Bank Direct Capital Finance , LLC v. Capital Premium Financing , Inc

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 18‐1054
BANK D IRECT C APITAL FINANCE , LLC,
Plaintiff, Counterdefendant‐Appellant,
and
T EXAS C APITAL BANK , N.A.,
Counterdefendant‐Appellant,
v.
C APITAL P REMIUM FINANCING , INC.,
Defendant, Counterplaintiff‐Appellee.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 15 C 10340 — John Z. Lee, Judge.
____________________
A RGUED OCTOBER 31, 2018 — D ECIDED J ANUARY 9, 2019
____________________
Before FLAUM, EASTERBROOK , and BRENNAN, Circuit
Judges.
EASTERBROOK , Circuit Judge. BankDirect Capital Finance
and Capital Premium Financing both participate in the mar‐
ket for loans to finance insurance premiums. Insurers want

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2 No. 18‐1054
to be paid up front for the full policy period, but many busi‐
nesses prefer to pay by the month. A premium‐financing
loan makes both things possible. The client makes a down
payment toward the annual premium and borrows the rest.
It repays the loan monthly.
In 2010 Capital Premium, having exhausted the line of
credit that financed its operations, approached its competitor
BankDirect with a request for operating capital. BankDirect
was willing to purchase the loans that Capital Premium
made—and to pay Capital Premium to service those loans
while they were outstanding—but with a big condition.
BankDirect demanded, and got, a right to purchase Capital
Premium’s business outright after five years. The contract
went into force in December 2010. (Actually there were four
contracts, but we use the singular for simplicity.) The option
to purchase could be exercised near the fifth anniversary. If
BankDirect elected not to purchase Capital Premium, then
either side could extend the term by notice given before Jan‐
uary 4, 2016; otherwise the purchase‐and‐service deal would
wrap up on January 31, 2016. Any extension could not ex‐
ceed the contract’s drop‐dead date, June 1, 2018, after which
neither side would have any obligation to the other.
BankDirect exercised the purchase option in November
2015, but Capital Premium refused to honor it. BankDirect
filed this suit under the diversity jurisdiction, seeking to en‐
force the option to purchase. It treated Capital Premium’s
rejection of the purchase as a default, which entitled it to
take measures for self‐protection. This led Capital Premium
to file a counterclaim. It demanded an injunction that would
require BankDirect to continue purchasing the loans and
paying it to service them.

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No. 18‐1054 3
BankDirect continued dealing with Capital Premium
through May 1, 2017, when it seized several of Capital Pre‐
mium’s accounts and stated that it would no longer buy any
loans from Capital Premium. This led Capital Premium to
renew its request for an injunction. For its part, BankDirect
withdrew its request for specific performance of the pur‐
chase. (It believes that the parties’ relations have so soured
that an acquisition would fail commercially.) BankDirect
agreed to maintain the status quo until the court ruled.
Judge Gottschall concluded that Capital Premium is enti‐
tled to a preliminary injunction requiring BankDirect to con‐
tinue business with Capital Premium in the same way it had
been doing earlier. 2017 U.S. Dist. LEXIS 195519 (N.D. Ill.
Nov. 29, 2017). The district court contemplated that the loan‐
purchase‐and‐service arrangement would continue while it
resolved the dispute on the merits.
Unfortunately, several things went wrong.
First, the district court did not address the significance of
the June 2018 terminal date. The judge may have thought
that the suit would be over by then; at all events, she did not
provide for what was to happen on June 1, 2018, if the litiga‐
tion was ongoing.
Second, the language that the judge evidently intended
to serve as the injunction left unresolved not only the effect
of the drop‐dead date but also other disputes. The last para‐
graph of the court’s opinion reads:
For the reasons discussed above, Capital Premium’s motion for a
preliminary injunction is granted. Accordingly, BankDirect is
preliminarily enjoined from terminating Capital Premium as the
servicer of loans that Capital Premium originates; interfering
with Capital Premium’s control of its deposit accounts; interfer‐

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4 No. 18‐1054
ing with Capital Premium’s access to its Participation Interest;
retaining the $1,000,000 it seized from Capital Premium’s ac‐
count on May 1, 2017; and seizing any additional funds from
Capital Premium’s accounts, including any portion of the
$5,000,000 that BankDirect has demanded.
2017 U.S. Dist. LEXIS 195519 at *40. Much of the parties’ dis‐
pute on appeal concerns the absence of attention to the con‐
tract’s terminal date and the omission of any order with re‐
spect to BankDirect’s purchase of loans that Capital Premi‐
um originates. Nor did the judge pin down ambiguous
terms such as “interfering”. Maybe the judge meant to grant
whatever relief Capital Premium had requested, but the
opinion does not say this—and Fed. R. Civ. P. 65(d)(1)(C)
forbids incorporating another document (such as a motion)
by reference.
Third, the district court failed to enter an injunction as a
separate document under Fed. R. Civ. P. 65(d)(1)(C). Lan‐
guage in an opinion does not comply with Rule 65(d). See
Gunn v. University Committee to End the War, 399 U.S. 383
(1970). Neither side reminded the district court of the need
to enter an injunction.
Fourth, the district court did not require Capital Premi‐
um to post a bond, despite Rule 65(c), which says (emphasis
added): “The court may issue a preliminary injunction or a
temporary restraining order only if the movant gives security
in an amount that the court considers proper to pay the costs
and damages sustained by any party found to have been
wrongfully enjoined or restrained.”
Although BankDirect missed the significance of Rule
65(d), it was acutely aware of Rule 65(c). Contending that the
injunction would cost it about $500,000 a month, it asked the

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No. 18‐1054 5
district court to require Capital Premium to post a substan‐
tial bond—for, in the absence of a bond, a litigant injured by
an injunction later determined to have been improper does
not have a remedy. See, e.g., Coyne‐Delaney Co. v. Capital De‐
velopment Board, 717 F.2d 385, 393–94 (7th Cir. 1983). That is
why Rule 65(c) makes the effectiveness of a preliminary in‐
junction contingent on the bond having been posted. United
States v. Associated Air Transport, Inc., 256 F.2d 857 (5th Cir.
1958); Charles Alan Wright & Arthur R. Miller, 11A Federal
Practice & Procedure §2954 at 319 (3d ed. 2013). A judge might
consider an indemnity of $0 (that is, no bond) “proper”
when the suit is about constitutional principles rather than
commercial transactions, but no one thinks that condition
satisfied here.
The case was transferred to Judge Lee, who found that
BankDirect is entitled to a bond of at least $7.5 million but
insisted that it continue to obey the language of Judge
Gottschall’s opinion in the interim. In response to Capital
Premium’s assertions that it lacked the funds to secure a
bond—the very situation that should have deferred injunc‐
tive relief, lest BankDirect be saddled with losses it could not
recoup—Judge Lee repeatedly extended the time for the
bond’s posting. Finally, in November 2018, while this appeal
was under advisement, Capital Premium posted a bond for
$7.5 million. BankDirect was at last secured. Still, if it is right
that the preliminary injunction is costing it $500,000 a
month, the protection has only a short time left to run.
In addition to asking Judge Lee for the protection of a
bond, BankDirect asked him to specify when the injunction
would end. Judge Lee declined to make an independent de‐
cision on that subject. Instead he tried to divine Judge

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6 No. 18‐1054
Gottschall’s intent about the matter—no easy task, as she
had not said one word about it. Concluding that Judge
Gottschall had meant the injunction to last at least as long as
the suit remained pending, Judge Lee denied BankDirect’s
request for a terminal date. Similarly, Judge Lee assumed
that Judge Gottschall must have wanted to compel BankDi‐
rect to go on purchasing loans from Capital Premium, even
though the last paragraph of her opinion does not say that.
Our initial question is whether we have appellate juris‐
diction. In addition to holding that statements in an opinion
are not an injunction, Gunn concludes that the absence of an
injunction satisfying Rule 65(d) prevents a direct appeal
from a three‐judge district court to the Supreme Court under
28 U.S.C. §1253 (1970 ed.). If that’s how §1253 works, maybe
the same is true about §1292(a)(1), which BankDirect in‐
vokes. We requested and have received supplemental mem‐
oranda about that subject.
Burgess v. Ryan, 996 F.2d 180, 183–84 (7th Cir. 1993), ob‐
serves that §1253 and §1292(a)(1) differ in this respect. Gunn
emphasized that appeals from district courts (even three‐
judge district courts) direct to the Supreme Court are sup‐
posed to be rare. The Justices evidently contemplated that
dismissing the appeal under §1253 would allow an appeal to
the court of appeals. Gerstein v. Coe, 417 U.S. 279 (1974);
Gunn, 399 U.S. at 391 (White, J., concurring). How else could
the violation of Rule 65(d) be corrected? See also Original
Great American Chocolate Chip Cookie Co. v. River Valley Cook‐
ies, Ltd., 970 F.2d 273, 276 (7th Cir. 1992).
When a district court does not put an order into writing,
it is so transparently ineffectual that neither side is adversely
affected. That means no appeal, for an empty declaration has

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No. 18‐1054 7
no loser, and only a district‐court loser can appeal. See Bates
v. Johnson, 901 F.2d 1424 (7th Cir. 1990). But Judge Gottschall
entered a written order that she expected BankDirect to
obey. Judge Lee shared that view even after being reminded
that Rule 65(c) makes the injunction’s effectiveness depend
on a bond. It would pile injury on injury to tell BankDirect
that it not only was unprotected by a bond for a year but also
could not even obtain appellate review of an order that the
district court sees as a long‐term injunction. See Schmidt v.
Lessard, 414 U.S. 473 (1974) (reversing an injunction that vio‐
lated the requirement in Rule 65(d)(1)(B) that every order
“state its terms specifically”; this implies that at least some
violations of Rule 65(d) do not defeat appellate jurisdiction).
We do not need to say anything about the merits, or more
about Rule 65(c) and (d), because this injunction (as we now
call the last paragraph of Judge Gottschall’s opinion) should
have contained a terminal date: June 1, 2018. As that date has
passed, all we need do is vacate the injunction and remand
so that the district court can decide whether either side has
broken a promise, and if so what damages are available.
Some language in the district court’s opinion suggests
that Judge Gottschall saw the initial end date of January 31,
2016, as material only if BankDirect declined to exercise its
purchase option. If Capital Premium became a subsidiary of
BankDirect, all of the contract’s deadlines would be mean‐
ingless. Judge Gottschall observed that BankDirect had exer‐
cised its option, which meant, she concluded, that the ab‐
sence of a renewal notice before January 4, 2016, did not
cause the purchase‐and‐service obligations to end on Janu‐
ary 31, 2016. If this is right, perhaps the same is true about

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8 No. 18‐1054
June 1, 2018: that date loses significance if BankDirect buys
the business.
The problem with this line of argument is that BankDi‐
rect has not bought Capital Premium’s business. It tried to,
but Capital Premium refused to execute that transaction.
(Whether Capital Premium was privileged to make that de‐
cision, or instead acted wrongfully, is for the district court to
consider on remand.) Because the sale did not close, the par‐
ties remain in an arms’‐length business transaction to which
the dates are as important as if BankDirect had never tried to
exercise its option. And the most important date is June 1,
2018. If the terminal date is extended past January 31, 2016,
the “extended commitment date and new maturity date
shall in any such case not be later than June 1, 2018”. So if
BankDirect’s unsuccessful effort to buy Capital Premium’s
business is treated as extending the deal’s initial date past
January 31, 2016, this clause sets a limit.
No sensible commercial party wants to be trapped in a
long‐term relation. That’s why contracts such as this include
drop‐dead dates. Yet Capital Premium maintains that
BankDirect could not get out by exercising the option to buy
the business—and, precisely because Capital Premium re‐
fused to honor its commitment to sell, BankDirect can’t get
out any other way, ever. The carefully drafted language of
this contract dispels any suggestion that BankDirect was in‐
different to the risks of being locked into a money‐losing re‐
lation, of indefinite duration, with a firm that it does not
trust. This contract means what it says.
The injunction is vacated, and the case is remanded with
instructions to award BankDirect damages for time the in‐
junction has extended past June 1, 2018, and to determine

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No. 18‐1054 9
whether either side owes damages to the other for breach of
contract. The mandate will issue today, so that the injunction
terminates immediately.

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