District Court (Cal.) Says Credit Card Issuer’s Charging Late-Fees During COVID Was Not a Breach of the Implied Covenant of Good Faith and Fair Dealing

In Fitzpatrick v. Capital One Bank United States N.A., No. 2:22-cv-00312-MCE-DB, 2022 U.S. Dist. LEXIS 196670, at *7-9 (E.D. Cal. Oct. 28, 2022), Judge England dismissed a class action premised on the alleged unlawful charging of late fees during the pandemic.

The Agreement explicitly permits Defendant to charge the fees challenged in this case. Accordingly, Plaintiff contends instead that: (1) Defendant had the discretion not to impose late fees; (2) “it failed to exercise this discretion fairly, honestly, and to the benefit of its customers”; and (3) it thus breached the implied covenant of good faith and fair dealing. SAC, ECF No. 24, ¶¶ 66-67. Defendant moves to dismiss this cause of action on the basis that the covenant cannot be relied upon to imply terms that contradict the express written terms of an agreement. Def.’s Mot., ECF No. 25, at 8. The Court agrees.  “An implied duty of good faith cannot be used to override or modify explicit contractual terms.” Riggs Nat’l Bank of Washington, D.C. v. Linch, 36 F.3d 370, 373 (4th Cir. 1994).4 Rather, under Virginia law, “when parties to a contract create valid and binding rights, an implied covenant of good faith and fair dealing is inapplicable to those rights.” Ward’s Equip., Inc. v. New Holland N. Am., Inc., 493 S.E.2d 516, 520 (Va. 1997). That is because “such a covenant cannot be the vehicle for rewriting an unambiguous contract in order to create duties that do not otherwise exist.” Id.; see also Skillstorm, Inc. v. Elec. Data Sys., LLC, 666 F. Supp. 2d 610, 620 (E.D. Va. 2009) (observing that “no implied duty arises with respect to activity governed by express contractual terms”).  As pled, Plaintiff failed to make timely payments, and under the express terms of the Agreement, Defendant was entitled to and did charge Plaintiff late fees. Nothing in Plaintiff’s allegations indicates that there was some sort of implied duty on Defendant’s part to waive those fees in direct contravention of the written Agreement. It is of no consequence that the Agreement states at times that Defendant “may” as opposed to “will” charge such fees. That language does not make exercise of the right to charge fees discretionary such that resort to the implied covenant might be appropriate. More specifically, use of the word “may” does not mean that the imposition of fees turns on some sort of discretionary factors. Instead, the fees provision is triggered only by Plaintiff’s non-payment or late payment. The fact that Defendant retains the power not to impose a fee goes to Defendant’s own contractual rights not its discretion. See Land and Marine Remedia-tion, Inc. v. BASF Corp., No. 2:11cv239, 2012 WL 2415552, at *13 (E.D. Va. June 26, 2012) (noting that “if exercising an express contractual right to demand payment or an express contractual right to issue a notice of default were permitted to be recast as a ‘discretionary’ decision merely because the non-breaching party could opt not to exercise such express right, every contractual right would be subject to being recast as ‘discretionary.'”) (emphasis in original). Accordingly, this cause of action is DISMISSED.