“The Martin Ruling” Changes Fraud law in Tennessee

AQ

BIG CHANGES IN TENNESSEE’S FIDUCIARY RULES

Special team reporting to www.stopprobatefraud.com

This is Part 2 of our  “Anatomy of Fraud” series that details the events and impacts of “The Martin Ruling” from Tennessee.

Recap of Part 1:

James Martin III; Williamson County Tennessee Judge

“The Martin Ruling” is named after the finding made by judge James G.Martin lll, in a “breach of fiduciary duty” case in Tennessee.

Trial records detail that the executor of a Tennessee estate hired the law firm of Lassiter, Tidwell, Davis, Keller & Hogan (now known as Farmer, Purcell, Lassiter & White) to hide and destroy the legal and financial records of the estate they were administering.

The trustees of the estate were forced to file a breach of fiduciary duty suit, but after a two day trial, Judge Martin found no breach of fiduciary duty or fraud and “ruled for the defendant.” Martin’s ruling effectively says that in Tennessee it is now legal for fiduciaries and attorneys to hide records from the principals of a transaction.

In a shift from the laws governing all other states in the USA, Williamson County Judge James Martin III ruled that in Tennessee this was neither obstruction of justice, fraud or a breach of fiduciary duty. 

Martin’s decision was appealed by the trustees, but the appeals court upheld Martin’s ruling. Tennessee is now the only state in the USA where hiding records is legal.

Part 1 can be found in full at this link:

http://www.stopprobatefraud.com/blog/2018/10/26/big-changes-to-tennessee-probate/

In Part 2 of the series, we begin to detail the events involved with the case and the changes in Tennessee law coming from “The Martin Ruling.”

 PART 2: THE START OF ESTATE FRAUD

Three months after the death of E.R. “Woody” Darken, his wife (called “Miss Cherry Lane” in court records) was sworn in as the executor of her husband’s estate by Williamson County Clerk and Master Elaine Beeler. (PHOTO HERE)

This is a common event that happens over a million times a year in the United States, and thousands times a year in Tennessee. “Miss Cherry Lane” had a masters degree in home economics and was an experienced executor, having probated at least three other estates.

As a “deputy” of the court, estate administrators and executors are considered fiduciaries and are given have exclusive access to an estate’s legal and financial records.

After the estate was opened, Mr. Darken’s two children, who were beneficiaries and

Nashville Attorney Randle S. Davis

trustees of both the estate and of the family’s trusts, met with attorney Randle S. Davis. Davis had been introduced to the family by William Lassiter, and for two decades had done the tax and estate planning work for three generations of the family including both trustees, their parents and grandparents.

Davis described himself as the “senior managing partner” of his firm and an expert in estates with scores of clients. He had been the lawyer for three generations of the Darken family and had served as the legal advisor in the estate accountings of three other family members.

Trial transcripts show that at that first meeting with the trustees, Davis assured them that his work for their family was in order: Their father’s estate and the family’s trusts were “cut and dried.”

Davis had been paid to write Mr. Darken’s portion of the pre-nuptial agreement that had been signed by he and his widow, the executor. Davis told the trustees he had a copy of their father’s pre-nuptial in his files, and he would give it to them.

The trustees had never worked on an estate accounting, so Davis directed them to go to their father’s farm, meet with his surviving wife “Miss Cherry Lane” (the executrix) and get their family’s financial records from their father’s home office.

The following week, the trustees did what Davis told them to do.

ACCESS DENIED: 

Trustee testimony details that they drove to their father’s farm in  Williamson County expecting a cordial meeting:  Review the executor’s work on the accounting of the estate, and to get their family’s financial files from their father’s office.

But when they arrived the trustees were met by an executrix who was unhappy with the amount of assets she was to receive from Mr. Darken’s estate. She refused to let the trustees into their father’s office, she even refused to give them his computer or paper records of their family’s trusts.

Within the first thirty minutes of their meeting with the executrix, the trustees saw that the executrix wanted more money, and that the estate that Davis had promised was “cut and dried ” was suddenly off the rails.  The trustees left the meeting empty handed, and triggered red flags for fraud.

The trustees left the meeting empty handed. The estate that Davis had said was “cut and dried ” had just triggered a red flag for fraud.

They immediately informed the firm that the executor was hiding their father’s records and was “self dealing”: Using her position of power in the courts to make a claim for more assets than had been agreed upon in the pre-nuptial. In fact, she was hiding the pre-nuptial they requested!

Accounting “Hide and Seek” Rises Fraud Flags

Fraud is called “theft by deceit” and is a relational crime: Victims of fraud are oftentargeted by people that they know and trust, including friends, employees or family members.

According to the Association of Certified Fraud Examiners, red-flags for fraud are triggered when records are missing or concealed. The ACFE is the world’s largest professional organization dedicated to fraud prevention, detection and recovery. Based in Austin, Texas the group has 80,000 members worldwide.

Mandy Moody is a certified fraud examiner. Writing in ACFE’s “Insights” magazine, Moody says that people involved in fraud “…often exhibit certain behavioral traits or warning signs associated with their illegal activity.” In their “Report to The Nations” the ACFE found that one of the top five behaviors of fraudsters is “excessive control issues or unwillingness to share duties.”

Jodi Chavez is the author of the “Top Ten Red Flag Warnings of Fraud.” Chavez is the president of Randstad Professionals in charge of staffing accounting and financial professionals in Newport Beach, CA. She writes that the No. 1 thing on her list of triggers for fraud is “missing documents…,” which, she says, “should raise suspicion and may require a more in-depth examination.”

From their first meeting with the executrix, the trustees were on alert to the probability of fraud. But it took over two years of legal fighting before the executrix and Davis were finally forced by Judge Easter to give the trustees their family’s accountings.

TEXAS VS. TENNESSEE: SIMILAR FRAUDS; DIFFERENT RULINGS

At about the same time, about a thousand miles away in Texas, there was bigger, but estate accounting case with similar frauds in play.

Attorney Alan Lowenshon helps win 4 billion dollar breach and fraud claim against JP Morgan.

Max Hopper was one of the men behind the creation of American Airline’s SABRE computer reservations system. When Hopper died, he left behind a multi-million dollar estate for his children and his second wife, Jo Hopper.

The New York based financial management firm JPMorgan Chase was appointed as the administrator over Hopper’s estate.

In a pattern similar to the actions of the executrx in the Tennessee case, JP Morgan began “slow walking” the legal and accounting process: Playing “hide and seek” with assets, inventories and appraisals.

By injecting confusion and conflict into the estate process, JP Morgan could keep the estate open and profit from an ongoing stream of bills for their “advice.” Bills that would be paid by the estate and so reduce the amount that Mr. Hopper’s family would inherit.

Attorney Alan Loewinsohn, part of the team that won a $4-billion award against JP Morgan for breach and fraud.

So Mr. Hoppers children and his surviving wife Hopper teamed up and sued JP Morgan for breach of fiduciary duty, breach of contract and fraud.

In Texas, a jury found JPMorgan Chase had breached its contract and fiduciary duty to the heirs and committed fraud. To compensate for JPMorgan’s fraud and breach, the jury awarded the family $4.7 million in actual damages and $5 million in attorney fees, and $4 billion dollars in punitive damages.

MARTIN CHARTS A NEW COURSE

But in Tennessee, the executrix’ breach of fiduciary duty trial was not heard by a jury, but by Judge James Martin III .PICTURE OF MARTIN

Martin’s credentials are exceptional: In his undergraduate studies, Martin was a finance and economics major. After serving in Vietnam, Martin graduated at the top of his class from Vanderbilt Law School in 1974. He has accumulated nearly a half century of legal experience in both public and private offices and now lectures for the Tennessee Bar Association’s continuing legal education (CLE) program.

Martin is a member of the Nashville Bar Association, Tennessee Bar Association and the “Inns of Court” which calls itself “an association of lawyers, judges, and other legal professionals from all levels and backgrounds who share a passion for professional excellence.”

“THE MARTIN RULING” DELIVERS BIG CHANGES IN TENNESSEE LAW:

Like the JP Mortan fraud case in Texas, Davis admitted in testimony that he had worked extensively with the executor to hide boxes of trust, legal and financial files from Mr. Darken’s children, the trustees.

When questioned by Judge Martin at trial, “Miss Cherry Lane” did not deny hiding the records from the trustees—and the court. Nobody denied that they had intentionally concealed and destroyed records that belonged to the estate and the family’s trusts.

But in his ruling, Judge Martin went in the opposite direction of the jury in Texas and ruled “for the defendant.”

In this break with widely held standards, Martin reversed Easters order and found that in Tennessee, it was not a breach of fiduciary duty for an executor (or the attorneys they hire) to hide, delay and destroy the accounting and legal documents of a family’s estate and trusts.

In his written finding, Martin approved the executrix’ bill to the estate for the time that she and attorney Davis spent concealing the estate’s records. Martin also awarded $100,000 in legal expenses to Farmer Purcell, Lassiter and White for the cost of defending their concealments.

The changes coming from the “the Martin Ruling” impact nearly all residents of Tennessee and every financial and legal professional in the Volunteer State, from divorce and custody accountings to realtors, used car dealers and of course, the probates, trusts and estates in the state.

Tennessee Attorney General Herb Slaterly III.

The SPF editors contacted the press office of Tennessee’s Attorney General Herbert Slaterly, III. They did not comment on the ruling. The SPF team also contacted the principals at Farmer-Purcell but received no reply.

To read the next story in this series (episode 3) please follow this link: https://www.stopprobatefraud.com/blog/2018/12/07/tennessees-link-to-madoff-scheme/

To protect your family from fraud in probates, trusts, estates and guardianships, visit www.stopprobatefraud.com.

Follow us on Twitter: @StopFraud4

About Edmund Burke 89 Articles
Volunteers working to help people spot, stop and recover from fraud and corruption in probate, trusts, estates & guardianships.