Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—9th Cir.: Credit card fee claims dismissed, (Jan 22, 2014)
Law Firms Mentioned:UCLA School of Law | Wilmer Cutler Pickering Hale and Dorr LLP
Organizations Mentioned:Bank of America | Wilmer Cutler Hale & Dorr, LLP
By Jody Coultas, J.D.
A district court properly held that the jurisprudence developed to limit punitive damages in the tort context did not apply to contractual penalties, such as credit card penalty fees, the U.S. Court of Appeals in San Francisco has determined (In re: Late Fee and Over-Limit Fee Litigation, January 21, 2014, Nelson, D.).
A class of credit card holders who paid late and overage fees challenged those fees, arguing that the fees were analogous to punitive damages. The card holders alleged that a number of credit card issuers violated the National Bank Act (NBA), the Depository Institutions Deregulation and Monetary Control Act (DIDMCA), and the unlawful prong of the California Unfair Competition Law (UCL).
The card holders sought to apply principles of substantive due process in the tort context to liquidated damages clauses in private contracts. Thus, the court looked at the similarities and differences between liquidated damages and punitive damages to decide the case. Liquidated damages are an agreed to payment for a breach of contract, and generally unenforceable as penalties when they are in excess of the actual damage caused by a breach. Punitive damages are awarded in addition to actual damages when the defendant acted with recklessness, malice, or deceit, and generally not recoverable for breach of contract unless the conduct constituting the breach is also a tort. The penalty fees were punitive, but the penalty clauses originated from the parties’ private contracts. Therefore, the due process analysis developed in the context of jury-awarded punitive damages was not applicable to contractual penalty clauses.
Because the companies did not violate the NBA or the DIDMCA, the court held that there could be no derivative liability under the UCL.
The case is No. 08-15218.
Attorneys: Seana Shiffrin (UCLA School of Law) for Andrew T. Pinon. Noah Adam Levine (Wilmer Cutler Pickering Hale and Dorr LLP) for Bank of America, NA.
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