State Of Ind. Ex Rel. Ind. State Bar Ass'n v. United Financial Sys. Corp.
| Decision Date | 14 April 2010 |
| Docket Number | No. 94S00-0810-MS-551.,94S00-0810-MS-551. |
| Citation | 926 N.E.2d 8 |
| Parties | STATE of Indiana ex rel. INDIANA STATE BAR ASSOCIATION, Relator,v.UNITED FINANCIAL SYSTEMS CORPORATION, Richard Follett, Jayne A. Follett, Richard L. Follett II, Beau R. Follett, Jody Waugh, Raymond C. Phillips, Linda Dishong, L. Kay Larsen, John Joyce, Gary Lovelady, Sharon Dorsey, Sherry Jordan, Douglas J. Lalama, Andrew Mark Eads, Katie Jackel, and James Boyles, Respondents. |
| Court | Indiana Supreme Court |
COPYRIGHT MATERIAL OMITTED
Kevin P. McGoff, Rafael A. Sanchez, Margaret M. Christensen, Indianapolis, IN, Attorneys for Relator.
Ronald E. Elberger, Suzanna Hartzell-Baird, Indianapolis, IN, Attorneys for Respondents.
Donald R. Lundberg, Angie L. Ordway, Indianapolis, IN, Attorneys for Amicus Curiae, Disciplinary Commission.
On Petition to Enjoin the Unauthorized Practice of Law
This is an original action brought by the Indiana State Bar Association (“ISBA”) in the name of the State of Indiana pursuant to Indiana Admission and Discipline Rule 24, alleging that United Financial Systems Corporation and numerous individual respondents (collectively, “UFSC”) 1 have engaged in the unauthorized practice of law in Indiana. The ISBA seeks an order (1) enjoining UFSC from the unauthorized practice of law, (2) requiring UFSC to disgorge fees collected for unauthorized legal services, and (3) compelling UFSC to pay various fees, costs and expenses, including reasonable attorney fees.
This Court has exclusive jurisdiction over matters involving the unauthorized practice of law. See Ind. Const. art. 7, § 4; see also Ind.Code § 33-24-1-2. As set forth in more detail below, we find that UFSC has engaged in the unauthorized practice of law and that an injunction prohibiting such conduct should issue. Although the phrase “costs and expenses” under Rule 24 does not include attorney fees, the ISBA nevertheless is entitled to certain statutory attorney fees. Finally, disgorgement of fees is warranted to the extent described below.
On October 9, 2008, the ISBA filed a verified petition alleging that UFSC engaged in the unauthorized practice of law. After verified returns were filed by several respondents, the Honorable Bruce C. Embrey was appointed by agreement of the parties to act as Commissioner to hear the evidence and provide the Court with findings of fact. Following an evidentiary hearing spanning three days and the submission of briefing and proposed findings by the parties, Judge Embrey issued his Report of the Commissioner (“Report”) on July 13, 2009. We commend Judge Embrey for the thoroughness of his Report, which has greatly aided us in the exercise of our original jurisdiction.
The Court received further briefing from the parties and from the Disciplinary Commission, which was granted leave to appear as amicus curiae. Oral argument then was heard on the issues of disgorgement and attorney fees.
UFSC is an insurance marketing agency. The principals of the company and the various entities comprising its corporate structure are members of the Follett family. In 1995, UFSC began to market and sell estate planning services, including wills and trusts. The company is headquartered in Indianapolis and does business in Indiana and twelve other states. In Indiana, from October 2006 through May 2009, UFSC sold 1,306 estate plans from which the company grossed over $2.7 million. (Report at 2-3, ¶ 1.) During roughly this same period of time, 0.09% of UFSC's total nationwide income and 18.8% of UFSC's nationwide fee income was derived from the sale of estate planning services in Indiana. ( Id. at 2.)
The business practices at issue in this case occurred as follows. UFSC targeted and then mailed prospective clients (generally retirees) information on how to avoid probate. For those who responded, as well as some existing UFSC clients, a UFSC sales representative (either an Estate Planning Assistant or a Health Planning Assistant) met with the client and gained access to his or her financial information, which the company separately used later in an effort by its Financial Planning Assistants to sell insurance products. The presentation made by the Estate Planning Assistant or the Health Planning Assistant to the prospective client touted UFSC's team of tax strategists, financial consultants, independent attorneys, and Medicaid and estate planning assistants. In reality, UFSC has no tax strategists. (Report at 3-4, ¶¶ 3-7.)
The Estate Planning Assistant or Health Planning Assistant received a commission on sales of wills and trusts, and the Assistant's presentations pushed the most expensive plan. The cost of this plan, which included a will, trust, powers of attorney, deeds, and the promise of future amendments as needed, was $2,695 in 2009. The commission from each sale of this plan ranged from $750 to $900. (Report at 38, ¶¶ 91-92.) The Estate Planning Assistants and Health Planning Assistants were not licensed attorneys and were not directly supervised by an attorney. The Financial Planning Assistants likewise were not attorneys. (Report at 5, 21, 36, ¶¶ 9, 30, 85.)
Once a sale was made, the Estate Planning Assistant or Health Planning Assistant secured full or partial payment from the client on the spot. 3 The forms containing the client's personal and financial information were routed to UFSC's in-house counsel, David McInerney, who then provided the information to one of the panel attorneys with whom UFSC has contracted. The estate plans sold by UFSC throughout the country were all processed in Indianapolis and routed to panel attorneys in Indiana and other states to draft documents for the plans. (Report at 5, 40, ¶¶ 10, 97.)
Upon receiving a client's information, the panel attorney called the client, knowing the client had already paid for a certain estate plan. (Report at 5-6, ¶ 11.) UFSC insists that the panel attorneys had the freedom to exercise their own independent judgment in ensuring that the client had an estate plan suitable for his or her interests. Notably though, of the 1,306 estate plans sold in Indiana from October 2006 to May 2009, only nine of these clients downgraded to a less expensive plan following consultation with a panel attorney. Further, because a panel attorney was paid a flat fee of only $225 for drafting the estate planning documents, any consultation between the panel attorney and the client above and beyond the initial phone call generally was not financially feasible. (Report at 6, ¶¶ 12-13.)
The documents prepared by the panel attorney were then sent back to UFSC and bound. A Financial Planning Assistant was paid $75 to deliver the documents and assist the client in executing them. The Financial Planning Assistant, who was compensated primarily through commissions from the sale of insurance products, then endeavored to sell the client insurance products based on the financial information provided by the client. UFSC imposed sales quotas on its Financial Planning Assistants, who were expected to generate a weekly average of at least $75,000 in annuity or life premium sales. (Report at 7, ¶¶ 15-16.)
UFSC has structured its business such that the Estate Planning Assistants, Health Planning Assistants, Financial Planning Assistants and the panel attorneys are considered by UFSC to be independent contractors. (Report at 3-4, ¶ 5.) However, all of these persons are essential to UFSC's core business model. UFSC loses money on the sales made by the Estate Planning Assistants and Health Planning Assistants, because the cost of developing leads exceeds the profits from those sales alone. Instead, UFSC's profits are generated by the sale of annuities and other insurance products, which often are used to fund the trusts. (Report at 40, ¶ 99.)
Notwithstanding UFSC's protestations that the panel attorneys exercised independent professional judgment in counseling clients regarding their estate planning needs, several factors call into question the attorneys' ability and motivation to do so within the business model employed by UFSC. While no one factor necessarily is dispositive, they collectively present a troubling picture.4
The disparity of fees earned, between the Estate Planning Assistants and Health Planning Assistants on the one hand (between $750 and $900 per sale of the most expensive estate plan package) and the panel attorneys on the other hand ($225 for drafting the documents and consulting with the client by phone), is indicative of an emphasis on sales and revenue rather than the provision of objective, disinterested legal advice. So too is the fact that an estate plan is sold to the client prior to any attorney involvement whatsoever. Similarly, that UFSC's profitability stems from the sale of insurance products related to the trusts created by the estate plans and the financial information and “leads” obtained by the Estate Planning Assistants and Health Planning Assistants tends to emphasize sales and revenue over objective, disinterested legal advice.
The testimony of various panel attorneys reveals minimal independent consultation with clients and heavy reliance on the communications between the client and the company's salesperson. One panel attorney testified the bulk of his legal practice was dependent on UFSC client referrals, and another panel attorney estimated that at least 85% of clients referred to him ordered the most expensive trust package as opposed to a simple will package. (Report at 42, 43, ¶¶ 102, 108; ISBA Exh. 10; Tr. at 692.) Several panel attorneys utilized standardized estate planning documents and forms that had been prepared and provided by UFSC,5 and the letters sent by the panel attorneys to the Financial Planning Assistants regarding the execution of the estate planning instruments also were prepared by UFSC. (Report at 43-45, ¶¶ 112-13; Tr. at 681-83.) Explanation to the client of the relevance and...
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