New York judge dismisses Fleming's suit against James River over JRG Re sale

By Isha Marathe

July 18 - (The Insurer) - A New York federal judge on Thursday dismissed Fleming Intermediate Holdings' lawsuit alleging that James River misrepresented the representations and warranties in its $300 million sale of reinsurance subsidiary JRG Re.

Altamont-owned Fleming, a Cayman Islands insurance company based in Bermuda, agreed to acquire JRG Re from James River in a stock purchase agreement (SPA) executed on November 18, 2023.

Fleming agreed to purchase all shares of JRG Re from James River, subject to approval from the Bermuda Monetary Authority.

Under the announced sale, James River was to receive $277 million. This consisted of a cash payment from Fleming of $138 million and up to $139 million that was to be paid by JRG Re to James River prior to the closing date pursuant to SPA, the suit said.

The SPA noted that the actual amount paid would vary in accordance with JRG Re’s net worth as of the closing date.

ALLEGATIONS

Frank D’Orazio and Sara Doran, James River’s CEO and chief financial officer, respectively, led the negotiations for the company. They are both named defendants in the suit.

In its complaint, Fleming accused James River and the defendants of rushing to close the transaction by year-end 2023 in hopes that it would "be completed before Fleming had an opportunity to discover James River’s flagrant violations of the parties’ agreement and the misrepresentations that James River had made in the agreement itself, which would result in Fleming purchasing JRG Re at a vastly inflated price."

The BMA did not approve the transaction until February 2, 2024.

Fleming said that James River's reps and warranties misled the debts it owed to the JRG Re; JRG Re’s payment of an allegedly illegal dividend and return of capital to James River; the subsidiary's default under its material reinsurance agreements; suppression of JRG's reserves and failure to obtain an independent analysis of said reserves; and JRE Re’s failure to file accurate and updated regulatory filings with the BMA.

Fleming brought securities fraud claims against the defendants under the Exchange Act, a state law fraud claim against James River and various state-law claims for breach of contract against James River in connection with alleged violations of the parties’ SPA

DISMISSAL

James River argued before the court that the Exchange Act did not apply extraterritorially, the common law fraud claim should be dismissed as duplicative of its breach of contract claim and for failure to allege the required elements of fraud.

It also said that Fleming did not adequately allege breaches of each relevant provision of the SPA, and that the appropriate measure of JRG Re’s reserves would be determined by the SPA’s post-closing true-up process, according to the complaint.

U.S. District Judge Jennifer Rochon said that because the underlying transaction involves foreign parties, a private agreement and shares of a privately held Bermudan company not traded on any exchange, Fleming’s claim is predominantly foreign.

Fleming’s complaint relies upon the fact that the BMA has now expressly found that JRG Re repeatedly violated Bermudian law, the opinion said.

"There are therefore parallel foreign regulatory proceedings pertaining to the very conduct alleged herein. This case introduces the very “potential for incompatibility between U.S. and foreign law," Rochon said.

"As Fleming itself concedes, forum-selection and choice-of-law clauses do not render an otherwise predominantly foreign transaction substantially domestic such that the transaction falls within the scope of U.S. federal securities laws."

Rochon granted James River’s motion to dismiss Fleming's complaint.

Fleming’s federal Exchange Act claims, counts one to three, were dismissed with prejudice, and its state law claims, counts four to 10, were dismissed without prejudice, the opinion said.

James River declined to comment.

Fleming did not immediately respond to a request for comment.