Death Care Law Blog : Kansas Death Care and Preneed Lawyer & Attorney : Stalter Legal Services Law Firm : Funeral Law, Elder Law : Kansas City

The wait for Ms. Garrett’s lawsuit against NPS, the Cassity family (and anyone remotely connected with the Cassity Consortium) ended on August 7th.

If half of the allegations made in the NPS Complaint are true, the misconduct perpetrated on funeral homes and consumers is shocking to say the least. The Complaint provides a bevy of reform issues to explore. However, NOLHIGA and state regulators must be careful in their zeal to recover assets and implement reform.

A search of the Complaint for the term “independent investment advisor” will produce ten hits, with most of the substantive issues addressed on Pages 52 through 57. Chapter 436 of the Missouri statutes authorizes a preneed seller to designate an independent investment advisor to make investment decisions for the trust when it has more than $250,000 of assets. In doing so, the trustee is relieved of all liability regarding the investment decisions by the investment advisor.

As many larger Missouri sellers did, NPS designated an ‘independent’ investment advisor. The Complaint alleges that the investment advisor gave NPS free reign over the various trusts to perpetrate various frauds, including the purchase of the Lincoln Memorial insurance policies.

With regard to the fiduciary duties of the independent investment advisor, Complaint Paragraph 179 hits the nail on the head:

As purportedly “independent” investment advisors, Defendants Wulf and Wulf
Bates owed fiduciary duties to NPS as the entity that settled and funded the NPS pre-need trust accounts, and to the funeral homes and consumers as the beneficiaries of the pre-need trusts. Those fiduciary duties include, without limitation, loyalty, care, good faith, candor, sound business judgment, forthrightness, and fairness, through their direction and control over the trust funds.

In rubberstamping the NPS instructions, this investment advisor neglected his duties to the funeral homes and consumers.

In an effort to hold the NPS trustees accountable under Section 436.031, the Complaint alleges the investment advisor was not ‘independent’. This begs more than one question, but the first one that comes to mind is: independent of whom?
 

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On June 8^th, Donna Garrett, the Special Deputy Receiver for the NPS affiliates, filed with the Texas Travis County Court an application for fees. The application includes a schedule of fees that will be charged by the subcontractors to be utilized by the SDR. The filing would seem to indicate the law firm of Polsinelli Shalton Flanigan Suelthaus, PC. will be serving as the SDR’s main counsel.  

Proceedings such as last week’s lawsuit brought by James & Gahr Mortuary will contribute to the expense that must be borne by the SDR.   The $250,000 sought for fees and expense in the June 8^th Application is only the beginning.  

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One positive aspect of Texas appointing a “Rehabilitator” for NPS and its sister insurance companies is the emergence of a single authority over the NPS empire, a godfather so to speak. Rather, a Godmother.

Funeral directors have been chasing legislators, regulators, government officials, and judges for help. This is quite understandable when your entire preneed program was with NPS. However, the Agreed Order Appointing Rehabilitator and Permanent Injunction (“Agreed Order”) will stay all lawsuits like that brought by the Broussard’s Mortuary, a long established Texas company. 

The Agreed Order could also bring much needed focus for groups like the “Consumers Funeral Assurance”, a Missouri outfit that is soliciting support from former NPS providers. (Have you spoken with Josh about the similarities in your names? )

One valid grievance funeral directors have with the regulators’ current status quo is the payment of claims based on the contract’s sales price.   For NPS contracts sold within the past few years, the contract face does not represent much of a hardship. It will be quite a different story for the twelve year-old contract.   Now we can appreciate why NPS was offering those Triad casket coupons.  

Rather than pursue geese like the “formation of a quasi-state agency that will assist with the payment of claims”, funeral homes (or the entities that form to represent them) should channel their energies and resources towards the inclusion of their issues in the plan of rehabilitation required by Texas law.   (See ¶2.11 of the Agreed Order.) 

While funeral directors may be tempted to seek an appointment with Ms. Garrett, they would be better served by briefing the issues for her consideration. Funeral directors should be objective and honest in how they present their issues. Ms. Garrett will be taking possession of all NPS records, and ostensibly, will discover which funeral homes received loans or special commission payments. The emperor has no clothes.  

It would also be advisable to tone down the rhetoric. Regulators are probably beginning to appreciate their responsibilities for the NPS failure, but are the funeral directors? 

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