UPDATE

State Bar, attorney general stop trust mill in southern California by Nancy McCarthy Staff Writer

... CONTINUED FROM FRONTPAGE

Rhodes agreed that he would meet personally with clients to assess their needs and provide appropriate advice.

"The charges we’ve alleged against Mr. Rhodes are very serious, and we’re pleased that the preliminary injunction will help eliminate some of the harm caused senior citizens by living trust mills," said Mark Torres-Gil, an attorney with the State Bar’s office of general counsel.

Rhodes admitted no wrongdoing in stipulating to the preliminary injunction.

Last April, Attorney General Dan Lungren and the bar shut down Alliance for Mature Americans, a multi-million dollar trust mill that was accused of large-scale consumer fraud. The AMA agreed to make restitution of $1 million and pay a civil penalty of $100,000.

Rhodes, who was AMA’s attorney, and Fremont Life Insurance Co. were both defendants in the lawsuit against AMA but did not settle.

Instead, according to the attorney general and the bar, after being sued for aiding and abetting the unlawful practice of law and for engaging in other unethical practices, Rhodes set up his own living trust mill.

Multiple violations

The charges against Rhodes allege that his practices violate civil and criminal statutes as well as professional ethical rules.

"Senior citizens are entitled to receive competent legal advice when planning their estates, free from conflicts of interest," the motion for preliminary injunction charges. "They should not be subjected to orchestrated in-home sales presentations.

"While plaintiffs do not have to show irreparable harm to be entitled to injunctive relief, . . . it is hard to imagine a situation that is more irreparably harmful to senior citizens than not receiving competent legal advice concerning their estate planning options."

According to the motion, after leaving AMA, Rhodes started his own trust mill, hiring 20 to 30 former AMA sales agent, whom he charged $50 for a sample living trust to use in their presentations.

He provided material for the agents to use in their presentation, including a "paralegal certificate," his bar card, his membership card in the Orange County Bar Association, his business license and resume, and a sample business card indicating the agent represents Rhodes’ law office. Rhodes also provided a confidential questionnaire to be used to obtain personal and financial information about potential clients and a videotape to show customers as a sales tool in setting appointments.

Rhodes charged $300 for a basic living trust package. Agents set the purchase price of the living trust and received the difference. Sales agents were instructed to have customers make checks payable to Rhodes.

No estimate of sales

Efforts to determine how many living trusts Rhodes’ agents have sold have been unsuccessful.

The charges allege that Rhodes’ representatives do not know if the information they provide about living trusts is accurate. While they purport to explain the benefits of living trusts and the disadvantages of probate, the agents do not know if the information they provide to customers is true or appropriate to individual circumstances.

Sales agents also are permitted to sell annuities to customers, thus creating a conflict between their roles as trust advisors and insurance agents.

Aiding and abetting

Rhodes’ sale of living trusts constitutes aiding and abetting the unlawful practice of law, according to the bar and the AG. In addition, they claim Rhodes’ sales representatives illegally solicit business, and his fee-splitting arrangement with the sales agents violates professional ethical canons.

Trial is scheduled to begin Jan. 12 before Los Angeles Superior Court Judge Ronald M. Sohigian.

The attorney general’s consumer law section is prosecuting the case with the bar.