Glaciers, fjords, hot springs, volcanoes, and a banking crisis

Vathana v. EverBank, No. 12-15587 (9th Cir. Oct. 31, 2014).

EverBank offered certificates of deposit denominated in Icelandic króna. To protect itself from currency fluctuations, and to make sure that it would have money to pay its CD holders, EverBank would enter into forward contracts that allowed it to acquire a set amount of króna on a specific date and at a specific exchange rate. In the fall of 2008, though, the Icelandic banking system utterly collapsed and the Central Bank of Iceland restricted the exchange of króna into foreign currency. As a result, EverBank had trouble finding anybody that could offer it the forward contracts that it depended on to hedge the risk of offering foreign-currency CDs. Eventually, EverBank closed its króna-denominated CDs when they matured, and did not renew them or roll them over. And instead of paying their customers the value of their CDs in krónas, they paid them the value of their CDs in dollars. 

Vathana, a króna CD holder, sued EverBank for breach of contract, alleging that its contracts with CD holders prohibited it from unilaterally closing CDs when they matured. The Ninth Circuit rejects this argument. The contracts gave EverBank the discretion to close CDs on maturity, and EverBank exercised that discretion reasonably, given the Icelandic turmoil. Vathana has another argument, however: when EverBank closed the CDs, it had a contractual obligation to pay customers in krónas, not in dollars. The district court ruled that a particular provision of the contracts unambiguously required payment in dollars. Reviewing the contracts, the Ninth Circuit concludes that the provision the district court relied on is ambiguous. So the Ninth Circuit remands the case to the district court.

There’s one thing puzzles me about this case, though. Even if EverBank breached the terms of the contracts by paying its customers in dollars rather than krónas, what damages did its customers suffer? The value of the payment was the same. Or is the argument that customers thereby missed an opportunity to invest in the króna? That doesn’t seem right. From the opinion, it looks like nobody outside of Iceland could get their hands on krónas—so the customers didn’t miss out on anything.