Wexler Wallace represents funeral directors around the State of Illinois and is lead counsel in derivative litigation and class actions seeking to recover damages to a trust fund and funeral directors of over $140 million. Money intended as prepayment for funeral services had been deposited into a Tax-Exempt Trust and was supposed to be invested conservatively in order to preserve capital and earn a small rate of return to, hopefully, cover the cost of inflation. The money was not prudently invested, however.  Rather, a number of Merrill Lynch entities engaged in a scheme whereby the money was used to buy single premium life insurance policies. This resulted in a financial catastrophe for the trust and has directly damaged funeral directors, who have been forced to pay the difference between what funerals actually cost and the inadequate amounts available from the trust fund that were supposed to pay for these services.

The Clancy Action:
Clancy-Gernon Funeral Homes, Inc., et al v.
Merrill Lynch, Pierce, Fenner & Smith, Inc., et al.,
Consolidated Case No. No. 09-cv-390 (S.D. Ill.)

This class action case was filed in June 2009 by a group of funeral directors seeking to represent all IFDA members that deposited pre-need funds with the IFDA Tax-Exempt Trust.  It was initially brought against the financial advisors and insurance agents that advised and assisted IFDA in purchasing inappropriate and illegal insurance policies with Tax-Exempt Trust funds: Ed Schainker, Merrill Lynch, Pierce Fenner & Smith, Inc., and Merrill Lynch Life Agency, Inc. The complaint was subsequently amended to add defendants, including IFDA’s former legal advisers, Mark Cullen and the law firm Sorling, Northrup, Hanna, Cullen & Cochran, Ltd., and Merrill Lynch Bank & Trust Co. FSB, which recently served as trustee of the Tax-Exempt Trust.  For a copy of the Third Amended Class Action Complaint, click here.

Plaintiffs seek to recover the financially devastating damages that members of the class have suffered and will continue to suffer each time they honor their pre-need contracts despite shortfalls in the trust accounts of their pre-need customers.  Even where the pre-need customers have not passed away, this case seeks to restore the individual trust accounts to the state they would have been in if the funds had been properly invested.

Originally filed in state court, this case was removed to federal court and transferred to the Southern District of Illinois, where it is pending before the Hon. G. Patrick Murphy. The parties are currently engaged in full-blown discovery.

The Kurrus Action:
Charles G. Kurrus, III, P.C., d/b/a Kurrus Funeral Homes v.
Merrill Lynch, Pierce, Fenner & Smith, Inc., et al.,
Case NO. 10-L-391 (St. Clair County, IL)

This case was filed on July 28, 2010, on behalf of Kurrus Funeral Homes against the financial advisors, insurance agents and lawyers that advised IFDA: Ed Schainker, Merrill Lynch, Pierce Fenner & Smith, Inc., Merrill Lynch Life Agency, Inc., Merrill Lynch Bank & Trust Company FSB, Mark Cullen and Sorling, Northrup, Hanna, Cullen & Cochran, Ltd.  Kurrus Funeral Homes seeks to recover the damages it and the trusts created by the pre-need contracts it entered into with its customers have sustained as a direct result of the Defendants’ conduct in designing, implementing, profiting from and fraudulently concealing the scheme to inappropriately and illegally use Tax-Exempt Trust funds to buy illegal life insurance policies. For a copy of the Complaint in this matter, click here. The defendants have moved to dismiss this case, which plaintiff will oppose.  In the meantime, the plaintiff will be pursuing discovery against the defendants.

The Dames Action:
Fred C. Dames Funeral Homes, Inc., et al. v. Daniel W. Hynes, et al.,
Case No. 09 CH 21989 (Cook County, IL)

On May 18, 2009, the Illinois Department of Insurance (“DOI”) settled claims it had brought against Merrill Lynch Life Agency, Inc. for its involvement in the collapse of the IFDA Pre-Need Trust in exchange for $18 million. While plaintiffs welcomed the $18 million as a first step to recovering funds lost from the Trust, the DOI’s Stipulation and Consent Order provided that no funeral director could access the funds recovered for the Trust without first meeting a variety of conditions and restrictions.  These conditions included the signing of a release designed to exculpate all Merrill Lynch entities from wrongdoing.

Funeral directors filed a Class Action Complaint for Declaratory Judgment in Cook County Circuit Court, asking the Court to declare that, by administering the regulatory settlement in a way that affected the rights of third parties, the DOI and the Illinois Office of the Comptroller (“IOC”) had acted outside of their statutory and constitutional authority.  For a copy of Plaintiffs’ Complaint for Declaratory Judgment, click here.

On February 24, 2010, the Hon. Mary Anne Mason issued a Memorandum Opinion and Order granting the Plaintiffs’ motion for partial summary judgment and denying motions for summary judgment filed by the DOI, the IOC, and Merrill Lynch Life Insurance Company. Judge Mason ruled, among other things, that the DOI did not have the legal authority to enter into or participate in the administration of the Consent Order and, similarly, the IOC did not have the legal authority to require funeral directors to commit to alter the provisions of their non-guaranteed pre-need contracts as a condition for participating in the settlement. For a copy of the Memorandum Opinion and Order, click here.

In response, the DOI issued an Amended Consent Order which allowed for the distribution the $18 million without the onerous requirements on participating funeral directors.

The Calvert Action:
Calvert Funeral Homes, et al. v. Robert W. Ninker, et al.,
Case No. 09 CH 03624 (Cook County, IL)

In this derivative action, which is pending before the Hon. Mary L. Mikva, funeral directors sued the directors and officers of IFDA and IFDA’s legal advisors, Mark Cullen and the law firm Sorling, Northrup, Hanna, Cullen & Cochran, Ltd., to recover damages on behalf of IFDA for injuries it has sustained as a result of those defendants’ unlawful misconduct.  In their Second Amended Complaint, Plaintiffs allege, among other things, that the director and officer defendants breached their fiduciary duties and acted negligently in approving, participating in and carrying out a scheme by which the great majority of pre-need trust funds entrusted to it by its members were inappropriately invested in speculative life insurance policies.  The Complaint further alleges that Cullen and the Sorling firm aided and abetted the officer and director defendants in breaches of duties, and, as the long-time corporate counsel for IFDA, are liable for malpractice for their failure to properly advise IFDA with respect to its duties under Illinois law.  To view a copy of the Second Amended Derivative Complaint, click here.

On October 15, 2010, the officers and director defendants filed their Answer to Plaintiffs’ Complaint, in which they admitted that “they received a legal opinion from Cullen and Sorling approving of the life insurance arrangement.”  To view a copy of  the Answer, click here.

Cullen and the Sorling Firm filed a motion to dismiss the Complaint, arguing that the Plaintiffs lacked standing to sue, had failed to allege a proper demand on the Board of Directors of IFDA, and had failed to allege facts supporting their causes of action.  After briefing and oral argument on October 28, 2010, the Hon. Daniel A. Riley found the Plaintiffs have standing to sue on behalf of IFDA and had made an adequate demand.  Judge Riley also denied the Sorling Defendants’ motion to dismiss with respect to Plaintiffs’ claims for legal malpractice and aiding and abetting a breach of fiduciary duty.  A copy of the hearing transcript from the October 18, 2010 hearing can be found by clicking here.

IFDA subsequently filed a motion to be realigned as the party plaintiff. That motion was granted on January 12, 2011. The case has now moved into the discovery phase.

Regulatory Action: Illinois Division of Insurance Revokes Merrill Lynch Financial Advisor Ed Schainker’s License
On May 18, 2009, the Illinois Department of Insurance revoked the insurance license of Merrill Lynch financial advisor Edward Schainker. Edward Schainker was IFDA’s investment advisor and is the one who designed, recommended and implemented the unlawful investment scheme that caused the Tax-Exempt Trust’s demise.  Due to Mr. Schainker’s involvement with the scheme, his license to act as an Illinois Insurance Producer has been permanently revoked, and he has been assessed a civil penalty of $100,000, the maximum penalty permitted under the Illinois Insurance Code. To view a copy of the Order of Revocation, click here.

Regulatory Action: Secretary of State Proceeding against Ed Schainker
Shortly after the Calvert Action described above was filed and Mr. Schainker’s role in the fiasco surrounding the Tax-Exempt Trust was disclosed, the Division of Securities, acting under the authority of the Secretary of State of Illinois, brought formal proceedings against defendant Edward Schainker of Merrill Lynch, Pierce, Fenner & Smith, Inc.  The hearing in this matter has been repeatedly postponed and we are currently waiting to hear when it will be rescheduled. For the Secretary of State’s June 1, 2010 Amended Notice of Hearing, click here.