Arlington LF, LLC v. Arlington Hospitality, Inc., 637 F.3d 706

Arlington filed Chapter 11 in Aug 2005 and sought post-petition financing; LF lent $3.53 million under the DIP facility and additional fees were due immediately; LF later indicated it would not fund further DIP loans; Arlington repaid the $3.5 million principal with interest but did not pay the immediately due fees; LF sought the fees and default interest; the Interim Order required notice and a cure period for breaches; LF repudiated the agreement on Sept 29, 2005; Arlington’s asset sale occurred Jan 2006 and Arlington paid the revolver principal but not the fees; litigation moved through bankruptcy court and district court with conflicting rulings; the Seventh Circuit affirmed LF’s repudiation finding and denied LF’s fee recovery.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Did LF anticipatorily breach the lending agreement?	LF repudiated; Arlington argues LF intended to withhold funding.	LF did not repudiate; statements were about future lending only.	LF repudiated the agreement.
Was the repudiation retracted by LF?	LF's Oct 6 Statement of Account retracted.	No clear retraction; September 29/October 4 statements persisted.	No effective retraction; repudiation remained.
Did Arlington incur a cognizable breach to excuse LF’s nonpayment?	Arlington failed to pay fees immediately due.	LF repudiation foreclosed Arlington’s performance; no later breach cured the situation.	Arlington’s nonpayment did not bar LF’s repudiation; LF breached first.
Did the Notice Provision govern when a breach could be effective?	Notice prerequisite controlled the timing of breach.	Notice provision not controlling once LF repudiated.	Notice provision did not prevent LF’s anticipatory repudiation from being effective.

In re Marriage of Olsen, 528 N.E.2d 684 (Ill. 1988) (antagonistic repudiation requires a clear intent not to perform)
Draper v. Frontier Ins. Co., 638 N.E.2d 1176 (Ill. App. 1994) (repudiation concepts under Illinois law)
Timmerman v. Grain Exch., L.L.C., 915 N.E.2d 113 (Ill. App. 2009) (repudiation terminates duties when performance is prevented)
In re C&S Grain Co., Inc., 47 F.3d 233 (7th Cir. 1995) (repudiation effect on subsequent duties; damages limitations)
Builder’s Concrete Co. of Morton v. Fred Faubel & Sons, 373 N.E.2d 863 (Ill. App. 1978) (principles of repudiation and contract termination)
Freeland v. Enodis Corp., 540 F.3d 721 (7th Cir. 2008) (review of bankruptcy findings; standard of review)
In re Lifschultz Fast Freight, 132 F.3d 339 (7th Cir. 1997) (clear error standard for factual findings; Rule 7052)