Tuesday, October 3, 2017

Suspended special needs trust attorney, foundation’s legal woes continue


A suspended Indianapolis attorney charged with stealing from his clients’ special needs trusts remained at the center of a case argued Wednesday before the 7th Circuit Court of Appeals. Kenneth Shane Service crafted trust documents now in dispute that he has said he intended to be confusing, argued attorneys in a case involving the nonprofit foundation Service established.

Service personally established the special needs trust for Theresa A. Givens, a Missouri woman who died in 2011. Shortly before she died, she had funded her trust with roughly $250,000 she received from settling a lawsuit over a harmful medical procedure she experienced related to her dialysis treatment. After her death, almost all the money remained in her estate.

But her children have received none of it. Instead, the remainder — at least $220,000 — went to the National Foundation for Special Needs Integrity Inc., the Carmel-based nonprofit Service established that administered Givens’ special needs trust along with others nationwide, according to court records. The reason: Givens had provided her own name on trust documents where she was to designate trust beneficiaries.

After Givens’ death, when her children began asking for the money, they were told by Special Needs Integrity that Medicaid would have first claim on the trust to repay any expenses provided for her care, according to the record. But there is no evidence they were ever informed that Medicaid had no claims for health care provided to Givens, attorneys for both the estate and Special Needs Integrity told the 7th Circuit.

In 2015, Special Needs Integrity sued Givens’ estate. It sought a declaratory judgment that it was entitled to the money it took from Givens’ trust in 2013 and 2014 pursuant to a joinder agreement she signed. That agreement said that if no beneficiary is designated, the remainder of her trust would be distributed among the pooled national trust that the foundation manages. Givens’ estate countersued.

Before Service was charged in a separate case with felony theft from Indiana special needs trusts and suspended from the practice of law this summer, a federal judge ruled for Special Needs Integrity on a doctrine of laches basis in Givens’ case. While her heirs had asked for the money earlier, “the Estate waited more than three and a half years after Givens’ death to take legal action, the Estate was aware of the existing conditions, and National Foundation would be prejudiced by the Estate’s unreasonable delay,” Judge Tanya Walton Pratt in the U.S. District Court for the Southern District of Indiana wrote in her decision.

Judge David Hamilton seemed perplexed at times during oral arguments Wednesday, hearing the estate’s appeal of Pratt’s ruling in National Foundation for Special Needs Integrity v. Devon Reese, 17-1817.

Lewis & Kappes P.C. attorney David Gray argued for the foundation that the fact heirs were never told there was no Medicaid claim was a red herring, which drew a retort from Hamilton.

“It’s not a red herring given the confusing nature of the document that the district judge treated as unambiguous so as to reach this very odd result,” Hamilton said. He suggested the agreement was ambiguous and therefore should be construed against the drafter, and he appeared dubious that the underlying facts of the case could support a laches judgment.

“Mr. Service testified, and it’s also within the testimony under summary judgment that the trust was intentionally created to be confusing,” St. Louis attorney James Beckemeier argued to the panel on behalf of the estate.

Beckemeier argued there were multiple errors in Pratt’s ruling and urged the court to award the remainder of Givens’ trust to the estate. He said there is no evidence in the record to suggest she wanted the trust to get her money, but ample evidence that she wanted her children to, a presumption in Indiana law that he said the court “completely disregarded.”

Referencing Givens’ designation of herself as a beneficiary, he said, “Where there is a mistake that creates an absurdity, rescission is appropriate.”

Beckemeier argued the foundation spent Givens’ trust money on “completely illicit and inappropriate things such as lavish hotels, lavish restaurants, and the court apparently disregarded that.”

Gray, however, argued that the foundation told heirs weeks after they inquired that they wouldn’t receive any money. “They were told three and a half years before they were not going to get the money. The money was gone a year beforehand,” he said.

But Hamilton interjected that this was only half the story. He suggested the family may have been left with the impression there could be a later distribution. Trust officials, he said, “never said Medicaid has no claim, but we’re keeping the money.

“You don’t even have records of a decision” by Service or by other foundation representatives to take the money, Hamilton said. “You just have money shifted from one account to another in 2013 and then again in 2014.

“… Why should we simply not decide it’s an ambiguous document that needs to be construed against the drafter and order distribution?” he asked Gray near the end of his presentation.

“If laches doesn’t work, nothing prevents you from doing it,” Gray responded.

While the Givens matter is pending, it’s just one of many legal entanglements for Service and the foundation.

In June, Special Needs Integrity confidentially settled a class-action lawsuit in Marion County that alleged, among other things, that the nonprofit overcharged clients and collected unauthorized fees from trust accounts.

Service founded the nonprofit in 2007, and for years it grew progressively in revenue collected largely from fees assessed on trust funds. Tax records for the organization in the years since show Special Needs Integrity compensated Service in some years with more than one-quarter of total revenue and spent aggressively on legal fees and management costs. For example, records for the following tax years show:
  • In 2010 and prior years, Service reported no compensation, but the organization paid up to 42 percent of revenue in some years to Special Needs Trust Consultants LLC — a Carmel-based entity registered by Service.  
  • In 2011, Service took no salary. The nonprofit collected $593,424 in revenue, but costs under the management category were $289,769, compared with staff wages of $104,477.
  • In 2013, Service took a salary of almost $238,000 on revenue of almost $936,000. In addition to other salaries of more than $451,000, the nonprofit also reported management costs of more than $134,000, legal expenses of nearly $124,000, and almost $66,000 spent on conferences, conventions and meetings.
  • In 2014, the nonprofit collected $1.12 million, and Service was paid $170,525. Management costs rose to more than $476,000, and legal fees were listed at more than $76,000.
In 2014, the foundation booted Service and sued him, after which Service countersued. That suit remains pending in HamiltonSuperior Court, though a hearing is set Oct. 13 to dismiss Service’s countersuit for lack of prosecution.

Meanwhile, Service remains charged in Lawrence County with two counts of Level 5 felony theft. He is accused of stealing more than $85,522 from two special-needs trust clients there, and authorities and attorneys who have removed Service as a trustee in several cases around Indiana fear there could be more potential victims here and in other states.

Near the end of Wednesday’s oral argument, Hamilton asked Beckemeier what Service’s legal status was. Beckemeier said this wasn’t in the court record, but Hamilton granted leave to take notice of the public record. “I believe he’s under state indictment, if not federal,” Beckemeier said.

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Suspended special needs trust attorney, foundation’s legal woes continue

1 comment:

Anonymous said...

I have no mercy here.