Garrett v. Cassity
| Decision Date | 21 December 2010 |
| Docket Number | Case No. 4:09CV01252 ERW |
| Parties | DONNA J. GARRETT, et al., Plaintiffs, v. J. DOUGLAS CASSITY, et al., Defendants. |
| Court | U.S. District Court — Eastern District of Missouri |
This matter comes before the Court on the following Motions: Defendant Anne Chain's Motion to Dismiss [doc. #120], Defendants David Wulf and Wulf, Bates and Murphy, Inc.'s Motion to Make More Definite Plaintiffs' Claim for Relief and Motion to Dismiss Plaintiffs' Eleventh Claim for Relief [doc. #124], Defendants Brentwood Heritage Properties, LLC, Forever Enterprises, Inc., Forever Illinois, Inc., Forever Network, Inc., Legacy International Imports, Inc., Lincoln Memorial Services, Inc., National Heritage Enterprises, Inc., National Prearranged Services Agency, Inc., and Texas Forever Inc.'s Motion to Dismiss, or in the Alternative, Motion for More Definite Statement [doc. #235], Defendants Tyler Cassity and Hollywood Forever, Inc.'s Motion to Dismiss Complaint, or, in the Alternative, for More Definite Statement [doc. #246], Defendants Howard Wittner and Wittner, Spewak & Maylack P.C.'s Motion to Dismiss Plaintiffs' Complaint [doc. #251], Defendant Brent D. Cassity's Motion to Dismiss and Motion for a More Definite Statement [doc. #254], Defendant James M. Crawford's Motion to Make More Definite and Certain and Motion to Join Co-Defendants' Motions and Memoranda [doc. #273], Defendant Roxanne J. Schnieders n/k/a Roxanne J. Sargent's Motion to Dismiss, or in the Alternative, Motion for More Definite Statement [doc. #281], Defendant J. Douglas Cassity's Motion to Dismiss, Motion to Make More Definite and Certain, and Motion to Join Co-Defendants' Motions and Memoranda [doc. #287], Defendant Rhonda Cassity and Rhonda L. Cassity, Inc. a/k/a Wellstream, Inc.'s Motion to Dismiss, or in the Alternative, Motion for More Definite Statement and Motion to Join Co-Defendants' Motions and Memoranda [doc. #289], Defendant Nekol Province's Motion to Dismiss Complaint, or, in the Alternative, for More Definite Statement [doc. #296], Defendant Randall K. Sutton's Motion to Dismiss Plaintiffs' Complaint [doc. #299], Defendant Larry Keith Hale's Motion to Dismiss, or in the Alternative, Motion for More Definite Statement [doc. #365], and Defendant Marianne Jones' Motion for More Definite Statement [doc. #382].
I. FACTUAL BACKGROUND1
This litigation arises out of an alleged scheme by the owners, directors, officers, and employees2 of three entities-National Prearranged Services, Inc. ("NPS"), Lincoln Memorial Life Insurance Company ("Lincoln"), and Memorial Service Life Insurance Company ("Memorial")-to defraud funeral homes and consumers in the sale of pre-need funeral service contracts, and to re-direct the funds received from the sale of those products to other related entities and certain individual parties, with the ultimate result of causing the Texas Department of Insurance to declare these entities insolvent and place them in receivership. Plaintiffs in this litigation are Donna J. Garrett, acting on behalf of NPS, Lincoln, and Memorial as Special Deputy Receiver ("Plaintiff SDR") in connection with the receivership proceedings instituted in Travis County, Texas, The National Organization of Life and Health Guaranty Associations ("NOLHGA"), 3 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 (collectively, "SGA Plaintiffs"), 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 the SGA Plaintiffs have been assigned or are 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; and (3) express assignments received from recipients of death benefits paid by a state guaranty association.
NPS, Lincoln, and Memorial are all owned by the RBT Trust II ("the RBT Trust"), a family trust of which Defendants J. Douglas Cassity ("Doug Cassity"), Rhonda Cassity, Brent Cassity, and Tyler Cassity (the latter three representing the "R, " "B, " and "T, " respectively) (collectively, "the Cassitys") are the sole beneficiaries, and of which Doug Cassity was the settlor. The RBT Trust owns a number of other entities involved in this litigation, including the corporate Defendants with Motions currently before the Court: Defendants Brentwood Heritage Properties, LLC ("BHP"), Forever Enterprises, Inc. ("Forever Enterprises"), Forever Illinois, Inc. ("Forever Illinois"), Forever Network, Inc.("Forever Network"), Legacy International Imports, Inc. ("Legacy International"), Lincoln Memorial Services, Inc. ("LMS"), National Heritage Enterprises, Inc. ("NHE"), National Prearranged Services Agency, Inc. ("NPS Agency"), Texas Forever Inc. ("Texas Forever"), and Hollywood Forever, Inc. ("Hollywood Forever").4Defendant Howard Wittner ("Wittner") is the trustee of the RBT Trust, and his law firm, Wittner, Spewak & Maylack, P.C. ("Wittner Spewak") served as general counsel to various entities owned by the RBT Trust. Wittner also served as an officer or director to various corporate Defendants at different relevant points in time. Defendants Randall Sutton ("Sutton"), Roxanne Sargent, nee Schnieders ("Sargent"), Anne Chrun ("Chrun"), Larry Keith Hale ("Hale), Marianne Jones ("Jones"), James Crawford ("Crawford"), and Nekol Province ("Province") were all officers or directors of NPS, Lincoln, Memorial, or other entities owned by the RBT Trust.
Prior to the institution of the Texas proceedings, NPS was in the business of selling pre-need funeral service contracts, sold to consumers through funeral homes, and Lincoln and Memorial were issuers of life insurance policies. NPS marketed its pre-need contracts by assuring consumers that funds paid to NPS would be secured in pre-need trusts and backed by whole life insurance policies issued by Lincoln or Memorial. Depending on the applicable state law, the purchaser applied for the insurance policy at the time of purchasing the contract, or the trust holding the contract funds purchased the policy after obtaining the customer's funds, so ostensibly in both cases, the necessary funds would be available when the pre-need beneficiary died and the claim became due.
The first component of Defendants' alleged scheme is based on NPS's fraudulent use of Lincoln and Memorial life insurance policies to accumulate funds from consumers. In those states in which the contract purchaser simultaneously applied for the life insurance policy, thepurchaser was required to pay the amount of the contract in full at the time of purchase, and an application for the corresponding insurance policy was then marked as a single-premium policy that had likewise been paid in full, through the price of the contract. When an employee at NPS, Lincoln, or Memorial received that life insurance policy application, however, the employee was instructed to white out the policy, or otherwise alter it, so that it appeared that it was an installment policy for which only the first installment payment had been received. In states in which the pre-need trust was permitted or obligated to purchase the life insurance policy, the trust would simply purchase an installment policy with monthly payments instead of a policy in the full amount of the contract price. In both cases, this allowed NPS to retain the majority of the price of the pre-need contract, instead of placing funds in trust or using them to insure the entire amount of the contract.
Plaintiffs assert that Defendants Doug Cassity, Brent Cassity, Sutton, Sargent, Hale, Nekol Province, and Scannell "directed, knew about, and/or helped conceal" from NPS's sales force, its funeral home customers, and pre-need consumers that NPS was altering policies in this manner. An NPS sales agent inquired of Brent Cassity, who in addition to being a beneficial owner of NPS was also a director, whether NPS was engaging in this policy "mismatching." He responded with an email to Sargent, President-Corporate Development Division at NPS, and to Scannell, general counsel to NPS, Lincoln, and Memorial, advising them: "Just tell her that [it] is not being done."
Plaintiffs further allege that NPS accumulated cash by taking out loans on the insurance policies issued by Lincoln and Memorial, as directed by Sutton, who was President of NPS and also served as a director to the corporation. In order to take out these loans, however, NPS had to be the named owner or beneficiary of the policy, and so NPS employees were also directed toalter those policies on which the purchaser of the contract was the named beneficiary to make NPS the owner or beneficiary. In other instances, the application form had an assignment provision, where the purchaser was required to irrevocably assign her interest in the policy to NPS. According to Plaintiffs, these practices were contrary to certain state laws prohibiting pre-need funeral contract sellers from being the beneficiaries of the funding insurance policy, and prohibiting irrevocable assignments by the purchaser to the seller.
Sutton, who served in various positions with Lincoln and Memorial in addition to being President of NPS and one of its directors, gave instructions to Defendant Tony Lumpkin ("Lumpkin") concerning loans NPS took against the policies issued by Lincoln and Memorial. From August 1995 through June 2007, NPS took out over 400, 000 policy loans, totaling more than $130 million. Plaintiffs allege, however, that NPS never actually undertook to repay these loans, and that instead repayment was reflected...
To continue reading
Request your trial