Oak Rubber Co. v. Bank One, N.A., No. 1:02-CV-416.

• Decision Date: 26 July 2002
• Docket Number: No. 1:02-CV-416.
• Citation: 214 F.Supp.2d 820
• Parties: The OAK RUBBER COMPANY, et al., Plaintiffs, v. BANK ONE, N.A., Defendant.
• Court: U.S. District Court — Northern District of Ohio

214 F.Supp.2d 820

The OAK RUBBER COMPANY, et al., Plaintiffs, v. BANK ONE, N.A., Defendant.

No. 1:02-CV-416.

United States District Court, N.D. Ohio, Eastern Division.

July 26, 2002.

COPYRIGHT MATERIAL OMITTED

Beth E. Hansen, Robert R. Kracht, Robert W. McIntyre, Scott J. Dean, McIntyre, Kahn, Kruse & Gillombardo, Cleveland, OH, for Plaintiffs.

Christopher P. Fisher, Isaac Schulz, Ulmer & Berne, Cleveland, OH, for Defendant.

ORDER

GWIN, District Judge.

On March 12, 2002, Defendant Bank One filed a motion for summary judgment [Doc. 8]. On July 3, 2002, Plaintiffs The Oak Rubber Company and Oak Tennessee, Inc. (collectively "Oak Rubber") filed their motion for summary judgment [Doc. 102]. The parties oppose each others motion. Because there are few material facts at issue and most of the plaintiffs' claims fail as a matter of law, the Court grants the defendant's motion for summary judgment on all but two of the plaintiffs' claims. Because there is an issue of material fact regarding the plaintiffs' claim concerning the interest charged by Bank One, the Court denies the defendant's motion for summary judgment on Oak Rubber's breach of contract claim as to that issue. The Court also denies the defendant's motion for summary judgment on the slander of title claim because there is an issue of fact whether the Bank One's actions were malicious. The Court denies the plaintiffs' motion for summary judgment.

I. BACKGROUND

The plaintiffs' claims revolve around a business loan Oak Rubber obtained from Bank One and Bank One's alleged behavior in altering that loan. Specifically, plaintiffs say that Bank One violated the Bank Holding Company Act, 12 U.S.C. § 1972, by attempting to force Oak Rubber to renegotiate its credit agreement to terms more favorable to Bank One. In support of this claim, Oak Rubber says the defendant threatened to call due the previous loan, even though not in default, unless Oak Rubber agreed to change the loan to terms more favorable to Bank One.

Next, the plaintiffs say the defendant's actions of improperly perfecting liens on Oak Rubber's assets and then demanding repayment on the credit extended were extortionate loan collection techniques in violation of 18 U.S.C. § 894, thus making Oak Rubber eligible to recover as a crime victim under section 2307.60 of the Ohio Revised Code. The plaintiffs also say that Bank One's actions give rise to state law claims for breach of contract, fraud, slander of title, and breach of good faith. Besides, the excess interest allegedly paid, Oak Rubber says Bank One's collective actions prevented it from securing alternative financing which in turn purportedly impacted its business activities.

Bank One denies that its actions were improper. Instead, the defendant says that it attempted to renegotiate Oak Rubber's lending agreement because Oak Rubber had become a bad credit risk. Specifically, the defendant says it did not violate the federal anti-tying law because its attempt to renegotiate Oak Rubber's lending agreement was not anticompetitive or an unusual banking practice. With respect to the plaintiffs' charge of extortionate loan collection, Bank One says Congress intended the relevant statute to address organized crime and the violent collection methods associated with it. The defendant says nothing alleged in the complaint could possibly fall within the activity covered by the statute.

With respect to the state law claims, Bank One says the alleged conduct has not damaged the plaintiffs. The defendant says that Oak Rubber has not paid any interest it was not obligated to pay under the agreements it signed. In addition, Bank One says it released the security interest it mistakenly took in Oak Rubber's assets before the mistake damaged Oak Rubber. Because the plaintiffs have not alleged any harm caused by the mistaken liens, the defendant says all of the state law claims should fail.

II. FACTUAL BACKGROUND

Oak Rubber is a family owned business that operates the only manufacturer of latex gloves doing business in the United States. On December 23, 1993, the parties executed a loan agreement and promissory note under which Bank One made available a $6 million secured line of credit to Oak Rubber. The applicable interest rate was Oak Rubber's choice of the Libor rate plus 150 basis points or the Prime rate plus zero. The parties agreed that the promissory note would be payable on demand:

Principal and interest are immediately due and payable on demand but until such time as demand for payment is made, accrued interest thereon is due and payable as hereinafter provided:

Date of first interest payment: 01/01/94, and continuing monthly thereafter, until demand is made.

This note is issued in conjunction with an agreement or letter dated 12-23, 1993, to which reference is made, and is supported by other security documents.

(Pls.' Mot. for Summ.J.Ex. N at 1). The promissory note goes on to say:

If this Note is due and payable on demand it is subject to being called at any time upon actual demand by BANK ONE. The inclusion of a payment schedule is merely to provide terms for payment in the absence of actual demand and does not affect or impair BANK ONE's absolute right to demand payment of this Note at any time. Obligor agrees that BANK ONE may delay demand until, or make demand at anytime before, any payment date specified in the demand payment section of this Note.

(Pls.' Mot. for Summ.J.Ex. N. at 2).

On May 29, 1997, the parties changed the terms of the credit line through a modification agreement ("1997 modification agreement"). The modification agreement changed Oak Rubber's credit line from secured to unsecured. In turn, Bank One required Oak Rubber to execute a negative pledge of its assets¹ and maintain a debt to worth ratio of less than 1:1 at all times. The May 29, 1997, modification agreement did not change Oak Rubber's interest rate.

In May 2000, Oak Rubber says that Bank One began attempting to force Oak Rubber to restructure the credit facility in a way unfavorable to Oak Rubber. The plaintiffs say that in July 2000, a vice-president of Bank One contacted it and made various requests concerning changes in the way Oak Rubber did business. According to the plaintiffs, this vice-president threatened to call the loan in default without justification.

The plaintiffs say that Bank One unilaterally raised the interest rate in an attempt to force Oak Rubber out of the lending agreement. Bank One also failed to release the liens on Oak Rubber's assets as required by the 1997 modification agreement. Oak Rubber also says that Bank One took the affirmative step of continuing the liens by filing UCC continuation statements on July 16, 1998, and September 25, 2000. Finally, Oak Rubber says that Bank One unilaterally reduced its credit line from $6 million to $3.5 million, then raised the limit to $4.5 million, and finally reduced the limit to $4.1 million.

Bank One describes these events differently. Bank One initially took the position that Oak Rubber actually paid less interest than required by the contract. Now, however, Bank One does not contest Oak Rubber's claim that it paid more interest than required under the 1993 loan agreement. Bank One has offered to pay Oak Rubber $20,943.57, the amount it calculated that Oak Rubber overpaid. Reacting to Bank One's offer, Oak Rubber says that it is entitled to $40,261.10.

Bank One says that it released its security interest in Oak Rubber's assets but acknowledges that it failed to modify some of its internal documents to reflect that fact. As a result, Bank One acknowledges that it did not file documents to show it had released the security interest and that it mistakenly filed the UCC continuation forms.

In addition, Bank One denies that it unilaterally reduced Oak Rubber's credit line. The defendant says that it made several offers to Oak Rubber but that Oak Rubber rejected the $3.5 million and $4.5 million credit line offers. However, Bank One says that Oak Rubber initially accepted a $4.3 million secured credit line with a higher interest rate when it signed a commitment letter on June 17, 2000. Only later did Oak Rubber reject this new credit line. Bank One also disputes Oak Rubber's claim that it was never in default of the loan. Specifically, Bank One says that Oak Rubber sold one of its manufacturing facilities in violation of the negative asset pledge in the 1997 modification agreement.

Bank One says that it continued to work with Oak Rubber in an attempt to recover its outstanding debt, but eventually decided to demand repayment under the promissory note. On February 14, 2002, Bank One issued a demand letter to Oak Rubber requesting that all outstanding principal and interest be repaid. In this letter, Bank One stated that it had all the rights and remedies of a secured party even though Bank One had given up its security interest in Oak Rubber's assets.

On March 5, 2002, Bank One removed Oak Rubber's state court action to this Court. In that action, Oak Rubber makes a claim in Count I for damages resulting from unlawful tying under 12 U.S.C. § 1972(1)(C). Count II seeks injunctive relief from Bank One's attempt to collect the plaintiffs' loan under 12 U.S.C. § 1976. Count III alleges that the defendant's actions constitute fraud. In Count IV, Oak Rubber pursues a civil cause of action as a crime victim under Section 2307.60 of the Ohio Revised Code. Oak Rubber alleges, as required by state law, the federal crime of the use of extortionate means to collect a debt, 18 U.S.C. § 894(a), as a predicate to liability on this Count. In Count V, Oak Rubber alleges a breach of contract because Bank One unilaterally increased Oak Rubber's interest rate. Count VI alleges breach of contract and slander of title because Bank One failed to terminate the UCC financing statements previously filed to perfect an interest in Oak Rubber's assets. Count VII alleges Bank One breached its duty of good...