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Willcox v. Lloyds TSB Bank, PLC

United States District Court, D. Hawaii

February 11, 2016

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

ORDER DENYING PLAINTIFFS’ MOTION FOR PARTIAL SUMMARY JUDGMENT ON THEIR AND THE PUTATIVE CLASS’S CLAIM FOR BREACH OF CONTRACT ON COUNT I, DENYING PLAINTIFFS’ REQUEST FOR DECLATORY RELIEF, GRANTING IN PART AND DENYING IN PART DEFENDANT’S MOTION FOR SUMMARY JUDGMENT, AND SUA SPONTE GRANTING PARTIAL SUMMARY JUDGMENT TO PLAINTIFFS ON COUNT II

Alan C. Kay Sr. United States District Judge.

For the reasons set forth below, the Court DENIES Plaintiffs’ Motion for Partial Summary Judgment on Their and the Putative Class’s Claim for Breach of Contract, ECF No. 251, GRANTS in part and DENIES in part Defendant Lloyds TSB Bank PLC’s Motion for Summary Judgment, ECF No. 249, and sua sponte GRANTS partial summary judgment to Plaintiffs on Count II. The Court also DENIES Plaintiffs’ request for declaratory relief.

PROCEDURAL BACKGROUND

On September 13, 2013, Plaintiff Bradley Willcox filed a Complaint on behalf of himself and a similarly situated class against Defendant Lloyds TSB Bank, PLC, now known as Lloyds Bank PLC (“Lloyds” or “Defendant”), in the Circuit Court of the First Circuit, State of Hawaii. Compl., ECF No. 1-2. On October 7, 2013, Lloyds removed the case to federal court pursuant to the Class Action Fairness Act, 28 U.S.C. § 1332.[1] Notice of Removal, ECF No. 1.

On December 3, 2013, Willcox filed a First Amended Complaint, adding Frank Dominick as a named plaintiff. The First Amended Complaint brought a claim under the Hawaii Unfair and Deceptive Trade Practices Act, H.R.S. §§ 480-2 and 481A-3(a)(12), and requested declaratory relief pursuant to H.R.S. §§ 632-1 et seq. and 28 U.S.C. §§ 2201 and 2202. See First Am. Compl. ¶¶ 61-77, ECF No. 25.

On December 17, 2013, Lloyds moved to dismiss the First Amended Complaint. Def. Lloyds’ Mot. to Dismiss the Claims Asserted in the First Am. Compl., ECF No. 26. On June 10, 2014, the Court granted Lloyds’ motion. Order Granting Def.’s Mot. to Dismiss, ECF No. 49. The Court concluded that the Hong Kong choice-of-law provision in the parties’ contractual agreements precluded the assertion of Hawaii and U.S. statutory claims; accordingly, it dismissed the First Amended Complaint in its entirety. Id. at 46. However, the Court granted Willcox and Dominick leave to file a further amended complaint. Id.

On August 14, 2014, Willcox and Dominick filed a Second Amended Complaint (“SAC”), bringing claims under Hong Kong law for Breach of Contract (Count I), Breach of an Implied Term Limiting Lloyds’ Discretion to Change the Interest Rate (Count II), and declaratory relief (Count III). See Second Am. Compl. ¶¶ 54-78, ECF No. 61.

On September 19, 2014, Lloyds moved to dismiss the SAC on grounds of forum non conveniens and failure to state a claim. Def. Lloyds’ Mot. to Dismiss the Claims Asserted in the Second Am. Compl., ECF No. 62. On December 23, 2014, the Court issued an Order Granting in Part and Denying in Part Defendant’s Motion to Dismiss. ECF No. 73. The Court denied Lloyds’ motion to dismiss for forum non conveniens and for failure to state a claim as to Counts I and II of the SAC. However, it granted Lloyds’ motion as to Willcox and Dominick’s claim for declaratory relief (Count III), noting that such relief was a remedy (rather than an independent cause of action) and that the Court could “provide any appropriate declaratory relief or remedy” if it “ultimately rules that Plaintiffs prevail on their contractual claims.” Id. at 35-36.

On January 9, 2015, Lloyds moved to join Michele Sherie Dominick, wife of named Plaintiff Frank Dominick, as a party. ECF No. 76. Magistrate Judge Puglisi issued an Order Granting Defendant Lloyds’ Motion to Join Michele Sherie Dominick as a Party on March 16, 2015. ECF No. 94. That order directed that an amended complaint naming Ms. Dominick as a party to this action be filed by March 27, 2015. Id. at 10.

Plaintiffs filed the operative Third Amended Complaint (“TAC”) on March 27, 2015. ECF No. 100. The TAC names Frank Dominick, Michele Sherie Dominick, and Bradley Willcox (collectively, “Plaintiffs”) as class representatives and brings claims for Breach of Contract (Count I) and Breach of an Implied Term Limiting Lloyds’ Discretion to Change the Interest Rate (Count II). Id. ¶¶ 6-8, 55-72.

On July 15, 2015, Plaintiffs filed a Motion for Class Certification pursuant to Federal Rule of Civil Procedure 23. ECF No. 156. After briefing and oral argument from the parties, Magistrate Judge Puglisi issued his Findings and Recommendation 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 recommended: (1) certifying the instant case as a class action, (2) appointing Willcox (but not the Dominicks) as class representative, (3) appointing Alston Hunt Floyd & Ing and Steptoe & Johnson LLP as class counsel, (4) directing the parties to meet and confer regarding notice to class members, (5) denying any remaining relief requested in Plaintiffs’ class certification motion, and (6) 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.

Id. at 31-32. Lloyds filed objections to the F&R on November 25, 2015, ECF No. 332, to which Plaintiffs filed a Response on December 9, 2015, ECF No. 335. The parties also submitted supplemental Reply and Sur-Reply briefs on December 17, 2015 and December 28, 2015, respectively. ECF Nos. 337, 340.

On January 8, 2016, the Court issued an 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. ECF No. 366. For the reasons explained therein, the Court adopted the F&R over Lloyds’ objections, except as to the class definition, which the Court modified to include only plaintiffs of U.S. and Canadian citizenship. On January 22, 2016, pursuant to Federal Rule of Civil Procedure 23(f), Lloyds filed with the Ninth Circuit a Petition for Permission to Appeal the class certification Order. ECF No. 397.[2] Plaintiffs filed an Opposition to the Petition for Permission to Appeal on February 1, 2016. 9th Cir., No. 16-80009, ECF No. 4.

Meanwhile, on October 16, 2015, Plaintiffs and Lloyds had filed the instant cross-motions for summary judgment. Lloyds moves for summary judgment as to both of Plaintiffs’ Counts I and II. See Def. Lloyds’ Mot. for Summ. J. (“Def.’s MSJ”) at 4, ECF No. 249. Plaintiffs move for summary judgment only as to their Count I and request “immediate declaratory relief” as to that claim. Pls.’ Mot. for Partial Summ. J. on Their and the Putative Class’s Claim for Breach of Contract (“Pls.’ MSJ”) at 1, ECF No. 251.

On the same date, each party also filed a Concise Statement of Facts in support of its motion. See Def. Lloyds’ Separate and Concise Statement of Undisputed Facts in Supp. of its Mot. for Summ. J. (“Def.’s CSF”), ECF No. 250; Concise Statement of Facts in Supp. of Pls.’ MSJ (“Pls.’ CSF”), ECF No. 253. In addition, each party filed a Notice of Intent to Rely on Foreign Law pursuant to Federal Rule of Civil Procedure 44.1. ECF Nos. 246, 247.[3]

On December 29, 2015, Plaintiffs filed an Opposition to Lloyds’ summary judgment motion and a Concise Statement of Facts in support thereof. See Pls.’ Opp’n to Defs.’ MSJ (“Pls.’ Opp.”), ECF No. 347; Concise Statement of Facts in Supp. of Pls.’ Opp. (“Pls.’ Opp. CSF”), ECF No. 349. On the same date, Lloyds also filed an Opposition to Plaintiffs’ summary judgment motion and a Concise Statement of Facts in support thereof. See Def. Lloyds’ Mem. of Law in Opp’n to Pls.’ Mot. for Partial Summ. J. (“Def.’s Opp.”), ECF No. 348; Def. Lloyds’ Separate and Concise Counter statement of Material Facts in Opp’n to Pls.’ Mot. for Partial Summ. J. (“Def.’s Opp. CSF”), ECF No. 350. Also on that date, each side filed a Notice of Intent to Rely on Foreign Law pursuant to Federal Rule of Civil Procedure 44.1. ECF Nos. 343, 345.[4]

On January 5, 2016, each party filed a Reply in support of its summary judgment motion. See Reply in Supp. of Pls.’ MSJ (“Pls.’ Reply”), ECF No. 358; Def. Lloyds’ Reply Mem. of Law in Supp. of Lloyds’ Mot. for Summ. J. (“Def.’s Reply”), ECF No. 360. Lloyds’ Reply was accompanied by a further Notice of Intent to Rely on Foreign Law pursuant to Federal Rule of Civil Procedure 44.1, filed on the same date. ECF No. 356.[5]

The Court held a two-day hearing regarding the instant motions on January 19-20, 2016.

FACTUAL BACKGROUND

The instant case involves the issuance by Lloyds of certain dual currency loans (also referred to as International Mortgage System (“IMS”) loans). Dual currency loans are mortgage loans with a currency switching feature that allows borrowers to switch the currency of their loans between United States 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 Hong Kong branch from which it issued IMS loans to Plaintiffs. See id. ¶¶ 1-3, 9. 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 made 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. As further discussed below, Plaintiffs’ claims for breach of contract (Count I) and breach of an implied contractual term (Count II) allege that Lloyds impermissibly included in its Cost of Funds calculation a charge that constituted neither an actual cost to Lloyds in funding the loans nor a liquidity requirement. Id. ¶¶ 55-72.

II. The Named Plaintiff’s Loans

Plaintiff Bradley Willcox is a resident of Hawaii 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 world was struck by the 2008 financial crisis and the U.S. Dollar to Japanese Yen 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.” Id. 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. (emphasis in original omitted). Plaintiffs further observe that, during the period when Lloyds was increasing its Cost of Funds, standard interest rate indices such as the London Inter-Bank Offered Rate (“LIBOR”) decreased. Id. ¶ 4.

As noted above, Plaintiffs filed this putative class action against Lloyds on September 13, 2013. They allege that Lloyds’ inclusion of the LTP charge in its Cost of Funds constitutes a breach of the express terms of Plaintiffs’ loan agreements and a breach of an implied term limiting Lloyds’ ...


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