SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK : IAS Part 49

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GERALD D. BRODER, on behalf of himself
and all others similarly situated,
Index No. 605153/98
Plaintiff,

- against -

MBNA CORPORATION and
MBNA AMERICA BANK, N.A.,

Defendants.

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HERMAN CAHN, J.:
Plaintiff commenced this class action against a leading provider of credit cards, in connection with defendants' credit card practices. Plaintiff now moves for class certification. Defendants cross move for summary judgment dismissing the complaint. For the reasons set forth below, the motion to certify the class is granted. The cross motion to dismiss the complaint is granted only as to the cause of action for fraud.
Background
Defendant MBNA Corporation ("MBNA") is a registered bank holding company. MBNA, through defendant MBNA America Bank, N.A., is one of the world's largest credit card issuers.
Plaintiff Gerald D. Broder's complaint contains the following allegations:
Broder has been a holder of an MBNA "MasterCard" since 1987. Since acquiring the card, he regularly used it to pay for purchases, generally paying off his purchase balances in full each month, without incurring any finance charges.
In October 1996, MBNA solicited Broder to borrow monies by cash advances, purportedly subject to a special low annual percentage rate ("APR") of 6.9%, for up to six months, through May 1997. At the end of the six-month period, the outstanding cash advance balance would be subject to the same 17.9% APR as plaintiff's other outstanding unpaid purchase balance. The solicitation stated:

Here's some good news to help you start 1997 with a wise financial move.

Your Annual Percentage Rate (APR) on cash advances, including balance transfers is 6.9% through your statement closing date in May 1997.

This means you can use the full power of your... MBNA MasterCard account along with this special low 6.9% Annual Percentage rate (APR) to reduce your cost of credit or even take advantage of sales and bargains .... And with your low limited- time APR of 6.9% on cash advances, including balance transfers, you may be able to save yourself some money (not to mention headaches) by simply paying off higher rate credit card or department store accounts....

Broder accepted MBNA's offer in November 1996, and obtained a balance transfer cash advance of $25,000, purportedly at an APR of 6.9%. At that time, plaintiff had no outstanding unpaid balance on the MasterCard account.
In December 1997, defendants again solicited Broder to borrow monies by cash advances, purportedly subject to a special low APR of 6.9% for up to six months, through June 1998. At the end of the six-month period, the outstanding cash advance balance would be subject to the same 17.9% as plaintiff's outstanding unpaid purchase balance. The solicitation stated:

Introducing your new 6.9% Annual percentage rate (APR) through your June 1998 statement closing date on Credit Card Access Checks and Balance Transfers.





MBNA is pleased to announce an APR so low you don't even have to think twice about taking full advantage of your credit line. This is just about as inexpensive as it gets to use somebody else's money.

And, better, because this rate is so good, MBNA is giving you all the way through the closing date of your June 1998 statement to take advantage of it....

We really hope you start taking advantage of your special MBNA APR in January and keep taking advantage of it through your June 1998 statement closing date.

It is really too good not to use.

A second, similar, solicitation was sent by MBNA to Broder about the same time in December 1997, offering the same special 6.9% APR and stating:

Money talks with your low 6.9% APR on Credit Card Access Checks and Balance Transfers through your statement closing date in June 1998.

Your ... MBNA account offers you a limited-time 6.9% Annual Percentage Rate (APR) on credit card access checks and balance transfers. If you combine this with the power of your ... credit line, your money has a lot to say. Use the enclosed credit card access checks to add an extra room, pay taxes or consolidate bills now is the time to take advantage of this low 6.9% APR....

Seize the day with the enclosed checks and take your plans off hold. Consolidate higher-interest credit card balances to your MBNA account.

There's no time like the present to take advantage of this special 6.9% APR and let your money do the talking.

In January 1998, Broder accepted MBNA's offer and obtained a balance transfer cash advance of $35,000, at an APR of 6.9%. At that time, he had no outstanding unpaid balance on the MasterCard account.
After receiving the $25,000 and $35,000 cash advances, Broder continued to use MBNA's card for purchases, generally in amounts totaling $500 to $2200 each month. Furthermore, each month during the promotion's operative period, plaintiff's payments to his account generally equaled the total new purchases reflected on his monthly account statements.
MBNA applied plaintiff's payments first to the balance due on the advances made under the special promotion (which plaintiff alleges substantially exceeded the amounts of his total new monthly purchases). Thus, under the method of payment allocation used by defendants, Broder's cash advances subject to the 6.9% APR were reduced by the amount of his monthly payments while his purchase balances remained wholly unpaid and continued to accrue finance charges at a higher APR.
As a result, Broder was charged finance charges by MBNA on his purchase balance during the six-month limited period covered by the 1996 $25,000 cash advance totaling $767, even though his payments each month were sufficient to pay off these purchases in full. Plaintiff alleges further that the finance charges would have equaled only $313 if defendants had credited plaintiff's payments to his purchases rather than to his cash advances. Thus, according to plaintiff, defendants charged him more than $400 of excessive finance charges with respect to the 1996 cash advances. Plaintiff claims that he was charged comparable excessive finance charges, totaling approximately $200 or more, with respect to the 1998 $35,000 cash advance.
Broder contends that any class member who accepted MBNA's offer of a purportedly low APR and used the credit card for purchases as well did not receive the benefit of the special low APR on the entire amount of the cash advance for the prescribed limited period because of MBNA's payment allocation method.
The complaint contains three causes of action. In the first cause of action (breach of contract), Broder alleges that MBNA breached the agreement to provide a special low APR on cash advances for the stated period, by utilizing a payment allocation method that failed to provide the promised low APR. In the second cause of action (fraud), plaintiff alleges that defendants made false and misleading representations about the availability of the special low APR for cash advances offered to and accepted by plaintiff and the class. In the third cause of action (statutory violations), plaintiff alleges that defendants violated General Business Law §§ 349 and 350 because their conduct constitutes deceptive practices and false advertising in the conduct of business, trade, or commerce or in the furnishing of services.
Broder moves for class action certification, § 902, CPLR. The class is said to comprise MBNA's present and former credit cardholders who, from May 4, 1996 through October 23, 1998: (i) were sent advertisements and solicitations by MBNA promoting a special low APR on balance transfers and or cash advance access checks for a limited period; (ii) accepted any of the offers and borrowed money by means of cash advances, pursuant to the offer; (iii) used MBNA's credit cards for purchases as cash advances purportedly subject to a special low APR, and (iv) made payments on their account balances.
MBNA contends that it did not breach the agreement with plaintiff and that the advertisements were neither false nor misleading. MBNA relies on the cardholder agreement express statement that the payments "will be allocated in a manner we determine" and in the solicitation materials stating that MBNA may allocate payments first to the cash advance balance and than to the purchase balance. Thus, defendants contend, they were entitled to allocate the payments to first reduce the low promotional APR balances before reducing the higher non- promotional balances.
MBNA's Summary Judgment Motion
1. Breach of Contract
It is undisputed that MBNA did not breach the literal terms of the agreement with Broder. Defendants agreed to charge a 6.9% APR to balance transfers and cash advances. Plaintiff does not dispute that defendants actually charged an APR of 6.9% to the cash advance balances shown on his monthly account statements. The promotional APR was specifically applicable to cash advances and balance transfers but not to balances generated by purchases.
There exists in every contract, however, an implied covenant to act in good faith in the course of its performance (Kirke La Shelle Co. v. Armstrong Co., 263 NY 79 [1933]; Gilbert v El Paso Co., 490 A2d 1050 [Del Ch 1984], affd 575 A2d 1131 [Del Sup Ct. 1990]).1 Plaintiff has set forth a viable claim for breach of this implied covenant of good faith based upon (1) the allocation provision of the cardholder agreement, (2) the "may allocate" disclosure of the solicitation materials, and (3) the fact that the low APR was credited to the cash advances reflected on plaintiff's credit card statements relating to his cash advances. Plaintiff asserts that defendants' payment allocation policy prevented plaintiff from achieving the full benefits of the promotion.
Moreover, there are issues of fact resulting from ambiguous language contained in the cardmember agreement and the solicitation. Ambiguities are construed against the drafters of the relevant materials (67 Wall St. Co. v. Franklin Natl. Bank, 37 NY2d 245 [1975]). Broder contends that the information about payment allocation is ambiguous because it does not address the situation when a cardholder has both cash advances and purchases, or balances potentially resulting from such purchases and cash advances, or what will be done when a cardholder is offered and accepts a special low APR on cash advances for a limited period. That the cardholder agreement provided that "[y]our payment will be allocated in a manner we determine" is not dispositive of this issue. To the extent that the materials are ambiguous, summary judgment must be denied because of the existence of a factual issue as to how a reasonable customer would have interpreted the allocation provision (Super Glue v. Avis Rent-A-Car, 159 AD2d 68 [2d Dept 1990], appeal denied, 77 NY2d 801 [1991]).
Furthermore, the information contained in the promotion solicitation about payment allocation may be inadmissible in this action pursuant to CPLR 4544, which provides, in relevant part:

Contracts in small print

The portion of any printed contract or agreement involving a consumer transaction ...where the print is not clear and legible or is less than eight points in depth or five and one-half points in depth for upper case type may not be received in evidence in any trial, hearing or proceeding on behalf of the party who printed or prepared such contract or agreement, or who caused said agreement or contract to be printed or prepared. As used in the immediately preceding sentence, the term "consumer transaction" means a transaction wherein the money, property or service which is the subject of the transaction is primarily for personal, family or household purposes. No provision of any contract or agreement waiving the provisions of this section shall be effective.

Although the statute refers to evidence admissibility, the underlying purpose of the statute is to render such contract provisions unenforceable (Filippazzo v Garden State Brickface Co., 120 AD2d 663 [2d Dept 1986]). Plaintiff submitted exhibits purportedly showing the actual size of the solicitation and of the required eight point type. Defendants do not controvert the assertion that the relevant language about payment allocation contained in the solicitation is smaller than the required eight point type.
In any event, there are sufficient factual issues, to warrant denial of this branch of the motion for summary judgment.
2. Fraud.
A cause of action for fraud is legally insufficient if the only fraud charged relates to the breach of contract (Sanyo Elec. v Pinros & Gar Corp., 174 AD2d 452 [1st Dept 1991]). Broder's fraud cause of action is based on the alleged breach of the terms of the offer to provide a 6.9% APR to cash advances and balance transfers. Plaintiff also alleged that defendants knowingly and deliberately misrepresented the terms of the promotion. The addition of an allegation of scienter does not transform a breach of contract claim into one to recover damages for fraud (Kotick v Desai, 123 AD2d 744 [2d Dept 1986]).
Moreover, the record establishes that, between January 1997 and September 1997, plaintiff contacted defendants numerous times to inquire about his account. Plaintiff told defendants that he wanted his payments allocated to his purchase balances before his cash advance balances regardless of defendants' policy. Each time a "customer satisfaction representative" explained to him that defendants allocated monthly payments to cash advances before purchase balances.
Thus, the motion for summary judgment as to this cause of action, is granted.
3. General Business Law §§ 349, 350
General Business Law § 349 makes it unlawful to perform deceptive acts or practices in the conduct of any business, trade, or commerce, or in the furnishing of any service in this state. The scope of GBL § 350 is equally broad prohibiting the promulgation of false advertising in the conduct of any business, trade or commerce or in the furthering of any service in the state (Karlin v IVF Am., 93 NY2d 282], rearg denied 93 NY2d 989 [1999]). The test for such a violation is whether the 6.9% APR promotion was a representation "likely to mislead a reasonable consumer acting reasonably under the circumstances" (Oswego Laborers' Local 214 Pension Fund v Marine Midland Bank, 85 NY2d 20 [1995]). The burden is on plaintiff to show "materially deceptive conduct" on which he relied to his detriment (Gershon v Hertz Corp., 215 AD2d 202 [1st Dept 1995]).
For the reasons set forth above, in the discussion of the contract cause of action, this claim is viable. The complaint adequately alleges conduct that is consumer-oriented and which has a broad impact on consumers at large (Oswego Laborers' Local 214 Pension Fund v Marine Midland Bank, 85 NY2d 20 [1995]) and that defendants engaged in a practice that is alleged to be deceptive or misleading in a material way and that plaintiffs have been injured by reason thereof (Oswego Laborers' Local 214 Pension Fund, supra).

Class Certification
Plaintiff seeks a determination that this action may proceed as a class action on behalf of the class that comprises defendants' present and former credit cardholders who, from May 4, 1996 through October 23, 1998: (i) were sent advertisements and solicitations by MBNA promoting a special low APR on balance transfers and or cash advance access checks for a limited period, (ii) accepted any of the offers and borrowed monies by means of cash advances; (iii) used defendants' credit cards for purchases as cash advances purportedly subject to a special low APR, and (iv) made payments on their account balances.
CPLR 901 authorizes a class action if: (1) the class is so numerous that joinder of all members is impracticable, (2) questions of law or fact common to the class predominate over any question affecting only individual members, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, (4) the representative parties will fairly and adequately protect the interests of the class, and (5) a class action is superior to other available methods for the fair and efficient adjudication of the controversy (Friar v Vanguard Holding Corp., 78 AD2d 83 [2d Dept 1980]). Plaintiff has the burden of establishing compliance with these prerequisites (Askey v. Occidental Chemical Corp., 102 AD2d 130 [4th Dept 1984]). Plaintiff has met his burden (cf., Spark v MBNA and MBNA Bank, 178 FRD 431 (D Del 1998)(approving class certification).
This action meets the basic requirements of CPLR 901. The class appears to be so numerous that joinder is impracticable. Defendant does not dispute plaintiff's assertion that the class is likely to consist of thousands or tens of thousand's of defendants' credit cardholders. Plaintiff's claim is typical. Defendants sent the same solicitation materials to the other proposed class members.
Defendants argue, however, that plaintiff's claims are atypical because between January 1997 and September 1997, plaintiff contacted defendants numerous times to inquire about his account. Plaintiff told defendants that he wanted his payments allocated to his purchase balances before his cash advance balances regardless of defendants' policy and each time he was told that defendants allocated monthly payments to cash advances before purchase balances. Thus, defendants contend, plaintiff knew exactly how the payments would be allocated. However, this assertion relates to the issue of reasonable reliance and fraud (see, CPC Intl. v McKesson Corp., 70 N.Y.2d 268, 285 [1987]) and the fraud causes of action is being dismissed.
There are common questions of law and fact; namely, whether defendant breached a duty of good faith by exercising their discretion to use a method of payment allocation to the detriment of the credit cardholders who maintained various types of balances simultaneously. I am also persuaded that plaintiff qualifies as a proper class representative. He is an attorney, thoroughly familiar with the issues, who availed himself of the APR promotion. Defendants have not demonstrated that he would not be expected to fairly and adequately protect the class. Finally, the record reveals that counsel is experienced in class action litigation.
Settle Order.

Dated: February , 2000
ENTER:

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J.S.C.