No: 01-4348 HING Q. LUM v. Bank of America

PRECEDENTIAL
UNITED STATES COURT OF
APPEALS
FOR THE THIRD CIRCUIT
____________
No: 01-4348
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
Appeal from the United States District
Court
for the District of New Jersey
(D.C. Civil Action No. 00-cv-00223)
District Judge: Honorable Faith S.
Hochberg
______________________
Argued on June 2, 2003
Before: SLOVITER, ALITO and ROTH,
Circuit Judges
(Opinion filed: March 11, 2004)
Ira A. Schochet, Esquire
G. Martin Meyers, Esquire (Argued)
35 West Main Street, Suite 106
Denville, New Jersey 07834
Counsel for Appellants
William E. Deitrick, Esquire
Mayer, Brown, Rowe & Maw
190 South LaSalle Street
Chicago, Illinois 60603
Richard H. Klapper, Esquire
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Kenneth N. Laptook, Esquire
Wolff & Samson, P.C.
5 Becker Farm Road
Roseland, New Jersey 07068

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Peter E. Greene, Esquire (Argued)
Skadden, Arps, Slate, Meagher & Flom,
LLP
Four Times Square
New York, New York 10036
Joseph L. Buckley, Esquire
Sills, Cummis, Radin, Tischman
Epstein & Gross
One Riverfront Plaza
Newark, New Jersey 07102
Gregory R. Haworth, Esquire
Duane, Morris LLP
744 Broad Street, Suite 1200
Newark, New Jersey 07102
Anthony J. Laura, Esquire
Reed Smith, LLP
One Riverfront Plaza
Newark, New Jersey 07102
Anthony P. La Rocco, Esquire
Kirkpatrick & Lockhart, LLP
One Riverfront Plaza, 7th Floor
Newark, New Jersey 07102
Darryl J. May, Esquire
Ballard, Spahr, Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Philadelphia, PA 19103
Frederick A. Nicoll, Esquire
Dorsey & Whitney, LLP
East 80, Route 4
Paramus, New Jersey 07652
Brian J. McMahon, Esquire
Gibbons, Del Deo, Dolan, Griffinger &
Vecchione
One Riverfront Plaza
Newark, New Jersey 07101
William T. Marshall, Esquire
Zeichner, Ellman & Krause
103 Eisenhower Parkway
Roseland, NJ 07068
Allen E. Molnar, Esquire
Klett, Rooney, Lieber & Schorling
550 Broad Street, Suite 810
Newark, NJ 07102
Mark S. Melodia, Esquire

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Reed Smith
136 Main Street
Princeton Forrestal Village, Suite 250
Princeton, NJ 08540
Counsel for Appellees
________________
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, No. 00-223, 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
Plaintiffs also allege violations of the
New Jersey Consumer Fraud statute,
56:8-2 et seq., and the New Jersey
common law of contracts. Having
dismissed all the federal claims, the
District Court dismissed these claims for
lack of supplemental jurisdiction. See 28
U.S.C. §1367(c)(3); Borough of West
Mifflin v. Lancaster, 45 F.3d 780, 788
(3d Cir. 1995).

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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
Although the allegations of conspiracy
in the Amended Complaint are somewhat
conclusory, we do not agree with the
District Court’s position that they do not
meet the pleading requirements of Fed.
R. Civ. P. 8(a).

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Bank Defendants
f o r m u l a t e d a n d
carried out a plan,
s c h e m e a n d
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
o u t s i d e i n d e x e s
would enable the
Banks to effectively
raise interest rates
unilaterally on these
credit instruments,
and in so doing
increase their income
a n d p r o f i t s b y
m il l i o n s , if not
billions of dollars on
an annual basis.
18. During the Class
P e r i o d , w h i l e
m a i n t a i n i n g a n
a p p e a r a n c e o f
following a prime
rate set by neutral
forces, the Banks
entered into a plan,
scheme, conspiracy
a n d c o u r s e o f
conduct designed to
f r a u d ul e n t l y a n d
artificially inflate the
“ p r i m e r a t e ”
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
c r e d i t w o r t h y
customers. As a
result of this plan,
scheme, conspiracy
a n d c o u r s e o f
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”

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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
While plaintiffs did not attach this
credit agreement to the complaint, they
do not dispute that the District Court
properly considered the agreement. In
deciding motions to dismiss pursuant to
Rule 12(b)(6), courts generally consider
only the allegations in the complaint,
exhibits attached to the complaint,
matters of public record, and documents
that form the basis of a claim. See In re
Burlington Coat Factory Sec. Litig., 114
F.3d 1410, 1426 (3d Cir. 1997); Pension
Benefit Guar. Corp. v. White Consol.
Indus., Inc., 998 F.2d 1192, 1196 (3d Cir.
1993). A document forms the basis of a
claim if the document is "integral to or
explicitly relied upon in the complaint."
Burlington Coat Factory, 114 F.3d at
1426 (emphasis omitted). The purpose
of this rule is to avoid the situation where
a plaintiff with a legally deficient claim
that is based on a particular document
can avoid dismissal of that claim by
failing to attach the relied upon
document. See Pension Benefit Guar.
Corp., 998 F.2d at 1196. Further,
considering such a document is not
unfair to a plaintiff because, by relying
on the document, the plaintiff is on
notice that the document will be
considered. See Burlington Coat
Factory, 114 F.3d at 1426. In the present
case, there is no dispute that the credit
agreements are integral to and relied
upon in the complaint.
It should be noted that, under this
standard, the District Court improperly
took judicial notice of Hing Lum’s
deposition testimony in a prior
proceeding that he understands that the
term prime rate does not mean the lowest
rate available to a bank’s most
creditworthy customers. While a prior
judicial opinion constitutes a public
record of which a court may take judicial
notice, it may do so on a motion to
dismiss only to establish the existence of
the opinion, not for the truth of the facts
asserted in the opinion. See Southern
Cross Overseas Agencies, Inc. v. Wah
Kwong Shipping Group, Ltd., 181 F.3d
410, 427 (3d Cir. 1999). Thus, “a court
that examines a transcript of a prior
proceeding to find facts converts a
motion to dismiss into a motion for
summary judgment.” Id. at 427 n. 7.
Nevertheless, since there are sufficient
other grounds to support dismissal here,
this error is not a basis for reversal.

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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
for abuse of discretion. Heyl & Patterson
Int’l, Inc. v. F.D. Rich Housing of the
Virgin Islands, Inc., 663 F.2d 419, 425 (3d
Cir. 1981).
III. Discussion
In considering a motion to dismiss,
a court must accept as true all of the
factual allegations in the complaint and
draw all reasonable inferences from those
facts in favor of the plaintiffs. Moore v.
Tartler, 986 F.2d 682, 685 (3d Cir. 1993).
A court may dismiss the complaint only if
it is clear that no relief could be granted
under any set of facts that could be proved
consistent with the allegations. Hishon v.
King & Spalding, 467 U.S. 69, 73 (1984).
In the present case, even accepting the
allegations in the complaint as true and
drawing every reasonable inference in
favor of the plaintiffs, they have failed to
adequately plead either a RICO or an
antitrust cause of action.
A. RICO:

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The plaintiffs have failed to
adequately plead a RICO cause of action
predicated on mail and wire fraud because
their general allegations of fraud do not
comply with Rule 9(b) and their specific
a l l eg a t i o n s r e g a r d in g p a r t i c u l a r
transactions do not amount to fraud. The
RICO statute provides that:
It shall be unlawful for any
person employed by or
a s s o c i a t e d w i t h a n y
enterprise engaged in, or the
activities of which affect,
i n t e r s t a t e o r f o r e i g n
commerce, to conduct or
participate, directly or
indirectly, in the conduct of
such enterprise’s affairs
through a pattern of
racketeering activity or
collection of unlawful debt.
18 U.S.C. § 1962(c). It is also unlawful
for anyone to conspire to violate § 1962(c).
See 18 U.S.C. § 1962(d). In order to plead
a violation of RICO, plaintiffs must allege
(1) conduct (2) of an enterprise (3) through
a pattern (4) of racketeering activity. See
Sedima, S.P.R.L. v. Imrex Co., Inc., 473
U.S. 479, 496 (1985). A pattern of
racketeering activity requires at least two
predicate acts of racketeering. See 18
U.S.C. § 1961(5). These predicate acts of
racketeering may include, inter alia,
federal mail fraud under 18 U.S.C. § 1341
or federal wire fraud under 18 U.S.C. §
1343. See 18 U.S.C. § 1961(1); Saporito
v. Combustion Eng’g, Inc., 843 F.2d 666,
676 (3d Cir. 1988), vacated on other
grounds, 489 U.S. 1049 (1989).
The federal mail and wire fraud
statutes prohibit the use of the mail or
interstate wires for purposes of carrying
out any scheme or artifice to defraud. See
18 U.S.C. §§ 1341, 1343. "'A scheme
or artifice to defraud need not be
fraudulent on its face, but must involve
some sort of fraudulent misrepresentation
or omission reasonably calculated to
deceive persons of ordinary prudence and
comprehension.'" Brokerage Concepts,
Inc. v. U.S. Healthcare, Inc., 140 F.3d 494,
528 (3d Cir. 1998) (quoting Kehr
Packages, Inc. v. Fidelcor, Inc., 926 F.2d
1406, 1415 (3d Cir. 1991)).
Where, as here, plaintiffs rely on
mail and wire fraud as a basis for a RICO
violation, the allegations of fraud must
comply with Federal Rule of Civil
Procedure 9(b), which requires that
allegations of fraud be pled with
specificity. See Saporito, 843 F.2d at 673.
In order to satisfy Rule 9(b), plaintiffs
must plead with particularity “the
‘circumstances’ of the alleged fraud in
order to place the defendants on notice of
the precise misconduct with which they are
charged, and to safeguard defendants
against spurious charges of immoral and
fraudulent behavior.” Seville Indus.
Mach. Corp. v. Southmost Mach. Corp.,
742 F.2d 786, 791 (3d Cir. 1984).
Plaintiffs may satisfy this requirement by
pleading the “date, place or time” of the
fraud, or through “alternative means of
injecting precision and some measure of
substantiation into their allegations of

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fraud.” Id. (holding that a plaintiff
satisfied Rule 9(b) by pleading which
machines were the subject of alleged
fraudulent transactions and the nature and
subject of the alleged misrepresentations).
Plaintiffs also must allege who made a
misrepresentation to whom and the general
content of the misrepresentation. See
Saporito, 843 F.2d at 675; Rolo v. City
Investing Co. Liquidating Trust, 155 F.3d
644, 658-59 (3d Cir. 1998); Klein v.
General Nutrition Co., Inc., 186 F.3d 338,
345 (3d Cir. 1999).
In the present case, the RICO cause
of action consists of the following
allegation of mail and wire fraud:
44. During the Class
Period, within the meaning
of 18 U.S.C. §1962(c), the
Defendants conducted and
participated, directly and
indirectly, in the conduct of
the enterprises through the
pattern of racketeering
activity:
(a) During the Class
Period, Defendants used the
U.S. mails and/or interstate
wire facilities in connection
with accomplishing the
fraudulent scheme described
in this Complaint. Each
such use of the U.S. mails or
interstate wire facilities was
for the purpose of executing
a n d f u r t h e r i n g t h e
f r a u d u lent sche m e o r
conspiracy described in this
Complaint. Each month
during the Class Period,
D e f e n d a n t s m a i l e d
t h o u s a n d s o f b a n k
statements, advertisements
for credit cards, contracts
and promotional materials
containing the fraudulent
stated and artificially
inflated interest rates to
Plaintiffs and the Class in
f u r t h e ra n c e o f t h e i r
fraudulent scheme. Each
such act constituted a
violation of 18 U.S.C. §
1341.
(b) During the Class
P e r i o d D e f e n d a n t s
transmitted or caused to be
transmitted by means of
wire communications in
i n t e r s t a t e o r f o r e i g n
commerce, writings, signs,
signals, pictures or sounds
for the purpose of executing
a scheme or artifice to
defraud the plaintiffs, or for
obtaining money or property
of the Plaintiffs and the
Class by means of false or
f r a u d u l e n t p r e t e n se s ,
representations or promises
as set forth in this
Complaint in the allegations
set forth above. Examples
include interstate telephone
calls and/or facsim ile

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transmissions by prospective
borrowers, seeking to
p r o m o t e b o r r o w i n g
allegedly tied to the "prime
rate," or to collect interest
charges and loan payments
allegedly due in connection
with borrowing on the
f i n a n c i a l a n d c r e d i t
instruments tied to the
"prime rate," as well as
interstate telephone or wire
transmissions of the Bank's
prime rate to the publishers
of the outside indexes. Each
of these acts constitutes a
violation of 18 U.S.C. §
1343.
The “fraudulent scheme described in the
Complaint” refers to paragraphs 17 and 18
of the Amended Complaint which we have
set out above in Part I.
The District Court properly ruled
that these conclusory allegations do not
satisfy Rule 9(b). They do not indicate the
d a t e , t i m e , o r p l a c e o f a n y
misrepresentation; nor do they provide an
alternative means of injecting precision
and some measure of substantiation into
the fraud allegations because they do not
identify particular fraudulent financial
transactions. See Seville, 742 F.2d at 791.
Nor do these allegations indicate which
defendant(s) made misrepresentations to
which plaintiff(s). See id.; Saporito, 843
F.2d at 675; Rolo, 155 F.3d at 658-59;
Klein, 186 F.3d at 345.
Plaintiffs contend, however, that the
District Court failed to address explicitly
the fact that the factual background section
of the Amended Complaint and the RICO
Case Statement identify three specific
allegedly fraudulent transactions – the
mortgage with First Union, and the credit
card transactions with Bank of America
and Chase Manhattan, the dates of these
transactions, and the names of the
d e f e n d a n t s w h o m a d e a l l e g e d
misrepresentations to particular plaintiffs.4
In their brief, plaintiffs claim that the
RICO Case Statement alleges that Oriani
entered into an instant credit agreement
with Bank of New York in March 1994.
However, the RICO Case Statement only
alleges that Bank of New York
represented a certain interest rate tied to
the prime rate on a particular date. It
does not allege that Oriani entered into a
credit agreement with Bank of New
York, the date of the credit agreement, or
the terms of the agreement (in particular
what interest rate Oriani would pay).
Plaintiffs did not submit the credit
agreement that Oriani allegedly entered
into with Bank of New York. Based on
the representations of Oriani's counsel at
oral argument before the District Court,
Bank of New York conducted a search of
its records but could not find a record of
the agreement with Oriani. Nevertheless,
Bank of New York submitted its standard
Instant Credit Agreement from the period
during which Oriani claimed he entered
into an agreement with Bank of New
York. This agreement merely defined
the term “prime rate” as the rate reported

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Plaintiffs, citing Michaels Building Co. v.
Ameritrust Co., 848 F.2d 674 (6th Cir.
1988), and Haroco, Inc. v. American Nat'l
Bank and Trust Co. of Chicago, 747 F.2d
384 (7th Cir. 1984), aff'd 473 U.S. 606
(1985), argue that these allegations are
sufficient to plead a RICO cause of action.
In Michaels and Haroco, the Courts of
Appeals for the Sixth and Seventh
Circuits, respectively, held that complaints
adequately pled RICO causes of action
predicated on mail and wire fraud when
they alleged that banks misrepresented in
particular loan agreements that the prime
rate is the interest rate charged by the
banks to their most creditw orthy
commercial borrowers, although in fact the
banks charged lower rates to some
commercial borrowers. See Michaels, 848
F.2d at 677; Haroco, 747 F.2d at 385.
In the present case, however, the
Amended Complaint fails to allege fraud
in relation to the three identified
transactions because, unlike Michaels or
Haroco, the plaintiffs do not, and cannot,
allege that any of the three purportedly
fraudulent credit agreements define the
term “prime rate” as the lowest interest
rate available to a bank’s most
creditworthy borrowers. See id.
In addition, plaintiffs make general
claims that defendants misrepresented that
the prime rate is the lowest rate charged to
their most creditworthy custom ers.
However, these allegations do not satisfy
Rule 9(b) because they do not indicate the
date, time, or place of the alleged
m i s r e p re s e n ta t i o n s , the fin ancia l
transactions in connection with which
these misrepresentations were made, or
who made the misrepresentation to whom.
See Seville, 742 F.2d at 791; Saporito, 843
F.2d at 675; Rolo, 155 F.3d at 658-59;
Klein, 186 F.3d at 345. Plaintiffs also
allege that, on February 4, 2000, and
March 29, 2000, Citibank and First Union
represented to the "class" that the prime
rate was the rate charged to their most
creditworthy comm ercial customers.
However, plaintiffs do not allege that these
representations were made to a named
plaintiff, or that any particular individual
entered into a financial transaction with
this term. See Rolo, 155 F.3d at 659
(holding that, until a class is certified, a
RICO action is one between the named
plaintiffs and defendants, and the
adequacy of the pleading must be analyzed
with regard to the specificity of the fraud
allegations relating to the named
plaintiffs).
In order to counter their failure to
cite specific instances of active
misrepresentation that the prime rate is the
lowest rate available to a bank’s most
creditworthy borrowers, the plaintiffs
focus on omissions by defendants. They
argue that the term “prime rate” is so
generally understood to mean the lowest
rate available to a bank’s most
creditworthy borrowers that the failure to
disclose that some borrowers obtain loans
with interest rates below the prime rate
constitutes fraud.
We conclude to the contrary. Even
in the Wall Street Journal.

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drawing every reasonable inference in
favor of plaintiffs, the meaning of the term
“prime rate” is sufficiently indefinite that
it is reasonable for the parties to have
different understandings of its meaning.
For example, more than twenty years ago,
a congressional committee, in a staff
report, described “prime rate” as a “murky,
ill-defined term that rarely reflects the
lowest rates available to corporate
customers.” See Staff of House Comm. on
Banking, Finance and Urban Affairs, 97th
Cong., 1st Sess., An Analysis of Prime
Rate Lending Practices of the Ten Largest
United States Banks 3 (Comm. Print
1981). This lack of precision in the term
“prime rate” has also been recognized by
the courts. See, e.g., Blount Fin. Serv. Inc.
v. Walter E. Heller and Co., 819 F.2d 151,
152-53 (6th Cir. 1987) (“The fact that the
parties take different positions under the
contract as to the appropriate prime rate, or
the fact that the defendant charged too
high a ‘prime rate’ and thereby concealed
or refused to disclose what the plaintiff
considers the true prime rate called for
under the contract, does not give rise to a
valid claim for fraud.”); Wilcox v. First
Interstate Bank of Oregon, 815 F.2d 522,
527-28 (9th Cir. 1987) (opining that prime
rate indicates the average cost of a loan
because most loans are negotiated at
interest rates above or below prime);
Center Cadillac, Inc. v. Bank Leumi Trust
Co. of New York, 859 F. Supp. 97, 103
(S.D.N.Y. 1994), aff’d, 99 F.3d 401 (2d
Cir. 1995) (holding that a lender does not
commit the predicate act of mail fraud by
omitting a definition of prime rate and
charging some borrowers below the prime
rate because “a decision to charge certain
customers lower rates than others – a
common occurrence in the banking
industry – merely reflects the bank’s
greater confidence in the financial stability
of those customers.”). It is therefore
unreasonable to infer that defendants’ use
of the equivocal term “prime rate” was
reasonably calculated to deceive persons
of ordinary prudence and comprehension
into believing that no borrower obtained
an interest rate below the prime rate.
Plaintiffs’ claim boils down to a
disagreement about the meaning of the
term “prime rate.” This disagreement does
not rise to the level of fraud; at most, it
alleges a contract dispute. See Blount, 819
F.2d at 152-53.
Moreover, the requirement of Rule
12(b)(6) that we draw every reasonable
inference in favor of plaintiffs does not
preclude us from reaching this result.
Plaintiffs do not ask us just to infer that the
term “prime rate” means the lowest rate
available to defendants’ most creditworthy
borrowers. They ask us to conclude that
this meaning is so universally accepted
that it is the only possible meaning and
that a reasonable person could not
understand the term to mean anything else.
In light of Wilcox and Blount, this is not a
reasonable inference. See Blount, 819
F.2d at 151; Wilcox, 815 F.2d at 528. We
conclude that the term “prime rate,” in the
context in which it was used here, is
imprecise.
Furthermore, even if we were to
have held it to be fraudulent to use the
term “prime rate” without disclosing that

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some borrowers obtain financing below
the prime rate, the defendants in this case
clearly did disclose that some borrowers
obtained financing below the prime rate.
The 1991 credit card agreement between
defendant Chase Manhattan and plaintiff
Debra Lum states:
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.
(emphasis added). Plaintiffs argue that the
term “it” in the last sentence of the Chase
Manhattan agreement refers to the term
“index” in the preceding sentence, not the
term “prime rate.” This distinction is
meaningless, however, because, according
to the terms of the contract, the prime rate
for purposes of the credit card agreement
is the prime rate reported in the Wall Street
Journal. Thus, the caveat applies equally
to both rates.
Given the fact that one member of
the RICO association-in-fact (alleged by
plaintiffs to be the defendant banks plus
the Reuters News Service, Dow Jones,
Inc., The New York Times, and the Wall
Street Journal) expressly stated in one of
the three allegedly fraudulent credit
agreements, relied upon by the plaintiffs,
that the prime rate is not the lowest rate
offered to the bank’s most creditworthy
customer, it would be difficult to conclude,
as plaintiffs allege, that the defendants
conducted an enterprise through a pattern
of racketeering activity by making
misrepresentations or omissions that were
reasonably calculated to deceive persons
of ordinary prudence and comprehension.
Plaintiffs, however, point to a
representation in another of the three
agreements, the credit card agreement
between Debra Lum and Bank of America,
in support of their fraud claim. They argue
that the representation in this agreement –
that the prime rate is "the base rate on
corporate loans at large U.S. money center
commercial banks" – is tantamount to
defining the prime rate as the lowest rate
available to a bank’s most creditworthy
borrowers. However, as with the term
“prime rate,” a person of ordinary
prudence and comprehension would not
conclude from this statement that no
commercial borrowers obtain an interest
rate below the base rate because nothing in
the term “base rate” excludes the
possibility of discounts for some
custome rs. Indeed, as plaintiffs
acknowledge in their opening brief, citing
BLACK’S LAW DICTIONARY 1191 (6TH Ed.
1990), “base rate” is “effectively
equivalent” to “prime rate.” See also Form
FR 2028a/s, Fed. Res. Board, Prime Rate
Supp. to Survey of Terms of Business
Lending. As with the term “prime rate,”

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because of the possibility of discounts, the
term “base rate” may not mean the lowest
possible rate.
We conclude, therefore, that
plaintiffs have failed to plead fraud with
particularity in their RICO claim so that
the District Court properly dismissed it. 5
B. Sherman Antitrust Act:
Similarly, since the Amended
Complaint alleges that defendants carried
out their antitrust conspiracy through
fraud, plaintiffs have failed to state a cause
of action under Section 1 of the Sherman
Antitrust Act because of the defects in the
fraud allegations discussed above.
Generally, the pleading standard for
Section 1 claims is the short and concise
statement standard of Rule 8(a). In Poller
v. Columbia Broad. Sys., the Supreme
Court cautioned that “summary procedures
should be used sparingly in complex
antitrust litigation where motive and intent
play leading roles, the proof is largely in
the hands of the alleged conspirators, and
hostile witnesses thicken the plot.” 368
U.S. 464, 473 (1962); see also Hospital
Bldg. Co. v. Trustees, 425 U.S. 738, 746
(1976) (“[I]n antitrust cases, . . . dismissal
prior to giving the plaintiff ample
opportunity for discovery should be
granted very sparingly.”). Likewise, in
Knuth v. Erie-Crawford Dairy Coop, this
Court stated that "we should be extremely
liberal in construing antitrust complaints."
395 F.2d 420, 423 (3d Cir. 1968).
We have, however, recognized that
“‘while antitrust complaints are not subject
to especially stringent pleadings, see
Knuth, supra, neither are they exempt from
the federal rules.’” Commonwealth of
Pennsylvania v. Pepsico, Inc., 836 F.2d
173, 179 (3d Cir. 1988) (quoting Sims v.
Mack Truck Corp., 488 F. Supp. 592, 608
(E.D. Pa. 1980)).
Because plaintiffs allege that the
defendants accomplished the goal of their
conspiracy through fraud, the Amended
Complaint is subject to Rule 9(b). See
Fed. R. Civ. P. 9(b) (“In all averments of
fraud or mistake, the circumstances
constituting fraud or mistake shall be
stated with particularity.” (emphasis
added)). Plaintiffs, nevertheless, pointing
to paragraph 17 of the Amended
Complaint, argue that their antitrust claim
merely alleges that defendants conspired to
set an artificially high floor on interest
rates by agreeing to raise the prime rate,
and that allegations of misrepresentations
regarding the prime rate only go to their
RICO claim. In paragraph 17, the
A m ended Complaint alleges that
defendants “formulated and carried out a
plan, scheme and conspiracy to fix and
Having correctly found that plaintiffs
failed to adequately plead a substantive
RICO claim under 18 U.S.C. § 1962(c),
the District Court properly dismissed the
RICO conspiracy claim under 18 U.S.C.
§ 1962(d). “Any claim under section
1962(d) based on conspiracy to violate
the other subsections of section 1962
necessarily must fail if the substantive
claims are themselves deficient.”
Lightning Lube, Inc. v. WITCO Corp., 4
F.3d 1153, 1192 (3d Cir. 1993).

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15
control the ‘prime rate’ published by the
outside indexes.”
This paragraph of the Amended
Complaint cannot, however, be read in
isolation. See Chabal v. Reagan, 822 F.2d
349, 357 (3d Cir. 1987). The very next
paragraph of the Amended Complaint
makes clear that plaintiffs are alleging that
the defendants carried out this plan,
scheme, and conspiracy through fraud:
18. During the Class
Period, while maintaining
an appearance of following
a prime rate set by neutral
forces, the Banks entered
into a pla n, s ch e m e,
conspiracy, and course of
c o n d u c t d e s i g n e d to
fraudulently and artificially
inflate the “prime rate”
published in the outside
indexes by falsely reporting
the Bank’s individual prime
r a t e s t o t h e va r i o us
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
m o s t c r e d i t w o r t h y
customers. As a result of
t h i s p l a n , s c h e m e ,
conspiracy and course of
conduct, the “prime rate”
published by the outside
indexes remained artificially
high and the prime plus
interest rates on th e
consumer credit instruments
were fraudulently inflated.
(emphasis added). In short, the fact that
the fraud is not identified in paragraph 17
of the Amended Complaint does not rule
out that fraud is part of the antitrust
allegation because paragraph 17 merely
identifies the existence of a conspiracy to
fix the prime rate, while paragraph 18
identifies how the rate fixing was
accomplished – through fraud.
Because plaintiffs have alleged
fraud as a basis for their antitrust cause of
action, this claim is subject to the
heightened pleading requirement of Rule
9(b). As discussed above, plaintiffs have
failed to satisfy the requirements of Rule
9(b) with regard to their theory that
defendants misrepresented that the prime
rate would be the lowest rate available to
their most creditworthy customers. They
have also failed to particularize how false
information on their “prime rate” was sent
to the financial publications for inclusion
in the independent indices. They have not
set out who sent what information to
whom or when it was sent. Nor have they
particularized by how many points the
prime rate was falsely reported or whether
there was any consistency among the
defendant banks in the amount by which
the prime rate was falsely reported. We
conclude, therefore, that plaintiffs have not
adequately pled an antitrust claim
predicated on fraud.
C. Leave To Amend:

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16
Can plaintiffs cure the deficiencies
in the Amended Complaint by further
amendment, either by providing particulars
of the fraudulent conduct or by dropping
the allegations of fraud? The Federal
Rules of Civil Procedure provide that
leave to amend “shall be freely given when
justice so requires.” Fed. R. Civ. P. 15(a).
The District Court denied the request to
amend on the basis that amendment would
be futile.
We agree that it is clear from the
statements in plaintiffs’ briefs and at oral
argument both before the District Court
and before us that leave to amend would
be futile. Plaintiffs cannot allege
sufficient facts to support fraud in either
the RICO or the antitrust claims. At oral
argument, plaintiffs did not identify any
additional allegations of fraud related to
other financial transactions, or of other
misrepresentations made in connection
with the three identified transactions, that
they would include in a Second Amended
Complaint. Having examined the
contracts from the three purportedly
fraudulent transactions, it is clear that there
are no further particulars of fraud in these
transactions to set out and that granting
leave to amend would be futile.
Similarly, permitting plaintiffs to
amend their antitrust claim to remove the
fraud allegation would be futile. They will
have no additional information to provide
here either. The only alternative basis for
the antitrust claim that plaintiffs propose is
a claim of conscious parallelism. As
plaintiffs’ attorney stated at oral argument:
what we believe at this time
is the basis of the claim, that
we can assert in good faith
is based on conscious
parallelism, and it might
very well be that during
discovery, we will be able to
establish that there were
actual meetings and direct
discussions.
This statement, viewed in light of
the record before the court, is not
sufficient to establish cons cio us
parallelism. “The law is settled that proof
of consciously parallel business behavior
is circumstantial evidence from which an
agreement, tacit or express, can be inferred
but that such evidence, without more, is
insufficient unless the circumstances under
which it occurred make the inference of
rational independent choice less attractive
than that of concerted action.” Bogosian,
561 F.2d at 446. We have identified two
such circumstances, known as “plus
factors”: 1) where defendants acted in
contradiction of their own economic
interests, and 2) where there is satisfactory
demonstration of a motive to enter into an
agreement. See id.; Venzie Corp. v.
United States Mineral Prod., 521 F.2d
1309, 1316 (3d Cir. 1975). Since
conscious parallelism is an evidentiary rule
that relates to how a plaintiff may prove
the existence of an agreement, a plaintiff
need not allege the existence of these plus
factors in order to plead an antitrust cause
of action. See Bogosian, 561 F.2d at 446
(holding that plaintiffs adequately pled an

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17
antitrust cause of action where they alleged
a combination and that the defendants
entered into parallel contracts with tying
agreements).
In the present case, however,
granting plaintiffs leave to plead conscious
parallelism would be futile because
plaintiffs do not allege, or seek to amend
their complaint to allege, that defendants
engaged in consciously parallel pricing as
to the final interest rate that defendants
charged consumers. Indeed, the Amended
Complaint alleges that the Chase
Manhattan Advantage Credit agreement
offered an interest rate of 6 percentage
points above the prime rate (or 5
percentage points above the prime rate if
the customer had a Chase Manhattan
banking relationship), but Citibank offered
an interest rate of 1.65 percentage points
above the prime rate. In addition, in their
RICO Case Statement, plaintiffs allege
that the following banks offered the
following interest rates on the following
credit cards through March 29, 2000:
Percentage Points Above Prime
Bank of America:
Visa Classic 2.9
Visa Gold 2.9
Standard Mastercard2.9
Bank One
Visa OneCard Platinum (for
purchase)6.9
CitiBank
Citi Platinum Select 1.65
Citi Advantage Card 9.9
First Union
Visa Classic 7.9
Visa Gold 6.4
Visa Platinum 4.9
US Bank
WorldPerks Visa Card 9.75
Wells Fargo
Proven Credit Standard/Platinum
MasterCard 9.4
P r e f e r r e d P r o v e n C r e d i t
Standard/Platinum MasterCard 7.4
Premium Credit Standard/Platinum
MasterCard 4.0
Standard Mastercard 7.4
Further, according to the RICO
Case Statement, some defendants offered
prime plus interest rates where the
percentage points above the prime rate
varied. The following banks offered the
following interest rates on the following
credit cards through March 29, 2000:
Percentage Points Above Prime
Bank of America
Visa Classic 2.9 to 12.9
Standard Mastercard 2.9 to 12.9
Visa Gold 2.9 to 12.9
Visa Platinum 7.9 to 12.9
Key Bank

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18
Variable Rate Gold Visa1.99 to
13.99
Variable Rate Gold MasterCard
1.99 to 13.99
Variable Rate Classic Visa 1.99 to
13.99
Variable Rate Classic MasterCard
1.99 to 13.99
US Bank
Visa Classic 2.9 to 8.9
Visa Platinum 1.9 to 8.9
Still other defendants offered
incentives. For example, Bank One
offered a credit card with an introductory
rate of 2.9% for the first six months,
followed by a rate of 6.9 percentage points
above the prime rate (for purchases).
Chase Manhattan offered a credit card
with a fixed rate of 3.99% for the first nine
months, followed by a rate of 8.49
percentage points above the prime rate
(9.49 percentage points for non-preferred
customers). Bank of New York offered a
credit card with an introductory rate of
5.99% for nine months, followed by a
fixed rate of 13.49% for balances greater
than or equal to $2,500, or 15.49% for
balances less than $2,500 – or a customer
could elect a variable rate after the first
month of 5.49 percentage points above the
prime rate for balances greater than or
equal to $2,500, or 7.49 percentage points
above the prime rate for balances less than
$2,500.
Similarly, the RICO Case Statement
alleges that the following banks offered
the following interest rates on lines of
credit:`
Percentage Points Above Prime
Chase Manhattan Advantage Credit 6
First Union Cash Reserve Credit (New
York) 9.5
Key Bank Preferred Line of Credit (New
York)5.49
PNC Unsecured Line of Credit A
competitive rate
Bank of New York EquityLink Line of
Credit06
The only reasonable conclusion that
can be drawn from these figures is that
there was price competition as to the final
interest rate on credit cards and lines of
credit. See Hishon, 467 U.S. at 73.
Plaintiffs argue that they do not
have to allege conscious price parallelism
as to the actual interest rate charged to
customers because their allegations of
conscious price parallelism as to the prime
rates is sufficient to state an antitrust cause
of action. In support of this argument,
plaintiffs cite several cases that recognize
that an agreement to artificially inflate the
base rate from which negotiations begin
can violate the antitrust laws by causing
consumers to pay more than they would
absent an agreement to inflate the base
rate. See In re NADSAQ Market-Makers
Antitrust Litig., 169 F.R.D. 493, 517-18
The Bank of New York EquityLink
Line of Credit had an introductory fixed
rate of 5.9% for the first six months.

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19
(S.D.N.Y. 1996); In re Indus. Diamond
Litig., 167 F.R.D. 374, 383 (S.D.N.Y.
1996); Fisher Brothers, 102 F.R.D. 570,
578 (E.D. Pa 1984); In re Glassine and
Greaseproof Paper Antitrust Litig., 88
F.R.D. 302, 306 (E.D. Pa. 1980). We need
not decide whether an actual agreement to
artificially raise a base price violates
antitrust laws because that issue is not
before us. Rather, the issue before us is
whether we reasonably can infer from
plaintiffs’ factual allegations of parallel
base pricing that defendants agreed to
inflate the interest rates charged to
consumers and small businesses.
The Supreme Court and this Court
already have decided this issue in the
negative. See Brooke Group LTD v.
Brown & Williamson Tobacco Corp., 509
U.S. 209, 227, 235-36 (1993); In re Baby
Food Antitrust Litig., 166 F.3d 112, 128
(3d Cir. 1999). In Brooke Group and In re
Baby Food Antitrust Litigation, the
plaintiffs argued that an inference of an
agreement to artificially inflate prices
could be drawn from evidence of
consciously parallel list prices. See id.
Both the Supreme Court and this Court
rejected this argument, holding that the
relevant inquiry for purposes of
determining if an agreement to inflate
prices can be inferred from consciously
parallel pricing is whether there is
consciously parallel pricing in the final
price consumers pay, not whether there is
conscious parallelism in the list price from
which negotiations for the final price
begins. See id. As we stated in In re Baby
Food Litigation:
In an industry with hundreds
of products and a pervasive
policy of allowing discounts
and promotional allowances
to purchasers, . . . charts and
reports focusing on list
p r i c e s r a t h e r t h a n
transactional prices have
little value. “Especially in
an oligopoly setting, in
which price competition is
most likely to take place
through less observable and
less regular means than list
p r i c e s , i t w o u l d be
unre ason able to dra w
conclusions about the
e x i s t e n c e o f t a c i t
c o o r d i n a t i o n o r
supracompetitive pricing
from data that reflect only
list prices.” Brooke Group,
509 U.S. at 236.
166 F.3d at 128 (emphasis in original).
While Brooke Group involved
judgment as a matter of law and In re Baby
Food Antitrust Litigation involved
summary judgment, assuming the factual
allegations are true in the present case and
drawing every reasonable inference in
favor of plaintiffs, the plaintiffs contend
that they can allege that there is price
parallelism in setting the prime rate. We
can see, however, from the information
provided to the District Court by the
plaintiffs that, due to discounts and
com petition regarding how many
percentage points above the prime rate that
banks may charge, there is not price

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parallelism in the final interest rate
charged to consumers. Under these
circumstances, in light of Brooke Group
and In re Baby Food Antitrust Litigation,
it is clear that no relief could be granted
under any set of facts that could be proved
consistent with the allegations. Therefore,
granting leave to amend would be futile.
IV. Conclusion
For the reasons stated above, we
will affirm the judgment of the District
Court.

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