Jo Ann Howard & Assocs., P.C. v. Cassity, Case No. 4:09CV01252 ERW.

• Citation: 79 F.Supp.3d 1001
• Decision Date: 12 January 2015
• Docket Number: Case No. 4:09CV01252 ERW.
• Court: United States District Courts. 8th Circuit. United States District Court (Eastern District of Missouri)
• Parties: JO ANN HOWARD & ASSOCIATES, P.C., et al., Plaintiffs, v. J. Douglas CASSITY, et al., Defendants.

79 F.Supp.3d 1001

JO ANN HOWARD & ASSOCIATES, P.C., et al., Plaintiffs
v.
J. Douglas CASSITY, et al., Defendants.

Case No. 4:09CV01252 ERW.

United States District Court, E.D. Missouri, Eastern Division.

Signed Jan. 12, 2015.

79 F.Supp.3d 1004

Ashley Daly Morgan, Daniel M. Reilly, Glenn E. Roper, Larry S. Pozner, Lauren G. Jaeckel, Michael T. Kotlarczyk, Sean Connelly, Wendy B. Fisher, Clare S. Pennington, Dru Ruth Nielsen, Farrell A. Carfield, Michael P. Robertson, Reilly Pozner, LLP, Denver, CO, Maurice B. Graham, Morry S. Cole, Gray and Ritter, P.C., St. Louis, MO, for Plaintiffs.

Tony B. Lumpkin, III, Austin, TS, pro se.

Nekol Province, Fort Worth, TX, pro se.

David R. Wulf, Terre Haute, IN, pro se.

Amy M. Saharia, J. Andrew Keyes, Mary Elizabeth Hickcox–Howard, Paul M. Wolff, Teagan J. Gregory, Stephen D. Raber, Williams and Connolly LLP, Washington, DC, Harry N. Arger, James M. Golden, Jeffrey E. Jamison, Melanie J. Chico, Renee L. Zipprich, Richard E. Gottlieb, Dykema Gossett PLLC, Chicago, IL, Ashley Elizabeth Dillon, Russell Jeffrey Keller, Stinson and Leonard LLP, Kansas City, MO, Joseph P. Whyte, Goldenberg Heller, PC, Edwardsville, IL, Terry L. Pabst, The Law Offices of Terry Pabst, P.C., Bradley Schneider, Green Jacobson, P.C., Jaime N. Ott, Steven J. Hughes, Gary E. Snodgrass, Pitzer Snodgrass, P.C., Amy L. Fehr, Drey A. Cooley, Gary R. Sarachan, Capes and Sokol, Kimberly M. Bousquet, Mike W. Bartolacci, Amanda J. Hettinger, Matthew S. Darrough, Paul E. Stoehr, Thompson Coburn, LLP, Jay L. Kanzler, Jr., Witzel and Kanzler, LLC, John G. Young, Jr., Sandra Jane Wunderlich, Andrew J. Scavotto, Cicely I. Lubben, Marc D. Goldstein, Neal B. Griffin, Stinson and Leonard LLP, St. Louis, Mo, Bogdan Rentea, Rentea and Associates, Austin, TX, Joseph L. Green, The Law Firm of Joseph Green, Chesterfield, MO, Kerri K. Fields, Law Office of Kerri K. Fields, P.C., Bastrop, TX, Firmin A. Puricelli, Furmin A. Puricelli, Attorney and Counselor at Law, Clayton, MO, John M. Hongs, Clayborne and Sabo LLP, Belleville, IL,

79 F.Supp.3d 1005

Timothy P. Griffin, Stinson and Leonard LLP, Minneapolis, MN, Gerard Schiano–Strain, Kane Kessler, P.C., New York, NY, for Defendants.

MEMORANDUM AND ORDER

E. RICHARD WEBBER, Senior District Judge.

This matter comes before the Court upon “Defendants National City Bank, U.S. Bank, National Association, and BMO Harris Bank's Motion for Partial Summary Judgment”¹ [ECF No. 1761] and “Defendants National City Bank and U.S. Bank, National Association's Joinder in Part in BMO Harris Bank's Motion for Partial Summary Judgment” [ECF No. 1788].

I. FACTUAL AND PROCEDURAL BACKGROUND

This litigation arises out of proceedings instituted by the Texas Department of Insurance in Travis County, Texas, in which National Prearranged Services, Inc. (“NPS”), Lincoln Memorial Life Insurance Company (“Lincoln”), and Memorial Service Life Insurance Company (“Memorial”) were placed in receivership and are currently in the process of being liquidated. Plaintiffs, in this litigation, are Jo Ann Howard and Associates, P.C., acting on behalf of NPS, Lincoln, and Memorial, as Special Deputy Receiver (“SDR”) in connection with the Texas receivership proceedings; the National Organization of Life and Health Guaranty Associations (“NOLHGA”)² ; and the individual state life and health insurance guaranty associations of Arkansas, Illinois, Kansas, Kentucky, Missouri, Oklahoma, and Texas. These individual guaranty associations, as well as those represented by NOLHGA, are statutory entities created by state legislatures to provide protection for resident policyholders in the event that a member insurance company becomes insolvent. Plaintiffs represent that these state guaranty associations have been assigned or subrogated to the claims of funeral homes and consumers arising out of dealings with NPS through (1) each state guaranty association's enabling act; (2) the NPS / Lincoln / Memorial Liquidation Plan approved by the Texas Receivership Court on September 22, 2008; or (3) express assignments received from recipients of death benefits paid by a state guaranty association.

Prior to the institution of the Texas proceedings, NPS was in the business of selling pre-need funeral service contracts, which were sold to consumers through funeral homes. Lincoln and Memorial were issuers of life insurance policies. NPS represented to these consumers that the necessary funds would be available when the pre-need beneficiary died and the funeral home's claim became due. In accordance with state law, this process was accomplished in certain states by requiring the purchaser to simultaneously apply for a life insurance policy, in this case many policies were issued by Lincoln or Memorial in an amount corresponding to the amount of the pre-need contract. In other states, the pre-need trust itself purchased the life insurance policies.

79 F.Supp.3d 1006

On May 3, 20, 2012, Plaintiffs herein filed their Third Amended Complaint, asserting a wide variety of claims against various defendants, including, but not limited to, claims for violations of the Racketeer Influenced and Corrupt Organizations (“RICO”) Act, 18 U.S.C. §§ 1961 –1968, violations of the Lanham Act, 15 U.S.C. §§ 1051 –1141n, state law claims concerning intentional and negligent fraudulent misrepresentations, negligence and gross negligence, breach of fiduciary duties, and violations of the Texas Receivership Act, Tex. Ins.Code §§ 443.202443.205 [ECF No. 916]. The Third Amended Complaint alleges the fraudulent scheme's ultimate goal was to siphon funds away from NPS, Lincoln, and Memorial for the personal use of certain defendants, a scheme that ultimately left more than $600 million in liabilities to be satisfied by the SDR and the state life and health guaranty association Plaintiffs.

There were over forty defendants named in Plaintiffs' Third Amended Complaint, with varying degrees of alleged involvement in what Plaintiffs characterize as a scheme to defraud individual consumers and funeral homes in the sale of NPS's pre-need funeral contracts. Many of these defendants have since been dismissed. National City Bank and U.S. Bank, National Association (“the Missouri Trustees”) are requesting summary judgment on several issues including: (1) the extent of damages for which the Trustees can be held responsible under the law; (2) who is a beneficiary of the trusts; (3) liability for the investment advisor's decision to invest trust assets in Lincoln life insurance policies; (4) liability for conduct preceding their trusteeships; (5) establishment of claimed damages; and (6) claims related to the Mount Washington and CSA Trusts. The undisputed facts are as follows.

For over twenty-nine years, NPS sold pre-need contracts in nineteen states.³ Mark Twain Bank/Mercantile Trust Company⁴ served as trustee of various NPS Pre–Need trusts from February 1989 until March 1999 [ECF No. 1763].⁵ Mark Twain/Mercantile served as trustee of the Mason Securities Association d/b/a Funeral & Cremation Society of America (“CSA”) Pre–Need Trust from January 1995 until February 1998. Allegiant⁶ served as trustee for various NPS Pre–Need Trusts from August 1998 until May 2004.⁷ Allegiant served as trustee of the CSA trust from February 1998 until May 2004 and as trustee for the Mount Washington Forever Pre–Need Trust from April 2000 until May 2004 [ECF No. 1763].

Before accepting the trusts, neither Mark Twain nor Allegiant reviewed the terms of the pre-need contracts. Mark Twain did not investigate NPS or its founder to discover Doug Cassity was a convicted felon. Allegiant failed to learn NPS was subject to a consent judgment with the Missouri Attorney General's Office. Allegiant administered the trusts in the same manner Mercantile did and did not learn the premium terms of the life

79 F.Supp.3d 1007

insurance policies, the relationship between NPS and Lincoln, the value of the life insurance assets, or the recordkeeping requirements of the trusts [ECF No. 1952].

David Wulf's firm, Wulf Bates & Murphy, was selected as the investment advisor for the NPS trusts in 1988 and continued as the trusts' investment advisor until 2008 [ECF No. 1763]. Wulf Bates & Murphy was founded by David Wulf, Charles Bates, and John Murphy in 1985 or 1986. Throughout the time period Wulf Bates & Murphy was investment advisor for the trusts, they were registered as an investment advisor with the U.S. Securities and Exchange Commission and David Wulf as registered with the Financial Industry Regulatory Authority. NPS was not Wulf Bates & Murphy's only client. No Cassity family member or any Missouri Trustee had an ownership stake in Wulf Bates & Murphy. The firm hired its own attorneys, paid its own taxes and leased its own office space. However, Wulf Bates & Murphy did rent office space from NPS beginning in 1999 and joined NPS' health insurance plan but paid for the insurance itself.

In 1999, Wulf Bates & Murphy signed a letter purportedly authorizing NPS to send investment directions to the Trustees. The Trustees were sent wire transfer requests from NPS employees and approved by Randall Sutton, the president of...