References To Due Date And Default Provisions In A Demand Note Do Not Make It Ambiguous
REGER DEVELOPMENT v. NATIONAL CITY BANK (January 20, 2010)
Reger Development is an Illinois real estate development company. In 2007, the company opened a $750,000 line of credit with National City Bank. The company signed a promissory note and provided the personal guarantee of its principal, Kevin Reger. In several places, the note makes reference to the fact that it is payable "on demand." The company made its payments in a timely manner for the first year. Nevertheless, the bank asked it to pay down $125,000 of principal. Reger did so. A month later, the bank advised Reger that it was reducing the amount of the line of credit and also wanted to restructure some of the principal and secure it with a mortgage. The bank told Reger that it was possible that they would demand payment of the entire amount if he did not agree to the modifications. Reger brought suit, alleging breach of contract and fraud. The district court dismissed the case for failure to state a claim. Reger appeals.
In their opinion, Judges Flaum, Williams, and Sykes affirmed. The Court noted that Illinois law generally implies a covenant of good faith and fair dealing in a contract. It does not apply, however, to demand notes. Reger argued that general references to due dates and default provisions in the note were inconsistent with a demand instrument. The Court noted the repeated and explicit references in the instrument to National City's right to demand payment at any time. The note is clearly and unambiguously a demand note, concluded the Court. Since it is a demand instrument, the bank's insistence on modifications did not amount to a breach. With respect to the fraud count, the Court focused on the intent element. It stated that Reger must establish that the bank intended to and did induce him. In order to meet that element, Reger asked the court to infer that the bank intentionally drafted ambiguous documents so as to mislead him. The Court had already considered the ambiguity of the document with respect to the breach of contract claim. Not only had it not found it ambiguous, it found it rather straightforward. Reger failed to allege the element of intent with the particularity necessary in a fraud count -- the dismissal of that count is affirmed.
Anodyne Therapy
For almost ten years, John Crichton purchased group health insurance from Golden Rule Insurance Co. He did so as a member of the Federation of American Consumers and Travelers ("Federation"). He filed a class action in 2002, alleging violations of the Illinois Consumer Fraud and Deceptive Business Practices Act ("ICFA"), class allegations under other states’ consumer fraud statutes, RICO and common law fraud. The basis of each of the claims was that Golden Rule failed to disclose, when it sold its insurance, that renewal premiums escalated dramatically. The district court dismissed the claims for failure to state a cause of action. Crichton appeals.
Jack Smith sold his company and its intellectual property to Dade Behring, Inc. He received, as part of the consideration, options to purchase 20,000 shares of Dade Behring stock. He soon left the employ of the company. He agreed to accept $1.4 million in cash, while retaining his options. A few months later, the company entered bankruptcy. Smith's options were extinguished as part of its reorganization. Smith sued several officers of the company, alleging that they had a duty to disclose at the time of this termination agreement the fact that the company would soon enter bankruptcy. The district court dismissed his fraud claim for failure to state a cause of action. Smith appeals.
Trade Finance Partners ("TFP") is, in essence, a broker that arranges business relationships for its clients. It charges a fee on any business it secures. AAR, an aviation support company, was a TFP client. The companies began working together in late 2004, and entered into a contract in January 2005. The contract allowed TFP to secure business from any "target accounts" which were identified by AAR in a written Request for Information ("RFI"). Just prior to and separate from its relationship with TFP, AAR responded to a Northwest Airlines Request for Proposal for an aircraft maintenance and repair contract. TFP alleges that AAR identified Northwest as a target account, even though they did not complete an RFI. Northwest and TFP did communicate in early 2005. In February, Northwest reissued its Request for Proposal and AAR updated its submission, all without the knowledge or involvement of TFP. Northwest selected AAR for the maintenance contract. TFP filed suit, alleging that its efforts caused Northwest to award the contract to AAR. The district court granted summary judgment to AAR. TFP appeals.
Consumer Products Research & Design ("CPRD") holds a patent for a wireless smoke detector. CPRD entered into contracts with two companies owned, respectively, by a father and his son. One company, owned by the father, agreed to develop and market the product. The other, owned by the son, was responsible for its manufacturing. Unhappy with of the relationship, CPRD filed a complaint alleging fraudulent inducement and breach of contract. A jury awarded over $700,000 in damages. Defendants appeal.
Curtis Lusby was an engineer at Rolls-Royce Corp. He became suspicious that the company was falsely certifying that one of its aircraft engines met government specifications so he informed his superiors. He claims that the company fired him for doing so. He brought suit under the False Claims Act, alleging that the company punished him for preparing to bring an action under the statute. The parties jointly dismissed the suit in 2003. However, two months earlier, Lusby had filed a qui tam action under seal. The court dismissed the action for failure to plead fraud with particularity and because of the claim preclusion effect of the earlier lawsuit. Lusby appeals.
Before its bankruptcy, Goldblatt's operated six stores in the Chicago area. In January 2003, Great American Group agreed to buy the inventory at two of the stores at a deep discount. Shortly thereafter, Great American agreed to do the same with the inventory at the other four stores. Both sales were contingent on the independent appraisal of the inventories. Both sales were approved by LaSalle Bank, Goldblatt's principal creditor. Before the sales, Great American learned that inventory purchased for $450,000 had been moved from the four stores to the two stores. Great American did not advise the Bank of that fact. The independent appraisal of the first sale confirmed that the inventory was worth at least as much as it had been represented. The appraisal of the inventory from the four other stores, however, indicated that the inventory was worth at least $2 million less than Goldblatt's had estimated. The results of the second appraisal entitled Great American to a refund of approximately $1 million from Goldblatt's. LaSalle Bank, although required by contract to pay, refused to do so. The bankruptcy court, after a trial, concluded that Great American was legally obligated to disclose the movement of the inventory to LaSalle. The court concluded, however, that LaSalle would not have acted any differently had it known and that LaSalle had not shown that it incurred any loss from the movement. On appeal, the district court reversed. The district court agreed that Great American owed a duty of disclosure to LaSalle. However, it held that the fraud excused LaSalle Bank from any obligation to perform. Great American appeals.
James Koenig was the Chief Financial Officer of Waste Management, Inc. In the early 1990s, after years of acceptable growth, the company’s financial performance began to suffer. Koenig devised several accounting strategies that made the company appear more profitable than it was. Koenig resigned in January of 1997. In October of 1997, the company disclosed in a press release that its financial statements were inaccurate and unreliable. The SEC filed a complaint against Koenig in March of 2002. At trial, the jury found that his accounting strategies were fraudulent. The court imposed a $2.1 million civil penalty, ordered the disgorgement of almost $1 million in bonuses, imposed $1.2 million in pretax interest, and enjoined Koenig from serving as a director of a public company. Koenig appeals.