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Articles Tagged with District Court

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7th Circuit Court Seal

Continental Casualty Company v. Symons, et al.
7th Circuit Court of Appeals Citation: 14-2665, 14-2671 & 15-106

Decided: March 22, 2016

This fraudulent transfer case pits 2 insurance company’s – as well as the controlling family of the seller and their related businesses – against one another. despite some fancy footwork on the part of the sellers, the Court saw through the ruse to the heart of the deceit. The upshot: if it quacks like a duck then it probably is. To nobody’s surprise, fraudulent transfers were found and liability followed close behind.

Factual Background

IGF Insurance Company owed Continental Casualty Company more than $25 million for a crop-insurance business it bought in 1998. In 2002 IGF resold the business to Acceptance Insurance Company for approximately $40 million. Continental alleged in the District Court that IGF’s controlling family — Gordon, Alan, and Doug Symons — structured the sale so that most of the purchase price was siphoned into the coffers of other Symons-controlled companies rendering IGF insolvent. Specifically, Continental claimed that $24 million of the $40 million purchase price went to 3 Symons-controlled companies—Goran Capital, Inc.; Symons International Group, Inc.; and Granite Reinsurance Co.—for sham noncompetition agreements and a superfluous and over-priced reinsurance treaty. Continental, still unpaid, sued for breach of contract and fraudulent transfer.

In 1998 IGF bought Continental’s crop-insurance business at a price to be determined at either side’s option by the exercise of a put or call option. In 2001 Continental exercised its put option; under the contractual formula, IGF owed Continental $25.4 million. At that same time, IGF sold its business to Acceptance for $40 million. The Symons, who controlled IGF, structured the purchase price: $16.5 million to IGF; $9 million to IGF’s parent companies Symons International and Goran in exchange for noncompetition agreements; and $15 million to Granite, an affiliated Symons-controlled company, for a reinsurance treaty. Continental, still unpaid, sued for breach of contract and fraudulent transfer.

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7th Circuit Court Seal

Donnawell v. Hamburger, No. 15-1006 (7th Cir. 2015)

Appeal from District Court, ND Illinois, Eastern Div. 12 C 9074
Argued Oct.01, 2015 — Decided Oct.20, 2015

In this appeal of a shareholder derivative suit concerning a stock option plan used as executive compensation, the Plaintiff appealed from dismissal with prejudice by the District Court for the Northern District of Illinois, Eastern Division.

The Plaintiff was a stockholder in DeVry Education Group, a Delaware company that owns and operates for-profit colleges. Plaintiff brought a Shareholder Derivative Action against current and former DeVry Board members. It ended up in Federal Court due to diversity of citizenship (Illinois vs. Delaware).

The 7th Circuit affirmed the District Court’s dismissal, applying Delaware corporate law.

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7th Circuit Court Seal

EAR vs. Brandt/Brandt vs. Horseshoe Hammond, 14‐2174
Appeal from District Court (ND IL ED) 12‐cv‐00271
Decided Oct. 13, 2015

Introduction

In an Adversary Proceeding in the Chapter 11 Bankruptcy case of Equipment Acquisition Resources (EAR), Plan Administrator William Brandt (Brand) sought to avoid and recover the so-called “fraudulent transfers” made to EAR’s founder that he subsequently lost gambling at Horseshoe Casino.

Facts

EAR was established in 1997 to manufacture and refurbish machinery for use in creating technology products. Beginning in 2005 however, it also began defrauding creditors through crooked equipment financing activities. As a result, founder Sheldon Player and a company Officer named Malone pocketed about $17 Million each.

It was not until September 2009 that an outside forensic accounting firm hired by EAR’s Board of Directors detected the fraud. In response to the revelation about the wrongdoing, the company’s Board and all Officers resigned. EAR’s shareholders then elected William Brandt as the sole Board Member and Chief Restructuring Officer. Shortly thereafter the company sought Chapter 11 Bankruptcy protection.

Procedural History

Brandt filed an Adversary proceeding against Player and Malone in the Chapter 11 case pursuant to 11 U.S.C. 544, 548, and 550 to avoid and recover the transfers made to them. Brandt prevailed, then had to collect from Horseshoe.

In the ensuing case in the District Court, Horseshoe moved for Summary Judgment under the aegis of the statutory “Good Faith” defense in 11 U.S.C. 550(b)(1). Horseshoe prevailed in the District Court.

Brandt appealed the District Court’s ruling, arguing that it had misinterpreted §550(b)(1) and, in addition, it should have granted his prior Motion to Compel production of documents related to investigations conducted by Horseshoe concerning Player.

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