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

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

February 20, 2018

BANKDIRECT CAPITAL FINANCE, LLC Plaintiff,
v.
CAPITAL PREMIUM FINANCING, INC., Defendant.

          MEMORANDUM OPINION AND ORDER

          Jeffrey Cole Magistrate Judge

         INTRODUCTION

         BankDirect, which is a diversified financial services company, which, from its inception, has conducted business nationally with well-established insurance agencies, [Dkt. #28 at 12], has sued Capital Premium Financing, Inc. under an Option Agreement and related Master Transaction Agreement. The Third Amended Complaint spans 75 pages and 270 paragraphs. [Dkt.#160]. While the parties' labyrinthine undertakings are, in many ways, typical of modern corporate transactions, at bottom the Third Amended Complaint alleges a breach of contract.[1] Insisting that the Defendant has done nothing wrong, the Answer raised 12 “Affirmative Defenses, ” and its 226-paragraph “Supplemented Counterclaims” charge BankDirect with “willful and bad faith breaches of [the] Master Transaction Agreement and related agreements....”

         At the heart of the Defendant's claim of wrongdoing is the contention that the Plaintiff had falsely represented during contract negotiations that it would exclusively market and promote the Defendant's loan products - an allegation denied by the Plaintiff - especially in the Eastern United States to small to midsize insurance agencies, and that as a consequence it was contemplated that the Defendant's sales and earnings during the five-year term of the contract would be substantially and positively affected. The Counterclaim charges that, instead, the Plaintiff purchased Standard Funding, “a direct competitor” of the Defendant[2] and failed to market and promote the Defendant's loan products as it allegedly had promised. Here is a sampling of the relevant allegations in the Counterclaim:

197. A key component of the MTA [the contract between the parties] for [Defendant] was the marketing and promotion of its loan products and services by BankDirect's large sales force, throughout the United States, and particularly in the Eastern United States, for small to mid-sized agencies, which would have substantially increased CPFI's sales and earnings during the 5-year MTA period.
198. BankDirect representatives made several material and misleading representations during negotiations that BankDirect would exclusively market [the defendant's] products for small to midsized agencies throughout the United States, and particularly in the Eastern United States.
199. Prior to entering into the [Agreements with Defendant], BankDirect was negotiating the acquisition of Standard Funding, a direct competitor of CPFI.
200. BankDirect subsequently acquired Standard Funding shortly after the MTA and Option Agreement were executed.
201. Thereafter, BankDirect marketed and promoted its own products in the Eastern United States to the exclusion of marketing CPFI's products.
209. CPFI reasonably relied on BankDirect's promises concerning the exclusivity of the marketing in the small to mid-sized agency market segment. (Emphasis added).

(Dkt. #172, at 114-115).

         It is against this background of charges and countercharges that the present discovery controversy arose. In Request 33, the Defendant demanded that the Plaintiff produce:

“Documents sufficient to determine the proportion of BankDirect's loan volume that is attributable to the 150 largest insurance agencies in the United States from 2010 to present.”[3]

         Although the contract at issue was signed in 2016, the Request sought ...


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