The opinion of the court was delivered by: LORD, III
This is a suit under the Truth in Lending Act (TILA) and the Sherman Act against certain savings and loan associations in the Greater Philadelphia area that made home mortgage loans to plaintiffs. The antitrust count, being maintained as a class action against twenty banks,
alleges that defendants violated Section 1 of the Sherman Act, 15 U.S.C. § 1, by agreeing between 1968 and 1975 to collect an "interest charge" at settlement on a loan. The TILA count, certified as a class action as to three defendants and maintained as individual actions against three others
, alleges that the "interest charge" collected at settlement was mislabeled in violation of the disclosure requirements of 15 U.S.C. § 1601 Et seq. and Regulation Z promulgated thereunder, 12 CFR 226.1 Et seq. Defendants have moved for summary judgment on both counts pursuant to F.R.Civ.P. 56. We have jurisdiction under 28 U.S.C. § 1331.
Home mortgage loan funds usually are distributed to the borrower at closing or settlement and applied by him to pay a portion of the purchase price. Commonly, the title company conducting the settlement collects certain charges from the mortgagor and remits them to the lender. Among the charges collected, from plaintiffs, for the twenty defendants in this case was a sum equal to interest on the loan from the date of settlement to the first monthly payment. Defendants' Brief In Support of Their Motion for Summary Judgment as to Counts I and II of the Third Amended Complaint at 2. For example
, assume a loan of $ 30,000 at 8% Annual interest, with a January 1 settlement date, monthly installment payments to begin on February 1. At the closing, a charge of $ 200 ($ 30,000 times 8% Divided by 12 months), labeled "interest to first payment"
, would be collected for defendant lender. Then, on February 1, the plaintiff-borrower would begin paying monthly installments, the number and amount of which defendants determined by consulting mathematical tables prepared by the Financial Publishing Company (FPC) of Boston, Massachusetts. Reply Brief of Defendants in Support of Their Motion for Summary Judgment as to Counts I and II of the Third Amended Complaint at 7. To illustrate, if the loan were for twenty years, payments due monthly, then the mortgagor would make 240 installments of $ 250.93. Financial: Compound Interest and Annuity Tables, 5th Edition # 376 Financial Publishing Company (Sixth Printing 1975). This collection of both "interest to first payment" and a monthly installment determined by FPC tables referred to as "the practice" is the focal point of plaintiffs' challenge.
Plaintiffs seek to spin a web of facts supporting an inference that defendants conspired to engage in the practice of using FPC tables in conjunction with an "interest to date of first payment" charge. There are four major strands to this web: (1) the practice is idiosyncratic; (2) it is improbable that all twenty defendants independently adopted this idiosyncratic practice; (3) defendants, through common membership in two trade associations, had ample opportunity to conspire and demonstrated an inclination to act as a group; (4) defendants had an economic motive for agreeing. We will consider each strand to see if plaintiffs' allegations raise a "genuine issue of material fact" precluding summary judgment.
Our inquiry must be animated not only by the general requirement that all evidence and inferences are to be viewed in a light most favorable to the party opposing the motion, Bishop v. Wood, 426 U.S. 341, 347 n.11, 96 S. Ct. 2074, 48 L. Ed. 2d 684 (1975), but also by several rules peculiar to Sherman Act conspiracy suits. Summary judgment is to be used sparingly in complex antitrust cases involving questions of motive and intent. Poller v. Columbia Broadcasting System, 368 U.S. 464, 82 S. Ct. 486, 7 L. Ed. 2d 458 (1962). However, where plaintiffs' opposition to a motion for summary judgment fails to counter defendants' proof that the facts are not susceptible to plaintiffs' interpretation, summary judgment is appropriate. First National Bank v. Cities Service Co., 391 U.S. 253, 88 S. Ct. 1575, 20 L. Ed. 2d 569 (1968); Cf. Tripoli Co. v. Wella Corp., 425 F.2d 932 (3d Cir.) Cert. denied, 400 U.S. 831, 91 S. Ct. 62, 27 L. Ed. 2d 62 (1970) (facts stipulated; only legal question presented). Each fact in an alleged conspiracy must be viewed in the totality of circumstances, not in isolation. Continental Ore Co. v. Union Carbide, 370 U.S. 690, 82 S. Ct. 1404, 8 L. Ed. 2d 777 (1962). And formal agreement need not be proven; circumstantial evidence supporting a reasonable inference of conspiracy is sufficient. American Tobacco Co. v. United States, 328 U.S. 781, 809-10, 66 S. Ct. 1125, 90 L. Ed. 1575 (1946). It is with these legal yardsticks that we must measure plaintiffs' case.
A. The practice is idiosyncratic.
There are three standard methods of collecting interest: interest in arrears; interest in advance at the same effective rate; and interest in advance at a higher effective rate. Assuming a $ 3,000 loan at 10% Annual interest, settled on January 1, 1978 with $ 1,000 annual principal repayments, the following charts numerically illustrate each of the standard techniques:
Plaintiffs offer the affidavits of Robert C. Collett, vice president of Financial Publishing Company, and John S. deCani, a Wharton economic statistics professor, as proof that the FPC tables, because prepared on an in-arrears basis, include as part of the first installment the interest on the entire loan principal for one month immediately prior to the date of the first payment. Plaintiffs' affiants conclude that a charge, imposed at closing by a lender using FPC tables, computed as though it were interest in advance from settlement to the first monthly installment is an improper duplication of the interest charge and therefore mathematically irrational. Affidavit of Robert C. Collett, February 22, 1978; Affidavit of John S. deCani, November 20, 1974. It is in these affidavits that plaintiffs ground their allegation that the practice is idiosyncratic a contention that is in turn the foundation of plaintiffs' inference of conspiracy.
Defendants insist that their practice of charging at settlement an amount equal to interest on the loan from closing to the first monthly installment was simply collection of interest in advance at a higher effective rate Chart III and that plaintiffs' position is "absurd". Whether Chart III or Chart IV illustrates the controversial collection method is thus squarely disputed.
We conclude that this dispute raises a genuine issue of material fact preclusive of summary judgment. That the dispute is a factual one is obvious: it is for the jury to decide whether the practice was standard or aberrant. That the disputed fact is material is also clear: as discussed in B and C below, plaintiffs anchor their inference of conspiracy in the idiosyncratic nature of the common practice and we cannot at this stage dismiss that inference as insupportable.
Finally, the issue of material fact is genuine. Defendants do not explicitly challenge the Collett and deCani statements that the FPC tables, admittedly used by all twenty lenders, are prepared on an in-arrears (Chart I) basis, although they do categorically deny any knowledge of the theoretical foundation of the FPC calculation, Reply Brief of Defendants at 7 a denial plaintiffs reject as implausible given the sophisticated nature of defendants' lending business. Defendants do, however, emphatically challenge plaintiffs' contention that the practice was not interest in advance, albeit at a higher effective rate. Again and again, in their briefs and at oral argument, defendants maintain that they were using a standard accounting procedure legal under all relevant statutes and regulations. The collection of interest in advance, they concede through the May 15, 1978 affidavit of Professor Eli Schwartz, can increase the effective yield of a loan (compare Chart II with Chart III), but the technique, defendants contend, is nonetheless a conventional one.
Cited as proof that the practice is not irregular is the admitted fact that many defendants granted an interest refund to a borrower who paid off his debt in mid-month. Defendants' argument is that this refunding of part of the monthly interest charge is theoretically consistent only with collection of interest in advance, which defendants say they were doing, and is conceptually antithetical to collection of interest in arrears, the method of which plaintiffs accuse them. Thus, defendants urge that the only reasonable inference to be drawn from the fact of refunds is that interest was being collected in advance, at the beginning of each installment.
We are not persuaded that the existence of a refund policy rebuts plaintiffs' position as a matter of law. First, not all defendants granted a refund to a borrower who finished repayment in mid-month. According to defendants' own presentation, of the twenty banks involved here, five institutions did not grant a refund at all, four did so only upon demand by the mortgagor, nine granted an automatic refund and the policies of two defendants are unknown. Defendants' Brief Schedule C. These mixed statistics are inconclusive as to the existence of a consistent refund policy, let alone as to the urged inference from the alleged policy that defendants' practice was interest in advance.