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Willcox v. Lloyds TSB Bank, PLC

United States District Court, D. Hawaii

December 14, 2016

LLOYDS TSB BANK, PLC and DOES 1-15, Defendants.



         For the reasons set forth below, the Court preliminarily APPROVES the Offer of Compromise by Defendant Lloyds TSB Bank plc, now known as Lloyds Bank plc, Pursuant to Federal Rule of Civil Procedure 68 (“Offer of Judgment”). ECF No. 539-2. Accordingly, the Court preliminarily APPROVES Plaintiffs' Motion to Approve and Enter Judgment (“Motion”). ECF No. 547. The Court further preliminarily APPROVES Plaintiffs' request for $800, 000.00 as an award of attorneys' fees and costs, as described in Plaintiffs' Petition in Support of Distribution of Fees and Expenses, ECF No. 556; and preliminarily APPROVES Plaintiffs' request for $10, 000.00 as an award for Dr. Bradley Willcox for his role as class representative in this action, ECF No. 558.


         The instant case involves the issuance by Defendant Lloyds TSB Bank plc, now known as Lloyds Bank plc (“Lloyds”), of certain dual currency loans, also referred to as International Mortgage System (“IMS”) loans.[1] The Court and the parties are familiar with the extensive factual and procedural history of this case, and the Court will not repeat it here except as necessary.

         On March 27, 2015, Plaintiffs filed the operative Third Amended Complaint (“TAC”). ECF No. 100. The TAC names Frank Dominick, Michele Sherie Dominick, and Bradley Willcox (collectively, “Plaintiffs”) as class representatives and brings claims against Lloyds 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.

         I. Class Certification

         On July 15, 2015, Plaintiffs filed a Motion for Class Certification pursuant to Federal Rule of Civil Procedure (“Rule”) 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 Dr. 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 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 (“Class Certification Order”). 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 United States and Canadian citizenship.

         On January 22, 2016, pursuant to Rule 23(f), Lloyds filed with the Ninth Circuit a Petition for Permission to Appeal the Class Certification Order (“Rule 23(f) Petition”). ECF No. 397. The Ninth Circuit issued its Order denying the Rule 23(f) Petition on May 16, 2016. ECF No. 430.

         On July 15, 2016, the Court instructed the parties to submit for the Court's approval a proposed form of class notice informing potential class members of this lawsuit. ECF No. 446. Plaintiffs submitted a proposed notice on July 19, 2016, ECF No. 448-2, and the Court provided its comments on the proposed notice on July 21, 2016, ECF No. 449. After the Court provided Plaintiffs with one more round of comments on the proposed notice, a third party settlement administrator mailed the final Class Notice to the borrowers of 130 IMS loans that fit the class definition on August 5, 2016, and to the borrowers of two additional IMS loans on August 10, 2016. See ECF Nos. 453, 458, 554-3. The Class Notice informed potential class members that they could opt out of the class if they postmarked an “Exclusion Request” to the third party settlement administrator by September 30, 2016. See ECF No. 554-2 at 5. The administrator received one opt-out request on August 19, 2016. ECF No. 554-3.

         II. Summary Judgment

         Earlier, on October 16, 2015, Plaintiffs and Lloyds filed cross-motions for summary judgment. Lloyds moved for summary judgment as to both of Plaintiffs' Counts I and II. ECF No. 249. Plaintiffs moved for summary judgment only as to their Count I and requested “immediate declaratory relief” as to that claim. ECF No. 251.

         The Court held a two-day hearing regarding the cross-motions for summary judgment on January 19-20, 2016. On February 11, 2016, the Court issued an 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 Declaratory 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 (“Summary Judgment Order”). ECF No. 419.

         In its Summary Judgment Order, the Court made several findings as a matter of law with respect to Count I: (1) that the Cost of Funds provision is not ambiguous; (2) that the facility agreements do not prescribe a specific methodology for calculating the Cost of Funds component of the IMS loans' interest rate; do not specifically require the Cost of Funds component to track 3-month LIBOR; and do not specifically require Lloyds to fund Plaintiffs' loans with short-term money; (3) that the LTP charge was clearly an actual cost to Lloyds imposed on it by its parent company, Lloyds Banking Group plc (“LBG”); (4) that the Cost of Funds provision allows Lloyds to include in its Cost of Funds calculation both liquidity costs and liquidity requirements, and does not specifically restrict Lloyds from altering the manner in which it calculates cost for purposes of determining the interest rate on the loans; and (5) that Lloyds has some degree of discretion with respect to the foregoing findings. Summary Judgment Order at 24, 36-37.

         However, the Court noted that several issues of material fact remained, including (1) whether, prior to 2009, Lloyds was itself funding Plaintiffs' IMS loans with 90-day money, and if so, whether it should have continued utilizing such short-term funding; (2) if Lloyds was funding the IMS loans itself prior to 2009, whether it was appropriate to change the funding to LBG's centralized funding model; (3) whether, prior to 2009, Plaintiffs' loans were funded through LBG's centralized funding model, and if so, whether the LTP charge added in 2009 was simply a different methodology appropriately applied to the computation of the Cost of Funds; (4) whether Lloyds appropriately acted pursuant to regulatory requirements or recommendations; (5) whether it was appropriate to pass the LTP charge on to Plaintiffs as an actual cost of funding the IMS loans; and (6) how the LTP charge was computed. Id. at 35-36.

         With respect to Count II, the Court found that an implied term in the facility agreements limits Lloyds' exercise of the discretion afforded it by the Cost of Funds provision. Id. at 41. While Lloyds argued that no implied term should be read into the facility agreements in the first place, both parties agreed that the case Nash, et al. v. Paragon Fin. PLC, [2001] EWCA Civ. 1466 (15 Oct. 2001), was instructive regarding the breach of any implied term found to exist in the facility agreements. See ECF No. 249 at 24, 29-31; ECF No. 347 at 36; Transcript of Hearing at 118, Jan. 19, 2016, ECF No. 403; Transcript of Hearing at 34, Jan. 20, 2016, ECF No. 404. The Court therefore distilled a standard from that case to govern the exercise of a lender's discretion under the implied term. Summary Judgment Order at 43-45. The Court found that, “when exercising its discretion to change interest rates, Lloyds must do so in a manner that comports with ‘purely commercial considerations, ' including whether it ‘is in financial difficulty because it is obliged to pay higher rates on interest to the money market'; however, Lloyds must refrain from acting ‘dishonestly, for an improper purpose, capriciously, or arbitrarily, ' or in a manner so unreasonable that no reasonable lender would do the same.” Id. at 45 (citing Nash, [2001] EWCA Civ. 1466). For ease of reference, the Court referred to this standard as the “Nash standard.”

         The Court concluded that, as with Count I, various questions of material fact remained as to Count II that precluded the Court from determining whether Lloyds had breached an implied term limiting its discretion to adjust interest rates, as determined by the Nash standard. Id. at 46-47.

         III. Rule 68 Offer of Judgment and Distribution of Judgment Amount

         On September 11, 2016, Lloyds signed and delivered to Plaintiffs' counsel the Offer of Judgment. Decl. of Glenn T. Melchinger ¶ 3, ECF No. 539-1. Plaintiffs' counsel signed the Offer of Judgment and delivered it upon the Court on September 22, 2016. ECF No. 539. Accordingly, the Court stayed all pretrial proceedings and vacated the October 18, 2016 trial date. ECF No. 544.

         Pursuant to the Offer of Judgment, Plaintiffs and Lloyds agree as follows: (1) judgment shall be entered in favor of Plaintiffs and each borrower that has not opted out of the certified class as of September 25, 2016 (the “Judgment Class”); (2) Lloyds shall pay $2, 000, 000.00 in full and final satisfaction of all relief sought in the TAC, with payment to be apportioned among the Judgment Class, the class representative, and class counsel in a manner to be determined by class counsel and the class representative;[2] (3) nothing in the Offer of Judgment shall be deemed an admission by Lloyds of any fact or allegation relating to its alleged liability; and (4) the Offer of Judgment is conditioned on acceptance by the entire Judgment Class.

         As noted, the Offer of Judgment purports to bind the named plaintiffs to this suit, as well as “each borrower on each loan that has not opted out of the certified class as of September 25, 2016.” Offer of Judgment at 2. While the initial Class Notice mailed to members provided an opt-out deadline of September 30, 2016, no member opted out of the class between September 25 and September 30, obviating any potential problems that could arise as a result of the conflict between the two deadlines. Indeed, the only individual to opt out of the class mailed his Exclusion Request to the settlement administrator in August. Accordingly, by the terms of the Offer of Judgment, the borrowers of 131 IMS loans will be bound by the Judgment.

         With respect to the distribution of the Judgment, on October 3, 2016, Plaintiffs submitted a Petition in Support of Distribution of Fees and Expenses (“Petition”), requesting that $800, 000.00 of the Judgment amount be apportioned to class counsel as an award for attorneys' fees and costs. ECF No. 556. On October 6, 2016, Plaintiffs filed a Supplemental Brief in Support of a Compensation Award for Class Representative (“Supplemental Brief”), requesting that Dr. Willcox be granted a compensation award of $10, 000.00 for his role as class representative. ECF No. 558.

         The Court held a hearing on December 7, 2016 to determine whether the Offer of Judgment is “fair, reasonable, and adequate, ” in accordance with Rule 23(e)(2).[3] During the hearing the Court also heard arguments regarding Plaintiffs' Motion and the distribution of the Judgment amount.


         Under Rule 23(e), “[t]he claims, issues, or defenses of a certified class may be settled, voluntarily dismissed, or compromised only with the court's approval.” “The purpose of Rule 23(e) is to protect the unnamed members of the class from unjust or unfair settlements affecting their rights.” In re Syncor ERISA Litig., 516 F.3d 1095, 1100 (9th Cir. 2008). Before it may approve a class-action settlement that will bind class members, the Court must hold a hearing to determine whether the settlement is “fair, reasonable, and adequate.” Fed.R.Civ.P. 23(e)(2); Lane v. Facebook, Inc., 696 F.3d 811, 818 (9th Cir. 2012). “[T]he decision to approve or reject a settlement is committed to the sound discretion of the trial judge because he is ‘exposed to the litigants, and their strategies, positions and proof.'” Hanlon v. Chrysler Corp., 150 F.3d 1011, 1026 (9th Cir. 1998) (quoting Officers for Justice v. Civil Serv. Comm'n of the City & Cty. of S.F., 688 F.2d 615, 626 (9th Cir. 1982)). Importantly, the Court must consider the fairness of the settlement agreement as a whole, rather than assessing its component parts. Id. The Court may not “delete, modify or substitute certain provisions” of the settlement agreement; “[t]he settlement must stand or fall in its entirety.” Id. (citation omitted).

         Furthermore, “the question whether a settlement is fundamentally fair within the meaning of Rule 23(e) is different from the question whether the settlement is perfect in the estimation of the reviewing court.” Lane, 696 F.3d at 819. The Court's “only role in reviewing the substance of that settlement is to ensure that it is ‘fair, adequate, and free from collusion.'” Id. (quoting Hanlon, 150 F.3d at 1027); see also Officers for Justice, 688 F.2d at 625 (“[T]he court's intrusion upon what is otherwise a private consensual agreement negotiated between the parties to a lawsuit must be limited to the extent necessary to reach a reasoned judgment that the agreement is not the product of fraud or overreaching by, or collusion between, the negotiating parties, and that the settlement, taken as a whole, is fair, reasonable and adequate to all concerned.”). The fact that a settlement “could have been better” does not mean that the settlement is not fair, accurate, or reasonable. Hanlon, 150 F.3d at 1027 (recognizing that “[s]ettlement is the offspring of compromise”).

         The Court considers a number of factors in determining whether a settlement agreement is fair, accurate, and reasonable:

[T]he strength of the plaintiffs' case; the risk, expense, complexity, and likely duration of further litigation; the risk of maintaining class action status throughout the trial; the amount offered in settlement; the extent of discovery completed and the stage of the proceedings; the experience and views of counsel; the presence of a governmental participant; and the reaction of the class members to the proposed settlement.

Id. at 1026 (hereinafter the “Hanlon factors”). “The relative degree of importance to be attached to any particular factor will depend upon and be dictated by the nature of the claim(s) advanced, the type(s) of relief sought, and the unique facts and circumstances presented by ...

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