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NORDIC BANK PLC v. TREND GROUP

September 17, 1985

NORDIC BANK PLC, Plaintiff,
v.
THE TREND GROUP, LTD., LEASE TREND COMPANY, WILLIAM KLEIN, CHASE MANHATTAN BANK, N.A., FIRST NATIONAL BANK OF LOUISVILLE, PROVIDENT NATIONAL BANK, THE CONNECTICUT BANK AND TRUST CO., N.A., GENERAL MOTORS ACCEPTANCE CORPORATION, ULTRA FUNDING CORPORATION, NORTHEASTERN BANK OF PENNSYLVANIA, FORD MOTOR CREDIT COMPANY and CITIBANK, N.A., Defendants THE TREND GROUP LTD., formerly Conn-Trend Leasing Corporation and Lease Trend Corp., LEASE TREND COMPANY, formerly Flourtown Leasing, Inc., SERV TREND, N.V. and MOSS VEND, LTD., Plaintiffs, vs. NORDIC BANK PLC LONDON, NORDIC AMERICAN BANKING CORPORATION, SVENSKA HANDELSBANKEN, DEN NORSKE CREDITBANK, COPENHAGEN HANDELSBANK A/S, KANSALLIS OSAKE PANKKI, JAN E.H.M. EKMAN, JOHN SCLATER, JOHN R. NELSON, MICHAEL S. MATHEWS, HANS OSTERGAARD, ERLING NAPER, OLLI KAILA, NORDIC FINANCE LIMITED, NORDIC LEASING LIMITED, and STEWART G. SMITH, Defendants



The opinion of the court was delivered by: GOETTEL

GOETTEL, U.S.D.J.

On December 5, 1983, Nordic Bank PLC London ("NBL"), a London bank, brought an action ("the Nordic action") in the United States District Court for the Eastern District of Pennsylvania naming the Trend Group Limited ("Trend"), Lease Trend Company ("Lease Trend"), William H. Klein and nice financial institutions as defendants. The action sought to cut off the security interests that the nine financial institutions allegedly had in automobile and equipment leases pledged to NBL by Trend and to recover monetary damages that arose from Trend's alleged default on certain promissory notes assigned to NBL.

On December 6, 1983, Trend, Lease Trend, and two of their affiliates, Serv Trend, N.V. ("Serv Trend") and Moss Vend Limited ("Moss Vend"), filed a fourteen count complaint in this Court against the plaintiff in the earlier action and against various related parties ("the Trend action". *fn1" On December 15, 1983, the Nordic action was transferred to this Court. The Nordic and Trend actions were subsequently consolidated.

 On February 22, 1984, all of the defendants in the Trend action moved to dismiss that action. Before the motions could be heard, the Trend plaintiffs filed an amended complaint adding several counts and restating others. This complaint alleges seventeen causes of action. Seven arise under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961-65 (1982). The complaint also states separate claims under the Bank Holding Company Act of 1970, 12 U.S.C. § 1971(1) (1982) ("BHCA") and under Section 1 of the Sherman Antitrust Act, 15 U.S.C. § l (1982). The remaining counts in the complaint state common law claims.

 After the filing of the amended complaint in the Trend action, the parties to that action stipulated to extend the defendants' time to move or to answer for several months. As expected, the defendants again moved to dismiss a variety of claims on both substantive and jurisdictional grounds. Those motions are now before us.

 I. Background

 A. The Parties

 Trend is a Delaware corporation that has its principal place of business in Valley Forge, Pennsylvania. On July 11, 1978, Trend purchased the assets and name of Flourtown Leasing Company, which became Lease Trend. Plaintiff, Serv Trend, another wholly owned subsidary of Trend, is a limited liability company organized under the laws of the Netherlands Antilles. Plaintiff, Moss Vend, is Trend's nominee in the United Kingdom.

 Defendant, Nordic American Banking Corporation ("NABC"), is an investment company organized under Article 12 of the Banking Law of the State of New York, N.Y. Banking Law §§ 507-20 (McKinney 1971). Until August 31, 1979, NABC was wholly owned by defendant, Svenska Handelsbanken ("SHB"), a Swedish bank. On or about September 1, 1979, SHB sold 75% of its stock in NABC in equal shares to defendants Den Norske Creditbank ("DnC"), the largest commercial bank in Norway; Copenhagen Handelsbanken A/S ("CHB"), one of the largest banks in Denmark; and Kansallis Osake Pankki ("KOP"), a Finnish bank. Until approximately August 15, 1983, SHB, DnC, CHB, and KOP were also equal owners of defendant NBL, an international bank with its principal place of business in London, England. On August 15, 1983, DnC obtained control over all of the voting securities of NBL. NBL owns all of the stock of defendants Nordic Leasing Limited ("NLL") and Nordic Finance Limited, ("NFL"), British limited liability corporations engaged in the equipment leasing business.

 The complaint also names a number of individual defendants. These include Jan E.H.M. Ekman ("Ekman"), president of SHB and a Swedish citizen; Hans Christian Ostergaard ("Ostergaard"), a Danish citizen who, until December 31, 1980, was managing director of CHB; Erling Naper, ("Naper"), general manager of DnC and a Norwegian citizen; and Olli Kaila ("Kaila"), a Finnish citizen and a former executive vice-president of KOP. Commencing in September 1979, these four individuals served as directors of NABC. Ekman was Chairman of the Board until April 20, 1983. Naper and Ekman remain directors. Ostergaard resigned from the Board on April 3, 1981; Kaila did so in April 1983. John R. Nelson ("Nelson") and Michael S. Mathews ("Mathews"), NABC's president and the senior vice president, respectively, are also named as defendants. John R. Sclater ("Sclater"), a British citizen who is NBL's managing director and Steward G. Smith ("Smith"), its associate director, are similarly named.

 B. The Allegations of the Amended Complaint

 The amended Trend complaint relates the following claimed pertinent facts.

 1. The Flourtown Loans

 On July 3, 1978, NABC loaned Trend $800,000 so that Trend could purchase the assets of the Flourtown Leasing Company ("Flourtown"), an automobile and equipment leasing company. On October 25, 1978, NABC loaned Trend an additional $600,000 for use as working capital. Between November 15, 1978 and May 10, 1979, NABC made nine loans aggregating $8,250,000 to Trend (or Flourtown) to finance automobile and equipment leases. NABC allegedly made several representations to Trend regarding these so-called "Flourtown Loans." NABC allegedly represented that Trend would only have to pay interest on the loans. Payments of principal would be due when the collateral was sold unless substituted collateral was pledged. NABC would charge interest at its prime rate, the rate charged its most credit-worthy customers. NABC also allegedly represented that its charter and the laws of New York authorized such loans and that the interest charges were lawful under New York law. Trend charges that each of these representations was false and known to be so when made.

 In exchange for each Flourtown loan, Trend signed a full recourse, demand promissory note. On or about the time that NABC issued the last of the loans, it superseded the demand notes with partial recourse notes. NABC backdated these instruments to the dates of the original demand notes. The partial recourse notes obligated the lessees of the leases securing the loans. Trend asserts that NABC altered the structure of the loans so that it could represent that it had loaned funds to a variety of lessees instead of to Trend. In that way, NABC could avoid violating New York state's bank lending limits.

 2. The Northern Telecom Portfolios

 Beginning in March 1979, NABC financed Trend's purchase of several portfolios of operation leases from Data 100, a subsidiary of the Northern Telecom corporation ("Northern Telecom"). Trend completed the purchase of the first and a second portfolios on March 20, and May 5, 1979, respectively.

 Although Trend signed full recourse demand instruments in exchange for the loans from NABC that financed these purchases, NABC allegedly represented that the loans would be partial recourse like the Flourtown loans.

 On June 20, 1979, NABC agreed to finance Trend's purchase of an additional $30 million of Northern Telecom operating leases. In reliance on these assurances, Trend agreed to purchase at least $30 million of additional operating leases from Northern Telecom. In September 1979, SHB, NABC, NBL, and Trend met in Stockholm, Sweden, to discuss their continuing relationship. At those meetings, SHB, NABC, and NBL represented to Trend that they would organize a syndicate to finance Trend's purchase of $40 million of Northern Telecom operating leases, instead of the $30 million they had originally agreed to finance. NABC firmly committed to this undertaking. The syndication was to finance Trend's purchase of eight Northern Telecom lease portfolios. NABC, with the assistance of SHB NBL, eventually supplied the financing for four such portfolios. However, portfolios numbered 7-10, valued at $22 million, which Trend had committed to purchase from Northern Telecom, remained to be financed.

 During a meeting at NABC's offices in New York City on December 3, 1979, Nelson represented to Trend that if Trend agreed to waive NABC's firm commitment to complete the $40 million syndication, NABC would exercise its "best efforts" to complete the syndication and would attempt to enlist NBL's assistance in that endeavor. In reliance on these and other related representations, Trend waived NABC's firm commitment. Trend alleges that Nelson's representations were materially false and misleading. Immediately after Trend agreed, on December 8, 1979, to waive NABC's firm commitment, Trend notified NABC that it would be unable to fund the four remaining Northern Telecom portfolios before December 31, 1979.

 Trend eventually funded Portfolio No. 7 itself, and resold numbers 8 and 9 to Northern Telecom.

 At the September 1979 meeting, SHB also represented that SHB, NABC, and NBL would form a syndicate to finance the purchase of an additional $15 million in operating leases on equipment located outside of the United States. According to Trend, these representations were also materially false and misleading.

 Of the four remaining Northern Telecom portfolios, Trend funded one itself, and resold two to Northern Telecom. In mid-December 1979, NBL allegedly agreed to fund the fourth remaining portfolio, numbered 10 ("Portfolio 10"), by year end. That portfolio was composed of United Kingdom operating leases that NABC had previously committed to fund.

 In late December 1979, Trend allegedly incorporated Moss Vend, Inc. to act as its United Kingdom vehicle for financing Portfolio 10. In reliance on NBL's representations that financing for the purchase was imminent and under pressure from Northern Telecom to consummate the purchase, Trend caused Moss Vend to purchase that portfolio from Data 100 on December 31, 1979. NBL did not provide the promised financing. Instead, it demanded and received a number of concessions from Trend. On January 11, 1980, Trend acceded to NBL's demand that NFL, a subsidiary of NBL, purchase Portfolio 10. As part of the same transaction, Trend agreed to convert SHB's firm commitment to organize a syndicate to provide $15 million in financing for European leases to a commitment to use its best efforts to provide such financing. In addition, at NBL's behest, Moss Vend executed a demand promissory note guaranteed by Trend in favor of NBL for the purchase price of the equipment. On June 27, 1980, Moss Vend finally sold Portfolio 10 to NFL, but not before Trend had agreed to pay 14,000 British pounds a month to NBL and to forego substantial tax benefits.

 Beginning In January 1981, NABC, NBL, and their parent companies determined to improve their financial position vis-a-vis their relationship with Trend. For over a year, they attempted to reach a settlement with Trend that would realign and provide greater security for their outstanding loans. These efforts collapsed in March 1981, and on March 24, 1981, NABC demanded payment from Trend on all of its outstanding loans. NABC based its demands on the demand instruments that Trend had assertedly been superseded by partial recourse notes. See supra p. 5. Together with NBL and SHB, NABC also threatened to force Trend into bankruptcy, to notify its business associates, and to interfere with its relationship with Northern Telecom. In exchange for NABC's agreement to abstain from foreclosing on its demand notes -- which Trend continued to insist were invalidly substituted for the partial recourse notes -- Trend agreed to repay the Flourtown loans in full, and to repay loans made on portfolios 1-6 over a five year period. Trend also received an option to repurchase Portfolio 10. Trend agreed to a variety of other concessions. See infra pp. 14-15. On June 8, 1981, Trend consummated the settlement agreement with NABC. On that day, NBL purchased the Flourtown loans from NABC. In connection with that purchase, NABC endorsed, negotiated, and delivered demand promissory notes evincing those loans to NBL. In order to pay off the $23 million it owed NABC, Trend resold operating leases worth $35 million to Northern Telecom and received $30 million in return. Trend also obtained a $6 million letter of credit to guarantee repayment of the Flourtown loans and executed a new $3 million note in favor on NBL in exchange of the extinction of a similar obligation in favor of NABC.

 C. The Amended Complaint

 The aforementioned allegations are the basis for the seven RICO claims in the amended complaint. The first of these claims charges that NABC knowingly misrepresented the nature of the original Flourtown loans to Trend. NABC's undisclosed intention to switch back and forth between its full and partial recourse notes is at the heart of this claim. This claim also charges that NABC knowingly mistated its intentions to charge Trend its "prime" rate of interest on the Flourtown loans and to comply with New York's banking laws.

 The second RICO claim concerns NBL's alleged promise to pursue the $40 million syndication on a best efforts basis. According to Trend, NBL never intended to keep this promise. The third RICO count is quite similar. It alleges that SHB misrepresented its intention to arrange a syndicate to finance Trend's purchase of Northern Telecom's European lease portfolios.

 The fourth RICO claim charges that NBL misrepresented its intention to finance the purchase of Portfolio 10 on the same terms as Trend's other Northern Telecom portfolios.

 The fifth RICO claim charges NBL and NABC with fraudulently conspiring to cause Trend to agree to realign its obligations under the Flourtown loans from a partial recourse to a full recourse basis. The sixth RICO claim charges NABC, NBL, SHB, and their affiliates with extortionate conduct in extracting concessions from Trend during the spring of 1981. The final RICO claim alleges that NABC knowingly misstated its intention to charge Trend interest on the Flourtown loans at its "prime" rate. The thirteenth claim of the amended complaint reasserts all but the sixth RICO claim as claims for common law fraud.

 The eighth and ninth claims of the amended complaint attempt to assert claims under the Bank Holding Company Act and the Sherman Antitrust Act. Both assert that NABC unlawfully tied its agreement to stay enforcement of its demand for immediate repayment of the Flourtown and Northern Telecom loans to a variety of onerous economic conditions.

 The tenth and eleventh claims seek rescission of Trend's sale of Portfolio 10 to NBL and of the agreements between Trend, NABC, and NBL signed during the spring of 1981 that realigned and stiffened Trend's obligations. The twelfth claim alleges that economic duress was improperly utilized to extract those concessions.

 The fourteenth and sixteenth claims allege that SHB, NABC, and NBL tortiously interfered with Trend's contractual relationships with Northern Telecom, its subsidiaries, and affiliates (the fourteenth claim) and with Trend's subsidiaries and affiliates *fn2"

 II. Discussion: The Substantive Motions

 Before the Court are a veritable cornucopia of motions. The defendants move to dismiss the RICO, BHCA, Sherman Act, economic duress, tortious interference, and breach of contract claims for failure to state a claim on which relief can be granted. In the alternative, they move to dismiss several of the common law claims for lack of subject matter jurisdiction. DnC and CHB and their associated officers move for summary judgment on the fraud claims against them. The defendants also attack the pleadings as vague and inadequate, and demand that the entire amended complaint be repled. Finally, DnC, KOP, CHB, Naper, Kaila, Ostergaard, Ekman, Sclater, and Smith move to dismiss the action for lack of personal jurisdiction.

 A. The RICO Counts

 The defendants originally moved to dismiss each of the complaint's RICO counts. They asserted that the plaintiffs had not shown a distinct "racketerring injury" as required by Sedima S.P.R.L. v. Imrex Co., 741 F.2d 482 (2d Cir. 1984), rev'd, 473 U.S. 479, 105 S. Ct. 3275, 87 L. Ed. 2d 346 (1985), and Bankers Trust Co. v. Rhoades, 741 F.2d 511 (2d Cir. 1984), vacated, 473 U.S. 922, 105 S. Ct. 3550, 87 L. Ed. 2d 673 (1985). They also maintained that the plaintiffs had failed to establish another prerequisite to a civil RICO suit, a prior criminal conviction. See Sedima S.P.R.L. v. Imrex Co., supra, 741 F.2d at 496-504. Recently, the Supreme Court struck down both of these requirements. In Sedima S.P.R.L. v. Imrex Co., 473 U.S. 479, 105 S. Ct. 3275, 87 L. Ed. 2d 346 (1985), the Court found "no support in the statute's history, its language, or considerations of policy for a requirement that a private treble damages action under § 1964(c) can proceed only against a defendant who has already been criminally convicted." Id. at 3284. It also held that "[t]here is no room in the statutory language for an additional, amorphous racketeering injury requirement." Id. The Supreme Court's decision leaves the defendants with no substantive basis on which to rest a Rule 12(b)(6) motion to dismiss the RICO claims. *fn3" We therefore deem withdrawn the defendant's motion to dismiss those claims for failure to state a claim on which relief can be granted. *fn4"

 B. The Bank Holding Company Act (BHCA) Claim

 The eighth claim in the amended complaint alleges that NABC violated those anti-tying provisions of the BHCA that provide.

 
(1) A bank shall not in any manner extend credit, lease or sell property of any kind, or furnishany service, or fix or vary the consideration for any of the foregoing, on the condition or requirement--
 
(B) that the customer shall obtain some additional credit, property, or service from a bank holding company of such bank, or from any other subsidiary of such bank holding company;
 
(C) that the customer provide some additional credit, property, or service to such bank, other than those related to and usually provided in connection with a loan, discount, deposit, or trust service;
 
(D) that the customer provide some additional credit, property, or service to a bank holding company of such bank, or to any other subsidiary of such bank holding company . . . .

 12 U.S.C. § 1972(1) (b)-(d) (1982). *fn5" A successful plaintiff under BHCA § 1972(b)-(d) must allege and prove that a bank, a bank holding company, or its subsidiary (1) extended credit; (2) on the condition or requirement; (3) that its customer obtain or provide some additional credit, property or service. *fn6"

 The thrust of Trend's *fn7" BHCA tying claim is that NABC conditioned its forbearance in collecting on its outstanding demand notes on the purchase by Trend of additional credit from NABC and NBL and on Trend's provision of various services to NBL and NABC. NBL and KOP, DnC, CHB, and SHB (collectively "the Nordic defendants") are alleged to have conspired with NABC to set up this typing arrangement. NABC allegedly forced Trend to obtain a $3 million loan from NBL in violation of § 1972(1) (b). NABC also allegedly required Trend to guarantee debts to NBL, to pay $175,000 in consulting fees and $110,000 in legal fees that NABC and NBL had incurred, and to provide $750,000 in substitute collateral to NBL. Trend also alleges that it signed an option to purchase Portfolio 10 at NABC's behest and endorsed certain of the Flourtown loans to NBL and NABC's behest, all in violation of § 1972(1) (d). Finally, Trend alleges that NABC violated § 1972(1) (c) by conditioning its forbearance on Trend's agreement to repay all of its outstanding loans to NABC, whether full or partial recourse, to shift the situs of the loans to NBL. to provide NABC with $6,000,000 in letters of credit, and to provide releases to NABC with respect to some of the Flourtown loans and the Northern Telecom transactions.

 The defendants contend that Trend's pleadings do not assert any of the three prerequisites to a BHCA tying claim. We cannot agree. The papers before us establish that NABC "extended credit" within the meaning of the Act. Moreover, as issue of fact remains as to whether that extension was conditioned on Trend's agreeing to NABC's demands. The plaintiffs' claim is, however, flawed because most of the products, services, and consideration upon which NABC allegedly conditioned its forbearance cannot be the basis of a tying claim under the BHCA. Only Trend's claim that NABC tied its forbearance to Trend's agreement to ...


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