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In a victory for banks, a federal appeals court Thursday upheld thedismissal of a class action RICO and antitrust suit that accused 12 ofthe nation’s largest banks of cheating consumers by conspiring tomanipulate published prime rate indexes in order to fix and artificiallyinflate their prime rates, and by making misleading statements aboutloans offered at “prime plus” interest rates. In Lum v. Bank of America, et al., a unanimous three-judge panel of the3rd U.S. Circuit Court of Appeals found that both the RICO and antitrustclaims were premised on allegations of fraud but that the plaintiffsfailed to satisfy Federal Rule of Civil Procedure 9(b), which requiresthat fraud be pled with specificity. The suit, filed in 2000 in U.S. District Court in New Jersey, allegedthat the banks gave false information about their “prime rate” both toconsumers who were seeking credit and to leading financial publications,such as The New York Times and The Wall Street Journal, which publishindependent indexes of the prime rate. The scheme worked, the suit alleged, because the prime rate indexes hadbeen incorporated into many financial instruments. “Control of the prime rate published in the outside indexes would enablethe banks to effectively raise interest rates unilaterally on thesecredit instruments and in so doing increase their income and profits bymillions, if not billions of dollars on an annual basis,” the suitalleged. The suit also alleged that the top banks had conspired to misrepresentthat “prime rate” is the lowest rate available to their mostcreditworthy borrowers, when in fact they have offered some largeborrowers financing at interest rates below prime rate. In addition to Bank of America, the suit named as defendants: Citibank;Chase Manhattan Bank; Morgan Guaranty Trust Co.; First Union NationalBank; Wells Fargo Bank; Fleet Bank; PNC Bank; The Bank of New York; KeyBank; Bank One; and U.S. Bank. U.S. District Judge Faith S. Hochberg dismissed the suit in 2001,finding that the fraud alleged in both the RICO and antitrust claimslacked specificity. Now the 3rd Circuit has upheld Hochberg’s decision and rejected theplaintiffs’ argument that they had established a case of “consciousparallelism.” “Plaintiffs have failed to satisfy the requirements of Rule 9(b) withregard to their theory that defendants misrepresented that the primerate would be the lowest rate available to their most creditworthycustomers,” 3rd Circuit Judge Jane R. Roth wrote in an opinion joinedby Judges Dolores K. Sloviter and Samuel A. Alito Jr. “They have also failed to particularize how false information on their’prime rate’ was sent to the financial publications for inclusion in theindependent indices. They have not set out who sent what information towhom or when it was sent. Nor have they particularized by how manypoints the prime rate was falsely reported or whether there was anyconsistency among the defendant banks in the amount by which the primerate was falsely reported,” Roth wrote. Although antitrust claims generally are not subject to the heightenedpleading requirement of Rule 9(b), Roth found that “fraud must be pledwith particularity in all claims based on fraud.” The Sherman Act claim against the banks was clearly premised on fraudallegations, Roth found, since it alleged that the banks “fraudulentlyand artificially inflate[d] the ‘prime rate’ published in the outsideindexes by falsely reporting the bank’s individual prime rates to thevarious publications … the ‘prime rate’ published by the outsideindexes remained artificially high and the prime plus interest rates onthe consumer credit instruments were fraudulently inflated.” Roth found that the RICO claim, too, was premised on fraud allegationsbut that the plaintiffs’ “general allegations of fraud do not complywith Rule 9(b) and their specific allegations regarding particulartransactions do not amount to fraud.” Rule 9(b)’s specificity requirement is satisfied, Roth said, by pleadingthe “date, place or time” of the fraud, or through “alternative means ofinjecting precision and some measure of substantiation into theirallegations of fraud.” The plaintiff also must allege “who made a misrepresentation to whom andthe general content of the misrepresentation,” Roth said.Roth found that Hochberg properly rejected the entire suit for lack ofspecificity. “These conclusory allegations do not satisfy Rule 9(b). They do notindicate the date, time, or place of any misrepresentation; nor do theyprovide an alternative means of injecting precision and some measure ofsubstantiation into the fraud allegations because they do not identifyparticular fraudulent financial transactions,” Roth wrote. Plaintiffs’ attorney G. Martin Meyers of Denville, N.J., argued that thefraud was accomplished by omissions. Meyers argued that the term “prime rate” is so generally understood tomean the lowest rate available to a bank’s most creditworthy borrowersthat the failure to disclose that some borrowers obtain loans withinterest rates below the prime rate constitutes fraud. Roth disagreed, saying that the meaning of the term “prime rate” is sounclear that the plaintiffs cannot claim to have relied on it. “More than 20 years ago, a congressional committee, in a staff report,described ‘prime rate’ as a ‘murky, ill-defined term that rarelyreflects the lowest rates available to corporate customers.’ … Thislack of precision in the term ‘prime rate’ has also been recognized bythe courts,” Roth wrote. “It is therefore unreasonable to infer that defendants’ use of theequivocal term ‘prime rate’ was reasonably calculated to deceive personsof ordinary prudence and comprehension into believing that no borrowerobtained an interest rate below the prime rate,” Roth wrote. Roth found that the plaintiffs’ claim “boils down to a disagreementabout the meaning of the term ‘prime rate.’ This disagreement does notrise to the level of fraud; at most, it alleges a contract dispute.”

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