Earlier this week, the Federal Court that is to try the NPS civil lawsuit next month issued an order (Order denying Morisse JOP Mtn) that will raise red flags for the banks that serve as preneed trustees. In denying the motion of an officer of Allegiant Bank, Judge Richard Webber held that the Special Deputy Receiver had pled sufficient facts regarding intentional misconduct by the trust officer that the claims for his personal liability would go to the jury. Assuming the facts pled by the SDR, the order found that the trust officer had personally directed the preparation of documents and administration as though the trusts were NPS custodial accounts rather than trusts for the beneficiaries. Inherent to the ruling is that the Court has accepted that preneed contract purchasers are beneficiaries to the trust, and has rejected the argument that the intent of Chapter 436 was to define the preneed seller as the sole trust beneficiary.
The order cites factual allegations that the Court found persuasive:
- Failure to monitor the investment advisor’s actions or performance.
- Took direction from NPS’ employees regarding investments.
- Failure to provide notices to beneficiaries when the trustee was cited by examiners of statute violations.
- Allowing NPS to offset deposits and distributions (a practice called netting).
- Allowing NPS to maintain ownership and control of assets.
- Drafting custodial agreements for administration of insurance policies.
- Failing to invest in reasonably prudent investments
- Failing to diversify the trust investments
- Failing to maintain sufficient liquidity
- Allowing the trust to invest in life insurance from a company that was poorly rated and shared common ownership with NPS.
- Allowing improper income distributions.
- Reporting the value of insurance policies at face rather than at cash surrender value.
The trust officer had asked for the claims to be dismissed against him because he acted as an employee of the bank and should not be held personally liable. To be held personally liable, the SDR would have to prove his knowledge of an actionable wrong and active participation. The trust officer’s defense was premised on compliance with Chapter 436 as NPS being the trust’s beneficiary. While the order does not reference Missouri’s preneed law, we anticipate the orders to be issued in response to the defendant banks’ summary judgment motions will do so in depth.