Gutierrez v. Wells Fargo: Ninth Circuit Holds Defendant Waived Arbitration, Affirms Liability for Fraudulent Conduct Under UCL

The new year began auspiciously for consumers and the plaintiffs’ bar with the Ninth Circuit issuing a twin victory for consumers by underscoring the focus on defendants’ conduct under the “fraudulent” prong of California’s Unfair Competition Law (UCL) and holding that the defendant waived any entitlement to compel arbitration. See Gutierrez v. Wells Fargo Bank, NA, ___ F.3d ___ (9th Cir. Dec. 26, 2012). Though the ruling remanded the action for the district court to apply the proper remedy, and in so doing vacated a judgment entered in favor of the plaintiff class, the Court of Appeals panel affirmed both the district court’s granting of class certification and the finding of classwide liability. See Slip op. at 2-4.

As to the class’ allegations that Wells Fargo made affirmative misstatements about its practices for posting deposits and transactions and making overdraft assessments to consumers’ accounts, the Ninth Circuit first concluded that the UCL is not preempted by federal banking legislation. See Slip op. at 25-27. With the preemption issue resolved, the panel found that the plaintiffs had adduced sufficient evidence of Wells Fargo making misleading statements as to how the bank would post deposits and charges, in particular the order in which such transactions would be recorded, which has direct implications as to the assessment of overdraft fees. See Slip op. at 34.

The court did not respond favorably to Wells Fargo’s contention that individual reliance issues predominate because “some class members would have engaged in the same conduct irrespective of the alleged misrepresentation,” stating, “we are hard pressed to agree that any class member would prefer to incur multiple overdraft fees.” Slip op. at 32.

Additionally, the Ninth Circuit clarified Article III standing vis-à-vis class actions by holding that only a single named class representative – not every class member – must have standing. Slip op. at 30-31.

Finally, with respect to arbitration, the Ninth Circuit held that Wells Fargo had waived any right to seek to compel arbitration, rebuffing Wells Fargo’s contention that seeking to move the action to an arbitral forum would have been futile before the U.S. Supreme Court’s AT&T Mobility v. Concepcion decision. See Slip op. at 10-17.