361 F.3d 217 | 3rd Cir. | 2004
FOR THE THIRD CIRCUIT Circuit Judges
____________ (Opinion filed: March 11, 2004) No: 01-4348 Ira A. Schochet, Esquire HING Q. LUM; DEBRA LUM, husband and wife, G. Martin Meyers, Esquire (Argued) individually and on behalf of all persons 35 West Main Street, Suite 106 similarly situated; GARY ORIANI Denville, New Jersey 07834 v. BANK OF AMERICA; CITIBANK, Counsel for Appellants N.A.; CHASE MANHATTAN BANK; MORGAN GUARANTY TRUST CO.;
FIRST UNION NATIONAL BANK; WELLS FARGO BANK, N.A.; FLEET William E. Deitrick, Esquire
BANK; PNC BANK N.A.;
THE BANK OF NEW YORK; KEY Mayer, Brown, Rowe & Maw
BANK; BANK ONE ; U.S. BANK;
190 South LaSalle Street
JOHN DOES, ONE THROUGH 100
Chicago, Illinois 60603 Hing Q. Lum, Debra Lum, and Gary S. Oriani, Richard H. Klapper, Esquire Appellants Sullivan & Cromwell 125 Broad Street New York, New York 10004
Appeal from the United States District Court for the District of New Jersey Kenneth N. Laptook, Esquire (D.C. Civil Action No. 00-cv-00223) District Judge: Honorable Faith S. Wolff & Samson, P.C. Hochberg 5 Becker Farm Road ______________________ Roseland, New Jersey 07068 Peter E. Greene, Esquire (Argued) Darryl J. May, Esquire Skadden, Arps, Slate, Meagher & Flom, Ballard, Spahr, Andrews & Ingersoll, LLP
LLP
1735 Market Street, 51 st Floor Four Times Square Philadelphia, PA 19103 New York, New York 10036 Frederick A. Nicoll, Esquire Joseph L. Buckley, Esquire Dorsey & Whitney, LLP Sills, Cummis, Radin, Tischman East 80, Route 4 Epstein & Gross Paramus, New Jersey 07652 One Riverfront Plaza Newark, New Jersey 07102
Brian J. McMahon, Esquire Gibbons, Del Deo, Dolan, Griffinger &
Gregory R. Haworth, Esquire Vecchione Duane, Morris LLP One Riverfront Plaza 744 Broad Street, Suite 1200 Newark, New Jersey 07101 Newark, New Jersey 07102
William T. Marshall, Esquire Anthony J. Laura, Esquire Zeichner, Ellman & Krause Reed Smith, LLP 103 Eisenhower Parkway One Riverfront Plaza Roseland, NJ 07068 Newark, New Jersey 07102
Allen E. Molnar, Esquire Anthony P. La Rocco, Esquire Klett, Rooney, Lieber & Schorling Kirkpatrick & Lockhart, LLP 550 Broad Street, Suite 810 One Riverfront Plaza, 7 th Floor
Newark, NJ 07102 Newark, New Jersey 07102 Mark S. Melodia, Esquire Reed Smith which publish independent indices of the prime rate. The banks allegedly violated 136 Main Street RICO by making these misrepresentations Princeton Forrestal Village, Suite 250 about “prime rate” through the mails and over interstate wires. Plaintiffs claim that Princeton, NJ 08540 the fraudulently inflated “prime rate” has resulted in their being charged higher interest than permitted by the terms of the
Counsel for Appellees “prime plus” loan agreements. ________________ The District Court dismissed
OPINION
plaintiffs’ RICO claim because it lacked the specificity in pleading fraud that is required under Fed. R. Civ. P. 9(b). It dismissed the antitrust claim for failure to meet the minimum standards for pleading
ROTH, Circuit Judge: an antitrust conspiracy. Lum v. Bank of The meaning of the term “prime America, No. 00-223, slip op. at 11-12, rate” lies at the heart of this appeal. (E.D. Pa. Nov. 29, 2001). [1] Plaintiffs, Hing Q. Lum, his wife Debra, We agree that the RICO claim was and Gary Oriani have borrowed money from defendant banks pursuant to lending properly dismissed. Because it is agreements with “prime plus” interest predicated on mail and wire fraud, Federal Rule of Civil Procedure 9(b) requires that rates. Plaintiffs claim in their Amended Complaint that the defendant banks, in the fraud be pled with specificity. It was setting “prime plus” interest rates, have not. Moreover, the antitrust claim is also based on fraud – on misrepresentations in violated the Sherman Antitrust Act, 15 U.S.C. § 1, and the Racketeer Influenced the information given to consumers and on misrepresentations in the information and Corrupt Organizations Act (RICO), 18 U.S.C. § 1962(c), § 1962(d). The banks allegedly violated the Sherman Act by agreeing to misrepresent that “prime rate”
Plaintiffs also allege violations of the is the lowest rate available to their most New Jersey Consumer Fraud statute, creditworthy borrowers, when in fact they 56:8-2 et seq., and the New Jersey have offered some large borrowers common law of contracts. Having financing at interest rates below prime dismissed all the federal claims, the rate; they allegedly gave false information District Court dismissed these claims for about their “prime rate” both to consumers lack of supplemental jurisdiction. See 28 who were seeking credit and to leading U.S.C. §1367(c)(3); Borough of West financial publications, such as the New Mifflin v. Lancaster, 45 F.3d 780, 788 York Times and the Wall Street Journal , (3d Cir. 1995). given to the independent financial therefore, affirm the judgment of the publications. Although antitrust claims District Court. generally are not subject to the heightened pleading requirement of Rule 9(b), fraud must be pled with particularity in all I. Facts and Procedural History claims based on fraud – “In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be On January 14, 2000, Hing and stated with particularity.” Fed. R. Civ. P. Debra Lum filed a complaint in the United 9(b) (emphasis added). Fraud is the basis States District Court for the District of for the antitrust violation alleged here. In New Jersey on behalf of themselves and of paragraph 18 of the Amended Complaint, a purported class of similarly situated plaintiffs aver that the banks “fraudulently individuals who borrowed money from the and artificially inflate[d] the ‘prime rate’ defendant banks from April 22, 1987, to published in the outside indexes by falsely the present. The purported class was not reporting the Bank’s individual prime rates certified prior to dismissal of the to the various publications. . . . the ‘prime complaint. The defendants in the suit are rate’ published by the outside indexes twelve of the country’s largest banks and remained artificially high and the prime one hundred unnamed individuals. On plus interest rates on the consumer credit April 6, 2000, the plaintiffs filed an instruments were fraudulently inflated.” Amended Complaint adding Gary Oriani (emphasis added). Because, as in the as a plaintiff. The Amended Complaint RICO claim, plaintiffs’ allegations of alleges that defendants violated RICO, the fraud did not comply with Rule 9(b), the Sherman Antitrust Act, and New Jersey antitrust claim would properly have been law by the manner in which they fixed the dismissed on these grounds. [2]
“prime plus” interest rate. Prime plus interest rates are tied to the “prime rate” as
Finally, we agree with the District it is defined by the lender or by an outside Court’s denial of leave to amend. index reported in a major financial Plaintiffs’ statements at oral argument and publication. These publications in turn their briefs both before the District Court develop their indices from the prime rates and before us make it clear that granting reported by leading financial institutions, leave to amend would be futile. We will, including defendant banks. At the heart of the Amended Complaint are the following allegations:
Although the allegations of conspiracy in the Amended Complaint are somewhat conclusory, we do not agree with the
17. At some point in District Court’s position that they do not time prior to the meet the pleading requirements of Fed. Class Period, the R. Civ. P. 8(a). Bank Defendants scheme, conspiracy f o r m u l a t e d a n d a n d c o u r s e o f carried out a plan, conduct designed to s c h e m e a n d f r a u d ul e n t l y a n d conspiracy to fix and artificially inflate the control the “prime “ p r i m e r a t e ” rate” published by published in the the outside indexes. outside indexes by Because these prime falsely reporting the rate indexes had been Bank ’s individual incorporated into prime rates to the thousands of existing various publications. financial instruments To effectuate this as well as into new scheme, the Banks financial instruments reported as their written by the Banks, prime rates, rates far control of the prime in excess of the rates rate published in the the Banks actually o u t s i d e i n d e x e s charged to their would enable the largest and most Banks to effectively c r e d i t w o r t h y raise interest rates customers. As a unilaterally on these result of this plan, credit instruments, scheme, conspiracy and in so doing a n d c o u r s e o f increase their income conduct, the “prime a n d p r o f i t s b y rate” published by m il l i o n s , if not the outside indexes billions of dollars on remained artificially an annual basis. high and the prime
plus interest rates on the consumer credit
18. During the Class instrume nts were P e r i o d , w h i l e fraudulently inflated. m a i n t a i n i n g a n
(emphasis added). a p p e a r a n c e o f following a prime The Amended Complaint then rate set by neutral identifies three financial transactions forces, the Banks pursuant to which the named plaintiffs entered into a plan, obtained financing at a “prime plus”
interest rate. The plaintiffs did not attach Debra Lum obtained a home equity loan the agreements documenting these three from Morris County Savings Bank, now transactions, but the defendants provided First Union National Bank, in April 1987. copies of the agreements in support of This loan required the plaintiffs to pay their motion to dismiss. [3] First, Hing and interest at a rate of two percentage points
above the prime rate, as reported in The New York Times . Second, plaintiff Debra Lum received credit cards from defendant
While plaintiffs did not attach this Bank of America in 1990 and from Chase credit agreement to the complaint, they Manhattan Bank in 1991. These cards do not dispute that the District Court have interest rates tied to the prime rate properly considered the agreement. In reported in the Wall Street Journal . The deciding motions to dismiss pursuant to Rule 12(b)(6), courts generally consider only the allegations in the complaint, exhibits attached to the complaint, agreements are integral to and relied matters of public record, and documents upon in the complaint. that form the basis of a claim. See In re It should be noted that, under this Burlington Coat Factory Sec. Litig., 114 standard, the District Court improperly F.3d 1410, 1426 (3d Cir. 1997); Pension took judicial notice of Hing Lum’s Benefit Guar. Corp. v. White Consol. deposition testimony in a prior Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. proceeding that he understands that the 1993). A document forms the basis of a term prime rate does not mean the lowest claim if the document is "integral to or rate available to a bank’s most explicitly relied upon in the complaint." creditworthy customers. While a prior Burlington Coat Factory, 114 F.3d at judicial opinion constitutes a public 1426 (emphasis omitted). The purpose record of which a court may take judicial of this rule is to avoid the situation where notice, it may do so on a motion to a plaintiff with a legally deficient claim dismiss only to establish the existence of that is based on a particular document the opinion, not for the truth of the facts can avoid dismissal of that claim by asserted in the opinion. See Southern failing to attach the relied upon Cross Overseas Agencies, Inc. v. Wah document. See Pension Benefit Guar. Kwong Shipping Group, Ltd., 181 F.3d Corp., 998 F.2d at 1196. Further, 410, 427 (3d Cir. 1999). Thus, “a court considering such a document is not that examines a transcript of a prior unfair to a plaintiff because, by relying proceeding to find facts converts a on the document, the plaintiff is on motion to dismiss into a motion for notice that the document will be summary judgment.” Id. at 427 n. 7. considered. See Burlington Coat Nevertheless, since there are sufficient Factory, 114 F.3d at 1426. In the present other grounds to support dismissal here, case, there is no dispute that the credit this error is not a basis for reversal. Bank of America agreement defines this The District Court had jurisdiction prime rate as “the base rate on corporate over the federal RICO and antitrust claims loans at large U.S. money center pursuant to 28 U.S.C. § 1331, and commercial banks.” The Chase Manhattan supplemental jurisdiction over the state agreement states that: law claims pursuant to 28 U.S.C. § 1367.
We have jurisdiction over the District For purposes of this Court’s final order pursuant to 28 U.S.C. § Agreement, the Prime Rate 1291. as published in “Money Rates” table of The Wall We exercise plenary review over a Street Journal or any other district court’s dismissal of a complaint newspaper of national under Rule 12(b)(6). Ditri v. Coldwell circulation selected by us is Banker Residential Affiliates, Inc., 954 merely a pricing index. It is F.2d 869, 871 (3d Cir. 1992). We review not, and should not be a district court’s denial of leave to amend considered by you to for abuse of discretion. Heyl & Patterson represent, the lowest or the Int’l, Inc. v. F.D. Rich Housing of the best interest rate available to Virgin Islands, Inc., 663 F.2d 419, 425 (3d a borrower at any particular Cir. 1981). bank at any given time.
III. Discussion In considering a motion to dismiss, a court must accept as true all of the In connection with all three of these transactions, the defendant banks have sent factual allegations in the complaint and to plaintiffs, through the U.S. mail, draw all reasonable inferences from those facts in favor of the plaintiffs. Moore v. monthly statements regarding the prime rate. Tartler, 986 F.2d 682, 685 (3d Cir. 1993).
A court may dismiss the complaint only if On May 5, 2000, defendants moved it is clear that no relief could be granted to dismiss the complaint. In their under any set of facts that could be proved opposition to the motion, plaintiffs consistent with the allegations. Hishon v. submitted a detailed RICO Case Statement King & Spalding, 467 U.S. 69, 73 (1984). pursuant to the Local Rules of the District In the present case, even accepting the of New Jersey. On November 29, 2001, allegations in the complaint as true and following oral argument, the District Court drawing every reasonable inference in granted defendants’ motion to dismiss. favor of the plaintiffs, they have failed to Plaintiffs filed a timely appeal. adequately plead either a RICO or an antitrust cause of action.
II. Jurisdiction and Standard of A. RICO: Review The plaintiffs have failed to 676 (3d Cir. 1988), vacated on other adequately plead a RICO cause of action grounds, 489 U.S. 1049 (1989). predicated on mail and wire fraud because
The federal mail and wire fraud their general allegations of fraud do not statutes prohibit the use of the mail or comply with Rule 9(b) and their specific interstate wires for purposes of carrying a l l eg a t i o n s r e g a r d in g p a r t i c u l a r out any scheme or artifice to defraud. See transactions do not amount to fraud. The 18 U.S.C. §§ 1341, 1343. "'A scheme RICO statute provides that: or artifice to defraud need not be It shall be unlawful for any fraudulent on its face, but must involve person employed by or some sort of fraudulent misrepresentation a s s o c i a t e d w i t h a n y or omission reasonably calculated to enterprise engaged in, or the deceive persons of ordinary prudence and activities of which affect, comprehension.'" Brokerage Concepts, i n t e r s t a t e o r f o r e i g n Inc. v. U.S. Healthcare, Inc., 140 F.3d 494, commerce, to conduct or 528 (3d Cir. 1998) (quoting Kehr participate, directly or Packages, Inc. v. Fidelcor, Inc., 926 F.2d indirectly, in the conduct of 1406, 1415 (3d Cir. 1991)). such enterprise’s affairs
Where, as here, plaintiffs rely on through a pa ttern of mail and wire fraud as a basis for a RICO racketeering activity or violation, the allegations of fraud must collection of unlawful debt. comply with Federal Rule of Civil Procedure 9(b), which requires that allegations of fraud be pled with
18 U.S.C. § 1962(c). It is also unlawful specificity. See Saporito, 843 F.2d at 673. for anyone to conspire to violate § 1962(c). In order to satisfy Rule 9(b), plaintiffs See 18 U.S.C. § 1962(d). In order to plead must plead with particularity “the a violation of RICO, plaintiffs must allege ‘circumstances’ of the alleged fraud in (1) conduct (2) of an enterprise (3) through order to place the defendants on notice of a pattern (4) of racketeering activity. See the precise misconduct with which they are Sedima, S.P.R.L. v. Imrex Co., Inc., 473 charged, and to safeguard defendants U.S. 479, 496 (1985). A pattern of against spurious charges of immoral and racketeering activity requires at least two fraudulent behavior.” Seville Indus. predicate acts of racketeering. See 18 Mach. Corp. v. Southmost Mach. Corp., U.S.C. § 1961(5). These predicate acts of 742 F.2d 786, 791 (3d Cir. 1984). racketeering may include, inter alia, Plaintiffs may satisfy this requirement by federal mail fraud under 18 U.S.C. § 1341 pleading the “date, place or time” of the or federal wire fraud under 18 U.S.C. § fraud, or through “alternative means of 1343. See 18 U.S.C. § 1961(1); Saporito injecting precision and some measure of v. Combustion Eng’g, Inc., 843 F.2d 666, substantiation into their allegations of fraud.” Id. (holding that a plaintiff conspiracy described in this satisfied Rule 9(b) by pleading which Complaint. Each month machines were the subject of alleged during the Class Period, fraudulent transactions and the nature and D e f e n d a n t s m a i l e d subject of the alleged misrepresentations). t h o u s a n d s o f b a n k Plaintiffs also must allege who made a statements, advertisements misrepresentation to whom and the general for credit cards, contracts content of the misrepresentation. See and promotional materials Saporito, 843 F.2d at 675; Rolo v. City containing the fraudulent Investing Co. Liquidating Trust, 155 F.3d sta ted a nd a rtif ic ially 644, 658-59 (3d Cir. 1998); Klein v. inflated interest rates to General Nutrition Co., Inc., 186 F.3d 338, Plaintiffs and the Class in 345 (3d Cir. 1999). f u r t h e ra n c e o f t h e i r
fraudulent scheme. Each In the present case, the RICO cause such act constituted a of action consists of the following violation of 18 U.S.C. § allegation of mail and wire fraud: 1341. 44. During the Class Period, within the meaning of 18 U.S.C. §1962(c), the (b) During the Class Defendants conducted and P e r i o d D e f e n d a n t s participated, directly and transmitted or caused to be indirectly, in the conduct of transmitted by means of the enterprises through the wire communications in pattern of racketeering i n t e r s t a t e o r f o r e i g n activity: commerce, writings, signs,
signals, pictures or sounds for the purpose of executing
(a) During the Class a scheme or artifice to Period, Defendants used the defraud the plaintiffs, or for U.S. mails and/or interstate obtaining money or property wire facilities in connection of the Plaintiffs and the with accomplishing the Class by means of false or fraudulent scheme described f r a u d u l e n t p r e t e n s e s , in this Complaint. Each representations or promises such use of the U.S. mails or as se t forth in this interstate wire facilities was Complaint in the allegations for the purpose of executing set forth above. Examples a n d f u r t h e r i n g t h e include interstate telephone f r a u d u len t sche m e o r calls and/or facsim ile transmissions by prospective District Court failed to address explicitly borrowers, seeking to the fact that the factual background section p r o m o t e b o r r o w i n g of the Amended Complaint and the RICO allegedly tied to the "prime Case Statement identify three specific rate," or to collect interest allegedly fraudulent transactions – the charges and loan payments mortgage with First Union, and the credit allegedly due in connection card transactions with Bank of America with borrowing on the and Chase Manhattan, the dates of these f i n a n c i a l a n d c r e d i t transactions, and the names of the instruments tied to the d e f e n d a n t s w h o m a d e a l l e g e d misrepresentations to particular plaintiffs. [4] "prime rate," as well as interstate telephone or wire transmissions of the Bank's prime rate to the publishers
In their brief, plaintiffs claim that the of the outside indexes. Each RICO Case Statement alleges that Oriani of these acts constitutes a entered into an instant credit agreement violation of 18 U.S.C. § with Bank of New York in March 1994. 1343. However, the RICO Case Statement only The “fraudulent scheme described in the alleges that Bank of New York Complaint” refers to paragraphs 17 and 18 represented a certain interest rate tied to of the Amended Complaint which we have the prime rate on a particular date. It does not allege that Oriani entered into a set out above in Part I.
credit agreement with Bank of New The District Court properly ruled York, the date of the credit agreement, or that these conclusory allegations do not the terms of the agreement (in particular satisfy Rule 9(b). They do not indicate the what interest rate Oriani would pay). d a t e , t i m e , o r p l a c e o f a n y Plaintiffs did not submit the credit misrepresentation; nor do they provide an agreement that Oriani allegedly entered alternative means of injecting precision into with Bank of New York. Based on and some measure of substantiation into the representations of Oriani's counsel at the fraud allegations because they do not oral argument before the District Court, identify particular fraudulent financial Bank of New York conducted a search of transactions. See Seville, 742 F.2d at 791. its records but could not find a record of Nor do these allegations indicate which the agreement with Oriani. Nevertheless, defendant(s) made misrepresentations to Bank of New York submitted its standard which plaintiff(s). See id.; Saporito, 843 Instant Credit Agreement from the period F.2d at 675; Rolo, 155 F.3d at 658-59; during which Oriani claimed he entered Klein, 186 F.3d at 345. into an agreement with Bank of New York. This agreement merely defined Plaintiffs contend, however, that the the term “prime rate” as the rate reported Plaintiffs, citing Michaels Building Co. v. date, time, or place of the alleged Ameritrust Co., 848 F.2d 674 (6th Cir. m i s r e p re s e n ta t i o n s , the fin ancia l 1988), and Haroco, Inc. v. American Nat'l transactions in connection with which Bank and Trust Co. of Chicago, 747 F.2d these misrepresentations were made, or 384 (7th Cir. 1984), aff'd 473 U.S. 606 who made the misrepresentation to whom. (1985), argue that these allegations are See Seville, 742 F.2d at 791; Saporito, 843 sufficient to plead a RICO cause of action. F.2d at 675; Rolo, 155 F.3d at 658-59; In Michaels and Haroco, the Courts of Klein, 186 F.3d at 345. Plaintiffs also Appeals for the Sixth and Seventh allege that, on February 4, 2000, and Circuits, respectively, held that complaints March 29, 2000, Citibank and First Union adequately pled RICO causes of action represented to the "class" that the prime predicated on mail and wire fraud when rate was the rate charged to their most they alleged that banks misrepresented in creditworthy comm ercial customers. particular loan agreements that the prime However, plaintiffs do not allege that these rate is the interest rate charged by the representations were made to a named banks to their most creditw orthy plaintiff, or that any particular individual commercial borrowers, although in fact the entered into a financial transaction with banks charged lower rates to some this term. See Rolo, 155 F.3d at 659 commercial borrowers. See Michaels, 848 (holding that, until a class is certified, a F.2d at 677; Haroco, 747 F.2d at 385. RICO action is one between the named
plaintiffs and defendants, and the In the present case, however, the adequacy of the pleading must be analyzed Amended Complaint fails to allege fraud with regard to the specificity of the fraud in relation to the three identified allegations relating to the named transactions because, unlike Michaels or plaintiffs). Haroco, the plaintiffs do not, and cannot, allege that any of the three purportedly In order to counter their failure to fraudulent credit agreements define the cite specific instances of active term “prime rate” as the lowest interest misrepresentation that the prime rate is the rate available to a bank’s most lowest rate available to a bank’s most creditworthy borrowers. See id. creditworthy borrowers, the plaintiffs
focus on omissions by defendants. They In addition, plaintiffs make general argue that the term “prime rate” is so claims that defendants misrepresented that generally understood to mean the lowest the prime rate is the lowest rate charged to rate available to a bank’s most their most creditworthy custom ers. creditworthy borrowers that the failure to However, these allegations do not satisfy disclose that some borrowers obtain loans Rule 9(b) because they do not indicate the with interest rates below the prime rate constitutes fraud.
We conclude to the contrary. Even in the Wall Street Journal . drawing every reasonable inference in rate because “a decision to charge certain favor of plaintiffs, the meaning of the term customers lower rates than others – a “prime rate” is sufficiently indefinite that common occurrence in the banking it is reasonable for the parties to have industry – merely reflects the bank’s different understandings of its meaning. greater confidence in the financial stability For example, more than twenty years ago, of those customers.”). It is therefore a congressional committee, in a staff unreasonable to infer that defendants’ use report, described “prime rate” as a “murky, of the equivocal term “prime rate” was ill-defined term that rarely reflects the reasonably calculated to deceive persons lowest rates available to corporate of ordinary prudence and comprehension customers.” See Staff of House Comm. on into believing that no borrower obtained Banking, Finance and Urban Affairs, 97 th an interest rate below the prime rate. Cong., 1 st Sess., An Analysis of Prime
Plaintiffs’ claim boils down to a Rate Lending Practices of the Ten Largest disagreement about the meaning of the United States Banks 3 (Comm. Print term “prime rate.” This disagreement does 1981). This lack of precision in the term not rise to the level of fraud; at most, it “prime rate” has also been recognized by alleges a contract dispute. See Blount, 819 the courts. See, e.g., Blount Fin. Serv. Inc. F.2d at 152-53. v. Walter E. Heller and Co., 819 F.2d 151,
Moreover, the requirement of Rule 152-53 (6th Cir. 1987) (“The fact that the 12(b)(6) that we draw every reasonable parties take different positions under the inference in favor of plaintiffs does not contract as to the appropriate prime rate, or preclude us from reaching this result. the fact that the defendant charged too Plaintiffs do not ask us just to infer that the high a ‘prime rate’ and thereby concealed term “prime rate” means the lowest rate or refused to disclose what the plaintiff available to defendants’ most creditworthy considers the true prime rate called for borrowers. They ask us to conclude that under the contract, does not give rise to a this meaning is so universally accepted valid claim for fraud.”); Wilcox v. First that it is the only possible meaning and Interstate Bank of Oregon, 815 F.2d 522, that a reasonable person could not 527-28 (9th Cir. 1987) (opining that prime understand the term to mean anything else. rate indicates the average cost of a loan In light of Wilcox and Blount, this is not a because most loans are negotiated at reasonable inference. See Blount, 819 interest rates above or below prime); F.2d at 151; Wilcox, 815 F.2d at 528. We Center Cadillac, Inc. v. Bank Leumi Trust conclude that the term “prime rate,” in the Co. of New York, 859 F. Supp. 97, 103 context in which it was used here, is (S.D.N.Y. 1994), aff’d, 99 F.3d 401 (2d imprecise. Cir. 1995) (holding that a lender does not commit the predicate act of mail fraud by Furthermore, even if we were to omitting a definition of prime rate and have held it to be fraudulent to use the charging some borrowers below the prime term “prime rate” without disclosing that some borrowers obtain financing below Street Journal ) expressly stated in one of the prime rate, the defendants in this case the three allegedly fraudulent credit clearly did disclose that some borrowers agreements, relied upon by the plaintiffs, obtained financing below the prime rate. that the prime rate is not the lowest rate The 1991 credit card agreement between offered to the bank’s most creditworthy defendant Chase Manhattan and plaintiff customer, it would be difficult to conclude, Debra Lum states: as plaintiffs allege, that the defendants
conducted an enterprise through a pattern For purposes of this of racketeering activity by making Agreement, the Prime Rate misrepresentations or omissions that were as published in "Money reasonably calculated to deceive persons Rates" table of The Wall of ordinary prudence and comprehension. Street Journal or any other newspaper of national Plaintiffs, however, point to a circulation selected by us is representation in another of the three merely a pricing index. It is agreements, the credit card agreement not, and should not be between Debra Lum and Bank of America, considered by you to in support of their fraud claim. They argue represent, the lowest or the that the representation in this agreement – best interest rate available to that the prime rate is "the base rate on a borrower at any particular corporate loans at large U.S. money center bank at any given time. commercial banks" – is tantamount to
defining the prime rate as the lowest rate available to a bank’s most creditworthy
(emphasis added). Plaintiffs argue that the borrowers. However, as with the term term “it” in the last sentence of the Chase “prime rate,” a person of ordinary Manhattan agreement refers to the term prudence and comprehension would not “index” in the preceding sentence, not the conclude from this statement that no term “prime rate.” This distinction is commercial borrowers obtain an interest meaningless, however, because, according rate below the base rate because nothing in to the terms of the contract, the prime rate the term “base rate” excludes the for purposes of the credit card agreement possibility of discounts for some is the prime rate reported in the Wall Street custome rs. Indeed, as plaintiffs Journal . Thus, the caveat applies equally acknowledge in their opening brief, citing B LACK ’ S L AW D ICTIONARY 1191 (6 TH Ed. to both rates.
1990), “base rate” is “effectively Given the fact that one member of equivalent” to “prime rate.” See also Form the RICO association-in-fact (alleged by FR 2028a/s, Fed. Res. Board, Prime Rate plaintiffs to be the defendant banks plus Supp. to Survey of Terms of Business the Reuters News Service, Dow Jones, Lending. As with the term “prime rate,” Inc., The New York Times , and the Wall because of the possibility of discounts, the U.S. 464, 473 (1962); see also Hospital term “base rate” may not mean the lowest Bldg. Co. v. Trustees, 425 U.S. 738, 746 possible rate. (1976) (“[I]n antitrust cases, . . . dismissal
prior to giving the plaintiff ample We conclude, therefore, that opportunity for discovery should be plaintiffs have failed to plead fraud with granted very sparingly.”). Likewise, in particularity in their RICO claim so that Knuth v. Erie-Crawford Dairy Coop, this the District Court properly dismissed it. [5] Court stated that "we should be extremely B. Sherman Antitrust Act: liberal in construing antitrust complaints." 395 F.2d 420, 423 (3d Cir. 1968). Similarly, since the Amended Complaint alleges that defendants carried We have, however, recognized that out their antitrust conspiracy through “‘while antitrust complaints are not subject fraud, plaintiffs have failed to state a cause to especially stringent pleadings, see of action under Section 1 of the Sherman Knuth, supra, neither are they exempt from Antitrust Act because of the defects in the the federal rules.’” Commonwealth of fraud allegations discussed above. Pennsylvania v. Pepsico, Inc., 836 F.2d Generally, the pleading standard for 173, 179 (3d Cir. 1988) (quoting Sims v. Section 1 claims is the short and concise Mack Truck Corp., 488 F. Supp. 592, 608 statement standard of Rule 8(a). In Poller (E.D. Pa. 1980)). v. Columbia Broad. Sys., the Supreme
Because plaintiffs allege that the Court cautioned that “summary procedures defendants accomplished the goal of their should be used sparingly in complex conspiracy through fraud, the Amended antitrust litigation where motive and intent Complaint is subject to Rule 9(b). See play leading roles, the proof is largely in Fed. R. Civ. P. 9(b) (“In all averments of the hands of the alleged conspirators, and fraud or mistake, the circumstances hostile witnesses thicken the plot.” 368 constituting fraud or mistake shall be stated with particularity.” (emphasis added)). Plaintiffs, nevertheless, pointing
Having correctly found that plaintiffs to paragraph 17 of the Amended failed to adequately plead a substantive Complaint, argue that their antitrust claim RICO claim under 18 U.S.C. § 1962(c), merely alleges that defendants conspired to the District Court properly dismissed the set an artificially high floor on interest RICO conspiracy claim under 18 U.S.C. rates by agreeing to raise the prime rate, § 1962(d). “Any claim under section and that allegations of misrepresentations 1962(d) based on conspiracy to violate regarding the prime rate only go to their the other subsections of section 1962 RICO claim. In paragraph 17, the necessarily must fail if the substantive A m ended Complaint alleges that claims are themselves deficient.” defendants “formulated and carried out a Lightning Lube, Inc. v. WITCO Corp., 4 plan, scheme and conspiracy to fix and F.3d 1153, 1192 (3d Cir. 1993). control the ‘prime rate’ published by the consumer credit instruments outside indexes.” were fraudulently inflated.
This paragraph of the Amended Complaint cannot, however, be read in (emphasis added). In short, the fact that isolation. See Chabal v. Reagan, 822 F.2d the fraud is not identified in paragraph 17 349, 357 (3d Cir. 1987). The very next of the Amended Complaint does not rule paragraph of the Amended Complaint out that fraud is part of the antitrust makes clear that plaintiffs are alleging that allegation because paragraph 17 merely the defendants carried out this plan, identifies the existence of a conspiracy to scheme, and conspiracy through fraud: fix the prime rate, while paragraph 18 18. During the Class identifies how the rate fixing was Period, while maintaining accomplished – through fraud. an appearance of following
Because plaintiffs have alleged a prime rate set by neutral fraud as a basis for their antitrust cause of forces, the Banks entered action, this claim is subject to the into a pla n, s ch e m e, heightened pleading requirement of Rule conspiracy, and course of 9(b). As discussed above, plaintiffs have c o n d u c t d e s i g n e d t o failed to satisfy the requirements of Rule fraudulently and artificially 9(b) with regard to their theory that inflate the “prime rate” defendants misrepresented that the prime published in the outside rate would be the lowest rate available to indexes by falsely reporting their most creditworthy customers. They the Bank’s individual prime have also failed to particularize how false r a t e s t o t h e va r i o us information on their “prime rate” was sent publications. To effectuate to the financial publications for inclusion this scheme, the Banks in the independent indices. They have not reported as their prime rates, set out who sent what information to rates far in excess of the whom or when it was sent. Nor have they rates the Banks actually particularized by how many points the charged to their largest and prime rate was falsely reported or whether m o s t c r e d i t w o r t h y there was any consistency among the customers. As a result of defendant banks in the amount by which t h i s p l a n , s c h e m e , the prime rate was falsely reported. We conspiracy and course of conclude, therefore, that plaintiffs have not conduct, the “prime rate” adequately pled an antitrust claim published by the outside predicated on fraud. indexes remained artificially high and the prime plus C. Leave To Amend: interest rates on th e Can plaintiffs cure the deficiencies what we believe at this time
in the Amended Complaint by further is the basis of the claim, that amendment, either by providing particulars we can assert in good faith of the fraudulent conduct or by dropping is based on conscious the allegations of fraud? The Federal parallelism, and it might Rules of Civil Procedure provide that very well be that during leave to amend “shall be freely given when discovery, we will be able to justice so requires.” Fed. R. Civ. P. 15(a). establish that there were The District Court denied the request to actual meetings and direct amend on the basis that amendment would discussions. be futile.
We agree that it is clear from the This statement, viewed in light of statements in plaintiffs’ briefs and at oral the record before the court, is not argument both before the District Court sufficient to establish cons cio us and before us that leave to amend would parallelism. “The law is settled that proof be futile. Plaintiffs cannot allege of consciously parallel business behavior sufficient facts to support fraud in either is circumstantial evidence from which an the RICO or the antitrust claims. At oral agreement, tacit or express, can be inferred argument, plaintiffs did not identify any but that such evidence, without more, is additional allegations of fraud related to insufficient unless the circumstances under other financial transactions, or of other which it occurred make the inference of misrepresentations made in connection rational independent choice less attractive with the three identified transactions, that than that of concerted action.” Bogosian, they would include in a Second Amended 561 F.2d at 446. We have identified two Complaint. Having examined the such circumstances, known as “plus contracts from the three purportedly factors”: 1) where defendants acted in fraudulent transactions, it is clear that there contradiction of their own economic are no further particulars of fraud in these interests, and 2) where there is satisfactory transactions to set out and that granting demonstration of a motive to enter into an leave to amend would be futile. agreement. See id.; Venzie Corp. v. Similarly, permitting plaintiffs to United States Mineral Prod., 521 F.2d amend their antitrust claim to remove the 1309, 1316 (3d Cir. 1975). Since fraud allegation would be futile. They will conscious parallelism is an evidentiary rule have no additional information to provide that relates to how a plaintiff may prove here either. The only alternative basis for the existence of an agreement, a plaintiff the antitrust claim that plaintiffs propose is need not allege the existence of these plus a claim of conscious parallelism. As factors in order to plead an antitrust cause plaintiffs’ attorney stated at oral argument: of action. See Bogosian, 561 F.2d at 446
(holding that plaintiffs adequately pled an antitrust cause of action where they alleged Citi Platinum Select 1.65 a combination and that the defendants
Citi Advantage Card 9.9 entered into parallel contracts with tying agreements). First Union
In the present case, however, Visa Classic 7.9 granting plaintiffs leave to plead conscious Visa Gold 6.4 parallelism would be futile because plaintiffs do not allege, or seek to amend Visa Platinum 4.9 their complaint to allege, that defendants
US Bank engaged in consciously parallel pricing as to the final interest rate that defendants WorldPerks Visa Card 9.75 charged consumers. Indeed, the Amended
Wells Fargo Complaint alleges that the Chase Manhattan Advantage Credit agreement Proven Credit Standard/Platinum offered an interest rate of 6 percentage MasterCard 9.4 points above the prime rate (or 5
P r e f e r r e d P r o v e n C r e d i t percentage points above the prime rate if Standard/Platinum MasterCard 7.4 the customer had a Chase Manhattan banking relationship), but Citibank offered Premium Credit Standard/Platinum an interest rate of 1.65 percentage points MasterCard 4.0 above the prime rate. In addition, in their
Standard Mastercard 7.4 RICO Case Statement, plaintiffs allege that the following banks offered the Further, according to the RICO following interest rates on the following Case Statement, some defendants offered credit cards through March 29, 2000: prime plus interest rates where the
percentage points above the prime rate varied. The following banks offered the
Percentage Points Above Prime following interest rates on the following Bank of America: credit cards through March 29, 2000: Visa Classic 2.9 Percentage Points Above Prime Visa Gold 2.9 Bank of America Standard Mastercard2.9 Visa Classic 2.9 to 12.9
Bank One Standard Mastercard 2.9 to 12.9 Visa OneCard Platinum (for Visa Gold 2.9 to 12.9 purchase)6.9 Visa Platinum 7.9 to 12.9 CitiBank Key Bank Variable Rate Gold Visa1.99 to the following interest rates on lines of 13.99 credit:` Percentage Points Above Prime Variable Rate Gold MasterCard 1.99 to 13.99 Chase Manhattan Advantage Credit 6 Variable Rate Classic Visa 1.99 to First Union Cash Reserve Credit (New 13.99 York) 9.5 Variable Rate Classic MasterCard Key Bank Preferred Line of Credit (New 1.99 to 13.99 York)5.49 US Bank PNC Unsecured Line of Credit A
competitive rate Visa Classic 2.9 to 8.9 Bank of New York EquityLink Line of Visa Platinum 1.9 to 8.9 Credit0 [6] Still other defendants offered The only reasonable conclusion that incentives. For example, Bank One can be drawn from these figures is that offered a credit card with an introductory there was price competition as to the final rate of 2.9% for the first six months, interest rate on credit cards and lines of followed by a rate of 6.9 percentage points credit. See Hishon, 467 U.S. at 73. above the prime rate (for purchases). Chase Manhattan offered a credit card Plaintiffs argue that they do not with a fixed rate of 3.99% for the first nine have to allege conscious price parallelism months, followed by a rate of 8.49 as to the actual interest rate charged to percentage points above the prime rate customers because their allegations of (9.49 percentage points for non-preferred conscious price parallelism as to the prime customers). Bank of New York offered a rates is sufficient to state an antitrust cause credit card with an introductory rate of of action. In support of this argument, 5.99% for nine months, followed by a plaintiffs cite several cases that recognize fixed rate of 13.49% for balances greater that an agreement to artificially inflate the than or equal to $2,500, or 15.49% for base rate from which negotiations begin balances less than $2,500 – or a customer can violate the antitrust laws by causing could elect a variable rate after the first consumers to pay more than they would month of 5.49 percentage points above the absent an agreement to inflate the base prime rate for balances greater than or rate. See In re NADSAQ Market-Makers equal to $2,500, or 7.49 percentage points Antitrust Litig., 169 F.R.D. 493, 517-18 above the prime rate for balances less than $2,500.
The Bank of New York EquityLink Similarly, the RICO Case Statement Line of Credit had an introductory fixed alleges that the following banks offered rate of 5.9% for the first six months. (S.D.N.Y. 1996); In re Indus. Diamond In an industry with hundreds Litig., 167 F.R.D. 374, 383 (S.D.N.Y. of products and a pervasive 1996); Fisher Brothers, 102 F.R.D. 570, policy of allowing discounts 578 (E.D. Pa 1984); In re Glassine and and promotional allowances Greaseproof Paper Antitrust Litig., 88 to purchasers, . . . charts and F.R.D. 302, 306 (E.D. Pa. 1980). We need reports focusing on list not decide whether an actual agreement to p r i c e s r a t h e r t h a n artificially raise a base price violates transactional prices have antitrust laws because that issue is not little value. “Especially in before us. Rather, the issue before us is an oligopoly setting, in whether we reasonably can infer from which price competition is plaintiffs’ factual allegations of parallel most likely to take place base pricing that defendants agreed to through less observable and inflate the interest rates charged to less regular means than list consumers and small businesses. p r i c e s , i t w o u l d be
unre ason able to dra w The Supreme Court and this Court conclusions about the already have decided this issue in the e x i s t e n c e o f t a c i t negative. See Brooke Group LTD v. c o o r d i n a t i o n o r Brown & Williamson Tobacco Corp., 509 supracompetitive pricing U.S. 209, 227, 235-36 (1993); In re Baby from data that reflect only Food Antitrust Litig., 166 F.3d 112, 128 list prices.” Brooke Group, (3d Cir. 1999). In Brooke Group and In re 509 U.S. at 236. Baby Food Antitrust Litigation, the plaintiffs argued that an inference of an 166 F.3d at 128 (emphasis in original). agreement to artificially inflate prices
While Brooke Group involved could be drawn from evidence of judgment as a matter of law and In re Baby consciously parallel list prices. See id. Food Antitrust Litigation involved Both the Supreme Court and this Court summary judgment, assuming the factual rejected this argument, holding that the allegations are true in the present case and relevant inquiry for purposes of drawing every reasonable inference in determining if an agreement to inflate favor of plaintiffs, the plaintiffs contend prices can be inferred from consciously that they can allege that there is price parallel pricing is whether there is parallelism in setting the prime rate. We consciously parallel pricing in the final can see, however, from the information price consumers pay, not whether there is provided to the District Court by the conscious parallelism in the list price from plaintiffs that, due to discounts and which negotiations for the final price com petition regarding how many begins. See id. As we stated in In re Baby percentage points above the prime rate that Food Litigation: banks may charge, there is not price parallelism in the final interest rate charged to consumers. Under these circumstances, in light of Brooke Group and In re Baby Food Antitrust Litigation, it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations. Therefore, granting leave to amend would be futile. IV. Conclusion
For the reasons stated above, we will affirm the judgment of the District Court.
