Article courtesy of Michael Robson (Greenberg Traurig, LLP)
BMO Harris Bank N.A. v. Bullet Trans Co., 19‑cv‑4557, motion granted, 2020 WL 3447778 (N.D. Ill., 06/24/2020).
In a dispute where a borrower defaulted on several commercial loans, the United States District Court for the Northern District of Illinois (the “Court”) held that the borrower had no counterclaim against its lender for breach of contract, ruling that the lender had not violated the loan agreements by attempting to enforce and collect on the agreements’ penalty clauses, which the borrower argued were invalid and unenforceable. Furthermore, the Court rejected the borrower’s false imprisonment claim, finding it did not have standing to sue for false imprisonment based on the lender’s activities when attempting to repossess collateral for the loans.
In 2018, Bullet Trans Co. (“Bullet Trans”) entered into a series of loan agreements with BMO Harris Bank, N.A. (“BMO Harris”) to finance Bullet Trans’ purchase of commercial tractors and trailers for business use, which were put up as collateral for the loans. After Bullet Trans fell behind on its payments, BMO Harris exercised the loans’ acceleration clauses, demanding immediate payment of the entire amount owed. At the same time, BMO Harris also attempted to repossess a number of the tractors and trailers through self‑help.
As BMO Harris sued to enforce its rights under the loan agreements, Bullet Trans filed a counterclaim alleging that the loan agreements’ acceleration clauses were facially invalid and unenforceable, and that BMO Harris violated the agreements in its attempts to enforce and collect under those clauses. First, Bullet Trans argued that BMO Harris should have been required to discount the amounts owed at the time the acceleration clauses were exercised to present value. The Court rejected this claim because the principal balance on the loans was already at present value, and BMO Harris was under no obligation to further discount that amount when accelerating the loans. Second, Bullet Trans argued that the cross‑default clauses of the loan agreements were per se unenforceable. The Court rejected this argument, both because of its incorrect assertion of law, and for Bullet Trans’ failure to state anywhere in its counterclaim that it had not defaulted on any of the loans at issue.
In addition to the foregoing, Bullet Trans also asserted that BMO Harris could not seek simultaneous recovery of both the principal balance owed under the loan agreements and the collateral pledged therein. However, the Court found that under the Uniform Commercial Code, a secured creditor may sue on the debt and proceed to repossess and sell the collateral concurrently. Moreover, the Court rejected Bullet Trans’ claim that BMO Harris’ self‑help techniques were “in bad faith and dangerous,” and were consequently a breach of the loan agreements. The Court found no basis for this claim, as it identified no language in the loan agreements that required or prohibited any specific repossession methods. The Court acknowledged that Illinois law recognizes the covenant of good faith and fair dealing, but held that Bullet Trans failed to provide any evidence that BMO Harris’ repossession techniques breached – or even triggered – such a covenant.
Finally, Bullet Trans’ false imprisonment claim in connection with BMO Harris’ repossession attempts was rejected for lack of standing. The Court stated that Bullet Trans’ status as a corporate entity means it lacks any capacity to be physically confined. While its employees and agents could theoretically be falsely imprisoned, the Court held that Illinois does not confer standing on Bullet Trans to pursue such a claim on their behalf.