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Durham, other guarantors must post collateral on bond

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The 7th Circuit Court of Appeals ruled Tuesday that Tim Durham and two other men who promised to indemnify and post collateral on a surety bond issued by Frontier Insurance Co. must post collateral on that bond.  

Durham, Terry Whitesell and J. Roe Hitchcock were the principals of CT Acquisition. The company agreed in 1999 to buy Evans Trailers and John Evans Sales Co., with the price to be paid over time. The sellers insisted on a surety bond, which was put up by Frontier, but also demanded personal guarantees from the three principals.

CT didn’t pay up and the guarantors failed to keep their promise, leaving the sellers to turn to Frontier. But Frontier couldn’t pay on the bond because it was in financial distress and placed in “rehabilitation” by the New York Superintendent of Financial Services. Frontier then sought funds from the guarantors to honor their commitment to the sellers, demanding Durham, Whitesell and Hitchock post collateral under their agreement with Frontier. The men didn’t pay up.

After the sellers sued Frontier and earned a judgment of more than $1.5 million, plus post-judgment interest in the 4th Circuit Court of Appeals, Frontier sued the guarantors. Judge Tanya Walton Pratt in the Southern District ordered the three men to deposit $1,559,256.78 with the clerk.

The guarantors argued based on their agreement with Frontier they didn’t have to post collateral until Frontier paid the sellers and that their only obligation is to indemnify Frontier after the fact. They hope that the ongoing rehabilitation will prevent Frontier from paying or reduce the amount it owes.

“Paragraph 3 says that a demand for collateral may occur ‘before [Frontier] may be required to make any payment thereunder.’ The Guarantors must keep their promise to post collateral,” Chief Judge Frank Easterbrook wrote in Frontier Insurance Company v. J. Roe Hitchcock, Timothy S. Durham and Terry G. Whitesell, 11-3510.

“If the existence of a fund in the registry of the district court permits Frontier to pay the Sellers 100 cents on the dollar, the Guarantors have no legitimate complaint. There is no reason why Frontier’s financial troubles should benefit the Guarantors at the expense of the Sellers,” he continued. “If, however, New York’s insurance authorities instruct or permit Frontier to pay the Sellers less than the face value of the surety bond, then the Clerk of the district court will return the excess to the Guarantors. The final disposition of these funds thus depends on the outcome of Frontier’s rehabilitation. Until then, however, Frontier is entitled to the security that the Guarantors promised to provide.”

Durham was convicted last year in federal court in Indianapolis of 12 felony fraud charges and sentenced to 50 years for his role in a Ponzi scheme that defrauded Ohio investors out of $250 million. The charges stemmed from the collapse of Fair Finance Co. in Akron, Ohio. His law license in Indiana has been suspended, and his appeal in that case is being handled pro bono by a Chicago firm.

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  2. Oh, and you fail to mention that you deprived the father of far FAR more time than he ever did you, even requiring officers to escort the children back into his care. Please, can you see that you had a huge part in "starting the war?" Patricia, i can't understand how painfully heartbreak ithis ordeal must have been for you. I read the appellate case and was surprised to see both sides of the story because your actions were harmful to your child; more so than the fathers. The evidence wasn't re weighed. It was properly reviewed for abuse of discretion as the trial court didn't consider whether a change of circumstance occurred or follow and define the statutes that led to their decision. Allowing a child to call a boyfriend "daddy" and the father by his first name is unacceptable. The first time custody was reversed to father was for very good reason. Self reflection in how you ultimately lost primary custody is the only way you will be able heal and move forward. Forgiveness of yourself comes after recognition and I truly hope you can get past the hurt and pain to allow your child the stability and care you recognized yourself that the father provides.

  3. Patricia, i can't understand how painfully heartbreak ithis ordeal must have been for you. I read the appellate case and was surprised to see both sides of the story because your actions were harmful to your child; more so than the fathers. The evidence wasn't re weighed. It was properly reviewed for abuse of discretion as the trial court didn't consider whether a change of circumstance occurred or follow and define the statutes that led to their decision. Allowing a child to call a boyfriend "daddy" and the father by his first name is unacceptable. The first time custody was reversed to father was for very good reason. Self reflection in how you ultimately lost primary custody is the only way you will be able heal and move forward. Forgiveness of yourself comes after recognition and I truly hope you can get past the hurt and pain to allow your child the stability and care you recognized yourself that the father provides.

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