Dugan et al v. Lloyds TSB Bank, PLC

Filing 92

ORDER RE PLAINTIFFS' MOTION FOR LEAVE TO FILE AMENDED COMPLAINTS AND PLAINTIFFS' MOTION FOR LEAVE FOR INTERVENTION OF ADDITIONAL NAMED PLAINTIFFS by Judge William Alsup [granting in part and denying in part (70) Motion for Leave to File in case 3:12-cv-02549-WHA; granting in part and denying in part (57) Motion to Amend/Correct ; in case 3:12-cv-02937-WHA]. (whasec, COURT STAFF) (Filed on 1/10/2013)

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1 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE NORTHERN DISTRICT OF CALIFORNIA 8 9 11 For the Northern District of California United States District Court 10 JOHN DUGAN, AURORA DUGAN and MATTHEW TAPSCOTT, each individually and on behalf of all others similarly situated, 12 13 14 and Plaintiffs, No. C 12-02937 WHA v. LLOYDS TSB BANK, PLC, 15 Defendant. / 16 17 18 DAVID T. OSMENA and PATRICIA HOGAN-OSMENA, husband and wife, and on behalf of all others similarly situated, Plaintiffs, 19 20 No. C 12-02549 WHA ORDER RE PLAINTIFFS’ MOTION FOR LEAVE TO FILE AMENDED COMPLAINTS AND PLAINTIFFS’ MOTION FOR LEAVE FOR INTERVENTION OF ADDITIONAL NAMED PLAINTIFFS v. 22 LLOYDS TSB BANK, PLC, a bank organized and existing under the laws of the United Kingdom, 23 Defendants. 21 / 24 25 INTRODUCTION 26 In these related proposed class actions, plaintiffs seek leave to file amended complaints 27 and two intervenors seek to be added as plaintiffs. For the reasons stated below, this motion is 28 GRANTED IN PART AND DENIED IN PART. 1 2 STATEMENT In both actions, defendant is Lloyds TSB Bank, PLC, a bank organized under the laws 3 of the United Kingdom with branches in Hong Kong and New York, among other places. 4 Plaintiffs claim contractual breaches, breach of the implied covenant of good faith and fair 5 dealing, and violation of California’s Unfair Competition Law (Bus. & Prof. Code § 17200, 6 et seq.) in connection with certain Lloyds’ loan products. 7 Plaintiffs in both actions obtained Lloyds’ “dual currency” loans. These loans, which 8 herein Lloyds labels as International Mortgage Service (“IMS”) loans: (1) were issued in U.S. 9 dollars but could be redenominated into foreign currency at the borrower’s discretion; (2) once redenominated, were subject to a “principal cap” of 120 percent of the original principal; 11 For the Northern District of California United States District Court 10 (3) were subject to a variable interest rate to be set at 1.5 percent above Lloyds’ “cost of funds”; 12 and (4) were secured by United States real property. 13 In 2007, the existing Osmena plaintiffs, residents of California, refinanced their 14 California real property in a $975,000 dual-currency loan. Also in 2007, the three existing 15 Dugan plaintiffs, residents of California, financed four California real properties under a total 16 of $5,355,000 in dual-currency loans. In reliance upon the principal-cap provision, plaintiffs 17 shortly thereafter redenominated their loans into yen, which allegedly began to rise sharply 18 against the dollar. Plaintiffs allege Lloyds then recalculated their principal owing at an amount 19 higher than the 120 percent cap provided by the loan agreement. Furthermore, plaintiffs allege 20 Lloyds arbitrarily raised their interest rate, contractually tied to Lloyds’ cost of funds, even 21 though other cost-of-funds indices worldwide were falling. 22 The Dugan plaintiffs filed a proposed class action on May 17, 2012, alleging breach 23 of contract, violation of California’s Section 17200, violation of Hong Kong laws, breach of 24 the implied covenant of good faith and fair dealing, and fraud. The Dugan plaintiffs originally 25 proposed to represent classes with the following characteristics: (1) a “nationwide” class whose 26 loans could be redenominated into yen, had a cost-of-funds provision, had a principal-cap 27 provision, and were secured by real property; (2) a “California” subclass whose loans were 28 secured by California real property; (3) a “dollar” subclass for California borrowers who 2 1 redenominated from dollars to yen and back to dollars and who did not secure their loans 2 with real property; and (4) an “injunction” subclass for California borrowers facing foreclosure. 3 The Osmena plaintiffs filed their proposed class action complaint on June 6, 2012, which 4 they amended once as a matter of course July 6, 2012, alleging breach of contract, violation of 5 Section 17200, and fraud. The Osmena plaintiffs proposed to represent the following classes: 6 (1) a “nationwide principal cap” class whose loans had a principal cap exceeded by Lloyds; and 7 (2) a “nationwide interest rate manipulation” class whose loans had a “cost of funds” provision 8 despite which Lloyds raised the interest rate. They also proposed the following subclasses: 9 (1) a “California principal cap” subclass for California residents whose loans had a principal cap exceeded by Lloyds; and (2) a “California interest rate manipulation” subclass for California 11 For the Northern District of California United States District Court 10 residents whose loans had a “cost of funds” provision despite which Lloyds raised the interest 12 rate. 13 The actions were related June 26, 2012. By order dated September 5, 2012, a motion 14 to dismiss was granted with leave to amend as to all averments of fraud, including those arising 15 under Hong Kong law. The case management order required that motions to amend or add new 16 parties must be filed by November 30, 2012. The instant motions to amend and to intervene 17 were filed on the very last day. 18 First, the motions seek to clarify their intended proposed class definitions. The Dugan 19 plaintiffs would amend the proposed classes as follows: (1) split the “nationwide” class into 20 two classes, one for loans with a principal-cap provision, and one for loans with a “cost of 21 funds” provision (bringing this class into agreement with the earlier proposed Osmena 22 “nationwide” classes); (2) replace the “California” subclass with two “consumer protection” 23 subclasses, one for loans with a principal-cap provision, and one for loans with a “cost of funds” 24 provision; (3) omit the “dollar” subclass; and (4) enlarge the “injunction” subclass to cover 25 residents of the United States, not just California, whose loans were convertible into any 26 currency and contained either a principal-cap provision or a “cost of funds” provision. The 27 Osmena plaintiffs would amend their complaint to clarify that the intended proposed classes and 28 subclasses, as stated in the first amended complaint, include those who hold loans with either a 3 1 principal-cap provision or a “cost of funds” provision, regardless whether either of these loans 2 was also a dual currency or IMS loan. In both actions, plaintiffs contend the amendments are 3 necessary inasmuch as Lloyds has stubbornly misinterpreted plaintiffs’ claims in order to limit 4 discovery to IMS loans only. 5 Second, in connection with the proposed amended “consumer protection” subclasses, 6 the Dugan plaintiffs seek leave to amend to include claims under the consumer protection laws 7 of not just California, but also Washington, Connecticut, Hawaii, New York, and Florida. 8 Third, plaintiffs seek leave to amend in order to extend the liability period from 2006 Plaintiffs argue that Lloyds’ admission that it offered IMS loans, albeit under a different name, 11 For the Northern District of California back to 2001, claiming that Lloyds has arbitrarily chosen to restrict discovery to 2006 forward. 10 United States District Court 9 well before 2006, obviates the artificial 2006 cut-off. The Osmena plaintiffs further contend 12 temporal expansion is necessary based on a recently-discovered brochure allegedly proving 13 Lloyds offered loans with a “cost of funds” provision as early as 2004. 14 Fourth, plaintiffs seek leave to amend to omit all claims sounding in fraud and to make 15 minor corrections to the complaint. Save these, Lloyds objects to all the proposed amendments 16 discussed above. 17 Finally, the Dugan plaintiffs seek leave to add and to support intervention by two newly 18 named plaintiffs holding dual-currency, cost-of-funds loans: (1) Rika Olson, a New York 19 resident who obtained in 2005 two loans totaling $1,216,500, one each on a New York and 20 a California property (at least one of which had a principal-cap provision); and (2) Jason Ray, 21 a Hawaii resident who obtained a $435,000 loan without a principal-cap provision on a Hawaii 22 property in 2008. Plaintiffs contend the addition of these named plaintiffs will better represent 23 the contours of the proposed classes and the scope of Lloyds’ alleged misconduct. Lloyds 24 objects to the intervention of these new plaintiffs. 25 26 27 28 4 1 ANALYSIS 2 The issues break down as follows: 3 1. 4 Plaintiffs have already challenged both violations of the principal-cap promise and AND VERSUS OR. 5 violations of the cost-of-funds promise. To allow them to pursue challenges for violations of 6 only one such promise seems to fall so clearly within what was already pled as to be reasonable 7 and fair. Likewise, it is reasonable and fair to allow pleading of distinct classes corresponding 8 to these violations. (In fact, the Osmena plaintiffs have already so pled.) If there is to be any 9 class certified, there is no good cause to insist that it must be limited to alleged victims of both violations. One or the other (or both) would support their own claims. If Lloyds somehow 11 For the Northern District of California United States District Court 10 misread the pleadings as so limited, then that was an unreasonable view of the pleadings. 12 This aspect of the amendment will be allowed. 13 2. 2001 VERSUS 2006. 14 The class period, if there is to be any at all, will be defined in part by the longest statute 15 of limitations, which is four years at most on our fact pattern. Damages may be recovered for 16 proven over-charges during that period, which would run from the commencement of the action 17 back four years. If a borrower took out a loan earlier than that, he or she could still recover 18 for proven over-charges during the four-year period. Therefore, a borrower who took out such 19 a loan in 2001 could still be a member of a class herein, assuming a class is ultimately certified. 20 Class members would not be artificially limited just because the named representatives happened 21 to take out their loans in 2006. 22 On the other hand, the actual fact pattern (as opposed to the pled facts) may (or may not) 23 bear on the shape of allowable discovery. This aspect was discussed at the hearing and this order 24 will not repeat the Court’s views. 25 Similarly, the actual fact pattern may well inform the ultimate class definitions, if any. 26 Counsel must be mindful of the need, under Rule 23, to demonstrate a common method of 27 proof that will apply across the board to all class members. A standardized product, such as a 28 standardized loan agreement (with minor variations allowable) will usually suffice to prove the 5 1 promise on a class-wide basis, but disparate products used in different departments of the bank 2 may not have enough common administrative themes and proof to suffice. Counsel should be 3 careful not to overreach lest their Rule 23 motions eventually collapse of their own weight. 4 5 With all of this mind, there is no need to amend the pleadings to further clarify the class period, for that determination will be made during the Rule 23 motions. 6 3. DUAL CURRENCY VERSUS DUAL CURRENCY PLUS. 7 The Osmena plaintiffs have consistently maintained that their proposed “interest rate 8 manipulation” class includes all borrowers who entered any loan with Lloyds containing a “cost 9 of funds” provision, regardless whether that loan was also a dual-currency loan — and regardless whether that cost-of-funds loan had a principal-cap provision or was labeled an IMS 11 For the Northern District of California United States District Court 10 loan (Reply Br. at 3). Indeed, the plain language of the proposed class definitions in the Osmena 12 first amended complaint so indicates: 13 14 15 The classes is [sic] defined as . . . (2) All persons and entities in the United States of America that (1) entered into a loan agreement with Lloyds TSB Bank, PLC which contained a variable interest rate based upon “cost of funds” and (2) who have been subjected to interest rate increases by Lloyds TSB Bank, PLC. (Hereinafter “the Interest Rate Manipulation Class.”) 16 (¶¶ 27–28). The Osmena plaintiffs now seek only to make minor, non-substantive amendments 17 to this language (Proposed Second Amd. Compl. ¶ 31). The Dugan plaintiffs seek leave to 18 split their proposed “nationwide” class into two separate classes congruent with the Osmena 19 complaint: a “nationwide principal cap” class, for loans with a principal-cap provision, and 20 a “nationwide interest rate manipulation” class, for loans with a “cost of funds” provision 21 (Proposed First Amd. Compl. ¶ 84). The Dugan plaintiffs argue this will align the proposed 22 classes across both actions and “clarify the distinct nature of the interest rate versus principal cap 23 claims” (Br. at 6, 8). 24 This amendment will be allowed. Lloyds is possibly correct that the broader class cannot 25 be certified under Rule 23. At the hearing, the judge expressed reservation about the expansion 26 unless all class members could be covered by a set of common methods of proof. But at this 27 pleading stage, it is premature to pretermit the possibility of a broader class. Contrary to Lloyds, 28 there is no substantial prejudice inasmuch as the Osmena pleading already called out the two 6 1 broader classes and, therefore, no reasonable basis existed for Lloyds to presume that IMS loans 2 alone were the target. INTERVENORS VEL NON. 3 4. 4 Insofar as interveners Olson and Ray seek to intervene in the Dugan case to assert their 5 own individual claims for relief, the motion is GRANTED. The subject matter of the claims is 6 close enough to those already in play that such intervention should be allowed. 7 Insofar as they seek to assert new class-wide claims, that is as proposed representatives 8 of classes, that is a different matter. To the extent their claims appear identical to those in play, 9 such as, for example, the breach-of-contract claim, they may also turn out to be adequate representatives to co-assert common claims for relief. On the other hand, to the extent they seek 11 For the Northern District of California United States District Court 10 to add new legal theories, such as claims under New York and Hawaii law, they may do so in 12 their individual capacity but whether or not such class-wide claims should be layered onto an 13 already complex action will risk a manageability problem under Rule 23. That determination 14 will be made at Rule 23 time. Again, counsel ought to consider the risks of overreaching. 15 Meanwhile, the amendment is allowed. 16 5. 17 With respect to the addition of claims based on the law of jurisdictions other than CALIFORNIA VERSUS NON-CALIFORNIA. 18 California, that motion is DENIED, for there are no current or proposed plaintiffs who have 19 standing to assert such claims (with the exception of New York and Hawaii, which are allowed). 20 The claims under the laws of Washington, Connecticut and Florida will not be allowed. 21 The mere fact that a nationwide class may eventually be certified is not a basis to lard in all of 22 these theories. Even with the proposed new representatives, there would be no representative 23 who himself or herself could assert such a claim under those state laws. See In re Graphics 24 Processing Units Antitrust Litig., 527 F. Supp. 2d 1011, 1026–27, 1029–30 (N.D. Cal. 2007); 25 In re Charles Schwab Corp. Sec. Litig., 264 F.R.D. 531, 537–38 (N.D. Cal. 2009). 26 27 This would mean, for example, that if a nationwide contract-based class were certified to pursue a breach-of-promise claim for relief, then that claim and only that claim would be 28 7 1 adjudicated, leaving alternative theories under various state-consumer statutes to be pursued 2 individually. 3 CONCLUSION 4 By NOON ON JANUARY 18, counsel may file the proposed amendments to the extent 5 allowed above — but only to the extent allowed above. No further Rule 12 practice will be 6 allowed with the exception of new state law claims under Hawaii and New York law. 7 Otherwise, an answer is due by NOON ON JANUARY 31. 8 9 IT IS SO ORDERED. 11 For the Northern District of California United States District Court 10 Dated: January 10, 2013. WILLIAM ALSUP UNITED STATES DISTRICT JUDGE 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8

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