MASSIVE CHANGES IN TENNESSEE’S FRAUD RULES
Special to www.stopprobatefraud.com
Tennessee’s appeals court has upheld a lower-court ruling establishing that it is now legal in Tennessee for attorneys, bankers, brokers, realtors and other fiduciaries to hide legal and financial records from clients, beneficiaries—and the courts.
The original ruling was made by Judge James G. Martin III in Williamson County in a claim involving an estate accounting.
Tennessee now stands alone as the only state in the nation where it is okay to hide and destroy legal and financial records from principals. In all other states, if an attorney or fiduciary hides or destroys legal and financial records it is considered a breach of fiduciary duty, fraud and/or obstruction of justice.
The judgement is a landmark shift and clears the path in Tennessee for fiduciaries (and the attorneys, bankers, brokers, agents, managers, realtors, accountants and others they hire) to hide and destroy evidence including contracts, receipts, securities and accounting records from their client-beneficiaries.
The finding dramatically alters what people can expect from the legal and financial professionals (fiduciaries) they employ—and are subject to—when doing business in the Volunteer state.
BIG NAMES TIED TO A SMALL CASE
The case was a simple one, where the executor of an estate teamed up with their attorney to hide assets from the estate’s accountings.
The executor was represented by the firm now headed by Bill Purcell, the Harvard lecturer and former mayor of Nashville. But the case quickly expanded and eventually employed some of Tennessee’s top legal talent: Waller Lansden Dortch and Davis; Howard Mobley, Hayes and Gontarek; Bone, McAllester, Norton and Chattanooga’s Richardson Law firm.
BIG CHANGES TO BLACK-LETTER LAW:
In the past, Tennessee, like most states, treated the administrators and trustees of estates as fiduciaries. A “fiduciary,” according to www.Law.comis “ …a person or business who has the power and obligation to act for another (a client or beneficiary) under circumstances which require total trust, good faith and honesty.”
Those who handle finances on behalf of another person (or group) are considered fiduciaries. Most bankers, insurance brokers, trustees, retirement advisors, POA holders, artist’s agents and managers are part of that group. Fiduciaries must act solely for the benefit of their client-beneficiaries, with the highest level of integrity and transparency.
On the legal side, judges, attorneys, and police are considered “officers of the court.” In all others states when a person is sworn-in as the administrator (or executor or executrix) of an estate, the courts delegate rights and responsibilities in matters of the estate to those administrators. They are in effect “deputized” and given broad powers to act as “officers of the court.”
Administrators of estates are thus in the unique position of being both “officers of the court” and “fiduciaries.”
The ruling from Tennessee’s appeals court has dramatically changed the rules governing both “fiduciaries” and “officers of the court” in that state.
SMALL CASE; BIG NEW RULINGS
The big changes are rooted in a small estate-accounting claim arising from the tiny hamlet of Leiper’s Fork. The case began with Williamson County Clerk and Master Elaine Beeler, and was later heard by Williamson County Judge Timothy Easter and then Judge Martin.
The story is a familiar tale: E.R. “Woody” Darken was a retired businessman living in Leiper’s Fork. His first wife, and the mother of their two children, had died from cancer in 1997. Years later Woody remarried with a pre-nuptial in place between he and his new wife (the executrix).
Darken was one of three generations of the family that employed Nashville attorney Randle S. Davis for his legal work, including estate planning. Davis, (pictured at left) was the senior managing partner of the firm of Lassiter, Tidwell, Davis, Keller and Hogan. (The firm now operates from the same office, but has been renamed Farmer, Purcell, Lassiter and White; the business home of Purcell).
In addition to the family’s estate planning, Davis had authored Mr. Darken’s portion of the pre-nuptial contract.
His surviving wife’s half of the pre-nuptial had been authored by Ed Yarborough, a partner at Bone, McAllester, Norton.
When Darken died his two surviving sons were trustees and beneficiaries of his estate and the trusts which the firm had authored for the family. The trustees also were clients of the firm.
After the administration of Mr. Darken’s estate was opened, the trustees asked the firm for their father’s legal and financial records. Davis promised to give them the records he had stored in the firm’s files.
But then the firm changed its tune and denied the trustees access to their father’s papers. This included the pre-nuptial contract and accountings, which were still in force at the time of his death.
A TENNESSEE TWIST
But after the death of Mr. Darken, the executrix changed law firms. She left Yarborough and Bone McAllister and Norton and instead hired Davis at Lassiter, Tidwell, Davis, Keller & Hogan.
Neither Davis nor anyone else at the firm disclosed to the trustees that the firm was now representing the executor in her bid to acquire more assets.
Trial records detail that for over two years the executrix and the firm hid and destroyed a laundry-list of legal and accounting evidence from the trustees.
The trustees were forced into a legal battle for access to their family’s records which were held at the firm and in Mr. Darken’s home office.
The trustees were forced into a legal fight that took nearly three years and more than $250,000 in legal fees, but the trustees prevailed: Judge Timothy Easter ordered the firm and the executrix to deliver the hidden accountings to the trustees. He also ordered the parties to mediate the damages inflicted on the trustees by the executrix and the firm.
Once the firm produced the boxes of evidence they had been hiding, it was revealed that the estate accountings that had been given to the trustees—and the courts—were false. Missing from the firm’s filings were thousands of shares of stock, loan contracts, trust accounts, vehicles, art and other assets.
MORE COURT BATTLES: THE EXECUTRIX DEMANDS TRIAL:
But the firm and the executrix “refused” Judge Easter’s mediation order and demanded a trial.
Judge Easter was removed from the case and replaced by Judge James G. Martin, who presided at the trial. Martin has a 40 year history in the law, and is a member of the “Inns of Court.”
At trial, hours of testimony detailed a long list of events that in other states are considered “breaches of fiduciary duty.” The evidence that was hidden or destroyed included computer drives, securities, appraisals, billings, accountings, trust files, loan and mortgage records, business contracts and the pre-nuptial agreement.
From the witness stand neither attorney Davis nor the executrix denied hiding and destroying the evidence from the trustees and the courts. In testimony and in billing records, Davis confirmed that he had worked closely with the executrix to hide records of Mr. Darken’s assets.
In other states these activities are widely referred to as accounting fraud, securities fraud and fraudulent concealment.
Additionally—in other state and federal jurisdictions—both attorney Davis and the court-deputized administrator would be considered “officers of the court.” As such, the destruction and concealment of legal and financial records from a court proceeding would be considered obstruction of justice.
A LANDMARK DECISION
But in a landmark departure from the laws governing finance and accounting in other states, Williamson County Court Judge James Martin III reversed Easter’s initial finding for the trustees.
Martin ruled that when the executrix and her attorney hid legal and accounting records was not fraud, obstruction of justice or even a breach of fiduciary duty in Tennessee.
Martin’s ruling denied the trustees any recovery for the costs needed to get the accountings hidden by the executrix and the firm. Additionally, he ruled that the trustees were liable for all expenses billed by the firm to defend the actions of Davis and the executrix.
The trustees appealed their case, but Martin’s ruling was upheld by the Middle Tennessee Court of Appeals. Martin’s new definitions for fiduciaries and officers of the court now stand as the law governing all legal, accounting, finance and fiduciary transactions in the State of Tennessee.
The editors at www.stopprobatefraud.com contacted the office of Tennessee Attorney General Herbert Slatery III (shown left) for comment, but received no reply.
The editors also asked the Tennessee State Bar for comment, but received no response.
This is the first in an on-going special report for www.stopprobatefraud.com designed to help readers spot, stop and recover from fraud.
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