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April 20, 1992

HAROCO, INC., et al., Plaintiffs,

The opinion of the court was delivered by: JAMES B. MORAN

 Extensive discovery followed, and defendants now move to "reinstate" the summary judgment. We are not at all sure that we should "reinstate" summary judgment but we are persuaded that defendants are now entitled to summary judgment, and we enter summary judgment for the defendants and against the plaintiffs.

 Federal jurisdiction depends upon plaintiffs' RICO claims, but the evidence just does not support fraud claims. The present motion is, in one sense, a rerun of the earlier motion as it analyzes a number of loans that plaintiffs claim are below the announced prime rate. It emphasizes, however, the somewhat subjective meaning of a prime rate and the necessity for plaintiffs to produce some evidence of a fraudulent scheme.

 It is beyond dispute that, during the relevant period, ANB from time to time changed its announced prime rate and those changes followed the lead of other and larger banks. Plaintiffs insist, however, that ANB's real prime rate was lower than the announced prime rate and that the announced prime rate was a device to inflate the basis for calculating the interest on over prime loans. They do not present any evidence that anyone at ANB ever told lending officers to ignore the announced prime rate in loans to the better customers. Plaintiffs' argument is, essentially, that the prime rate is the rate actually charged to the largest and most creditworthy borrowers; that any bank will extend its best rates to its best customers; and that the prime rate is therefore the lowest rate given to any borrower at the time, since that borrower must necessarily have been the largest and most creditworthy customer.

 That approach is contrary to the concept of "prime rate" enunciated by the Seventh Circuit in Mars Steel Corp. v. Continental Illinois Nat'l Bank & Trust Co. of Chicago, 834 F.2d 677, 682 (7th Cir. 1987), approving the approach taken in Kleiner v. First Nat'l, 581 F. Supp. 955 (N.D. Ga. 1984):

As Kleiner notes, a prime rate is merely a bank's forecast of what it would charge its most creditworthy corporate customers for a 90-day unsecured loan. It is not an actual transaction price, because the computation of such a price--requiring, as it would, averaging interest rates across numerous loans made at different times on different terms (e.g.,compensating balances)--would be infeasible. See id. at 958-960. Reasonable pretrial discovery . . . brought to light no evidence that the forecasts that Continental used in deciding how much interest to charge members of the class were not good-faith estimates of what Continental would charge its most creditworthy customers for a 90-day unsecured loan.

 Plaintiffs insist that the Mars formulation is dicta and that a prime rate has to be what was charged, not some amorphous estimate or forecast of some future rate. And, indeed, a bank could set up some computer model of better customers and then average the interest rates on loans to those customers as an approximation of the prime rate during a concluded period of time. That rate would not necessarily be the lowest rate charged some customer, ANB had no such computer model, and (as the ongoing controversies here over what loans should be considered in reviewing ANB's practices will illustrate) any such model could be subject to considerable variations.

 Such a representation would be a fraud if there was intention to charge less and the announced rate was inflated so as to permit overcharging "prime-plus" borrowers. Plaintiffs do not come up with any evidence of the bank telling its lending officers that the announced prime rate was more than the real prime rate, that the announced rate was to inflate "prime-plus" interest charges, and that they should consider a lower rate as the true prime rate in negotiating loans to the best customers. They rely, instead, upon inferences they contend can be made on the basis of 73 targeted loans during the relevant period.

 The 73 loans are those selected by plaintiffs as loans at below the announced prime rate during the relevant time period. There were, during that same period, 6,921 90-day unsecured commercial loans. Plaintiffs have designated as suspect only 1.03% of those loans. They claim that ratio is meaningless because that universe includes all 90-day unsecured commercial loans, not just loans of that nature to the largest, most creditworthy borrowers. There is, indeed, some aspect of comparing apples to oranges if the 73 loans were all to commercial borrowers who reasonably would have to be identified as among the largest and most creditworthy. An analysis of those 73 loans is, therefore, of some interest.

 One cannot, of course, specify the largest and most creditworthy customers solely by viewing the size of the loans, although "largest" appears to pertain more to a borrower's volume of business with ANB rather than to its size. Perhaps a company is creditworthy because it seldom needs to borrow much for very long. There is no agreement as to what is a large loan, with $ 1,000,000 and $ 500,000 both being advanced as benchmarks. It is of note, however, that 17 of the 73 loans are for less than $ 100,000 and 57 are for less than $ 500,000. (One loan, Loan 39, is not listed in defendants' appendix D, but is referenced at their appendix I-16, according to the list on p.16 of defendants' brief. But that is Loan 40 on the appendix D list. The referencing in the appendices seems to become one number off at Loan 39, with the missing loan apparently one to West Wrightwood Venture.) It is highly improbable that a $ 35,000 loan is a loan to one of ANB's largest commercial borrowers and, indeed, plaintiffs do not point to anything that would so indicate. We are, therefore, faced with determining what kind of "apples" the designated loans may be, a task similar to that faced by the courts in Continental Illinois Nat'l Bank and Trust Co. v. Cornelius, No. C-84-4492 R.F.P. slip op. (N.D. Cal. June 26, 1987), and Barksdale v. Continental Illinois Nat'l Bank and Trust Co., 1989 LEXIS 4211 (D. Colo. 1989).

 Defendants claim that 20 of the loans are not commercial loans at all but are, rather, loans to individuals for personal purposes, such as personal expenses, residences, investments, and the like Plaintiffs respond by pointing out that some are indicated on the forms as commercial loans, that the documentation of some as being for personal purposes is somewhat weak, and that loans to individuals for real estate can be considered as commercial loans. Thus, they argue, those loans can be considered as evidence of defendants' fraud.

 Those loans illustrate the vulnerability of plaintiffs' claims. The borrowers could not prevail in Kleiner, Cornelius and Barksdale, even though the primary issue in each of those cases was the meaning and performance of a contract obligation. Here the plaintiffs must present enough evidence of a fraudulent scheme to get to a jury, if any of their claims are to survive this motion. They have singled out some loans as being at less than announced prime. Defendants have advanced reasons why those loans do not fit the pattern of 90-day commercial loans to their largest and most creditworthy customers. To borrow from employment discrimination law, plaintiffs seem to urge those loans as providing 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 ...

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