Brooke Corp. Faces Lawsuits by Illinois and New York Banks

Overland Park, Kansas-based Brooke Corp. faces a lawsuit by a bank seeking $13 million plus interest and costs for breach of contract. The suit was filed the last week in September 2008 in federal court in Illinois by First United Bank, an Illinois institution. The suit also names Brooke Holdings and Brooke principals Leland Orr and Robert Orr as defendants. Brooke Corp. operates an insurance agency franchise business, along with several related corporations.

The charge by First United says it made separate loans to Brooke Holdings in May 2008, of $5 million and $7.87 million, that were guaranteed by the Orrs. Brooke defaulted on the loans, the suit alleges, and says the Orrs failed to live up to their guarantees. Brooke reported the suit Oct. 2 in a regulatory filing with the Securities and Exchange Commission.

Earlier this year, it was reported that Brooke Corp. effectively shut down its lending operations and cut back support offered to its franchise owners. The company began reducing the size of the network and its Overland Park headquarters operations, some of its franchise agencies told Insurance Journal.

In a suit filed earlier this year, the Bank of New York Mellon alleges Brooke companies and Robert Orr fraudulently diverted at least $5 million. The money was originally pledged as payments on investments in loans that a financing firm made to insurance agency buyers on Brooke’s behalf.

In a motion filed in September, the Brooke companies and Orr said that the money was used to protect collateral behind the loans by helping struggling borrowers keep their businesses open and protect future streams of loan repayments to the investors. The motion also alleged that The Bank of New York Mellon and other lenders failed to pay $4 million of their agreed-upon share of the collateral protection plan, putting the Brooke operations in greater financial peril, according to an account in the Kansas City Star.

The Kansas Department of Insurance issued a release in late September saying it was monitoring Brooke Corp.’s situation. “Those Brooke lawsuits deal with contractual issues that are not part of the insurance department’s regulatory authority,” Kansas Commissioner Praeger said, “but we continue to monitor any potential problems that could concern Kansas consumers and policyholders.”

Topics Lawsuits New York Illinois Kansas