NEWPORT BEACH, Calif.--(BUSINESS WIRE)--The Justice Department recently issued grand jury subpoenas for a criminal investigation into the filing of the Estate Tax Return 706 for the Estate of Jay Patrick as filed by Ronald Patrick, Edward H. Stone, Esq. and Donald Sammons. This is the latest chapter in trust litigation that started when Alacer Corporation Founder Jay Patrick died in February 2003. The plaintiff in the litigation, Ymelda T. Patrick, is represented by Jillyn Hess-Verdon, of the Newport Beach law firm of Hess-Verdon & Associates, PLC.
At the center of the litigation and investigation is the stock of Alacer Corporation. Alacer, located in Orange County, CA, is well known as the maker of Emergen-C Vitamin Supplements.
The company was built from the ground up by Jay Patrick and his widow, Ymelda T. Patrick, starting out in their kitchen and ending up with several manufacturing and distribution plants in Orange County and an empire valued at over $85 million dollars.
When Jay Patrick died, his Trust owned the stock of Alacer. Right after his death, his wife Ymelda was fired from her position as Vice President, all financial support she and her husband had received was terminated and she was ousted from the company by the other three Trustees (James D. Turner, Esq. – Jay’s attorney; Thaddeus Smith – Jay’s insurance agent; and Ronald Patrick – Ymelda’s stepson).
Ymelda Patrick was also a co-trustee of the Trust and the largest single beneficiary and continued as a director of Alacer until early 2005. Mrs. Patrick had been with the company longer than anyone else in management at the company; yet when she was fired the other trustees elected themselves to corporate management positions at salaries higher than Jay or Ymelda Patrick had ever received over the almost thirty years they had run the company.
James D. Turner, Esq. (of Palm Desert) had drafted Jay Patrick’s Will and Trust when Jay was almost 90 years old. Mr. Turner was named as the Executor in the Will and one of the co-trustees of the Trust. When Jay Patrick died, attorney Turner served as a co-trustee of the Trust. He also became a director of Alacer and the Chairman of the Board, appointed his own law firm as corporate counsel, and served on the compensation and litigation committees.
At the end of 2003 Mrs. Patrick sued the directors (who were the same as the three trustees) in a shareholder derivative suit, asserting that they had breached their duties as directors of Alacer by hiring themselves as corporate officers and paying themselves excessive salaries when they had no experience running a company like Alacer. The lawsuit took three years to get to trial and the defendant directors used Alacer’s funds to defend themselves. They also continued to take salaries equivalent for full-time employment while Mrs. Patrick and the family members, who are beneficiaries of the Trust, have received nothing for almost five years.
“I have been disappointed in the attorneys in this case,” said Mrs. Patrick’s attorney, Jillyn Hess-Verdon, of the Newport Beach law firm of Hess-Verdon & Associates, PLC. “In my 17 years of trust and business legal work the personal attacks against Mrs. Patrick, and the disregard for Jay Patrick’s express wishes, have been some of the worst I have ever seen. I expected a lot more from the large Orange County firms defending the trustees and have been disappointed.”
“It has been almost five years since my husband died and none of them care about the business Jay and I poured our lives into,” said Mrs. Patrick. “Instead they just spent the last four years attacking me and preventing the family from inheriting….they even sued me for a portrait of my husband that I had commissioned after he died.”
In 2004 Mrs. Patrick filed a lawsuit in the Probate Department of the Orange County Superior Court for failing to account to the beneficiaries and failing to administer the Trust to the beneficiaries. The other co-trustees refused to distribute the shares from the Trust to the family, claiming that the estate taxes had to be paid to the IRS first.
The Estate Tax Return was filed by Ronald Patrick (Ymelda’s stepson), Edward H. Stone, Esq. (of Newport Beach) and Donald Sammons (a former IRS Gift & Estate Tax supervisor) in 2004. When Mrs. Patrick asked for a copy Ronald Patrick and his attorneys refused her request. When Mrs. Patrick obtained a copy of the Return 706 directly from the IRS she saw that the value of the Company reported to the IRS was only $2 million dollars and that zero taxes would be owed.
Several offers had been presented to the trustees immediately following Jay Patrick’s death for at least $20 million dollars. Therefore, Mrs. Patrick also filed a Tax Petition with the Probate Court asking for the court to order the Trustees to obtain an independent appraisal of the Company’s date of death value and to amend the 706 Return, since the beneficiaries of the Trust would be the ones to eventually owe the estate taxes and additional penalties and interest for the delay.
Both lawsuits were consolidated and went to trial in September 2006 before Judge David Thompson.
David Baram, of VMG Equity (and also President of “The Firm,” the largest entertainment management company in the world) testified at trial that he had tried to make offers to purchase the company for a nine figure sum which was ignored by Attorney James D. Turner.
At trial, one of Ronald Patrick’s attorneys Edward H. Stone, Esq. of Newport Beach – who also signed the tax return - told Judge Thompson that Mrs. Patrick’s request to amend the 706 Return, “can’t be done. There is no right to amend,” he said. (p. 517 court transcripts).
Additionally, James Turner’s lawyer, Gary Lape, Esq. from Lewis, Brisbois, Bisgaard & Smith, LLP, Costa Mesa, stated at trial, “…without saying who is supposedly wrong or defrauded. I guess it was the Internal Revenue Service. One might say, ‘God Bless’.” (p. 586 court transcripts).
James Turner, Esq. testified at trial that he and others knew the stated company value was incorrect.
Judge Thompson ruled that:
- the 706 Return could not be amended;
- that Mrs. Patrick’s co-trustees had no duty to account;
- that co-trustees multiple roles and conflicts of interest were not a basis to remove them as trustees;
- that the beneficiaries were not entitled to know what the Trustees were being paid in their corporate capacities; and
- that Mrs. Patrick should be removed as a trustee because her interest as a beneficiary created a conflict with her role as a trustee.
Mrs. Patrick’s derivative law suit was dismissed because Judge Thompson ruled that even though she is a trustee, spouse and beneficiary, she did not have standing to bring a derivative action against the directors.
Mrs. Patrick has appealed Judge Thompson’s rulings on both lawsuits. Her appeal asserts among other things that his rulings are reversible error, because:
- IRS Estate Tax Form 706 (page 1 and page 2) expressly states that the tax return can be amended, and
- because the law requires a tax return to be amended when it states false information.
Ms. Hess-Verdon commented on Judge Thompson’s rulings on the estate tax issues: “We believe the Appellate Court will see it the same way as the Department of Justice and the IRS see it.”
“The law requires Trustees to account to a co-trustee and to beneficiaries,” explains Ms. Hess-Verdon. “The co-trustees’ conflicts of interest were overwhelming and actually caused financial profit to them at detriment to the Trust, which under California law requires their removal.”
When Mrs. Patrick received notice of the Grand Jury Subpoenas investigating the Estate Tax Return for criminal fraud, she went to the Probate Court in Orange County seeking the suspension of the co-trustees during the investigation - asking for the protection of Alacer and Trust funds from being depleted by them during the criminal investigation.
Judge Marjorie Laird Carter of the Orange County Probate Court denied the request for suspension at this stage, but granted the request for protection and ordered that the co-trustees could not use Alacer or Trust funds to pay for attorneys’ fees or trustee fees without prior court order.
ABOUT HESS-VERDON & ASSOCIATES
Based in Newport Beach, CA, Hess-Verdon & Associates, A Professional Law Corporation, has been advising high net-worth individuals and corporate executives regarding estate tax and corporate matters since 1990. the firm is located in Fashion Island in Newport Beach, California. The legal expertise of the firm includes an Estate Planning Division, a Real Estate Division, and a Business Division. Jillyn Hess-Verdon is a member of the California State Bar and the Federal District Court. Ms. Hess-Verdon was also admitted to the United States Supreme Court, a rare and distinguished accomplishment among attorneys nationwide. Ms. Hess-Verdon has taught at the graduate level and is a noted lecturer.
Contacts
Hess-Verdon & Associates, PLC
Jillyn Hess-Verdon, Attorney at Law
949-706-7300
jverdon@mylawpro.com
www.hessverdon.com
or
Media Contact:
Sara Pentz, 949-719-0902
sara@sarapentz.com
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