Wilcox v. Lloyds TSB Bank, PLC et al
ORDER DENYING PLAINTIFFS' PROPOSED CY PRES REMEDY AND DIRECTING REVERSION OF UNCLAIMED FUNDS TO DEFENDANT re 572 - Signed by JUDGE ALAN C. KAY on 2/6/2017. (emt, )CERTIFICATE OF SERVICEPa rticipants 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,
) Civ. No. 13-00508 ACK-RLP
LLOYDS TSB BANK, PLC and DOES
ORDER DENYING PLAINTIFFS’ PROPOSED CY PRES REMEDY AND DIRECTING
REVERSION OF UNCLAIMED FUNDS TO DEFENDANT
For the reasons set forth below, the Court DENIES
Plaintiffs’ proposed distribution of unclaimed funds to EAH
Housing, Honolulu Hawaii and DIRECTS that any unclaimed judgment
funds revert to Defendant.
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.
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
The Court incorporates by reference its Order Preliminarily
Approving Defendant’s Offer of Compromise, Preliminarily
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On September 11, 2016, Lloyds signed and delivered to
Plaintiffs’ counsel an Offer of Compromise by Lloyds Pursuant to
Federal Rule of Civil Procedure 68 (“Offer of Judgment”).
of Glenn T. Melchinger ¶ 3, ECF No. 539-1.
signed the Offer of Judgment and delivered it upon the Court on
September 22, 2016.
ECF No. 539.
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), and on December 14, 2016, the Court entered an Order
Preliminarily Approving Defendant’s Offer of Compromise,
Preliminarily Approving Plaintiffs’ Motion to Approve and Enter
Judgment, Preliminarily Approving Plaintiffs’ Request for
Attorneys’ Fees and Costs, and Preliminarily Approving
Plaintiffs’ Request for Incentive Award for Class Representative
(“Preliminary Approval Order”). 2
ECF No. 569.
Approving Plaintiffs’ Motion to Approve and Enter Judgment,
Preliminarily Approving Plaintiffs’ Request for Attorneys’ Fees
and Costs, and Preliminarily Approving Plaintiffs’ Request for
Incentive Award for Class Representative. See ECF No. 569.
Pursuant to the Class Action Fairness Act (“CAFA”), this Court
directed Lloyds to serve the appropriate notice required by 28
U.S.C. § 1715(b). ECF No. 569 at 40. Lloyds has certified that
it had served the Federal Reserve Bank of New York on December
21, 2016. ECF No. 570. However, until the 90-day required
notice period under CAFA expires on March 21, 2017, this Court
may not enter final approval of the Offer of Judgment. See 28
U.S.C. § 1715(d). Thus, no part of this Order shall be
construed as giving final approval.
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The Court also instructed Plaintiffs’ counsel during
the hearing, in its Preliminary Approval Order, and in a minute
order to submit a memorandum regarding a cy pres remedy to
address the funds intended for the four borrowers that the third
party settlement administrator was unable to locate, which funds
will remain unclaimed in the event that the proposed Offer of
Judgment is approved and the funds are distributed.
Preliminary Approval Order at 40 n.6; ECF No. 571.
28, 2016, Plaintiffs filed a Supplemental Memorandum Regarding
Plaintiffs’ Petition in Support of Distribution of Fees and
Expenses, proposing that “any residual proceeds resulting from
uncashed checks be distributed to EAH Housing Hawaii as cy
ECF No. 572 at 2.
Lloyds filed a response on January 6,
2017, ECF No. 573, and Plaintiffs did not file a reply.
“Federal courts have broad discretionary powers in
shaping equitable decrees for distributing unclaimed class
Six Mexican Workers v. Arizona Citrus Growers,
904 F.2d 1301, 1307 (9th Cir. 1990).
“The district court’s
choice among distribution options should be guided by the
objectives of the underlying statute and the interests of the
silent class members.”
“The court’s alternatives
include: (1) cy pres or fluid distribution, (2) escheat to the
government, and 3) reversion to defendants.”
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Id. (citing 2
Newberg on Class Actions § 10.17 at 373-374).
also affirmatively stated that they do not seek a pro rata
distribution here as it would be impractical. 3
ECF No. 572 at 2.
As neither Plaintiffs nor Lloyds requests that the unclaimed
funds escheat to the government, the Court will only consider a
cy pres distribution or reversion to Lloyds.
Plaintiffs have proposed distributing the unclaimed
judgment proceeds to EAH Housing, Honolulu Hawaii as a cy pres
recipient, asserting that the claims at issue relate to housing
ECF No. 572 at 3; Rough Tr. of Hearing 18:1-2.
The Ninth Circuit has directed that cy pres distributions must
“account for the nature of the plaintiffs’ lawsuit, the
objectives of the underlying statutes, and the interests of the
silent class members, including their geographic diversity.”
Nachshin v. AOL, LLC, 663 F.3d 1034, 1036 (9th Cir. 2011).
There must be a “driving nexus between the plaintiff class and
the cy pres beneficiaries,” id. at 1038, and proposed awards are
inappropriate where they fail to provide reasonable certainty
that any member will be benefitted.
See id. at 1040.
Pro rata distribution also may not be appropriate because, as
some courts have noted, redistributing the claims pro rata to
the claiming class members might give them a windfall and
encourage class actions likely to result in large uncollected
damage pools. See, e.g., Van Gemert v. Boeing, 739 F.2d 730,
815-16 (2d Cir. 1984); see also Hayes v. Arthur Young & Co., 34
F.3d 1072, at *17 (9th Cir. 1994) (unpublished table decision).
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Here, plaintiffs assert that EAH Housing is “one of
the largest and most respected nonprofit housing development and
management organizations in the western United States,” and “is
clearly ‘tethered to the nature of the lawsuit’”.
ECF No. 572
However, Lloyds has raised doubts about the
appropriateness of EAH Honolulu as an appropriate cy pres
recipient, arguing that it fails to target the geographic
distribution of the plaintiff class and because nonprofit
housing is insufficiently tethered to the underlying breach of
contract issues here.
ECF No. 573 at 5-7.
With respect to the geographic distribution of the
class, the Court notes that the class certified was limited to
U.S. or Canadian citizens or entities who were “residents or
citizens of the State of Hawaii, or owners of property in Hawaii
that was mortgaged to secure any such IMS loan.”
ECF No. 366 at
As the class definition was limited to individuals
with a connection to Hawaii, awarding the remaining funds to a
Hawaii organization would appear to account for the interests of
See Harlan v. Transworld Sys., Inc., No. 13-5882,
2015 WL 505400, at *10 (E.D. Pa. Feb. 6, 2015) (finding that
limiting the cy pres award to programs in Philadelphia matched
the geographic scope of the lawsuit where class was defined by
persons with addresses in Philadelphia).
In addition, where the
unclaimed funds are limited, as they are here, courts have
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allowed funds to be directed to a more narrow geographic area
where they can be more impactful.
See, e.g., In re Citigroup
Inc. Sec. Litig., --- F. Supp. 3d. ---, 07-CV-9901, 2016 WL
4198194, at *7 (S.D.N.Y. Aug. 9, 2016).
Turning next to the nexus between the proposed cy pres
recipient and the nature of the lawsuit, Plaintiffs appear to
rely primarily on the fact that a district court in California
approved EAH Housing of California as a cy pres recipient in a
“nearly identical” matter, Dugan v. Lloyds TSB Bank, PLC, Case
No. 12-cv-02549 (N.D. Cal.).
ECF No. 572 at 3.
In that case,
the parties appear to have specified the cy pres recipient as
part of the settlement agreement itself.
See Dugan, No. 12-cv-
2937 (N.D. Cal.), ECF Nos. 429-3 at 3, 437 at 4.
Dugan matter appears to involve similar issues, the Court is
unable to discern the district court’s reasons for approving the
cy pres recipient, and as such, the award is not persuasive on
In Dennis v. Kellogg Co. the Ninth Circuit found an
insufficient nexus where the claims at issue involved deceptive
advertising of food products, and the proposed cy pres
recipients were charities who provided food for the indigent.
697 F.3d 858, 867 (9th Cir. 2012).
The court concluded that the
case was not about the nutritional value of food, as the
defendants asserted, but rather the way that the food was
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marketed, which included claims about the effect on children’s
The court then determined that the
appropriate recipients were organizations dedicated to
protecting consumers from false advertising, not charities which
provide food for the needy.
The Court finds that nexus
here between EAH Housing and the nature of the lawsuit is
somewhat similar to the nexus in Dennis, which the Ninth Circuit
Although both EAH Housing and the contracts
at issue here relate to housing, the core of this case is about
Lloyds’ lending practices, not low-income housing development.
As such, Dennis suggests that a cy pres distribution to EAH
Housing, Honolulu may not be an entirely appropriate mode of
distributing the unclaimed funds.
Instead of distributing the unclaimed funds to a cy
pres recipient, Lloyds requests that the unclaimed funds revert
ECF No. 573 at 8.
“Reversion to the defendant may be
appropriate when deterrence is not a goal of the statute or is
not required by the circumstances.”
F.2d at 1308.
Six Mexican Workers, 904
In Van Gemert v. Boeing, the Second Circuit
affirmed reversion of unclaimed funds to the defendant where the
Special Master concluded that a defendant in a private breach of
contract action should not have to pay more than the amount
claimed and had not acted in bad faith.
739 F.2d 730, 737 (2d
The Fifth Circuit has also recognized that
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defendants may retain an equitable interest in remaining funds
where the purpose of the statute is compensatory and the
defendant otherwise has clean hands.
Wilson v. Southwest
Airlines, Inc., 880 F.2d 07, 815 (5th Cir. 1989) (accounting for
“the good-faith nature of the violation, Southwest’s
straightforward conduct of the litigation, [and] its commendable
efforts to bring policies into compliance with the law”).
This Court agrees that reversion is the appropriate
As the claims in this case involve breach of
contract, damages are compensatory.
Lloyds has not been found
liable on any claims, and there does not appear to be any
deterrence or punitive purpose to the claims, nor does there
appear to be a broader public interest that would be furthered
by disallowing reversion.
See Six Mexican Workers, 904 F.2d at
1308; Van Gemert, 739 F.2d at 737.
Allowing reversion of a
small amount of unclaimed funds also will not affect the
interests of the other class members, who will each receive a
proportionate share of the judgment funds, assuming the Court
enters final approval of the Offer of Judgment. 4
Although “[r]eversion to the defendant risks
undermining the deterrent effect of class actions by rewarding
defendants for the failure of class members to collect their
See Newberg on Class Actions § 12.30 (5th Ed. 2016) (concluding
that “the settlement fund does not truly belong to the class as
a whole, but rather to the class members individually.”)
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share of the settlement,”
In re Baby Prods. Antitrust Litig.,
708 F.3d 163, 172 (3d Cir. 2013), the Court nevertheless
concludes that the amount of unclaimed funds here is small
enough that the risk of a deterrent effect is likewise small.
Indeed, Lloyds has provided evidence of the good-faith efforts
undertaken to locate the absent class members, see ECF No. 573-2
(Decl. of Kelly Kratz), and does not appear to seek reversion in
order to avoid its responsibilities under the Offer of Judgment.
Accordingly, and in view of the Court’s broad
discretionary power to distribute unclaimed funds, the Court
rejects Plaintiffs’ proposal to distribute as cy pres any
residual judgment proceeds and directs that any unclaimed funds
revert to Lloyds.
IT IS SO ORDERED.
Honolulu, Hawaii, February 6, 2017.
Alan C. Kay
Sr. United States District Judge
Willcox v. Lloyds TSB Bank, PLC, et al., Civ. No. 13-00508 ACK-RLP, Order
Denying Plaintiffs’ Proposed Cy Pres Remedy and Directing Reversion of
Unclaimed Funds to Defendant.
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