National Prearranged Services is back in the news after a trial court issued a new $102 million judgment against PNC Bank (the corporate successor of Allegiant Bank). Allegiant Bank served as NPS’ Missouri preneed trustee for six years beginning in 1998. When PNC Bank agreed to purchase Allegiant in 2004, PNC performed due diligence that found several serious problems with Allegiant’s administration of the NPS trusts. PNC required Allegiant to resign from the NPS trusts. Four years later, NPS collapsed and several civil lawsuits were stayed while criminal proceedings were brought against Doug and Brent Cassity, several NPS officers and David Wolf, the investment advisor used by NPS. In 2015, the Special Deputy Receiver won a $395 million civil judgment against PNC Bank. That judgment was successfully appealed by PCN Bank, and the matter was sent back to the trial court with instructions to re-try the issues under breaches of trust law rather than tort law. The appeals court also instructed that lawsuit be tried as a bench trial rather than to a jury. After a four week trial, the court issued a 305 page ruling that found Allegiant Bank breached several fiduciary duties owed to funeral homes and preneed consumers. (To access the ruling click this hyperlink.)
The ruling spares no criticism of Herbert Morisse and the upstart trust department of Allegiant Bank. Allegiant Bank established a trust department late in 1997, and Mr. Morisse was the department’s first and only trust administrator. Mr. Morisse had practiced law as an estate and probate attorney for 17 years before joining the trust department of UMB Bank in 1995. Three years later, he left UMB Bank with a marketing officer to join Allegiant Bank. The ruling’s findings of facts provide detailed background on Mr. Morisse’s experiences, which did not include supervision of trust investments.
Allegiant Bank’s trust department had 2 employees other than Mr. Morisse: an administrative assistant and the marketing officer. The court found the trust department woefully understaffed and inexperienced. The ruling repeatedly describes fund transfers made from the NPS trusts that Mr. Morisse either failed or neglected to reconcile. Mr. Morisse would authorize transfers without knowing whether they were for contract performances, investments or intercompany transfers. When intercompany transfers were made, Mr. Morisse assumed something of value would be transferred back to the trust. But, in actuality, many transfers simply went to a Cassity controlled entity without the return of any asset. Mr. Morisse also failed to question NPS about insurance reports that reflected outstanding policy loans.
The ruling’s finding of facts suggests that NPS was not necessarily hiding from Mr. Morisse all that it was doing. Rather, Mr. Morisse erroneously assumed that Section 436.031 held him and Allegiant Bank harmless from any investments made by David Wolfe, and that the trust officer need not review the transactions between the trusts and Lincoln Memorial.
In the next few weeks, we will use the blog to delve deeper into the ruling’s conclusions of law that could impact Missouri preneed trustees.