Holds Leamington liable for conspiracy and sham reinsurance in favor of Lisa
Sep 5 2008
Supreme Court
After nearly a decade of litigation commenced in 1999, Justice Kawaley of the Supreme Court of Bermuda issued judgment in consolidated action No. 1999-108 / 2001-79, holding Leamington Reinsurance Company Limited liable for conspiracy to defraud Lisa, S.A. and for knowing receipt of funds derived from a breach of fiduciary duty. The trial was heard from June 23 through July 10, 2008 in the Commercial Court. The judgment identifies Multi Inversiones, controlled by the Bosch-Gutiérrez and Gutiérrez-Mayorga families, as the true command center of the Avícola Group, rather than Avícola Villalobos, S.A. (AVSA), against which all claims were dismissed.
The Court analyzed the "transportation reinsurance policies" that the Avícola operating companies purchased and that Leamington reinsured. Lisa's insurance expert, Daniel Spragg, concluded that these policies lacked essential features of genuine insurance: no claims were ever reported, premiums bore no relation to actual transportation risk, and funds were channeled directly as dividends. The Court accepted this characterization, distinguishing the transportation policies (fraudulent) from the all-risks property policies, which constituted legitimate reinsurance.
Leamington's expert, William Bailie, maintained that the policies were technically defensible. The Court rejected this position, noting that Leamington failed to produce a single witness to rebut the documentary evidence of fraud, including admissions by its own officers that the reinsurance policies were a sham.
The Court reconstructed the diversion mechanism across three levels. First, the Avícola operating companies paid inflated or entirely fictitious premiums to local insurers, which in turn ceded the funds to Leamington as "transportation reinsurance." Second, Leamington accumulated these funds and declared millions in dividends to its registered shareholder, Villamorey, S.A., a Panamanian company. Between 1996 and 1998, Leamington distributed approximately $10,000,000.00 in dividends to Villamorey. Third, Villamorey transferred the funds to La Brana for exclusive distribution to the Bosch-Gutiérrez and Gutiérrez-Mayorga family branches, deliberately excluding Lisa despite its one-third ownership.
Central to the evidence was the secret recording of the Toronto meeting of August 20, 1998, in which Rossell, Leamington's Secretary and Treasurer and General Manager of Multi Inversiones, falsely told Juan Guillermo Gutiérrez that Leamington had not distributed dividends and that Lisa would begin receiving profits:
"You are going to start to receive all the profits... because we have left Levington [phonetic] a little over time…in order to strengthen the company and we hadn't distributed dividends…So, from today forward the money will start to come in to you…" (Page 58)
The Court found this statement to be deliberately false, as Leamington had already distributed approximately $10,000,000.00 between 1996 and 1998.
A central finding of the judgment is the identification of Multi Inversiones as the entity exercising real control over the Avícola Group, displacing the theory that AVSA functioned as a de facto parent company. The Court relied on Rossell's own statements during the February 1998 Toronto negotiations, in which he indicated that "Multi-Inversiones provides strategic planning, legal advise [sic], fiscal strategy and high level administration services to the Avicola Companies." Juan Guillermo himself described the two negotiating sides as "Lisa's side" and "Multi-Inversiones' side."
Briz, Leamington's President and Multi Inversiones Treasurer from 1984 to 2003, managed dividend requests through Alameda, an entity he characterized as the "functional division and office in charge of insurance and reinsurance" for Multi Inversiones. This constellation of simultaneous positions allowed the Court to attribute to Leamington the knowledge and intent to defraud Lisa.
The Court dismissed all claims against Avícola Villalobos, S.A. Lisa failed to demonstrate that AVSA was the de facto parent of the group or that it directly participated in Leamington's reinsurance program. Justice Kawaley concluded that AVSA was not an insured under the transportation policies (it only purchased all-risks property coverage) and that no sufficient evidence linked AVSA to the diversion scheme. The judgment establishes that if a controlling entity existed, it was Multi Inversiones, not AVSA.
A preliminary issue the Court resolved in Lisa's favor was whether Lisa's indirect shareholding in Leamington, through Villamorey, had been sold in 1995 to La Brana. The defendants maintained this sale was completed, releasing them from all subsequent obligations. The Court found that although a Villamorey shareholders' meeting approved the sale, the transaction was never consummated: no real consideration was paid (the purported sale was for a nominal $1.00), Leamington's audited financial statements continued to report Lisa as an ultimate beneficial owner, and the 1998 Toronto meeting would have made no sense if Lisa no longer held an interest.
Leamington's expert, María Yip, conceded that Lisa was entitled to $1,900,085.00 for the post-1995 period and $54,019.14 for the pre-1995 deficit (including a check recently tendered by La Brana). The Court rejected Lisa's claim to recover 50% of what the other two family branches received, as well as the claim for executive incentive payments, limiting the award to premiums proven under the transportation policies of the Avícola companies.