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Miller v. Bank of America, NT & SA

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Bank of America did not act illegally when it accepted direct deposits of government benefits to overdrawn customer accounts. Its actions were not exercises of the right of setoff, and a long-standing banking practice is acceptable in California.

In an opinion filed on November 20, 2006, a state appellate court agreed with BofA that applying direct deposits of Social Security and other government benefits to clear overdraft balances is not exercising a right of setoff. Setoff had been the linchpin of the lower court case that could have cost BofA more than a billion dollars. Banks across the country had been awaiting the outcome of BofA's appeal, although the case involved on its face only the application of California law. Noting that state courts deciding cases involving common law concepts like the right of setoff are often influenced by decisions in other states, bank legal departments were concerned that Miller could have started a wave of similar cases.

The First Appellate District Court of the State of California found that the San Francisco County Superior Court erred when it reached for support in the form of the California Supreme Court's 1974 Kruger decision. Kruger stated that California banks are prohibited from setting off against public benefits to recover on a delinquent credit card account. BofA successfully argued that the 1974 case was not germane, because it dealt with setoff only, and setoff requires the existence of two separate and offsetting obligations. The Miller case involved the customary crediting of direct-deposited government benefit payments to accounts with significant overdraft balances, and did not involve separate credit accounts.

This case was considered significant enough to attract amicus curiae support for BofA's case from eight California and national financial services trade associations, as well as the U.S. Department of the Treasury. Upwards of a billion dollars in statutory damages and $284 million in compensatory damages, now overturned, had been ordered in the lower court decision, which was reversed in its entirety.

March 21, 2007 - The California Supreme Court will review the First Appellate District Court's decision, although no hearing date has been set.

June 1, 2009 - The California Supreme Court has upheld the 2006 appeals court ruling.

Original Trial Court Decision, 2004

California's First District Appellate Court Decision

California's Supreme Court Decision, June 1, 2009

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