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Coleman family members respond to bonding company's lawsuit regarding the Express Grain bankruptcy

Monday, August 29, 2022, 8:31 pm News Flash Archive

Three family members of bankrupt Express Grain's president John Coleman have filed responses to the lawsuit brought against them by Travelers Casualty and Surety Company of America to cover the bond that Express Grain purchased to protect potential losses by farmers who sold grain to EG.

Travelers filed suit in federal district court on April 19, 2022 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").

Under Mississippi law, grain warehouses and dealers must carry a bond, in this case $1.1 million, to pay off losses to farmers who deliver grain to such businesses. MDAC has now called that bond on EG, because there are approximately $48 million in claims by farmers for grain delivered for which the farmers were never paid by EG.

EG filed for bankruptcy protection on September 29, 2021. In all, it owes creditors around $218 million, but has liquidated at only around $85 million. Thus, most of its creditors, including the farmers, will never be paid.

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 up to $1.1 million, plus expenses, depending upon how much Travelers ends up having to pay the distressed farmers from its bond.

Since John Coleman cannot be sued, as he is in personal bankruptcy, only the other three co-signers were named in Travelers' lawsuit. To read our previous reporting, see here: Travelers sues Colemans for bond in Express Grain bankruptcy case

Dr. Michael Coleman, a highly respected Greenwood ophthalmologist, owned 99% of the Express Grain business, but his son John Coleman served as president and did most of the managing of the companies.

The responses filed by the three family members make some interesting factual claims.

Michael Coleman and his wife Virginia filed a joint response. They are represented by H. Scot Spragins of Hickman, Goza & Spragins out of Oxford. Their response to the lawsuit may be seen here: Michael and Virginia Coleman Response

John Coleman's wife Jennefer filed a separate response. She is represented by Charles Swayze III of Greenwood. Her response to the lawsuit may be seen here: Jennefer Coleman Response

In Dr. and Mrs. Coleman's response, they deny that Virginia Coleman and Jennefer Coleman reside in Mississippi.

But in Jennefer Coleman's response, she states that she does not reside in Leflore County, but claims that her mother-in-law Virginia Coleman does reside in Mississippi.

Neither response discloses the current whereabouts of Virginia and Jennefer Coleman.

All three defendants admit that they signed the General Contract of Indemnity which is dated June 26, 2019.

But the two sets of defendants make differing claims regarding their liability to cover the bonds now that EG has defaulted on them.

Dr. and Mrs. Coleman dispute Travelers' claim that they have not complied with the terms of the indemnity contract:

[They] deny that they have breached any agreement owed Travelers and, in fact, have offered to provide sufficient assurance to Travelers for its [sic] any expected loss and have agreed to pay reasonable expenses incurred.

But Travelers claims that the Colemans have to do more than just "provide sufficient assurance to Travelers for its expected loss." According to the Travelers lawsuit, the contract requires that the Colemans actually hand over to Travelers an "irrevocable letter of credit" from a reputable bank covering the entire $1.1 million of the bond. In addition, the Travelers suit claims that, under the bonding contract, the Colemans must immediately provide Travelers $150,000 to fund the "reserve" that Travelers has estimated will be necessary to cover its losses.

The Colemans deny that they are required to post the $1.1 million letter of credit:

These Defendants [Dr. and Mrs. Coleman] admit that Travelers has made demands for them to pay or deposit an irrevocable letter of credit in the amount of $1,100,000; however, such a demand is unreasonable and unnecessary. By Travelers' own admission, claims against the $1,000,000 are unfounded.

The Colemans also implicitly admit that they have not yet handed over the demanded $150,000 either:

these Defendants [Dr. and Mrs. Coleman] state that they have conditionally offered to pay $100,000 which represents the total exposure under the $100,000 bond and $50,000 of expenses....

The Colemans claim that it is actually Travelers' fault if it has to pay out money under the bond:

Plaintiff's [Travelers'] negligence was the sole and/or proximate contributing cause of Plaintiff's damages, if any.

Plaintiff has a duty to mitigate their damages and if there is a failure to mitigate damages, then there can be no recovery for damages which should have been reasonably mitigated.

The Colemans provide no explanation why Travelers should be responsible for any payouts under the bond, when they evidently signed a contract agreeing to be responsible themselves.

As far as Jennefer Coleman is concerned, she admits to no liability at all under the indemnity contract with Travelers, and places all the blame on the insurance company itself:

Plaintiff's [Travelers'] claims are barred, in whole or in part, because it failed to take reasonable measures to avoid the consequences alleged to have been caused by Defendant, Jennefer Coleman.

Plaintiff's claims are barred, in whole or in part, because it failed to mitigate its damages, if any.

The problem with this defense is, that the damages that Travelers complains of is the Colemans' alleged failure to live up to the contract they entered into with Travelers. Jennefer Coleman provides no explanation what Travelers could have done to "avoid the consequences" caused by her alleged failure to do so.

But Jennefer Coleman also claims that Travelers should have to pay her attorney fees for filing the suit against her in the first place:

Defendant, Jennefer Coleman, is entitled to an award of attorney's fees and costs as allowable under the Litigation Accountability Act of 1988, Miss. Code Ann. Section 11-55-1, et seq. (1972)

Jennefer Coleman also alleges that Travelers didn't properly serve her with the lawsuit.

Jennefer Coleman claims that:

Plaintiff's [Travelers'] negligence was the sole and/or proximate contributing cause of Plaintiff's damages, if any.

Jennefer Coleman specifically denies Travelers' claim that she and her other family members have not furnished the agreed upon collateral security of $1.1 million, nor deposited the amount of the reserve established by Travelers, which is $150,000, even after Travelers demanded that they do so.

Finally, Dr. and Mrs. Coleman have demanded a jury trial in the case. See their demand here: Demand for Jury Trial


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

 

John Pittman Hey
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