EDITOR’S NOTE: An update on this story is available at Harms of ‘attorney driven’ litigation shown in CLA, estate-planning class action lawsuit (TX).
$16 M default judgment entered against seller of living trust
April 1, 2009
The Southeast Texas Record
TEXARKANA, Ark. – Shortly after certifying a class action against The Estate Plan, a company accused of preying on senior citizens in Texas and Arkansas, U.S. District Judge Harry F. Barnes granted plaintiffs a default judgment for more than $16 million.
The Estate Plan and other living trust sellers are facing allegations of “masquerading as qualified financial advisers, estate planners, lawyers, and paralegals” to “exploit and prey” upon senior citizens with the creation and selling of “unnecessary and often useless” living trusts.
The original class action was filed against 12 defendants in the Circuit Court of Miller County, Ark., on Dec. 19, 2007, and transferred to the Texarkana Division of the Western District of Arkansas on Feb. 5, 2008.
Plaintiffs allege the defendants created and sold living trusts as part of a scheme to gain access to senior citizens’ financial information in order to then sell annuities and other financial products.
Defendants are accused of fraud, unauthorized practice of law, negligence, breach of fiduciary duty and conspiracy.
One of the defendants, The Estate Plan, was severed from the original lawsuit on June 12, 2008, after failing to answer the complaint which resulted in the default judgment.
The final judgment orders The Estate Plan to pay approximately $2.5 million in compensatory damages, $10 million in exemplary damages, $4.16 million in attorney fees, non -taxable costs, and post-judgment interest.
The class includes Arkansas or Texas consumers who purchased living trusts documents from The Estate Plan or any of their affiliates from Jan. 1, 1998, to March 6, 2009.
In the default judgment, Judge Barnes ordered that the company must stop all presentations that include giving legal advice without the presence of a licensed attorney.
In presentations the company must explain to consumers that a living trust is not needed to avoid estate taxes because of the federal estate tax exemption.
The Estate Plan was also ordered to undertake a public information campaign about its prior practices and stop the production and sale of living trust documents which contain misrepresentations and omissions.
Class representatives James P. Birts, Nate S. Orben, and Darlene M. Orben filed the original lawsuit on Dec. 19, 2007, in the Circuit Court of Miller County, Ark. The case was transferred to the Texarkana federal court of the Western District of Arkansas on Feb. 5, 2008.
Defendants named in the lawsuit are John R. Vermillion, John Vermillion and Associates LLC, CLA USA Inc., CLA USA Insurance Services, CLA Marketing, CLA Estate Services, CLA Insurance Services, Charles Loper Jr., Charles Loper III, Steven Morgan, Robert Reese and The Estate Plan Inc.
The plaintiffs filed an amended complaint on Sept. 11 adding defendants Winning Strategies Marketing, Inc., Quest Staffing Group Inc., James E Bradshaw Jr, Joel Carson and Olaf Turek.
According to the original complaint, the scheme begins with advertisements that persuade senior citizens to attend a free lunch or dinner. At these meetings, the “unlicensed” living trust defendants conduct presentations and distribute materials that allegedly misrepresent the impact of probate fees and estate taxes.
Plaintiffs claim the misrepresentation creates fear among the senior citizens that they need to buy a trust to prevent heirs from losing their estate.
The presentations include references to celebrities such as Elvis and describe the large amounts these celebrities have paid in estate taxes, according to the complaint.
The plaintiffs state these presentations do not include information about the federal estate tax exemption, the sliding scale of the exemption amount, or the possibility of the elimination of future estate taxes.
Further, the presentation does not tell senior citizens with estates larger than the exemption amount that the purchase of these living trusts will not automatically eliminate all estate taxes.
The class action argues that the defendants’ forms and decisions fail to take into account the entire senior’s assets and ultimately, fail to serve the legal purpose as presented.
In addition, the complaint contends that the defendants convince the seniors to execute a pour-over will at the time the living trust and the other documents are executed.
“Senior consumers are unaware and are never told verbally that any property not disposed of in the trust will be disposed of according to the pour-over will, which will need to be probated,” the class action maintains.
The senior citizens are often convinced to use their IRA accounts or other tax-exempt accounts to purchase variable annuities.
However, according to the plaintiffs’ accusations, the defendant’s presentation or documents do not inform the consumer of the associated fees, surrender charges and commissions associated with these variable annuity products.
The class action argues that after an initial down payment, defendants’ representatives conduct a follow-up meeting with the seniors and will often execute the living trust documents among other legal documents. The second payment is collected after the documents are executed.
The complaint states that up until this point, the defendants involved in the estate planning, drafting and execution of legal documents are not licensed to practice law. However, in a “feeble attempt to escape liability for the unauthorized practice of law,” the defendants use attorney John R. Vermillion to rubber stamp his name as approval, the suit states.
Although the attorney receives a check directly from the seniors, the plaintiffs state the attorney does not advise or draft any of the legal documents involved.
The plaintiffs accuse Vermillion of violating rules of professional conduct, failing to advise clients, engaging in unsolicited contact with clients and practicing law in Arkansas while unlicensed.
Common questions of law and fact among the potential class include:
Whether defendants made misrepresentations to entice potential class members to purchase living trusts and other products;
Whether defendants fraudulently concealed material omissions;
Whether defendants engaged in unauthorized practice of law;
Whether there was conspiracy among the defendants to commit fraud;
Whether defendants breached fiduciary duties;
Whether defendants’ conduct was intentional;
Whether plaintiffs are entitled to rescission, refund, or restitutionary damages; and
Whether plaintiffs are entitled to injunctive relief.
The class is represented by the Texarkana law firms of Patton, Roberts PLLC and Norton & Wood LLP and Texarkana attorney Ronald S. Burnett.
Case No: 4:08cv04011