ACCOUNTING TRIAL TRIGGERS BIG CHANGES IN TENNESSEE FINANCE LAW
EDITOR’S NOTE: This is part 6 of our on-going series
June 1, 2019
Special to www.stopprobatefraud.com
Farmer, Purcell, Lassiter & White, the “home” firm of former Nashville Mayor Bill Purcell stays stuck in the spotlight shining on the big changes in Tennessee’s laws because of their role in “The Little Case from Leiper’s Fork.”
BACKGROUND: TENNESSEE’S GAME CHANGER:
Parts 1-5 of this series detail how the executor of Mr. Darken’s estate, his surviving wife called “Miss Cherry Lane” had signed a pre-nuptial with Mr. Darken, but wanted more money. She hired the Purcell’s firm (at the time called Lassiter, Tidwell, Davis, Keller & Hogan) and for three years they hid from the trustees of the estate boxes of legal and financial records of both the family’s trusts and the estate.
The firm had done the estate planning legal work for three generations of the family, including the trustees’s. So the firm. was hiding records from their own clients. For those who want to read the series from the start, go to episode 1, here:
In a ruling that has changed a century of black-letter law in Tennessee, Judge James G. Martin III said that the executor did not breach her fiduciary duty when she hid legal and financial records from the trustees and beneficiaries of the estate.
Additionally, Martin ruled that she did not breach her fiduciary duty in hiring and supervising a law firm that hid those records on her behalf and/or at her direction.
In every other state in the United States these actions are not only a breach of fiduciary duty, but often considered fraud and obstruction of justice.
The trustees appealed Martin’s ruling but the middle Tennessee court of appeals upheld the lower court’s finding. In issuing that ruling, it made Tennessee the only state in the Union where these actions are legal.
BILLING FRAUD: $30,000 JUST THE START
But hiding legal and financial records by fiduciaries and their attorneys is just one part of the changes brought on by this case.
A deeper dive into the records shows that the firm’s $30,000 fee was just one part of the bill delivered to the estate. In addition to the firm’s invoice, the executrix billed the estate an additional $10,000 to supervise the firm’s activities.
The executrix’ fee increases the cost to probate Mr. Darken’s small estate to over $40,000. Since the actual cost to probate an estate in Williamson County is less than $400, it means that Mr. Darken’s probate was billed roughly one hundred times more than the base cost for a Tennessee probate.
As one of the most expensive probates in Tennessee’s recent history it triggered a red-flag for fraud.
FRAUD IN ESTATES: SAD BUT COMMON
About two million people die every year in the United States so if there is fraud in just one half of one percent of those estates, it means that there is about 10,000 cases of estate fraud each year, or one new case every 15 minutes.
One recent case of probate fraud is found in Texas during the administration of the multi-million-dollar estate of the man who had helped create American Airline’s “Sabre” reservations system. In that case New York banking giant J.P. Morgan handled the family’s finances and the probating of the estate. But when the family members couldn’t get a clear accounting, accurate records or “straight answer” from the firm, they sued.
At trial it was shown that J.P. Morgan had hidden legal, financial and accounting records from the family that was paying them to streamline and guide them through the the estate process.
A Texas jury convicted J.P. Morgan and awarded the family four billion dollars in compensation for the damages and chaos created by J.P. Morgan’s actions.
More details on that Texas estate fraud story can be found here:
In a similar case in Florida, attorneys Brian M. O’Connell and Ashley N. Crispin of the Florida firm Ciklin, Lubitz & O’Connell handled the guardianship and estate of Oliver Bivens. O’Connell and Crispin hid real estate, financial, accounting and billing records from Mr. Biven’s son, Julian, who was an heir to his father’s estate.
While hiding accountings and appraisals from Julian the attorneys from Ciklin-Lubitz were also billing the estate for their time. It is a billing-related fraud known as “bill churning,” “bill padding” or “featherbedding.”
Just as in the case of Purcell’s Tennessee firm, the fees billed to Biven’s Florida estate by the administrator and the attorneys they hire would be deducted from the assets that his son Julian would inherit.
Julian Bivens sued Ciklin, Lubitz & O’Connell.
A jury in a Florida federal court found that Ciklin-Lubitz had breached their fiduciary duty by hiding financial, accounting, real estate, appraisal and other estate records from Julian. The jury awarded Julian 16.4 million dollars in damages for the frauds inflicted on him by the firm.
For more detail on the Bivens case in Florida, please read this story:
A DIFFERENT TALE IN TENNESSEE
While the story of the “little case from Leiper’s Fork” mirrors the Texas and Florida trials, the outcome in Tennessee was dramatically different.
Testimony in the Tennessee trial detailed a simple and common story: Despite being a millionaire in her own right, she wanted more money. Specifically, she wanted the assets held in trust accounts of which she was not a beneficiary.
The evidence in the Williamson County, Tennessee “breach of fiduciary duty” trial was delivered in great detail: For over three years, the executor worked with the firm and together they destroyed financial records, hid assets, legal and trust documents from the trustees.
From the witness stand attorney Randle S. Davis, the firm’s senior managing partner at the time, admitted to the court that he always possessed a copy of Mr. Darken’s pre-nup accountings in the firm’s files, but he hid it from the trustees. Additionally, Davis testified that from the start, the firm had regular and detailed coordination with the executrix: “I told her everything,” he confirmed.
In her testimony, the executrix denied none of the facts detailed in the long list of complaints against she and the firm.
A RED FLAG FOR FRAUD:
In addition to being a “red flag” for billing fraud, the executrix’ $10,000 bill confirmed the close coordination between she and Davis. The details of her billing showed that the firm’s $30,000 bill was not due to an un-authorized legal tangent or “fishing expedition.”
In other states, if an executrix had found that an attorney or other outside professional was padding their bill with unauthorized work (fraud) she would be obligated to fire the fraudster and notify both the court and the trustee/beneficiaries of the “attempted” bill-padding.
Court records show that the executor had reviewed and approved the firm’s billings by Davis. And by approving the firm’s bills, she confirmed that she approved of Davis’ actions.
BILLING FRAUD: THE TENNESSEE TWIST
In the fraud cases in Florida and Texas the courts spotted the frauds of court-administrators and their law firms, and shut it down. But in Tennessee, the courts took a different view.
As previously reported, Tennessee Judge James Martin III ruled that in the Volunteer state, it was not a fraud or breach of fiduciary duty for a fiduciary, or someone working for that fiduciary, to hide legal and financial records from the clients and beneficiaries that they are serving.
Martin’s decision brings with it a new twist: His ruling now makes it legal in Tennessee for a fiduciary to bill an estate for the fees of professionals who hide legal and financial records from the trustees and heirs of that estate.
The trustees appealed Martin’s decision but the judges of Middle Tennessee’s court of appeals (Andy D. Bennett, Frank Clement Jr., Richard Dinkins and W. Neal McBrayer) upheld Martin. The appeals court decision makes Tennessee the only state in the union where it is legal for a fiduciary to hide and destroy assets, trusts, securities, legal, financial and accounting records.
Moreover, the ruling allows a fiduciary to bill the client or beneficiary for the time spent hiding the records from that client.
The court ruling radically alters the centuries-old nature of a “fiduciary” in the State of Tennessee and impacts every financial transaction there.
In a narrow sense it allows families in divorce, custody and other family court settings to hide legal and financial records from parties in a case.
The broader impact of the court’s ruling allows all legal and financial professionals such as artist’s agents, managers, producers and their attorneys to hide contracts and accountings from their artists. It allows Realtors, banks, brokers, retirement planners and insurance companies in Tennessee to withhold contracts and account statements from their clients.
The editors at www.stopprobatefraud.com made repeated requests for comment from Purcell’s firm, Lassiter, Purcell, Farmer & White, but have not received a response.
The editors also asked the Tennessee State Bar for comment, but so far have received no reply.
If you or someone you know experienced bill-churning or any other type of fraud in a probate, trust, estate or guardianship, please contact our volunteers. We can be reached at email@example.com