By ANNIE GOELLER, Daily Journal of Johnson County staff writer
The managing company of a State Road 135 cemetery and funeral home, a stock brokerage firm and a Noblesville bank should be held responsible for more than $20 million in misspent cemetery trust fund money, a class-action lawsuit claims.
An Indianapolis law firm claims that the brokerage firm, bank and Memory Gardens Management Corp. should help pay for $24 million in cemetery trust funds that the owner and former manager of a local cemetery and funeral home are accused of misspending.
The lawsuit, filed last month, names Memory Gardens, which manages Forest Lawn Memory Gardens and Funeral Home; Mishawaka-based MFB Corp.; Noblesville-based Community Trust & Investment Co., now called Nexus Fiduciary Trust; and Smith Barney, a division of Citigroup Global Capital Markets.
The lawsuit claims that stock brokerage firm Smith Barney played a crucial role in transferring trust fund money by providing Memory Gardens owner Robert Nelms with detailed instructions for the diversion of the funds, according to a news release from Cohen & Malad, the law firm that filed the case.
Nelms, 39, and former Forest Lawn manager Debora Johnson, 48, were both charged last month with multiple felony counts, including theft. Officials said the two raided trust funds that are required to be used to maintain and care for cemetery grounds.
In the lawsuit, attorney Richard Shevitz accuses Memory Gardens of breaching its contract with customers, accuses the banks and Smith Barney of corrupt business influence, and accuses the companies of racketeering practices.
The lawsuit names one plaintiff, Indianapolis resident William Fishback, who purchased a mausoleum plot at Forest Lawn in 1986. But Shevitz said he filed the class action lawsuit on behalf of thousands of customers, according to the release.
He is seeking to recover millions from the companies based on their role in the crimes Nelms and Johnson have been accused of, according to the release.
"(The case) is an example of how huge amounts of trust funds can be diverted if the people responsible for managing those funds don't pay attention to what's going on," Shevitz said in the release.
Shevitz was not available for comment Wednesday.
Allegations made in a civil lawsuit are accusations only and may be refuted at trial.
Attorneys for the parties involved in the case said the lawsuit doesn't meet requirements for a class action lawsuit and likely won't need to proceed as a local attorney investigates the company's finances.
After Nelms and Johnson were arrested, a Johnson County court named Franklin attorney Lynette Gray as temporary receiver of cemeteries and funeral homes owned by Memory Gardens. Her role is to oversee daily operations and dig into the financial records of the company.
She hopes her work will make a lawsuit unnecessary.
"If we keep working like we're working and we iron out the management issues and do a full investigation, we'll hopefully be able to say to those folks that there's no need for a lawsuit," Gray said.
Gray is not named in the lawsuit, which is typically required when a company has a receiver, said Gray's attorney Jim Knauer.
And to name her, the attorney would have to seek permission from the court who appointed her as receiver.
Neither of those actions has been done, Knauer said.
Gray said she isn't focusing on the lawsuit and hopes she won't have to.
Instead, she wants to put her energy into investigating the funds and seeking new management and possibly new ownership for Memory Gardens, she said.
Gray, Knauer and an attorney for Memory Gardens believe the lawsuit is premature and doesn't meet the requirements for a class action lawsuit.
Class action lawsuits must be able to pass certain tests, including showing that there are so many plaintiffs that naming all parties would be impractical and that the person named truly represents everyone in the lawsuit, Knauer said.
Knauer said the lawsuit doesn't pass those tests because Fishback represents only one cemetery with one trust fund, not the multiple cemeteries and funeral homes that Memory Gardens manages.
A judge would need to allow the case to move forward as a class action lawsuit. Now, the case is a complaint from one person involving one contract, Knauer said.
Fishback also has not suffered a loss because he has not been denied any services or benefits, Gray, Knauer and Memory Gardens attorney Mark Waterfill said.
The money is there to pay for all the funerals and burials and maintenance of the properties continues, Waterfill said.
But the lawsuit helps point to an argument Waterfill has made.
"The lawsuit points out that Smith Barney and Community Trust & Investment Co. of Noblesville are responsible parties in all of this," he said.
The financial institutions provided the financial advice that Memory Gardens followed in transferring the trust fund money, he said.
The lawsuit claims Nelms entered into a conspiracy with a securities broker who worked for Smith Barney to borrow funds from a customer of Smith Barney to help fund the purchase of Memory Gardens.
That loan was to be paid back with cemetery trust fund money and Community Trust & Investment Co. would serve as trustee of the funds for the purpose of implementing the conspiracy, according to the lawsuit.
Memory Gardens plans to vigorously defend the lawsuit and also will pursue claims against Citigroup, Smith Barney and Community Trust & Investment Co., Waterfill said.
Officials from Smith Barney and Nexus, formerly Community Trust & Investment Co., were not available for comment Wednesday.
Jim Coleman, executive vice president and director of wealth management for Mishawaka-based MFB Corp., said MFB has nothing to do with the funds involved in the lawsuit.
MFB purchased assets from Nexus, but those assets had nothing to do with the cemetery trust funds, Coleman said.
Officials at MFB had no interest in those assets because they knew there were some potential problems and the corporation does not work with the cemetery trust fund business, he said.