Order, Supreme Court, New York County (Herman Cahn, J.), entered November 13, 2008, that, inter alia, granted plaintiffs' motion for class certification, unanimously reversed, on the law and the facts, without costs, the motion denied, and the class decertified.
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Tom, J.P., Andrias, Saxe, Moskowitz, DeGrasse, JJ.
Defendant E*Trade is a registered brokerage firm that offers online trading and various other services, such as research. It generates income from accounts primarily through commissions. In 2003, the period relevant to this action, it had approximately 3.5 million brokerage accounts.
The E*Trade customer agreement authorizes the automatic debiting of an account to assess an account maintenance fee (AMF) and refers to a schedule of fees on E*Trade's website. This assessment occurs if the account balance falls below $5000 or if the customer has not executed at least two commissioned trades in the prior six months. Among exceptions to this rule is the situation where the customer has "linked" brokerage accounts with E*Trade with a total balance over $20,000.
Initially, E*Trade would assess a $15 AMF on the 27th of the last month of each quarter. However, this created practical problems because the 27th was not always a business day. E*Trade therefore changed its policy effective September 2003, raising the AMF to $25 and assessing it "during the last week of the quarter ending month". Accordingly, in September 2003, E*Trade assessed the AMF on September 24, seven days before the end of the quarter.
In December 2003, the seventh day before the end of the quarter (that technically was "during the last week") fell on Christmas. Consequently, E*Trade assessed the AMF on the prior business day, the 24th. However, it first sent a "Smart Alert" e-mail to customers it intended to assess and whose balances were below $25, because these accounts would be subject to closure as a result. The alert stated that the AMF assessment would occur on the 24th and encouraged these customers to avoid AMF by depositing $5000 or more into their accounts. The alert also provided an Internet link for transferring funds.
E*Trade again changed its policy beginning the first quarter of 2004, charging the AMF on Wednesday during the last full week of the last month of each quarter.
Plaintiffs Kalman Yeger and Cindy Yeger became E*Trade customers on January 26, 2000. In March, June and September 2001, E*Trade assessed their accounts in accordance with the customer agreement. However, when Mr. Yeger complained, E*Trade refunded the assessment as a courtesy.
In September 2003, E*Trade again assessed plaintiffs' account. Mr. Yeger again requested a refund, stating that he would deposit funds to bring the account balance above the minimum. When he deposited the funds, E*Trade again refunded the assessment as a courtesy.
In December 2003, E*Trade assessed the Yegers a $25 AMF for the fourth quarter of 2003. As noted, this was on December 24 (eight days before the end of the quarter) because, according to E*Trade, the "last week" of the month began on Christmas Day. Plaintiffs had not received the December 19 "Smart Alert" warning because their account contained more than $25.
When Mr. Yeger complained, E*Trade at first declined to offer a courtesy refund because plaintiffs had received four courtesy refunds previously and E*Trade had an internal policy of refunding a properly assessed AMF as a courtesy only on a one-time basis, but after Mr. Yeger continued to complain, E*Trade agreed to refund the AMF. Nevertheless, during the same conversation, Mr. Yeger changed his mind, declined the refund and threatened this lawsuit.
Plaintiffs filed this action on August 11, 2004. They framed the complaint as a class action and focused primarily on the AMFs that E*Trade collected in December 2003. The complaint originally stated claims for breach of contract, violation of General Business Law (GBL) § 349 and unjust enrichment. However, on February 6, 2006, the motion court dismissed the claims under the GBL and for unjust enrichment, leaving only the breach of contract claim. Plaintiffs allege that E*Trade breached the customer agreement by assessing the December 2003 AMF a day early, on December 24, 2003, instead of during "the last seven days" or "the last week" of the quarter. Plaintiffs also contend that the provision in the Customer Agreement describing that the AMF ...