Bill Kennedy's financially troubled Kennedy Homes Limited Partnership, headquartered in South Barrington, Ill., recently moved its battle to remain solvent to Chicago's Cook County Circuit Court, filing a lawsuit that charges its lender, Harris Bank (and Harris' parent, Bank of Montreal), with miscalculating the balance of funds available to the home builder — causing Kennedy to overdraw its line of credit by more than $11 million.

Kennedy Homes came in at No. 129 in Professional Builder's Giant 400 rankings last year, on $215.5 million in 2006 revenue from 721 closings. But in 2007, PB estimates Kennedy's revenues fell to $58.6 million from 276 closings. (Because of the pending litigation, the firm now refuses to disclose any 2007 financial data.)

The suit claims Harris and Bank of Montreal set up a $40 million revolving construction loan agreement in 2003, a credit line that at one time expanded to $95 million, and recruited other banks to participate in the lending, which was based on a complex formula involving land values, construction costs and other factors. Kennedy drew on the credit line to build subdivisions throughout the Chicagoland region. No one from Kennedy returned our calls asking for comment on this report.

Kennedy's suit, which seeks damages of $100 million, claims the builder raised concerns about the accuracy of the financing formula in 2006, but Bank of Montreal officials said they had investigated and corrected defects in the calculations. However, in 2007, Kennedy claims, the bank told the builder that errors in the formula inflated the amount of funds available to the firm — causing significant overdrafts.

In February this year, Kennedy curtailed many operations and cut 20 jobs (60 percent of staff), saying it intends to complete all houses now under construction and eventually resume full operations. Whether that happens may depend on two things: the strength of the market and the outcome of this lawsuit.