CHICAGO (LN) — U.S. District Judge Jeremy C. Daniel on Thursday dismissed most of Silverleaf Private Credit’s claims against CIBC Bank USA in a $5 million private credit dispute, but allowed a claim that the bank failed to manage the borrower’s liquidation in a commercially reasonable manner to proceed.
Silverleaf Private Credit, LLC, a California-based lender, sued Turner Acceptance Corp. and CIBC after Turner defaulted on its credit obligations. Silverleaf alleged that CIBC, the senior lender, mishandled Turner’s "managed self-liquidation" in a way that would leave the junior lender with nothing.
The dispute centers on a Subordination and Intercreditor Agreement under which Silverleaf agreed to subordinate its claims to CIBC. In exchange, CIBC agreed to conduct any foreclosure of its liens on the collateral in a commercially reasonable manner.
Silverleaf claimed CIBC breached that duty by restricting Turner’s ability to modify consumer loans and rejecting a refinancing transaction that would have cured an over-advance. The suit alleged that CIBC’s actions caused delinquencies of 31 days or more to jump from 8.12% to 14.48% between 2022 and 2023.
Daniel rejected CIBC’s argument that Silverleaf lacked standing, finding the complaint alleged ongoing harm from a past 80% increase in delinquencies.
However, the judge dismissed Silverleaf’s breach of contract claim against CIBC, ruling that CIBC’s obligation to act in a commercially reasonable manner under the intercreditor agreement only applied to "foreclosures," which the contract defined as legal proceedings. The court found that Turner’s "self-managed liquidation" did not constitute a foreclosure.
Because the breach of contract claim failed, the judge also dismissed Silverleaf’s claim for breach of the implied covenant of good faith and fair dealing, noting that the covenant cannot create an independent cause of action.
The court also dismissed Silverleaf’s fraud claim, finding the complaint failed to plead with particularity who made the alleged half-truths about a Backup Servicing Agreement or why the timing of that agreement was material.
Silverleaf’s claim under Section 9-610 of the Illinois Uniform Commercial Code survived. The judge ruled that the UCC’s requirement for commercially reasonable disposition applies to the preparation and processing of collateral, not just the final sale, and that CIBC was directing the management of Turner’s loan portfolio.
The court denied Turner Acceptance Corp.’s motion to dismiss Silverleaf’s breach of contract claim against the borrower, ruling that Turner could not enforce a waiver provision in the intercreditor agreement because the agreement explicitly stated that borrowers were not third-party beneficiaries.
Daniel granted CIBC’s motion to strike Silverleaf’s jury demand for the dismissed claims but denied Turner’s motion to strike the jury demand for the remaining claims against it.
The judge also denied Silverleaf’s motion to appoint a receiver, finding that the drastic remedy was not warranted given the likelihood that Silverleaf had waived its right to seek such relief under the intercreditor agreement.
Silverleaf’s counsel did not immediately return a call for comment.
Daniel is a George W. Bush appointee.