Jo Ann Howard and Associates, P.C. et al v. Cassity et al

Filing 2060

MEMORANDUM AND ORDER re: 1746 MOTION for Judgment on the Pleadings or in the Alternative, Motion for Summary Judgment filed by Defendant Herbert Morisse. IT IS HEREBY ORDERED that "Defendant Herbert Morisse's Motion for Judgment on the Pleadings or in the Alternative, Motion for Summary Judgment" 1746 is DENIED. Signed by District Judge E. Richard Webber on December 29, 2014. (MCB)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION

JO ANN HOWARD &
ASSOCIATES, P.C., et al.,
Plaintiffs,
vs.
J. DOUGLAS CASSITY, et al.,
Defendants.

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Case No. 4:09CV01252 ERW

MEMORANDUM AND ORDER
This matter comes before the court upon “Defendant Herbert Morisse’s Motion for
Judgment on the Pleadings or in the Alternative, Motion for Summary Judgment” [ECF No.
1746].
I.

FACTUAL BACKGROUND
The Court adopts the following statement of facts as well-pleaded allegations in

Plaintiffs’ Third Amended Complaint [ECF No. 916]. Ginsburg v. Inbev NV/SA, 623 F.3d 1229
n. 3 (8th Cir. 2010); Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009).
Plaintiffs have alleged Allegiant Bank breached their fiduciary duties as trustees, among
other claims, for allowing the trust assets to be siphoned from the trust through a variety of
investments and loans. Defendant Herbert Morisse (“Morisse”) was Vice President and Trust
Officer for Allegiant Trust Company from 1997 through 2004 [ECF No. 916 ¶ 84.2]. Morisse
was responsible for the administration of Allegiant Bank’s trust accounts including the NPS preneed trusts [ECF No. 916 ¶ 84.2]. Morisse knew Allegiant was cited for violations of Missouri
statutes regarding the NPS pre-need trust accounts by state examiners but failed to notify the

trust beneficiaries [ECF No. 916 ¶ 228.208, 228.209]. Morisse personally signed forms allowing
funds deposited into the trusts to be offset by death benefits owed on other pre-need contracts
[ECF No. 916 ¶ 228.211]. Morisse knew Allegiant Bank failed to take custody of the lifeinsurance policies making up the majority of trust assets, failed to take ownership and control of
trust assets, and treated the trust accounts as custody accounts rather than trusts [ECF No. 916 ¶
228.212-228.214]. Morisse also helped draft the “Custody Agreements” which gave custody of
the life-insurance policies to NPS, rather than the trusts keeping custody of the policies [ECF No.
916 ¶ 228.216].
Morisse also knew of and allowed a variety of actions related to investment of trust assets
including: trust assets were not invested in reasonably prudent investments, assets were not
properly diversified, the trusts did not retain sufficient liquidity, and the investment advisor was
not independent as required [ECF No. 916 ¶ 228.218-228.221]. In addition, Morisse did not
monitor the investment advisor’s actions or performance and took direction from NPS employees
as to investment decisions [ECF No. 916 ¶ 228.223-228.225]. Morisse helped draft the “Wulf
Letters,” a series of letters signed by David Wulf on behalf of Wulf Bates & Murphy which
instructed Allegiant Bank to take direction from any NPS employee in regards to depositing or
distributing trust assets and investment decisions [ECF No. 916 ¶ 228.226].
Morisse approved improper distributions of trust income [ECF No. 916 ¶ 84.2]. He
allowed the majority of trust assets be used to purchase life-insurance policies from Lincoln, a
company he knew was poorly rated and shared common ownership and control with NPS [ECF
No. 916 ¶ 228.231-228.234]. Morisse authorized Allegiant Bank to report the value of insurance
policies as the face of the policies rather than the cash surrender value and was personally
involved in the calculations of these values [ECF No. 916 ¶ 228.235-237]. He allowed policy

loans to be taken on the insurance policies and did not adjust the value of the trust assets to
reflect the loans [ECF No. 916 ¶ 228.238-228.239]. In addition, Morisse allowed policy loans
without security in exchange such as promissory notes [ECF No. 916 ¶ 228.240].
Morisse converted trust assets into other assets with little or no value upon request of
NPS such as using $2.5 million in trust assets to purchase stock in Forever Enterprises, an NPS
affiliate, at inflated prices [ECF No. 916 ¶ 228.244-228.245]. Once Bremen Bank was named as
successor trustee, Morisse trained Bremen Bank employees of how to administer the trust
accounts in the same manner and continued to provide instructions after Bremen Bank took
control of the assets [ECF No. 916 ¶ 228.246-228.247]. Plaintiffs have alleged these actions by
Morisse allowed the Cassitys to carry out their Ponzi-like scheme.
On May 3, 2012, Plaintiffs filed their Third Amended Complaint against Morisse, as well
as other Defendants, asserting claims against Morisse for negligence (Count 39), breach of
fiduciary duty (Count 40), and Participation in a Breach of Trust Duties (Count 41). Morisse
filed his Motion for Judgment on the Pleadings contending Plaintiffs do not and cannot plead the
requisite allegations to hold Morisse personally liable because Missouri law requires intentional
misconduct or the breach of an independent duty owed directly to Plaintiffs by Morisse to hold
him liable outside of his capacity as Allegiant’s agent [ECF No. 1740].
II.

STANDARD
Generally, a Rule 12(c) motion for judgment on the pleadings is reviewed under the same

standard as a 12(b)(6) motion to dismiss. Ginsburg, 623 F.3d at 1233, n. 3; Clemons v.
Crawford, 585 F.3d 1119, 1124 (8th Cir. 2009); Ashley County v. Pfizer, 552 F.3d 659, 665 (8th
Cir. 2009). The Court must view the allegations in the Complaint liberally and in the light most
favorable to Plaintiff. Eckert v. Titan Tire Corp., 514 F.3d 801, 806 (8th Cir. 2008) (citing

Luney v. SGS Auto. Servs,, 432 F.3d 866, 867 (8th Cir. 2005)). The Court “must accept the
allegations contained in the complaint as true and draw all reasonable inferences in favor of the
nonmoving party.” Coons v. Mineta, 410 F.3d 1036, 1039 (8th Cir. 2005). A complaint must
have “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007) (abrogating the “no set of facts” standard for Fed.R.Civ.P.
12(b)(6) found in Conley v. Gibson, 355 U.S. 41, 45-46 (1957)). To prove the grounds for
entitlement of relief, a plaintiff must provide more than labels and conclusions, and “a formulaic
recitation of the elements of a cause of action will not do.” Bell Atl. Corp., 550 U.S. at 555;
Huang v. Gateway Hotel Holdings, 520 F.Supp.2d 1137, 1140 (E.D. Mo. 2007).
“[T]he Court generally must ignore materials outside the pleadings, but it may consider
‘some materials that are part of the public record or do not contradict the complaint.’” State ex
rel. Nixon v. Coeur D’Alene Tribe, 164 F.3d 1102, 1107 (8th Cir. 1999). Additionally, the Court
may consider materials that are “necessarily embraced by the pleadings.” Piper Jaffray Cos. v.
National Union Fire Ins. Co., 967 F.Supp. 1148, 1152 (D.Minn. 1997); Porous Media Corp. v.
Pall Corp., 186 F.3d 1077, 1079 (8th Cir. 1999).

III.

DISCUSSION
The Court interprets the forum state’s laws when it has power under supplemental

jurisdiction. Felder v. Casey, 487 U.S. 131, 151 (1988). In this case, Missouri law applies.
Accordingly, the Court shall resolve the issues by attempting to predict how the highest court in
Missouri would resolve the issues. Nordyne, Inc. v. Int’l Controls & Measurements Corp., 262
F.3d 843, 846 (8th Cir. 2001).
Morisse asserts he was merely an employee of a trustee, Allegiant, and he cannot be held
liable for the misdeeds of the company. Morisse argues to hold an individual liable, Plaintiffs

need to show actual or constructive knowledge of an actionable wrong and actively participated
in it, which Plaintiffs have not done.
Under Missouri law, a corporate officer cannot be held liable for the actions of the
corporation if the officer “acts in good faith to protect the corporation and does not act for his
own benefit.” Lynch v. Blanke Baer & Bowey Krimko, Inc., 901 S.W.2d 147, 153 (Mo. Ct. App.
1995) abrogated on other grounds by Fleshner v. Pepose Vision Inst., P.C., 304 S.W.3d 81 (Mo.
2010). If an officer has actual or constructive knowledge of, and participated in, an actionable
wrong, the officer may be held liable. Id. See also Wolfsberger v. Miller, 39 S.W.2d 758, 764
(Mo. 1931); State ex rel. Doe Run Resources Corp. v. Neill, 128 S.W.3d 502, 505 (Mo. 2004).
An officer may also be held liable for tortious conduct if he owes a duty to plaintiffs separate
from his duty to his employer. State ex rel. William Ranni Assoc., Inc. v. Hartenbach, 742
S.W.2d 134, 139-40 (Mo. 1987).
The facts alleged in Plaintiffs’ Third Amended Complaint, which the Court must accept
as true for the purposes of Morisse’s Motion, are acts of intentional misconduct on the part of
Morisse.

He knowingly took actions subverting the protections of the trusts. He treated the

trusts as if they were custodial accounts for NPS rather than trusts meant to protect the assets for
the beneficiaries. Each action alone could be seen as mere negligence, but taken as a whole, his
actions cannot be viewed as anything but intentional. Morisse’s role as trust administrator
spanned six years during which it was foreseeable his actions would eviscerate the protections of
the trusts and harm the beneficiaries. Morisse allowed policy loans to be taken on trust assets
without receiving promissory notes or other security; he allowed improper distributions of trust
income; he participated in drafting documents which allowed for NPS and the Cassity family to

loot the trust assets of their value; and in taking these steps, he failed to protect the trust assets as
he was required to do.
Plaintiffs have alleged sufficient factual matter to state a claim for breach of fiduciary
duty and participation in a breach of trust duties. Missouri law does not explicitly provide a
corporate trust officer owes fiduciary duties to a beneficiary as other jurisdictions have held. See
Jenkins v. Macatawa Bank Corp., Nos. 1:03-CV-321, 1:05-CV-460, 1:05-CV-499, 2006 WL
3253305 at *11 (W.D. Mich. Nov. 9, 2006) (“[defendant] was a fiduciary in his capacity as a
trust officer . . . “); Griffin v. JPMorgan Chase & Co, No. 06-1589, 2009 WL 935954 at *4
(W.D. La. Apr. 7, 2009) (applying the Louisiana Trust Code to a trust officer and finding the
source of fiduciary duties between the trust officer and the beneficiaries arose from the
beneficiary-trustee relationship). However, Missouri law does provide a fiduciary duty may
arise as a result of the special circumstances of the parties’ relationship. Shervin v. Huntleigh
Securities Corp., 85 S.W.3d 737, 740-41 (Mo. Ct. App. 2002). The question is whether or not
trust is reposed with respect to property or business affairs of the other. Id.
This Court has addressed this issue previously in an order denying Defendant Richard
Markow’s Motion to Dismiss [ECF No. 1123]. The Court held “Plaintiffs have alleged sufficient
factual matter, accepted as true, to state a claim for breach of fiduciary duty and participation in a
breach of trust duties.” The claims alleged against Morisse are substantially similar to the claims
against Richard Markow. Plaintiffs have pled sufficient facts to maintain causes of action for
breach of fiduciary duty and participation in a breach of trust duties.
Accordingly,

IT IS HEREBY ORDERED that “Defendant Herbert Morisse’s Motion for Judgment
on the Pleadings or in the Alternative, Motion for Summary Judgment” [ECF No. 1746] is
DENIED.
So Ordered this 29th Day of December, 2014.

E. RICHARD WEBBER
SENIOR UNITED STATES DISTRICT JUDGE