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Polaris Sales, Inc. v. HSBC Bank Nevada

August 13, 2008


The opinion of the court was delivered by: Judge James B. Zagel


Polaris Sales, Inc. ("Polaris") and HSBC Bank Nevada, N.A. ("HSBC") entered into an agreement for HSBC to provide revolving credit financing to eligible customers buying products from participating Polaris dealers. The dispute is over the meaning of the Revolving Program Agreement ("Agreement"). The contention is that HSBC altered, without right, the credit terms by which HSBC decides customer eligibility. HSBC asserts it did have the right.*fn1

HSBC is a national bank located in Las Vegas, Nevada. It issues so-called Private Label credit cards to eligible consumers of retail products for companies like Polaris, which sells snowmobiles (enthusiastically praised along with their ATVs by several of my neighbors) and provides utility vehicles, all terrain vehicles, motorcycles and related products and services through a network of dealers.

On August 10, 2005, Polaris and HSBC entered the Agreement here for a private label credit card and debt cancellation program for eligible consumers.

In this program, HSBC owns the accounts and bears the credit risk so it protects itself with criteria for those to whom it would extend credit. There were two provisions which addressed or restricted its freedom to set criteria. Through the end of 2005, HSBC agreed to use the credit score cutoff used just prior to the "January 2005 score cutoff adjustments." HSBC also agreed to discuss modifying credit criteria "if the dollar volume of Card Sales generated by the Revolving Program during any twelve-month period is less than $350,000 . . . ."

The Dealers themselves had to be individually accepted into the program. The "Dealer Revolving Agreement" provided that all applications for accounts "will be . . . approved or declined in accordance with . . . credit criteria . . . established from time to time by HSBC with HSBC having and retaining all rights to reject or accept . . . applications." The Agreement between Polaris and HSBC stated that the revolving credit program would operate "under the terms and conditions of agreements with dealers."

The Agreement itself did not say that accounts would be "approved or declined [under] credit criteria . . . [set by HSBC] from time to time."*fn2

On January 25, 2008, HSBC (facing, it said, general deterioration in credit and financing markets and poorer performance in the revolving credit program) told Polaris it was tightening credit criteria. HSBC offered to discuss things Polaris might do to mitigate, in part, the stricter proposed criteria. HSBC also offered early termination of the Agreement so Polaris could shop for a better deal on revolving credit. Polaris, saying it was acting "under duress" accepted some of HSBC's offers.

The new terms were effective March 1, 2008.*fn3 A month later, Polaris sued, alleging breach of contract and requesting a declaratory judgment that HSBC's conduct violated the contract and that HSBC is contractually obligated to utilize the previous set of criteria in approving credit to be extended under the Agreement. On May 1, 2008, HSBC filed its answer, additional defenses, and counterclaim. On July 8, 2008 HSBC filed a motion for summary judgment on its counterclaim for a declaratory judgment that (1) HSBC has the right under the Agreement to alter the criteria it uses to approve credit to consumers; (2) HSBC had the right under the Agreement to make the changes to the criteria in January and March of 2008; (3) HSBC did not breach the Agreement by announcing its intention to tighten the criteria it uses or by making changes to those criteria; and (4) HSBC is not obliged under the Agreement to continue to provide financing based on the applicant approval rates and credit criteria used prior to March 1, 2008.

The standard for summary judgment is well-known and does not bear repeating since the 1986 trilogy of Supreme Court opinions. See e.g. Matsushita Elec. Indus. Co. V. Zenith Radio Corp., 475 U.S. 574 (1986) and its two successors in that October Term. Contract interpretation cases are particularly, though not universally, suitable for summary judgment. Tingstol Co. V. Rainbow Sales, Inc., 218 F.3d 770 (7th Cir. 2000).

Nevada law governs the contract. Nevada contract law, like the law of contracts elsewhere, adopts the rule that unambiguous contracts are enforced as written and parole evidence is not to be considered in deciding the meaning of terms. Kaldi v. Farmers Ins. Exch., 21 P.3d 16, 21 (Nev. 2001). The intent of parties is determined by the language of the contract alone.

HSBC argues for its right to change credit criteria after the initial months of the Agreement. It reasons in this way:

HSBC assumed all credit risk and, while some unsophisticated lender might commit to accept such risk over several years without altering criteria by which it assumed new risk, an experienced lender like a bank would not do so. If HSBC did not reserve the right to alter credit criteria, it would leave itself at the mercy of Polaris if it wished to change criteria in the face of significant deterioration in the economy. Were this its only argument, HSBC, as it seems to recognize, would lose its motion. If experienced lenders did not make unwise deals we would have no need for the FDIC and similar agencies.

In its further arguments, HSBC relies on the structure and language of the contract. While there is no explicit provision giving HSBC the right to change acceptable credit scores, there is one provision that does restrict a right to charge for a sharply limited period of time. This language is consistent with the proposition that Polaris and HSBC would ordinarily have the power to change criteria and what had to be made explicit was any limitation on the power. That understanding is also ...

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