Gardner v. Flagstar: Sixth Circuit Rejects “Failure-to-Read” Defense and Requires Jury Trial When Bank-Fee Contracts Are Ambiguous

1. Introduction

In Veronica Gardner v. Flagstar Bank, FSB, No. 24-1436 (6th Cir. 2025), the United States Court of Appeals for the Sixth Circuit addressed whether a bank may obtain summary judgment on a depositor’s breach-of-contract claim involving overdraft and nonsufficient-fund (“NSF”) fees where the underlying account agreement is ambiguous and the customer admits she did not fully read it.

The plaintiffs, Veronica Gardner and Calvin Morgan, represent a putative class challenging two fee practices:

Overdraft charges on “Authorize-Positive, Settle-Negative” (APSN) debit-card transactions; and
Multiple NSF charges for a single merchant transaction that is “re-presented” after initial denial.

The district court had granted summary judgment to Flagstar Bank, holding that Gardner’s failure to read the Terms & Conditions (“T&C”) barred her interpretation. The Sixth Circuit reversed, finding genuine factual disputes because the T&C were ambiguous and Michigan law does not allow the “failure-to-read” argument to trump ambiguity. The case is remanded for trial.

2. Summary of the Judgment

Ambiguity Confirmed: Both parties conceded that the original T&C are ambiguous regarding APSN fees. The appellate court likewise found ambiguity as to re-presentment fees.
Failure-to-Read Not Dispositive: Michigan precedent limits the “duty to read” principle to contracts that are unambiguous. Where ambiguity exists, a signatory’s non-reading does not foreclose her interpretation.
Extrinsic Evidence Insufficient: Flagstar’s extrinsic evidence (employee depositions, account statements) did not conclusively resolve ambiguity in its favor, so summary judgment was improper.
Implied Covenant Revived: Because the breach-of-contract claim survives, the derivative claim for breach of the implied covenant of good faith and fair dealing also survives under Michigan law.
Remand: The matter returns to the district court for further proceedings (likely a jury trial) on contractual meaning and liability.

3. Detailed Analysis

3.1 Precedents Cited and Their Influence

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986) — Reaffirmed the high threshold for summary judgment: courts must view evidence in the non-movant’s favor and ask whether a rational juror could find for that party.
Kendzierski v. Macomb County, 931 N.W.2d 604 (Mich. 2019) — Restated Michigan’s test for contractual ambiguity (“equally susceptible” to more than one meaning).
Klapp v. United Ins. Group Agency, Inc., 663 N.W.2d 447 (Mich. 2003) — Held that ambiguous contract interpretation is a fact question for the jury and explained the rule against surplusage.
United Rentals (N. Am.), Inc. v. Keizer, 355 F.3d 399 (6th Cir. 2004) — Summary judgment on ambiguous language is permissible only if extrinsic evidence supports just one interpretation.
Komraus Plumbing & Heating, Inc. v. Cadillac Sands Motel, Inc., 195 N.W.2d 865 (Mich. 1972) — Embodies the “duty to read” doctrine; the Sixth Circuit distinguishes it as limited to unambiguous contracts.
Raska v. Farm Bureau Mut. Ins. Co., 314 N.W.2d 440 (Mich. 1982) — Defined ambiguity as words reasonably understood in different ways.
Multiple district-court cases (Perks, Encarnacion, Lewis) interpreting “item” in NSF settings — Cited to illustrate widespread judicial recognition of ambiguity in similar fee disputes.

3.2 Legal Reasoning of the Sixth Circuit

Standard of Review: De novo review of summary judgment and Michigan contract law.
Ambiguity Confirmation:
- For APSN fees, all parties stipulated to ambiguity in the original T&C.
- For re-presentment fees, the court parsed the definition of “Item” and concluded that both single-fee and multiple-fee readings were reasonable, rendering the clause ambiguous.
Extrinsic Evidence Assessment:
- Flagstar’s evidence focused on Gardner’s ignorance of terms and bank official depositions; neither eliminated factual dispute.
- Gardner’s expert declaration created a plausible inference that disputed fees were APSN, defeating summary judgment even if not definitive.
Rejection of “Failure-to-Read” Bar: The panel predicted the Michigan Supreme Court would not extend the “duty to read” doctrine to ambiguous contracts, because ambiguity shows the parties’ intent was not clearly expressed in writing.
Good Faith and Fair Dealing: Because the contract claim survives, the related claim also proceeds; Michigan recognizes the covenant as part of the contract, not a standalone tort.

3.3 Potential Impact

Banking Industry: Financial institutions using generic fee clauses may face increased litigation risk; they may need to draft clearer NSF/overdraft provisions or face jury determinations.
Consumer Class Actions: The opinion provides a roadmap for overcoming summary judgment where fee practices outstrip the consumer’s reasonable reading of contract language.
Contract Drafting in Michigan (and Sixth Circuit): Businesses cannot rely on customers’ signatures alone when language is vague; clarity and specific illustrations (e.g., explaining APSN and re-presentment) are essential.
Litigation Strategy: Defendants must present robust extrinsic evidence to claim that only their interpretation is plausible; mere deposition testimony on drafting intent may not suffice.
Doctrine Development: The decision clarifies the boundary between the “duty to read” and the doctrine of ambiguity, potentially influencing state-law interpretations in other circuits.

4. Complex Concepts Simplified

Authorize-Positive, Settle-Negative (APSN): A debit-card purchase that appears affordable (positive balance) when approved but later overdraws the account (negative balance) when the transaction “settles,” leading to an overdraft fee.
Re-presentment: When a merchant resubmits a previously declined electronic payment (ACH or check) to the bank, hoping funds are now available. Each submission is a “presentment.”
NSF (Not Sufficient Funds) Fee: Charge imposed when the bank refuses a payment because the account lacks funds. Some banks charged a fresh NSF fee every time the same payment is re-presented.
Summary Judgment: A procedural device allowing the court to decide a case without trial where no genuine factual dispute exists. If evidence allows reasonable disagreement, summary judgment must be denied.
Contractual Ambiguity: A clause is ambiguous when it supports multiple reasonable meanings or internally conflicts. Ambiguity generally sends interpretation to the jury.
Implied Covenant of Good Faith and Fair Dealing: A background promise that each party will not prevent the other from receiving the intended benefits of the contract, even if not spelled out expressly.

5. Conclusion

Gardner v. Flagstar underscores a fundamental principle: ambiguity in contract language cannot be cured by pointing to the customer’s failure to read. Unless extrinsic evidence resolves the ambiguity in one party’s favor, the dispute is for the factfinder. The Sixth Circuit’s opinion will reverberate through consumer-bank litigation, pressing financial institutions to redraft fee provisions with precision and alerting litigants that “duty to read” arguments have limited reach when contractual terms are unclear. Ultimately, the case breathes life into class actions challenging opaque overdraft and NSF practices and reaffirms the jury’s central role in interpreting ambiguous agreements.