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Bankdirect Capital Finance, LLC v. Capital Premium Financing, Inc.

United States District Court, N.D. Illinois, Eastern Division

March 31, 2017

BANKDIRECT CAPITAL FINANCE, LLC, Plaintiff,
v.
CAPITAL PREMIUM FINANCING, INC., Defendant. CAPITAL PREMIUM FINANCING, INC., Counter-Plaintiff,
v.
BANKDIRECT CAPITAL FINANCE, LLC, BANKDIRECT CAPITAL FINANCE, and TEXAS CAPITAL BANK NATIONAL ASSOCIATION, Counter-Defendants.

          MEMORANDUM AND ORDER

          Joan B. Gottschall, United States District Judge.

         BankDirect Capital Finance, LLC (“BankDirect”) filed this suit for breach of contract against Capital Premium Financing, Inc. (“CPFI”). CPFI answered and asserted six counterclaims seeking, among other things, rescission of an option BankDirect holds to purchase assets held by CPFI under a predetermined pricing structure. Counter-defendants BankDirect and Texas Capital Bank, NA (“TCB”) move for summary judgment dismissing the counterclaims against them. They argue that CPFI's contract counterclaims must fail as a matter of law under the contract doctrines of waiver and election of remedies.

         I. BACKGROUND[1]

         BankDirect and CPFI are, and were at all relevant times, in the commercial insurance premium finance business. They “originat[e] and service[e] loans for the financing of commercial property insurance premiums.” BankDirect SOF ¶ 22, ECF No. 43.

         In 2010, BankDirect and CPFI entered into a series of agreements they collectively refer to as “the Transaction Facility.” BankDirect SOF ¶ 25. The Transaction Facility consists chiefly of a Master Transaction Agreement (“MTA”), an option agreement, a promissory note, a participation agreement, and a loan purchase and sale agreement. (Id.; see also BankDirect Ex. A-E, ECF Nos. 40-1 thru 40-5 (copies of these documents).) CPFI characterizes these agreements, which together span 667 pages, as “a complicated set of inter-related agreements.” Ans. & Countercl. at 67 ¶ 33, ECF No. 45.[2] Among many other things, the Transaction Facility provided:

(i) that BankDirect would be the exclusive purchaser of certain eligible insurance premium finance loans originated by CPFI, as determined by a related Loan Purchase, Sale and Servicing Agreement (Exh. A, p. 49, ¶ 35); (ii) that BankDirect funds or reimburses CPFI for the principal premium amount of the underlying commercial insurance policy being financed (Exh. A, p. 49, ¶ 36(b)); and (iii) that the Option Agreement granted BankDirect an option to purchase CPFI's assets approximately five years from the execution of the MTA pursuant to the terms of the Option Agreement, the MTA and Asset Purchase Agreement, which was attached as Exhibit A to the MTA. (Exh. A, p. 52, ¶ 47); and (iv) that the Option Agreement provided BankDirect with the option to purchase CPFI's assets in approximately five (5) years from the execution of the MTA based on a predetermined “earnings based formula.” (Exh. A, p. 52, ¶¶ 47-48; see also, Exhs. 3 and 4 to Exh. A).

         BankDirect SOF ¶ 27.

         The option gave BankDirect the right to elect on January 30, 2016, to purchase certain assets (CPFI disputes exactly which ones) from CPFI at a predetermined price of 5.25 times earnings before taxes. See BankDirect's A n s . to CPFI Counter SOF ¶ 5, ECF No. 60; Option Agreement § 2.02, ECF No. 44-3. The option agreement requires CPFI to complete the sale within thirty days of BankDirect exercising its option. BankDirect SOF ¶ 28; Option Agreement § 4.01. On January 30, 2016, BankDirect advised CPFI that it would exercise its rights under the option agreement, but CPFI has refused to perform.

         In a five-count amended complaint, BankDirect seeks declaratory and injunctive relief requiring CPFI to complete the sale under the option agreement and monetary damages for breaching the MTA and option agreement. CPFI pleads six counterclaims in its answer. It asks the court to rescind the option agreement, award concomitant declaratory relief, and enter a judgment for money damages.

         The parties group the breaches alleged in CPFI's counterclaims into three broad categories. The first concerns BankDirect's obligations to negotiate a marketing agreement within ninety days following the transaction facility's effective date. See MTA § 3.06(a). CPFI alleges that BankDirect violated the MTA and the marketing agreement (BankDirect reserves the right to dispute that a marketing agreement was reached) by, among other things, refusing to count sales of CPFI loans toward the quotas of BankDirect sales personnel and thereby destroying any incentive they had to sell CPFI loans. See Countercl. ¶ 14.

         The second arises under § 3.06(c) of the MTA. CPFI alleges that BankDirect breached the MTA when it purchased Standard Premium Funding, a company CPFI views as a direct competitor, in June 2011. After the purchase:

BankDirect began marketing its own products for the small to mid-market insurance agency market segment throughout the United States, including in the Eastern United States and ceased implementing the Marketing Collaboration Agreement with CPFI. BankDirect failed to market or promote CPFI's products in the United States. In doing so, BankDirect deprived CPFI of an expected sales force that would market CPFI's loan products and services to small and mid-sized insurance agencies in the Eastern United States (among other regions as well).

         Countercl. ¶ 91.

         CPFI bases its third alleged breach on an agreement dated July 20, 2011, to modify partially the transaction facility (“the acknowledgment agreement”). ECF No. 44-5. Under that agreement, which was part of a larger reorganization, BankDirect switched the division that purchased CPFI loans to BankDirect Capital Finance (“BDFC”).[3] See ECF No. 44-5 § 2; see also Countercl.¶¶ 93-97. As a result of the reorganization (but not as a formal requirement of the acknowledgment agreement), CPFI's loans began to be “required . . . [to] comply with stricter loan criteria, including the collection of certain specific customer information and the performance of additional administrative processes.” Countercl. ¶ 99. Those requirements allegedly harmed CPFI because many insurance agencies prefer lenders who do not require this additional information. See Id. ¶¶ 100-02.

         II. SUMMARY JUDGMENT STANDARD

         Summary judgment is appropriate “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A genuine dispute as to any material fact exists if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). In resolving summary judgment motions, “facts must be viewed in the light most favorable to, and all reasonable inferences from that evidence must be drawn in favor of, the nonmoving party-but only if there is a ‘genuine' dispute as to those ...


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