Lum v. Bank of America

• Decision Date: 11 March 2004
• Docket Number: No. 01-4348.,01-4348.
• Citation: 361 F.3d 217
• Parties: Hing Q. LUM; Debra Lum, husband and wife, individually and on behalf of all persons similarly situated; Gary Oriani v. BANK OF AMERICA; Citibank, N.A.; Chase Manhattan Bank; Morgan Guaranty Trust Co.; First Union National Bank; Wells Fargo Bank, N.A.; Fleet Bank; PNC Bank N.A.; The Bank of New York; Key Bank; Bank One; U.S. Bank; John Does, One Through 100 Hing Q. Lum, Debra Lum, and Gary S. Oriani, Appellants.
• Court: U.S. Court of Appeals — Third Circuit

361 F.3d 217

Hing Q. LUM; Debra Lum, husband and wife, individually and on behalf of all persons similarly situated; Gary Oriani v. BANK OF AMERICA; Citibank, N.A.; Chase Manhattan Bank; Morgan Guaranty Trust Co.; First Union National Bank; Wells Fargo Bank, N.A.; Fleet Bank; PNC Bank N.A.; The Bank of New York; Key Bank; Bank One; U.S. Bank; John Does, One Through 100 Hing Q. Lum, Debra Lum, and Gary S. Oriani, Appellants.

No. 01-4348.

United States Court of Appeals, Third Circuit.

Argued on June 2, 2003.

Filed March 11, 2004.

COPYRIGHT MATERIAL OMITTED

Ira A. Schochet, G. Martin Meyers, (Argued), Denville, for Appellants.

William E. Deitrick, Mayer, Brown, Rowe & Maw, Chicago, Richard H. Klapper, Sullivan & Cromwell, New York, Kenneth N. Laptook, Wolff & Samson, P.C., Roseland, Peter E. Greene, (Argued), Skadden, Arps, Slate, Meagher & Flom, LLP, New York, Joseph L. Buckley, Sills, Cummis, Radin, Tischman, Epstein & Gross, Newark, Gregory R. Haworth, Duane, Morris LLP, Newark, Anthony J. Laura, Reed Smith, LLP, Newark, Anthony P. La Rocco, Kirkpatrick & Lockhart, LLP, Newark, Darryl J. May, Ballard, Spahr, Andrews & Ingersoll, LLP, Philadelphia, Frederick A. Nicoll, Dorsey & Whitney, LLP, Paramus, Brian J. McMahon, Gibbons, Del Deo, Dolan, Griffinger & Vecchione, Newark, William T. Marshall, Zeichner, Ellman & Krause, Roseland, Allen E. Molnar, Klett, Rooney, Lieber & Schorling, Newark, Mark S. Melodia, Reed Smith, Princeton Forrestal Village, Princeton, for Appellees.

Before SLOVITER, ALITO and ROTH, Circuit Judges.

OPINION

ROTH, Circuit Judge.

The meaning of the term "prime rate" lies at the heart of this appeal. Plaintiffs, Hing Q. Lum, his wife Debra, and Gary Oriani have borrowed money from defendant banks pursuant to lending agreements with "prime plus" interest rates. Plaintiffs claim in their Amended Complaint that the defendant banks, in setting "prime plus" interest rates, have violated the Sherman Antitrust Act, 15 U.S.C. § 1, and the Racketeer Influenced 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" is the lowest rate available to their most creditworthy borrowers, when in fact they have offered some large borrowers financing at interest rates below prime rate; they allegedly gave false information about their "prime rate" both to consumers who were seeking credit and to leading financial publications, such as the New York Times and the Wall Street Journal, which publish independent indices of the prime rate. The banks allegedly violated RICO by making these misrepresentations about "prime rate" through the mails and over interstate wires. Plaintiffs claim that the fraudulently inflated "prime rate" has resulted in their being charged higher interest than permitted by the terms of the "prime plus" loan agreements.

The District Court dismissed 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 an antitrust conspiracy. Lum v. Bank of America, 2001 WL 34059378, slip op. at 11-12, (E.D.Pa. Nov. 29, 2001).¹

We agree that the RICO claim was properly dismissed. Because it is predicated on mail and wire fraud, Federal Rule of Civil Procedure 9(b) requires that the fraud be pled with specificity. It was not. Moreover, the antitrust claim is also based on fraud — on misrepresentations in the information given to consumers and on misrepresentations in the information given to the independent financial publications. Although antitrust claims generally are not subject to the heightened pleading requirement of Rule 9(b), fraud must be pled with particularity in all claims based on fraud — "In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." Fed.R.Civ.P. 9(b) (emphasis added). Fraud is the basis for the antitrust violation alleged here. In paragraph 18 of the Amended Complaint, plaintiffs aver that the banks "fraudulently and artificially inflate[d] the `prime rate' published in the outside indexes by falsely reporting the Bank's individual prime rates to the various publications.... the `prime rate' published by the outside indexes remained artificially high and the prime plus interest rates on the consumer credit instruments were fraudulently inflated." (emphasis added). Because, as in the RICO claim, plaintiffs' allegations of fraud did not comply with Rule 9(b), the antitrust claim would properly have been dismissed on these grounds.²

Finally, we agree with the District Court's denial of leave to amend. Plaintiffs' statements at oral argument and their briefs both before the District Court and before us make it clear that granting leave to amend would be futile. We will, therefore, affirm the judgment of the District Court.

I. Facts and Procedural History

On January 14, 2000, Hing and Debra Lum filed a complaint in the United States District Court for the District of New Jersey on behalf of themselves and of a purported class of similarly situated individuals who borrowed money from the defendant banks from April 22, 1987, to the present. The purported class was not certified prior to dismissal of the complaint. The defendants in the suit are twelve of the country's largest banks and one hundred unnamed individuals. On April 6, 2000, the plaintiffs filed an Amended Complaint adding Gary Oriani as a plaintiff. The Amended Complaint alleges that defendants violated RICO, the Sherman Antitrust Act, and New Jersey law by the manner in which they fixed the "prime plus" interest rate. Prime plus interest rates are tied to the "prime rate" as it is defined by the lender or by an outside index reported in a major financial publication. These publications in turn develop their indices from the prime rates reported by leading financial institutions, including defendant banks. At the heart of the Amended Complaint are the following allegations:

17. At some point in time prior to the Class Period, the Bank Defendants formulated and carried out a plan, scheme and conspiracy to fix and control the "prime rate" published by the outside indexes. Because these prime rate indexes had been incorporated into thousands of existing financial instruments as well as into new financial instruments written by the Banks, control of the prime rate published in the outside indexes would enable the Banks to effectively raise interest rates unilaterally on these credit instruments, and in so doing increase their income and profits by millions, if not billions of dollars on an annual basis.

18. During the Class Period, while maintaining an appearance of following a prime rate set by neutral forces, the Banks entered into a plan, scheme, conspiracy and course of conduct designed to fraudulently and artificially inflate the "prime rate" published in the outside indexes by falsely reporting the Bank's individual prime rates to the various publications. To effectuate this scheme, the Banks reported as their prime rates, rates far in excess of the rates the Banks actually charged to their largest and most creditworthy customers. As a result of this plan, scheme, conspiracy and course of conduct, the "prime rate" published by the outside indexes remained artificially high and the prime plus interest rates on the consumer credit instruments were fraudulently inflated.

(emphasis added).

The Amended Complaint then identifies three financial transactions pursuant to which the named plaintiffs obtained financing at a "prime plus" interest rate. The plaintiffs did not attach the agreements documenting these three transactions, but the defendants provided copies of the agreements in support of their motion to dismiss.³ First, Hing and Debra Lum obtained a home equity loan from Morris County Savings Bank, now First Union National Bank, in April 1987. This loan required the plaintiffs to pay 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 Bank of America in 1990 and from Chase Manhattan Bank in 1991. These cards have interest rates tied to the prime rate reported in the Wall Street Journal. The Bank of America agreement defines this prime rate as "the base rate on corporate loans at large U.S. money center commercial banks." The Chase Manhattan agreement states that:

For purposes of this Agreement, the Prime Rate as published in "Money Rates" table of The Wall Street Journal or any other newspaper of national circulation selected by us is merely a pricing index. It is not, and should not be considered by you to represent, the lowest or the best interest rate available to a borrower at any particular bank at any given time.

In connection with all three of these transactions, the defendant banks have sent to plaintiffs, through the U.S. mail, monthly statements regarding the prime rate.

On May 5, 2000, defendants moved to dismiss the complaint. In their opposition to the motion, plaintiffs submitted a detailed RICO Case Statement pursuant to the Local Rules of the District of New Jersey. On November 29, 2001, following oral argument, the District Court granted defendants' motion to dismiss. Plaintiffs filed a timely appeal.

II. Jurisdiction and Standard of Review

The District Court had jurisdiction over the federal RICO and antitrust claims pursuant to 28 U.S.C. § 1331, and supplemental jurisdiction over the state law claims pursuant to 28 U.S.C. § 1367. We have jurisdiction over the District Court's final order pursuant to 28 U.S.C. § 1291.

We exercise plenary review over a district court's dismissal of a complaint under Rule 12(b)(6). Ditri v. Coldwell Banker Residential Affiliates, Inc., 954 F.2d 869, 871 (3d Cir.1992). We review a district court's denial of leave to amend...