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Pig farmer owes $78K in overdraft fees, N.D. SC concludes

By Jessica M. Karmasek | Sep 28, 2010


BISMARCK, N.D. (Legal Newsline) - The North Dakota Supreme Court has affirmed a summary judgment ruling by a lower court in favor of a bank that claims it is owed more than $70,000 in checking account overdrafts.

In an opinion filed on Sept. 21, the Court held that a Ransom County district court correctly concluded that Quality Bank was entitled to judgment as a matter of law.

Lynette Cavett, a Quality Bank customer, had appealed the district court's summary judgment dismissing her counterclaim against the bank.

At issue is the bank's overdraft fees.

Cavett opened a checking account at the bank in October 2003 and used it as part of her hog-raising operation. Upon opening the account, the bank provided Cavett with a document detailing its policy regarding insufficient funds and overdraft fees.

From Oct. 2003-April 2004, the woman incurred numerous overdraft charges and fees on her checking account, ranging from $5 to $25.

Then, in May 2004, the bank instituted a new schedule for its overdraft fees and mailed a brochure explaining it to clients.

The brochure indicated Quality Bank would charge two different overdraft fees. First, it would charge clients a fee on "each day that an overdraft balance remains on your account..." The amount of the daily overdraft fee escalated with the amount of the overdraft balance.

After the bank enacted its new overdraft fee schedule, Cavett continued to incur substantial overdraft fees over the next four years. During this period, Cavett frequently overdrew her account and occasionally repaid the full amount of the outstanding overdraft.

In November 2008, Quality Bank filed a complaint against Cavett. It alleged she owed $78,457.63 to the bank for outstanding overdrafts of her checking account, as well as the corresponding overdraft fees.

Cavett filed an answer and counterclaim, alleging Quality Bank charged "unconscionably large" overdraft fees and requesting the district court award her damages equal to the amount of the overdraft fees.

Quality Bank filed a motion for summary judgment on Cavett's counterclaim in July 2009. The bank claimed it was entitled to summary judgment because state law permits a bank to honor a customer's check even if the check creates an overdraft, and Cavett was placed on notice about the overdraft fees when Quality Bank mailed her both the brochure explaining its fee schedule and the subsequent bank statements showing the fees.

Quality Bank also claimed its overdraft fees are commercially reasonable and not unconscionably large.

The district court agreed with the bank's arguments, concluded the checking account agreement was not unconscionable, and granted summary judgment to the bank. It rejected Cavett's claim that Quality Bank's overdraft fee schedule was substantively unconscionable, stating, "The overdraft charges clearly are used for administrative fees and to ensure the safety and soundness of the institution. It is unrealistic to expect a bank to operate without some sort of ability to profit from the transactions and service fees."

The district court also noted that Cavett had the opportunity to keep her checking account with the bank and use it without writing checks that would overdraw her account and by keeping a positive balance.

The court granted summary judgment to Quality Bank and dismissed Cavett's counterclaim.

The Court in its opinion, authored by Justice Carol Ronning Kapsner, said Cavett failed to produce sufficient evidence to demonstrate the overdraft fees charged by the bank were unconscionably large.

The Court also agreed with the district court that the checking account agreement was not an adhesion contract or procedurally unconscionable.

Cavett claimed the recurring overdraft charges and fees, when compared to the size of the overdraft balance, constitute unconscionably large interest rates.

But Kapsner wrote in the Court's opinion, "When examining the issue under federal law, courts have resoundingly rejected the argument that overdraft fees are the equivalent of interest."

The Court concluded, "Cavett simply asked the district court to look at Quality Bank's overdraft fee schedule, review her bank statements, and conclude the checking account agreement was unconscionable. The district court did not err by concluding this evidence alone does not prove the agreement was 'take it or leave it' or that Cavett was unfairly surprised by the contents of the agreement. Nor did the district court err by concluding this evidence alone does not demonstrate the harshness or one-sidedness of the overdraft fee schedule, or whether the fee schedule was commercially reasonable."

From Legal Newsline: Reach Jessica Karmasek by e-mail at

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