The 7th Circuit Court of Appeals upheld a ruling from the Southern District of Indiana that a company needs to pay $34.2 million for a crop-insurance business it bought and later sold to other companies it also controlled.
IGF Insurance Company owed Continental Casualty Company more than $25 million for a crop-insurance company bought in 1998. In 2002, IGF resold the business to Acceptance Insurance Company, but Continental claimed most of the purchase price, $24 million of the $40 million, was redirected into other companies the Symons family, who controls IGF, also controlled. Continental sued for breach of contract and fraudulent transfer after it was rendered insolvent by the transaction.
The District Court ruled for Continental and imposed liability on IGF of $34.2 million, leading to an appeal by IGF. There were three questions for review: Is Symons International liable to Continental for breach of the 1998 sale agreement; are the Symons companies liable as transferees under the Indiana Uniform False Transfer Act; and are Alan Symons and the estate of Gordon Symons liable under an alter-ego theory? The 7th Circuit said yes to all three and affirmed the District Court’s decision.
The 7th Circuit found Symons International, the company that controls all of the others and that bought the company from Continental, is liable for breach because it is an obligor in the companies’ agreement, not a guarantor. The clauses in the agreement refer to the “parties hereto,” which includes Symons International, and they must take “all reasonable effort” to comply with the agreement.
The 7th Circuit also ruled the companies are liable as transferees under the IUFTA. Symons International tried to cover up its transfer to its different companies by the creative way it structured its sale, but to no avail.
“This argument is creative but fundamentally misunderstands a basic precept of fraudulent transfer doctrine,” Circuit Judge Diane Sykes wrote in the opinion. “Substance trumps form.”
“Here the deal between IGF and Acceptance was structured to keep more than half the purchase price away from IGF and in the hands of the Symonses. The sleight of hand on which the defendants now rely was the very means of the fraud. If anything, this is a textbook example of why the law of fraudulent transfer privileges substance over form.”
The 7th Circuit also ruled Alan Symons and the estate of Gordon Symons were liable under alter-ego theory. The companies were all one, and Alan Symons was the principal agent of all the companies. Symons family members received many no interest-loans from the companies as well.
The case is Continental Casualty Company v. Alan Symons, et al., 14-2665, 14-2671 and 15-1061.