Ohio High Court Fines ‘Trust Mill’ Operators Nearly $6.4M

The Supreme Court of Ohio has handed down a civil penalty of $6,387,990 against American Family Prepaid Legal Corporation and Heritage Marketing and Insurance Services Inc. and their co-owners, Jeffrey and Stanley Norman, and has permanently barred those companies, their principals and employees from any future marketing or sale of living trusts or other estate planning documents or services to Ohio residents.

According to Court released documents, in a 7-0 per curiam decision in Columbus Bar Assn. v. Am. Family Prepaid Legal Corp., [Slip Opinion No. 2009-Ohio-5336], the Court found that the companies, the Normans, and multiple employees of those firms engaged in more than 3,800 acts of unauthorized law practice by virtue of their participation in a “trust mill” operation from March 2003 through March 2005.

The Columbus Bar Association (CBA) brought suit against American Family and Heritage Marketing alleging the operation of a trust mill scheme, in which the companies and their agents convinced thousands of Ohio senior citizens to pay nearly $2,000 for allegedly discounted prepaid legal services, which were never provided, according to Joyce Edelman, the lead attorney in the litigation.

The CBA had previously filed an unauthorized practice of law complaint against the two companies, their owners and employees in 2002. After an investigation the complaint was “resolved by the signing of a March 2003 consent agreement,” the Court noted. The respondents agreed at that time to “permanently cease and desist” from “providing estate planning advice and marketing and preparing trust agreements and other estate planning documents,” activities that they acknowledged constituted the practice of law.

However, according to the Court, American Family, Heritage and their owners continued with such practices, using “third-party marketing firms to send direct mail ads to lists of Ohioans 65 and older and also targeted senior citizens with magazine advertising containing exaggerated claims regarding the costs and complications of disposing of their assets through a will.”

Those targeted were also “subjected to high-pressure in-home presentations” by American Family’s non-attorney sales representatives.

American Family had claimed that as a registered operator of a prepaid legal services plan its actions were authorized. The Court rejected that argument, pointing out that in “arranging these appointments, American Family telemarketers did not refer to a prepaid legal plan and did not inform the customer that he or she would be solicited to buy a prepaid legal plan or living trust.”

That’s exactly what the companies’ representatives did, however, pressuring potential customers to pay a “$1,995 fee purportedly for an array of legal services relative to landlord/tenant law, businesses, domestic relations, bankruptcy, and other legal fields, at discounted fees, from a number of listed Ohio attorneys. Almost exclusively, however, the only legal service that the plan members received was the preparation of a living-trust document and related estate-planning instruments such as powers of attorney and a living will.”

Few, if any, of those who paid the fee ever received any “legal assistance other than a living-trust portfolio,” the Court said.

The Court noted that the “trust mill” operated by American Family, Heritage and the Normans was similar to other such operations that the Court has found to be illegally engaged in the unauthorized practice of law at the expense of vulnerable consumers, usually senior citizens.

In imposing a civil penalty of $6,387,990 jointly and severally against American Family, Heritage and their co-owners, the Court noted the aggravating factors that the respondents had been advised of and acknowledged the illegality of their involvement in the marketing and sale of trusts in the 2003 CBA consent agreement. Still, the respondents resumed for a period of two years those same activities, and engaged in thousands of acts of unauthorized practice that resulted in potential or actual harm to many of their customers.

The Court also imposed civil penalties of $10,000 against American Family’s state marketing director, Paul Chiles, $7,500 against office manager Harold Miller, and $2,500 against multiple American Family and Heritage agents who continued to engage in the unauthorized practice of law after signing the 2003 consent agreement.

Sources: Ohio Supreme Court, Columbus Bar Association, Porter Wright Morris & Arthur LLP