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

Filing 2092

MEMORANDUM AND ORDER. IT IS HEREBY ORDERED that "Defendants National City Bank, U.S. Bank, National Association, and BMO Harris Bank's Motion for Partial Summary Judgment" [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 ] are GRANTED in part, and DENIED in part. (See Full Order) Signed by District Judge E. Richard Webber on 01/12/2015. (CBL)

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 “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

1

BMO Harris Bank is no longer a party to this case, as such its participation in this motion is mooted.
1

(“NOLHGA”)1; 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 preneed 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.

1

NOLHGA represents the interests of the state life and health insurance guaranty associations of Arizona,
California, Colorado, the District of Columbia, Georgia, Idaho, Indiana, Iowa, Louisiana, Maryland, Michigan,
Minnesota, Mississippi, Montana, Nebraska, Nevada, New Mexico, North Dakota, Ohio, Oregon, Rhode Island,
South Dakota, Tennessee, Utah, Washington, West Virginia, Wisconsin, and Wyoming.
2

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.

3

For over twenty-nine years, NPS sold pre-need contracts in nineteen states.2 Mark Twain
Bank/Mercantile Trust Company3 served as trustee of various NPS Pre-Need trusts from
February 1989 until March 1999 [ECF No. 1763].4 Mark Twain/Mercantile served as trustee of
the Mason Securities Association d/b/a Funeral & Cremation Society of America (“CSA”) PreNeed Trust from January 1995 until February 1998. Allegiant5 served as trustee for various NPS
Pre-Need Trusts from August 1998 until May 2004.6 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 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,
2

NPS did not sell in all nineteen states for the 29-year period. At the height of the company, it was selling in
nineteen states.
3
U.S. Bank is the successor to Mark Twain Bank and Mercantile Trust Company.
4
Mark Twain/Mercantile was trustee of Trust I from December 1996-August 1998, Trust II from February 1989August 1998, Trust III from July 1989-August 1998, Trust IV from February 1994-August 1998, and Trust V from
July 1996-March 1999.
5
National City and PNS Bank, N.A. are the successors to Allegiant Bank.
6
Allegiant served as trustee of Trust I-IV from August 1998-May 2004 and Trust V from March 1999-May 2004.
4

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 NPS. NPS also sent copies of the
requests to David Wulf. These wire requests were never denied by Mark Twain or Mercantile
and were automatically processed by Allegiant [ECF No. 1952].
NPS approved the purchase of Lincoln life insurance policies for the trust assets [ECF
No. 1763]. Mr. Sutton signed, on behalf of NPS, a Custody Agreement, permitting NPS to keep
physical custody of the life insurance policies held by the trusts. 7 Lincoln sent a monthly
certification to the trustee of the Missouri trusts stating the trust was the owner and beneficiary of
the insurance policies held in the trusts and listing the policies held by the trusts.8 Mr. Sutton
directed policy loans be taken on the insurance policies held by the Missouri trusts.9 Allegiant
was informed of these requests on the wire transfer documents describing the transaction as
“POL LOAN” [ECF No. 1952].

7

Plaintiffs dispute the effect of this agreement and whether it was enforceable or valid.
Plaintiffs dispute this occurred every month and dispute the policies were held by the trusts.
9
The Missouri Trustees allege Mr. Wulf participated in this but Plaintiffs assert he did not play any role.
5
8

Distributions of trust principal to NPS affiliates were also authorized by NPS [ECF No.
1763]. Mr. Sutton signed letters instructing the trustees to distribute the net income in the trust
accounts and to report the face value of the policies held in the trusts. Mr. Sutton directed
Allegiant to purchase shares of stock on behalf of a trust from a Forever Enterprises Custody
account and dictated the price to be paid. These letters were also signed by Brent Cassity and
David Wulf.
David Wulf testified he never issued directions relating to insurance premiums or took
steps to manage the individual life insurance policies held by the trusts. He also testified he did
not direct wire transfers from the trusts related to premium payments, transfers to NPS or NPS’s
affiliated companies; these were all directed by Randy Sutton [ECF No. 1952].
Assets from the Missouri trusts were transferred to Memorial to reimburse Memorial for
administrative costs Memorial incurred on NPS’s behalf and to pay premiums on Memorial life
insurance policies. Assets were also transferred to pay premiums on non-Missouri life insurance
policies.

Approximately $2.5 million was also transferred out of the trusts to Hollywood

Forever. Approximately $4.6 million was transferred out of the trusts to Lincoln Memorial
Services, a company owned by the Cassity family. Numerous other transactions occurred which
transferred money from the Missouri trusts to companies outside of Missouri. Brent Cassity, the
Chief Operating Officer of NPS testified in an affidavit, NPS’s operations in Missouri were
“critical” to the company’s continued existence. Allegiant also accepted deposits into the trusts
from Lincoln and Memorial from policy loan proceeds taken on life insurance policies from
other states than Missouri. These funds were used to pay premiums on Missouri life insurance
policies [ECF No. 1952].

6

The grantor of the CSA trust is Mason Securities Association [ECF No. 1763]. The
grantor of the Mt. Washington Forever trust is Mt. Washington Forever, LLC. The SDR is not
the receiver for Mason Securities Association or for Mt. Washington Forever, LLC.
Between 1979 and 2008, $1.383 billion in pre-need contracts were sold by NPS
nationwide. Approximately $533 million of these sales occurred in Missouri. Until 2008, when
the companies went into receivership, all claims for funeral services were paid. Plaintiffs’ expert
on damages quantified damages assuming the banks could have stopped the entire scheme, thus,
he allocated all of the economic loss damages to each trustee. These damages include amounts
for all payments on all insurance policies issued by Lincoln and Memorial that have been or are
expected to be covered by the SGAs and other associations. These damages include policies
issued outside Missouri and for policies never held by the Missouri trusts. Included in the
damages calculation are also the following: $94.5 million for a payment Texas Life and Health
Guarantee Association made to a third party to assume the remaining obligations of Memorial,
$81 million in growth or inflation payments on NPS contracts with consumers, $5.55 million for
contracts without an associated life insurance policy, $3.4 million for Lincoln life insurance
policies issued to purchasers residing in California, $22.5 million in administrative expenses of
the SGAs, and $16 million in administrative expenses for the SDR [ECF No. 1763].10
II.

SUMMARY JUDGMENT STANDARD
A court shall grant a motion for summary judgment only if the moving party shows

“there is no genuine dispute as to any material fact and that the movant is entitled to a judgment
as a matter of law.” Fed. R. Civ. P. 56(a); see Celotex Corp. v. Catrett, 477 U.S. 317, 322
(1986). By definition, material facts “might affect the outcome of the suit under the governing
10

All of these amounts are approximate figures.
7

law,” and a genuine dispute of material fact is one “such that a reasonable jury could return a
verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). If
the non-moving party has failed to “make a showing sufficient to establish the existence of an
element essential to that party’s case, . . . there can be ‘no genuine issue as to any material fact,’
since a complete failure of proof concerning an essential element of the non-moving party’s case
necessarily renders all other facts immaterial.” Celotex, 477 U.S. at 322-23.
The moving party bears the initial burden of proof in establishing “the non-existence of
any genuine issue of fact that is material to a judgment in his favor.” City of Mt. Pleasant, Iowa
v. Associated Elec. Co-op., Inc., 838 F.2d 268, 273 (8th Cir. 1988). The moving party must
show that “there is an absence of evidence to support the nonmoving party’s case.” Celotex, 477
U.S. at 325. If the moving party meets this initial burden, the non-moving party must then set
forth affirmative evidence and specific facts that demonstrate a genuine dispute on that issue.
Anderson, 477 U.S. at 250. When the burden shifts, the non-moving party may not rest on the
allegations in its pleadings, but, by affidavit and other evidence, must set forth specific facts
showing that a genuine dispute of material fact exists. Fed. R. Civ. P. 56(c)(1); Stone Motor Co.
v. Gen. Motors Corp., 293 F.3d 456, 465 (8th Cir. 2002). To meet its burden and survive
summary judgment, the non-moving party must “do more than simply show that there is some
metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574, 586 (1986). Instead, the non-moving party must demonstrate sufficient favorable
evidence that could enable a jury to return a verdict for it. Anderson, 477 U.S. at 249. “If the
non-moving party fails to produce such evidence, summary judgment is proper.” Olson v.
Pennzoil Co., 943 F.2d 881, 883 (8th Cir. 1991).

8

In ruling on a motion for summary judgment, the Court may not “weigh the evidence in
the summary judgment record, decide credibility questions, or determine the truth of any factual
issue.” Kampouris v. St. Louis Symphony Soc., 210 F.3d 845, 847 (8th Cir. 2000). The Court
instead “perform[s] only a gatekeeper function of determining whether there is evidence in the
summary judgment record generating a genuine issue of material fact for trial on each essential
element of a claim.” Id. The Court must view the facts and all reasonable inferences in the light
most favorable to the nonmoving party. Reed v. City of St. Charles, 561 F.3d 788, 790 (8th Cir.
2009).
III.

DISCUSSION
“A federal court adjudicating supplemental state law claims that are pendant to a federal

claim must apply the choice of law rules of the forum state.” East Maine Baptist Church v.
Union Planters Bank, N.A., 244 F.R.D. 538, 545 (E.D.Mo. 2007) (citing Klaxon Co. v. Stentor
Elec. Mfg. Co., 313 U.S. 487, 496 (1941)). Missouri’s choice of law rules govern Plaintiffs’
state law claims. Missouri applies the “most significant relationship test” in tort actions. Id. at
545 (citing Kennedy v. Dixon, 439 S.W.2d 173, 184 (Mo. banc 1969). Application of Missouri
law is clear in this suit. The governing trusts are Missouri trusts, the trust agreements list
Missouri law as the governing law, and a significant number of the consumers who purchased
pre-need services from NPS resided in Missouri. The Court will apply Missouri law to the
claims unless a more specific choice of law analysis is required for an individual argument raised
by the parties.
A.

Limitation of Liability

The Trustees assert Missouri law limits the liability of a trustee for breaches of trust to
the loss in value of the trust property attributable to the breach, the profit inuring to the trustee
9

from the breach, or the loss of profit to the trust which would otherwise have accrued but for the
breach [ECF No. 1762]. The Trustees contend any breach of a duty owed by the trustee because
of its position as a trustee qualifies as a breach of trust, without regard to how the claim is styled.
Plaintiffs argue the Trustees are liable for all damages proximately caused by their conduct and
there is no limitation on damages caused by negligence or breach of fiduciary duties.
Both Plaintiffs and the Trustees are correct in certain aspects. In an ordinary breach of
fiduciary duty or negligence claim, a plaintiff is allowed to collect all damages proximately
caused by the breach. See Lockwood v. Schreimann, 933 S.W.2d 856, 863 (Mo. Ct. App. 1996);
Zakibe v. Ahrens & McCarron, Inc., 28 S.W.3d 373, 383 (Mo. Ct. App. 2000). In a breach of
trust, the beneficiary is entitled to recover the loss or depreciation to the value of the trust assets,
the profit made from the breach, or any profit which would have accrued if not for the breach.
Estate of Luyties v. Scudder, 432 S.W.2d 210, 216 (Mo. 1968).

The Missouri Supreme Court

has stated: “It is well settled that every violation by a trustee of a duty that equity lays upon him,
whether wrongful and fraudulent or done through negligence or arising through mere oversight
and forgetfulness, is a breach of trust. The term includes every omission and commission which
violates in any manner any of the three following obligations: (1) That of carrying out the trust
according to its terms; (2) that of care and diligence in protecting and investing the trust
property; (3) that of using perfect good faith.” If this case were brought in equity, the damages
would be limited because as the Missouri Supreme Court has stated, every violation of duty
equity lays upon a trustee is a breach of trust and a breach of trust has limited remedies.
However, this is a suit at law and Plaintiffs are alleging duties legal in nature. As this Court has
previously decided, Plaintiffs have a right to a jury trial because the underlying conduct is
actionable in a direct suit at common law [ECF No. 1171]. When a suit is actionable at law, the
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parties have all of the legal remedies available and are not limited to equitable remedies. If
Plaintiffs brought suit to replenish the trust assets solely, the suit would be equitable but where
the plaintiffs are seeking recovery personally, the action is legal in nature.
If this Court were to follow the Trustees reasoning, a trustee could never be held
responsible for certain damages caused by its negligence or breach. It would mean a fiduciary,
which has a higher duty than an ordinary person, would be liable for a much smaller amount.
When the underlying conduct is fraudulent, a trustee is not allowed to skirt the consequences of
its actions by asserting its conduct was a breach of trust with limited remedies. This would
create a grave injustice in the law. If Plaintiffs are able to prove breaches of fiduciary duties and
negligence, the damages will not be limited to loss of the trust assets or profit made from the
breach. The Trustees are liable for all damages proximately caused by their breaches for those of
which they owed duties.
The Trustees raise seven categories of damages claimed by Plaintiffs for which the
Trustees claim they are not liable, because they are outside the trusts. Although this Court has
decided the Trustees are liable for all damages proximately caused by the breaches, the Plaintiffs
still have to establish the Trustees owed a duty to be liable for damages.
The Plaintiffs allegations against the Trustees assert the Trustees owed duties to NPS,
consumers, and funeral homes because they were trustees of the pre-need trusts [ECF No. 916].
The Trustees only owe duties to the beneficiaries of the trusts as trustee.

Without the

relationship of trustee and beneficiary, Plaintiffs have not alleged the Trustees owe any other
duty to the consumers or funeral homes. The injury incurred by the consumers and funeral
homes is the funeral services going unpaid. Keeping this in mind, the Court will analyze each
category of damages Trustees raise.
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1.

Amounts owed by SGAs on Lincoln and Memorial Insurance Policies

The Trustees assert they are not liable for payments made by the SGAs for policies never
held as trust assets or were residents of Missouri. Plaintiffs argue the scheme would not have
been able to expand to other states without the Cassitys having unfettered access to the Missouri
trust assets, thus, the damages were proximately caused by the Trustees’ actions. The issue is
not whether the damages were proximately caused; it is whether the Trustees owed a duty to
those policyholders. If the policies were never placed in the trusts or the payments for the preneed contract was never put into the trust, then the Trustees did not owe a duty to the consumer
or funeral home. The beneficiaries of the trust cannot collect damages for injuries to consumers
and funeral homes who were not beneficiaries, whether those injuries were caused by the
Trustees’ breaches or not. The SGAs cannot collect damages for consumers and funeral homes
to whom the Trustees did not owe a duty. The distinction between who is a beneficiary and who
is not cannot be made simply by drawing a line between those who live in Missouri and those
who do not. The record indicates funds from other states may have been put in the Missouri
trusts. If a consumer or funeral home’s funds or life insurance policy were held in the Missouri
trusts, a duty is owed to them as beneficiaries and the SGAs have the possibility of collecting
those damages, if the Plaintiffs are able to establish the other elements of the claims.11
2.

The Amount Paid to Another to Assume Memorial’s Obligations

Approximately $94 million was paid by the Texas Life and Health Insurance Guaranty
Association to a third party for the third party to assume Memorial’s remaining obligations. The
Trustees assert the undisputed evidence shows Memorial’s policies were never held by Missouri

11

The SGAs have brought suit on behalf of consumers and funeral homes and the analysis of duty pertains solely to
the SGAs claims, not to claims brought by the SDR on behalf of NPS, Lincoln or Memorial.
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trusts. Plaintiffs dispute the Trustees characterization of the evidence. If the policies were held
by the Missouri trusts, a duty was owed and the Trustees may be liable for the damages.
However, it is a genuine dispute of material fact as to whether the policies were held by the
Missouri trusts. This must be decided by the jury.
3.

Amounts Owed by NPS to Funeral Homes for Growth Payments

Plaintiffs are seeking to recover payments owed by NPS to funeral homes for growth or
inflation under the pre-need contracts. The Trustees did owe a duty to NPS because NPS was a
beneficiary of the trusts. It is possible NPS’s inability to pay growth or inflation payments is a
proximate cause of the alleged breaches of the Trustees. It is the jury’s providence to decide if
the Trustees breached their duties and if the damages claimed were proximately caused by those
breaches.
4.

Amounts owed by NPS on Orphan Contracts

Orphan contracts are pre-need contracts without an associated life insurance policy. NPS
has an obligation to pay these contracts. For the same reasoning as the growth payments, the
Trustees may be liable for these damages as they owed duties to NPS and these could be
proximately caused by alleged breaches of the Trustees.
5.

Amounts Owed by NPS to California Pre-Need Purchasers

Approximately $3 million in damages is claimed by the Plaintiffs for amounts owed on
Lincoln policies issued to consumers in California. As with the other damages claimed for
consumers outside of Missouri, if the funds from the contract or the insurance policy were in the
Missouri trusts, the Trustees may be liable for the damages because a duty was owed to those
consumers. If the funds or the insurance policy were not placed in the trust, the Trustees did not
owe a duty to those consumers and cannot be liable for their damages.
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6.

The SGA’s Administrative Expenses

The Court’s analysis of whether the SGA can collect administrative expenses is detailed
infra.
7.

The SDR’s Administrative Expenses

The Trustees assert the SDR’s administrative expenses do not qualify as losses to the
trust; therefore the Trustees are not liable for them. Plaintiffs assert the administrative expenses
reasonably and necessarily flow from the harm. The SDR is bringing claims on behalf of
Memorial, Lincoln, and NPS. The Trustees only owed duties to NPS. Plaintiffs have not
established SDR’s administrative expenses are the proximate cause of the Trustees’ actions. The
Court finds nothing in the record suggesting the SDR’s administrative expenses result from the
Trustees’ conduct as to create a genuine dispute of material fact precluding summary judgment.
B.

Claims Brought by State Guaranty Associations

The SGAs are asserting claims as assignees or subrogees of consumers and funeral
homes under the liquidation plan. The Trustees put forth four arguments for why the SGAs
cannot recover from the Trustees. First, the Trustees claim NPS is the sole beneficiary and
consumers and funeral homes have no causes of action against Missouri trustees because they are
not beneficiaries. Second, they argue many of the consumers and funeral homes have no
connection to the Missouri trusts and the Trustees did not owe any duties to them. Third, the
Trustees contend the trusts were the sole owners and beneficiaries of the life insurance policies
and the consumers and funeral homes had no legal rights to the policies; therefore, they have no
causes of action relating to the policies to assign to the SGAs. Lastly, according to the Trustees,
the SGAs have no claim for administrative expenses because they are bringing claims solely as
assignees or subrogees of consumers and funeral homes. Plaintiffs argue the consumers and
14

funeral homes are beneficiaries of the trusts and as beneficiaries, they hold the beneficial interest
in the life insurance policies and any other trust assets. Additionally, Plaintiffs claim the
consumers are the insured under the policies and the administrative expenses are proximately
caused by the Trustees’ breaches and negligence. The court will address each argument as
follows.
1.

Pre-Need Purchasers and Funeral Homes’ Claims

The Court has previously addressed the parties’ arguments regarding who are the
beneficiaries of the pre-need trusts. As the Court found in its Memorandum and Order on
Plaintiffs’ Motion for Rulings as a Matter of Law [ECF No. 2084], the consumers and funeral
homes are beneficiaries of the pre-need trusts. Therefore, the Trustees’ request for summary
judgment of the SGAs’ claims on the basis the consumers and funeral homes are not trust
beneficiaries and do not have claims to assign is denied.
2.

Insurance Policies Not Held by the Missouri Trusts

As stated supra, the Trustees only owe duties as trustees to those consumers and funeral
homes who are beneficiaries of the trusts. If the money or policies did not flow through the
trusts, the Trustees cannot be liable for the damages incurred by those entities.
3.

Insurance Policies Issued to the Missouri Trusts

The Trustees next argue the consumers and funeral homes have no legal rights under the
insurance policies and no causes of action relating to the policies to assign to the SGAs. The
Trustees’ argument is summarized as follows. The trusts are the owners and beneficiaries of the
covered policies. The beneficiaries are entitled to the death benefits. The consumers and funeral
homes do not have legal entitlement to the payments, as they are not beneficiaries to the policies.
The payment recipient can transfer his/her rights under and any cause of action relating to the
15

policy to the SGAs. The consumers and funeral homes are not parties to the policy and have no
rights arising under the policies. Although consumers and funeral homes may have causes of
action relating to the policies, they must first have rights under the policies. Allowing consumers
and funeral homes to assert claims against the Trustees violates principles of insurance law
because an insurer can assert claims via subrogation against third parties but may not assert
claims against the insured. Thus, according to the Trustees, the consumers and funeral homes
have no causes of action relating to the policies.
Plaintiffs argue the trusts, not the Trustees, are the owners and beneficiaries of the
policies and as the beneficiaries of the trust, the consumers have a beneficial interest in the
policies and the trust assets and can assign their claims to Plaintiffs. Additionally, Plaintiffs state
the consumers are parties to the contract because they are defined in the policies as the insured.
Plaintiffs contend the Trustees’ subrogation argument fails because the insurer is not suing the
insured; the consumers are the insured and the Trustees are the third party.
Both parties reference the Liquidation Plan for determining what rights the SGAs have.
The Liquidation Plan states “ . . . every current or future recipient of a benefit under this
Liquidation Plan . . . is considered to have assigned to the respective Participating Association
the rights under, and any cause of action relating to the Policy to the extent of the benefit . . .”
[ECF No. 1763-10, p.13]. The listed owner and beneficiary on an insurance policy is the
associated pre-need trust account [ECF No. 1770-5, Ex. 81]. The insured lists a pre-need
consumer. Under the policy, the beneficiary will receive the proceeds on the death of the
insured.
The Trustees do not have rights under the insurance policies. They are not owners of the
policies or beneficiaries. The trusts are the owners and beneficiaries of the policies. This
16

distinction is important in analyzing the relationship between the parties for the purposes of
subrogation. An insurer cannot seek subrogation from its insured; it can only seek subrogation
against third parties because subrogation arises from the rights of the insured. Benton House,
LLC v. Cook & Younts Ins. Inc., 249 S.W.3d 878, 882 (Mo. Ct. App. 2008). This is not a
situation where an insurer has brought suit against an insured, as the Trustees are not the insured,
the owners, or the beneficiaries of the policies. Any rights under the policies are held by the
trusts. If the Plaintiffs were suing the trust and the Trustees were defending the trust, the
situation would be different and the insurer would be suing the insured.

However, this

distinction between the trust and the Trustees is not dispositive because aspects of the Plaintiffs’
argument fail as well; the beneficiaries of the trusts do not have a right to enforce the claims of
the trust because a beneficiary of a trust cannot enforce the claims of the trust against a third
party. Int’l Ass’n of Fire Fighters, Local 2665 v. City of Clayton, 320 F.3d 849, 851 (8th Cir.
2003) (citing Restatement (Second) of Trusts § 281).
The Liquidation Plan does provide rights for the consumers and funeral homes under the
life insurance policies. Section 5.4.8 of the Liquidation Plan provides:
“Death benefits that would otherwise be due or payable to a Trustee will
be paid by the Participating Association directly to the funeral home that is
responsible for providing and actually provides the funeral/burial services and/or
merchandise for the benefit of the Insured. For purposes of the Liquidation Plan,
the Insured under such Policy shall be considered the owner of the Policy . . .”
Section 8.3 provides similar language: “Where NPS or a Trust was previously identified as an
owner of a Policy and to the extent an owner needs to be identified or ownership rights may be
exercised, then the Insured shall be treated as the owner instead of NPS or the Trust solely for
purposes of this Liquidation Plan.” The Liquidation Plan transposes the owner of the life
insurance policy from the trust to the insured. The rights of ownership, which the Trustees are
17

now asserting belonged solely to the trusts, were given to the Insured. If the Trustees objected to
this, they should have raised it before the Receivership Court as provided in Section 8.5 of the
Liquidation Plan which states:
“Any owner, beneficiary, payee, assignee or other interested person that
receives (or whose representative receives) notice of this Liquidation Plan and the
petition seeking approval thereof, is hereby prohibited from exercising any rights
in any way inconsistent with this Liquidation Plan unless such person: (i) has
appeared in the Receivership Court; (ii) has filed an opposition to the approval of
the Liquidation Plan; and (iii) such opposition has been granted by and such
asserted rights have been specifically confirmed by the Receivership Court and
any appeals related thereto have been favorably resolved in favor of such person.”
The Trustees cannot have given up the rights of ownership on behalf of the trusts in one court
and then claim in another those rights solely belong to them.
Public policy dictates this outcome. If the rights under the policies were not assigned to
the SGAs, the SGAs would bear the entire burden of this scheme without any burden being
shared by the alleged wrongdoers. If the insured, in this instance, did not have any rights under
the life insurance policies, this scheme could flourish again as another trustee invests trust assets
in questionable life insurance policies. The Court finds the consumers and funeral homes do
have rights under the life insurance policies.
4.

Administrative Expenses

The Trustees claim Plaintiffs cannot recover the SGAs’ administrative expenses because
the SGAs are bringing claims assigned to them from the consumers and funeral homes and
administrative expenses could not be considered their damages. Plaintiffs contend the SGAs’
administrative expenses are damages proximately caused by the Trustees’ conduct. The SGAs
may not recover their administrative expenses from the Trustees. The SGAs are bringing claims
assigned to them from payees, policy or contract owners, beneficiaries, and the insured of the life
18

insurance policies. The administrative expenses are not damages of these parties listed and the
SGAs only have the rights of those assigned. See Section 9.2 of the Liquidation Plan [ECF No.
1763-10]. Although the Texas Insurance Code contemplates the expenses of the guaranty
association, they are in relation to the insolvency of Lincoln or Memorial. See Tex. Ins. Code §
443.301(a)(2). If the SGAs were enforcing claims of Lincoln or Memorial, the administrative
expenses may be recoverable but the SGAs are enforcing the claims of those with rights under
the life insurance policies and their administrative expenses are not damages collectible by those
individuals or entities. The Court finds the Trustees are not liable for the SGAs’ administrative
expenses.
C.

Liability for Actions Authorized by NPS and In Pari Delicto

The Trustees assert they are not liable for actions authorized by NPS because a
beneficiary cannot recover for a breach it authorized. The Trustees also argue Plaintiff SDR
does not have standing to bring claims on behalf of the consumers and funeral homes because the
claims are personal to the consumers and funeral homes. Plaintiffs contend the Trustees are still
liable because NPS is not the sole beneficiary of the trusts and the other beneficiaries did not
consent and because the insurer receivership acts in Missouri and Texas disallow defenses based
on the actions of the liquidated company.
An important distinction in this analysis is the difference between the various Plaintiffs.
The SDR is bringing claims in its power as receiver of NPS, Lincoln and Memorial on behalf of
these companies’ creditors, members, policyholders, shareholders, and the public. Tex. Ins.
Code § 443.154(m). The SDR can bring claims on behalf of the consumers and funeral homes in
their position as creditors of NPS. The SGAs are bringing claims on behalf of consumers,
funeral homes, policy holders, and beneficiaries whose claims have been assigned to them. The
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authorization defense is being asserted by the Trustees only against the claims brought by the
SDR.
Before analyzing the authorization defense, the Court will address an argument raised by
the Trustees in their Reply in relation to this defense. The Trustees assert the SDR does not have
standing to recover on behalf of the consumers or funeral homes in their capacities as creditors of
NPS because the claims are personal to the consumers and funeral homes. The SDR cannot
bring claims which are personal to a specific creditor and will not inure to the benefit of the
estate. Tex. Ins. Code § 443.154(m). The claims brought by the SDR on behalf of consumers
and funeral homes are not personal. Although the amount sought for each individual is different,
the facts for each are identical, thus the claims are not personal. See Craig v. Stacy, 50 S.W.2d
104, 107 (Mo. 1932) (finding when the wrong is common to all of the creditors, the suit must be
brought by the receiver of the corporation). The statute requires two conditions be satisfied for
the Court to bar the SDR’s claims: the claims must be personal and the claims will not inure to
the benefit of the estate. It is clear the Plaintiffs’ claims will inure to the benefit of the estate.
Thus, the SDR has standing to bring claims on behalf of the funeral homes and consumers.
However, this does not resolve the issue of whether the SDR’s claims are subject to the
authorization defense asserted by the Trustees.
A beneficiary who consents to a breach by the trustee cannot later bring suit for the
consequences of the breach. See Coates v. Coates, 304 S.W.2d 874, 877-78 (Mo. 1957). It is
undisputed by the parties NPS authorized and directed many of the alleged breaches of the
Trustees. However, as the Court found in its Memorandum and Order on Plaintiffs’ Motion for
Rulings as a Matter of Law [ECF No. 2084], NPS is not the sole beneficiary of the trusts. The
consent of one beneficiary does not preclude the other beneficiaries from bringing suit.
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Restatement (Second) of Trusts § 216, cmt. g. (1959). The claims asserted by the SGAs who
brought suit on behalf of the consumers and funeral homes in their position as beneficiaries, are
not subject to the authorization defense. However, the SDR is bringing claims on behalf of NPS
who did consent to the breaches.
The Trustees authorization defense closely aligns with the Trustees’ in pari delicto
defense. In pari delicto bars claims brought by a person who must rely on an unlawful act to
establish the cause of action. Dobbs v. Dobbs Tire & Auto Centers, Inc., 969 S.W.2d 894, 897
(Mo. Ct. App. 1998). The Trustees argue NPS was the entity which created the fraudulent
scheme and SDR is bringing claims on behalf of NPS, thus the claims are barred by in pari
delicto. Plaintiffs claim a receiver is in a different position than a typical plaintiff and public
policy weigh in favor of bringing their claims.
Generally, the actions of an agent bind the principal. Miller v. Ernst & Young, 938
S.W.2d 313, 315 (Mo. Ct. App. 1997). The exception is when the agent acts adversely to the
principal’s interest. Id. The Seventh Circuit faced a similar situation in Cenco Inc. v. Seidman &
Seidman. 686 F.2d 449 (7th Cir. 1982). The plaintiffs, stockholders of a corporation, brought
suit against the corporation’s auditors for failing to detect the fraud by the corporation’s own
employees. Id. The Seventh Circuit made a distinction between fraud on behalf of a corporation
and fraud against it. Id. at 456. Fraud against the corporation hurts only the corporation and the
stockholders are the only victims. Id. Fraud for the benefit of the corporation hurts those outside
of the corporation and the stockholders at the beneficiaries of the fraud when it is ongoing. Id.
The stockholders should not be allowed to escape responsibility for the fraud because they did
not bear the costs of the fraud. Id.

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Missouri adopted the reasoning of the Seventh Circuit in Grove v. Sutliffe. 916 S.W.2d
825 (Mo. Ct. App. 1995). In Grove, the plaintiffs, trustees of a liquidating trust of a bankrupt
corporation, brought suit against accounting firms who provided services to the corporation. Id.
at 826. The individual in control of the corporation was running a Ponzi scheme. Id. at 827.
Plaintiffs alleged, had defendants not issued a clean audit, the scheme would not have been able
to continue. Id. at 828. The Court found there is a distinction between stealing or looting from
the company and stealing from outsiders. Id. at 830. When management uses the corporation to
commit fraud against others, the adverse interest exception does not apply. Id. Applying this
reasoning alone, Plaintiffs cannot bring claims against the trustees on behalf of NPS because the
management of NPS used the corporation to commit fraud against outsiders similar to the facts
in Cenco Inc. and Grove, but the Court does not find these cases to be dispositive here.12 When
the Court analyzes the reasoning behind these prior courts’ decisions, a different conclusion
becomes apparent.
The Court’s reasoning for not allowing the authorization defense or in pari delicto to be
asserted against the SDR is the same, thus the Court discusses both as one. A receiver is in a
different position than the stockholders or the trustee in the prior cited cases.

The receiver is

acting on behalf of the corporation, its creditors, and the public. The reasoning for the Court’s
holding in Cenco Inc., was because the Court did not want the stockholders to benefit twice for
the company’s actions. 686 F.2d at 455. Stockholders benefitted from the fraud in increasing
stock prices throughout, the stockholders elected the managers who committed the fraud, and
12

The Trustees also cite to In re Bernard L. Madoff Inv. Sec., LLC, 721 F.3d 54 (2nd Cir. 2013). The trustee of
Bernard L. Madoff Investment Securities, LLC attempted to collect from several banks alleging breaches of
fiduciary duties among other claims for participation in Bernie Madoff’s Ponzi scheme. Id. The Second Circuit
held in pari delicto bars the trustee’s claims. The trustee was only bringing claims on behalf of the company. Here,
the receiver has the power to bring the claims on behalf of NPS and its creditors, not solely NPS. As such, the
reasoning of the Second Circuit is not applicable here.
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many of the corrupt officers still hold stock in the company. Id. This is not the situation here.
The corrupt officers have been removed from NPS and will not benefit from any recovery by
SDR and the creditors of NPS, the consumers and funeral homes, did not benefit from the fraud
while it was ongoing like the stockholders did. Additionally, the SDR is bringing claims on
behalf of the public, who are entirely innocent from the scheme and will have to bear the
consequences if the SDR is not allowed to bring its claims. “[W]hen a party is denied a defense
under such circumstances, the opposing party enjoys a windfall. This is justifiable as against the
wrongdoer himself, not against the wrongdoer’s innocent creditors.” FDIC v. O’Melveny &
Myers, 61 F.3d 17, 19 (9th Cir. 1995); see also Scholes v. Lehmann, 56 F.3d 750, 754 (7th Cir.
1995) and Jones v. Wells Fargo Bank, N.A., 666 F.3d 955, 966 (5th Cir. 2012).
If the authorization defense and the in pari delicto defense were permitted against
receivers of fraudulent companies, the receiver would never be able to bring suit against any
parties because the opposing party would always have the defense of the company consented to
the actions or took part in the actions. This would eviscerate the powers of the receiver to bring
suits. The basis of these defenses is to prevent a wrongdoer from benefitting from the
wrongdoer’s unlawful actions. This is not the situation here. “Even when the parties have been
found to be in pari delicto, relief has at times been awarded on the ground that in the particular
case public policy has found to be best conserved by that course.” Smith v. Holdoway Constr.
Co., 129 S.W.2d 894, 902 (Mo. 1939). Thus, the Court will not allow the authorization defense
or in pari delicto to be asserted against the SDR.
D.

Liability for Wulf Bates & Murphy’s Investment Decisions

The Court found in its Memorandum and Order on Plaintiffs’ Motion for Rulings as a
Matter of Law [ECF No. 2084], the statute relieves the trustee of all liability regarding
23

investment decisions made by the investment advisor if the investment advisor is federally
registered or Missouri-registered, qualified, independent, control of the assets remains with the
trustee, and the assets are not placed in any investment which would be beyond the authority in
which a reasonably prudent trustee would invest.
In addition to their argument they cannot be held liable for the investment advisor’s
decisions, the Trustees also argue Wulf Bates & Murphy was independent of NPS and made all
of the investment decisions. Plaintiffs assert Wulf Bates & Murphy was not independent and did
not make all of the investment decisions.
These are two genuine disputes of material fact which must be determined by the jury.
The Court has already determined the investment advisor must be independent from both NPS
and the Trustees. But there are significant disputed facts as to whether the investment advisor
was independent and who made the decisions. For example, the Trustees cite to facts Wulf Bates
& Murphy was in existence before and after NPS and retained other clients. Plaintiffs cite facts
asserting NPS was the vast majority of Wulf Bates & Murphy’s business. It is the job of the jury
to decide which facts are true and if Wulf Bates & Murphy was independent. There is also a
dispute as to who made the decisions; the Trustees assert Wulf Bates & Murphy did, citing to
David Wulf’s deposition testimony. Plaintiffs cite to documents referencing Randy Sutton and
other NPS employees as the individual who made investment decisions. A determination of who
made the investment decisions is not appropriate on summary judgment.
E.

Liability for Acceptance of the Trusts or Predecessor Trustees’ Actions

The Trustees assert they cannot be held liable for alleged negligence in account
acceptance or the acts of predecessor trustees because trustees do not owe a duty to a trust
beneficiary unless and until the trustee accepts the trust account. Plaintiffs argue a trustee can be
24

liable for conduct prior to assuming his role as trustee if the trustee does eventually accept the
trust and a trustee is liable for not redressing the breaches of predecessor trustees.
1.

Pre-Acceptance Negligence

A trustee is under a duty to the beneficiaries to administer the trust solely in the interest
of the beneficiaries “upon acceptance of the trusteeship.” Estate of Luyties, 432 S.W.2d at 214
(citing Restatement (Second) of Trusts §§ 169, 170). A trustee is not under a duty unless it
accepts the trust. Restatement (Second) of Trusts § 169 cmt. a. The Trustees cannot be liable for
pre-acceptance negligence unless Plaintiffs can prove the Trustees owed a duty outside of their
duties as trustees, which the Plaintiffs have not done.
Plaintiffs cite John R. Boyce Family Trust v. Snyder, for the proposition a trustee is liable
for pre-acceptance conduct once he accepts the trust. 128 S.W.3d 630 (Mo. Ct. App. 2004).
Plaintiffs arguments proposes, as long as a trustee eventually accepts, it will be liable for preacceptance conduct. But John R. Boyce does not stand for the Plaintiffs’ proposition. In John R.
Boyce, the defendant owned several grocery stores and was interested in selling one of the stores
in Eureka, Missouri. Id. at 634. He convinced John Boyce, a beneficiary of the John R. Boyce
Family Trust, that the trust should purchase the grocery store. Id. When the trustee resigned, the
defendant became the successor trustee. Id. at 635. The defendant became the trustee the day
before his grocery store was purchased by the trust. Id. The trust ended up losing hundreds of
thousands of dollars as a result of this purchase. Id. at 636. The Court held the defendant was
liable for breaching his duty of loyalty to the trust because at the time of the sale, when he was
trustee, he should have disclosed all of the information known to him and should not have
engaged in a transaction beneficial to his interests. Id. at 637. If the sale of the grocery store had
taken place the day before the defendant became trustee, he would not have been held liable.
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Contrary to Plaintiffs’ assertion, the trustee in John R. Boyce was not held liable for his preacceptance conduct but for not disclosing the information he knew once he became trustee before
the sale of his grocery store to the trusts.
Plaintiffs have alleged in their pleadings the basis of the Trustees’ duties is their position
as trustees. While Plaintiffs may be able to establish the Trustees were negligent in conducting
due diligence before accepting the trusts, they have not established the Trustees owed a duty
prior to accepting the trusts. Graham v. Conner, 412 S.W.2d 193, 201-202 (Mo. Ct. App. 1967).
Therefore, the Trustees cannot be held liable for pre-acceptance conduct.
2.

Liability for Predecessor Trustees’ Actions

The Trustees contend they cannot be held liable for a predecessor trustee’s breaches
because they cannot be held liable for conduct before they owed a duty and the trust agreements
relieves them of any liability for predecessors’ actions. Plaintiffs argue the Trustees are liable
for neglecting to redress breaches the trustees knew of or should have known were committed by
predecessors.
As stated supra, a trustee cannot be liable for conduct before its duty to the beneficiaries
arose. Plaintiffs cite to the Restatement (Second) of Trusts § 223 and several out-of-state cases
stating a successor trustee is liable if he knows or should have known of a breach of trust by a
predecessor and allows it to continue or does not redress it [ECF No. 1949, p. 54]. But as the
Trustees point out, this section of the Restatement had not been adopted by Missouri at the time
of the Trustees’ tenures. At the time, Missouri statutes provided:
“A successor trustee shall be under no duty to inquire into the acts or
doings of a predecessor trustee, and is liable only for any act or failure to act of a
predecessor trustee of which the successor trustee had actual knowledge and
which the successor trustee fails to reveal to a majority in interest of the
26

beneficiaries entitled, at the time of succession, to receive or eligible to have the
benefit of the income from the trust.”
Under the trust agreement and the statute, the consumers and funeral homes are not entitled to
the income from the trust, only NPS is entitled to the income. Mo. Rev. Stat. § 436.031.3
(1985). Plaintiffs can only recover damages on behalf of NPS on their predecessor liability
theory if they can prove (1) the Trustee had actual knowledge of the act or failure to act; (2) the
Trustee failed to reveal this information to NPS; and (3) NPS did not participate in the action
causing the breach.13 If NPS knew of the predecessor’s breach because of its own actions in
participating in the breach or inducing the breach, the successor trustee cannot be held liable for
failing to reveal the breach to NPS.
F.

Proof of Damages

Next, the Trustees argue Plaintiffs cannot prove the Trustees are responsible for $516
million in damages because they cannot prove the Trustees caused the damages. Plaintiffs claim
causation is a question for the jury and the Trustees are jointly and severally liable for Plaintiffs’
damages because the injury is indivisible.
1.

Causation

Plaintiffs have submitted sufficient evidence on causation to preclude summary
judgment. Absence of causation must be shown to prevent the question from proceeding to trial.
Howard v. Mo. Bone & Joint Ctr., Inc., 615 F.3d 991, 996 (8th Cir. 2010) (citing Williams v.
Daus, 114 S.W.3d 351, 359 (Mo. Ct. App. 2003)). Plaintiffs have presented evidence suggesting
the Trustees did not question disbursements of the trust principal, did not question the purchase
13

Because Missouri law does not require a successor trustee to redress a predecessor’s actions, the Court does not
need to address the exculpation clause in the trust agreement. If Missouri law did follow the Restatement and
require a successor to redress prior breaches, the Court would find the trust agreement only precludes liability for a
predecessor’s prior breaches, not a failure to redress breaches by the successor trustee.
27

of life insurance policies as a trust asset, and did not maintain control of the trust assets, among
others. These actions allowed NPS to continue to expand and flourish. The Trustees have not
shown an absence of causation as to allow the Court to decide this issue on summary judgment.
2.

Joint and Several Liability

Joint and several liability means each defendant can be held liable for the entire amount
of damages. State ex rel. Nixon v. Dally, 248 S.W.3d 615, 618 n.4 (Mo. 2008). Where there are
successive, independent tortfeasors, joint and several liability is not appropriate. Id. If the torts
are disparate in time and place, it is the burden of the Plaintiff to establish which damages were
caused by each separate defendant. State ex rel. Retherford v. Corcoran, 643 S.W.2d 844, 846
(Mo. Ct. App. 1982). Difficulty of proof does not create joint liability. Id. The indivisibility
rule applies when the torts “occur in such close proximity in time and place that it is impossible
to identify with any definiteness the injury sustained in each [tort].” Id. The time separating the
torts is not as important as the “impossibility of definitely attributing a specific injury to each
[tort].” Id. “Whether or not harm to the plaintiff is capable of apportionment among two or
more causes is a question of law.” Richardson v. Volkswagenwerk, A.G., 552 F.Supp. 73, 83-84
(W.D. Mo. 1982) (citing Barlow v. Thornhill, 537 S.W.2d 412, 419 (Mo. banc 1976)).
Plaintiffs’ expert, Dr. Arnold, suggests an allocation between each trustee could be
calculated [ECF No. 1995, Ex. 84]. Based on Plaintiffs’ own expert, the Court finds it difficult
to accept this is an indivisible injury. Joint and several liability is rare and the Trustees are
independent, successive tortfeasors. While apportionment between the Trustees may be difficult,
the evidence suggests it is not impossible. The Court finds, at this time, Plaintiffs have not
proven the impossibility of apportioning the damages as is required for joint and several liability.
Plaintiffs must prove which damages were caused by each defendant.
28

G.

Mount Washington and CSA Trusts

The final argument asserted by the Trustees is the Trustees cannot be liable for claims
related to the Mount Washington and CSA trusts because the SDR does not have standing to
bring claims related to those trusts. The Trustees claim NPS is not the settlor or beneficiary of
these trusts and the SDR is asserting claims only on behalf of NPS, funeral homes, and
consumers. Plaintiffs argue NPS was the pre-need seller for theses trusts and as such is a
beneficiary of the trusts.
The CSA trust agreement lists the Mason Securities Association, doing business as
Funeral & Cremation Society of America, as the “Seller” [ECF No. 1763-3, Ex. 3]. “Seller” is
defined as “Mason Securities Association,” as the seller and any successor thereto who agrees to
accept and discharge the obligations of the Seller under its outstanding Funeral Agreements.”
The Mount Washington trust agreement lists Mount Washington Forever, LLC, as the “Seller”
and has a similar definition of “seller” [ECF No. 1763-4, Ex. 4]. While NPS is not listed as the
seller of these trusts, Plaintiffs have cited to evidence showing NPS was the seller of the
contracts in the account.14

While the language of the trust agreement is significant in

determining who is a beneficiary of the trust, the actual practice of the parties related to the trust
is persuasive. NPS sold the contracts in the trust and was the actual seller. As the seller, even
though not named in the trust agreement, NPS is a beneficiary of the trusts in practice. The SDR
has standing to bring claims related to the Mount Washington and CSA pre-need trusts.

14

The Trustees have not controverted these facts.
29

Accordingly,
IT IS HEREBY ORDERED that “Defendants National City Bank, U.S. Bank, National
Association, and BMO Harris Bank’s Motion for Partial Summary Judgment” [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] are GRANTED in
part, and DENIED in part.
So Ordered this 12th Day of January, 2015.

E. RICHARD WEBBER
SENIOR UNITED STATES DISTRICT JUDGE

30