) Violation of

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Chapter 93A § § 2 and 9 through violations of the MCCCDA and TILA, 15 U.S.C. § 1666h.

         In July 2014, I set a schedule for discovery and briefing on dispositive motions, directing that discovery on class certification would be taken up after summary judgment practice. Martino moved for partial summary judgment against AAFCU on liability under Counts I, II, and III. AAFCU filed an opposition and cross-moved for summary judgment establishing that it has no liability.

         In its opposition to Martino's motion, AAFCU disclosed that both of the parties had been laboring under a significant misapprehension of the relevant facts. From before the commencement of litigation and throughout the discovery period, AAFCU represented that the controlling credit agreement was the " Loanliner" credit agreement, which Martino signed on November 20, 2006. The argument in support of Martino's initial Motion for Summary Judgment focused on the shortcomings of the Loanliner credit agreement, namely the fact that while it did contain some language about creating a security interest, it did not contain a sufficiently conspicuous disclosure. AAFCU claimed in its opposition that it had uncovered information that the Loanliner credit agreement, while used in connection with AAFCU's extension of various types of credit, was not used in connection with approving a member for a credit card. AAFCU stated that the new information demonstrated that the Loanliner agreement does not have any connection to the credit card account that is at issue in this case, and that a different Credit Card Agreement controlled the lending relationship between AAFCU and its credit cardholders at the time that Martino began to use the credit card at issue.[1]

         AAFCU presents this new information in the form of two affidavits, one by Susan Longley, the Vice President for Consumer Lending and Account Services, and the other by Lewis Cohen, the Vice President for Finance, concerning the procedure used and the documents that make up the credit card agreement at issue in this case. AAFCU began offering credit cards to its members in 2004. During the relevant period, AAFCU's Marketing Department in conjunction with the Lending Department developed criteria for members who might qualify for a credit card. Using this criteria, AAFCU developed a list of members who may be preapproved for a credit card. AAFCU developed a cut off for a credit score that would prequalify a member and checked that number against information from the credit bureau, resulting in a list of the names of members who qualified for preapproval. AAFCU then would send a preapproval offer letter through a vendor to each member on the list.

         The two-page preapproval offer letter contained a Pre-Approved Acceptance Certificate for the member to sign and return to AAFCU if she wished to receive the credit card. The Pre-Approved Acceptance Certificate contained a certification that

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the member has " read and agree[d] to all of the terms and disclosures contained in this application, and that everything you have stated in this application is accurate and complete . . . You acknowledge that use of any card issued in connection with this application constitutes your acceptance of, and will be subject to the terms and conditions of the Visa Platinum Rewards Credit Card Agreement. You also agree that the terms of your account are subject to change as provided in the Card Agreement." This certificate takes up approximately the lower quarter of the first page of the preapproval offer letter, and the certification is in very small print that is considerably less conspicuous than other text on the same page. A copy of the preapproval offer letter is attached to this Memorandum and Order as Appendix I.

         If a member submitted the certificate, AAFCU's vendor would mail the credit card and the Credit Card Agreement (" the Agreement" ) together in the same mailing to the approved member. The Agreement stated that the member acknowledged AAFCU could charge the member accounts for outstanding credit card debt. AAFCU claims that this preapproval process was used by AAFCU in November 2007 and was the process by which Martino and others were preapproved for the credit card through AAFCU. AAFCU claims that by signing the Pre-Approved Acceptance Certificate and later using the credit card, Martino acknowledged that she received and agreed to the terms of the Agreement.

         The Agreement that was sent with the credit card is four pages long. On the bottom of the second page in paragraph 10, the Agreement states in bold, with a box surrounding the text:

10. Security Interest. You specifically grant the Credit Union a consensual security interest in all individual and joint accounts you have with the Credit Union now and in the future to secure repayment of credit extensions made under this Agreement. The granting of this security interest is a condition for the issuance of any Card, which you may use, directly or indirectly, to obtain extensions of credit under this Agreement.
Shares and deposits in an Individual Retirement Account or in any other account that would lose special tax treatment under state or federal law if given as security are not subject to the security interest you are giving. You authorize the Credit Union to apply the balance in your individual or joint share accounts to pay any amounts due on your Account if you should default.

         This Agreement was provided to members who were approved for this credit card simultaneously with the activated credit card itself, and it did not have any space for the cardholder to sign or otherwise endorse the agreement. A copy of the Agreement is attached to this Memorandum and Order as Appendix II.

         After AAFCU presented this information about the procedure and disclosures, Martino filed an Amended Motion for Summary Judgment addressing the new credit card agreement documents and procedures. Martino argues that she is entitled to summary judgment because the newly-disclosed procedure and agreements presented by AAFCU violate the MCCCDA and the TILA. After the hearing on the partial motions for summary judgment, Martino filed an unopposed Third Amended Complaint, advancing the same general theories and identical counts but reflecting the updated information on the applicable credit card agreement that was provided by AAFCU.

         B. Massachusetts and Federal Truth in Lending Statutes

         The MCCCDA, Mass. Gen. Laws c. 140D, § 1 et seq., governs consumer credit transactions. The MCCCDA permits the Commissioner of Banks to " prescribe from time to time rules and regulations consistent with the Federal Fair Credit Billing Act, 15 U.S.C. § 1666-1666j and the regulations promulgated thereunder." Id. § 29.

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          The regulations enacted by the Commissioner include 209 CMR 32.12(4)(amended 2015). At the time relevant here[2], this regulation provided in relevant part:

(4) Offsets by Card Issuer Prohibited.
(a) A card issuer may not take any action, either before or after termination of credit card privileges, to offset a cardholder's indebtedness arising from a consumer credit transaction under the relevant credit card plan against funds of the cardholder held on deposit with the card issuer.
(b) 209 CMR 32.12(4)(b) does not alter or affect the right of a card issuer acting under Massachusetts or federal law to do any of the following with regard to funds of a cardholder held on deposit with the card issuer if the same procedure is constitutionally available to creditors generally: obtain or enforce a consensual security interest in the funds; attach or otherwise levy upon the funds; or obtain or enforce a court order relating to the funds. . .[3]

209 CMR 32.12(4)(amended 2015).

         TILA also contains prohibitions on offsets, 15 U.S.C. § 1666h. This section is titled " Offset of cardholder's indebtedness by issuer of credit card with funds deposited with issuer by cardholder; remedies of creditors under State law not affected." The section provides:

(a) Offset against consumer's funds
A card issuer may not take any action to offset a cardholder's indebtedness arising in connection with a consumer credit transaction under the relevant credit card plan against funds of the cardholder held on deposit with the card issuer unless--
(1) such action was previously authorized in writing by the cardholder in accordance with a credit plan whereby the cardholder agrees periodically to pay debts incurred in his open end credit account by permitting the card issuer periodically to deduct all or a portion of such debt from the cardholder's deposit account, and
(2) such action with respect to any outstanding disputed amount not be taken by the card issuer upon request of the cardholder. . .
(b) Attachments and levies
This section does not alter or affect the right under State law of a card issuer to attach or otherwise levy upon funds of a cardholder held on deposit with the card issuer if

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that remedy is constitutionally available to creditors generally.

15 U.S.C.A. § 1666h.

         The TILA, including the prohibition on offsets, is implemented through regulations known as Regulation Z, codified at 12 C.F.R. § 226. The federal regulation concerning offsets, 12 CFR § 226.12(d), contains the same relevant language as 209 CMR 32.12(4)(amended 2015) of the MCCCDA.[4]

         The Official Staff Interpretation[5] to 12 C.F.R. § 226.12(d)(2) provides further guidance about the nature of a security interest that can be validly enforced and that will not be considered an improper offset:

Paragraph 12(d)(2)
1. Security interest -- limitations. In order to qualify for the exception stated in section 226.12(d)(2), a security interest must be affirmatively agreed to by the consumer and must be disclosed in the issuer's account-opening disclosures under section 226.6. The security interest must not be the functional equivalent of a right of offset; as a result, routinely including in agreements contract language indicating that consumers are giving a security interest in any deposit accounts maintained with the issuer does not result in a security interest that falls within the exception in section 226.12(d)(2). For a security interest to qualify for the exception under section 226.12(d)(2) the following conditions must be met:
i. The consumer must be aware that granting a security interest is a condition for the credit card account (or for more favorable account terms) and must specifically intend to grant a security interest in a deposit account. Indicia of the consumer's awareness and intent include at least one of the following (or a substantially similar procedure that evidences the consumer's awareness and intent):
A. Separate signature or initials on the agreement indicating that a security interest is being given.
B. Placement of the security agreement on a separate page, or otherwise separating the security interest provisions from other contract and disclosure provisions.
C. Reference to a specific amount of deposited funds or to a specific deposit account number. . .

Official Staff Commentary on Regulation Z, F.R.R.S. 6-1170.7, 2006 WL 3947402, at *1.

         The Massachusetts statute and regulations are " closely modeled on the Federal Truth-in-Lending Act . . . [and] Federal court decisions are instructive in construing parallel State statutes and State regulations." Mayo v. Key Financial Services, Inc., 424 Mass. 862, 678 N.E.2d 1311, 1313 (Mass. 1997).

         II. ANALYSIS

         A. Standard of Review

         The two parties have moved for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure.

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Summary judgment is appropriate only if I am satisfied " that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). The party seeking summary judgment bears the initial burden of informing a court of the basis for the motion, and identifying aspects of the record that demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). If the moving party satisfies its burden, the burden shifts to the non-moving party to set forth facts showing the existence of a genuine triable issue. Id. at 324.

         B. Burden of Proof for the ...


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