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Travelers sues Colemans for bond in Express Grain bankruptcy case

Tuesday, April 19, 2022, 6:46 pm News Flash Archive

This afternoon, Travelers Casualty and Surety Company of America filed suit in federal district court against Dr. Michael Coleman, Virginia Coleman and Jennefer Coleman for indemnification of the $1.1 million bond that Travelers provided to Express Grain, which has now been called by the Mississippi Department of Agriculture and Commerce ("MDAC").

The complaint may be seen here: Travelers v. Colemans complaint

Under Mississippi law, grain warehouses and dealers must carry a bond, in this case $1.1 million, to pay off loses to farmers who deliver grain to such businesses. MDAC has now called that bond on EG, because there are approximately $46 million in claims by farmers for grain delivered for which the farmers were never paid by EG.

MDAC has been running legal notices of the calling of the bond, and inviting farmers who lost their grain in the EG bankruptcy, to file claims. The petition filed by MDAC to call the bonds and determine the claims against the bonds may be seen here: MDAC petition to determine claims against Express Grain's warehouse and dealer bonds

Travelers filed a $1.1 million claim against EG in the bankruptcy proceeding, but is expected to receive no payment from the estate.

Therefore, under the bonding agreement, the "indemnitors" who signed to guarantee the bonds, John and Michael Coleman and their wives, are now liable to pay Travelers the $1.1 million.

Since John Coleman cannot be sued, as he is in personal bankruptcy, only the other three co-signers are named in Travelers' lawsuit.

The demands served by Travelers on the Colemans, as well as the Indemnity Contract that all four signed in 2019, may be seen here:

Travelers Demand on the Colemans

Indemnity Contract for EG Bond

Travelers is demanding that the Colemans provide a letter of credit from an acceptable bank for the entire $1.1 million.

According to the lawsuit, Travelers alleges:

With respect to the Indemnitors' joint and several obligation to exonerate and indemnify Travelers, the Indemnity Agreement requires Indemnitors to:

To indemnify and exonerate [Travelers] from and against any and all loss, cost and expense of whatever kind which it may incur or sustain as a result of or in connection with the furnishing of Bond(s), the assumption of obligations by [Travelers] of Bond(s), and/or the enforcement of this Agreement, including unpaid premiums, interest, court costs and counsel fees, and any expense incurred or sustained by reason of making any investigation, hereinafter referred to as "Loss."

As an extension of the Indemnitors' duty to exonerate and indemnify Travelers, the Indemnitors are jointly and severally obligated to deposit cash or other collateral. The Indemnity Agreement requires the Indemnitors:

To deposit with [Travelers], on demand, the amount of any reserve against such Loss which [Travelers] is required, or deems it prudent to establish whether on account of an actual liability or one which is, or may be, asserted against it and whether or not any payment for such Loss has been made.

According to the complaint, Travelers served the Demand on the Colemans in late December, but

To date, the Indemnitors have not honored their obligations under the Indemnity Agreement to either (i) fully and completely discharge Travelers from the Bonds, (ii) provide an irrevocable letter of credit in the amount of $1,100,000, or (iii) deposit the amount of reserve Travelers deemed prudent to establish, or otherwise responded to the Collateral Demand.

Travelers is asking the court to force the Colemans to pay the reserve or provide it with an irrevocable letter of credit for the full $1.1 million.

Travelers is also asking the court to order the Colemans not to take any action that would make it impossible for Travelers to recover what it is owed from the Colemans:

Based upon the number and size of the claims filed against Express Grain in the Bankruptcy and the allegations in the Petition, Travelers has grounds to believe there is a reasonable probability that the Indemnitors will default on their obligations under the Indemnity Agreement.

Quia timet relief is appropriate to safeguard and secure Travelers against such defaults and resulting losses to Travelers.

Travelers is therefore entitled to adequate collateral from the Indemnitors to cover all reasonably probable losses under the Bonds.

Quia timet is an injunction filed where a wrong is anticipated, but has not yet occurred. Travelers is asking the court to place a restriction on the Colemans' assets that will prohibit them from selling or transferring them due to the likelihood that Travelers will not be made whole otherwise.

Travelers is also asking the court to enter a judgment against the Colemans for breach of the Indemnity Agreement:

Travelers is entitled to the entry of judgment against the Indemnitors, jointly and severally, in an amount sufficient to fully exonerate, hold harmless, indemnify, and keep indemnified Travelers from and against any and all liability for losses, fees, costs, and expenses (including attorney's fees) as a result of or in connection with the furnishing of the Bonds, the assumption of obligations by Travelers of the Bonds, the enforcement of the Indemnity Agreement, and by reason of investigation.

Generally, the defendants have 21 days after they are served in which to file an answer to complaints filed in federal court.

 


To read all our coverage of the Express Grain bankruptcy case, see here: Index of Express Grain articles

 

John Pittman Hey
The Taxpayers Channel

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