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Willcox v. Lloyds Tsb Bank, PLC

United States District Court, D. Hawaii

January 8, 2016

BRADLEY WILLCOX, FRANK DOMINICK, and MICHELE SHERIE DOMINICK, Plaintiffs,
v.
LLOYDS TSB BANK, PLC and DOES 1-15, Defendants.

ORDER ADOPTING IN PART, REJECTING IN PART, AND MODIFYING IN PART THE FINDINGS AND RECOMMENDATIONS TO GRANT IN PART AND DENY IN PART PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION

ALAN C. KAY SR. UNITED STATES DISTRICT JUDGE

For the reasons set forth below, the Court ADOPTS in part, REJECTS in part, and MODIFIES in part the Findings and Recommendations to Grant in Part and Deny in Part Plaintiffs’ Motion for Class Certification, ECF No. 317, issued by Magistrate Judge Puglisi in the instant case on November 12, 2015.

PROCEDURAL BACKGROUND

The operative Third Amended Complaint (“TAC”) was filed in this case on March 27, 2015. ECF No. 100. The TAC names Frank and Michele Sherie Dominick (hereinafter, “the Dominicks”) and Bradley Willcox (collectively, “Plaintiffs”) as representatives for this putative class action against Defendant Lloyds TSB Bank, PLC, now known as Lloyds Bank PLC (“Lloyds” or “Defendant”). Id.; see also Compl., ECF No. 1-2.[1] Plaintiffs’ TAC bring claims for Breach of Contract (Count I) and Breach of an Implied Term Limiting Lloyds’ Discretion to Change the Interest Rate (Count II) related to certain dual currency loans described in greater detail below. See TAC ¶¶ 55-72, ECF No. 100.

On July 15, 2015, Plaintiffs filed a Motion for Class Certification pursuant to Federal Rule of Civil Procedure 23. ECF No. 156. A hearing was held on the motion on November 10, 2015. ECF No. 315. Magistrate Judge Puglisi issued his Findings and Recommendations to Grant in Part and Deny in Part Plaintiffs’ Motion for Class Certification (“F&R”) on November 12, 2015. ECF No. 317.

The F&R recommends: (1) certifying the instant case as a class action, (2) defining the certified class as:

“All persons and entities who entered prior to August 2009 into an IMS [International Mortgage System] loan with Lloyds that contained a Hong Kong choice-of-law provision and an interest rate provision based upon Cost of Funds and who are, or were at any time during entering into such an IMS loan, residents or citizens of the State of Hawaii, or owners of property in Hawaii that was mortgaged to secure any such IMS loan, ”

(3) appointing Willcox (but not the Dominicks) as class representative, (4) appointing Alston Hunt Floyd & Ing and Steptoe & Johnson LLP as class counsel, (5) directing the parties to meet and confer regarding notice to class members, and (6) denying any remaining relief requested in Plaintiffs’ class certification motion. F&R at 31-32, ECF No. 317.

On November 25, 2015, Lloyds filed its Objections to Findings and Recommendations to Grant in Part and Deny in Part Plaintiffs’ Motion for Class Certification (“Obj.”). ECF No. 332. On the same date, Lloyds also filed a Notice of Intent to Rely on Foreign Law pursuant to Federal Rule of Civil Procedure 44.1, which attached a legal expert declaration and supporting authorities regarding Japanese law. ECF No. 331.

On December 9, 2015, Plaintiffs filed their Response to Obj. (“Response”). ECF 335. On the same date, Plaintiffs also filed a Notice of Intent to Rely on Foreign Law pursuant to Federal Rule of Civil Procedure 44.1, which attached a legal expert declaration and supporting authorities regarding Japanese law. ECF No. 334.

On December 17, 2015, Lloyds filed a Motion for Leave to File Reply Instanter in Support of Obj., ECF No. 337, which attached its Reply in Support of Obj. (“Reply”), ECF No. 337-1. On the same day, Lloyds also filed an additional Notice of Intent to Rely on Foreign Law pursuant to Federal Rule of Civil Procedure 44.1, which attached a legal expert declaration and supporting authorities regarding Japanese law. ECF No. 336. The Court granted Lloyds’ motion for leave by Minute Order of December 17, 2015 and permitted Plaintiffs to file a sur-reply by December 28, 2015. See Minute Order, ECF No. 339. Plaintiffs filed their Sur-Reply to Reply (“Sur-Reply”) on December 28, 2015. ECF No. 340.

The Court notes that the parties also have cross-motions for summary judgment pending, which were filed on October 16, 2015 (prior to the issuance of the F&R).[2] Those motions are set for a hearing on January 19, 2016.

FACTUAL BACKGROUND

The instant case involves the issuance by Lloyds of dual currency, or International Mortgage System (“IMS”), loans. IMS loans are mortgage loans with a currency switching feature that allows borrowers to switch the currency of their loans between U.S. dollars and other currencies. See TAC ¶¶ 1-3, ECF No. 100.

Lloyds is organized under the laws of the United Kingdom but maintains branches throughout the world, including a branch in Hong Kong, from which it issued IMS loans to Plaintiffs. See id. Lloyds is a wholly-owned subsidiary of Lloyds Banking Group, PLC (“LBG”). Id. ¶ 9.

I. The “Cost of Funds” Provision in Lloyds’ IMS Loans

The IMS loans at issue in this case were issued by Lloyds from approximately 2005-2009 and secured by mortgages on real property in Hawaii and California. Id. ¶¶ 15, 21-22, 28-30.

The loans have an interest rate that is set at 1.5% above Lloyds’ “Cost of Funds, ” with the interest rate fixed for successive three month periods. Id. ¶¶ 2, 16. The “Cost of Funds” is defined (with immaterial differences) in the loan documents as:

[T]he cost (calculated to include the costs of complying with liquidity and reserve asset requirements) in respect of any currency expressed as a percentage rate of funding for maintaining the Advance or Advances in that currency as conclusively nominated by the Bank from time to time.

Id. ¶ 2. Interest payments on the loans are due, and the interest rate recalculated, at the end of each three month period. Id. ¶ 16. Plaintiffs’ claims for breach of contract and breach of an implied contractual term relate to whether Lloyds impermissibly included in its Cost of Funds certain charges imposed by its parent starting in 2009. Id. ¶¶ 55-72.

II. The Named Plaintiff’s Loans [3]

Plaintiff Bradley Willcox is a resident of Hawaii[4] who, in 2007, took out approximately $1, 284, 500.00 in four IMS loans from Lloyds, secured by four real properties located in Honolulu, Hawaii. Id. ¶¶ 6, 21-22. Willcox took out the loans in U.S. Dollars but chose to redenominate them to Japanese Yen shortly after the transaction closed. Id. ¶ 23.

Shortly thereafter, the exchange rate fell (i.e., the Yen grew stronger relative to the U.S. Dollar), and Willcox’s quarterly interest payments “dramatically increased” by 2012. Id. ¶ 24. Willcox alleges that this increase was, in part, a result of Lloyds’ “arbitrary increases” in its Cost of Funds. Id. ¶ 25. He further alleges that he is not in arrears on his IMS loans and that Lloyds’ Cost of Funds increases caused him to pay “substantially more” than he otherwise would have over the course of his loans. Id. ¶¶ 26-27.

III. Allegations Regarding Lloyds’ Cost of Funds

Plaintiffs claim that, in or around 2009, Lloyds added several new basis points to its Cost of Funds calculation in order to reflect the imposition by its parent company, LBG, of a “liquidity transfer pricing” (“LTP”) charge. Id. ¶ 5.

According to Plaintiffs, the LTP charge added to the Cost of Funds an amount “based not on the actual cost of funds for the Loans, but for Lloyds’ parent’s significantly longer-term set of obligations.” Plaintiffs argue that this represented Lloyds’ attempt to pass on to borrowers “the cost of funding Lloyds’ parent’s overhead and operations as a whole, not just the cost of funding their own IMS Loans.” Id. ΒΆ 5 (emphasis in original omitted). Plaintiffs further observe that, during the period when Lloyds was ...


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