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Vedder Thinking | News U.S. Supreme Court Refuses to Hear Reger Development Appeal

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In a decision that proved significant for lenders throughout the country, Vedder Price trial attorneys defeated a class action claim seeking to block the bank’s ability to call promissory notes. Reger Development, LLC v. National City Bank, Case No. No. 08-CV-6200 (N.D. Ill.), affirmed, No. 09-2821 (7th Cir.). Reger Development, in an effort to overturn the ruling of the 7th Circuit, appealed to the U.S. Supreme Court. The Supreme Court denied the plaintiff's Petition for Writ of Certiorari on June 28, 2010. The denial means that the District Court's judgment against the plaintiff stands.

According to James M. Kane, Chair of the Financial Institutions Group at Vedder Price, the case is significant because, “the opinion of the Seventh Circuit Court of Appeals and now this denial by the U.S. Supreme Court, confirms that the ‘covenant of good faith and fair dealing’ clause found in this type of loan documentation has no application to demand instruments and that such a covenant cannot be used by the borrower to alter the terms of the note in any way. He also indicated that it is crucial that lenders be able to enforce their lending agreements as written and that such contract enforcement should not open a lender up to claims of fraud.

In 2007, Reger Development Company, LLC borrowed money from National City Bank through a revolving line of credit. The line of credit was supported by a promissory note and guaranteed by Reger Development, LLC’s sole member. After more than a year, the bank sought to reduce the amount of the revolving credit and note in accord with the provisions of the note.

In response, the borrower filed a putative class action complaint seeking to avoid the calling of the note, as well as others’ promissory notes. The borrower alleged that the bank’s actions breached the terms of the note and the “covenant of good faith and fair dealing. The borrower also alleged that the bank used the note to perpetuate a “fraudulent scheme” by fooling people into taking out loans that allegedly “concealed” that principal could be called “on demand.”

Vedder Price filed a motion to dismiss the borrower’s complaint on behalf of the bank. Vedder Price argued that the complaint failed to state a claim because the note (which was attached to the complaint) demonstrated that the bank did nothing wrong. The bank’s actions were entirely consistent with the express terms of the note, and other provisions in the note did not overpower repeated and explicit references to the bank’s right to demand payment at any time. Also, the bank’s request that the borrower “term-out” part of the demand note was not an impermissible threat giving rise to a claim for breach.

The U.S. District Court for the Northern District of Illinois agreed, dismissed the complaint with prejudice, and entered judgment in favor of the bank. The borrower appealed the judgment to the United States Court of Appeals for the Seventh Circuit in Chicago.

Vedder Price continued to defend the bank before the Seventh Circuit. Vedder Price filed a brief with the Seventh Circuit asking the three-judge panel to affirm the judgment.

On January 20, 2010, the Seventh Circuit issued a 14-page decision in which the Seventh Circuit agreed with the arguments made by Vedder Price on behalf of the bank. National City Bank was acquired by PNC Financial Services in 2009.


Chad A. Schiefelbein


Rachel T. Copenhaver