## Facts

- The Davises and their related business entities borrowed substantial sums from two national banks from 1977 to 1985 and executed multiple promissory notes.
- In late 1984 or early 1985, the Davises determined they needed an additional $200,000 to continue operating.
- The banks refused additional financing unless the Davises agreed to liquidate the business and use proceeds to pay existing bank debt.
- On June 28, 1985, the parties executed a new loan agreement that required the Davises to enter a contract to sell the business by September 1, 1985.
- After the Davises did not sell by the deadline, the banks required them to cease operations and begin liquidation.
- The business was sold in February 1986.
- In December 1986, the Davises sued, alleging the liquidation condition was an illegal tying arrangement under 12 U.S.C. § 1972(1)(C) because it required them to provide an unrelated “service” (liquidation) as a condition of credit.

## Issues

1. Whether conditioning additional credit on the borrower’s agreement to liquidate its business and apply proceeds to existing indebtedness constitutes an unlawful tying arrangement under 12 U.S.C. § 1972(1)(C).
2. Whether such a liquidation requirement is outside traditional banking practice and has the type of anticompetitive character targeted by the BHCA’s anti-tying provisions.

## Decision

- The Seventh Circuit affirmed summary judgment for the banks.
- The court held that the liquidation requirement did not violate 12 U.S.C. § 1972(1)(C).
- The liquidation clause was treated as a traditional banking practice aimed at protecting the banks’ investment, not an anticompetitive tying condition.

## Legal Principles

- The BHCA anti-tying provisions address conditional banking transactions that increase a bank’s economic power and lessen competition, rather than ordinary credit-protection measures.
- A tying claim under 12 U.S.C. § 1972 requires more than proof that the bank used credit leverage to impose a burdensome condition; the condition must reflect a nontraditional, anticompetitive tying of distinct products or services.
- Conditioning further credit on liquidation and repayment in a distressed-borrower setting may be a conventional risk-management device closely related to the loan relationship and therefore not actionable as tying under § 1972(1)(C).
- Summary judgment is proper where undisputed facts show the challenged condition fits within traditional banking practice and lacks the anticompetitive features the statute targets.

## Conclusion

The court concluded that requiring a financially troubled borrower to sell or liquidate its business and apply proceeds to outstanding loans, as a condition of further credit, is a customary loan-protection practice and does not constitute an unlawful tying arrangement under the BHCA.


Davis v. First Nat’l Bank of Westville, 868 F.2d 206 (7th Cir. 1989)