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CLASS ACTION LITIGATION REPORT

Jan 12, 2001

Banking - Alabama Trial Court Finds Common Issues, Certifies Class Challenging Checking Policy

An Alabama trial court Dec. 13, 2000, certified a class of checking account customers challenging a bank’s policy of paying the largest checks first, which allegedly led to unnecessary overdrafts and service charges. The ruling rejected arguments that individual issues predominate in the litigation (Snow v. Compass Bancshares Inc., Ala. Cir. Ct., Mobile Cnty., No. CV-98-2384, 12/13/00).

The Alabama Circuit Court, Mobile County, also rejected defendant Compass Bancshares Inc.’s argument that an arbitration requirement - imposed by the bank after the suit was filed - applied to the litigation. The plaintiffs allege the bank’s policy of paying the largest checks first when multiple checks are presented results in additional overdrafts and bank charges in situations where an account contains sufficient funds to pay some, but not all, of the checks received.

The certified class includes “All persons and entities in the State of Alabama, Florida and Texas who have or have had checking accounts with Compass Bank, and who have incurred checking account service charges when there were sufficient funds in the account of the person or entity on the date of presentment to pay one or more of multiple checks presented on that date.”

In determining commonality, the court found common questions of law and fact that included:

- whether the bank breached its contract with the plaintiffs by forcing an overdraft status when some checks could have been covered;

- whether the bank failed to disclose the practice to plaintiffs;

- whether the bank had a duty to disclose the practice;

- whether the plaintiffs are entitled to compensatory and punitive damages;

- whether the bank should be enjoined from the practice; and

- whether the bank should be required to disgorge benefits it obtained.

Predominance. In determining that common issues predominate, the court noted that the Alabama Supreme Court has affirmed certification in fraud class actions where written misrepresentations, or omission of representations, have been distributed to all members of the class (Ex parte Household Retail Services Inc., 744 So.2d 871 (Ala. 1999)). The circuit court concluded that since neither the practices nor disclosures made by Compass varied, there were no individual issues as to what each class member was told.

Finding that the plaintiffs’ fraudulent suppression claim was proper, the court noted: “Plaintiffs’ fraud claim is not based on representations made by Compass, but rather, that Compass fraudulently concealed and/or failed to disclose its practice of imposing additional and excessive overdraft and NSF (insufficient funds) charges.”

The court also rejected arguments that the class should not be certified because the plaintiffs did their banking in three states: Alabama, Florida and Texas. The court said the laws of those states were “substantially similar,” and found that even where they varied, “applying the law of three states will not make this case unmanageable.”

Individual litigation would be burdensome to the court, and individuals would be unlikely to bring expensive individual suits to resolve small economic damages claims, the court said. It also observed that information within the bank’s systems makes it possible to easily identify the class.

Arbitration. The court noted that the bank’s arbitration policy was instituted a year and a half after the suit was filed. The bank “cannot unilaterally and retroactively deprive the class members of their right to proceed with this action,” the court said. Sending the plaintiffs a notice of an arbitration policy that could affect their rights in the suit could also be considered a violation of ethical rules about contacting the other party in litigation, the court said.

Ruling specifically on the arbitration issue, the court said, “Compass may have certain contractual rights to amend its deposit agreements on a periodic basis, but its attempt to apply the arbitration clause to this pending action smacks of ‘trickery or suspect motives’ and will not be countenanced by this Court.”

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