Over three years ago, the federal Judicial Panel on Multidistrict Litigation (JPML) ruled that separate class actions accusing different banks of "resequencing" their customers' debit card transactions so as to increase overdraft charges should be "centralized." Over 80 such lawsuits were eventually transferred to Miami in that multidistrict litigation (MDL) – even though the plaintiffs were customers of over 30 different banks (many not present in Florida) challenging divergent consumer disclosures and customer agreements under the laws of various states.

The JPML has now ceased referring new cases to the MDL. New overdraft cases, mainly against regional or community banks, instead proceed in the usual manner – as separate actions in various state or federal courts around the U.S.  It is now timely to ask: What did the JPML accomplish by "centralizing" disparate overdraft cases for pretrial proceedings in the MDL?

Undoubtedly, there has been a massive transfer of wealth from banks' shareholders to plaintiffs and their lawyers. According to published reports, several banks, after their motions to dismiss were denied, entered into settlements totaling over $880 million. More settlements are likely, which may bring the total up to or above $1 billion. In addition, after the banks lost motions to dismiss in the MDL, they incurred (and non-settling banks are still incurring) substantial litigation costs. Several banks produced over one million documents each to plaintiffs' counsel and made a number of employees available for depositions before the settlements were negotiated; in several cases, the parties settled after mediation.

In 2009, when the JPML created the Overdraft Charges MDL, it ruled that such "centralization" would result in a "just and expeditious resolution" of litigation and “conserve the resources of the parties, counsel and the judiciary".

The opposite, in fact, has occurred. Just compare the MDL process with the courts’ handling of overdraft cases that were not included in the MDL proceedings, either because they were filed well before the JPML's initial transfer order, because they were filed after the JPML ceased transferring cases to the MDL or because they were filed in state courts and were not eligible for the MDL.

In non-MDL cases, when a defendant moves to dismiss the plaintiffs’ claims, a local state or federal judge, usually experienced in applying the forum state’s law, considers the nature and extent of  the bank’s disclosures to its customers of its overdraft practices and the particular language of the customer agreement in question under that body of law. The judge then determines whether the plaintiffs have pleaded a legally sufficient claim. Only if the court finds that plaintiffs have stated a sufficient claim are the parties put to the expense of discovery, further motion practice and possible trial.

Thus, some banks whose customer agreements adequately disclosed their policies on sequencing transactions and the resulting overdraft charges have succeeded in winning dismissal under applicable state law in non-MDL cases. For example, in 2009, a New Jersey federal court dismissed overdraft claims against Sovereign Bank because the bank's agreement with customers disclosed that it paid items in "high to low" order. Earlier this year, in Costello v. NBT Bank, a New York state court ruled a customer agreement making a similar disclosure barred the plaintiffs' claims. In these cases, where no valid claim existed under state law, the parties, counsel and the judiciary were spared the expenditure of resources on needless litigation. That is not to say the banks always (or even usually) win outside the MDL. In certain other non-MDL cases, some involving customer agreements containing less robust disclosures, federal and state courts have denied motions to dismiss and the parties have proceeded to discovery and, at least in one case, to trial.

Things proceeded differently in the MDL. The assigned judge, faced with the challenge of dealing with dozens of cases transferred to him by the JPML, decided on an "omnibus" basis many banks’ separate motions to dismiss despite the fact that these claims were based on different customer agreements and disclosures and varying laws. The unique features of the separate cases were not fully developed. With certain exceptions, the MDL court declined to analyze applicable state law "on a plaintiff by plaintiff basis or a state by state basis." The court denied the “omnibus” motions to dismiss in 2010 and on similar grounds later denied other banks’ motions to dismiss, too. These decisions relegated the MDL parties to expensive discovery and settlements, some of which might have been avoided had the usual judicial process been employed.

In sum, the MDL process lumped together disparate cases in a broad-brush, "one size fits all" approach, unlike the ordinary litigation process. As a result, the Overdraft Charges MDL did not achieve the salutary goals the JPML set out to accomplish. The process must be judged an expensive and unnecessary failure. 

Marc J. Gottridge is a New York-based partner at Hogan Lovells US LLP and co-head of Hogan Lovells’ global Financial Services Litigation practice. He represented the bank in Costello v. NBT Bank cited in the text.