Class Action Claim that Chase Breached Home Equity Line of Credit (HELOC) Agreement by Freezing Account based on Estimated Property Value Established by “Automated Valuation Model” Survived Defense Motion to Dismiss, as did Class Action Claim for Unjust Enrichment based on Chase Charging Customer an Annual Fee for a HELOC that the Customer could no longer Draw Against California Federal Court Holds
Plaintiff filed a putative class action against Chase Manhattan Bank, with whom she had a home equity line of credit (HELOC), alleging breach of contract and unjust enrichment. Yakas v. Chase Manhattan Bank, U.S.A., N.A., ___ F.Supp.2d ___ (N.D.Cal. January 25, 2010) [Slip Opn., at 1]. According to the allegations underlying the class action complaint, plaintiff obtained the HELOC from Chase in April 2004; at that time, plaintiff’s property appraised for $718,000, and she obtained a $71,750 line of credit. Id., at 2. The agreement allowed Chase to reduce or freeze the line of credit if “[t]he value of the Property declines significantly below its original appraised value for purposes of this Credit Account,” the agreement failed to define “significantly” or to describe the manner in which subsequent property valuations would be made. Id. The agreement further required plaintiff to pay a “non-refundable annual fee” during the “Draw Period,” but failed to define the “Draw Period” and the parties disputed the meaning of the term. Id. In any event, plaintiff paid the annual fee each April through 2008, id. Finally, the Agreement provided that Delaware would govern any disputes between the parties, id., at 4. Chase froze plaintiff’s HELOC in December 2008, “stating that the valuation of plaintiff’s property no longer supported her line of credit.” Id., at 3. Chase based this determination on its use of an “Automated Valuation Model” (AVM), which estimated that the value of the Property had dropped to $674,000; in the district court’s words, “How the AVM model worked is a mystery on the present record.” Id. The following April, Chase again charged plaintiff an annual fee. Id. The thrust of plaintiff’s class action was that (1) Chase was required to obtain a valuation from a licensed appraiser in order to reduce or freeze HELOC agreements, rather than using the AVM, and (2) the AVM was unreliable. Id., at 3-4. Defense attorneys moved to dismiss the class action complaint. Id., at 1. The district court denied the motion.
The district court began with the class action’s breach of contract claim. See Yakas, at 5. The class action complaint alleged that Chase violated the terms of the HELOC agreement in three ways. First, by “fail[ing] to obtain an appraisal by a licensed appraiser prior to suspending her line of credit,” as required by the “court of dealing” among the parties. Id. Defense attorneys countered that Chase “was not limited to any specific valuation method and that using an AVM was not a breach of the agreement.” Id., at 5-6. The district court held that the class action claim survived, explaining at page 6: “Though defendant’s arguments are plausible, they do not prove that plaintiff has failed to state a breach-of-contract claim. It may well be that a licensed appraiser was not required (without so holding), but that does not translate to an allowance of an AVM, much less a mystery AVM whose particulars are totally a secret.” Second, plaintiff alleged that the AVM was unreliable. Id., at 6. Again, at the pleading stage, the district court found plaintiff’s allegations sufficient to survive defendant’s motion to dismiss, id., at 6-7. And third, that Chase should have prorated her 2008 annual fee once it suspended her account, and should not have billed another annual fee in April 2009 because she could no longer “draw” on her account. Id., at 7. Defendant countered that plaintiff’s argument was premised on a drafting error in the document, id., at 8. The federal court held that the defense arguments were “better suited for a motion for summary judgment or trial — not a motion to dismiss,” and that for pleading purposes the class action “alleged sufficient facts with regards to the annual fee to make her claim plausible.” Id.
With respect to the class action’s unjust enrichment claim, the district court explained “plaintiff alleges that defendant was unjustly enriched because it charged her an annual fee the year after it suspended draws from her HELOC.” Yakas, at 9. Chase argued that the HELOC agreement expressly authorized it to charge the $20 annual fee during the draw period, id., at 9-10. Given the ambiguity in the agreement as to the meaning of the term “Draw Period,” the federal court stated that it was “unwilling to categorically exclude the possibility that unjust enrichment will turn out to be an appropriate remedy.” Id., at 10. Accordingly, it denied defendant’s motion to dismiss the complaint. Id.