a prima facie case, and defendants have presented plausible legitimate reasons why those loans should not be considered and plaintiffs now claim pretext -- but without any substantial evidence that the reasons are pretextual. None of these 20 loans is for more than $ 200,000 and half of them are for less than $ 100,000. All are to individuals. None appears to be for carrying on some ongoing business enterprise. It is impossible to tease out of those circumstances any support for the notion that those loans evidence the fraudulent scheme plaintiffs claim.
Defendants contend that 26 of the 73 loans were at rates below prime due to clerical errors or delays between the preparation of a note and its inception date, with an intervening rate change. The evidence they present offers varying explanations. Interest rates were volatile during the relevant period. In some instances a change in the announced prime was on the same day as the loan, and the bank honored the lower rate, usually a matter of a quarter of one per cent. In other instances notes were sent out to borrowers at the then prime, and the notes were not executed until after a change in the announced prime. The bank honored the rate on the note as executed. In some instances the loan documentation indicates that the rate was supposed to be at or above prime, but the actual amount charged was, in error, less than prime. In some instances, according to defendants' affidavits, a lower rate was encoded due to clerical error. For one loan, to West Wrightwood Venture (which is, apparently, the loan missing from defendants' appendix D), defendants cannot locate the loan file. Plaintiffs dispute that the evidence presented establishes or even, on occasion, necessarily supports the stated explanations. In some instances, however, that evidence is conclusive, particularly with respect to errors in charging the agreed rate. More to the point, plaintiffs have provided no basis for asserting that defendants' explanations are unworthy of belief and are a coverup for a pervasive scheme to defraud.
Another group are the participation loans, seven in all. That is, ANB participated in a loan made by another bank at the interest rate agreed between that bank and the borrower. Plaintiffs contend that ANB could choose to participate or not to participate in such loans but, if it did so, then ANB's prime rate was the lowest of any of the rates charged by any of the originating banks during the period of the loan -- and announcing a prime rate higher than that other bank's rate was a fraud. We disagree.
Defendants contend that nine of the loans were secured, and they present evidence so indicating. Again, plaintiffs attack the sufficiency of that evidence, but that is not enough. Perhaps in one or two instances the security was more apparent than real, or was delayed by several months. But plaintiffs do not present any basis for believing that defendants were knowingly treating these loans as secured loans to orchestrate a fraudulent prime rate scheme.
One designated loan, No. 63 to Fisher Printing, appears to be less than a 90-day loan. It is unclear whether or not the loan to the Chicago White Sox was at or below announced prime. The other loans are LIBOR loans, and those loans give plaintiffs their best argument. Perhaps because of that defendants offer a variety of reasons why those 15 loans do not support plaintiffs' claim. We have already agreed with some of those reasons. Six of them were participations and one of those was secured. Defendants contend that one was not a commercial loan at all because it was an interbank placement, one was supposed to be partially secured, four involved Dutch guilders, and some were long term credit arrangements with interest charged in 90-day increments but with required rollovers.
To fund a LIBOR loan, ANB borrowed Eurodollars at a fixed rate for a fixed term. It then lent those dollars to its customers for a fixed rate, at the same fixed term, with a penalty for prepayment. The fixed rate charged by ANB included a spread over the fixed rate ANB paid for the Eurodollars. Viewed from the perspective of the evidence most favorable to the plaintiffs, those loans were made to some of ANB's largest and most creditworthy customers, for varying periods from 30 to 180 days, or even up to a year, but with 90 days very much an option. The fixed rate might well have been attractive to some, even though a drop in the prime could result in interest payments greater than those on a loan at prime (and apparently that did occur in one instance). Others might have speculated that the prime rate would increase. Generally, though, the evidence indicates that the interest rate on LIBOR loans was less than the announced prime and ANB made the LIBOR loan option available to some of its best customers in order to meet competition from other banks.
ANB's main contention is that these were fixed rate loans without the privilege of prepayment and were therefore not really 90-day unsecured commercial loans. It derives some comfort from Mars, supra at p.679, and Barksdale (although not much because the matter was not discussed), and the evaluation of a fixed rate loan with no prepayment privilege, as contrasted to a loan tied to prime and with a prepayment privilege, involves differing economic considerations. Still, plaintiffs' evidence is that such loans fall within the universe of the prime rate definition and defendants can point to no clear policy differentiation.
Plaintiffs' evidence does suggest that "some animals are more equal than others," but in very limited circumstances. LIBOR loans were peculiar financial arrangements. When a particularly sophisticated borrower wanted a large loan for a fixed period, ANB might provide a LIBOR option. It obtained Eurodollars through London or its Cayman Islands branch at a fixed rate for the same period, and then lent those matched funds at a predetermined spread, with the borrower obligated to maintain the loan for the same period ANB was obligated to hold the Eurodollars (ANB might sometimes also obtain Eurodollars in anticipation of LIBOR loans).
As the very small number of 90-day LIBOR loans below announced prime indicate, plaintiffs' evidence does not provide support for the notion that defendants channeled its lending to their best customers through alternate loan mechanisms so as to avoid its purported rate structure based on an announced prime rate. ANB bent a little on occasion but, after massive discovery, it is beyond reasonable dispute that the evidence does not establish the fraudulent scheme claimed. It does establish that ANB by and large expected its borrowers: good, bad and indifferent, to pay interest at no less than the announced prime rate, and that the bank, with rare exception, used its announced prime rate as the basis for its lending policies.
We grant summary judgment for the defendants.
JAMES B. MORAN
Chief Judge, United States District Court
April 20, 1992.
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