Wilcox v. Lloyds TSB Bank, PLC et al

Filing 366

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 re 317 , 332 - Signed by JUDGE ALAN C KAY on 1/8/2016. < font size=2> "For the foregoing reasons, the Court ADOPTS in part, REJECTS in part, and MODIFIES in part the F&R. The Court REJECTS the F&R's finding that Plaintiffs have demonstrated the superiority of class litigation under Rul e 23(b)(3) as to the class defined therein. However, the Court will certify the class as defined therein with the modification that the class shall be limited to plaintiffs of U.S. and Canadian citizenship. The remainder of the F&R is AD OPTED, over Lloyd's objections." (emt, )CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications were served by first class mail on the date of this docket entry

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
___________________________________
)
BRADLEY WILLCOX, FRANK DOMINICK,
)
and MICHELE SHERIE DOMINICK,
)
)
Plaintiffs,
)
)
v.
) Civ. No. 13-00508 ACK-RLP
)
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
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

1

“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.
2015.

A hearing was held on the motion on November 10,

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
1

Class action suits involving similar loan products
and claims as those at issue in the instant case were filed
against Lloyds in federal district courts in California and
Washington: (1) Dugan v. Lloyds TSB Bank, Civ. No. 3:12-cv-02549WHA (N.D. Cal.); (2) Osmena v. Lloyds TSB Bank, Civ. No. 3:12-cv02937-WHA (N.D. Cal.) (since consolidated with Dugan); and (3)
Washington Land Development, LLC v. Lloyds TSB Bank plc, 2:14-cv00179-JCC (W.D. Wash.). Each of these cases has been dismissed
following settlement.
2

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.”).
332.

ECF No.

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.

3

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.
2

Specifically, Lloyds moves for summary judgment as to both
of Plaintiffs’ Counts I and II. Def. Lloyds’ Mot. for Summary
Judgment, ECF No. 249. Plaintiffs move for summary judgment only
as to their Count I and request “immediate declaratory relief” as
to that claim. Plfs.’ Mot. for Partial Summary Judgment on Their
and the Putative Class’s Claim for Breach of Contract at 1, ECF
No. 251.
4

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”).
I.

Id. ¶ 9.

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.

5

Id. ¶¶ 55-72.

II.

The Named Plaintiff’s Loans3

Plaintiff Bradley Willcox is a resident of Hawaii4 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

3

As noted above, the TAC proposed two additional class
representatives: Frank and Michele Sherie Dominick. TAC at ¶¶ 78, ECF No. 100. The Dominicks took out two IMS loans from Lloyds
in 2007, which were denominated in Yen and secured by property in
Hawaii and California. Id. ¶¶ 28-30. Like Willcox, the
Dominicks found their interest rates increased after the Yen-U.S.
Dollar exchange rate fell. Id. ¶¶ 32-33.
As discussed below, the F&R did not certify the Dominicks as
class representatives, and no party has challenged that finding.
4

Willcox’s current citizenship is not specified in the TAC.
A filing by Lloyds indicated previously that Willcox is a
Canadian citizen. See Mem. in Support of Mot. to Dismiss at 6,
ECF No. 62-1. The Court notes that a November 24, 2014
declaration filed by Willcox previously indicated that he is a
Canadian citizen with Permanent Resident status in the U.S., and
that he planned to “apply[] for citizenship in 2015.”
Declaration of Bradley Willcox ¶¶ 4-5, 29, ECF No. 68-12. The
Court is unsure of his current citizenship but will presume that
he is a Canadian citizen, absent any evidence to the contrary.
6

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.”
original omitted).

Id. ¶ 5 (emphasis in

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.

Plaintiffs 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’ discretion to change Plaintiffs’ interest
rates.

See id. ¶¶ 55-72.

The Court previously concluded that

7

these claims are governed by Hong Kong law.

Order Granting

Def.’s Mot. to Dismiss at 26, ECF No. 49.
STANDARD
I.

Review of Findings and Recommendations

When a party objects to a magistrate judge’s findings
or recommendations, the district court must review de novo those
portions to which the objections are made and “may accept,
reject, or modify, in whole or in part, the findings or
recommendations made by the magistrate judge.”

28 U.S.C.

§ 636(b)(1); see also United States v. Raddatz, 447 U.S. 667, 673
(1980); United States v. Reyna–Tapia, 328 F.3d 1114, 1121 (9th
Cir. 2003) (en banc) (“[T]he district judge must review the
magistrate judge’s findings and recommendations de novo if
objection is made, but not otherwise.” (emphasis omitted)).
Under a de novo standard, a district court reviews “the
matter anew, the same as if it had not been heard before, and as
if no decision previously had been rendered.”

Freeman v.

DirecTV, Inc., 457 F.3d 1001, 1004 (9th Cir. 2006) (citation
omitted); see also United States v. Silverman, 861 F.2d 571, 576
(9th Cir. 1988).

The district court need not hold a de novo

hearing; however, it is the court’s obligation to arrive at its
own independent conclusion about those portions of the magistrate
judge’s findings or recommendation to which a party objects.
United States v. Remsing, 874 F.2d 614, 616 (9th Cir. 1989).
8

It

is within the district court’s discretion to “receive further
evidence, recall witnesses, or recommit the matter to the
magistrate judge with instructions.”

Local Rule 74.2.

“[I]n providing for a ‘de novo determination’ rather
than de novo hearing, Congress intended to permit whatever
reliance a district judge, in the exercise of sound judicial
discretion, chose to place on a magistrate’s proposed findings
and recommendations.”
omitted).

Raddatz, 447 U.S. at 676 (citation

Pursuant to Local Rule 74.2, this Court “may consider

the record developed before the magistrate judge,” but the Court
must make its “own determination on the basis of that record.”
II.

Class Certification Under Fed. R. Civ. P. 23

Under Federal Rule of Civil Procedure (“Rule”) 23(a), a
named plaintiff can obtain class certification if the Court
finds: (1) numerosity of the class; (2) that there are common
questions of law or fact; (3) that the named plaintiff’s claims
and defenses are typical; and (4) that the representative parties
can fairly and adequately protect the interests of the class.
Fed. R. Civ. P. 23(a); see also Wal-Mart Stores, Inc. v. Dukes,
131 S. Ct. 2541, 2550 (2011).

These requirements are referred to

as numerosity, commonality, typicality, and adequacy
requirements.

Wal-Mart Stores, 131 S. Ct. at 2550.

If these four prerequisites are met under Rule 23(a),
the Court must next consider whether the class can be maintained

9

under Rule 23(b).

Narouz v. Charter Commc’ns, LLC, 591 F.3d

1261, 1266 (9th Cir. 2010).

As relevant to the instant F&R, Rule

23(b)(3) provides that a class may be certified “if questions of
law or fact common to class members predominate over any
questions affecting only individual members, and that a class
action is superior to other available methods for fairly and
efficiently adjudicating the controversy.”
23(b)(3).

Fed. R. Civ. P.

These requirements are referred to as predominance and

superiority.

Yokoyama v. Midland Nat’l Life Ins. Co., 594 F.3d

1087, 1090 n.1 (9th Cir. 2010).
As the party seeking class certification, it is
Plaintiffs’ burden to demonstrate that the requirements of Rules
23(a) and 23(b) are met.

Zinser v. Accufix Research Inst., Inc.,

253 F.3d 1180, 1186 (9th Cir. 2001).

Rule 23 does not set forth

“a mere pleading standard;” rather, it requires Plaintiffs to
“prove that there are in fact sufficiently numerous parties,
common questions of law or fact, typicality of claims or
defenses, and adequacy of representation” and to provide
“evidentiary proof [of] at least one of the provisions of Rule
23(b).”

Comcast Corp. v. Behrend, 133 S. Ct. 1426, 1432 (2013)

(citations omitted, emphasis in original).
DISCUSSION
As a preliminary matter, the Court observes that
certain elements of the F&R are uncontested by any party.

10

Specifically, there have been no objections to: (1) the
appointment of Alston Hunt Floyd & Ing and Steptoe & Johnson LLP
as class counsel, (2) the direction to meet and confer regarding
notice to class members, (3) the exclusion from the class of
loans with a Singapore (rather than Hong Kong) choice-of-law
clause, and (4) the rejection of the Dominicks as representative
plaintiffs, on the grounds that they lack typicality with the
class.

See Reply at 2, ECF No. 335.

The district court reviews

only those portions of the F&R to which the parties object.
Local Rule 72.4; see also 28 U.S.C. § 636(b)(1)(C); F&R at 1 n.1,
ECF No. 317.

Accordingly, the Court AFFIRMS the foregoing

uncontested portions of the F&R.5
Lloyds raises three primary objections to the F&R: (1)
the proposed class allegedly lacks commonality and predominance
under Rules 23(a) and 23(b)(3) as to Plaintiffs’ express and
implied breach of contract claims, (2) the proposed class
allegedly lacks superiority under Rule 23(b)(3), because it would
include borrowers whose loan accounts show “non-U.S. indicia”
(suggesting that a class judgment may not have preclusive effect
5

Plaintiffs suggest in the Sur-Reply that “Lloyds is
incorrect that Plaintiffs agree with the F&R insofar as it
excludes Singapore loans and finds the Dominicks as atypical
and/or inadequate representatives . . . Plaintiffs chose not to
object to the F&R” as to these points. Sur-Reply at 4 n.4, ECF
No. 340.
Because (as stated above) the Court reviews only those
portions of the F&R to which there are objections, Plaintiffs’
choice not to object to these findings effectively concedes them.
11

in foreign jurisdictions), and (3) named Plaintiff Willcox
allegedly is not a typical or adequate representative of the
class under Rule 23(a).

See Obj. at 2-3, ECF No. 332.

Plaintiffs, for their part, urge that the F&R should be “affirmed
in its entirety.”

Response at 5, ECF No. 335.6

The Court examines Lloyds’ objections in turn below.
I.

Commonality and Predominance of Plaintiffs’ Claims

The Court ADOPTS the F&R’s findings that Rule 23's
commonality and predominance requirements are met as to both of
Plaintiffs’ claims for breach of contract and breach of an
implied contractual term.

See F&R at 8-15, 26-27, ECF No. 317.

The commonality requirement of Rule 23 requires
6

Lloyds also objects that two additional individual
exclusions from the proposed class are necessary. One is
required for Jason Ray, whose loan is evidently implicated in the
instant case but was previously included in the Dugan settlement.
See Obj. at 17 n.10, ECF No. 332. The second relates to a “base
rate” loan listed in an anonymized data set purporting to list
the class members. This base rate loan’s interest is tied
directly to the British Pound and does not implicate the Cost of
Funds calculation at issue in this case. Id. at 36-37.
Plaintiffs did not respond to these objections until filing
their Sur-Reply, in which they state simply that they “do not
concede exclusion of the base-rate and Ray Loans as Plaintiffs
are not required to reply to any of Lloyds’ objections.” SurReply at 4 n.4, ECF No. 340.
In view of Plaintiffs’ limited response, the Court finds
both of Lloyds’ individual exclusions appropriate. Lloyds has
articulated reasonable concerns as to the inclusion of these
loans in the class, and Plaintiffs have offered no reasoning to
the contrary. The Court observes, moreover, that the “base rate”
loan would already appear to be excluded from the class based on
the F&R’s class definition, which limits the action to loans
involving “an interest rate provision based upon Cost of Funds.”
F&R at 31, ECF No. 317.
12

plaintiffs to show that “there are questions of law or fact
common to the class.”

Fed. R. Civ. P. 23(a)(2).

Even a “single

significant question of law or fact” will suffice.

Abdullah v.

U.S. Sec. Ass’n, Inc., 731 F.3d 952, 957 (9th Cir. 2013)
(emphasis in original); see also Wal-Mart Stores, 131 S. Ct. at
2556 (explaining that “[e]ven a single common question” can meet
Rule 23(a)(2)’s commonality requirement).

These common questions

may center on “shared legal issues with divergent factual
predicates [or] a common core of salient facts coupled with
disparate legal remedies.”

Jimenez v. Allstate Ins. Co., 765

F.3d 1161, 1165 (9th Cir. 2014) (citation omitted).
Closely related to the issue of commonality is the
requirement of predominance under Rule 23(b)(3), pursuant to
which courts must ask “‘whether proposed classes are sufficiently
cohesive to warrant adjudication by representation.’”

In re

Wells Fargo Home Mortg. Overtime Pay Litig., 571 F.3d 953, 957
(9th Cir. 2009) (quoting Local Joint Exec. Bd. of
Culinary/Bartender Trust Fund v. Las Vegas Sands, Inc., 244 F.3d
1152, 1162 (9th Cir. 2001)).

In contrast to commonality,

however, predominance requires that class members’ common issues
be “a significant aspect of the case and they [must] be resolved
for all members of the class in a single adjudication.”
Vegas Sands, Inc., 244 F.3d at 1162.
First, the Court ADOPTS the F&R’s findings of
13

Las

commonality and predominance as to Plaintiffs’ express breach of
contract claim.

As the F&R correctly concluded, there appear to

be “significant factual issues regarding the Cost of Funds
provision that are common to the class.”

Specifically, it is

undisputed that the putative class members have loans with the
same interest rate definition, and that Lloyds made the same Cost
of Funds increases to the interest rates of all class members.
F&R at 26, ECF No. 317.

In addition, the “key legal issue[]”

presented by Plaintiffs’ breach of contract claim – whether
Lloyds “permissibly passed on the cost of the LTP charge to
borrowers by including the charge in the Cost of Funds” – is
common to all members of the class.

Id. at 27.

The Court can

resolve this issue for all class members in a single action,
fulfilling Rule 23's commonality and predominance requirements.
Lloyds objects that the class cannot reflect
commonality or predominance because Plaintiffs assert one
particular interpretation of the Cost of Funds provision while
supposedly ignoring that “the factual basis for that
interpretation is highly individualized.”
332.

Obj. at 29, ECF No.

For example, Lloyds posits that some class members may have

an interpretation of the Cost of Funds different from the
interpretation asserted by Plaintiffs in this case, owing to
“incomplete and in many cases incorrect information” they were
provided by non-party brokers or other information they received

14

from third parties or Lloyds.

Id. at 29-30.

Lloyds’ objection is not well-taken.

The standard

applicable to the “key legal issue” (the proper interpretation of
the Cost of Funds provision) is an objective one.

As the Court

previously found, a plaintiff bringing an action for breach of
contract under Hong Kong law must show that there were express or
implied contractual terms requiring the defendant to act in some
manner, and that the defendant acted contrary to those terms.
See Order Granting in Part and Denying in Part Defendant’s Motion
to Dismiss (“MTD Order”) at 26-27, ECF No. 73 (citing Hong Kong
Fir Shipping Co. Ltd. v. Kawasaki Kisen Kaisha Ltd., [1962] 2 QB
(QB Div. 1962)).

Contractual language is interpreted by

“‘ascertain[ing] . . . the meaning which the document would
convey to a reasonable person having all the background knowledge
which would reasonably have been available to the parties in the
situation in which they were at the time of the contract.”

Id.

(quoting Investors Comp. Scheme Ltd. v. West Bromwich Bldg.
Soc’y, [1998] 1 WLR 896 at 17).

This “reasonable person”

standard does not include the consideration of any “previous
negotiations of the parties and their declarations of subjective
intent.”

F&R at 11, ECF No. 317 (quoting Investors Comp. Scheme

Ltd., [1998] 1 WLR 896 at 17.7
7

Plaintiffs provide additional authority in the instant
briefing, which Lloyds did not contest, to indicate that Hong
(continued...)
15

Accordingly, it is not relevant to the “key legal
issue” presented whether individual class members may have had
different subjective understandings or broker information prior
to making their loan agreements.

Plaintiffs are not, of course,

obligated to show that every class member operated under the very
same factual background, only that common issues predominate.

In

addition, Plaintiffs confirm that they “do not intend to rely on
any pre-contract oral representations in proving their claims,”
consistent with the applicable objective standard under Hong Kong
law.

Response at 13, ECF No. 335.

response to this in its Reply.

Lloyds has essentially no

See Reply at 18, ECF No. 337-1.

As it appears that common issues of fact and law
pertain to Plaintiffs’ breach of contract claim regarding the
Cost of Funds, which is also a “significant aspect of the case”
that can be “resolved for all members of the class in a single
adjudication,” Las Vegas Sands, Inc., 244 F.3d at 1162, the Court
ADOPTS the F&R’s findings of commonality and predominance as to
Plaintiffs’ breach of contract claim.
Second, the Court ADOPTS the F&R’s findings of
commonality and predominance as to Plaintiffs’ claim for breach

7

(...continued)
Kong law presumes the completeness of a written contract and
excludes evidence intended to alter the terms of a facially
complete contract. See Response at 12, ECF No. 335 (citing
Masterton Homes Pty Ltd. v. Palm Assets Pty Ltd., [2009] NSWCA
234 ¶ 90; Gillespie Bros. & Co. v. Cheney, Eggar & Co., [1896] 2
QB 59 at 62).
16

of an implied contractual term.

F&R at 15, 27, ECF No. 317.

Plaintiffs allege as to this claim that their loan agreements
carried an “implied term requiring [Defendant] to exercise any
discretion it has to change the Cost of Funds component of the
interest [rate] honestly and in good faith, and not for an
improper purpose, capriciously or arbitrarily, having regard to
the proper purpose and provision of the contract.”
ECF No. 317 (quoting TAC ¶ 70, ECF No. 100).

F&R at 13,

Plaintiffs argue

that Lloyds breached this implied term by increasing borrowers’
interest rates for the company’s own profit.

Id. (citing TAC

¶ 71, ECF No. 100).
The F&R found, as noted above, that the Cost of Funds
term is the same in all of the class members’ loan agreements,
and that Lloyds calculated the Cost of Funds in the same manner
for all of the class members.

F&R at 13, ECF No. 317. The “key

legal issue” as to this claim, “whether a term limiting
Defendant’s discretion should be implied into the facility
agreements,” is common to the full class and capable of
resolution in a single action

Id. at 27.

In the instant briefing, Lloyds reiterates two
arguments rejected by Magistrate Judge Puglisi, and the Court
rejects them here.

Lloyds observes that under Hong Kong law,

whether an implied term should be read into a contract “depends
upon the relevant factual circumstances.”

17

Obj. at 32, ECF No.

332 (quoting Pac. Long Distance Tel. Corp., Ltd. v. New World
Telecomm, Ltd., [2012] HCA 1688/2006 at ¶ 38)).

Specifically, an

implied term is “unlikely to arise by way of necessary
implication in a contract between two sophisticated commercial
parties negotiating at arms’ length.”

Id. (quoting Greenclose

Ltd. v. Nat’l Westminster Bank, [2014] EWHC 1156 (Ch. Div. Apr.
14, 2014) at ¶ 150.
The F&R had concluded that, in view of Greenclose,
issues common to the class would predominate regardless of
borrowers’ individual levels of sophistication because the
“relevant terms of the facility agreements” (i.e., the Cost of
Funds clauses) “were non-negotiable and [] borrowers would not
have been permitted to change the relevant language.”
27, ECF No. 317.

F&R at 15,

Lloyds objects, however, that individual

borrowers’ sophistication must still be examined, and that this
defeats commonality and predominance.

Supposedly, this is

because the F&R misapplied Greenclose and erred in finding that
the parties’ contracts were non-negotiable. See Obj. at 33-35,
ECF No. 332.
The Court disagrees.

First, Lloyds contends that “it

is far from clear that the F&R correctly interprets and applies
the language in Greenclose,” Obj. at 34, ECF No. 332, but
provides little support for its assertion.

Lloyds cites to one

Ninth Circuit case for the proposition that “negotiating at arms

18

length” refers not to the parties’ “degree of negotiation” but
describes “an agreement between parties who are independent, noncollusive and self-interested.”

Obj. at 34, ECF No. 332 (citing

Novak v. Seiko Corp., 37 Fed. App’x 239, 246 (9th Cir. 2002)).
According to Lloyds, the loan agreements at issue reflect this
type of independence, because they were entered by “wholly
distinct and self-interested parties: Lloyds Bank and each
respective borrower.”

Id. at 35.

Novak, however, was not applying Hong Kong law, and
Lloyds offers no suggestion that it would inform a Hong Kong
court’s analysis of Plaintiffs’ legal claims.

Moreover, Novak

simply stated that the parties there could “not be said to have
been two adversarial parties negotiating at arm’s length to
further their own economic interest.”

37 Fed. App’x at 246.

This passage hardly provides a definition for “arms’ length
negotiation” that conflicts with the F&R’s interpretation.
Second, the Court concludes that the F&R correctly
determined that “the relevant terms of the facility agreements
were non-negotiable.”

F&R at 15, ECF No. 317 (emphasis added).

Lloyds argues that borrowers could tailor their IMS loans by
choosing their contract’s maturity and currency, whether and how
often to change currencies, whether to pay back loan principal or
interest, and whether to submit payments monthly or quarterly.
Obj. at 35, ECF No. 332.

These terms of the loans, however, are

19

not the relevant ones underlying Plaintiffs’ substantive claims
and giving rise to commonality and predominance.

Rather, the

relevant term is the Cost of Funds provision, which is
undisputedly common to the full class’s loans.

Lloyds does not

suggest that the Cost of Funds term was negotiable, and the
evidence in the record confirms the same.

See Deposition of

Robin Milne at 26:19-27:7, ECF No. 177-3 (stating that borrowers
were not permitted to change the language in the loans’ facility
agreements).
Accordingly, for the reasons explained above, the Court
rejects Lloyds’ objections and ADOPTS the F&R’s findings as to
the commonality and predominance of the class.
II.

Superiority Under Rule 23(b)(3)

Based on the record before it, the Court REJECTS the
F&R’s finding that the proposed class as defined therein meets
the superiority requirement of Rule 23(b)(3).
No. 317.

See F&R at 31, ECF

The Court further concludes, however, that simply

defining the class to exclude most plaintiffs of non-U.S.
citizenship will allow the class definition to comply with Rule
23(b)(3)’s superiority requirement.

According to Lloyds’

briefing, 39 of the 169 loan accounts at issue are held by
borrowers of non-U.S. nationalities (these borrowers evidently
are citizens of Japan, Brazil, Canada, New Zealand, South Korea,
India, Montenegro, Russia, Taiwan, and the United Kingdom).

20

See

Obj. at 8-9, ECF No. 332.

These borrowers (with the exception of

those who are citizens of Canada, for the reasons discussed
below) will be excluded from the proposed class, which will be
limited to plaintiffs of U.S. and Canadian citizenship at this
time.
Rule 23(b)(3) sets forth a non-exhaustive list of
factors that courts should consider in determining superiority.
These include: (1) class members’ interests in individual
actions, (2) the extent and nature of litigation already begun by
class members, (3) the desirability of a particular forum, and
(4) the likely difficulties in managing a class action.
R. Civ. P. 23(b)(3).

See Fed.

Lloyds does not dispute that the first

three factors are not contrary to class certification but argues
that the fourth factor weighs heavily against a finding of
superiority because “‘a preponderance of the loan agreements in
Plaintiffs’ proposed class are potentially subject to foreign
jurisdictions, many of which would not grant res judicata effect
to this Court’s judgment.’”

F&R at 28, ECF No. 317 (quoting

Lloyds’ Mem. in Opposition to Plaintiffs’ Mot. for Class
Certification (“Opp.”) at 37, ECF No. 167); see also Obj. at 417, ECF No. 332.

Lloyds therefore asks that the Court decline to

certify the class or, alternatively, exclude members whose
accounts bear “non-U.S. indicia” as to the borrower’s nationality
or residence or the location of the subject property.

21

Obj. at

17, ECF No. 332.
As the F&R recognizes, federal courts in recent years
have found it proper to “consider res judicata concerns when
evaluating the Superiority Requirement with respect to a proposed
class that includes foreign class members.’”

F&R at 29, ECF No.

317 (quoting In re Alstom SA Sec. Litig., 253 F.R.D. 266, 281
(S.D.N.Y. 2008)).8

The res judicata concerns for transnational

class action defendants like Lloyds are twofold: first, a foreign
plaintiff may get a second bite at the apple through subsequent
litigation in her home forum, and second, a foreign court may not
honor a domestic class judgment in a defendant’s favor.

See,

e.g., Zachary D. Clopton, Note, Transnational Class Actions in
the Shadow of Preclusion, 90 Ind. L.J. 1387, 1393-96 (2015)
(describing the “[h]eads I win; tails you lose” asymmetries of
foreign plaintiffs’ class litigation options).
The trending approach of federal courts nationwide
appears to be evaluating the res judicata effects of class
judgments with respect to groups of foreign plaintiffs and then
excluding from the class those whose home countries would not
8

This issue has also been the topic of substantial
scholarship in recent years. See, e.g., Rhonda Wasserman,
Transnational Class Actions and Interjurisdictional Preclusion,
86 Notre Dame L. Rev. 313(2011); Michael P. Murtagh, The Rule
23(b)(3) Superiority Requirement and Transnational Class Actions:
Excluding Foreign Class Members in Favor of European Remedies, 34
Hastings Int’l & Comp. L. Rev. 1 (2011); Gary W. Johnson, Note,
Rule 23 and the Exclusion of Foreign Citizens as Class Members in
U.S. Class Actions, 52 Va. J. Int’l L. 963 (2012).
22

honor a class judgment from the United States.

See, e.g., Anwar

v. Fairfield Greenwich Ltd., 289 F.R.D. 105, 114-21 (S.D.N.Y.
2013) (vacated on other grounds); In re Alstom, 253 F.R.D. at
282; In re Vivendi Universal, S.A., 242 F.R.D. 76, 95 (S.D.N.Y.
2007); In re DaimlerChrysler AG Sec. Litig., 216 F.R.D. 291, 301
(D. Del. 2003).9

Such exclusions have occurred notwithstanding

these courts’ recognition that class manageability is only one of
multiple factors to be considered under Rule 23(b)(3), and that
res judicata risks as to foreign plaintiffs should be evaluated
“along a continuum.”

Anwar, 289 F.R.D. at 115 (quoting In re

Vivendi Universal, 242 F.R.D. at 95 (further quotation omitted)).
These courts have also clarified that it is plaintiffs’ burden to
“demonstrat[e] that ‘foreign court recognition is more likely
than not’” as to a U.S. class judgment.

Id. (quoting In re

Alstom, 253 F.R.D. at 282).10
9

In view of the foregoing cases and the Supreme Court’s
recent guidance regarding Plaintiffs’ burdens under Rule 23, the
Court is not convinced that several of the older authorities
offered by Plaintiffs in the instant briefing remain good law.
For example, the Court is disinclined to rely on authority
holding that “it is defendants who bear the ‘burden of
demonstrating a substantial probability of subsequent foreign
suits and consequent enforcement of adverse judgments against
assets held abroad’ in order to exclude foreign purchasers.”
Response at 28, ECF No. 335 (quoting Jordan v. Global Natural
Res., Inc., 104 F.R.D. 447, 448 (S.D. Ohio 1984)).
10

Although Plaintiffs correctly note that the Ninth Circuit
has not yet addressed whether it would apply this “probability
test” for class certification, the foregoing out-of-Circuit
authorities appear to be trending on the issue.
(continued...)
23

Significantly, Anwar instructs that where a plaintiff
“sufficiently demonstrates that the stated policy of a foreign
country is to recognize and enforce foreign judgments, or that
its law is generally inclined to favor that course of action,
such a showing would create a rebuttable presumption that, absent
an affirmative showing to the contrary, recognition of [a class
judgment] does not violate a foreign country’s public policy.”
Id. (emphases added).11

However, where courts are simply

presented with “dueling expert reports” regarding the likelihood
of res judicata abroad, these may amount to “no more than highpriced arm-chair oracles, conjecture that provides little
assistance to the Court, one way or another.”

Id.

10

(...continued)
The Court also notes that requiring Plaintiffs to
demonstrate the “probability” of res judicata in foreign class
members’ home countries would seem to be consistent with
Plaintiffs’ overarching “burden of demonstrating that [they] have
met each of the requirements” for class certification, including
superiority. Zinser v. Accufix Research Inst., Inc., 253 F.3d
1180, 1186 (9th Cir. 2001)(citation omitted); see also Comcast,
133 S. Ct. at 1428.
11

The Court notes that Plaintiffs’ Sur-Reply suggests that
Anwar mandates “clear and convincing evidence” to rebut this
presumption; however, as set forth above, an “affirmative showing
to the contrary” is what Anwar expressly requires. That court
had simply added that the defendants could move to sever foreign
class members if, in future, they discovered clear and convincing
evidence that the included class members’ home countries would
not actually enforce the court’s judgment. Anwar, 289 F.R.D. at
115. In any event, Lloyds did offer “affirmative showings”
regarding foreign res judicata issues here, notwithstanding
Plaintiffs’ failure to brief the preclusion law of any foreign
country except Japan. See Opp. at 35-37, ECF No. 167.
24

To that end, where plaintiffs have failed to adequately
brief res judicata concerns related to foreign class members,
courts have found it appropriate to exclude those members from
the class altogether.

See, e.g., In re Daimler Chrysler, 216

F.R.D. at 301 (excluding foreign plaintiffs where “Lead
Plaintiffs have not adequately responded to Defendants’ concerns
regarding the issues of class management and damages suffered by
purchasers on foreign exchanges”); In re Vivendi Universal, 242
F.R.D. at 105 (excluding class members from foreign countries as
to which plaintiffs’ expert opinions fell “short of establishing
a probability that [the] court would grant preclusive effect to
any judgment or settlement issuing from this action”).
The F&R concluded that “any res judicata concerns are
speculative,” because “the number of foreign putative class
members is limited” and “the court’s judgment would be
enforceable in the United States by an overwhelming majority of
putative class members.”

F&R at 29-30, ECF No. 317.

As Lloyds

points out, however, the issue is not whether the Court’s
judgment would be enforceable in the U.S.; rather, the issue is
whether foreign courts would give preclusive effect to a U.S.
judgment.

Lloyds also argues that the F&R did not appropriately

put Plaintiffs to their proof for purposes of class
certification, consistent with recent Supreme Court precedents
demanding that they affirmatively demonstrate the class’s

25

compliance with Rule 23.
omitted).

See Obj. at 3-4, ECF No. 332 (citations

The Court agrees.
In the briefing before Magistrate Judge Puglisi, Lloyds

provided significant discussion regarding “foreign jurisdictions
that may not honor this Court’s judgment,” based on what it calls
“non-U.S. indicia” (borrower residency, borrower nationality, and
non-U.S. subject property) of the proposed class members’ loans.
That briefing included a table of foreign jurisdictional loan
accounts and analyses of the relevant countries’ approaches to
res judicata, supported by foreign and domestic legal
authorities.

See Opp. at 34-37, ECF No. 167.

By Lloyds’ count,

a “preponderance” of the loan agreements in Plaintiffs’ proposed
class are potentially subject to foreign jurisdictions
(specifically, Brazil, Canada, Hong Kong, Japan, Montenegro, New
Zealand, Russia, Singapore, South Korea, Switzerland, Taiwan, and
the United Kingdom).

Lloyds’ legal analysis shows that several

of these jurisdictions are unlikely to grant res judicata effect
to the Court’s judgment.

See id.

Plaintiff, meanwhile, has not undertaken to provide
country-by-country analyses of res judicata issues – even in
response to Lloyds’ briefing – except as to Japan.

See Response

at 32-34, ECF No. 335; Sur-Reply at 9-11, ECF No. 340.

Even in

that respect, Plaintiffs did not provide the Court with authority
affirmatively indicating that it is Japanese courts’ “stated

26

policy” or even trend to honor foreign judgments, particularly
class judgments.12

To the contrary, Plaintiffs and their expert

offer, inter alia, a single case recognizing an individual
default judgment from the U.S., opinions regarding the cost and
difficulty of choosing to litigate in Japan, the preclusive
effects of settlements (rather than litigation) in Japan, and the
speculation that “Japan courts will find it hard to refuse to
recognize any class judgment” after a new class action law takes
effect in December 2016.

Response at 33-34, ECF No. 335; see

also Declaration of Dr. William B. Cleary ¶¶ 22-32, ECF No. 3341.13

Elsewhere, however, Plaintiffs admit that “it remains

unknown whether a court would give preclusive effect to a

12

The Court observes that at least one federal court has
excluded Japanese plaintiffs from a proposed class due to
Plaintiffs’ failure to respond adequately to res judicata
concerns. See Anwar, 289 F.R.D. at 121.
13

The Court takes note that both parties submitted dueling
expert declarations regarding Japanese law. See ECF Nos. 331-1,
334-1, 336-1. These declarations, however, do not provide the
Court with a “stated policy” or trend among Japanese authorities.
Lloyds’ expert’s declaration makes clear that there simply is “no
judicial precedent which has considered the application of
Article 118 [Japan’s code section regarding recognition of
foreign judgments] to a class action judgment.” Declaration of
Koji Takahashi ¶ 10, ECF No. 331-1.
The declarations rely instead on the experts’ predictions of
res judicata effects in Japan, based on analogies to other
situations. In this respect, they are similar to the
declarations providing “conjecture that provides little
assistance to the Court, one way or another” referenced in Anwar,
289 F.R.D. at 115.
27

judgment.”

Response at 30, ECF No. 335.14
As discussed above, it is Plaintiffs’ burden to show

that class certification complies with Rule 23, rather than
Lloyds’ burden to show that it does not.

See Zinser, 253 F.3d at

1186; see also Wal-Mart Stores, 131 S. Ct. at 2551.

Class

certification is proper only if the trial court is satisfied,
after a “rigorous analysis,” that Rule 23's requirements have
been met.

“Actual” rather than “presumed” compliance with the

rule is necessary.

Id. (citing Gen. Tel. Co. of Sw. v. Falcon,

102 S. Ct. 2364, 2372 (1982)).

To this end, other courts

examining res judicata concerns in the transnational class action
context have been provided with substantial records and briefing
by the litigants on country-by-country preclusion law.

See,

e.g., Anwar, 289 F.R.D. at 115 (“The Court is currently presented
14

Plaintiffs also contend that “[i]n analogous situations,
courts have dismissed res judicata concerns with lead plaintiffs
in securities class action litigations unless they are ‘foreign
cubed,’ i.e., foreign investors who purchased foreign investments
on foreign exchanges.” Sur-Reply at 8, ECF No. 340 (citing
Hufnagle v. RINO Int’l Corp., Civ. No. 10-8695 VBF, 2011 WL
710704 * 7 (C.D. Cal. Feb. 14, 2011); Roby v. Ocean Power Tech.,
Civ. No. 14-cv-3779 (FLW)(LHG), 2015 WL 1334320 * 12 (D.N.K. Mar.
17, 2015)).
This argument is unpersuasive. First, the cited discussions
in Hufnagle and Roby both related to the adequacy of lead
plaintiffs under Rule 23(a)(4), not the superiority of classbased litigation under Rule 23(b)(3). Moreover, Plaintiffs do
not explain why the foreign class members in this case would not
represent exactly the sort of concerning “foreign cubed”
investors described in Hufnagle. Indeed, they are foreign
investors who purchased foreign loan products from a foreign
bank. It would seem, therefore, that considerations related to
“foreign cubed” plaintiffs could apply here.
28

with extensive dueling expert reports from preeminent
practitioners and scholars debating the likelihood of foreign
recognition of a United States opt-out class action judgment.”).
Here, Plaintiffs’ briefing does not meet their burden
to show Rule 23 compliance.

The Court does not have the benefit

of a developed record on country-by-country preclusion
considerations and declines to certify a class including foreign
plaintiffs in whose home countries Plaintiffs have not shown a
probability of res judicata effects.

See In re DaimlerChrysler,

216 F.R.D. at 301 (excluding foreign class members due to
plaintiffs’ failure to provide evidence overcoming res judicata
concerns); In re Vivendi Universal, 242 F.R.D. at 105 (same).
The Court does, however, agree with Plaintiffs that it
need not decline to certify any class.

As Lloyds recognizes, the

Court could simply define the class to exclude foreign nationals.
See Obj. at 32, ECF No. 332; see also, e.g., In re
DaimlerChrysler, 216 F.R.D. at 301 (finding that “Lead Plaintiffs
have not adequately responded to Defendants’ concerns” regarding
foreign plaintiffs but concluding that “the appropriate way in
which to address the concerns related to foreign investors is not
to deny class certification, but to certify a class comprising
only domestic investors”).15
15

The Court has at its disposal only limited data regarding
the individual class members. Lloyds produced what it calls an
(continued...)
29

However, the Court notes that a unique complication
exists here: the only available evidence suggests that Willcox is
a Canadian citizen.

Briefing submitted by Lloyds on a different

motion previously described Willcox as such, and Plaintiffs did
not contest his citizenship.
Dismiss at 6, ECF No. 62-1.

See Mem. in Support of Mot. to
As noted above, a November 24, 2014

declaration filed by Willcox in this case had indicated that he
is a Canadian citizen with Permanent Resident status in the U.S.,
and that he planned to “apply[] for citizenship in 2015.”
Declaration of Bradley Willcox ¶¶ 4-5, 29, ECF No. 68-12.

15

The

(...continued)
“Anonymized Data Spreadsheet” regarding the 169 loans that are
implicated in this case, but it has not produced a list of
individual borrowers. The Anonymized Data Spreadsheet lists
various data linked to the loan accounts but does not list
borrower names. See Errata to Ex. 51 to Mot. for Class
Certification, ECF No. 316-1.
Based on the information in Lloyds’ spreadsheet, it appears
that excluding foreign borrowers from the class (with the
exception of Canadian citizens) would still leave 137 loan
accounts in the proposed class. See id. at 6-7; see also Obj. at
8-9, ECF No. 332. Presumably, most (if not all) of these loans
were taken out by different borrowers. The Court recognizes that
an individual plaintiff could possess more than one loan;
however, the limited, anonymized data produced by Lloyds does not
allow the Court to determine whether this has occurred.
The Court thus assumes that there are approximately 137
borrowers in the proposed class. This well exceeds the minimum
requirements for numerosity under Rule 23. See McMillon v.
Hawaii, 261 F.R.D. 536, 542 (D. Haw. 2009) (“Generally, a class
satisfies numerosity if it is likely to exceed forty members.”).
Lloyds’ objection as to numerosity is therefore rejected.
See Reply at 12 n.9, ECF No. 337-1. The Court notes that Lloyds’
arguments regarding numerosity also presumed that the Court would
exclude class members with “indicia” of foreign residency or
property; however, for the reasons discussed herein, the Court is
not excluding class members on those two particular bases.
30

Court is unsure whether Willcox actually became a U.S. citizen
(or even initiated a citizenship application) since that time.
The TAC also expressly describes the Dominicks’ citizenship and
residency but omits any reference to Willcox’s citizenship,
stating only that he is a “resident” of Hawaii.
100.

TAC ¶ 6, ECF No.

Plaintiffs’ earlier complaints did not address Willcox’s

citizenship.
Assuming that Willcox is a Canadian citizen, a blanket
exclusion of foreign plaintiffs from the proposed class would
eliminate the only remaining named plaintiff in this case.

No

party addressed this dilemma at any stage of the instant
briefing.

In particular, Lloyds did not object to Willcox’s

adequacy as a class representative on this basis, and the Court
finds that Willcox is an otherwise typical and adequate class
representative for the reasons explained below.

The Court is

tasked with ensuring the just, speedy, and inexpensive resolution
of this litigation. Fed. R. Civ. P. 1.

To that end, the Court

cannot simply ignore the repercussions of Willcox’s apparent
citizenship when considered against any exclusion of foreign
class members.
Given the foregoing circumstances and the parties’
failure to address the issue, the Court examines the available
evidence regarding res judicata in Canada and concludes that the
class may be certified to include members of Canadian (as well as

31

U.S.) citizenship.

When determining foreign law, courts “may

consider any relevant material or source,” including
determinations by other courts.

In re Alstom, 253 F.R.D. at 291

(quoting Fed. R. Civ. P. 44.1).

Additionally, “the fact that

United States courts have generally certified proposed classes
which included Canadian lead plaintiffs and class members[] is
particularly persuasive.”

Id.

Federal courts have previously certified classes with
Canadian members, finding that Canadian courts “would more likely
than not recognize and give preclusive effect to a judgment
rendered” by a U.S. court.
117.

Id.; see also Anwar, 289 F.R.D. at

The only contrary authority cited in Lloyds’ brief before

Magistrate Judge Puglisi is the Canadian case of Currie v.
McDonald’s Restaurants of Canada, Ltd., 74 O.R. (3d) 321, 325,
330, 336 (Ont. C.A. 2005)(cited in Opp. at 35, ECF No. 167).
However, that decision denied recognition of a U.S. class
judgment on the basis that the “notice given to the non-resident
class members was inadequate.”
166-2.

Currie, 74 O.R. at 322, ECF No.

Contrary to Lloyds’ suggestion, such language would seem

to suggest that the Canadian court would have honored the U.S.
class judgment if adequate notice had been provided.
Consistent with the foregoing authorities, and having
considered all of the factors under Rule 23(b)(3) (including,
without limitation, the desirability of this forum and the likely

32

difficulties of managing the class), the Court concludes that the
class in this case should be limited to members of U.S. and
Canadian citizenship, who appear to pose no cognizable res
judicata concerns for Lloyds.

All other foreign plaintiffs will

be excluded from the class, for the reasons discussed above.

As

a final matter, the Court also finds that the F&R correctly
concluded that Lloyds did not provide authority for its arguments
regarding the consideration of any “non-U.S. indicia” other than
borrower nationality, which appears to be the only basis on which
other federal cases have excluded foreign class members.
at 29, ECF No. 317.

See F&R

Accordingly, the Court rejects Lloyds’

request to exclude other class members on the basis of any
additional “non-U.S. indicia” (specifically, borrower residency
and the location of subject property).16
III. Willcox Is a Typical and Adequate Class
Representative
The Court ADOPTS the F&R’s finding that Willcox is a
16

Lloyds briefly complains that the F&R “presume[s] that the
‘Nationality’ column in the Anonymized Data shows borrowers’
citizenship . . . [but] ‘Nationality’ in the Anonymized Data is
not necessarily synonymous with citizenship.” Obj. at 15, ECF
No. 332. Lloyds has not, however, offered authority for any
different meanings that “nationality” and “citizenship” may have.
Moreover, because the Anonymized Data spreadsheet includes
distinct columns for both “nationality” and “residency,” it would
seem that “nationality” is intended to refer to borrowers’
citizenship (rather than location) in Lloyds’ records. See
Errata to Ex. 51 to Mot. for Class Certification, ECF No. 316-1.
Recognizing that Lloyds itself authored the Anonymized Data
chart, Lloyds’ objection regarding the F&R’s supposed
misconstruction of the term “nationality” appears questionable.
33

typical and adequate class representative.

See F&R at 19, 25,

ECF No. 317.
First, with respect to Willcox’s typicality, the Court
finds Lloyds’ objections unmerited.

Rule 23(a)(3) requires that

the “claims or defenses of the representative parties [be]
typical of the claims or defenses of the class.”
23(a)(3).

Fed. R. Civ. P.

This requirement is not met if a putative class

representative is “subject to unique defenses which threaten to
become the focus of the litigation,” creating a “danger that
absent class members will suffer if their representative is
preoccupied with defenses unique to it.”

Hanon v. Dataproducts

Corp., 976 F.2d 497, 508 (9th Cir. 1992) (citations omitted); see
also, e.g., O’Connor v. Uber Techs., Inc., No. C-13-3826 EMC,
2015 WL 5138097 * 11 (N.D. Cal. Sept. 1, 2015) (finding that a
potential unclean hands defense related to a named plaintiff’s
alleged fraud was not likely to become the focus of class
litigation).

As Lloyds acknowledges, the party opposing

certification “must show some degree of likelihood that a unique
defense will play a significant role at trial.”

Obj. at 18, ECF

No. 332 (quoting 5 Moore’s Fed. Prac. Civil § 23.24[5] (3d ed.
1997)).
Here, Lloyds claims that Willcox is atypical because he
previously breached the loan-to-value (“LTV”) ratio provision of
his loans.

That provision states essentially that “should the

34

loan’s contractually agreed LTV ratio be exceeded because of
currency fluctuation or any other development, Lloyds Bank can
require borrowers to restore that ratio by providing added
security, cash deposits, or both in order to ‘top up’ the loan.”
Obj. at 18-19, ECF No. 332 (citations omitted); see also Facility
Agreement, Declaration of Martha Sullivan (“Sullivan Decl.”) Ex.
Z, ECF No. 167-28.
Willcox’s loans carry a 75% LTV ratio requirement,
pursuant to which Lloyds requested remedial action from Willcox
on October 24, 2008.

Ltr. of Lloyds to Bradley John Willcox at

1-2, Sullivan Decl. Ex. II, ECF No. 167-37.

The parties detail

their ensuing communications at some length, but it is not
disputed that Willcox’s loans are not presently in violation of
the LTV ratio provision.

See Obj. at 25, ECF No. 332

(recognizing that Willcox’s loans “came back into balance”);
Response at 17, ECF No. 335 (“[A]ll of Dr. Willcox’s loans are
currently within acceptable LTV ratios.”); Reply at 17, ECF No.
337-1 (recognizing that Willcox’s LTV ratios returned to balance
due to U.S. dollar/Yen exchange rates); Sur-Reply at 11-16, ECF
No. 40 (describing the parties’ repayment discussions and
Willcox’s loans’ return to LTV balance).
It does not appear to be material that Willcox’s loans
returned to LTV balance due to “extrinsic events,” namely,
“exchange rate changes between the Dollar and the Yen.”

35

Obj. at

25, ECF No. 332.

The fact remains that Willcox is not in breach

of his loans at this time.

In addition, Lloyds never exercised

its option to call his loans or filed a cross-claim for breach of
contract.

Lloyds has offered no authority to suggest that

Willcox’s prior LTV breaches would somehow become a unique
defense going forward, much less one with the capacity to “become
the focus of the litigation.”

Hanon, 976 F.2d at 508.17

Moreover, assuming arguendo that Willcox were in breach
of his loans’ LTV ratio provision – which he evidently is not –
the Court finds persuasive the Dugan court’s finding that this
particular type of breach would not render a class representative
atypical.

See Dugan v. Lloyds TSB Bank, PLC, 2013 WL 1703375 *

4-5 (N.D. Cal. Apr. 19, 2013) (certifying the Dugan plaintiffs as
class representatives despite their alleged LTV breaches, which
it found did “not carry the [] risk” that “absent class members’
chances of success will suffer due to plaintiffs’ peculiar
circumstances”).
17

Lloyds repeatedly complains that the LTV provisions are
“critical to IMS Loans, without which those loans would never
have been made.” Reply at 14, ECF No. 337-1. This is because
Lloyds would bear all risks of currency fluctuation without the
ability to demand a “top-up” from a borrower. Id.
The importance of these LTV provisions to Lloyds is not,
however, the dispositive issue. The question before the Court is
whether a particular named plaintiff’s circumstances have the
capacity to “become the focus of the litigation,” to the
detriment of absent class members. Hanon, 976 F.2d at 508.
Here, there is no evidence that Willcox’s now-resolved LTV issues
(which never even led Lloyds to call his loans) would distract
from the litigation in this way.
36

Second, the Court notes that Lloyds insists that it is
also challenging Willcox’s adequacy as a class representative
(apart from his typicality) because he has “unclean hands.”
Reply at 12 n.9, ECF No. 337-1.

This argument is made in Lloyds’

Reply notwithstanding that the parties’ briefs almost exclusively
discuss Willcox’s typicality, not adequacy.

See Obj. at 17-28,

ECF No. 332; Response at 15-23, ECF No. 335; Reply at 12, ECF No.
337-1.

Lloyds does not identify any “unclean hands” concerns

regarding Willcox apart from the LTV issues described above.
For the sake of clarity, the Court reviews Lloyds’
objection to Willcox’s adequacy on the grounds of “unclean hands”
and finds it unmeritorious.

Rule 23(a)(4) requires that a class

representative must “fairly and adequately protect the interests
of the class.”

Fed. R. Civ. P. 23(a)(4).

A named plaintiff

satisfies this adequacy requirement if she has no conflicts of
interest with other class members and will “prosecute the action
vigorously on behalf of the class.”

See Ellis v. Costco

Wholesale Corp., 657 F.3d 970, 985 (9th Cir. 2011) (citation
omitted).
There is no evidence that Willcox has any conflicts of
interest with class members.

In addition, for the reasons set

forth above with respect to Willcox’s typicality, the Court
concludes that Willcox’s history of LTV issues (i.e., his alleged
“unclean hands”) will not undermine his ability to prosecute this

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action on behalf of the class going forward.

Accordingly, the

Court rejects Lloyds’ objection to Willcox’s adequacy.
CONCLUSION
For the foregoing reasons, the Court ADOPTS in part,
REJECTS in part, and MODIFIES in part the F&R.

The Court REJECTS

the F&R’s finding that Plaintiffs have demonstrated the
superiority of class litigation under Rule 23(b)(3) as to the
class defined therein.

However, the Court will certify the class

as defined therein with the modification that the class shall be
limited to plaintiffs of U.S. and Canadian citizenship.

The

remainder of the F&R is ADOPTED, over Lloyd’s objections.
IT IS SO ORDERED.
DATED:

Honolulu, Hawaii, January 8, 2016.

________________________________
Alan C. Kay
Sr. United States District Judge

Willcox v. Lloyds TSB Bank, PLC, et al., Civ. No. 13-00508 ACK-RLP, 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.

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